The SEC proposed "Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers," which would increase the disclosures made by private liquidity funds, we learned from law firm Troutman Pepper. The proposal comments, "The Securities and Exchange Commission is proposing to amend Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds to require current reporting upon the occurrence of key events. The proposed amendments also would decrease the reporting threshold for large private equity advisers and require these advisers to provide additional information to the SEC about the private equity funds they advise. Finally, we are proposing to amend requirements concerning how large liquidity advisers report information about the liquidity funds they advise. The proposed amendments are designed to enhance the Financial Stability Oversight Counsel's ('FSOC') ability to monitor systemic risk as well as bolster the SEC's regulatory oversight of private fund advisers and investor protection efforts." (See our Nov. 16 News, "SEC: Private Liquidity Funds Dip to $296B in Q1'21; MFI Intl Holdings" for our last recap of Form PF data.)

Under the section "Large Liquidity Fund Adviser Reporting," the SEC writes, "Section 3 requires large liquidity fund advisers to disclose information about the liquidity funds they advise. The proposal would revise how large liquidity fund advisers report operational information and assets, as well as portfolio, financing, and investor information. The proposal also would add a new item concerning the disposition of portfolio securities. The proposed changes are designed to help us see a more complete picture of the short-term financing markets in which liquidity funds invest, and in turn, enhance the Commission's and FSOC's ability to assess short-term financing markets and facilitate our oversight of those markets and their participants. The proposed changes also are designed to improve data quality and comparability and make certain categories in section 3 more consistent with the categories the Board of Governors of the Federal Reserve System uses in its reports and analysis. Together, the proposed amendments are designed to enhance investor protection efforts and systemic risk assessment."

They explain, "We propose to revise how advisers report operational information about their liquidity funds. Liquidity funds that seek to maintain a stable price per share may be susceptible to runs, which could cause systemic risk. Currently, Questions 52 and 53 require advisers to report whether the liquidity fund uses certain methodologies to compute its net asset value. These questions were designed to help determine how the fund might try to maintain a stable net asset value. We propose to replace current Questions 52 and 53 with a requirement for advisers to report the information more directly, by requiring advisers to report whether the liquidity fund seeks to maintain a stable price per share and, if so, to provide the price it seeks to maintain. This proposed approach is designed to help the Commission and FSOC identify liquidity funds that seek to maintain a stable price per share, and therefore, may be susceptible to runs, which could cause systemic risk."

The SEC continues, "We also propose to remove current Question 54, which requires advisers to report whether the liquidity fund has a policy of complying with certain provisions of rule 2a-7. We can use portfolio information we collect in section 3, Item E, to determine whether the liquidity fund is complying with rule 2a-7, regardless of whether it has a policy or not."

Describing "Assets and portfolio information," they tell us, "We propose to require advisers to report cash separately from other categories when reporting assets and portfolio information concerning repo collateral. Section 3 already requires advisers to report all liquidity fund assets and repo collateral, including cash. However, because there is no distinct category for cash, it is unclear what category advisers should use to report it. Therefore, this proposed change is designed to improve data quality and comparability, and help ensure data is reported in the correct category."

The SEC says, "We are proposing to revise further how advisers report liquidity fund assets. We propose to require advisers to provide the total gross subscriptions (including dividend reinvestments) and total gross redemptions for each month of the reporting period. This proposed requirement is designed to help explain changes in net asset value during the reporting period, such as whether net asset value changes are due to subscriptions, redemptions, or changes in the value of the reporting fund's holdings. This level of detail is designed to help ensure accurate reporting and inform the Commission and FSOC of trends across large liquidity funds and short-term financing markets, generally. We also propose to clarify that the term 'weekly liquid assets' includes 'daily liquid assets.' This clarification is designed to improve data quality and comparability, based on our experience with Form PF."

