proposal an eligible order to purchase or redeem any redeemable
security of such a fund would be executed at the current day's price
only if the fund, its designated transfer agent, or a registered
clearing agency receives the order before the fund calculates its NAV.
This proposal is designed to facilitate the operation of swing pricing
as well as to help prevent late trading and to modernize order
processing.
    In connection with the swing pricing proposal, we have also
considered whether there are alternative methods by which a fund would
be able to generate sufficient investor flow information to determine
whether to apply swing pricing on a given day. As discussed above,
swing pricing requires that funds have significant information about
their order flows to determine with accuracy if the fund should impose
a swing factor and to determine what that swing factor should be.
Instead of requiring that funds operationalize swing pricing based on
actual order flow information received before the pricing time, we have
also considered whether reasonable estimates, calculated by either the
fund or the intermediary, would provide sufficiently accurate
information for a swing pricing determination. We have also considered
whether later cut-off times for flow information and the publication of
the day's NAV would facilitate swing pricing. We discuss each
alternative below. We also considered how these alternatives would work
if, rather than require swing pricing, we were to require funds to
adopt liquidity fees or dual pricing.\264\ Although the below
discussion focuses on swing pricing, we believe similar considerations
would apply in the case of liquidity fees or dual pricing (to the
extent a liquidity fee or dual pricing regime, like swing pricing, was
based on the amount of net flows), and these alternatives therefore
also could be used in combination with a liquidity fee or dual pricing
approach.\265\
---------------------------------------------------------------------------

    \264\ See supra section II.D.1.
    \265\ We provide additional illustrative examples of potential
alternatives and pairings in section II.D.3.
---------------------------------------------------------------------------

a. Indicative Flows
    We considered whether, instead of requiring a hard close, we should
require that funds receive indicative flow information from
intermediaries by an established time. This approach would require that
intermediaries (e.g., broker-dealers, banks, and retirement plan
recordkeepers) calculate an estimate for what they anticipate the given
flows for a particular day to be either before the fund's pricing time
or a set time thereafter (e.g., by 4:30 p.m. ET or 5 p.m. ET).
Consistent with current practices, intermediaries could submit final
order flow information after the pricing time once the intermediary has
received and calculated the final flows for the day. For example, we
could consider orders to be eligible to receive that day's price if, in
the case of orders submitted through an intermediary: (1) the
intermediary receives the orders from investors before 4 p.m. ET; (2)
the intermediary provides estimated order flow to the fund by the
identified time; and (3) the intermediary provides final order
information by the next morning. Under this approach, a fund would be
permitted to use the indicative flow information provided by
intermediaries to determine whether a swing factor should be applied to
that day's NAV.
    In order to calculate the indicative flow information,
intermediaries would need to generate an estimated flow based on, among
other things, the actual flows that they have received before the
pricing time and the prior day's price, as well as any indicative
historical information that is available if the indicative flow
information is provided to the fund before the pricing time.
Alternatively, the intermediary could provide summary net flow
information (for example, estimated net purchases of $3 million,
estimated net redemptions of 250,000 shares, and the purchase of an
unknown quantity of fund shares with proceeds from redeeming 100 shares
from a different identified fund), and the fund could apply the prior
day's NAV to arrive at an estimated net flow. Intermediaries would need
to update

