SECURITIES AND EXCHANGE COMMISSION

Agency decision

Ask Donna

What actually matters in this document.

Text

17 CFR Parts 200, 210, 232, 239, 240, 249, 270, 274

[Release Nos. 33-10231; 34-79095; IC-32314; File No. S7-08-15]

RIN 3235-AL42

INVESTMENT COMPANY REPORTING MODERNIZATION

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission is adopting new rules and forms as

well as amendments to its rules and forms to modernize the reporting and disclosure of

information by registered investment companies. The Commission is adopting new Form

N-PORT, which will require certain registered investment companies to report information about

their monthly portfolio holdings to the Commission in a structured data format. In addition, the

Commission is adopting amendments to Regulation S-X, which will require standardized,

enhanced disclosure about derivatives in investment company financial statements, as well as

other amendments. The Commission is adopting new Form N-CEN, which will require

registered investment companies, other than face-amount certificate companies, to annually

report certain census-type information to the Commission in a structured data format. The

Commission is adopting amendments to Forms N-1A, N-3, and N-CSR to require certain

disclosures regarding securities lending activities. Finally, the Commission is rescinding current

Forms N-Q and N-SAR and amending certain other rules and forms. Collectively, these

amendments will, among other things, improve the information that the Commission receives

from investment companies and assist the Commission, in its role as primary regulator of

investment companies, to better fulfill its mission of protecting investors, maintaining fair,

orderly and efficient markets, and facilitating capital formation. Investors and other potential

users can also utilize this information to help investors make more informed investment

decisions.

DATES:

Effective Dates: This rule is effective January 17, 2017, except for the following:



The amendments to sections 17 CFR 200.800, 17 CFR 232.105, 17 CFR 232.301, 17

CFR 240.10A-1, 17 CFR 240.12b-25, 17 CFR 240.13a-10, 17 CFR 240.13a-11, 17

CFR 240.13a-13, 17 CFR 240.13a-16, 17 CFR 240.15d-10, 17 CFR 240.15d-11, 17

CFR 240.15d-13, 17 CFR 240.15d-16, 17 CFR 249.322, 17 CFR 249.330, 17 CFR

270.8b-16, 17 CFR 270.10f-3, 17 CFR 270.30a-1, 17 CFR 270.30a-4, 17 CFR

270.30b1-1, 17 CFR 270.30b1-2, 17 CFR 270.30b1-3, 17 CFR 274.101, and 17 CFR

274.218, and in Instruction 55 are effective June 1, 2018; and



The amendments to sections 17 CFR 232.401, 17 CFR 249.332, 17 CFR 270.8b-33,

17 CFR 270.30a-2, 17 CFR 270.30a-3, and 17 CFR 270.30b1-5, and 17 CFR 274.130,

and in Instructions 54, 57, 59, and 61 are effective August 1, 2019.

Compliance Dates: The applicable compliance dates are discussed in section II.H. of this

final rule.

FOR FURTHER INFORMATION CONTACT: Daniel K. Chang, Senior Counsel,

J. Matthew DeLesDernier, Senior Counsel, Jacob D. Krawitz, Senior Counsel, Andrea

Ottomanelli Magovern, Senior Counsel, Naseem Nixon, Senior Counsel, Michael C. Pawluk,

Senior Special Counsel, or Sara Cortes, Assistant Director, at (202) 551-6792, Investment

Company Rulemaking Office, Matt Giordano, Chief Accountant, or Kristy Von Ohlen, Assistant

Chief Accountant, Chief Accountant’s Office, at (202) 551-6918, Division of Investment

Management, Securities and Exchange Commission, 100 F Street, NE, Washington, DC

20549-8549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the

“Commission”) is adopting new Form N-PORT [referenced in 17 CFR 274.150] and new Form

N-CEN [referenced in 17 CFR 274.101] under the Investment Company Act of 1940 [15 U.S.C.

80a-1 et seq.] (“Investment Company Act”); new rules 30a-4 [17 CFR 270.30a-4] and 30b1-9

[17 CFR 270.30b1-9] under the Investment Company Act; rescinding rules 30b1-1

[17 CFR 270.30b1-1], 30b1-2 [17 CFR 270.30b1-2], 30b1-3 [17 CFR 270.30b1-3], and 30b1-5

[17 CFR 270.30b1-5] under the Investment Company Act; adopting amendments to rules 8b-16

[17 CFR 270.8b-16], 8b-33 [17 CFR 270.8b-33], 10f-3 [17 CFR 270.10f-3], 30a-1 [17 CFR

270.30a-1], 30a-2 [17 CFR 270.30a-2], 30a-3 [17 CFR 270.30a-3], and 30d-1 [17 CFR

270.30d-1], and Form N-8F [referenced in 17 CFR 274.218] under the Investment Company Act;

adopting amendments to Forms N-1A [referenced in 17 CFR 274.11A], N-2 [referenced in

274.11a-1], N-3 [referenced in 274.11b], N-4 [referenced in 17 CFR 274.11c], and N-6

[referenced in 17 CFR 274.11d] under the Investment Company Act and the Securities Act of

1933 [15 U.S.C. 77a et seq.] (“Securities Act”); adopting amendments to Form N-14 [referenced

in 17 CFR 239.23] under the Securities Act; rescinding Form N-SAR [referenced in 17 CFR

274.101 and Form N-Q [referenced in 17 CFR 274.130] and adopting amendments to Form

N-CSR [referenced in 17 CFR 274.128] under the Investment Company Act and Securities

Exchange Act of 1934 [15 U.S.C. 78a et seq.] (“Exchange Act”); adopting amendments to rules

10A-1 [17 CFR 240.10A-1], 12b-25 [17 CFR 240.12b-25], 13a-10 [17 CFR 240.13a-10], 13a-11

[17 CFR 240.13a-11], 13a-13 [17 CFR 240.13a-13], 13a-16 [17 CFR 240.13a-16], 15d-10

[17 CFR 240.15d-10], 15d-11 [17 CFR 240.15d-11], 15d-13 [17 CFR 240.15d-13], and 15d-16

[17 CFR 240.15d-16] under the Exchange Act; rescinding section 332 [17 CFR 249.332] and

adopting amendments to sections 322 [17 CFR 249.322] and 330 [17 CFR 249.330] of 17 CFR

Part 249; adopting amendments to Article 6 [17 CFR 210.6-01 et seq.] and Article 12 [17 CFR

210.12-01 et seq.] of Regulation S-X [17 CFR 210]; adopting amendments to section 800 of 17

CFR Part 200 [17 CFR 200.800]; and adopting amendments to rules 105 [17 CFR 232.105], 301

[17 CFR 232.301], and 401 [17 CFR 232.401] of Regulation S-T [17 CFR 232].

TABLE OF CONTENTS

Background ................................................................................................................... 8

A. Changes in the Industry and Technology................................................................ 8

B. Summary of Changes to Current Reporting Regime ............................................ 11

1. Form N-PORT and Amendments to Regulation S-X ..................................... 13

2. Form N-CEN ................................................................................................... 15

II. Discussion ................................................................................................................... 17

A. Form N-PORT ...................................................................................................... 17

1. Who Must File Reports on Form N-PORT ..................................................... 25

2. Information Required on Form N-PORT ........................................................ 28

3. Reporting of Information on Form N-PORT ................................................ 137

4. Disclosure of Information Reported on Form N-PORT ............................... 145

B. Rescission of Form N-Q and Amendments to Certification Requirements of

Form N-CSR ...................................................................................................... 158

1. Rescission of Form N-Q ............................................................................... 158

2. Amendments to Certification Requirements of Form N-CSR ...................... 159

C. Amendments to Regulation S-X ......................................................................... 161

1. Overview ....................................................................................................... 161

2. Enhanced Derivatives Disclosures ................................................................ 164

3. Amendments to Current Rules 12-12 through 12-12C ................................. 187

4. Instructions Common to Rules 12-12 through 12-12B and 12-13 through

12-13D .......................................................................................................... 192

5. Investments In and Advances to Affiliates – Rule 12-14 ............................. 198

6. Form and Content of Financial Statements ................................................... 200

D. Form N-CEN and Rescission of Form N-SAR ................................................... 209

1. Overview ....................................................................................................... 209

2. Who Must File Reports on Form N-CEN ..................................................... 213

3. Frequency of Reporting and Filing Deadline................................................ 215

4. Information Required on Form N-CEN ........................................................ 220

5. Items Required by Form N-SAR That Will be Eliminated by Form

N-CEN .......................................................................................................... 296

E. Option for Website Transmission of Shareholder Reports ................................. 309

F. Amendments to Forms Regarding Securities Lending Activities....................... 311

1. Determination to Adopt Requirements as Amendments to Registration

Statement and Annual Report Forms ............................................................ 314

2. Requirement to Disclose Securities Lending Income, Expenses, and

Services ......................................................................................................... 315

3. Required Disclosures of Monthly Average Value on Loan .......................... 323

G. Technical and Conforming Amendments ........................................................... 323

H. Compliance Dates ............................................................................................... 326

1. Form N-PORT, Rescission of Form N-Q, and Amendments to the

Certification Requirements of Form N-CSR ................................................ 326

2. Form N-CEN, Rescission of Form N-SAR, and Amendments to the

Exhibit Requirements of Form N-CSR ......................................................... 333

3. Regulation S-X, Statement of Additional Information, and Related

Amendments ................................................................................................. 336

III. Economic Analysis ................................................................................................... 338

A. Introduction ......................................................................................................... 338

B. Form N-PORT, Rescission of Form N-Q, and Amendments to Form N-CSR .. 343

1. Introduction and Economic Baseline ............................................................ 343

2. Benefits ......................................................................................................... 349

3. Costs.............................................................................................................. 360

4. Alternatives ................................................................................................... 376

C. Amendments to Regulation S-X ......................................................................... 385

1. Introduction and Economic Baseline ............................................................ 385

2. Benefits ......................................................................................................... 387

3. Costs.............................................................................................................. 391

4. Alternatives ................................................................................................... 399

D. Form N-CEN and Rescission of Form N-SAR ................................................... 403

1. Introduction and Economic Baseline ............................................................ 403

2. Benefits ......................................................................................................... 404

3. Costs.............................................................................................................. 410

4. Alternatives ................................................................................................... 413

E. Amendments to Forms Regarding Securities Lending Activities....................... 418

1. Introduction and Economic Baseline ............................................................ 418

2. Benefits ......................................................................................................... 421

3. Costs.............................................................................................................. 422

4. Alternatives ................................................................................................... 426

F. Other Alternatives to the Reporting Requirements ............................................. 427

IV. Paperwork Reduction Act ......................................................................................... 430

A. Portfolio Reporting ............................................................................................. 433

1. Form N-PORT .............................................................................................. 433

2. Rescission of Form N-Q ............................................................................... 441

B. Census Reporting ................................................................................................ 442

1. Form N-CEN ................................................................................................. 442

2. Rescission of Form N-SAR .......................................................................... 450

C. Amendments to Regulation S-X ......................................................................... 451

1. Rule 30e-1 ..................................................................................................... 452

2. Rule 30e-2 ..................................................................................................... 457

D. Amendments to Registration Statement Forms .................................................. 461

E. Amendments to Form N-CSR............................................................................. 464

V. Final Regulatory Flexibility Analysis....................................................................... 469

A. Need for and Objectives of the Forms and Form Amendments and Rules

and Rule Amendments ........................................................................................ 470

B. Significant Issues Raised by Public Comments .................................................. 470

C. Small Entities Subject to the Rule ...................................................................... 473

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements ..... 474

1. Form N-PORT .............................................................................................. 474

2. Rescission of Form N-Q ............................................................................... 475

3. Form N-CEN ................................................................................................. 476

4. Rescission of Form N-SAR .......................................................................... 477

5. Regulation S-X Amendments ....................................................................... 478

6. Amendments to Registration Statement Forms ............................................ 479

7. Amendments to Form N-CSR....................................................................... 480

E. Agency Action to Minimize Effect on Small Entities ........................................ 481

VI. Statutory Authority ................................................................................................... 482

BACKGROUND

Changes in the Industry and Technology

As the primary regulator of the asset management industry, the Commission relies on

information included in reports filed by registered investment companies (“funds”)1 and

investment advisers for a number of purposes, including monitoring industry trends, informing

policy and rulemaking, identifying risks, and assisting Commission staff in examination and

enforcement efforts. Over the years, however, as assets under management and complexity in

the industry have grown, so too has the volume and complexity of information that the

Commission must analyze to carry out its regulatory duties.

Commission staff estimates that there were approximately 17,052 funds registered with

the Commission, as of December 2015.2 Commission staff further estimates that there were

nearly 12,000 investment advisers registered with the Commission, along with another 3,138

advisers that file reports with the Commission as exempt reporting advisers, as of January 2016.3

For purposes of the preamble of this release, we use “funds” to mean registered investment

companies other than face-amount certificate companies and any separate series thereof—i.e.,

management companies and unit investment trusts. In addition, we use the term “management

companies” or “management investment companies” to refer to registered management investment

companies and any separate series thereof. We note that “fund” may be separately and differently

defined in each of the new or amended forms or rules.

Based on data obtained from the Investment Company Institute (“ICI”) and reports filed by

registrants on Form N-SAR. The 17,052 funds include mutual funds (including funds of funds and

money market funds), closed-end funds, exchange-traded funds (“ETFs”), and unit investment trusts

(“UITs”). See ICI, 2016 I NVESTMENT C OMPANY F ACT B OOK (56th ed., 2016) (“2016 ICI Fact

Book”) at 22, available at https://www.ici.org/pdf/2016_factbook.pdf; see also infra footnote 1259

and accompanying and following text.

Based on Investment Adviser Registration Depository (“IARD”) system data. In 2010 Congress

charged the Commission with implementing new reporting and registration requirements for certain

investment advisers to private funds (known as “exempt reporting advisers”). See Dodd-Frank Wall

Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376, 1570–80 (2010).

Form ADV is used by registered investment advisers to register with the Commission and with the

states and by exempt reporting advisers to report information to the Commission. Information on

Form ADV is available to the public through the Investment Adviser Public Disclosure System,

At year-end 2015, assets of registered investment companies exceeded $18 trillion, having grown

from about $5.8 trillion at the end of 1998.4 At the same time, the industry has developed new

product structures, such as ETFs5, new fund types, such as target date funds with asset allocation

strategies,6 and increased its use of derivatives and other alternative strategies.7 These products

and strategies can offer greater opportunities for investors to achieve their investment goals, but

they can also add complexity to funds’ investment strategies, amplify investment risk, or have

other risks, such as counterparty credit risk.

While these changes have been taking place in the fund industry, there have also been

significant advances in the technology that can be used to report and analyze information. We

have started to use structured data formats to collect, aggregate, and analyze data reported by

which allows the public to access the most recent Form ADV filing made by an investment adviser

and is available at http://www.adviserinfo.sec.gov. The Commission recently adopted

amendments to Form ADV. See Form ADV and Investment Adviser Act Rules, Investment Advisers

Act Release No. 4509 (August 25, 2016) [81 FR 60417 (September 1, 2016)] (“Form ADV Release”).

See 2016 ICI Fact Book, supra footnote 2, at 9.

See generally Exchange-Traded Funds, Securities Act Release No. 8901 (Mar. 11, 2008) [73 FR

14618 (Mar. 18, 2008)] (“ETF Proposing Release”) at 14619; Request for Comment on ExchangeTraded Products, Securities Exchange Act Rel. No. 34-75165 (June 12, 2015); see also ICI,

Exchange-Traded Funds April 2016 (May 27, 2016), available at

https://www.ici.org/research/stats/etf/etfs_04_16 (discussing April 2016 statistics on ETFs). As of

April 2016, there were 1,630 ETFs with over $2 trillion in assets. Over the twelve-month period

ending April 2016, assets of ETFs increased $89.63 billion. See id.

