SEC Proposes Rules to Modify Reporting Regime for Registered Investment Companies and Investment Advisers: Proposed Rules and Amendments Would Implement New Monthly and Annual Reporting Forms for Registered Investment Companies, with Detailed Disclosure Requirements for Derivatives and Securities Lending Activities; Amended Investment Adviser Reporting Form Would Require Additional Disclosure Regarding Separately Managed Accounts and Other Information

Sullivan & Cromwell LLP - May 26, 2015

On May 20, 2015, the Securities and Exchange Commission proposed new rules and amendments that would significantly modify the disclosure and reporting requirements applicable to most investment companies registered under the Investment Company Act of 1940 and all investment advisers registered under the Investment Advisers Act of 1940. The proposals, which were approved unanimously by the SEC commissioners, are intended to “modernize and enhance” the investment company reporting regime by (1) updating and standardizing the format in which funds report portfolio and census-type information, and (2) providing for additional disclosure in certain key areas, including securities lending activities and the use of derivatives. Among other things, the proposed rules would:

  • introduce a new monthly portfolio reporting form, Form N-PORT, replacing existing Form N-Q, on which registered funds would be required to report portfolio-wide and position-level holdings data, including detailed information on the pricing of securities, investments in derivatives, securities lending activities, repurchase agreements, and quantitative portfolio-level and position-level risk metrics;
  • amend Regulation S-X to make various changes to the form and content of fund financial statements in shareholder reports and registration statements, including new detailed disclosure requirements regarding derivatives;
  • introduce a new annual reporting form, Form N-CEN, replacing existing Form N-SAR, which streamlines and updates the census-type information currently being reported by funds on Form N-SAR, including new requirements regarding exchange-traded funds (“ETFs”) and securities lending activities;
  • require information reported on Forms N-CEN and N-PORT to be filed in a structured, XML data format to facilitate automated processing and analysis; and
  • allow funds to satisfy the delivery requirements for shareholder reports by making the reports available online, unless investors request physical delivery.
The SEC also proposed amendments that would impose certain additional requirements on investment advisers. Proposed amendments to the investment adviser registration and reporting form, Form ADV, would require advisers to report aggregate information on separately managed accounts and information about certain other aspects of the adviser’s advisory business, including the adviser’s branch operations and use of social media, and would codify and simplify existing SEC staff guidance that permits multiple private fund adviser entities operating a single advisory business to register on a single Form ADV (so-called “umbrella registration”). Proposed amendments to the recordkeeping rule under the Investment Advisers Act would expand the rule to require advisers to maintain records of the calculation of performance information that is distributed to any person. The rule currently applies only to performance information that is distributed to ten or more persons.

Comments on the SEC’s proposals must be submitted no later than 60 days after publication of the proposing releases in the Federal Register.