[Federal Register Volume 89, Number 176 (Wednesday, September 11, 2024)]
[Rules and Regulations]
[Pages 73764-73800]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19819]
[[Page 73763]]
Vol. 89
Wednesday,
No. 176
September 11, 2024
Part II
Securities and Exchange Commission
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17 CFR Parts 270 and 274
Form N-PORT and Form N-CEN Reporting; Guidance on Open-End Fund
Liquidity Risk Management Programs; Final Rule
Federal Register / Vol. 89, No. 176 / Wednesday, September 11, 2024 /
Rules and Regulations
[[Page 73764]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 270 and 274
[Release No. IC-35308; File No. S7-26-22]
RIN 3235-AM98
Form N-PORT and Form N-CEN Reporting; Guidance on Open-End Fund
Liquidity Risk Management Programs
AGENCY: Securities and Exchange Commission.
ACTION: Final rule; guidance.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to reporting requirements on Forms N-PORT and N-CEN
that apply to certain registered investment companies, including
registered open-end funds, registered closed-end funds, and unit
investment trusts. The amendments will require more frequent reporting
of monthly portfolio holdings and related information to the Commission
and the public, amend certain reporting requirements relating to entity
identifiers, and require open-end funds to report information about
service providers used to comply with liquidity risk management program
requirements. In addition, the Commission is providing guidance related
to open-end fund liquidity risk management program requirements.
DATES:
Effective dates: The amendments to Forms N-PORT and N-CEN, and
amendatory instruction 2 to 17 CFR 270.30b1-9, are effective November
17, 2025. Amendatory instruction 3 to 17 CFR 270.30b1-9 is effective
May 18, 2026.
Compliance dates: The applicable compliance dates are discussed in
section II.E.
FOR FURTHER INFORMATION CONTACT: Susan Ali, Counsel; Alexis Hassell,
Senior Counsel; Frank Buda or Angela Mokodean, Senior Special Counsels;
or Brian M. Johnson, Assistant Director at (202) 551-6792, Investment
Company Regulation Office, Division of Investment Management,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to the
following rules and forms:
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Commission reference CFR citation (17 CFR)
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Investment Company Act of 1940 (``Act'' or
``Investment Company Act'') \1\
Rule 30b1-9.............................. Sec. 270.30b1-9.
Form N-PORT.............................. Sec. 274.150.
Form N-CEN............................... Sec. 274.101.
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\1\ 15 U.S.C. 80a-1 et seq. Unless otherwise noted, all references to
statutory sections are to the Investment Company Act, and all
references to rules under the Investment Company Act are to title 17,
part 270 of the Code of Federal Regulations [17 CFR part 270].
Table of Contents
I. Introduction.............................................. 3
II. Discussion............................................... 13
A. Amendments to Form N-PORT............................. 13
1. Filing Frequency.................................. 13
2. Publication Frequency............................. 32
3. Other Amendments to Form N-PORT................... 42
B. Amendments to Form N-CEN.............................. 47
C. Guidance on Open-End Fund Liquidity Risk Management 48
Program Requirements....................................
D. Technical and Conforming Amendments................... 57
E. Transition Periods.................................... 57
III. Other Matters........................................... 62
IV. Economic Analysis........................................ 63
A. Introduction.......................................... 63
B. Baseline.............................................. 65
1. Regulatory Baseline............................... 65
2. Affected Entities................................. 69
C. Benefits and Costs of the Amendments.................. 72
1. Form N-PORT Filing Frequency...................... 72
2. Form N-PORT Publication Frequency................. 80
3. Amendments to Form N-CEN.......................... 89
4. Entity Identifiers................................ 90
5. Other Compliance Costs............................ 90
D. Effects on Efficiency, Competition, and Capital 92
Formation...............................................
1. Efficiency........................................ 92
2. Competition....................................... 93
3. Capital Formation................................. 95
E. Alternatives.......................................... 96
1. Form N-PORT Filing Frequency...................... 96
2. Form N-PORT Publication Frequency................. 97
3. Other Alternatives................................ 98
V. Paperwork Reduction Act................................... 99
A. Introduction.......................................... 99
B. Form N-PORT........................................... 100
C. Form N-CEN............................................ 106
VI. Final Regulatory Flexibility Analysis.................... 109
A. Need for and Objectives of the Rule and Form 110
Amendments..............................................
B. Significant Issues Raised by Public Comments.......... 110
C. Small Entities Subject to Rule Amendments............. 112
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D. Projected Reporting, Recordkeeping, and Other 112
Compliance Requirements.................................
E. Agency Action To Minimize Effect on Small Entities.... 114
Statutory Authority.......................................... 116
I. Introduction
As the primary regulator of the asset management industry, the
Commission utilizes information filed in reports of registered
investment companies to, among other things, monitor industry trends,
identify risks, inform policy and rulemaking, and assist Commission
staff in examination and enforcement efforts. For a large segment of
registered investment companies (``funds''), reports on Form N-PORT are
an important source of information for the Commission and its staff.\2\
These reports provide monthly information about a fund's complete
portfolio holdings, as well as related information to help assess a
fund's risks, including investment risk (e.g., interest rate risk,
credit risk, and volatility risk), liquidity risk, counterparty risk,
and leverage.
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\2\ In this release, we generally use the term ``fund'' to refer
to registrants that currently are required to report on Form N-PORT,
including registered open-end funds, registered closed-end funds,
and exchange-traded funds (``ETFs'') organized as unit investment
trusts, and excluding money market funds and small business
investment companies. In the context of discussing Form N-CEN, the
term ``fund'' generally refers to registrants that currently are
required to report on Form N-CEN, which in addition to the
registrants that are required to report on Form N-PORT include money
market funds, small business investment companies, and registered
unit investment trusts.
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Separate from the Commission's use of Form N-PORT information,
investors also benefit from information about a fund's portfolio
holdings to make more informed investment decisions. For instance,
portfolio holding information can help investors assess the extent to
which their funds have portfolios that overlap, as well as how funds
comply with their investment objectives or deviate from those
objectives. Investors may benefit from third-party analysis of the
information, such as analysis by data aggregators, broker-dealers,
investment advisers, and others that provide investment information to
fund investors and assist investors in selecting fund investments. Some
investors, and particularly institutional investors, may use portfolio
holding information directly. We have observed that many funds
voluntarily disclose their monthly portfolio holdings on their websites
or through third party data aggregators, making additional portfolio
information available to assist investors with their investment
decisions. However, practices vary, and some funds disclose only
quarterly information about portfolio holdings. Furthermore, the
portfolio holdings information funds voluntarily disclose is not
provided in a standardized format that facilitates efficient analysis
and is sometimes available only for a fee, and may not include
information that Form N-PORT reports include, such as information to
help assess a fund's risks like interest rate risk, credit risk, and
counterparty risk.
After considering comments as discussed below, the Commission is
adopting amendments to Form N-PORT to provide the Commission and the
public with timelier information about funds' portfolio investments
and, in turn, improve transparency and facilitate better monitoring of
these funds. The final amendments will require funds to file Form N-
PORT reports for a given month within 30 days of the end of that month.
This change will increase the timeliness of the information we receive,
which will promote more effective regulatory monitoring and oversight
of the fund industry for the benefit of fund investors while balancing
the need for timelier information against competing concerns regarding
the data's sensitivity and the time funds need to collect and file
accurate information. The final amendments will also make monthly Form
N-PORT reports available to the public with a 60-day delay to enhance
public transparency and its associated benefits for investors. For
instance, more frequent public disclosure of funds' portfolios will
increase transparency of funds' portfolios and portfolio trends to
investors, reducing information asymmetries between funds and
investors.
Currently, registered management investment companies and ETFs
organized as unit investment trusts are required to file periodic
reports on Form N-PORT about their portfolios as of month end.\3\ While
the reports provide monthly information to the Commission, funds file
these reports on a quarterly basis and have up to 60 days after the end
of the quarter to file with the Commission. Moreover, the public has
access to information for only the third month of each quarter, and
information for the first and second months of each quarter remains
confidential.\4\
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\3\ See rule 30b1-9 and Form N-PORT. Money market funds and
small business investment companies are excluded from Form N-PORT
reporting requirements.
\4\ Certain of the reported information, such as information
about liquidity and use of derivatives, remains confidential for all
months of a quarter. See General Instruction F of Form N-PORT.
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As adopted in 2016, Form N-PORT would have required funds to file
monthly reports within 30 days of month end.\5\ Only reports for every
third month were to be available to the public. In adopting Form N-
PORT, the Commission highlighted the utility of monthly portfolio
reporting for fund monitoring, particularly in times of market stress.
The Commission also originally required funds to file each monthly
report within 30 days of month end because more delayed data would
reduce the utility of the information to the Commission and lag times
of more than 30 days would make monthly reporting impractical, as
reports would overlap with preparation time.\6\
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\5\ See Investment Company Reporting Modernization, Investment
Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18,
2016)] (``Reporting Modernization Adopting Release'').
\6\ See id., at section II.A.3.
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However, as part of a subsequent Commission assessment of its
internal cybersecurity risk profile, the Commission re-evaluated the
filing frequency for Form N-PORT reports. The then-Chairman also
directed the staff to take a number of steps designed to strengthen the
Commission's cybersecurity risk profile, with an initial focus on the
Commission's Electronic Data Gathering, Analysis, and Retrieval
(``EDGAR'') system as well as the nonpublic information the Commission
collected and held. In December 2017, while these efforts were ongoing,
the Commission determined to postpone the initial reporting of Form N-
PORT on EDGAR by nine months.\7\ Subsequently, the Commission adopted
an interim final rule to require quarterly filing of monthly
information within 60 days of quarter-end.\8\
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\7\ See Investment Company Reporting Modernization, Investment
Company Act Release No. 32936 (Dec. 8, 2017) [82 FR 58731 (Dec. 14,
2017)].
\8\ See Amendments to the Timing Requirements for Filing Reports
on Form N-PORT, Investment Company Act Release No. 33384 (Feb. 27,
2019) [84 FR 7980 (Mar. 6, 2019)] (``2019 Form N-PORT Timing
Amendments'') for more detailed background regarding the 2019 Form
N-PORT Timing Amendments. See also rule 30b1-9.
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The Commission also required funds to maintain in their records the
information that they are required to report on Form N-PORT no later
than 30 days after the end of each month. In making these changes to
the filing cadence and recordkeeping requirements, the Commission
stated
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that the filing delay would meaningfully reduce the potential
cybersecurity risks arising from the collection and maintenance of
sensitive nonpublic data on EDGAR. However, the Commission stated that
the staff would continue to monitor and solicit feedback on the data
received and the use made (or expected to be made) of such data in
furtherance of the Commission's statutory mission, as well as
cybersecurity considerations and other matters deemed relevant by
staff.\9\
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\9\ See 2019 Form N-PORT Timing Amendments, supra note 8, at
nn.36 to 39 and accompanying text.
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Since that time, the Commission has taken steps to address the
impetus for the interim final rule, including by modernizing the EDGAR
system that funds use to file Form N-PORT reports. For instance, the
Commission has engaged in a multi-year, multi-phase effort to modernize
the EDGAR system, including both internal and public-facing
components.\10\ Further, the Commission has gained additional
experience in receiving, maintaining, and protecting sensitive
portfolio data on the EDGAR system, including, for example, protecting
the existing nonpublic portions of Form N-PORT and confidential
treatment requests for reports on Form 13F.
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\10\ See Annual Report on SEC website Modernization Pursuant to
Section 3(d) of the 21st Century Integrated Digital Experience Act
(Dec. 2022), available at https://www.sec.gov/files/21st-century-idea-act-report-2022-12.pdf.
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Market events since adoption of the interim final rule have also
reinforced the need for more timely data regarding funds' portfolios,
and thereby, the need to reduce the delay in Form N-PORT reporting. In
this regard, the delay of Form N-PORT data under the quarterly
reporting requirements has limited the Commission's ability to develop
a timely and more complete understanding of the market, thereby
impeding its ability to respond to market stresses and events as they
are developing.
Delayed Understanding of COVID-19 Impact on Markets.
Market disruptions related to the COVID-19 pandemic began in March
2020. Funds' reports on Form N-PORT that would reflect these events
were not due until June 1, 2020, at the earliest, and some funds'
reports were due as late as the end of July 2020.\11\ Further, the
information available to Commission staff from Form N-PORT reports at
the onset of the market disruptions reflected fund portfolios and
activities as of several months earlier--ranging from the end of
October 2019 to the end of December 2019.\12\ Thus, in many cases, the
available information was unlikely to reflect reasonably current
portfolios and activities of funds because of the reporting delays.
This meant that the monthly filings were not an effective tool to help
Commission staff, for example, assess and analyze how the events
related to the COVID-19 pandemic were affecting funds or to identify
issues for further inquiry. Moreover, Commission staff could not begin
to review Form N-PORT information from March 2020 to assess and analyze
the effects of the market disruptions more directly until the beginning
of June, and the staff did not have full information for all funds
until the end of July.
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\11\ Because reports are due 60 days after the end of a fund's
fiscal quarter, deadlines vary based on the fund's fiscal year. See
Open-End Liquidity Risk Management Programs and Swing Pricing; Form
N-PORT Reporting, Investment Company Act Release No. 34746 (Nov. 2,
2022) [87 FR 77172 (Dec. 16, 2022)] (``Proposing Release''), at
n.273.
\12\ Specifically, Commission staff had information as of Dec.
31, 2019, for funds with fiscal years ending in Mar., June, Sept.,
or Dec. (around 51% of the total number of funds and representing
approximately 56% of aggregate fund assets); information as of Nov.
30, 2019, for funds with fiscal years ending in Feb., May, Aug., or
Nov. (around 20% of the total number of funds and representing
approximately 20% of aggregate fund assets); and information as of
Oct. 31, 2019, for funds with fiscal years ending in Jan., Apr.,
July, or Oct. (around 29% of the total number of funds and
representing approximately 25% of aggregate fund assets). The latest
date for which Commission staff had full information for all funds
for a given month was Oct. 31, 2019. By Mar. 31, 2020, the
Commission received information as of Jan. 31, 2020, for funds with
fiscal years ending in Jan., Apr., July, or Oct. The percentage of
funds with fiscal years ending in certain months and the percentage
of aggregate fund assets are based on fiscal year end data as of
Dec. 31, 2023. As a result, these percentages are approximations of
the amount of data available in 2020, which at that time also did
not include information for funds that are small entities because
small entities were not required to comply with Form N-PORT
reporting requirements until Mar. 1, 2020. See infra section IV.B.2
(providing additional information about the breakdown in funds'
fiscal year end dates as of Dec. 31, 2023).
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Delayed Understanding of Impact on Funds and their
Investments from Russia's Invasion of Ukraine. The Russian invasion of
Ukraine began on February 24, 2022. The staff's analysis of this event
was impeded by the lack of timelier portfolio information to assess
funds' exposures that could be affected by the invasion (e.g.,
investments in Russian or Ukrainian companies). At that time, the Form
N-PORT information available to Commission staff reflected funds'
portfolio holdings between the end of September 2021 and the end of
November 2021, depending on a fund's fiscal year end. While the staff
obtained somewhat timelier December 2021 data for certain funds by
March 1, 2022, that data was still several months out of date and was
available for only a little over half of funds. By the time the
February 2022 data was available to the Commission staff to assess
funds' exposures to investments that could be affected by Russia's
invasion of Ukraine, the data was several months out of date.
Delayed Understanding of Funds' Exposures to the London
Interbank Offered Rate (``LIBOR'') and Readiness for Related
Transition. During the transition away from LIBOR, the lag in the
Commission's receipt of Form N-PORT reports hindered the ability to
monitor funds' LIBOR exposures and readiness for the transition.
Consistent with the above examples, in analyzing funds' readiness for
the transition, the portfolio information available to the staff from
Form N-PORT reports was approximately two to four months out of date,
depending on the fund's fiscal year end, which limited the ability to
assess overall exposures and readiness across the fund industry at any
given point in time.\13\
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\13\ When staff is reviewing Form N-PORT reports at any given
time, the data for some filers is generally two months out of date
and more outdated for the remaining filers. See supra note 12
(discussing the percentage of funds that have quarter ends to their
fiscal years on the same or different schedules).
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Delayed Understanding of Market Stress Relating to
Particular Issuers or Asset Classes. The current delays in Form N-PORT
information have impeded the staff's ability to develop an accurate
understanding of funds' exposures to particular issuers or asset
classes that are under stress due to market events or other
circumstances (e.g., a market participant experiencing a cyber-attack).
For example, the delays limited the staff's ability to assess fund
exposures to regional banks in Spring 2023 when certain regional banks
became insolvent and concerns about broader contagion led to sizable
declines in bank stock prices.\14\
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\14\ See Financial Stability Oversight Council 2023 Annual
Report, available at https://home.treasury.gov/system/files/261/FSOC2023AnnualReport.pdf.
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More frequent and more timely Form N-PORT data will allow the
Commission to (1) conduct more targeted and timely monitoring efforts;
(2) analyze risks and trends more accurately; and (3) better assess the
breadth and magnitude of potential impacts of market events and stress
affecting particular issuers, asset classes, counterparties, or market
participants. The Commission's ability to perform these functions more
effectively and efficiently with more frequent and timely data will
benefit investors and the markets, including for example during times
of market stresses and
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events. Having more frequent and timely data in these circumstances
would, for example, enhance the ability of Commission staff
systematically to determine if impacts on funds are isolated or
widespread, and to help determine if funds--and particularly a large
number of funds--may require emergency action, such as emergency relief
from the Commission to permit affected funds to suspend redemptions or
market-wide actions coordinated with other Federal agencies. While
funds are required to produce monthly data from their records upon
Commission staff's request, this has not been an effective or efficient
tool. Given that there is insufficient market data to determine which
funds to prioritize, it is challenging for Commission staff to
determine the appropriate funds from which to request data. It also
could be inefficient to analyze on a timely basis data sets based on
individual data requests even if Commission staff were able to identify
potentially affected funds. As a result, when market events have
occurred, Commission staff has encountered limits on its ability to
identify the funds most directly affected by the events and to explore
potential Commission responses, including the potential benefits or
necessity of a response.\15\
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\15\ We recognize there are tradeoffs in how frequently we
require funds to file information on Form N-PORT. While receiving
Form N-PORT information within a very short period of time after the
end of a given month would further enhance the staff's ability to
conduct these types of analyses relative to the final amendments, it
also would increase reporting costs, errors, and data sensitivity.
See infra section II.A.1.
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In 2022, the Commission proposed to amend Form N-PORT to provide
the Commission with timelier portfolio-related information and to
provide investors with access to monthly rather than quarterly
information.\16\ Specifically, the proposal would require all
registered investment companies that report on that form to file
monthly reports with the Commission within 30 days of month end. These
monthly reports would subsequently be available to the public 60 days
after month end.
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\16\ See Proposing Release, supra note 11.
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Commenters expressed differing views on the proposed amendments, as
discussed in more detail throughout this release.\17\ Some commenters
were supportive of requiring funds to file more frequently and
providing for greater public transparency.\18\ For instance, one
commenter suggested the proposed amendments would enhance the
Commission's ability to respond to market events due to increased
timeliness of data.\19\ Some commenters opposed the proposed
amendments. For example, some commenters suggested that it would be
burdensome for funds to file reports within 30 days.\20\ In addition,
some commenters expressed concern about more frequent public disclosure
resulting in front-running or copycatting of fund strategies.\21\
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\17\ The comment letters on the Proposing Release (File No. S7-
26-22) are available at https://www.sec.gov/comments/s7-26-22/s72622.htm.
\18\ See, e.g., Comment Letter of Better Markets (Feb. 14, 2023)
(``Better Markets Comment Letter''); Comment Letter of Dane (Nov.
10, 2022) (``Dane Comment Letter''); Comment Letter of Daniel Hof
zum Ahaus (Nov. 10, 2022) (``Hof zum Ahaus Comment Letter'');
Comment Letter of Taylor Myers (Feb. 15, 2023) (``Myers Comment
Letter'').
\19\ See Better Markets Comment Letter.
\20\ See, e.g., Comment Letter of T. Rowe Price (Feb. 14, 2023)
(``T. Rowe Comment Letter''); Comment Letter of The Charles Schwab
Corporation (Feb. 14, 2023) (``Schwab Comment Letter''); Comment
Letter of Investment Company Institute (Feb. 14, 2023) (``ICI
Comment Letter I''); Comment Letter of BlackRock, Inc. (Feb. 14,
2023) (``BlackRock Comment Letter''); Comment Letter of PIMCO (Feb.
13, 2023) (``PIMCO Comment Letter'').
\21\ See, e.g., Comment Letter of Dodge & Cox (Mar. 1, 2023)
(``Dodge & Cox Comment Letter I''); ICI Comment Letter I; Comment
Letter of PGIM Investments LLC (Feb. 14, 2023) (``PGIM Comment
Letter''); Comment Letter of Principal Financial Group (Feb. 14,
2023) (``Principal Comment Letter''); PIMCO Comment Letter.
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We are adopting, substantially as proposed, amendments requiring
that all registered investment companies that report on Form N-PORT
file monthly reports with the Commission within 30 days of month end.
Monthly report information will then be publicly available 60 days
after month end. These changes are intended to give investors
information to make more informed investment decisions and to give the
Commission timelier information to conduct comprehensive oversight of
an ever-evolving fund industry. We are also adopting conforming
amendments and amendments related to certain entity identifiers as
proposed. In a change from the proposal, we are not adopting the
proposed amendments to require funds to present portfolio holdings in
accordance with Regulation S-X more frequently than currently required.
We also are not adopting proposed reporting amendments relating to
funds' use of swing pricing or to liquidity classifications in this
release, as we are not adopting amendments to the underlying rules at
this time.
In addition to the Form N-PORT amendments, we are adopting proposed
amendments to Form N-CEN to modify certain items related to entity
identifiers and require open-end funds that are subject to liquidity
risk management program requirements under 17 CFR 270.22e-4 (rule 22e-
4) to report certain information about service providers used to
fulfill that rule's requirements. Further, we are adopting, as
proposed, technical amendments to Form N-PORT and Form N-CEN to update
the definition of ``exchange-traded fund'' in those forms to refer
directly to the Commission's exemptive rule for exchange-traded funds.
Finally, we are providing guidance related to open-end fund liquidity
risk management program requirements.
II. Discussion
A. Amendments to Form N-PORT
1. Filing Frequency
We are adopting, as proposed, amendments to rule 30b1-9 and Form N-
PORT to require funds to file reports on Form N-PORT on a more timely
basis, with changes to both the frequency with which a fund will file
reports on Form N-PORT and when the reports are due.\22\ Specifically,
rather than filing monthly reports with the Commission on a quarterly
basis, funds will be required to file reports on a monthly basis.\23\
These monthly filings will be due within 30 days after the end of the
month to which they relate, rather than no later than 60 days after the
end of the fiscal quarter.\24\
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\22\ The amendments also make a conforming edit to the filing
instructions for Form N-PORT. See amended 17 CFR 274.150(a).
\23\ We are also adopting conforming changes to General
Instruction A of Form N-PORT and to rule 30b1-9 to remove references
to the requirement for a fund to maintain in its records the
information that is required to be included on Form N-PORT no later
than 30 days after the end of each month. This requirement will no
longer be necessary because the information will be filed with the
Commission. See General Instruction A of amended Form N-PORT;
amended rule 30b1-9.
\24\ Id. As is the case currently, if the due date falls on a
weekend or holiday, the filing deadline will be the next business
day. See General Instruction A of amended Form N-PORT.
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Several commenters supported, or did not oppose, filing monthly
reports with greater frequency than currently required.\25\ Some
commenters expressed that filing information on Form N-PORT with
greater frequency would provide more timely information to the
Commission, which would enhance the
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Commission's ability to oversee funds.\26\ For example, one of these
commenters observed that more current information ``would have been
beneficial to regulators and policymakers in crafting regulatory and
legislative responses to the economic effects of the COVID-19
pandemic.'' \27\ Another stated that ``the combination of the quarterly
reporting requirement and the 60-day filing delay results in the
Commission receiving fund data that is stale, impeding the Commission's
ability to use Form N-PORT information,'' and that ``[m]onthly Form N-
PORT filings would enhance the Commission's ability to effectively
oversee funds and monitor their activities.'' \28\
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\25\ See, e.g., Better Markets Comment Letter (supporting
monthly reporting and with the proposed 30-day deadline after month
end); Dane Comment Letter (same); Comment Letter of Invesco Ltd.
(Feb. 13, 2023) (``Invesco Comment Letter'') (supporting monthly
reporting but suggesting a 45-day deadline after month end); Comment
Letter of J.P. Morgan Asset Management (Feb. 14, 2023) (``JP Morgan
Comment Letter'') (``not oppos[ing]'' monthly reporting but
suggesting a 60-day filing deadline.). See also BlackRock Comment
Letter; Hof zum Ahaus Comment Letter; Myers Comment Letter; ICI
Comment Letter I; PIMCO Comment Letter.
\26\ See, e.g., Better Markets Comment Letter; Dane Comment
Letter; Invesco Comment Letter.
\27\ Better Markets Comment Letter.
\28\ Invesco Comment Letter (supporting monthly reporting but
suggesting a 45-day deadline after month end).
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Some commenters opposed the proposed changes to the filing
frequency of Form N-PORT.\29\ These commenters stated that a monthly
filing cadence would significantly increase burdens on funds and fund
service providers, as well as costs to shareholders.\30\ Some of these
commenters suggested that monthly filing would increase the risk of
errors in reported information.\31\ In addition, some commenters
expressed concern that more frequent reporting would increase the risk
that reported information could be misappropriated.\32\
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\29\ See, e.g., Comment Letter of Brighthouse Financial, Inc.
(Feb. 13, 2023) (``Brighthouse Comment Letter''); PGIM Comment
Letter; Principal Comment Letter; T. Rowe Comment Letter.
\30\ See, e.g., Brighthouse Comment Letter (stating that monthly
reporting will increase costs associated with the preparation,
review, and filing of Form N-PORT reports; expanded vendor
engagements; increased human resources; and developing new systems,
processes, and procedures); PGIM Comment Letter; Principal Comment
Letter; T. Rowe Comment Letter.
\31\ See, e.g., PGIM Comment Letter; Principal Comment Letter;
T. Rowe Comment Letter.
\32\ See, e.g., Principal Comment Letter.
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Commenters had varying views on the timeline for filing monthly
reports. Some commenters supported the proposed 30-day filing
deadline.\33\ For example, one commenter stated that Form N-PORT
information may be up to five months old by the time it reaches the
Commission under the current timeline and that, by comparison, more
regular reporting would provide regulators with timely information
about funds.\34\ Some commenters suggested a shorter filing deadline,
such as one week, to reduce the staleness of the data.\35\ Several
commenters--including some commenters that opposed more frequent filing
and some that did not--said that, if the Commission requires more
frequent filing, then it should provide more time to file, for example,
45 or 60 days after month end.\36\ In particular, several commenters
expressed that reporting 30 days after month end would not provide
funds with enough time to compile, review, correct, and file the data
required by Form N-PORT.\37\ Some commenters stated that collecting
Form N-PORT data can take time in cases where a fund has to engage in
manual and time-consuming processes to obtain such information.\38\
Some commenters suggested that, although funds currently are required
to maintain the information necessary to prepare their reports on Form
N-PORT within 30 days after month end, filing this information will
involve additional steps that funds do not undertake for recordkeeping,
such as data validation and data tagging.\39\ Some commenters expressed
that the risk of reporting errors would go up if a fund is required to
complete additional filing steps on the same 30-day deadline that is
required for recordkeeping.\40\
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\33\ See, e.g., Better Markets Comment Letter; Dane Comment
Letter.
\34\ See Better Markets Comment Letter.
\35\ See Hof zum Ahaus Comment Letter (suggesting weekly filing
deadline with instant publishing); Myers Comment Letter (suggesting
a 15-day reporting period if not weekly).
\36\ See, e.g., T. Rowe Comment Letter (suggesting 60 days);
Schwab Comment Letter (suggesting 45 days); BlackRock Comment Letter
(suggesting 45 days); ICI Comment Letter I (suggesting 45 days);
PIMCO Comment Letter (suggesting 45 days generally and 60 days for
any periods for which a Form N-CSR will be filed); Comment Letter of
Carol Singer (Dec. 13, 2022) (``Singer Comment Letter'') (suggesting
60 days, at least for small reporting entities); Dodge & Cox Comment
Letter I (suggesting 60 days).
\37\ See, e.g., BlackRock Comment Letter; ICI Comment Letter I;
PIMCO Comment Letter; T. Rowe Comment Letter.
\38\ See ICI Comment Letter I (suggesting that these concerns
are especially acute for funds investing in certain fixed income
securities and derivatives to report certain adjustments on the
form); see also T. Rowe Comment Letter (stating that a portion of
monthly Form N-PORT data is gathered from internal systems that, in
certain cases, must be manually updated).