See generally Investment Company Advertising: Target Date Retirement Fund Names and Marketing,

Securities Act Release No. 9126 (June 16, 2010) [75 FR 35920 (June 23, 2010)] (“Investment

Company Advertising Release”).

See Use of Derivatives by Registered Investment Companies and Business Development Companies,

Investment Company Act Release No. 31933 (Dec. 11, 2015) [80 FR 80884 (Dec. 28, 2015)]

(“Derivatives Proposing Release”) (noting “dramatic growth in the volume and complexity of the

derivatives markets over the past two decades, and the increased use of derivatives by certain

funds”); see also Investment Company Reporting Modernization, Investment Company Act Release

No. 31610 (May 20, 2015) [80 FR 33590 (June 12, 2015)] (“Proposing Release”) at n. 7.

registrants and other filers.8 These data formats for information collection have enabled us and

other data users, including investors and other industry participants, to better collect and analyze

reported information and have improved our ability to carry out our regulatory functions.

As we noted in the Proposing Release, we have historically acted to modernize our forms

and the manner in which information is filed with the Commission and disclosed to the public in

order to keep up with changes in the industry and technology.9 In May 2015, we again acted to

modernize our forms and the manner in which information is filed and disclosed by proposing a

number of reforms for investment company reporting.10 Our proposal included four sets of

reforms: (1) the creation of a new portfolio holdings reporting form, Form N-PORT, and the

rescission of Form N-Q; (2) the creation of a new census reporting form, Form N-CEN, and the

rescission of Form N-SAR; (3) amendments to Regulation S-X, largely designed to improve

See Proposing Release, supra footnote 7, at nn. 12–16 and accompanying text (discussing the use of

eXtensible Business Reporting Language (“XBRL”) with open-end fund risk/return summaries and

the use of Extensible Markup Language (“XML”) with Forms N-MFP, PF and 13F, as well as in

other contexts).

See supra footnote 8 and accompanying text; see also Proposing Release, supra footnote 7, at nn. 8–9

and accompanying text (discussing the adoption of Form N-SAR and the adoption of rules requiring

the use of the IARD for investment adviser filings); see also Derivatives Proposing Release, supra

footnote 7 (proposing, among other things, reporting requirements in Forms N-PORT and N-CEN

related to derivatives); Investment Company Liquidity Risk Management Programs; Investment

Company Act Release No [x] (October 13, 2016) (“Liquidity Adopting Release”); Investment

Company Swing Pricing; Investment Company Release No. [x] (October 13, 2016) (“Swing Pricing

Adopting Release”).

We also note that in December 2014, the Financial Stability Oversight Council (“FSOC”) issued a

notice requesting comment on aspects of the asset management industry, including on additional data

or information that would be helpful to regulators and market participants. See FSOC, Notice

Seeking Comment on Asset Management Products and Activities, Docket No. FSOC-2014-0001

(Dec. 24, 2014) (“FSOC Notice”), available at http://www.treasury.gov/initiatives/fsoc/rulemaking/

Documents/Notice%20Seeking%20Comment%20on%20Asset%20Management%20Products%20and

%20Activities.pdf. Although our proposal was independent of FSOC, several commenters

responding to the notice discussed issues concerning data that were relevant to our proposal and those

comments were discussed in the Proposing Release, as relevant. See Proposing Release, supra

footnote 7, at nn. 17–18 and accompanying text.

See Proposing Release, supra footnote 7.

derivatives disclosure; and (4) a proposed new rule, rule 30e-3, which would provide funds with

an optional method to satisfy shareholder report transmission requirements by posting their

reports online if they met certain conditions.

The proposed reforms were designed to help the Commission, investors, and other market

participants better assess different fund products and to assist us in carrying out our mission to

protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

These reforms also sought to (1) increase the transparency of fund portfolios and investment

practices both to the Commission and to investors, (2) take advantage of technological advances

both in terms of the manner in which information is reported to the Commission and how it is

provided to investors and other potential users, and (3) where appropriate, reduce duplicative or

otherwise unnecessary reporting burdens on the industry.

Summary of Changes to Current Reporting Regime

We received 1,003 comments11 on our proposed reforms from a variety of interested

parties, including investment companies, industry groups, investors, academics and others. As

discussed in greater detail below in the relevant sections of this release, commenters generally

supported our efforts to modernize the investment company reporting regime, but had varying

comments on a number of specific items in each of the respective sets of reforms. Commenters

Of these, about 574 were individualized letters, and the rest were one of a number of types of form

letters. See Comments on Investment Company Reporting Modernization, File No. S7-08-15,

available at http://www.sec.gov/comments/s7-08-15/s70815.shtml. The comment period for the

proposal closed on August 11, 2015, but was re-opened until January 13, 2016 when the Commission

proposed liquidity risk management programs for open-end funds. 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 62274 (Oct. 15, 2015)] (“Liquidity Proposing Release”).

were generally supportive of proposed new Form N-PORT;12 however, we received many

comments relating to the data to be collected by the form, the frequency of filing reports on the

form, and whether reports on the form or certain information in the reports should be made

public. Commenters were also generally supportive of proposed new Form N-CEN,13 agreeing

that Form N-CEN will provide both the Commission and the public with enhanced and updated

census-type information. Similar to Form N-PORT, however, commenters also provided many

comments on the data to be collected by the form and whether certain information in reports on

the form should be made public. In addition, commenters were largely supportive of our efforts

to improve the information that funds report to shareholders and the Commission through the

proposed amendments to Regulation S-X,14 but had specific comments on certain disclosures.

Comments on proposed rule 30e-3, which would allow funds to transmit reports to shareholders

via the internet subject to a number of conditions, were mixed, with some commenters

supporting the rule and others opposing it.15

Today, after consideration of the comments we received, we are adopting new Forms

N-PORT and N-CEN, as well as amendments to Regulation S-X. We continue to believe that

with the industry changes and technological advances that have occurred over the years, we need

to improve the type and format of the information that funds provide to us and to investors, and

the information that the Commission receives from funds in order to improve the Commission’s

monitoring of the fund industry in its role as the primary regulator of funds and investment

See infra footnotes 46, 64, 100, 115, 123, 145, 193, 197, 198, 245, 275, 283, 293, 330, 350, 379, 423,

432, 443, 455 and 475.

See infra footnotes 745, 759, 769, 779, 819, 832, 857, 870, 883, 907, 940, 989, 1008, 1045, 1061,

1070, 1080, 1101 and 1107.

See infra footnotes 527, 537, 556, 558, 566, 648, 665, 701 and 711.

See infra footnotes 1178–1179.

advisers. We are not adopting proposed rule 30e-3 at this time as we believe, in light of the

comments received, that additional consideration regarding the rule is appropriate. We are

adopting amendments to Forms N-1A, N-3, and N-CSR to require certain disclosures regarding

securities lending activities.16

Form N-PORT and Amendments to Regulation S-X

We are adopting Form N-PORT, largely as proposed, with certain modifications in

response to commenters. We are also rescinding, as proposed, Form N-Q. Form N-PORT is a

new portfolio holdings reporting form that will be filed by all registered management investment

companies, other than money market funds and small business investment companies

(“SBICs”),17 and by UITs that operate as ETFs.18 Currently, management investment companies

(other than SBICs) are required to report their complete portfolio holdings to the Commission on

a quarterly basis on Forms N-Q19 and N-CSR.20

Form N-PORT requires reporting of a fund’s complete portfolio holdings. The form also

requires additional information concerning fund portfolio holdings that is not currently required

by Forms N-Q and N-CSR, and that will facilitate risk analyses and other Commission oversight.

If any provision of these rules, or the application thereof to any person or circumstance, is held to be

invalid, 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.

See infra footnote 49 (discussing why money market funds and SBICs will not be required to file

reports on Form N-PORT).

ETFs will be required to file reports on Form N-PORT, regardless of whether they are organized as

management companies or UITs. UITs are a type of investment company which (a) are organized

under a trust indenture contract of custodianship or agency or similar instrument, (b) do not have a

board of directors, and (c) issue only redeemable securities. See section 4(2) of the Investment

Company Act.

Rule 30b1-5 under the Investment Company Act [17 CFR 270.30b1-5]. While SBICs file reports on

Form N-CSR, SBICs are not required to file reports on Form N-Q.

See rule 30b2-1 under the Investment Company Act [17 CFR 270.30b2-1].

For example, Form N-PORT requires reporting of additional information relating to derivative

investments. The form also includes certain risk metric calculations that measure a fund’s

exposure and sensitivity to changing market conditions, such as changes in asset prices, interest

rates, or credit spreads. As was proposed, reports on Form N-PORT will be filed in a structured

data format with the Commission on a monthly basis, with every third month available to the

public 60 days after the end of the fund’s fiscal quarter.

We continue to believe that more timely and frequent reporting of portfolio holdings

information to the Commission, as well as the additional information Form N-PORT requires,

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 its examination, enforcement, and monitoring of funds, its

formulation of policy, and the staff’s review of fund registration statements and disclosures.

While Form N-PORT is primarily designed to assist the Commission and its staff, we

also continue to believe that information in Form N-PORT will be beneficial to investors and

other potential users. In particular, we believe that both sophisticated institutional investors and

third-party users that provide services to investors may find the information required on Form NPORT useful. For example, Form N-PORT’s structured format will allow the Commission,

investors, and other potential users to better collect and analyze portfolio holdings information.21

While we do not anticipate that many individual investors will analyze data using Form NPORT, although some may, we believe that individual investors will benefit indirectly from the

As we noted in the Proposing Release, portfolio holdings information currently filed on Form N-Q is

filed in a plain text or hypertext format, which often requires labor-intensive manual reformatting by

Commission staff and other potential users in order to prepare the reported data for analysis. See

Proposing Release, supra footnote 7.

information collected on reports on Form N-PORT, through enhanced Commission monitoring

and oversight of the fund industry and through analyses prepared by third-party service providers

and other parties, such as industry observers and academics.

In addition, we are adopting, largely as proposed, amendments to Regulation S-X with

certain modifications in response to comments. These amendments in large part require

standardized enhanced derivatives disclosures in fund financial statements. Currently,

Regulation S-X does not prescribe specific information for most types of derivatives, including

swaps, futures, and forwards. While many fund groups provide disclosures regarding the terms

of their derivatives contracts, the lack of standard disclosure requirements has resulted in

inconsistent disclosures in fund financial statements.

We continue to believe that the amendments to Regulation S-X to enhance and

standardize derivatives disclosures in financial statements will allow comparability among funds

and help all investors better assess funds’ use of derivatives. Reports on Form N-PORT will

contain similar derivatives disclosures to facilitate analysis of derivatives investments across

funds. Because Form N-PORT is not primarily designed for individual investors, the

amendments to Regulation S-X require disclosures concerning the fund’s investments in

derivatives in the financial statements that are provided to investors. We also have endeavored

to mitigate burdens on the industry by conforming the derivatives disclosures that are required by

both Regulation S-X and Form N-PORT.

Form N-CEN

We are adopting, substantially as proposed and with certain modifications in response to

comments, Form N-CEN, a new form on which funds will report census-type information to the

Commission. We are also rescinding, as proposed, Form N-SAR, the current form on which the

Commission collects census-type information on management investment companies and UITs.22

As we discussed in the Proposing Release, Form N-SAR was adopted in 1985 and, while

Commission staff has indicated that the census-type information reported on Form N-SAR is

useful in its support of the Commission’s regulatory functions, staff has also indicated that in the

thirty plus years since Form N-SAR’s adoption, changes in the industry have reduced the utility

of some of the currently required data elements.23 Commission staff believes that obtaining

certain additional census-type information not currently collected by Form N-SAR will improve

the staff’s ability to carry out regulatory functions, including risk monitoring and analysis of the

industry.

Form N-CEN includes many of the same data elements as Form N-SAR, but, in order to

improve the quality and utility of information reported, replaces those items that are outdated or

of limited usefulness with items that we believe to be of greater relevance today. Where

possible, we are also eliminating items that are reported on other Commission forms, or are

available elsewhere. In addition, reports on Form N-CEN will be filed in a structured XML

format, which, we believe, will reduce reporting burdens for current Form N-SAR filers and

yield data that can be used more effectively by the Commission and other potential users.24

Finally, reports on new Form N-CEN will be filed annually, rather than semi-annually as is

See rules 30a-1 and 30b1-1 under the Investment Company Act [17 CFR 270.30a-1 and 17 CFR

270.30b1-1].

See Proposing Release, supra footnote 7 (noting that when adopted, Form N-SAR was intended to

reduce reporting burdens and better align the information that was required to be reported with the

characteristics of the fund industry). Also as noted in the Proposing Release, the filing format that is

required for reports on Form N-SAR limits our ability to use the reported information for analysis.

See infra footnotes 750–752 and accompanying text.

required for reports on Form N-SAR by management companies, which will further reduce

current burdens on funds.

II.

DISCUSSION

Form N-PORT

As discussed above, we are adopting a new monthly portfolio reporting form, Form NPORT. Form N-PORT requires registered management investment companies and ETFs

organized as UITs, other than money market funds and SBICs, to electronically file with the

Commission monthly portfolio investments information on reports in an XML format no later

than 30 days after the close of each month.25 Except as discussed below in section II.A.4, only

information reported for the third month of each fund’s fiscal quarter on Form N-PORT will be

publicly available, and that information will not be made public until 60 days after the end of the

fiscal quarter.26

As the primary regulator of the asset management industry, the Commission relies on

information that funds file with us, including their registration statements, shareholder reports,

and various reporting forms such as Form N-CSR. The Commission and its staff use this

information to understand trends in the fund industry and carry out regulatory responsibilities,

including formulating policy and guidance, reviewing fund registration statements, and assessing

See new rule 30b1-9.

As used throughout this section, the term “fund” generally refers to investment companies that will

file reports on Form N-PORT.

As discussed further in section II.A.4, the Commission does not intend to make public the

information reported on Form N-PORT for the first and second months of each fund’s fiscal quarter

that is identifiable to any particular fund or adviser or any information reported with regard to country

of risk and economic exposure, delta, or miscellaneous securities, or explanatory notes related to any

of those topics that is identifiable to any particular fund or adviser. However, the Commission may

use such information in its regulatory programs, including examinations, investigations, and

enforcement actions. See infra footnote 500; see also General Instruction F of Form N-PORT.

and examining a fund’s regulatory compliance with the federal securities laws and Commission

rules thereunder.

Information on fund portfolios is currently filed with the Commission quarterly with up

to a 70-day delay.27 Moreover, the reports are currently filed in a format that does not allow for

efficient searches or analyses across portfolios, and even limits the ability to search or analyze a

single portfolio. Based on staff experience with data analysis of funds, including staff

experience using Form N-MFP, we believe, and commenters generally agreed, that more

frequent and timely information concerning fund portfolios than we currently receive, will assist

the Commission in its role as the primary regulator of funds, as discussed further below.28

The information we will collect on Form N-PORT will be important to the Commission

and its staff in analyzing and understanding the various risks in a particular fund, as well as risks

across specific types of funds and the fund industry as a whole. These risks can include the

investment risk that the fund is undertaking as part of its investment strategy, such as interest rate

Funds currently file with the Commission portfolio schedules for the fund’s first and third fiscal

quarters on Form N-Q, and shareholder reports, including portfolio schedules for the fund’s second

and fourth fiscal quarters, on Form N-CSR. These reports are available to the public and the

Commission with either a 60- or 70-day delay. See rule 30b1-5 (requiring management companies,

other than SBICs, to file reports on Form N-Q no more than 60 days after the close of the first and

third quarters of each fiscal year); rule 30b2-1 (requiring management companies to file reports on

Form N-CSR no later than 10 days after the transmission to stockholders of any report required to be

transmitted to stockholders under rule 30e-1). See also rules 30e-1 and 30e-2 under the Investment

Company Act [17 CFR 270.30e-1 and 17 CFR 270.30e-2] (requiring management companies and

certain UITs to transmit to stockholders semi-annual reports containing, among other things, the

fund’s portfolio schedules, no more than 60 days after the close of the second and fourth quarters of

each fiscal year). These reports include portfolio holdings information as required by Regulation SX. See rule 12-12 of Regulation S-X [17 CFR 210.12-12], et seq.