their systems and processes to calculate indicative flow information by
or shortly after the pricing time while continuing to provide actual
final flow information as it is available. We understand that different
intermediaries may, based on their different characteristics, use
different methods to calculate or provide their indicative flows. A
broker-dealer and a retirement plan recordkeeper would not necessarily
use the same method due to the differences in how they are able to
generate and communicate flow information to funds. Retirement plan
recordkeepers, for example, would need to generate indicative flow
information that accounts for not only purchase and redemption activity
that is a known number of shares or dollars as of the pricing time, but
also estimated loan and withdrawal activity that is subject to
hierarchy provisions under their specific plans. If an intermediary is
unable to provide indicative flow information by the identified time,
the orders would receive the next day's price.
    Unlike the proposed hard close requirement, the alternative of
permitting funds to rely on indicative flows provided by intermediaries
would provide intermediaries with more flexibility in providing final
flow information. Thus, the broader changes that may be needed for
intermediaries to comply with the proposed hard close requirement that
are discussed above may not be needed under this alternative. This
approach would not ultimately provide funds with the most accurate
information about anticipated flows. If intermediaries are required to
provide indicative flows before a fund's pricing time, the flow
information may be less reliable, particularly during times of stress
since intermediaries may not be able to account for or anticipate the
effects of a stress event on order flow information. This limitation of
indicative flow information may create down-stream effects on the
accuracy and efficacy of swing pricing, particularly in times of
stress. For swing pricing to serve the goal of mitigating dilution of
shareholders' interests, funds need accurate order flow information,
particularly in times of stress. In addition, an approach based on
indicative flows would be less effective at preventing late trading and
at reducing operational risk through improvements to order processing.
    We request comment on the indicative flow alternative, including:
    159. Should we allow funds to use indicative flow information to
determine whether or not to apply swing pricing?
    160. If intermediaries are required to provide indicative flows to
funds, should the rule establish this requirement by considering an
order as eligible to receive a given day's price only if the
intermediary provides indicative or final order flow information by an
identified time and provides final order information by a later
identified time? Should we instead provide that a fund must prohibit an
intermediary from purchasing the fund's shares in nominee name on
behalf of others if the intermediary does not provide timely indicative
flow information? Should the rule require that funds enter into a
contractual agreement with intermediaries to require the indicative
flow information? If so, should this contract be required to specify
how indicative flows are calculated by the intermediary? In either
case, should we prohibit or restrict an intermediary from charging fees
to funds for the costs associated with providing indicative flow
information?
    161. Would intermediaries have sufficient incentives to provide
timely and accurate indicative flow information? Are there other
consequences we should impose for late or materially inaccurate
indicative flow information? For example, if an intermediary has a
pattern of providing late or inaccurate information, should we require
a fund to prohibit the intermediary from purchasing the fund's shares
in nominee name on behalf of others? As another alternative, should we
prohibit orders received from that intermediary from receiving that
day's price and instead require that the orders be executed and settled
on a delayed basis at a future day's price, in order to limit the
dilutive effects of orders that intermediary submits?
    162. When should intermediaries be required to provide indicative
flows under this alternative? Are indicative flows needed before the
pricing time, or could funds still make timely swing pricing decisions
if intermediaries provided indicative flows after the pricing time? How
long after the pricing time could funds receive the indicative flow
information and still make timely swing pricing decisions? In
connection with this approach, would funds publish their prices later
than they do today to provide additional time to make swing pricing
decisions?
    163. Should the intermediary or the fund apply the prior day's
price to arrive at an indicative flow estimate? Is there value in the
fund performing this calculation because it would have better
information about potential changes to the prior day's price that it
could take into account (e.g., the size of any swing factor adjustment
made on the prior day, as well as potential changes to the value of its
portfolio holdings)?
    164. Should intermediaries that have minimal holdings with the fund
be permitted not to provide indicative flows under this approach? If
so, how should we define intermediaries that have minimal holdings of
fund shares? How would this approach work if an intermediary's
customers began to transact in higher volumes of the fund's shares?
    165. Should we provide fund managers a safe harbor from liability
under certain circumstances (e.g., absent knowing or reckless behavior)
if the fund relies on indicative flows to determine whether to swing
the fund's NAV and the size of the swing factor and those indicative
flows do not align with the actual flows the fund ultimately receives?
From what statutory provisions or rules should any safe harbor provide
relief (for example, section 34(b) under the Investment Company Act,
rule 22c-1, or other provisions and rules)?
    166. If we adopt an indicative flows approach, are there any
changes we should make to the proposed swing pricing requirement? For
example, instead of requiring use of ``reasonable, high confidence''
estimates of investor flow information, should we use a different
standard (e.g., reasonable estimates based on available information)?
    167. Do commenters agree with the discussion of the potential
benefits, costs, or drawbacks of this alternative? During times of
stress, would intermediaries be able to generate accurate indicative
flow information?
    168. Does this alternative raise different considerations if we
were to require funds to use a liquidity fee framework or dual pricing,
rather than swing pricing? Should an indicative flows approach operate
or be structured differently if paired with a liquidity fee or dual
pricing requirement and, if so, how?
    169. Is there information about the indicative flows alternative,
if adopted, that would be important for investors to understand and
that funds should be required to disclose in their registration
statements or elsewhere?
b. Estimated Flows
    We also considered an approach that would allow funds to estimate
their flows for the day for the purposes of determining whether to
apply a swing factor to the day's NAV and the amount of the swing
factor (e.g., whether the amount of net redemptions exceeds the market
impact threshold). In order to

