Reporting, Disclosure, Exemptive Relief Included in Liquidity Rule Amendments

In a highly charged 3-2 vote the SEC adopted amendments to Rule 22e-4 under the 1940 Act, responding to public feedback on the rule’s asset classification and disclosure requirements, among other things. The amendments do not propose specific new responsibilities for fund boards of directors. The amendments will rescind the pending requirement that funds publicly disclose aggregate liquidity classification information about their portfolios; require funds to discuss certain aspects of their liquidity risk management program as part of their reports to shareholders; allow funds to report multiple classification categories for a single portfolio position in certain cases; and require funds and other registrants to report their holdings of cash and cash equivalents. With respect to shareholder reporting, funds will include reporting of the effectiveness of the liquidity risk management program in a new section of their annual or semiannual shareholder report following the discussion of board approval of advisory contracts. Funds will have flexibility to report on an annual period that does not coincide with the most recently completed fiscal year. The release noted that firms with liquidity risk management practices in place that differ from the specific classification requirements of rule 22e-4 and expect to maintain their own processes alongside those required by the rule may choose to seek an exemption from the SEC from the classification requirements of the rule if they believe that their existing systems would effectively accomplish the SEC’s stated goals. The IM Division has also set up an email inbox (IM-Liquidity@sec.gov) to solicit public feedback on the classification requirements, among other topics.