See, e.g., Comment Letter of Morningstar, Inc. (Aug. 21, 2015) (“Morningstar Comment Letter”)

(expressing belief that timelier information to investors through monthly public disclosures of

portfolios would assist the Commission in monitoring the financial system, while also providing

suggested revisions to enhance the proposal.); Comment Letter of Vanguard (Aug. 11, 2015)

(“Vanguard Comment Letter”) (stating that the proposal strikes the appropriate balance between

disclosures to the Commission and protecting funds and their investors from front-running, and

providing suggested modifications to the proposal).

risk, credit risk, volatility risk, other market risks, or risks associated with specific types of

investments, such as emerging market debt or commodities. Additionally, as we discuss in the

Liquidity Adopting Release that we are adopting concurrently Form N-PORT will help the

Commission better understand liquidity risks through additional Form N-PORT disclosure

requirements discussed in that release.29 The information collected on Form N-PORT will also

assist with understanding whether and to what extent a fund’s exposure to price movements is

leveraged, either through borrowings or the use of derivatives.

Many commenters generally agreed with us that the information required on Form

N-PORT will assist the Commission in better understanding each of these risks in the fund

industry.30 These commenters also generally agreed with us that the ability to understand the

risks that funds face will help Commission staff better understand and monitor risks and trends in

the fund industry as a whole, facilitating the Commission’s informed regulation of the fund

industry.31 We also believe, and some commenters agreed, that information obtained from Form

N-PORT filings will facilitate the Commission’s oversight of funds and assist Commission staff

See generally Liquidity Adopting Release, supra footnote 9.

See, e.g., Comment Letter of BlackRock (Aug. 11, 2015) (“BlackRock Comment Letter”)

(“Importantly, the greater depth and frequency of information requested by the Commission will help

the Commission better identify and monitor emerging risks associated with specific RICs or

categories of RICs as well as asset management activities.”); Comment Letter of Wells Fargo Funds

Management, LLC (Aug. 11, 2015) (“Wells Fargo Comment Letter”) (“we believe that the enhanced

disclosure requirements of the Proposals represent appropriate valuable information for the

Commission to have in order to assess trends in risks, for example, across the mutual fund

industry.”); but see, e.g., Comment Letter of Federated Investors, Inc. (January 13, 2016) (“Federated

Comment Letter) (“A majority of the Commission’s proposed amendments to Form N-1A, N-PORT,

and N-CEN would require a large effort from funds while offering data that is, at best, of little utility,

and, at worst, misleading. Many of these deficiencies relate to flaws inherent in a security-level

disclosure scheme.”). We disagree with the commenter that a security-level disclosure scheme is of

little utility. See infra footnote 1283 and accompanying and following text (discussing the utility of

the security-level information that will be reported on Form N-PORT).

Id.

in examination, enforcement, and monitoring, as well as in formulating policy and in its review

of fund registration statements and disclosures.32 In this regard, we expect that Commission staff

will use the data reported on Form N-PORT for many of the same purposes as Commission staff

has used data reported on Form N-MFP by money market funds. The data received on Form

N-MFP has been used extensively by Commission staff, including for purposes of assessing

regulatory compliance, identifying funds for examination, and risk monitoring. Form N-MFP

data has also informed Commission policy; for example, staff used Form N-MFP data in

analyses that informed the Commission’s considerations when it proposed and adopted money

market fund reform rules in 2013 and 2014.33

In addition to assisting the Commission in its regulatory functions, we believe, and some

commenters agreed, that investors and other potential users will benefit from the periodic public

disclosure of the information reported on Form N-PORT.34 Form N-PORT is primarily designed

for use by the Commission and its staff, and not for disclosing information directly to individual

investors. The information we are requiring on Form N-PORT is more voluminous than on a

schedule of investments. We believe, and some commenters agreed, however, that some

investors, particularly institutional investors, could directly use the data from the information on

Form N-PORT for their own quantitative analysis of funds, including to better understand the

Id.

See, e.g., Money Market Fund Reform; Amendments to Form PF, Investment Company Act Release

No. 30551 (June 5, 2013) [78 FR 36834 (June 19, 2013)]; Money Market Fund Reform; Amendments

to Form PF, Investment Company Act Release No. 31166 (July, 23 2014) [79 FR 44076 (July 29,

2014)] (“Money Market Fund Reform 2014 Release”) at n. 502 and accompanying text (citing use of

Form N-MFP data in discussing the Commission’s decision to require basis point rounding) and at n.

651 and accompanying text (citing use of Form N-MFP data in discussing the Commission’s decision

regarding the size of the non-government securities basket for government money market funds).

See, e.g., Comment Letter of Joseph A. Franco (Aug. 11, 2015) (“Franco Comment Letter”);

Morningstar Comment Letter; but see, e.g., Comment Letter of the Investment Company Institute

(Aug. 11, 2015) (“ICI Comment Letter”).

funds’ investment strategies and risks, and to better compare funds with similar strategies.35

Additionally, we believe, and some commenters agreed, that entities providing services to

investors, such as investment advisers, broker-dealers, and entities that provide information and

analysis for fund investors, will also utilize and analyze the information that will be required by

Form N-PORT to help all investors make more informed investment decisions.36 Accordingly,

whether directly or through third parties, we believe, and some commenters agree, that the

periodic public disclosure of the information on Form N-PORT will benefit all fund investors.37

As discussed further below, in order to mitigate the risk that the information on Form N-PORT

will be used in ways that might ultimately result in investor harm, we are limiting the public

availability of Form N-PORT to reports filed as of quarter-end, as well as delaying public

availability of those reports by 60 days and keep certain discrete information items nonpublic.

We intend to increase transparency of fund investments through Form N-PORT in several

ways. First, Form N-PORT will improve reporting of fund derivative usage. As the

Commission has previously noted, we have observed a dramatic growth in the volume and

complexity of the derivatives markets over the past two decades.38 Additionally, funds that are

considered “alternative” funds, which often use derivatives for implementing their investment

strategy, are becoming increasingly popular among investors.39 Although Regulation S-X

Id.

See id.

See Derivatives Proposing Release, supra footnote 7, at n. 6 and accompanying text; see also Use of

Derivatives by Investment Companies under the Investment Company Act of 1940, Investment

Company Act Release No. 29776 (Aug. 31, 2011) [76 FR 55237 (Sept. 7, 2011)] (“Derivatives

Concept Release”) at n. 7 and accompanying text.

While there is no clear definition of “alternative” in the fund industry, an alternative fund is generally

understood to be a fund whose primary investment strategy falls into one or more of the three

establishes general disclosure requirements for financial statements in fund registration

statements and shareholder reports, based on staff review of fund filings, the lack of standardized

requirements as to the terms of derivatives that must be reported has sometimes led to

inconsistent approaches to reporting derivatives information and, in some cases, insufficient

information concerning the terms and underlying reference assets of derivatives to allow the

Commission or investors to better understand the investment.40 This hinders both an analysis of

a particular fund’s investments, as well as comparability among funds.41

The information and reporting format required by Form N-PORT will create a more

detailed, uniform, and structured reporting regime. We believe and several commenters agreed

that this will allow the Commission and investors to better analyze and compare funds’

derivatives investments and the exposures they create, which can be important to understanding

funds’ investment strategies, use of leverage, and potential for risk of loss.42

following categories: (1) non-traditional asset classes (for example, currencies); (2) non-traditional

strategies (such as long/short equity positions); and/or (3) less liquid assets (such as private debt).

At the end of December 2015, alternative mutual funds and exchange-traded funds had more than

$200 billion in assets. Although alternative mutual funds only accounted for 1.23% of the mutual

fund market as of December 2015, the almost $17.3 billion of inflows into these funds in 2015

represented 7% of the inflows for the entire mutual fund industry in that year. These statistics were

obtained from staff analysis of Morningstar Direct data, and are based on fund categories as defined

by Morningstar.

For example, we understand that some funds provide a description of all of the holdings in an index

or custom basket underlying a swap contract, while others only provide a short description. See also

Proposing Release, supra footnote 7, at n. 31 and accompanying text.

See, e.g., current rule 12-13 of Regulation S-X [17 CFR 210.12-13] (requiring funds to disclose

“other” investments, which includes derivatives); rule 6-03 of Regulation S-X [17 CFR 210.6-03]

(applying articles 1-4 of Regulation S-X to investment companies, but not specifying where

derivative disclosures should be made for funds); FASB ASC 815, Disclosures about Derivative

Instruments and Hedging Activities (“ASC 815”) (discussing general derivative disclosure); FASB

ASC 820, Fair Value Measurements (“ASC 820”) (requiring disclosure of valuation information for

major categories of investments). See also infra section II.C.

See, e.g., Comment Letter of Fidelity Investments (Aug. 10, 2015) (“Fidelity Comment Letter”)

(generally supporting Commission’s focus on modernizing the way data is collected from funds and

Furthermore, as discussed further below, Form N-PORT requires funds to report certain

risk metrics that would provide measurements of a fund’s exposure to changes in interest rates,

credit spreads and asset prices, whether through investments in debt securities or in derivatives.

Financial statement information provides historical information over a particular time period

(e.g., a statement of operations), or information about values of assets at a particular point in time

(e.g., a balance sheet including, for funds, a schedule of investments). Risk metrics, on the other

hand, measure the change in value of an investment in response to small changes in the

underlying reference asset of an investment, whether the underlying reference asset is a security

(or index of securities), commodity, interest rate, or credit spread over an interest rate. Based on

staff experience, as well as staff outreach to asset managers and entities that provide risk

management services to asset managers (prior to the Commission issuing the Proposing

Release), discussed further below, we believe that fund portfolio managers and risk managers

commonly calculate risk metrics to analyze the exposures in their portfolios.43 The Commission

believes that staff can use these risk measures to better understand the exposures in the fund

industry, thereby facilitating better monitoring of risks and trends in the fund industry as a

whole.

reported to shareholders and providing suggestions for modifications to the final rule); Comment

Letter of Capital Research and Management Company (Aug. 11, 2015) (“CRMC Comment Letter”)

(supporting Commission’s efforts to take advantage of technology in order to assist the staff,

investors, and other market participants to better assess different fund products and assist the

Commission in carrying out its mission; and providing suggestions for modifications to the final

rule).

See generally John C. Hull, OPTIONS, FUTURES, AND OTHER DERIVATIVES (9th ed., 2015)

(discussing, for example, the function of duration, convexity, delta, and other calculations used for

measuring changes in the value of bonds or derivatives as a result of changes in underlying asset

prices or interest rates); Sheldon Natenberg, OPTION VOLATILITY AND PRICING (1994) (same).

Form N-PORT will also require information about certain fund transactions and activities

such as securities lending, repurchase agreements, and reverse repurchase agreements, including

information regarding the counterparties to which the fund is exposed in those transactions, as

well as in over-the-counter derivatives transactions. We believe and several commenters agreed

that such information will increase transparency concerning these transactions and activities and

will provide better information regarding counterparties, which will be useful in assessing both

individual and multiple fund exposures to a single counterparty.44 This will allow the

Commission to better assess and monitor counterparty risk for individual funds, as well as across

the industry.

As discussed further below, Form N-PORT will be filed electronically in a structured,

XML format. This format will enhance the ability of the Commission, as well as investors and

other potential users, to analyze portfolio data both on a fund-by-fund basis and also across

funds.45 As a result, although we will collect certain information on Form N-PORT that may be

similarly disclosed or reported elsewhere (e.g., portfolio investments would continue to be

included as part of the schedules of investments contained in shareholder reports, and filed on a

semi-annual basis with the Commission on Form N-CSR), we believe that it is appropriate to

also collect this information in a structured format for analysis by our staff as well as investors

and other potential users.

See, e.g., Morningstar Comment Letter (“By collecting and making available additional information

about counterparty risk and other important factors, the SEC will make it easier for investors and

financial advisors to monitor portfolio risks.”).

See, e.g., Fidelity Comment Letter (“Collecting data in a structured format should allow the

Commission to use information from market participants in rigorous empirical examinations of the

industry in furtherance of the SEC’s goals.”); ICI Comment Letter (“Obtaining that information in a

structured data format will help the SEC to better analyze information and improve its ability to carry

out its regulatory mission.”).

Many commenters were generally supportive of our proposal.46 However, we received

many comments relating to the structure of the proposed form, data to be collected, frequency of

filings, and whether reports on the form should be made public. We address these comments

below and discuss modifications we made from the proposal in response to comments.

Who Must File Reports on Form N-PORT

We are adopting, as proposed, the requirement that each registered management

investment company and each ETF organized as a UIT file a report on Form N-PORT.47

Registrants offering multiple series will be required to file a report for each series separately,

even if some information is the same for two or more series.48 Money market funds and SBICs

will not be required to file reports on Form N-PORT.49

See, e.g., Comment Letter of Charles Schwab Investment Management, Inc. (Aug. 11, 2015)

(“Schwab Comment Letter”) (“Form N-Port [sic] will provide substantial additional information to

the Commission and strengthen its ability to oversee and carry out its regulatory responsibilities for

the asset management industry.”); Vanguard Comment Letter (“Vanguard generally supports the

proposed reporting initiatives because we believe these reporting obligations will provide the

Commission with the tools necessary to monitor portfolio composition and risk exposure among

funds, without exposing fund investors to potentially harmful front-running activities.”); Comment

Letter of Pioneer Investments (Aug. 11, 2015) (“Pioneer Comment Letter”) (“Pioneer supports the

Commission’s effort to modernize the regime whereby funds report information about their portfolio

holdings to the Commission.”); Comment Letter of the Securities Industry and Financial Markets

Association Asset Management Group (Aug. 11, 2015) (“SIFMA Comment Letter I”) (“We support

the Commission’s initiative in proposing monthly reports on Form N-PORT in order to strengthen its

regulatory oversight of the asset management industry and protect investors by obtaining more

frequent and substantially expanded information about funds, in a structured format.”); ICI Comment

Letter (“ICI broadly supports the Commission’s efforts to update fund reporting.”).

See new rule 30b1-9.

As further discussed below, in part to harmonize definitions between Forms N-PORT and N-CEN,

and in part to parallel identical changes to the definition of “exchange-traded fund” in Form N-CEN,

we have revised Form N-PORT’s proposed definition of “exchange-traded product” to refer instead to

“exchange-traded fund,” which as revised includes each series of a UIT that meets that definition.

See General Instruction E of Form N-PORT; infra footnote 896 (discussing changes to definitions in

Form N-CEN).

Money market funds already file their monthly portfolio investments with the Commission. See

Form N-MFP. SBICs are unique investment companies that operate differently and are subject to a

different regulatory regime than other management investment companies. They are “privately

We are adopting, as proposed, the requirement that all ETFs file reports on Form NPORT, regardless of their form of organization. Although most ETFs today are structured as

open-end management investment companies, there are several ETFs that are organized as

UITs.50 ETFs organized as UITs have significant numbers of investors who we believe can

benefit from the disclosures required in Form N-PORT.51 We received no comments on this

aspect of the proposal.