estimate flows for a given day, funds could generate models that
incorporate the information available to them. For example, funds could
use the flow information that they have already received by a pre-
established time as well as historical order flow information in order
to estimate expected flows for the day.
    The ability of a fund to estimate flow information may differ based
on the types and number of intermediaries from which the fund is
ultimately receiving flow information. In order to estimate flows,
funds may rely on factors that include the historical pattern of flows
for a particular intermediary while accounting for any observed changes
in the flows for a given fund. This estimate could be based on all of
the information received by the fund by a set time, with additional
adjustments to account for flows from intermediaries that do not submit
orders by that time. For example the fund could base its estimate on
all information that it has received by 5 p.m. ET. For some
intermediaries, however, like retirement plan recordkeepers, funds
would likely need to create models that are able to project estimated
flow information based on historical order flow information as
retirement plan recordkeepers may not have sufficient information
available by the time established by the fund. In addition, to the
extent funds do not already receive large trade notifications, funds
may determine to negotiate arrangements with intermediaries for receipt
of advance notice of certain large transactions that are known in
advance by intermediaries, such as replacing a fund as an investment
option in a retirement plan.
    The considerations for whether estimates generated by the fund
provide sufficiently reliable information to implement swing pricing
are similar to those discussed above for the alternative for indicative
flows from intermediaries. Funds have a narrower view of anticipated
flow activity than intermediaries, however, as intermediaries are
closer to investor activity and likely have a more accurate estimate of
their customers' flows for a particular fund. This benefit of
indicative flows over estimated flows may be mitigated to the extent
that intermediaries lack incentives or are otherwise unable to provide
reasonably accurate indicative flows. During times of stress, funds may
have a limited view of anticipated order flow information, which may
impact their ability to effectively implement swing pricing. In
addition, an approach based on estimated flows would be less effective
at preventing late trading and at reducing operational risk through
improvements to order processing than the proposed hard close
requirement. On the other hand, estimated flows would be less costly
than either a hard close or indicative flows.
    We request comment on the estimated flow alternative, including:
    170. How accurately can funds estimate flows from different
intermediaries? For example, are retirement plan flows relatively
stable and predictable, or do they vary over different periods? To what
extent do retirement plans inform funds in advance of material flows
that deviate from historical patterns, such as changes in funds the
plan offers? Would funds receiving flows from specific intermediaries
be better able to estimate their flows? For example, would it be easier
for funds to estimate flows from broker-dealers because broker-dealers
tend to be able to provide order flow earlier than some other
intermediaries? Would it be easier for funds to estimate flows from
retirement plan recordkeepers because those flows are more predictable?
To the extent that certain events make flows less predictable, such as
changes in the funds a retirement plan offers to its participants,
could funds better estimate their flows if intermediaries were required
to provide advance notice or other information about these events?
    171. Should we provide fund managers a safe harbor from liability
under certain circumstances (e.g., absent knowing or reckless behavior)
if the fund relies on estimated flows to determine whether to swing the
fund's NAV and the size of the swing factor and those estimated flows
do not align with the actual flows the fund ultimately receives? From
what statutory provisions or rules should any safe harbor provide
relief (for example, section 34(b) under the Investment Company Act,
rule 22c-1, or other provisions and rules)?
    172. Should we require funds to conduct back-testing of estimated
flows using final data to refine their estimation process over time and
help ensure that estimates used for swing pricing are reasonable?
    173. Would funds be able to implement swing pricing based on
estimated flow information? If we adopt an estimated flows approach,
are there any changes we should make to the proposed swing pricing
requirement? For example, instead of requiring use of ``reasonable,
high confidence'' estimates of investor flow information, should we use
a different standard (e.g., reasonable estimates based on available
information)?
    174. Does this alternative raise different considerations if we
were to require funds to use a liquidity fee framework or dual pricing,
rather than swing pricing? Should an estimated flows approach operate
or be structured differently if paired with a liquidity fee or dual
pricing requirement and, if so, how?
    175. Is there information about the estimated flows alternative, if
adopted, that would be important for investors to understand and that
funds should be required to disclose in their registration statements
or elsewhere?
    176. To what extent would the estimated flows alternative reduce
costs on funds and intermediaries relative to the proposed hard close?
c. Later Cut-Off Times for Intermediaries
    We have considered whether establishing later cut-off times for
intermediaries to submit order flow information would lessen the burden
on intermediaries to comply with the proposed hard close requirement
while continuing to give funds the necessary order flow information to
implement swing pricing. Under this alternative, investors would
continue to need to submit orders before the fund's pricing time to be
eligible to receive that day's price, but intermediaries would have
additional time to provide those orders to a designated party after the
pricing time, such as by 6 or 7 p.m. ET for a fund with a 4 p.m. ET
pricing time. To provide time to assess the flows and determine whether
to apply swing pricing, a fund might push the time of publication of
its price to a later time, such as 8 to 10 p.m. ET. Much like the
proposed hard close, this alternative may have additional benefits
beyond facilitating swing pricing. Ensuring that all order flow
information is provided to a designated party earlier than it is
currently may improve order processing. This alternative would be less
effective, however, at preventing late trading.
    Allowing intermediaries more time to provide order flow information
and delaying publication of the NAV would involve many of the systems
costs discussed in connection with the hard close. For example,
intermediaries would still need to transmit orders before the NAV is
available. However, providing intermediaries and funds more time to
compile order flow information and to calculate the price may lessen
the overall burden of the proposed changes, and may reduce the need for
intermediaries to establish cut-

off times prior to the fund's pricing time for receipt of investor
orders.
    We request comment on the alternative of later cut-off times for
intermediaries, including:
    177. What would an appropriate delayed cut-off time be (e.g., two
or three hours after the fund's pricing time)? Would a delayed cut-off
time, in combination with a delayed price publication, provide funds
with sufficient time to make swing pricing decisions?
    178. If funds were to delay the publication of their price, what
steps would funds need to take? Would they need to amend agreements
with intermediaries? What effects would a delayed publication time have
on intermediaries or other parties?
    179. Would a delayed cut-off time for intermediaries to submit
orders to a designated party be less burdensome than the proposed hard
close? Would a delayed price publication time be less burdensome than
the proposed hard close?
    180. Would funds be able to implement swing pricing if we require
later cut-off times for intermediaries instead of the proposed hard
close? If we adopt a later cut-off time approach, are there any changes
we should make to the proposed swing pricing requirement? For example,
instead of requiring use of ``reasonable, high confidence'' estimates
of investor flow information, should we use a different standard (e.g.,
reasonable estimates based on available information)?
    181. Does this alternative raise different considerations if we
were to require funds to use a liquidity fee framework or dual pricing,
rather than swing pricing? Should a later cut-off time approach operate
or be structured differently if paired with a liquidity fee or dual
pricing requirement and, if so, how?
    182. Is there information about the later cut-off times
alternative, if adopted, that would be important for investors to
understand and that funds should be required to disclose in their
registration statements or elsewhere?
3. Additional Illustrative Examples
    While there are many potential combinations of swing pricing and
hard close alternatives, several of which we have already discussed in
this release, this section provides additional illustrative examples of
alternatives to the proposed swing pricing and hard close requirements
that are designed to reduce shareholder dilution. The alternatives
discussed in this section are intended to have lower operational costs
than the proposed requirements, although the reduction in costs
involves other trade-offs, as discussed below.
a. Spread Cost Adjustment on Days With Estimated Net Outflows
    Spread costs can be a major component of a fund's swing factor.
Instead of the proposed swing pricing and hard close requirements, we
could require a simplified version of swing pricing in which funds
adjust their current NAVs to reflect good faith estimates of spread
costs on days the fund reasonably expects to have net redemptions based
on estimated flows. Under this approach, if a fund determined its NAV
based on the midpoint of each investment's bid-ask spread, on days of
estimated net redemptions the fund would swing its transaction price
down by an amount designed to reflect spread costs in the portfolio.
The adjustment would be based on good faith estimates of spread costs,
consistent with the proposed swing pricing requirement. As with the
swing factor under the proposal, the estimated spread costs could be
determined periodically, as long as significant market developments or
other developments that affect the good faith estimate of spread costs
prompt a quicker reevaluation.\266\ If the fund already uses bid prices
for valuation purposes, it would not be required to adjust its current
NAV to reflect spread costs.\267\
---------------------------------------------------------------------------

