Effective on October 2, 2026, the Securities and Exchange Commission (the “Commission”) modified its quorum requirement, as set forth in SEC Organizational Rule 41 (“Rule 41”).  The rule remains unchanged in that it continues to provide that three commissioners constitute a quorum for the Commission, and if the number of commissioners in office is two or one, that number is sufficient for a quorum.  However, under the new modifications, if the number of commissioners in office minus the number disqualified from consideration with respect to a matter is two or one, then that number of commissioners constitutes a quorum for purposes of that matter.  In other words, if there are two commissioners in office, which is currently the case, and one commissioner is disqualified from acting on a matter, the remaining commissioner can take action unilaterally.  The changes were made without a notice and comment period under the Administrative Procedure Act because they “relate solely to agency management and organization and do not constitute a substantive rule.”

Section 4 of the Securities Exchange Act of 1934, as amended, established the Commission as a bipartisan body “composed of five commissioners to be appointed by the President by and with the advice and consent of the Senate.”  Further, “in making appointments members of different political parties shall be appointed alternately as nearly as may be practicable.”  Today’s Commission, however, looks different than that imagined by the drafters of the Exchange Act:  following the departures of Democratic commissioners Jamie Lizarraga in January 2025 and Caroline Crenshaw in January 2026, the Trump administration did not fill either spot.  The Commission was then comprised of three Republican members:  Chairman Paul Atkins, Commissioner Mark Uyeda and former Commissioner Hester Peirce.  Effective October 2, Commissioner Peirce left the Commission—leaving two commissioners and leading to the need to modify the Commission’s quorum provisions.

Interestingly, when the Commission first adopted Rule 41 in 1995 in order to formally establish its historical practice that three members constitutes a quorum, it did not deem it “necessary at that time to provide that one Commissioner may constitute a quorum when disqualifications resulted in only one Commissioner being available to deal with a particular matter.”  While our current situation might have seemed unlikely at that time, circumstances have changed, and the Commission must still be empowered to act.  Although the modification of the quorum requirement was necessary, a full slate of bipartisan commissioners has value—it encourages debate, makes sure that voices from both sides of the aisle are heard, and ultimately engages in rulemaking that reflects a variety of experiences and perspectives. 

Read the Release here.

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) issued two proposing releases containing amendments that would materially affect how business development companies (“BDCs”) that have elected to be regulated under the Investment Company Act of 1940, interval funds and other registered funds are structured, as well as their compensation and distribution models.

The proposals would modernize the interval fund framework, permit certain registered closed-end funds (“CEFs”) and BDCs to offer multiple share classes without individual exemptive relief and amend Rule 205-3 under the Investment Advisers Act of 1940 to expand the circumstances in which SEC-registered investment advisers may receive performance-based compensation, both from regulated funds (through a new “fund board channel”) and from accredited investors and funds whose investors are all accredited investors (through a new “accredited investor channel”).

Taken together, the proposals would facilitate retail access to private markets by providing greater flexibility for funds and their investment advisers. For sponsors of BDCs and other private asset CEFs, the proposals will have significant practical implications for portfolio construction, liquidity management and adviser compensation. The proposals also would narrow the commercial gap between interval funds and tender offer funds, and may be of interest to lenders and other counterparties to regulated funds.

We discuss the most significant proposed changes in this Legal Update.

Given the continued and growing interest in special purpose vehicles (“SPVs”) as a means of accessing private market investments, we are publishing a series of posts that examine different aspects of these structures.  This is our third post in the series, exploring structuring and regulatory issues that arise when SPVs are formed to invest in other SPVs.

In our prior posts on single-investment SPVs, we discussed the primary structures SPVs use to accomplish their objective of providing indirect or synthetic exposure to their reference investment. Adding another level of abstraction, some sponsors form SPVs that invest in other SPVs.  In this post, we consider the legal and regulatory issues these double-layer structures present.

Throughout this series, we considered the fictional company TechCo and hypothetical SPV structures that would invest either directly or synthetically in TechCo’s common stock.  Now consider the following scenario:

  • SPV-1, a Delaware limited partnership, holds TechCo common stock it acquired using the proceeds from the offer and sale of SPV-1 limited partnership units to SPV-1’s limited partners.
  • SPV-1 owns 1% of TechCo’s outstanding common stock.
  • SPV-2, also a Delaware limited partnership, purchases limited partnership units of SPV-1 using the proceeds from the offer and sale of SPV-2 limited partnership units to SPV-2’s limited partners.
  • SPV-2 owns 10% of the limited partnership units of SPV-1.
  • TechCo has a valuation of $10 billion.

