Investment Company Reporting Modernization, 58731-58739 [2017-26922]

Download as PDF Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations 5 U.S.C. 552(a) and 1 CFR part 51. You may obtain a copy of these ASTM standards from ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428–2959 USA; telephone: 610–832–9585; http:// www.astm.org/. You may inspect copies at the Office of the Secretary, U.S. Consumer Product Safety Commission, Room 820, 4330 East West Highway, Bethesda, MD 20814, telephone 301– 504–7923, or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202–741– 6030, or go to: www.archives.gov/ federal-register/cfr/ibr-locations.html. Alberta E. Mills, Acting Secretary, U.S. Consumer Product Safety Commission. [FR Doc. 2017–26954 Filed 12–13–17; 8:45 am] BILLING CODE 6355–01–P SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 229, 232, 239 and 249 [Release Nos. 33–10446; 34–82280; File No. S7–19–16] RIN 3235–AL95 Compliance Date for Form 10–D Hyperlink Requirements Securities and Exchange Commission. ACTION: Notification of compliance date. AGENCY: The Securities and Exchange Commission (‘‘Commission’’) is publishing this document to inform the public that it has set a compliance date for its previously-adopted exhibit hyperlinking requirements for Form 10– Ds that require hyperlinks to any exhibits filed with Form ABS–EE. The Commission on March 1, 2017 required registrants that file registration statements and reports subject to the exhibit requirements under Item 601 of Regulation S–K, or that file Forms F–10 or 20–F, to include a hyperlink to each exhibit listed in the exhibit index of these filings, but deferred setting a compliance date with respect to any Form 10–D that will require hyperlinks to any exhibits filed with Form ABS–EE until the Commission announced that technical programming changes to allow issuers to include Form 10–D and Form ABS–EE in a single submission had been completed, and published a notification of the compliance date for Form 10–D in the Federal Register. DATES: The compliance date with respect to any Form 10–D that will sradovich on DSK3GMQ082PROD with RULES SUMMARY: VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 require hyperlinks to any exhibits filed with Form ABS–EE is June 1, 2018. FOR FURTHER INFORMATION CONTACT: Kayla Roberts, Special Counsel, at (202) 551–3850, in the Office of Structured Finance, Division of Corporation Finance, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: On March 1, 2017, the Commission adopted rule and form amendments requiring registrants that file registration statements and reports subject to the exhibit requirements under Item 601 of Regulation S–K,1 or that file Forms F– 10 2 or 20–F,3 to include a hyperlink to each exhibit listed in the exhibit index of these filings.4 To enable the inclusion of hyperlinks, the amendments also require that registrants submit all filings on EDGAR in HyperText Markup Language (‘‘HTML’’) format because the American Standard Code for Information Interchange (‘‘ASCII’’) format cannot support functional hyperlinks.5 The amendments took effect on September 1, 2017 for most registrants. Registrants that are ‘‘smaller reporting companies,’’ as defined in Rule 405 6 under the Securities Act of 1933 and Rule 12b–2 7 under the Securities Exchange Act of 1934, or are neither ‘‘large accelerated filers’’ nor ‘‘accelerated filers,’’ as defined in Exchange Act Rule 12b–2, and that submit filings in ASCII will not need to comply with the new rules until September 1, 2018, one year after the effective date for other filers.8 The Commission deferred establishing a compliance date for any Form 10–D filing that will require a hyperlink to an exhibit filed with Form ABS–EE until Commission staff completed programming changes to EDGAR to allow Form 10–D filers to include the Form 10–D and Form ABS–EE in a single EDGAR submission so that the required hyperlinks could be created at the time the Form 10–D is filed.9 Such 1 17 CFR 229.601. CFR 239.40. 3 17 CFR 249.220f 4 Exhibit Hyperlinks and HTML Format, Release Nos. 33–10322, 34–80132 (March 1, 2017) [82 FR 14130 (March 17, 2017)] (‘‘Hyperlinks Release’’). 5 See id. at Section I. 6 17 CFR 230.405. 7 17 CFR 240.12b–2. 8 See Hyperlinks Release, supra note 1, at Section II.B.3. 9 See Hyperlinks Release, supra note 1, at n. 55 (explaining that asset-backed issuers are required to incorporate by reference Form ABS–EE information in Form 10–D and how the hyperlinking requirement applies with respect to Form 10–D filings) & n.72 and accompanying text. 2 17 PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 58731 programming changes have now been completed.10 Any registrant filing a Form 10–D on or after June 1, 2018, must include a hyperlink to any exhibit filed with Form ABS–EE that is included in the exhibit index of Form 10–D.11 By the Commission. Dated: December 11, 2017. Brent J. Fields, Secretary. [FR Doc. 2017–26982 Filed 12–13–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 232, 239, 249, 270, and 274 [Release Nos. 33–10442; 34–82241; IC– 32936; File No. S7–08–15] RIN 3235–AL42 Investment Company Reporting Modernization Securities and Exchange Commission. ACTION: Temporary final rule. AGENCY: The Securities and Exchange Commission (the ‘‘Commission’’) is adopting a temporary final rule that requires funds in larger fund groups to maintain in their records the information that is required to be included in Form N–PORT, in lieu of filing reports with the Commission, until April 2019. As a result, larger funds groups will be required to begin submitting reports on Form N–PORT on the Electronic Data Gathering, Analysis, and Retrieval (‘‘EDGAR’’) system by April 30, 2019, and smaller fund groups will be required to begin submitting reports on Form N–PORT by April 30, 2020. The information that funds in larger fund groups maintain in their records will be subject to examination by the Commission. In addition, the Commission is delaying the rescission of current Form N–Q and delaying the effectiveness of certain amendments to other rules and forms. DATES: Effective January 16, 2018 until March 31, 2026. The effective date for the amendments to 17 CFR 232.401, 249.332, 270.8b–33, 270.30a–2, SUMMARY: 10 Adoption of Updated EDGAR Manual, Release No. 33–10444, (December 8, 2017), available at https://www.sec.gov/rules/final.shtml. 11 Issuers are not required to submit their Form 10–D and Form ABS–EE in a single submission. An issuer may file a Form 10–D and Form ABS–EE in separate submissions and comply with the new requirements by including an external hyperlink in the Form 10–D to a previously filed Form ABS–EE. E:\FR\FM\14DER1.SGM 14DER1 58732 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations 270.30a–3, 270.30b1–5, and 17 274.130 and in Instructions 54, 57, 59, and 61 in the final rule published at 81 FR 81870 on November 18, 2016, is delayed until May 1, 2020. The applicable compliance dates are discussed below. FOR FURTHER INFORMATION CONTACT: J. Matthew DeLesDernier, Senior Counsel, Jacob D. Krawitz, Branch Chief, or Brian McLaughlin Johnson, Assistant Director, at (202) 551–6792, Investment Company Rulemaking Office, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is adopting new temporary rule 30b1–9(T) [17 CFR 270.30b1–9(T)] under the Investment Company Act of 1940 [15 U.S.C. 80a–1 et seq.] (‘‘Investment Company Act’’). The Commission is also delaying the compliance dates associated with the requirement for smaller fund complexes to file reports on new Form N–PORT [referenced in 17 CFR 274.150] under the Investment Company Act [15 U.S.C. 80a–1 et seq.] and new rule 30b1–9 [17 CFR 270.30b1–9] under the Investment Company Act. In addition, the Commission is delaying the effective date associated with: the rescission of rule 30b1–5 [17 CFR 270.30b1–5] under the Investment Company Act; amendments to rules 8b–33 [17 CFR 270.8b–33], 30a–2 [17 CFR 270.30a–2], 30a–3 [17 CFR 270.30a–3], and 30d–1 [17 CFR 270.30d–1] under the Investment Company Act; amendments to Forms N–1A [referenced in 17 CFR 274.11A], N–2 [referenced in 274.11a– 1], and N–3 [referenced in 274.11b] under the Investment Company Act and the Securities Act of 1933 [15 U.S.C. 77a et seq.] (‘‘Securities Act’’); the rescission of Form N–Q [referenced in 17 CFR 274.130] under the Investment Company Act and Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] (‘‘Exchange Act’’); and amendments to rule 401 [17 CFR 232.401] of Regulation S–T [17 CFR 232]. sradovich on DSK3GMQ082PROD with RULES I. Discussion In recognition of the importance of sound data security practices and protocols for sensitive, nonpublic information, the Commission is modifying its approach to the requirement to submit reports on Form N–PORT on the EDGAR system. Funds in larger fund groups would have been required to submit reports on Form N– PORT in EDGAR no later than July 30, 2018. The Commission is adopting a temporary final rule that requires funds in larger fund groups to maintain in their records the information that is VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 required to be included in Form N– PORT beginning no later than July 30, 2018. This information will be subject to examination by Commission staff. As a result, funds in larger fund groups must begin to submit reports on Form N– PORT on EDGAR by April 30, 2019, and smaller fund groups must begin to submit reports on Form N–PORT by April 30, 2020. In addition, the Commission is delaying the rescission of current Form N–Q and delaying the effectiveness of certain amendments to other rules and forms. A. Form N–PORT On October 13, 2016, the Commission adopted new rules and forms as well as amendments to its rules and forms to modernize the reporting and disclosure of information by registered investment companies.1 In particular, the Commission adopted new Form N– PORT, which requires certain registered investment companies to report information about their monthly portfolio holdings to the Commission in a structured data format. We also adopted new Form N–CEN, which requires registered investment companies, other than face-amount certificate companies, to annually report certain census-type information to the Commission in a structured data format. In addition, we rescinded current Forms N–Q (effective August 1, 2019) and N– SAR and amended certain other rules and forms.2 As the Commission stated in the Adopting Release, Form N–PORT, as well as new rules, other forms, and amendments to existing rules and forms will, among other things, improve the information that the Commission receives from investment companies and assist the Commission, in its role as primary regulator of investment companies, to better fulfill its mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. Investors and other potential users can also utilize this information to help them make more informed investment decisions. Form N–PORT is a new portfolio holdings reporting form that will be filed by all registered management investment companies, other than 1 Investment Company Reporting Modernization, Investment Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (‘‘Adopting Release’’). 2 The Commission also adopted amendments to Regulation S–X, which require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. Finally, it adopted amendments to Forms N–1A, N–3, and N–CSR to require certain disclosures regarding securities lending activities. Id. PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 money market funds and small business investment companies, and by unit investment trusts that operate as exchange-traded funds (collectively, ‘‘funds’’).3 Form N–PORT requires reporting of a fund’s complete portfolio holdings and additional information that will facilitate risk analysis and other Commission oversight. Reports on Form N–PORT are required to be filed in an extensible markup language (‘‘XML’’) structured data format no later than 30 days after the close of each month using the Commission’s EDGAR system.4 In general, reports on Form N– PORT for every third month of each fiscal quarter will be available to the public 60 days after the end of the fiscal quarter.5 Certain information reported on Form N–PORT will be kept nonpublic. As we noted in the Adopting Release, we recognize that more frequent portfolio disclosure than was currently required could potentially harm fund shareholders by expanding the opportunities for professional traders to engage in predatory trading practices.6 In addition, some of the information required by Form N–PORT could imply a false sense of precision because such data, by design, are an aggregation of multiple assumptions and projections.7 In light of these considerations, the Commission in the Adopting Release determined not to make public the information reported on Form N–PORT for the first and second months of each fund’s fiscal quarter that is identifiable to any particular fund or adviser; any information reported with regards to country of risk and economic exposure, delta, or miscellaneous securities; or explanatory notes related to any of those topics that is identifiable to any particular fund or adviser.8 In addition, the information on Form N–PORT that will be made public will only be made public after an additional 30-day delay (i.e., 60 days after quarter-end). Moreover, we determined to make all reports for the first six months following June 1, 2018 nonpublic in order to allow funds and the Commission a period of time to fine-tune the technical specifications and data validation processes for reports on Form N–PORT.9 When we adopted the Form N–PORT filing requirement, we provided for an effective date of January 17, 2017, with a tiered set of compliance dates based 3 Form N–PORT. rule 30b1–9. 5 General Instruction F to Form N–PORT. 6 See Adopting Release, supra note 1, Part II.A.4. 7 See id. 8 General Instruction F to Form N–PORT. 9 See Adopting Release, supra note 1, Part II.H.1. 4 See E:\FR\FM\14DER1.SGM 14DER1 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations on a fund group’s asset size. Specifically, for larger entities—funds that together with other investment companies in the same ‘‘group of related investment companies’’ have net assets of $1 billion or more as of the end of the most recent fiscal year of the fund (‘‘larger fund groups’’)—we adopted a compliance date of June 1, 2018.10 This would have resulted in larger fund groups filing their first reports on Form N–PORT, reflecting data as of June 30, no later than July 30, 2018.11 For smaller fund groups, we adopted a compliance date of June 1, 2019, anticipating that smaller fund groups would benefit from this extra time to comply and potentially would benefit from the lessons learned by the larger fund groups during the adoption period for Form N–PORT.12 B. Commission’s Determination To Delay Form N–PORT Filing Requirement As we noted in the Adopting Release, we recognize the importance of sound data security practices and protocols for sensitive, nonpublic information, including information that may be competitively sensitive.13 To that end, the Adopting Release acknowledged that Commission staff was working to design controls and systems for the use and handling of Form N–PORT data in a manner that reflects the sensitivity of the data and is consistent with the maintenance of its confidentiality.14 In the Adopting Release, the Commission also stated that it ‘‘expect[ed] that the staff will have reviewed the controls and systems in place for the use and handling of nonpublic information reported on Form N–PORT.’’ 15 In May 2017, the Commission’s Chairman initiated an assessment of the Commission’s internal cybersecurity risk profile and its approach to cybersecurity.16 The Chairman also directed the staff to take a number of steps designed to strengthen the Commission’s cybersecurity risk profile, with an initial focus on EDGAR.17 As the Chairman explained, the Commission receives, stores, and transmits substantial amounts of data, including sensitive and nonpublic data, 10 Id. 11 Id. 12 Id. sradovich on DSK3GMQ082PROD with RULES 13 See Adopting Release, supra note 1, Part II.A.3. 14 Id. 15 Id. 16 Statement on Cybersecurity (September 20, 2017), available at https://www.sec.gov/news/ public-statement/statement-clayton-2017-09-20. 