One commenter suggested that reports on Form N-PORT should be filed by all registered

investment companies, including UITs, in order to have comparable filing information across

registered investment products, although the commenter did suggest that less frequent filing

requirements might be appropriate based on the structure of the investment company.52 We note

that UITs have fixed portfolios that do not change over time, and thus, unlike most other

investment companies which are required to file quarterly reports with their current portfolio

holdings, UITs are not currently required to file periodic reports other than on an annual basis.53

Based on these differences, as reflected in the current reporting regime, we have determined not

to extend Form N-PORT filing requirements to UITs that are not ETFs at this time.

owned and managed investment funds, licensed and regulated by [the Small Business Administration

(“SBA”)], that use their own capital plus funds borrowed with an SBA guarantee to make equity and

debt investments in qualifying small businesses.” See SBA, SBIC Program Overview, available at

https://www.sba.gov/content/sbic-program-overview. As a result of these differences, SBICs are not

required to file reports on Form N-Q. As of December 31, 2015, only one SBIC had publicly offered

securities outstanding.

There are currently eight ETFs organized as UITs that have registered with the Commission.

Commission staff estimates that as of December 2015, ETFs organized as UITs represented 12% of

all assets invested in registered ETFs. This analysis is based on data from Morningstar Direct.

See Morningstar Comment Letter.

UITs currently file annual reports on Form N-SAR. In contrast, management investment companies

currently file reports for their first and third fiscal quarters on Forms N-Q and reports for their second

and fourth fiscal quarters on Form N-CSR, as well as semi-annual reports on Form N-SAR. See

supra footnotes 19–20 and accompanying text.

The same commenter also recommended that reports on Form N-PORT be filed by

business development companies (“BDCs”).54 BDCs are a category of closed-end funds that are

operated for the purpose of investing in, and providing managerial assistance to, small and

developing businesses, and financially troubled businesses. BDCs are not required to register as

investment companies under the Investment Company Act although they do elect to be subject to

certain specialized provisions, and they are subject to a different reporting regime than registered

investment companies.55 Based on these differences, and as reflected in the current reporting and

registration regime, we have determined not to extend Form N-PORT filing requirements to

BDCs at this time.56

Another commenter suggested that the Commission and the CFTC should agree on and

implement a substituted compliance regime.57 Although we recognize that there are various

alternative reporting requirements imposed in other contexts and by other regulators, the

reporting requirements imposed by Form N-PORT have been designed specifically to meet the

Commission’s regulatory needs with regards to monitoring and oversight of registered funds.

Finally, one commenter stated that we should not require funds to directly report

information on their own behalf, but instead require other entities such as transfer agents and

See Morningstar Comment Letter (recommending that “business development companies…and other

[registered investment companies]” should be required to file reports on Form N-PORT).

See Adoption of Permanent Notification Forms for Business Development Companies; Statement of

Staff Position, Investment Company Act Release No. 12274 (Mar. 5, 1982) [47 FR 10518-02 (Mar.

11, 1982)]; and Interim Notification Forms for Business Development Companies, Investment

Company Act Release No. 11703 (Mar. 26, 1981) [46 FR 19459 (Mar. 31, 1981)] for a discussion of

the regulatory system applicable to BDCs.

Although BDCs will not be subject to Form N-PORT filing requirements, the amendments being

adopted to Regulation S-X will apply to both registered investment companies and BDCs. See infra

footnote 700.

See SIFMA Comment Letter I (“Under our suggested approach, funds required to report on new Form

N-PORT would be excused from reporting on Form CPO-PQR.”).

custodians to report information on behalf of funds.58 Given our expertise and experience in

regulating, examining, and overseeing funds, including fund reporting, recordkeeping, and

compliance, we continue to believe that obtaining such information directly from funds is

appropriate.

Information Required on Form N-PORT

We are adopting, substantially as proposed, the requirements in Form N-PORT to report

certain information about the fund and the fund’s portfolio investments as of the close of the

preceding month, including: (a) general information about the fund; (b) assets and liabilities; (c)

certain portfolio-level metrics, including certain risk metrics; (d) information regarding securities

lending counterparties; (e) information regarding monthly returns; (f) flow information;

(g) certain information regarding each investment in the portfolio; (h) miscellaneous securities (if

any); (i) explanatory notes (if any), and (j) exhibits. We are adopting these information

requirements substantially as proposed, although we are making some modifications from the

proposal in response to comments. Each of these is discussed in more detail below.

General Information and Instructions

Part A of Form N-PORT requires, as proposed, general identifying information about the

fund. This information includes the name of the registrant, name of the series, and relevant file

numbers.59 Funds will also report the date of their fiscal year end, the date as of which

information is reported on the form, and indicate if they anticipate that this will be their final

See Federated Comment Letter (“It would also reduce the reporting burden on funds for the

Commission to acquire information directly from custodians and transfer agents, which are proficient

in maintaining and reporting portfolio holdings and other information.”).

See Item A.1 and Item A.2 of Form N-PORT. Funds will provide the name of the registrant, the

Investment Company Act and CIK file numbers for the registrant, and the address and telephone

number of the registrant. Funds will also provide the name of and EDGAR identifier (if any) for the

series.

filing on Form N-PORT.60 This information will be used to identify the registrant and series

filing the report, track the reporting period, and identify final filings. No comments were

received on this aspect of our proposal. We are adopting these elements as proposed.

As proposed, funds will also provide the Legal Entity Identifier (“LEI”) number of the

registrant and series.61 The LEI is a unique identifier generally associated with a single corporate

entity and is intended to provide a uniform international standard for identifying counterparties

to a transaction.62 Fees are not imposed for the usage of or access to LEIs, and all of the

associated reference data needed to understand, process, and utilize the LEIs is widely and freely

available and not subject to any usage restrictions. Funds or registrants that have not yet

obtained an LEI will be required to obtain one, which currently entails a one-time fee of $219

plus $119 per year in annual maintenance costs and fees.63

See Item A.3 and Item A.4 of Form N-PORT.

See Item A.1.d and Item A.2.c of Form N-PORT. The Commission has begun to require disclosure of

the LEI in other contexts. See, e.g., Form PF, Reporting Form for Investment Advisers to Private

Funds and Certain Commodity Pool Operators and Commodity Trading Advisors, available at

http://www.sec.gov/rules/final/2011/ia-3308-formpf.pdf; Regulation SBSR-Reporting and

Dissemination of Security-Based Swap Information, Securities Exchange Act Release No. 74244

(Feb. 11, 2015) [80 FR 14564 (Mar. 19, 2015)] (“Regulation SBSR Adopting Release”).

The global LEI system operates under an LEI Regulatory Oversight Committee (“ROC”) that

currently includes members that are official bodies from over 40 jurisdictions. The Commission is a

member of the ROC and currently serves on its Executive Committee. The Commission notes that it

would expect to revisit the requirement to report LEIs if the operation of the LEI system were to

change significantly.

As of June 30, 2016, the cost of obtaining an LEI from the Global Markets Entity Identifier (“GMEI”)

Utility in the United States was $200, plus a $19 surcharge for the LEI Central Operating Unit. The

annual cost of maintaining an LEI from the GMEI Utility was $100, plus a $19 surcharge for the LEI

Central Operating Unit. See GMEI Utility, Frequently Asked Questions, available at

https://www.gmeiutility.org/frequentlyAskedQuestions.jsp.

Commenters were generally supportive of this aspect of our proposal, with most

endorsing the use of LEI for identification of funds, as well as for fund counterparties.64

However, one commenter suggested that certain funds should be permanently exempted from

such requirements as such funds would not need an LEI for any other purpose.65 Lastly, another

commenter suggested that, to better assist academic researchers with identification of entities,

every filing by a mutual fund should require an exhaustive list of the tickers and CUSIPs

associated with that mutual fund.66

We are adopting the requirement that funds report LEI information for the registrant and

for each series, as proposed. We acknowledge that funds will incur some costs to obtain and

maintain an LEI, although we believe the cost to obtain and maintain an LEI identifier is

modest.67 Uniform reporting of LEIs by funds, however, will help provide a consistent means of

identification that will facilitate the linkage of data reported on Form N-PORT with data from

other filings and sources that is or will be reported elsewhere as LEIs become more widely used

by regulators and the financial industry.68 Using alternate means of identification or providing

See, e.g., Comment Letter of State Street Corporation (Aug. 11, 2015) (“State Street Comment

Letter”); Comment Letter of Depository Trust & Clearing Corporation (Aug. 11, 2015); Comment

Letter of Interactive Data Pricing and Reference Data LLC (Aug. 10, 2015) (“Interactive Data

Comment Letter”); Comment Letter of Global Legal Entity Identifier Foundation (Aug. 5, 2015).

See Comment Letter of Carol Singer (June 24, 2015) (“Carol Singer Comment Letter”) (suggesting

that a small closed-end fund that is not listed on an exchange should not be required to obtain an LEI

identifier).

See Comment Letter of Russ Wermers (Aug. 4, 2015) (“Russ Wermers Comment Letter”) (arguing

that this information could help with the identification of entities. The commenter did not discuss the

utility of the LEI specifically).

See supra footnote 63.

See, e.g., Commodities Futures Trading Commission (“CFTC”), CFTC Announces Mutual

Acceptance of Approved Legal Entity Identifiers, Press Release: PR6758-13 (Oct. 30, 2013),

available at http://www.cftc.gov/PressRoom/PressReleases/pr6758-13; Letter from Kenneth Bentsen,

President & CEO of SIFMA to Jacob Lew, Chairman of FSOC, re: Adoption of the Legal Entity

Identifier (Apr. 11, 2014), available at http://www.sifma.org/comment-letters/2014/sifma-submits-

exemptions to this requirement could hinder the ability of Commission staff as well as investors

and other potential users of this information to use the data on Form N-PORT as discussed above.

For these reasons, we anticipate that the benefits of requiring funds to report the LEI number of

the registrant and series on Form N-PORT will justify the costs of obtaining and reporting this

information, and thus we are adopting this requirement as proposed.

Furthermore, in response to the request that an exhaustive list of the tickers and CUSIPs

associated with the fund be reported to help with the identification of entities, we note that Form

N-PORT requires funds to report various identifying information, including name of the

registrant, Investment Company Act file number of the registrant, CIK number of the registrant,

LEI of the registrant, name of each series, EDGAR identifier (if any) for each series, and LEI for

each series.69 We believe this information is sufficient for Commission staff, as the primary user

of the form, to identify funds filing reports on Form N-PORT, and could also be useful for

investors and other potential users. As discussed further below, funds will also be reporting

additional identifying information on Form N-CEN in a structured format that can be used to

comments-to-fsoc-encouraging-us-regulators-to-adopt-and-use-the-legal-entity-identifiers; Regulation

SBSR Adopting Release, supra footnote 61.

Commenters to the FSOC Notice expressed support for regulatory acceptance of LEI identifiers. See,

e.g., Joint Comment Letter of SIFMA/Investment Adviser Association to FSOC Notice (Mar. 25,

2015) (“SIFMA/IAA FSOC Notice Comment Letter”) (expressing support for the LEI initiative, and

noting that the use of LEIs has already enhanced the industry’s ability to identify and monitor global

market participants); Comment Letter of Fidelity to FSOC Notice (Mar. 25, 2015) (expressing the

need to develop analytics to make data intelligible, such as the ability to map exposures across the

financial system, such as through the use of LEIs).

See Item A.1 and Item A.2 of Form N-PORT.

identify those funds and link information reported by them on Forms N-PORT and N-CEN with

information available in other Commission filings and sources that is similarly structured.70

Form N-PORT also includes general filing and reporting instructions, as well as

definitions of specific terms referenced in the form.71 These instructions and definitions are

intended to provide clarity to funds and to assist them in filing reports on Form N-PORT.72

Proposed Form N-PORT would have required funds to report information about their

portfolios as of the last business day, or calendar day, of the month, but did not provide specific

instructions on the appropriate basis for reporting such information, such as whether the

information should be reported as of the trade date (“T+0”), which is required for financial

reporting purposes, or the trade date plus one day (“T+1”), which is currently permitted under

rule 2a-4 for the calculation of funds’ net asset values (“NAV”). Several commenters requested

clarification on this issue and specifically requested that Form N-PORT allow reporting on a T+1

basis.73

Many commenters noted that most funds use T+1 accounting to record their day-to-day

transactions, and only convert their records to T+0 for quarterly portfolio holdings reporting

Form N-CEN requires funds to report additional information for each share class outstanding,

including name of the class, class identification number, and ticker symbol. See Item C.2.d of Form

N-CEN.

See General Instruction A (Rule as to Use of Form N-PORT), B (Application of General Rules and

Regulations), C (Filing of Reports), D (Paperwork Reduction Act Information), E (Definitions), F

(Public Availability) and G (Responses to Questions) of Form N-PORT.

See id. For example, General Instructions A, B, C and G provide specific filing and reporting

instructions (including how to report entity names, percentages, and dates), General Instructions D

and F provide information about the Paperwork Reduction Act and the public availability of

information reported on Form N-PORT, and General Instruction E provides definitions for specific

terms referenced in Form N-PORT.

See, e.g., ICI Comment Letter; Fidelity Comment Letter; Schwab Comment Letter; Comment Letter

of OppenheimerFunds (Aug. 10, 2015) (“Oppenheimer Comment Letter”).

purposes on Forms N-CSR and N-Q.74 These commenters further noted that our proposal would

require funds to file monthly reports 30 days after each reporting period, whereas funds currently

have at least 60 days after the end of each fiscal quarter to report similar information on a T+0

basis on Forms N-CSR and N-Q. Accordingly, commenters suggested that allowing funds to file

on a T+1 basis would reduce filing burdens relative to requiring reporting on a T+0 basis, while

not meaningfully changing the substance of the information reported. One commenter explicitly

recommended that funds be allowed to choose whether to file on a T+0 or T+1 basis, so that

funds that prefer to align their Form N-PORT reporting with their reporting on Forms N-Q

and/or N-CSR could do so, while other commenters that suggested this modification did not

specify whether all funds should be required to report on a T+1 basis uniformly.75

As discussed above, the Commission did not specify the appropriate basis for reporting,

and we agree with commenters that an explicit instruction on the basis on which to report is

appropriate. We are persuaded by commenters that explicitly instructing funds file on the same

basis for which they calculate their NAV (generally a T+1 basis) would not be as burdensome as

instructing all funds to file on a T+0 basis, and would still maintain the utility of the information

reported. As noted by commenters, we acknowledge that reporting monthly information on

Form N-PORT on a T+1 basis may result in differences between quarterly portfolio holdings

information currently reported on a T+0 basis on Forms N-CSR and N-Q. However, any such

differences are unlikely to affect the utility of the information for the Commission and other

potential users, because our primary purpose for using the information is to analyze and assess

See, e.g., Pioneer Comment Letter; Comment Letter of Invesco Advisers (Aug. 11, 2015) (“Invesco

Comment Letter”); Schwab Comment Letter; ICI Comment Letter; Comment Letter of the Securities

Industry and Financial Markets Association Asset Management Group (Jan. 13, 2016) (“SIFMA

Comment Letter II”).

See SIFMA Comment Letter I.

the various risks in a particular fund and monitoring risks and trends in the fund industry as a

whole, rather than to align the information reported with the fund’s financial statements.

