85802 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

74 17 CFR 200.30–3(a)(12). 

unfairly inhibit access to OCC’s services 

or disadvantage or favor any particular 

user in relationship to another user. In 

addition, the proposal currently applies 

uniformly to all Clearing Members in 

establishing their margin requirements. 

For the foregoing reasons, OCC 

believes that the proposed rule change 

is in the public interest, would be 

consistent with the requirements of the 

Act applicable to clearing agencies, and 

would not impact or impose a burden 

on competition. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments were not and are 

not intended to be solicited with respect 

to the proposed rule change and none 

have been received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self- regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Exchange 

Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

OCC–2020–016 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–OCC–2020–016. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of OCC and on OCC’s website at 

https://www.theocc.com/CompanyInformation/Documents-and-Archives/ 

By-Laws-and-Rules#rule-filings. 

All comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. 

All submissions should refer to File 

Number SR–OCC–2020–016 and should 

be submitted on or before January 19, 

2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.74

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2020–28662 Filed 12–28–20; 8:45 am] 

BILLING CODE 8011–01–P 

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. 

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: 

Secretarys-Office@sec.gov. Applicants: 

Margery K. Neale and Anne Choe, 

Willkie Farr & Gallagher LLP, at 

MNeale@willkie.com or AChoe@

willkie.com, 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 SecretarysOffice@sec.gov and serving Applicants 

with a copy of the request by email. 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85803 

1All 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. 

2Money-market funds are subject to separate 

liquidity requirements pursuant to rule 2a–7 under 

the Act. 

3Rule 22e–4(a)(6). 

4Rule 22e–4(a)(12). 

5Rule 22e–4(a)(10). 

6Rule 22e–4(a)(8). 

7Rule 22e–4(b)(1)(ii)(B). 

8Rule 22e–4(b)(1)(ii). 

9Rule 22e–4(b)(1)(iii). 

10Rule 22e–4(b)(1)(iv). 

11Rule 22e–4(b)(1)(ii)(C). 

12Rule 22e–4(b)(1)(iii)(B). 

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 SecretarysOffice@sec.gov. 

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

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

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

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 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
85804 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

13On 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. 14As 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 investmentspecific considerations when classifying 

investments. Applicants are not seeking an 

exemption from this requirement. 

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. 

16See 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. 

17The 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. 

18Rule 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.’’ 

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

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

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. 

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). 

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. 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85805 

19See 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). 

20This 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. 21Rule 22e–4(b)(1)(iii)(B). 

22Rule 22e–4(b)(1)(ii)(C). 

23Rule 22e–4(b)(1)(iv). 

Bucket Rule 22e–4 four buckets 19 Amended liquidity program converted buckets 

Highly Liquid Investment; 

Rule 22e– 

4(a)(6).

Any cash held by a fund and any portfolio investment that the 

fund reasonably expects to be convertible into cash in current market conditions in three business days or less without the conversion to cash significantly changing the market value of the investment.

Any cash and any fund portfolio investment (1) that a fund’s 

investment adviser reasonably expects could be sold in 

one trading day in current market conditions without causing a significant change in the market value of the investment and (2) that has an expected settlement period of 

T+3 or less. 

Moderately Liquid Investment; Rule 

22e–4(a)(12).

Any portfolio investment that the fund reasonably expects to 

be convertible into cash in current market conditions in 

more than three calendar days but in seven calendar days 

or less without the conversion to cash significantly changing the market value of the investment.

Any portfolio investment (1) that a fund’s investment adviser 

reasonably expects could be sold in two to three trading 

days in current market conditions without significantly 

changing the market value of the investment and (2) that 

has an expected settlement period of T+3 or less. 

Less Liquid Investment; 

Rule 22e– 

4(a)(10).

Any portfolio investment that the fund reasonably expects to 

be able to sell or dispose of in current market conditions in 

seven calendar days or less without the sale or disposition 

significantly changing the market value of the investment 

but where the sale or disposition is reasonably expected to 

settle in more than seven calendar days.

Any portfolio investment that could be sold within three trading days without significantly changing the market value of 

the investment, but is determined to have an expected settlement period of longer than T+3.20

Illiquid Investment; Rule 

22e–4(a)(8).

Any portfolio investment that the fund reasonably expects 

cannot be sold or disposed of in current market conditions 

in seven calendar days or less, without the sale or disposition significantly changing the market value of the investment.

Any portfolio investment that a fund’s investment adviser reasonably expects could not be sold within three trading days 

without the sale or disposition significantly changing the 

market value of the investment. 

III. Request for Exemptive Relief 

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. 

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. 

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. 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
85806 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

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. 

25For 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. 

26As 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. 

Reporting Exemptions 

19. Applicants request an exemption 

from items B.7, B.8 and C.7 of Form N– 

PORT24 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. 

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. 

