shareholder flow data, arguing that such disclosure could be confusing
to shareholders, and is not necessarily indicative of stress.\1488\ One
commenter also suggested that if shareholder flow data was reported, it
should be on a net rather than gross basis.\1489\
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    \1487\ See Form N-MFP Item B.6. We also are continuing to
require that money market funds disclose the monthly gross
subscriptions and monthly gross redemptions for the month reported.
See current Form N-MFP Item 23.
    \1488\ See, e.g., Legg Mason & Western Asset Comment Letter;
Dreyfus Comment Letter; Wells Fargo Comment Letter.
    \1489\ SIFMA Comment Letter.
---------------------------------------------------------------------------

    We agree that shareholder flows do not necessarily indicate stress
in a fund, but they can be informative in monitoring fund activity and
evaluating the potential risks. We believe gross rather than net flow
data is more useful for us and investors because it allows more
transparency into the particular redemption and purchase patterns at a
fund. We do not believe this additional information would confuse
investors, because they can compare the gross inflows to the gross
outflows if they believe that the net data is the relevant information
in their decision making process. We continue to believe that these
amendments would provide Commission staff and others with additional
relevant data to efficiently monitor fund risk (such as monitoring the
risk that a fund might cross the 10% liquidity-based fee threshold
under the liquidity fee amendments we are adopting today), and
correlated risk shifts in liquidity across the industry.\1490\
Increased periodic disclosure of the daily and weekly liquid assets on
Form N-MFP would provide increased transparency into how funds manage
their liquidity, and it may also impose market discipline on portfolio
managers. In addition, increased disclosure of weekly gross
subscriptions and gross redemptions (reported weekly, in addition to
monthly) would improve the ability of the Commission, investors, and
others to better understand the significance of other liquidity
disclosures required by our proposals (e.g., daily and weekly liquid
assets). It will also allow the Commission to better understand
patterns of shareholder flows over time and how funds respond to those
shareholder flows, and compare those flows to funds' liquid assets, and
we may use them in connection with our examination and regulatory
efforts. Accordingly, we are adopting the amendments to disclose weekly
gross subscriptions and weekly gross redemptions as proposed.
---------------------------------------------------------------------------

    \1490\ As discussed in section III.E.9.a, money market funds
would also be required to disclose each day on its Web site the
fund's Daily Liquid Assets and Weekly Liquid Assets and shareholder
flows.
---------------------------------------------------------------------------

e. Fee Waivers
    We are today also adopting the proposed requirement that each fund
must disclose whether its adviser or a third party paid for or waived
all or part of its operating expenses or management fees during a given
reporting period.\1491\

One commenter objected to this proposed requirement, arguing that fee
waivers are not necessarily indicative of an adviser's financial
position, and that such information may confuse investors and leave an
incorrect impression of the health of the adviser because waivers are
just one aspect of the financial ability of an adviser to support a
fund.\1492\
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    \1491\ Form N-MFP Item B.8 (requiring that funds provide the
name of the person and describe the nature and amount the expense
payment or fee waiver, or both (reported in dollars)).
    \1492\ Schwab Comment Letter.
---------------------------------------------------------------------------

    We agree that fee waivers are not necessarily dispositive
information about an adviser's financial position or its willingness to
potentially support a fund. We do not agree that this information would
confuse investors, in part because fee waivers are already disclosed in
the fund's prospectus (as discussed below), and interested investors
may wish to use this information in their investment decision making
process, even if it is not the sole or even most dispositive piece of
information used in evaluating the financial health of the adviser or
the ability of the adviser to support the fund in times of stress. We
continue to believe, as stated in the proposal, that information about
expense waivers is relevant and will help both investors and the
Commission better evaluate money market fund performance and risk and
respond accordingly. To the extent that money market funds waive fees
to boost performance and attract assets, the new disclosure requirement
should help investors better understand the basis of fund performance
so they can make more informed investment choices.\1493\ In addition,
the Commission will be better able to evaluate and respond to financial
strains on fund advisers. In low interest rate environments, money
market fund yields can become sufficiently small that advisers must
waive fees to offer investors positive returns.\1494\ It may also help
us better monitor the overall financial impact of fee waivers on money
market fund advisers and the effect of such waivers on the industry as
a whole. Accordingly, we are adopting the fee waiver reporting
requirement as proposed.
---------------------------------------------------------------------------

    \1493\ We recognize fee waivers are also required to be
disclosed in a fund's fee table, but believe it is useful to have
them reported on Form N-MFP as well, for the same reasons discussed
in the section on weekly reporting within a monthly filing above, as
each set of disclosures may reach different audiences who may be
seeking out the information for different purposes (i.e. an investor
looking at fee waivers in the fee table may be looking at them for
purposes of whether fees on their investments may go up later, while
investors looking in Form N-MFP may be looking to help determine the
potential impact on the adviser).
    \1494\ In some cases, fee waivers can have similar effects as
capital support. Since 2009, MMFs have dramatically increased fee
waivers to keep yields positive in a low interest rate environment.
In 2011, MMFs waived more fees ($5.2 billion) than they collected
($4.7 billion). See Investment Company Institute, ``Submission by
the Investment Company Institute Working Group on Money Market Fund
Reform Standing Committee on Investment Management International
Organization of Securities Commissions,'' Feb 7, 2012. Moreover,
more money was forfeited in fee waivers from 2009-2011 ($13.3
billion) than was spent during the financial crises from 2007-2009
by fund advisers on capital support events ($12.0 billion) to
stabilize the NAVs of the largest 100 (US and European) prime funds.
See Moody's Sponsor Support Report, supra note 54.
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f. Percentage of Shares Held by Top 20 Shareholders
    We proposed to amend Form N-MFP to require funds to disclose the
total percentage of shares outstanding held by the twenty largest
shareholders of record. At the time, we noted that this information
could help us (and investors) identify funds with significant potential
redemption risk stemming from shareholder concentration, and evaluate
the likelihood that a significant market or credit event might result
in a run on the fund or the imposition of a liquidity fee or
gate.\1495\
---------------------------------------------------------------------------

    \1495\ Form N-MFP Item A.19.
---------------------------------------------------------------------------

    A number of commenters objected to this proposed reporting
requirement, arguing that such data could be confusing to shareholders
because investments through omnibus accounts would be counted as single
shareholders of record, potentially portraying a misleading portrait of
the concentration level of the fund.\1496\ A commenter also suggested
that the appearance of higher shareholder concentration levels as a
result of omnibus accounts does not necessarily correlate with higher
run risk and may mislead the public.\1497\ We recognize this, and agree
that because of the prevalence of omnibus accounts, the proposed
shareholder concentration disclosure may not succeed in achieving its
purpose as the information provided may portray an incorrect and
misleading picture of the level of shareholder concentration in a fund.
This disclosure may create confusion if certain funds appear more
concentrated than they actually are, as a result of those omnibus
accounts appearing to be a single shareholder. For the same reasons, we
expect that the information would similarly not be particularly useful
for us in our monitoring efforts. Accordingly, upon further
consideration of these concerns, we are not adopting the requirement to
report the percentage of fund shares held by the top 20 shareholders.
---------------------------------------------------------------------------

    \1496\ See, e.g., Schwab Comment Letter; Federated VIII Comment
Letter.
    \1497\ Dreyfus Comment Letter.
---------------------------------------------------------------------------

g. Investment Categories
    We are also adopting, with some changes in response to comments,
certain amendments to Form N-MFP's investment categories for portfolio
securities. The new investment categories should help Commission staff
identify particular exposures that otherwise are often reported in
other less descriptive categories (e.g., reporting sovereign debt as
``treasury debt'' or reporting asset-backed securities (that are not
commercial paper) as ``other note'' or ``other instrument'').\1498\
Several commenters suggested revisions to the investment categories we
proposed, noting that these changes would better match investment
categories that are used more broadly and consistently in the
industry.\1499\ After reviewing these comments, we have revised the
final investment categories to better align the categories with typical
industry categorizations and provide a more precise description of fund
investments.\1500\ We expect that the revised categories should not
pose an

additional burden compared to the categories we proposed, as they are
very similar, with minor changes to better reflect our understanding of
common industry practice.
---------------------------------------------------------------------------

    \1498\ Currently N-MFP requires funds to categorize their
investments from among the following categories: ``Treasury Debt;
Government Agency Debt; Variable Rate Demand Note; Other Municipal
Debt; Financial Company Commercial Paper; Asset Backed Commercial
Paper; Other Commercial Paper; Certificate of Deposit; Structured
Investment Vehicle Note; Other Note; Treasury Repurchase Agreement;
Government Agency Repurchase Agreement; Other Repurchase Agreement;
Insurance Company Funding Agreement; Investment Company; Other
Instrument. If Other Instrument, include a brief description.''
Current Form N-MFP Item 31. We proposed to amend the investment
categories in proposed Form N-MFP Item C.6 to include new
categories: ``Non U.S. Sovereign Debt,'' ``Non-U.S. Sub-Sovereign
Debt,'' ``Other Asset-Backed Security,'' ``Non-Financial Company
Commercial Paper'' (instead of ``Other Commercial Paper''), and
``Collateralized Commercial Paper,'' and amend ``U.S. Government
Agency Debt'' and ``Certificate of Deposit (including Time Deposits
and Euro Time Deposits).''
    \1499\ See Wells Fargo Comment Letter; Fidelity Comment Letter.
    \1500\ The final rules would amend the amend the investment
categories in Form N-MFP Item C.6 to include the following
selections: ``U.S. Treasury Debt; U.S. Government Agency Debt; Non-
U.S. Sovereign, Sub-Sovereign and Supra-National Debt; Certificate
of Deposit; Non-Negotiable Time Deposit; Variable Rate Demand Note;
Other Municipal Security; Asset Backed Commercial Paper; Other Asset
Backed Securities; U.S. Treasury Repurchase Agreement, if
collateralized only by U.S. Treasuries (including Strips) and cash;
U.S. Government Agency Repurchase Agreement, collateralized only by
U.S. Government Agency securities, U.S. Treasuries, and cash; Other
Repurchase Agreement, if any collateral falls outside Treasury,
Government Agency and cash; Insurance Company Funding Agreement;
Investment Company; Financial Company Commercial Paper; Non-
Financial Company Commercial Paper; or Tender Option Bond. If Other
Instrument, include a brief description.''
---------------------------------------------------------------------------

h. Other Amendments
    In addition, we are adopting, as we proposed, the amendments that
would require funds to report the maturity date for each portfolio
security using the maturity date used to calculate the dollar-weighted
average life maturity (``WAL'') (i.e., without reference to the
exceptions in rule 2a-7(i) regarding interest rate
readjustments).\1501\ As we discussed in our proposal, this information
will assist the Commission in monitoring and evaluating this risk, at
the security level, as well as help evaluate compliance with rule 2a-
7's maturity provisions.\1502\ In addition, our amendments would make
clear that funds must disclose for each security all three maturity
calculations as required under rule 2a-7: WAM, WAL, and the legal
maturity date.\1503\
---------------------------------------------------------------------------

    \1501\ Form N-MFP Item C.12.
    \1502\ We are also newly clarifying that the maturity date
required to be reported in current Form N-MFP Item 35 is the
maturity date used to calculate WAM under rule 2a-7(d)(1)(ii) (see
Form N-MFP Item C.11) and the maturity date required to be reported
in current Form N-MFP Item 36 is the ultimate legal maturity date,
i.e., the date on which, in accordance with the terms of the
security without regard to any interest rate readjustment or demand
feature, the principal amount must unconditionally be paid (see Form
N-MFP Item C.13). The ultimate legal maturity date, as clarified,
will help us distinguish between debt securities that are issued by
the same issuer.
    \1503\ Form N-MFP Items C.11, C.12 and C.13. In a modification
from the proposal, we have changed the term ``final legal maturity
date'' in Item C.13 of Form N-MFP to ``ultimate legal maturity
date'' to clarify the reporting date for securities that may have
varying maturity dates.
---------------------------------------------------------------------------

    We are also adopting, as proposed, a requirement that a fund
disclose the number of shares outstanding, to the nearest hundredth, at
both the series level and class level.\1504\ This information would
permit us to verify or detect errors in information provided on Form N-
MFP, such as NAV. We are also adopting, as proposed, a requirement that
a fund disclose, where applicable, the period remaining until the
principal amount of a security may be recovered through a demand
feature and whether a security demand feature is conditional.\1505\ As
we discussed in the proposal, these amendments will improve the
Commission's and (investors') ability to evaluate and monitor a
security's credit and default risk. We did not receive comment on these
other amendments and are adopting them as proposed.
---------------------------------------------------------------------------

    \1504\ Form N-MFP Items A.17 and B.4.
    \1505\ Form N-MFP Items C.14.e and C.14.f.
---------------------------------------------------------------------------

i. Economic Analysis
    As detailed above and discussed in the proposal, these new
reporting requirements are intended to address gaps in the reporting
regime that Commission staff has identified through our experience with
Form N-MFP and to enhance the ability of the Commission and investors
to monitor funds. Although the benefits are difficult to quantify, they
will improve the ability of the Commission and investors to identify
and analyze a fund's portfolio securities (e.g., by requiring
disclosure of LEIs and an additional security identifier, if available,
already required). In addition, many of our new reporting requirements
will enhance the ability of the Commission and investors to evaluate a
fund's risk characteristics (by requiring that funds disclose, for
example, the following data: security categorizations, whether a
security is valued using level 3 measurements; more detailed
information about securities at the time of purchase; and liquidity
metrics). We believe that the additional information required is
readily available to funds as a matter of general business practice and
therefore will not impose costs on money market funds other than those
required to modify systems used to aggregate data and file reports on
Form N-MFP. These costs are discussed in section IV.C.2 below.
    These new reporting requirements will improve informational
efficiency by improving the transparency of potential risks in money
market funds and promoting better-informed investment decisions, which,
in turn, will lead to a better allocation of capital. Similarly, the
increased transparency may promote competition among funds as fund
managers are exposed to external market discipline and better-informed
investors who may be more likely to select an alternative investment if
they are not comfortable with the risk-return profile of their fund. As
we discussed in the Proposing Release, the newly disclosed information
may cause some money market fund investors to move their assets among
different money market funds, but we do not have the information
necessary to provide a reasonable estimate of this possibility. In
addition, some investors may move assets among money market funds and
alternative investments (e.g., private liquidity funds, separately
managed accounts, or certificates of deposit) or other segments of the
short-term financing markets, but we are unable to estimate how
frequently this will happen with specificity and we do not know how the
other underlying assets compare with those of money market funds. In
addition, it is difficult to establish the extent to which any such
exchanges would be a result of the broader amendments we are making or
a marginal effect of the amendments we are making to Form N-MFP. In
addition, no commenters suggested ways for us to quantify these
exchanges with specificity. Thus, we continue to remain unable to
estimate the amount of such asset movements with specificity.
Therefore, we are unable to estimate the overall net effect on capital
formation or competition. Nevertheless, we believe that the net effect
will be small, especially during normal market conditions, in part
because such asset movements would generally be among investment
alternatives, rather than avoiding investment entirely.
3. Clarifying Amendments
    We are adopting, as proposed, several amendments to clarify current
instructions and items of Form N-MFP. Revising the form to include
these clarifications should improve the ability of fund managers to
complete the form and improve the quality of the data they submit to
us.\1506\ We believe that many of our clarifying amendments are
consistent with current filing practices.\1507\
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    \1506\ We are also adopting, as proposed, technical changes to
the ``General Information'' section of the form that will clarify
the circumstances under which a money market fund must complete
certain question sub-parts. See Form N-MFP Items 6 and 7.
    \1507\ As discussed below, the final amendments are consistent
with written guidance our staff has provided to money market fund
managers and service providers completing Form N-MFP.
---------------------------------------------------------------------------

    We understand that some fund managers compile their funds'
portfolio holdings information as of the last calendar day of the
month, even if that day falls on a weekend or holiday. To provide
flexibility, we are amending, as proposed, the instructions to Form N-
MFP to clarify that, unless otherwise specified, a fund may report
information on Form N-MFP as of the last business day or any later
calendar day of the month.\1508\ We are also revising, as proposed, the
definition of ``Master-Feeder Fund'' to clarify that the definition of
``Feeder Fund'' includes unregistered funds (such as offshore

funds).\1509\ Our final amendments also would clarify, as proposed,
that funds should calculate the WAM and WAL reported on Form N-MFP
using the same methods they use for purposes of compliance with rule
2a-7.\1510\ We also are requiring, as proposed, that funds disclose in
Part B (Class-Level Information about the Fund) the required
information for each class of the series, regardless of the number of
shares outstanding in the class.\1511\
---------------------------------------------------------------------------

    \1508\ See Form N-MFP General Instruction A (Rule as to Use of
Form N-MFP); rule 30b1-7. Our approach is also consistent with a
previous interpretation provided by our staff. See Staff Responses
to Questions about Rule 30b1-7 and Form N-MFP, Question I.B.1
(revised July 29, 2011), available at http://www.sec.gov/divisions/investment/guidance/formn-mfpqa.htm.
    \1509\ See Form N-MFP General Instruction E (defining ``Master-
Feeder Fund,'' and defining ``Feeder Fund'' to include a registered
or unregistered pooled investment vehicle). Form N-MFP requires that
a master fund report the identity of any feeder fund. Our amendment
is designed to address inconsistencies in reporting of master-feeder
fund data that we have observed in filings, and will help us
determine the extent to which feeder funds, wherever located, hold a
master fund's shares. The change will also reflect how we understand
data from master-feeder funds is collected by the ICI for its
statistical reports. We are also making grammatical and conforming
amendments to Form N-MFP Items A.7 and A.8, as proposed.
    \1510\ See Form N-MFP Items A.11 and A.12 (defining ``WAM'' and
``WAL'' and cross-referencing the maturity terms to rule 2a-7). We
are also amending the 7-day gross yield to require that the
resulting yield figure be carried to (removing the words ``at
least'') the nearest hundredth of one per cent and clarify that
master and feeder funds should report the 7-day gross yield (current
Form N-MFP Item 17) at the master fund level. Form N-MFP Item A.19.
These amendments are intended to achieve consistency in reporting
and remove potential ambiguity for feeder funds when reporting the
7-day gross yield.
    \1511\ See text before Form N-MFP Item B.1. Our staff has found
that funds inconsistently report fund class information, for
example, when a fund does not report a fund class registered on Form
N-1A because the fund class has no shares outstanding. Our amendment
is intended to clarify a fund's reporting obligations and provide
Commission staff (and investors) with more complete information
about each fund's capital structure.
---------------------------------------------------------------------------

    We also are amending, with certain modifications from the proposal
discussed below, the reporting requirements for repurchase agreements
by restating the item's requirements as two distinct questions.\1512\
The amendment would make clear that information about the securities
subject to a repurchase agreement must be disclosed regardless of how
the fund treats the acquisition of the repurchase agreement for
purposes of rule 2a-7's diversification requirements.\1513\ As part of
these amendments, we proposed to amend form N-MFP to require reporting
of a security identifier of collateral securities underlying repurchase
agreements.\1514\ One commenter objected to this revision, arguing that
this level of detail would publicly disclose proprietary information
about broker-dealer inventories, which may negatively affect
allocations of repurchase agreements to money market funds.\1515\ We
appreciate this concern and are not adopting the requirement to report
a security identifier of the collateral securities underlying
repurchase agreements for that reason.\1516\ In addition, the same
commenter objected to the revised investment categories we proposed
regarding this collateral, arguing that we should instead use the
categories used to report tri-party repurchase agreement information to
the Federal Reserve Bank of New York (``NY Fed'').\1517\ We agree that
conforming these categories to those used in other reporting contexts
will ease reporting burdens and enhance comparability, and accordingly
have modified the proposed investment categories to conform them to the
categories used by the NY Fed.\1518\
---------------------------------------------------------------------------

    \1512\ See Form N-MFP Item C.7 (requiring that a fund disclose
if it is treating the acquisition of a repurchase agreement as the
acquisition of the underlying securities (i.e., collateral) for
purposes of portfolio diversification under rule 2a-7). See Form N-
MFP Item C.8. (requiring that a fund describe the securities subject
to the repurchase agreement). This information should be readily
available to funds and would enhance the ability of Commission staff
and others to evaluate the risks (e.g., rollover risk or the
duration of the lending) presented by investments in repurchase
agreements. See Form N-MFP Item C.8.a.
    \1513\ We are also making several other non-substantive
clarifications to other items. See Form N-MFP Item 1 (amending the
format of reporting date provided by funds); and Form N-MFP Item
A.10 (modifying, for consistency, the names of money market fund
categories).
    \1514\ Proposed Form N-MFP Item C.8.c.
    \1515\ Wells Fargo Comment Letter.
    \1516\ See Form N-MFP Item C.8.
    \1517\ Wells Fargo Comment Letter.
    \1518\ See Form N-MFP Item C.8.h.
---------------------------------------------------------------------------

    Finally, we are amending, as proposed, the items in Form N-MFP that
require information about demand features, guarantors, or enhancement
providers to make clear that funds should disclose the identity of each
demand feature issuer, guarantor, or enhancement provider and the
amount (i.e., percentage) of fractional support provided, which should
help us monitor funds diversification.\1519\ Our amendments also
clarify, as proposed, that a fund is not required to provide additional
information about a security's demand feature(s) or guarantee(s) unless
the fund is relying on the demand feature or guarantee to determine the
quality, maturity, or liquidity of the security.\1520\
---------------------------------------------------------------------------

    \1519\ See Form N-MFP Items C.14--C.16.
    \1520\ Form N-MFP already requires that a fund disclose only
security enhancements on which the fund is relying to determine the
quality, maturity, or liquidity of the security. See current Form N-
MFP Item 39. Similarly, we are amending, as proposed, current Form
N-MFP Items 37 (demand features) and 38 (guarantees) to make clear
that funds are required to disclose information relating to demand
features and guarantees only when the fund is relying on these
features to determine the quality, maturity, or liquidity of the
security. See Form N-MFP Items C.14 and C.15.
---------------------------------------------------------------------------

    As discussed above, and in the proposal, these clarifying
amendments are intended to improve the quality of the data we receive
on Form N-MFP by clarifying a number of reporting obligations so that
all funds report information on Form N-MFP in a consistent manner.
Accordingly, we do not believe that these clarifying amendments would
impose any new costs on funds other than those required to modify
systems used to aggregate data and file reports on Form N-MFP, to the
extent that funds in the past may have reported this information
differently. These costs are discussed in section III.G.5 below.
Because these clarifying amendments will not change funds' current
reporting obligations, we believe there will be no effect on
efficiency, competition, or capital formation.
4. Public Availability of Information
    As we proposed, we are today eliminating the 60-day delay on public
availability of Form N-MFP data.\1521\ Currently, each money market
fund must file information on Form N-MFP electronically within five
business days after the end of each month and that information is made
publicly available 60 days after the end of the month for which it is
filed.
---------------------------------------------------------------------------

    \1521\ See rule 30b1-7 (eliminating subsection (b), public
availability).
---------------------------------------------------------------------------

    Several commenters objected to our proposed elimination of the 60-
day delay, particularly considering the sensitivity of the new lot
level security reporting that we had proposed (but, as discussed above,
are not adopting).\1522\ Other commenters supported shortening the
delay to five or ten days (primarily to permit amendments to fix
problems in the data if needed),\1523\ or eliminating it
entirely.\1524\
---------------------------------------------------------------------------

    \1522\ See, e.g., BlackRock II Comment Letter; Legg Mason &
Western Asset Comment Letter.
    \1523\ See, e.g., ICI Comment Letter; Federated II Comment
Letter; Vanguard Comment Letter.
    \1524\ See U.S. Bancorp Comment Letter (``We are in full support
of immediate release of a monthly Form N-MFP. . .'').
---------------------------------------------------------------------------