\39\ See, e.g., ICI Comment Letter I; Invesco Comment Letter.
\40\ See, e.g., ICI Comment Letter I; T. Rowe Comment Letter
(stating that a 30-day deadline would provide insufficient time for
resolving data issues prior to filing, even with increased
resources). See also BlackRock Comment Letter (expressing that 30
days is not enough for data quality reviews, ``which are important
for funds (who want to avoid errors) and for the SEC (for which data
integrity is important)'').
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A number of commenters also expressed that requiring monthly
reporting within 30 days of month end would overburden funds (including
fund internal systems and processes) and service providers.\41\ Some
commenters discussed overlap in teams that prepare, review, and file
Form N-PORT with those that are involved with other required filings
and suggested that a 30-day filing timeline for Form N-PORT would cause
strains on these teams.\42\ Two commenters suggested that these strains
would be pronounced for the months following the end of the reporting
period that annual and semiannual reports are due.\43\ Some commenters
expressed concern that costs associated with filing within a shorter
timeframe--such as costs of increased service provider fees, hiring
more personnel, upgrading systems, and/or resubmitting filings--would
be borne by fund shareholders.\44\
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\41\ See, e.g., Comment Letter of Fidelity Investments (Feb. 14,
2023) (``Fidelity Comment Letter''); ICI Comment Letter I; Singer
Comment Letter; T. Rowe Comment Letter; Invesco Comment Letter.
\42\ See, e.g., Singer Comment Letter; T. Rowe Comment Letter.
See also ICI Comment Letter I.
\43\ See PIMCO Comment Letter (suggesting extending the Form N-
PORT timeline to 45 days after month end generally and 60 days for
any periods for which a Form N-CSR will be filed); Singer Comment
Letter.
\44\ See, e.g., ICI Comment Letter I; Principal Comment Letter.
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Some commenters suggested that funds need more than 30 days to file
Form N-PORT reports due to changes to the reporting requirements of
Form N-PORT since the form was adopted and in consideration of
additional changes to the reporting requirements that the Commission
had proposed. For example, some commenters stated that reporting
requirements associated with derivatives and liquidity risk management
that were adopted after Form N-PORT was adopted have introduced
additional complexity to the form.\45\ In addition, some commenters
stated that amendments to Form N-PORT that had been proposed in certain
other rulemakings, but not adopted at the time of their comment
letters, would increase the form's complexity, if adopted.\46\ Some
commenters also stated that other proposed amendments to Form N-PORT in
the Proposing Release, such as those requiring Regulation S-X compliant
presentations of portfolio schedules for additional months, would
introduce complexity and necessitate more time to produce.\47\
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\45\ See, e.g., BlackRock Comment Letter; PIMCO Comment Letter.
\46\ See, e.g., BlackRock Comment Letter; PIMCO Comment Letter;
ICI Comment Letter I; Invesco Comment Letter.
\47\ See, e.g., T. Rowe Comment Letter; Singer Comment Letter;
ICI Comment Letter I. These commenters also raised similar concerns
with respect to proposed reporting requirements that we are not
adopting (including information about the application of swing
pricing), as we are not adopting amendments to the relevant
underlying rules at this time. See supra paragraph following note
21.
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[[Page 73769]]
Some commenters opposed the proposed requirement that funds file
Form N-PORT reports on a monthly basis within 30 days of the end of the
reporting period because of concerns about data security.\48\ In
particular, these commenters expressed concerns about the possibility
of confidential and proprietary nonpublic information reported on Form
N-PORT being misappropriated as a result of unauthorized access to such
information.\49\ Some commenters expressed concerns about the
Commission's ability to protect and maintain Form N-PORT data based on
a 2022 SEC Office of Inspector General report, which indicated that the
Commission must make certain enhancements to be deemed ``effective''
under the Federal Information Security Modernization Act reporting
metrics for agency information security programs.\50\ Most commenters
expressing concern about data security stated that a somewhat longer
filing deadline (i.e., 45 or 60 days after month end) would reduce the
risks associated with a data breach.\51\ Some commenters stated that a
longer filing deadline would reduce risks associated with a breach
because the Commission would retain a fund's nonpublic portfolio-
related information for less time, which would decrease the likelihood
of misappropriation in the event of a breach.\52\
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\48\ See, e.g., Dodge & Cox Comment Letter I; ICI Comment Letter
I; Invesco Comment Letter; Principal Comment Letter.
\49\ See, e.g., Dodge & Cox Comment Letter I; ICI Comment Letter
I; Invesco Comment Letter.
\50\ See ICI Comment Letter I; Invesco Comment Letter.
\51\ See, e.g., Dodge & Cox Comment Letter I (suggesting 60
days); ICI Comment Letter I (suggesting 45 days); Invesco Comment
Letter (suggesting 45 days).
\52\ See, e.g., Dodge & Cox Comment Letter I; ICI Comment Letter
I; Invesco Comment Letter.
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A few commenters suggested that the proposed amendments would pose
particular burdens for certain types of funds. For instance, a few
commenters expressed concern about additional burdens for registered
closed-end funds.\53\ One of these commenters requested that we revise
the proposed reporting period for closed-end funds because certain
closed-end funds may not calculate a net asset value (``NAV'') on a
monthly basis or, due to the assets they hold, may calculate their NAV
on a significant delay, and therefore the proposal may cause certain
closed-end funds to change their valuation processes because of the
proposed requirement to report the fund's NAV in each monthly
report.\54\ Another commenter indicated that the shorter filing
timeline would especially burden funds with complex investment
strategies, such as alternative funds.\55\
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\53\ See, e.g., Comment Letter of Neuberger Berman Group LLC
(Feb. 14, 2023) (``Neuberger Berman Comment Letter''); PGIM Comment
Letter.
\54\ See Neuberger Berman Comment Letter.
\55\ See Fidelity Comment Letter.
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After considering comments, we are adopting, as proposed,
amendments to rule 30b1-9 and Form N-PORT requiring funds to file
reports on Form N-PORT on a monthly basis within 30 days after the end
of the month to which they relate. Monthly reporting rather than
quarterly reporting will provide more frequent and timely information
to the Commission. More frequent and timely reporting of portfolio
holdings information to the Commission will enable us to further our
mission to protect investors by assisting the Commission and its staff
in carrying out its regulatory responsibilities related to the asset
management industry. These responsibilities include examination,
enforcement, and monitoring of funds; formulation of policy; and the
staff's review of fund registration statements and disclosures.\56\
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\56\ See Reporting Modernization Adopting Release, supra note 5,
at section IV.A. We note that receiving more timely data will allow
the staff to include more timely data in the staff's Registered Fund
Statistics public report, which provides to the public aggregated
summary statistics derived from Form N-PORT data. Having more timely
data in these public reports will provide investors and other data
users with aggregate data that is more reflective of then-current
fund portfolio information.
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As an example, and as discussed above and in the Proposing Release,
recent market stress events, such as the beginning of the COVID-19
pandemic and Russia's invasion of Ukraine, have further reinforced the
Commission's need for timely data regarding funds' portfolios and the
liquidity of those portfolios. The current months-long delay between
the end of the month to which the information relates and when the
Commission receives Form N-PORT data has limited the Commission staff's
ability to develop a more complete understanding of the market on a
timely basis, which is particularly important during major market
events. During these events, staff assess and identify how the events
are affecting funds and, as needed, develop appropriate regulatory
responses. For example, and as discussed above, having more frequent
and timely data during market stress events would enhance the ability
of Commission staff systematically to determine if impacts on funds are
isolated or widespread. This in turn could inform whether regulatory
relief or other emergency actions, like emergency relief to allow funds
to suspend redemptions, may be necessary and on what scale (e.g.,
whether relief should be given to all or a large portion of funds or,
instead, staff should conduct targeted outreach to only a handful of
potentially affected funds). Further, stale data also can impede our
ability to contribute fully to interagency collaboration often
necessary to fashion appropriate responses to market events. During a
major market event, more timely data would better inform whether
coordinated interagency government actions may be necessary, and if so,
the scale and parameters of those actions.
Other available means for acquiring timely data have not been an
effective substitute for moving from a quarterly filing requirement to
a monthly filing requirement. While, as some commenters pointed out,
funds currently are required to produce monthly data upon request by
the Commission staff, any such production would be done on an
individual basis.\57\ Making individual requests requires Commission
staff to determine the appropriate funds from which to collect data,
which can be particularly challenging when Commission staff is
responding to market events and may not have the market data necessary
to determine quickly which funds to prioritize in responding to the
event. Moreover, effectively assessing the impact of a market event
generally requires comprehensive data across funds, for example to
assess the extent funds or areas of the market may be affected and to
evaluate those impacts in the context of the market as a whole. This
analysis is facilitated by timely reports on Form N-PORT and often
cannot be efficiently assembled in a timely manner from individual
requests to funds even if the Commission were able to determine the
funds or types of funds most likely to be affected. As a result, we are
not retaining the quarterly filing cadence as some commenters
suggested.
---------------------------------------------------------------------------
\57\ See, e.g., ICI Comment Letter (citing rule 30b1-9).
---------------------------------------------------------------------------
The requirement we are adopting for funds to file Form N-PORT
reports within 30 days of month end is consistent with the Commission's
historical determination that access to Form N-PORT information no
later than 30-days following month end is important to further our
mission to protect investors. When the Commission adopted Form N-PORT,
it considered some commenters' requests for a monthly reporting
deadline of 45 or 60
[[Page 73770]]
days after month end. The Commission declined to provide additional
time, stating that it would reduce the utility of portfolio information
to the Commission and would make monthly reporting impractical, as
reports would overlap with preparation time.\58\ When the Commission
adopted the interim final rule to move to a quarterly filing
requirement, it required funds to maintain the Form N-PORT data in
their records 30 days after the end of each month to ensure that the
Commission can receive more timely information, when necessary.\59\ The
Commission stated that the ability to collect information in a timely
fashion through examination authority, and evaluate such information
for compliance with the Federal securities laws, is essential to its
mission of protecting investors and securities markets.\60\
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\58\ See Reporting Modernization Adopting Release, supra note 5,
at paragraph accompanying n.461.
\59\ See 2019 Form N-PORT Timing Amendments, supra note 8, at
paragraph following n.34.
\60\ See id. at paragraph accompanying n.43.
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Our experience with recent market events supports and highlights
our original position that more immediate access to Form N-PORT
information is important to our mission, and at the same time
highlights weaknesses in an approach that relies on receiving more
timely Form N-PORT information through staff requests for records of
individual funds. As a general matter, any delays in receipt of
information can affect the Commission's and the staff's ability to use
Form N-PORT information to carry out the Commission's regulatory
function for the asset management industry.\61\ We are providing funds
with 30 days to file information after the end of a given month to
balance our need for timely information with considerations about the
time and costs for funds to gather and file information accurately, as
well as the sensitivity of the filed information.
---------------------------------------------------------------------------
\61\ These functions include examination, enforcement, and
monitoring of funds; formulation of policy; and the staff's review
of fund registration statements and disclosures.
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The requirement to file Form N-PORT reports within 30 days of month
end builds on the existing regulatory framework, as funds are already
required to adhere to the 30-day deadline for recordkeeping
purposes.\62\ Thus, funds currently are required to gather and record
the data within 30 days of month end, and fund records must be
accurate. The costs involved with the final amendments, therefore, are
limited to those associated with a more compressed time period to both
gather the data and undertake additional processes associated with
filing the data, such as data validation and tagging. As discussed
below, the costs a fund will incur will turn on a variety of factors,
including the extent to which the fund uses manual or automated
processes in connection with its Form N-PORT reports, the complexity of
the fund's strategy, the extent to which the fund uses a service
provider to help prepare or file the reports, and how the fund
currently maintains its records of information for the reports.
---------------------------------------------------------------------------
\62\ Id.
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Overall, we recognize that filing the recorded information within
the 30-day deadline will likely increase burdens for funds (including
fund internal systems and processes) and service providers relative to
the current quarterly filing requirement or a monthly filing
requirement with a longer filing delay (e.g., 45 or 60 days). For
instance, even though currently the information must be accurately
gathered and recorded within 30 days, with a 30-day filing deadline, we
recognize that funds must engage in additional processes associated
with filing this information, and for funds that retain a service
provider to file reports on behalf of the fund or otherwise help
prepare Form N-PORT reports, there will be less time for coordination
between the fund and service provider. Funds and their service
providers also may need to collect the required information more
quickly than they currently do to provide additional time to prepare
the information for filing or for coordination among funds and service
providers prior to filing. To the extent that funds and their service
providers need to collect the required information more quickly for
these purposes, this will present more challenges for funds and service
providers that currently use manual processes to obtain some
information, as opposed to funds and service providers that are able to
pull data in a completely automated manner from internal systems.
Similarly, it likely will present more challenges for funds with more
complex strategies and their service providers in comparison to those
with less complex strategies. In addition, we understand that increased
costs may be passed on to fund shareholders.
We understand that the need to file Form N-PORT reports on a
monthly basis, rather than a quarterly basis, will increase the
workload of personnel or service providers that focus specifically on
filing-related processes. We also recognize that the fund's adviser may
be working to meet other regulatory reporting obligations during the
same period it is working to prepare monthly Form N-PORT reports, as
commenters suggested. This effect may be more pronounced at certain
times of the year, such as around the time a fund's annual proxy voting
report is due or, as some commenters suggested, annual and semiannual
shareholder reports are due.\63\ As a result, the fund's adviser may
need to make changes to timely meet all reporting obligations, such as
increasing the use of service providers for reporting purposes or
improving efficiency in the reporting process by, for example, updating
internal systems and/or reducing the use of manual processes.
---------------------------------------------------------------------------
\63\ See supra note 43. We considered providing additional time
to file Form N-PORT reports for any period for which annual or
semiannual reports on Form N-CSR are due, as one commenter
suggested. See PIMCO Comment Letter. However, because funds file
Form N-CSR reports at different points in the year, such an approach
generally would result in the Commission not having as timely access
to all funds' portfolio information for any month of the year.
---------------------------------------------------------------------------
Some funds may also incur increased costs to transition from
quarterly filing to monthly filing as a result of the requirement to
file Form N-PORT reports in an eXtensible Markup Language (``XML'')
based structured data language. For purposes of Form N-PORT, funds do
not manually enter fund data through, for example, a pre-formatted web
form, and must submit the information in an XML-based structured data
language. While funds are not required to store their records in an XML
structured data language, the Commission has stated that doing so would
facilitate the filing of Form N-PORT reports.\64\
---------------------------------------------------------------------------
\64\ See 2019 Form N-PORT Timing Amendments, supra note 8, at
text following n.34.
---------------------------------------------------------------------------
In considering the burdens and costs associated with the final
amendments, we believe that commenters have overstated the extent to
which Form N-PORT reporting burdens have increased since the Commission
initially adopted the requirement in 2016 to file reports on Form N-
PORT within 30 days of month end. A few commenters mentioned reporting
changes related to liquidity risk management.\65\ The Commission
adopted the bulk of the liquidity-related reporting requirements on the
same day it adopted Form N-PORT in 2016.\66\ Since the Commission
adopted Form N-PORT, liquidity-related amendments to the form have not
had significant effects on the form's
[[Page 73771]]
reporting burdens.\67\ Some commenters suggested that derivatives-
related changes to the reporting requirements have added complexity to
the form. However, the derivatives-related reporting the Commission
added in 2020 generally requires funds to report information they are
already required to have for purposes of complying with 17 CFR 270.18f-
4 (rule 18f-4).\68\
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\65\ See, e.g., BlackRock Comment Letter; PIMCO Comment Letter.
\66\ See Investment Company Liquidity Risk Management Programs,
Investment Company Act Release No. 32315 (Oct. 13, 2016) [81 FR
82142 (Nov. 18, 2016)] (``Liquidity Rule Adopting Release''), at
n.120.
\67\ See Investment Company Liquidity Disclosure, Investment
Company Act Release No. 33142 (June 28, 2018) [83 FR 31859 (July 10,
2018)] (removing from Form N-PORT the requirement to report
aggregate liquidity classification information, adding a requirement
to report holdings of cash and cash equivalents, and allowing funds
to report multiple liquidity classification categories for a single
position under specified circumstances). As the Commission discussed
in its economic analysis, funds would no longer incur costs
associated with reporting an aggregate liquidity profile, and the
costs of reporting holdings of cash and cash equivalents was not
expected to be significant because funds already needed to keep
track of their cash and cash equivalents for valuation purposes.
Id., at paragraph accompanying n.146. The amendment to allow funds
to report multiple liquidity classifications for a single investment
is optional and, as the Commission previously recognized, a fund
could choose not to use this option if it had negative consequences.
Id., at paragraph accompanying n.168.
\68\ See Use of Derivatives by Registered Investment Companies
and Business Development Companies, Investment Company Act Release
No. 34084 (Nov. 2, 2020) [85 FR 83162 (Dec. 21, 2020)], at section
II.G.1 (requiring funds that are limited derivatives users under
rule 18f-4 to report information about their derivatives exposures
and requiring funds that are subject to the limit on fund leverage
risk in the rule to provide VaR information). See Items B.9 and B.10
of Form N-PORT.
---------------------------------------------------------------------------
Some commenters expressed concern about potential reporting burdens
associated with other amendments to Form N-PORT that had been proposed
but not yet adopted at the time of the comments. These commenters
primarily discussed potential reporting burdens associated with a
Commission proposal related to the names rule, 17 CFR 270.35d-1 (rule
35d-1).\69\ The Commission has subsequently adopted amendments to Form
N-PORT associated with the names rule, with modifications to the
proposed requirements (e.g., requiring less frequent and a reduced
amount of names-related information compared to the proposal) that
should reduce costs compared to that proposal.\70\
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\69\ See, e.g., BlackRock Comment Letter; PIMCO Comment Letter;
ICI Comment Letter I; Invesco Comment Letter. One commenter also
suggested that a Commission proposal that would require enhanced
disclosure about environmental, social, and governance investment
practices would increase the complexity of Form N-PORT. See PIMCO
Comment Letter. However, that proposal did not include amendments to
Form N-PORT, and the Commission has not adopted that proposal at
this time. See Enhanced Disclosure by Certain Investment Advisers
and Investment Companies About Environmental, Social, and Governance
Investment Practices, Investment Company Act Release No. 34594 (May
25, 2022) [87 FR 36654 (June 17, 2022)].
\70\ See Investment Company Names, Investment Company Act
Release No. 35000 (Sept. 20, 2023) [88 FR 70436 (Oct. 11, 2023)]
(``Names Rule Adopting Release''), at sentence accompanying n.391.
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Similarly, while some commenters expressed concerns that proposed
Form N-PORT changes in the Proposing Release would make compliance with
the 30-day deadline overly burdensome, we are not adopting many of the
proposed changes to Form N-PORT cited by the commenters.\71\ In
particular, in a change from the proposal, we are not requiring funds
to file Regulation S-X compliant portfolio disclosure 10 times per year
instead of two times per year.\72\ In addition, in another change from
the proposal, funds will not be required to report swing pricing-
related information on Form N-PORT because we are not adopting the
proposed requirements related to swing pricing.\73\
---------------------------------------------------------------------------
\71\ See, e.g., T. Rowe Comment Letter; Singer Comment Letter;
ICI Comment Letter I.
\72\ See Proposing Release, supra note 11, at section II.E.1.d.
\73\ See id.
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We also recognize that requiring funds to file monthly Form N-PORT
reports within 30 days of month end may increase the risk of reporting
errors relative to the current quarterly filing requirement or a
monthly reporting requirement with a longer filing delay (e.g., 45 or
60 days), as funds will be required to both gather the data and prepare
it for filing within 30 days whereas today they must gather and record
accurate data for recordkeeping purposes on this timeline. To reduce
the risk of errors in the filing process, and to mitigate costs more
generally, we are providing an extended implementation period during
which funds will be able to update their Form N-PORT reporting
processes to prepare for the requirement to file monthly information
within 30 days of month end. In particular, funds may seek to enhance
the efficiency of fund filing processes and potentially reduce the risk
of filing-related errors, such as ways to reduce any manual steps or
ways to streamline interactions with any service providers. To the
extent that funds are able to improve their processes in a cost-
effective manner to gather data, such as by reducing manual processes,
this will provide additional time to prepare the data for filing within
the 30-day period and reduce the likelihood of reporting errors. To the
extent a fund identifies an error in its report after the filing
deadline, it can file an amendment to correct the error, as currently
permitted.\74\
---------------------------------------------------------------------------
\74\ See General Instruction A of Form N-PORT.
---------------------------------------------------------------------------
Overall, the Commission's historical view has been that there is
not a significant burden differential between maintaining required
information in a fund's records and filing that information on Form N-
PORT.\75\ We acknowledge that the amendments will likely introduce some
burdens, as discussed above, but these burdens are unlikely to be
significant given that funds are already required to maintain records
of the information Form N-PORT requires within the same 30-day deadline
in which the amendments will require funds to file Form N-PORT reports.
---------------------------------------------------------------------------
\75\ See 2019 Form N-PORT Timing Amendments, supra note 8, at
n.67 and accompanying text (stating that increasing the Form N-PORT
filing delay and requiring funds to maintain in their records the
information that is required to be included on Form N-PORT no later
than 30 days after the end of each month likely would not
meaningfully change the costs for submitting the form and keeping
records, but adding that to the extent it is more efficient for fund
groups to submit all three monthly filings in one batch at quarter-
end, costs may be marginally reduced by the shift from a monthly to
a quarterly filing requirement). See also Investment Company
Reporting Modernization, Investment Company Act Release No. 32936
(Dec. 8, 2017) [82 FR 58731 (Dec. 14, 2017)], at paragraph
accompanying n.56 (stating that the cost savings for large fund
groups associated with a delay in submitting Form N-PORT and a delay
in preparing funds' systems to accommodate the XML Form N-PORT
format requirement would be minimal because during the delay the
large fund groups were still required to compile the information
that is required to be included in Form N-PORT).
---------------------------------------------------------------------------
Further, we do not believe that extending the filing deadline to 45
or 60 days after month end, or retaining the current quarterly filing
cadence, is warranted to address data security, including
misappropriation, concerns. As the Commission has previously stated, it
employs an array of actions to safeguard and protect the
confidentiality and security of all information reported to EDGAR,
which includes data reported on Form N-PORT.\76\ In addition, the
Commission has engaged in a multi-year, multi-phase effort to modernize
the EDGAR system, including both internal and public-facing
components.\77\ The Commission also has gained additional experience in
receiving and maintaining sensitive portfolio data on the EDGAR system.
This experience includes, for example, the existing nonpublic portions
of Form N-PORT, which are subject to controls and systems designed to
protect their
[[Page 73772]]
confidentiality, as well as confidential treatment requests for reports
on Form 13F.\78\
---------------------------------------------------------------------------
\76\ See Annual Report on SEC website Modernization Pursuant to
Section 3(d) of the 21st Century Integrated Digital Experience Act
(Dec. 2022), available at https://www.sec.gov/files/21st-century-idea-act-report-2022-12.pdf.
\77\ Id.
\78\ See, e.g., Electronic Submission of Applications for Orders
under the Advisers Act and the Investment Company Act, Confidential
Treatment Requests for Filings on Form 13F, and Form ADV-NR;
Amendments to Form 13F, Investment Company Act Release No. 34635
(June 23, 2022) [87 FR 38943 (June 30, 2022)], at section II.C.
---------------------------------------------------------------------------
We also recognize that the Commission, like all Federal agencies,
faces persistent and increasingly sophisticated malicious cyber-attacks
that threaten the agency's technology systems and infrastructure. If
successful, a cyber-attack could expose registrants' and other market
participants' data. In this regard, the Commission is continuously
working to improve its efforts to identify, deter, protect against,
detect, and respond to these threats and actors. In addition, the
Commission reports on required information technology security metrics
and cybersecurity incidents to the appropriate oversight entities,
including the SEC Office of Inspector General, the Office of Management
and Budget (``OMB''), and the Cybersecurity and Infrastructure Security
Agency (``CISA'').\79\
---------------------------------------------------------------------------
\79\ See 44 U.S.C. 3554(b)(7), 3555. See also OMB M-24-04,
Fiscal Year 2024 Guidance on Federal Information Security and
Privacy Management Requirements (Dec. 4, 2023).
---------------------------------------------------------------------------
Considering that the information funds are required to report has
not significantly changed since 2016 when the Commission adopted a
requirement to report monthly information within 30 days of month end
and funds are currently required to accurately maintain in their
records the same monthly information required by Form N-PORT within 30
days of each month end, the costs of filing monthly Form N-PORT
information within 30 days of month end will be justified by the
benefits of timelier information for the staff's oversight purposes,
particularly in connection with market events.
The requirement to file Form N-PORT reports within 30 days of month
end will apply to all funds required to report on the form, and we are
not providing a different reporting timeline for certain types of
funds, such as closed-end funds. Based on staff experience, it is our
understanding that most closed-end funds strike their NAVs on at least
a monthly basis.\80\ We understand that some closed-end funds may not
calculate NAVs on a monthly basis due to the assets they hold, or they
may calculate their NAVs with a significant delay. These funds can
strike their NAVs for Form N-PORT reporting purposes by using the
internal methodologies consistent with how they currently report
internally and to current and prospective investors.\81\ These funds
currently are required to maintain a NAV in their monthly records and
report the monthly records on Form N-PORT within 60 days of quarter
end. Thus, the amendments are not changing the information these funds
must collect and instead are changing the deadline by which required
information must be filed with the Commission.
---------------------------------------------------------------------------
\80\ See Reporting Modernization Adopting Release, supra note 5,
at n.460 and accompanying text (stating that, ``[b]ased upon staff
experience, it is [the Commission's] understanding that most closed-
end funds strike their NAV on at-least a monthly basis,'' but that
funds that do not do so may report information on Form N-PORT by
using their internal methodologies consistent with how they report
internally and to current and prospective investors under General
Instruction G of Form N-PORT).
\81\ See General Instruction G of Form N-PORT; Reporting
Modernization Adopting Release, supra note 5, at n.460 and
accompanying text.
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We recognize that a few commenters recommended a shorter filing
deadline than we are adopting, with one commenter stating that
requiring funds to report on Form N-PORT 30 days after month end will
not provide the Commission with data that is timely in light of the
speed with which markets change. While receiving information within a
shorter period of time would enhance the staff's ability to use Form N-
PORT information, particularly during periods of market stress, we are
adopting a 30-day filing requirement because information with that
degree of delay is still useful to meet the Commission's and the
staff's needs, and requiring reporting within a shorter window would
involve more substantial costs and increase the risk of errors in the
reported information. In contrast, the 30-day filing deadline we are
adopting aligns with the current timeline for funds to maintain records
of Form N-PORT information, which mitigates the costs and risks of
errors, in comparison to a shorter deadline, because funds already
gather and record the required information within 30 days. Requiring
funds to file more quickly than 30 days also could present greater data
security risks because the confidential portfolio data maintained on
EDGAR would be more sensitive. As a result of these considerations, we
are adopting a 30-day filing timeline to balance the benefits and costs
of timelier availability of information.
We recognize that there are tradeoffs regarding the timeframe in
which funds must file portfolio-related information on Form N-PORT. The
more frequently and more quickly this information is filed, the more
likely it is to reflect reasonably current portfolio information, which
enhances the Commission staff's ability to oversee and monitor funds'
activities. More frequent and more timely data allows Commission staff
to conduct more targeted and prompt monitoring, such as identifying
funds that hold securities of issuers that may be under stress or
affected by wider stress events. It also would allow Commission staff
to analyze risks and trends more accurately, including allowing
Commission staff to better understand risks and trends as they develop
and change. Finally, more frequent and more timely data would allow
Commission staff to better assess potential impacts of market events
affecting particular issuers, asset classes, counterparties, or market
participants, including to analyze the potential impact of a market
event and inform whether emergency action by the Commission or
coordinated interagency action may be appropriate as discussed above.
In turn, effective regulatory oversight ultimately benefits investors.
At the same time, filing information more frequently and quickly
increases the costs and the potential for errors in the filed
information and, for funds that do not publicly disclose their
portfolio holdings within 30 days of month end, increases the
sensitivity of the filed information and the associated risks of
misappropriation. Conversely, less frequent and longer filing periods
reduce the utility of the information for staff oversight and
monitoring activities and decrease the benefits of these activities for
investors, while also reducing costs, errors, and data sensitivity.
After considering these tradeoffs, we have determined that, on the
whole, reporting monthly information within 30 days of month end--
including alignment with current recordkeeping requirements--
appropriately balances these competing concerns.
