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SEC is Listening to the Mutual Fund Industry and Requests Comments

On Wednesday, March 14, 2018, the Securities and Exchange Commission ("SEC") proposed amendments to Rule 22e-4 and Form N-PORT, which is designed to improve the reporting and disclosure of liquidity information by registered open-end funds.

In light of concerns about the usefulness of that information for investor, the amendments essential spare mutual funds from having to tell shareholders how they bucket the liquidity of their holdings and now will allow funds to provide a narrative discussion about the operation and effectiveness of their liquidity risk management program in their annual reports to shareholders.

Compliance4 is heartened to see the proposal reference the Department of Treasury’s 2017 Asset Management and Insurance Report, which highlighted the importance of robust liquidity risk management programs, but recommended that the SEC embrace a “principles-based approach to liquidity risk management rule-making and any associated bucketing requirements.

We would urge the SEC to further delay the compliance date for the proposed amendments and provide an additional six months or one year beyond the compliance dates for the liquidity-related requirements of Rule 22e-4 and Form N-PORT for an additional year beyond the current compliance date.

The entire release can be viewed at

The SEC is requesting comments on all aspects of this proposal. We continue to urge the industry to comment further as the SEC is listening. Comments will be due 60 days after publication of the proposal in the Federal Register and we have provided the various ways to comment below.


-Proposed elimination of the publicly available quarterly aggregate liquidity classification information disclosure requirement on Form N-PORT.

-Proposed replacement with a requirement that funds discuss the operation and effectiveness of their liquidity risk management program as part of their annual reports to shareholders.

-Allow funds to report a single portfolio holding under multiple liquidity classification categories in certain specified circumstances.

-Finally, the Commission is proposing to add to Form N-PORT a new requirement that funds and other registrants report their holdings of cash and cash equivalents.

Industry participants and the trade associations ICI and SIFMA submitted letters to the SEC which raised concerns about liquidity classification and related matters including the difficulties regarding the design of new systems and processes necessary to implement the new rules. We commend the SEC staff for having engaged in extensive outreach with funds and other interested parties.

While the SEC continues to believe that liquidity information be available to investors, the SEC’s newer approach in providing different information to investors via a different form would more effectively achieve the SEC’s policy goal of promoting investor understanding of the liquidity risks of the funds.

We do not expect investors or intermediaries to make much use of the liquidity reporting data regarding their mutual fund and ETF investments, but perhaps may make use of such data in more esoteric funds such as alternative or very narrow theme or sector funds. Even in such situations, we point out that the information is stale and reported on a 60 day delay so its utility may be diminished and even potentially misleading if shareholders were to transact on this dated information.

Accordingly, we agree with the SEC's proposed amendments to Form N-1A which would require funds to “briefly discuss the operation and effectiveness of the Fund’s liquidity risk management program during the most recently completed fiscal year.” To satisfy this requirement, a fund generally should provide information about the operation and effectiveness of the program, and insight into how the program functioned over the past year. We believe that the SEC's suggested discussion concepts (i.e. particular liquidity risks faced in the prior year and how such risks were managed) without mandating them for inclusion is a more appropriate and principled approach.

We believe this approach will provide effective disclosure that better informs investors of how the fund’s liquidity risk and liquidity risk management practices affect their investment than the current Form N-PORT public liquidity risk profile.

Request for Comments

Comments should be received 60 days after publication in Federal Register.

Comments may be submitted by any of the following methods:

Electronic Comments: Use the Commission’s Internet comment form (

Send an e-mail to

All submissions should refer to File Number S7-04-18.

Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly.

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