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Investment Funds, Digital Stock

Mar 06, 2019

SEC Modifies Form N-PORT Filing Timeline

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In what will be a welcome reprieve, the Securities and Exchange Commission eased compliance burdens for most mutual funds, ETFs and closed-end funds to file portfolio holdings reports on Form N-PORT. The SEC pushed back the compliance deadline for funds to make initial filings of Form N-PORT to dates between May 1, 2019 and July 1, 2019. The actual deadline depends on the filer’s quarter end. Compliance dates as late as 2020 continue to apply to smaller fund firms. The SEC also permitted funds to file all Form N-PORT reports quarterly within 60 days instead of monthly within 30 days. Firms still must prepare the monthly reports within the originally required 30 days, but will hold those reports to be reported all at once on a quarterly basis.

These are changes in timeline only; the SEC made no changes to the required content or scope of the filings. Nor is there any change to what is being made public. When filed, reports for the first and second months of a quarter will not be released to the public. Only the report associated with the third month of each quarter will be public.

The SEC’s interim final rule, adopted on February 23, 2019, became effective immediately without public comment. But the rule release requests public comment on a number of points, and the comment process ultimately may result in further changes to the agency’s Form N-PORT requirements and expectations.[1]

The SEC adopted Form N-PORT in 2016 as an expansive new reporting framework for information on U.S. registered investment companies[2]. This new electronic system required key portfolio and position level information to be submitted on a monthly basis no later than 30 days after month-end. Then in 2017, following testimony by SEC Chairman Clayton about cyber-attacks on the SEC’s EDGAR system[3] and citing a need for increased cybersecurity, the implementation of Form N-PORT was delayed by nine months. Since June 2018, larger fund firms have had to maintain required Form N-PORT data internally, but have not had to submit these files to the SEC electronically.

The SEC has recognized since it first proposed Form N-PORT the sensitivity of the data that it would be collecting. Commenters also repeatedly raised concerns that concentration of trading data with the SEC from across the funds industry would make the SEC a target for cyber criminals or other bad actors seeking market advantage from access to that non-public information. Because less timely data is less sensitive, the current decision to delay receipt of Form N-PORT data is explicitly intended to reduce the risks to the agency and fund firms of a potential information security incident.

Our Take:

These changes reflect thoughtful analysis of the risks and benefits to large-scale information collection. But they are incremental and evolutionary. The most significant change is the delay in reporting, with a regular quarterly filing to be made 60 days after quarter-end instead of monthly filings made 30 days after month-end. Importantly, the SEC may request monthly Form N-PORT data from individual firms at any time 30 days after the month-end. The same detailed information thus must continue to be generated, formatted, reconciled, etc. – and on the same tight 30-day timetable.

Footnotes

[1]  SEC Modifies Timing for Filing Non-Public Form N-PORT Data to Align With Its Approach to Data Management and Cybersecurity.” SEC Press Release, U.S. Securities and Exchange Commission, (Feb. 28, 2019) available at: http://www.sec.gov/news/press-release/2019-23.
[2]  Investment Company Reporting Modernization.” SEC Press Release, U.S. Securities and Exchange Commission, (Oct. 2016) available at: https://www.sec.gov/rules/final/2016/33-10231.pdf. We previously wrote about Form N-PORT; see “SEC Issues Investment Company ‘Reporting Modernization’ Rules” (Nov. 9, 2016) available at: https://www.shearman.com/perspectives/2016/11/sec-issues-investment-company-reporting-rules
[3]  Chairman Clayton Provides Update on Review of 2016 Cyber Intrusion Involving EDGAR System.” SEC Press Release, U.S. Securities and Exchange Commission, (Oct. 2, 2017) available at: https://www.sec.gov/news/press-release/2017-186

Authors and Contributors

Jay G. Baris

Partner

Investment Funds

+1 212 848 4100

+1 212 848 4100

New York

Nathan Greene

Partner

Investment Funds

+1 212 848 4668

+1 212 848 4668

New York

Laura Friedrich

Partner

Investment Funds

+1 212 848 7411

+1 212 848 7411

New York

John (Sean) Finley

Partner

Investment Funds

+1 212 848 4346

+1 212 848 4346

New York

Paul Schreiber

Of Counsel

Investment Funds

+1 212 848 8920

+1 212 848 8920

New York

Thomas Majewski

Counsel

Investment Funds

+1 212 848 7182

+1 212 848 7182

New York

Ted Randolph

Counsel

Investment Funds

+1 212 848 7260

+1 212 848 7260

New York