In this scenario, SPV-1 owns $100 million of TechCo common stock.  SPV-2 does not own any TechCo common stock but does have an indirect interest in $10 million of TechCo common stock, i.e., SPV-2 has an indirect 0.1% interest in TechCo.

Through the Looking Glass

As mentioned in our introductory post, sponsors must consider when to look through entities, how to treat investors that rely on similar exemptions and whether affiliated vehicles should be integrated.  The Section 3(c)(1) exemption under the Investment Company Act generally limits a fund to no more than 100 beneficial owners.  One motivation to form a double-layer structure is to work around that investor cap:  if SPV-1 already has 99 investors, it might have headroom to admit SPV-2 as a limited partner and thereby provide economic access to several additional investors (SPV-2’s LPs) who would not be able to invest directly as SPV-1 LPs.  However, the look-through rules are complex, and a full discussion of them is beyond the scope of this series.  If SPV-1 and SPV-2 both rely on the Section 3(c)(1) exemption and the look-through rules require SPV-1 to “look through” SPV-2 to its beneficial owners, then the LPs in SPV-2 could count against SPV-1’s 100-beneficial owner limit, and SPV-1 risks inadvertently exceeding that limit.  For this reason, it is important for SPV planners and their legal counsel to pay careful attention to the complex and often intricate provisions of the Investment Company Act and related SEC rules governing fund formation.

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On September 17, 2026, the Staff of the Division of Trading and Markets (the “Division”) of the Securities and Exchange Commission (the “SEC”) issued two no-action letters addressing the net capital and customer protection implications of “zero cash balance” brokerage account models.  The letters were issued to eToro USA Securities Inc. (“eToro”), an introducing broker, and Alpaca Securities LLC (“Alpaca”), a carrying/clearing firm.  Each seeks to offer a “zero cash balance” brokerage account in addition to its traditional brokerage account offerings.

How the “zero cash balance” model works

Under the zero cash balance model described in the letters, brokerage customers choose not to deposit and maintain their funds in their brokerage accounts, but instead in external accounts maintained either by a state-licensed money services business registered with the Financial Crimes Enforcement Network (an “MSB”) or by a bank (each, an “External Cash Account”).  When a customer places a securities buy order, the customer instructs the MSB or bank to transfer funds from the customer’s External Cash Account to the customer’s brokerage account at the carrying firm.  When a customer sells securities, the carrying firm, in accordance with the customer’s standing authorization, promptly transfers the cash proceeds from the customer’s brokerage account to the customer’s External Cash Account.  Customers do not directly fund or otherwise maintain funds in their brokerage accounts.

The two letters address different regulatory aspects of this model, reflecting the different roles of the firms:

The eToro Letter – Net Capital Treatment under SEC Rule 15c3-1

eToro operates as an introducing broker-dealer that seeks to introduce zero cash balance brokerage accounts to its carrying broker-dealer on a fully disclosed basis.  The carrying broker-dealer carries all of eToro’s customer brokerage accounts and is responsible for all books and records pertaining to those accounts as is customary of a clearing broker-dealer.  eToro does not receive, directly or indirectly, hold funds or securities for, or owe funds or securities to, customers, does not carry customer accounts, and does not engage in any of the activities described in paragraphs (a)(2)(i) through (v) of SEC Rule 15c3-1.  The Staff stated that it will not recommend enforcement action against eToro under Section 15(c)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”) or Rule 15c3-1(a) thereunder if eToro operates the zero cash balance model while maintaining a minimum net capital of the greater of $5,000 or the amount required under SEC Rule 15c3-1(a)(1), subject to the conditions detailed in the request letter, as outlined below under Common Principles.

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Earlier this week, the Securities and Exchange Commission continued to implement its capital-formation agenda by publishing a number of notices aimed at modernizing the definition of “accredited investor,” including introducing the possibility of a long-discussed accredited investor exam.

Continue reading this Legal Update.

On September 30, the Securities and Exchange Commission (the “Commission” or the “SEC”) published a number of notices aimed at modernizing the definition of “accredited investor,” including the possibility of a long-discussed accredited investor exam. 

In their proposals, the Commission cited various potential benefits to issuers of expanding the pool of accredited investors, including “greater capital formation, lower cost of capital, and greater efficiency in raising capital due to an expanded pool of accredited investors (especially for issuers that are small or do not have access to a network of institutional accredited investors or persons with the required net worth or income to qualify as accredited investors).”  For investors, the Commission notes that expanding the definition could enable more individuals to qualify as accredited, thereby allowing them to access a broader range of investment options, “potentially enhancing their ability to diversify and optimize portfolio allocations.”