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 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85807 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3On December 13, 2019, the Exchange filed 

Amendment No. 1 to the proposed rule change, 

which amended and replaced the proposed rule 

change in its entirety. The proposed rule change, as 

modified by Amendment No. 1, was published for 

comment in the Federal Register on December 30, 

2019. See Exchange Act Release No. 87821 (Dec. 20, 

2019), 84 FR 72065. On February 13, 2020, pursuant 

to Section 19(b)(2) of the Exchange Act, the 

Commission designated a longer period within 

which to either approve the proposed rule change, 

disapprove the proposed rule change, or institute 

proceedings to determine whether to disapprove the 

proposed rule change. See Exchange Act Release 

No. 88190, 85 FR 9891 (Feb. 20, 2020). On March 

26, 2020, the Commission instituted proceedings to 

determine whether to approve or disapprove the 

proposed rule change, as modified by Amendment 

No. 1. See Exchange Act Release No. 88485, 85 FR 

18292 (Apr. 1, 2020) (‘‘OIP’’). On June 22, 2020, the 

Exchange filed Amendment No. 2 to the proposed 

rule change, which superseded the proposed rule 

change as modified by Amendment No. 1 

(‘‘Amendment No. 2’’). On June 24, 2020, the 

Commission extended the time period for 

approving or disapproving the proposal to August 

26, 2020. See Exchange Act Release No. 89147, 85 

FR 39226 (June 30, 2020). The proposed rule 

change, as modified by Amendment No. 2, was 

published for comment in the Federal Register on 

June 30, 2020. See Exchange Act Release No. 89148 

(June 24, 2020), 85 FR 39246 (‘‘Notice’’). 

4 17 CFR 200.30–3(a)(12). 

5See Exchange Act Release No. 89684, 85 FR 

54454 (Sept. 1, 2020). 

6 17 CFR 201.431(e). See Letter to John Carey, 

Senior Director, NYSE Group Inc. (Aug. 31, 2020) 

(providing notice of receipt of notice of intention 

for review of delegated action and stay of order), 

available at https://www.sec.gov/rules/sro/nyse/ 

2020/34-89684-carey-letter.pdf. On September 4, 

2020, NYSE filed a motion for the Commission to 

lift the automatic stay of the Approval Order and 

a brief in support of its motion to lift the stay. On 

September 8, 2020, CII filed a brief in opposition 

to NYSE’s motion to lift the automatic stay. On 

September 11, 2020, NYSE filed a reply brief in 

support of its motion to lift the stay. 

7See Exchange Act Release No. 90001, 85 FR 

61793 (Sept. 30, 2020). In the scheduling order, the 

Commission also denied NYSE’s motion to lift the 

automatic stay of the Approval Order and ordered 

that the proposed rule change, as modified by 

Amendment No. 2, remain stayed. 

8See The New York Stock Exchange LLC’s 

Statement in Support of Order Approving Proposed 

Rule Change (Oct. 16, 2020) (‘‘NYSE Statement’’). 

9 15 U.S.C. 78s(b)(2)(C). 

10 17 CFR 201.700(b)(3). 

11 Id. 

12 Id. 

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 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90768; File No. SR–NYSE– 

2019–67] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Order 

Setting Aside Action by Delegated 

Authority and Approving a Proposed 

Rule Change, as Modified by 

Amendment No. 2, To Amend Chapter 

One of the Listed Company Manual To 

Modify the Provisions Relating to 

Direct Listings 

December 22, 2020. 

I. Introduction 

On December 11, 2019, New York 

Stock Exchange LLC (‘‘NYSE’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Exchange Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to amend Chapter One of the 

Listed Company Manual (‘‘Manual’’) to 

modify the provisions relating to direct 

listings.3 Pursuant to the proposal, 

NYSE would allow an issuer, at the time 

of an initial listing on the Exchange, to 

conduct a primary offering as part of a 

direct listing without conducting a firm 

commitment underwritten offering. 

On August 26, 2020, the Commission, 

acting through authority delegated to 

the Division of Trading and Markets 

(‘‘Division’’),4 approved the proposed 

rule change, as modified by Amendment 

No. 2 (‘‘Approval Order’’).5 On 

September 8, 2020, the Council of 

Institutional Investors (‘‘CII’’ or 

‘‘Petitioner’’) filed a petition for review 

of the Approval Order (‘‘Petition for 

Review’’). Pursuant to Commission Rule 

of Practice 431(e), the Approval Order 

was stayed by the filing with the 

Commission of a notice of intention to 

petition for review.6 On September 25, 

2020, the Commission issued a 

scheduling order, pursuant to 

Commission Rule of Practice 431, 

granting the Petition for Review of the 

Approval Order and providing until 

October 16, 2020, for any party or other 

person to file a written statement in 

support of, or in opposition to, the 

Approval Order.7 On October 16, 2020, 

NYSE submitted a written statement in 

support of the Approval Order.8

The Commission has conducted a de 

novo review of NYSE’s proposal, giving 

careful consideration to the entire 

record—including NYSE’s amended 

proposal, the Petition for Review, and 

all comments and statements 

submitted—to determine whether the 

proposal is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder. Under 

Section 19b(2)(C) of the Exchange Act, 

the Commission must approve the 

proposed rule change of a selfregulatory organization (‘‘SRO’’) if the 

Commission finds that the proposed 

rule change is consistent with the 

Exchange Act and the applicable rules 

and regulations thereunder; if it does 

not make such a finding, the 

Commission must disapprove the 

proposed rule change.9 Additionally, 

under Rule 700(b)(3) of the 

Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization that 

proposed the rule change.’’ 10 Further, 

‘‘the description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding.’’ 11

Finally, ‘‘[a]ny failure of the selfregulatory organization to provide the 

information elicited by Form 19b–4 may 

result in the Commission not having a 

sufficient basis to make an affirmative 

finding that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder that are applicable to the 

self-regulatory organization.’’ 12

For the reasons discussed herein, the 

Commission has determined that NYSE 

has met its burden to show that the 

proposed rule change is consistent with 

the Exchange Act. We thus set aside the 

Approval Order and approve NYSE’s 

proposed rule change, as amended. 

Section 6(b)(5) of the Exchange Act 

requires that the rules of a national 

securities exchange be designed to 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES