Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 31859 

1The term ‘‘funds’’ used in this release includes 

open-end management companies, including 

exchange-traded funds (‘‘ETFs’’), and excludes 

money market funds. 

2 Investment Company Reporting Modernization, 

Investment Company Act Release No. 32314 (Oct. 

13, 2016) [81 FR 81870 (Nov. 18, 2016)] (‘‘Reporting 

Modernization Adopting Release’’). See also 

Investment Company Liquidity Risk Management 

Programs, Investment Company Act Release No. 

32315 (Oct. 13, 2016) [81 FR 82142 (Nov. 18, 2016)] 

(‘‘Liquidity Adopting Release’’). 

3Registered money market funds and small 

business investment companies are exempt from 

Form N–PORT reporting requirements. 

4Specifically, we adopted rule 22e–4 and 17 CFR 

270.30b1–10 (‘‘rule 30b1–10’’), new Form N– 

LIQUID, as well as amendments to Forms N–1A, N– 

PORT, and N–CEN. See Liquidity Adopting Release, 

supra footnote 2. 

5Rule 22e–4 requires each fund to adopt and 

implement a written liquidity risk management 

program reasonably designed to assess and manage 

the fund’s liquidity risk. A fund’s liquidity risk 

management program must incorporate certain 

specified elements, including the requirement that 

a fund classify the liquidity of each of the fund’s 

portfolio investments into one of four defined 

liquidity categories: Highly liquid investments, 

moderately liquid investments, less liquid 

investments, and illiquid investments 

(‘‘classification’’). This classification is based on the 

number of days in which a fund reasonably expects 

an investment would be convertible to cash (or, in 

the case of the less-liquid and illiquid categories, 

sold or disposed of) without the conversion 

significantly changing the market value of the 

investment. Rule 22e–4 requires funds to establish 

a highly liquid investment minimum, and includes 

requirements related to policies and procedures on 

redemptions in kind and evaluation of the liquidity 

of new unit investment trusts (‘‘UITs’’). Rule 22e– 

4 also includes other required elements, such as 

limits on purchases of illiquid investments, 

reporting to the board, and recordkeeping. 

6 Item C.7 of Form N–PORT. 

7 Item B.8.a of Form N–PORT. This information 

would be disclosed to the public only for the third 

month of each fiscal quarter with a 60-day delay. 

Form N–PORT also required public reporting of the 

percentage of a fund’s highly liquid investments 

that it has segregated to cover, or pledged to satisfy 

margin requirements in connection with, 

derivatives transactions that are classified as 

moderately liquid, less liquid, or illiquid 

investments. Item B.8.b of Form N–PORT. 

8Although the requirements of rule 22e–4 and 

Form N–PORT discussed above are in effect, the 

compliance date has not yet occurred. Accordingly, 

no funds are yet reporting this liquidity-related 

information on Form N–PORT. We previously 

extended the compliance date for certain 

classification-related provisions of rule 22e–4 and 

their associated Form N–PORT reporting 

requirements by six months. See Investment 

Company Liquidity Risk Management Programs; 

Commission Guidance for In-Kind ETFs, 

Investment Company Act Release No. 33010 (Feb. 

22, 2018) [83 FR 8342 (Feb. 27, 2018)] (‘‘Liquidity 

Extension Release’’). 

9See Liquidity Adopting Release, supra footnote 

2, at n.112 and accompanying text. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 274 

[Release No. IC–33142; File No. S7–04–18] 

RIN 3235–AM30 

Investment Company Liquidity 

Disclosure 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is 

adopting amendments to its forms 

designed to improve the reporting and 

disclosure of liquidity information by 

registered open-end investment 

companies. The Commission is adopting 

a new requirement that funds disclose 

information about the operation and 

effectiveness of their liquidity risk 

management program in their reports to 

shareholders. The Commission in turn 

is rescinding the requirement in Form 

N–PORT under the Investment 

Company Act of 1940 that funds 

publicly disclose aggregate liquidity 

classification information about their 

portfolios. In addition, the Commission 

is adopting amendments to Form N– 

PORT that will allow funds classifying 

the liquidity of their investments 

pursuant to their liquidity risk 

management programs to report 

multiple liquidity classification 

categories for a single position under 

specified circumstances. The 

Commission also is adding a new 

requirement to Form N–PORT that 

funds and other registrants report their 

holdings of cash and cash equivalents. 

DATES: Effective Date: This rule is 

effective September 10, 2018. 

Compliance Dates: The applicable 

compliance dates are discussed in 

section II.D of this final rule. 

FOR FURTHER INFORMATION CONTACT: 

Zeena Abdul-Rahman, Senior Counsel, 

or Thoreau Bartmann, Senior Special 

Counsel, at (202) 551–6792, Division of 

Investment Management, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–8549. 

SUPPLEMENTARY INFORMATION: The 

Commission is adopting amendments to 

Form N–PORT [referenced in 17 CFR 

274.150] under the Investment 

Company Act of 1940 [15 U.S.C. 80a–1 

et seq.] (‘‘Investment Company Act’’ or 

‘‘Act’’) and amendments to Form N–1A 

[referenced in 17 CFR 274.11A] under 

the Investment Company Act and the 

Securities Act of 1933 (‘‘Securities Act’’) 

[15 U.S.C. 77a et seq.]. 

Contents 

I. Background 

II. Discussion 

A. Amendments to Liquidity Public 

Reporting and Disclosure Requirements 

B. Amendments to Liquidity Reporting 

Requirements 

C. Treasury Asset Management Report and 

Evaluation of Other Approaches 

D. Compliance Dates 

III. Economic Analysis 

A. Introduction 

B. Economic Baseline 

C. Economic Impacts 

D. Reasonable Alternatives 

IV. Paperwork Reduction Act 

A. Introduction 

B. Form N–PORT 

C. Form N–1A 

V. Final Regulatory Flexibility Analysis 

A. Need for the Amendments 

B. Significant Issues Raised by Public 

Comment 

C. Small Entities Subject to the 

Amendments 

D. Projected Reporting, Recordkeeping, and 

Other Compliance Requirements 

E. Agency Action To Minimize Effect on 

Small Entities 

VI. Statutory Authority 

Text of Rules and Forms 

I. Background 

On October 13, 2016, the Commission 

adopted 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 (‘‘funds’’),1 including 

information about the liquidity of funds’ 

portfolios.2 In particular, the 

Commission adopted new Form N– 

PORT, which requires mutual funds and 

ETFs to report monthly portfolio 

investment information to the 

Commission in a structured data 

format.3 The Commission also adopted 

17 CFR 270.22e–4 (‘‘rule 22e–4’’) and 

related reforms to enhance the 

regulatory framework for liquidity risk 

management of funds.4 Among other 

things, rule 22e–4 requires a fund to 

classify each portfolio investment into 

one of four defined liquidity categories, 

sometimes referred to as ‘‘buckets.’’ 5

In connection with the liquidity 

classification requirement of rule 22e–4, 

a fund is required to report 

confidentially to the Commission the 

liquidity classification assigned to each 

of the fund’s portfolio investments on 

Form N–PORT.6 As originally adopted, 

Form N–PORT requires a fund to assign 

each portfolio holding to a single 

classification bucket and publicly 

disclose the aggregate percentage of its 

portfolio investments falling into each 

of the four liquidity classification 

categories noted above.7 Form N–PORT 

did not require funds to report the cash 

they hold.8

Rule 22e–4 and the related rules and 

forms were designed to promote 

effective liquidity risk management 

throughout the fund industry and to 

enhance disclosure regarding fund 

liquidity and redemption practices.9

However, since we adopted these 

requirements, interested parties have 


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10See Investment Company Liquidity Disclosure, 

Investment Company Act Release No. 33046 (Mar. 

14, 2018) [83 FR 11905 (Mar. 19, 2018)] (‘‘Proposing 

Release’’). 

11Letters detailing these concerns, as well as 

letters on the Proposing Release, are available at 

https://www.sec.gov/comments/s7-04-18/ 

s70418.htm (File No. S7–04–18). See, e.g., Letter 

from SIFMA AMG to Chairman Jay Clayton, 

Commissioner Stein, and Commissioner Piwowar 

(Sept. 12, 2017) (urging the SEC not to publicly 

disclose the liquidity classification information 

submitted via Form N–PORT); Letter from the 

Investment Company Institute to The Honorable Jay 

Clayton (July 20, 2017) (‘‘ICI Pre-proposal Letter I’’). 

12See Proposing Release, supra footnote 10. 

13See id. 

14See e.g., Comment Letter of Investment 

Company Institute (May 18, 2018) (‘‘ICI Comment 

Letter’’); Comment Letter of SIFMA AMG (May 18, 

2018) (‘‘SIFMA AMG Comment Letter’’); Comment 

Letter of BlackRock Inc. (May 17, 2018) 

(‘‘BlackRock Comment Letter’’). 

15See e.g., Comment Letter of the Capital Group 

Companies (May 18, 2018) (‘‘Capital Group 

Comment Letter’’); Comment Letter of Fidelity 

Investments (May 18, 2018) (‘‘Fidelity Comment 

Letter’’); ICI Comment Letter; Comment Letter of the 

Investment Adviser Association (May 18, 2018) 

(‘‘IAA Comment Letter’’). 16See Comment Letter of Better Markets (May 18, 

2018) (‘‘Better Markets Comment Letter’’); Comment 

Letter of Americans for Financial Reform Education 

Fund (‘‘AFR Comment Letter’’); See Comment 

Letter of Ya Li, J.D. Candidate, Boston College of 

Law (May 1, 2018) (‘‘Ya Li Comment Letter’’). 17See, e.g., Comment Letter of the Independent 

Directors Council (May 17, 2018) (‘‘IDC Comment 

Letter’’), Fidelity Comment Letter, and IAA 

Comment Letter (supporting our proposal to 

provide funds with the option to split a holding 

into more than one classification category in certain 

circumstances); ICI Comment Letter and Comment 

Letter of State Street Corporation (May 18, 2018) 

(‘‘State Street Comment Letter’’) (supporting our 

proposal to require additional disclosure relating to 

holdings of cash and cash equivalents not otherwise 

reported on Form N–PORT); SIFMA AMG Comment 

Letter and BlackRock Comment Letter (supporting 

our proposal to keep the percentage of the fund’s 

highly liquid investments segregated to cover, or 

pledged to satisfy margin requirements in 

connection with, certain derivatives transactions 

non-public). 

18See e.g., Comment Letter of Federated 

Investors, Inc. (May 15, 2018) (‘‘Federated Comment 

Letter’’); IAA Comment Letter; Comment Letter of 

the Vanguard Group, Inc. (May 17, 2018) 

(‘‘Vanguard Comment Letter’’). 19 If any provision of rule 22e–4 or the related 

rules and forms, including the amendments 

adopted today, or the application thereof to any 

person or circumstance, is held to be invalid, such 

invalidity shall not affect other provisions or the 

application of such provisions to other persons or 

circumstances that can be given effect without the 

invalid provision or application. 

20We also are adopting, as proposed, a related 

change to make non-public (but not eliminate) the 

disclosure required under Item B.8 of Form N– 

PORT about the percentage of a fund’s highly liquid 

investments segregated to cover, or pledged to 

satisfy margin requirements in connection with, 

certain derivatives transactions, given that this 

information is only relevant when viewed together 

with full liquidity classification information. See 

Item B.8.b of Form N–PORT. The commenters that 

discussed this change supported keeping it nonpublic. See, e.g., ICI Comment Letter. 

21See Proposing Release, supra footnote 10, at 

n.15 (noting that the term ‘‘registrant’’ refers to 

entities required to file Form N–PORT, including all 

registered management investment companies, 

other than money market funds and small business 

investment companies, and all ETFs (regardless of 

whether they operate as UITs or management 

investment companies)). 22See revised Item B.8 of Form N–PORT and new 

Item 27(d)(7)(b) of Form N–1A. 23See Item 4(b) of Form N–1A. In addition, Item 

9(c) of Form N–1A requires a fund to disclose all 

principal risks of investing in the fund, including 

the risks to which the fund’s particular portfolio as 

a whole is expected to be subject and the 

circumstances reasonably likely to affect adversely 

the fund’s net asset value, yield, or total return. 24See infra footnote 59 and accompanying text. 

raised concerns that the public 

disclosure of a fund’s aggregate liquidity 

classification information on Form N– 

PORT may not achieve our intended 

purpose and may confuse and mislead 

investors.10

In light of these concerns,11 we 

proposed to replace the Form N–PORT 

requirement for a fund to publicly 

report aggregate liquidity portfolio 

classification information on a quarterly 

basis with new disclosure in the fund’s 

annual shareholder report that provides 

a narrative discussion of the operation 

and effectiveness of the fund’s liquidity 

risk management program over the most 

recently completed fiscal year.12 We 

also proposed additional amendments 

to Form N–PORT that would allow a 

fund to report a single portfolio holding 

in multiple classification buckets under 

defined circumstances where splitting 

the holding into multiple buckets would 

provide the Commission with more or 

equally accurate information at lower 

cost to funds (and thus, to fund 

shareholders). Finally, we proposed 

additional amendments to Form N– 

PORT designed to help us monitor 

trends in the use of cash and cash 

equivalents and more accurately assess 

the composition of a fund’s highly 

liquid investment minimum 

(‘‘HLIM’’).13

We received 24 comment letters on 

the proposal. A significant majority of 

commenters generally supported 

replacing public disclosure of aggregate 

liquidity classification information on 

Form N–PORT with a new narrative 

discussion of a fund’s liquidity risk 

management program in its report to 

shareholders.14 Some expressed 

concerns, however, about the placement 

and content of the discussion regarding 

the operation and effectiveness of the 

fund’s liquidity risk management 

program in the annual report, and 

provided alternatives for us to 

consider.15 A few commenters objected 

to the proposed rescission of public 

aggregate liquidity reporting on Form 

N–PORT, arguing that classification 

information would be useful and 

understandable to investors, and would 

not result in the potential negative 

consequences suggested in the 

proposal.16 Commenters generally 

supported the other proposed changes 

to Form N–PORT.17 In addition, the 

majority of commenters urged us to reexamine more broadly the classification 

requirements and related elements of 

rule 22e–4.18 We discuss in Section II.C 

below additional efforts the Commission 

and its staff will take in relation to rule 

22e–4 and its requirements. 

Today, after considering comments 

we received, we are adopting 

amendments to Forms N–PORT and N– 

1A largely as proposed.19 The 

amendments will replace the 

requirement in Form N–PORT that a 

fund publicly disclose on an aggregate 

basis the percentage of its investments 

allocated to each liquidity classification 

category with a new narrative 

discussion in the fund’s shareholder 

report regarding its liquidity risk 

management program.20

The Commission also is adopting 

amendments to Form N–PORT that will 

provide funds the flexibility to split a 

fund’s portfolio holdings into more than 

one classification category in three 

specified circumstances when split 

reporting equally or more accurately 

reflects the liquidity of the investment 

or eases cost burdens. Finally, we are 

adopting as proposed a Form N–PORT 

requirement that funds, and other 

registrants, disclose their holdings of 

cash and cash equivalents not reported 

in Parts C and D of the Form.21 We 

discuss the comments and changes from 

the proposal below. 

II. Discussion 

A. Amendments to Liquidity Public 

Reporting and Disclosure Requirements 

Today we are replacing the 

requirement in Form N–PORT that a 

fund publicly disclose on an aggregate 

basis the percentage of its investments 

that it has allocated to each liquidity 

classification category with new 

narrative discussion in the fund’s 

shareholder report regarding its 

liquidity risk management program.22

Funds already are required to disclose a 

summary of the principal risks of 

investing in the fund, including 

liquidity risk if applicable, in its 

prospectus.23

The new narrative discussion will 

include disclosure about the operation 

and effectiveness of the fund’s 

implementation of its required liquidity 

risk management program. Additionally, 

we are clarifying how funds should 

discuss liquidity events that materially 

affected performance in the 

management’s discussion of fund 

performance (‘‘MDFP’’) section of the 

annual shareholder report.24 We expect 


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25See new Item 27(d)(7)(b) of Form N–1A. 

26See Proposing Release, supra footnote 10, at 

nn.20–27 and accompanying text. 

27See id., at nn.28–30 and accompanying text. 

28See id., at n.31 and accompanying text. 

29See, e.g., IDC Comment Letter; BlackRock 

Comment Letter; SIFMA AMG Comment Letter. 30See, e.g., IDC Comment Letter (‘‘A narrative 

discussion about a fund’s liquidity risk 

management program would provide shareholders 

with clearer, more understandable, and more useful 

information about the fund—in plain English.’’). 31See Comment Letter of MSCI (May 18, 2018) 

(‘‘MSCI Comment Letter’’). 32See, e.g., ICI Comment Letter; SIFMA Comment 

Letter. 

33See Ya Li Comment Letter; Better Markets 

Comment Letter; AFR Comment Letter; Comment 

Letter of Bondview (May 17, 2018) (‘‘Bondview 

Comment Letter’’). 

