[Federal Register Volume 85, Number 249 (Tuesday, December 29, 2020)]
[Notices]
[Pages 85802-85807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28764]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34150; 812-15158]


J.P. Morgan Investment Management Inc., et al.; Notice of 
Application

December 22, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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SUMMARY:  J.P. Morgan Investment Management Inc., et al. have applied 
for exemption from rules within the Investment Company Act of 1940 to 
use an Amended Liquidity Program for the Covered Funds.

DATES: The application was filed on September 14, 2020, and amended on 
November 20, 2020.

ADDRESSES: The Commission: <a href="/cdn-cgi/l/email-protection#4d1e282e3f28392c3f343e60022b2b242e280d3e282e632a223b"><span class="__cf_email__" data-cfemail="0e5d6b6d7c6b7a6f7c777d23416868676d6b4e7d6b6d20696178">[email protected]</span></a>. Applicants: 
Margery K. Neale and Anne Choe, Willkie Farr & Gallagher LLP, at 
<a href="/cdn-cgi/l/email-protection#feb3b09b9f929bbe8997929295979bd09d9193"><span class="__cf_email__" data-cfemail="bbf6f5dedad7defbccd2d7d7d0d2de95d8d4d6">[email protected]</span></a> or <a href="/cdn-cgi/l/email-protection#f0b1b3989f95b087999c9c9b9995de939f9d"><span class="__cf_email__" data-cfemail="0b4a4863646e4b7c62676760626e25686466">[email protected]</span></a>, respectively.

FOR FURTHER INFORMATION CONTACT: Jessica Shin, Attorney-Adviser, at 
(202) 551-3685, or Daniele Marchesani, Assistant Chief Counsel, at 
(202) 551-6821 (Division of Investment Management, Chief Counsel's 
Office), or Thoreau Bartmann, Senior Special Counsel, at (202) 551-
6745.

SUPPLEMENTARY INFORMATION: Notice of an application by J.P. Morgan 
Investment Management Inc., et al. under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from rules 22e-4(a)(6), 
22e-4(a)(8), 22e-4(a)(10), 22e-4(a)(12), 22e-4(b)(1)(ii), 22e-
4(b)(1)(iii), and 22e-4(b)(1)(iv) under the Act, and for an exemption 
from Items B.7, B.8 and C.7 of Form N-PORT and from Parts B through D 
of Form N-LIQUID, to the extent necessary to use an Amended Liquidity 
Program for the Covered Funds.
    Applicants:
     Each registered open-end management investment company listed in 
Exhibit A of the Application (the ``Companies''), on its own behalf and 
on behalf of its respective underlying series listed in Exhibit A of 
the Application (each such series, a ``JPM Fund''), and J.P. Morgan 
Investment Management Inc. (``JPMIM'' and collectively with the 
Companies, the ``Applicants'').
    Summary of Application:
     The requested exemptions would permit Applicants to use the 
Amended Liquidity Program for the Covered Funds. The Amended Liquidity 
Program would replace rule 22e-4's liquidity classification system with 
core elements of an alternative liquidity classification methodology 
generated under a Liquidity Risk Framework (as defined below) 
established by JPMIM and its affiliates (collectively, ``JPM''). The 
Applicants would also modify related reporting requirements on Form N-
PORT and Form N-LIQUID solely to the extent necessary to implement the 
Amended Liquidity Program.
    Hearing or Notification of Hearing:
     An order granting the application will be issued unless the 
Commission orders a hearing. Interested persons may request a hearing 
by emailing the Commission's Secretary at <a href="/cdn-cgi/l/email-protection#e0b3858392859481929993cdaf8686898385a0938583ce878f96"><span class="__cf_email__" data-cfemail="beeddbddccdbcadfccc7cd93f1d8d8d7dddbfecddbdd90d9d1c8">[email protected]</span></a> and 
serving Applicants with a copy of the request by email.