17 Update on Review of 2016 Cyber Intrusion Involving EDGAR System (Oct. 2, 2017), available at https://www.sec.gov/news/press-release/2017186. VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 in support of its mission.18 Much of that data is collected through EDGAR, which receives and processes over 1.7 million electronic filings per year.19 Thus, as part of the Commission’s efforts to strengthen its cybersecurity risk profile going forward, the Commission has initiated a focused review and, as necessary or appropriate, uplift of the EDGAR system.20 The Commission has added, and expects to continue to add, additional resources to these efforts, which are expected to include outside consultants, and will increase the focus on data security matters.21 As the Chairman has indicated, these efforts will require substantial time and effort to complete.22 Certain of these measures, which will be designed to improve EDGAR’s functionality and security, could negatively affect EDGAR’s ability to validate and accept Form N–PORT filings in a timely manner, in particular during peak filing periods. Efforts to address any such potential effects on performance are underway, but we have determined to delay by nine months the requirement that funds file reports on Form N–PORT through the EDGAR system in order to provide time to complete this review and to implement and test any resulting modifications to the EDGAR system.23 This delay of filing reports on Form N–PORT on EDGAR is necessary for Commission staff to complete and review any modifications to EDGAR that are necessary to process these filings effectively and securely, given their frequency, volume, and complexity, as well as the nonpublic nature of much of the data. C. Temporary Rule 30b1–9(T) To effectuate the nine-month delay, we have determined to adopt temporary rule 30b1–9(T), which will have the effect of delaying the EDGAR submission requirements associated with Form N–PORT for larger fund groups until April 2019. As a result, funds in larger fund groups that previously would have been required to submit their first reports on Form N– PORT on EDGAR for the period ending 18 Statement on Cybersecurity (Sept. 20, 2017), available at https://www.sec.gov/news/publicstatement/statement-clayton-2017-09-20. 19 Id. 20 Update on Review of 2016 Cyber Intrusion Involving EDGAR System (Oct. 2, 2017), available at https://www.sec.gov/news/press-release/2017186. 21 Id. 22 Id. 23 The Commission has not considered any other changes to Form N–PORT, rules, other forms, and amendments besides those that are discussed in this release. PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 58733 June 30, 2018 (no later than July 30, 2018) will now be required to submit their first reports on EDGAR by April 30, 2019.24 During this period, funds in larger fund groups that are subject to the June 1, 2018 compliance date must satisfy their reporting obligation by maintaining in their records the information required to be included in Form N–PORT instead of submitting the information via EDGAR.25 To provide for Commission access to this information for a reasonable period of time, consistent with current record retention requirements for registered investment companies, the temporary rule provides that the information maintained in the company’s records shall be treated as a record under section 31 of the Investment Company Act and rule 31a–1 hereunder and subject to the requirements of rule 31a– 2.26 Like all fund records under the Act, this information is subject to examination by Commission staff.27 Temporary rule 30b1–9(T) does not change the June 1, 2018 compliance date adopted for Form N–PORT for larger fund groups—it instead requires a temporary method for larger fund groups to fulfill their Form N–PORT reporting obligations.28 The Adopting Release delayed compliance for smaller fund groups by one year so that they could benefit from the lessons learned by the larger fund groups’ earlier compliance date.29 In order to maintain this benefit the compliance date for smaller fund groups 24 See Rule 30b1–9(T)(a). Furthermore, the EDGAR reporting requirements added to Form N–PORT by the Investment Company Liquidity Risk Management Programs Adopting Release (‘‘Liquidity Adopting Release’’) will also be delayed by the temporary rule. See Investment Company Liquidity Risk Management Program, Investment Company Act Release No. 32315 (Oct. 13, 2016) [81 FR 82142 (Nov. 18, 2016)]. However, funds will only be required to comply with temporary rule 30b1–9(T) with respect to these liquidity-related additions to Form N–PORT based on the compliance date set forth in the Liquidity Adopting Release for these additions. 26 See rule 31a–2(a)(2) (providing that funds must preserve certain records for a period not less than six years from the end of the fiscal year, the first two years in an easily accessible place); see generally rule 31a–2(f) (requirements for electronic records). Because rule 31a–2 provides for preservation for not less than six years from the end of the fiscal year, the temporary rule will no longer be effective March 31, 2026. 27 15 U.S.C. 80a–30(b)(1). 28 See rule 30b1–9(T)(a). While neither this temporary rule nor rule 31a–2(f) require that the information maintained in the funds’ records be stored in an XML format, we believe that doing so would facilitate the filing of Form N–PORT following the nine-month delay as we believe funds can use this delay to gain greater facility with the structured reporting format. 29 See Adopting Release, supra note 1, at Part II.H.1. 25 Id. E:\FR\FM\14DER1.SGM 14DER1 58734 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations will be delayed by nine months from the original compliance date (until March 1, 2020). Not providing smaller fund groups with a compliance date delay would deprive them of receiving the full benefit of the tiered filing requirement that we previously adopted. However, the temporary rule is not relevant to these smaller fund groups,30 as the relevant provision of the temporary rule applies until April 1, 2019—before the new compliance date for smaller fund groups (March 1, 2020). As a result, smaller fund groups are not subject to a requirement to prepare and then retain as a record the information required on Form N–PORT; rather, they will, pursuant to the Adopting Release and this release, need to prepare and file Form N–PORT beginning on or after the delayed March 1, 2020 compliance date. D. Form N–Q Filing Requirement In order for investors and other users to continue to receive at the least the same information that they currently receive regarding fund portfolio holdings, we are requiring funds to continue filing public reports on Form N–Q until they begin filing reports on Form N–PORT using EDGAR (i.e., the March 31, 2019 reporting period for larger fund groups and March 31, 2020 for smaller fund groups). As the Commission concluded in the Adopting Release, Form N–PORT will render reports on Form N–Q unnecessarily duplicative. To that end, the Commission staff recently provided guidance that once a fund begins filing reports on Form N–PORT, it will no longer be required to file reports on Form N–Q.31 The Adopting Release rescinded Form N–Q, effective August 1, 2019. This effective date would have allowed funds sufficient time to satisfy Form N–Q’s 60-day filing requirement with regard to their final filing on Form N–Q for the reporting period preceding their first filing on Form N–PORT.32 We also adopted certain changes to Form N–CSR to account for the rescission of Form N–Q.33 Specifically, as we noted in the Adopting Release, when a fund ceases filing reports on Form N–Q, its certification on Form N–CSR must state that the certifying officer has disclosed any change in the registrant’s internal control over financial reporting that sradovich on DSK3GMQ082PROD with RULES 30 See rule 30b1–9(T)(a). Investment Company Reporting Modernization Frequently Asked Questions, available at https://www.sec.gov/investment/ investment-company-reporting-modernizationfaq#_ftnref5. 32 Adopting Release, supra note 1, at 81966. 33 Id. at 81912–13. We also adopted certain technical and conforming amendments related to the rescission of Form N–Q and the adoption of Form N–PORT. See id. at 81965–66. 31 See VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 occurred during the most recent fiscal half-year, rather than the registrant’s most recent fiscal quarter as currently required.34 As a result of this delay of the compliance date for filing reports on Form N–PORT for smaller fund groups by nine months, smaller fund groups will now satisfy their final filing requirements for Form N–Q by May 1, 2020. We are therefore delaying the effective date for the rescission of Form N- Q until May 1, 2020.35 Correspondingly, the compliance dates for the amendments to the certification requirements of Form N–CSR will be March 1, 2019, for larger fund groups, and March 1, 2020, for smaller fund groups.36 E. Six-Month Nonpublic Reporting Period In the Adopting Release, the Commission determined that having a six-month time period where larger fund groups are required to file reports on Form N–PORT with the Commission, but where those reports are not disclosed publicly, will allow funds and the Commission to make adjustments to fine-tune the technical specifications and data validation processes.37 Because larger fund groups will now be required to submit the reports on EDGAR as of March 31, 2019, those reports for the periods ending March 31, 2019 through September 30, 2019 will be kept nonpublic to preserve the sixmonth period noted above.38 As before, 34 See supra note 1, at Part II.B.2; see also Investment Company Reporting Modernization Frequently Asked Questions, available at https:// www.sec.gov/investment/investment-companyreporting-modernization-faq#_ftnref5. 35 Money market funds currently file reports on Form N–Q, but upon its rescission will not have to file reports on Form N–PORT (as money market funds currently file monthly reports on Form N– MFP). While the Commission is extending the effective date for the rescission of Form N–Q until May 1, 2020, money market funds that were relying on the Commission’s original August 1, 2019 rescission date for Form N–Q do not have to file reports on Form N–Q after August 1, 2019 despite the new rescission date of May 1, 2020. 36 We are also delaying the effective date for the corresponding amendments to references to the availability of portfolio holdings schedules in Form N–1A, N–2, and N–3 and the amendments to remove references to Form N–Q in rule 401 of Regulation S–T and rules 8b–33, 30a–2, 30a–3, and 30d–1 under the Investment Company Act, to May 1, 2020, the same day the rescission of Form N–Q will now be effective. 37 See Adopting Release, supra note 1, Part II.H.1. 38 As in the Adopting Release, here, smaller fund groups will not be required to file reports on Form N–PORT through the EDGAR system until after the six-month nonpublic period for larger fund groups has elapsed. This will allow smaller fund groups to benefit from any adjustments to fine-tune the technical specifications and data validation processes that occurred during the six-month nonpublic period for larger fund groups. PO 00000 Frm 00028 Fmt 4700 Sfmt 4700 portfolio information attached as exhibits to Form N–PORT for the first and third quarters of a fund’s fiscal year will still be made public during this period, to ensure that information about funds’ portfolio holdings continues to be publicly available to investors and other users during the six-month period when reports on Form N–PORT will not be made publicly available.39 F. Form N–CEN We note that our action today does not affect requirements with respect to Form N–CEN.40 Because those reports will be immediately made public upon filing and because their annual frequency of filing and their smaller size are expected to impose fewer demands on the EDGAR system, we have determined not to change the submission requirements with respect to that form at this time. G. Procedural and Other Matters The Administrative Procedure Act (‘‘APA’’) generally requires an agency to publish notice of a rulemaking in the Federal Register and provide an opportunity for public comment.41 This requirement does not apply, however, if the agency ‘‘for good cause finds . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ 42 We have determined to immediately adopt this temporary rule delaying the requirement that funds file reports on Form N–PORT through the EDGAR system for nine months and making the accompanying changes described above. The Commission has determined that the range of potential technological matters accompanying the ongoing and anticipated improvements to the EDGAR system warrant a delay in accepting this entirely new set of EDGAR filings, which involve complex structured data files, until after the EDGAR upgrades that are underway are tested. This judgment is based on the Commission’s ongoing, internal assessment of the range of potential modifications to enhance the EDGAR system’s functionality, performance, and security. Accordingly, we have concluded that soliciting public comment on this issue would be neither necessary, practicable, nor in the public interest. In addition, providing immediate certainty to funds is critical because we 39 See Adopting Release, supra note 1, Part II.H.1. N–CEN [referenced in 17 CFR 274.101] under the Investment Company Act. Accordingly, the rescission of Form N–SAR will not be delayed by this action. 41 See 5 U.S.C. 553(b)–(c). 42 5 U.S.C. 553(b)(3)(B). 40 Form E:\FR\FM\14DER1.SGM 14DER1 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations understand that funds are currently organizing their systems and procedures to comply with the requirements and dates set forth in the Adopting Release. Funds need to know that there will be a nine-month delay of the requirement that they file reports on Form N–PORT through the EDGAR system, and that as a result they will have to maintain their systems for filing reports on Form N–Q longer than contemplated in the Adopting Release. The Commission is concerned, for example, that absent the certainty provided by a final rule funds may eliminate those systems as part of the transition to Form N–PORT. Providing notice and comment would defeat this goal of giving certainty as to funds’ obligations in light of the necessary delays stemming from the Commission’s recent cybersecurity initiatives. Under these circumstances, notice and comment would be both impracticable and contrary to the public interest. For these reasons, the Commission finds that good cause exists to dispense with notice and comment regarding the delay of the requirement to submit reports on Form N–PORT on EDGAR and the associated changes outlined above.43 II. Economic Analysis sradovich on DSK3GMQ082PROD with RULES A. Introduction The Commission is sensitive to the economic effects, including the benefits and costs and the effects on efficiency, competition, and capital formation that will result from this temporary final rule and from the nine-month delay of the requirement that funds submit reports on Form N–PORT through EDGAR, the associated delay for the same period of the rescission of Form N–Q, the delay of the semi-annual certification requirement in Form N–CSR, the delay of the effectiveness of certain amendments to other rules and forms, and the change in the six-month period during which filed reports on Form N– PORT with the Commission will be kept nonpublic.44 43 See Section 553(b)(3)(B) of the Administrative Procedure Act (5 U.S.C. 553(b)(3)(B)) (an agency may dispense with prior notice and comment when it finds, for good cause, that notice and comment are ‘‘impracticable, unnecessary, or contrary to the public interest’’). This finding also satisfies the requirements of 5 U.S.C. 808(2), allowing the amendments to become effective notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency finds that notice and public comment are impractical, unnecessary or contrary to the public interest, a rule shall take effect at such time as the federal agency promulgating the rule determines). The amendments also do not require analysis under the Regulatory Flexibility Act. See 5 U.S.C. 604(a). 44 See Parts I.C, I.D, and I.E for the specific framework of the nine-month delay in the submission of Form N–PORT on EDGAR. VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 The Commission relies on information included in reports filed by funds to monitor trends, identify risks, and inform its regulatory functions. Similarly, investors and other market participants rely on funds’ public filings to assist in their investment decisions and understanding of financial markets. Form N–PORT, which requires reporting of a fund’s complete portfolio holdings on a monthly basis with every third month available to the public, will contribute substantially to information made available to the Commission and the public by funds. As the Commission has previously stated,45 the adoption of Form N–PORT will modernize fund reporting, improve the ability of the Commission to fulfill its regulatory functions, and allow investors to make more informed investment decisions. The Commission has now determined to delay the requirement that funds submit Form N–PORT through the EDGAR system by nine months to provide time to complete the necessary adjustments to the technical specifications and data validation processes and to complete the necessary functionality, performance, and security enhancements. The Commission’s implementation of this delay, while facilitating changes to the EDGAR system, will impose certain costs on market participants, including costs associated with delayed access to structured portfolio holdings data, costs associated with continuing to file Form N–Q, and recordkeeping costs associated with Form N–PORT for larger fund groups. The economic effects of the delay are discussed in more detail below. B. Economic Baseline The current required reporting of information by funds (e.g., reports on Forms N–Q, N–CSR, and N–SAR), as well as the changes in reporting and disclosure brought by the adoption of Form N–PORT, serve as the baseline against which the costs and benefits as well as the impact on efficiency, competition, and capital formation are discussed.46 Additionally, the baseline takes into account the fact that some funds likely have started updating their systems and processes to comply with the new Form N–PORT requirements adopted in October 2016. The entities affected by the delay of the EDGAR submission requirement for reports on Form N–PORT are generally the funds that will report using Form N– PORT; those entities that currently 45 See Adopting Release, supra note 1, at 81870, 81872. 