    This delay, which we instituted when we adopted the form in 2010,
responded to commenters' concerns regarding potential reactions of
investors to the extent of the additional disclosure of funds'
portfolio information and shadow NAVs in the form.\1525\ Although we
expected that, over time, investors and analysts would become more
accustomed to the information disclosed about fund portfolios and thus
there may be less need in the future to keep

the portfolio information private for 60 days, we believed then that
the shadow price data should not be made public immediately, at least
initially.\1526\ However, with experience, we now believe that the
immediate release of the shadow price data and other money market fund
portfolio security data would not be harmful and that investors may
benefit from more timely access to the data. This is based, in part, on
our understanding that many money market funds now disclose their
shadow prices every business day on their Web sites, and frequently
provide lists of holdings and information about liquidity to the public
as well.
---------------------------------------------------------------------------

    \1525\ See 2010 Adopting Release, supra note 17, at section
II.E.2 (noting that there may be less need in the future to require
a 60-day delay).
    \1526\ See 2010 Adopting Release, supra note 17, at text
accompanying nn.329-343.
---------------------------------------------------------------------------

    Several commenters requested that if we eliminated the public
availability delay that we lengthen the 5-day filing time period in
light of the increased reporting requirements under the amended form,
in order to provide additional time to fix any potential errors.\1527\
As discussed above, we are not adopting some of the more extensive
reporting requirements that we proposed (such as lot level security
reporting) and we have streamlined and revised other requirements to
better ease the filing burden. In addition, the longer the filing
period provided, the more it increases the risk of staleness in the
reported data and thereby reduces its usefulness to the Commission and
to the public. We do not believe providing a filing period of longer
than 5 days is necessary, in part because we are not adopting some of
the more onerous reporting requirements we proposed, and in part
because in our experience, less than 0.5% of money market funds have
needed to make amendments to Form N-MFP filings after the reporting
deadline to fix reporting issues in their filings. This leads us to
believe that the value of immediate public access to the data justifies
the risk of needing to make amendments. Accordingly, we are not
changing the current 5-day reporting period at this time.
---------------------------------------------------------------------------

    \1527\ See, e.g., ICI Comment Letter; Dechert Comment Letter;
Schwab Comment Letter.
---------------------------------------------------------------------------

    Eliminating the 60-day delay will provide more timely information
to the public and greater transparency of money market fund
information, which could promote efficiency. This disclosure could also
make the monthly disclosure on Form N-MFP more relevant to investors,
financial analysts, and others by improving their ability to more
timely assess potential risks and make informed investment decisions.
In other words, investors may be more likely to use the reported
information because it is more timely and informative. Because, as
discussed above, shadow prices (which were a primary reason why we
adopted the 60-day delay in making filings public) have been disclosed
by a number of money market funds since February 2013 apparently
without incident, we do not believe that eliminating the 60-day delay
would affect capital formation.
5. Operational Implications of the N-MFP Amendments
    We anticipate that fund managers would incur costs relating to
reporting the new items of information we are requiring on Form N-MFP.
To reduce costs, we have decided to make needed improvements to the
form at the same time we are making amendments necessitated by the
amendments to rule 2a-7 we are adopting.\1528\ We note that the
clarifying amendments should not affect, or should only minimally
affect, current filing obligations or the information content of the
filings.
---------------------------------------------------------------------------

    \1528\ One commenter noted the benefit of consolidating changes
to the form at a single time, noting that each time they have to
amend their systems to report new information to the Commission on
Form N-MFP they incur significant technology related costs. See
Dreyfus Comment Letter.
---------------------------------------------------------------------------

    As we discussed in the proposal, we expect that the operational
costs to money market funds to report the information required in
proposed Form N-MFP would be the same costs we discuss in the Paperwork
Reduction Act analysis in section IV of the Release, below, and we
requested comment on that belief.\1529\ No commenters provided specific
data or estimates regarding the cost estimates we provided in the
Proposing Release for the amendments to Form N-MFP, although some
suggested that the costs of some amendments could be significant.\1530\
As discussed above, we have revised the final amendments from our
proposal in a number of ways in order to reduce costs to the extent
feasible and still achieve our goals of enhancing and improving the
monitoring of money market fund risks. Accordingly, we continue to
expect that the operational costs to money market funds to report the
information required in Form N-MFP would be the same costs we discuss
in the Paperwork Reduction Act analysis in section IV.C.3 of the
Release, below, which have been reduced to account for the changes we
are making from the proposal, as discussed in that section. As
discussed in more detail in that section, we estimate that our
amendments to Form N-MFP will result in first-year aggregate additional
47,515 burden hours at a total time cost of $12.3 million plus $356,256
in total external costs for all funds, and 33,540 burden hours at a
total time cost of $8.7 million plus $356,256 in total external costs
for all funds each year hereafter.\1531\
---------------------------------------------------------------------------

    \1529\ See Proposing Release supra note 25, at section III.H.6.
    \1530\ See, e.g., Fidelity Comment Letter.
    \1531\ See infra section IV.C.3.
---------------------------------------------------------------------------

H. Amendments to Form PF Reporting Requirements

    Today the Commission is also amending Form PF, the form that
certain investment advisers registered with the Commission use to
report information regarding the private funds they manage. Among other
things, Form PF requires advisers to report certain information about
the ``liquidity funds'' they manage, which are private funds that seek
to maintain a stable NAV (or minimize fluctuations in their NAVs) and
thus can resemble money market funds.\1532\ In the proposal, we noted a
concern that some of the proposed reforms could result in assets
shifting from registered money market funds to unregistered products
such as liquidity funds, and we proposed amendments to Form PF to, in
part, help the Commission and FSOC track any such potential shift in
assets and better understand the risks associated with it.\1533\
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    \1532\ For purposes of Form PF, a ``liquidity fund'' is any
private fund that seeks to generate income by investing in a
portfolio of short term obligations in order to maintain a stable
net asset value per unit or minimize principal volatility for
investors. See Form PF: Glossary of Terms.
    \1533\ See Proposing Release, supra note 25, at section I.
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    Most commenters who addressed the proposed PF amendments supported
them, agreeing that they would help track such a potential shift,\1534\
and one commenter objected, urging the Commission to consider the
significant costs, and questioning the potential benefits.\1535\ As
discussed in greater detail below, we have considered the costs of
filing this information with us, and believe that they are justified by
the significant benefits to the Commission and FSOC in better enabling
us to track and respond to potential shifts in assets from registered
money market funds into unregistered alternatives. Accordingly, today
we are adopting the Form PF amendments largely as proposed, with some
revisions to respond to comments and correspond the reporting as much
as possible to the

amendments we are making to Form N-MFP.
---------------------------------------------------------------------------

    \1534\ See, e.g., Goldman Sachs Comment Letter; ICI Comment
Letter; Oppenheimer Comment Letter.
    \1535\ See SSGA Comment Letter.
---------------------------------------------------------------------------

    We adopted Form PF, as required by the Dodd-Frank Act,\1536\ to
assist in the monitoring and assessment of systemic risk; to provide
information for FSOC's use in determining whether and how to deploy its
regulatory tools; and to collect data for use in our own regulatory
program.\1537\ As discussed in more detail below, the Commission and
FSOC have recognized the potentially increased significance of cash
management products other than money market funds, including liquidity
funds, after the money market fund reforms we are adopting today are
effective.\1538\ Therefore, to enhance the ability to monitor and
assess the short-term financing markets and to facilitate our oversight
of those markets and their participants, we are today requiring large
liquidity fund advisers--registered advisers with $1 billion or more in
combined money market fund and liquidity fund assets--to file virtually
the same information with respect to their liquidity funds' portfolio
holdings on Form PF as money market funds are required to file on Form
N-MFP.\1539\
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    \1536\ See Reporting by Investment Advisers to Private Funds and
Certain Commodity Pool Operators and Commodity Trading Advisors on
Form PF, Investment Advisers Act Release No. 3308 (Oct. 31, 2011)
[76 FR 71128 (Nov. 16, 2011)] (``Form PF Adopting Release'') at
section I. Form PF is a joint form between the Commission and the
CFTC only with respect to sections 1 and 2 of the Form; section 3,
which we are amending today, and section 4 were adopted only by the
Commission. Id.
    \1537\ Although Form PF is primarily intended to assist FSOC in
its monitoring obligations under the Dodd-Frank Act, we also may use
information collected on Form PF in our regulatory program,
including examinations, investigations, and investor protection
efforts relating to private fund advisers. See Form PF Adopting
Release, supra note 1536, at sections II and VI.A.
    \1538\ See infra note 1565 and accompanying text.
    \1539\ As we proposed, we are incorporating in a new Question 63
in section 3 of Form PF the substance of virtually all of the
questions on Part C of Form N-MFP as amended, except that we have
modified the questions where appropriate to reflect that liquidity
funds are not subject to rule 2a-7 (although some liquidity funds
have a policy of complying with rule 2a-7's risk-limiting
conditions) and have not added questions that would parallel Items
C.7 and C.9 of amended Form N-MFP. As we proposed, we are not
including a question that would parallel Item C.7 because that item
relates to whether a money market fund is treating the acquisition
of a repurchase agreement as the acquisition of the collateral for
purposes of rule 2a-7's diversification testing; liquidity funds, in
contrast, are not subject to rule 2a-7's diversification
limitations, and the information on repurchase agreement collateral
we are collecting through new Question 63(g) on Form PF would allow
us to better understand liquidity funds' use of repurchase
agreements and their collateral. Item C.9 asks whether a portfolio
security is a rated first tier security, rated second tier security,
or no longer an eligible security. As we proposed, we are not
including a parallel question in Form PF because these concepts
would not necessarily apply to liquidity funds, and we believe the
additional questions on Form PF would provide sufficient information
about a portfolio security's credit quality and the large liquidity
fund adviser's use of credit ratings.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, we share the concern
expressed by some commenters that, if the money market fund reforms we
are adopting today cause investors to seek alternatives to money market
funds, including private funds that seek to maintain a stable NAV but
that are not registered with the Commission, this shift could increase
risk by reducing transparency of the potential purchasers of short-term
debt instruments.\1540\ We discuss in detail the potential for money
market fund investors to reallocate their assets to alternative
investments in section III.A.1.c.iv above.
---------------------------------------------------------------------------

    \1540\ See Proposing Release, supra note 25, n.803.
---------------------------------------------------------------------------

    The amendments that we are adopting to Form PF today are designed
to achieve two primary goals. First, they are designed to ensure to the
extent possible that any further money market fund reforms do not
decrease transparency in the short-term financing markets, which will
better enable FSOC to monitor and address any related systemic risks
and better enable us to develop effective regulatory policy responses
to any shift in investor assets. Second, the amendments to Form PF are
designed to enable more effective administration of relevant regulatory
programs even if investors do not shift their assets as a result the
amendments we are adopting today, as the increased transparency
concerning liquidity funds, combined with information we already
collect on Form N-MFP, will provide a more complete picture of the
short-term financing markets in which liquidity funds and money market
funds both invest.
1. Overview of Proposed Amendments to Form PF
    Our Form PF amendments apply only to large liquidity fund advisers,
which generally are SEC-registered investment advisers that advise at
least one liquidity fund and manage, collectively with their related
persons, at least $1 billion in combined liquidity fund and money
market fund assets.\1541\ Large liquidity fund advisers today are
required to file information on Form PF quarterly, including certain
information about each liquidity fund they manage.\1542\ Under our
final amendments, for each liquidity fund it manages, a large liquidity
fund adviser would be required to provide, quarterly and with respect
to each portfolio security, the following information for each month of
the reporting period:\1543\
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    \1541\ An adviser is a large liquidity fund adviser if it has at
least $1 billion combined liquidity fund and money market fund
assets under management as of the last day of any month in the
fiscal quarter immediately preceding its most recently completed
fiscal quarter. See Form PF: Instruction 3 and Section 3. This $1
billion threshold includes assets managed by the adviser's related
persons, except that an adviser is not required to include the
assets managed by a related person that is separately operated from
the adviser. Id. An adviser's related persons include persons
directly or indirectly controlling, controlled by, or under common
control with the investment adviser. See Form PF: Glossary of Terms
(defining the term ``related person'' by reference to Form ADV).
Generally, a person is separately operated from an investment
adviser if the adviser: (1) Has no business dealings with the
related person in connection with advisory services the adviser
provides to its clients; (2) does not conduct shared operations with
the related person; (3) does not refer clients or business to the
related person, and the related person does not refer prospective
clients or business to the adviser; (4) does not share supervised
persons or premises with the related person; and (5) has no reason
to believe that its relationship with the related person otherwise
creates a conflict of interest with the adviser's clients. See Form
PF: Glossary of Terms (defining the term by reference to Form ADV).
    \1542\ See Form PF Instruction 3 and section 3. This in contrast
to Form N-MFP, which is filed on a monthly basis. As discussed
below, we currently believe that quarterly filing of this
information most appropriately balances our need for this
information with the burdens of filing the data, especially
considering that large liquidity fund advisers file information
quarterly already about the funds they advise, but do not currently
file portfolio information about those funds.
    \1543\ See Form PF Question 63. Advisers will be required to
file this information with their quarterly liquidity fund filings
with data for the quarter broken down by month. Advisers will not be
required to file information on Form PF more frequently as a result
of today's proposal because large liquidity fund advisers already
are required to file information each quarter on Form PF. See Form
PF Instruction 9.
---------------------------------------------------------------------------

