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SEC in Split Vote Pulls Back on Liquidity Rule Reporting Requirements; Peirce Challenges Bucketing Requirement

The SEC proposed amendments to the Liquidity Rule, addressing some industry concerns regarding disclosure of funds’ liquidity classifications. The proposal rescinds the reporting requirement in Form N-Port that funds publicly disclose aggregate liquidity classification information about their portfolios and requires instead that each fund discuss the operation and effectiveness of its liquidity risk management program in its annual report. Commissioners were split on the proposal with Commissioner Kara Stein describing it as a “roll-back of transparency.” SEC Chairman Jay Clayton emphasized that there is no change in the data the SEC will collect from funds and noted that once the agency begins to receive data it would evaluate appropriate disclosure questions and make determinations on which data needs to be disclosed to the public. The SEC also proposed to add to Form N-PORT a new requirement that funds and other registrants report their holdings of cash and cash equivalents. In a recent speech Commissioner Hester Peirce described the reporting changes as positive but emphasized that the rule’s bucketing requirement remains problematic, saying that the bucketing data may not be particularly useful in monitoring fund activity. Peirce suggested that the Commission should have left open for comment whether bucketing remains a meaningful requirement. “The proposed requirement that registrants disclose their cash and cash equivalents on Form N-PORT, when combined with our other requirements, might be a more efficient and effective alternative to the liquidity classification requirement,” Peirce said.