At a mutual fund industry conference held on December 3, 2019, Dalia Blass, director of the Securities and Exchange Commission’s Division of Investment Management, previewed a new structure for registered mutual funds seeking to invest substantially in digital assets and related investments.
In particular, Director Blass indicated that an unnamed registered closed-end interval fund with a bitcoin futures strategy is preparing to launch. As a result of recent industry feedback and engagement, and in response to issues the SEC staff previously identified:
- The fund expects to generally value its bitcoin futures holdings at daily settlement prices reflected on a CFTC-registered futures exchange, consistent with the principles of the Investment Company Act of 1940 and US GAAP.
- With respect to custody, the fund will invest in cash-settled futures and will therefore not face the challenges presented by direct holdings of digital assets.
- Structured as a closed-end interval fund, the fund will not offer daily redemptions and will not be subject to potentially large, unexpected liquidity demands over short periods. And as an unlisted fund, its pricing will not depend on an efficient arbitrage mechanism and the willingness of market makers to make markets in a fund pursuing a digital asset strategy.
According to Director Blass, the fund also has taken steps to address issues related to potential manipulation in the digital asset markets. These steps include disclosing prominent risks, offering the product only through registered investment advisers, and limiting the size and future growth of the fund, with an initial cap of $25 million.
The full text of Director Blass’s speech is available here.