May 18, 2018

Mr. Brent J. Fields
Secretary
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Re: Investment Company Liquidity Disclosure File No. S7-04-18

Dear Mr. Fields:

The Asset Management Group (the “AMG”) of the Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to provide comments to the United States Securities and Exchange Commission (the “Commission”) on the Commission’s proposed amendments to its forms designed to improve the reporting and disclosure of liquidity information by registered open-end investment companies (the “Proposal”).2

We strongly support the Proposal. We believe that the Commission’s proposal to replace public disclosure of certain liquidity classification data reported on Form N-PORT with narrative disclosure about the operation and effectiveness of the fund’s liquidity risk management program in its annual report will, as intended, enhance investor understanding of fund liquidity and improve fund reporting and disclosure of liquidity information.3 We also support the proposed additional changes to liquidity reporting requirements, which would permit funds to report multiple classifications for a single portfolio holding under certain circumstances and require reporting of information on cash and cash equivalents, although we recommend certain adjustments to those proposals, which we discuss below.

I. Introduction and Executive Summary

A. Background – Rule 22e-4 and the Current Disclosure Requirements

On October 13, 2016, the Commission adopted Rule 22e-4 (“Rule 22e-4” or the “Rule”) under the Investment Company Act of 1940 (“1940 Act”), which requires each fund to adopt and implement a written liquidity risk management program that is reasonably designed to assess and manage its liquidity risk (“Liquidity Risk Program” or “Program”).4 As part of the Program, each fund, other than ETFs that are In-Kind ETFs within the meaning of the Rule,5 must classify each of the fund’s portfolio investments in one of four liquidity categories or “buckets,” as a highly liquid investment, moderately liquid investment, less liquid investment, or illiquid investment.

At the same time, the Commission adopted new Form N-PORT, which requires funds to electronically file with the Commission monthly portfolio investment information in structured data format. In connection with the adoption of Rule 22e-4, the Commission incorporated into Form N-PORT a requirement that funds subject to the classification requirement must report the liquidity classification category of each portfolio investment on a nonpublic basis. In addition, Form N-PORT requires those funds to publicly report the aggregate percentage of their portfolio investments that are classified in each of the four categories (“Portfolio Classification Data”). Under Form N-PORT as adopted, a fund’s Portfolio Classification Data reported for the third month of its fiscal quarter would become publicly available 60 days after the end of the fiscal quarter. Form N-PORT also requires funds subject to the classification requirement to report 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 as moderately liquid investments, less liquid investments, and illiquid investments (“Derivatives Classification Data”). The Derivatives Classification Data would become publicly available on the same basis as the Portfolio Classification Data.

Continue Reading > 

1 SIFMA AMG is the voice for the buy side within the securities industry and broader financial markets, which serves millions of individual and institutional investors as they save for retirement, education, emergencies, and other investment needs and goals. The AMG’s members represent U.S. asset management firms whose combined assets under management exceed $40 trillion. The clients of AMG member firms include, among others, registered investment companies, separate accounts, ERISA plans, and state and local government pension funds. Our members represent a significant and representative cross section of the registered open-end investment companies that are the subject of the Proposal.

2 Investment Company Liquidity Disclosure, Release No. IC-33046 (Mar. 14, 2018), 83 Fed. Reg. 11905 (Mar. 19, 2018) (the “Proposing Release”).

3 As in the Proposing Release, we use “fund” to include open-end management companies, including exchange-traded funds (“ETFs”) registered as open-end management companies, and to exclude money market funds.

4 Investment Company Liquidity Risk Management Programs, Release Nos. 33-10233, IC-32315 (Oct. 13, 2016), 81 Fed. Reg. 82142 (Nov. 18, 2016) (the “Adopting Release”).

5 An “In-Kind ETF” is defined 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).