FR 2021-03455

Summary of the Document

The Securities and Exchange Commission (SEC) has issued a notice regarding an application from Strategas Securities, LLC and Strategas Trust. They are seeking permission to depart from various requirements of the Investment Company Act of 1940. Notably, these applicants want their unit investment trusts (UITs) to be allowed to impose deferred sales charges, offer unitholders exchange and rollover options, and distribute capital gains within a flexible timeframe. The applicants argue that these exemptions will enable them to implement their investment strategies more effectively. The SEC has opened this to public response, allowing interested parties to request a hearing by March 15, 2021.

Issues and Concerns

There are several significant issues that arise from the document:

1. Complex Language: The document uses specialized legal and financial jargon like "deferred sales charge" and "FLEX Options," which might be challenging for a layperson to fully grasp. This complexity could obscure essential details for average investors.

2. Lack of Public Interest Justification: While the document asks for exemptions, it does not thoroughly explain how these align with public interest or investor protection. There might be concerns about transparency and how these exemptions benefit or protect investors.

3. Ambiguity in Exemptions: The conditions under which sales charges can be waived or deferred are complex, potentially causing confusion. Ensuring clear, simplified explanations of these conditions could aid investor understanding.

4. Net Worth Requirements: Language about net worth requirement exemptions appears convoluted, and its implications for investors aren't clearly laid out. This could necessitate clearer communication to stakeholders who may be affected.

Impact on the Public

Broadly, the document's proposals could alter how UITs operate, potentially impacting investors in these trusts. If implemented, these changes might affect investor costs and the flexibility of investment strategies employed by UITs. On a positive note, such flexibility could lead to innovative investment products and strategies that might benefit seasoned investors.

Impact on Specific Stakeholders

For investors, especially those who are less familiar with financial jargon, the complexity of the proposed exemptions may result in misunderstanding or misinterpretation of costs and benefits. However, seasoned investors and financial institutions could appreciate the flexibility and potential for more tailored investment strategies.

For financial advisors and brokers, these changes could mean adjusting the way they communicate with clients about potential investments, fees, and options available. They might need additional training to help clients navigate these nuances.

Overall, while the proposed changes could offer benefits by expanding investment options and tailoring costs, the concerns about complexity and transparency highlight the need for clear communication and education for all stakeholders involved.

The document from the Securities and Exchange Commission (SEC) concerns an application by Strategas Securities, LLC and Strategas Trust for various exemptions under the Investment Company Act of 1940. These exemptions involve financial mechanisms related to unit investment trusts (UITs), specifically regarding sales charges and capital requirements.

Deferred Sales Charges

The document indicates that Strategas and Strategas Trust are seeking permission to impose sales charges on a deferred basis. This means that while investors in these UITs might not pay the full sales charge upfront when purchasing units, they would instead pay in installments over time. The application also notes the potential for waivers of the deferred sales charges in certain situations. While this deferred payment structure could offer initial affordability to investors, the existence of such delayed fees might be confusing, especially if not thoroughly understood due to the complex language used.

Net Worth Requirements

Regarding the $100,000 net worth requirement for registered investment companies, Strategas states that it will surpass this requirement because the Depositor will contribute more than $100,000 in securities. The discussion of this financial baseline is critical since it ensures that each series within the trust is financially stable before it begins offering units to the public. However, the complexity of the language surrounding this exemption might leave the average investor unclear on how it aligns with broader market practices or what it specifically means for their investment.

Public Offering of Units

Another financial reference in the document is the request to offer units to the public without requiring the Depositor to retain $100,000 worth of units for its own account. This suggests a deviation from standard practices where a Depositor might need to show a financial stake in the offering as a sign of confidence and commitment. The absence of a clear explanation regarding the necessity of this exemption or its implications for market competition is noted as a potential transparency issue.

Capital Gains Distribution

The application also touches on capital gains, indicating a desire to distribute these gains swiftly after receipt. Though the specific amounts of these distributions are not detailed, the focus on capital gains highlights a mechanism for sharing investment profits with unitholders. The document could be clearer on how such distributions are beneficial and whether they align with best practices in investor protection.

Overall, the financial references made in the document are part of a complex legal request that might be challenging for some readers to comprehend without additional context or simplified explanations. The SEC notice addresses important aspects of investment trust operations, but the lack of layperson-friendly summaries or explanations might limit understanding of how these financial mechanisms affect investors.