34See Better Markets Comment Letter. 

35See Better Markets Comment Letter; Bondview 

Comment Letter. 

36See AFR Comment Letter. 

37See Better Markets Comment Letter (arguing 

that investors ‘‘can and do read and digest a broad 

range of information when making investment 

decisions’’ and stating that the aggregated liquidity 

classification data ‘‘can easily be understood as it 

simply states the percentages of liquid-to-illiquid 

holdings a fund has in its portfolio. Investors and 

those who serve them then can add this liquidity 

classification information to their total mix of 

information and make better and more informed 

investment decisions.’’). 

38See Better Markets Comment Letter. 

39Liquidity Adopting Release, supra footnote 2, 

at text accompanying n.597. 

40For example, because the aggregate liquidity 

profile would be a backward looking review of a 

fund’s liquidity presented only quarterly, with a 60- 

day delay, it may be misleading if investors were 

to base investing decisions on this information 

without being provided a significant amount of 

additional context about its staleness. 

41See Proposing Release, supra footnote 10, at 

n.32. 

that the clarity we are providing and the 

shareholder report disclosure we are 

adopting will improve funds’ disclosure 

about liquidity events that materially 

affect fund performance as well as the 

operation and effectiveness of their 

liquidity risk management programs.25

These disclosures will provide new and 

existing investors with a holistic view of 

the liquidity risks of the fund and how 

effectively the fund’s liquidity risk 

management program managed those 

risks on an ongoing basis over the 

reporting period. This revised approach 

is designed to provide accessible and 

useful disclosure about liquidity risks 

and risk management to investors, with 

appropriate context, so that investors 

have a more comprehensive picture of 

the fund’s liquidity risks and their 

management and may understand the 

nature and relevance of these risks to 

their investments. 

1. Public Aggregate Liquidity Profile 

As noted in the Proposing Release, 

since the Commission adopted rule 22e– 

4 and the related reforms, Commission 

staff has engaged extensively with 

interested parties and we have received 

letters from industry participants 

discussing the complexities of the 

classification process. These letters 

raised three general types of concerns 

that informed our revised approach to 

public fund liquidity-related disclosure. 

First, the commenters described how 

variations in methodologies and 

assumptions used to conduct liquidity 

classification can significantly affect the 

classification information reported on 

Form N–PORT in ways that investors 

may not understand (‘‘subjectivity’’).26

Second, they suggested that Form N– 

PORT may not be the most accessible 

and useful way to communicate 

information about liquidity risk and 

may not provide the necessary context 

for investors to understand how the 

fund’s classification results relate to its 

liquidity risk and risk management 

(‘‘lack of context’’).27 Third, they argued 

that because this reporting item on Form 

N–PORT singles out liquidity risk, and 

does not place it in a broader context of 

the risks and factors affecting a fund’s 

risk, returns, and performance, it may 

inappropriately focus investors on one 

investing risk over others (‘‘liquidity 

risk in isolation’’).28

As we discussed in the Proposing 

Release, these concerns led us to 

propose a new approach to liquidityrelated disclosure. Most commenters on 

the proposal agreed with our approach, 

and supported replacing quarterly 

public disclosure of aggregate liquidity 

classification information on Form N– 

PORT with a new requirement that 

funds discuss the operation and 

effectiveness of their liquidity risk 

management program in their 

shareholder reports.29 These 

commenters generally reiterated the 

concerns that led us to propose these 

changes, stating that the new approach 

would be less likely to confuse or 

mislead investors.30 These commenters 

emphasized that classification data is 

inherently subject to variability due to 

model design and the assumptions used, 

and that this model risk introduces yet 

another element of subjectivity to the 

classification process.31 Several 

commenters also argued that the 

forward-looking nature of classification 

data, which is based on assumptions 

about how fast a fund could sell 

securities, makes the data inappropriate 

for public consumption.32

However, a few commenters objected 

to the proposed amendments, arguing 

that investors would benefit from being 

able to access the aggregated liquidity 

bucketing information of the funds in 

which they invest.33 They argued that 

the Commission should err on the side 

of providing more information to 

investors about their funds, rather than 

less.34 While these commenters 

acknowledged that there may be 

subjectivity in funds’ classification 

decisions, they argued that subjectivity 

is inherent in finance and the use of 

subjective judgments was an intended 

consequence of the rule.35 One 

commenter stated that replacing a 

‘‘quantitative measure with a qualitative 

discussion is an inherently more 

subjective approach.’’ 36 One commenter 

also suggested that investors are capable 

of understanding the aggregate liquidity 

classification data and weighing its 

value in the context of other types of 

disclosure and information available to 

them.37 Finally, one commenter 

asserted that, because the Commission 

had not engaged in investor testing of 

classification data, any conclusions as to 

its utility or the potential confusion to 

investors would not have an empirical 

basis.38

We continue to believe that it is 

important for investors to understand 

the liquidity risks of the funds they hold 

and how those risks are managed. We 

appreciate commenters’ concerns 

regarding the elimination of public 

disclosure of aggregate liquidity 

classification reporting. We also 

recognize that subjectivity is inherent in 

many financial decisions and is in fact 

desirable to some extent in the 

classification information that is 

reported to us.39 However, the 

subjectivity of the classification process 

when applied to this public disclosure 

concerns us for several specific reasons. 

First, the quantitative presentation of 

the aggregate liquidity information may 

imply precision and uniformity in a way 

that obscures its subjectivity. When 

disclosure is clearly subjective, we 

believe investors are likely better able to 

understand and appreciate its nature. In 

this case, however, we believe the 

presentation of quantitative data may 

pose a significant risk of confusing and 

misleading investors.40 Second, we 

continue to share the concern expressed 

by many commenters that public 

dissemination of the aggregate 

classification information, without an 

accompanying full explanation to 

investors of the underlying subjectivity, 

model risk, methodological decisions, 

and assumptions that shape this 

information, may potentially be 

misleading to investors.41 Absent that 

kind of detailed contextual explanation, 

we believe that such aggregate 

classification data may not be useful for 

investors, as it would not result in an 

‘‘apples to apples’’ comparison between 


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42See Proposing Release, supra footnote 10, at 

text following n.13. 43See Proposing Release, supra footnote 10. 44See ICI Pre-proposal Letter I. These risks may 

both increase the possibility of correlated market 

movements in times of stress and may potentially 

reduce the utility of the classification data reported 

to us. 45See, e.g., MSCI Comment Letter (‘‘While we are 

generally in favor of promoting public transparency 

about fund liquidity, we agree with [the proposal]. 

The classification involves a high level of model 

risk . . . which does not allow a direct comparison 

of results obtained from different funds unless more 

and more technical information is provided on the 

nature of the models and the parameters used to 

generate the result.’’). 

46See Proposing Release, supra footnote 10, at 

n.33 (noting that ‘‘due to the variability and 

subjective inputs required to engage in liquidity 

classification under rule 22e–4, providing effective 

information about liquidity classifications under 

that rule to investors poses more difficult and 

different challenges than the other data that is 

publicly disclosed on Form N–PORT, which is 

more objective and less likely to vary between 

funds based on their particular facts and 

circumstances’’). See also Comment Letter of J.P. 

Morgan Asset Management (May 18, 2018) (‘‘J.P. 

Morgan Comment Letter’’) (‘‘It would not be 

practical to provide an investor-friendly 

explanation of each input, and associated effect on 

the classification output. Absent this information, 

however, investors may reasonably believe that they 

are looking at an objective assessment of a fund’s 

liquidity profile.’’). 

47See, e.g., SIFMA AMG Comment Letter (‘‘AMG 

believes the proposal strikes the right balance and 

appropriately provides funds the flexibility to tailor 

their disclosure in the most meaningful way for 

their investors.’’); IDC Comment Letter. 

48See MSCI Comment Letter. 

49New Item 27(d)(7)(b) of Form N–1A. 

50The item will require a discussion of the 

operation and effectiveness of the fund’s liquidity 

risk management program during the period 

covered as part of the board’s annual review of the 

funds’ liquidity risk management program. Rule 

22e–4(b)(2)(iii) requires a fund board to review, no 

less frequently than annually, a report prepared by 

the program administrator that addresses the 

operation of the program and its adequacy and 

effectiveness. 

51See e.g., SIFMA AMG Comment Letter; 

Comment Letter of Wellington Management 

Company LLP (May 18, 2018) (‘‘Wellington 

Comment Letter’’); Fidelity Comment Letter; State 

Street Comment Letter. 

52One commenter suggested that the new 

narrative disclosure included in the shareholder 

report be reported in a structured format. See 

Comment Letter of XBRL US, Inc. (May 18, 2018) 

(‘‘XBRL US Comment Letter’’). We are not creating 

an obligation to use a structured format at this time, 

but will consider the issue in connection with other 

Commission initiatives. See Fund Retail Investor 

Experience and Disclosure Request for Comment, 

Investment Company Act Release No. 33113 (June 

5, 2018) [83 FR 26891 (June 11, 2018)]. 

53See e.g., J.P. Morgan Comment Letter; 

BlackRock Comment Letter. 

54See Comment Letter of T. Rowe Price 

Associates, Inc. (May 18, 2018) (‘‘T. Rowe Comment 

Letter’’). 

55See e.g., IAA Comment Letter (stating that, 

because a fund’s liquidity risk management 

program is within the purview of the fund’s board, 

the new disclosure should ‘‘recognize the board’s 

governance function and such disclosure should be 

included in the section of the form that covers the 

process of fund operations and factors considered 

by the board in its review of the liquidity risk 

management program’’). 

funds, and may result in investor 

confusion if they believe it does.42

Additionally, we continue to believe 

that public dissemination of the 

aggregate classification information 

could create perverse incentives to 

classify investments as more liquid, and 

may inappropriately highlight liquidity 

risk compared to other, potentially more 

salient risks of the fund.43 Finally, we 

are concerned that disclosing funds’ 

aggregate liquidity profile may 

potentially create risks of coordinated 

investment behavior, if funds were to 

create more correlated portfolios by 

purchasing investments that they 

believed third parties, such as investors 

or regulators, may view as ‘‘more 

liquid.’’ 44

Additionally, we do not believe it is 

appropriate to adapt Form N–PORT to 

add the level of detail and narrative 

context that we believe would be 

necessary for investors to appreciate 

better the fund’s liquidity risk profile 

and the subjective nature of 

classification. The commenters who 

addressed potentially adapting Form N– 

PORT generally agreed that it may take 

significant detailed disclosure and 

nuanced explanation to effectively 

inform investors about the subjectivity 

and limitations of aggregate liquidity 

classification information so as to allow 

them to properly make use of the 

information.45 Such a long narrative 

discussion would not be consistent with 

the nature of, and could undermine the 

purpose of, Form N–PORT.46 Also, to 

the extent that such disclosure would 

need to be granular and detailed to 

effectively explain the process of 

compiling the liquidity information, it is 

not consistent with the careful 

balancing of investor interests that the 

Commission performed in determining 

to require disclosure of sensitive 

granular information, including 

position-level data, only on a nonpublic basis. 

For these reasons, and in light of the 

concerns above, it is our judgment that 

effective disclosure of liquidity risks 

and their management would be better 

achieved through prospectus and 

shareholder report disclosure rather 

than Form N–PORT. Most commenters 

agreed, suggesting that shareholder 

report disclosure would have the benefit 

of allowing funds to produce tailored 

disclosure suited to the particular 

liquidity risks and management 

practices of the specific fund.47 This 

would avoid use of a one-size-fits-all 

approach when providing liquidity risk 

information to investors, and would 

avoid giving investors the ‘‘false 

impression that they can rely on the sole 

results of time bucketing for comparing 

liquidity of different funds in making 

their investment decisions.’’ 48

Accordingly, we are adopting the 

amendments to Form N–PORT 

eliminating public disclosure of 

aggregate liquidity classification 

information as proposed. 

2. Shareholder Report Liquidity Risk 

Disclosure 

We also are adopting, largely as 

proposed, a new requirement for funds 

to discuss briefly the operation and 

effectiveness of a fund’s liquidity risk 

management program in the fund’s 

report to shareholders. In response to 

commenters, we are moving this 

discussion of the operation and 

effectiveness of a fund’s liquidity risk 

management program from the MDFP 

section of the annual report to a new 

section of the shareholder report 

(annual or semi-annual) following the 

discussion of board approval of advisory 

contracts.49 As proposed, this 

subsection will require funds to discuss 

the operation and effectiveness of their 

liquidity risk management program over 

the period covered. However, funds will 

have flexibility to cover an annual 

period that does not coincide with the 

fund’s most recently completed fiscal 

year.50

The majority of commenters generally 

agreed with our proposed requirement 

that funds provide a narrative 

discussion of the operation and 

effectiveness of a fund’s liquidity risk 

management program, noting that such 

disclosure is a better way to provide 

investors with useful and accessible 

liquidity information and reduces the 

risk of investor confusion.51 However, 

some commenters suggested certain 

modifications to our proposed 

disclosure, largely focused on its 

placement.52 These commenters 

objected to including the narrative 

disclosure in the MDFP, arguing that, in 

many cases, the required liquidity 

disclosures would not concern primary 

drivers of fund performance. 

Commenters had a variety of ideas on 

where disclosure on the operation and 

effectiveness of the liquidity risk 

management program should be placed, 

with some suggesting that it be in its 

own subsection within the annual 

report,53 in the fund’s Statement of 

Additional Information (‘‘SAI’’),54 or in 

the section of the shareholder report 

discussing the bases for the board’s 

approval of the advisory contract.55

Several commenters also suggested that 

allowing funds to include the new 

disclosure in either the fund’s annual or 


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56See, e.g., ICI Comment Letter (arguing that, if 

the required liquidity risk management disclosure 

must be included in the annual report, fund 

complexes offering multiple funds with fiscal yearends spread throughout the year will be frustrated 

in their ability to leverage their board reporting for 

this new shareholder report requirement); Capital 

Group Comment Letter (noting that many fund 

families are expected to provide the annual 

liquidity risk management report to the board of all 

their funds at the same time once a year without 

regard to fiscal year ends). 

57See Disclosure of Mutual Fund Performance 

and Portfolio Managers, Investment Company Act 

Release No. 19382 (Apr. 6, 1993) [58 FR 21927 (Apr. 

26, 1993)] (noting that the MDFP requires funds to 

‘‘explain what happened during the previous fiscal 

year and why it happened’’). 

58See Item 27(b)(7)(i) of Form N–1A. See also 

Shareholder Reports and Quarterly Portfolio 

Disclosure of Registered Management Investment 

Companies, Investment Company Act Release No. 

26372 (Aug. 9, 2004) [69 FR 49805 (Aug. 12, 2004)] 

(noting that ‘‘investors rely on MDFP to explain the 

investment operations and performance of a mutual 

fund’’). We understand that because liquidity 

events can materially affect fund performance 

during a fiscal year, funds currently discuss such 

events in their MDFP. 

59See, e.g., T. Rowe Comment Letter (suggesting 

that discussion of the overall structure and 

operations of the liquidity risk management 

program should be in the fund’s SAI, but that the 

MDFP section could still contain disclosure of 

liquidity events and the use of liquidity risk 

management tools that had a material effect on the 

investment operations and performance of a fund); 

Vanguard Comment Letter (suggesting that focusing 

the MDFP narrative disclosure on material liquidity 

risks faced during the relevant period would help 

ensure that this disclosure does not become 

boilerplate). 

60See new Item 27(d)(7)(b) of Form N–1A. The 

discussion required by Item 27(d)(7)(b) will be 

included in the shareholder report following the 

board’s review of the fund’s liquidity risk 

management program. Thus, for example, if the 

board reviews the operation of the fund’s liquidity 

risk management program during the first half of a 

fund’s fiscal year, the disclosure will be required in 

the semi-annual report for that period. However, if 

a board reviews the liquidity program more 

frequently than annually, the disclosure need only 

be included in the annual or semi-annual report, 

not both. See new Instruction to Item 27(d)(7)(b) of 

Form N–1A (clarifying that ‘‘[i]f the board reviews 

the liquidity risk management program more 

frequently than annually, a fund may choose to 

include the discussion of the program’s operation 

and effectiveness over the past year in one of either 

the fund’s annual or semi-annual reports, but does 

not need to include it in both reports). 

61Allowing this flexibility may result in the 

narrative disclosure potentially not consistently 

being in a single document (the annual report), but 

instead being in either the annual or semi-annual 

report. This may lead to the risk that some investors 

may not review this data if they read only one of 

these shareholder reports and the narrative 

disclosure is in the other. Nonetheless, we believe 

that the benefits of the flexibility we are providing 

today (both in cost savings and potentially in better 

disclosure) justify this risk. 