Securities Act Rule 501(a)(10), adopted in 2020, provides that any natural person holding standing one or more professional certifications or designations or credentials from certain accredited educational institutions, in good standing, qualifies as an accredited investor.  The Commission has the authority to designate which certifications or designations meet this threshold, based on a non-exclusive list in Rule 501(a)(10).  Currently, this includes certain licenses granted by the Financial Industry Regulatory Authority (“FINRA”).   As the proposals point out, the Commission has now had over five years of experience working with Rule 501(a)(10), and “there is no evidence that we are aware of to suggest that the expansion in 2020 of the accredited investor definition to include these types of financially sophisticated investors has created investor protection concerns.”  Therefore, each of the proposed changes would rely on the Commission’s authority under the rule to expand the group of accredited investors.

Potential DesignationDescription
Accredited Investor Exam Administered by FINRAFINRA is developing an accredited investor exam specifically to satisfy the requirements of Rule 501(a)(10) and to assess a candidate’s comprehension and sophistication of securities and investing, including if the candidate has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment.  Specific topics tested would include definitions and structures of securities, investment risks, disclosures and regulatory requirements, financial statements, conflicts of interest and corporate governance.
FINRA Investment Banking Representative License (Series 79) and Research Analyst License (Series 86 and Series 87), held in good standingHolding a Series 79, 86 and/or 87 license requires passing an exam demonstrating “knowledge and skill” in the functions of an investment banking representative or research analyst, as applicable.  Candidates for such licenses must be sponsored by a FINRA member or other applicable self-regulatory organization member firm. 
U.S. Certified Public Accountant (“CPA”) License, held in good standingCriteria for obtaining a license includes (i) meeting certain educational and experience requirements, which vary by jurisdiction, but generally include supervised employment experience, and (ii) passing the Uniform CPA Examination, which tests accounting skills and knowledge. 
Chartered Financial Analyst (“CFA”) Designation, held in good standingHolders of CFA charters must (i) meet eligibility requirements related to education and work experience, (ii) enroll in the CFA Program, (iii) pass all three levels of the CFA exam, which tests “CFA candidates’ knowledge and skills related to investment analysis, valuation, portfolio construction, and ethical decision-making,” and (iv) join the CFA Institute and annually reaffirm adherence to the CFA Institute Code of Ethics and Standards of Professional Conduct.
Certified Financial Planner (“CFP”) Certification, held in good standingCFPs must (i) satisfy educational and experience requirements and (ii) pass the CFP exam, which tests candidates’ “knowledge and skills in the areas identified by the CFP Board as relevant to the CFP certification,” such as financial planning and risk management. 

SEC Chairman Paul S. Atkins noted his agreement with the sentiment underlying the proposed changes, namely that “accredited investor access to private offerings should not be limited solely to individuals satisfying financial thresholds and that such thresholds are not the sole indicators of a person’s ability to assess the merits and risks of an investment.”  Commissioner Hester Peirce, while overall in favor of the changes, questioned the Commission’s continuing role as “judge” in “evaluating the merits of particular credentials, degrees, or certifications,” and noted that an exam “still embodies a government-as-gatekeeper mentality.”

Find more information about the proposed designations here.  Read Chairman Atkins’ statement here and Commissioner Peirce’s statement here.  Comments can be submitted based on the instructions in each notice, and are due 60 days after the date of publication in the Federal Register.

On September 30, 2026, the Securities and Exchange Commission (the “SEC”) proposed amendments intended to provide additional flexibility for regulated funds and their investment advisers.  The proposals address performance-based compensation, interval fund repurchase requirements and multiple share classes for registered closed-end funds and business development companies (“BDCs”).  The SEC also separately requested comment on potential changes to the accredited investor definition.

The proposed amendments would provide greater flexibility for performance-based compensation arrangements between investment advisers and certain regulated funds.  Under the proposed changes, advisers would have greater flexibility to structure compensation based on capital gains or capital appreciation, subject to applicable conditions.  The SEC is also proposing related disclosure requirements intended to provide greater transparency regarding these arrangements.  The SEC stated that the proposed changes are intended, among other things, to facilitate access to private market investment strategies through regulated fund structures.

The SEC also proposed amendments to Rule 23c-3 under the Investment Company Act of 1940 to provide interval funds with additional flexibility in structuring repurchase offers.  Among other changes, the proposal would permit an interval fund to defer its initial repurchase offer for up to two years and would add monthly repurchase intervals to the existing three-, six-, and twelve-month options.  The SEC also proposes replacing the current prescriptive liquidity requirement during repurchase periods with a principles-based requirement focused on a fund’s ability to satisfy repurchase requests without selling portfolio investments at prices that deviate significantly from their value.