    \266\ This approach would not require a fund to use bid prices
to value each of its investments when determining its NAV. Instead,
as appropriate, a fund could continue to value its investments using
the midpoint to determine its NAV and, on days of estimated net
outflows, the fund would be required to reduce the fund's
transaction price based on good faith estimates of spread costs.
    \267\ See supra note 202 (discussing accounting standards that
state that the price within the bid-ask spread that is most
representative of fair value in the circumstances shall be used to
measure fair value and that provide that use of bid prices is
permitted for these purposes, as well as use of mid-market pricing
as a practical expedient).
---------------------------------------------------------------------------

    This approach would be designed to mitigate dilution from spread
costs associated with selling investments to meet redemptions. The
reflection of costs would be dynamic when a fund expects net outflows,
with the adjustment to reduce a fund's transaction price increasing in
size as spreads widen during times of stress. A fund would need to
estimate the direction of flows (i.e., net redemptions or net
purchases) based on available information before the fund publishes its
price, but the fund would not need to estimate the size of net flows. A
fund's reasonable expectation of the direction of fund flows may be
based on different types of information, depending on the fund. For
example, a fund could consider indicative flow information from
intermediaries, trends in orders submitted that day, general market
intelligence, or historical trends in flows.
    This approach would impose lower operational burdens and costs
relative to the proposal, including by not necessitating a hard close
and by simplifying the analysis of a swing factor. At the same time,
the approach would address dilution less fully than the proposal.
Unlike the proposed swing pricing requirement, this approach would not
capture market impact or other costs of selling investments to meet
redemptions. For one, a fund could not assess market impact without an
estimate of the size of net flows and, without a hard close, estimating
the size of net flows with accuracy would be subject to a greater risk
of error than estimating only the direction of flows. In addition, as
previously discussed, there may be operational challenges and
complexities to estimating market impact costs more generally. Another
difference from the proposed swing pricing requirement is that this
approach would not address dilution from sizeable net purchases.
Because smaller levels of net purchases are less likely to result in
dilution than net redemptions (as funds have more time to invest the
proceeds from net purchases than to sell investments to meet
redemptions), it may not be appropriate to require a fund to adjust its
current NAV to reflect spread costs on any day it estimates net
purchases. For this reason, we have a net inflow swing threshold of 2%
in the proposal and, as with the potential inclusion of market impact
in this framework, estimating the size of net flows involves a greater
risk of error than estimating only the direction of net flows.
    In addition to other requests for comment related to variations of
swing pricing and estimation of flows, we request comment on requiring
a fund to adjust its current NAV to reflect good faith estimates of
spread costs on days the fund reasonably expects to have net
redemptions, instead of requiring the proposed version of swing pricing
and a hard close.
    183. Would this approach reduce operational burdens and costs
relative to the proposed swing pricing and hard close requirements?
Would this approach reduce operational burdens and costs relative to
the liquidity fee alternative? Would this approach reduce operational
burdens and costs relative to the dual pricing alternative? How
effective would this approach be in addressing dilution? To what extent
would this approach protect non-

transacting investors from dilution due to the bid-ask spread costs and
ameliorate any first-mover advantage? Would the effectiveness of the
tool vary between normal and stressed market conditions? Should this
approach also reflect transaction costs in addition to spreads, for
example, commissions, markups, and/or markdowns?
    184. How accurately can funds estimate the direction of daily net
flows? Should the requirement apply on days the fund reasonably expects
to have net redemptions (such that the fund uses this approach only if
it affirmatively expects net redemptions) or on days the fund does not
reasonably expect to have net purchases (such that the fund defaults to
this approach unless it affirmatively expects net purchases)?
    185. To what extent do funds already value their portfolio
investments using bid prices? What consequences, if any, would a
requirement to reflect good faith estimates of spread costs when a fund
reasonably expects to have net redemptions have on these funds?
    186. Would this approach incentivize funds to value their portfolio
investments using bid prices without properly evaluating whether the
bid price is most representative of fair value in the circumstances, in
order to avoid the need to determine whether the fund reasonably
expects net redemptions each day?
    187. If we adopt this approach, how should we amend disclosure and
reporting requirements? For example, if we required funds to use this
simplified version of swing pricing, should current prospectus and
financial statement reporting requirements for swing pricing apply?
Should we require funds to report the frequency and amount of
adjustments made to their current NAVs under this approach? Should a
fund be required to report both its current NAV and its adjusted price?
Should a fund be required to report information about the accuracy of
its estimates of flow information? Where should any such information be
located (e.g., Form N-PORT, fund websites, annual and semi-annual
reports)?
b. Liquidity Fee When Trading Costs Are Significant
    Another alternative we considered is a liquidity fee that would
apply only on days when a fund anticipates significant trading costs. A
rule could either define the trigger or require funds to establish
policies and procedures that identify their own fund-specific triggers.
In terms of establishing the trigger, one alternative would be a
trading cost trigger that the fund sets in advance or that the
Commission establishes by rule (for example, with a set size, a set
increase, or a set standard deviation in trading costs based on
criteria such as spreads or transaction volumes for the fund's
portfolio, either in terms of dollars or as a percentage of the fund's
portfolio). As another alternative, the trigger for applying a
liquidity fee could include other factors that indicate an increase in
trading costs, such as increasing net flows (e.g., based on the fund's
flow history or estimated flows) or decreasing liquidity (e.g., based
on declines in the percentage of the fund's investments classified as
highly liquid, or increases in the percentage of investments classified
as illiquid). A fund's trigger for applying liquidity fees could be
required to be made public or kept non-public.
    As one example of a policies and procedures based approach, a fund
could be required to establish written policies and procedures that
would define the trigger event(s) that would cause a fund to apply a
fee. The fund's policies and procedures would be required to be
designed to mitigate dilution and recoup the costs the fund reasonably
expects to incur as a result of shareholder redemptions on days when
trading costs are higher. Funds would have discretion to define their
own trigger events, but all funds would be required to consider certain
identified factors, such as trading costs, liquidity of the fund's
portfolio, market conditions, and reasonably estimated investor flows,
in determining their trigger events.\268\
---------------------------------------------------------------------------