2. Publication Frequency
We are adopting, as proposed, amendments making funds' monthly
reports on Form N-PORT public 60 days after the end of the month.\82\
Currently, only the report for the third month of every quarter is made
public upon filing, due 60 days after the end of that month. This means
the amount of data made available to investors on Form N-PORT in a
given year will triple as a result of the amendments. Thus, these
amendments will enhance the
[[Page 73773]]
ability of investors to review and monitor information about their
funds' portfolios. Certain information reported on Form N-PORT is
currently nonpublic, even in the report for the third month of the
quarter that is otherwise publicly available.\83\ This aspect of the
form remains unchanged by the amendments, and that information--which
includes liquidity classifications for individual portfolio
investments--will remain nonpublic in individual reports. However,
Commission staff may publish aggregate or other anonymized information
about the nonpublic elements of reports on Form N-PORT.\84\
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\82\ See General Instruction F of amended Form N-PORT.
\83\ The Commission does not intend to make public the
information reported on Form N-PORT with respect to a fund's highly
liquid investment minimum (Item B.7), derivatives transactions (Item
B.8), derivatives exposure for limited derivatives users (Item B.9),
median daily VaR (Item B.10.a), median VaR Ratio (Item B.10.b.iii),
VaR backtesting results (Item B.10.c), country of risk and economic
exposure (Item C.5.b), delta (Items C.9.f.v, C.11.c.vii, or
C.11.g.iv), liquidity classification for individual portfolio
investments (Item C.7), or miscellaneous securities (Part D), or
explanatory notes related to any of those topics (Part E) that is
identifiable to any particular fund or adviser. See General
Instruction F of amended Form N-PORT.
\84\ See General Instruction F of Form N-PORT.
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Comments on the proposal to increase publication frequency were
mixed. Several commenters expressed general support for the proposal
because it would increase transparency.\85\ For example, one commenter
expressed that the burden on fund administrative staff in implementing
increased Form N-PORT reporting requirements does not justify the
corresponding lack of transparency based on the commenter's beliefs
about the sophistication of funds' systems.\86\ Some commenters that
supported the publication of each month's Form N-PORT preferred a
publication delay shorter than 60 days. These commenters generally
stated that the information would be stale and less useful to investors
if delayed by 60 days.\87\ For example, one of these commenters pointed
to the extent to which markets can move over a 30-day period in
suggesting more rapid public disclosure, while another urged that
concerns about copycatting should not impede more rapid public
disclosure.\88\
---------------------------------------------------------------------------
\85\ See, e.g., Comment Letter of Brad (Nov. 16, 2022) (``Brad
Comment Letter''); Comment Letter of Mathieu Charbonneau (Nov. 10,
2022) (``Charbonneau Comment Letter''); Dane Comment Letter; Myers
Comment Letter; Comment Letter of Derek Saucie Raulz (Nov. 16, 2022)
(``Raulz Comment Letter''); Comment Letter of Yonatan Gershon (Nov.
20, 2022) (``Gershon Comment Letter'').
\86\ See Dane Comment Letter.
\87\ See, e.g., Hof zum Ahaus Comment Letter (suggesting a one-
week delay between the end of the month and filing that month's Form
N-PORT report and instant publication after filing); Comment Letter
of Gregory Brandano (Nov. 11, 2022) (``Brandano Comment Letter'')
(suggesting a five-day delay); Gershon Comment Letter; Myers Comment
Letter (suggesting a lag time before a report is available to the
public of either 15 days or a week).
\88\ Hof zum Ahaus Comment Letter; Myers Comment Letter.
---------------------------------------------------------------------------
Some commenters opposed the proposed amendments.\89\ These
commenters generally favored maintaining the existing Form N-PORT
publication schedule of every third month, with a 60-day delay.\90\
Some commenters expressed that more frequent public disclosure would
not benefit fund shareholders.\91\ For example, one commenter suggested
that shareholders of its open-end funds would not benefit from monthly
publication of Form N-PORT data since the funds currently disclose
their portfolio holdings on a public website every month. This
commenter stated that publication of portfolio information on a fund
website is better tailored to providing investors with timely
information.\92\ Another commenter expressed that monthly reports on a
60-day lag only offer incrementally more useful information compared to
quarterly reports.\93\ Another commenter suggested that public
disclosure of monthly Form N-PORT reports was inconsistent with the
Commission's recent determination to exclude the list of a fund's
portfolio holdings from tailored shareholder reports.\94\
---------------------------------------------------------------------------
\89\ See, e.g., Dodge & Cox Comment Letter I; Comment Letter of
Intercontinental Exchange, Inc. (Feb. 14, 2023) (``ICE Comment
Letter''); PGIM Comment Letter; Principal Comment Letter.
\90\ See, e.g., Dodge & Cox Comment Letter I; ICI Comment Letter
I; PGIM Comment Letter.
\91\ See, e.g., ICE Comment Letter; Principal Comment Letter;
ICI Comment Letter I.
\92\ See Principal Comment Letter.
\93\ See ICE Comment Letter.
\94\ See ICI Comment Letter I.
---------------------------------------------------------------------------
Some commenters stated that publicizing each month's Form N-PORT
information, rather than every third month's information, could
increase the risk of predatory trading by other market participants and
ultimately harm funds and their shareholders.\95\ Some commenters
expressed that publicizing portfolio holdings on a monthly basis could
result in other market participants being able to use automated tools
to reverse-engineer portfolio decisions to engage in predatory behavior
such as front-running or free-riding.\96\ One of these commenters
indicated that, since the adoption of Form N-PORT, artificial
intelligence use has increased, which this commenter believed could
increase the risk that more frequent publication of Form N-PORT reports
would lead to predatory trading.\97\ Some commenters expressed that the
decision by certain funds to not disclose portfolio holdings
information publicly indicated that each of these funds has determined
that disclosing such information is not appropriate for the fund.\98\
For example, one of these commenters asserted that it does not
voluntarily disclose more portfolio holdings information than required
to protect the fund's intellectual property for the benefit of
investors.\99\ The commenter also expressed that actively managed value
funds tend to build and liquidate positions over time, so these funds
may be particularly vulnerable to predatory trading as a result of more
frequent disclosure of portfolio holdings.\100\ In addition, the
commenter stated that while it tries to time its purchases of new
investments to avoid being active in the market at the time it is
required to disclose its portfolio, moving to a monthly disclosure
schedule would make this more difficult.\101\ The commenter asserted
that this likely would increase trading costs borne by shareholders by
exposing investment decisions before they are fully implemented or
resulting in condensed buying activity that affects the fund's ability
to maintain an optimal degree of price discipline.\102\
---------------------------------------------------------------------------
\95\ See, e.g., Dodge & Cox Comment Letter I; ICI Comment Letter
I; JP Morgan Comment Letter; PGIM Comment Letter; Principal Comment
Letter.
\96\ See JP Morgan Comment Letter. See also ICI Comment Letter
I.
\97\ See ICI Comment Letter I.
\98\ See, e.g., Dodge & Cox Comment Letter I; ICI Comment Letter
I.
\99\ Dodge & Cox Comment Letter I.
\100\ See Dodge & Cox Comment Letter I; Comment Letter of Dodge
& Cox (July 12, 2023) (``Dodge & Cox Comment Letter II'').
\101\ Dodge & Cox Comment Letter II.
\102\ Id.
---------------------------------------------------------------------------
After considering the comments, we have determined that publication
of information collected on Form N-PORT with a 60-day delay
appropriately balances the benefits to investors of receiving
additional data on portfolio holdings while mitigating the concerns
raised by commenters about predatory trading. The benefits to fund
investors and other users of Form N-PORT reports include assisting
investors in making more informed investment decisions.\103\ For
instance, institutional investors or data analysts assisting retail
investors could directly use the monthly information to evaluate
portfolios and assess the potential for returns and risks of a
particular fund. As another example, data aggregators, broker-dealers,
investment advisers, and others that provide investment information to
[[Page 73774]]
fund investors will have more data and in some cases more recent data
to use in generating analyses for investors that in turn can help
investors to monitor better the extent to which their investment
portfolios overlap and to assess how a fund is complying with its
stated investment objective, including deviations from that objective
(i.e., style drift). In addition, more standardized portfolio
disclosures may allow data aggregators and financial professionals to
provide information and advice that makes investors better informed
about managerial skill by reducing the imbalance of information between
fund investors and managers.\104\
---------------------------------------------------------------------------
\103\ See Proposing Release, supra note 11, at section II.E.1.b.
\104\ See infra note 234 and accompanying text (discussing
related academic research). Further, more frequent reporting of
portfolio holding information may improve investors' ability to
select between fund managers, allowing them to make better
investment allocation decisions. See infra note 235 to 236 and
accompanying text for discussion of academic research on this topic.
---------------------------------------------------------------------------
Although some comments stated that the monthly information would
not benefit fund shareholders, having monthly Form N-PORT data
available in a standardized format in a single, centralized database
will enable investors and other users to analyze the reported data more
efficiently than they might otherwise be able to if the data were
reported across various platforms and in a non-standardized format. In
addition, as discussed in the Proposing Release, many funds voluntarily
disclose their monthly portfolio holdings on their websites or through
third party data aggregators, making additional portfolio information
available to assist investors with their investment decisions, whether
by accessing the information directly or benefitting from third-party
analysis of the information.\105\ Further, most ETFs currently provide
full portfolio holdings on their websites every business day as
required by 17 CFR 270.6c-11 (rule 6c-11).\106\ We recognize that more
frequent publication of fund data could also lead to adverse effects on
funds by, for example, increasing the likelihood of predatory trading
for some funds.\107\ However, these adverse effects, which are
mitigated by certain aspects of the final amendments, are justified by
the benefits discussed throughout this release.
---------------------------------------------------------------------------
\105\ See Proposing Release, supra note 11, at paragraph
accompanying n.289.
\106\ 17 CFR 270.6c-11(c)(1)(i). A small number of
``nontransparent'' ETFs have received exemptive orders from the
Commission permitting them not to disclose their portfolio holdings
on a daily basis. As of Dec. 2023, there were an estimated 49
nontransparent ETFs. Several of these nontransparent ETFs
voluntarily disclose their complete portfolios on a monthly basis
with a one-month lag.
\107\ See infra section IV.C.2.
---------------------------------------------------------------------------
Despite commenters' concerns, the 60-day delay before the
publication of Form N-PORT reports will help deter predatory trading.
With the 60-day delay, even if an actively managed fund began to build
a position on the last day of the month, that position would not be
publicly disclosed on Form N-PORT until approximately two months later.
The fund would have that additional two months to continue to build (or
shrink) its position without public knowledge of the fund's position.
This time period would expand to nearly three months if the fund
acquired the position in the beginning of a given month. The same is
also true in situations where a fund is exiting a position it
previously disclosed.
In addition, the form's existing treatment of miscellaneous
securities will help deter predatory trading. When a fund is building a
new position in an instrument, the fund may treat that instrument as a
miscellaneous security for up to one year if the position does not
exceed 5% of the fund and has not been previously disclosed to the
public, meaning that information about the fund's position in that
instrument remains nonpublic for that period.\108\ The ability to
report certain newly acquired positions as miscellaneous securities is
designed to guard against the premature release of information about
these positions and thus deter front running or other predatory trading
practices.
---------------------------------------------------------------------------
\108\ Specifically, Form N-PORT permits funds to report as
``miscellaneous securities'' an aggregate amount of portfolio
investments that does not exceed 5% of the total value of the fund's
portfolio investments, provided that the securities included in this
category are not restricted, have been held for not more than one
year prior to the end of the reporting period of the related report,
and have not previously been reported by name to the shareholders,
or set forth in any registration statement, application, or report
to shareholders or otherwise made available to the public. See Parts
C and D of Form N-PORT.
---------------------------------------------------------------------------
In addition, as discussed in the Proposing Release, many funds have
decided to voluntarily provide portfolio holdings on their websites on
a monthly basis, often delayed 30 days.\109\ In addition, many funds
now provide monthly information about their portfolio holdings to third
party data aggregators that users may access for a fee, generally with
a lag of 30 to 90 days.\110\ The increase in funds publicly disclosing
monthly portfolio holdings has decreased the impact that a requirement
for quarterly Form N-PORT holdings information has on the mix of
information available to the public, and a monthly, rather than a
quarterly, Form N-PORT disclosure regime is now consistent with many
funds' existing practice of disclosing portfolio holdings on a monthly
basis. Further, these existing disclosure practices--by both passive
funds and active funds--suggest that many funds have concluded that the
risks of predatory trading, including those risks resulting from the
increased use of advanced technology since Form N-PORT was adopted, are
justified by the benefits to investors of more information. The
amendments will place monthly portfolio holdings data in a single
location in a standardized format and timeline that all investors can
access without charge so that they may analyze the reported data.
---------------------------------------------------------------------------
\109\ See, e.g., infra note 230 (discussing a paper estimating
that, at year-end 2019, approximately 56% of U.S. equity mutual
funds' portfolio disclosures were voluntary monthly disclosures).
\110\ Id.
---------------------------------------------------------------------------
We acknowledge that some funds do not publish monthly portfolio
holdings information. We also understand that publishing monthly Form
N-PORT portfolio holdings information may result in a higher risk of
predatory trading for certain kinds of funds as compared to other
funds; for example, funds that are more likely to build or liquidate
their positions over a longer time horizon. As discussed above,
however, the approach under the final amendments increases the
frequency of fund reporting while seeking to minimize the risks of
exposing funds to predatory trading by delaying public reporting by 60
days and allowing funds to designate certain investments as
miscellaneous securities that will not be disclosed publicly.
In addition, the Investment Company Act requires that all
information filed with the Commission pursuant to the Act or any rule
or regulation thereunder be made available to the public, unless the
Commission makes a required finding.\111\ Specifically, the Commission
must find that public disclosure is neither necessary nor appropriate
in the public interest or for the protection of investors. We are not
making this finding with respect to disclosing funds' monthly portfolio
holding information in Form N-PORT reports publicly. As discussed
above, monthly portfolio holding information will benefit investors by
allowing them to make more informed investment decisions. In addition,
there is evidence of investor demand for this information in that many
funds voluntarily provide their monthly portfolio holdings either free
of charge to the public or to investors
[[Page 73775]]
willing to pay a premium to third-party platforms to access such
information.
---------------------------------------------------------------------------
\111\ See section 45(a) of the Investment Company Act.
---------------------------------------------------------------------------
The final amendments will not, however, affect the treatment of
certain information that funds report on Form N-PORT but that is not
made available to the public in any reports.\112\ In addition,
information filed with the Commission on Form N-PORT will remain
nonpublic until 60 days after the end of the month to which the
information relates. This delay is necessary or appropriate in the
public interest and for the protection of investors to mitigate the
risk of predatory trading and associated costs for fund shareholders.
For this reason, we are not revising the proposed approach to make Form
N-PORT information available to the public within a shorter time
horizon, as some commenters suggested.\113\
---------------------------------------------------------------------------
\112\ See General Instruction F of amended Form N-PORT. For
example, certain information about a fund's liquidity
classifications, derivatives transactions, and miscellaneous
securities will remain nonpublic.
\113\ See supra note 87.
---------------------------------------------------------------------------
We disagree with the commenter that suggested that public reporting
of monthly portfolio holdings on Form N-PORT is inconsistent with the
Commission's determination to remove the schedule of investments from
shareholder reports, as these disclosures serve different
purposes.\114\ Shareholder report requirements are designed to result
in concise and visually engaging reports to shareholders that highlight
key information that is particularly important for retail investors to
assess and monitor their fund investments.\115\ To this end, the
Commission adopted a layered approach, with annual and semiannual
shareholder reports providing a graphical representation of holdings to
permit all shareholders to monitor and assess their ongoing investment
in the fund in a concise, easy to understand pictorial format, while
preserving access to the complete schedule of investments in Form N-CSR
for shareholders that find this broader information useful.\116\ In
retaining the availability of a fund's schedule of portfolio
investments, the Commission stated that this information is designed to
enable shareholders to make more informed asset allocation decisions by
allowing them to monitor better the extent to which their investment
portfolios overlap and to assess how a fund is complying with its
stated investment objective, including any deviations.\117\
---------------------------------------------------------------------------
\114\ See supra note 94.
\115\ See Tailored Shareholder Reports for Mutual Funds and
Exchange-Traded Funds; Fee Information in Investment Company
Advertisements, Investment Company Act Release No. 34731 (Oct. 26,
2022) [87 FR 72758 (Nov. 25, 2022)] (``Tailored Shareholder Reports
Adopting Release''), at section I.B.
\116\ See id. at section II.C.1.a.
\117\ See id. at text accompanying n.400.
---------------------------------------------------------------------------
Similar to Form N-CSR, Form N-PORT information is more relevant to
financial professionals and investors who desire more in-depth
information to make more informed asset allocation decisions. In
addition, retail investors may consume information reported on Form N-
PORT indirectly through other data users, such as fund analysts or
other financial professionals. Thus, the amendments may benefit various
types of investors by providing monthly Form N-PORT information in a
structured format and in a single, centralized database that lends
itself to data analysis. Giving investors access to monthly Form N-PORT
information will improve investors' ability to monitor the portfolios
of their funds in a systematic fashion and assist investors in choosing
the investment products that most closely align with their desired
levels of risk, asset exposures, and liquidity profiles.\118\ This may
result from investors, and particularly institutional investors, using
Form N-PORT information directly to evaluate fund portfolios and assess
the potential for returns and risks of a particular fund(s), while
other investors may experience these benefits indirectly through third-
party analysis of the information.
---------------------------------------------------------------------------
\118\ See Proposing Release, supra note 11, at section II.E.1.b.
---------------------------------------------------------------------------
3. Other Amendments to Form N-PORT
In addition to the proposed amendments requiring more timely
reporting of information and enhancing public transparency of funds'
portfolio information, we proposed a few additional amendments to Form
N-PORT. The additional amendments included amendments to certain
existing items to account for the amendments to make monthly Form N-
PORT information available to the public and amendments related to
certain entity identifiers. We are generally adopting these changes as
proposed, except we are not adopting the proposed amendments to require
funds to present portfolio holdings in accordance with Regulation S-X
more frequently than currently required.
We proposed amendments requiring a fund to attach its complete
portfolio holdings in accordance with Regulation S-X, within 60 days of
the end of the reporting period for each month (except for the last
month of a fund's second and fourth fiscal quarters). We proposed the
amendments to conform with the requirement that funds file their Form
N-PORT structured portfolio schedules on a monthly basis and to make
the monthly disclosure more useable for investors. After considering
comments, we are not adopting the proposed amendments at this time.
Several commenters opposed the proposed amendments.\119\ Some
commenters expressed concerns that these amendments would result in
significant burdens for funds and additional costs to fund
shareholders, with no commensurate benefits to shareholders.\120\ For
example, some commenters indicated that most funds use ``T+1''
accounting to record their day-to-day transactions and these funds
would therefore need to convert their daily T+1 accounting records into
a trade-date based Regulation S-X compliant presentation, which would
be extremely time consuming.\121\ In addition, some commenters
expressed that the amendments are not necessary because portfolio
holdings information is already in the public domain.\122\ For example,
one commenter stated that this Regulation S-X compliant portfolio
holdings information overlaps substantially with the information within
Part C of Form N-PORT.\123\ Some commenters also stated that portfolio
holdings information is already available on fund websites.\124\ Some
commenters also questioned the existence of investor demand for more
frequent Regulation S-X compliant portfolio holdings information.\125\
---------------------------------------------------------------------------
\119\ See, e.g., Brighthouse Comment Letter; Comment Letter of
Capital Research and Management Company (Feb. 14, 2023) (``Capital
Group Comment Letter''); ICI Comment Letter I; Invesco Comment
Letter; JP Morgan Comment Letter; Principal Comment Letter; Comment
Letter of SIFMA Asset Management Group (Feb. 14, 2023) (``SIFMA AMG
Comment Letter'').
\120\ See, e.g., Capital Group Comment Letter; ICI Comment
Letter I (stating that, because a Regulation S-X compliant schedule
of investments is not necessary for fund shareholders to understand
a fund's portfolio holdings, requiring the schedule of investments
on a monthly basis would provide little benefit to investors); SIFMA
AMG Comment Letter.
\121\ See, e.g., Capital Group Comment Letter; ICI Comment
Letter I; SIFMA AMG Comment Letter.
\122\ See, e.g., Capital Group Comment Letter; ICI Comment
Letter I; Invesco Comment Letter.
\123\ See Invesco Comment Letter.
\124\ See, e.g., BlackRock Comment Letter; Invesco Comment
Letter.
\125\ See, e.g., ICI Comment Letter I; Principal Comment Letter
(stating that only a small percentage of its website visitors review
the existing Regulation S-X compliant schedules of investments); T.
Rowe Comment Letter (stating that its funds' shareholders have not
expressed a preference for Regulation S-X compliant schedules).
---------------------------------------------------------------------------
Some of the commenters that opposed more frequent reporting of
Regulation S-X compliant portfolio holdings
[[Page 73776]]
suggested alternatives involving the use of Part C, which contains
portfolio holdings information in a structured, XML format.\126\ For
example, one commenter suggested that, instead of providing additional
Regulation S-X compliant reporting, the Commission might require funds
to post on their websites unstructured extracts that are based on Part
C information.\127\ Some other commenters suggested that the Commission
create a tool on the SEC website to extract Part C information and
present it in an easily readable manner.\128\
---------------------------------------------------------------------------
\126\ See, e.g., ICI Comment Letter I; JP Morgan Comment Letter.
\127\ See JP Morgan Comment Letter.
\128\ See, e.g., BlackRock Comment Letter; ICI Comment Letter I.
---------------------------------------------------------------------------
Commenters raised issues that merit additional consideration before
any further Commission action that might provide investors access to
monthly Regulation S-X compliant portfolio schedules. We are persuaded
by commenters who expressed that the benefits of the proposed
requirement may not justify the costs, particularly given the costs and
time currently involved with presenting the fund's portfolio
investments in a manner that is compliant with Regulation S-X and the
other sources of portfolio information available to investors. Thus, we
are not adopting the proposed requirement that a fund attach its
complete portfolio holdings in accordance with Regulation S-X, within
60 days of the end of the reporting period for each month (except for
the last month of a fund's second and fourth fiscal quarters).
We are adopting, as proposed, requirements that a fund report
certain return and flow information only for the month that the Form N-
PORT report covers, rather than requiring that information for the
preceding three months.\129\ The Commission currently requires return
and flow information for the preceding three months in a single report
to provide investors access to monthly data for a given quarter, since
investors currently have access to Form N-PORT reports only for the
third month of each quarter.\130\ Because our amendments to the
publication frequency of Form N-PORT reporting will give investors
access to monthly Form N-PORT reports, we are adopting, as proposed,
amendments changing the period for which a fund must report return and
flow information to align with monthly public reporting. Two commenters
addressed the proposed amendments to align return and flow reporting
with the publication frequency of Form N-PORT and were supportive of
the proposed amendments.\131\
---------------------------------------------------------------------------
\129\ See Item B.5 and Item B.6 of amended Form N-PORT.
\130\ See Reporting Modernization Adopting Release, supra note
5, at paragraphs accompanying nn.225, 232, and 250.
\131\ See Comment Letter of Guidestone (Feb. 13, 2023); ICI
Comment Letter I.
---------------------------------------------------------------------------
We are adopting, as proposed, amendments to Part D of Form N-PORT
regarding miscellaneous securities to align with the amendments
requiring public availability of monthly Form N-PORT reports. Form N-
PORT currently contemplates that detailed information about
miscellaneous securities, which would remain nonpublic, would only be
included in reports filed for the last month of each fiscal
quarter.\132\ This is because currently all information reported on
Form N-PORT for the first and second months of each quarter is
nonpublic, which means there is no need for funds to designate any of
their investments for those reporting periods as miscellaneous
securities. The amendments to Part D remove the language that limits
reporting of nonpublic information about individual miscellaneous
securities holdings to reports filed for the last month of each fiscal
quarter.\133\
---------------------------------------------------------------------------
\132\ See Part D of Form N-PORT.
\133\ See Part D of amended Form N-PORT.
---------------------------------------------------------------------------
The amendments to Part D will allow funds in their monthly Form N-
PORT reports to report publicly the aggregate amount of miscellaneous
securities held in Part C, while requiring funds to provide more
detailed information in Part D about the individual holdings in the
miscellaneous securities category to the Commission on a nonpublic
basis. Although the shift from quarterly to monthly public reporting is
intended to improve public transparency of funds' portfolio holdings,
treating information related to miscellaneous securities as nonpublic
may serve to guard against the premature release of those securities
positions and thus help deter front-running and other predatory trading
practices. As a result, public disclosure of individual miscellaneous
securities continues to be neither necessary nor appropriate in the
public interest or for the protection of investors.\134\ At the same
time, it is important for the Commission to receive more detailed
information about miscellaneous securities holdings so the Commission
has a complete record of a fund's portfolio for monitoring, analysis,
and checking for compliance with Regulation S-X. The only commenter
that addressed this part of the proposal stated that it did not object
to these conforming amendments if the amendments increasing the
publication frequency of Form N-PORT are adopted.\135\
---------------------------------------------------------------------------
\134\ See Reporting Modernization Adopting Release, supra note
5, at section II.A.2.h.
\135\ See ICI Comment Letter I.
---------------------------------------------------------------------------
In addition, we are adopting, as proposed, amendments to certain
items and definitions related to entity identifiers in the form.
Specifically, we are amending the definition of LEI in the form to
remove language providing that, in the case of a financial institution
that does not have an assigned LEI, a fund should instead disclose the
RSSD ID assigned by the National Information Center of the Board of
Governors of the Federal Reserve System, if any.\136\ Instead of
classifying an RSSD ID as an LEI for these purposes, the amendments
will require funds to identify specifically whether they are reporting
an LEI or an RSSD ID, if available.\137\ The amendments will not change
the circumstances in which a fund is required to report an LEI or an
RSSD ID, if available. The change is designed to improve consistency
and comparability of information funds report about the instruments
they hold, including issuers of those instruments and counterparties to
certain transactions. The only commenter that addressed this part of
the proposal stated that it did not oppose this aspect of the
proposal.\138\
---------------------------------------------------------------------------
\136\ See General Instruction E of amended Form N-PORT.
\137\ See Items B.4, C.1, C.10, and C.11 of amended Form N-PORT.
\138\ See ICI Comment Letter I.
---------------------------------------------------------------------------
B. Amendments to Form N-CEN
We are adopting amendments to Form N-CEN as proposed, except we are
not adopting the proposed amendment to remove swing pricing disclosure
from Form N-CEN. Specifically, we are adopting, as proposed, amendments
to Form N-CEN to require funds that are subject to the liquidity rule
(rule 22e-4) to identify and provide certain information about service
providers a fund uses to fulfill the requirements of that rule. We are
also adopting the proposed changes related to entity identifiers. The
only commenter that addressed the proposed Form N-CEN amendments that
we are adopting was supportive.\139\
---------------------------------------------------------------------------
\139\ See Myer Comment Letter.
---------------------------------------------------------------------------
The adopted amendments will require a fund to: (1) name each
liquidity service provider; (2) provide identifying information,
including the legal entity identifier, if available, and location, for
each liquidity service provider; (3) identify if the liquidity service
provider is affiliated with the fund or its
[[Page 73777]]
investment adviser; (4) identify the asset classes for which that
liquidity service provider provided classifications; and (5) indicate
whether the service provider was hired or terminated during the
reporting period.\140\ This information will allow the Commission and
other participants to track certain liquidity risk management
practices.\141\
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\140\ See Item C.22 of amended Form N-CEN.
\141\ See Liquidity Rule Adopting Release, supra note 66, at
n.973.
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Because liquidity classification services have become more widely
used, the amendments require information about whether and which
liquidity service providers are used, for what purpose, and for what
period. Among other things, this information will help us better
understand potential trends or outliers in funds' liquidity
classifications reported on Form N-PORT; for example, by analyzing
classification trends of specific vendors, we may distinguish patterns
in how classifications might differ due to vendor models or data.
Finally, consistent with our proposed amendments to the definition of
LEI in Form N-PORT, we are adopting, as proposed, changes in Form N-CEN
to separate the concepts of LEIs and RSSD IDs.\142\
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\142\ See Items B.16, B.17, C.5, C.6, C.9, C.10, C.11, C.12,
C.13, C.14, C.15, C.16, C.17, C.22, D.12, D.13, D.14, E.2, F.1, F.2,
F.4, and Instructions to Item G.1 of amended Form N-CEN.
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C. Guidance on Open-End Fund Liquidity Risk Management Program
Requirements
In 2016, the Commission adopted the liquidity rule, which requires
open-end funds to adopt and implement liquidity risk management
programs.\143\ The rule is designed to promote effective liquidity risk
management, thereby reducing the risk that funds will be unable to meet
their redemption obligations and mitigating dilution of the interests
of fund shareholders.\144\ The liquidity rule requires: (1) assessment,
management, and periodic review of a fund's liquidity risk; (2)
classification of the liquidity of each of a fund's portfolio
investments into one of four prescribed categories--ranging from highly
liquid investments to illiquid investments--including at-least-monthly
reviews of these classifications and reporting of monthly
classifications on Form N-PORT; (3) determination and periodic review
of a highly liquid investment minimum for certain funds; (4) limitation
on illiquid investments; and (5) board oversight.