In addition, the SEC proposed permitting registered closed-end funds, including BDCs, to offer multiple classes of common stock without obtaining individual exemptive relief, subject to compliance with specified conditions.  The proposed framework would address matters including the allocation of expenses and distributions among classes, as well as certain voting and repurchase-related issues.  Related amendments to Forms N-2 and N-CEN would provide for additional disclosure concerning multiple share classes and expenses.

Separately, the SEC requested comment on potential changes to the accredited investor definition, which we will address in a separate post.  Taken together, the proposals would provide additional flexibility for regulated funds and their advisers while retaining specified conditions and disclosure requirements.

The SEC is seeking public comment, with the applicable comment periods generally running for 60 days following publication of the proposals in the Federal Register.

We will provide a more detailed analysis of the proposals and their potential implications for investment advisers, interval funds, BDCs and other registered closed-end funds in an upcoming client alert.  A link to the SEC’s proposed amendments can be found here.

The staff of the Securities and Exchange Commission, including the Office of the Chief Accountant and the Division of Investment Management (the “Staff”), recently issued a Statement on Fair Value Measurement and Disclosure Considerations for Private Assets (the “Statement”).  The Statement highlights considerations for applying Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, to private assets, particularly private credit investments and emphasizes the importance of focused and transparent disclosures.

The Statement comes as investments in private credit continue to grow.  The Staff notes that registered fund portfolios holding private credit increased by approximately 60% to nearly $100 billion between December 2020 and December 2025.  This growth also presents unique valuation challenges.  Private credit investments are often illiquid loans that are privately negotiated and do not trade in active secondary markets, making fair value difficult to determine.  Under the fair value hierarchy in ASC Topic 820, private credit investments generally fall within Level 3 when significant inputs used to determine fair value are unobservable.  The Statement provides reminders regarding valuation and disclosure considerations.

The Staff emphasizes that the availability of information is an important consideration in determining fair value and that the analysis must be conducted from the perspective of a market participant.  Management remains responsible for determining fair value even when timely information is not available.  In the private credit context, information provided by borrowers to lenders may vary significantly in quantity, quality and frequency.  Management may begin its analysis with information obtained through its relationship with the borrower but must consider whether that information differs from reasonably available information that a market participant would use in pricing the investment.  Such information may include prevailing credit spreads, liquidity conditions and the compensation market participants would require for investment risk.

The Staff also highlights the importance of calibration under ASC Topic 820.  The initial transaction price generally serves as an important reference point for determining fair value.  If a valuation model does not produce a value consistent with the transaction price at inception, management should evaluate the reasons for the difference and make appropriate adjustments.  Subsequent changes in fair value should reflect changes in market participant assumptions and other relevant market conditions.

The Statement also emphasizes the importance of clear and specific disclosures for Level 3 fair value measurements.  ASC Topic 820 requires disclosure of valuation techniques, significant inputs and how changes in those inputs could affect the fair value measurement.  For private credit investments, the Staff notes that disclosures should provide investors with information that may not be apparent from high-level portfolio statistics.  For example, disclosures regarding asset modifications and restructurings may be material, as may information concerning non-accrual and non-performing investments.  The Staff also highlights the importance of clear disclosure regarding payment-in-kind interest.

The Staff further addresses the use of net asset value (“NAV”) as a practical expedient under U.S. generally accepted accounting principles.  In certain circumstances, ASC Topic 820 permits management to estimate the fair value of an investment based on the NAV reported by the investee.  The Staff cautions that use of the NAV practical expedient may result in a measurement that differs from the fair value of the investment on the measurement date.  Because the practical expedient is optional, management should evaluate its applicability on an investment-by-investment basis.

The Statement also highlights considerations for auditors evaluating fair value estimates.  The Staff encourages auditors to apply professional skepticism when evaluating evidence supporting fair value measurements and to perform robust risk assessments that take into account external market factors.  Auditors should also consider whether the use of the NAV practical expedient was appropriate and whether the financial statements and other evidence supporting valuation adjustments are reliable.

The Statement serves as a reminder of the importance of robust valuation procedures and meaningful disclosures.  Applying ASC Topic 820 requires management to consider available information from a market participant’s perspective, even when information about an underlying private investment is limited or delayed.  Focused disclosures regarding valuation methodologies, significant inputs, and developments affecting portfolio investments can provide investors with greater insight into the risks and uncertainties associated with private assets.

For the full statement, see here.