     The name of the issuer;
     the title of the issue;
     certain security identifiers;
     the category of investment \1544\ (e.g., Treasury debt,
U.S. government agency debt, asset-backed commercial paper, certificate
of deposit, repurchase agreement \1545\);
---------------------------------------------------------------------------

    \1544\ As under amended Form N-MFP, we are revising the
investment categories form the proposal in the same way to more
accurately reflect the investment categories commonly used today.
See supra section III.G.2.g.
    \1545\ For repurchase agreements we are also requiring large
liquidity fund advisers to provide additional information regarding
the underlying collateral and whether the repurchase agreement is
``open'' (i.e., whether the repurchase agreement has no specified
end date and, by its terms, will be extended or ``rolled'' each
business day (or at another specified period) unless the investor
chooses to terminate it). As under amended Form N-MFP, we are not
adopting the proposed CUSIP reporting requirement, and we are
amending the proposed repurchase agreement collateral investment
categories to better align with the categories used by the NY Fed.
See supra section III.G.3.
---------------------------------------------------------------------------

     if the rating assigned by a credit rating agency played a
substantial role in the liquidity fund's (or its adviser's)

evaluation of the quality, maturity or liquidity of the security, the
name of each credit rating agency and the rating each credit rating
agency assigned to the security;
     the maturity date used to calculate weighted average
maturity;
     the maturity date used to calculate weighted average life;
     the ultimate legal maturity date; \1546\
---------------------------------------------------------------------------

    \1546\ We are changing this from ``final'' as proposed to
``ultimate'' for the same reasons we are making this change in Form
N-MFP. See supra note 1503.
---------------------------------------------------------------------------

     whether the instrument is subject to a demand feature,
guarantee, or other enhancements, and information about any of these
features and their providers;
     the value of the fund's position in the security and, if
the fund uses the amortized cost method of valuation, the amortized
cost value, in both cases with and without any sponsor support;
     the percentage of the liquidity fund's assets invested in
the security;
     whether the security is categorized as a level 3 asset or
liability on Form PF; \1547\
---------------------------------------------------------------------------

    \1547\ See Form PF Question 14. See also infra notes 1466-1470
and accompanying and following text.
---------------------------------------------------------------------------

     whether the security is an illiquid security, a daily
liquid asset, and/or a weekly liquid asset, as defined in rule 2a-7;
and
     any explanatory notes.\1548\
---------------------------------------------------------------------------

    \1548\ We are also defining the following terms in Form PF, as
proposed: conditional demand feature; credit rating agency; demand
feature; guarantee; guarantor; and illiquid security. See Form PF:
Glossary of Terms.
---------------------------------------------------------------------------

    These amended reporting requirements are largely the same as the
reporting requirements for registered money market funds under amended
Form N-MFP, with some modifications to better tailor the reporting to
private liquidity funds. As we proposed, the final amendments will also
remove current Questions 56 and 57 on Form PF. These questions
generally require large liquidity fund advisers to provide information
about their liquidity funds' portfolio holdings broken out by asset
class (rather than security by security). We will be able to derive the
information currently reported in response to those questions from the
new portfolio holdings information we propose to require advisers to
provide. The amendments will also require, as proposed, large liquidity
fund advisers to identify any money market fund advised by the adviser
or its related persons that pursues substantially the same investment
objective and strategy and invests side by side in substantially the
same positions as a liquidity fund the adviser reports on Form
PF.\1549\
---------------------------------------------------------------------------

    \1549\ See Form PF Question 64. This question is based on the
current definition of a ``parallel fund structure'' in Form PF. See
Form PF: Glossary of Terms (defining a ``parallel fund structure''
as ``[a] structure in which one or more private funds (each, a
`parallel fund') pursues substantially the same investment objective
and strategy and invests side by side in substantially the same
positions as another private fund'').
---------------------------------------------------------------------------

    After considering the comments received and the importance and
utility of the information that would be reported on amended Form PF
(as discussed further below), we are today adopting the Form PF
amendments substantially as proposed. As noted above, most commenters
who discussed the Form PF amendments generally supported them,\1550\
although one commenter objected, suggesting that the costs of
compliance would outweigh the benefits.\1551\ We have made a number of
modifications to the Form PF reporting requirement, such as removing
lot level purchase and sale reporting, that should help minimize costs
and ease the burden. Nonetheless, we recognize that there are costs to
filing this information with us which are discussed in detail below,
and believe that they are justified by the significant benefits to FSOC
and the Commission in better enabling tracking and responding to
potential shifts in assets from registered money market funds into
unregistered alternatives.
---------------------------------------------------------------------------

    \1550\ See, e.g., Goldman Sachs Comment Letter; ICI Comment
Letter; Oppenheimer Comment Letter.
    \1551\ SSGA Comment Letter.
---------------------------------------------------------------------------

    Another commenter suggested that we reorganize and consolidate the
questions in the proposed form amendments to minimize the system
changes necessary to file the form.\1552\ We agree with this commenter
and the final amendments have been organized to minimize system changes
and costs as much as possible.\1553\
---------------------------------------------------------------------------

    \1552\ Comment Letter of Axiom SL (Aug. 28, 2013) (``Axiom
Comment Letter'').
    \1553\ By eliminating lot level sale data reporting (proposed
question 64 of Form PF) and accordingly renumbering proposed
question 65 (parallel funds) as question 64, we have restructured
the amendments to Form PF so that the amendments keep the same
numbering range as the current form like the commenter suggested.
See Form PF Question 64.
---------------------------------------------------------------------------

    Consistent with our proposed amendments to Form N-MFP, we proposed
to require large liquidity fund advisers to provide lot level
information about any securities purchased or sold by their liquidity
funds during the reporting period, including sale and purchase
prices.\1554\ As discussed in section III.G.2.c above, we have been
persuaded by commenters that the costs of such reporting do not justify
the potential benefits at this time, and that the data may be better
collected on a more systematic market wide basis. Accordingly, we are
not today adopting the proposed lot level reporting for Form PF.\1555\
---------------------------------------------------------------------------

    \1554\ See proposed Form PF Question 64. See also supra notes
1474-1475 and accompanying text.
    \1555\ See supra note 1476 and accompanying text. Although as
discussed above, we are not adopting the lot level reporting
requirements generally, we are adopting a requirement to report the
coupon or yield of the security as of the reporting date. We
proposed to include this reporting requirement with the other lot
level reporting questions. See proposed Form PF Question 63(o).
Reporting this information would not require the use of lot level
data, and thus should not pose the same difficulties as the other
reporting requirements we are not adopting. Much like under the
final amendments to Form N-MFP, the final Form PF amendments would
include reporting of the coupon in the title of the issue but
information about yield would be in a standalone question. See
proposed Form PF Questions 63(c) and 63(o). As a result of not
adopting question 64 about lot level sales, we are also renumbering
proposed question 65 on parallel funds as question 64 and relabeling
the Item as F rather than Item G. See Form PF Item F, Question 64.
---------------------------------------------------------------------------

    One commenter suggested that Form PF be filed monthly like N-MFP,
rather than on a quarterly basis, to better align the information in
the two forms,\1556\ although another comment opposed such a monthly
filing requirement.\1557\ We are not requiring monthly filing of Form
PF at this time because we believe the ongoing costs and system changes
necessary for large liquidity funds to make such a monthly filing would
not be justified by the utility of more frequent filing, especially in
light of the fact that these funds currently file Form PF on a
quarterly basis and these amendments are an enhancement to that filing.
To require large liquidity advisers to move to a monthly reporting
schedule would impose significant new costs, over and above the costs
associated with the Form PF amendments we are adopting today, requiring
these advisers to change systems and processes designed for quarterly
reporting to a monthly schedule. As noted above, several reporting
requirements do ask for information on a monthly basis within the
quarterly filed Form PF, which should allow an effective comparison of
the data to the information collected on Form N-MFP and will allow for
effective oversight of investment activities of large liquidity
advisers.
---------------------------------------------------------------------------

    \1556\ ICI Comment Letter.
    \1557\ Oppenheimer Comment Letter.
---------------------------------------------------------------------------

    Another commenter asked that we exempt unregistered money market
funds from filing the Form PF amendments if the unregistered money
market fund is exclusively owned by registered funds investing in an
unregistered fund pursuant to rule 12d1-1 under the Investment Company

Act.\1558\ Rule 12d1-1 permits a registered fund to invest in an
unregistered money market fund in excess of the limits of section
12(d)(1) of the Act, provided, among other things, that the
unregistered fund operates in compliance with rule 2a-7 of the Act. The
commenter argued that because these funds are exclusively owned by
registered funds, any shift in assets to these unregistered money
market funds would not represent the kind of shift that the Form PF
amendments are designed to monitor, and thus such 12d1-1 funds should
not be required to bear the burdens of filing the Form PF amendments.
Our amendments to Form PF are designed, in part, to allow better
monitoring of risks associated with investments in money market
instruments and to generally track and monitor money market asset
flows. Exempting such funds from filing amended Form PF would not be
consistent with this goal, and could leave a significant gap in our
ability to monitor and track money market instrument holdings. In the
absence of the Form PF portfolio security reporting requirements, if
there was a shift in assets from registered money market funds that
file portfolio holdings reports under Form N-MFP to unregistered 12d1-1
funds that do not file such information about their holdings, we and
FSOC would lose significant transparency and monitoring ability.
Accordingly, we are not adopting such an exemption.
---------------------------------------------------------------------------

    \1558\ See Wells Fargo Comment Letter.
---------------------------------------------------------------------------

2. Utility of New Information, Including Benefits, Costs, and Economic
Implications
    As discussed in the 2013 Proposing Release, the information that
advisers must report on Form PF (both currently and under the final
amendments) concerning their liquidity funds is designed to assist FSOC
in assessing the risks undertaken by liquidity funds, their
susceptibility to runs, and how their investments might pose systemic
risks either among liquidity funds or through contagion to registered
money market funds.\1559\ The information that advisers must report is
intended to aid FSOC in its determination of whether and how address
issues related to systemic risk.\1560\ Finally, the information that
advisers must report is designed to assist FSOC and the Commission in
assessing the extent to which a liquidity fund is being managed
consistent with restrictions imposed on registered money market funds
that might mitigate their likelihood of posing systemic risk.
---------------------------------------------------------------------------

    \1559\ See Form PF Adopting Release, supra note 1536, at section
II.C.3.
    \1560\ Id.
---------------------------------------------------------------------------

    We believe, based on our staff's consultations with staff
representing the members of FSOC, that the additional information we
are requiring advisers to report on Form PF will assist FSOC in
carrying out these responsibilities. Several commenters agreed that the
Form PF amendments will assist FSOC and the Commission in these
responsibilities.\1561\ FSOC and the Commission have recognized the
risks that may be posed by cash management products other than money
market funds, including liquidity funds, and the potentially increased
significance of such products after we adopt the money market fund
reforms we are making today.\1562\ FSOC has also stated that it and its
members ``intend to use their authorities, where appropriate and within
their jurisdictions, to address any risks to financial stability that
may arise from various products within the cash management industry in
a consistent manner,'' as ``[s]uch consistency would be designed to
reduce or eliminate any regulatory gaps that could result in risks to
financial stability if cash management products with similar risks are
subject to dissimilar standards.''\1563\ We expect, therefore, that
requiring advisers to provide additional information on Form PF will
enhance the ability to monitor and assess risk in the short-term
financing markets.
---------------------------------------------------------------------------

