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SEC Adopts Rules on Fund Liquidity Risk Management and Reporting Data Modernization

SEC Commissioners voted on October 13, 2016 to adopt proposals to reform oversight and regulation of liquidity management by mutual funds and exchange-traded funds and to modernize reporting for mutual funds.  

According to SEC Chairwoman Mary Jo White, the final liquidity risk management measure is better tailored to the risks faced by different kinds of funds, with an improved classification scheme for the liquidity of fund investments and a more targeted approach to ETFs. The most significant change to the unanimously approved measure is the requirement that funds classify each portfolio investment’s level of liquidity into one of four categories, instead of the six categories proposed. Generally, a fund’s board will be required to approve and oversee the liquidity risk management program and designate an administrator for the program. SEC Commissioners also voted 2-1 to permit mutual funds (except money market funds and ETFs) to use swing pricing. Most funds would be required to comply with the liquidity risk management program requirements on December 1, 2018.  The SEC is delaying the effective date for the use of swing pricing. 

Commissioners voted 2-1 to adopt data modernization rules under which funds will be required to report information about their complete portfolio holdings monthly on new Form N-PORT and census-type information annually on new Form N-CEN. The rules also will require enhanced and standardized disclosures in financial statements and will add new disclosures in fund registration statements relating to a fund’s securities lending activities. While the proposed rules included a provision to permit funds to provide shareholder reports and portfolio information on fund websites, the SEC reported that its staff continues to consider comments on that proposal, which will remain outstanding. Most funds would be required to begin filing reports on Forms N-PORT and N-CEN after June 1, 2018.