46 See Adopting Release, supra note 1, at 81969. PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 58735 report using Form N–Q and would have ceased doing so as of the applicable Form N–PORT compliance date; and those entities that will rely on either filed information, including the Commission and current and future users of investment company portfolio information including investors, thirdparty information providers, and other interested potential users. As of the end of 2016, approximately 95.8 million individuals owned shares of registered investment companies, representing 55.9 million or 44.4% of U.S. households.47 We estimate that, as of the end of 2016, there were 17,072 funds registered with the Commission, of which 11,548 are required to file Form N–PORT (i.e., 9,090 mutual funds (excluding money market funds), 1,716 ETFs (including eight ETFs organized as UITs and 1,708 ETFs that are management investment companies), and 742 closed-end funds (excluding SBICs)).48 Of the fund groups required to file Form N–PORT, 68.9% of fund groups, representing 0.6% of all fund assets, have net assets below $1 billion. We also estimate that there are 11,540 funds that currently report on Form N– Q and will be required to report on Form N–PORT,49 all of which would have ceased reporting on Form N–Q as of the applicable Form N–PORT compliance date(s).50 C. Economic Impacts We are mindful of the costs and benefits of the delay in filings on Form N–PORT, the new recordkeeping requirement, and the associated delays in the effectiveness of certain amendments and rescissions. The Commission notes that, where possible, it has sought to quantify the benefits and costs, and effects on efficiency, competition, and capital formation expected to result from the delay in the date for submitting Form N–PORT on EDGAR, the related delay in the rescission of Form N–Q, and the other changes made in this release. However, the Commission is unable to quantify 47 2017 Investment Company FactBook (‘‘2017 IC FactBook’’), A Review of Trends and Activities in the Investment Company Industry, 57th edition, at 2, available at https://www.ici.org/pdf/2017_ factbook.pdf. 48 Based on data obtained from the 2017 IC FactBook and registrants’ filings with the Commission on Form N–SAR as of the end of 2016. 49 11,540 is equal to 11,548 funds that are required to file Form N–PORT minus 8 ETFs organized as UITs that are required to file Form N– PORT but are not required to file form N–Q. Estimates are based on staff analysis of data obtained from Morningstar Direct, as of December 31, 2016. 50 Based on data obtained from the 2017 IC FactBook and registrants’ filings with the Commission on Form N–SAR as of the end of 2016. E:\FR\FM\14DER1.SGM 14DER1 58736 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations many of the economic effects because it lacks information necessary to provide reasonable estimates. Effects that we are unable to quantify include the extent to which investors would be able to use the information in Form N–PORT to make more informed investment decisions either through direct use or through third-party service providers. 1. Economic Impacts of Delay in Form N–PORT EDGAR Submission Requirement The EDGAR submission requirement was designed to enhance the Commission’s ability to access efficiently and timely monthly investment portfolio information of a large number of funds in a structured format, and to also enhance investors’ ability to make more informed investment decisions. The delay in the requirement to submit Form N–PORT on EDGAR will benefit reporting funds as well as funds’ current and prospective investors, because it will allow the Commission time to make progress in the EDGAR system review and to implement and test resulting modifications to the EDGAR system.51 This will allow the large amounts of new, complex data to be submitted on EDGAR with additional security measures in place. This, in turn, will help ensure that the information contained in Form N–PORT, once submitted to EDGAR, is readily accessible and usable. The Commission acknowledges, however, that there are costs to a delay in the receipt of Form N–PORT information. The delay in the EDGAR submission requirement could potentially temporarily affect the Commission’s ability to readily incorporate Form N–PORT information into its mission through better informed policy decisions and oversight, more specific guidance and comments in the disclosure review process, and more targeted examination and enforcement efforts.52 This impact is likely mitigated, however, because during the ninemonth delay in the EDGAR submission requirement, larger fund groups must still prepare and maintain in their records the information that is required to be included on Form N–PORT.53 Further, both smaller fund groups and larger fund groups must also prepare and submit reports on Form N–Q. There is overlap between the information that funds will continue to report on Form N–Q and that required in Form N– PORT; however, funds file Form N–Q in a non-structured data format, file the form less frequently, and report fewer data points than on Form N–PORT.54 The nine-month delay of the EDGAR submission requirement will also delay the ability of current and future users of investment company portfolio information, including investors, thirdparty information providers, and academics, to access additional publicly available data in a structured format. This delay in the Form N–PORT submission will defer the increase in the transparency of a fund’s investment strategies and will also postpone the increase in the ability of investors and other potential users to more efficiently identify the funds’ risk exposures, differentiate investment companies based on their investment strategies, and make more informed investment decisions. Any costs of such a temporary delay are partially mitigated by the fact that users of investment company portfolio information will continue to have access to relevant investment company information via the reports on Form N–Q and N–CSR for the duration of the Form N–PORT submission delay. To the extent that the delay in the requirement to submit Form N–PORT on EDGAR for larger fund groups and the delay in the requirement to file Form N–PORT for smaller fund groups change costs borne by fund groups, these changes will come in the form of a reduction in the cost of submitting reports on Form N–PORT on EDGAR. For larger fund groups, there will be a cost saving associated with the ninesupra Part I.C. detailed in the Adopting Release, Form N– PORT requires additional information concerning fund portfolio holdings that is not currently required by Form N–Q. See Adopting Release, supra note 1, at 81875–76. For example, Form N– PORT requires reporting of additional information relating to derivative investments. The form also includes certain risk metric calculations that measure a fund’s exposure and sensitivity to changing market conditions, such as changes in asset prices, interest rates, or credit spreads. Form N–PORT also requires information about certain fund transactions and activities such as securities lending, repurchase agreements, and reverse repurchase agreements, including information regarding the counterparties to which the fund is exposed in those transactions, as well as in overthe-counter derivatives transactions. 53 See 54 As sradovich on DSK3GMQ082PROD with RULES 51 To the extent that the Commission’s EDGAR review and modernization efforts during the ninemonth delay improve current data security for nonpublic information posted on EDGAR, funds will also benefit from efforts to strengthen the Commission’s cybersecurity risk profile going forward. 52 To the extent that larger fund groups do not prepare and maintain their reports in XML format during the delay period, the nine-month delay in the EDGAR submission requirement could also temporarily negatively affect the Commission because fund reports will not be available in a structured XML format that allows the Commission staff to more efficiently review and analyze fund portfolio information. See Adopting Release, supra note 1, at 81876, 81906–7. VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 month delay in the requirement to prepare the funds’ systems to accommodate the XML-based reports to the extent those fund groups choose another format to prepare and maintain the information that is required to be included in Form N–PORT during the delay period.55 For smaller fund groups, there will be a cost saving associated with the nine-month delay in both preparing and submitting reports on Form N–PORT on EDGAR. Based on the cost estimates in the Adopting Release for compiling and submitting Form N–PORT on EDGAR, we believe that the cost savings for larger fund groups associated with the delay in submitting Form N–PORT on EDGAR and the delay in preparing the funds’ systems to accommodate the XML Form N–PORT format requirement will be minimal. While filing with the Commission is delayed for nine months, temporary rule 30b1–9(T) will still require larger fund groups to compile the information that is required to be included in Form N–PORT during the nine months that the EDGAR submission requirement is delayed and these funds will incur the additional cost of maintaining the information required by Form N–PORT in the funds’ records in an easily accessible place as required by the temporary final rule. We believe that the cost savings for smaller fund groups associated with the delay in preparing and submitting Form N– PORT on EDGAR for nine months will be likely higher compared to the cost savings for larger fund groups. These cost savings likely comprise a ninemonth deferral of initial costs associated with preparing the necessary systems and processes for Form N–PORT filings and a reduction in ongoing costs associated with preparing, reviewing, and filing reports on Form N–PORT for nine months.56 Finally, for both larger and smaller funds groups, the proposed delay will temporarily defer costs associated with the public release of information that was previously held private.57 PO 00000 Frm 00030 Fmt 4700 Sfmt 4700 55 This cost saving comprises a deferral of initial costs because larger fund groups must prepare their systems to accommodate the XML-based reports with a nine-month delay and a reduction in ongoing costs because larger fund groups have to accommodate the XML-based reports for nine months less. It is possible that certain funds have already started preparing their systems and processes to accommodate the Form N–PORT requirements adopted in October 2016. Any cost reductions and deferrals for those funds are likely lower. 56 See Adopting Release supra note 1, footnotes 1300–1304 for details on the initial and ongoing costs associated with preparing, reviewing, and filing reports on Form N–PORT. 57 Such costs include potential ‘‘front-running,’’ ‘‘predatory trading,’’ and ‘‘copycatting/reverse E:\FR\FM\14DER1.SGM 14DER1 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations sradovich on DSK3GMQ082PROD with RULES 2. Economic Impacts of Delay in Form N–Q Rescission The nine-month delay in the Form N– PORT submission on EDGAR likely imposes additional costs to funds required to file reports on Form N–Q for an additional nine months. First, the requirement to submit Form N–Q for an additional nine months as well as prepare and maintain the information that is required to be included in a larger fund group’s report on Form N– PORT will impose filing costs for Form N–Q and some duplicative preparation and recordkeeping costs on larger fund groups that will be required to prepare and maintain information that is included in both forms. Using estimates from the Adopting Release, we calculate that preparing and filing Form N–Q imposes annual total cost of $78,518,160 for all funds, or $6,804 per fund annually.58 However, because substantially all of Form N–Q questions have been incorporated into Form N– PORT, we estimate that much of the estimated burden encompasses the cost of gathering and preparing relevant data as well as developing or maintaining the systems and records to generate the data that will be required by both forms. As a result, the additional costs of preparing and filing Form N–Q during the nine-month delay will likely be administrative in nature, and small in relation to the costs that funds already bear for preparing and reviewing Form N–PORT.59 Second, the delay in the Form N– PORT submission requirement will impose an additional cost on funds that must continue seeking certification of engineering of trading strategies’’ by other investors as well as the public release of previously private and sensitive information, such as the identities and weights of all of the individual components in custom baskets or indexes comprising the reference instruments underlying the fund’s derivative investments, information regarding fees and financing terms for certain derivatives contracts, information regarding the variable financing rates for swaps that pay or receive financing payments, and the reporting of distressed debt issued by private companies. See Adopting Release, supra note 1, at 81977–80. 58 The estimated annual cost per-fund is based upon the following calculations: $6,804 = 21 hours/ fund × $324/hour compensation for professionals commonly used in preparation of Form N–Q filings. ($324 = ($308 per hour for senior programmers + $340 per hour for compliance attorneys) ÷ 2 (as half of the time will be performed by senior programmers and half by compliance attorneys)), as we believe these employees would commonly be responsible for completing reports on Form N–Q. The estimated annual total cost is based on the following calculation: $78,518,160 = $6,804 annual per fund cost × 11,540 funds. Funds are currently required to file a quarterly report on Form N–Q after the close of the first and third quarters of each fiscal year. See Adopting Release, supra note 1, at 81998. 59 See Adopting Release, supra note 1, at page 81975. VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 the Form N–Q for nine more months until Form N–Q is rescinded.60 As mentioned above, once Form N–Q is rescinded, the certifying officer will be required to state that he or she has disclosed in Form N–CSR any change in the registrant’s internal control over financial reporting that occurred during the most recent fiscal half-year rather than the most recent quarter to fill the gap in certification coverage that would otherwise occur once Form N–Q is rescinded. Nevertheless, we believe any additional certification costs arising from the delay in the Form N–Q rescission will be minimal.61 3. Analysis of Effects on Efficiency, Competition, and Capital Formation Market participants rely on the ability of EDGAR to perform effectively in order to provide the Commission and investors with timely reporting. The Commission prioritizes a secure and fully functional EDGAR for receiving information about its registrants and providing that information to market participants. The delay in the Form N– PORT submission requirement and the resulting delay in the Form N–Q rescission will provide the Commission with time to make progress in the EDGAR system review and to implement and test resulting modifications to the EDGAR system to allow EDGAR to accept new, large, and complex structured data disclosures made by funds effectively, with additional security measures in place, thereby facilitating the ready accessibility of the disclosures by investors and other market participants. The Commission acknowledges, however, that the delay will temporarily prevent the Commission, investors, and other market participants from accessing the more comprehensive and structured portfolio information that would be made available by funds filing Form N– PORT. The enhanced disclosures in 60 On the other hand, the proposed delay in the Form N–Q rescission will also temporarily defer for some funds any costs associated with the rescission of Form N–Q, depending on a particular fund’s fiscal year. In particular, the rescission of Form N– Q will eliminate certifications of the accuracy of the portfolio schedules reported for the first and third fiscal quarters and funds will only certify their disclosure controls and procedures and internal control over financial reporting in Form N–CSR semi-annually. To the extent that Form N–Q’s certifications about the accuracy of portfolio holdings improve the accuracy of the data reported during the first and third quarters, reducing the frequency of certifications from quarterly to semiannually could affect the quality of the data reported. The delay in the rescission of Form N–Q could thus delay the potential cost of reduced data quality due to the reduction in the data certification frequency. 