    \1561\ See Goldman Sachs Comment Letter (the PF amendments will
``. . . assist the Financial Stability Oversight Council in
fulfilling its responsibilities and better enable the Commission to
develop effective regulatory policy responses to any shift in
investor assets from money funds to private liquidity funds.''); ICI
Comment Letter.
    \1562\ See Proposed Recommendations Regarding Money Market
Mutual Fund Reform, Financial Stability Oversight Council [77 FR
69455 (Nov. 19, 2012)] (the ``FSOC Proposed Recommendations''), at 7
(``The Council recognizes that regulated and unregulated or less-
regulated cash management products (such as unregistered private
liquidity funds) other than MMFs may pose risks that are similar to
those posed by MMFs, and that further MMF reforms could increase
demand for non-MMF cash management products. The Council seeks
comment on other possible reforms that would address risks that
might arise from a migration to non-MMF cash management products.'')
We, too, have recognized that ``[l]iquidity funds and registered
money market funds often pursue similar strategies, invest in the
same securities and present similar risks.'' See Form PF Adopting
Release, supra note 1536, at section II.A.4. See also Reporting by
Investment Advisers to Private Funds and Certain Commodity Pool
Operators and Commodity Trading Advisors on Form PF, Investment
Advisers Act Release No. 3145 (Jan. 26, 2011) [76 FR 8068 (Feb. 11,
2011)] (``Form PF Proposing Release''), at note 68 and accompanying
text (explaining that, ``[d]uring the financial crisis, several
sponsors of `enhanced cash funds,' a type of liquidity fund,
committed capital to those funds to prevent investors from realizing
losses in the funds,'' and noting that ``[t]he fact that sponsors of
certain liquidity funds felt the need to support the stable value of
those funds suggests that they may be susceptible to runs like
registered money market funds'').
    \1563\ See FSOC Proposed Recommendations, supra note 1562, at 7.
The President's Working Group on Financial Markets reached a similar
conclusion, noting that because vehicles such as liquidity funds
``can take on more risks than MMFs, but such risks are not
necessarily transparent to investors . . ., unregistered funds may
pose even greater systemic risks than MMFs, particularly if new
restrictions on MMFs prompt substantial growth in unregistered
funds.'' See PWG Report, supra note 506, at 21. The potentially
increased risks posed by liquidity funds were of further concern
because these risks ``are difficult to monitor, since [unregistered
cash management products like liquidity funds] provide far less
market transparency than MMFs.'' Id. at 35.
---------------------------------------------------------------------------

    We are requiring only large liquidity fund advisers to report this
additional information for the same reason that we previously
determined to require only larger private fund advisers to provide more
comprehensive information on their respective industries on Form PF:
because a relatively small group of advisers represents a substantial
portion of the assets.\1564\ Based on information filed on Form PF and
Form ADV, as of the end of 2013, we estimate that there were
approximately 24 large liquidity fund advisers (out of 43 total
advisers that advise at least one liquidity fund), with their aggregate
liquidity fund assets under management representing approximately 91%
of liquidity fund assets managed by all advisers registered with the
Commission.
---------------------------------------------------------------------------

    \1564\ See Form PF Adopting Release, supra note 1536, at n.88
and accompanying text.
---------------------------------------------------------------------------

    This threshold also should minimize the costs of our amendments
because large liquidity fund advisers already are required to make
quarterly reports on Form PF and, as of the end of 2013, virtually all
either advise a money market fund or have a related person that advises
a money market fund. Requiring large liquidity fund advisers to provide
substantially the same information required by Form N-MFP therefore may
reduce the burdens associated with our amendments, which we discuss
below, because large liquidity fund advisers generally already have (or
may be able to readily obtain access to) the systems, service
providers, and/or staff necessary to capture and report the same types
of information for reporting on Form N-MFP. These same systems, service
providers, and/or staff may allow large liquidity fund advisers to
comply with our changes to Form PF more efficiently and at a reduced
cost than if we were to require advisers to report information that
differed materially from that which the advisers must file on Form N-
MFP.

    In addition to our concerns about the ability to assess risks
associated with money market fund investments, we also are concerned
about losing transparency regarding money market fund investments that
may shift into liquidity funds as a result of the other reforms we are
adopting today and our ability effectively to formulate policy
responses to such a shift in investor assets.\1565\ We noted in the
proposal that a run on liquidity funds could spread to money market
funds because, for example, both types of funds often invest in the
same securities as noted above.\1566\ Our ability to formulate a policy
response to address this risk could be diminished if we had less
transparency concerning the portfolio holdings of liquidity funds as
compared to money market funds, and thus were not able as effectively
to assess the degree of correlation between various funds or groups of
funds that invest in the short-term financing markets, or if we were
unable proactively to identify funds that own distressed securities.
Several commenters agreed that the Form PF amendments would reduce the
chance that these reforms will diminish transparency in the short-term
financing markets.\1567\ Indeed, Form PF, by defining large liquidity
fund advisers subject to more comprehensive reporting requirements as
advisers with $1 billion in combined money market fund and liquidity
fund assets under management today reflects the similarities between
money market funds and liquidity funds and the need for comprehensive
information concerning advisers' management of large amounts of short-
term assets through either type of fund. The need for this
comprehensive data will be heightened if money market fund investors
shift their assets to liquidity funds in response to the amendments we
are adopting today.
---------------------------------------------------------------------------

    \1565\ See, e.g., DERA Study, supra note 24, at section 4.C
(analysis of investment alternatives to money market funds,
considering, among other issues, the potential for investors to
shift their assets to money market fund alternatives, including
liquidity funds, in response to further money market fund reforms
and certain implications of a shift in investor assets).
    \1566\ Liquidity funds may generally have a higher percentage of
institutional shareholders than money market funds because liquidity
funds rely on exclusions from the Investment Company Act's
definition of ``investment company'' provided by section 3(c)(1) or
3(c)(7) of that Act. See section 202(a)(29) of the Advisers Act
(defining the term ``private fund'' to mean an issuer that would be
an investment company, as defined in section 3, but for section
3(c)(1) or 3(c)(7) of that Act). Funds relying on those exclusions
sell their shares in private offerings which in many cases are
restricted to investors who are ``accredited investors'' as defined
in rule 501(a) under the Securities Act. Investors in funds relying
on section 3(c)(7), in addition, generally must be ``qualified
purchasers'' as defined in section 2(a)(51) of the Investment
Company Act. Having a larger institutional shareholder base may
increase the potential for a run to develop at a liquidity fund. As
discussed in greater detail in section II.C of this Release,
redemption data from the financial crisis suggest that some
institutional money market fund investors are likely to redeem from
distressed money market funds more quickly than other investors and
to redeem a greater percentage of their holdings. This may be
indicative of the way institutional investors in liquidity funds
would behave, particularly liquidity funds that more closely
resemble money market funds.
    \1567\ See, e.g., Goldman Sachs Comment Letter (``Finally, GSAM
generally supports the amendments to Form PF, which will ensure that
further money market fund reforms do not decrease transparency in
the short-term financing markets . . .'); ICI Comment Letter.
---------------------------------------------------------------------------

    Finally, this increased information on liquidity funds managed by
large liquidity fund advisers also will be useful even absent a shift
in money market fund investor assets resulting from these reforms.
Collecting this information about these liquidity funds will, when
combined with information collected on Form N-MFP, provides a more
complete picture of the short-term financing markets, allowing the SEC
and FSOC to more effectively fulfill our respective statutory mandates.
For example, we discuss the contagion risk above. But it may be
difficult to assess this risk fully today without more detailed
information about the portfolio holdings of the liquidity funds managed
by advisers who manage substantial amounts of short-term investments
and the ability to combine that data with the information we collect on
Form N-MFP.
    For example, if a particular security or issuer were to come under
stress, without these amendments, our staff would be unable to
determine which liquidity funds, if any, held that security, much like
before we adopted Form N-MFP for registered money market funds. This is
because advisers currently are required only to provide information
about the types of assets their liquidity funds hold, rather than the
individual positions.\1568\ Our staff could see the aggregate value of
all of a liquidity fund's positions in unsecured commercial paper
issued by non-U.S. financial institutions, for example, but could not
tell whether the fund owned commercial paper issued by any particular
non-U.S. financial institution. If a particular institution were to
come under stress, the aggregated information available today would not
allow us or our staff to determine the extent to which liquidity funds
were exposed to the financial institution; lacking this information,
neither we nor our staff would be able as effectively to assess the
risks across the liquidity fund industry and, by extension, the short-
term financing markets.
---------------------------------------------------------------------------

    \1568\ See Form PF Question 56 (requiring advisers to provide
exposures and maturity information, by asset class, for liquidity
fund assets under management); Form PF Question 57 (requiring
advisers to provide the asset class and percent of the fund's NAV
for each open position that represents 5% or more of the fund's
NAV).
---------------------------------------------------------------------------

    Position level information for liquidity funds managed by large
liquidity fund advisers also will allow our staff more efficiently and
effectively to identify longer-term trends in the industry and at
particular liquidity funds or advisers. The aggregated position
information that advisers provide today may obscure the level of risk
in the industry or at particular advisers or liquidity funds that, if
more fully understood by our staff, could allow the staff to more
efficiently and effectively target our examinations efforts of these
advisers, and could better inform the staff's policy recommendations.
    As we discussed in the proposal, our experience with the portfolio
information money market funds report on Form N-MFP--which was limited
at the time we adopted Form PF--has proved useful in our regulation of
money market funds in these and other ways and has informed the
amendments we are adopting today.\1569\ During the 2011 Eurozone debt
crisis, for example, we and our staff benefitted from the ability to
determine which money market funds had exposure to specific financial
institutions (and other positions) and from the ability to see how
funds changed their holdings as the crisis unfolded. This information
was useful in assessing risk across the industry and at particular
money market funds. Given the similarities between money market funds
and liquidity funds and the possibility for risk to spread between the
types of funds, our experience with portfolio information filed on Form
N-MFP suggests that receiving virtually the same information for
liquidity funds managed by large liquidity fund advisers will provide
significant benefits to oversight efforts.
---------------------------------------------------------------------------

    \1569\ Money market funds were required to begin filing
information on Form N-MFP by December 7, 2010. See 2010 Adopting
Release, supra note 17 at n.340 and accompanying text. Form PF was
proposed shortly thereafter on January 26, 2011, and adopted on
October 31, 2011. See Form PF Proposing Release, supra note 1562;
Form PF Adopting Release, supra note 1536.
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    For all of these reasons and as discussed above, we expect that
requiring large liquidity fund advisers to report their liquidity
funds' portfolio information on Form PF as we are requiring today will
provide substantial benefits for us and FSOC, including positive
effects on efficiency and capital

formation. As we explained in more detail when we initially adopted
Form PF, requiring advisers to report on Form PF is intended to
positively affect efficiency and capital formation, in part by
enhancing our ability to evaluate and develop regulatory policies and
to more effectively and efficiently protect investors and maintain
fair, orderly, and efficient markets.\1570\
---------------------------------------------------------------------------