[[Page 85803]]

Hearing requests should be received by the Commission by 5:30 p.m. on 
January 19, 2021, and should be accompanied by proof of service on the 
Applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the Act, hearing requests should 
state the nature of the writer's interest, any facts bearing upon the 
desirability of a hearing on the matter, the reason for the request, 
and the issues contested. Persons who wish to be notified of a hearing 
may request notification by emailing the Commission's Secretary at 
<a href="/cdn-cgi/l/email-protection#0251676170677663707b712f4d64646b6167427167612c656d74"><span class="__cf_email__" data-cfemail="4b182e28392e3f2a39323866042d2d22282e0b382e28652c243d">[email protected]</span></a>.
    The following is a summary of the application. The complete 
application may be obtained via the Commission's website by searching 
for the file number or an Applicant using the ``Company'' name box, at 
http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

I. Applicants

    1. Each JPM Fund that is advised by JPMIM and that has adopted the 
Existing 22e-4 Program (as defined below) is listed in Exhibit A of the 
Application. Applicants request that the order apply to any additional 
or new series of a Company and any other registered open-end management 
investment company or series thereof that currently exists or may be 
created in the future that is subject to rule 22e-4 and for which JPMIM 
or any successor thereto or an investment adviser controlling, 
controlled by, or under common control (within the meaning of section 
2(a)(9) of the Act) with JPMIM or any successor thereto serves as 
investment adviser (each such investment company or a series thereof, a 
``Future Fund'' and collectively with the JPM Funds, the ``Covered 
Funds,'' and each such investment adviser collectively with JPMIM, an 
``Adviser'').\1\
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    \1\ All existing entities that intend to rely on the requested 
order have been included in Exhibit A to the Application. Any other 
existing or future entity that subsequently relies on the order will 
comply with the terms and conditions of the order.
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    2. JPMIM serves as the investment adviser to the JPM Funds. JPMIM 
is a Delaware corporation with its principal place of business in New 
York, New York. JPMIM is, and any other Adviser will be, registered 
with the SEC as an investment adviser under section 203 of the 
Investment Advisers Act of 1940.

II. Background

    3. Applicants request an exemptive order to use a proposed 
liquidity risk management program for the Covered Funds that reflects 
certain differences from the requirements of rule 22e-4 as described in 
this Notice and also specified in the Application (``Amended Liquidity 
Program'').
    4. Since 2016, and independent of the adoption of rule 22e-4, JPM 
developed and implemented an alternative liquidity classification 
methodology generated under its liquidity risk framework (the 
``Liquidity Risk Framework''). JPMIM applies the Liquidity Risk 
Framework to investment funds it advises globally, including investment 
funds that are not registered under the Act and, therefore, not subject 
to rule 22e-4. The Liquidity Risk Framework includes a quantitative 
assessment of liquidity risk and is an essential component of the 
Existing 22e-4 Program. The Amended Liquidity Program will replace the 
liquidity classification system used in the JPM Funds' existing 
liquidity risk management program, which complies with the requirements 
of rule 22e-4 (``Existing 22e-4 Program''). However, because the 
framework does not use the classification methodology of rule 22e-4, 
JPM maintains a second classification methodology under the Existing 
22e-4 Program solely to satisfy the specific requirements of rule 22e-
4, including for purposes of complying with rule 22e-4's 
classification, illiquid investment limitation, highly liquid 
investment minimum, and related reporting requirements. The requested 
relief would allow the Applicants to solely maintain the classification 
methodology generated under JPM's Liquidity Risk Framework and 
discontinue the operation of JPM Funds' second liquidity classification 
program under the Existing 22e-4 Program for the JPM Funds. This would 
enable JPM to avoid maintaining dual classification methodologies.