On September 25, 2026, the Staff of the Division of Corporation Finance (the “Division”) of the Securities and Exchange Commission (the “SEC”) published a set of responses to frequently asked questions (the “FAQs”) regarding the application of the federal securities laws to certain crypto assets and certain transactions involving crypto assets. The Division slightly updated the FAQs on September 28.

The FAQs build on the SEC’s March 17, 2026 interpretive release (the “Interpretive Release”), which set forth the SEC’s framework for classifying crypto assets and applying the definition of “security” to digital asset transactions.  The FAQs are organized into two groups, corresponding to Sections III and IV of the Interpretive Release.

Group 1: Classification of Crypto Assets

The first group addresses the SEC’s classification framework, including the following key guidance:

  • The definitions of “functional” and “decentralized” in the Interpretive Release are relevant to how the SEC classifies crypto assets, but are not the standard by which the SEC determines whether an issuer has fulfilled its representations or promises.  Each issuer determines the thresholds that must be met to achieve functionality and/or decentralization for purposes of its own representations or promises.
  • Staking Receipt Tokens that are receipts for a digital commodity not subject to an investment contract are classified as “digital tools” because they serve the practical function of evidencing the holder’s ownership of the underlying digital commodity.  However, a Staking Receipt Token may also be classified as a “digital commodity” if it is issued by a protocol-based Liquid Staking Provider, where the token is intrinsically linked to and derives its value from the programmatic operation of a functional crypto system.
  • A “receipt” is distinguished from other financial instruments in that it does not transfer ownership or control of the deposited asset to the receipt issuer, and the issuer cannot transfer, lend, pledge, rehypothecate, or otherwise use the deposited asset for any reason or subject it to claims by third parties.

Group 2: Crypto Assets Subject to an Investment Contract

The second group of FAQs provides guidance on when crypto assets are subject to an investment contract under the Howey test, including the following notable clarifications:

  • Promoting a crypto system’s current utility and capabilities likely would not, without more, constitute representations or promises to engage in essential managerial efforts.  Similarly, promoting a crypto system’s potential utility with indefinite aspirational statements likely would not constitute such representations or promises if such promotional activities contain nothing promoting the potential for profit.
  • Where another party assumes the issuer’s representations or promises to undertake essential managerial efforts, the non-security crypto asset does not separate from and cease to be subject to the associated investment contract.
  • Once a crypto system is functional, services to secure, maintain, improve, or enhance such a system or its functionality, or to facilitate network effects, would not involve essential managerial efforts.
  • Once a functional crypto system has no central party, statements made by the issuer relating to the functional crypto system likely would not create a new investment contract because neither the issuer nor any other person has control of the crypto system that would allow them to affect its failure or success.
  • Where a crypto system is functional and has no central party, an issuer’s announcement of a non-security crypto asset buyback program would not constitute a representation or promise to undertake essential managerial efforts.  However, where a crypto system is not functional, such an announcement could constitute such a representation if the issuer presents the buyback as generating yield or a return for token holders.
  • A trading platform that offers a secondary market for a crypto asset would only be considered a “promoter” if it met the “promoter” definition in Securities Act Rule 405.

The FAQs represent the latest in a series of actions by the SEC and its Staff to provide regulatory clarity for the digital asset markets.  Access the FAQs: Division of Corporation Finance FAQs on Crypto Assets.  Access the referenced Interpretive Release: Interpretive Release.

Business development companies (“BDCs”) continue to be an important source of capital for private equity-owned, small- and middle-market companies and an attractive investment vehicle for investors seeking exposure to private credit. As the BDC market has grown, sponsors and investors have increasingly focused on alternative BDC structures, capital raising, leverage, advisory arrangements and other key features of the BDC market.  The increasing institutionalization of the BDC market is reflected in the growing use of joint ventures with institutional investors and the continued development of co-investment arrangements.

The regulatory landscape for BDCs also continues to evolve.  The SEC’s proposed “Enhancing Retail Exposure to Private Markets” rulemaking is likely to further expand retail access to private market investments, while the SEC’s 2026 Registered Offering Reform proposal is likely to provide BDCs with greater flexibility to access the capital markets.  These developments, together with the SEC’s continued evolution of its co-investment framework, could further affect the ways in which BDC sponsors raise, deploy and retain capital.

As the BDC market continues to mature, sponsors increasingly are evaluating existing public, private and non-traded BDC structures based on investor base, distribution channels, portfolio strategy and capital raising objectives.  At the same time, portfolio quality and liquidity remain important considerations.

Access our updated BDC Facts & Stats, which provides a compendium of information regarding BDCs, including BDC assets under management, the terms of advisory agreements, private and non-traded BDC information and more. A PDF for download is available here.

We hope you find our updated BDC Facts & Stats helpful.