^{Legal Alerts | October 21, 2025 12:00 am} Third Quarter 2025 Asset Management Regulatory Update

Table of Contents

• SEC Issues New Guidance for Registered Closed-End Funds Investing in Private Funds
• NYSE Proposes to Remove Annual Shareholder Meeting Requirements for Closed-End Funds
• RIA Charged with Custody Rule Violations
• SEC Further Extends Compliance Deadline for Form PF
• SEC Approves TXSE
• Leaked SEC Regulatory Agenda
• SEC Staffing Updates

SEC ISSUES NEW GUIDANCE FOR REGISTERED CLOSED-END FUNDS INVESTING IN PRIVATE FUNDS

In August 2025, the Division of Investment Management (the “Division”) of the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) published Accounting and Disclosure Information 2025-16 (the “ADI”) providing updated guidance for registered closed-end funds that invest in private funds (“CE‑FOPFs”). The staff guidance in the ADI formalizes statements made by senior members of the SEC staff earlier this year that had reversed prior SEC staff guidance.

As noted in our Second Quarter 2025 Update, this new guidance is part of a shift from informal staff positions taken before May, which were implemented as part of the Division’s comment process. Previously, SEC staff took the position that a CE-FOPF must either: (1) limit such investments to no more than 15% of its assets or (2)(a) restrict sales of its own shares to investors that satisfy the accredited investor standard and (b) impose a minimum initial investment requirement of $25,000. Underlying private funds for these purposes are generally defined as investment companies but for the exclusions specified in sections 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940, as amended (the “1940 Act”).

The SEC’s new ADI confirms CE-FOPFs can now invest in private funds without caps on investor eligibility, minimum investments, or exposure limits. The ADI explains that existing regulatory protections under federal securities laws provide adequate protection of investors in CE-FOPFs that indirectly invest in private funds.

The ADI guidance focuses on two key areas: registration statement disclosure and filing requirements. It also encourages registrants to consult with Division staff for clarity on these matters.

With respect to disclosures, the ADI highlights the following areas that the SEC staff will continue to focus on:

• Plain English and Material Information: Registration statements must be clear, concise, and comply with the “plain English” rule.
• Costs, Strategies, and Risks: CE‑FOPFs should provide full disclosure of its costs, strategies, and risks, as well as the investment process-related due diligence practices conducted by the adviser when evaluating private fund investment opportunities (including investment, operational, legal, and, as applicable, tax considerations). The liquidity terms of the CE-FOPF should also be disclosed clearly and prominently.
• Fee Structures and Performance Impact: CE-FOPFs should describe the various fee structures imposed by the underlying private funds, including any performance-related compensation, as well as how those fees could affect the underlying private funds’ returns and the CE-FOPF’s performance. A CE-FOPF should also disclose how multiple layers of direct and indirect costs will impact the returns realized by an investor in the CE-FOPF, including the possibility that certain of the underlying private funds may receive performance fees, while other underlying private funds, or the overall performance of the CE-FOPF itself, is negative.
• Underlying Private Fund Strategies: CE-FOPFs should consider disclosures about the types of underlying private funds in which it proposes to invest and the associated risks and considerations, including (to the extent material) the private funds’ investment strategies, risks associated with more volatile or speculative investments, conflicts of interest, and the liquidity of the private funds’ underlying investments.
• Regulatory Differences: CE-FOPFs should clarify that the underlying private funds in which they invest are not subject to protections under the 1940 Act (e.g., leverage and transactions with affiliates), which may impact the CE-FOPF’s strategies, risks, and costs. The CE‑FOPF should also disclose that shareholders may have limited information about the underlying private funds in which the CE-FOPF is investing, including with respect to the underlying private funds’ holdings, liquidity, and valuation.
• Material Risks: Where material, a CE-FOPF should consider disclosing the risks and impacts related to legal jurisdictions of the underlying private funds, liquidity terms (such as mandatory minimum holding periods, limitations or suspensions of redemptions, and the possibility of “payment in kind” distributions in response to a redemption request), and tax considerations when investing in private funds that produce non-qualifying income and that could impact the CE-FOPF’s pass-through status as a “regulated investment company” as defined under Subchapter M of the Internal Revenue Code.

With respect to filing requirements, the ADI details the appropriate filing process for existing CE-FOPFs seeking to adjust investor limits or asset exposure thresholds.

The ADI states that CE-FOPFs currently operating, which have invested or plan to invest more than 15% of their assets in private funds and have removed or intend to remove limitations on accredited investors and/or investment minimums, are required to file either (i) amendments to their registration statements in accordance with Rule 486(a) or Rule 486(b) of the 1933 Act, or (ii) updates to their prospectus supplements under Rule 424 of the 1933 Act, as applicable. CE-FOPFs should evaluate whether these cumulative changes are considered material, as this would necessitate a review by Division staff of a post-effective amendment to the CE-FOPF’s registration statement under Rule 486(a).

