MFA submitted a new comment letter on the dealer proposal to the SEC. This letter—MFA’s fourth on the proposal—addresses the implications for private funds of the rule’s requirement to aggregate positions for purposes of determining who is a dealer under the qualitative and quantitative tests.
In the letter, MFA argues that the dealer proposal inappropriately captures certain private funds in part because the proposal is based on the mistaken assumption that all trading activity occurring within a single legal entity or commonly controlled group of legal entities takes place on an integrated and coordinated basis. This is often not the case. As a result, private funds with multiple portfolio managers—whether within a single fund or across multiple funds—risk being treated as dealers under the proposed rules when they are not engaged in a dealing business.
To address this overreach, MFA urges the Commission—if it intends to proceed with the proposal—at the very least to recognize disaggregation by independent portfolio managers, provided there is no coordination of trading among or between them. This would mitigate some of the harm of the proposal.