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Statement at an Open Meeting on Investment Company and Investment Adviser Reporting

Commissioner Michael S. Piwowar

May 20, 2015

Thank you, Chair White.

And thanks to the staff who worked so hard to develop these rulemakings.  These are Dave Grim’s first rulemakings as Director of Investment Management, and I want to congratulate him on his well-deserved appointment.  These proposals are the result of a very collaborative and thoughtful process, and one that future rulemakings hopefully emulate.   

The two reporting modernization proposals before us are a welcome respite from the Dodd‑Frank Act rulemakings.  The backbone of the Commission’s regulatory oversight is our disclosure regime, and these rulemakings go a long way to modernizing both the information disclosed to the Commission and investors and the structure in which the information is reported.  Hopefully, the Commission and staff will continue to review our disclosure requirements and update them where needed to reflect today’s markets and technology.

Building on the Commission’s success with the enhanced portfolio holdings information provided by money market funds monthly on Form N-MFP, the Commission today is proposing a new form, Form N-PORT, which would extend enhanced monthly portfolio holdings information reporting to all management investment companies and unit investment trusts that are ETFs.  In conjunction with this new form, the Commission would rescind Form N-Q, which is the form that registered investment companies (“funds”) currently use to submit portfolio holdings information to the Commission after their first and third fiscal quarters.  While the portfolio holding information will be reported to the Commission monthly, the information will only be made publicly available for the final month of each fiscal quarter. 

In addition, the Commission is proposing to replace the technologically antiquated Form N-SAR, on which most funds file census-type information with the Commission semi‑annually, with new Form N-CEN.  Form N-CEN would be filed annually by all funds except face amount certificate companies.  

These new forms would require disclosure of additional key information about fund portfolio holdings.  In addition to the information that is currently disclosed, funds would provide information that enables Commission staff and potentially investors to identify investment risks and differentiate among funds.  The proposed new forms, among other things, would include information on risk‑sensitivity measures at the portfolio and positions level, contractual terms for debt securities and derivatives, a description of reference instruments, and information describing securities lending and repurchase and reverse repurchase agreements.  We are also proposing amendments to Regulation S-X so that a fund’s financial statements in its shareholder reports contain similar derivatives disclosures. 

I am particularly glad that these proposals also take advantage of today’s technology.  The information provided on Forms N-PORT and N-CEN would be in XML and thus able to be aggregated and analyzed in an efficient manner.  We are also proposing a new rule that would take advantage of the evolving trends and preferences in Internet usage to permit, but not require, website transmission of fund shareholder reports.  The proposed rule should reduce costs for funds and their shareholders as well as increase the likelihood that shareholders will read and make use of the reports.             

On the investment adviser side, today’s proposals, among other things, would amend Form ADV to require investment advisers to provide more specific and detailed information about their separately managed accounts, including types of assets held and the use of derivatives and borrowings in the accounts.  Form ADV also would be amended to accommodate umbrella registration by a private fund adviser on behalf of itself and a group of related advisers that are controlled by or under common control with the filing private fund adviser and that operate as a single business.

I am pleased to support both of these reporting modernization proposals.  However, I have two concerns that I hope commenters will address.  First, new Forms N-PORT and N‑CEN would require funds to include the legal identifier assigned or recognized by the Global LEI Regulatory Oversight Committee or the Global LEI Foundation.  I am concerned that this requirement would result in the Commission helping to establish a monopoly for the provision of legal identifiers.  Second, Form N-PORT and the amendments to Regulation S-X would require funds to disclose, in connection with derivative investments, the components of an underlying reference index if the components are not already disclosed publicly on a website.  My concern is that many index providers may not be willing to have the components of their indices publicly disclosed and that would negatively impact funds that make such investments and the index providers.  I look forward to reviewing comments on these and all others aspects of today’s proposals.      

I have no questions.

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