---------------------------------------------------------------------------
\143\ See 17 CFR 270.22e-4; Liquidity Rule Adopting Release,
supra note 66.
\144\ See Liquidity Rule Adopting Release, supra note 66, at
paragraph accompanying n.112.
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Since the liquidity rule was implemented, Commission staff has
monitored funds' liquidity classifications and observed funds'
liquidity risk management programs in practice, including during the
market stress event in March 2020. In 2022, the Commission proposed
certain amendments to the liquidity rule and, as stated in the
Proposing Release, took into account staff outreach.\145\ While the
Commission is not adopting amendments to the liquidity rule at this
time, we are providing guidance for funds subject to the liquidity rule
to address questions raised through outreach and monitoring. The
guidance relates to the frequency of classifying the liquidity of fund
investments, the meaning of ``cash'' in the rule, and determining and
reviewing highly liquid investment minimums.
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\145\ See Proposing Release, supra note 11, at n.14 and
accompanying text.
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Frequency of classification. The liquidity rule requires funds to
review liquidity classifications more frequently than monthly if
changes in relevant market, trading, and investment-specific
considerations are reasonably expected to materially affect one or more
of the fund's investment classifications.\146\ Under the rule,
liquidity classifications are the basis for monitoring a fund's ongoing
compliance with the 15% illiquid investment limit and with the fund's
highly liquid investment minimum. The Commission staff observed in fund
outreach multiple instances where, at the time of outreach, funds were
not prepared to review classifications intra-month in response to
changes in relevant market, trading, and investment-specific
considerations. The rule requires funds to adopt and implement policies
and procedures reasonably designed so that the funds can conduct the
required intra-month review of liquidity classifications if such
changes in relevant market, trading, and investment-specific conditions
have occurred.
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\146\ See 17 CFR 270.22e-4(b)(1)(ii).
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Such policies and procedures generally should identify, for
example, the type of information a fund will use to identify relevant
intra-month changes and to review liquidity classifications intra-
month, as well as the timeliness of that information. If a fund lacks
information or uses stale information that does not reflect current
conditions, it may not be able to identify when intra-month reviews of
liquidity classifications are required under the rule. As the
Commission has previously stated, the requirement to review a fund's
classification determinations intra-month based on market conditions or
other developments helps a fund determine whether its holdings are
consistent with its highly liquid investment minimum, as well as the
rule's limit on illiquid investments.\147\
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\147\ See Liquidity Rule Adopting Release, supra note 66, at
paragraph accompanying n.579.
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The Commission has previously provided examples of changes in
market, trading, and investment-specific considerations that funds may
wish to consider.\148\ In addition to those prior examples, with
respect to the requirement to consider intra-month changes in
investment-specific considerations, funds generally should consider
reviewing liquidity classifications if changes in portfolio composition
are reasonably expected to materially affect one or more investment
classifications. For example, if a fund substantially increases the
size of its position in an investment, the fund may reasonably
anticipate trading a larger size of that investment, which could
materially and adversely affect the liquidity classification of that
investment if a lack of market depth for a larger trade size makes it
difficult to sell the investment within a particular time frame without
the sale causing a significant change in market value. For similar
reasons, funds generally should consider classifying newly acquired
investments intra-month if acquiring a particular investment is
reasonably expected to result in material changes to the liquidity
profile of a fund, particularly changes to the fund's liquidity profile
that may cause a shortfall below a fund's highly liquid investment
minimum or cause the fund to exceed the rule's limit on illiquid
investments.
---------------------------------------------------------------------------
\148\ See id., at paragraph accompanying n.581.
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Meaning of cash. To determine whether an investment can be
classified as highly liquid or moderately liquid, the liquidity rule
requires a fund to consider the time in which it reasonably expects an
investment to be ``convertible to cash'' (i.e., sold and settled)
without significantly changing the market value of the investment.\149\
The liquidity rule also includes other references to ``cash.'' \150\ As
the
[[Page 73778]]
Commission has previously stated, the term ``cash'' in the liquidity
rule means U.S. dollars and does not include foreign currencies or cash
equivalents.\151\ Thus, funds would need to consider conversion to U.S.
dollars when classifying an investment. In addition, non-U.S. dollar
currencies are investments that would need to be classified considering
conversion to U.S. dollars.\152\ Commission staff have observed some
international funds considering the time in which an investment would
be convertible to a different currency other than U.S. dollars as the
relevant period for determining when an investment is convertible to
cash, even though the funds pay cash redemptions in U.S. dollars.
Commission staff also have observed some funds classifying any currency
as a highly liquid investment, regardless of the amount of time it
would take to convert that currency to U.S. dollars, because the
definition of highly liquid investment refers to cash.
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\149\ See 17 CFR 270.22e-4(a)(3) (defining convertible to cash)
and (a)(6) and (a)(12) (defining highly liquid investment and
moderately liquid investment).
\150\ See 17 CFR 270.22e-4(a)(6) (defining highly liquid
investment to include cash) and (a)(9) (defining in-kind exchange
traded fund); 17 CFR 270.22e-4(b)(1)(i)(C) (requiring funds to
consider holdings of cash and cash equivalents, as applicable, to
assess, manage, and periodically review a fund's liquidity risk).
\151\ See Liquidity Rule Adopting Release, supra note 66, at
n.848 (stating that cash means cash held in U.S. dollars and would
not include, for example, cash equivalents or foreign currency). The
release also provided an example in which the period of time it took
to repatriate or convert a foreign currency to dollars factored into
the analysis of how quickly a foreign security could be settled. See
id., at paragraph accompanying n.379.
\152\ The liquidity rule requires a fund to classify the
liquidity of each of its portfolio investments. See 17 CFR 270.22e-
4(b)(1)(ii). For purposes of the rule, cash (i.e., U.S. dollars) is
always classified as a highly liquid investment, while other
investments are classified based on whether they are reasonably
expected to be convertible to cash, or to be sold or disposed of,
within the identified number of days. When the Commission proposed
the liquidity rule, it proposed to require funds to classify each
position in a portfolio asset. See Open-End Fund Liquidity Risk
Management Programs; Swing Pricing; Re-Opening of Comment Period for
Investment Company Reporting Modernization Release, Investment
Company Act Release No. 31835 (Sept. 22, 2015) [80 FR 62273 (Oct.
15, 2015)], at n.160 and accompanying text. When the Commission
adopted the liquidity rule, it modified the rule to refer to
``investments'' to make it clear that the classification requirement
is not limited to portfolio assets, and funds also must classify
investments that are liabilities. See Liquidity Rule Adopting
Release, supra note 66, at n.114.
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To consider the time in which an international currency investment
would be convertible to U.S. dollars, a fund would consider the amount
of time it is reasonably expected to take to convert a reasonably
anticipated trade size of that currency into U.S. dollars under current
market conditions without significantly changing the currency exchange
rate. Relevant factors for these purposes generally include, for
example, the presence of currency controls, the presence of an active
market in forward or spot contracts exchanging the currency for U.S.
dollars, and any delays in currency conversions driven by market
structure or operations.
In general, funds should not base liquidity determinations in an
international jurisdiction on the ability to sell, dispose of, or
settle an investment into the local currency without also considering
the ability to convert the local currency into U.S. dollars for
purposes of paying shareholder redemptions.\153\ When considering the
time in which an international investment (other than an international
currency) would be convertible to U.S. dollars, funds generally should
take into account two considerations: (1) reasonable expectations of
the period of time in which an international non-currency investment
can be sold and settled in the local market without significantly
changing the market value of the investment; and (2) reasonable
expectations of the period of time in which any international currency
received upon settlement can be converted to U.S. dollars without
significantly changing the currency exchange rate. For purposes of
assessing the period of time for a currency conversion under the second
consideration, it would be reasonable for a fund to assume that it
initiates a hypothetical currency conversion at the same time as the
hypothetical sale of the international investment under the first
consideration. That is, a fund is not required under the liquidity rule
to assume that it can initiate a currency conversion only after the
sale and settlement of the international investment.\154\ For example,
if a fund reasonably expects it could sell and settle a reasonably
anticipated trade size of an international investment within three
business days without significantly changing the market value of the
investment under the first consideration, and the fund reasonably
expects that the international currency it would receive upon
settlement could likewise be converted to U.S. dollars within the same
three business day period without significantly changing the currency
exchange rate under the second consideration, it would be reasonable
for the fund to classify the international investment as highly liquid.
---------------------------------------------------------------------------
\153\ See Liquidity Rule Adopting Release, supra note 66, at
paragraph accompanying n.380 (discussing a fact pattern involving
international investments and stating that the settlement period for
such an investment includes the timeframe in which an international
currency received from the sale of an international investment can
be repatriated or converted to dollars).
\154\ We understand that, in practice, funds may initiate
currency conversions before the sale of an international investment
settles, which allows a fund to complete the conversion to U.S.
dollars more quickly than if it did not initiate the currency
conversion until settlement of the underlying sale.
---------------------------------------------------------------------------
In the event of currency controls or similar scenarios in another
jurisdiction, a fund's investments in the relevant jurisdiction,
including holdings of the local currency, could become illiquid. Under
the liquidity rule, an illiquid investment is an investment that the
fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or
disposition significantly changing the market value of the
investment.\155\ For these purposes, if a fund does not reasonably
expect to be able to convert the local currency into U.S. dollars
within seven calendar days because of currency controls or otherwise,
then the local currency should be classified as an illiquid investment.
This is because if a fund instead focused on its ability to use the
local currency in the local market (e.g., its ability to use the
currency to acquire other investments in that market within 7 calendar
days), without considering the time it would take to transfer the
currency to U.S. dollars, the resulting classification of the currency
would over-estimate the fund's liquidity and its ability to meet
redemption requests. Further, other investments in that jurisdiction
that would be sold or disposed of in exchange for the illiquid local
currency also should be classified as illiquid investments. This is
because, upon the sale of the investment, it would convert into an
illiquid currency investment. As such, classifying these investments as
highly liquid, moderately liquid, or less liquid would not be
reasonable because they will convert into an illiquid currency.
---------------------------------------------------------------------------
\155\ See 17 CFR 270.22e-4(a)(8).
---------------------------------------------------------------------------
When a fund's investments (including currency holdings) in a
jurisdiction with currency controls or similar restrictions are
illiquid, the fund might exceed the rule's 15% limit on illiquid
investments.\156\ In that case, selling the underlying illiquid
investment may be a necessary step to reducing the illiquidity of the
fund's portfolio, but it would cause the fund to hold a currency that
is an illiquid investment. However, if upon the receipt of the illiquid
currency the fund takes reasonable steps to convert that currency to
U.S. dollars or to purchase investments that will be
[[Page 73779]]
convertible to U.S. dollars, these actions would reduce the illiquidity
of the fund's portfolio.\157\ Accordingly, when a fund converts an
illiquid international investment into an illiquid local currency as a
step toward reducing the fund's illiquid investments, we would not
consider the fund as acquiring the illiquid currency in violation of
the rule's prohibition on acquiring illiquid investments in excess of
the rule's 15% limit.\158\
---------------------------------------------------------------------------
\156\ See 17 CFR 270.22e-4(b)(1)(iv) (providing that no fund or
in-kind ETF may acquire any illiquid investment if, immediately
after the acquisition, the fund or in-kind ETF would have invested
more than 15% of its net assets in illiquid investments that are
assets).
\157\ We recognize that currency controls or similar
restrictions could limit a fund's ability to convert the currency to
U.S. dollars expeditiously.
\158\ See 17 CFR 270.22e-4(b)(1)(iv)(A) (providing that, if a
fund or in-kind ETF holds more than 15% of its net assets in
illiquid investments that are assets, the person(s) designated to
administer the liquidity risk management program must report this
occurrence to the board of directors within one business day, and
such report must include, among other things, an explanation of how
the fund or in-kind ETF plans to bring its illiquid investments that
are assets to or below the 15% threshold within a reasonable period
of time).
---------------------------------------------------------------------------
If a fund exceeding the 15% limit on illiquid investments instead
were to retain the illiquid currency for purposes of its investment
strategy or use the illiquid currency to purchase additional
investments that are likewise illiquid (e.g., due to the currency
controls), that would be inconsistent with the rule's prohibition on
acquiring illiquid investments. As a result, funds that exceed the
rule's 15% limit generally should consider taking reasonable steps such
that an illiquid currency received from the sale of an investment will
not be used for purposes of a fund's investment strategy or to acquire
illiquid investments (e.g., by identifying the illiquid currency for
conversion to U.S. dollars or for purchase of non-illiquid
investments).\159\
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\159\ The guidance in this paragraph relates only to the rule's
prohibition on acquiring illiquid investments in excess of the
rule's 15% limit. The guidance does not affect the classification of
the illiquid currency, which would be classified as an illiquid
investment regardless of how the fund intends to use the foreign
currency.
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Highly liquid investment minimums. The liquidity rule requires
funds that do not primarily hold assets that are highly liquid
investments to have a highly liquid investment minimum.\160\ The highly
liquid investment minimum requirement is intended to increase the
likelihood that a fund will be prepared to meet redemptions without
significant dilution of remaining investors' interests in the fund. The
Commission has previously provided guidance on how a fund should
determine its highly liquid investment minimum, and the rule requires
funds to consider specific factors, as applicable.\161\ We are
reiterating and highlighting certain of this guidance, and particularly
focusing on funds with portfolios that are on the lower end of the
liquidity spectrum. The Commission previously has underscored the
importance of a highly liquid investment minimum that considers a
fund's particular risk factors. For example, the Commission has stated
that, when considering a fund's investment strategy and portfolio
liquidity, a fund that invests significantly in less liquid or illiquid
investments, such as a bank loan fund, generally should consider
establishing a highly liquid investment minimum that is higher than
that of a fund that is more liquid.\162\ In addition, funds with
investment strategies that have had greater volatility of flows than
other investment strategies--or that are reasonably expected to have
greater volatility in reasonably foreseeable circumstances--would
generally need highly liquid investment minimums that are higher than
funds whose strategies tend to entail less flow volatility.\163\
Further, while a line of credit or similar arrangement can facilitate a
fund's ability to meet unexpected redemptions and can be taken into
consideration when determining its highly liquid investment minimum, we
continue to believe that liquidity risk management is better conducted
primarily through construction of a fund's portfolio.\164\
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\160\ See 17 CFR 270.22e-4(b)(1)(iii).
\161\ See Liquidity Rule Adopting Release, supra note 66, at
section III.D.2.
\162\ See, e.g., id., at paragraph accompanying n.680; Proposing
Release, supra note 11, at n.100 (stating that the vast majority of
bank loan investments reported by open-end funds are classified as
less liquid).
\163\ See Liquidity Rule Adopting Release, supra note 66, at
paragraph accompanying n.680.
\164\ See id., at text accompanying n.688; see also id., at
paragraph accompanying n.259 (noting that, in some situations,
borrowing arrangements may not be beneficial to a fund's liquidity
risk management to the extent that the fund's use of borrowings to
meet redemptions leverages the fund at the expense of non-redeeming
investors who would effectively bear the costs of borrowing and the
increased risk to the fund created by leverage).
---------------------------------------------------------------------------
While the goal of the highly liquid investment minimum is to
increase the likelihood that a fund will be better prepared to meet
redemptions without significant dilution, we are not dictating how a
portfolio manager meets redemptions. For instance, as the Commission
has previously stated, the requirement does not mean that a fund should
only, or primarily, use its most liquid investments to meet shareholder
redemptions.\165\ In addition, the requirement does not mean that a
fund must continuously maintain a specific level of highly liquid
assets and cannot use those assets to meet redemptions. The only
consequence under the liquidity rule of a fund dropping below its
highly liquid investment minimum is the triggering of the fund's
shortfall policies and procedures, which must include notifying the
fund's board of the shortfall at the board's next regularly scheduled
meeting or, if the shortfall continues for more than seven consecutive
calendar days, notifying the board and filing a confidential report
with the Commission on Form N-RN within one business day.\166\
---------------------------------------------------------------------------
\165\ See Liquidity Rule Adopting Release, supra note 66, at
n.661 and accompanying text.
\166\ See 17 CFR 270.22e-4(b)(1)(iii)(A)(3); Part D of Form N-
RN.
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D. Technical and Conforming Amendments
We proposed to make technical and conforming amendments to the
definition of ETF in Forms N-CEN and N-PORT that would replace language
in each definition that refers to ``an exemptive rule adopted by the
Commission'' with a direct reference to rule 6c-11, the Commission's
exemptive rule for ETFs. Commenters did not address the proposed
amendments. We are adopting these technical amendments as
proposed.\167\
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\167\ See General Instruction E of amended Form N-PORT; General
Instruction E of amended Form N-CEN.
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E. Transition Periods
The Commission proposed for funds to have a compliance period of 12
months from the effective date of the final amendments to Forms N-PORT
and N-CEN. In a change from the proposal, however, we are adopting an
extended effective date (instead of an extended compliance period),
under which the final amendments will become effective on November 17,
2025, that is, a date that we anticipate will be approximately the same
as the end of the 12-month compliance period that we proposed. The
extended effective date will result in greater uniformity among funds
with respect to the filing cadence and public availability of Form N-
PORT during the transition period.\168\
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\168\ Under the proposed 12-month compliance period, some funds
might have voluntarily complied with the final amendments in advance
of the ultimate compliance date. While early compliance would
provide the Commission and the public with at least a subset of Form
N-PORT data earlier or on a more frequent basis, the potential for
inconsistency in practice during the compliance period would make it
difficult for the Commission to intake, and both the Commission and
the public to utilize, that data in a systematic way. Adopting a
single effective date will achieve the dual purpose of providing
funds with sufficient time to comply with the final amendments and
the Commission and public the ability to meaningfully utilize the
data.
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We are also adopting a tiered approach by providing an additional
six-month compliance period for
[[Page 73780]]
smaller entities to comply with the final amendments to Form N-
PORT.\169\ As a result, larger entities will be required to comply with
the Form N-PORT amendments for reports filed on or after the November
17, 2025, effective date, and smaller entities will be required to
comply with these amendments for reports filed on or after May 18,
2026. We are adopting this tiered approach to provide existing funds
with adequate time to prepare to come into compliance with the final
amendments to Form N-PORT. During the additional six-month compliance
period, smaller entities that have not yet begun to file monthly
reports on Form N-PORT will continue to be subject to requirements
under rule 30b1-9 to maintain records of Form N-PORT information within
30 days after month end.\170\ For Form N-CEN, all funds will be
required to comply with those amendments for Form N-CEN reports filed
on or after November 17, 2025.
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\169\ For purposes of the final rules' transition periods,
larger entities are funds that, together with other investment
companies in the same ``group of related investment companies'' (as
such term is defined in 17 CFR 270.0-10) have net assets of $1
billion or more as of the end of the most recent fiscal year, and
smaller entities are funds that together with other investment
companies in the same ``group of related investment companies'' have
net assets of less than $1 billion as of the end of the most recent
fiscal year. This standard is consistent with prior Commission
approaches for tiered compliance dates based on asset size for rules
affecting registered investment companies. See, e.g., Reporting
Modernization Adopting Release, supra note 5; Liquidity Rule
Adopting Release, supra note 66; Inline XBRL Filing of Tagged Data,
Securities Act Release No. 10514 (June 28, 2018) [83 FR 40846 (Sept.
17, 2018)]. In our experience, this threshold is a reasonable means
of distinguishing larger and smaller entities for purposes of tiered
compliance dates for rules affecting investment companies. We
estimate that, as of Dec. 2023, 77% of registered investment
companies would be considered to be larger entities. These larger
entities hold approximately 98.7% of aggregate assets of registered
investment companies. These estimates are based on data reported in
response to Items B.5, C.19, and F.11 on Form N-CEN.
\170\ Amendments to rule 30b1-9 requiring funds to file monthly
reports within 30 days of month end will be effective Nov. 17, 2025.
However, in light of the tiered transition period that will allow
smaller entities to continue to file on a quarterly basis until May
18, 2026, we are amending rule 30b1-9 to maintain the recordkeeping
requirement for these funds until May 18, 2026. If a fund begins to
file monthly reports within 30 days of month end before that date,
it will not be required to maintain records under the rule beginning
with the first month it files a monthly report on Form N-PORT at
that frequency.
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We generally proposed a one-year compliance period for amendments
to Forms N-PORT and N-CEN for all funds that would be subject to the
amendments, regardless of asset size.\171\ We solicited comment on
whether the transition period should be shorter or longer, and whether
it should be the same for all funds. The Proposing Release contained
additional proposed amendments that are not being adopted at this time,
including certain reporting amendments (e.g., reporting certain swing
pricing- and liquidity-related information on Form N-PORT) and
significant non-reporting amendments (e.g., requirements to use swing
pricing and implement a hard close requirement, as well as amendments
to the liquidity rule). For the proposed non-reporting amendments, we
separately proposed 12- and 24-month compliance periods, depending on
the relevant amendment.
---------------------------------------------------------------------------
\171\ We proposed a 24-month compliance period for swing
pricing-related amendments to Forms N-PORT and N-CEN. As discussed
above, we are not adopting those amendments.
---------------------------------------------------------------------------
We received several comments about the proposed compliance period,
but many of those commenters focused specifically on the compliance
periods for the proposed non-reporting amendments that we are not
adopting at this time. We received a few comments about the compliance
period as it relates to the final amendments, but the context of the
letters suggests that commenters were likely envisioning having to
engage in implementation efforts for the full scope of the proposal
during the same period.
Some commenters, as a general matter, stated that the proposed
amendments are substantial and complex and that more time is
needed.\172\ These commenters were commenting on the Proposing Release
as a whole. One commenter stated that an appropriate compliance period
would depend on what the Commission ultimately adopts. This commenter
also suggested that the Commission should provide smaller funds with
more time to comply with any final amendments to ease compliance
burdens, as smaller funds can leverage the experiences and learnings
gained by larger funds going first.\173\ Another commenter stated the
transition period must be considered in the context of other recently
adopted Commission rules that will also have concurrent compliance
periods.\174\
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\172\ See, e.g., Comment Letter of Federated Hermes, Inc. (Feb.
14, 2023) (``Federated Hermes Comment Letter''); Capital Group
Comment Letter; Comment Letter of Morgan Stanley Investment
Management Inc. (Feb. 14, 2023) (``Morgan Stanley Comment Letter'').
\173\ See ICI Comment Letter I.
\174\ See Morgan Stanley Comment Letter.
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One commenter requested a 30-month transition period for all
updated reporting requirements.\175\ This comment referred to all
reporting requirements, including those that we are not adopting in
this release. Another commenter stated that a one-year compliance date
is insufficient and recommended a 24-month transition to allow time for
the industry to improve their processes and for vendors to adjust their
systems, including adjustments to align with amendments to the
liquidity classification process and associated reporting requirements
(e.g., reporting liquidity classifications of individual investments),
neither of which will be necessary under the final amendments.\176\
This commenter stated that, as a third-party provider of information
for some funds' Form N-PORT reports, it anticipated that some funds
using its services would need additional time to improve their
processes around month-end holdings compilation and preparation of the
requests they submit to the provider.
---------------------------------------------------------------------------
\175\ See Fidelity Comment Letter.
\176\ See ICE Comment Letter.
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After consideration of comments, we are adopting an extended
effective date of longer than 12 months for both Form N-PORT and Form
N-CEN, and we are providing an additional compliance period of six
months beyond the effective date for smaller entities to comply with
the final amendments to Form N-PORT.\177\ We are adopting this tiered
approach to provide existing funds with adequate time to prepare to
come into compliance with the final amendments. Smaller entities will
benefit from having an additional six months to come into compliance
with the final amendments for Form N-PORT and will potentially benefit
from the lessons learned by larger entities during that time period. We
are not providing additional time for smaller entities for Form N-CEN
due to the limited changes.
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\177\ With respect to the compliance period, one commenter
requested that the Commission consider interactions between the
proposed rule and other recent Commission rules. See supra note 174.
In determining compliance dates, the Commission considers the
benefits of the amendments as well as the costs of delayed
compliance dates and potential overlapping compliance dates. For the
reasons discussed throughout the release, to the extent that there
are costs from overlapping compliance dates, the benefits of the
rule justify such costs. See infra section IV for a discussion of
the interactions of the final amendments with certain other
Commission rules.
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While some commenters suggested that additional time is needed,
commenters were, in part, anticipating the need for more time in
consideration of the potential for overlapping implementation of the
other proposed amendments, which we are not adopting at this time.
Funds are already required to produce monthly data upon request by
Commission staff and required to adhere to the 30-day deadline for
collecting the required information for recordkeeping purposes.
[[Page 73781]]
We also are not significantly increasing the amount of information
funds are required to report. The compliance period that we are
adopting should allow funds sufficient time to make updates to
processes and technologies to produce and submit the data on a monthly
basis and incorporate the additional amendments that we are adopting.
III. Other Matters
Pursuant to the Congressional Review Act, the Office of Information
and Regulatory Affairs has designated the final amendments as a ``major
rule'' as defined by 5 U.S.C. 804(2). The Commission considers the
provisions of the final amendments to be severable to the fullest
extent permitted by law. ``If parts of a regulation are invalid and
other parts are not,'' courts ``set aside only the invalid parts unless
the remaining ones cannot operate by themselves or unless the agency
manifests an intent for the entire package to rise or fall together.''
Bd. of Cnty. Commissioners of Weld Cnty. v. EPA, 72 F.4th 284, 296
(D.C. Cir. 2023); see K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 294
(1988). ``In such an inquiry, the presumption is always in favor of
severability.'' Cmty. for Creative Non-Violence v. Turner, 893 F.2d
1387, 1394 (D.C. Cir. 1990). Consistent with these principles, while
the Commission believes that all provisions of the final amendments are
fully consistent with governing law, if any of the provisions of these
amendments, or the application thereof to any person or circumstance,
is held to be invalid, the Commission intends that such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application. In particular, the Form N-PORT
amendments relating to filing frequency operate independently from the
amendments to publication frequency in that the Commission's use of
more timely information operates independently from publication of that
information. Additionally, the amendments to Form N-PORT operate
independently from the amendments to Form N-CEN.
IV. Economic Analysis
A. Introduction
Reports on Form N-PORT are an important source of information for
the Commission and its staff. This information helps the Commission
monitor industry trends, identify risks, inform policy and rulemaking,
and assists the staff in examination and enforcement efforts.
Currently, the Commission receives reports on Form N-PORT on a
quarterly basis, 60 days after the end of the relevant quarter, with
each quarterly report containing month-end information for each month
in the quarter. The current delay between the end of the month to which
the information relates and when the Commission receives Form N-PORT
data with this information has limited the Commission staff's ability
to develop a more complete understanding of the market on a timely
basis, which is particularly important during major market events.
Separate from the Commission's use of information reported on Form N-
PORT, investors also benefit from information about funds' portfolios
because it aids them in making more informed investment decisions.
However, investors do not currently have access to uniform portfolio
holdings of every registered fund for each month; rather, they have
access to Form N-PORT portfolio data for only the third month of the
quarter, which may hamper their ability to assess the portfolio
composition trends of funds they invest in.\178\
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\178\ Monthly portfolio holdings of certain open-end and closed-
end funds may also be available on funds' websites, as well as for a
fee through third-party data aggregators. Voluntary disclosures of
monthly portfolio holdings that are currently publicly available may
be inconsistent across funds and over time and may vary in format,
presentation, or ease of access.
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The Commission is adopting amendments to Form N-PORT that require
timelier and more frequent reporting of Form N-PORT information to the
Commission, more frequent public disclosure, and amendments to Form N-
CEN that introduce new reporting requirements in connection with
liquidity service providers.\179\ Together, these amendments will
improve regulatory oversight of investment companies' activities and
benefit market participants by increasing transparency of funds'
portfolio data. This, in turn, will enhance the ability of investors to
review and monitor information about their funds' portfolios and aid
them in making more efficient portfolio allocation decisions.
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\179\ We are also adopting technical and conforming amendments
to certain existing items to account for the amendments to make
monthly Form N-PORT information available to the public and
amendments to certain entity identifiers. In addition, we are making
technical and conforming amendments to the definition of ETF in
Forms N-CEN and N-PORT that would replace language in each
definition that refers to ``an exemptive rule adopted by the
Commission'' with a direct reference to rule 6c-11, the Commission's
exemptive rule for ETFs. We do not anticipate any economic effects
to result from these technical and conforming amendments.
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The Commission has considered the economic effects of the
amendments.\180\ Where possible, we have attempted to quantify the
economic effects. In some cases, however, we are unable to quantify the
economic effects because we lack the information necessary to provide a
reasonable and reliable estimate. For example, the final amendments
could reduce the amount of time and effort investors require to make an
investment decision. We do not have data on the extent to which the
final amendments would reduce the amount of time and effort investors
require to make an investment decision. In addition, because the final
amendments facilitate the evaluation and comparison among registered
funds, we may observe a change in investment across the affected funds.