62See e.g., IDC Comment Letter; Vanguard 

Comment Letter; ICI Comment Letter; Capital Group 

Comment Letter. Rule 22e–4, in relevant part, 

defines a ‘‘highly liquid investment’’ as any cash 

held by a fund and any investment that the fund 

reasonably expects to be convertible to cash in 

current market conditions in three business days or 

less without the conversion to cash significantly 

changing the market value of the investment. Rule 

22e–4(a)(6). The rule defines an ‘‘In-Kind ETF’’ as 

an ETF that meets redemptions through in-kind 

transfers of securities, positions and assets other 

than a de minimis amount of cash and that 

publishes its portfolio holdings daily. Rule 22e– 

4(a)(9). 

63For example, highly liquid funds and In-Kind 

ETFs are not required to determine an HLIM. See 

rule 22e–4(b)(1)(iii). 

64Highly liquid funds and In-Kind ETFs must 

consider a variety of factors specific to their 

operations as part of their liquidity risk 

management program, which may be relevant to 

investors. For example, both types of funds must 

analyze issues such as shareholder or portfolio 

concentration, holdings of cash and cash 

equivalents, and other factors. In-Kind ETFs must 

consider factors specific to ETFs, such as the 

operation of the arbitrage function and the level of 

active participation by market participants. See rule 

22e–4(b)(1). 

65The disclosure included in new Item 

27(d)(7)(b) of Form N–1A generally should provide 

a high level summary of the report that must be 

provided to the fund’s board under rule 22e– 

4(b)(2)(iii) addressing the operation of the fund’s 

liquidity risk management program and the 

adequacy and effectiveness of its implementation. 

Continued 

semiannual report would ease some of 

the cost burdens of compliance with the 

new requirement by allowing funds to 

synchronize the new shareholder report 

disclosure with liquidity reporting to 

the board.56

We believe the approach to 

shareholder report liquidity disclosure 

that we are adopting addresses 

commenters’ concerns. Funds are 

required to discuss in their MDFP 

factors that materially affected 

performance of the fund during the most 

recently completed fiscal year.57

Liquidity events are factors that may 

materially affect a fund’s performance. 

Accordingly, to the extent a liquidity 

event has such an effect, this event must 

be discussed in the MDFP.58 This 

discussion of liquidity events in the 

MDFP should include sufficient 

specificity that investors can understand 

the liquidity event, how it affected 

performance, and any other relevant 

market conditions. This is consistent 

with the views of the commenters who 

asked that we clarify that factors that 

affected performance would include 

liquidity events and that such events 

should still be discussed in the MDFP 

section, even if we were to move the 

required new disclosure to a new 

section.59

At the same time, we agree with those 

commenters who argued for moving the 

more operational disclosure outside of 

the MDFP because this information does 

not directly relate to performance 

results. Moving disclosure about the 

operation and effectiveness of the 

liquidity risk management program to a 

new subsection would be more effective 

and would avoid concerns about unduly 

focusing investors on liquidity risk and 

diluting the MDFP. Moving this 

disclosure to Item 27(d)(7) of Form N– 

1A may have several other benefits. The 

MDFP is included only in annual 

reports, not semi-annual reports. By 

moving this disclosure to a new 

subsection that may be included in 

either a fund’s annual or semi-annual 

report,60 it will allow funds to 

synchronize the required annual board 

review of liquidity risk management 

programs with the production of this 

discussion in the shareholder report, 

reducing costs and allowing funds to 

provide more effective disclosure.61 We 

believe that this new narrative 

disclosure will complement existing 

liquidity risk disclosure that funds 

already provide in their prospectus (if it 

is a principal investment risk of the 

fund) and as part of their discussion of 

the factors that materially affected 

performance in the MDFP. It also should 

keep more operational disclosure 

separate from the performance-related 

disclosure required in the MDFP 

section. 

Several commenters suggested that we 

exempt funds that primarily hold assets 

that are highly liquid investments 

(‘‘highly liquid funds’’) and In-Kind 

ETFs from including this new narrative 

disclosure about liquidity risk 

management programs in their 

shareholder reports.62 They explained 

that because such funds face 

significantly lower liquidity risks, and 

are already treated differently and 

subject to less stringent requirements 

under rule 22e–4, it would be 

appropriate to exempt them from the 

requirement.63 We are not providing 

such an exemption. Highly liquid funds 

and In-Kind ETFs are exempt from 

certain requirements under the liquidity 

rule, but both still must have a liquidity 

risk management program. We believe 

that investors would benefit from a 

discussion of the operation and 

effectiveness of the liquidity risk 

management program of these funds, 

much like any other fund.64 However, 

we note that all funds may include 

tailored and proportionate discussion 

appropriate to the liquidity risks they 

face and the scale of their program. 

Highly liquid funds or In-Kind ETFs 

may face fewer, or different, liquidity 

risks than other funds, and thus the 

discussion in their shareholder reports 

may be proportionate or different than 

for other funds. 

To satisfy this new disclosure 

requirement, a fund generally may 

provide information that was provided 

to the board about the operation and 

effectiveness of the program, and insight 

into how the program functioned over 

the past year.65 This discussion should 


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We believe that the conclusions in this report may 

be largely consistent with the overall conclusions 

disclosed to investors in the shareholder report. 

Therefore, because funds will already need to 

prepare a report on the program for purposes of 

board reporting, we believe that the disclosure 

requirement we are adopting today would be 

unlikely to create significant additional burdens. 

66See MSCI Comment Letter. 

67 Id. 

68See e.g., SIFMA AMG Comment Letter; 

Wellington Comment Letter; Fidelity Comment 

Letter; State Street Comment Letter. 

69See Proposing Release, supra footnote 10, at 

text accompanying n.50. 

70See new Item C.7.b of Form N–PORT and 

Instructions to Item C.7 of Form N–PORT. As 

discussed above, Form N–PORT required a fund to 

classify each holding into a single liquidity bucket. 

71See IDC Comment Letter; Fidelity Comment 

Letter; IAA Comment Letter. 

72SIFMA AMG Comment Letter; ICI Comment 

Letter; J.P Morgan Comment Letter. 

73MSCI Comment Letter. 

74See MSCI Comment Letter. 

75See State Street Comment Letter; MSCI 

Comment Letter. 

76For example, a fund may have multiple subadvisers that differ on position A’s classification, 

and also have a different position that has 

differential liquidity characteristics for part of the 

position. We believe that requiring a fund to only 

use one of the circumstances in such a situation 

could result in worse, not better, data reported to 

us. 

77For example, if 30% of a holding is subject to 

a liquidity feature such as a put, and the other 70% 

is not, pursuant to the new Instructions to Item C.7 

of Form N–PORT, a fund may split the position, 

evaluate the sizes it reasonably anticipates trading 

for each portion of the holding that is subject to the 

different liquidity characteristics, and classify each 

separate portion differently, as appropriate. The 

fund in such a case would use the classification 

process laid out in rule 22e–4, but would apply it 

separately to each portion of the holding that 

exhibits different liquidity characteristics. 

78As another example, a fund might have 

purchased a portion of an equity position through 

a private placement that makes those shares 

restricted (and therefore illiquid) while also 

purchasing additional shares of the same security 

on the open market. In that case, certain shares of 

the same holding may have very different liquidity 

characteristics. 

79See, e.g., Comment Letter of ICE Data Services 

(May 18, 2018) (‘‘ICE Comment Letter’’); Fidelity 

Comment Letter; ICI Comment Letter. 

provide investors with enough detail to 

appreciate the manner in which a fund 

manages its liquidity risk, and could, 

but is not required to, include 

discussion of the role of the 

classification process, the 15% illiquid 

investment limit, and the HLIM in the 

fund’s liquidity risk management 

process. 

As part of this new disclosure, a fund 

might opt to discuss the particular 

liquidity risks that it faced over the past 

year, such as significant redemptions, 

changes in the overall market liquidity 

of the investments the fund holds, or 

other liquidity risks, and explain how 

those risks were managed and 

addressed. If the fund faced any 

significant liquidity challenges in the 

past year, it would discuss how those 

challenges affected the fund and how 

they were addressed (recognizing that 

this discussion may occur in the new 

sub-section or the MDFP, as 

appropriate). In the new sub-section, 

funds also may wish to provide context 

and other supplemental information 

about how liquidity risk is managed in 

relation to other investment risks of the 

fund. Additionally, one commenter 

suggested that funds can provide 

investors with useful empirical data 

metrics that would be informative of the 

fund’s liquidity profile.66 We agree and 

believe that funds may include, as part 

of this new sub-section, a discussion of 

other empirical data metrics such as the 

fund’s bid-ask spreads, portfolio 

turnover, or shareholder concentration 

issues (if any) and their effect on the 

fund’s liquidity risk management.67

Overall, we believe that this disclosure 

will provide context and an accessible 

and useful explanation of the fund’s 

liquidity risk in relation to its 

management practices and other 

investment risks as appropriate. 

We continue to believe, and 

commenters generally agreed, that this 

new disclosure will better inform 

investors about the fund’s liquidity risk 

management practices than aggregate 

liquidity classification data on Form N– 

PORT.68 The shareholder report 

disclosure provides funds the 

opportunity to tailor the disclosure to 

their specific liquidity risks, explain the 

level of subjectivity involved in 

liquidity assessment, and give a 

narrative description of these risks and 

how they are managed within the 

context of the fund’s investment 

strategy. Accordingly, we are adopting 

these changes substantially as proposed 

with the modifications discussed above. 

B. Amendments to Liquidity Reporting 

Requirements 

We also are adopting certain changes 

to Form N–PORT related to liquidity 

data. As discussed in the Proposing 

Release, we believe these changes may 

enhance the liquidity data reported to 

us.69 In addition, for some funds, these 

changes also may reduce cost burdens 

as they comply with the rule. 

1. Multiple Classification Categories 

We are adopting as proposed 

amendments to Form N–PORT to allow 

funds the option of splitting a fund’s 

holding into more than one 

classification category in certain 

specified circumstances.70 The 

requirement to classify each entire 

position into a single classification 

category poses difficulties for certain 

holdings and may not accurately reflect 

the liquidity of that holding, or be 

reflective of the liquidity risk 

management practices of the fund. 

Commenters generally supported these 

proposed amendments to Form N– 

PORT, noting that they appreciated the 

flexibility and better accuracy that may 

result.71 However, as discussed below, 

three commenters raised questions or 

suggested amendments related to the 

third circumstance (‘‘full 

liquidation’’) 72 and one questioned the 

utility of the first two circumstances 

(‘‘differences in liquidity 

characteristics’’ and ‘‘differences in subadviser classifications’’).73

Other commenters suggested that we 

not allow funds to classify portions of 

a portfolio holding separately because it 

would ‘‘reduce the utility of the entire 

bucketing exercise.’’ 74 Similarly, a few 

commenters suggested that allowing 

funds to classify portions of a portfolio 

holding for some of their holdings could 

lead to inconsistent interpretations of 

the fund’s classifications, and that we 

should instead require a fund to apply 

a uniform approach across all of its 

holdings.75 We believe that allowing 

funds to split classification in these 

circumstances will actually enhance, 

rather than reduce the utility of the 

process. Because funds will be required 

to indicate which circumstance led to 

their choice to split a classification, we 

will be able to identify which positions 

are split and why. This will allow us a 

more fine-grained understanding of 

funds’ views of a position’s liquidity. 

We also do not believe that we should 

require a fund to consistently use a 

single classification splitting approach 

for all its positions, as different 

positions may have different but equally 

valid circumstances justifying a split 

classification.76

In the first circumstance, even though 

a holding may nominally be a single 

security, different liquidity-affecting 

features may justify treating the holding 

as two or more separate investments for 

liquidity classification purposes. For 

example, a fund might hold an asset that 

includes a put option on a percentage 

(but not all) of the fund’s holding of the 

asset.77 Such a feature may significantly 

affect the liquidity characteristics of the 

portion of the asset subject to the 

feature, such that the fund believes that 

the two portions of the asset should be 

classified into different buckets.78

As discussed above, commenters 

generally agreed that such an 

amendment would allow funds to more 

accurately reflect their liquidity profile 

and report their holdings in a manner 

more consistent with internal liquidity 

risk management programs.79 However, 


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80MSCI Comment Letter. 

81See Proposing Release, supra footnote 10, at 

text preceding n.53. 

82Similar to the ‘‘differences in liquidity 

characteristics’’ examples discussed above, the fund 

effectively will be treating the portions of the 

holding managed by different sub-advisers as if they 

were two separate and distinct investments, and 

bucketing them accordingly. See new Instructions 

to Item C.7 of Form N–PORT. 

83See, e.g., J.P. Morgan Comment Letter, ICE 

Comment Letter. 

84MSCI Comment Letter. 

85These amendments also would have the effect 

of making inapplicable staff FAQ 8 on the liquidity 

rule for funds that choose to rely on this option. See 

Liquidity Staff FAQs, available at https://

www.sec.gov/investment/investment-companyliquidity-risk-management-programs-faq. FAQ 8 

provides guidance for funds on the process of 

reconciling classifications for sub-advisers when 

reporting on Form N–PORT. As this is an option, 

not a requirement, the FAQ would still be relevant 

for those funds that choose not to rely on the 

optional reporting method. The staff will amend the 

FAQ accordingly. 

86See Proposing Release, supra footnote 10, at 

n.54. 

87See id., at n.55. 

88For example, a fund using the full liquidation 

approach and holding $100 million in Asset A 

could determine that it would be able to convert to 

cash $30 million of it in 1–3 days, but could only 

convert the remaining $70 million to cash in 3–7 

days. This fund could choose to split the liquidity 

classification of the holding on Form N–PORT and 

report an allocation of 30% of Asset A in the Highly 

Liquid category and 70% of Asset A in the 

Moderately Liquid category. Such a fund would not 

use sizes that it reasonably anticipates trading when 

engaging in this analysis, but instead would assume 

liquidation of the whole position. See Proposing 

Release, supra footnote 10, at n.56. 

89As discussed in the economic analysis below, 

allowing classification in multiple categories may 

be less costly if it better aligns with current fund 

systems or allows funds to avoid incurring costs 

related to the need to develop systems and 

processes to allocate each holding to exactly one 

classification bucket. 

90 ICI Comment Letter; State Street Comment 

Letter; MSCI Comment Letter. 

91 J.P. Morgan Comment Letter (explaining that a 

full liquidation approach may result in negative 

consequences, by for example, inflating the amount 

of illiquid assets in a fund based solely on the 

calculation method used). 

92SIFMA Comment Letter; ICI Comment Letter. 

For example, if a fund had a $100 million position, 

and a reasonably anticipated trade size of $10 

million, the fund might determine that $4 million 

of that trade size would fall in the highly liquid 

asset bucket, and $6 million would fall in the 

moderately liquid asset bucket. Commenters 

differed on how funds should classify the 

remainder of the position ($90 million) in this 

circumstance. 

93Liquidity Adopting Release, supra footnote 2. 

94 Id. (discussing commenters’ concerns that the 

full liquidation method ‘‘could result in large funds’ 

portfolio liquidity appearing artificially low 

compared to smaller funds because large funds are 

more likely to hold larger positions and determine 

that they could not quickly liquidate these positions 

entirely without a value impact’’). 

95For example, a fund with a $100 million 

position might determine that it could sell $10 

million in 1–3 days and the rest in 4–7 days using 

the full liquidation approach. However, using the 

reasonably anticipated trade size proxy, it might 

determine $10 million was a reasonable trade size, 

and because it could sell that in 1–3 days, the fund 

would be permitted to bucket the entire position in 

the highly liquid category potentially skewing the 

classification to a more liquid bucket. 

one commenter suggested that this 

amendment would not be necessary, as 

such differences in liquidity 

characteristics should already result in 

the position being labeled as separate 

positions on Form N–PORT.80 Form N– 

PORT requires positions to be 

categorized based on CUSIP or other 

identifier, and in many circumstances, 

positions with differences in liquidity 

characteristics may have identical 

identifiers. Accordingly, we continue to 

believe that offering this flexibility is 

appropriate and providing clarity that a 

position can be split in such a 

circumstance would be useful. 

Therefore, we are adopting this 

amendment as proposed. 