    \268\ Consideration of expected investor flows would not require
a fund to estimate the size of expected flows with accuracy. Rather,
this consideration would be intended to recognize the potential
relevance of flows, to the extent a fund has sufficient information
to reasonably estimate them. Moreover, if a fund anticipates a
significant increase in costs of selling its investments but does
not expect to need to sell investments due to an anticipation of net
inflows, this approach would not require a fund to impose a fee.
---------------------------------------------------------------------------

    There are several alternatives for setting a fee amount. For
instance, the fund could either base the fee amount on reasonable
estimates of expected transaction costs, including market impact, or if
the fund determined this estimation is not feasible, the fund could
establish a set fee amount, or graduated fee levels, it would apply
when a trigger event occurs. The rule could either allow a fund to
determine that estimating transaction cost amounts is not feasible in
advance, or the rule could require a fund to consider its ability to
estimate transaction costs each time a liquidity fee applies. Under
another possible approach, the rule could establish a default fee
amount, such as 1%, that a fund could opt out of or adjust if
determined to be in the best interest of the fund.
    With respect to board oversight, if fee triggers or amounts were
determined based on written policies and procedures, we could require
board approval of the policies and procedures defining a fund's trigger
event or identifying how to determine a fee amount, as well as any
material changes to those policies and procedures. As for determining
when a trigger event occurs and the amount of the fee, similar to the
proposed swing pricing requirement, we could allow a liquidity fee
administrator approved by the board to make some or all of these
determinations.
    If designed incorrectly, a fee that only applies when trading costs
are significant could incentivize investors to redeem if investors can
observe in advance that a fee is likely to apply in the near future.
There are various mechanisms we could use to reduce these incentives.
For one, if the rule identified specific trigger events that all funds
would use, in that case, the potential for preemptive redemptions would
be reduced if investors or other market participants could not observe
with certainty if a fund is nearing a trigger event. Another approach
would be to identify specific thresholds for triggering a fee in the
rule and allow a fund to choose to use one or more of those thresholds
to determine when to apply a fee. If funds determined their own fee
triggers, the rule could provide that a fund's trigger event would be
either public or nonpublic. Public disclosure of a fund's trigger for
applying liquidity fees would increase transparency. The rule could
require, however, that the fund's trigger event be kept nonpublic in
order to reduce the potential for preemptive redemptions. Under this
approach, a fund would not disclose its defined trigger event, and
instead would be required to disclose in its prospectus that it applies
a liquidity fee on days its trading costs increase, as well as how it
determines the amount of the fee. A fund could be required to report
information about how frequently it applied a liquidity fee and the
amount of each fee on Form N-PORT.
    Unlike the proposed swing pricing requirement, this approach would
not address smaller levels of dilution that may occur in the normal
course. Instead, it would be designed to focus on periods where funds
have heightened dilution risk, such as in stress events. In addition,
this approach would not address dilution that may occur from net
purchases.
    In addition to other requests for comment related to liquidity fee