We do not have data that would allow us to estimate the extent to which
we may observe such a change. Further, the broader economic effects,
such as those related to efficiency, competition, and capital
formation, are inherently difficult to quantify with any degree of
certainty. For example, it is inherently difficult to quantify with
certainty the degree to which investors would reallocate their
portfolios as a result of the final amendments and consequent effects
of this reallocation on competition in the registered fund sector. Our
inability to quantify certain costs, benefits, and effects does not
imply that such costs, benefits, or effects are less significant.
Nevertheless, as described more fully below, the Commission is
providing both a qualitative assessment and quantified estimate of the
economic effects, where feasible.
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\180\ Section 2(c) of the Act and section 3(f) of the Exchange
Act direct the Commission, when engaging in rulemaking where it is
required to consider or determine whether an action is necessary or
appropriate in, or consistent with, the public interest, to
consider, in addition to the protection of investors, whether the
action will promote efficiency, competition, and capital formation.
In addition, section 23(a)(2) of the Exchange Act requires the
Commission, when making rules under the Exchange Act, to consider
among other matters the impact that the rules would have on
competition, and prohibits the Commission from adopting any rule
that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act. The
analysis below addresses the likely economic effects of the
amendments, including the anticipated benefits and costs of the
amendments and their likely effects on efficiency, competition, and
capital formation. The Commission also discusses the potential
economic effects of certain alternatives to the approaches taken in
this release.
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[[Page 73782]]
B. Baseline
1. Regulatory Baseline
The regulatory baseline against which the costs, benefits, and the
effects on efficiency, competition, and capital formation of the final
rules are measured consists of the current state of the securities
markets and the current regulatory framework with respect to registered
management investment companies and ETFs organized as unit investment
trusts (``funds'').\181\
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\181\ See supra note 2.
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Funds are required to file periodic reports on Form N-PORT about
their portfolios and each of their portfolio holdings as of month end.
Currently, funds file these reports on a quarterly basis, with each
report due 60 days after the end of a fund's fiscal quarter. While each
report includes month-end portfolio information for each month in the
relevant fiscal quarter, only information about portfolio holdings for
the third month of each fiscal quarter is made available to the public
upon filing, while information for the first and second month of each
fiscal quarter remains confidential. Funds are also currently required
to maintain the data Form N-PORT requires within 30 days of a month end
for recordkeeping purposes.\182\
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\182\ See rule 30b1-9.
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A fund may report certain portfolio holdings as miscellaneous
securities, meaning that information about these holdings would remain
nonpublic for up to a year, provided that the combined value of the
positions reported as miscellaneous securities does not exceed 5% of
the total value of a fund's investments and that these positions have
not been previously disclosed to the public.\183\
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\183\ See supra note 108 for a detailed description of this
provision.
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Part F of Form N-PORT also requires a fund to attach a complete
schedule of portfolio holdings for the end of the first and third
quarters of the fund's fiscal year, presented in accordance with
Regulation S-X, within 60 days after the end of the reporting period.
Further, ETFs, including actively managed ETFs, generally are currently
required to provide full portfolio holdings on their websites every
business day.\184\ A small number of ``non-transparent'' ETFs have
received exemptive orders from the Commission permitting them not to
disclose their portfolio holdings on a daily basis. Monthly portfolio
holdings of certain funds may also be available on their websites, as
well as through third-party data aggregators (typically for a fee),
generally on a lagged basis (e.g., 15, 30, 45, or more days after a
month end). However, such more frequent publication and/or aggregation
by third parties of portfolio data is voluntary.
---------------------------------------------------------------------------
\184\ See rule 6c-11(c)(1)(i).
---------------------------------------------------------------------------
Registered investment companies, other than face amount certificate
companies,\185\ must also report census-type information to the
Commission annually on Form N-CEN. Required information includes, among
other things, certain identifying information about fund service
providers, such as the fund's custodian, transfer agent, pricing
service, and others. Finally, on both Form N-PORT and Form N-CEN, funds
are required to provide the LEI as part of the identifying information
for certain entities, including issuers of portfolio securities,
counterparties to certain transactions, and service providers. The
current definition of LEI in Forms N-PORT and N-CEN provides that, in
the case where a fund is reporting information about a financial
institution and the financial institution does not have an assigned
LEI, a fund should instead disclose the RSSD ID assigned by the
National Information Center of the Board of Governors of the Federal
Reserve System, if any.\186\
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\185\ A face-amount certificate company is a type of company
that issues to investors debt securities of a specified value.
\186\ See General Instruction E of Form N-PORT and General
Instruction E of Form N-CEN.
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In addition, the economic analysis appropriately considers existing
regulatory requirements, including recently adopted rules, as part of
the economic baseline against which the costs and benefits of the final
amendments are measured.\187\ Some commenters requested that the
Commission consider interactions between the economic effects of the
proposal and other recent Commission proposals.\188\ However, the best
assessment of how the world would look in the absence of the proposed
or final action typically does not include recently proposed actions,
because that would improperly assume the adoption of those proposed
actions. Therefore, the Commission has considered three adopted rules
mentioned by the commenters: the Names Rule Adopting Release,\189\ the
Settlement Cycle Adopting Release,\190\ and the Tailored Shareholder
Reports Adopting Release.\191\ In addition, the Commission also
considered the Customer Notification Adopting Release.\192\ These
[[Page 73783]]
adopted rules are part of the baseline against which this economic
analysis considers the benefits and costs of the final amendments.
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\187\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C.
Cir. 2022). This approach also follows SEC staff guidance on
economic analysis for rulemaking. See SEC Staff, Current Guidance on
Economic Analysis in SEC Rulemaking (Mar. 16, 2012), available at
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic
consequences of proposed rules (potential costs and benefits
including effects on efficiency, competition, and capital formation)
should be measured against a baseline, which is the best assessment
of how the world would look in the absence of the proposed
action.''); id. at 7 (``The baseline includes both the economic
attributes of the relevant market and the existing regulatory
structure.'').
\188\ See, e.g., ICI Comment Letter I; PIMCO Comment Letter;
BlackRock Comment Letter; Morgan Stanley Comment Letter; Comment
Letter of Center for Capital Markets Competitiveness, U.S. Chamber
of Commerce (July 25, 2023) (``CCMC Comment Letter''); Comment
Letter of Investment Company Institute (Aug. 17, 2023) (``ICI
Comment Letter II'').
\189\ Names Rule Adopting Release, supra note 70. The amendments
broaden the scope of the requirement for certain funds to adopt a
policy to invest at least 80% of the value of their assets in
accordance with the investment focus that the fund's name suggests,
and include other changes to enhance the protections this
requirement is designed to provide; require enhanced prospectus
disclosure for terminology used in fund names; and impose related
notice, recordkeeping, and reporting requirements. The compliance
date for the final amendments is Dec. 11, 2025, for larger entities
and June 11, 2026, for smaller entities. See id. at sections II.H,
IV.D.3.
\190\ Shortening the Securities Transaction Settlement Cycle,
Exchange Act Release No. 96930 (Feb. 15, 2023) [88 FR 13872 (Mar. 6,
2023)] (``Settlement Cycle Adopting Release''). The rules and rule
amendments adopted in the Settlement Cycle Adopting Release shorten
the standard settlement cycle for most broker-dealer transactions
from two business days after the trade date to one business day
after the trade date. To facilitate an orderly transition to a
shorter settlement cycle, a new rule also establishes requirements
related to completing allocations, confirmations, and affirmations
no later than the end of trade date for the processing of
institutional transactions subject to the rule; requires registered
investment advisers to make and keep records of each confirmation
received, and of any allocation and each affirmation sent or
received, with a date and time stamp for each allocation and
affirmation indicating when it was sent or received; and requires
clearing agencies that provide a central matching service to
establish, implement, and enforce policies and procedures reasonably
designed to facilitate straight-through processing and to file an
annual report regarding progress with respect to straight-through
processing. With certain exceptions, the rule had a compliance date
of May 28, 2024. See id. at section VII.
\191\ Tailored Shareholder Reports Adopting Release, supra note
115. The Commission amended the requirements for annual and
semiannual shareholder reports provided by mutual funds and
exchange-traded funds to highlight key information for investors.
The Commission also adopted amendments to the advertising rules for
registered investment companies and business development companies
to promote more transparent and balanced statements about investment
costs. The compliance date for all of these amendments was July 24,
2024. See id. at section II.J.
\192\ Regulation S-P: Privacy of Consumer Financial Information
and Safeguarding Customer Information, Investment Company Act
Release No. 35193 (May 15, 2024) [89 FR 47688 (Jun. 3, 2024)]
(``Customer Notification Adopting Release''). The Commission amended
Regulation S-P to require brokers, dealers, funding portals,
investment companies, registered investment advisers, and transfer
agents registered with the Commission or another appropriate
regulatory agency to adopt written policies and procedures for
incident response programs to address unauthorized access to or use
of customer information. These must include procedures for providing
timely notification to individuals affected by an incident involving
sensitive customer information with details about the incident and
information designed to help affected individuals respond
appropriately. Among other things, the amendments also extended to
transfer agents the requirements to safeguard customer records and
information, and they broadened the scope of the information covered
by those requirements. The compliance date for larger entities is
Dec. 3, 2025, and June 3, 2026, for smaller entities. See Customer
Notification Adopting Release, section II.F.
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2. Affected Entities
The amendments to the filing and public disclosure frequency of
Form N-PORT reports will affect all registered funds that are currently
required to file reports on Form N-PORT. Table 1 below lists registered
fund counts along with their aggregate net assets by type.\193\
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\193\ Form N-CEN provides census-type information about
registered funds, while Form N-PORT provides detailed information
about fund activities. Because Form N-PORT does not include
information about fund types, we use information reported on Form N-
CEN to estimate the number of affected funds for each type of fund.
We use information reported to the Commission for each fund as of
Dec. 31, 2023, incorporating filings and amendments to filings
received through Aug. 1, 2024. Net assets are monthly average net
assets during the reporting period identified on Item C.19.a of Form
N-CEN and validated with Bloomberg (for ETFs). Current values are
based on the most recent filings and amendments, which are based on
fiscal years and are therefore not synchronous. Submissions of Form
N-CEN reports are required on a yearly basis. Therefore, these
estimates do not include newly established funds that have not
completed their first fiscal year and, therefore, have not filed on
Form N-CEN yet. These estimates also do not account for the funds
that have been terminated since the last Form N-CEN report was
filed. Therefore, the estimates for the number of funds and their
net assets may be over- or under-estimated.
Table 1--Funds Required To File Form N-PORT by Type, as of Dec. 31, 2023
------------------------------------------------------------------------
Total
-------------------------------
Fund type Net assets, $
Number trillion
------------------------------------------------------------------------
1. Open-end funds registered on Form N-
1A:
a. Mutual funds required to file 8,810 $21.10
Form N-PORT \1\....................
b. ETFs: \2\........................ 3,048 6.38
i. non-transparent ETFs \3\..... 49 0.01
ii. daily website disclosure 2,999 6.38
required \4\...................
2. Closed-end funds registered on Form N- 684 0.36
2 \5\..................................
3. ETFs that are UITs registered on Form 4 0.75
N-8B-2 \6\.............................
4. Variable annuity separate accounts 15 0.23
registered on Form N-3 \7\.............
-------------------------------
Total............................... 12,561 28.82
------------------------------------------------------------------------
Notes:
1. Mutual funds are identified as those funds reported in Item B.6.a of
Form N-CEN that are not identified as ETFs in Item C.3.a.i of Form N-
CEN. Money market funds are excluded from the number of mutual funds,
as they are not required to file Form N-PORT. We use information
reported in Item C.3.g of Form N-CEN to identify money market funds
and exclude 327 money market funds that hold approximately $6.31
trillion in net assets from the total number of mutual funds in order
to estimate the number of mutual funds required to file Form N-PORT.
2. ETFs registered as open-ended funds are identified on Item C.3.a.i of
Form N-CEN. UIT ETFs and exchange-traded managed funds are excluded
from these ETF totals and presented in a separate line item.
3. Non-transparent ETFs are not subject to daily website disclosure of
their portfolio holdings. The estimate for the number of non-
transparent ETFs is based on the staff analysis of funds that have
been granted exemptive relief to operate actively managed ETFs that do
not provide daily portfolio transparency (non-transparent ETFs).
4. ETFs identified on Item C.3.a.i of Form N-CEN excluding 49 non-
transparent ETFs. Among the ETFs required to disclose their portfolio
holdings daily on their websites, we identify 960 in-kind ETFs that
hold approximately $1.84 trillion in net assets, based on Item E.5 of
Form N-CEN.
5. Closed-end funds are identified on Form N-CEN, Item B.6.b.
6. UIT ETFs are identified in Form N-CEN Item B.6.g, and are also
reported in Item E of Form N-CEN. These include 3 in-kind ETFs and 1
not in-kind ETF.
7. Variable annuity separate accounts are identified on Form N-CEN, Item
B.6.c.
We estimate that there are 12,561 funds currently required to file
reports on Form N-PORT that hold approximately $28.82 trillion in
assets (approximately 82% of registered funds' assets). Different types
of affected funds may be affected differently by the amendments to Form
N-PORT. Among the affected funds, there are 8,810 mutual funds that
represent approximately 73% of the affected funds' assets, 3,048 ETFs
registered as open-end funds that represent approximately 22.1% of the
affected funds' assets, 684 closed-end funds that represent
approximately 1.2% of the affected funds' assets, 4 ETFs registered as
unit investment trusts that represent approximately 2.6% of assets of
all affected funds, and 15 variable annuity separate accounts that
represent approximately 0.8% of assets of all affected funds. Among the
ETFs registered as open-end funds, 49 are non-transparent ETFs with
assets of $0.01 trillion in assets and 2,999 are ETFs for which daily
website portfolio disclosure is required, with assets of $6.38
trillion.
Table 2 below lists affected fund counts along with their aggregate
net assets by fiscal year end.\194\ Among the affected funds, there is
variation in the fiscal year end. The most common fiscal year end used
by the affected funds is December (27.9% of funds), the second most
common fiscal year end is October (18.4% of funds), and March is the
third most common fiscal year end (8.8% of funds).
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\194\ We use information reported on Form N-PORT to the
Commission for each fund as of Dec. 31, 2023, incorporating filings
and amendments to filings received through Aug. 1, 2024. Fiscal year
is reported in Item A.3.a of Form N-PORT. Net assets are reported in
Item B.1.c of Form N-PORT. We note that the total number of the
affected funds in this table (12,598 funds) differs from the number
based on the Form N-CEN data in Table 1 (12,598 funds) because Form
N-PORT is submitted on a less delayed basis compared to Form N-CEN;
thus, it may include newly established funds that have not completed
their first fiscal year and, therefore, have not filed the Form N-
CEN yet, as well as funds that have been terminated since the last
Form N-CEN was filed.
[[Page 73784]]
Table 2--Registered Funds by Fiscal Year End, as of Dec. 31, 2023
----------------------------------------------------------------------------------------------------------------
Number of funds Net assets
Fiscal year end ---------------------------------------------------------------
No. % of total $, trillion % of total
----------------------------------------------------------------------------------------------------------------
31-Jan.......................................... 189 1.5 $0.59 1.9
28-Feb.......................................... 414 3.3 1.94 6.1
31-Mar.......................................... 1,092 8.7 2.92 9.2
30-Apr.......................................... 517 4.1 0.84 2.7
31-May.......................................... 638 5.1 1.13 3.6
30-Jun.......................................... 788 6.3 1.21 3.8
31-Jul.......................................... 637 5.1 1.11 3.5
31-Aug.......................................... 1,072 8.5 2.40 7.6
30-Sep.......................................... 1,093 8.7 3.54 11.2
31-Oct.......................................... 2,328 18.5 5.30 16.7
30-Nov.......................................... 385 3.1 0.78 2.4
31-Dec.......................................... 3,445 27.3 9.95 31.4
---------------------------------------------------------------
Total....................................... 12,598 100.0 31.72 100.0
----------------------------------------------------------------------------------------------------------------
The amendments to Form N-CEN will affect all registered investment
companies that are required to file reports on Form N-CEN. Based on
Form N-CEN filing data as of December 31, 2023, there are 2,749 such
registrants. In addition, certain amendments will only affect
registered investment companies with funds that are subject to the
liquidity rule. We estimate that there are 1,257 registrants that have
funds subject to the liquidity rule.\195\
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\195\ Registrants required to file Form N-CEN are identified in
Form N-CEN Item B.1.c. Some funds, such as in-kind ETFs, while
subject to the liquidity rule, are not subject to the liquidity
classification requirements of the liquidity rule. Therefore, to the
extent that some of the estimated 1,257 registrants only have funds
that are in-kind ETFs, the number of affected registrants may be
overestimated.
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C. Benefits and Costs of the Amendments
1. Form N-PORT Filing Frequency
The Commission is adopting the requirement for funds to file Form
N-PORT reports within 30 days of month end, as proposed. This amendment
will provide the Commission with more timely information about funds'
portfolio holdings and therefore enhance the Commission's ability to
oversee such funds. Some commenters agreed with this assessment.\196\
For example, one commenter stated that monthly Form N-PORT filings
would enhance the Commission's ability to effectively oversee funds and
monitor their activities.\197\ More frequent and more timely Form N-
PORT data will allow the Commission to conduct more targeted and
timelier monitoring efforts, to analyze risks and trends more
accurately, and to better assess the breadth and magnitude of potential
impacts of market events and stress affecting particular issuers, asset
classes, counterparties, or market participants.\198\ For example, if a
fund's portfolio is affected by a particular market stress event, the
Commission will be better equipped to assess the severity of such an
event and frame potential regulatory responses in a timelier manner.
For example, having less delayed Form N-PORT data during market stress
events would enhance the ability of the Commission staff to determine
if impacts on funds are isolated or widespread and respond
appropriately.\199\ One commenter supported this view and stated that
more current information ``would have been beneficial to regulators and
policymakers in crafting regulatory and legislative responses to the
economic effects of the COVID-19 pandemic.'' \200\
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\196\ See, e.g., Better Markets Comment Letter; Dane Comment
Letter; Invesco Comment Letter; BlackRock Comment Letter; Hof zum
Ahaus Comment Letter; Myers Comment Letter; ICI Comment Letter I;
PIMCO Comment Letter.
\197\ Invesco Comment Letter.
\198\ See also supra section I.
\199\ See also section II.A.1 for additional discussion of
benefits of increased filing frequency to the regulatory function of
the Commission.
\200\ See Better Markets Comment Letter.
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In addition, the Commission would be able to better identify areas
in need of more timely regulatory oversight and assessment, which
should increase both the efficiency and effectiveness of its programs
and, thus, increase investor protection. Fund investors will benefit,
as timelier portfolio information will help the Commission to assess
risks as they emerge and address them with appropriate regulatory
responses, if any, thereby reducing potential investor harm and market
disruptions.
The amendment requiring funds to file Form N-PORT reports monthly
within 30 days of the month end will introduce new costs to the
affected funds. In the Proposing Release, we stated that we did not
expect these costs to be substantial, as funds are already required to
adhere to the 30-day deadline after each month for recordkeeping
purposes pursuant to rule 30b1-9.\201\ We also stated that, to the
extent it is less efficient for fund groups to submit on a monthly
basis instead of in one batch after a quarter-end, the costs borne by
fund groups may marginally increase under the amendment. Some
commenters disagreed with this assessment, stating that the amendments
would lead to additional cost because it would compress the time
available to compile, review, correct, and file the data required by
Form N-PORT.\202\ Some commenters also stated that submission on a
monthly basis would be less efficient for fund groups and indicated
that monthly filing would increase burdens on funds and fund service
providers and costs to shareholders.\203\
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\201\ Rule 30b1-9.
\202\ See, e.g., BlackRock Comment Letter; ICI Comment Letter I;
PIMCO Comment Letter; T. Rowe Price Comment Letter.
\203\ See, e.g., Brighthouse Comment Letter; PGIM Comment
Letter; Principal Comment Letter; T. Rowe Price Comment Letter.
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We recognize that, although funds currently are required to
maintain the information necessary to prepare their reports on Form N-
PORT within 30 days after each month end, there are additional steps
that service providers and/or advisers currently take prior to the
filing of Form N-PORT with the Commission. In particular, some
commenters stated that filing this information involves additional
steps that funds do not undertake for recordkeeping, such as data
validation and data tagging.\204\ Therefore, the amendments will
introduce costs related to performing these steps more frequently.
This, in turn, may lead to
[[Page 73785]]
increased costs related to service provider fees, hiring more
personnel, and upgrading systems, which may be borne by fund
shareholders.\205\ Specifically, as one commenter stated, a monthly
reporting regime would increase costs associated with the preparation,
review, and filing of Form N-PORT reports and funds would need to
expand vendor engagements, increase human resources, and develop new
systems, processes, and procedures.\206\
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\204\ See, e.g., ICI Comment Letter I; Invesco Comment Letter.
\205\ See, e.g., ICI Comment Letter I; Principal Comment Letter;
T. Rowe Price Comment Letter.
\206\ See Brighthouse Comment Letter.
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One commenter stated that some funds estimate that filing Form N-
PORT monthly would result in an additional cost of $5,000 per fund per
year.\207\ Another commenter provided an estimate of the joint ongoing
internal staffing costs of $900,000 per year after meeting accelerated
filing requirements and supporting the proposed increase in filing
frequency of Regulation S-X compliant portfolio information on Part F
of Form N-PORT.\208\ This estimate appears to reflect the total cost
for the fund group (and not per fund) and given that the commenter
stated that it manages 197 funds that file Form N-PORT,\209\ the
average per fund cost for this commenter is approximately $4,569 per
year. Consistent with these commenters' assessment, we estimate the
average cost increase due to the final amendments for funds that use
third-party vendors to prepare Form N-PORT to be around $6,100 per fund
per year,\210\ and around $4,940 per fund per year \211\ for funds that
process filings internally.
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\207\ See SIFMA AMG Comment Letter.
\208\ See T. Rowe Price Comment Letter. Because we are not
adopting the amendments to Part F to require more frequent reporting
of Reg. S-X compliant schedules of investments, and the commenter
did not separately provide a cost for the acceleration of the filing
deadline, this numerical estimate should be adjusted down.
\209\ See id.
\210\ The estimate is based on the following calculations:
$2,100 (blended hourly rate for a compliance attorney and a senior
programmer at $420 for 5 hours) + $4,000 (costs for external
services) [ap] $6,100. The estimate of 5 hours reflects an initial
time cost of 6 hours, annualized over a 3-year period, with an
estimated ongoing annual time cost of 3 hours. Salaries for
estimates in the Economic Analysis are derived from SIFMA's
Management & Professional Earnings in the Securities Industry 2013,
modified to account for an 1,800-hour work-year and inflation, and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead. See Table 3 (and accompanying footnotes,
which contain additional details about these estimates).
\211\ The estimate is based on the following calculations:
$2,940 (blended hourly rate for a compliance attorney and a senior
programmer at $420 for 7 hours) + $2,000 (costs for external
services) [ap] $4,940. The estimate of 7 hours reflects an initial
time cost of 6 hours, annualized over a 3-year period, with an
estimated ongoing annual time cost of 5 hours. See Table 3 (and
accompanying footnotes, which contain additional details about these
estimates).
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Some commenters stated that the costs of moving from quarterly to
monthly reporting may be more significant for certain funds. For
example, commenters stated that funds that use third parties to provide
certain information for Form N-PORT reports may incur higher costs,
relative to funds that prepare Form N-PORT reports internally, in order
to improve processes around month-end holdings compilation and
preparation of the requests they submit to the provider.\212\
Consistent with our estimates above, we agree with the commenters that
funds that use third-party providers may experience higher costs
($6,100 per fund per year) compared to funds that prepare Form N-PORT
internally ($4,940 per fund per year).
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\212\ See ICE Comment Letter.
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Another commenter stated that certain closed-end funds may
experience larger costs because these funds may not calculate NAV on a
monthly basis or may calculate it with a significant delay, due to the
assets they hold, and therefore the amendment may cause these closed-
end funds to change their valuation processes in order to be able to
report the fund's NAV in each monthly Form N-PORT report.\213\ We
disagree with the commenter for the reason that funds are currently
required to maintain in their records monthly information they are
required to report on Form N-PORT within 30 days of each month,
including NAVs, and therefore funds would not have to change their
valuation procedures. Rather, closed-end funds that do not calculate
their NAVs on a monthly basis for any other purpose than Form N-PORT
reporting will be able to continue relying on General Instruction G
\214\ to produce their NAVs. Therefore, we do not estimate the filing
cost increase to be different for closed-end funds compared to other
types of affected funds.
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\213\ See Neuberger Berman Comment Letter.
\214\ See General Instruction G of Form N-PORT; Reporting
Modernization Adopting Release, supra note 5, at n.460 and
accompanying text (stating that, ``based upon staff experience, it
is [the Commission's] understanding that most closed-end funds
strike their NAV on at-least a monthly basis,'' but that funds that
do not do so may report information on Form N-PORT by using their
internal methodologies consistent with how they report internally
and to current and prospective investors under General Instruction G
of Form N-PORT).
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One commenter indicated that the shorter filing timeline would
especially burden funds with complex investment strategies, such as
alternative funds.\215\ Some commenters also highlighted that
collecting Form N-PORT data may take substantial time for funds that
engage in manual processes to obtain certain of this information, such
as funds investing in certain fixed income securities or derivatives;
and therefore, the data included in Form N-PORT reports may come from
multiple sources.\216\ One commenter stated that, as a result, it is
not feasible to simply download the relevant data from the fund
accounting agent's system for the purposes of populating Form N-
PORT.\217\ While we recognize that the amount of data currently
required to be filed on each Form N-PORT is substantial, the amendments
to Form N-PORT will not change the data items that need to be prepared
and reviewed or change the effort it takes for certain funds to collect
data included in Form N-PORT. In addition, while we recognize that
funds with complex investment strategies or funds that currently use
manual processes to obtain certain Form N-PORT information, as opposed
to funds with less complex strategies and funds that are able to pull
data in a completely automated manner, at present may generally
experience higher costs associated with collecting such information,
the current recordkeeping requirements call for the Form N-PORT
information to be collected within 30 days after month end. Therefore,
we do not expect that the accelerated filing deadline would change the
current costs of collecting data for Form N-PORT, as suggested by the
commenters. Rather, the amendments will align the deadline for filing
information with the deadline by which funds are already required to
record such information, thereby increasing the costs of filing-related
activities, such as data tagging. Therefore, we do not estimate the
filing cost increase to be different for these types of funds compared
to other types of affected funds. However, to the extent that certain
funds, such as those belonging to smaller fund groups that may not
experience economies of scale, may need to prepare recordkeeping data
more quickly than they currently do in order to provide additional time
for filing-related activities, these funds may experience higher costs
related to accelerating their processes around
[[Page 73786]]
preparation and transmission of the data for filing.
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\215\ See Fidelity Comment Letter.
\216\ See, e.g., ICI Comment Letter I; T. Rowe Price Comment
Letter.
\217\ See T. Rowe Price Comment Letter. This commenter also
stated it currently prepares and reviews approximately 1.4 to 2.0
million data points across the 197 funds for each monthly report
within Form N-PORT.
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In addition, we recognize that funds' advisers could be working to
meet other regulatory reporting obligations during the same period they
will be working to prepare monthly Form N-PORT reports and that there
may be overlap in teams that prepare, review, and file Form N-PORT
reports with those that are involved with other required filings. Some
commenters indicated that such overlap may hinder these teams.\218\ Two
commenters suggested that these strains would be pronounced for the
months following the end of the reporting period that annual and
semiannual reports are due.\219\ While we acknowledge that fund groups
may use the same staff and service providers in the filing processes
for Form N-PORT and other forms, such as Forms N-MFP, N-CSR, N-CEN,
24F-2, and CPO-PQR, funds generally should already have enough
operational separation in preparation of information required by each
form due to the different nature of data items required by various
forms and because funds are already required to gather and accurately
record Form N-PORT information within 30 days of month end. However, we
acknowledge that some funds may need to make operational changes and
incur additional costs in order to timely meet all reporting
obligations, such as increasing the use of service providers for
reporting purposes or improving efficiency in the reporting process by
updating internal systems to improve processes around preparing and
transmission of N-PORT data for filing, for example, by reducing manual
processes.\220\
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\218\ See, e.g., Singer Comment Letter; T. Rowe Price Comment
Letter; see also ICI Comment Letter I.
\219\ See, e.g., PIMCO Comment Letter; Singer Comment Letter.
\220\ The costs associated with any such changes would be
covered by our cost estimates above. See supra notes 210 and 211.