Second, it is our understanding that 

when sub-advisers manage different 

portions or ‘‘sleeves’’ of a fund’s 

portfolio, sub-advisers may have 

different views of the liquidity 

classification of a single holding that is 

held in multiple sleeves.81 We believe 

that allowing a fund to report each subadviser’s classification of the 

proportional holding it manages, instead 

of putting the entire holding into a 

single category, will avoid the need for 

costly reconciliation and may provide 

useful information to the Commission 

on each sub-adviser’s determination 

about the investment’s liquidity.82

Commenters generally agreed that this 

flexibility would allow for these 

benefits.83 However, one commenter 

suggested that splitting positions in this 

circumstance would merely signal an 

inconsistency between sub-adviser 

models and would not provide useful 

information.84 We disagree, and believe 

that getting more granular insight into 

sub-advisers’ views on liquidity 

positions may be informative in some 

circumstances. We also believe it is 

appropriate to allow this flexibility to 

avoid unnecessary costs associated with 

the reconciliation process. Therefore, 

we are adopting this amendment as 

proposed.85

Third, it is our understanding that for 

internal risk management purposes 

some funds may currently classify their 

holdings proportionally across buckets, 

based on an assumed sale of the entire 

position.86 In such cases, it is our 

understanding that allowing a fund to 

have the option of reporting the position 

assuming a full liquidation on Form N– 

PORT would be more efficient and less 

costly than using a single classification 

category.87 We believe that in such 

cases, this form of reporting will not 

impair the Commission’s monitoring 

and oversight efforts as compared to our 

approach of classifying based on ‘‘sizes 

that the fund would reasonably 

anticipate trading.’’ 88 Further, we 

believe the approach, which allows, but 

does not require, funds to use the full 

liquidation/proportional approach, will 

maintain the quality of the information 

reported to us and potentially be less 

costly than the approach we adopted.89

Commenters generally agreed that 

permitting the option to use such a full 

liquidation approach would be useful,90

though one cautioned that it would not 

use such an approach in practice.91 This 

approach is optional, and therefore, if it 

could have negative consequences such 

as inflating the fund’s illiquid 

investment bucket, a fund could choose 

not to use it. We are adopting this third 

circumstance as proposed. 

In the proposal, we also requested 

comment on other circumstances where 

classification splitting might be 

appropriate. Commenters suggested that 

we also allow certain methods of 

classification splitting when a fund’s 

reasonably anticipated trade size falls 

across multiple liquidity buckets.92 As 

discussed in the Liquidity Adopting 

Release, the reasonably anticipated 

trade size method for analyzing 

positions replaced the full liquidation 

approach that we originally proposed.93

Classifying liquidity based on 

reasonably anticipated trading sizes 

allows for a simpler analytic process in 

some respects and avoids certain issues 

where a full liquidation analysis may 

create disparate results between funds 

of different sizes.94 However, it also is 

an imperfect proxy for the actual 

liquidity characteristics of fund 

investments, potentially skewing 

classifications to more liquid 

‘‘buckets.’’ 95

We believe that allowing funds to 

split the reasonably anticipated trade 

size and use such a split in classifying 

the rest of a fund’s position could 

further exacerbate these imperfections, 

leading to more distorted liquidity 

profiles for funds. The staff will 

continue to evaluate potential other 

approaches to liquidity risk 

management, including other 

approaches to classifying fund liquidity. 

Interested parties may provide feedback 

on the use of reasonably anticipated 

trade size as part of classification, and 

whether we should consider any further 

modifications. 

Two commenters asked us to clarify 

that funds may use these classificationsplitting approaches not just for Form 

N–PORT reporting, but for all 

classification purposes under rule 22e– 


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96SIFMA Comment Letter; ICI Comment Letter. 

97See Item C.7 of Form N–PORT. 

98See Proposing Release, supra footnote 10, at 

text accompanying n.58. 

99Revised Item C.7 of Form N–PORT and new 

Instructions to Item C.7 of Form N–PORT. Funds 

that choose not to take advantage of these options 

may continue to use the approach laid out in the 

final rule of bucketing an entire position based on 

the liquidity of the sizes the fund would reasonably 

anticipate trading. 

100Revised Item C.7 of Form N–PORT and new 

Instructions to Item C.7 of Form N–PORT. These 

instructions provide an explanation for how funds 

that choose to take advantage of split reporting 

should implement it. 

101New Item C.7.b of Form N–PORT. A fund may 

also choose to provide (but is not required to) 

additional context on its process for classifying 

portions of the same holding differently in the 

explanatory notes section of Form N–PORT. See 

Part E of Form N–PORT. 

102See supra footnote 21. 

103See new Item B.2.f of Form N–PORT. 

104See Reporting Modernization Adopting 

Release, supra footnote 2. Part D of Form N–PORT 

requires the disclosure of miscellaneous securities. 

105 In addition to cash, a registrant’s disclosure of 

total assets on Part B.1.a. also could include certain 

non-cash assets that are not investments of the 

registrant, such as receivables for portfolio 

investments sold, interest receivable on portfolio 

investments, and receivables for shares of the 

registrant. 

106 ICI Comment Letter; State Street Comment 

Letter; IDC Comment Letter. 

107See, e.g., Fidelity Comment Letter. 

108SIFMA AMG Comment Letter; Fidelity 

Comment Letter. 

109SIFMA AMG Comment Letter. 

110Fidelity Comment Letter. 

111See FASB Accounting Standards Codification 

Master Glossary. 

4.96 The requirement to assign a 

position into a single bucket is specific 

to Form N–PORT.97 Rule 22e–4(b)(ii) 

requires funds to classify their positions 

among four categories for liquidity risk 

management purposes, but does not 

require positions to be put into a single 

category. Accordingly, we clarify that 

funds following the classification 

splitting approaches delineated on Form 

N–PORT may apply such splitting more 

generally in their classification 

processes under rule 22e–4. 

While we believe that we should 

permit funds to report liquidity 

classifications in the three ways 

discussed above, we also continue to 

believe it is necessary to limit split 

reporting to these circumstances in 

order to maintain the effectiveness of 

our monitoring efforts. As we stated in 

the Proposing Release, we believe that 

allowing funds to engage in such split 

reporting under these circumstances 

will allow for a more precise view of the 

liquidity of these securities.98 Because 

funds that choose to classify across 

multiple categories under this approach 

will be required to indicate which of the 

circumstances led to the split 

classification, we will be able to monitor 

more effectively the liquidity of a fund’s 

portfolio and determine the 

circumstances leading to the 

classification. Therefore, we are 

amending Item C.7 of Form N–PORT to 

provide funds the option of splitting the 

classification categories reported for 

their investments on a percentage basis 

in these specified circumstances.99 We 

are also adopting new Instructions to 

Item C.7 that explain the specified 

circumstances where a fund may split 

classification categories.100 In addition, 

we are adopting new Item C.7.b, which 

will require funds taking advantage of 

the option to attribute multiple 

classifications to a holding to note 

which of the circumstances led the fund 

to split the classifications of the 

holdings.101

2. Disclosure of Cash and Cash 

Equivalents 

We also are adopting as proposed 

amendments to Form N–PORT to 

require additional disclosure relating to 

a registrant’s holdings of cash and cash 

equivalents not reported in Parts C and 

D of the Form.102 This disclosure will be 

made publicly available each quarter.103

Form N–PORT currently does not 

require registrants to specifically report 

the amount of cash and cash equivalents 

held by the registrant. As we noted in 

the Reporting Modernization Adopting 

Release, Part C of Form N–PORT was 

designed to require registrants to report 

certain information on an investmentby-investment basis about each 

investment held by the registrant.104

However, cash and certain cash 

equivalents are not considered an 

investment on Form N–PORT, and 

therefore registrants are not required to 

report them in Part C of the Form as an 

investment. Similarly, Part B.1 of Form 

N–PORT (assets and liabilities) will 

require information about a registrant’s 

assets and liabilities, but does not 

require specific disclosure of a 

registrant’s holdings of cash and cash 

equivalents.105

Cash held by a fund is a highly liquid 

investment under rule 22e–4 and would 

have been included in the aggregate 

liquidity profile that we are eliminating. 

Without the aggregate liquidity profile, 

we may not be able to effectively 

monitor whether a fund is compliant 

with its HLIM unless we know the 

amount of cash held by the fund. The 

additional disclosure of cash and certain 

cash equivalents by funds also will 

provide more complete information to 

be used in analyzing a fund’s HLIM, as 

well as trends regarding the amount of 

cash being held, which also correlates to 

other activities the fund is experiencing, 

including net inflows and outflows. 

Most commenters who discussed this 

addition supported it. They agreed that 

providing this information is necessary 

for the Commission’s monitoring of a 

fund’s HLIM, and that this information 

would help provide a more complete 

picture of a fund’s holdings.106

However, two commenters were 

concerned about potential investor 

confusion if they interpreted this item 

as the totality of a fund’s highly liquid 

investments.107 They were concerned 

that investors could mistakenly believe 

that a fund’s ability to meet redemption 

requests depended only on these cash 

holdings.108 One such commenter asked 

that the Commission make this item 

non-public to avoid these concerns,109

while another suggested changing the 

title of the item to further clarify that a 

fund may report cash equivalents in 

response to other items on the form.110

While we appreciate the concerns for 

investor confusion, we believe that the 

title of the item makes clear that it 

covers only cash and cash equivalents 

not reported in other parts of the form, 

and therefore investors would be on 

notice that this item does not 

necessarily include all cash or cash 

equivalents held by the fund. We also 

note that funds may provide further 

public explanations about their cash 

holdings as part of the explanatory notes 

associated with the item. 

We are therefore adopting as proposed 

amendments to Item B.2 of Form N– 

PORT (certain assets and liabilities) to 

include a new Item B.2.f, which will 

require registrants to report ‘‘cash and 

cash equivalents not reported in Parts C 

and D.’’ Current U.S. Generally 

Accepted Accounting Principles 

(‘‘GAAP’’) define cash equivalents as 

‘‘short-term, highly liquid investments 

that . . . are . . . [r]eadily convertible to 

known amounts of cash . . . [and that 

are] [s]o near their maturity that they 

present insignificant risk of changes in 

value because of changes in interest 

rates.’’ 111 However, we understand that 

certain categories of investments 

currently reported on Part C of Form N– 

PORT (schedule of portfolio 

investments) could be reasonably 

considered by some registrants as cash 

equivalents. For example, Item C.4 of 

Form N–PORT requires registrants to 

identify asset type, including ‘‘shortterm investment vehicle (e.g., money 

market fund, liquidity pool, or other 

cash management vehicle),’’ which 

could reasonably be categorized by 

some registrants as a cash equivalent. In 

order to ensure the amount reported 

under Item B.2.f is accurate and does 


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112We also are adopting other amendments to 

Form N–PORT as proposed. In particular, we are 

amending General Instruction F (Public 

Availability) to remove the phrase ‘‘of this form’’ 

from parenthetical references to Item B.7 and Part 

D for consistency with other parenthetical cross 

references in the Form. We also are amending Part 

F (Exhibits) to fix a typographical error in the 

citation to Regulation S–X. In addition, for 

consistency with the amendments we are adopting, 

we are adding Item B.8 (Derivative Transactions) to 

General Instruction F. 

113See A financial System That Creates Economic 

Opportunities; Asset Management and Insurance, 

U.S. Department of the Treasury (Oct. 2017) 

available at https://www.treasury.gov/press-center/ 

press-releases/Documents/A-Financial-SystemThat-Creates-Economic-Opportunities-Asset_

Management-Insurance.pdf. 

114See Proposing Release, supra footnote 10, at 

n.49. 

115See, e.g., Federated Comment Letter; Fidelity 

Comment Letter; Vanguard Comment Letter. 

116See, e.g., Fidelity Comment Letter; Vanguard 

Comment Letter. 

117See, e.g., J.P. Morgan Comment Letter; 

Vanguard Comment Letter. 

118See, e.g., T. Rowe Comment Letter; Vanguard 

Comment Letter. 

119See, e.g., T. Rowe Comment Letter (‘‘We 

believe that the bucketing requirement goes beyond 

what is necessary for a robust risk management 

regime, and will ultimately prove to be of limited 

additional utility to fund managers, fund boards, 

and fund shareholders.’’). 

120The Commission would evaluate appropriate 

terms and conditions for any exemption under the 

standard set forth in Section 6(c) of the Investment 

Company Act. 

121See ICI Comment Letter. 

122 Id. 

123AFR Comment Letter (‘‘[W]e continue to 

believe the Commission should require granular 

information about the liquidity classifications of 

individual assets; provide strong oversight of fund 

liquidity classifications; or strengthen and enforce 

the 15 percent illiquid investments limit.’’). 

124See BlackRock Comment Letter (‘‘Any material 

changes to the requirements of fund managers 

under rule 22e–4 at this point in time would have 

a cost of its own that would need to be factored in. 

We believe the proposed refinements to the 

disclosure associated with rule 22e–4 would be 

sufficient to address the material concerns raised by 

the industry, which were reflected in the Treasury 

report recommendation, without materially altering 

the rule at this late stage (a development that would 

be counterproductive at this time.’’)). Conversely, 

one commenter cautioned the Commission from 

falling victim to the ‘‘sunk cost fallacy’’ arguing that 

the costs incurred already in complying with rule 

22e–4 should not deter the Commission from 

moving to a principles-based approach. See 

Vanguard Comment Letter. 

125See infra footnote 129 and accompanying text. 

126See supra section II.A.2. 

127Retrospective review of regulations is often 

viewed as a best practice in federal agency 

rulemaking. See e.g., Government Accountability 

Office, Opportunities remain for OMB to improve 

the transparency of rulemaking processes (Mar. 

2016), available at https://www.gao.gov/assets/680/ 

675810.pdf (‘‘We have long advocated the potential 

usefulness to Congress, agencies, and the public of 

conducting retrospective regulatory analyses.’’). 

128One commenter argued that any such review 

of liquidity data should take into account a full 

year’s worth of data at a minimum, and preferably 

more, to ensure that the data includes stressed 

periods and other fund outflows. See ICI Comment 

Letter. 

not double count items that are more 

appropriately reported in Parts C 

(Schedule of portfolio investments) and 

D (Miscellaneous securities) of Form N– 

PORT, we are requiring registrants to 

only include the cash and cash 

equivalents not reported in those 

sections.112

C. Treasury Asset Management Report 

and Evaluation of Other Approaches 

In its 2017 Asset Management and 

Insurance Report, the Department of 

Treasury highlighted the importance of 

robust liquidity risk management 

programs, but recommended that the 

Commission embrace a ‘‘principlesbased approach to liquidity risk 

management rulemaking and any 

associated bucketing requirements.’’ 113

The proposal requested comment on 

whether there were advantages to the 

Treasury report’s suggested approach 

and, if so, what additional steps should 

be taken to shift towards a more 

principles-based approach.114

We received many comments that 

suggested alternative approaches to 

liquidity risk management regulation.115

Most of these commenters saw little 

benefit in the classification provisions 

of rule 22e–4, and associated 

requirements such as the HLIM.116

Some stated that if requirements related 

to classification were removed or if we 

allowed funds to design their own 

classification systems, the funds could 

define what qualifies as a highly liquid 

asset and an illiquid asset.117 Several of 

these commenters noted that they 

already have liquidity risk management 

practices in place that differ from the 

specific classification requirements of 

rule 22e–4, and that they expected to 

maintain their own processes alongside 

those required by the rule.118 They 

stated that this results in duplication of 

effort and wasted resources, and 

suggested that replacing the 

classification provisions with a 

principles-based approach would 

reduce burdens on funds and investors 

while still ensuring effective liquidity 

risk management practices by funds.119

We note 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.120

One commenter acknowledged that 

moving to a principles based approach 

would come at a cost, for example, 

because it would limit the 

Commission’s ability to compare fund 

reporting in an ‘‘apples-to-apples’’ 

manner.121 However, that commenter 

stated that such a cost would be 

worthwhile in light of the benefits and 

cost savings associated with allowing 

funds to continue to manage liquidity in 

the way they believed was most 

appropriate for their funds.122 Another 

commenter disagreed that moving to a 

principles-based approach was 

appropriate.123 One commenter also 

pointed to additional costs associated 

with moving to such a principles based 

approach in light of the expense and 

effort incurred already to comply with 

the rule.124

Today, we are modifying certain 

aspects of our liquidity framework, 

largely as proposed. However, we 

recognize that a broad range of 

commenters continue to believe that 

alternative approaches to classification 

would better achieve the Commission’s 

goals. Accordingly, during and 

following the implementation of the 

rule and reporting requirements, the 

staff will continue its efforts to monitor 

and solicit feedback on implementation. 

As part of this monitoring, the staff will 

analyze the extent to which the liquidity 

classification process and data are 

achieving the Commission’s goals and 

any other feedback provided from 

interested parties to the Commission.125

The staff will then inform the 

Commission what steps, if any, the staff 

recommends in light of this monitoring. 

We expect that this evaluation will 

include, at a minimum: (i) The costs and 

benefits of rule 22e–4 and its associated 

classification requirements; (ii) whether 

there should be public dissemination of 

fund-specific liquidity classification 

information; (iii) whether the 

Commission should propose 

amendments to rule 22e–4 to move to a 

more principles-based approach in light 

of this evaluation; (iv) and whether the 

Commission should propose to require 

certain empirical data metrics be 

disclosed.126

To properly engage in such an 

evaluation and to ground it on an 

empirical basis, we believe it is 

important for funds and the 

Commission to gain experience with the 

classification process, to allow analysis 

of its benefits and costs based on actual 

practice.127 Accordingly, we expect that 

this staff evaluation will take into 

account at least one full year’s worth of 

liquidity classification data from large 

and small entities.128

We welcome public feedback as part 

of this evaluation, and have set up an 

email inbox where funds, investors, or 

other interested parties may submit 


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129Email: IM-Liquidity@sec.gov. 