61 See Adopting Release, supra note 1, at 81975, 82005. PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 58737 Form N–PORT would allow the Commission to better monitor industry trends and identify industry outliers, provide guidance and comments to improve disclosure, identify risks, inform policy and rulemaking, and assist the Commission in its oversight efforts. The enhanced disclosures in Form N–PORT would also allow investors and other market participants to more efficiently analyze investment portfolio information, better differentiate investment companies based on their investment strategies and other activities, select funds based on security selection, industry focus, level of diversification, and the use of leverage and derivatives. The enhanced disclosures therefore would ultimately allow investors to allocate capital across reporting funds more in line with their risk preferences and increase the competition among funds for investor capital. Hence, the delay in the Form N– PORT submission requirement might temporarily negatively impact investors; the fair, orderly, and efficient functioning of the markets; and capital formation. Importantly, however, this temporary negative impact is mitigated by delaying the rescission of Form N– Q until May 1, 2020 so that funds will continue to provide some fund portfolio holdings information on Form N–Q. The delay may have an incremental competitive effect on larger fund groups, which remain subject to the requirement to prepare the information required by Form N–PORT and Form N–Q, but to retain the former and submit the latter, for an additional nine months, while smaller fund groups are not subject to the costs of preparing and retaining the information required by Form N–PORT. These effects are likely small, given the relative size of the larger fund groups to the smaller fund groups and will only last for nine months. D. Alternatives As an alternative to the nine-month delay of the EDGAR submission requirement for reports on Form N– PORT, we considered a longer or shorter delay period. While a shorter period would have reduced the costs to the Commission and other current and future users of investment company portfolio information of not receiving investment portfolio information in a more timely manner, the Commission believes that a shorter period would be inadequate for review and testing of the EDGAR system’s ability to validate and accept Form N–PORT filings effectively. At this time, the Commission also believes that a longer period is not necessary and would increase the costs to the Commission and other users of E:\FR\FM\14DER1.SGM 14DER1 sradovich on DSK3GMQ082PROD with RULES 58738 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations investment company portfolio information. As an alternative to the tiered EDGAR submission requirement on Form N– PORT for larger and smaller fund groups, we considered a nine-month delay in the Form N–PORT submission requirement only for larger fund groups. Such a delay would not allow smaller fund groups to benefit from the extra time to comply with the new requirements and potentially benefit from the lessons learned by larger fund groups. As discussed above, we are not revisiting the decision made in the Adopting Release to maximize the potential for smaller fund groups (and any external vendors that would be used by both larger and smaller fund groups) to benefit from lessons learned by larger fund groups, and therefore we are preserving a tiered requirement for the Form N–PORT EDGAR submission process.62 Relatedly, similar to larger fund groups, we considered requiring smaller fund groups to prepare and maintain records of the information that is required to be included in Form N– PORT during the delay. However, delaying the filing requirement for smaller fund groups allows them to benefit from the lessons learned by larger fund groups in preparing and filing Form N–PORT on EDGAR as discussed in the Adopting Release.63 As an alternative to the delay in the rescission of Form N–Q, we considered not delaying the rescission of Form N– Q while delaying the N–PORT EDGAR submission requirement by nine months. Such an alternative would decrease the information that is available to the Commission and various market participants, such as investors, about fund portfolio performance. Such a reduction in information availability could adversely impact investors, market efficiency, and capital formation. We did not revisit the decision made in the Adopting Release to require that funds prepare the information that must be included on Form N–PORT by June 1, 2018 for larger fund groups. The sole purpose of the nine-month delay is to allow the Commission time to make progress in the EDGAR system review and to implement and test resulting modifications to the EDGAR system to allow EDGAR to accept new, large, and complex structured data disclosures made on Form N–PORT by funds effectively, with additional security measures in place. 62 See 63 See supra Part I.C. Adopting Release, supra note 1, at 81966. VerDate Sep<11>2014 15:57 Dec 13, 2017 Jkt 244001 III. Paperwork Reduction Act The Commission is delaying the requirement to submit reports on Form N–PORT on the EDGAR system by nine months for larger fund groups from July 30, 2018 to April 30, 2019 and for smaller fund groups from July 30, 2019 to April 30, 2020. The Commission is also adopting rule 30b1–9(T) that requires funds in larger fund groups to maintain in their records the information required in Form N–PORT during that nine-month delay. In addition, the Commission is delaying the rescission of current Form N–Q and delaying the effectiveness of certain amendments to other rules and forms. We do not believe that any of these changes will make any substantive modifications to any existing collection of information requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).64 A. Form N–PORT Rule 30b1–9(T) will require larger fund groups, during the nine-month delay, to satisfy their reporting obligation by maintaining in their records the information required to be included in Form N–PORT instead of submitting the information via EDGAR. We believe that the burden associated with preserving the information required by Form N–PORT in the fund’s records in an easily accessible place is similar to the burden associated with submitting the prepared report on EDGAR. Moreover,we believe that some of the burden for smaller fund groups associated with filing Form N–PORT will be deferred for nine months, but because many of the burdens associated with preparing Form N–PORT will be incurred by funds before then, we believe that there will be no substantive modification to the existing collection of information for Form N–PORT. As a result, the Commission believes that the current PRA burden estimates for the existing collection of information requirements remain appropriate.65 B. Rescission of Form N–Q As discussed in the Adopting Release, in connection with our adoption of Form N–PORT, we determined to rescind Form N–Q effective August 1, 2019 in order to eliminate unnecessarily duplicative reporting requirements once smaller funds began reporting on Form N–PORT.66 The rescission of Form N–Q will affect all management investment 64 44 U.S.C. 3501 through 3521. N–PORT Under the Investment Company Act, Monthly Portfolio Investments Report’’ (OMB Control No. 3235–0730). 66 Adopting Release, supra note 1, at 81998. 65 ‘‘Form PO 00000 Frm 00032 Fmt 4700 Sfmt 4700 companies required to file reports on the form. Because larger fund groups that are subject to rule 30b1–9(T) will be required to file public reports on Form N–Q at the time they prepare and preserve the information required by Form N–PORT, these requirements include certain requirements that are duplicative, though they will not involve duplicative public reporting requirements. Because we are delaying the effective date of the rescission of Form N–Q by nine months to May 1, 2020, the burden reduction we estimated will be realized nine months later than contemplated by the Adopting Release. As a result, the Commission believes that the current PRA burden estimates for the existing collection of information requirements remain appropriate.67 C. Registration Statement Forms We are delaying the effective date of technical and conforming changes to Forms N–1A, N–2, and N–3 referring to the availability of portfolio holdings schedules to May 1, 2020, the same day the rescission of Form N–Q will now be effective. In the Adopting Release, we did not estimate a change to burden hours or the external costs related to the technical and conforming amendments related to the availability of portfolio holdings schedules. Therefore, we do not believe that there is a change to burden hours or the external costs resulting from the delay of the effective date of these amendments. Accordingly, the Commission believes that the current PRA burden estimates for the existing collection of information requirements remain appropriate.68 D. Amendments to Form N–CSR As discussed in the Adopting Release, in connection with the rescission of Form N–Q, we also adopted amendments to Form N–CSR, the reporting form used by management companies to file certified shareholder reports under the Investment Company Act and the Exchange Act.69 67 ‘‘Form N–Q—Quarterly Schedule of Portfolio Holdings of Registered Management Investment Company’’ (OMB Control No. 3235–0578). 68 ‘‘Form N–1A under the Securities Act of 1933 and under the Investment Company Act of 1940, Registration Statement of Open-End Management Investment Companies’’ (OMB Control No. 3235– 0307); ‘‘Form N–2 under the Investment Company Act of 1940 and Securities Act of 1933, Registration Statement of Closed-End Management Investment Companies’’ (OMB Control No. 3235–0026); and ‘‘Form N–3 Under the Investment Company Act of 1940, Registration Statement of Separate Accounts Organized as Management Investment Companies’’ (OMB Control No. 3235–0316). 69 Adopting Release, supra note 1, at 82004. Compliance with the certification requirements will E:\FR\FM\14DER1.SGM 14DER1 Federal Register / Vol. 82, No. 239 / Thursday, December 14, 2017 / Rules and Regulations In the Adopting Release, we estimated that the amendments to the certification requirements of Form N–CSR would not change the annual hour burden or external costs associated with Form N– CSR.70 Therefore, we do not believe that there is a change to burden hours or the external costs resulting from the delay of the effective date of these amendments. Accordingly, the Commission believes that the current PRA burden estimates for the existing collection of information requirements remain appropriate.71 IV. Statutory Authority We are adopting the rules contained in this document under the authority set forth in the Securities Act [15 U.S.C. 77a et seq.], the Exchange Act, particularly sections 10, 13, 15, 23, and 35A thereof [15 U.S.C. 78a et seq.], the Investment Company Act, particularly sections 8, 30, 31, and 38 thereof [15 U.S.C. 80a et seq.], and 44 U.S.C. 3506. List of Subjects § 270.30b1–9(T) monthly report. Temporary rule regarding (a) Until April 1, 2019, each registered management investment company subject to § 270.30b1–9 of this chapter must satisfy its reporting obligation under that section by maintaining in its records the information that is required to be included in Form N–PORT (§ 274.150 of this chapter). (b) The information maintained in the registered management investment company’s records under paragraph (a) of this section shall be treated as a record under section 31(a)(1) of the Act [15 U.S.C. 80a–30(a)(1)] and § 270.31a– 1(b) of this chapter subject to the requirements of § 270.31a–2(a)(2) of this chapter. (c) This section will expire and no longer be effective on March 31, 2026. By the Commission. Dated: December 8, 2017. Brent J. Fields, Secretary. [FR Doc. 2017–26922 Filed 12–13–17; 8:45 am] 17 CFR Part 232 BILLING CODE 8011–01–P Administrative practice and procedure, Reporting and recordkeeping requirements, Securities. DEPARTMENT OF DEFENSE 17 CFR Part 239 Office of the Secretary Reporting and recordkeeping requirements, Securities. 32 CFR Part 232 17 CFR Part 249 [Docket ID: DOD–2017–OS–0038] Reporting and recordkeeping requirements, Securities. RIN 0790–ZA13 17 CFR Parts 270 and 274 Investment companies, Reporting and recordkeeping requirements, Securities. For reasons set forth in the preamble, title 17, chapter II of the Code of Federal Regulations is amended as follows: PART 270—RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940 1. The authority citation for part 270 continues to read, in part, as follows: Authority: 15 U.S.C. 80a–1 et seq., 80a– 34(d), 80a–37, 80a–39, and Pub. L. 111–203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted. * * * * * 2. Section 270.30b1–9(T) is added to read as follows: sradovich on DSK3GMQ082PROD with RULES ■ be mandatory, and responses are not kept confidential. 70 Id. at 82005. 71 ‘‘Form N–CSR under the Securities Exchange Act of 1934 and under the Investment Company Act of 1940, Certified Shareholder Report of Registered Management Investment Companies’’ (OMB Control No. 3235–0570). 15:57 Dec 13, 2017 Jkt 244001 Under Secretary of Defense for Personnel and Readiness, Department of Defense. ACTION: Interpretive rule; amendment. AGENCY: The Department of Defense (Department) is amending its interpretive rule for the Military Lending Act (the MLA). The MLA, as implemented by the Department, limits the military annual percentage rate (MAPR) that a creditor may charge to a maximum of 36 percent, requires certain disclosures, and provides other substantive consumer protections on ‘‘consumer credit’’ extended to Service members and their families. On July 22, 2015, the Department amended its regulation primarily for the purpose of extending the protections of the MLA to a broader range of closed-end and openend credit products (the July 2015 Final Rule). On August 26, 2016, the Department issued the first set of interpretations of that regulation in the form of questions and answers; the SUMMARY: ■ VerDate Sep<11>2014 Military Lending Act Limitations on Terms of Consumer Credit Extended to Service Members and Dependents PO 00000 Frm 00033 Fmt 4700 Sfmt 4700 58739 present interpretive rule amends and adds to those questions and answers to provide guidance on certain questions the Department has received regarding compliance with the July 2015 Final Rule. DATES: Effective Date: This interpretive rule is effective December 14, 2017. FOR FURTHER INFORMATION CONTACT: Andrew Cohen, 703–692–5286. SUPPLEMENTARY INFORMATION: I. Background and Purpose In July 2015, the Department of Defense (Department) issued a final rule 1 (July 2015 Final Rule) amending its regulation implementing the Military Lending Act (MLA) 2 primarily for the purpose of extending the protections of the MLA to a broader range of closedend and open-end credit products, rather than the limited credit products that had been defined as ‘‘consumer credit.’’ 3 Among other amendments, the July 2015 Final Rule modified provisions relating to the optional mechanism a creditor may use when assessing whether a consumer is a ‘‘covered borrower,’’ modified the disclosures that a creditor must provide to a covered borrower, and implemented the enforcement provisions of the MLA. Subsequently, the Department received requests to clarify its interpretation of points raised in the July 2015 Final Rule. The Department elected to inform the public of its views by issuing an interpretive rule in the form of questions and answers to assist industry in complying with the July 2015 Final Rule. The Department issued the first set of such interpretations on August 26, 2016 (August 26, 2016 Interpretive Rule).4 The present interpretive rule amends and adds to those questions and answers. This interpretive rule does not change the regulation implementing the MLA, but merely states the Department’s preexisting interpretations of an existing regulation. Therefore, under 5 U.S.C. 553(b)(A), this rulemaking is exempt from the notice and comment requirements of the Administrative Procedure Act, and, pursuant to 5 U.S.C. 553(d)(2), this rule is effective immediately upon publication in the Federal Register. II. Interpretations of the Department The following questions and answers represent official interpretations of the Department on issues related to 32 CFR 1 80 FR 43560 (July 22, 2015). U.S.C. 987. 3 32 CFR 232.3(b) as implemented in a final rule published at 72 FR 50580 (Aug. 31, 2007). 4 81 FR 58840 (August 26, 2016). 2 10 E:\FR\FM\14DER1.SGM 14DER1