alternatives, we request comment on whether we should require a fund to
apply liquidity fees only on days when a fund anticipates significant
trading costs, instead of requiring swing pricing and a hard close.
    188. Should a fund be required to apply a liquidity fee only when
trading costs are significantly increasing, such as a period of stress?
If so, should the rule identify a trigger when fees apply, or should
funds establish their own trigger events?
    189. If the rule establishes a trigger, what should that trigger be
based on? For example, should the rule require a fund to apply a
liquidity fee when spreads are widening or transaction volumes for the
portfolio increase? For instance, should fees be required when spreads
widen beyond a 95% confidence level for key components of the fund's
portfolio, where the mean and standard deviation of these key markets
are measured for the trailing 252 business days (the average number of
trading days in a year), and the trigger occurs if the current spread
is greater than 1.65 standard deviations (i.e., the equivalent of a 95%
confidence in a normal distribution) above the mean for that period?
Should different confidence levels, standard deviations, or measurement
periods be used? Should a liquidity fee trigger be based on an increase
in the transaction volume of the fund's portfolio, such as a trigger
when the dollar- or percentage-based transaction volume for that day
exceeds the 95% confidence level compared to the average daily
transaction volume for the trailing 252 business days? Should different
confidence levels or measurement periods be used? Do funds already
track information that would allow them to identify readily when a
trigger based on widening spreads or increased dollar transaction
volume is crossed, or would they need to collect or monitor additional
information about spreads or transaction volumes? Should the rule use
other or additional triggers? For example, should a trigger be based on
or consider large net outflows or a reasonable expectation of large net
outflows above a certain percentage, such as net redemptions above 1%
or 2% of net assets or net redemptions that are higher than typical for
the individual fund based on historical flows? If the rule included a
numerical threshold for net redemptions, would funds have concerns
about their ability to accurately estimate net flow amounts and
therefore be less likely to apply fees? If so, would a safe harbor
address these concerns? Should a trigger be based on or consider an
identified change in the fund's liquidity classifications, such as an
identified decrease in the percentage of highly liquid investments the
fund holds or an identified increase in the percentage of illiquid
investments the fund holds? Should identification of a trigger event
account for indicators of market stress in the financial markets
overall or in the specific markets in which the fund invests? If so,
what indicators of market stress should the rule include? Should the
rule identify multiple potential triggers and allow funds to choose
whether to use one or more of those triggers to determine when to apply
a fee?
    190. Instead of identifying specific trigger points by rule, should
we require funds to establish and implement policies and procedures
that describe when the fund will impose a fee? Would a policies and
procedures approach allow funds to tailor the application of a fee to
scenarios in which transacting investors are likely to cause dilution?
Under a policies and procedures approach, should we identify the
factors a fund must consider in defining its trigger events? If so,
what factors should we require a fund to consider (e.g., trading costs,
liquidity of the fund's portfolio, market conditions, and reasonably
estimated investor flows)? Rather than require funds to consider these
factors, should we require funds to define their trigger events with
respect to these or other specific factors?
    191. Should we permit a fund not to apply a fee upon the occurrence
of a defined trigger event? For example, should a fund be required to
apply a fee when a trigger event occurs, unless the board determines
that it is not in the interest of the fund to apply a fee in the
specific circumstance?
    192. What risks are associated with requiring a fund to define its
own trigger event, and how could we reduce these risks? Would funds
define a trigger event such that a fund would be delayed in determining
that a fee should apply relative to potentially fast-moving changes in
market conditions? If so, would this delay increase the potential for
preemptive redemptions and contribute to a first-mover advantage? Would
funds define a trigger event in a way that makes it unlikely that a
fund would ever apply a fee? Are there ways to ensure that funds'
policies and procedures are sufficiently robust, such as requirements
to report the policies and procedures to the Commission or to report
when a fund applied a fee? For example, should funds be required to
confidentially report their trigger events to the Commission and to
report how frequently fees applied and in what amounts on Form N-PORT?
    193. Should liquidity fees apply only to redemptions if a trigger
event occurs? Or should liquidity fees apply to both redemptions and
purchases under this approach? Should a single trigger event result in
fees applying to both redemptions and purchases, or should funds
establish trigger events that differ between redemptions and purchases?
    194. How should the amount of a liquidity fee be determined under
this approach? Should the rule set a specified fee amount that would
occur upon any fund's trigger event, such as 0.5%, 1%, or 2%? Should
any fee amount set by rule be a default amount, such that a fund could
use a higher or lower fee amount if determined to be in the best
interest of the fund? Should funds be required to calculate the amount
of the fee based on reasonable estimates of expected transaction costs,
including market impact? Should fund policies and procedures, or a
rule, establish a set fee amount that would apply if a fund is unable
to reasonably estimate expected transaction costs? Should funds be
required to consider their ability to reasonably estimate transaction
costs each time a trigger event applies, or should funds be able to
determine in advance that estimation is not feasible and opt to use a
set or graduated fee for all trigger events? Should fund policies and
procedures, or a rule, establish graduated fee levels that would apply
for different trigger events? Should we establish a limit on the size
of a liquidity fee under this approach (e.g., 2%, 3%, or 5%)?
    195. After a fee is triggered, how should the rule permit or
require a fund to determine when it should no longer apply a fee? For
instance, should a fund reassess daily whether trading costs have
decreased, or should a liquidity fee remain in place for a set number
of days (e.g., 2 to 5 days) and then no longer apply unless the fund
determines a fee continues to be in the best interest of the fund?
    196. What information should funds be required to disclose in their
prospectuses under this approach? How much detail should funds be
required to provide about when they will impose a liquidity fee? Should
the prospectus state only that a fund will impose a fee when trading
costs increase, or should the prospectus also discuss the factors a
fund considers to make this determination? Should a fund be required to
disclose its trigger events in its prospectus? Would that disclosure
contribute to potential preemptive redemptions, or would trigger events
be difficult to observe publicly in advance? Should funds be required
to disclose fee