Registrants that currently limit private fund exposure to 15% of assets and never imposed accredited investor and/or investment minimum shareholder limitations on their registration statements and now seek to remove the 15% limitation should file a post‑effective amendment filing pursuant to Rule 486(a), subject to Division staff review.

NYSE PROPOSES TO REMOVE ANNUAL SHAREHOLDER MEETING REQUIREMENTS FOR CLOSED-END FUNDS

In June 2025, the New York Stock Exchange LLC (“NYSE”) proposed amendments to Section 302.00 (“Section 302.00”) of the NYSE Listed Company Manual, which would exempt certain 1940 Act registered closed-end funds (“CEFs”) from the requirement to hold annual shareholder meetings (the “NYSE Proposal”).

Under Section 302.00, companies listing common stock or voting preferred stock and their equivalents are required to hold annual shareholder meetings. Section 302.00 includes a list of the types of companies to which Section 302.00 does not apply – for example, companies whose only securities listed on NYSE are non-voting preferred and debt securities, passive business organizations, or issuers of securities listed pursuant to certain NYSE rules are not currently required to hold annual shareholder meetings. The NYSE Proposal would amend Section 302.00 to state that newly listed CEFs would also be exempt from the annual shareholder meeting requirements. Any CEF listed prior to the approval of the NYSE Proposal would remain subject to the annual shareholder meeting requirement. However, business development companies would still be required to comply with the shareholder meeting requirements.

In July 2024, the NYSE previously proposed to amend Section 302.00 to exempt all CEFs from the annual shareholder meeting requirement. The July 2024 proposal was later withdrawn by NYSE.

RIA CHARGED WITH CUSTODY RULE VIOLATIONS

In August 2025, the SEC announced that it had issued a cease-and-desist order against a registered investment adviser (the “RIA”), for violating Rule 206(4)-2 (the “Custody Rule”) under the Investment Advisers Act of 1940.

Under the Custody Rule, “it is a fraudulent, deceptive, or manipulative act, practice or course of business . . . for [a registered investment adviser] to have custody of client funds or securities unless” the adviser implements an enumerated set of requirements to prevent loss, misuse, or misappropriation of those funds and securities, including the following:

• Qualified Custodian: Client funds and securities must be maintained with a qualified custodian.
• Notice to Clients and Account Statements: RIAs must provide written notice to clients when an account has been opened on their behalf and have an articulable reasonable basis to believe the custodian sends quarterly account statements.
• Independent Verification: If an RIA has custody, client assets must be verified annually by an independent public accountant via a surprise examination conducted under a written agreement.

The SEC found that, while acting in his capacity as co-trustee of two trusts that were advisory clients, the RIA’s President had (i) access and authority to obtain possession of trust funds and securities without the consent of the respective co-trustees, (ii) signatory authority to the same degree as a beneficial owner on four clients’ accounts, and (iii) acted as an authorized agent with power of attorney on five clients’ accounts where he had the ability to place orders, request disbursements, and make inquiries concerning account balances.

Because of these actions and the level of access to client accounts, the RIA was required to obtain surprise examinations in accordance with the Custody Rule. However, it failed to do so. Without admitting or denying the findings, the RIA settled the action with the SEC and was required to pay a civil penalty of $50,000.

SEC FURTHER EXTENDS COMPLIANCE DEADLINE FOR FORM PF

In September 2025, the SEC and the Commodity Futures Trading Commission (“CFTC”) announced that the compliance date for the February 2024 amendments to Form PF would be once more pushed back.

As noted in our Second Quarter 2025 Update, the CFTC and SEC last extended the compliance date to October 1, 2025. The announcement further extended the compliance date to October 1, 2026 in an effort to allow time for the SEC to complete a substantive review of the amendments to Form PF in accordance with a Presidential Memorandum sent to federal agencies by the Trump administration.

Form PF is the confidential reporting form used by certain SEC-registered investment advisers to private funds, including those that also are registered with the CFTC as commodity pool operators or commodity trading advisers. According to the SEC, the amendments to are intended to enhance the quality and usefulness of Form PF data for both the SEC and the Financial Stability Oversight Council by improving data accuracy, more completely capturing information on fund ownership, size, strategies, and exposures, and streamlining certain reporting elements without compromising investor protection or systemic risk analysis.

The SEC has stated that the extension would allow for sufficient time to review the amendments and should implement any additional amendments to Form PF.

SEC APPROVES TXSE

On September 30, 2025, the SEC approved the Texas Stock Exchange (“TXSE”) as a national securities exchange, making TXSE the first fully integrated stock exchange to receive SEC approval in decades. TXSE is headquartered in Dallas, Texas and intends to launch trading, exchange traded products and corporate listings in 2026, with the stated goal of being a top competitor of the New York Stock Exchange and Nasdaq.