Rule 22e-4 and Related Reporting Requirements

    5. Rule 22e-4 requires each open-end registered investment company, 
excluding money market funds (each, a ``fund''),\2\ to establish a 
written liquidity risk management program to assess, manage, and 
periodically review its liquidity risk. Rule 22e-4 requires a fund to 
classify each of its portfolio investments, including its derivatives 
transactions, into one of four liquidity categories: ``highly liquid 
investments,'' \3\ ``moderately liquid investments,'' \4\ ``less liquid 
investments,'' \5\ and ``illiquid investments'' \6\ (together, the 
``four buckets''). The classification process of rule 22e-4 requires 
funds to classify portfolio investments into one of the four buckets 
generally based on the time the fund reasonably expects to be able to 
convert the investment to cash in current market conditions without 
significantly changing the market value of the investment. In 
determining the appropriate bucket, the fund must also take into 
account the fund's ability to trade varying portions of a position in a 
particular portfolio investment or asset class, in sizes that it 
reasonably anticipates trading, without reasonably expecting to 
significantly affect the investment's liquidity (referred to as 
``RATS'').\7\ It also must take into account relevant market, trading, 
and investment-specific considerations.\8\
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    \2\ Money-market funds are subject to separate liquidity 
requirements pursuant to rule 2a-7 under the Act.
    \3\ Rule 22e-4(a)(6).
    \4\ Rule 22e-4(a)(12).
    \5\ Rule 22e-4(a)(10).
    \6\ Rule 22e-4(a)(8).
    \7\ Rule 22e-4(b)(1)(ii)(B).
    \8\ Rule 22e-4(b)(1)(ii).
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    6. Additional requirements in rule 22e-4 are triggered from the 
definitions of the four buckets. In particular, a fund that does not 
primarily hold assets that are highly liquid investments is required to 
determine a minimum level of highly liquid investments (the ``HLIM''), 
and take certain related actions.\9\ Further, a fund may not acquire 
additional illiquid investments if, after the acquisition, it would 
hold more than 15% of its net assets in illiquid investments.\10\ 
Additionally, in classifying its investments, a fund must identify the 
percentage of the fund's highly liquid investments that it has 
segregated or pledged in connection with derivatives transactions that 
are ``moderately liquid'', ``less liquid'', and ``illiquid 
investments''.\11\ Furthermore, for purposes of determining whether a 
fund primarily holds assets that are ``highly liquid investments'', a 
fund must exclude from its calculations the percentage of the fund's 
assets that are ``highly liquid investments'' that it has segregated to 
cover all derivatives transactions that the fund has classified as 
``moderately liquid'', ``less liquid'', and ``illiquid investments'', 
or pledged to satisfy margin requirements in connection with those 
derivatives transactions, as determined pursuant to paragraph 
(b)(1)(ii)(C) of rule 22e-4.\12\
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    \9\ Rule 22e-4(b)(1)(iii).
    \10\ Rule 22e-4(b)(1)(iv).
    \11\ Rule 22e-4(b)(1)(ii)(C).
    \12\ Rule 22e-4(b)(1)(iii)(B).
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    7. Rule 22e-4 also requires funds to use the classification under 
the four buckets for purposes of Form N-PORT reporting. In particular, 
Item B.7 of

[[Page 85804]]

Form N-PORT requires a fund to report, as applicable, its HLIM, the 
number of days the fund was below such HLIM, and any changes to the 
HLIM during the reporting period. Item B.8 requires disclosure of the 
percentage of a fund's highly liquid investment minimum assets that 
have been segregated or pledged in connection with certain derivatives 
transactions. Item C.7 requires funds to report the liquidity 
classification for each investment across the four buckets. For any 
investments with multiple liquidity classifications, item C.7 asks that 
a fund report the percentage attributable to each bucket.
    8. Rule 30b1-10 and Form N-LIQUID require a fund to notify the 
Commission when the fund's level of ``illiquid investments'' that are 
assets exceeds 15% of its net assets or when its ``highly liquid 
investments'' fall below its HLIM.\13\
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    \13\ On October 28, 2020, the Commission adopted rule 18f-4 
under the Act with respect to the use of derivatives by registered 
investment companies. See Use of Derivatives by Registered 
Investment Companies and Business Development Companies, Investment 
Company Act Release No. 34078 (Oct. 28, 2020), which, in part, 
amends and re-titles Form N-LIQUID as Form N-RN, amends rule 22e-4 
to remove references to assets ``segregated to cover'' derivatives 
transactions, and adopts conforming amendments to Form N-PORT. 
Accordingly, the Applicants seek relief from rules 22e-
4(b)(1)(ii)(C) and (b)(1)(iii)(B) and item B.8 of Form N-PORT as 
currently in effect and as amended, upon the date of the Covered 
Funds' compliance with rule 18f-4. In addition, all references 
herein to Form N-LIQUID shall be deemed to be to Form N-RN once the 
re-titling of the Form is effective.
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Applicants' Liquidity Risk Framework

