SEC Proposes Changes to Public Liquidity Risk Management Disclosure

Instead of making the disclosure on Form N-PORT on a quarterly basis, firms would discuss their liquidity risk programs in their annual statements.

The Securities and Exchange Commission (SEC) has proposed a change to public liquidity risk disclosure requirements for certain open-end investment management companies.

The SEC had issued a pending requirement that funds publicly provide the aggregate liquidity classification profile of their portfolios on Form N-PORT on a quarterly basis. Now, the SEC is suggesting that funds discuss the operation and effectiveness of their liquidity risk management program in their annual report.

The SEC adopted the open-end fund liquidity rule in October 2016 to help funds meet their statutory obligation, and investors’ expectations, regarding redemption of shares. Since that time, SEC staff have reached out to investment management firms to identify any issues with compliance.

In addition to the proposal to move the disclosures to funds’ annual reports, the SEC previously adopted a rule that extends by six months the compliance date for the classification and classification-related elements of Rule 22e-4 and related reporting requirements. In conjunction with this extension, the SEC issued new guidance to assist funds with complying with the liquidity rule’s classification requirements.

SEC Chairman Jay Clayton said of the new proposal that it “is another step toward completing the implementation of the 2016 final rule in a manner that protects investors while minimizing unnecessary costs on funds.”