Nonetheless, we do not agree that funds should be permitted to file either on the basis of

calculating its NAV (generally T+1) or on the basis of how they prepare financial reports (T+0)

at the fund’s option, as having funds report their portfolio holdings on different bases would

reduce the comparability of the data reported on Form N-PORT among funds and across the

industry. Accordingly, we have modified the proposal to add an instruction to Form N-PORT

instructing funds that they must report portfolio information on Form N-PORT on the same basis

they use to calculate their NAV, which we understand is generally T+1.76

Commenters also requested confirmation that different internal methodologies could be

applied in responding to certain items on Form N-PORT, such as those that may require

subjective judgments on the part of funds.77 Furthermore, two commenters urged the

Commission to explicitly state that funds may make and rely on reasonable assumptions in

providing responses to information items on Form N-PORT.78 In response to these comments,

we have modified the proposal by adding an instruction clarifying that in reporting information

on Form N-PORT, the fund may respond using its own methodology and the conventions of its

See General Instruction A of Form N-PORT (“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).”). We understand that

funds generally calculate their NAV on a T+1 basis pursuant to rule 2a-4, although under certain

circumstances funds might record particular transactions on a T+0 basis, such as when correcting a

pricing error. The instructions in Form N-PORT are intended to be flexible enough to allow funds to

report information on Form N-PORT on the same basis used in calculating NAV.

See, e.g., SIFMA Comment Letter I (requesting confirmation that funds may use classifications

generated by existing methodologies or available service providers in reporting country of risk for

portfolio holdings); ICI Comment Letter (asserting that funds should have the flexibility to make

country of risk determinations using their own good faith judgment).

See ICI Comment Letter; Oppenheimer Comment Letter.

service provider, so long as the methodology and conventions are consistent with the way the

fund reports internally and to current and prospective investors.79 This approach, which we have

modeled after a similar instruction in Form PF, is intended to strike an appropriate balance

between easing the reporting burden on funds by allowing them to rely on their existing practices,

while still providing useful information to the Commission, investors, and other potential users.80

The new instruction also explains that funds may explain any of their methodologies, including

related assumptions, in Part E of Form N-PORT.81

One commenter recommended that we include a definition of “forward contract,” that

references the settlement time of a contract, noting that from their experience, there are several

interpretations of what constitutes a forward contract and without a standard definition, funds

might categorize products inconsistently.82 We disagree that we should define forward contracts

with regard to the settlement time, and believe that adopting a specific definition like the one that

the commenter suggested could be overbroad or under-inclusive based on the settlement time

selected. Also, based on staff experience reviewing fund disclosures, we note that funds have

generally been able to classify forwards in their current disclosures even though there is not a

See General Instruction G of Form N-PORT (“Funds may respond to this Form using their own

internal methodologies and the conventions of their service providers, provided the information is

consistent with information that they report internally and to current and prospective investors.

However, the methodologies and conventions must be consistently applied and the Fund’s responses

must be consistent with any instructions or other guidance relating to this Form.”).

See General Instruction 15 of Form PF. Periodic reports on Form PF must be filed by registered

investment advisers with at least $150 million in private fund assets under management. Form PF is

designed, among other things, to assist the Financial Stability Oversight Council in its assessment of

systemic risk in the U.S. financial system. See generally Reporting by Investment Advisers to Private

Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF,

Investment Advisers Act Release No. 3308 (Oct. 31, 2011) [76 FR 71228 (Nov. 16, 2011)] (“Form

PF Adopting Release”).

See General Instruction G of Form N-PORT (“A Fund may explain any of its methodologies,

including related assumptions, in Part E.”).

See Comment Letter of T. Rowe Price (Aug. 21, 2015) (“T. Rowe Price Comment Letter”).

specific definition that references the settlement date of the contract. Finally, the approach we

are adopting allows flexibility as forward products evolve.

Similarly, one commenter noted that it is unclear if a credit default swap should be

reported as an option or a swap on Form N-PORT since it has the characteristics of both types of

investments. 83 As discussed further below, we are revising Form N-PORT to include a

clarification that specifically identifies that total return swaps, credit default swaps, and interest

rate swaps should all be categorized under the “swap” instrument type.84

A few commenters also asked for guidance as to what investments would fall within the

category of “other derivatives” in Item C.11.g.85 The commenters noted that funds already rely

upon the definition of “derivatives” provided in U.S. Generally Accepted Accounting Principles

(“GAAP”) for financial statement reporting purposes and recommended that funds be allowed to

rely upon the same definition for determining what to report as “other derivatives” on Form NPORT (i.e., investments reported as derivatives for financial statement reporting purposes, but

that do not fall within the categories of derivatives enumerated in Form N-PORT such as futures,

forwards, etc.).86 We agree that this approach will generally promote consistency in how such

See Morningstar Comment Letter.

See infra footnote 340 and accompanying text.

See ICI Comment Letter; T. Rowe Price Comment Letter.

See generally ASC 815 (Derivatives and Hedging).

We note that definitions related to derivatives have been proposed in other contexts, for example

“derivatives transaction” in our recent proposal regarding the use of derivatives by registered

investment companies and BDCs. See Derivatives Proposing Release, supra footnote 7 (defining the

term “derivatives transaction” to mean “any swap, security-based swap, futures contract, forward

contract, option, any combination of the foregoing, or any similar instrument (‘derivatives

instrument’) under which a fund is or may be required to make any payment or delivery of cash or

other assets during the life of the instrument or at maturity or early termination.” However, that

proposed definition is limited to derivatives transactions where the fund may be required to make a

payment or delivery of cash or other assets. In contrast, for purposes of Form N-PORT, we seek to

obtain information about all of a fund’s derivative investments, regardless of whether the fund has a

information is reported and will provide more certainty to funds reporting “other derivatives” on

Form N-PORT, and we understand that funds may choose to utilize this approach. However, we

are not requiring that funds do so since we anticipate most derivative investments held by funds

will fall within one of the categories of derivatives previously enumerated in Form N-PORT, and

thus we expect few investments to be reported within the “other derivatives” category.

Moreover, this “other derivatives” category is intentionally designed to be flexible enough to

allow funds to capture and categorize investments in the future that are not currently traded by

funds, and for these reasons we are not requiring funds to adhere to any specific process in

determining what should fall within this category, provided that none of the previously

enumerated categories apply.

Several commenters also asked that the definition of “investment grade” be revised to

follow standards generally used by the industry by replacing references to liquidity with

references to credit quality.87 In response to these comments, we are removing the definition of

“investment grade” that we proposed to be included in Form N-PORT. Consistent with our other

changes discussed herein that permit funds to rely on their existing practices and methodologies,

Form N-PORT provides funds with the flexibility, in determining what constitutes “investment

grade,” to generally use their own methodology and the conventions of their service providers, as

payment or delivery obligation. As a result of these differences, we continue to believe that it is

preferable for Form N-PORT to not incorporate a specific definition, but rather to retain the flexibility

to encompass the changing types of products that may evolve and emerge.

See ICI Comment Letter; Oppenheimer Comment Letter; Pioneer Comment Letter; Comment Letter

of MFS Investment Management (Aug. 11, 2015) (“MFS Comment Letter”); Comment Letter of the

Dreyfus Corporation (Aug. 11, 2015) (“Dreyfus Comment Letter”).

provided in General Instruction G. Given this clarification in the adopted form, we do not

believe any definition of investment grade is necessary.88

We have also made several changes to certain definitions and instructions related to the

way in which funds will provide information on Form N-PORT, largely relating to the

formatting of the information reported. Among other things, we have revised the instruction in

the proposal that directed funds to respond to every item of the form.89 As proposed, the

instruction would have required funds to respond to each sub-item and item on Form N-PORT

even if the item was inapplicable. The revised instruction indicates that funds are not required to

respond to items that are wholly inapplicable.90 For example, no response is required for Item

C.11, which concerns derivatives, when reporting information about an investment that is not a

derivative. We believe this revision will decrease burdens upon filers and reduce the file size of

Form N-PORT submissions, while still maintaining the clarity of the data reported on Form NPORT.

We have also eliminated certain instructions from proposed Form N-PORT relating to the

formatting of information reported on the form that, upon further consideration, we believe are

unnecessary in Form N-PORT. In particular, we have eliminated instructions requiring the

rounding of percentages, monetary values, and other numeric values.91 Elimination of the

See supra footnote 79 and accompanying text.

See General Instruction G of proposed Form N-PORT (“A Fund is required to respond to every item

of this form. If an item requests information that is not applicable (for example, an LEI for a

counterparty that does not have an LEI), respond N/A”).

See General Instruction G of Form N-PORT (“A Fund is not required to respond to an item that is

wholly inapplicable (for example, no response would be required for Item C.11 when reporting

information about an investment that is not a derivative). If a sub-item requests information that is

not applicable, for example, an LEI for a counterparty that does not have an LEI, respond N/A”).

See General Instruction G of proposed Form N-PORT (instructions regarding rounding of

percentages, monetary values, and other numerical values).

instructions regarding the rounding of such figures should allow funds to report such information

in the same way such information is currently recorded in their books and records. We also have

eliminated instructions regarding the signature and filing of reports, because we believe that the

general rules and regulations applicable under the Act provide sufficient guidance with regard to

those issues.92

We have also made clarifying revisions to certain definitions. As discussed above, we

have revised the proposed definition of “exchange-traded product” to refer instead to “exchangetraded fund” to harmonize the definitions used in Forms N-PORT and N-CEN93 The revision

also clarifies that a separate report on Form N-PORT must be filed by each series of a UIT

organized as an ETF, and parallels similar revisions to the definition of ETF in Form N-CEN.94

We have also revised the definition of “LEI” to reflect new terminology regarding LEIs.95

Finally, regarding General Instruction F, which provides information regarding the public

availability of the information in Form N-PORT, the final Instruction clarifies, similar to

See General Instruction B of Form N-PORT (“The General Rules and Regulations under the Act

contain certain general requirements that are applicable to reporting on any form under the Act.

These general requirements shall be carefully read and observed in the preparation and filing of

reports on this Form, except that any provision in the Form or in these instructions shall be

controlling.”) See also General Instruction H of proposed Form N-PORT (instructions regarding

signature and filing of reports).

See supra footnote 48 and accompanying text. Although the definition of “exchange-traded fund”

being adopted on Form N-PORT is narrower than the definition of “exchange-traded product” as

proposed on Form N-PORT, the universe of filers on Form N-PORT is not changing because

exchange-traded managed funds that would have been encompassed in the proposed definition of

“exchange-traded product” will be encompassed in the adoption through references to managed

investment companies. See rule 30b1-9 (requiring certain funds to file reports on Form N-PORT);

Form N-PORT (“Form N-PORT is to be used by a registered management investment company, or an

exchange-traded fund organized as a unit investment trust, or series thereof (‘Fund’)….”).

See infra footnote 896.

Form N-PORT’s revised definition of “LEI” refers to the legal entity identifier “endorsed” by the

Regulatory Oversight Committee Of The Global Legal Entity Identifier System (“LEI ROC”) or

“accredited” by the Global Legal Entity Identifier Foundation (“GLEIF”), as opposed to “assigned or

recognized” by those two entities.

language that is contained in current Form PF, that we do not intend to make public certain

information reported on Form N-PORT “that is identifiable to any particular fund or adviser.”96

This modification makes clear, for example, that the Commission or Commission staff could

issue analyses and reports that are based on aggregated, non-identifying Form N-PORT data,

which would otherwise be nonpublic, such as information reported on Form N-PORT for the

first and second months of each fund’s fiscal quarter.

Information Regarding Assets and Liabilities.

Part B of Form N-PORT seeks certain portfolio level information about the fund. As we

proposed, Part B includes questions requiring funds to report their total assets, total liabilities,

and net assets.97 Funds will also separately report certain assets and liabilities, as follows. First,

as we proposed, funds will report the aggregate value of any “miscellaneous securities” held in

their portfolios.98 As currently permitted by Regulation S-X, and as further discussed below,

Form N-PORT permits funds to report an aggregate amount not exceeding 5 percent of the total

value of their portfolio investments in one amount as “Miscellaneous securities,” provided that

securities so listed are not restricted, have been held for not more than one year prior to the date

of the related balance sheet, 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

See supra footnote 26.

See Item B.1 of Form N-PORT.

See Item B.1.a and Item B.2.a of Form N-PORT. As discussed further below, Form N-PORT will

require funds to also report information about miscellaneous securities on an investment-byinvestment basis, although such information will be nonpublic and will be used for Commission use

only. See infra footnote 420 and accompanying text.

available to the public.99 We received only one comment on this aspect of our proposal, which

supported the reporting of aggregate information for miscellaneous securities.100

Second, as we proposed, funds will also report any assets invested in a controlled foreign

corporation for the purpose of investing in certain types of investments (“controlled foreign

corporation” or “CFC”).101 We received no comments on this aspect of the proposal. Some

funds use CFCs for making certain types of investments, particularly commodities and

commodity-linked derivatives, often for tax purposes. Form N-PORT requires funds to disclose

each underlying investment in a CFC, rather than just the investment in the CFC itself, which

will increase transparency on fund investments through CFCs.102 These disclosures will allow

investors to look through CFCs and understand the specific underlying holdings that they are

investing in, which will in turn allow investors to better analyze their fund holdings and risk, and

hence enable investors to make more informed investment decisions.

In addition, as discussed further below in section II.D.4, we believe it will be beneficial

for the Commission to have certain information about funds’ use of CFCs. The information we

will be obtaining in Form N-PORT, combined with additional information we are requiring on

Form N-CEN regarding CFCs, discussed below, will help the Commission better monitor funds’

compliance with the Investment Company Act and assess funds’ use of CFCs, including the

extent of their use by reporting of total assets in CFCs.

See rule 12-12 of Regulation S-X; see also Parts C and D of Form N-PORT.

100

See SIFMA Comment Letter I.

101

See General Instruction E (providing that “Controlled Foreign Corporation” has the meaning provided

in section 957 of the Internal Revenue Code [26 U.S.C. 957]) and Item B.2.b (requiring funds to

report assets invested in controlled foreign corporations) of Form N-PORT.

102

See Instruction to Part B of Form N-PORT (“Report the following information for the Fund and its

consolidated subsidiaries.”).

Third, as we proposed, we are requiring that funds report the amounts of certain

liabilities, in particular: (1) borrowings attributable to amounts payable for notes payable, bonds,

and similar debt, as reported pursuant to rule 6-04(13)(a) of Regulation S-X [17 CFR 210.604(13)(a)]; (2) payables for investments purchased either (i) on a delayed delivery, whendelivered, or other firm commitment basis, or (ii) on a standby commitment basis; and (3)

liquidation preference of outstanding preferred stock issued by the fund.103 We received no

comments on this aspect of the proposal. This information will allow Commission staff, as well

as investors and other potential users, to better understand a fund’s borrowing activities and

payment obligations associated with these transactions. This in turn will facilitate analysis of the

fund’s use of financial leverage, as well as the fund’s liquidity profile and ability to meet

redemptions or share repurchases, which are important to understanding the risks such

borrowings might create.

One commenter suggested that certain fee and expense information currently reported on

Form N-SAR, and Item 75 of Form N-SAR in particular—which relates to average net assets

during the current reporting period—be reported on Form N-PORT.104 The commenter

acknowledged that much of this information is already publicly reported in or can be derived

from information reported in other fund documents filed with the Commission, but argued that

this information should also be reported on Form N-PORT because the structured format of

Form N-PORT would make information reported on Form N-PORT easier to aggregate and

analyze.105 We are not making this suggested change because similar and complementary

103

See Item B.2.c–Item B.2.e of Form N-PORT.

104

See Morningstar Comment Letter.

105

Id.

information will be reported on Form N-PORT in a structured format going forward (i.e.,

monthly net assets for funds more generally) and is currently available in a structured format for

mutual funds in their risk/return summaries (certain fee and expense data).106 Also, as discussed

further below, we are revising Form N-CEN to require funds to report average net assets on an

annual basis.107

For these reasons, we are adopting this aspect of Form N-PORT as proposed.