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Some commenters were concerned that the risk of reporting errors
would go up if a fund is required to complete additional filing steps
on the same 30-day deadline that is required for recordkeeping.\221\
For example, one commenter stated that a 30-day deadline would provide
insufficient time for resolving data issues prior to filing, even with
increased resources.\222\ Another commenter expressed that 30 days is
not enough for data quality reviews.\223\ While we recognize that funds
may expend more resources to minimize errors in their Form N-PORT
filings due to the accelerated filing deadline, which may lead to
operational inefficiencies, we do not expect these costs to be
significant relative to the baseline because funds are currently
required to have accurate information within 30 days of month end for
recordkeeping purposes.\224\ To the extent that additional processes
associated with filing will be more condensed under the amendments, the
risk of reporting errors (e.g., an error in XML tagging), relative to
the current quarterly filing requirement may increase. However, if a
fund identifies an error in its report after the filing deadline, it
can file an amendment to correct the error, as currently permitted. The
extended implementation period will provide the affected funds with
time to adjust their Form N-PORT reporting processes in order to
minimize errors.
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\221\ See, e.g., ICI Comment Letter I; T. Rowe Price Comment
Letter; BlackRock Comment Letter; Invesco Comment Letter.
\222\ See T. Rowe Price Comment Letter.
\223\ See BlackRock Comment Letter.
\224\ See General Instruction A of Form N-PORT.
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Lastly, to the extent that nonpublic information the Commission
will receive on Form N-PORT reports could be subject to a data breach,
unauthorized access could harm shareholders by expanding the
opportunities to exploit the information, as highlighted by some
commenters.\225\ We recognize that the Commission, faces persistent and
increasingly sophisticated malicious cyber-attacks that threaten the
agency's technology systems and infrastructure that, if successful,
could expose registrants' and other market participants' data. However,
the Commission is continuously working to improve its efforts to
identify, deter, protect against, detect, and respond to these threats
and actors and it employs an array of actions to safeguard and protect
the confidentiality and security of all information reported to EDGAR,
which includes data reported on Form N-PORT.\226\
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\225\ See, e.g., Dodge & Cox Comment Letter I; ICI Comment
Letter I; Invesco Comment Letter; Principal Comment Letter.
\226\ See supra note 76 and accompanying text for additional
discussion.
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2. Form N-PORT Publication Frequency
The Commission is adopting the amendment which will make funds'
reports on Form N-PORT public on a monthly basis 60 days after the end
of each monthly reporting period. This data, which will be reported at
a monthly rather than quarterly frequency, will benefit fund investors
and other users of Form N-PORT reports by increasing transparency of
funds' portfolios, thereby enhancing the ability of investors to review
and monitor information about their funds' portfolios (directly or
through analyses performed by third-party data aggregators). Some
commenters disagreed that a requirement of more frequent public
disclosure would benefit investors.\227\ For example, one commenter
expressed that, since its funds currently disclose portfolio holdings
on a public website every month and disclosing portfolio holdings on a
fund's website is a better tailored approach to ensuring appropriate
information is made available to retail investors, their shareholders
would not benefit from monthly publication of Form N-PORT data.\228\ We
disagree with this assessment; more frequent public disclosure will
benefit investors. Consistent information that is available for all
funds is a public good.\229\ Each fund benefits to some extent from
their own disclosure, but they do not internalize the full benefits,
which are realized to the greatest extent when all funds disclose
consistent and comparable information. For that reason, private market
incentives, as currently exist, lead to under-provision of the
information, compared to what would be useful for the fund investors.
Below, we describe specific ways in which the information will be more
comparable and useful.
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\227\ See, e.g., ICE Comment Letter; Principal Comment Letter;
ICI Comment Letter I.
\228\ See Principal Comment Letter.
\229\ ``Public Good'' is an economics term. It describes a good
that is both non-excludable and non-rivalrous, meaning that its use
cannot be limited to paying customers and that it can be
simultaneously used by more than one consumer. See Paul A.
Sameulson, The Pure Theory of Public Expenditure, 36 The Review of
Economics and Statistics 387-389, (Nov. 1954).
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First, while we continue to recognize that certain funds do
currently provide monthly portfolio holdings on their websites or
publish this information via a data aggregator, not all funds provide
such disclosure.\230\ Moreover, voluntary disclosures that are
currently available on funds' websites may not include other
information that Form N-PORT reports include, such as market-wide
information about funds' total and net assets, liabilities, returns,
flows, as well as information to help assess a fund's risks, including
for example interest rate risk, credit risk, and counterparty risk. In
addition, voluntary disclosures of
[[Page 73787]]
monthly portfolio holdings that are currently publicly available may be
inconsistent across funds and over time and may vary in format,
presentation, or ease of access.\231\ As a result, gathering
voluntarily disclosed data for the purposes of historical analysis of
fund portfolios or comparisons of funds with similar portfolios could
be burdensome. Although such analyses are more frequently performed by
third parties, such as brokers, data analysts, and investment advisers,
the results of these analyses ultimately benefit investors because
investors or their financial professionals utilize them in investment
allocation decisions. However, fund portfolio analyses are currently
limited by the inconsistent availability of current and historical
portfolio data across various databases that consolidate mandatory and
voluntary fund portfolio disclosures,\232\ which can negatively impact
investors who rely on these analyses in their investment allocation
decisions. Therefore, monthly Form N-PORT portfolio disclosure will
benefit the public by increasing availability of portfolio data for
those funds that do not currently provide monthly disclosures on a
voluntary basis and by improving consistency of disclosures, as well as
decreasing the costs of accessing and aggregating these disclosures in
a uniform structured format for those funds that already provide
voluntary monthly disclosures. As a result, users of Form N-PORT data
who wish to aggregate or compare historical fund portfolios will be
able to do so more efficiently and at a lower cost, which will
ultimately benefit investors.
---------------------------------------------------------------------------
\230\ For example, one recent paper looks at the coverage of the
monthly portfolio data across three mutual fund databases for the
period 2004-2019 and estimates that at year-end 2019, 56% of
portfolio disclosures for US-based equity mutual funds reflect
voluntary monthly portfolio disclosures. See James J. Li, Weili Ge &
Lu Zheng, The Economics of Voluntary Portfolio Disclosure (Sept. 1,
2023), available at SSRN: https://ssrn.com/abstract=557186
(retrieved from SSRN Elsevier database).
\231\ For example, if a portfolio is presented in a PDF format,
one would need special software to convert such data from text to
structured data, which may be costly.
\232\ For example, one academic paper estimates that about 58%
of newly founded U.S. equity mutual fund share classes in the CRSP
mutual fund database from 2008 to 2015 cannot be matched to the
Thomson Reuters mutual fund holdings database. See Qifei Zhu, The
Missing New Funds, 66 Mgmt. Sci. 1193-1204 (2020).
---------------------------------------------------------------------------
Second, because currently different funds can adhere to different
fiscal years, and the portfolio information is required to be publicly
disclosed only for the third month in the fiscal-year quarter,
investors and other Form N-PORT users cannot access same-month
portfolio data for similar funds that use different fiscal years. For
example, if Fund A has a fiscal year end in December (27.9% of affected
funds) and Fund B has a fiscal year end in October (18.4% of affected
funds), investors and other Form N-PORT users can see Fund A's
portfolio data only for March, June, September, and December; and are
able to see Fund B's portfolio data only for January, April, July, and
October.\233\ However, market events can occur in any month; and,
therefore, investors in funds (and data analysts and financial
professionals assisting them) whose third month of a fiscal-year
quarter does not align with the month during which a market event
occurs do not currently have access to that month's portfolio data,
making it impossible to compare portfolio trends of funds with similar
strategies during stress events. For example, investors in funds with a
fiscal year end in October are not able to access Form N-PORT portfolio
data for March 2020, which covers a period of significant market
stress. Therefore, monthly publication of portfolio information will
help ensure that investors and other Form N-PORT users have access to
consistent historical portfolio information for all the affected funds,
which will help with historical analysis of fund portfolios and
comparisons of funds with similar portfolios, ultimately benefitting
investors by helping them make more informed investment allocation
decisions.
---------------------------------------------------------------------------
\233\ See Table 2.
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Third, monthly portfolio disclosure may benefit investors by
decreasing agency problems that may exist in the registered fund
sector. For example, because fund managers might vary the risk of a
fund portfolio in hope of achieving higher portfolio returns (``risk
shifting'') to attract investors, which may result in temporary
departure from the fund's investment strategy, the presence of
information asymmetry (i.e., investors and other users of Form N-PORT
not having access to portfolio holdings information on a frequent
basis), may further incentivize this risk shifting behavior. As another
example, information asymmetry may contribute to managers engaging in
return smoothing to depict fund portfolios as less risky (i.e., having
lower volatility). Thus, to the degree that these tactics are present
in the mutual fund sector, a reduction of information asymmetry
resulting from more frequent public portfolio holdings disclosure would
reduce the incentives for risk shifting and return smoothing behavior
of fund managers, benefitting fund investors. For example, a recent
working paper analyzes the 2016 adoption of Form N-PORT reporting
requirements and suggests that standardized portfolio disclosures
decreased information asymmetry between fund investors and managers,
showing that, as a result of the 2016 reporting requirements, fixed-
income fund managers (who generally have incentives to display lower
volatility) became less likely to engage in return smoothing, and
equity managers became less likely to engage in risk shifting.\234\
However, some academic studies of the earlier 2004 regulatory change
from mandatory semiannual to quarterly reporting of mutual fund
holdings suggest that the 2004 regulatory change did not result in a
reduction of portfolio pumping, window dressing, and style drift.\235\
Although these studies do not find a decrease in such tactics as a
result of more frequent disclosure mandated in 2004, the studies do
suggest that higher reporting frequency improves investors' ability to
sort among good and bad fund managers because these tactics could be
associated with higher trading costs, and, consequently, lower fund
performance.\236\ This, in turn, allows investors to make better
investment allocation decisions.
---------------------------------------------------------------------------
\234\ See Ki-Soon Choi, The Role of Portfolio Disclosures in
Mutual Funds (working paper revised Aug. 2 2023), available at SSRN:
https://ssrn.com/abstract=4283140 (retrieved from SSRN Elsevier
database). The paper identifies equity and fixed-income funds with
the size between $30 million and $10 billion that have at least one
Form N-Q and one Form N-PORT during the period between 2017 and
2021, using CRSP Mutual Fund Database.
\235\ See, e.g., Xiangang Xin, P. Eric Yeung & Zilong Zhang,
Wrong Kind of Transparency? Mutual Funds' Higher Reporting
Frequency, Window Dressing, and Performance, 62 J. Acct. Rsch. 737-
81 (2024). This study looks at the effects of 2004 regulation and
the results suggest that the 2004 change from semiannual to
quarterly portfolio reporting exacerbated signal manipulations, such
as window dressing, by fund managers. The study suggests that,
because elevated window dressing under higher reporting frequency is
associated with an increase in trading costs and lower fund
performance, investors can identify low-skill managers more quickly
and penalize them in the form of withdrawals. See, e.g, also Ji-
Woong Chung, Koren M. Jo, Sejin Kang & Jaeouk Kim, Intended
Consequences of More Frequent Portfolio Disclosure (Mar. 2, 2024),
available at SSRN: https://ssrn.com/abstract=4086186 (retrieved from
SSRN Elsevier database). The authors study the impact of the 2004
regulation, which mandated mutual funds to increase their portfolio
disclosure frequency from semiannual to quarterly, on actively
managed U.S. domestic equity funds. The results show an improvement
in capital allocation efficiency, as measured by the return
predictability of money flows, due in large part to institutional
investors' ability to avoid underperforming funds. The results also
suggests that investors of mutual funds in the treated group become
better able to predict future fund performance compared to those in
the control group, implying that the new regulation provided
investors with incrementally valuable information.
\236\ See id.
---------------------------------------------------------------------------
The increased publication frequency may increase certain costs for
some funds.\237\ In particular, because the final amendments will
reduce the maximum potential time that a fund currently can use to
build a position in a security without publicly disclosing the
[[Page 73788]]
acquisition of the initial stake in this security from approximately
five months to approximately three months \238\ for those securities
that do not qualify to be reported as a miscellaneous securities, the
risks related to copycatting or free-riding by other market
participants may increase.\239\ For example, under the final
amendments, assuming it takes a fund more than three months to build a
position in a security, its acquisition cost may increase 60 days after
the one-month mark (which would be up to two months sooner compared to
the baseline) because other market participants would be able to see
that the fund acquired a new security and may copy the trade. Such
copycat trades could inflate the price of the security, thereby
increasing the trading costs of further purchases of this security for
the fund, which will be passed onto the fund's investors in the form of
lower cost-adjusted fund returns.\240\
---------------------------------------------------------------------------
\237\ See also Proposing Release, at section III.C.4.b.
\238\ For example, under the baseline, if a fund starts building
a position in a security in the beginning of its fiscal quarter, it
may spread the purchases of this security over approximately five
months before the quarter-end position will be reflected in the
public disclosure 60 days after the quarter-end. This means that a
fund can finish building this position in five months without other
investors seeing the fund's initial allocation towards the security.
In contrast, under the final amendments, the time a fund would have
to build a position without publicly disclosing it would shorten to
approximately three months--because the position at the end of the
first month would become publicly disclosed 60 days after the month
end, unless it qualified to be reported as a miscellaneous security.
\239\ As discussed in more detail below, some commenters
expressed concern about more frequent public disclosure resulting in
front-running or copycatting of fund strategies. Academic literature
suggests that funds, including mutual funds, may be subject to free-
riding or copycatting. While the existing literature on the effects
of free-riding/copycatting on performance is primarily focused on
funds other than mutual funds, there is a limited number of studies
of copycatting behavior in the context of mutual funds and their
portfolio disclosures. See, e.g., Roberto Stein, `Smart' copycat
mutual funds: on the performance of partial imitation strategies, 8
Financial Innovation 92 (2022). This paper looks at actively
managed, open-end mutual funds that invest primarily in domestic
equities during the period between 2000 and 2006 and construct a
``copycat score'' for each fund. The author suggests that mandated
portfolio disclosures are being actively exploited by some traders,
and that both funds that copycat and funds that are being copycatted
consistently outperform other funds, which implies that a trading
strategy that follows publicly reported holdings of actively managed
funds can earn similar returns. See also, e.g., Blake Phillips,
Kuntara Pukthuanthong, and P. Raghavendra Rau, Detecting Superior
Mutual Fund Managers: Evidence from Copycats 86-321 (Dec. 22, 2014),
available at SSRN https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2496452. The paper studies the sample of
actively managed, domestic mutual funds that report monthly
frequency returns and net assets during the period between 1991 and
2013. Importantly, this study defines copycat funds as those that
replicate the entire portfolio of another fund, rather than holdings
of individual securities. The authors conclude that although copied
funds are harmed by copycatting behavior in terms of deflected
flows, the magnitude of this harm remained relatively constant
across regulatory regimes (i.e., before and after the 2004 change in
the reporting requirements). However, both studies do not seem to
differentiate copycatting activities from coincidental trades.
Another recent paper uses Form 13F data for both mutual funds and
other funds (primarily hedge funds) between 2003 and 2017 and
corrects for this issue. The authors find that copycat companies are
able to identify profitable trades that outperform other trades
disclosed by the copycatted companies by 5.5% annually. However,
because this study comingles mutual funds and other funds, it is
unclear whether results apply to the affected funds. See Cao, Sean
Shun, et al., Copycat skills and disclosure costs: Evidence from
peer companies' digital footprints, Journal of Accounting Research
59.4 (2021): 1261-1302. Another recent study also examines the costs
of Form 13F disclosure, focusing on hedge funds and pension funds,
and finds that additional disclosure may harm portfolio returns over
time. The study suggests that long-term stock investors are being
harmed on a risk-adjusted return basis, because copycats cause long-
term stock investors to experience excess volatility in their
returns without higher returns. See David Kwon, The Differential
Effects of the 13f Disclosure Rule on Institutional Investors
(working paper, May 5, 2022), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4095482 (retrieved from SSRN Elsevier
database). Also see Reporting Modernization Adopting Release, supra
note 5, at section III.B.3 for review of less recent academic
literature.
\240\ See id.
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Some commenters urged that concerns about copycatting should not
impede more rapid public disclosure.\241\ We agree with these
commenters because we expect that the above effects would be limited to
a small universe of funds: for example, active funds that build
substantial positions in multiple securities over a longer than 2-to-3-
months timeframe in order to avoid market impact from their trades, and
for which the 5% limit on miscellaneous securities may be binding. In
particular, with the 60-day delay, even if an actively managed fund
began to build a position on the last day of the month, that position
would not be publicly disclosed on Form N-PORT until approximately two
months later. The fund could use those two months to continue to build
its position without public knowledge of the fund's position.\242\
---------------------------------------------------------------------------
\241\ Hof zum Ahaus Comment Letter; Myers Comment Letter.
\242\ The same would be true for a fund exiting an existing
position.
---------------------------------------------------------------------------
As an initial matter, when a fund is building a new position in an
instrument, it can choose to treat that instrument as a miscellaneous
security for up to one year, which would remain nonpublic for that
period, to the extent that this instrument has not been previously been
made public by name and to the extent that the addition of this
instrument would stay within the 5% limit on aggregate positions in
miscellaneous securities.\243\ Therefore, the ability to keep certain
new investments confidential for a longer period mitigates concerns
about copycatting or free-riding for the majority of funds.
---------------------------------------------------------------------------
\243\ See section II.A.2 for additional discussion; see also
section IV.B.1.
---------------------------------------------------------------------------
In addition, the 60-day delay in public disclosure also mitigates
the concerns about an increase in copycatting risk for actively managed
funds, relative to the copycatting risk due to the current public
disclosure requirements, because the information relied on to identify
undervalued securities to build new positions can become known to the
market or otherwise incorporated into the security's price over the
course of the 60-day delay. Traders attempting to copycat trades of
actively managed funds on a 2-to-3 months delay will therefore have
limited opportunity to enter into positions at advantageous prices,
which may reduce incentives to copy the trades of an actively managed
fund in the first place. In fact, such copycatting activity on a 2-to-3
months delay may also facilitate price discovery to the benefit of the
disclosing fund and its investors. While a fund would benefit the most
from any price increase in the underlying security when copycat trades
occur after the fund has finished building its entire position in this
security, any early disclosure of the fund's position that leads to
copycatting may result in price appreciation affecting the part of the
position already built sooner than would otherwise be the case. While
there will still be costs in the cases where funds cannot fully
establish their positions before the required disclosures become
public, those costs will be mitigated by price appreciation affecting
the part of the position already built prior to the disclosures.
Nonetheless, we recognize an increase in risk for a small universe
of funds. For example, one commenter \244\ stated that hedge funds and
algorithmic traders seek to capitalize on proprietary trading decisions
of fund managers by looking for information about the trading activity
of large funds \245\ and that this commenter does not disclose
portfolio holdings for any of its funds more frequently than required
in order to protect its funds' intellectual property
[[Page 73789]]
for the benefit of investors.\246\ Although some funds build positions
over time to reduce market impact of their trades, such trading
behavior in combination with quarter-end disclosure and varying fiscal
year starts may be strategic rather than preventative (against market
impact), which may negatively impact fund investors because trades are
not necessarily made at the time when new information about the
fundamental value of a security is learned by a fund manager. For
example, one commenter stated that it tries to time purchases of new
investments to avoid being active in the market at the time it makes
public disclosures.\247\ Consistent with the commenter's description, a
recent academic paper suggests that funds may engage in managing their
position building around required disclosure dates, which may lead to
non-trivial positive or negative effects on fund portfolio
informativeness and informativeness of prices.\248\ To the extent that
this behavior is present among some fund managers, requiring monthly
disclosure may mitigate these effects, benefitting investors.
---------------------------------------------------------------------------
\244\ See Dodge & Cox Comment Letter I; Dodge & Cox Comment
Letter II.
\245\ Other commenters generally expressed that other market
participants could use automated tools to reverse-engineer portfolio
decisions, harming funds and their shareholders. See, e.g., ICI
Comment Letter I; JP Morgan Comment Letter; PGIM Comment Letter;
Principal Comment Letter.
\246\ See Dodge & Cox Comment Letter I. The same commenter also
stated that, since 2007, the prices of new holdings in one of its
funds have, on average, increased approximately twice as much as the
average increase in S&P 500 constituents on the day of the fund's
quarterly portfolio disclosures. See Dodge & Cox Comment Letter II.
\247\ See Dodge & Cox Comment Letter II.
\248\ See T.A. Gormley, Z. Kaplan & A. Verma, More Informative
Disclosures, Less Informative Prices? Portfolio and Price Formation
Around Quarter-Ends, 146 J. Fin. Econ. 665-88 (Nov. 2022). The paper
analyzes trade-level data of certain funds during 1998-2008 and
reports trading patterns around required SEC disclosure dates. The
paper documents that funds execute different types of trades around
quarter-end dates, which is when most funds record positions for
subsequent disclosures. The findings suggest that funds shift the
timing of planned trades in response to upcoming disclosures. In
particular, funds are more likely to start new trading campaigns
after the quarter-end and more likely to complete existing trading
campaigns before the quarter-end. The results suggest that although
funds trade into positions which tend to make portfolio disclosures
more informative about future holdings, these trades may
simultaneously decrease price informativeness for underlying
securities because trading in these securities around disclosure
dates may not necessarily be driven by changes in their intrinsic
values.
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3. Amendments to Form N-CEN
We are also adopting amendments to Form N-CEN to identify and
provide certain identifying information about service providers a fund
uses to fulfill the requirements of rule 22e-4.\249\ This information
will help the Commission oversee funds' liquidity risk management
practices, as well as provide additional transparency about service
providers to investors and other data users. Funds should already
maintain the information they will be required to report under this
amendment in the ordinary course of their business. Therefore, we do
not expect that funds will experience substantial cost increases as a
result of this amendment. In particular, we estimate that the changes
to Form N-CEN will result in costs of around $420 per filer per
year.\250\
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\249\ We did not receive any comments about costs and benefits
of this amendment.
\250\ The estimate is based on the following calculations:
blended hourly rate for a compliance attorney and a senior
programmer at $420 for 1 hour = $420. The 1-hour estimate reflects
an initial time cost of 1.5 hours, annualized over a 3-year period,
with an estimated ongoing annual time cost of 0.5 hours. See Table 4
(and accompanying footnotes, which contain additional details about
these estimates).
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4. Entity Identifiers
The Commission is amending as proposed the definition of LEI in
Forms N-PORT and N-CEN to remove language providing that, in the case
of a financial institution that does not have an assigned LEI, a fund
should instead disclose the RSSD ID assigned by the National
Information Center of the Board of Governors of the Federal Reserve
System, if any. Instead of classifying an RSSD ID as an LEI for these
purposes, the amendments will require funds to identify specifically
whether they are reporting an LEI or an RSSD ID.\251\ The amendments
will not change the circumstances in which a fund is required to report
an LEI or an RSSD ID, if available. Rather, these amendments will help
the Commission and market participants identify entities related to
funds' counterparties and issuers of funds' holdings more efficiently.
We do not expect that the amendments to separate the concepts of LEI
and RSSD ID more clearly in the form will change the burdens of the
current form, as the form already requires a fund to report the RSSD
ID, if any, if a financial institution does not have an assigned LEI.
---------------------------------------------------------------------------
\251\ We did not receive any comments about costs and benefits
of this amendment.
---------------------------------------------------------------------------
5. Other Compliance Costs
Some commenters stated that the Commission should consider the
cumulative costs of implementing the proposed amendments and other
recent Commission rules and proposed rules.\252\ The Commission has
considered interactions between the economic effects of the proposal
and other recent Commission proposals that culminated in the Names Rule
Adopting Release,\253\ the Settlement Cycle Adopting Release,\254\ the
Tailored Shareholder Reports Adopting Release,\255\ and the Customer
Notification Adopting Release.
---------------------------------------------------------------------------
\252\ See supra section IV.B.
\253\ See ICI Comment Letter I; PIMCO Comment Letter.
\254\ See BlackRock Comment Letter.
\255\ See ICI Comment Letter I.
---------------------------------------------------------------------------
Consistent with its long-standing practice, the Commission's
economic analysis in each adopting release considers the incremental
benefits and costs for the specific rule--that is, the benefits and
costs stemming from that rule compared to the baseline. The Commission
acknowledges the possibility that complying with more than one rule in
the same time period may entail costs that could exceed the costs if
the rules were to be complied with separately. One of the rules has a
compliance date that occurred before the effective date of the final
amendments,\256\ such that there is no overlap in transition periods.
The other rules overlap in part with the final amendments, but the
compliance dates adopted by the Commission are spread out over an
approximately two-year period from 2024 to 2026, which could limit the
number of implementation activities occurring simultaneously.\257\ The
Commission has tiered compliance dates to provide necessary time for
large and small entities to comply with these final amendments and
other recently adopted rules with compliance dates in close
proximity.\258\ Where overlap in compliance periods exists, the
Commission acknowledges that there may be additional costs on those
entities that are subject to one or more other rules.
---------------------------------------------------------------------------
\256\ The compliance date for the Settlement Cycle Adopting
Release was May 28, 2024.
\257\ See supra section IV.B (listing recent rule adoptions and
their respective compliance dates). The compliance date for the
Names Rule Adopting Release is Dec. 11, 2025, for larger entities
and June 11, 2026, for smaller entities. For the Tailored
Shareholder Reports Adopting Release, funds will be required to
transmit tailored shareholder reports following the compliance date
of July 24, 2024, but the timing for funds' transmittals of these
reports will depend on each fund's fiscal calendar. The compliance
date for the Customer Notification Adopting Release is Dec. 3, 2025,
for larger entities and June 3, 2026, for smaller entities.
\258\ See supra section II.E.
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D. Effects on Efficiency, Competition, and Capital Formation
1. Efficiency
As noted above, some commenters generally disagreed that a
requirement of monthly public disclosure would benefit investors.\259\
We disagree with
[[Page 73790]]
this assessment and believe that monthly public disclosure may improve
allocative efficiency of portfolio allocation. We also expect that the
amendments will improve price efficiency of certain securities held by
affected funds and price efficiency of secondary-market shares of
closed-end funds.
---------------------------------------------------------------------------
\259\ See section IV.C.2; see also, e.g., ICE Comment Letter;
Principal Comment Letter; ICI Comment Letter I.
---------------------------------------------------------------------------
In particular, as discussed in section IV.C.2, investors are
currently not able to obtain consistent monthly portfolio data for all
funds from other sources, such as funds' websites or third-party data
aggregators. More frequent public disclosure of funds' portfolios will
increase transparency about funds' portfolio trends and enhance the
ability of investors (and data analysts and financial professionals
assisting them) to monitor funds' portfolios, which will reduce
information asymmetries between funds and investors. This, in turn, may
increase allocative efficiency allowing investors to make more informed
investment decisions in selecting funds that align with their
investment objectives and risk tolerance.\260\
---------------------------------------------------------------------------
\260\ See, e.g., Ji-Woong Chung, Koren M. Jo, Sejin Kang &
Jaeouk Kim, Intended Consequences of More Frequent Portfolio
Disclosure (Mar. 2, 2024), available at SSRN: https://ssrn.com/abstract=4086186 (retrieved from SSRN Elsevier database). The
authors study the impact of the 2004 regulation, which mandated
mutual funds to increase their portfolio disclosure frequency from
semi-annual to quarterly, on actively managed U.S. domestic equity
funds. The results show an improvement in capital allocation
efficiency, as measured by the return predictability of money flows,
due in large part to institutional investors' ability to avoid
underperforming funds.
---------------------------------------------------------------------------
Further, monthly public Form N-PORT disclosure may also improve
price efficiency for fund holdings.\261\ Price efficiency is expected
to improve both because Form N-PORT information will contain valuations
(which may be useful for holdings that are not traded on an
exchange),\262\ but also because the information that a fund is holding
a particular security may affect the valuation decisions of
investors.\263\ While monthly portfolio information will increase the
number of data points available to the public, resulting in an
improvement of market participants' understanding of fund holdings and,
therefore, price efficiency relative to the baseline, efficiency
improvements will still be limited by the fact that portfolio
information is lagged by 60 days.
---------------------------------------------------------------------------
\261\ Price efficiency refers to the idea that a security's
price reflects all available information about the actual value of
the security available to all market participants (issuers,
investors, analysts, etc.).
\262\ See, e.g., Morningstar, Bond Pricing: Agreeing to Disagree
(2021), available at https://www.morningstar.com/content/dam/marketing/shared/research/foundational/Bond_Pricing_2021.pdf. The
study shows that funds can value the same security differently at
the same time.
\263\ This is consistent with one commenter's statements that
prices of new portfolio positions react upon disclosure of these
positions on Form N-PORT. See supra note 246.