Agencies

[Federal Register Volume 82, Number 239 (Thursday, December 14, 2017)]
[Rules and Regulations]
[Pages 58731-58739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26922]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 239, 249, 270, and 274

[Release Nos. 33-10442; 34-82241; IC-32936; File No. S7-08-15]
RIN 3235-AL42


Investment Company Reporting Modernization

AGENCY: Securities and Exchange Commission.

ACTION: Temporary final rule.

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SUMMARY: The Securities and Exchange Commission (the ``Commission'') is 
adopting a temporary final rule that requires funds in larger fund 
groups to maintain in their records the information that is required to 
be included in Form N-PORT, in lieu of filing reports with the 
Commission, until April 2019. As a result, larger funds groups will be 
required to begin submitting reports on Form N-PORT on the Electronic 
Data Gathering, Analysis, and Retrieval (``EDGAR'') system by April 30, 
2019, and smaller fund groups will be required to begin submitting 
reports on Form N-PORT by April 30, 2020. The information that funds in 
larger fund groups maintain in their records will be subject to 
examination by the Commission. In addition, the Commission is delaying 
the rescission of current Form N-Q and delaying the effectiveness of 
certain amendments to other rules and forms.

DATES: Effective January 16, 2018 until March 31, 2026. The effective 
date for the amendments to 17 CFR 232.401, 249.332, 270.8b-33, 270.30a-
2,

[[Page 58732]]

270.30a-3, 270.30b1-5, and 17 274.130 and in Instructions 54, 57, 59, 
and 61 in the final rule published at 81 FR 81870 on November 18, 2016, 
is delayed until May 1, 2020. The applicable compliance dates are 
discussed below.

FOR FURTHER INFORMATION CONTACT: J. Matthew DeLesDernier, Senior 
Counsel, Jacob D. Krawitz, Branch Chief, or Brian McLaughlin Johnson, 
Assistant Director, at (202) 551-6792, Investment Company Rulemaking 
Office, Division of Investment Management, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting new temporary 
rule 30b1-9(T) [17 CFR 270.30b1-9(T)] under the Investment Company Act 
of 1940 [15 U.S.C. 80a-1 et seq.] (``Investment Company Act''). The 
Commission is also delaying the compliance dates associated with the 
requirement for smaller fund complexes to file reports on new Form N-
PORT [referenced in 17 CFR 274.150] under the Investment Company Act 
[15 U.S.C. 80a-1 et seq.] and new rule 30b1-9 [17 CFR 270.30b1-9] under 
the Investment Company Act. In addition, the Commission is delaying the 
effective date associated with: the rescission of rule 30b1-5 [17 CFR 
270.30b1-5] under the Investment Company Act; amendments to rules 8b-33 
[17 CFR 270.8b-33], 30a-2 [17 CFR 270.30a-2], 30a-3 [17 CFR 270.30a-3], 
and 30d-1 [17 CFR 270.30d-1] under the Investment Company Act; 
amendments to Forms N-1A [referenced in 17 CFR 274.11A], N-2 
[referenced in 274.11a-1], and N-3 [referenced in 274.11b] under the 
Investment Company Act and the Securities Act of 1933 [15 U.S.C. 77a et 
seq.] (``Securities Act''); the rescission of Form N-Q [referenced in 
17 CFR 274.130] under the Investment Company Act and Securities 
Exchange Act of 1934 [15 U.S.C. 78a et seq.] (``Exchange Act''); and 
amendments to rule 401 [17 CFR 232.401] of Regulation S-T [17 CFR 232].

I. Discussion

    In recognition of the importance of sound data security practices 
and protocols for sensitive, nonpublic information, the Commission is 
modifying its approach to the requirement to submit reports on Form N-
PORT on the EDGAR system. Funds in larger fund groups would have been 
required to submit reports on Form N-PORT in EDGAR no later than July 
30, 2018. The Commission is adopting a temporary final rule that 
requires funds in larger fund groups to maintain in their records the 
information that is required to be included in Form N-PORT beginning no 
later than July 30, 2018. This information will be subject to 
examination by Commission staff. As a result, funds in larger fund 
groups must begin to submit reports on Form N-PORT on EDGAR by April 
30, 2019, and smaller fund groups must begin to submit reports on Form 
N-PORT by April 30, 2020. In addition, the Commission is delaying the 
rescission of current Form N-Q and delaying the effectiveness of 
certain amendments to other rules and forms.

A. Form N-PORT

    On October 13, 2016, the Commission adopted new rules and forms as 
well as amendments to its rules and forms to modernize the reporting 
and disclosure of information by registered investment companies.\1\ In 
particular, the Commission adopted new Form N-PORT, which requires 
certain registered investment companies to report information about 
their monthly portfolio holdings to the Commission in a structured data 
format. We also adopted new Form N-CEN, which requires registered 
investment companies, other than face-amount certificate companies, to 
annually report certain census-type information to the Commission in a 
structured data format. In addition, we rescinded current Forms N-Q 
(effective August 1, 2019) and N-SAR and amended certain other rules 
and forms.\2\
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    \1\ Investment Company Reporting Modernization, Investment 
Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 
2016)] (``Adopting Release'').
    \2\ The Commission also adopted amendments to Regulation S-X, 
which require standardized, enhanced disclosure about derivatives in 
investment company financial statements, as well as other 
amendments. Finally, it adopted amendments to Forms N-1A, N-3, and 
N-CSR to require certain disclosures regarding securities lending 
activities. Id.
---------------------------------------------------------------------------

    As the Commission stated in the Adopting Release, Form N-PORT, as 
well as new rules, other forms, and amendments to existing rules and 
forms will, among other things, improve the information that the 
Commission receives from investment companies and assist the 
Commission, in its role as primary regulator of investment companies, 
to better fulfill its mission of protecting investors; maintaining 
fair, orderly, and efficient markets; and facilitating capital 
formation. Investors and other potential users can also utilize this 
information to help them make more informed investment decisions.
    Form N-PORT is a new portfolio holdings reporting form that will be 
filed by all registered management investment companies, other than 
money market funds and small business investment companies, and by unit 
investment trusts that operate as exchange-traded funds (collectively, 
``funds'').\3\ Form N-PORT requires reporting of a fund's complete 
portfolio holdings and additional information that will facilitate risk 
analysis and other Commission oversight. Reports on Form N-PORT are 
required to be filed in an extensible markup language (``XML'') 
structured data format no later than 30 days after the close of each 
month using the Commission's EDGAR system.\4\ In general, reports on 
Form N-PORT for every third month of each fiscal quarter will be 
available to the public 60 days after the end of the fiscal quarter.\5\
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    \3\ Form N-PORT.
    \4\ See rule 30b1-9.
    \5\ General Instruction F to Form N-PORT.
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    Certain information reported on Form N-PORT will be kept nonpublic. 
As we noted in the Adopting Release, we recognize that more frequent 
portfolio disclosure than was currently required could potentially harm 
fund shareholders by expanding the opportunities for professional 
traders to engage in predatory trading practices.\6\ In addition, some 
of the information required by Form N-PORT could imply a false sense of 
precision because such data, by design, are an aggregation of multiple 
assumptions and projections.\7\ In light of these considerations, the 
Commission in the Adopting Release determined not to make public the 
information reported on Form N-PORT for the first and second months of 
each fund's fiscal quarter that is identifiable to any particular fund 
or adviser; any information reported with regards to country of risk 
and economic exposure, delta, or miscellaneous securities; or 
explanatory notes related to any of those topics that is identifiable 
to any particular fund or adviser.\8\ In addition, the information on 
Form N-PORT that will be made public will only be made public after an 
additional 30-day delay (i.e., 60 days after quarter-end). Moreover, we 
determined to make all reports for the first six months following June 
1, 2018 nonpublic in order to allow funds and the Commission a period 
of time to fine-tune the technical specifications and data validation 
processes for reports on Form N-PORT.\9\
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    \6\ See Adopting Release, supra note 1, Part II.A.4.
    \7\ See id.
    \8\ General Instruction F to Form N-PORT.
    \9\ See Adopting Release, supra note 1, Part II.H.1.
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    When we adopted the Form N-PORT filing requirement, we provided for 
an effective date of January 17, 2017, with a tiered set of compliance 
dates based

[[Page 58733]]

on a fund group's asset size. Specifically, for larger entities--funds 
that together with other investment companies in the same ``group of 
related investment companies'' have net assets of $1 billion or more as 
of the end of the most recent fiscal year of the fund (``larger fund 
groups'')--we adopted a compliance date of June 1, 2018.\10\ This would 
have resulted in larger fund groups filing their first reports on Form 
N-PORT, reflecting data as of June 30, no later than July 30, 2018.\11\ 
For smaller fund groups, we adopted a compliance date of June 1, 2019, 
anticipating that smaller fund groups would benefit from this extra 
time to comply and potentially would benefit from the lessons learned 
by the larger fund groups during the adoption period for Form N-
PORT.\12\
---------------------------------------------------------------------------

    \10\ Id.
    \11\ Id.
    \12\ Id.
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B. Commission's Determination To Delay Form N-PORT Filing Requirement

    As we noted in the Adopting Release, we recognize the importance of 
sound data security practices and protocols for sensitive, nonpublic 
information, including information that may be competitively 
sensitive.\13\ To that end, the Adopting Release acknowledged that 
Commission staff was working to design controls and systems for the use 
and handling of Form N-PORT data in a manner that reflects the 
sensitivity of the data and is consistent with the maintenance of its 
confidentiality.\14\ In the Adopting Release, the Commission also 
stated that it ``expect[ed] that the staff will have reviewed the 
controls and systems in place for the use and handling of nonpublic 
information reported on Form N-PORT.'' \15\
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    \13\ See Adopting Release, supra note 1, Part II.A.3.
    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------

    In May 2017, the Commission's Chairman initiated an assessment of 
the Commission's internal cybersecurity risk profile and its approach 
to cybersecurity.\16\ The Chairman also directed the staff to take a 
number of steps designed to strengthen the Commission's cybersecurity 
risk profile, with an initial focus on EDGAR.\17\ As the Chairman 
explained, the Commission receives, stores, and transmits substantial 
amounts of data, including sensitive and nonpublic data, in support of 
its mission.\18\ Much of that data is collected through EDGAR, which 
receives and processes over 1.7 million electronic filings per 
year.\19\ Thus, as part of the Commission's efforts to strengthen its 
cybersecurity risk profile going forward, the Commission has initiated 
a focused review and, as necessary or appropriate, uplift of the EDGAR 
system.\20\ The Commission has added, and expects to continue to add, 
additional resources to these efforts, which are expected to include 
outside consultants, and will increase the focus on data security 
matters.\21\ As the Chairman has indicated, these efforts will require 
substantial time and effort to complete.\22\
---------------------------------------------------------------------------

    \16\ Statement on Cybersecurity (September 20, 2017), available 
at https://www.sec.gov/news/public-statement/statement-clayton-2017-09-20.
    \17\ Update on Review of 2016 Cyber Intrusion Involving EDGAR 
System (Oct. 2, 2017), available at https://www.sec.gov/news/press-release/2017-186.
    \18\ Statement on Cybersecurity (Sept. 20, 2017), available at 
https://www.sec.gov/news/public-statement/statement-clayton-2017-09-20.
    \19\ Id.
    \20\ Update on Review of 2016 Cyber Intrusion Involving EDGAR 
System (Oct. 2, 2017), available at https://www.sec.gov/news/press-release/2017-186.
    \21\ Id.
    \22\ Id.
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    Certain of these measures, which will be designed to improve 
EDGAR's functionality and security, could negatively affect EDGAR's 
ability to validate and accept Form N-PORT filings in a timely manner, 
in particular during peak filing periods. Efforts to address any such 
potential effects on performance are underway, but we have determined 
to delay by nine months the requirement that funds file reports on Form 
N-PORT through the EDGAR system in order to provide time to complete 
this review and to implement and test any resulting modifications to 
the EDGAR system.\23\ This delay of filing reports on Form N-PORT on 
EDGAR is necessary for Commission staff to complete and review any 
modifications to EDGAR that are necessary to process these filings 
effectively and securely, given their frequency, volume, and 
complexity, as well as the nonpublic nature of much of the data.
---------------------------------------------------------------------------