    9. Applicants' Liquidity Risk Framework classifies portfolio 
investments held by a Covered Fund, including any assets pledged to 
derivatives transactions, among the following five liquidity categories 
rather than the four buckets specified in rule 22e-4: \14\
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    \14\ As required by rule 22e-4(b)(1)(ii), the Amended Liquidity 
Program would use information obtained after reasonable inquiry and 
taking into account relevant market, trading, and investment-
specific considerations when classifying investments. Applicants are 
not seeking an exemption from this requirement.
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    Category 1--Able to be sold in one trading day;
    Category 2--able to be sold between two and three trading days;
    Category 3--able to be sold between four and ten trading days;
    Category 4--able to be sold between eleven and twenty trading days; 
and
    Category 5--able to be sold in more than twenty trading days.
    This classification generally would be based on the ability to sell 
the full position size of each investment or transaction in current 
market conditions with no significant change to the market value of the 
investment (``Full Position Size Approach'').\15\ The Liquidity Risk 
Framework uses days-to-sale (rather than rule 22e-4's ``days-to-cash'' 
approach) and applies an expected settlement cycle.\16\ The Liquidity 
Risk Framework also uses a quantitative modeling approach that seeks to 
identify any potential estimated liquidity mismatches between a Covered 
Fund's assets and the potential size of a Covered Fund's anticipated 
redemptions.\17\ Each portfolio investment is then distributed among 
the five liquidity categories, as applicable.
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    \15\ JPM believes that use of the Full Position Size Approach 
creates a more useful view of fund liquidity and potentially lends 
itself to more conservative portfolio risk management overall 
because it does not result in a single holding, which may need to be 
sold over time, being classified in a single liquidity category. 
This approach reflects the fact that a fund may not be able to sell 
an entire position at once. The approach of allocating a single 
holding across multiple liquidity categories is generally consistent 
with SEC guidance for permissible methods of reporting on Form N-
PORT. See Investment Company Liquidity Disclosure, Investment 
Company Act Release No. 33142 (June 28, 2018) at 25.
    \16\ See Investment Company Liquidity Risk Management Programs, 
Investment Company Act Release No.32315 (Oct. 13, 2016) at 89-96. 
Rule 22e-4 generally requires classification based on the number of 
days a fund reasonably anticipates it would convert an investment to 
cash, without the conversion significantly changing the market value 
of the investment, which generally refers to the ability to sell the 
investment, with the sale settled. The Amended Liquidity Program 
uses days-to-sale and assumes a standard settlement cycle.
    \17\ The Amended Liquidity Program applies three Asset Side 
Liquidity constraints to each Covered Fund portfolio: A security 
specific assessment by position (``Bottoms Up Constraint''), a 
broader asset class market depth assessment (``Top Down 
Constraint''), and a pro-rata risk constraint, applicable to the 
most liquid 85% of a Covered Fund's holdings (``Pro Rata 
Constraint''), that reflects the goal of meeting shareholder 
redemptions while seeking to maintain risk profile consistency in a 
Covered Fund's portfolio. Application of the constraints seeks to 
provide a conservative estimate of daily portfolio liquidity.
    The Amended Liquidity Program then applies Liability Side 
modeling which considers both historical redemption time periods as 
well as the potential for the largest two investors to redeem their 
investments.
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    10. The positions in the five categories would be converted into 
the four buckets to (i) comply with the HLIM requirements and illiquid 
investment limitations in rule 22e-4, (ii) comply with classification 
reporting on Form N-PORT, and (iii) determine whether a Form N-LIQUID 
filing will be required. To effect this conversion, JPMIM would apply 
an ``overlay'' across the five liquidity categories based on the RATS 
of the fund's portfolio investments or asset classes (a ``RATS 
Overlay'') implemented in compliance with rule 22e-4(b)(1)(ii)(B).\18\ 
JPMIM would then apply a settlement period modifier to take into 
account the expected settlement period of the portfolio position. 
Finally, JPMIM would make certain adjustments to its framework, as 
described below, for investments segregated to cover, or pledged to 
satisfy margin requirements in connection with, certain derivatives 
transactions of the Covered Fund in compliance with rule 22e-
4(b)(1)(ii)(C).
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    \18\ Rule 22e-4(b)(1)(ii)(B) requires that ``[i]n classifying 
and reviewing its portfolio investments or asset classes (as 
applicable), the fund must determine whether trading varying 
portions of a position in a particular portfolio investment or asset 
class, in sizes that the fund would reasonably anticipate trading, 
is reasonably expected to significantly affect its liquidity, and if 
so, the fund must take this determination into account when 
classifying the liquidity of that investment or asset class.''
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    11. After applying the RATS Overlay and settlement period modifier, 
portfolio positions that are in Category 1 of JPMIM's Liquidity Risk 
Framework, and that have an expected settlement period of T+3 or less, 
would be converted into rule 22e-4's ``highly liquid'' bucket. 
Investments in Category 2 that have an expected settlement period of 
T+3 or less would be converted into the ``moderately liquid'' bucket of 
rule 22e-4. Any investments in either of JPMIM's Categories 1 or 2 that 
have an expected settlement period of more than T+3 would be converted 
into the ``less liquid'' bucket. Finally, after applying the RATS 
Overlay and settlement period modifier, investments that are in JPMIM's 
Categories 3, 4, and 5 would be converted into the ``illiquid 
investments'' bucket of rule 22e-4 because, in part, they make take 
more time to sell than the seven days established in rule 22e-4.

