May 5, 2022 - On February 9th, the Securities and Exchange Commission approved a Notice of Proposed Rulemaking relating to disclosure and other requirements and private funds (the “Proposed Rule”).  We have written extensively about the implications of the Proposed Rule for CLOs and recently submitted a comment letter.  One element of the Proposed Rule was unusual:  Despite the length of the Proposed Rule (341 pages) and its complexity (it seeks to materially upend the private fund market), the SEC limited the comment period to 30 days from its publication in the Federal Register.    As the Wall Street Journal just noted in an op-ed, the short comment period is part of a norms-breaking pattern by the SEC that has roiled participants in the private funds market.  To put this in context, the norm for complex SEC rulemakings (such as the Volcker Rule) has previously been at least 90 days whether the SEC was controlled by Democrats or Republicans. The LSTA, together with several other trade associations, has been actively advocating for a return to norms to provide adequate time for stakeholders to thoughtfully weigh in on issues of major importance.

Shortly after the Proposed Rule was passed, the LSTA, joined by 12 other trade associations, submitted a letter to the SEC asking that the comment period for the Proposed Rule be extended by 90 days.  We noted that the Proposed Rule was 341 pages long and posed more than 800 questions and argued that the 30-day comment period was unreasonable given the complexity of the underlying issues.  Soon thereafter, SIFMA, joined by 24 trade associations (including the LSTA) submitted a second letter to the SEC, highlighting the Commission’s historically broad agenda (which includes 54 separate rulemakings) and noted that stakeholders will have to review over 3,500 pages of proposed rules and answer roughly 2,260 questions for only 15 of those rulemakings.  Nevertheless, the SEC has imposed 30-day comment periods on almost all of them.  The letter explained that this approach to comment periods diverges from Commission practices under other recent Commissioners and concluded by pointing out that needlessly short comment periods harm investors and markets.

Most recently, 47 Members of Congress, including 28 Democrats, sent a powerful message to SEC Chair Gary Gensler to, as the WSJ put it, “tap the brakes”.  The writers “express concern over some of the Securities and Exchange Commission’s comment periods for complex rulemakings that may hamper the ability for the public to provide effective and meaningful input.”  The LSTA partnered with several trade associations to bring these process concerns to the attention of many of the members who signed the letter.

The LSTA is hopeful that the SEC will take to heart the strong consensus among financial market stakeholders to provide adequate time to comment on future complex rulemakings.

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