The SEC adopted a rule, Securities Offering Reform for Closed-End Investment Companies, modernizing disclosure and the offering process for Closed-End Funds (CEF) and Business Development Companies (BDCs). While BDCs are not registered under the 1940 Act, they are subject to certain articles, and are required to file registration statements on Form N-2, like CEFs.
The SEC adopted Inline XBRL (iXBRL) requirements for CEFs and BDCs which will modernize their disclosure and benefit both shareholders and the Commission.
With this new rule, the SEC extended many of the benefits used by public companies to CEFs and BDCs, including expanded incorporation by reference from periodic reports and a streamlined process to register securities.
With the SEC’s focus on modernizing reporting through the use of structured data, including Inline XBRL and XML, the Commission has proposed or adopted many new rules which expand the use of Inline XBRL to all types of disclosure and registrants. iXBRL combines human and machine-readable data within a single HTML file. The format provides the SEC and marketplace enhanced data and information which ultimately benefits investors with improved access to data and transparency.
Public companies and Mutual Funds have been reporting in XBRL for over a decade, iXBRL is a new reporting format for CEFs and BDCs.
With the rule, the SEC adopted a new taxonomy specific to N-2 filers that encompasses iXBRL tagging for CEFs and BDCs, including the following:
N-2 Cover Page Tagging
For all Closed-End Funds and BDCs, virtually every element on the revamped Form N-2 cover page must be “tagged” with the appropriate taxonomy element.
Prospectus Tagging
The prospectus provides key information to investors. The SEC identified several important areas of disclosure in prospectuses that will benefit the market, SEC and investors by being tagged in Inline XBRL, including:
- Fee and expense table, including Expense Example
- Senior securities table
- Investment objectives and policies
- Risk factors
- Share price data, including premium/discount to NAV
Capital stock, long-term debt, and other securities.
Additional iXBRL items to consider
BDCs will also be required to tag:
- Cover page data on Forms 8-K, 10-Q, and 10-K
- Financial statements in 10-Q and 10-K filings, including the Schedule of Investments (using the US GAAP taxonomy)
- Prospectus elements that appear in periodic reports for A2 and WKSI qualified BDCs
Preparers should note that the US GAAP taxonomy is significantly more complex than the CEF taxonomy, given the scope of financial statements and the number of elements within the taxonomy.
How Toppan Merrill can help
Toppan Merrill is actively involved with Securities Act of 1933, 1934 and 1940 regulations. Our interaction with the SEC has directly impacted Commission focus and the structure of rulemaking. Plus, involvement with industry groups and our participation on industry committees and conference panels has been instrumental in raising awareness of the impact of rulings.
If you have questions about the rule changes or would like assistance, the experts at Toppan Merrill can help. We also offer a range of additional resources so filers have the information to meet their regulatory compliance needs.