[[Page 85805]]



------------------------------------------------------------------------
                                                      Amended liquidity
           Bucket                Rule 22e-4 four      program converted
                                  buckets \19\             buckets
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Highly Liquid Investment;     Any cash held by a    Any cash and any
 Rule 22e-4(a)(6).             fund and any          fund portfolio
                               portfolio             investment (1) that
                               investment that the   a fund's investment
                               fund reasonably       adviser reasonably
                               expects to be         expects could be
                               convertible into      sold in one trading
                               cash in current       day in current
                               market conditions     market conditions
                               in three business     without causing a
                               days or less          significant change
                               without the           in the market value
                               conversion to cash    of the investment
                               significantly         and (2) that has an
                               changing the market   expected settlement
                               value of the          period of T+3 or
                               investment.           less.
Moderately Liquid             Any portfolio         Any portfolio
 Investment; Rule 22e-         investment that the   investment (1) that
 4(a)(12).                     fund reasonably       a fund's investment
                               expects to be         adviser reasonably
                               convertible into      expects could be
                               cash in current       sold in two to
                               market conditions     three trading days
                               in more than three    in current market
                               calendar days but     conditions without
                               in seven calendar     significantly
                               days or less          changing the market
                               without the           value of the
                               conversion to cash    investment and (2)
                               significantly         that has an
                               changing the market   expected settlement
                               value of the          period of T+3 or
                               investment.           less.
Less Liquid Investment; Rule  Any portfolio         Any portfolio
 22e-4(a)(10).                 investment that the   investment that
                               fund reasonably       could be sold
                               expects to be able    within three
                               to sell or dispose    trading days
                               of in current         without
                               market conditions     significantly
                               in seven calendar     changing the market
                               days or less          value of the
                               without the sale or   investment, but is
                               disposition           determined to have
                               significantly         an expected
                               changing the market   settlement period
                               value of the          of longer than
                               investment but        T+3.\20\
                               where the sale or
                               disposition is
                               reasonably expected
                               to settle in more
                               than seven calendar
                               days.
Illiquid Investment; Rule     Any portfolio         Any portfolio
 22e-4(a)(8).                  investment that the   investment that a
                               fund reasonably       fund's investment
                               expects cannot be     adviser reasonably
                               sold or disposed of   expects could not
                               in current market     be sold within
                               conditions in seven   three trading days
                               calendar days or      without the sale or
                               less, without the     disposition
                               sale or disposition   significantly
                               significantly         changing the market
                               changing the market   value of the
                               value of the          investment.
                               investment.
------------------------------------------------------------------------