    \1570\ See generally Form PF Adopting Release, supra note 1536,
at section V.A (explaining that, in addition to assisting FSOC
fulfill its mission, ``we expect this information to enhance [our]
ability to evaluate and develop regulatory policies and improve the
efficiency and effectiveness of our efforts to protect investors and
maintain fair, orderly, and efficient markets''). We explained, for
example, that Form PF data was designed to allow us to more
efficiently and effectively target our examination programs and,
with the benefit of Form PF data, to better anticipate regulatory
problems and the implications of our regulatory actions, and thereby
to increase investor protection. See id. We also explained that Form
PF data could have a positive effect on capital formation because,
as a result of the increased transparency to regulators made
possible by Form PF, private fund advisers might assess more
carefully the risks associated with particular investments and, in
the aggregate, allocate capital to investments with a higher value
to the economy as a whole. See id. at text accompanying and
following n.494.
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    The additional information on Form PF should better inform our
understanding of the activities of liquidity funds and their advisers
and the operation of the short-term financing markets, including risks
that may arise in liquidity funds and harm other participants in those
markets or those who rely on them--including money market funds and
their shareholders and the companies and governments that seek
financing in the short-term financing markets. The additional
information that advisers will report on Form PF, particularly when
combined with similar data reported on Form N-MFP, therefore should
enhance our ability to evaluate and develop regulatory policies and
enable us to more effectively and efficiently protect investors and
maintain fair, orderly, and efficient markets.
    As discussed in detail in the proposal, we recognize that large
liquidity fund advisers may have concerns about reporting information
about their liquidity funds' portfolio holdings and may regard this as
commercially sensitive information, but noted that such data may be not
be as sensitive in this context when compared to other private funds,
largely because of the types of securities that liquidity funds invest
in.\1571\ No commenters on the proposed Form PF amendments objected to
the amendments on the basis of the information being sensitive or
proprietary. As we discussed in the Form PF Adopting Release, we do not
intend to make public Form PF information identifiable to any
particular adviser or private fund, and indeed, the Dodd-Frank Act
amended the Advisers Act to preclude us from being compelled to reveal
this information except in very limited circumstances.\1572\
---------------------------------------------------------------------------

    \1571\ See Proposing Release, supra note 25, at Section I.2.
    \1572\ See Form PF Adopting Release, supra note 1536, at section
II.D.
---------------------------------------------------------------------------

    We note that although the increased transparency to regulators
provided by our amendments could positively affect capital formation as
discussed above, increased transparency, as we observed when adopting
Form PF, also may have a negative effect on capital formation if it
increases advisers' aversion to risk and, as a result, reduces
investment in enterprises that may expose the fund to more risk but be
beneficial to the economy as a whole.\1573\ Nevertheless, the
information collected generally will be non-public, it should not
affect large liquidity fund advisers' ability to raise capital. To the
extent that our amendments were to cause changes in investment
allocations that lead to reduced economic outcomes in the aggregate,
our amendments may result in a negative effect on capital available for
investment.
---------------------------------------------------------------------------

    \1573\ See id. at text accompanying and following n.537.
---------------------------------------------------------------------------

    We also do not believe that our amendments to Form PF will have a
significant effect on competition because the information that advisers
report on Form PF, including the new information we are requiring,
generally will be non-public and similar types of advisers will have
comparable burdens under the form as we propose to amend it.\1574\ We
do not believe the amendments' effect on capital formation discussed
above will be significant, again because the information collected
generally will be non-public and, therefore, should not affect large
liquidity fund advisers' ability to raise capital.\1575\
---------------------------------------------------------------------------

    \1574\ See id. at text accompanying and following n.535.
    \1575\ See id.
---------------------------------------------------------------------------

j. Alternatives Considered
    We considered whether we and FSOC would be able as effectively to
carry out our respective missions as discussed above using the
information large liquidity fund advisers currently must file on Form
PF. But as we discuss above, we expect that requiring large liquidity
funds advisers to provide portfolio holdings information will provide a
number of benefits and will allow better understanding of the
activities of large liquidity fund advisers and their liquidity funds
than would be possible with the higher level, aggregate information
that advisers file today on Form PF (e.g., the ability to determine
which liquidity funds own a distressed security).
    For the reasons discussed above we also considered, but ultimately
chose not to adopt, changes requiring advisers to file portfolio
information about their liquidity funds that differs from the
information money market funds are required to file on Form N-MFP.
Generally, given our experience with Form N-MFP data, we believe that
not only could different portfolio holdings information be less useful
than that required by Form N-MFP, it also could be more difficult to
combine with Form N-MFP data. Requiring advisers to file on Form PF
virtually the same information money market funds file on Form N-MFP
also should be more efficient for advisers and reduce the costs of
reporting from a systems standpoint, because many large liquidity
advisers also manage money market funds and already have the systems in
place to report the data.
    Finally, we considered whether to require large liquidity fund
advisers to provide their liquidity funds' portfolio information more
frequently than quarterly, but as discussed in greater detail above,
chose not to adopt this requirement.\1576\ Monthly filings, for
example, would provide more current data and could facilitate our
combining the new information with the information money market funds
file on Form N-MFP (which money market funds file each month). We
balanced the potential benefits of more frequent reporting against the
costs it would impose and believe, at this time, that quarterly
reporting is more appropriate.\1577\
---------------------------------------------------------------------------

    \1576\ See supra note 1556.
    \1577\ Large liquidity fund advisers already are required to
make quarterly filings on Form PF. See Form PF Instruction 9.
Requiring large liquidity fund advisers to provide the new portfolio
holdings information on a quarterly basis should therefore be more
cost effective for the advisers.
---------------------------------------------------------------------------

k. Operational Costs
    We recognize, however, that our amendments to Form PF, while
limited to large liquidity fund advisers, will create some costs for
those advisers, and also could affect competition, efficiency, and
capital formation. We continue to expect that the operational costs to
advisers to report the new information will be the same costs we
discuss in the Paperwork Reduction Act analysis in section IV.H.3
below, as reduced by the lower costs associated with the changes

we are making from the proposal discussed in that section. As discussed
in more detail in that section, we estimate that our amendments to Form
PF would result in an annual aggregate additional burden per large
liquidity fund adviser of 298 burden hours, at a total time cost of
$79,566, and external costs of $17,104. This will result in increased
aggregate burden hours across all large liquidity fund advisers of
8,344 burden hours,\1578\ at a time cost of $2,227,848, and $478,912 in
external costs.\1579\
---------------------------------------------------------------------------

    \1578\ This estimate is based on the following calculation: 298
estimated additional burden hours per large liquidity fund adviser x
28 large liquidity fund advisers = 8,344.
    \1579\ See infra section IV.H.3.
---------------------------------------------------------------------------

    These estimates are based on our estimates of the paperwork burdens
associated with our final amendments to Form N-MFP because advisers
will be required to file on Form PF virtually the same information
about their large liquidity funds as money market funds will be
required to file on Form N-MFP as we are amending it. We therefore
expect that the paperwork burdens associated with Form N-MFP (as we are
amending it) are representative of the costs that large liquidity fund
advisers will incur as a result of our amendments to Form PF. We note,
however, that this is a conservative approach for several reasons.
Large liquidity fund advisers may experience economies of scale
because, as discussed above, virtually all of them advise a money
market fund or have a related person that advises a money market fund.
Large liquidity fund advisers therefore likely will pay a combined
licensing fee or fee to retain the services of a third party that
covers filings on both Forms PF and Form N-MFP. We expect that this
combined fee likely will be less than the combined estimated Paperwork
Reduction Act costs associated with Forms PF and Form N-MFP.

I. Diversification

    We are amending the rule 2a-7 diversification provisions as
proposed, with certain modifications as discussed below. Under the
current rule, money market funds generally must limit their investments
in: (i) The securities of any one issuer of a first tier security
(other than with respect to government securities and securities
subject to a guarantee issued by a non-controlled person) to no more
than 5% of fund assets; and (ii) securities subject to a demand feature
or a guarantee to no more than 10% of fund assets from any one
provider.\1580\ Under our diversification amendments, we are requiring
that money market funds treat certain entities that are affiliated with
each other as single issuers when applying rule 2a-7's 5% issuer
diversification limit.\1581\ As discussed further below, the amended
diversification provisions exclude certain majority equity owners of
asset-backed commercial paper (``ABCP'') conduits from the requirement
to aggregate affiliates for purposes of the 5% issuer diversification
limit. The diversification provisions that we are adopting today also
require that a money market fund treat the sponsors of asset-backed
securities (``ABS'') as guarantors subject to rule 2a-7's 10%
diversification limit applicable to guarantees and demand features,
unless the fund's board makes certain findings.\1582\ Lastly, we have
decided to adopt (i) as proposed, the removal of the twenty-five
percent basket, under which as much as 25% of the value of securities
held in a money market fund's portfolio may be subject to guarantees or
demand features from a single institution for money market funds other
than tax-exempt money market funds, and (ii) the reduction to 15%,
rather than the elimination of, the twenty-five percent basket for tax-
exempt money market funds, including single state money market funds.
Under our amendments, up to 15% (as compared to 10%, which was
proposed) of the value of securities held in a tax-exempt money market
fund's portfolio may be subject to guarantees or demand features from a
single institution.\1583\
---------------------------------------------------------------------------

    \1580\ See current rules 2a-7(c)(4)(i) and (c)(4)(iii). The
current rule also provides a ``twenty-five percent basket,'' under
which as much as 25% of the value of securities held in a fund's
portfolio may be subject to guarantees or demand features from a
single institution. See current rule 2a-7(c)(4)(iii). A money market
fund may currently use a twenty-five percent basket to invest in
demand features or guarantees that are first tier securities issued
by non-controlled persons. See id.
    \1581\ See rule 2a-7(d)(3)(ii)(F).
    \1582\ See rule 2a-7(a)(18)(ii) (definition of guarantee).
    \1583\ See rule 2a-7(d)(3)(iii)(B). We note that amended rule
2a-7(d)(3)(iii)(B), which provides a basket for tax-exempt money
market funds, has been revised from current rule 2a-7(c)(4)(iii).
The revised rule text is intended to be a clarifying change from the
current rule text and is not designed to have any substantive effect
other than to reduce the twenty-five percent basket to a fifteen
percent basket for tax-exempt funds.
---------------------------------------------------------------------------

1. Treatment of Certain Affiliates for Purposes of Rule 2a-7's Five
Percent Issuer Diversification Requirement
    As noted above, today we are amending rule 2a-7's diversification
provisions to provide that money market funds limit their exposure to
affiliated groups, rather than to discrete issuers.\1584\ As discussed
in the Proposing Release, financial distress at an issuer can quickly
spread to affiliates and the valuations and creditworthiness of the
issuer may depend, in large part, on the financial well-being of other
firms within the same corporate family.\1585\ By requiring
diversification of exposure to entities that are affiliated with each
other, the rule mitigates credit risk to a money market fund by
limiting the fund from assuming a concentrated amount of risk in a
single economic enterprise. Commenters generally supported the proposal
to treat certain entities that are affiliated with each other as single
issuers when applying rule 2a-7's 5% issuer diversification
limit.\1586\ Commenters also confirmed our understanding that money
market funds today generally attempt to identify and measure their
exposure to entities that are affiliated with each other as part of
their risk management processes.\1587\ Based on the comments we
received, we continue to believe that requiring diversification of
exposure to affiliated entities will mitigate a money market fund's
credit risk.
---------------------------------------------------------------------------

    \1584\ As discussed below, entities are ``affiliated'' with one
another if one controls the other entity or is controlled by it or
is under common control with it. ``Control'' for this purpose, is
defined to mean ownership of more than 50% of an entity's voting
securities. Rule 2a-7(d)(3)(ii)(F)(1). We note that we are not
amending rule 2a-7's diversification requirements to require that
money market funds treat affiliates as a single entity for purposes
of the 10% diversification limit on investments in securities
subject to a demand feature or guarantee.
    \1585\ See Proposing Release supra note 25, at section III.J.1.
    \1586\ See, e.g., ICI Comment Letter; U.S. Bancorp Comment
Letter; Goldman Sachs Comment Letter; Dreyfus Comment Letter; Wells
Fargo Comment Letter; Vanguard Comment Letter.
    \1587\ See, e.g., ICI Comment Letter; U.S. Bancorp Comment
Letter; Goldman Sachs Comment Letter; Dreyfus Comment Letter;
Vanguard Comment Letter; Federated II Comment Letter.
---------------------------------------------------------------------------

a. Definition of Control
    We are adopting as proposed that, for purposes of applying the
amended rule, entities are affiliated with one another if one controls
the other entity or is controlled by it or is under common control with
it.\1588\ For this purpose only, control is defined to mean ownership
of more than 50% of an entity's voting securities.\1589\ By using a
more than 50% test (i.e., majority ownership), we continue to believe
the alignment of economic interests and risks of the affiliated
entities is sufficient to justify aggregating their

exposures for purposes of rule 2a-7's 5% issuer diversification limit.
As discussed in the Proposing Release, we considered several
alternative approaches to delineating a group of affiliates. We
requested comment as to whether we should use any of these alternative
approaches or whether there are other approaches we should consider. A
number of commenters supported the proposed majority ownership
test.\1590\ Some commenters also agreed with us that other approaches
to defining control could limit a money market fund's investment
flexibility unnecessarily.\1591\ One commenter noted that while the
proposed definition of control would not generally limit money market
funds' investment flexibility or be difficult to apply, incorporating
the definition of a ``majority-owned subsidiary'' from section 2(a)(24)
of the Investment Company Act, rather than introducing a new definition
of control, would be more desirable.\1592\ Under the section 2(a)(24)
definition, a ``majority-owned subsidiary'' of a person means a company
50% or more of the outstanding voting securities of which are owned by
such person, or by a company which is a majority-owned subsidiary of
such person.\1593\ We note however, that the section 2(a)(24)
definition is not in itself a definition of control and only includes
the circumstances in which an entity is a majority-owned subsidiary of
another entity. Although we requested comment as to whether we should
incorporate the section 2(a)(24) definition of majority-owned
subsidiaries into our definition of control, we believe that a more
than 50% test is indicative of circumstances in which an entity
controls another entity or is controlled by it as opposed to
circumstances in which an entity owns half of another entity's voting
securities. The definition of control we are adopting today is used to
define entities that are required to be consolidated for purposes of
our diversification requirements. Therefore, we believe it is
appropriate to look at the circumstances in which entities generally
are required to be consolidated because they represent exposure to a
single economic entity. We continue to believe that the approach we are
adopting today is preferable because it is consistent with various
circumstances under which affiliated entities must be consolidated on
financial statements prepared in accordance with GAAP, under which a
parent generally must consolidate its majority-owned
subsidiaries.\1594\ These majority-owned subsidiaries generally must be
consolidated under GAAP because the operations of the group are
sufficiently related such that they are presented under GAAP as if they
``were a single economic entity.''
---------------------------------------------------------------------------