---------------------------------------------------------------------------
The amendments may also increase efficiency in the secondary market
for shares of closed-end funds. Because portfolios of closed-end funds
will become more transparent, to the extent that portfolio information
lagged by 60 days is informative for prices of secondary market
transactions in shares of closed-end funds, the dispersion between
funds' NAVs and the value of their shares in the secondary market may
narrow, increasing the price efficiency of closed-end fund shares
traded in the secondary market.
2. Competition
The amendments will entail compliance costs, though these are not
expected to be substantial because funds already gather Form N-PORT
information at a monthly frequency.\264\ Any compliance costs a fund
pays, including compliance costs from the final amendments, are borne
by the fund's investors. Because compliance costs have a fixed
component (i.e., they do not scale perfectly with fund size), smaller
funds or smaller fund complexes will have greater compliance costs as a
percentage of assets under management, negatively affecting their
ability to compete with larger funds. Similarly, competition between
funds and other means of investing, such as collective investment
trusts (``CITs'') \265\ or separately managed account programs, may
also be affected, in that funds may incur increased costs which could
lead to outflows to these other vehicles, to the extent fund expenses
are a dispositive factor in a choice of an investment vehicle for some
investors.\266\ This effect is mitigated by the increased transparency
that funds would offer. Overall, the amendments are likely to improve
competition between funds by improving fund transparency and allowing
investors to better understand the reasons for fund performance.
---------------------------------------------------------------------------
\264\ See discussion in section IV.C.1.
\265\ CITs are an alternative to mutual funds for defined
contribution plans. Like mutual funds, CITs pool the assets of
investors and invest those assets according to a particular
strategy. Unlike mutual funds, which are regulated under the
Investment Company Act, CITs are regulated under banking laws and
are not marketed as widely as mutual funds. These differences reduce
CITs' operational and compliance costs compared with mutual funds.
According to one report, CITs made up 47% of target-date strategy
assets, as of the end of 2022, and are projected to become the most
popular target-date vehicle within the next two years. See Natalya
Shnitser, Overtaking Mutual Funds: The Hidden Rise and Risk of
Collective Investment Trusts (Boston College Law School Legal
Studies Research Paper No. 612, Sept. 17, 2023), available at
https://ssrn.com/abstract=4573199 (Yale Law Journal, Forthcoming).
\266\ Id.
---------------------------------------------------------------------------
Some commenters requested the Commission consider interactions
between the economic effects of the proposed rule and other recent
Commission rules, as well as practical realities such as implementation
timelines.\267\ We have also considered the potential effects on
entities that are implementing other recently adopted rules during the
compliance period for these amendments.\268\ As discussed above, the
Commission acknowledges that overlapping compliance periods may in some
cases increase costs. This may be particularly true for smaller
entities with more limited compliance resources. This effect can
negatively impact competition because these entities may be less able
to absorb or pass on these additional costs, making it more difficult
for them to remain in business or compete. However, we have mitigated
the potential for heightened costs by adopting a tiered transition
period. Moreover, the other rules have long compliance periods to
facilitate planning, preparation and investment, thereby mitigating the
cost of overlapping compliance periods, which may be particularly
useful for smaller entities. We therefore do not expect the risk of
negative competitive effects from increased compliance costs from
overlapping compliance periods to be significant.
---------------------------------------------------------------------------
\267\ See supra section IV.B; see ICI Comment Letter I; PIMCO
Comment Letter; BlackRock Comment Letter.
\268\ See supra sections IV.B and IV.C.5.
---------------------------------------------------------------------------
3. Capital Formation
This rule is likely to promote capital formation by improving price
efficiency. In particular, more information on fund holdings (monthly
versus quarterly), and more timely information, will improve investors'
ability to value securities. These pricing signals from the market will
lead to better decisions by issuers on how to allocate capital, namely
to its most efficient uses. This effect is limited to the extent that
investors already have access to data from Form N-PORT, and to the
extent that there are numerous pricing signals available to investors
in the market beyond those in Form N-PORT data. Nonetheless, the
observation that there is a price response to publication of N-PORT
data \269\ suggests that there is valuable information in these filings
that will improve the valuation of
[[Page 73791]]
securities and thereby promote capital formation.
---------------------------------------------------------------------------
\269\ See supra note 263 and accompanying text.
---------------------------------------------------------------------------
E. Alternatives
1. Form N-PORT Filing Frequency
The Commission is adopting the amendment to require funds to file
Form N-PORT reports with the Commission within 30 days after the end of
each month. As an alternative, we considered a longer filing deadline
(e.g., 45 or 60 days after each month end), as was suggested by some
commenters.\270\ We recognize that a 30-day filing deadline will impose
costs on funds and their shareholders and that a longer filing deadline
may mitigate such costs and could also reduce the risks associated with
data security risks because the confidential portfolio data maintained
on EDGAR would be less sensitive, to the extent that such risks are
significant. However, as discussed above, because funds are currently
required to maintain in their records monthly information that is
required to be reported on Form N-PORT within 30 days after the end of
each month, we do not expect that these costs will be substantial,
while the 30-day deadline will provide the Commission with more timely
information about funds' portfolio holdings and enhance its ability to
oversee such funds, ultimately benefitting investors. In particular,
any delays in receipt of information can affect the Commission and the
staff's ability to use Form N-PORT information to carry out the
Commission's regulatory function for the asset management industry,
especially during periods of stress in which analysis of potential
issues and development of any regulatory responses are particularly
time sensitive endeavors. Thus, the benefits of the information decline
as the filing deadline extends.
---------------------------------------------------------------------------
\270\ See, e.g., Dodge & Cox Comment Letter I (suggesting 60
days); ICI Comment Letter I (suggesting 45 days); Invesco Comment
Letter (suggesting 45 days).
---------------------------------------------------------------------------
As another alternative, we could have adopted a shorter filing
deadline, such as one week or fifteen days after the end of each month,
to reduce the delay of the data, as suggested by some commenters.\271\
Under this alternative, the Commission would receive data on a timelier
basis and would be able to respond to market events more effectively.
However, a shorter filing timeframe would require funds to collect
information more quickly than they currently do, which would result in
additional costs and could also present greater data security risks
because the confidential portfolio data maintained on EDGAR would be
more sensitive.
---------------------------------------------------------------------------
\271\ See, e.g., Hof zum Ahaus Comment Letter (suggesting weekly
filing deadline with instant publishing); Myers Comment Letter
(suggesting a 15-day reporting period if not weekly).
---------------------------------------------------------------------------
2. Form N-PORT Publication Frequency
The Commission is adopting the amendment which will make funds'
reports on Form N-PORT public on a monthly basis 60 days after the end
of each monthly reporting period. As an alternative, we considered
requiring the Form N-PORT filings to become public with a shorter than
60-day delay. For example, we could match the publication date with the
Commission filing deadline that we are adopting, which would mean that
a fund's filing would be due and become public 30 days after the end of
the reporting period. Making filings public immediately upon filing
could improve investor understanding of fund portfolios because
investors would be able to review the information closer to real time
(though still with a substantial delay). This alternative could enhance
the ability of investors to use more timely information when making
investment allocation decisions and to choose the right fund that suits
their portfolio construction goals.\272\ This approach would also
reduce the amount of information the Commission would be required to
keep confidential.\273\ On the other hand, to the extent funds are at
risk of predatory trading or copycatting when their portfolios become
public sooner, this approach would increase those risks.\274\
---------------------------------------------------------------------------
\272\ Some commenters generally suggested that the information
would be stale and less useful to investors if delayed by 60 days.
See, e.g., Hof zum Ahaus Comment Letter (suggesting a one-week delay
between the end of the month and publication of that month's Form N-
PORT report); Brandano Comment Letter (suggesting a five-day delay);
Gershon Comment Letter; Myers Comment Letter (suggesting a lag time
before a report is available to the public of either 15 days or a
week).
\273\ Certain data would remain confidential, such as the
composition of the fund's ``miscellaneous securities.'' See supra
section IV.B.1.
\274\ See supra section IV.C.2.
---------------------------------------------------------------------------
We also considered providing a longer period between the time
information is filed and when it is made public. The benefits and costs
of these alternatives would be the reverse of the publication-upon-
filing alternative. Namely, this alternative could reduce the risks of
predatory trading or copycatting because by the time the information
became public, it would be staler. On the other hand, it would also be
less useful to investors seeking to understand their funds and, if we
paired a delay in publication with a delay in the deadline for filing
with the Commission, it would be less useful to the Commission as well.
3. Other Alternatives
Part F of Form N-PORT requires a fund to attach a complete schedule
of portfolio holdings for the end of the first and third quarters of
the fund's fiscal year, presented in accordance with Regulation S-X,
within 60 days after the end of the reporting period. As an
alternative, we considered requiring funds to post Regulation S-X
compliant portfolio information on their websites on a monthly basis.
This alternative could make the monthly disclosure more usable,
particularly for individual investors, to the extent that they are less
likely to use the information in Form N-PORT because of its structured
data format. However, in response to the Proposing Release, some
commenters argued that investor demand for more frequent Regulation S-X
compliant portfolio holdings information is small and that investors do
not express preference for Regulation S-X disclosures over Form N-PORT
portfolio disclosures.\275\
---------------------------------------------------------------------------
\275\ See, e.g., ICI Comment Letter I; Principal Comment Letter
(stating that only a small percentage of its website visitors review
the existing Regulation S-X compliant schedules of investments); T.
Rowe Comment Letter (stating that its funds' shareholders have not
expressed a preference for Regulation S-X compliant schedules).
---------------------------------------------------------------------------
In addition, this alternative may involve significant costs and
increase operational inefficiencies for funds, which could be passed on
to investors, as raised by commenters.\276\ For example, because funds
use portfolio positions as of the previous day (T+1 accounting) for
their Form N-PORT portfolio disclosures but Regulation S-X requires
accounting records to be presented in a trade-date format, funds would
have to create two different portfolio disclosures on a monthly basis,
which may be operationally inefficient.\277\
---------------------------------------------------------------------------
\276\ See section II.A.3 for a detailed discussion of commenter
feedback on this alternative.
\277\ See, e.g., Capital Group Comment Letter; ICI Comment
Letter I; SIFMA AMG Comment Letter.
---------------------------------------------------------------------------
V. Paperwork Reduction Act
A. Introduction
Certain provisions of the final amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\278\ The Commission published a
request for comment on changes to these collection of information
requirements in the Proposing Release and submitted these requirements
to the Office of
[[Page 73792]]
Management and Budget (``OMB'') for review in accordance with the
PRA.\279\ The titles for the existing collections of information we are
amending are: (1) ``Rule 30b1-9 and Form N-PORT'' (OMB control number
3235-0730); and (2) ``Form N-CEN'' (OMB control number 3235-0729). An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid OMB control number. We discuss below the collection of
information burdens associated with the final amendments.
---------------------------------------------------------------------------
\278\ 44 U.S.C. 3501 through 3521.
\279\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------
B. Form N-PORT
Form N-PORT requires registered management investment companies
(except for money market funds and small business investment companies)
and ETFs that are organized as unit investment trusts to report
portfolio holdings information in a structured, XML data language. The
form is filed electronically using the Commission's electronic filing
system, EDGAR. We are adopting the following amendments to Form N-PORT:
Filing frequency. The final amendments to Form N-PORT will
require filing Form N-PORT reports on a monthly basis, within 30 days
after the end of each month. Currently, a fund must maintain in its
records the information that is required to be included on Form N-PORT
not later than 30 days after the end of each month, but is only
required to file that information within 60 days after the end of every
third month.
Other amendments. We are adopting conforming amendments to
certain existing items, including amendments related to certain entity
identifiers and amendments regarding miscellaneous holdings disclosure
to account for the adopted amendments making monthly Form N-PORT
information available to the public.
In a change from the proposal, we are not adopting the following
proposed amendments to Form N-PORT at this time:
Public reporting of aggregate liquidity classifications.
The proposed amendments would have required certain open-end funds to
aggregate information they report about liquidity classifications of
their investments, make certain derivatives- and liabilities-related
adjustments, and report the adjusted aggregate information as well as
information about the adjustments that were made. The proposed
amendments to Form N-PORT also would have included certain changes to
conform to the proposed amendments to the liquidity rule in that
release (e.g., changes to the liquidity categories).
Swing pricing information. The proposed amendments would
have required funds to report certain swing pricing information related
to the size and frequency of price adjustments a fund made during each
reporting period.
Additional reporting of Regulation S-X compliant portfolio
information. The proposed amendments would have increased the filing
frequency of Regulation S-X compliant portfolio information on Part F
of Form N-PORT.
The respondents to these collections of information will be
management investment companies (other than money market funds and
small business investment companies) and ETFs that are organized as
unit investment trusts. We estimate that there are 12,561 such funds
required to file on Form N-PORT.\280\ The final collections of
information are mandatory for the identified types of funds. Certain
information reported on the form is currently kept confidential, and
this will continue to be the case under the final amendments.\281\ All
other responses to Form N-PORT reporting requirements will not be kept
confidential, and instead will be made public 60 days after the end of
the month to which they relate. Currently, only the report for every
third month is made public. The final amendments are designed to assist
the Commission in its regulatory, disclosure review, inspection, and
policymaking roles, and to help investors and other market participants
better assess different funds.
---------------------------------------------------------------------------
\280\ This estimate of the number of funds required to file on
Form N-PORT is as of Dec. 31, 2023, and based on data from filings
with the Commission.
\281\ See General Instruction F of Form N-PORT; General
Instruction F of amended Form N-PORT.
---------------------------------------------------------------------------
In our most recent PRA submission for Form N-PORT, we estimated the
annual aggregate compliance burden to comply with the current
collection of information requirements in Form N-PORT is 1,929,237
burden hours with an internal cost burden of $690,927,892 and an
external cost burden estimate of $136,290,893.\282\ We estimate that
funds prepare and file their reports on Form N-PORT either by (1)
licensing a software solution and preparing and filing the reports in
house, or (2) retaining a service provider to provide data aggregation,
validation, and/or filing services as part of the preparation and
filing of reports on behalf of the fund. We estimate that 35% of funds
subject to the Form N-PORT filing requirements will license a software
solution and file reports on Form N-PORT in house, and the remaining
65% will retain a service provider to file reports on behalf of the
fund.
---------------------------------------------------------------------------
\282\ The most recent Form N-PORT PRA submission was approved in
2023 (OMB Control No. 3235-0730). The estimates in the Proposing
Release were based on earlier approved estimates (1,848,326 hours
and $108,457,536 external cost burden), and these earlier approved
estimates are reflected in the ``Proposed Estimates'' section of the
below table.
---------------------------------------------------------------------------
The Commission received one comment suggesting that the PRA
estimates for the proposed amendments, including those unrelated to the
proposed reporting requirements, were too low.\283\ The Commission also
received comments not specifically addressing the estimated PRA
burdens, but stating that the costs associated with implementing the
proposed amendments to Form N-PORT would be significant. Some of these
commenters suggested that funds will experience increased costs related
to the collection of Form N-PORT information due to the increased
frequency of filing, especially when combined with the proposals to
increase the frequency of reporting Regulation S-X compliant portfolio
holdings and to require aggregate liquidity and swing pricing
reporting.\284\ However, the final amendments reduce many of the
burdens raised by commenters (as compared to the proposal) because we
are not adopting increased frequency of Regulation S-X compliant
portfolio holding reporting and swing pricing and aggregate liquidity
classification reporting. One commenter stated that some of its members
estimated that filing Form N-
[[Page 73793]]
PORT monthly would increase costs by $5,000 per fund per year.\285\
Another commenter estimated internal staffing costs of $900,000 per
year for the accelerated filing requirements and the proposed increase
in frequency of Regulation S-X compliant portfolio information
reporting.\286\ This estimate appears to reflect the total cost for the
fund group (and not per fund) and given that the commenter stated that
it manages 197 funds that file Form N-PORT reports, the average per
fund internal staffing cost for this commenter would be approximately
$4,569 per year. Because we are not adopting the amendments to require
more frequent reporting of Regulation S-X compliant schedules of
investments, and the commenter did not separately provide a cost for
the acceleration of the filing deadline, this numerical estimate of
internal staffing costs should be adjusted down.
---------------------------------------------------------------------------
\283\ See Comment Letter of Calamos Investments LLC (Feb. 14,
2023) (``Calamos Comment Letter'') (stating that the proposal
significantly underestimated the time and costs involved in
implementing the proposed amendments, and providing an example
related to the proposed swing pricing requirement, which we are not
adopting). This commenter did not expressly state that the proposal
underestimated the time and costs involved in implementing the
proposed reporting requirements that we are adopting, but the
commenter did separately state that the shorter time frame for
filing and the requirement to make additional filings would increase
costs to fund shareholders.
\284\ See, e.g., ICI Comment Letter I (stating that funds
aggregate Form N-PORT information within 30 days for internal
collection purposes, but funds would need to take additional steps
to validate and tag the data for filing on that same time frame and
indicating that funds also would be required to report aggregate
liquidity bucketing and swing pricing-related information and
provide a Regulation S-X compliant schedule of investments each
month.); Brighthouse Comment Letter (stating that a monthly
reporting regime as well as the proposal to increase the frequency
of reporting Regulation S-X compliant portfolio holdings would
dramatically increase the costs associated with the preparation,
review, and filing of the form due to new human resources
requirements, vendors, systems, processes, and procedures).
\285\ See SIFMA AMG Comment Letter.
\286\ See T. Rowe Price Comment Letter.
---------------------------------------------------------------------------
After considering comments, we are adjusting upward the proposal's
estimated collection of information burden in connection with the
requirement to file Form N-PORT reports within 30 days of month end. In
the Proposing Release, the Commission estimated that the reduction in
the recordkeeping burden would be commensurate with the increased
burden of filing the information that previously would have been
preserved as a record.\287\ We recognize that, as commenters suggested,
there is an additional burden associating with filing information more
frequently than with recordkeeping and are updating our burden
estimates accordingly.
---------------------------------------------------------------------------
\287\ See Proposing Release, supra note 11, at n.539 and
accompanying text (stating that the Commission similarly did not
adjust the PRA burden estimate when it amended Form N-PORT in 2019
to move from a requirement to file reports monthly to a requirement
to prepare the information monthly but file it quarterly).
---------------------------------------------------------------------------
We have adjusted the proposal's estimated annual burden hours and
external costs to reflect changes from the proposal (including, as
noted in the chart below, aspects of the proposal that we are not
adopting at this time), changes in the number of funds, and updated
wage rates. The below table summarizes our initial and ongoing annual
burden estimates associated with the amendments to Form N-PORT.
Table 3--Form N-PORT PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Annual
internal Internal annual Wage rate \2\ Internal time external cost
burden hours burden hours \1\ costs burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
PROPOSED ESTIMATES \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
[Aggregate Liquidity Classification Reporting] [Not Adopted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds that license a software solution to prepare Form N- 3 hours 2 hours x $381 $762 $250
PORT...................................................
Number of funds......................................... .............. x 4,021 funds ........ .............. x 4,021 funds x 4,021 funds
Funds that retain the services of a third-party vendor 3 hours 2 hours ........ 381 $762 $286
to prepare Form N-PORT.................................
Number of funds......................................... .............. x 7,467 funds ........ .............. x 7,467 funds x 7,467 funds
-----------------------------------------------------------------------------------------------
Subtotal: Aggregate Liquidity Classification........ .............. 22,976 hours ........ .............. $8,753,856 $3,140,819
--------------------------------------------------------------------------------------------------------------------------------------------------------
[Swing Pricing Reporting] [Not Adopted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds that license a software solution to prepare Form N- 9 hours 4 hours x 381 $1,524 $250
PORT...................................................
Number of funds......................................... .............. x 3,165 funds ........ .............. x 3,165 funds x 3,165 funds
Funds that retain the services of a third-party vendor 9 hours 4 hours x 381 $1,524 $286
to prepare Form N-PORT.................................
Number of funds......................................... .............. x 5,878 funds ........ .............. x 5,878 funds x 5,878 funds
-----------------------------------------------------------------------------------------------
Subtotal: Swing Pricing Reporting................... .............. 36,172 hours ........ .............. $13,781,532 $2,472,356
--------------------------------------------------------------------------------------------------------------------------------------------------------
[Other Proposed Amendments to Form N-PORT] [Adopted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds that license a software solution to prepare Form N- .............. 1 hours x 381 $381 ..............
PORT...................................................
Number of funds......................................... .............. x 4,254 funds ........ .............. x 4,254 funds ..............
Funds that retain the services of a third-party vendor .............. 1 hours x 381 $381 ..............
to prepare Form N-PORT.................................
Number of funds......................................... .............. x 7,899 funds ........ .............. x 7,899 funds ..............
-----------------------------------------------------------------------------------------------
Subtotal: Other Proposed Amendments................. .............. 12,153 hours ........ .............. $4,630,293 ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Estimated Burdens for Proposed Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total new annual burden................................. .............. 71,301 hours ........ .............. $27,165,681 $5,613,175
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 73794]]
Total Estimated Burdens, Including Proposed Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current burden estimates................................ .............. 1,848,326 hours ........ .............. .............. $108,457,536
Revised burden estimates................................ .............. 1,919,627 hours ........ .............. .............. $114,070,711
--------------------------------------------------------------------------------------------------------------------------------------------------------
FINAL ESTIMATES
--------------------------------------------------------------------------------------------------------------------------------------------------------
Funds that license a software solution to prepare Form N- 6 hours 7 hours \4\ x 420 \5\ $2,940 $2,000
PORT...................................................
Number of funds......................................... .............. x 4,396 funds \6\ ........ .............. x 4,396 funds x 4,396 funds
\6\ \6\
Funds that retain the services of a third-party vendor 6 hours 5 hours \7\ x 420 \5\ $2,100 $4,000
to prepare Form N-PORT.................................
Number of funds......................................... .............. x 8,165 funds \6\ ........ .............. x 8,165 funds x 8,165 funds
\6\ \6\
-----------------------------------------------------------------------------------------------
Total new annual burden............................. .............. 71,597 hours ........ .............. $30,070,740 $41,452,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Estimated Burdens, Including Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current burden estimates................................ .............. 1,929,237 hours ........ .............. .............. $136,290,893
Revised burden estimates................................ .............. 2,000,834 hours ........ .............. .............. $177,742,893
--------------------------------------------------------------------------------------------------------------------------------------------------------
Certain products and sums do not tie due to rounding.
Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. The Commission's estimates of the relevant wage rates are based on the salary information for the securities industry compiled by Securities Industry
and Financial Markets Association's Office Salaries in the Securities Industry 2013, as modified by Commission staff (``SIFMA Wage Report''). The
estimated figures are modified by firm size, employee benefits, overhead, and adjusted to account for the effects of inflation.
3. For additional detail about the proposed estimates, see Proposing Release, supra note 11, at section IV.D.
4. Reflects an initial burden of 6 hours, annualized over a 3-year period, with an estimated ongoing annual burden of 5 hours.
5. The $420 wage rate reflects current estimates of the blended hourly rate for a senior programmer ($399) and a compliance attorney ($440).
6. Based on Commission filings, we estimate that there are 12,561 funds that file reports on Form N-PORT. We estimate that 35% of these funds (or 4,396)
would license a software solution to prepare Form N-PORT while 65% (or 8,165) would rely on a third-party vendor.
7. Reflects an initial burden of 6 hours, annualized over a 3-year period, with an estimated ongoing annual burden of 3 hours.
C. Form N-CEN
Form N-CEN requires registered investment companies, other than
face-amount certificate companies, to report annual, census-type
information. Filers must submit this report electronically using the
Commission's EDGAR system in a structured XML data language. We are
amending Form N-CEN to require that an open-end fund that uses a
liquidity classification service provider report certain information.
Specifically, a fund will be required to report: (a) the name of each
liquidity service provider; (b) identifying information, including the
legal entity identifier and location, for each liquidity service
provider; (c) if the liquidity service provider is affiliated with the
fund or its investment adviser; (d) the asset classes for which that
liquidity service provider provided classifications; and (e) whether
the service provider was hired or terminated during the reporting
period. We are also revising the approach to certain entity
identifiers.\288\ Unlike the proposal, we are not removing requirements
that a filer report certain information regarding its use of swing
pricing.
---------------------------------------------------------------------------
\288\ We do not believe that the amendments to separate the
concepts of LEI and RSSD ID more clearly in the form will change the
burdens of the current form, as the form already requires a fund to
report the RSSD ID, if any, if a financial institution does not have
an assigned LEI.
---------------------------------------------------------------------------
The respondents to these collections of information will be
registered investment companies with the exception of face amount
certificate companies. We estimate that there are 2,749 such
registrants required to file on Form N-CEN.\289\ The final collections
of information are mandatory. Responses are not kept confidential. The
purpose of Form N-CEN is to satisfy the filing and disclosure
requirements of section 30 of the Investment Company Act, and of 17 CFR
270.30a-1 (rule 30a-1) thereunder. The amendments are designed to
facilitate the Commission's oversight of registered funds and its
ability to assess trends and risks.
---------------------------------------------------------------------------
\289\ This estimate, which is as of Dec. 31, 2023, is based on
Form N-CEN filings.
---------------------------------------------------------------------------
The Commission received one comment suggesting that the PRA
estimates for the proposed amendments were too low.\290\ However, the
context of the letter does not suggest that the commenter was referring
to the Form N-CEN amendments, as the commenter did not discuss that
aspect of the proposal. We did not receive any comments specific to the
proposed PRA estimates for the Form N-CEN amendments. We also did not
receive any comments discussing the potential costs or burdens of the
amendments to Form N-CEN. We have adjusted the proposal's estimated
annual burden hours and external costs to reflect changes from the
proposal, changes in the number of funds, and updated wage rates.
---------------------------------------------------------------------------
\290\ See Calamos Comment Letter.
---------------------------------------------------------------------------
In our most recent PRA submission for Form N-CEN, we estimated the
annual aggregate compliance burden to comply with the current
collection of information requirements in Form N-CEN is 59,490 burden
hours with an internal cost burden of $24,152,940 and an external cost
burden estimate of $605,520.\291\
---------------------------------------------------------------------------
\291\ The most recent Form N-CEN PRA submission was approved in
2024 (OMB Control No. 3235-0729). The estimates in the Proposing
Release were based on earlier approved estimates (54,890 hours and
$1,344,981 external cost burden), and these earlier approved
estimates are reflected in the ``Proposed Estimates'' section of the
below table.
---------------------------------------------------------------------------
[[Page 73795]]
The below table summarizes our initial and ongoing annual burden
estimates associated with the amendments to Form N-CEN.
Table 4--Form N-CEN PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Internal Annual
internal annual burden Wage rate \2\ Internal time external cost
burden hours hours \1\ costs burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
PROPOSED ESTIMATES \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Liquidity Service Provider Reporting.......................... 1.5 hours 1 hour x $381 $381 ..............
Number of registrants......................................... .............. x 2,754 ........ .............. x 2,754 ..............
registrants registrants
Subtotal: Liquidity Service Provider Reporting................ .............. 2,754 hours ........ .............. $1,049,274 ..............
Removal of Swing Pricing Reporting............................ .............. (0.5) hours x 351 $(175.5) ..............
[not adopted].................................................
Number of funds............................................... .............. x 9,854 funds ........ .............. x 9,854 funds ..............
-----------------------------------------------------------------------------------------
Subtotal: Removal of Swing Pricing Reporting.............. .............. (4,927 hours) ........ .............. ($1,729,377) ..............
-----------------------------------------------------------------------------------------
Total new annual burden............................... .............. (2,173 hours) ........ .............. ($680,103) ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Estimated Burdens, Including Proposed Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current burden estimates...................................... .............. 54,890 hours ........ .............. .............. $1,344,981
Revised burden estimates...................................... .............. 52,718 hours ........ .............. .............. $1,344,981
--------------------------------------------------------------------------------------------------------------------------------------------------------
FINAL ESTIMATES
--------------------------------------------------------------------------------------------------------------------------------------------------------
Liquidity Service Provider Reporting.......................... 1.5 hours 1 hour \4\ x 420 \5\ $420
Number of registrants......................................... .............. x 2,749 ........ .............. x 2,749
registrants registrants
-----------------------------------------------------------------------------------------
Subtotal: Liquidity Service Provider Reporting............ .............. 2,749 hours ........ .............. $1,154,580
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Estimated Burdens, Including Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current burden estimates...................................... .............. 59,490 hours ........ .............. .............. $605,520
Revised burden estimates...................................... .............. 62,239 hours ........ .............. .............. $605,520
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. See supra Table 3, at note 2.
3. For additional detail about the proposed estimates, see Proposing Release, supra note 11, at section IV.D.
4. Reflects an initial burden of 1.5 hours, annualized over a 3-year period, with an estimated ongoing annual burden of 0.5 hours.
5. The $420 wage rate reflects current estimates of the blended hourly rate for a senior programmer ($399) and a compliance attorney ($440).
