Key Regulatory Provisions (Investment Company Act of 1940)
Chapters in this video
- 0:00 Why the fund itself cannot margin, joint trade, or short
- 1:06 The affiliated-person prohibition and self-dealing traps
- 2:52 300% versus 200% asset coverage and leverage rules
- 4:44 Closed-end below-NAV sales, dilution, and fund-naming prohibitions
- 6:38 Civil, criminal, and administrative enforcement consequences
- 7:15 Rapid-fire exam recap
What this video covers
- The three trading activities prohibited for the fund itself (margin trading, joint accounts, short selling) and why ETF shareholders are exempt from these restrictions
- What the affiliated-person transaction prohibition covers and how it prevents self-dealing by insiders in either direction
- How asset coverage requirements limit leverage: 300% for open-end bank borrowing and closed-end debt versus 200% for closed-end preferred stock
- When funds must provide written notice disclosing the source of non-income dividends such as return of capital or capital gains
- Why closed-end funds cannot sell shares below net asset value without shareholder approval and how this protects existing shareholders from dilution
- The fund-naming rules including the 75-5-10 test for "diversified" and the 80% investment requirement, plus the absolute ban on implying FDIC or government backing
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