Portfolio Level Risk Metrics

One of the purposes of Form N-PORT is to provide the Commission with information

regarding fund portfolios to help us better monitor trends in the fund industry, including

investment strategies funds are pursuing, the investment risks that funds undertake, and how

different funds might be affected by changes in market conditions. As discussed above, the

Commission uses information from fund filings, including a fund’s registration statement and

reports on Form N-CSR (which includes the fund’s shareholder report) and Form N-Q, to inform

its understanding and regulation of the fund industry. Additionally our staff reviews fund

disclosures – including registration statements, shareholder reports, and other documents – both

on an ongoing basis as well as retroactively every three years.108

The disclosures in a fund’s registration statement about its investment objective,

investment strategies, and risks of investing in the fund, as well as the fund’s financial statements,

are fundamental to understanding a fund’s implementation of its investment strategies and the

106

See SEC, Interactive Data and Mutual Fund Risk/Return Summaries, available at

https://www.sec.gov/spotlight/xbrl/mutual-funds.shtml; Item B.6 of Form N-PORT (requiring funds

to report monthly flow information).

107

See infra footnotes 1016-1017 and accompanying text.

108

See, e.g., section 408 of the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745, 790-791

(2002) (requiring the Commission to engage in enhanced review of periodic disclosures by certain

issuers every three years).

risks in the fund. However, the financial statements and narrative disclosures in fund disclosure

documents do not always provide a complete picture of a fund’s exposure to changes in asset

prices, particularly as fund strategies and fund investments become more complex.109 The

financial statements, including a fund’s schedule of portfolio investments, provide data regarding

investments’ values as of the end of the reporting period – a “snapshot” of data at a particular

point in time – or, in the case of the statement of operations, for example, historical data over a

specified time period. By contrast, based on staff experience and the staff’s outreach to funds

prior to our proposal, we understand that funds commonly internally use multiple risk metrics

that provide calculations that measure the change in the value of fund investments assuming a

specified change in the value of underlying assets or, in the case of debt instruments and

derivatives that provide exposure to interest rates and debt instruments, changes in interest rates

or in credit spreads above the risk-free rate.110

Accordingly, we believe, and some commenters agreed, that it is appropriate to require

funds to report quantitative measurements of certain risk metrics that will provide information

beyond the narrative, often qualitative disclosures about investment strategies and risks in the

fund’s registration statement.111 Monthly reporting on these risk measures, in particular, will

help provide the Commission with more current information on how funds are implementing

their investment strategies through particular exposures. Receiving this information on a

109

See Morningstar Comment Letter.

110

See Proposing Release, supra footnote 7, at 33598.

111

See Morningstar Comment Letter (noting a range of fund disclosures relating to fund synthetic

disclosures, with some more helpful to investors than others); Franco Comment Letter (supporting the

Commission’s proposal relating to disclosures of risk metrics).

monthly basis could help the Commission, for example, more efficiently analyze the potential

effects of a market event on funds.112

Specifically, we proposed to require certain funds to report portfolio-level measures on

Form N-PORT that will help Commission staff better understand and monitor funds’ exposures

to changes in interest rates and credit spreads across the yield curve.113 As discussed in section

II.A.2.g below, we proposed to require risk measures at the investment level for options and

convertible bonds. We continue to believe that the staff can use these measures, for example, to

determine whether additional guidance or policy measures are appropriate to improve disclosures

in order to help investors better understand how changes in interest rate or credit spreads might

affect their investment in a fund. As a result, we are adopting these risk measures substantially

as proposed, subject to the modifications discussed below.114

While we received some comments generally supporting our proposal to require

portfolio-level risk metrics,115 some suggested alternative methods for collecting risk metrics,116

112

See Morningstar Comment Letter.

113

See Item B.3 of proposed Form N-PORT.

114

See Item B.3 of Form N-PORT.

115

See, e.g., SIFMA Comment Letter I (“We support the Commission’s proposal to require funds to

provide the Commission with portfolio level risk metrics, and generally would defer to the

Commission as to the information the Commission would consider useful for its regulatory

purposes.”); State Street Comment Letter; Wells Fargo Comment Letter (“We are in agreement with

the Commission’s request for risk metrics as it relates to duration and spread duration; however, we

suggest that the calculation for providing such risk metrics are defined differently than proposed.”).

116

See, e.g., BlackRock Comment Letter (Commission should use the same interest rate and credit risk

questions as is required in Form PF; Commission should consider implementing a reporting

requirement to obtain a comprehensive measure of fund’s use of leverage); Morningstar Comment

Letter (but also urging the Commission to collect more position level information which will enable

the Commission, investors, and service providers to independently calculate risk); see also Interactive

Data Comment Letter (“[P]osition level reporting aligns with what is standard practice in the industry

and so would not be burdensome. Position level reporting would provide the Commission with

greater insight into sources of risk within a portfolio.”); Comment Letter of Simpson Thacher &

or opposed our proposal to make certain of the risk metrics public.117 These comments are

discussed in more detail below.

We believe, and some commenters agreed, that institutional investors, as well as entities

that provide services to both institutional and individual investors, could use these risk metrics to

conduct their own analyses in order to help them better understand fund composition, investment

strategy, and interest rate and credit spread risk the fund is undertaking. As discussed further

below, however, other commenters, were mixed as to whether this information would be useful

for investors and if this information should be made public.118 These measures can complement

the risk disclosures that are contained in the registration statement, thereby potentially helping

investors to make more informed investment choices. Accordingly, we disagree with

commenters that argued this information has no utility for investors. We also continue to believe

that requiring funds to publicly disclose these measures quarterly, like other information in the

schedule of investments will also help provide investors with more specific, quantitative

Bartlett LLP (Aug. 11, 2015) (“Simpson Thacher Comment Letter”) (derivatives reporting should

focus on portfolio-level risk metrics, such as “value at risk” models)

117

See, e.g., Comment Letter of the Independent Directors Council (Aug. 11, 2015) (“IDC Comment

Letter”); SIFMA Comment Letter I; Simpson Thacher Comment Letter; Invesco Comment Letter;

Schwab Comment Letter; ICI Comment Letter; Comment Letter of Dechert LLP (Aug. 11, 2015)

(“Dechert Comment Letter”) (or, in the alternative, include a disclaimer that risk metrics are an

estimate); T. Rowe Price Comment Letter; BlackRock Comment Letter; Oppenheimer Comment

Letter. Our decision to make [certain] Items in Parts C, D, and E of the Form non-public is discussed

in more detail below. See infra section II.A.4.

118

See Franco Comment Letter (Noting that the information on Form N-PORT is relevant to information

intermediaries and market professionals and would assist them in assessing individual fund

performance or comparing among funds); see also Morningstar Comment Letter (same); but see

Invesco Comment Letter (stating that Form N-PORT’s disclosures would not complement fund

registration statements, nor be useful in helping investors make more informed investing decisions);

SIFMA Comment Letter I (same); Federated Comment Letter.

information regarding the nature of a fund’s exposure to debt than they currently have.119 As

discussed further in Section II.A.4 below, we are adopting, largely as proposed, the requirement

that funds provide public disclosure of portfolio-level risk metrics on a quarterly basis.120 For

these reasons, and as discussed further below in section II.A.4, we were not persuaded by

commenters that such information should be nonpublic.

In particular, for funds that invest in debt instruments, or in derivatives that provide

exposure to debt or debt instruments, we believe it is important for the Commission staff,

investors, and other potential users to have measures that can help them analyze how portfolio

values might change in response to changes in interest rates or credit spreads.121 To improve the

ability of the Commission staff, investors, and other potential users to analyze how changes in

interest rates and credit spreads might affect a fund’s portfolio value, we proposed that a fund

that invests in debt instruments, or derivatives that provide notional exposure to debt instruments

or interest rates, representing at least 20% of the fund’s net asset value as of the reporting date,

provide a portfolio level calculation of duration and spread duration across the applicable

maturities in the fund’s portfolio.122

119

See Franco Comment Letter (“The rule proposal’s various disclosure and reporting requirements,

especially those requirements relating to portfolio disclosure, risk metrics and fund use of derivatives,

serve the public interest and/or the protection of investors.”).

120

See Item B.3 of Form N-PORT; see also generally Proposing Release, supra footnote 7, at n. 56 and

accompanying text.

121

As discussed further below, the Commission also believes that there would be a benefit to collecting

risk measures for derivatives that provide exposure to certain assets, such as equities and

commodities. Due to the nature of these instruments, however, we believe that such information

should be provided on an instrument-by-instrument basis, instead of as a portfolio level calculation.

122

Specifically, as proposed, funds would have calculated notional value as the sum of the absolute

values of: (i) the value of each debt security, (ii) the notional amount of each swap, including, but not

limited to, total return swaps, interest rate swaps, and credit default swaps, for which the underlying

reference asset or assets are debt securities or an interest rate; and (iii) the delta-adjusted notional

Commenters were generally supportive of our proposal to include a threshold.123

However, several commenters requested that we increase the threshold for risk reporting from

20% and that the calculation of debt investments be made based on the fund’s three-month

average notional value of debt investments as a percentage of NAV.124 Some commenters

requested an increase in the threshold in order to make the risk metric threshold more consistent

with the Commission’s threshold for requiring funds to disclose industry concentration in their

prospectus.125 Additionally, some commenters argued that the three-month average would better

amount of any option for which the underlying reference asset is an asset described in clause (i) or

(ii). See proposed Instruction to Item B.3 of Form N-PORT.

The delta-adjusted notional value of options is needed to have an accurate measurement of the

exposure that the option creates to the underlying reference asset. See, e.g., Comment Letter of

Morningstar to Derivatives Concept Release (Nov. 7, 2011) (“Morningstar Derivatives Concept

Release Comment Letter”) (submitted in response to the Derivatives Concept Release, supra footnote

38, which sought comment regarding the use of derivatives by management investment companies).

123

See, e.g., Interactive Data Comment Letter (supporting 20% level as reasonable and stating belief that

threshold should be measured by considering notional value for derivatives and market values for

bonds); State Street Comment Letter (supporting 20% threshold and recommending that the

Commission provide clarity on the threshold calculation); Fidelity Comment Letter; Franco Comment

Letter; Simpson Thacher Comment Letter (20% threshold and holds more than 100 debt securities);

Wells Fargo Comment Letter (supporting 20% threshold).

124

See, e.g., Oppenheimer Comment Letter (25% threshold consistent with prospectus disclosure of

industry concentration); ICI Comment Letter (same); MFS Comment Letter (25% threshold); Pioneer

Comment Letter (same); Dreyfus Comment Letter (“we believe the Commission should consider a

25% threshold because, at least, it would define a subset of ‘balanced’ and ‘asset allocation’ funds

that would, by prospectus or name test mandate, for example, have to maintain a minimum fixed

income exposure.”); SIFMA Comment Letter I (recommending a 30% threshold); Invesco Comment

Letter (same); but see Morningstar Comment Letter (supporting 20% threshold).

125

See, e.g., ICI Comment Letter; Oppenheimer Comment Letter; MFS Comment Letter; Pioneer

Comment Letter; Dreyfus Comment Letter; see also Instruction 4 to Item 9(b)(1) of Form N-1A

(“Disclose any policy to concentrate in securities of issuers in a particular industry or group of

industries (i.e. investing more than 25% of a Fund’s net assets in a particular industry or group of

industries).”); Registration Form Used by Open-End Management Investment Companies, Investment

Company Act Release No. 23064 (Mar. 13, 1998) [63 FR 13916 (Mar. 23, 1998)] at nn. 100-101 and

accompanying text (“...the Commission continues to believe that 25% is an appropriate benchmark to

gauge the level of investment concentration that could expose investors to additional risk.”).

reflect a fund’s true investment strategy and mitigate short-term market fluctuations that could

cause a fund to temporarily exceed the threshold. 126 We agree with both recommendations.

We believe that a 25% threshold, as several commenters suggested, will still allow the

Commission to receive measurements of duration and spread duration from funds that make

investments in debt instruments as a significant part of their investment strategy because we do

not believe many, if any, funds that make investments in debt instruments as a significant part of

their investment strategy have less than 25% of their NAV invested in such instruments.

Commenters persuaded us that some funds that primarily invest in assets other than debt

instruments, such as equities, could, at times, have more than 20% of the net asset value of the

fund invested in debt instruments for cash management or other purposes.127 Thus raising the

threshold from 20% to 25% will relieve more funds of having to monitor each month whether

they trigger the requirement for making such calculations, while still achieving the goal the

Commission stated in the Proposing Release of requiring funds that make investments in debt

instruments as a significant part of their investment strategy to report such metrics.128

We agree with commenters that using the same thresholds we use for discussing industry

concentration in current prospectuses is appropriate as it will achieve an objective that is similar

to the one in Form N-1A of requiring funds to disclose only where such investments are a central

part of the fund’s investment objectives. We are therefore adopting a 25% threshold for

reporting portfolio-level risk metrics.129

126

See, e.g., ICI Comment Letter; MFS Comment Letter; Dreyfus Comment Letter.

127

See, e.g. Pioneer Comment Letter.

128

See, e.g., State Street Comment Letter.

129

See supra footnote 125.

We are also modifying the rule from the proposal to require funds to calculate this

threshold on the three-month average of a fund’s value as percentage of NAV (rather than, as

proposed, value as percentage of NAV at the reporting date (i.e. month-end)) because we agree

with commenters who pointed out that this should mitigate the chance that short-term market

fluctuations could cause a fund that does not typically use such instruments as part of its

investment strategy to temporarily exceed the threshold and be required to report the metrics.130

Finally, another commenter opposed requiring risk metrics data for index funds because

it believed that this requirement would be unnecessarily burdensome for those funds.131

However, index funds incorporate a wide variety of funds – some of which are primarily

invested in debt securities, including derivatives based on debt securities. It is our view that if a

fund is exposed to debt instruments or interest rates in amounts that trigger the reporting of risk

metrics, they have an exposure large enough to warrant reporting. Moreover, some index funds

have indexes that change weekly or daily. Accordingly, because we believe it is important to

monitor the risk metrics for all funds with exposures to debt instruments exceeding the threshold,

we do not believe it would be appropriate to exempt index funds from Form N-PORT’s

requirements for risk metric reporting.

For duration, we proposed to require that a fund calculate, the change in value in the

fund’s portfolio from a 1 basis point change in interest rates (commonly known as DV01) for

130

See Item B.3 of Form N-PORT; see, e.g. Pioneer Comment Letter; Oppenheimer Comment Letter.

One commenter requested that the threshold be based on the fund’s net asset value and not notional

value. See MFS Comment Letter. We continue to believe that basing the threshold on notional

amount, especially for derivatives, is a better measure of a fund’s exposure than the just the

investment’s value because some derivatives may have a negligible net asset value, but represent

significant exposures to the fund. We have, however, made a clarifying change to the terminology

from the proposal, and instruction B.3 now refer to “value” rather than “notional value.” See infra

footnote 165

131

See ICI Comment Letter.

each applicable key rate along the risk-free interest rate curve, i.e., 1-month, 3-month, 6-month,

1-year, 2-year, 3-year, 5-year, 7-year, 10-year, 20-year, and 30-year interest rate, for each

applicable currency in the fund.132 We realized that funds might not have exposures for every

applicable key rate. For example, a short-term bond fund is unlikely to have debt exposures with

longer maturities. Accordingly, we proposed that a fund only report the key rates that are

applicable to the fund. We proposed that funds report zero for maturities to which they have no

exposure.133 For exposures outside of the range of listed maturities listed on Form N-PORT, we

proposed that funds include those exposures in the nearest maturity.

One commenter stated that calculating DV01 along key rates of the Treasury curve is

“common and intuitive” to analyzing shifts of the yield curve.134 However, some commenters

suggested that calculating the DV01 and SDV01 for 11 proposed key rates could be burdensome,

and requested that we limit the number of applicable key rates along the risk-free curve.135 For

example, commenters recommended that the Commission limit the calculations to the key rates

to those most representative of bond fund overall exposures by limiting the calculation to the 1-,

2-, 5-, 10-, 20-, and 30-year rates.136 Another commenter recommended collapsing the 1-, 3-,

and 6-month exposures into the 1-year exposure, as a detailed breakout inside 1-year is not

informative for most instruments.137 Commenters argued that reducing the number of key rates

132

See Item B.3.aof proposed Form N-PORT.