III. Request for Exemptive Relief
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    \19\ See supra note 9. As required by rule 22e-4(b)(1)(ii), the 
Amended Liquidity Program would use information obtained after 
reasonable inquiry and taking into account relevant market, trading, 
and investment-specific considerations when classifying investments. 
The Applicants are not seeking an exemption from this requirement of 
Rule 22e-4(b)(1)(ii).
    \20\ This category will include holdings that fall within 
Category 1 or Category 2 and that are determined to have a standard 
settlement period of longer than T+3. This currently includes loan 
assignments and participations and certain emerging markets 
instruments and securities. See Application at note 14 and 
accompanying text.
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    12. Applicants request an order under section 6(c) of the Act for 
an exemption from the provisions of rule 22e-4 discussed below and the 
related reporting requirements on Forms N-PORT and N-LIQUID solely to 
the extent necessary to implement the Amended Liquidity Program.

Rule 22e-4 Exemptions

    13. Applicants seek an exemption from rule 22e-4(b)(1)(ii) to 
permit Covered Fund holdings to be classified under the Amended 
Liquidity Program across the five liquidity categories, as described 
above, for purposes of assessing and monitoring each Covered Fund's 
liquidity risk. Applicants are not seeking an exemption from that 
section's requirement to use information obtained after reasonable 
inquiry and taking into account relevant market, trading, and 
investment specific considerations when classifying investments.
    14. Applicants also seek an exemption to use the Amended Liquidity 
Program's modified definitions of the rule 22e-4 four buckets in order 
to comply with the HLIM requirements and illiquid investment 
limitations in rule 22e-4. Using the modified definitions would permit 
the Applicants to convert the five liquidity categories into the four 
buckets.
    15. Rule 22e-4 requires funds that do not primarily hold assets 
that are highly liquid investments to determine a minimum HLIM level. 
Applicants seek an exemption to use the modified definitions to assess 
if a Covered Fund is required to maintain an HLIM, to determine the 
amount of any such HLIM, and to assess ongoing compliance with the 
requirement.
    16. Rule 22e-4 currently requires a fund to exclude from its 
calculations of HLIM the percentage of fund assets that are highly 
liquid investments that it has segregated to cover, or pledged to 
satisfy margin requirements in connection with, derivatives 
transactions that the fund has classified as moderately liquid, less 
liquid, and illiquid investments.\21\ For purposes of complying with 
this requirement, Applicants seek an exemption to permit a Covered Fund 
to exclude Category 1 assets that are segregated to cover, or pledged 
to satisfy margin requirements in connection with, derivatives 
transactions that are not classified within Category 1; for purposes of 
complying with rule 22e-4(b)(1)(iii)(B), as amended, Category 1 assets 
that are pledged as margin or collateral in connection with derivatives 
transactions that are not classified within Category 1 will be excluded 
from the Covered Fund's calculation of whether the Covered Fund 
primarily holds assets that are highly liquid investments.
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    \21\ Rule 22e-4(b)(1)(iii)(B).
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    17. Rule 22e-4 currently also requires a fund to identify the 
percentage of the fund's highly liquid investments that it has 
segregated to cover, or pledged to satisfy margin requirements in 
connection with, derivatives transactions classified as moderately 
liquid, less liquid, and illiquid.\22\ For purposes of determining this 
percentage, Applicants seek an exemption to permit the Covered Funds to 
identify Category 1 assets that are segregated to cover, or pledged to 
satisfy margin requirements in connection with, derivatives 
transactions that are classified as moderately liquid, less liquid, and 
illiquid under the modified definitions; for purposes of compliance 
with rule 22e-4(b)(1)(ii)(C), as amended, the Applicants seek an 
exemption to permit the Covered Funds to identify Category 1 assets 
under the Liquidity Risk Framework that are pledged as margin or 
collateral in connection with, derivatives transactions that are 
assigned to other categories under the Liquidity Risk Framework.
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    \22\ Rule 22e-4(b)(1)(ii)(C).
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    18. Rule 22e-4 prohibits a fund from acquiring any illiquid 
investment if, immediately after such acquisition, the fund would have 
invested more than 15% of its net assets in illiquid investments that 
are assets.\23\ Further, the rule imposes certain requirements in the 
event a fund holds more than 15% of its net assets in illiquid 
investments. For purposes of complying with these requirements, 
Applicants seek an exemption to permit the Covered Funds to use the 
modified definition of illiquid investments.
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    \23\ Rule 22e-4(b)(1)(iv).