    \23\ The Commission has not considered any other changes to Form 
N-PORT, rules, other forms, and amendments besides those that are 
discussed in this release.
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C. Temporary Rule 30b1-9(T)

    To effectuate the nine-month delay, we have determined to adopt 
temporary rule 30b1-9(T), which will have the effect of delaying the 
EDGAR submission requirements associated with Form N-PORT for larger 
fund groups until April 2019. As a result, funds in larger fund groups 
that previously would have been required to submit their first reports 
on Form N-PORT on EDGAR for the period ending June 30, 2018 (no later 
than July 30, 2018) will now be required to submit their first reports 
on EDGAR by April 30, 2019.\24\ During this period, funds in larger 
fund groups that are subject to the June 1, 2018 compliance date must 
satisfy their reporting obligation by maintaining in their records the 
information required to be included in Form N-PORT instead of 
submitting the information via EDGAR.\25\ To provide for Commission 
access to this information for a reasonable period of time, consistent 
with current record retention requirements for registered investment 
companies, the temporary rule provides that the information maintained 
in the company's records shall be treated as a record under section 31 
of the Investment Company Act and rule 31a-1 hereunder and subject to 
the requirements of rule 31a-2.\26\ Like all fund records under the 
Act, this information is subject to examination by Commission 
staff.\27\ Temporary rule 30b1-9(T) does not change the June 1, 2018 
compliance date adopted for Form N-PORT for larger fund groups--it 
instead requires a temporary method for larger fund groups to fulfill 
their Form N-PORT reporting obligations.\28\
---------------------------------------------------------------------------

    \24\ See Rule 30b1-9(T)(a).
    \25\ Id. Furthermore, the EDGAR reporting requirements added to 
Form N-PORT by the Investment Company Liquidity Risk Management 
Programs Adopting Release (``Liquidity Adopting Release'') will also 
be delayed by the temporary rule. See Investment Company Liquidity 
Risk Management Program, Investment Company Act Release No. 32315 
(Oct. 13, 2016) [81 FR 82142 (Nov. 18, 2016)]. However, funds will 
only be required to comply with temporary rule 30b1-9(T) with 
respect to these liquidity-related additions to Form N-PORT based on 
the compliance date set forth in the Liquidity Adopting Release for 
these additions.
    \26\ See rule 31a-2(a)(2) (providing that funds must preserve 
certain records for a period not less than six years from the end of 
the fiscal year, the first two years in an easily accessible place); 
see generally rule 31a-2(f) (requirements for electronic records). 
Because rule 31a-2 provides for preservation for not less than six 
years from the end of the fiscal year, the temporary rule will no 
longer be effective March 31, 2026.
    \27\ 15 U.S.C. 80a-30(b)(1).
    \28\ See rule 30b1-9(T)(a). While neither this temporary rule 
nor rule 31a-2(f) require that the information maintained in the 
funds' records be stored in an XML format, we believe that doing so 
would facilitate the filing of Form N-PORT following the nine-month 
delay as we believe funds can use this delay to gain greater 
facility with the structured reporting format.
---------------------------------------------------------------------------

    The Adopting Release delayed compliance for smaller fund groups by 
one year so that they could benefit from the lessons learned by the 
larger fund groups' earlier compliance date.\29\ In order to maintain 
this benefit the compliance date for smaller fund groups

[[Page 58734]]

will be delayed by nine months from the original compliance date (until 
March 1, 2020). Not providing smaller fund groups with a compliance 
date delay would deprive them of receiving the full benefit of the 
tiered filing requirement that we previously adopted. However, the 
temporary rule is not relevant to these smaller fund groups,\30\ as the 
relevant provision of the temporary rule applies until April 1, 2019--
before the new compliance date for smaller fund groups (March 1, 2020). 
As a result, smaller fund groups are not subject to a requirement to 
prepare and then retain as a record the information required on Form N-
PORT; rather, they will, pursuant to the Adopting Release and this 
release, need to prepare and file Form N-PORT beginning on or after the 
delayed March 1, 2020 compliance date.
---------------------------------------------------------------------------

    \29\ See Adopting Release, supra note 1, at Part II.H.1.
    \30\ See rule 30b1-9(T)(a).
---------------------------------------------------------------------------

D. Form N-Q Filing Requirement

    In order for investors and other users to continue to receive at 
the least the same information that they currently receive regarding 
fund portfolio holdings, we are requiring funds to continue filing 
public reports on Form N-Q until they begin filing reports on Form N-
PORT using EDGAR (i.e., the March 31, 2019 reporting period for larger 
fund groups and March 31, 2020 for smaller fund groups). As the 
Commission concluded in the Adopting Release, Form N-PORT will render 
reports on Form N-Q unnecessarily duplicative. To that end, the 
Commission staff recently provided guidance that once a fund begins 
filing reports on Form N-PORT, it will no longer be required to file 
reports on Form N-Q.\31\ The Adopting Release rescinded Form N-Q, 
effective August 1, 2019. This effective date would have allowed funds 
sufficient time to satisfy Form N-Q's 60-day filing requirement with 
regard to their final filing on Form N-Q for the reporting period 
preceding their first filing on Form N-PORT.\32\ We also adopted 
certain changes to Form N-CSR to account for the rescission of Form N-
Q.\33\ Specifically, as we noted in the Adopting Release, when a fund 
ceases filing reports on Form N-Q, its certification on Form N-CSR must 
state that the certifying officer has disclosed any change in the 
registrant's internal control over financial reporting that occurred 
during the most recent fiscal half-year, rather than the registrant's 
most recent fiscal quarter as currently required.\34\
---------------------------------------------------------------------------

    \31\ See Investment Company Reporting Modernization Frequently 
Asked Questions, available at https://www.sec.gov/investment/investment-company-reporting-modernization-faq#_ftnref5.
    \32\ Adopting Release, supra note 1, at 81966.
    \33\ Id. at 81912-13. We also adopted certain technical and 
conforming amendments related to the rescission of Form N-Q and the 
adoption of Form N-PORT. See id. at 81965-66.
    \34\ See supra note 1, at Part II.B.2; see also Investment 
Company Reporting Modernization Frequently Asked Questions, 
available at https://www.sec.gov/investment/investment-company-reporting-modernization-faq#_ftnref5.
---------------------------------------------------------------------------

    As a result of this delay of the compliance date for filing reports 
on Form N-PORT for smaller fund groups by nine months, smaller fund 
groups will now satisfy their final filing requirements for Form N-Q by 
May 1, 2020. We are therefore delaying the effective date for the 
rescission of Form N- Q until May 1, 2020.\35\ Correspondingly, the 
compliance dates for the amendments to the certification requirements 
of Form N-CSR will be March 1, 2019, for larger fund groups, and March 
1, 2020, for smaller fund groups.\36\
---------------------------------------------------------------------------

    \35\ Money market funds currently file reports on Form N-Q, but 
upon its rescission will not have to file reports on Form N-PORT (as 
money market funds currently file monthly reports on Form N-MFP). 
While the Commission is extending the effective date for the 
rescission of Form N-Q until May 1, 2020, money market funds that 
were relying on the Commission's original August 1, 2019 rescission 
date for Form N-Q do not have to file reports on Form N-Q after 
August 1, 2019 despite the new rescission date of May 1, 2020.
    \36\ We are also delaying the effective date for the 
corresponding amendments to references to the availability of 
portfolio holdings schedules in Form N-1A, N-2, and N-3 and the 
amendments to remove references to Form N-Q in rule 401 of 
Regulation S-T and rules 8b-33, 30a-2, 30a-3, and 30d-1 under the 
Investment Company Act, to May 1, 2020, the same day the rescission 
of Form N-Q will now be effective.
---------------------------------------------------------------------------

E. Six-Month Nonpublic Reporting Period

    In the Adopting Release, the Commission determined that having a 
six-month time period where larger fund groups are required to file 
reports on Form N-PORT with the Commission, but where those reports are 
not disclosed publicly, will allow funds and the Commission to make 
adjustments to fine-tune the technical specifications and data 
validation processes.\37\ Because larger fund groups will now be 
required to submit the reports on EDGAR as of March 31, 2019, those 
reports for the periods ending March 31, 2019 through September 30, 
2019 will be kept nonpublic to preserve the six-month period noted 
above.\38\ As before, portfolio information attached as exhibits to 
Form N-PORT for the first and third quarters of a fund's fiscal year 
will still be made public during this period, to ensure that 
information about funds' portfolio holdings continues to be publicly 
available to investors and other users during the six-month period when 
reports on Form N-PORT will not be made publicly available.\39\
---------------------------------------------------------------------------

    \37\ See Adopting Release, supra note 1, Part II.H.1.
    \38\ As in the Adopting Release, here, smaller fund groups will 
not be required to file reports on Form N-PORT through the EDGAR 
system until after the six-month nonpublic period for larger fund 
groups has elapsed. This will allow smaller fund groups to benefit 
from any adjustments to fine-tune the technical specifications and 
data validation processes that occurred during the six-month 
nonpublic period for larger fund groups.
    \39\ See Adopting Release, supra note 1, Part II.H.1.
---------------------------------------------------------------------------

F. Form N-CEN

    We note that our action today does not affect requirements with 
respect to Form N-CEN.\40\ Because those reports will be immediately 
made public upon filing and because their annual frequency of filing 
and their smaller size are expected to impose fewer demands on the 
EDGAR system, we have determined not to change the submission 
requirements with respect to that form at this time.
---------------------------------------------------------------------------

    \40\ Form N-CEN [referenced in 17 CFR 274.101] under the 
Investment Company Act. Accordingly, the rescission of Form N-SAR 
will not be delayed by this action.
---------------------------------------------------------------------------

G. Procedural and Other Matters

    The Administrative Procedure Act (``APA'') generally requires an 
agency to publish notice of a rulemaking in the Federal Register and 
provide an opportunity for public comment.\41\ This requirement does 
not apply, however, if the agency ``for good cause finds . . . that 
notice and public procedure thereon are impracticable, unnecessary, or 
contrary to the public interest.'' \42\ We have determined to 
immediately adopt this temporary rule delaying the requirement that 
funds file reports on Form N-PORT through the EDGAR system for nine 
months and making the accompanying changes described above. The 
Commission has determined that the range of potential technological 
matters accompanying the ongoing and anticipated improvements to the 
EDGAR system warrant a delay in accepting this entirely new set of 
EDGAR filings, which involve complex structured data files, until after 
the EDGAR upgrades that are underway are tested. This judgment is based 
on the Commission's ongoing, internal assessment of the range of 
potential modifications to enhance the EDGAR system's functionality, 
performance, and security. Accordingly, we have concluded that 
soliciting public comment on this issue would be neither necessary, 
practicable, nor in the public interest.
---------------------------------------------------------------------------

    \41\ See 5 U.S.C. 553(b)-(c).
    \42\ 5 U.S.C. 553(b)(3)(B).
---------------------------------------------------------------------------

    In addition, providing immediate certainty to funds is critical 
because we

[[Page 58735]]

understand that funds are currently organizing their systems and 
procedures to comply with the requirements and dates set forth in the 
Adopting Release. Funds need to know that there will be a nine-month 
delay of the requirement that they file reports on Form N-PORT through 
the EDGAR system, and that as a result they will have to maintain their 
systems for filing reports on Form N-Q longer than contemplated in the 
Adopting Release. The Commission is concerned, for example, that absent 
the certainty provided by a final rule funds may eliminate those 
systems as part of the transition to Form N-PORT. Providing notice and 
comment would defeat this goal of giving certainty as to funds' 
obligations in light of the necessary delays stemming from the 
Commission's recent cybersecurity initiatives. Under these 
circumstances, notice and comment would be both impracticable and 
contrary to the public interest.
    For these reasons, the Commission finds that good cause exists to 
dispense with notice and comment regarding the delay of the requirement 
to submit reports on Form N-PORT on EDGAR and the associated changes 
outlined above.\43\
---------------------------------------------------------------------------

    \43\ See Section 553(b)(3)(B) of the Administrative Procedure 
Act (5 U.S.C. 553(b)(3)(B)) (an agency may dispense with prior 
notice and comment when it finds, for good cause, that notice and 
comment are ``impracticable, unnecessary, or contrary to the public 
interest''). This finding also satisfies the requirements of 5 
U.S.C. 808(2), allowing the amendments to become effective 
notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency 
finds that notice and public comment are impractical, unnecessary or 
contrary to the public interest, a rule shall take effect at such 
time as the federal agency promulgating the rule determines). The 
amendments also do not require analysis under the Regulatory 
Flexibility Act. See 5 U.S.C. 604(a).
---------------------------------------------------------------------------

II. Economic Analysis

A. Introduction

    The Commission is sensitive to the economic effects, including the 
benefits and costs and the effects on efficiency, competition, and 
capital formation that will result from this temporary final rule and 
from the nine-month delay of the requirement that funds submit reports 
on Form N-PORT through EDGAR, the associated delay for the same period 
of the rescission of Form N-Q, the delay of the semi-annual 
certification requirement in Form N-CSR, the delay of the effectiveness 
of certain amendments to other rules and forms, and the change in the 
six-month period during which filed reports on Form N-PORT with the 
Commission will be kept nonpublic.\44\
---------------------------------------------------------------------------

    \44\ See Parts I.C, I.D, and I.E for the specific framework of 
the nine-month delay in the submission of Form N-PORT on EDGAR.
---------------------------------------------------------------------------

    The Commission relies on information included in reports filed by 
funds to monitor trends, identify risks, and inform its regulatory 
functions. Similarly, investors and other market participants rely on 
funds' public filings to assist in their investment decisions and 
understanding of financial markets. Form N-PORT, which requires 
reporting of a fund's complete portfolio holdings on a monthly basis 
with every third month available to the public, will contribute 
substantially to information made available to the Commission and the 
public by funds. As the Commission has previously stated,\45\ the 
adoption of Form N-PORT will modernize fund reporting, improve the 
ability of the Commission to fulfill its regulatory functions, and 
allow investors to make more informed investment decisions.
---------------------------------------------------------------------------

    \45\ See Adopting Release, supra note 1, at 81870, 81872.
---------------------------------------------------------------------------

    The Commission has now determined to delay the requirement that 
funds submit Form N-PORT through the EDGAR system by nine months to 
provide time to complete the necessary adjustments to the technical 
specifications and data validation processes and to complete the 
necessary functionality, performance, and security enhancements. The 
Commission's implementation of this delay, while facilitating changes 
to the EDGAR system, will impose certain costs on market participants, 
including costs associated with delayed access to structured portfolio 
holdings data, costs associated with continuing to file Form N-Q, and 
recordkeeping costs associated with Form N-PORT for larger fund groups. 
The economic effects of the delay are discussed in more detail below.

