SEC Division of Investment Management Releases Guidance on Website Posting Requirements

Who may be interested: Registered Investment Companies; Registered Investment Advisers; Compliance Officers

Quick Take: Registrants are encouraged to review their websites and ensure required disclosures are posted in compliance with applicable SEC requirements.

The Division of Investment Management’s Disclosure Review and Accounting Office (DRAO) recently published an Accounting and Disclosure Information (ADI) reminding registrants of website posting obligations under SEC requirements and highlighting common issues relating to summary prospectus use, exchange-traded funds (ETFs) and money market funds (MMFs).

Summary of Online Posting Requirements

Summary Prospectuses. Under Rules 498 and 498A of the Securities Act (the “Summary Prospectus Rules”), registrants are required to comply with certain online posting requirements and, in some cases, tailor their online disclosure documents to facilitate an investor’s electronic access to detailed information regarding their investments. The ADI summarizes online posting requirements for mutual funds, ETFs and variable products offered by insurance companies, which include, among others:

1. website address specified on the cover page of the summary prospectus;
2. requirements with respect to the website address at which required online documents are available, including that the website address must be specific enough to lead investors directly to the required online documents;
3. formatting requirements for required online documents;
4. requirements for linking within and between documents;
5. requirements on the ability for persons accessing a fund website to be able to permanently retain, free of charge, electronic versions of required online documents; and
6. additional website posting requirements specific to variable products.

ETFs. An ETF relying on Rule 6c-11 of the 1940 Act must disclose specified information publicly and prominently on its website such as daily portfolio holdings, daily market information, historic premium and discount information, the median bid-ask spread over a 30-day period and premiums or discounts over 2%.

MMFs. An MMF is required to prominently post portfolio holdings and other fund information on its website, including portfolio maturity and holdings, daily and weekly liquid assets, current net asset value and a link to the SEC’s website, where a user may obtain the most recent 12 months of publicly available information filed by the MMF on Form N-MFP.

Observations from DRAO Review

The following summarizes key observations highlighted in the ADI:

Summary Prospectuses

• Website address at which required online documents are available. Some summary prospectuses did not include a website address at which investors can access required online documents. Other summary prospectuses included generic website addresses to the registrants’ home pages.
• Linking of table of contents. A number of registrants failed to include a hyperlinked table of contents in either or both of the statutory prospectus and SAI, or in a hyperlinked sidebar, posted to their websites.
• Linking between summary prospectus and statutory prospectus/SAI. Registrants typically satisfied this requirement by including links that were available at the beginning and the end of the summary prospectus, or that remained continuously visible to readers accessing the summary prospectus. However, a number of registrants did not include any linking from the summary prospectus to the statutory prospectus or SAI, or only partially satisfied this linking requirement.
• Variable Products. Many variable products registrants included a continuously visible sidebar with a link to the statutory prospectus or the table of contents of the statutory prospectus, instead of links to the specific sections of the statutory prospectus. In addition, some registrants also failed to include any of the permitted means to access definitions of special terms included in the online summary prospectus.

ETFs

• Daily Holdings. Some ETFs failed to include CUSIPs or other identifiers with their daily holdings information, as required under Rule 6c-11.
• Daily Market Information. Some ETFs disclosed premiums and discounts as a dollar figure, instead of as a percentage, as required under Rule 6c-11. Additionally, some ETFs used alternative terminology when referring to premiums and discounts. While Rule 6c-11 does not prescribe terminology, the ADI suggests that clearly describing the required information would be helpful to investors.
• Historic Premium and Discount Information. Some ETFs did not disclose historic premium and discount information on their websites as of the most recent quarter-end, as required.
• 30-Day Median Bid-Ask Spread. Some ETFs used alternative terminology, or omitted the term “30-day”, when referring to the 30-day median bid-ask spread, making the information potentially unclear to investors.
• Disclosure of ETF Premiums or Discounts Greater than 2%. For the limited number of ETFs that had premiums or discounts that exceeded 2% for seven consecutive trading days, a substantial number of such ETFs did not disclose this circumstance and include an explanation of factors that were reasonably believed to have materially contributed to the premium or discount.

MMFs

• Several MMFs did not post a link on their website to the SEC’s website where an investor may access the most recent 12 months of publicly available information filed by the MMF on Form N-MFP, as required.

The ADI published by the SEC can be found here.