amounts in their prospectuses, or their methods for calculating fee
amounts?
    197. Should the fund's board be required to approve the fund's
written policies and procedures defining the trigger event(s) and how
the fund will determine the amount of the fee? Should the board be
required to approve any material changes to the policies and
procedures? Should other board oversight be required? Should the board
have to determine that a fee is appropriate every time a trigger event
occurs before the fund can impose a fee? Or should the board be
required to designate a liquidity fee administrator that would be
responsible for determining when liquidity fees apply and the size of
the fee? Should the definition of a liquidity fee administrator mirror
the proposed definition of a swing pricing administrator? If not, what
changes should be made? Similar to the proposed swing pricing
requirement, should a liquidity fee administrator be required to
provide periodic reports to the board (at least annually) that
describe: (1) the administrator's review of the adequacy of the
policies and procedures identifying the fund's trigger event and the
effectiveness of their implementation, including the effectiveness in
mitigating dilution; (2) any material changes to the liquidity fee
policies and procedures since the date of the last report (if such
material changes are not subject to board approval); and (3) the
administrator's review and assessment of the fund's method for
determining the size of the liquidity fee?
    198. What are the operational implications of this approach for
funds and intermediaries? Would intermediaries be able to apply a
liquidity fee on the same day the fund announces its imposition? What
effects would this approach have on investors?
    199. If liquidity fees are only applied rarely under this approach,
how would that affect fund and intermediary preparedness for imposing
fees? Would it increase investor sensitivity to fees and increase the
likelihood of preemptive redemptions?
    200. Should we pair a requirement to adjust a fund's current NAV to
reflect spread costs on days the fund estimates it will have net
redemptions with a requirement to apply a liquidity fee when trading
costs increase? Would this combined framework address dilution from net
redemptions in a manner similar to the proposed swing pricing
requirement without the costs of a hard close?

E. Reporting Requirements

1. Amendments to Form N-PORT
    Registered management investment companies and ETFs organized as
unit investment trusts are required to file periodic reports on Form N-
PORT about their portfolios and each of their portfolio holdings as of
month-end.\269\ While the reports provide monthly information to the
Commission, funds file these reports on a quarterly basis with a 60-day
delay, and the public only has access to information for the third
month of each quarter. We are proposing to require reports on Form N-
PORT to be filed within 30 days of month-end, which would be followed
by public availability of much of the reported information 60 days
after month-end. We are also proposing to require an open-end fund that
is subject to classification requirements in the liquidity rule to
provide information regarding the aggregate percentage of its portfolio
represented in each of the three proposed liquidity categories, which
would be publicly available. The reported aggregate percentages would
include adjustments to give effect to other aspects of the proposal.
Finally, we are proposing amendments relating to funds' use of swing
pricing, conforming amendments to reflect the proposed amendments to
rule 22e-4, and amendments to certain entity identifiers.
---------------------------------------------------------------------------

    \269\ For purposes of this section, the term ``fund'' refers to
registrants that currently are required to report on Form N-PORT,
including open-end funds, registered closed-end funds, and ETFs
registered as unit investment trusts, and excluding money market
funds and small business investment companies.
---------------------------------------------------------------------------

a. Filing Frequency
    We are proposing to amend rule 30b1-9 and Form N-PORT to require
funds to file reports on Form N-PORT on a more timely basis, with
changes to both the frequency with which a fund would file reports on
Form N-PORT and when the reports are due.\270\ Specifically, rather
than filing monthly reports with the Commission 60 days after the end
of each fiscal quarter, we are proposing to require that funds file
reports on a monthly basis.\271\ These monthly filings would be due
within 30 days after the end of the month to which they relate and
would be made public 60 days after the end of the month to which they
relate.\272\ As an example, currently a fund files Form N-PORT reports
for the first, second, and third months of each fiscal quarter with the
Commission 60 days after the end of the third month of the quarter.
Under the proposal, funds would separately file reports for the first,
second, and third months of the quarter, with each month's report due
within 30 days of month-end.
---------------------------------------------------------------------------

    \270\ The proposal would also make a conforming edit to the
filing instructions for Form N-PORT. See proposed 17 CFR 274.150(a).
    \271\ We would also make conforming changes to General
Instruction A of Form N-PORT and rule 30b1-9 to remove references to
the requirement for a fund to maintain in its records the
information that is required to be included on Form N-PORT no later
than 30 days after the end of each month; this would no longer be
necessary because the information would be filed with the
Commission. See Proposed General Instruction A of Form N-PORT;
proposed rule 30b1-9.
    \272\ Id; proposed General Instruction F of Form N-PORT. As is
the case currently, if the due date falls on a weekend or holiday,
the filing deadline would be the next business day.
---------------------------------------------------------------------------

    These changes are intended to provide more timely information
regarding the fund's portfolio, including its liquidity profile. Both
the current quarterly reporting cadence and the 60-day delay after the
end of the quarter before reports are due make it difficult to use
reported data to assess events that are developing quickly, or to
identify early warning signs of potential distress. By the time the
information is filed, it is at least two, and could be as many as four,
months out of date.\273\
---------------------------------------------------------------------------

    \273\ Because reports are due 60 days after the end of a fund's
fiscal quarter, deadlines vary based on the fund's fiscal year. As
an example, depending on a given fund's fiscal year, reports on Form
N-PORT that included information for Mar. 2020 were due between June
1, 2020, and July 30, 2020. For instance, for funds with fiscal
years ending Dec. 31, Sept. 30, June 30, or Mar. 30--which is just
under half of all funds--the due date of the filing was May 30,
2020. Because this was a Saturday, the filing deadline was extended
until the next business day on Monday, June 1. See General
Instruction A to Form N-PORT.
---------------------------------------------------------------------------