133

For funds with exposures that fall between any of the listed maturities in the form, we proposed in the

Instructions to Item B.3 that funds use linear interpolation to approximate exposure to each maturity

listed above.

134

See Wells Fargo Comment Letter.

135

See, e.g., Fidelity Comment Letter; Dreyfus Comment Letter; Simpson Thacher Comment Letter.

136

See Dreyfus Comment Letter; Simpson Thacher Comment Letter.

137

See Fidelity Comment Letter.

will reduce burdens for fund companies while providing the Commission with sufficient

information on yield curve exposures for staff analysis.138 Finally, one commenter suggested

that we only require a single measure of duration (i.e., total portfolio duration) that is the

weighted average of the top 5 currencies (including the base currency) rather than providing

duration calculations for key rates along the Treasury curve, arguing that a single measure would

capture the majority of a fund’s portfolio risk.139

We continue to believe that requiring funds to provide further detail about their exposures

to interest rate changes along the risk-free rate curve will provide the Commission with a better

understanding of the risk profiles of funds with different strategies for achieving debt exposures.

For example, funds targeting an effective duration of 5 years could achieve that objective in

different ways – one fund could invest predominantly in intermediate-term debt; another fund

could create a long position in longer-term bonds, matched with a short position in shorter-term

bonds. While both funds would have intermediate-term duration, the risk profiles of these two

funds, that is, their exposures to changes in long-term and short-term interest rates, are different.

Having DV01 calculations along the risk-free interest rate curve, as opposed to a single measure

of duration suggested by one commenter, will clarify this difference. Moreover, as one

commenter noted, “DV01 and SD01 [spread duration] are likely the measures that will be least

subject to differences based on assumptions within risk models employed by fund companies”

138

See id.; Dreyfus Comment Letter.

139

See, e.g., ICI Comment Letter (suggesting as an alternative, a single duration measurement that is the

weighted average of the top 5 currencies (including the base currency)); SIFMA Comment Letter I

(duration disclosure should be limited to top 5 exposures); ICI Comment Letter (report only total

portfolio duration and credit spread duration– i.e., single measures – rather than multiple points along

the yield curve).

and therefore minimizes variation based on the disparate risk metrics models used by funds.140

The Commission staff will use this information to better understand how funds are achieving

their exposures to interest rates, and to perform analysis across funds with similar strategies to

identify outliers for potential further inquiry, as appropriate.

We were, however, persuaded by commenters that reducing the number of key rates that

funds must report could reduce the reporting burden, while still providing the staff with

sufficient information and flexibility to analyze how debt portfolios will react to different interest

rates and credit spreads along the Treasury curve. We are therefore modifying this requirement

from the proposal to require fewer key rates—specifically 3-month, 1-year, 5-year, 10-year, and

30-year—which will provide, as commenters suggested, the rates most representative to bond

funds’ overall exposures. The key rates Form N-PORT will require, as adopted, are substantially

similar to the key rates suggested by commenters;141 however, we believe that some granularity

for short term debt is important, especially in the context of short and ultra-short duration funds,

and therefore, unlike the commenters’ suggestions for collapsing all short-term exposures to oneyear, Form N-PORT will require reporting for the 3-month maturity.142

Form N-PORT will also require, as proposed, funds to provide the key rate duration for

each applicable currency in a fund. One commenter recommended that we limit the duration to

the top 5 currencies.143 Some commenters requested that we not include currency in the

140

See Morningstar Comment Letter.

141

See Dreyfus Comment Letter; Simpson Thacher Comment Letter; Fidelity Comment Letter.

142

See Item B.3.a and Item B.3.bof Form N-PORT; see also Item B.3.c of Form N-PORT; see also

Fidelity Comment Letter (collapse the 1-, 3-, and 6-month exposures into the 1-year exposure, as a

detailed breakout inside 1-year is not informative for most instruments); Dreyfus Comment Letter

(focus should be on portfolio level statistics; alternative six key rates 1-, 2-, 5-, 10-, 20, and 30-years).

143

See, e.g., SIFMA Comment Letter I.

reporting of duration for funds because currency risk is not relevant to duration.144 Others

supported a de minimis reporting threshold for exposure to different currencies that would be

based on the notional value of the instruments, relative to NAV.145 These commenters noted that

including all currency exposures, regardless of size, would result in a long list of exposures that

would have little impact on a fund.146 As a result, the commenters believed that the Commission

would receive data that would add little to the staff’s ability to understand a fund’s portfolio risk,

but would add significant reporting and compliance burdens to funds.147

We continue to believe that funds should generally be required to provide the key rate

duration for each applicable currency in the fund in order to understand interest rate risk to funds

with significant currency risk. Nonetheless, we were persuaded by commenters that a de minimis

threshold is appropriate. Based on staff experience analyzing similar data, however, we believe

that a 5% de minimis, as suggested by some commenters, could hinder the staff’s ability to

measure smaller fund exposures that could have large effects across the fund industry as a whole.

We agree with one comment that Form N-PORT should provide for a 1% de minimis threshold,

calculated as the notional value of relevant investments in each currency relative to the fund’s

NAV. 148 We believe that setting the de minimis at this level will balance the need for the staff

to identify and monitor not only a fund’s currency risk, but also the risks of small fund positions

144

See, e.g., Dreyfus Comment Letter.

145

See CRMC Comment Letter (supporting a 5% de minimis threshold for currencies); MFS Comment

Letter (same); SIFMA Comment Letter I (same); ICI Comment Letter (5% or top 5 currencies or

those currencies representing at least 50% of the portfolio’s exposure); Morningstar Comment Letter

(same); Oppenheimer Comment Letter (one percent).

146

Id.

147

Id.

148

SIFMA Comment Letter I.

that could aggregate into large positions across the industry, as the Commission will still be

receiving information about the majority of a fund’s currency exposures with this threshold.

For both duration and spread duration, we proposed to require that funds provide the

change in value in the fund’s portfolio from a 1 basis point change in interest rates or credit

spreads, rather than a larger change, such as 5 basis points or 25 basis points. As we noted in the

Proposing Release, based on staff outreach, we believed that a 1 basis point change is the

methodology that many funds currently use to calculate these risk measures at the position level

for internal risk monitoring and would provide sufficient information to assist the Commission in

analyzing fund exposures to changes in interest rate or credit spreads.149 We requested comment

on whether we should require or permit funds to report a larger change in interest rates or credit

spreads, such as 5 or 25 basis points.

Additionally, while we did not propose requiring convexity, the Commission also

considered and requested comment on whether funds should be required to report convexity,

which facilitates more precise measurement of the change in a bond price with larger changes in

interest rates because this measure captures changes in the shape of the yield curve.150

Commenters suggested that we adopt risk metrics that would provide a better measure of

risk over time than just DV01.151 For example, one commenter, noting that, while DV01 and

SDV01 are typically used as daily risk measures, larger shifts in the curve, such as DV25 or

149

See Proposing Release, supra footnote 7, at 33600. See also Morningstar Comment Letter (“The use

of a bottom-up approach and the limited movement of 1 basis point are likely to provide

standardization.”).

150

See Proposing Release, supra footnote 7, at 33600. More specifically, convexity measures the nonlinearities in a bond’s price with respect to changes in interest rates. See Frank J. Fabozzi, THE

HANDBOOK OF FIXED INCOME SECURITIES (8th ed., 2012) at 149–152.

151

See Morningstar Comment Letter; see also Interactive Data Comment Letter (noting that fund

managers often consider moves greater than 1 basis point when managing interest rate risks in their

portfolios, particularly for funds with exposure to bonds with call or prepayment risk.).

DV50, may be appropriate for measures with a significant lag, such as reporting on Form NPORT.152

We also received several comment letters recommending that we include a measure of

convexity as it is a valuable method of measuring the change of the shifting yield curve, as well

as a comment to require stress tests of the portfolio of small and large changes in spreads,

interest rates, and volatility.153 We agree with commenters that a measurement that captures

larger changes in the yield curve will be useful. We additionally agree with commenters that

argued that a measure for changes in the shape of the yield curve such as convexity would be

useful, but are sensitive to the burdens that requiring a measurement of convexity may impose on

filers that do not currently calculate convexity internally.

Accordingly we believe that requiring a risk measure that shows the effect of a larger

change in interest rates, coupled with DV01 as we proposed, both provides information that

commenters said would be useful (i.e., how the exposure changes with different changes in

interest rate), while not requiring filers that do not calculate convexity internally to begin to do

so. We are therefore adopting a requirement that funds provide both DV01154 (a one basis point

change in interest rate) and DV100 (a 100 basis point change in interest rates).155 Based on staff

experience, we believe that DV100 is among the most common measures of interest rate

sensitivity and it will, in conjunction with DV01, provide more useful information about non152

See Morningstar Comment Letter (also noting that DV01 and SDV01 are less likely to be subject to

model risk).

153

Interactive Data Comment Letter (“portfolio managers consider convexity to be critical when

measuring the interest rate risk of their funds”); Dreyfus Comment Letter (“Convexity is valuable as a

risk measure because it captures the change in the curvature (the ‘flattening’ or ‘steepening’) of the

shifting yield curve.”).

154

See Item B.3.a of Form N-PORT.

155

See Item B.3.b of Form N-PORT.

parallel shifts in the yield curve than smaller measures, such as DV25 and DV50. Moreover,

DV100 will allow the staff to capture larger changes to interest rates (and corresponding

“shocks” to the markets) than DV25 and DV50. Finally, based on staff experience, it is our

belief that DV100 is a standard measure of interest rate sensitivity and is a common measure of

duration and is therefore unlikely to require filers to change current internal measurement

practices, thereby mitigating the increase in reporting costs relative to the proposal.

We also proposed to require that funds provide a measure of spread duration (commonly

known as SDV01) at the portfolio level for each of the same maturities listed above, aggregated

by non-investment grade and investment grade exposures.156 This would measure the fund’s

sensitivity to changes in credit spreads (i.e., a measure of spread above the risk-free interest rate).

Again, similar to the example above regarding the potential use of the DV01 metric, SDV01 can

provide more precise information regarding funds’ exposures to credit spreads when they engage

in a strategy investing in investment-grade or non-investment grade debt.

One commenter stated that spread duration is a more representative measure of bond fund

portfolio risk than duration alone because it “captures both interest rate risk and credit risk” and

that staff should therefore use spread duration when analyzing funds.157 However, that

commenter and others recommended that we require funds to report a single spread duration for

the portfolio, as spread rates are generally calculated as a parallel shift, making calculations at

156

As proposed, Form N-PORT would have included instructions stating that “Investment Grade” refers

to an investment that is sufficiently liquid that it can be sold at or near its carrying value within a

reasonably short period of time and is subject to no greater than moderate credit risk, and “NonInvestment Grade” refers to an investment that is not Investment Grade. See proposed General

Instruction E of Form N-PORT. As discussed above in section II.A.2.a, we received comments

relating to our proposed definition of “Investment Grade”. For the reasons discussed above, we have

determined to remove these definitions from the Form.

157

See Dreyfus Comment Letter.

key rates less useful than they are for analyzing shifts in interest rates.158 Because credit spreads

can vary based on the maturity of the bonds, we continue to believe that providing credit spread

measures for the key rates along the yield curve, as with DV01, will help the Commission and its

staff better analyze credit spreads of investments in funds than a single measure for the entire

portfolio. For example, this data could be helpful for analyzing shifts in credit spreads for noninvestment grade and investment grade debt, respectively, over the yield curve, as credit spreads

for investment grade and non-investment grade debt do not always shift in parallel or in lock

step, particularly during times of market stress.159

For the same reasons discussed above for interest rate risk, however, we are limiting the

required key rates for credit spread risk to 3-month, 1-year, 5-year, 10-year, and 30-year.160

Commenters also suggested either only requiring spread duration (as opposed to both credit and

spread duration) or further refining the measure of credit spreads, for example, by breaking out

government related spreads from other investment-grade spreads.161 However, we continue to

believe that our current measure of spread risk provides adequate information to the staff,

investors, and other potential users to better understand industry and fund credit spreads, and the

158

See supra footnotes134-137; see, e.g., Wells Fargo Comment Letter (noting that, unlike interest rate

spreads, credit spreads are not typically calculated at all key rates); Fidelity Comment Letter (“A

single CR01 without reference to maturity is a standard risk metric and should be familiar to market

participants.”); Dreyfus Comment Letter (recommending a single measure for spread duration); ICI

Comment Letter (same).

159

The delineation between non-investment grade and investment grade debt is similar to information

regarding private fund exposures gathered on Form PF, which could be helpful for comparing and

analyzing credit spreads between public and private funds. See, e.g., Item 26 of Form PF.

160

See Item B.3.c of Form N-PORT.

161

See, e.g., Fidelity Comment Letter (Suggesting breaking out government-related credit spreads from

other investment-grade credit spreads because it would be more useful for monitoring fund credit

risk); Dreyfus Comment Letter (“Spread duration is a more important measure of overall bond fund

portfolio risk than duration alone because it captures both interest rate risk and credit risk.”).

risk associated with credit spreads, while appropriately balancing the costs of calculating such

measures. We are therefore adopting the credit spread risk as proposed, subject to the previously

discussed key rate refinements discussed above.162

We also proposed to include an instruction to Item B.3 to assist funds with calculating the

threshold and to allow better comparability among funds. One commenter recommended that

our proposed calculation for the threshold, which the proposal defined as “notional value,”

include the “contract value of each futures contract for which the underlying reference asset or

assets are debt securities or an interest rate.”163 The commenter noted that funds may use fixed

income futures for similar purposes as fixed income swaps, for example, to adjust duration, and

including futures in the calculation would give the Commission more accurate reporting and is

consistent with how the industry typically does these types of calculations.164 We agree and are

modifying our instructions to require that funds include futures in the calculation of notional

value.165

Another commenter noted that non-investment grade portfolios often hold “equity-like

securities,” such as convertible bonds and preferred stocks.166 The commenter argued that DV01

is not appropriate for these types of portfolios and requested that Form N-PORT clarify how

162

See Item B.3.c of Form N-PORT.

163

See CRMC Comment Letter.

164

Id.

165

We have also decided to make a clarifying change by using the term “value” as opposed to the

proposal’s “notional value.” We believe that this could reduce confusion in the reporting of these

measures. Since our proposed calculation of “notional value” requires the sum of “absolute” values,

which may be different than how funds currently define “notional value,” we are changing the

instructions from requiring notional value to requiring “value,” which is defined to include the

notional value of certain derivatives instruments. See Instruction to Item B.3 of Form N-PORT.

Moreover, this is consistent with Form PF which describes “value” in General Instruction 15. See

General Instruction 15 of Form PF.

166

See Fidelity Comment Letter.

funds should calculate interest-rates in such situations.167 Other commenters suggested that we

further refine our proposed methodology by providing more details relating to the relevant

interest rate and credit spread calculations such as whether the credit spread to be shifted is the

nominal or option adjusted spread (OAS).168 In determining the proposed methodology for the

measures of duration and spread duration, staff engaged in outreach to asset managers and risk

service providers that provide risk management and other services to asset managers and

institutional investors. The proposed methodology was based on staff experience in using

duration and spread duration, as well as this outreach to better understand common fund

practices for calculating such measures.

While the Commission continues to believe that the methodologies for reporting duration

and spread duration will allow for better comparability across funds, as discussed above, we are

adopting a new instruction to Form N-PORT, subject to the specific instruction in Item B.3 to

calculate value, that funds may use their own internal methodologies and the conventions of their

service providers, which should help minimize reporting burdens.169 As in Form PF, we believe

that this approach strikes an appropriate balance between easing the burdens on funds by

allowing them to rely on their existing practices while still providing the Commission’s staff

167

Id.