    \1588\ See rule 2a-7(d)(3)(ii)(F).
    \1589\ See id. We note that the definition of control we are
adopting today with respect to the treatment of affiliates for
purposes of issuer diversification under rule 2a-7 is not the same
as the definition of control in section 2(a)(9) of the Investment
Company Act.
    \1590\ See, e.g., ABA Business Law Section Comment Letter; Wells
Fargo Comment Letter.
    \1591\ See ICI Comment Letter (stating that a definition of
control that would include more attenuated relationships or lower
ownership levels could limit a money market fund's investment
opportunities to issuers whose risks are not necessarily correlated
to the issuer's parents). See also Wells Fargo Comment Letter
(supporting the decision to not require money market funds to treat
as affiliates all entities that must be consolidated on a balance
sheet).
    \1592\ See ICI Comment Letter.
    \1593\ See Section 2(a)(24).
    \1594\ See, e.g., FASB ASC, supra note 425, at paragraph 810-10-
15-8 (``The usual condition for a controlling financial interest is
ownership of a majority voting interest, and, therefore, as a
general rule ownership by one reporting entity, directly or
indirectly, of more than 50 percent of the outstanding voting shares
of another entity is a condition pointing toward consolidation.'').
---------------------------------------------------------------------------

b. Majority Equity Owners of Asset-Backed Commercial Paper Conduits
    We requested comment as to whether the exposures to risks of
issuers that would be treated as affiliated under our proposal would be
highly correlated and whether our proposed approach to delineating
affiliates was too broad or too narrow.\1595\ After further
consideration, based on the comments we received in response to our
proposal, we recognize that the majority ownership definition of
control that we proposed may encompass certain affiliated parties that
are not part of the same economic enterprise and therefore should be
excluded from the definition. Accordingly, as discussed further below,
the majority ownership definition of control that we are adopting today
excludes certain equity owners of ABCP conduits from the requirement to
aggregate affiliates for purposes of the 5% issuer diversification
limit.\1596\
---------------------------------------------------------------------------

    \1595\ See Proposing Release, supra note 25, at section III.J.1.
    \1596\ One commenter suggested that we also exclude TOBs from
the amended rule, noting that under certain circumstances liquidity
providers may own more than 50 percent of the securities issued by a
TOB but may not be part of the same corporate family. See SIFMA
Comment Letter. We believe that excluding TOBs from the amended rule
is unnecessary in light of the fact that an owner of TOB-issued
securities would not likely have voting rights in a TOB trust and
therefore would not fall under the definition of affiliate for
purposes of the 5% issuer diversification limit. We note that the
Volcker Rule may likely have an impact on TOB program structures.
---------------------------------------------------------------------------

    Without an exclusion from the amended rule, money market funds
would be required to aggregate their exposure to the ABCP conduits and
to the equity owners of ABCP conduits for purposes of the 5% issuer
diversification limit. One commenter argued that we should exclude
equity owners of ABCP conduits from the proposed affiliate aggregation
rule to allow money market funds to treat each special purpose entity
(``SPE'') issuing ABCP as a separate issuer for purposes of issuer
diversification, even if the same entity or affiliate group controls
the voting equity of multiple ABCP conduits.\1597\ This commenter noted
that voting equity of an ABCP conduit is typically almost entirely
owned by an otherwise unaffiliated third party that is in the business
of owning such entities and providing management and administrative
services, and not by the ABCP conduit sponsor, and that requiring money
market funds to aggregate conduits on the basis of common equity
ownership would unnecessarily restrict the amount of ABCP available for
purchase by money market funds.\1598\ We agree that if certain
independent equity owners are simply providing services in a management
and administrative capacity and are concentrated in the ABCP industry,
failure to provide an exception to those equity owners could
unnecessarily limit ABCP investment or reduce economies of scale in
ABCP administration with no diversification benefit to money market
funds.
---------------------------------------------------------------------------

    \1597\ Comment Letter of Structured Finance Industry Group
(Sept. 17, 2013) (``SFIG Comment Letter'').
    \1598\ Id.
---------------------------------------------------------------------------

    The purpose of treating affiliated parties as a single issuer when
applying the diversification limit is to mitigate risk to a money
market fund by limiting the fund from assuming a concentrated amount of
risk in a single economic enterprise, not to limit the exposure to
entities that might fall under the definition of ``affiliated'' but are
otherwise independent and not part of the same economic enterprise. In
light of these considerations, we have decided to provide an exception
from the amended rule for certain independent equity owners of ABCP
conduits. The commenter that argued we should exclude equity owners of
ABCP conduits recommended that we provide that money market funds need
not aggregate an ABCP conduit and its independent equity owners if
owning equity interests in SPEs is a primary line of business of such
owner.\1599\ This commenter also noted that the voting equity of an
ABCP conduit is typically owned by an unaffiliated third party that
provides certain management services to the ABCP conduit. In

addition, this commenter suggested limiting the exception to those
equity owners that are not originating qualifying assets to the ABCP
conduits.\1600\ We agree with the commenter's statements above and we
are providing an exception, which we expect addresses the concerns
regarding the current marketplace organization of ABCP conduits.
Accordingly, under the exception, money market funds will be subject to
the 5% issuer diversification limit on the ABCP conduit and any ten
percent obligors,\1601\ but need not aggregate an ABCP conduit and its
independent equity owners for purposes of the 5% issuer diversification
limit provided that a primary line of business of those independent
equity owners is owning equity interests in SPEs and providing services
to SPEs, the independent equity owners' activities with respect to the
SPEs are limited to providing management or administrative services,
and no qualifying assets of the ABCP conduit were originated by the
equity owners.\1602\ Subject to the exception for certain majority
equity owners of ABCP conduits, we continue to believe that the
majority ownership test appropriately requires a money market fund to
limit its exposure to particular economic enterprises without
unnecessarily limiting a fund's investments.
---------------------------------------------------------------------------

    \1599\ Id.
    \1600\ Id.
    \1601\ See infra note 1603 (definition of ten percent obligor).
    \1602\ See rule 2a-7(d)(3)(ii)(F)(2).
---------------------------------------------------------------------------

c. Treatment of Affiliates for Ten Percent Obligor Determinations
    One commenter expressed concern regarding the impact of the
proposed diversification amendments on the treatment of ten percent
obligors \1603\ for ABS.\1604\ The commenter noted that currently each
ABS issued by a separate entity is analyzed separately, and an ABCP
conduit typically represents to money market funds that it does not
intend to purchase any ABS which would result in a ten percent
obligor.\1605\ The commenter expressed concern that, if the proposed
treatment of affiliates is made applicable to the ten percent obligor,
it is likely that some of the ABS held by an ABCP conduit will need to
be aggregated, resulting in ten percent obligors.\1606\ This commenter
argued that such a result may create legal and practical issues for
sponsors, given confidentiality restrictions that may prevent funds
from determining which obligors are affiliated, and may not reflect
actual risks if such obligors are not part of the same economic
enterprise.\1607\ In addition, this commenter noted that conduits may
restructure their programs to avoid having consolidated affiliate ten
percent obligors, which would potentially reduce funding capacity to
those obligors.\1608\
---------------------------------------------------------------------------

    \1603\ Generally, ABS acquired by a money market fund (``primary
ABS'') are deemed to be issued by the SPE that issued the ABS (e.g.,
the trust, corporation, entity organized for sole purpose of issuing
the ABS). See rule 2a-7(d)(3)(ii)(D)(1). However, if obligations of
any issuer constitute 10% or more of the qualifying assets of the
primary ABS, that issuer will be deemed to be the issuer of that
portion of the primary ABS that is comprised of its obligations
(``ten percent obligor''). See rule 2a-7(d)(3)(ii)(D)(1)(i).
    \1604\ See SFIG Comment Letter. See also Memorandum from the
Division of Investment Management regarding a September 10, 2013
meeting with representatives of the Structured Finance Industry
Group.
    \1605\ Id.
    \1606\ Id.
    \1607\ Id.
    \1608\ Id.
---------------------------------------------------------------------------

    We acknowledge that the application of our diversification
amendments on the treatment of ten percent obligors may cause certain
sponsors to conduct additional due diligence and also may mean that
some conduits would have to restructure their programs, which could
result in reduced funding capacity from money market funds. However, we
understand that these affiliated obligors generally represent exposure
to the same economic enterprise. Therefore, after further
consideration, we continue to believe that requiring aggregation of
obligors in determining whether an obligor is a ten percent obligor
reflects our objective.\1609\ We continue to believe that by using a
more than 50% test, the alignment of economic interests and risks of
affiliated obligors is sufficient to justify aggregating their
exposures for purposes of applying rule 2a-7's 5% issuer
diversification limit. Requiring aggregation of obligors in determining
ten percent obligors will require diversification of exposure to
obligors that are affiliated with each other, thereby mitigating the
credit risk to a money market fund when taking a highly concentrated
position in ABS with affiliated obligors.
---------------------------------------------------------------------------

