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On August 28, 2024, the SEC adopted amendments to reporting requirements on Form N-PORT and Form N-CEN and issued guidance on open-end fund liquidity risk management programs. Notably, the SEC declined to adopt the proposed mandatory swing pricing requirement, hard close requirement and removal of the “less liquid” category regarding classification of portfolio investments pursuant to Rule 22e-4 under the Investment Company Act of 1940 (Liquidity Rule).

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Amendments to Form N-PORT

Currently, funds are required to file Form N-PORT on a quarterly basis to report information on a fund’s portfolio holdings as of month-end for each month in the quarter, within 60 days of quarter-end, with information for the third month of the quarter made publicly available.&nbsp; The amendments to Form N-PORT will require funds to file Form N-PORT on a monthly basis within 30 days of month-end, and information for each month will be publicly available 60 days after month-end.

Amendments to Form N-CEN

The amendments to Form N-CEN will require funds subject to the Liquidity Rule to identify and provide certain information about service providers a fund uses to fulfill requirements of the Rule. Funds will be required to name each liquidity service provider used and provide identifying information (including its legal entity identifier), identify if the liquidity service provider is affiliated with the fund or its investment adviser, identify the asset classes for which that liquidity service provider provided classifications, and indicate whether the service provider was hired or terminated during the reporting period.

Guidance on Liquidity Risk Management Programs

While the SEC did not adopt proposed amendments to the Liquidity Rule, it issued guidance related to open-end fund liquidity risk management program requirements pursuant to the Rule, as summarized below.

Frequency of Classification.&nbsp; The Liquidity Rule requires funds to review liquidity classifications more frequently than monthly if changes in relevant market, trading and investment-specific considerations are reasonably expected to materially affect one or more of the fund’s investment classifications. The Liquidity Rule requires adoption of policies and procedures reasonably designed so that funds can conduct the required intra-month review if changes have occurred. The guidance advised that a fund’s policies and procedures should identify, for example, the type of information a fund will use to identify relevant intra-month changes and to review liquidity classifications intra-month, as well as the timeliness of that information.&nbsp; The guidance states that funds generally should consider reviewing liquidity classifications if changes in portfolio composition are reasonably expected to materially affect one or more investment classifications. The guidance also provides that funds should consider classifying newly acquired investments intra-month if acquiring a particular investment is reasonably expected to result in material changes to the fund’s liquidity profile.

Meaning of Cash. To determine whether an investment can be classified as highly liquid or moderately liquid, the Liquidity Rule requires a fund to consider the time in which it reasonably expects an investment to be convertible to cash without significantly changing the market value of the investment. As stated in the adopting release for the Liquidity Rule, the term “cash” means U.S. dollars and does not include foreign currencies or cash equivalents.&nbsp; The guidance provides that, in addition to considering the time required to sell and settle an investment denominated in foreign currency, funds need to consider the time required to convert the foreign currency received for the sale into U.S. dollars when classifying the fund’s investments.&nbsp; Similarly, foreign currency held by a fund for investment purposes must be classified based on the time required to convert the foreign currency into U.S. dollars. The guidance provides that it would be reasonable for a fund to assume that it initiates a hypothetical currency conversion at the same time as a hypothetical sale of the foreign investment, meaning that a fund is not required to assume it can initiate a currency conversion only after the sale and settlement of the foreign investment.&nbsp; The guidance also provides that when a fund converts an illiquid foreign investment into an illiquid local currency as a step toward reducing the fund’s illiquid investments, the SEC would not consider the fund as acquiring the illiquid currency in violation of the Liquidity Rule’s prohibition on acquiring illiquid investments in excess of the Liquidity Rule’s 15% limit.

Highly Liquid Investment Minimum. The Liquidity Rule requires funds that do not primarily hold assets that are highly liquid investments to have a highly liquid investment minimum (HLIM).&nbsp; &nbsp; The guidance states that a fund that invests significantly in less liquid or illiquid investments, such as a bank loan fund, generally should consider establishing an HLIM that is higher than that of a fund that is more liquid.&nbsp; The guidance further states that funds with investment strategies that have had greater volatility of flows than other investment strategies—or that are reasonably expected to have greater volatility—would generally need HLIMs that are higher than funds whose strategies tend to entail less flow volatility. The SEC acknowledged that a line of credit can be taken into account when determining an HLIM, however the SEC continues to believe that liquidity risk management is better conducted primarily through construction of a fund’s portfolio.&nbsp; In addition, the guidance states that a fund that has established an HLIM is not required to continuously maintain a specific level of highly liquid assets and is not prohibited from using those assets to meet redemptions. The guidance reiterates that the only consequence of a fund dropping below its HLIM is the triggering of the fund’s shortfall policies and procedures, which must include notifying the fund’s board of the shortfall at the board’s next regularly scheduled meeting or, if the shortfall continues for more than seven consecutive calendar days, notifying the board and filing a confidential report with the SEC on Form N-RN within one business day.

The amendments to Forms N-PORT and N-CEN will become effective on November 17, 2025. Funds generally will be required to comply with the amendments for reports filed on or after that date, except that fund groups with net assets of less than $1 billion will have until May 18, 2026, to comply with the Form N-PORT amendments.

The SEC’s adopting release is available <a href="https://www.sec.gov/files/rules/final/2024/ic-35308.pdf">here</a>, a related fact sheet is available <a href="https://www.sec.gov/files/ic-35308-fact-sheet.pdf">here</a> and a related press release is available <a href="https://www.sec.gov/newsroom/press-releases/2024-110">here</a>.

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