168

See, e.g., Interactive Data Comment Letter (Clarify whether interest rate shifts should be applied to a

par yield curve or a spot yield curve and specify that the measurement procedure should include

shifting rates both upward and downward. Clarify whether the curve segments should be defined

based on maturity or average life, particularly for amortizing assets such as MBS and consider

excluding certain issues, such as US treasuries; clarify whether the credit spread to be shifted is the

nominal or option adjusted spread (OAS) and recommending OAS.); State Street Comment Letter

(requesting clarity whether the Commission wants notional value versus delta adjusted or duration

equivalent value, but also suggesting that the SEC should not be too prescriptive and give managers

discretion within guidelines, so long as they can validate and justify their approach.).

169

See General Instruction G of Form N-PORT.

with comparable data across the industry.170 However, we agree with the commenter that

requested that we clarify whether the shift is the nominal or option-adjusted spread. We believe

that measuring credit risk by shifting option adjusted spread provides a more robust measure of

credit risk for investments with embedded optionality because it captures how embedded options

alter the payment obligations of counterparties.171 Thus measuring credit risk by shifting the

option adjusted spread will allow the Commission and other interested parties to more accurately

monitor this effect. We are therefore adding one clarification to Item B.3.c., Credit Spread Risk,

to clarify that funds should provide the change in value of the portfolio from a 1 basis point

change in credit spreads where the shift is applied to the option adjusted spread.172

While we proposed that funds provide a calculation of each of these measures at a

portfolio level, we also considered whether to require, and requested comment on the alternative

that, instead, funds report these risk metrics for each debt instrument or derivative that has an

interest rate or credit exposure.173 We had asked what the benefits would be to having more

precise data for analysis of various movements in interest rates and credit spreads.

Several commenters supported reporting at the portfolio-level rather than at the positionlevel.174 One commenter suggested that, rather than report risk measures at the portfolio-level,

170

See Form PF Adopting Release, supra footnote 80, at n. 187 and accompanying text Based on staff

experience, we believe that we will still find the data useful even when funds use different

methodologies, despite the fact that varying methodologies could reduce the comparability of data

across funds because this data will still provide information that can be compared to a fund’s previous

filings, as well as a baseline measurement for the industry that can be monitored for changes from one

month to the next.

171

See also Interactive Data Comment Letter.

172

See Item B.3.c of Form N-PORT.

173

See Proposing Release, supra footnote 7, at 33601.

174

See, e.g., SIFMA Comment Letter I (supporting the Commission’s proposal to require funds to

provide the Commission with portfolio level risk metrics and requesting that the information not be

funds should report risk exposures at the position-level, as this is current industry practice and

would therefore not be burdensome.175 Other commenters generally noted that providing

position specific details would better enable investors and service providers to calculate risk,

without relying on the reporting fund’s models or assumptions.176 Finally, another commenter

recommended that the Commission, with respect to derivatives, focus on metrics based on a

portfolio-level analysis, as such an analysis would more accurately reflect a fund’s use of, and

net exposure to, derivatives.177

As discussed in the Proposing Release, we believe that most funds likely calculate these

risk metrics at a position-level. However, we recognize that even if such calculations are

available at a position-level, reporting these metrics could cause funds to make additional

systems changes to collect such position-level data for reporting, as well as potential burdens

related to increased review time and quality control in submitting the reports. Therefore, on

balance, we continue to believe that requiring funds to provide this information for each maturity

at the portfolio level would provide a sufficient level of granularity for purposes of Commission

staff analysis. We also believe that there are certain efficiencies for the Commission, its staff,

investors, and other potential users to having funds report the portfolio-level calculations relative

to reporting position-level calculations, as this could allow for more timely and efficient analysis

made public); Wells Fargo Comment letter (supporting the Commission’s request for duration and

spread duration, but suggesting that the calculation for providing risk metrics be defined differently).

175

See Interactive Data Comment Letter (recommending that the Commission consider several

alternatives, including requiring funds to report aggregate risk metrics at the asset class level and

composite portfolio-level, and to require risk metric calculations to account for the “interactions

among the investments being aggregated.”).

176

See Morningstar Comment Letter; Vanguard Comment Letter.

177

See Simpson Thacher Comment Letter.

of the data by not requiring users of the information to calculate the portfolio-level measures

from the position-level measures.178

In order to allow better comparability among funds, some commenters recommended that

the Commission omit risk metrics in favor of more data on the specific investments, stating that

raw data would allow the staff, investors, and other potential users to perform their own risk

calculations. 179 According to the commenters, providing position specific details would better

enable investors and service providers to calculate risk, without relying on the reporting fund’s

models or assumptions.180 While we agree that reporting raw data on specific investments would

provide users of the data with more flexibility in calculating risk, we do not believe that the

benefits of reporting this information sufficiently justify the burdens of requiring funds to report

substantially more detailed information on Form N-PORT at this time. Moreover, as discussed

above, we believe that requiring funds to report the portfolio-level risk measures required on

Form N-PORT, as well as delta for options, warrants, and convertible securities, which is

discussed further below in section II.A.2.g.iv, provides the Commission, investors, and other

potential users with a sufficient level of granularity for purposes of analysis at this time.

178

Commenters also requested that we clarify that the fixed income exposure as calculated by a top tier

in a fund-of-fund investment structure would not include the top tier fund’s exposure to the

underlying fund’s exposure to debt. See ICI Comment Letter; MFS Comment Letter. Since Item B.3

requires aggregated portfolio-level risk metrics, we generally would not expect funds to look through

to the underlying funds’ holdings. Rather, funds only will need to look to the top level fund

investments in calculating their exposure to risk measures.

179

See, e.g., Vanguard Comment Letter; Morningstar Comment Letter (“Rather than collecting model

assumptions or additional standardization of the calculations, we believe providing additional detail

with position information, specifically for bespoke derivatives and syndicated loans, will enable

investors and service providers to independently calculate risk measures based on a model of the

investor’s choice.”).

180

Id.

Finally, commenters requested that we collect alternative risk metrics, such as the same

interest rate and credit risk questions as are required by Form PF in order to improve the

interoperability of the data collected for private funds and registered investment companies.181

However, while some of our Form N-PORT risk metric disclosures are based on Form PF, for

the reasons stated above, the position-level information that we will receive in reports on Form

N-PORT make more detailed reporting unnecessary for registered funds.182 Another commenter

suggested that we focus on alternative portfolio-level risk metrics, such as Value at Risk

(“VaR”).183 Based on staff experience, for purposes of monitoring a fund’s sensitivity to

changes in interest rates and credits spreads , we believe that requiring funds to calculate

duration and spread duration along key rates will provide the Commission with more sensitive

information than would be provided by an overall portfolio-level risk metric such as VaR.

Accordingly, we are not adopting these suggested alternative risk metrics.

Securities Lending

To increase the rate of return on their portfolios, some funds engage in securities lending

activities whereby a fund lends certain of its portfolio securities to other financial institutions

such as broker-dealers. To protect the fund from the risk of borrower default (i.e., the borrower

181

See, e.g., BlackRock Comment Letter (Commission should use the same interest rate and credit risk

questions as is required in Item 42 of Form PF; Commission should consider implementing a

reporting requirement to obtain a comprehensive measure of fund’s use of leverage); Simpson

Thacher Comment Letter. Item 42 of Form PF requires an adviser to report the impact on the fund’s

portfolio from specified changes to certain identified market factors, if regularly considered in formal

testing in the fund’s risk management, broken down by the long and short components of the

qualifying fund’s portfolio. See Item 42 of Form PF; see also Form PF Adopting Release, supra

footnote 80, at nn. 270-272 and accompanying text.

182

Unlike with Form PF, which does not require position-level reporting, with Form N-PORT the staff

will be able to calculate alternative risk measures using the detailed position-level information

provided in reports on Form N-PORT.

183

See Simpson Thacher Comment Letter (derivatives reporting should focus on portfolio-level risk

metrics, such as “value-at-risk” models).

failing to return the borrowed security or returning it late), the borrower posts collateral with the

fund in an amount at least equal to the value of the borrowed securities, and this amount of

collateral is adjusted daily as the value of the borrowed securities is marked to market.184 Funds

generally demand cash as collateral. A fund will typically invest cash collateral that it receives

in short-term, highly liquid instruments, such as money market funds or similar pooled

investment vehicles, or directly in money market instruments.

A fund’s income from these activities may come from fees paid by the borrowers to the

fund and/or from the reinvestment of collateral. 185 Many funds engage an external service

provider—commonly called a “securities lending agent”—to administer the securities lending

program. The securities lending agent is typically compensated by being paid a share of the

fund’s securities lending revenue after the borrower has been paid any rebate owed to it.186

Securities lending may implicate certain provisions of the Investment Company Act, and

funds that engage in securities lending do so in reliance on Commission staff no-action letters,

and in some circumstances, exemptive orders.187 Funds that rely on these letters and orders are

184

See SIFMA, Master Securities Loan Agreement, §§4 (Collateral), 9 (Mark to Market) (2000)

(“Master Securities Loan Agreement”), available at http://www.sifma.org/Services/Standard-Formsand-Documentation/MRA,-GMRA,-MSLA-and-MSFTAs/MSLA_Master-Securities-LoanAgreement-(2000-Version). See also Division of Investment Management, SEC, Securities Lending

by U.S. Open-End and Closed-End Investment Companies (2014) (“Securities Lending Summary”),

available at http://www.sec.gov/divisions/

investment/securities-lending-open-closed-end-investment-companies.htm.

185

If a security is not in high demand, a lender typically pays the borrower a cash collateral fee,

commonly called a “rebate.” The rebate is negotiated and can be negative (i.e., a fee paid from the

borrower to the lender) when demand for the loan of a particular security is especially great or its

supply especially constrained. See Master Securities Loan Agreement, supra footnote 184, at §5

(Fees for Loan).

186

See Securities Lending Summary, supra footnote 184.

187

For example, the transfer of a fund’s portfolio securities to a borrower implicates section 17(f) of the

Investment Company Act, which generally requires that a fund’s portfolio securities be held by an

eligible custodian. A fund’s obligation to return collateral at the termination of a loan implicates

subject to conditions on a number of aspects of their securities lending activities, including loan

collateralization and termination, fees and compensation, board approval and oversight, and

voting of proxies.

Currently, the information that funds are required to report about securities lending

activity, whether in a structured format or otherwise, is limited. For example, funds disclose on

Form N-SAR whether they are permitted under their investment policies to, and whether they did

engage during the reporting period in, securities lending activities.188 Funds generally also

disclose additional information regarding their securities lending programs in their registration

statements.189 In addition, consistent with current industry practices, many funds identify

particular securities that are on loan in their schedules of portfolio investments prepared pursuant

to Regulation S-X. These disclosures do not address other pertinent considerations, such as the

extent to which a fund lends its portfolio securities, the borrower to which the fund is exposed,

the fees and revenues associated with those activities, and the significance of securities lending

revenue to the investment performance of the fund.

As proposed, to address these data gaps and provide additional information to the

Commission, investors, and other potential users regarding a fund’s securities lending activities,

we are requiring funds to report certain borrower information and position-level information

section 18 of the Investment Company Act, which governs the extent to which a fund may incur

indebtedness. See id.

188

Item 70.N of Form N-SAR.

189

See, e.g., Item 9(c) (disclosures regarding risks), Item 16(b) (disclosures of investment strategies and

risks), Item 17(f) (disclosures of proxy voting policy), and Item 28(h) (exhibits of other material

contracts) of Form N-1A.

monthly on Form N-PORT.190 Also, as to other securities lending information for which annual

reporting would be sufficient because it is unlikely to change on a frequent basis (e.g., name and

other identifying information for a fund’s securities lending agent), funds will report such

information annually on Form N-CEN, as proposed and as discussed below in section II.D. In

addition, as discussed below in section II.C.6, we have made a modification from the proposal to

require certain information about the income from and fees paid in connection with securities

lending activities, and the monthly average of the value of portfolio securities on loan, be

disclosed as part of the fund’s Statement of Additional Information (or, for closed-end funds,

reports on Form N-CSR) or in Form N-CEN, instead of a fund’s financial statements as we had

originally proposed.191

The new reporting requirements we are adopting are intended, in part, to increase the

transparency of information available related to the lending of securities by funds as a subset of

the universe of market participants engaged in securities lending activities.192 Commenters were

190

See infra text following footnote 195 (discussing the reporting of counterparty information); section

II.A.2.g (discussing the proposed requirements regarding position-level information). Commenters to

the FSOC Notice also suggested that enhanced securities lending disclosures could be beneficial to

investors and counterparties. See, e.g., SIFMA/IAA FSOC Notice Comment Letter (“Disclosures

related to securities lending practices, if appropriately tailored, could potentially assist investors and

counterparties in making informed choices about where they deploy their assets and how they engage

in lending practices.”); Comment Letter of the Vanguard Group, Inc. to FSOC Notice (Mar. 25, 2015)

(“Vanguard FSOC Notice Comment Letter”) (asserting that securities lending as a whole suffers from

a lack of readily available data, and supporting further efforts to gather data and study the practice of

securities lending).

191

See infra footnotes 724-725 and accompanying text (discussing new required disclosures in funds’

Statement of Additional Information (or, for closed-end funds, funds’ reports on Form N-CSR) that

will allow investors to better understand the income generated from, as well as the expenses

associated with, securities lending activities) and 1224-1225 and accompanying text (discussing new

required disclosures of monthly average value of portfolio securities on loan in Form N-CEN).

192

See, e.g., section 984(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L.

111-203, 124 Stat. 1376, 1933 (2010) (directing the Commission to promulgate rules designed to

increase the transparency of information available to brokers, dealers, and investors, with respect to

the loan or borrowing of securities).

generally supportive of increased reporting about securities lending activities, although they

suggested modifications to certain aspects of the proposal and expressed concerns with some of

the specific proposed reporting.193 These comments, and the modifications we are making in

response to comments, are discussed in more detail below.

Borrower Information.194 One risk that funds engaging in securities lending are exposed

to is counterparty risk because borrowers could fail to return the loaned securities. In this event,

the lender would keep the collateral. In the U.S., cash collateral is more typical than non-cash

collateral and loans are often over-collateralized. The collateral requirements thereby mitigate

the extent of a fund’s counterparty risk. This risk is further mitigated for the fund if the fund’s

securities lending agent indemnifies the fund against default by the borrower.

As we explained in the Proposing Release, while we believe there is value to having

information on borrowers of fund securities to monitor risk, as well as information with which to

evaluate compliance with conditions set forth in staff no-action letters and exemptive orders,195

we proposed to require that funds report the full name and LEI (if any) of each borrower, as well

as the aggregate value of all securities on loan to the particular borrower, rather than at the loan

level.196 We believe that reporting of borrower information at an aggregate portfolio level will

193

See, e.g., infra footnotes 199–201 and accompanying and following text (recommending that the

collection of securities lending information should be limited to the top 5 or 10 securities lending

borrowers with the greatest exposure) and footnotes 205–208 and accompanying and following text

(suggestions regarding how to report non-cash collateral posted by securities lending borrowers).

194

In the Proposing Release, we referred to “securities lending counterparties,” but have made a

clarifying change to “securities lending borrowers” in the form. As discussed above, when funds are

engaged in securities lending transactions, they are securities lenders because they lend their portfolio

securities to other financial institutions, such as broker-dealers, who are securities borrowers. The

change in terminology is not intended to alter the substance of reporting from what we proposed.

195

See generally Securities Lending Summary, supra footnote 184.

196

Item B.4 o

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.