On May 20, the Securities and Exchange Commission published a proposed rule (Release Number 33-9776) that would modernize information reported to the EDGAR System by investment companies and investment advisers. Reporting for mutual funds, ETFs, and registered investment companies would be enhanced through new forms and amendments.
Wednesday, July 08. 2015
The aim is to improve the accessibility of information for investors while simultaneously improving the quality of that data. All data on new forms would be reported in a structured format (XML) to allow for better analysis and examination of the data.
The proposed rule is open for public comment for a few more weeks.
Novaworks provides a free Fact Sheet for the new forms that are being proposed. These sheets have in-depth information about each new form. The following is a short overview of the changes being proposed:
This new form would be filed monthly and would require registered funds other than money market funds to provide portfolio-wide and position-level holdings data in a structured data format. (Money market funds already provide similar portfolio data monthly on Form N-MFP.)
The data filed on Form N-PORT would include:
– Pricing data for portfolio securities
– Information regarding repurchase agreements, securities lending activities, and counterparty exposures
– Terms of derivatives contracts
– Portfolio-level and position-level risk measures
Filing Form N-PORT would make Form N-Q obsolete, so the SEC is also proposing to rescind Form N-Q. (Form N-Q is the Quarterly Schedule of Portfolio Holdings that is filed to report holdings for the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940.)
This new form would be filed annually to report certain census-type information. This form would modernize and replace Form N-SAR. The SEC had proposed the modernization of Form N-SAR into a structured data format in 2012, but the idea was eventually abandoned after a number of delays. Form N-CEN seems like an attempt to wipe the slate clean and provide investors with all the census information formerly contained in Form N-SAR as well as include additional information such as data on exchange-traded funds (ETFs) and securities lending. This form would also better organize the data collected to make it easier for investment companies to complete the form.
Form N-CEN would collect data on the management company’s:
– service providers, including its advisers and sub-advisers
– transfer agents
– custodians (including sub-custodians) with expanded types of custody
– shareholder servicing agents
– third-party administrators
– affiliated broker-dealers
In addition, Form N-CEN would provide information on whether a service provider was hired or terminated during the reporting period and whether it is affiliated with the fund or any of its adviser(s).
Unlike Form N-SAR, which is a semi-annual form, Form N-CEN would be filed annually at the end of a fund’s fiscal year. As part of the proposal, the SEC would rescind Form N-SAR as well.
Amendments to Regulation S-X (Standardized, Enhanced Disclosure About Derivatives)
The proposed rule would amend Regulation S-X such that funds and other registered investment companies would provide standardized, enhanced disclosure about derivatives within their financial statements. These additions would be required to be provided in fund registration statements and shareholder reports.
Investment companies would be required to provide the following additional information within their financials:
– Specific information related to derivatives
– A separate disclosure for income from non-cash dividends and payment-in-kind interest
– Information relating to a fund’s securities lending activities and cash collateral management (Specifically, (1) the gross income from securities lending, including income from cash collateral reinvestment; (2) the dollar amount of all fees and/or compensation paid by the registrant for securities lending activities and related services, including borrower rebates and cash collateral management services; (3) the net income from securities lending activities; (4) the terms governing the compensation of the securities lending agent, including any revenue sharing split, with the related percentage split between the registrant and the securities lending agent, and/or any fee-for-service, and a description of services included; (5) the details of any other fees paid directly or indirectly, including any fees paid directly by the registrant for cash collateral management and any management fee deducted from a pooled investment vehicle in which cash collateral is invested; and (6) the monthly average of the value of portfolio securities on loan)
Derivative disclosures would also be required to be displayed prominently in the financial statements, rather than in the notes to the financial statements. All schedules required by rule 6-10 would be presented together within the fund’s financial statements.
Other changes are being proposed to adjust the data that is reported within the financial statements. For example, the proposal eliminates the disclosure of “Total investments” on the balance sheet under “Assets”. Additionally, amendments to rules would conform statement of operations disclosures.
Rule 30e-3 (Providing Shareholder Reports on Websites)
Currently, funds can only satisfy the SEC’s delivery requirements by printing and mailing shareholder reports. Investors can opt to request electronic delivery of shareholder reports, but shareholders primarily receive printed reports. The proposed rule would change this process by permitting mutual funds and other investment companies to provide shareholder reports by making them accessible on their website.
Other conditions would also need to be satisfied by the fund. For example, investors who want a paper copy of a shareholder report must be able to continue to receive paper copies by mail.
Other changes are also part of the proposal. Novaworks provides a free Fact Sheet for each of the proposed forms.
Comments to the SEC are due August 11, 2015. Comments that have already been received by the SEC are available here: http://www.sec.gov/comments/s7-08-15/s70815.shtml.