130 ICI Comment Letter. 

131Staff from the Division of Investment 

Management as well as staff from the Division of 

Economic and Risk Analysis also may publish ad 

hoc papers on fund liquidity based on Form N– 

PORT liquidity data. 

132 ‘‘Larger entities’’ are defined as funds that, 

together with other investment companies in the 

same ‘‘group of related investment companies,’’ 

have net assets of $1 billion or more as of the end 

of the most recent fiscal year of the fund. ‘‘Smaller 

entities’’ are defined as funds that, together with 

other investment companies in the same group of 

related investment companies, have net assets of 

less than $1 billion as of the end of its most recent 

fiscal year. See Liquidity Adopting Release, supra 

footnote 2, at n.997. 

133See Liquidity Extension Release, supra 

footnote 8. 

134See, e.g., ICI Comment Letter. 

135Liquidity Extension Release, supra footnote 8. 

136 ICI Comment Letter; State Street Comment 

Letter. 

information, now and during the first 

year of reporting, to help assist the staff 

and the Commission.129 In particular, 

we would appreciate information about 

the following subjects. 

• To what extent will funds continue 

to maintain separate liquidity risk 

management processes and practices 

alongside those required by the 

classification provisions of rule 22e–4? 

What costs are associated with 

maintaining such dual systems? Are 

there synergies or other benefits that 

would result? Do funds expect to 

eventually combine existing systems 

and rule 22e–4 classification programs 

over time, or do they expect to keep 

them separate? 

• Were the implementation and 

ongoing cost estimates and assumptions 

made in adopting rule 22e–4 and rule 

and form amendments accurate? In 

particular, were the assumptions made 

about vendor usage and associated costs 

correct considering the widespread use 

of vendors (as opposed to in-house 

systems) that we understand has taken 

place? 

• What benefits have investors, funds, 

and the markets gained from liquidity 

classification, including matters 

associated with classification such as 

the HLIM and the illiquid investment 

limit? Is there a way to retain these 

benefits while moving to a more 

principles-based system? Do certain 

aspects of the classification process, 

such as the classification of illiquid 

investments and/or the classification of 

highly liquid investments, generate 

greater benefits than others? 

• To what extent would investors and 

others benefit from public liquidity 

classification information? Are there 

other types of information that may 

allow investors to better understand the 

liquidity of their funds? For example, 

instead of classification information, 

would investors (or the Commission) be 

better able to evaluate fund liquidity 

through public disclosure of empirical 

data such as bid-ask spreads of portfolio 

securities, portfolio turnover, or 

shareholder concentration measures? 

• If we were to propose amendments 

to rule 22e–4 to move to a more 

principles-based approach, would the 

benefits of such a new approach 

outweigh the costs of implementation? 

On what principles should we base such 

an approach? 

Finally, as we discussed in the 

proposal, our staff anticipates 

publishing a periodic report containing 

aggregated and anonymized information 

about the fund industry’s liquidity may 

be beneficial. One commenter objected, 

arguing that even aggregated and 

anonymized classification data would 

still be derived from the same disparate 

and subjective inputs, and accordingly 

may be of limited value to the 

Commission or the public.130 As part of 

the staff evaluation noted in the 

proposal and discussed above, we 

expect that our staff will consider 

whether publishing such aggregated and 

anonymized classification data would 

be useful, and include a 

recommendation as part of that 

evaluation as to whether the staff should 

publish such a periodic report.131

D. Compliance Dates 

As proposed, we are providing a 

tiered set of compliance dates based on 

asset size.132 However, in a change from 

the proposal, we are not aligning the 

compliance date for the amendments to 

Form N–1A we are adopting today with 

the revised compliance dates we 

previously adopted for the liquidityrelated portions of Form N–PORT.133

Instead, we are providing additional 

time so that funds have at least a full 

year’s experience with the liquidity risk 

management program before including 

the new narrative disclosure in their 

shareholder report. 

A number of commenters argued that 

the first time a fund includes the new 

narrative disclosure on the operation of 

a fund’s liquidity risk management 

program, it should have at least a year’s 

experience operating a liquidity risk 

management program under the rule.134

We agree. Therefore, we are providing 

additional time so that funds would not 

need to comply with the new 

shareholder report amendments to Form 

N–1A until they have had their liquidity 

risk management programs in effect for 

a full year. We have provided additional 

time for funds to comply with certain 

aspects of the liquidity risk management 

program (classification and related 

elements).135 As result, we expect that 

only the aspects of the liquidity risk 

management program operation and 

effectiveness that are legally required to 

be in place need be discussed during the 

first reporting cycle. 

However, we are not changing the 

compliance date for the Form N–PORT 

amendments from the proposal. Most 

commenters did not object to the 

proposed Form N–PORT compliance 

dates, although a few asked that funds 

be provided at least one year from 

adoption to implement the changes to 

Form N–PORT.136 We believe that we 

are adopting this change sufficiently in 

advance that funds should be able to 

implement this change without 

difficulty, and accordingly are not 

amending the proposed compliance 

dates for Form N–PORT. 

Below is a chart that describes the 

compliance dates for the Form N–PORT 

and Form N–1A amendments that we 

are adopting today. 

Compliance Date First N–PORT 

filing date 

Form N–PORT: 

Large Entities ..................................................................... June 1, 2019 ............................................................................ July 30, 2019. 

Small Entities ...................................................................... March 1, 2020 .......................................................................... April 30, 2020. 

Form N: 137

Large Entities ..................................................................... Dec. 1, 2019.

Small Entities ...................................................................... June 1, 2020.

137Funds that distribute annual or semi-annual shareholder reports after the compliance dates discussed above would be subject to the new 

requirement. 


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138See supra footnotes 2 and 8. 

139See supra footnote 136 for a detailed 

description of larger and smaller entities. The 

compliance date for some of the requirements 

related to portfolio holding classification was 

delayed. See the Liquidity Extension Release, supra 

footnote 8, for a more detailed discussion of the 

requirements that were delayed. 

140 In a change from the proposal, we are not 

aligning the compliance dates for the amendments 

to Form N–1A with those for Form N–PORT, as 

discussed above in section II.D. As a result, funds 

would not need to comply with the new Form N– 

1A amendments until they have had their liquidity 

risk management program in effect for a full year. 

Moving the compliance date could provide benefits 

to funds relative to the proposal as they should be 

able to implement changes to shareholder reports 

with less difficulty. 

141See ICI, 2018 ICI Fact Book (58th ed., 2018) 

(‘‘2018 ICI Fact Book’’), available at https://

www.ici.org/pdf/2018_factbook.pdf, at nn.52, 208, 

212. The number of mutual funds includes funds 

that primarily invest in other mutual funds but 

excludes 382 money-market funds. 

142See 2018 ICI Fact Book, supra footnote 145, at 

nn.218, 219. 

143See supra footnote 1 for a definition of 

‘‘funds.’’ The requirement to publicly disclose 

aggregate liquidity profiles does not apply to funds 

that are In-Kind ETFs under the baseline, so it is 

only rescinded for funds that are not In-Kind ETFs. 

In-Kind ETFs are included as funds that provide a 

narrative description of their liquidity risk 

management program pursuant to Form N–1A. 

144The Commission will continue to receive nonpublic position level liquidity information on Form 

N–PORT. 

145See Fidelity Comment Letter; J.P. Morgan 

Comment Letter; State Street Comment Letter; ICI 

Comment Letter; SIFMA Comment Letter; Vanguard 

Comment Letter. One commenter recommended a 

delay in compliance to any changes to Form N– 

PORT or the reporting requirement of cash and cash 

equivalents. See State Street Comment Letter. The 

Commission changed the compliance dates for the 

Form N–1A requirements from what it proposed, as 

discussed above in section II.D above. 

146See Liquidity Adopting Release, supra 

footnote 2, at nn.1188–1191. We estimated the total 

one-time costs associated with the rule’s disclosure 

and reporting requirements on Form N–PORT as 

being approximately $55 million for funds that will 

file reports on Form N–PORT in house and 

approximately $103 million for funds that will use 

a third-party service provider. Similarly, we 

estimated the total ongoing annual costs as being 

approximately $1.6 million for funds filing reports 

in house and $2.3 million for funds that will use 

a third-party service provider. 

III. Economic Analysis 

A. Introduction 

The Commission is sensitive to the 

potential economic effects of the 

amendments to Form N–PORT and 

Form N–1A that we are adopting. These 

effects include the benefits and costs to 

funds, their investors and investment 

advisers, issuers of the portfolio 

securities in which funds invest, and 

other market participants potentially 

affected by fund and investor behavior 

as well as any effects on efficiency, 

competition, and capital formation. 

B. Economic Baseline 

The costs and benefits of the 

amendments as well as any impact on 

efficiency, competition, and capital 

formation are considered relative to an 

economic baseline. For the purposes of 

this economic analysis, the baseline is 

the regulatory framework and liquidity 

risk management practices currently in 

effect, and any expected changes to 

liquidity risk management practices, 

including any systems and processes 

that funds have already implemented in 

order to comply with the liquidity rule 

and related requirements as anticipated 

in the Liquidity Adopting Release and 

the Liquidity Extension Release.138

The economic baseline’s regulatory 

framework consists of the rule 

requirements adopted by the 

Commission on October 13, 2016 in the 

Liquidity Adopting Release. Under the 

baseline, larger entities must comply 

with some of the liquidity rule’s 

requirements, such as the establishment 

of a liquidity risk management program, 

by December 1, 2018 and must comply 

with other requirements, such as the 

classification of portfolio holdings, by 

June 1, 2019.139 Smaller entities must 

comply with some of the liquidity rule’s 

requirements by June 1, 2019 and other 

requirements by December 1, 2019.140

Because these compliance dates have 

not yet occurred, the Commission has 

not yet received portfolio classification 

data and investors have not yet received 

aggregate portfolio classification 

disclosures from funds. Accordingly, 

the baseline does not include 

experience on the part of the 

Commission or investors with 

interpreting or analyzing the 

quantitative data that will be reported 

on Form N–PORT. 

The primary SEC-regulated entities 

affected by these amendments are 

mutual funds and ETFs. As of the end 

of 2017, there were 9,154 mutual funds 

managing assets of approximately $19 

trillion,141 and there were 1,832 ETFs 

managing assets of approximately $3.4 

trillion.142 Other potentially affected 

parties include investors, investment 

advisers that advise funds, issuers of the 

securities in which these funds invest, 

and other market participants that could 

be affected by fund and investor 

behavior. 

C. Economic Impacts 

We are mindful of the costs and 

benefits of the amendments to Form N– 

PORT and Form N–1A we are adopting. 

The Commission, where possible, has 

sought to quantify the benefits and 

costs, and effects on efficiency, 

competition and capital formation 

expected to result from these 

amendments. However, as discussed 

below, the Commission is unable to 

quantify certain of the economic effects 

because it lacks information necessary 

to provide reasonable estimates. The 

economic effects of the amendments fall 

into two categories: (1) Effects stemming 

from changes to public disclosure on 

Form N–PORT and Form N–1A; (2) 

effects stemming from changes to nonpublic disclosure on Form N–PORT. 

Changes to Public Disclosure 

The amendments to Form N–PORT 

and Form N–1A we are adopting alter 

the public disclosure of information 

about fund liquidity in three ways. First, 

the amendments rescind the 

requirement that funds publicly disclose 

their aggregate liquidity profile on a 

quarterly basis with a 60-day delay in 

structured format on Form N–PORT.143

Second, the amendments require funds 

and other registrants to report to the 

Commission, on a non-public basis, the 

amount of cash and cash equivalents in 

their portfolio on Form N–PORT on a 

monthly basis and to publicly disclose 

this amount on a quarterly basis with a 

60-day delay through EDGAR. Finally, 

the amendments require a fund to 

provide a narrative description of the 

fund’s liquidity risk management 

program’s operation and effectiveness in 

an unstructured format in the fund’s 

shareholder report.144 Most commenters 

generally supported rescinding the 

requirement for quarterly public 

disclosure of aggregate liquidity 

classification information on Form N– 

PORT, adopting the requirement for 

funds to disclose their cash and cash 

equivalents on Form N–PORT, and 

requiring funds to provide a narrative 

discussion in the shareholder report.145

Funds and other registrants will 

experience benefits and costs associated 

with the amendments to public 

disclosure requirements on Form N– 

PORT. Funds will no longer incur the 

one-time and ongoing costs associated 

with preparing the portion of Form N– 

PORT associated with the aggregate 

liquidity profile. These costs likely 

would have constituted a small portion 

of the aggregate one-time costs of $158 

million and the ongoing costs of $3.9 

million for Form N–PORT that we 

estimated in the Liquidity Adopting 

Release.146 At the same time, funds and 

other registrants will also incur 

additional costs, relative to the baseline, 

associated with the adoption of the 

requirement that they report their 

holdings of cash and cash equivalents 

on Form N–PORT. Because funds and 

other registrants are already preparing 

Form N–PORT and already need to keep 

track of their cash and cash equivalents 


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147See infra paragraph following footnote 190. 

148See supra footnote 43. 

149We estimate funds will incur an additional 

aggregate one-time burden of 54,890 hours and an 

additional aggregate annual burden of 27,445 hours. 

See infra footnotes 194 and 197. Assuming a 

blended hourly rate of $329 for a compliance 

attorney ($345) and a senior officer ($313), that 

translates to an additional aggregate one-time 

burden of $18,058,810 = 54,890 × $329 and an 

additional aggregate annual burden of $9,029,405 = 

27,445 × $329. 

150See ICI Comment Letter; Capital Group 

Comment Letter. 

151See Capital Group Comment Letter. 

152However, as discussed in section II.A.2 above, 

funds should include in the MDFP a discussion of 

any events relating to a fund’s liquidity that 

materially affected the fund’s performance during 

the most recently completed fiscal year. One 

commenter stated that although such a disclosure 

would increase ‘‘administrative and compliance 

burden on funds that face material liquidity risks, 

it may be eased by relevant disclosure that may 

already be included in the management discussion 

as a material factor that impacts fund performance. 

In order to ensure that investors receive 

proportionate liquidity risk disclosure relative to 

the risks within a particular fund, we believe the 

modest additional expense would be warranted.’’ 

See Vanguard Comment Letter. Because we 

understand that funds often already discuss such 

events in their MDFP today, we agree with the 

commenter that increases in costs would be limited 

and that the disclosure would benefit investors in 

promoting informed decision-making. 

153See ICI Comment Letter. See also Capital 

Group Comment Letter. Further, another 

commenter suggested that moving the narrative 

disclosure from the MDFP would also benefit 

investors by reducing confusion for investors. See 

Blackrock Comment Letter. 

154See ICE Comment Letter (discussing the 

benefits to the ‘‘investing public’’ by ‘‘injecting 

additional rigor and discipline into funds’ liquidity 

assessment procedures.’’). 

155See Better Markets Comment Letter (stating 

that the aggregated public reports in N–PORT 

would have benefited investors by empowering 

them to make more informed investment decisions 

through the analysis provided by third-party 

analysts). Another commenter stated that the 

removal of the aggregate liquidity profiles will 

reduce the information offered to the public and 

opposed the elimination of the public disclosure of 

funds’ aggregate liquidity profiles. AFR Comment 

Letter. 

156Even if aggregate liquidity profiles are not 

comparable across funds, they might be comparable 

across time for a given fund, which might provide 

useful information to investors. This would be the 

case if a fund maintains a consistent position 

classification process over time. Funds, however, 

may change their classification processes over time. 157See Comment Letter of Mutual Fund Directors 

Forum (May 18, 2018) (‘‘MFDF Comment Letter’’) 

(discussing that the narrative disclosure will benefit 

investors by providing ‘‘information on a fund’s 

management of liquidity risk . . . in a format that 

will allow those investors to assess the importance 

of the information’’). 

158See Liquidity Adopting Release, supra 

footnote 2, at section III.C.3. 

159See supra footnotes 41 and 42. 

for valuation purposes, we expect that 

these additional costs will not be 

significant. 

In aggregate, we expect any additional 

costs associated with the requirement 

that funds and other registrants disclose 

their holdings of cash and cash 

equivalents to be offset by the savings 

associated with funds no longer having 

to report an aggregate liquidity profile. 

Therefore, we expect that funds and 

other registrants will not experience a 

significant net economic effect 

associated with the direct costs of filing 

Form N–PORT.147 Additionally, to the 

extent that any risk of herding or 

correlated trading would exist if funds 

executed trades in order to make their 

aggregate liquidity profiles appear more 

liquid to investors, rescinding the 

requirement that funds publicly disclose 

an aggregate liquidity profile will 

mitigate such risk.148

Relative to the baseline, funds will 

incur costs associated with preparing an 

annual narrative discussion of their 

liquidity risk management programs in 

the fund’s shareholder report. We 

estimate that funds will incur aggregate 

one-time costs of approximately $18 

million and aggregate ongoing costs of 

approximately $9 million in preparing 

this narrative discussion.149 Several 

commenters suggested excluding funds 

that primarily hold highly liquid 

investments from providing the 

narrative discussion,150 and that the 

benefits of the narrative disclosure to 

investors that hold these funds would 

be outweighed by the costs of including 

the narrative in the shareholder 

report.151 We disagree because, even for 

funds that predominantly hold highly 

liquid investments, such discussion can 

benefit investors to the extent that such 

disclosures may enhance their 

understanding of liquidity risk 

management for individual funds and 

when comparing funds. 