    \1609\ See rule 2a-7(d)(3)(ii)(F)(3).
---------------------------------------------------------------------------

d. Issuers of Securities Subject to a Guarantee Issued by a Non-
Controlled Person
    Under current rule 2a-7, a money market fund is not required to be
diversified with respect to issuers of securities that are subject to a
guarantee issued by a non-controlled person.\1610\ Under our proposed
rule 2a-7 amendments, non-ABS that are subject to a guarantee by a non-
controlled person would be subject to rule 2a-7's 10% diversification
limit applicable to guarantees and demand features but would continue
to have no issuer diversification limit. However, we proposed that a
presumed guarantee issued by a sponsor of an SPE with respect to ABS
would no longer qualify as a guarantee issued by a non-controlled
person, thereby creating a disparity between treatment because ABS and
non-ABS would be treated differently under the proposal.\1611\
Therefore, as proposed, ABS would be subject to both a 5% issuer
diversification limit on the SPE and any ten percent obligors, and a
10% limit on the sponsor as the presumed guarantor. One commenter
mentioned this potential discrepancy and argued that the portion of ABS
presumed to be guaranteed by the sponsor should not be subject to the
issuer diversification limitations and thus treated parallel with other
money market fund portfolio securities subject to a guarantee issued by
a non-controlled person.\1612\ After further consideration of this
disparity in treatment, we preliminarily believe that the approach that
most advances our diversification reform goal of limiting concentrated
exposure of money market funds to particular economic enterprises is to
eliminate the exclusion from the 5% issuer diversification requirement
for both ABS and non-ABS that are subject to a guarantee by a non-
controlled person. Therefore, instead of creating a disparity in
treatment between ABS and non-ABS by adopting the proposed definition
of a guarantee issued by a non-controlled person, we are retaining the
current definition of a guarantee issued by a non-controlled person,
and we are proposing in our Release issued today regarding removing
references to credit ratings in rule 2a-7 that the 5% issuer
diversification limit be imposed on all

securities with a guarantee by a non-controlled person.\1613\
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    \1610\ Current rule 2a-7(a)(18). A guarantee issued by a non-
controlled person means a guarantee issued by: (i) a person that,
directly or indirectly, does not control, and is not controlled by
or under common control with the issuer of the security subject to
the guarantee (control for these purposes means ``control'' as
defined in section 2(a)(9); or (ii) a sponsor of an SPE with respect
to ABS. Current rule 2a-7(a)(18)(i) and (ii).
    \1611\ See proposed (Fees and Gates) rule 2a-7(a)(17). Under the
proposed rule, ABS that are subject to a guarantee by a non-
controlled person that meets the definition in current rule 2a-
7(a)(18)(i) would continue to have no issuer diversification limit.
    \1612\ Memorandum from the Division of Investment Management
regarding a September 10, 2013 meeting with representatives of the
Structured Finance Industry Group.
    \1613\ See Removal of Certain References to Credit Ratings and
Amendment to the Issuer Diversification Requirement in the Money
Market Fund Rule, Investment Company Act Release No. ----------
(July 23, 2014).
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e. Additional Economic Analysis
    As discussed in the Proposing Release, these amendments are
intended to more efficiently achieve the diversification of risk
contemplated by the rule's current 5% issuer diversification limit. The
treatment of affiliates for purposes of rule 2a-7's 5% issuer
diversification limit, and our diversification amendments collectively,
are designed to diversify the risks to which money market funds may be
exposed and thereby reduce the impact of any single issuer's (or
guarantor's or demand feature provider's) financial distress on a fund.
Except to the extent that money market funds choose to reinvest some or
all of their excess exposure in securities of higher risk, requiring
money market funds to more broadly diversify against credit risk should
reduce the volatility of fund returns (and hence NAVs) and limit the
impact of an issuer's distress on fund liquidity, which should mitigate
the risk of heavy shareholder redemptions from money market funds in
times of financial distress and may promote capital formation by making
money market funds a more stable source of financing for issuers of
short-term credit instruments. Reducing money market funds' volatility
and making their liquidity levels more resilient also could cause money
market funds to attract further investments, increasing their role as a
source of capital in the short-term financing markets for issuers. We
are not able to quantify these benefits (although we do provide
quantitative information concerning certain impacts), primarily because
we continue to believe it is impractical, if not impossible, to
identify with sufficient precision the marginal decrease in risk and
increase in stability we expect these diversification amendments to
provide. We received no comments providing quantification of benefits.
    More fundamentally, as discussed in the Proposing Release, these
amendments are designed to more effectively achieve the diversification
of risk contemplated by the rule's current 5% issuer diversification
limit. As discussed in the Proposing Release, we explained that
``[d]iversification limits investment risk to a fund by spreading the
risk of loss among a number of securities.'' \1614\ Requiring funds to
purchase ``a number of securities'' rather than a smaller number of
concentrated investments will only ``spread . . . the risk of loss'' if
the performance of those securities is not highly correlated. That is,
a fund's investments in Issuers A, B and C are no less risky (or only
marginally so) than a single investment in Issuer A if Issuers A, B,
and C are likely to experience declines in value simultaneously and to
approximately the same extent. This may indeed be likely if Issuers A,
B and C are affiliated with each other. In addition, if Issuers A, B
and C are affiliated with each other, they likely would share financial
resources in the event of a crisis, which would make it more likely
that they would experience declines in value simultaneously and to
approximately the same extent. Prime money market funds' concentrated
exposures to financial institutions increase these concerns because
prime money market funds' portfolios already appear correlated to some
extent.\1615\
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    \1614\ See Proposing Release, supra note 25, at section III.J.1.
    \1615\ See Proposing Release, supra note 25, nn.66-67 and
accompanying text.
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    As discussed in the Proposing Release, we recognize, however, that
the amendments could impose costs on money market funds and could
affect competition, efficiency, and capital formation. We expect that
the requirement to aggregate affiliates for purposes of the 5% issuer
diversification limit will increase the diversification of at least
some money market funds.\1616\ A money market fund that had invested
more than 5% of its assets in a parent or corporate group would, when
those investments matured, have to reinvest some of the proceeds in a
different parent or corporate group (or in unrelated issuers).\1617\ We
requested comment on how the amendment would affect competition,
efficiency and capital formation, and the ways in which money market
funds may invest in response to the amendment. One commenter stated
that the requirement to treat affiliates as a single issuer for
purposes of the 5% issuer diversification limit could impede a money
market fund's ability to purchase high quality securities, and that, as
a result, money market funds could be forced to purchase securities of
issuers with credit ratings lower than those of the affiliated
issuers.\1618\ As noted above and discussed further below, we believe
that any effect caused by a money market fund investing in securities
with higher credit risk will be minimal due to the substantial risk-
limiting provisions of rule 2a-7.\1619\
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    \1616\ See The Exposure Money Market Funds Have to the Parents
of Issuers (``DERA Diversification Memo'') (July 10, 2013),
available at http://www.sec.gov/comments/s7-03-13/s70313-20.pdf. The
Division of Risk, Strategy, and Financial Innovation (``RSFI'') is
now known as the Division of Economic and Risk Analysis (``DERA''),
and accordingly we are no longer referring to this study as the
``RSFI Diversification Memo'' as we did in the Proposing Release,
but instead as the ``DERA Diversification Memo.'' The DERA
Diversification Memo shows, among other things, that some money
market funds invested more than 5% of their assets in the issuances
of specific corporate groups, or ``parents'' (as defined in the DERA
Diversification Memo) between November 2010 and November 2012. For
example, our staff's analysis shows that 30 money market funds, on
average, invest at least 5% of their portfolios in the issuances of
the largest parent. Our staff's analysis also shows that the largest
fund-level exposure of at least 7% to the issuances of one parent is
14 while the largest average fund-level exposure of at least 10% of
the issuances of one parent is 3.
    \1617\ Money market funds will not be required to sell any of
their portfolio securities as a result of any of our diversification
amendments because rule 2a-7's diversification limits are measured
at acquisition.
    \1618\ Schwab Comment Letter. See also Dechert Comment Letter
(arguing that our diversification amendments, in combination, may
have the effect of reducing a money market fund's ability to invest
in high quality securities).
    \1619\ See supra notes 10 and 11 and accompanying text.
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    As discussed above, we acknowledge that the application of our
diversification amendments on the treatment of ten percent obligors may
cause certain sponsors to conduct additional due diligence and also may
mean that some conduits would have to restructure their programs,
particularly if information regarding the identity of obligors is
unavailable, which could result in reduced funding capacity from money
market funds. To the extent ABCP conduits may decide to restructure
their programs, we expect that the ABCP conduits might incur costs
associated with the restructuring, although we are unable to quantify
any such costs as we do not know to what extent ABCP conduits will
decide to restructure, and we also did not receive any comments
regarding costs that ABCP conduits may incur.
    We acknowledge that, as a result of our amendments, it is possible
that some money market funds may purchase securities of issuers with
lower credit quality, although we note that money market funds will
continue to be required to meet the minimum credit risk standards set
forth in rule 2a-7.\1620\ It also seems reasonable to expect that a
divestment by one money market fund (because its exposure to a
particular group of affiliates is too great) might become a purchasing
opportunity

for another money market fund whose holdings in that affiliated group
does not constrain it. If the credit qualities of the investments were
similar, there should be no net effect on fund risk and yield, although
we discuss below how fund risk and yield may be affected if money
market funds choose to invest in securities of higher or lower credit
risk than they do currently. In the Proposing Release we discussed ways
in which a money market fund may reallocate its investments under our
amendments to the diversification provisions of rule 2a-7 as well as
possible ways in which the amendment might affect capital formation. We
discuss above that requiring money market funds to more broadly
diversify against credit risk may promote capital formation by making
money market funds a more stable source of financing for issuers of
short-term investments. However, the rule amendment could also reduce
capital formation if money market funds choose to reinvest some or all
of their excess exposure in securities of higher risk. In these
instances, a money market fund's portfolio risk would increase, its NAV
and fund liquidity may become more volatile and yields would rise.
Money market funds in this scenario could become less stable than they
are today, investor demand for the funds could fall (to the extent
increased volatility in money market funds is not outweighed by any
increase in fund yield), and capital formation could be reduced.
Alternatively, money market funds might choose to reinvest excess
exposure in securities of lower risk. In these instances, portfolio
risk (e.g., credit risk, counterparty risk) would decrease, fund NAVs
and liquidity would likely become less volatile and yields would fall.
In this scenario, money market funds would become more stable than they
are today, investor demand for the funds could rise (to the extent
increased stability in money market funds is not outweighed by any
decrease in fund yield), and capital formation might be enhanced.
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    \1620\ See rule 2a-7(d)(2) (portfolio quality).
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    As stated in the Proposing Release, we cannot predict how money
market funds will invest in response to our amendments and we thus do
not have a basis for determining money market funds' likely
reinvestment strategies. We also did not receive comment on this issue.
We note that money market funds' current exposures in excess of what
our amendments will permit may reflect the overall risk preferences of
their managers. To the extent that these amendments reduce the
concentration of issuer risk, fund managers that have particular risk
tolerances or preferences may shift their funds' remaining portfolio
assets, within rule 2a-7's minimal credit risk requirements,\1621\ to
higher risk assets. If so, portfolio risk, although more diversified,
would increase (or remain constant), and we would expect portfolio
yields to rise (or to remain constant). If yields were to rise, money
market funds might be able to compete more favorably with other short-
term investment products (to the extent the increased yield is not
outweighed by any increased volatility).
---------------------------------------------------------------------------

    \1621\ See id.
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    We continue to be unable to predict or quantify the precise effects
this amendment will have on competition, efficiency, or capital
formation and did not receive comments addressing the precise effects.
The effects depend on how money market funds, their investors, and
companies that issue securities to money market funds will adjust on a
long-term basis to our amendment. The ways in which these groups could
adjust, and the associated effects, are too complex and interrelated to
allow us to predict them with specificity or to quantify them. For
example, if a money market fund must reallocate its investments under
our amendment, whether that will affect capital formation depends on
whether there are available alternative investments the money market
fund could choose and the nature of any alternatives. Assuming there
are alternative investments, the effects on capital formation will
depend on the amount of yield the issuers of the alternative
investments will be required to pay as compared to the amount they
would have paid absent our amendments. For example, our amendment could
cause money market funds to seek alternative investments and this
increased demand could allow their issuers to pay a lower yield than
they would absent this increase in demand. This would decrease issuers'
financing costs, enhancing capital formation. But it also could
decrease the yield the money market fund paid to its shareholders,
potentially making money market funds less attractive and leading to
reduced aggregate investments by the money market fund which, in turn,
could increase financing costs for issuers of short-term debt.
    The availability of alternative investments and the ease with which
they could be identified could affect efficiency, in that money market
funds might find their investment process less efficient if they were
required to expend additional effort identifying alternative
investments. These same factors could affect competition if more effort
is required to identify alternative investments under our amendments
and larger money market funds are better positioned to expend this
additional effort or to do so at a lower marginal cost than smaller
money market funds. These factors also could affect capital formation
in other ways, in that money market funds could choose to invest in
lower quality securities under our proposal if they are not able to
identify alternative investments with levels of risk equivalent to the
funds' current investments.
    As discussed in the Proposing Release, the amendments could require
money market funds to update the systems they use to monitor their
compliance with rule 2a-7's 5% issuer diversification limit in order to
aggregate exposures to affiliates. Although we understand, as discussed
above, that most money market funds today consider their exposures to
entities that are affiliated with each other for risk management
purposes, any systems money market funds currently have in place for
this purpose may not be suitable for monitoring compliance with a
diversification requirement, as opposed to a risk management evaluation
(which may entail less regular or episodic monitoring).
    We requested comment as to whether funds expect that they would