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[[Page 85806]]

Reporting Exemptions

    19. Applicants request an exemption from items B.7, B.8 and C.7 of 
Form N-PORT \24\ in order for the Covered Funds to adopt and implement 
the Amended Liquidity Program. Specifically, they seek relief in order 
for each Covered Fund to use the modified definitions under the Amended 
Liquidity Program for purposes of reporting. Each Covered Fund that 
implements the Amended Liquidity Program would include an explanatory 
note with respect to the information reported in response to these 
items.\25\ The Covered Funds would otherwise file Form N-PORT as 
required under rule 30b1-9 under the Act.
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    \24\ Item B.7 requires a fund to report, as applicable, its 
HLIM, the number of days the fund was below such HLIM, and any 
changes to the HLIM during the reporting period. Item B.8 requires 
disclosure of the percentage of a fund's highly liquid investment 
minimum assets that have been segregated or pledged in connection 
with certain derivatives transactions. For purposes of Item B.8 of 
Form N-PORT as amended, each Covered Fund that implements the 
Amended Liquidity Program and engages in derivatives transactions 
will provide the percentage of the Covered Fund's holdings that are 
``highly liquid investments'' (as determined pursuant to the Amended 
Liquidity Program) that have been pledged as margin or collateral in 
connection with derivatives transactions that are ``moderately 
liquid investments,'' ``less liquid investments,'' or ``illiquid 
investments'' (as such classifications are determined pursuant to 
the Amended Liquidity Program, as described above, for purposes of 
Form N-PORT reporting).
    Item C.7 requires funds to report the liquidity classification 
for each investment across the four buckets.
    \25\ For reporting on Form N-PORT, the funds would include an 
explanatory note regarding their modified reporting as described in 
condition 1 of the application. See section IV. of this Notice.
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    20. Applicants request an exemption from Parts B through D of Form 
N-LIQUID in order for the Covered Funds to use the modified definitions 
for purposes of determining whether a filing on Form N-LIQUID is 
required. A Covered Fund would use the modified definitions of ``highly 
liquid investment'' and ``illiquid investment'' described in the chart 
above. Each Covered Fund that implements the Amended Liquidity Program 
would include appropriate explanatory notes in any Form N-LIQUID filing 
describing the classification methodology used to determine ``highly 
liquid investments'' or ``illiquid investments,'' as applicable, and 
any related assumptions. The Covered Funds would otherwise file Form N-
LIQUID as required under rule 30b1-10 under the Act.

IV. Arguments in Support of the Requested Relief

    21. Applicants maintain that the Amended Liquidity Program is 
designed to effectively accomplish the SEC's primary goals for rule 
22e-4, which are to reduce the risk that funds would be unable to meet 
redemption and other legal obligations, minimize dilution, and elevate 
the overall quality of liquidity risk management across the fund 
industry.
    22. Applicants assert that investors would continue to benefit from 
the protections of rule 22e-4 to the extent that the Amended Liquidity 
Program incorporates elements of the Existing 22e-4 Program. Applicants 
note that the use of the five liquidity categories results in a 
quantitative breakdown of Covered Fund liquidity that JPM believes 
meets the general public policy requirements of rule 22e-4, while 
providing JPM with detailed information specific to its analytical 
purpose. Applicants assert that the Amended Liquidity Program, which 
would permit an assessment of a Covered Fund's liquidity profile that 
is no less robust than the assessment produced under the Existing 22e-4 
Program, creates a more useful view of fund liquidity and potentially 
lends itself to more conservative portfolio risk management 
overall.\26\ Absent the requested relief, JPM would continue to 
maintain a separate classification methodology for the Covered Funds 
solely to the meet the requirements in rule 22e-4 discussed above and 
related reporting requirements. The Applicants would thereby continue 
to incur significant costs and administrative burdens through the 
maintenance of dual liquidity classification programs, as well as those 
associated with satisfying the HLIM and margin requirements specified 
in rule 22e-4 and the related reporting requirements.
---------------------------------------------------------------------------