As discussed above, and in response 

to comments, the Commission is not 

adopting the requirement that the 

narrative disclosure be part of the MDFP 

and instead is requiring that the 

narrative disclosure of the operation and 

effectiveness of a fund’s liquidity 

management programs be part of the 

fund’s shareholder report (annual or 

semi-annual) in the section following 

the discussion of board approval of 

advisory contracts.152 Moving the 

narrative disclosure from the MDFP to 

this section of the shareholder report 

will allow funds to align the production 

of the narrative disclosure with the 

review of the liquidity risk management 

practices by the fund’s board of 

directors, which may reduce costs to 

funds relative to the proposal by 

allowing funds to avail themselves of 

any efficiencies from the overlap 

between these requirements.153

Investors will also experience costs 

and benefits as a result of the changes 

to public disclosure requirements on 

Form N–PORT and Form N–1A that we 

are adopting.154 To the extent that 

aggregate liquidity profiles within the 

structured format of Form N–PORT 

could have helped certain investors 

make more informed investment choices 

that match their liquidity risk 

preferences, rescinding the aggregate 

liquidity profile requirement will 

reduce those investors’ ability to make 

more informed investment choices.155

However, to the extent that portfolio 

holding classifications incorporate 

subjective factors that may be 

interpreted differently by different 

funds, aggregate liquidity profiles may 

not have been comparable across funds. 

Therefore, rescinding the aggregate 

liquidity profile requirement may 

reduce the likelihood that investors 

make investment choices based on any 

confusion about how the fund’s 

liquidity risk profile should be 

interpreted.156 Further, the narrative 

discussion in shareholder reports may 

mitigate any reduction in investors’ 

ability to make more informed 

investment choices, though this 

disclosure will be less frequent than the 

quarterly public disclosure of aggregate 

liquidity profiles that was previously 

adopted and will provide information 

about a fund’s liquidity risk 

management rather than the aggregate 

liquidity profile of the fund’s 

investments.157

As discussed above, the compliance 

date for rule 22e–4 and related reporting 

on Form N–PORT has not yet occurred 

and the Commission has not yet 

received portfolio classification data 

from funds, nor is aggregated liquidity 

classification information currently 

being made public. As a result, the 

Commission’s assessment of the costs 

and benefits of these changes is, 

necessarily, informed by qualitative 

concerns, together with what we know 

about the subjectivity of inputs, 

assumptions, and methods that funds 

are likely to utilize in classifying 

portfolio assets and the nature of the 

information to be reported. The 

liquidity classifications that funds 

would have used to construct an 

aggregate liquidity profile are based on 

several factors that are subjective and 

fund specific. Such factors include a 

fund’s determination of the reasonably 

anticipated trade size for a given 

holding and its determination of what 

constitutes significant market impact.158

As a result of these subjective factors, 

aggregate liquidity profiles are likely to 

vary across otherwise similar funds, 

diminishing their comparability.159

However, without yet receiving and 

evaluating liquidity classification data, 


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160A few commenters objected to the proposed 

changes, arguing that the Commission should err on 

the side of providing more information and that 

investors would understand and use the aggregated 

liquidity information. See supra footnote 33 and 

accompanying text. 

161See XBRL US Comment Letter. 162See Proposing Release, supra footnote 10, at 

section III.C. 163See supra footnote 52. 164See supra section II.B.2. 

165For example, funds that use multiple subadvisers to manage different sleeves of a portfolio 

might have had to establish more complex systems 

and processes for combining the classifications of 

individual sub-advisers into a single classification 

for the portfolio’s aggregate holding of a given 

security under the rule as originally adopted. The 

ability to split a portfolio holding across multiple 

classification buckets provides funds with a 

straightforward way of combining the 

classifications of different sub-advisers. 

166Portfolio classifications on Form N–PORT will 

include CUSIPs or other identifiers that allow 

Commission staff to identify when different funds 

classify the same investment using different 

classification methods. However, comparing such 

classifications will require some method of 

adjustment between classifications based on, for 

example, reasonably anticipated trade size and 

those based on splitting a position into proportions 

that are assigned to different classification buckets. 

167See Fidelity Comment Letter; IAA Comment 

Letter; State Street Comment Letter; ICE Comment 

Letter; and J.P. Morgan Comment Letter. 

168See J.P. Morgan Comment Letter. 

169See SIFMA Comment Letter and ICI Comment 

Letter. 

we cannot anticipate with any 

quantitative precision the extent to 

which they will vary across otherwise 

similar funds as a result of the above 

factors.160 As a result, the adopted 

approach will enable the Commission to 

evaluate and consider how the 

quantitative data from funds’ N–PORT 

filings might be fashioned into common 

quantitative metrics. This approach will 

also enable the Commission to assess 

the potential costs and benefits of future 

public dissemination of quantitative 

metrics derived from data contained in 

N–PORT filings and whether such 

metrics would be comparable across 

funds. 

The overall impact of the 

amendments on an investor’s use of data 

for informing investment choices will 

likely depend on how the investor 

accesses and processes information 

about fund liquidity. If certain investors 

prefer to base their investment decisions 

on information that is accessible to them 

in an unstructured document, those 

investors will be more likely to use the 

narrative discussion of a fund’s liquidity 

risk management program in 

shareholder reports than they would 

have been to use the aggregate liquidity 

profile within the structured format of 

Form N–PORT to inform their 

investment decisions. However, certain 

other investors may prefer to access, 

reuse, and compare the information 

about a fund’s liquidity risk if included 

within a structured format on Form N– 

PORT. These investors will have a 

reduced ability to make as timely and 

accurate an analysis within an entity’s 

filings, perform text analysis of an 

entity’s narrative disclosures, and 

potentially combine narrative and 

numeric information when the narrative 

disclosures related to their liquidity risk 

management programs are provided to 

them in the unstructured format of an 

annual report. Further, there may be an 

increased burden on these third-party 

providers to search, parse, and assess 

the quality of the unstructured 

information in funds’ annual reports. To 

the extent that certain investors rely on 

third parties to provide them with 

information for analysis, this increased 

burden may be partially or fully passed 

on to these investors in the form of 

higher costs. 

One commenter recommended that 

narrative disclosures, as well as all 

financial data, be reported in a 

consistent, structured format to promote 

comparison across filings and filers.161

While for some retail investors, an 

unstructured narrative disclosure will 

be useful and accessible, standardized, 

structured, machine-readable 

disclosures facilitate timely access and 

accurate identification and parsing of 

information for other investors and 

market participants relative to 

unstructured disclosures. As discussed 

in the Proposing Release, while we 

acknowledge that there are costs to our 

amendments for investors, filers, and 

third party platforms that prefer to 

access and use financial information in 

a structured format, we believe there are 

also benefits to investors that prefer the 

narrative discussion of a fund’s liquidity 

risk management program accessible to 

them in an unstructured shareholder 

report.162 We are currently soliciting 

feedback on the use of structured data 

in fund investor disclosure generally.163

Finally, the amendment to Form N– 

PORT that requires funds and other 

registrants to publicly disclose their 

holdings of cash and cash equivalents 

that are not reported in Parts C and D 

of the Form on a quarterly basis with a 

60-day delay will give investors some 

potentially useful information about the 

most liquid assets that a fund previously 

had available to, for example, meet its 

redemption obligations.164

Changes to Non-Public Disclosure 

In addition to the amendments to 

public disclosures of liquidity 

information discussed above, the 

amendments to Form N–PORT give 

funds the option to split a given holding 

into portions that may have different 

liquidity classifications on their nonpublic reports on Form N–PORT. Funds 

may benefit from the amendment 

because it gives them the option to 

either include an entire holding within 

a classification bucket or to allocate 

portions of the holding across 

classification buckets. This could 

benefit a fund and the fund’s investors 

if a more granular approach to 

classification that assigns portions of a 

portfolio holding to separate 

classification buckets is more consistent 

with the fund’s preferred approach to 

liquidity risk management. This 

approach also reduces the need for 

funds to develop systems and processes 

to allocate each holding to exactly one 

classification bucket for the purposes of 

regulatory compliance.165 In addition, to 

the extent that providing the option to 

choose the position classification 

method most suitable to a given fund 

results in disclosures on Form N–PORT 

that more accurately reflect the fund’s 

liquidity profile, the amendments may 

improve the Commission’s ability to 

monitor liquidity risks in markets and 

protect investors from liquidity-related 

developments. However, we 

acknowledge that providing funds with 

this option does add an additional 

subjective decision to the portfolio 

holding classification process. Thus, the 

amendments could result in 

classifications that are less comparable 

across funds relative to the baseline.166

Several commenters supported the 

amendments to Form N–PORT that will 

give funds the option to split a given 

holding into portions that may have 

different liquidity classifications on 

their non-public reports on Form N– 

PORT, noting that this option will allow 

funds increased flexibility and higher 

precision when classifying the liquidity 

of an investment.167 One commenter, 

however, stated that this option is 

unlikely to reduce burdens or costs to 

funds, and is likely to be incompatible 

with the 15% illiquid asset 

restriction.168 We note that this 

approach is optional, and therefore 

funds could choose not to use it if it had 

negative consequences, such as inflating 

the fund’s illiquid investment bucket. 

Several commenters recommended that 

the proportionality option be revised to 

include categories based on reasonably 

anticipated trade size, which would 

allow increased flexibility and potential 

increased efficiency for funds that 

choose to implement this classification 

option.169 We note that, while in some 

circumstances classifying liquidity 

based on reasonably anticipated trade 

size may be a simpler analytic approach 


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170See supra footnote 95. 

171See MSCI Comment Letter. Several 

commenters stated that allowing funds to classify 

portions of a portfolio holding for some of their 

holdings could lead to inconsistent interpretations 

of the funds classifications, and that we should 

instead require a fund to apply a uniform approach 

across all of its holdings. See State Street Comment 

Letter and MSCI Comment Letter. 

172However, because cash and cash equivalent 

holdings do not generate significant returns relative 

to other holdings, funds and other registrants may 

have an incentive to shift to non-cash or cash 

equivalent holdings that generate higher returns. 

173See supra paragraph following footnote 157. 

174Several commenters also addressed potential 

costs associated with modifying the bucketing 

requirements of rule 22e–4. As discussed above, in 

section II.C, we are not adopting modifications to 

the rule 22e–4 bucketing requirements today. 

175See supra paragraph following footnote 65. 

176See supra section II.A.2. 

and avoids certain issues related to full 

liquidation, as discussed above in 

section II.B.1, it also is an imperfect 

proxy for the actual liquidity 

characteristics of fund investments, 

potentially skewing classifications to 

more liquid ‘‘buckets.’’ 170

Other commenters suggested that we 

should not allow funds to classify 

portions of a portfolio holding 

separately because it would reduce the 

value of the information and would 

‘‘reduce the utility of the entire 

bucketing exercise.’’ 171 However, the 

Commission does not consider allowing 

portfolio splitting to affect its ability to 

monitor liquidity risks, an ability that 

ultimately benefits investors. The 

Commission is adopting amendments to 

Form N–PORT to allow funds the option 

of splitting a fund’s holding into more 

than one classification category in 

certain specified circumstances as 

proposed. 

Efficiency, Competition, and Capital 

Formation 

The amendments we are adopting 

have several potential effects on 

efficiency, competition, and capital 

formation. First, if publicly disclosed 

aggregate liquidity profiles may have 

created an incentive for a fund to 

classify its holdings in a manner that led 

to a relatively more liquid aggregate 

liquidity profile in order to attract 

investors, the amendments remove any 

such incentive and potentially reduce 

the likelihood that funds compete based 

on their aggregate liquidity profiles. To 

the extent that a fund or other 

registrant’s cash and cash equivalent 

holdings are interpreted by investors as 

being associated with lower liquidity 

risk, funds and other registrants may 

still have some incentive to compete 

based on their holdings of cash and cash 

equivalents as a result of the 

amendments.172 We do not expect the 

proposed amendments to require 

narrative discussions in shareholder 

reports to have a significant competitive 

effect. 

Second, to the extent that those 

publicly disclosed aggregate liquidity 

profiles would have helped investors 

more accurately evaluate fund liquidity 

risk and make more informed 

investment decisions, the amendments 

could reduce allocative efficiency. The 

annual discussion of a fund’s liquidity 

risk management program in 

shareholder reports and the requirement 

that funds and other registrants publicly 

disclose their holdings of cash and cash 

equivalents on Form N–PORT could 

mitigate this reduction in allocative 

efficiency if these requirements provide 

information that helps investors 

evaluate fund liquidity risk. 

Furthermore, to the extent that aggregate 

liquidity profiles on Form N–PORT 

would have increased the likelihood of 

investors making investment choices 

based on any confusion about a fund’s 

liquidity risk profile, which would have 

harmed the efficient allocation of 

capital, the amendments could increase 

allocative efficiency. 

Lastly, to the extent that the 

information provided by aggregate 

liquidity profiles would have promoted 

increased investment in certain funds, 

and the assets those funds invest in, 

rescinding the aggregate liquidity profile 

requirement could reduce capital 

formation. At the same time, we note 

that the new public disclosure 

requirements we are adopting could 

offset any reduction in capital 

formation. 

In summary, we note that all of the 

effects described above are conditioned 

upon the usefulness to investors of 

information that we will no longer 

require relative to the usefulness of 

additional disclosure requirements we 

are adopting. We cannot estimate the 

aggregate effect on efficiency, 

competition, or capital formation that 

will result from the new amendments 

because we do not know the extent to 

which aggregate liquidity risk profiles, 

narrative discussion of a fund’s liquidity 

risk management program, or the 

amount of cash and cash equivalents 

held by a fund and other registrants are 

useful to investors in making more 

informed investment choices.173

D. Reasonable Alternatives 

The Commission considered several 

alternatives to the amendments to funds 

public and non-public disclosure 

requirements that we are adopting.174

First, in order to address any potential 

issues with the interpretation of a fund’s 

aggregate liquidity profile by investors, 

we could have maintained the public 

disclosure of this profile on Form N– 

PORT and added a requirement that 

funds publicly disclose on Form N– 

PORT additional information providing 

context and clarification regarding how 

their aggregate liquidity profiles were 

generated and should be interpreted. 

This alternative would have provided 

investors with some of the benefits of 

the additional context provided by the 

narrative discussion on Form N–1A that 

we are adopting, and, to the extent that 

it increased investors’ understanding of 

a fund’s aggregate liquidity profile, 

could have allowed them to make more 

informed investment choices relative to 

the baseline. However, some investors 

may believe that they can more easily 

obtain information in a fund’s annual 

report compared to information in the 

fund’s Form N–PORT filings if they are 

not as interested in being able to access, 

reuse, and compare the information if 

included in a structured format on Form 

N–PORT. This alternative would have 

required these investors to seek out this 

additional information on EDGAR. 

Second, instead of requiring a fund to 

briefly discuss the operation and 

effectiveness of its liquidity risk 

management program in a shareholder 

report, we could have required a more 

specific discussion of the fund’s 

exposure to liquidity risk over the 

preceding year, how the fund managed 

that risk, and how the fund’s returns 

were affected over the preceding year. 

This alternative could have helped 

investors understand both a fund’s 

liquidity risk and the fund’s approach to 

managing that risk, which might lead to 

more informed investment decisions 

than a discussion of the fund’s liquidity 

risk management program. However, 

this alternative could have been more 

costly for some funds to implement than 

the proposed narrative discussion in the 

shareholder report, and funds still have 

the flexibility to provide this 

information in the course of complying 

with the final rule if they think it will 

benefit their investors.175 Further, as 

discussed above, a fund should discuss, 

with specificity, as part of its MDFP, 

any factor such as liquidity events that 

the fund experienced that materially 

affected the fund’s performance during 

the past fiscal year.176

Third, we could have required funds 

to disclose an aggregate liquidity profile 

in their annual report along with 

additional information providing 

context and clarification regarding how 

its aggregate liquidity profile was 

generated and should be interpreted. If 

such disclosure increased investors’ 


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177 44 U.S.C. 3501 through 3521. 

178Registered money market funds and small 

business investment companies are exempt from 

Form N–PORT reporting requirements. 

179Reporting Modernization Adopting Release, 

supra footnote 2. 

180 Item B.8.a of Form N–PORT. Form N–PORT 

also requires public reporting of the percentage of 

a fund’s highly liquid investments that it has 

segregated to cover, or pledged to satisfy margin 

requirements in connection with, derivatives 

transactions that are classified as moderately liquid, 

less liquid, or illiquid investments. Item B.8.b of 

Form N–PORT. 