VI. Final Regulatory Flexibility Analysis
The Commission has prepared the following Final Regulatory
Flexibility Analysis (``FRFA'') in accordance with section 604 of the
Regulatory Flexibility Act (``RFA'').\292\ It relates to the final
amendments to Form N-PORT and Form N-CEN. The Proposing Release
included an Initial Regulatory Flexibility Act Analysis (``IRFA''),
which solicited comment and was prepared in accordance with the RFA.
---------------------------------------------------------------------------
\292\ 5 U.S.C. 604.
---------------------------------------------------------------------------
A. Need for and Objectives of the Rule and Form Amendments
The Commission is adopting amendments to reporting requirements
that will apply to certain registered investment companies, including
registered open-end funds, registered closed-end funds, and unit
investment trusts. The final amendments to rule 30b1-9 and Form N-PORT
are designed to improve transparency and facilitate better monitoring
of funds by requiring more timely reporting of monthly portfolio
holdings and related information to the Commission and the public. The
final amendments to Form N-CEN are designed to provide the Commission
with information about fund service providers used to comply with
liquidity risk management program requirements. This information will
allow the Commission and other participants to track certain liquidity
risk management practices. Each of these objectives is discussed in
detail in section II above.
B. Significant Issues Raised by Public Comments
In the Proposing Release, the Commission requested comment on every
aspect of the IRFA, including the number of small entities that would
be affected by the proposed amendments, the existence or nature of the
potential impact of the proposed amendments on small entities, and how
to quantify the impact of the proposed amendments. The Commission also
requested comment on the proposed compliance burdens and the effect
these burdens would have on small entities.
The Commission did not receive comments specifically addressing the
IRFA. However, one commenter suggested that filing Form N-PORT reports
within 30 days of month end would present significant resource issues
for small funds for certain months, such as the months following a
fund's annual and semiannual reporting periods.\293\ This commenter
also stated that additional time would be needed for eight months of
the year if funds are required to include Regulation S-X compliant
portfolio schedules with more frequency, as proposed. The commenter
suggested that the Commission provide 60 days after month end to file
reports on Form N-PORT, at least for small funds. Another commenter
suggested that the Commission should provide an extended compliance
period for smaller
---------------------------------------------------------------------------
\293\ See Singer Comment Letter.
---------------------------------------------------------------------------
funds, which would ease compliance burdens because smaller funds can
leverage the experiences and learning
[[Page 73796]]
gained by larger funds going first.\294\ The only commenter that
addressed the proposed Form N-CEN amendments was supportive.\295\
---------------------------------------------------------------------------
\294\ See ICI Comment Letter I.
\295\ See Myer Comment Letter.
---------------------------------------------------------------------------
In addition, a number of commenters stated that requiring monthly
reporting within 30 days of month end would overburden funds, service
providers, or funds' internal systems and processes.\296\ Some
commenters had concerns that the other amendments to Form N-PORT would
also result in significant burdens for funds and additional costs to
fund shareholders.\297\
---------------------------------------------------------------------------
\296\ See, e.g., Fidelity Comment Letter; ICI Comment Letter I;
Singer Comment Letter; T. Rowe Comment Letter.
\297\ See, e.g., Capital Group Comment Letter; ICI Comment
Letter I (stating that, because a Regulation S-X compliant schedule
of investments is not necessary for fund shareholders to understand
a fund's portfolio holdings, requiring the schedule of investments
on a monthly basis would provide little benefit to investors); SIFMA
AMG Comment Letter.
---------------------------------------------------------------------------
We recognize that filing the recorded information within the 30-day
deadline will increase burdens for funds and their service providers,
including for small entities. To mitigate costs, we are providing an
extended implementation period for smaller funds during which funds
will be able to update their Form N-PORT reporting processes to prepare
for the requirement to file monthly information within 30 days of month
end and potentially benefit from the lessons learned by larger funds
during the implementation period. Additionally, we are persuaded by
commenters who expressed that the costs of the proposed requirement to
attach a Regulation S-X compliant schedule of portfolio investments may
not justify the benefits, particularly given the costs and time
currently involved with preparing such a schedule and the other sources
of portfolio information available to investors. Therefore, we are not
adopting the proposed amendments to require funds to present portfolio
holdings in accordance with Regulation S-X more frequently than
currently required.
C. Small Entities Subject to Rule Amendments
An investment company is a small entity if, together with other
investment companies in the same group of related investment companies,
it has net assets of $50 million or less as of the end of its most
recent fiscal year. Commission staff estimates that, as of December
2023, there were 40 open-end management investment companies that would
be considered small entities; this number includes 2 money market funds
and 9 ETFs. Commission staff also estimates that, as of December 2023,
there were 29 closed-end registered management investment companies and
3 unit investment trusts that would be considered small entities.
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
We are adopting final amendments to reporting requirements on Forms
N-PORT and N-CEN. The final amendments will require more frequent
reporting of monthly portfolio holdings and related information, amend
reporting requirements regarding certain identifiers, and require open-
end funds to report information about service providers used to comply
with liquidity risk management program requirements.
Form N-PORT requires open-end and closed-end funds, as well as ETFs
organized as UITs, to report monthly portfolio holdings information in
a structured, XML data language. We estimate that 67 small funds will
be subject to the amendments to Form N-PORT. The final amendments will
require funds to file reports on Form N-PORT on a monthly basis within
30 days after the end of the month to which they relate. Monthly
reporting rather than quarterly reporting will provide more timely
information to the Commission, which will enhance the Commission
staff's ability to oversee and monitor the activities of funds
effectively to better carry out our regulatory functions, consistent
with the goals of Form N-PORT reporting.
Funds are already required to produce monthly data upon request by
Commission staff and to adhere to the 30-day deadline for recordkeeping
purposes.\298\ We recognize, however, that filing the recorded
information within the 30-day deadline will increase burdens for funds
and their service providers relative to the current quarterly filing
requirement. Because funds, including small funds, currently are
required to gather the Form N-PORT data and ensure its accuracy within
30 days of month end, the costs involved with the final amendments are
limited to those associated with a more condensed filing process.
---------------------------------------------------------------------------
\298\ Rule 30b1-9.
---------------------------------------------------------------------------
In addition to the amendments requiring more timely reporting of
information, we are amending the existing requirements related to the
reporting of certain flow information and regarding the ``miscellaneous
securities'' bucket to align with the new monthly filing cadence and
public availability of Form N-PORT.
Form N-CEN is used to collect annual, census-type information for
all registered investment companies, other than face-amount certificate
companies. Filers must submit this report electronically using the
Commission's EDGAR system in XML data language. We estimate that 72
small funds will be subject to the amendments to Form N-CEN, but some
of the amendments apply only to 38 small funds that are subject to the
liquidity rule. We are adopting amendments to Form N-CEN to require
funds that are subject to the liquidity rule to identify and provide
certain information about service providers that a fund uses to fulfill
the requirements of that rule. This information will allow the
Commission and other participants to track certain liquidity risk
management practices and will help us better understand potential
trends or outliers in funds' liquidity classifications.
We are also adopting amendments to Form N-PORT and Form N-CEN to
revise the definition of LEI to require funds to identify specifically
whether they are reporting an LEI or an RSSD ID, although the
amendments will not change the circumstances in which a fund is
required to report an LEI or an RSSD ID, if available. The change is
designed to improve consistency and comparability of information funds
report about the instruments they hold, including issuers of those
instruments and counterparties to certain transactions. Funds already
report the information to which these amendments relate, so these
amendments will not have a significant economic impact.
The final amendments will impose burdens on all Form N-PORT and
Form N-CEN filers, including those that are small entities. We discuss
the specifics of these burdens in the Economic Analysis and Paperwork
Reduction Act sections. These sections also discuss the professional
skills that we believe compliance with the final amendments will
require. We recognize that, due to economies of scale, the costs
associated with the final amendments to Form N-PORT and Form N-CEN may
be more easily borne by larger fund complexes than smaller ones, and
that costs borne by funds may be passed along to investors in the form
of higher fees and expenses.
E. Agency Action To Minimize Effect on Small Entities
The Regulatory Flexibility Act directs the Commission to consider
significant alternatives that would accomplish our stated objective,
while minimizing any significant economic impact on small entities. We
considered the following
[[Page 73797]]
alternatives for small entities in relation to our proposal: (1)
exempting funds that are small entities from all or part of the
proposed reporting requirements, to account for resources available to
small entities; (2) establishing different reporting requirements or
frequency, to account for resources available to small entities; (3)
clarifying, consolidating, or simplifying the compliance and reporting
requirements under the proposal for small entities; and (4) using
performance rather than design standards.
We do not believe that exempting small funds from the provisions of
the final amendments, or providing different requirements or reporting
frequencies for small funds, will permit us to achieve our stated
objectives. If the final rules were to include different requirements
for small funds or exempt small funds, this could raise investor
protection concerns for investors in small funds, for example if
Commission staff were not able efficiently to identify small funds
affected in a market stress event. This also would result in the
Commission, investors, and other users of Form N-PORT data having less
transparency and insight with respect to those smaller funds. The
potential staleness of Form N-PORT data for small entities (if small
entities were exempted from the final amendments) would, among other
things, limit the Commission staff's ability to develop a more complete
understanding of the market on a timely basis and impede our ability to
contribute fully to interagency discussions and responses to market
events.
Finally, we do not believe that clarifying, consolidating, or
simplifying the compliance requirements under the final amendments for
small funds, beyond those already required for all funds, would permit
us to achieve our stated objectives. Again, this approach would raise
investor protection concerns for investors in small funds, reduce
transparency, and hinder the Commission staff's monitoring of small
funds. With respect to using performance rather than design standards,
the amendments primarily use design rather than performance standards
to promote more consistent and uniform reporting standards for all
funds.
The costs associated with the final amendments will vary depending
on a fund's particular circumstances, and thus the amendments may
result in different burdens on funds' resources. We recognize that
filing the recorded information within the 30-day deadline will
increase burdens for funds and their service providers. Because funds,
including small funds, currently are required to gather the Form N-PORT
data within 30 days of month end, the costs involved with the final
amendments are limited to those associated with a more condensed filing
process. To mitigate costs, we are providing an extended implementation
period during which small funds will be able to update their Form N-
PORT reporting processes to prepare for the requirement to file monthly
information within 30 days of month end and potentially benefit from
the lessons learned by larger funds during the implementation period.
In addition, we are not adopting certain of the proposed amendments to
Form N-PORT, such as the proposed requirement to report Regulation S-X
compliant portfolio schedules more frequently, which commenters stated
would be burdensome for funds, including small funds.
Statutory Authority
The Commission is adopting the rule and form amendments contained
in this document under the authority set forth in the Investment
Company Act, particularly sections 8, 24, 30, 31, and 38 thereof [15
U.S.C. 80a-1 et seq.].
List of Subjects in 17 CFR Parts 270 and 274
Investment companies, Reporting and recordkeeping requirements,
Securities.
For the reasons set forth in the preamble, title 17, chapter II of
the Code of Federal Regulations is amended as follows:
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
0
1. The authority citation for part 270 continues to read, in part, as
follows:
Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39,
1681w(a)(1), 6801-6809, 6825, and Pub. L. 111-203, sec. 939A, 124
Stat. 1376 (2010), unless otherwise noted.
* * * * *
0
2. Effective November 17, 2025, amend Sec. 270.30b1-9 by revising it
to read as follows:
Sec. 270.30b1-9 Monthly report.
Each registered management investment company or exchange-traded
fund organized as a unit investment trust, or series thereof, other
than a registered open-end management investment company that is
regulated as a money market fund under Sec. 270.2a-7 or a small
business investment company registered on Form N-5 (Sec. Sec. 239.24
and 274.5 of this chapter), must file a monthly report of portfolio
holdings on Form N-PORT (Sec. 274.150 of this chapter), current as of
the last business day, or last calendar day, of the month. A registered
investment company that has filed a registration statement with the
Commission registering an offering of its securities for the first time
under the Securities Act of 1933 is relieved of this reporting
obligation with respect to any reporting period or portion thereof
prior to the date on which that registration statement becomes
effective or is withdrawn. Reports on Form N-PORT must be filed with
the Commission no later than 30 days after the end of each month. Each
registered investment company that is required to file reports on Form
N-PORT and that does not file monthly reports within 30 days after the
end of each month must maintain in its records the information that is
required to be included on Form N-PORT no later than 30 days after the
end of each month for which it does not file a monthly report within
that period. Such information shall be treated as a record under
section 31(a)(1) of the Act [15 U.S.C. 80a-30(a)(1)] and Sec. 270.31a-
1(b) subject to the requirements of Sec. 270.31a-2(a)(2).
Sec. 270.30b1-9 [Amended]
0
3. Effective May 18, 2026, further amend Sec. 270.30b1-9 by removing
the last two sentences.
PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
0
4. The general authority citation for part 274 continues to read, in
part, as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78n-1, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and sec. 939A,
Pub. L. 111-203, 124 Stat. 1376, unless otherwise noted.
* * * * *
0
5. Amend Form N-CEN (referenced in Sec. 274.101) by:
0
a. Revising General Instruction E and Items B.16, B.17, C.5, C.6, C.9,
C.10, C.11, C.12, C.13, C.14, C.15, C.16, and C.17;
0
b. Adding Item C.22; and
0
c. Revising Items D.12, D.13, D.14, E.2, F.1, F.2, F.4, and
Instructions to Item G.1.
Note: Form N-CEN is attached as Appendix A to this document.
Form N-CEN will not appear in the Code of Federal Regulations.
0
6. Amend Sec. 274.150, by revising paragraph (a) to read as follows:
[[Page 73798]]
Sec. 274.150 Form N-PORT, Monthly portfolios holdings report.
(a) Except as provided in paragraph (b) of this section, this form
shall be used by registered management investment companies or
exchange-traded funds organized as unit investment trusts, or series
thereof, to file reports pursuant to Sec. 270.30b1-9 of this chapter
not later than 30 days after the end of each month.
* * * * *
0
7. Amend Form N-PORT (referenced in Sec. 274.150) by revising General
Instructions A, E, and F and Items B.4, B.5, B.6, C.1, C.10, C.11, and
Part D.
Note: Form N-PORT is attached as Appendix B to this document.
Form N-PORT will not appear in the Code of Federal Regulations.
By the Commission.
Dated: August 28, 2024.
Vanessa A. Countryman,
Secretary.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix A--Form N-CEN
Form N-CEN
* * * * *
General Instructions
* * * * *
E. Definitions
Except as defined below or where the context clearly indicates
the contrary, terms used in Form N-CEN have meanings as defined in
the Act and the rules and regulations thereunder. Unless otherwise
indicated, all references in the form or its instructions to
statutory sections or to rules are sections of the Act and the rules
and regulations thereunder.
In addition, the following definitions apply:
``Class'' means a class of shares issued by a Fund that has more
than one class that represents interest in the same portfolio of
securities under rule 18f-3 under the Act (17 CFR 270.18f-3) or
under an order exempting the Fund from provisions of section 18 of
the Act (15 U.S.C. 80a-18).
``CRD number'' means a central licensing and registration system
number issued by the Financial Industry Regulatory Authority.
``Exchange-Traded Fund'' means an open-end management investment
company (or Series or Class thereof) or unit investment trust (or
series thereof), the shares of which are listed and traded on a
national securities exchange at market prices, and that has formed
and operates under an exemptive order under the Act granted by the
Commission or in reliance on rule 6c-11 under the Act (17 CFR
270.6c-11).
``Exchange-Traded Managed Fund'' means an open-end management
investment company (or Series or Class thereof) or unit investment
trust (or series thereof), the shares of which are listed and traded
on a national securities exchange at net asset value-based prices,
and that has formed and operates under an exemptive order under the
Act granted by the Commission or in reliance on an exemptive rule
under the Act adopted by the Commission.
``Fund'' means the Registrant or a separate Series of the
Registrant. When an item of Form N-CEN specifically applies to a
Registrant or Series, those terms will be used.
``LEI'' means, with respect to any company, the ``legal entity
identifier'' as assigned by a utility endorsed by the Global LEI
Regulatory Oversight Committee or accredited by the Global LEI
Foundation.
``Money Market Fund'' means an open-end management investment
company registered under the Act, or Series thereof, that is
regulated as a money market fund pursuant to rule 2a-7 under the Act
(17 CFR 270.2a-7).
``PCAOB number'' means the registration number issued to an
independent public accountant registered with the Public Company
Accounting Oversight Board.
``Registrant'' means the investment company filing this report
or on whose behalf the report is filed.
``RSSD ID'' means the identifier assigned by the National
Information Center of the Board of Governors of the Federal Reserve
System, if any.
``SEC File number'' means the number assigned to an entity by
the Commission when that entity registered with the Commission in
the capacity in which it is named in Form N-CEN.
``Series'' means shares offered by a Registrant that represent
undivided interests in a portfolio of investments and that are
preferred over all other Series of shares for assets specifically
allocated to that Series in accordance with rule 18f-2(a) (17 CFR
270.18f-2(a)).
* * * * *
Item B.16. Principal underwriters.
a. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item B.17. Independent public accountant. Provide the following
information about each independent public accountant:
* * * * *
c. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.5. Investments in certain foreign corporations.
* * * * *
b. * * *
ii. LEI of subsidiary, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.6. Securities lending.
* * * * *
c. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
v. * * *
2. LEI, if any, of person providing indemnification: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
d. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.9. Investment advisers.
a. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
b. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
c. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
d. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.10. Transfer agents.
a. * * *
iii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.11. Pricing services
a. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __ or
Provide and describe other identifying number: __
* * * * *
Item C.12. Custodians
a. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.13. Shareholder servicing agents.
a. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __ or
Provide and describe other identifying number: __
* * * * *
Item C.14. Administrators
a. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __ or
Provide and describe other identifying number: __
* * * * *
Item C.15. Affiliated broker-dealers. Provide the following
information about each affiliated broker-dealer:
* * * * *
d. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any:
* * * * *
Item C.16. Brokers.
a. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.17. Principal transactions.
a. * * *
iv. LEI, if any: __ or
[[Page 73799]]
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item C.22. Liquidity classification services. For open-end
management investment companies subject to rule 22e-4 (17 CFR
270.22e-4), respond to the following:
a. Provide the following information about each person that
provided liquidity classification services to the Fund during the
reporting period:
i. Full name: __
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __ or
Provide and describe other identifying number: __
iii. State, if applicable: __
iv. Foreign country, if applicable: __
v. Is the liquidity classification service an affiliated person
of the Fund or its investment adviser(s)? [Y/N]
vi. Asset class(es) for which liquidity classification services
were provided to the Fund: __
b. Was a liquidity classification service hired or terminated
during the reporting period? [Y/N]
* * * * *
Item D.12. Investment advisers (small business investment
companies only).
a. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
b. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
c. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
d. * * *
iv. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item D.13. Transfer agents (small business investment companies
only).
a. * * *
iii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item D.14. Custodians (small business investment companies
only).
a. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item E.2. Authorized participants. For each authorized
participant of the Fund, provide the following information:
* * * * *
d. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item F.1. Depositor. Provide the following information about
each depositor:
* * * * *
c. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item F.2. Administrators.
a. * * *
ii. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __ or
Provide and describe other identifying number: __
* * * * *
Item F.4. Sponsor. Provide the following information about each
sponsor:
* * * * *
c. LEI, if any: __ or
If no LEI is provided, RSSD ID, if any: __
* * * * *
Item G.1. Attachments.
* * * * *
Instructions.
* * * * *
2. * * *
(f) Security supported (if applicable). Disclose the full name
of the issuer, the title of the issue (including coupon or yield, if
applicable) and at least two identifiers, if available (e.g., CIK,
CUSIP, ISIN, LEI, RSSD ID).
* * * * *
Appendix B--Form N-PORT
Form N-PORT
* * * * *
General Instructions
A. Rule as to Use of Form N-PORT
Form N-PORT is the reporting form that is to be used for monthly
reports of Funds other than money market funds and SBICs under section
30(b) of the Act, as required by rule 30b1-9 under the Act (17 CFR
270.30b1-9). Funds must report information about their portfolios and
each of their portfolio holdings as of the last business day, or last
calendar day, of each month, other than the information reported in
Items B.11 and C.2.e, which Funds must report quarterly about their
portfolios and each of their portfolio holdings as of the last business
day, or calendar day, of the third month of the quarter. A registered
investment company that has filed a registration statement with the
Commission registering an offering of its securities for the first time
under the Securities Act of 1933 is relieved of this reporting
obligation with respect to any reporting period or portion thereof
prior to the date on which that registration statement becomes
effective or is withdrawn.
Reports on Form N-PORT must disclose portfolio information as
calculated by the fund for the reporting period's ending net asset
value (commonly, and as permitted by rule 2a-4, the first business day
following the trade date). Reports on Form N-PORT for each month must
be filed with the Commission no later than 30 days after the end of
such month. If the due date falls on a weekend or holiday, the filing
deadline will be the next business day.
A Fund may file an amendment to a previously filed report at any
time, including an amendment to correct a mistake or error in a
previously filed report. A Fund that files an amendment to a previously
filed report must provide information in response to all items of Form
N-PORT, regardless of why the amendment is filed.
* * * * *
E. Definitions
References to sections and rules in this Form N-PORT are to the
Act, unless otherwise indicated. Terms used in this Form N-PORT have
the same meanings as in the Act or related rules (including rule 18f-4
solely for Items B.9 and 10 of the Form), unless otherwise indicated.
As used in this Form N-PORT, the terms set out below have the
following meanings:
``Absolute VaR Test'' has the meaning defined in rule 18f-4(a) [17
CFR 270.18f-4(a)].
``Class'' means a class of shares issued by a Fund that has more
than one class that represents interests in the same portfolio of
securities under rule 18f-3 [17 CFR 270.18f-3] or under an order
exempting the Fund from provisions of section 18 of the Act [15 U.S.C.
80a-18].
``Controlled Foreign Corporation'' has the meaning provided in
section 957 of the Internal Revenue Code [26 U.S.C. 957].
``Derivatives Exposure'' has the meaning defined in rule 18f-4(a)
[17 CFR 270.18f-4(a)].
``Designated Index'' has the meaning defined in rule 18f-4(a) [17
CFR 270.18f-4(a)].
``Designated Reference Portfolio'' has the meaning defined in rule
18f-4(a) [17 CFR 270.18f-4(a)].
``Exchange-Traded Fund'' means an open-end management investment
company (or Series or Class thereof) or unit investment trust (or
series thereof), the shares of which are listed and traded on a
national securities exchange at market prices, and that has formed and
operates under an exemptive order under the Act granted by the
Commission or in reliance on rule 6c-11 [17 CFR 270.6c-11].
``Fund'' means the Registrant or a separate Series of the
Registrant. When an item of Form N-PORT specifically applies to a
Registrant or a Series, those terms will be used.
``Highly Liquid Investment Minimum'' has the meaning defined in
rule 22e-4(a)(7) [17 CFR 270.22e-4(a)(7)].
[[Page 73800]]
``Illiquid Investment'' has the meaning defined in rule 22e-4(a)(8)
[17 CFR 270.22e-4(a)(8)].
``ISIN'' means, with respect to any security, the ``international
securities identification number'' assigned by a national numbering
agency, partner, or substitute agency that is coordinated by the
Association of National Numbering Agencies.
``LEI'' means, with respect to any company, the ``legal entity
identifier'' as assigned by a utility endorsed by the Global LEI
Regulatory Oversight Committee or accredited by the Global LEI
Foundation.
``Multiple Class Fund'' means a Fund that has more than one Class.
``Registrant'' means a management investment company, or an
Exchange-Traded Fund organized as a unit investment trust, registered
under the Act.
``Relative VaR Test'' has the meaning defined in rule 18f-4(a) [17
CFR 270.18f-4(a)].
``Restricted Security'' has the meaning defined in rule 144(a)(3)
under the Securities Act of 1933 [17 CFR 230.144(a)(3)].
``RSSD ID'' means the identifier assigned by the National
Information Center of the Board of Governors of the Federal Reserve
System, if any.
``Securities Portfolio'' has the meaning defined in rule 18f-4(a)
[17 CFR 270.18f-4(a)].
``Series'' means shares offered by a Registrant that represent
undivided interests in a portfolio of investments and that are
preferred over all other series of shares for assets specifically
allocated to that series in accordance with rule 18f-2(a) [17 CFR
270.18f-2(a)].
``Swap'' means either a ``security-based swap'' or a ``swap'' as
defined in sections 3(a)(68) and (69) of the Securities Exchange Act of
1934 [15 U.S.C. 78c(a)(68) and (69)] and any rules, regulations, or
interpretations of the Commission with respect to such instruments.
``Value-at-Risk'' or VaR has the meaning defined in rule 18f-4(a)
[17 CFR 270.18f-4(a)].
``VaR Ratio'' means the value of the Fund's portfolio VaR divided
by the VaR of the Designated Reference Portfolio.
F. Public Availability
Information reported on Form N-PORT will be made publicly available
60 days after the end of the reporting period.
The SEC does not intend to make public the information reported on
Form N-PORT with respect to a Fund's Highly Liquid Investment Minimum
(Item B.7), derivatives transactions (Item B.8), Derivatives Exposure
for limited derivatives users (Item B.9), median daily VaR (Item
B.10.a), median VaR Ratio (Item B.10.b.iii), VaR backtesting results
(Item B.10.c), country of risk and economic exposure (Item C.5.b),
delta (Items C.9.f.v, C.11.c.vii, or C.11.g.iv), liquidity
classification for portfolio investments (Item C.7), or miscellaneous
securities (Part D), or explanatory notes related to any of those
topics (Part E) that is identifiable to any particular fund or adviser.
However, the SEC may use information reported on this Form in its
regulatory programs, including examinations, investigations, and
enforcement actions.
* * * * *
Item B.4. Securities Lending
a. * * *
ii. LEI (if any) of borrower.
If the borrower does not have an LEI, provide the borrower's
RSSD ID, if any.
* * * * *
Item B.5. Return Information
a. Total return of the Fund during the reporting period. If the
Fund is a Multiple Class Fund, report the return for each Class.
Such return(s) shall be calculated in accordance with the
methodologies outlined in Item 26(b)(1) of Form N-1A, Instruction 13
to sub-Item 1 of Item 4 of Form N-2, or Item 26(b)(i) of Form N-3,
as applicable.
* * * * *
c. Net realized gain (loss) and net change in unrealized
appreciation (or depreciation) attributable to derivatives for each
of the following asset categories during the reporting period:
commodity contracts, credit contracts, equity contracts, foreign
exchange contracts, interest rate contracts, and other contracts.
Within each such asset category, further report the same information
for each of the following types of derivatives instrument: forward,
future, option, swaption, swap, warrant, and other. Report in U.S.
dollars. Report losses and depreciation as negative numbers.
d. Net realized gain (loss) and net change in unrealized
appreciation (or depreciation) attributable to investments other
than derivatives during the reporting period. Report in U.S.
dollars. Report losses and depreciation as negative numbers.
Item B.6. Flow information. Provide the aggregate dollar amounts
for sales and redemptions/repurchases of Fund shares during the
reporting period. If shares of the Fund are held in omnibus
accounts, for purposes of calculating the Fund's sales, redemptions,
and repurchases, use net sales or redemptions/repurchases from such
omnibus accounts. The amounts to be reported under this Item should
be after any front-end sales load has been deducted and before any
deferred or contingent deferred sales load or charge has been
deducted. Shares sold shall include shares sold by the Fund to a
registered unit investment trust. For mergers and other
acquisitions, include in the value of shares sold any transaction in
which the Fund acquired the assets of another investment company or
of a personal holding company in exchange for its own shares. For
liquidations, include in the value of shares redeemed any
transaction in which the Fund liquidated all or part of its assets.
Exchanges are defined as the redemption or repurchase of shares of
one Fund or series and the investment of all or part of the proceeds
in shares of another Fund or series in the same family of investment
companies.
* * * * *
Item C.1. Identification of investment.
* * * * *
b. LEI (if any) of issuer. In the case of a holding in a fund
that is a series of a series trust, report the LEI of the series.
If the issuer does not have an LEI, provide the issuer's RSSD
ID, if any.
* * * * *
Item C.10. For repurchase and reverse repurchase agreements,
also provide:
* * * * *
b. * * *
ii. If N, provide the name and LEI (if any) of counterparty.
If the counterparty does not have an LEI, provide the
counterparty's RSSD ID, if any.
* * * * *
Item C.11. For derivatives, also provide:
* * * * *
b. * * *
i. Provide the name and LEI (if any) of counterparty (including
a central counterparty).
If the counterparty does not have an LEI, provide the
counterparty's RSSD ID, if any.
* * * * *
Part D: Miscellaneous Securities
Report miscellaneous securities, if any, using the same Item
numbers and reporting the same information that would be reported for
each investment in Part C if it were not a miscellaneous security.
Information reported in this Item will be nonpublic.
[FR Doc. 2024-19819 Filed 9-10-24; 8:45 am]
BILLING CODE 8011-01-P