They also write, "We are proposing to revise further how advisers would report liquidity fund portfolio information. As a general matter, the proposed more granular requirements are designed to enhance reporting accuracy and data comparability, as well as enhance our and FSOC's data analysis, as described below. We propose to add instructions directing advisers to provide information separately for the initial acquisition of each security the liquidity fund holds and any subsequent acquisitions. This instruction is designed to facilitate the Commission and FSOC's ability to analyze other information we propose to require about each security, including acquisition information: the trade date and the yield, as of the trade date.... In connection with these proposed amendments, we would remove the requirement for advisers to report the coupon when reporting the title of the issue, because the yield would provide us with that information."

The SEC states, "We also propose to require advisers to report additional identifying information about each portfolio security, including the name of the counterparty of a repo. Currently, section 3 requires advisers to name the issuer. However, for repos, it is not clear whether advisers should report the name of the counterparty of the repo, the name of the clearing agency (in the case of centrally cleared repos), or both. Therefore, this proposed amendment is designed to improve data quality and comparability, based on our experience with Form PF.... When advisers select the category of investments that most closely identifies the security, we propose to revise the categories so advisers would distinguish between U.S. Government agency debt categorized as (1) a coupon-paying note and (2) a no-coupon paying note. This proposed amendment is designed to provide more granular information about U.S. Government agency debt, so the Commission and FSOC can filter data for more robust analysis."

They comment, "We propose to revise how advisers report investor information. We propose to add a new question requiring advisers to report whether the liquidity fund is established as a cash management vehicle for other funds or accounts that the adviser or the adviser's affiliates manage that are not cash management vehicles. This proposed amendment is designed to distinguish between liquidity funds that are offered as a separate investment strategy versus those that are maintained to support other investment strategies, which would help us assess whether assets are shifting from registered money market funds to unregistered products, such as liquidity funds, and better understand the risks associated with assets shifting to unregistered products."

The SEC tells us, "We also propose to revise how advisers report beneficial ownership information. Instead of requiring advisers to simply report how many investors beneficially own five percent or more of the liquidity fund's equity, section 3 would require advisers to provide the following information for each investor that beneficially owns five percent or more of the reporting fund's equity: (1) the type of investor and (2) the percent of the reporting fund's equity owned by the investor. This information is designed to help inform the Commission and FSOC of the liquidity and redemption risks of liquidity funds, because different types of investors may pose different types of redemption risks. For example, if a market event results in a certain type of investor exercising redemption rights, liquidity funds with a homogenous investor base composed of that type of investor could face greater redemption risks, which could raise systemic risk implications, as compared to liquidity funds with a more diversified investor base."

Under "Disposition of portfolio securities," they state, "We propose to require advisers to report information about the disposition of portfolio securities for each of the three months in the quarter. To effectuate this, the proposal would add new Item F (Disposition of Portfolio Securities) to section 3. Under the proposal, advisers would report information about the portfolio securities that the liquidity fund sold or disposed of during the reporting period (not including portfolio securities that the fund held until maturity). Advisers would report the amount as well as the category of investment. This proposed amendment is designed to inform the Commission and FSOC of liquidity funds' liquidity management, as well as their secondary market activities in normal and stress periods, to enhance systemic risk assessment. It also is designed to help provide data about how liquidity funds' selling activity relates to broader trends in short-term funding markets to aid the Commission's investor protection efforts and FSOC's systemic risk analysis."

Finally, the SEC adds, "Large liquidity fund advisers report information in section 3 about the liquidity fund's 'WAM,' or weighted average maturity and 'WAL,' or the weighted average life. Generally, WAM and WAL are calculations of the average maturities of all securities in a portfolio, weighted by each security's percentage of net assets. These calculations help determine risk in a portfolio, because a longer WAM and WAL may increase a fund's exposure to interest rate risks. Form PF's definition of 'WAM' and 'WAL' instruct advisers to calculate them using provisions of rule 2a-7. We propose to revise the Form PF glossary definition of 'WAM' and 'WAL' to include an instruction to calculate them with the dollar-weighted average based on the percentage of each security's market value in the portfolio. This proposed change is designed to help ensure advisers calculate WAM and WAL, which can indicate potential risk in the market, using a consistent approach. We believe the proposed amendment would improve data quality and comparability, which in turn could enhance investor protection efforts and systemic risk assessment."

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