181See supra footnote 21 (noting that the term 

‘‘registrant’’ refers to entities required to file Form 

N–PORT, including all registered management 

investment companies, other than money market 

funds and small business investment companies, 

and all ETFs (regardless of whether they operate as 

UITs or management investment companies)). 

182See new Item C.7.b of Form N–PORT and 

Instructions to Item C.7 of Form N–PORT. 

183See supra footnote 142 and accompanying 

text. 

184These items include information reported with 

respect to a fund’s Highly Liquid Investment 

Minimum (Item B.7), derivatives transactions (Item 

B.8), country of risk and economic exposure (Item 

C.5.b), delta (Items C.9.f.v, C.11.c.vii, or C.11.g.iv), 

liquidity classification for portfolio investments 

(Item C.7), or miscellaneous securities (Part D), or 

explanatory notes related to any of those topics 

(Part E) that is identifiable to any particular fund 

or adviser. See new General Instruction F of Form 

N–PORT. 

185See Liquidity Adopting Release, supra 

footnote 2, at n.1237 and accompanying text. 

understanding of a fund’s aggregate 

liquidity profile, this would have 

allowed them to make more informed 

investment choices relative to the 

baseline, though they would have 

received this information at an annual 

rather than quarterly frequency. 

However, such disclosures still may not 

be able to fully explain how the 

subjective factors inherent in the 

classification process affect aggregate 

fund liquidity profiles, so they still may 

not be comparable across funds. 

Therefore, investors’ ability to make 

more informed investment choices 

based on the inclusion of this 

information may be limited. 

Fourth, we could have amended both 

Form N–PORT and rule 22e–4 to 

prescribe an objective approach to 

classification in which the Commission 

would specify more precise criteria and 

guidance regarding how funds should 

classify different categories of 

investments. Such an approach could 

permit consistent comparisons of 

different funds’ aggregate liquidity 

profiles, allowing investors to make 

more informed investment decisions 

without requiring funds to provide 

additional contextual discussion of their 

liquidity risk management programs. 

However, as discussed in the Liquidity 

Adopting Release, the Commission may 

not be able to respond as quickly as 

market participants to dynamic market 

conditions that might necessitate 

changes to such criteria and guidance. 

Fifth, we could have required that if 

funds chose to split the classification of 

any of their portfolio holdings across 

liquidity buckets when reporting them 

on the non-public portion of Form N– 

PORT, they do so for all of their 

portfolio holdings. This would have 

ensured that all of the portfolio holdings 

within a given fund could be interpreted 

more consistently for any monitoring 

purposes by the Commission. However, 

to the extent that being able to choose 

the classification approach appropriate 

to each portfolio holding more 

accurately reflects a manager’s judgment 

of that portfolio holding’s liquidity, any 

reduction in the consistency of portfolio 

classifications under the amendments 

we are adopting could be offset by a 

more accurate description of the 

manager’s assessment of fund liquidity 

risk. 

IV. Paperwork Reduction Act 

A. Introduction 

The amendments to Form N–PORT 

and Form N–1A contain ‘‘collections of 

information’’ within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).177

The title for the existing collections of 

information are: ‘‘Rule 30b1–9 and Form 

N–PORT’’ (OMB Control No. 3235– 

0730); and ‘‘Form N–1A under the 

Securities Act of 1933 and under the 

Investment Company Act of 1940, 

Registration Statement of Open-End 

Management Investment Companies’’ 

(OMB Control No. 3235–0307). The 

Commission is submitting these 

collections of information to the Office 

of Management and Budget (‘‘OMB’’) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. An agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it 

displays a currently valid control 

number. The Commission is amending 

Form N–PORT and Form N–1A. The 

amendments are designed to improve 

the reporting and disclosure of liquidity 

information by funds. We discuss below 

the collection of information burdens 

associated with these amendments. In 

the Proposing Release, the Commission 

solicited comment on the collection of 

information requirements and the 

accuracy of the Commission’s 

statements in the Proposing Release. 

B. Form N–PORT 

As discussed above, on October 13, 

2016, the Commission adopted new 

Form N–PORT, which requires mutual 

funds and ETFs 178 to report monthly 

portfolio investment information to the 

Commission in a structured data 

format.179 The Commission also 

adopted amendments to Form N–PORT 

requiring a fund to publicly report on 

Form N–PORT the aggregate percentage 

of its portfolio investments that falls 

into each of the four liquidity 

classification categories noted above.180

Today, the Commission is rescinding 

the requirement that funds publicly 

disclose their aggregate liquidity profile 

on a quarterly basis with a 60-day delay. 

The Commission also is amending Form 

N–PORT to require funds and other 

registrants to report to the Commission 

on a non-public basis the amount of 

cash and cash equivalents in their 

portfolio on Form N–PORT on a 

monthly basis and to publicly disclose 

this amount on a quarterly basis with a 

60 day delay.181 Finally, the 

Commission is amending Form N–PORT 

to allow funds the option of splitting a 

fund’s holding into more than one 

liquidity classification category in 

certain specified circumstances.182 As of 

the end of 2017, there were 9,154 

mutual funds managing assets of 

approximately $19 trillion, and there 

were 1,832 ETFs managing assets of 

approximately $3.4 trillion.183 Preparing 

a report on Form N–PORT is mandatory 

and is a collection of information under 

the PRA, and the information required 

by Form N–PORT will be data-tagged in 

XML format. Except for certain 

reporting items specified in the form,184

responses to the reporting requirements 

will be kept confidential for reports 

filed with respect to the first two 

months of each quarter; the third month 

of the quarter will not be kept 

confidential, but made public sixty days 

after the quarter end. 

In the Liquidity Adopting Release, we 

estimate that, for the 35% of funds that 

would file reports on Form N–PORT in 

house, the per fund average aggregate 

annual hour burden will be 144 hours 

per fund, and the average cost to license 

a third-party software solution will be 

$4,805 per fund per year.185 For the 

remaining 65% of funds that would 

retain the services of a third party to 

prepare and file reports on Form N– 

PORT on the fund’s behalf, we estimate 

that the average aggregate annual hour 

burden will be 125 hours per fund, and 

each fund will pay an average fee of 

$11,440 per fund per year for the 

services of third-party service provider. 

In sum, we estimate that filing liquidityrelated information on Form N–PORT 

will impose an average total annual 

hour burden of 144 hours on applicable 


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186See Liquidity Adopting Release, supra 

footnote 2, at n.1238 and accompanying text. 

187See, e.g., IDC Comment Letter; BlackRock 

Comment Letter; SIFMA AMG Comment Letter. 

188See new Item B.2.f. of Form N–PORT. 

189See new Instructions to Item C.7 of Form N– 

PORT. 

190See Liquidity Adopting Release, supra 

footnote 2, at n.293 and accompanying text 

(discussing the Commission’s need for the 

information reported on Form N–PORT). 

191This estimate is based on the last time the 

rule’s information collection was submitted for PRA 

renewal in 2018. 

192New Item 27(d)(7)(b) of Form N–1A. 

193This estimate is based on the following 

calculation: 5 Hours (3 hours for the compliance 

attorney to consult with the liquidity risk 

management program administrator and other 

investment personnel in order to produce an initial 

draft of the shareholder report disclosure + 2 hours 

for senior officers to familiarize themselves with the 

new disclosure and review the report). These 

calculations stem from the Commission’s 

understanding of the time it takes to draft and 

review shareholder report disclosure. 

194This estimate is based on the following 

calculations: 5 hours × 10,978 open-end funds 

(excluding money market funds and ETFs organized 

as UITs, and including ETFs that are management 

investment companies) = 54,890 hours. We estimate 

that there are 8 ETFs organized as UITs as of 

December 31, 2017. 

195This estimate is based on the following 

calculation: 54,890 hours ÷ 3 = 18,296.7 average 

annual burden hours. 

196This estimate is based on the following 

calculation: 2.5 hours (2 hours for the compliance 

attorney to consult with the liquidity risk 

management program administrator and other 

investment personnel in order to produce an initial 

draft of the shareholder report disclosure + .5 hours 

for senior officers to review the shareholder report). 

197This estimate is based on the following 

calculation: 2.5 hours × 10,978 open-end funds 

(excluding money market funds and ETFs organized 

as UITs, and including ETFs that are management 

investment companies) = 27,445 hours. 

198The calculations included in this PRA have 

been modified from the Proposing Release to reflect 

updated estimates for the number of entities that 

the Commission believes will be required to comply 

with the new shareholder report amendments on 

Form N–1A. The estimated cost burdens per fund 

remain the same. 

199This estimate is based on the following 

calculation: (5 burden hours (year 1) + 2.5 burden 

hours (year 2) + 2.5 burden hours (year 3)) ÷ 3 = 

3.3 

200This estimate is based on the following 

calculation: 18,296.7 hours + 27,445 hours = 

45,741.7 hours. 

funds, and all applicable funds will 

incur on average, in the aggregate, 

external annual costs of $103,787,680, 

or $9,118 per fund.186

We are adopting, substantially as 

proposed, amendments to Form N– 

PORT to rescind the requirement that a 

fund report the aggregate percentage of 

the fund’s portfolio representing each of 

the four liquidity categories. As 

discussed above, we are rescinding this 

requirement because we believe, and 

commenters generally agree,187 that 

Form N–PORT may not be the most 

accessible and useful way to convey to 

the public information about a fund’s 

liquidity risks and the fund’s approach 

to liquidity risk management. Because 

there would no longer be public 

disclosure of a fund’s aggregate liquidity 

classification information, we also will 

re-designate reporting about the amount 

of a fund’s highly liquid investments 

that are segregated or pledged to cover 

less liquid derivatives transactions to 

the non-public portion of the form. 

Finally, we are adopting amendments to 

Form N–PORT to add an additional 

disclosure requirement relating to a 

fund’s or other registrant’s holdings of 

cash and cash equivalents not reported 

in Parts C and D of the Form 188 and to 

allow funds the option of splitting a 

fund’s holding into more than one 

classification category in three specified 

circumstances.189 We believe these 

additional amendments enhance the 

liquidity data reported to the 

Commission.190 In addition, for some 

funds, these changes may also reduce 

cost burdens as they comply with the 

rule. 

Based on Commission staff 

experience, we believe that rescinding 

the requirement that funds publicly 

report the aggregate classification 

information on Form N–PORT will 

reduce the estimated burden hours and 

costs associated with Form N–PORT by 

approximately one hour. We believe, 

however, that this reduction in cost will 

be offset by the increase in cost 

associated with the other amendments 

to Form N–PORT, which we also 

estimate to be one hour. Therefore, we 

believe that there will be no substantive 

modification to the existing collection of 

information for Form N–PORT. 

Commenters did not provide comment 

on our estimated reduction in burden 

hours and costs associated with Form 

N–PORT. As a result, the Commission 

believes that the current PRA burden 

estimates for the existing collection of 

information requirements remain 

appropriate. 

C. Form N–1A 

Form N–1A is the registration form 

used by open-end investment 

companies. The respondents to the 

amendments to Form N–1A adopted 

today are open-end management 

investment companies registered or 

registering with the Commission. 

Compliance with the disclosure 

requirements of Form N–1A is 

mandatory, and the responses to the 

disclosure requirements are not 

confidential. In our most recent 

Paperwork Reduction Act submission 

for Form N–1A, we estimated for Form 

N–1A a total hour burden of 1,602,751 

hours, and the total annual external cost 

burden is $131,139,208.191

We are adopting, largely as proposed, 

amendments to Form N–1A to require 

funds disclose information about the 

operation and effectiveness of their 

liquidity risk management program in 

their reports to shareholders. 

Specifically, in response to commenters, 

we are moving the discussion of the 

operation and effectiveness of a fund’s 

liquidity risk management program to 

the section of the shareholder report 

(annual or semi-annual) following the 

discussion of board approval of advisory 

contracts.192 As proposed, this 

subsection will require funds to discuss 

the operation and effectiveness of their 

liquidity risk management program over 

the period covered. However, funds will 

have flexibility to cover either the most 

recently completed fiscal year or the 

most recently completed calendar year. 

Form N–1A generally imposes two 

types of reporting burdens on 

investment companies: (i) The burden of 

preparing and filing the initial 

registration statement; and (ii) the 

burden of preparing and filing posteffective amendments to a previously 

effective registration statement 

(including post-effective amendments 

filed pursuant to 17 CFR 230.485(a) or 

(b) (‘‘rule 230.485(a) or (b)’’) under the 

Securities Act, as applicable). As in the 

proposal, we estimate that each fund 

will incur a one–time burden of an 

additional five hours 193 to draft and 

finalize the required disclosure. In 

aggregate, we estimate that funds will 

incur a one–time burden of an 

additional 54,890 hours,194 to comply 

with the new Form N–1A disclosure 

requirements. Amortizing the one–time 

burden over a three–year period results 

in an average annual burden of an 

additional 18,296.7 hours.195

Based on Commission staff expertise 

and experience, we estimate that each 

fund will incur an ongoing burden of an 

additional 2.5 hours each year to review 

and update the required disclosure.196

In aggregate, we estimate that funds will 

incur an annual burden of an additional 

27,445 hours,197 to comply with the 

new shareholder report disclosure 

requirements in Form N–1A.198

Amortizing these one–time and ongoing 

hour and cost burdens over three years 

results in an average annual increased 

burden of approximately 3.3 hours per 

fund, as in the proposal.199 In total, we 

estimate that funds will incur an 

average annual increased burden of 

approximately 45,741.7 hours,200 to 

comply with the shareholder report 

disclosure requirements. 


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201 5 U.S.C. 603(a). 

202See Proposing Release, supra footnote 10, at 

section V. 

203See supra section I. 

204See supra section II.A.1 at text accompanying 

footnote 27. 

205See 17 CFR 270.0–10(a) (‘‘rule 270.0–10(a)’’) 

under the Investment Company Act. 

206This estimate is derived from an analysis of 

data obtained from Morningstar Direct as well as 

data reported on Form N–SAR filed with the 

Commission for the period ending December 31, 

2017. This estimate has been modified from the 

Proposing Release to reflect updated estimates for 

the number of small entities that the Commission 

believes will be required to comply with the new 

shareholder report amendments on Form N–1A. 

207See revised Item B.8 of Form N–PORT. 

208See new Item 27(d)(7)(b) of Form N–1A. 

209See new Item C.7.b of Form N–PORT and 

Instructions to Item C.7 of Form N–PORT. 

210See new Item B.2.f. of Form N–PORT. 

211See supra text accompanying footnote 152. 

212See supra footnote 197 (noting that this 

estimate is based on the Commission staff’s 

understanding of the time it takes it takes to draft 

and review shareholder report disclosure, including 

the time it takes for the compliance attorney to 

consult with the liquidity risk management program 

administrator and other investment personnel in 

order to produce an initial draft of the shareholder 

report disclosure as well as the time it takes for 

senior officers to familiarize themselves with the 

new disclosure and review the report). 

213This estimate is based on the following 

calculations: 5 hours × $329 (blended rate for a 

compliance attorney ($345) and a senior officer 

($313)) = $1,645. 

214This estimate is based on the following 

calculations: 5 hours × 54 = 270 hours. 

215This estimate is based on the following 

calculations: $1,645 × 54 = $88,830. 

216This estimate is based on the following 

calculations: 270 hours ÷ 3 = 90 average annual 

burden hours. 

217This estimate is based on the following 

calculations: $88,830 ÷ 3 = $29,610. 

218See supra footnote 194 and accompanying text 

(noting that this estimate is based on the 

Commission staff’s understanding of the time it 

takes it takes to review shareholder report 

disclosure, including the time it takes for the 

compliance attorney to consult with the liquidity 

risk management program administrator and other 

investment personnel in order to produce an initial 

draft of the shareholder report disclosure as well as 

the time it takes for senior officers to review the 

report). 

219This estimate is based on the following 

calculations: 2.5 hours × $329 (blended rate for a 

compliance attorney ($345) and a senior officer 

($313)) = $822.50. 

V. Final Regulatory Flexibility Analysis 

The Commission has prepared the 

following Final Regulatory Flexibility 

Analysis in accordance with section 3(a) 

of the Regulatory Flexibility Act 

(‘‘RFA’’).201 It relates to new 

amendments to Form N–PORT and new 

amendments to Form N–1A. We 

prepared an Initial Regulatory 

Flexibility Analysis (‘‘IRFA’’) in 

conjunction with the Proposing Release 

in March 2018.202 The Proposing 

Release included, and solicited 

comment, on the IRFA. 