B. Economic Baseline

    The current required reporting of information by funds (e.g., 
reports on Forms N-Q, N-CSR, and N-SAR), as well as the changes in 
reporting and disclosure brought by the adoption of Form N-PORT, serve 
as the baseline against which the costs and benefits as well as the 
impact on efficiency, competition, and capital formation are 
discussed.\46\ Additionally, the baseline takes into account the fact 
that some funds likely have started updating their systems and 
processes to comply with the new Form N-PORT requirements adopted in 
October 2016.
---------------------------------------------------------------------------

    \46\ See Adopting Release, supra note 1, at 81969.
---------------------------------------------------------------------------

    The entities affected by the delay of the EDGAR submission 
requirement for reports on Form N-PORT are generally the funds that 
will report using Form N-PORT; those entities that currently report 
using Form N-Q and would have ceased doing so as of the applicable Form 
N-PORT compliance date; and those entities that will rely on either 
filed information, including the Commission and current and future 
users of investment company portfolio information including investors, 
third-party information providers, and other interested potential 
users.
    As of the end of 2016, approximately 95.8 million individuals owned 
shares of registered investment companies, representing 55.9 million or 
44.4% of U.S. households.\47\ We estimate that, as of the end of 2016, 
there were 17,072 funds registered with the Commission, of which 11,548 
are required to file Form N-PORT (i.e., 9,090 mutual funds (excluding 
money market funds), 1,716 ETFs (including eight ETFs organized as UITs 
and 1,708 ETFs that are management investment companies), and 742 
closed-end funds (excluding SBICs)).\48\ Of the fund groups required to 
file Form N-PORT, 68.9% of fund groups, representing 0.6% of all fund 
assets, have net assets below $1 billion. We also estimate that there 
are 11,540 funds that currently report on Form N-Q and will be required 
to report on Form N-PORT,\49\ all of which would have ceased reporting 
on Form N-Q as of the applicable Form N-PORT compliance date(s).\50\
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    \47\ 2017 Investment Company FactBook (``2017 IC FactBook''), A 
Review of Trends and Activities in the Investment Company Industry, 
57th edition, at 2, available at https://www.ici.org/pdf/2017_factbook.pdf.
    \48\ Based on data obtained from the 2017 IC FactBook and 
registrants' filings with the Commission on Form N-SAR as of the end 
of 2016.
    \49\ 11,540 is equal to 11,548 funds that are required to file 
Form N-PORT minus 8 ETFs organized as UITs that are required to file 
Form N-PORT but are not required to file form N-Q. Estimates are 
based on staff analysis of data obtained from Morningstar Direct, as 
of December 31, 2016.
    \50\ Based on data obtained from the 2017 IC FactBook and 
registrants' filings with the Commission on Form N-SAR as of the end 
of 2016.
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C. Economic Impacts

    We are mindful of the costs and benefits of the delay in filings on 
Form N-PORT, the new recordkeeping requirement, and the associated 
delays in the effectiveness of certain amendments and rescissions. The 
Commission notes that, where possible, it has sought to quantify the 
benefits and costs, and effects on efficiency, competition, and capital 
formation expected to result from the delay in the date for submitting 
Form N-PORT on EDGAR, the related delay in the rescission of Form N-Q, 
and the other changes made in this release. However, the Commission is 
unable to quantify

[[Page 58736]]

many of the economic effects because it lacks information necessary to 
provide reasonable estimates. Effects that we are unable to quantify 
include the extent to which investors would be able to use the 
information in Form N-PORT to make more informed investment decisions 
either through direct use or through third-party service providers.
1. Economic Impacts of Delay in Form N-PORT EDGAR Submission 
Requirement
    The EDGAR submission requirement was designed to enhance the 
Commission's ability to access efficiently and timely monthly 
investment portfolio information of a large number of funds in a 
structured format, and to also enhance investors' ability to make more 
informed investment decisions. The delay in the requirement to submit 
Form N-PORT on EDGAR will benefit reporting funds as well as funds' 
current and prospective investors, because it will allow the Commission 
time to make progress in the EDGAR system review and to implement and 
test resulting modifications to the EDGAR system.\51\ This will allow 
the large amounts of new, complex data to be submitted on EDGAR with 
additional security measures in place. This, in turn, will help ensure 
that the information contained in Form N-PORT, once submitted to EDGAR, 
is readily accessible and usable.
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    \51\ To the extent that the Commission's EDGAR review and 
modernization efforts during the nine-month delay improve current 
data security for nonpublic information posted on EDGAR, funds will 
also benefit from efforts to strengthen the Commission's 
cybersecurity risk profile going forward.
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    The Commission acknowledges, however, that there are costs to a 
delay in the receipt of Form N-PORT information. The delay in the EDGAR 
submission requirement could potentially temporarily affect the 
Commission's ability to readily incorporate Form N-PORT information 
into its mission through better informed policy decisions and 
oversight, more specific guidance and comments in the disclosure review 
process, and more targeted examination and enforcement efforts.\52\ 
This impact is likely mitigated, however, because during the nine-month 
delay in the EDGAR submission requirement, larger fund groups must 
still prepare and maintain in their records the information that is 
required to be included on Form N-PORT.\53\ Further, both smaller fund 
groups and larger fund groups must also prepare and submit reports on 
Form N-Q. There is overlap between the information that funds will 
continue to report on Form N-Q and that required in Form N-PORT; 
however, funds file Form N-Q in a non-structured data format, file the 
form less frequently, and report fewer data points than on Form N-
PORT.\54\
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    \52\ To the extent that larger fund groups do not prepare and 
maintain their reports in XML format during the delay period, the 
nine-month delay in the EDGAR submission requirement could also 
temporarily negatively affect the Commission because fund reports 
will not be available in a structured XML format that allows the 
Commission staff to more efficiently review and analyze fund 
portfolio information. See Adopting Release, supra note 1, at 81876, 
81906-7.
    \53\ See supra Part I.C.
    \54\ As detailed in the Adopting Release, Form N-PORT requires 
additional information concerning fund portfolio holdings that is 
not currently required by Form N-Q. See Adopting Release, supra note 
1, at 81875-76. For example, Form N-PORT requires reporting of 
additional information relating to derivative investments. The form 
also includes certain risk metric calculations that measure a fund's 
exposure and sensitivity to changing market conditions, such as 
changes in asset prices, interest rates, or credit spreads. Form N-
PORT also requires information about certain fund transactions and 
activities such as securities lending, repurchase agreements, and 
reverse repurchase agreements, including information regarding the 
counterparties to which the fund is exposed in those transactions, 
as well as in over-the-counter derivatives transactions.
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    The nine-month delay of the EDGAR submission requirement will also 
delay the ability of current and future users of investment company 
portfolio information, including investors, third-party information 
providers, and academics, to access additional publicly available data 
in a structured format. This delay in the Form N-PORT submission will 
defer the increase in the transparency of a fund's investment 
strategies and will also postpone the increase in the ability of 
investors and other potential users to more efficiently identify the 
funds' risk exposures, differentiate investment companies based on 
their investment strategies, and make more informed investment 
decisions. Any costs of such a temporary delay are partially mitigated 
by the fact that users of investment company portfolio information will 
continue to have access to relevant investment company information via 
the reports on Form N-Q and N-CSR for the duration of the Form N-PORT 
submission delay.
    To the extent that the delay in the requirement to submit Form N-
PORT on EDGAR for larger fund groups and the delay in the requirement 
to file Form N-PORT for smaller fund groups change costs borne by fund 
groups, these changes will come in the form of a reduction in the cost 
of submitting reports on Form N-PORT on EDGAR. For larger fund groups, 
there will be a cost saving associated with the nine-month delay in the 
requirement to prepare the funds' systems to accommodate the XML-based 
reports to the extent those fund groups choose another format to 
prepare and maintain the information that is required to be included in 
Form N-PORT during the delay period.\55\ For smaller fund groups, there 
will be a cost saving associated with the nine-month delay in both 
preparing and submitting reports on Form N-PORT on EDGAR.
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    \55\ This cost saving comprises a deferral of initial costs 
because larger fund groups must prepare their systems to accommodate 
the XML-based reports with a nine-month delay and a reduction in 
ongoing costs because larger fund groups have to accommodate the 
XML-based reports for nine months less. It is possible that certain 
funds have already started preparing their systems and processes to 
accommodate the Form N-PORT requirements adopted in October 2016. 
Any cost reductions and deferrals for those funds are likely lower.
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    Based on the cost estimates in the Adopting Release for compiling 
and submitting Form N-PORT on EDGAR, we believe that the cost savings 
for larger fund groups associated with the delay in submitting Form N-
PORT on EDGAR and the delay in preparing the funds' systems to 
accommodate the XML Form N-PORT format requirement will be minimal. 
While filing with the Commission is delayed for nine months, temporary 
rule 30b1-9(T) will still require larger fund groups to compile the 
information that is required to be included in Form N-PORT during the 
nine months that the EDGAR submission requirement is delayed and these 
funds will incur the additional cost of maintaining the information 
required by Form N-PORT in the funds' records in an easily accessible 
place as required by the temporary final rule. We believe that the cost 
savings for smaller fund groups associated with the delay in preparing 
and submitting Form N-PORT on EDGAR for nine months will be likely 
higher compared to the cost savings for larger fund groups. These cost 
savings likely comprise a nine-month deferral of initial costs 
associated with preparing the necessary systems and processes for Form 
N-PORT filings and a reduction in ongoing costs associated with 
preparing, reviewing, and filing reports on Form N-PORT for nine 
months.\56\ Finally, for both larger and smaller funds groups, the 
proposed delay will temporarily defer costs associated with the public 
release of information that was previously held private.\57\
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    \56\ See Adopting Release supra note 1, footnotes 1300-1304 for 
details on the initial and ongoing costs associated with preparing, 
reviewing, and filing reports on Form N-PORT.
    \57\ Such costs include potential ``front-running,'' ``predatory 
trading,'' and ``copycatting/reverse engineering of trading 
strategies'' by other investors as well as the public release of 
previously private and sensitive information, such as the identities 
and weights of all of the individual components in custom baskets or 
indexes comprising the reference instruments underlying the fund's 
derivative investments, information regarding fees and financing 
terms for certain derivatives contracts, information regarding the 
variable financing rates for swaps that pay or receive financing 
payments, and the reporting of distressed debt issued by private 
companies. See Adopting Release, supra note 1, at 81977-80.