    \26\ As Applicants note, we have stated that funds that believe 
they would have to maintain dual liquidity classification programs 
as part of their liquidity risk management may choose to seek an 
exemption from the Commission from the classification requirements 
of rule 22e-4 if they believe that their existing systems would 
effectively accomplish the Commission's stated goals.
---------------------------------------------------------------------------

    23. Applicants maintain that the use of modified definitions of 
``highly liquid investment'' and ``illiquid investment'' for purposes 
of the Amended Liquidity Program should result in a Covered Fund 
holding a substantially similar percentage of ``illiquid investments'' 
and ``highly liquid investments'' as would be the case using the 
current definitions under rule 22e-4. Any differences would be limited 
and would primarily relate to the use of different vendors and data, as 
well as the Amended Liquidity Program's spreading holdings across 
multiple categories (as part of the Full Position Size Approach). JPM 
believes that the use of these modified definitions under the Amended 
Liquidity Program will not adversely impact the likelihood that any 
Covered Fund will be able to meet redemptions or increase the risk that 
the interests of remaining shareholders will be significantly diluted 
or that remaining shareholders will be disproportionately exposed to 
illiquid investments.
    24. Applicants state that the Amended Liquidity Program would 
provide investors with at least the same level of disclosure that they 
receive under the Existing 22e-4 Program to enable investors to 
understand the Amended Liquidity Program and its effect on the 
liquidity risk assessment of a Covered Fund's investments. Moreover, 
each Covered Fund would continue to provide appropriate disclosure in 
its annual or semi-annual shareholder reports regarding the operation 
and effectiveness of its liquidity risk management program (and, where 
applicable, would address any liquidity events that materially affected 
fund performance, as required by Form N-1A).
    25. Applicants assert that the SEC and its staff will receive 
information, through the Covered Funds' public disclosures and 
reporting on Form N-PORT and, where applicable, Form N-LIQUID, 
necessary to assess the liquidity profiles of the Covered Funds, 
monitor the Covered Funds' compliance with the Amended Liquidity 
Program, and compare the liquidity risk management practices of the 
Covered Funds with those of other funds in the industry.
    26. Applicants believe that the use of the Amended Liquidity 
Program's classification methodology would result in a similar level of 
transparency that will not adversely affect the SEC's ability to 
understand and monitor a Covered Fund's liquidity profile or conduct 
industry-wide surveillance.
    27. Based on the foregoing, Applicants submit that the requested 
relief meets the standards for relief under section 6(c) of the Act.

VI. Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Covered Fund will include an explanatory note with respect 
to the information reported in response to Items B.7, B.8 and C.7 of 
Form N-PORT substantively to the following effect:
    ``As permitted by an SEC exemptive order, the Funds use liquidity 
definitions and classification methodologies that differ from Rule 22e-
4 requirements. Results shown on

[[Page 85807]]

this Form could be different if the Funds did not rely on the exemptive 
order.''
    2. Each Covered Fund will include explanatory notes in any Form N-
LIQUID filing describing the classification methodology used to 
determine ``highly liquid investments'' or ``illiquid investments,'' as 
applicable, and any related assumptions.
    3. The annual report provided to the board of trustees of each 
Covered Fund that implements the Amended Liquidity Program pursuant to 
rule 22e-4(b)(2)(iii) will include a certification with respect to 
compliance with the terms of the Order.
    4. The Covered Funds that implement the Amended Liquidity Program 
will maintain records for a period of five years (the first two years 
in an easily accessible place) showing each instrument's classification 
under the Liquidity Risk Framework's five categories and each 
instrument's classification after it has been converted to four 
categories.

    By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-28764 Filed 12-28-20; 8:45 am]
BILLING CODE 8011-01-P


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