A. Need for the Amendments 

The Commission adopted rule 22e–4 

and related rule and form amendments 

to enhance the regulatory framework for 

liquidity risk management of funds.203

In connection with rule 22e–4, a fund is 

required to publicly report on Form N– 

PORT the aggregate percentage of its 

portfolio investments that falls into each 

of the liquidity categories enumerated in 

rule 22e–4. This requirement was 

designed to enhance public disclosure 

regarding fund liquidity and redemption 

practices. However, since we adopted 

these requirements, we have received 

letters raising concerns that the public 

disclosure of a fund’s aggregate liquidity 

classification information on Form N– 

PORT may not achieve our intended 

purpose and may confuse and mislead 

investors. As we discuss further in 

section II.A above, these letters have led 

us to believe that the approach of 

disclosing liquidity information to the 

public through Form N–PORT may not 

be the most accessible and useful way 

to convey fund liquidity information to 

the public, given that only the 

Commission, and not the public, would 

have access to the more granular 

information and can request information 

regarding the fund’s methodologies and 

assumptions that would provide needed 

context to understand this reporting.204

B. Significant Issues Raised by Public 

Comment 

In the Proposing Release, we 

requested comment on the IRFA, 

requesting in particular comment on the 

number of small entities that would be 

subject to the proposed amendments to 

Form N–1A and Form N–PORT and 

whether these proposed amendments 

would have any effects that have not 

been discussed. We requested that 

commenters describe the nature of any 

effects on small entities subject to the 

proposed amendments to Form N–1A 

and Form N–PORT and provide 

empirical data to support the nature and 

extent of such effects. We also requested 

comment on the estimated compliance 

burdens of the proposed amendments to 

Form N–1A and Form N–PORT and 

how they would affect small entities. 

We did not receive comments regarding 

the impact of our proposal on small 

entities. 

C. Small Entities Subject to the 

Amendments 

An investment company is a small 

entity if, together with other investment 

companies in the same group of related 

investment companies, it has net assets 

of $50 million or less as of the end of 

its most recent fiscal year.205

Commission staff estimates that, as of 

December 31, 2017, there were 54 openend investment companies that would 

be considered small entities. This 

number includes open-end ETFs.206

D. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

We are adopting amendments to Form 

N–1A and Form N–PORT to enhance 

fund disclosure regarding a fund’s 

liquidity risk management practices. 

Specifically, the amendments to Form 

N–PORT207 will rescind the 

requirement that funds publicly disclose 

aggregate liquidity classification 

information about their portfolios and 

amendments to Form N–1A will require 

funds to discuss certain aspects of their 

liquidity risk management program as 

part of their reports to shareholders.208

In addition, we are adopting 

amendments to Form N–PORT to allow 

funds to report multiple classification 

categories for a single position in certain 

cases 209 and require funds and other 

registrants to report their holdings of 

cash and cash equivalents.210

All funds will be subject to the new 

disclosure and reporting requirements, 

including funds that are small entities. 

We estimate that 54 funds are small 

entities that will be required to comply 

with the disclosure and reporting 

requirements. As discussed above, we 

do not believe that our amendments will 

change Form N–PORT’s estimated 

burden hours and costs.211 We estimate 

that each fund will incur a one-time 

burden of an additional five hours,212 at 

a time cost of $1,645 213 each year to 

draft and finalize the required 

shareholder report disclosure required 

in Form N–1A. For purposes of this 

analysis, Commission staff estimates, 

based on outreach conducted with a 

variety of funds, that small fund groups 

will incur approximately the same 

initial and ongoing costs as large fund 

groups. Therefore, in the aggregate, we 

estimate that funds that are small 

entities will incur a one-time burden of 

an additional 270 hours,214 at a time 

cost of $88,830,215 to comply with the 

new Form N–1A disclosure 

requirements. Amortizing the one-time 

burden over a three-year period results 

in an average annual burden of an 

additional 90 hours,216 at a time cost of 

$29,610.217 We estimate that each fund 

will incur an ongoing burden of an 

additional 2.5 hours,218 at a time cost of 

$822.50,219 each year to review and 

update the required Form N–1A 

disclosure. Therefore, we estimate that 

funds that are small entities will incur 

an ongoing burden of an additional 135 


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31876 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 

220This estimate is based on the following 

calculations: 2.5 hours × 54 = 135 hours. 

221This estimate is based on the following 

calculations: $822.50 × 54 = $44,415. 

222This estimate is based on the following 

calculations: (135 hours + 90 hours) ÷ 54 funds = 

4.2 hours. 

223This estimate is based on the following 

calculations: ($44,415 + $29,610) ÷ 54 funds = 

$1,370.83. 

224This estimate is based on the following 

calculations: 226.8 hours × $329 (blended rate for 

a compliance attorney ($345) and a senior officer 

($313)) = $74,617.20. 

225See supra text accompanying footnote 192. 

226See supra section IV.B at text accompanying 

footnote 188. 

hours,220 at a time cost of $44,415,221 to 

comply with the new Form N–1A 

disclosure requirements. 

Amortizing these one-time and 

ongoing hour and cost burdens over 

three years results in an average annual 

increased burden of approximately 4.2 

hours,222 at a time cost of $1,370.83,223

per fund. In total, we estimate that 

funds that are small entities will incur 

an average annual increased burden of 

approximately 226.8 hours, at a time 

cost of $74,617.20,224 to comply with 

the new Form N–1A disclosure 

requirements. 

E. Agency Action To Minimize Effect on 

Small Entities 

The RFA directs the Commission to 

consider significant alternatives that 

would accomplish our stated objectives, 

while minimizing any significant 

economic impact on small entities. 

Alternatives in this category include: (i) 

Exempting funds that are small entities 

from the disclosure requirements on 

Form N–1A, or establishing different 

disclosure or reporting requirements, or 

different disclosure frequency, to 

account for resources available to small 

entities; (ii) clarifying, consolidating, or 

simplifying the compliance 

requirements under the amendments for 

small entities; (iii) using performance 

rather than design standards; and (iv) 

exempting funds that are small entities 

from other amendments to Form N– 

PORT. 

The Commission does not believe that 

exempting any subset of funds, 

including funds that are small entities, 

from the amendments would permit us 

to achieve our stated objectives. Nor do 

we believe that clarifying, consolidating, 

or simplifying the amendments for 

small entities would satisfy those 

objectives. In particular, we do not 

believe that the interest of investors 

would be served by these alternatives. 

We believe that all fund investors, 

including investors in funds that are 

small entities, would benefit from 

accessible and useful disclosure about 

liquidity risk, with appropriate context, 

so that investors may understand its 

nature and relevance to their 

investments.225 The changes we are 

making will allow funds of all sizes to 

more accurately reflect their 

liquidity.226 The current disclosure 

requirements for reports on Forms N–1A 

and N–PORT do not distinguish 

between small entities and other funds. 

Finally, we determined to use 

performance rather than design 

standards for all funds, regardless of 

size, because we believe that providing 

funds with the flexibility to determine 

how to design their shareholder report 

disclosures allows them the opportunity 

to tailor their disclosure to their specific 

risk profile. By contrast, we determined 

to use design standards for our 

amendments to Form N–PORT because 

we believe information reported to the 

Commission on the Form must be 

uniform to the extent practicable in 

order for the Commission to carry out its 

oversight and monitoring 

responsibilities. 

VI. Statutory Authority 

The Commission is adopting 

amendments to Form N–1A and Form 

N–PORT under the authority set forth in 

the Securities Act, particularly section 

19 thereof [15 U.S.C. 77a et seq.], the 

Exchange Act, particularly sections 10, 

13, 15, and 23, and 35A thereof [15 

U.S.C. 78a et seq.], and the Investment 

Company Act, particularly, sections 8, 

30 and 38 thereof [15 U.S.C. 80a et seq.]. 

List of Subjects in 17 CFR Part 274 

Investment companies, Reporting and 

recordkeeping requirements, Securities. 

Text of Rules and Forms 

For the reasons set out in the 

preamble, title 17, chapter II of the Code 

of Federal Regulations is amended as 

follows: 

PART 274—FORMS PRESCRIBED 

UNDER THE INVESTMENT COMPANY 

ACT OF 1940 

■ 1. The authority citation for part 274 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 

77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a–8, 

80a–24, 80a–26, 80a–29, and Pub. L. 111– 

203, sec 939A, 124 Stat. 1376 (2010), unless 

otherwise noted. 

* * * * * 

■ 2. Amend Form N–1A (referenced in 

274.11A) by: 

■ a. In Item 27, renumbering paragraph 

(d)(7) to (d)(7)(a); and 

■ b. In Item 27, adding new paragraph 

(d)(7)(b). 

The addition reads as follows: 

Note: The text of Form N–1A does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form N–1A 

* * * * * 

Item 27. Financial Statements 

(a) * * * 

(d) Annual and Semi-Annual Reports. 

* * * * * 

7. Board Approvals and Liquidity 

Reviews. 

(a) Statement Regarding Basis for 

Approval of Investment Advisory 

Contract. 

* * * * * 

(b) Statement Regarding Liquidity 

Risk Management Program. If the board 

of directors reviewed the Fund’s 

liquidity risk management program 

pursuant to rule 22e–4(b)(2)(iii) of the 

Act [17 CFR 270.22e–4(b)(2)(iii)] during 

the Fund’s most recent fiscal half-year, 

briefly discuss the operation and 

effectiveness of the Fund’s liquidity risk 

management program over the past year. 

Instruction 

If the board reviews the liquidity risk 

management program more frequently 

than annually, a fund may choose to 

include the discussion of the program’s 

operation and effectiveness over the 

past year in one of either the fund’s 

annual or semi-annual reports, but does 

not need to include it in both reports. 

* * * * * 

■ 3. Amend Form N–PORT (referenced 

in § 274.150) by: 

■ a. In the General Instructions, revising 

the second paragraph of F. Public 

Availability; 

■ b. In Part B, amending Item B.2 by 

adding Item B.2.f; 

■ c. In Part B, revising Item B.8; 

■ d. In Part C, revising Item C.7; and 

■ e. Revising Part F. 

The revisions read as follows: 

Note: The text of Form N–PORT does not, 

and this amendment will not, appear in the 

Code of Federal Regulations. 

FORM N–PORT 

MONTHLY PORTFOLIO 

INVESTMENTS REPORT 

* * * * * 

F. Public Availability 

* * * * * 

The SEC 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 


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Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 31877 

1Though DEA has used the term ‘‘final order’’ 

with respect to temporary scheduling orders in the 

past, this document adheres to the statutory 

language of 21 U.S.C. 811(h), which refers to a 

‘‘temporary scheduling order.’’ No substantive 

change is intended. 

reported with respect to a Fund’s Highly 

Liquid Investment Minimum (Item B.7), 

derivatives transactions (Item B.8), 

country of risk and economic exposure 

(Item C.5.b), delta (Items C.9.f.v, 

C.11.c.vii, or C.11.g.iv), liquidity 

classification for portfolio investments 

(Item C.7), or miscellaneous securities 

(Part D), or explanatory notes related to 

any of those topics (Part E) that is 

identifiable to any particular fund or 

adviser. However, the SEC may use 

information reported on this Form in its 

regulatory programs, including 

examinations, investigations, and 

enforcement actions. 

* * * * * 

Part B: Information About the Fund 

* * * * * 

Item B.2.f. Cash and cash equivalents 

not reported in Parts C and D. 

* * * * * 

Item B.8 Derivatives Transactions. For 

portfolio investments of open-end 

management investment companies, 

provide 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 that are 

classified among the following 

categories as specified in rule 22e–4 [17 

CFR 270.22e–4]: 

1. Moderately Liquid Investments 

2. Less Liquid Investments 

3. Illiquid Investments 

* * * * * 

Part C: Schedule of Portfolio 

Investments 

* * * * * 

Item C.7.a Liquidity classification 

information. 

For portfolio investments of open-end 

management investment companies, 

provide the liquidity classification(s) for 

each portfolio investment among the 

following categories as specified in rule 

22e–4 [17 CFR 270.22e–4]. For portfolio 

investments with multiple liquidity 

classifications, indicate the percentage 

amount attributable to each 

classification. 

i. Highly Liquid Investments 

ii. Moderately Liquid Investments 

iii. Less Liquid Investments 

iv. Illiquid Investments 

Item C.7.b. If attributing multiple 

classification categories to the holding, 

indicate which of the three 

circumstances listed in the Instructions 

to Item C.7 is applicable. 

Instructions to Item C. 7 Funds may 

choose to indicate the percentage 

amount of a holding attributable to 

multiple classification categories only in 

the following circumstances: (1) If 

portions of the position have differing 

liquidity features that justify treating the 

portions separately; (2) if a fund has 

multiple sub-advisers with differing 

liquidity views; or (3) if the fund 

chooses to classify the position through 

evaluation of how long it would take to 

liquidate the entire position (rather than 

basing it on the sizes it would 

reasonably anticipated trading). In (1) 

and (2), a fund would classify using the 

reasonably anticipated trade size for 

each portion of the position. 

* * * * * 

Part F: Exhibits 

For reports filed for the end of the 

first and third quarters of the Fund’s 

fiscal year, attach no later than 60 days 

after the end of the reporting period the 

Fund’s complete portfolio holdings as of 

the close of the period covered by the 

report. These portfolio holdings must be 

presented in accordance with the 

schedules set forth in §§ 210.12–12— 

210.12–14 of Regulation S–X [17 CFR 

210.12–12—210.12–14]. 

* * * * * 

By the Commission. 

Dated: June 28, 2018. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–14366 Filed 7–9–18; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF JUSTICE 

Drug Enforcement Administration 

21 CFR Part 1308 

[Docket No. DEA–479] 

Schedules of Controlled Substances: 

Temporary Placement of NM2201, 5FAB-PINACA, 4-CN-CUMYL-BUTINACA, 

MMB-CHMICA and 5F-CUMYL-P7AICA 

Into Schedule I 

AGENCY: Drug Enforcement 

Administration, Department of Justice. 

ACTION: Temporary amendment; 

temporary scheduling order. 

SUMMARY: The Acting Administrator of 

the Drug Enforcement Administration is 

issuing this temporary scheduling order 

to schedule the synthetic cannabinoids, 

Naphthalen-1-yl 1-(5-fluoropentyl)-1Hindole-3-carboxylate (trivial name: 

NM2201; CBL2201); N-(1-amino-3- 

methyl-1-oxobutan-2-yl)-1-(5- 

fluoropentyl)-1H-indazole-3- 

carboxamide (trivial name: 5F-ABPINACA); 1-(4-cyanobutyl)-N-(2- 

phenylpropan-2-yl)-1H-indazole-3- 

carboxamide (trivial name: 4-CNCUMYL-BUTINACA; 4-cyano-CUMYLBUTINACA; 4-CN-CUMYL BINACA; 

CUMYL-4CN-BINACA; SGT-78); methyl 

2-(1-(cyclohexylmethyl)-1H-indole-3- 

carboxamido)-3-methylbutanoate (trivial 

names: MMB-CHMICA, AMB-CHMICA); 

and 1-(5-fluoropentyl)-N-(2- 

phenylpropan-2-yl)-1H-pyrrolo[2,3- 

b]pyridine-3-carboxamide (trivial name: 

5F-CUMYL-P7AICA), and their optical, 

positional, and geometric isomers, salts, 

and salts of isomers in schedule I. This 

action is based on a finding by the 

Acting Administrator that the placement 

of these synthetic cannabinoids in 

schedule I of the Controlled Substances 

Act is necessary to avoid an imminent 

hazard to the public safety. As a result 

of this order, the regulatory controls and 

administrative, civil, and criminal 

sanctions applicable to schedule I 

controlled substances will be imposed 

on persons who handle (manufacture, 

distribute, reverse distribute, import, 

export, engage in research, conduct 

instructional activities or chemical 

analysis, or possess), or propose to 

handle, NM2201, 5F-AB-PINACA, 4-CNCUMYL-BUTINACA, MMB-CHMICA 

and 5F-CUMYL-P7AICA. 

DATES: This temporary scheduling order 

is effective July 10, 2018, until July 10, 

2020. If this order is extended or made 

permanent, the DEA will publish a 

document in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: 

Michael J. Lewis, Diversion Control 

Division, Drug Enforcement 

Administration; Mailing Address: 8701 

Morrissette Drive, Springfield, Virginia 

22152; Telephone: (202) 598–6812. 

SUPPLEMENTARY INFORMATION: 

Legal Authority 

Section 201 of the Controlled 

Substances Act (CSA), 21 U.S.C. 811, 

provides the Attorney General with the 

authority to temporarily place a 

substance in schedule I of the CSA for 

two years without regard to the 

requirements of 21 U.S.C. 811(b) if he 

finds that such action is necessary to 

avoid an imminent hazard to the public 

safety. 21 U.S.C. 811(h)(1). In addition, 

if proceedings to control a substance are 

initiated under 21 U.S.C. 811(a)(1), the 

Attorney General may extend the 

temporary scheduling 1 for up to one 

year. 21 U.S.C. 811(h)(2). 

Where the necessary findings are 

made, a substance may be temporarily 

scheduled if it is not listed in any other 

schedule under section 202 of the CSA, 


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