In June of 2024, TXSE Group Inc., the parent company of TXSE, announced that the exchange planned to launch with $120 million in backing from investment firms including BlackRock and Citadel. Support for the exchange follows opinions that Texas was a prime location for a new exchange given the favorable regulatory and taxation policies in the state.^[1] 

LEAKED SEC REGULATORY AGENDA

In August 2025, the Office of Information and Regulatory Affairs, part of the Office of Management and Budget, briefly published, and then removed, several agency regulatory agendas, including the SEC’s semiannual Regulatory Flexibility Agenda detailing the Commission’s rulemaking priorities for the upcoming six months. The inadvertent draft publication, that was later confirmed by a source as authentic, offers insight into the rulemaking priorities under the SEC’s new leadership. While agendas are nonbinding and SEC priorities may change, prioritization suggests a regulatory posture oriented toward burden reduction alongside targeted modernization for funds and their advisers and is notable for several items directly affecting registered funds, exchange traded funds, and private funds. Among other things, the SEC alluded to potential amendments to Form N‑PORT, revisions to Rule 17a‑7, updates to custody requirements (including for digital assets), renewed attention on transfer agents, and a reassessment of the Consolidated Audit Trail (“CAT”).  A few highlights from that agenda include:

• Amendments to Form N‑PORT: According to the release, the Commission is reviewing the upcoming change for filing frequency of Form N-PORT. In 2027, filers will be required to begin filing Form N-PORT monthly. However, this change may be amended to a quarterly cadence. Changes to data elements within N-PORT are also being considered.
• Amendments to Rule 17a‑7 under the Investment Company Act: The Commission is revisiting proposed amendments to Rule 17a-7, which grants exemptions to self-dealing transactions between registered investment companies and affiliated persons (also known as cross-trading). The hope of the industry is that this renewed interest leads to modernizations in the rule.
• Amendments to the custody rules: Although the initial publication of the SEC agenda made a vague reference to amendments to custody rules, a subsequent proposed rule by the SEC clarified that the Commission will focus on improving and modernizing the regulations around the custody of advisory client and fund assets, including crypto assets.
• Transfer agents (“TAs”): Although the agenda also signaled a renewed attention in transfer agent responsibilities as it pertains to distributed ledger technology and crypto assets, proposed rulemaking could have an effect on TAs writ-large and the funds they service.
• Consolidated Audit Trail: While in the prerule stage, the Commission is considering comprehensive reforms of CAT, including the scope of information collected, addressing ongoing cost and data security concerns, and supporting clearly defined regulatory objectives.
• Customer Identification Programs for RIAs and ERAs: In its final-rule stage, the Commission, along with the Department of the Treasury, is seeking to implement additional safeguards with respect to certain investment advisers that, among other things, requires investment advisers to implement reasonable procedures to verify the identities of their customers.

SEC STAFFING UPDATES

Margaret Ryan

Effective as of September 2, 2025, Judge Margaret Ryan was named the new Director of the Division of Enforcement of the SEC. Following the SEC’s announcement of Judge Ryan’s appointment, SEC Chairman Paul Atkins stated that “Judge Ryan will lead the Division guided by Congress’ original intent: enforcing the securities laws, particularly as they relate to fraud and manipulation.” Sam Waldon, the Acting Director of Enforcement, will return to his previous role as Chief Counsel for the Division of Enforcement.

Prior to this appointment, and since 2006, Judge Ryan has been a judge of the United States Court of Appeals for the Armed Forces, reaching senior status in 2020. Judge Ryan is also a lecturer and visiting professor at a handful of law schools, including Harvard and Notre Dame.

James Moloney

On September 10, 2025, the SEC announced that, effective in October of 2025, James Moloney will be named the Director of the Division of Corporation Finance. The Acting Director, Cicely LaMothe, will return to her role as a Deputy Director of the Division of Corporation Finance.

Moloney previously served at the SEC for six years from 1994 to 2000 as an attorney advisor and special counsel to the Office of Mergers & Acquisitions in the Division of Corporation Finance. For the last 25 years, Moloney has been at attorney at Gibson Dunn & Cutcher, making his way to equity partner. The Commission believes that Moloney’s understanding of corporate governance and disclosure, as well as his “eye toward supporting innovation and facilitating capital formation” will positively benefit the Division of Corporation Finance.

George Botic

Effective July 23, 2025, George Botic was designated to serve as the Acting Chair of the Public Company Accounting Oversight Board (“PCAOB”), following the resignation of the current PCAOB Chair, Erica Y. Williams, effective July 22, 2025. Botic is a Certified Public Accountant and has been a PCAOB board member since October of 2023. Additionally, prior to his tenue as a board member, Botic was the Director of the PCAOB’s Division of Registration and Inspections.

UPCOMING CONFERENCES

*Host Organization Key: Mutual Fund Directors Forum (“MFDF”), Independent Directors Council (“IDC”), and Investment Company Institute (“ICI”)

© 2025, Davis Graham & Stubbs LLP. All rights reserved. This newsletter does not constitute legal advice. The views expressed in this newsletter are the views of the authors and not necessarily the views of the firm. Please consult with your legal counsel for specific advice and/or information.

[1] See: https://www.cbsnews.com/texas/news/sec-approves-texas-stock-exchange-txse/.

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