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[[Page 58737]]

2. Economic Impacts of Delay in Form N-Q Rescission
    The nine-month delay in the Form N-PORT submission on EDGAR likely 
imposes additional costs to funds required to file reports on Form N-Q 
for an additional nine months. First, the requirement to submit Form N-
Q for an additional nine months as well as prepare and maintain the 
information that is required to be included in a larger fund group's 
report on Form N-PORT will impose filing costs for Form N-Q and some 
duplicative preparation and recordkeeping costs on larger fund groups 
that will be required to prepare and maintain information that is 
included in both forms. Using estimates from the Adopting Release, we 
calculate that preparing and filing Form N-Q imposes annual total cost 
of $78,518,160 for all funds, or $6,804 per fund annually.\58\ However, 
because substantially all of Form N-Q questions have been incorporated 
into Form N-PORT, we estimate that much of the estimated burden 
encompasses the cost of gathering and preparing relevant data as well 
as developing or maintaining the systems and records to generate the 
data that will be required by both forms. As a result, the additional 
costs of preparing and filing Form N-Q during the nine-month delay will 
likely be administrative in nature, and small in relation to the costs 
that funds already bear for preparing and reviewing Form N-PORT.\59\
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    \58\ The estimated annual cost per-fund is based upon the 
following calculations: $6,804 = 21 hours/fund x $324/hour 
compensation for professionals commonly used in preparation of Form 
N-Q filings. ($324 = ($308 per hour for senior programmers + $340 
per hour for compliance attorneys) / 2 (as half of the time will be 
performed by senior programmers and half by compliance attorneys)), 
as we believe these employees would commonly be responsible for 
completing reports on Form N-Q. The estimated annual total cost is 
based on the following calculation: $78,518,160 = $6,804 annual per 
fund cost x 11,540 funds. Funds are currently required to file a 
quarterly report on Form N-Q after the close of the first and third 
quarters of each fiscal year. See Adopting Release, supra note 1, at 
81998.
    \59\ See Adopting Release, supra note 1, at page 81975.
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    Second, the delay in the Form N-PORT submission requirement will 
impose an additional cost on funds that must continue seeking 
certification of the Form N-Q for nine more months until Form N-Q is 
rescinded.\60\ As mentioned above, once Form N-Q is rescinded, the 
certifying officer will be required to state that he or she has 
disclosed in Form N-CSR any change in the registrant's internal control 
over financial reporting that occurred during the most recent fiscal 
half-year rather than the most recent quarter to fill the gap in 
certification coverage that would otherwise occur once Form N-Q is 
rescinded. Nevertheless, we believe any additional certification costs 
arising from the delay in the Form N-Q rescission will be minimal.\61\
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    \60\ On the other hand, the proposed delay in the Form N-Q 
rescission will also temporarily defer for some funds any costs 
associated with the rescission of Form N-Q, depending on a 
particular fund's fiscal year. In particular, the rescission of Form 
N-Q will eliminate certifications of the accuracy of the portfolio 
schedules reported for the first and third fiscal quarters and funds 
will only certify their disclosure controls and procedures and 
internal control over financial reporting in Form N-CSR semi-
annually. To the extent that Form N-Q's certifications about the 
accuracy of portfolio holdings improve the accuracy of the data 
reported during the first and third quarters, reducing the frequency 
of certifications from quarterly to semiannually could affect the 
quality of the data reported. The delay in the rescission of Form N-
Q could thus delay the potential cost of reduced data quality due to 
the reduction in the data certification frequency.
    \61\ See Adopting Release, supra note 1, at 81975, 82005.
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3. Analysis of Effects on Efficiency, Competition, and Capital 
Formation
    Market participants rely on the ability of EDGAR to perform 
effectively in order to provide the Commission and investors with 
timely reporting. The Commission prioritizes a secure and fully 
functional EDGAR for receiving information about its registrants and 
providing that information to market participants. The delay in the 
Form N-PORT submission requirement and the resulting delay in the Form 
N-Q rescission will provide the Commission with time to make progress 
in the EDGAR system review and to implement and test resulting 
modifications to the EDGAR system to allow EDGAR to accept new, large, 
and complex structured data disclosures made by funds effectively, with 
additional security measures in place, thereby facilitating the ready 
accessibility of the disclosures by investors and other market 
participants.
    The Commission acknowledges, however, that the delay will 
temporarily prevent the Commission, investors, and other market 
participants from accessing the more comprehensive and structured 
portfolio information that would be made available by funds filing Form 
N-PORT. The enhanced disclosures in Form N-PORT would allow the 
Commission to better monitor industry trends and identify industry 
outliers, provide guidance and comments to improve disclosure, identify 
risks, inform policy and rulemaking, and assist the Commission in its 
oversight efforts. The enhanced disclosures in Form N-PORT would also 
allow investors and other market participants to more efficiently 
analyze investment portfolio information, better differentiate 
investment companies based on their investment strategies and other 
activities, select funds based on security selection, industry focus, 
level of diversification, and the use of leverage and derivatives. The 
enhanced disclosures therefore would ultimately allow investors to 
allocate capital across reporting funds more in line with their risk 
preferences and increase the competition among funds for investor 
capital. Hence, the delay in the Form N-PORT submission requirement 
might temporarily negatively impact investors; the fair, orderly, and 
efficient functioning of the markets; and capital formation. 
Importantly, however, this temporary negative impact is mitigated by 
delaying the rescission of Form N-Q until May 1, 2020 so that funds 
will continue to provide some fund portfolio holdings information on 
Form N-Q.
    The delay may have an incremental competitive effect on larger fund 
groups, which remain subject to the requirement to prepare the 
information required by Form N-PORT and Form N-Q, but to retain the 
former and submit the latter, for an additional nine months, while 
smaller fund groups are not subject to the costs of preparing and 
retaining the information required by Form N-PORT. These effects are 
likely small, given the relative size of the larger fund groups to the 
smaller fund groups and will only last for nine months.
D. Alternatives
    As an alternative to the nine-month delay of the EDGAR submission 
requirement for reports on Form N-PORT, we considered a longer or 
shorter delay period. While a shorter period would have reduced the 
costs to the Commission and other current and future users of 
investment company portfolio information of not receiving investment 
portfolio information in a more timely manner, the Commission believes 
that a shorter period would be inadequate for review and testing of the 
EDGAR system's ability to validate and accept Form N-PORT filings 
effectively. At this time, the Commission also believes that a longer 
period is not necessary and would increase the costs to the Commission 
and other users of

[[Page 58738]]

investment company portfolio information.
    As an alternative to the tiered EDGAR submission requirement on 
Form N-PORT for larger and smaller fund groups, we considered a nine-
month delay in the Form N-PORT submission requirement only for larger 
fund groups. Such a delay would not allow smaller fund groups to 
benefit from the extra time to comply with the new requirements and 
potentially benefit from the lessons learned by larger fund groups. As 
discussed above, we are not revisiting the decision made in the 
Adopting Release to maximize the potential for smaller fund groups (and 
any external vendors that would be used by both larger and smaller fund 
groups) to benefit from lessons learned by larger fund groups, and 
therefore we are preserving a tiered requirement for the Form N-PORT 
EDGAR submission process.\62\ Relatedly, similar to larger fund groups, 
we considered requiring smaller fund groups to prepare and maintain 
records of the information that is required to be included in Form N-
PORT during the delay. However, delaying the filing requirement for 
smaller fund groups allows them to benefit from the lessons learned by 
larger fund groups in preparing and filing Form N-PORT on EDGAR as 
discussed in the Adopting Release.\63\
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    \62\ See supra Part I.C.
    \63\ See Adopting Release, supra note 1, at 81966.
---------------------------------------------------------------------------

    As an alternative to the delay in the rescission of Form N-Q, we 
considered not delaying the rescission of Form N-Q while delaying the 
N-PORT EDGAR submission requirement by nine months. Such an alternative 
would decrease the information that is available to the Commission and 
various market participants, such as investors, about fund portfolio 
performance. Such a reduction in information availability could 
adversely impact investors, market efficiency, and capital formation.
    We did not revisit the decision made in the Adopting Release to 
require that funds prepare the information that must be included on 
Form N-PORT by June 1, 2018 for larger fund groups. The sole purpose of 
the nine-month delay is to allow the Commission time to make progress 
in the EDGAR system review and to implement and test resulting 
modifications to the EDGAR system to allow EDGAR to accept new, large, 
and complex structured data disclosures made on Form N-PORT by funds 
effectively, with additional security measures in place.

III. Paperwork Reduction Act

    The Commission is delaying the requirement to submit reports on 
Form N-PORT on the EDGAR system by nine months for larger fund groups 
from July 30, 2018 to April 30, 2019 and for smaller fund groups from 
July 30, 2019 to April 30, 2020. The Commission is also adopting rule 
30b1-9(T) that requires funds in larger fund groups to maintain in 
their records the information required in Form N-PORT during that nine-
month delay. In addition, the Commission is delaying the rescission of 
current Form N-Q and delaying the effectiveness of certain amendments 
to other rules and forms. We do not believe that any of these changes 
will make any substantive modifications to any existing collection of 
information requirements within the meaning of the Paperwork Reduction 
Act of 1995 (``PRA'').\64\
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    \64\ 44 U.S.C. 3501 through 3521.
---------------------------------------------------------------------------

A. Form N-PORT

    Rule 30b1-9(T) will require larger fund groups, during the nine-
month delay, to satisfy their reporting obligation by maintaining in 
their records the information required to be included in Form N-PORT 
instead of submitting the information via EDGAR. We believe that the 
burden associated with preserving the information required by Form N-
PORT in the fund's records in an easily accessible place is similar to 
the burden associated with submitting the prepared report on EDGAR. 
Moreover,we believe that some of the burden for smaller fund groups 
associated with filing Form N-PORT will be deferred for nine months, 
but because many of the burdens associated with preparing Form N-PORT 
will be incurred by funds before then, we believe that there will be no 
substantive modification to the existing collection of information for 
Form N-PORT. As a result, the Commission believes that the current PRA 
burden estimates for the existing collection of information 
requirements remain appropriate.\65\
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    \65\ ``Form N-PORT Under the Investment Company Act, Monthly 
Portfolio Investments Report'' (OMB Control No. 3235-0730).
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B. Rescission of Form N-Q

    As discussed in the Adopting Release, in connection with our 
adoption of Form N-PORT, we determined to rescind Form N-Q effective 
August 1, 2019 in order to eliminate unnecessarily duplicative 
reporting requirements once smaller funds began reporting on Form N-
PORT.\66\ The rescission of Form N-Q will affect all management 
investment companies required to file reports on the form. Because 
larger fund groups that are subject to rule 30b1-9(T) will be required 
to file public reports on Form N-Q at the time they prepare and 
preserve the information required by Form N-PORT, these requirements 
include certain requirements that are duplicative, though they will not 
involve duplicative public reporting requirements. Because we are 
delaying the effective date of the rescission of Form N-Q by nine 
months to May 1, 2020, the burden reduction we estimated will be 
realized nine months later than contemplated by the Adopting Release. 
As a result, the Commission believes that the current PRA burden 
estimates for the existing collection of information requirements 
remain appropriate.\67\
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    \66\ Adopting Release, supra note 1, at 81998.
    \67\ ``Form N-Q--Quarterly Schedule of Portfolio Holdings of 
Registered Management Investment Company'' (OMB Control No. 3235-
0578).
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C. Registration Statement Forms

    We are delaying the effective date of technical and conforming 
changes to Forms N-1A, N-2, and N-3 referring to the availability of 
portfolio holdings schedules to May 1, 2020, the same day the 
rescission of Form N-Q will now be effective.
    In the Adopting Release, we did not estimate a change to burden 
hours or the external costs related to the technical and conforming 
amendments related to the availability of portfolio holdings schedules. 
Therefore, we do not believe that there is a change to burden hours or 
the external costs resulting from the delay of the effective date of 
these amendments. Accordingly, the Commission believes that the current 
PRA burden estimates for the existing collection of information 
requirements remain appropriate.\68\
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    \68\ ``Form N-1A under the Securities Act of 1933 and under the 
Investment Company Act of 1940, Registration Statement of Open-End 
Management Investment Companies'' (OMB Control No. 3235-0307); 
``Form N-2 under the Investment Company Act of 1940 and Securities 
Act of 1933, Registration Statement of Closed-End Management 
Investment Companies'' (OMB Control No. 3235-0026); and ``Form N-3 
Under the Investment Company Act of 1940, Registration Statement of 
Separate Accounts Organized as Management Investment Companies'' 
(OMB Control No. 3235-0316).
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D. Amendments to Form N-CSR

    As discussed in the Adopting Release, in connection with the 
rescission of Form N-Q, we also adopted amendments to Form N-CSR, the 
reporting form used by management companies to file certified 
shareholder reports under the Investment Company Act and the Exchange 
Act.\69\
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    \69\ Adopting Release, supra note 1, at 82004. Compliance with 
the certification requirements will be mandatory, and responses are 
not kept confidential.

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[[Page 58739]]

    In the Adopting Release, we estimated that the amendments to the 
certification requirements of Form N-CSR would not change the annual 
hour burden or external costs associated with Form N-CSR.\70\ 
Therefore, we do not believe that there is a change to burden hours or 
the external costs resulting from the delay of the effective date of 
these amendments. Accordingly, the Commission believes that the current 
PRA burden estimates for the existing collection of information 
requirements remain appropriate.\71\
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    \70\ Id. at 82005.
    \71\ ``Form N-CSR under the Securities Exchange Act of 1934 and 
under the Investment Company Act of 1940, Certified Shareholder 
Report of Registered Management Investment Companies'' (OMB Control 
No. 3235-0570).
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IV. Statutory Authority

    We are adopting the rules contained in this document under the 
authority set forth in the Securities Act [15 U.S.C. 77a et seq.], the 
Exchange Act, particularly sections 10, 13, 15, 23, and 35A thereof [15 
U.S.C. 78a et seq.], the Investment Company Act, particularly sections 
8, 30, 31, and 38 thereof [15 U.S.C. 80a et seq.], and 44 U.S.C. 3506.

List of Subjects

17 CFR Part 232

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 239

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Parts 270 and 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    For reasons set forth in the preamble, title 17, chapter II of the 
Code of Federal Regulations is amended as follows:

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
1. The authority citation for part 270 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless 
otherwise noted.

* * * * *

0
2. Section 270.30b1-9(T) is added to read as follows:


Sec.  270.30b1-9(T)   Temporary rule regarding monthly report.

    (a) Until April 1, 2019, each registered management investment 
company subject to Sec.  270.30b1-9 of this chapter must satisfy its 
reporting obligation under that section by maintaining in its records 
the information that is required to be included in Form N-PORT (Sec.  
274.150 of this chapter).
    (b) The information maintained in the registered management 
investment company's records under paragraph (a) of this section shall 
be treated as a record under section 31(a)(1) of the Act [15 U.S.C. 
80a-30(a)(1)] and Sec.  270.31a-1(b) of this chapter subject to the 
requirements of Sec.  270.31a-2(a)(2) of this chapter.
    (c) This section will expire and no longer be effective on March 
31, 2026.

    By the Commission.

    Dated: December 8, 2017.
Brent J. Fields,
Secretary.
[FR Doc. 2017-26922 Filed 12-13-17; 8:45 am]
 BILLING CODE 8011-01-P