    As proposed in 2015 and adopted in 2016, Form N-PORT would have
provided for monthly filings with the Commission, within 30 days after
the end of each month.\274\ Only reports for every third month would
have been available to the public.\275\ The Commission originally
required monthly portfolio reporting because it would be useful for
fund monitoring, particularly in times of market stress.\276\ The
Commission originally required funds to file each monthly report within
30 days of month end because more delayed data would reduce the utility
of the information to the Commission and lag times of more than 30 days
would

make monthly reporting impractical, as reports would overlap with
preparation time.\277\
---------------------------------------------------------------------------

    \274\ See Investment Company Reporting Modernization, Investment
Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18,
2016)] (``Reporting Modernization Adopting Release''), at section
II.A; Investment Company Reporting Modernization, Investment Company
Act Release No. 31610 (May 20, 2015) [80 FR 33589 (June 12, 2015)]
(``Reporting Modernization Proposing Release'').
    \275\ See Reporting Modernization Adopting Release, supra note
274, at section II.A.
    \276\ See id., at paragraph following n.453.
    \277\ See id., at nn.461-462 and accompanying text.
---------------------------------------------------------------------------

    Before the date funds would have been required to comply with this
requirement, the Commission experienced a cybersecurity incident that
resulted in unauthorized access to certain nonpublic information on the
EDGAR system.\278\ As part of the Commission's ongoing assessment of
its internal cybersecurity risk profile, the Commission re-evaluated
and modified the filing frequency for reports on Form N-PORT. The
Commission required funds to file a report with the Commission for each
month in the fund's fiscal quarter no later than 60 days after the end
of each fiscal quarter and to maintain in their records the information
that is required to be included on Form N-PORT not later than 30 days
after the end of each month. In making this change, the Commission
stated that it significantly reduced the sensitivity of the non-public
data, but that the staff would continue to monitor and solicit feedback
on the data received and the use made (or expected to be made) of such
data in furtherance of the Commission's statutory mission, as well as
cybersecurity considerations and other matters deemed relevant by the
staff.\279\
---------------------------------------------------------------------------

    \278\ See Statement on Cybersecurity (Sept. 20, 2017), available
at https://www.sec.gov/news/public-statement/statement-clayton-2017-09-20; see also Testimony before the Financial Services and General
Government Subcommittee of the Senate Committee on Appropriations
(June 5, 2018), available at https://www.sec.gov/news/testimony/testimony-financial-services-and-general-government-subcommittee-senate-committee.
    \279\ See Amendments to the Timing Requirements for Filing
Reports on Form N-PORT, Investment Company Act Release No. 33384
(Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)] at nn.36-39 and
accompanying text.
---------------------------------------------------------------------------

    The Commission applies controls and systems for the use and
handling of filing systems for confidential information and associated
confidential data in a manner that reflects the sensitivity of the data
and is consistent with the maintenance of its confidentiality. The
Commission also has gained additional experience in receiving and
maintaining sensitive portfolio data on the EDGAR system. This
experience includes, for example, the existing non-public portions of
Form N-PORT, which are subject to controls and systems designed to
protect their confidentiality, as well as confidential treatment
requests for reports on Form 13F.\280\
---------------------------------------------------------------------------

    \280\ See Electronic Submission of Applications for Orders under
the Advisers Act and the Investment Company Act, Confidential
Treatment Requests for Filings on Form 13F, and Form ADV-NR;
Amendments to Form 13F, Investment Company Act Release No. 34635
(June 23, 2022) [87 FR 38943 (June 30, 2022)], at section II.C.
---------------------------------------------------------------------------

    Market events have reinforced the need for timely data regarding
funds' portfolios and the liquidity of those portfolios. For example,
disruptions in the markets for Treasury securities and corporate bonds
began near the end of the first quarter of 2020, but many funds'
reports on Form N-PORT reflecting these events were not due until June
1, 2020, or as late as the end of July 2020. This meant that Commission
staff were not able to review monthly filings, for example, to assess
and analyze how the events were affecting funds or identify issues for
further inquiry. Similarly, the Russian invasion of Ukraine began in
late February 2022, when many funds were just filing their reports for
the final quarter of 2021. This meant that when Commission staff were
reviewing data to assess funds' exposures to securities that could be
affected by the invasion, the data was several months out of date.\281\
As a result, during major market events, the staleness of Form N-PORT
data limits the Commission staff's ability to develop a comprehensive
understanding of the market. The stale data also can impede our ability
to contribute fully to interagency discussions of and responses to
market events.
---------------------------------------------------------------------------

    \281\ As evidence mounted that an invasion was likely to occur,
funds may have adjusted their exposure to securities that could be
affected, but Commission staff were unable to review this on a
market-wide basis until months after the invasion due to the delay
in receiving information.
---------------------------------------------------------------------------

    Although funds are required to maintain the monthly data and
produce it to Commission staff upon request, any such production would
be done on an individual basis. In addition, making individual requests
requires Commission staff to determine the appropriate funds from which
to collect data, which can be particularly challenging when Commission
staff is responding to market events but may not have the market data
necessary to determine quickly which funds to prioritize in responding
to the event.
    Requiring funds to file monthly reports on Form N-PORT within 30
days of the end of each month, consistent with the filing frequency the
Commission initially adopted for Form N-PORT, would enhance our ability
to effectively oversee and monitor the activities of investment
companies in order to better carry out our regulatory functions,
consistent with the goals of Form N-PORT reporting.\282\
---------------------------------------------------------------------------

    \282\ See, e.g., Reporting Modernization Proposing Release,
supra note 274, at section IV.A. See also 2015 Proposing Release,
supra note 31, at text accompanying n.562.
---------------------------------------------------------------------------

    We request comment on the proposed changes to the timing and
frequency with which fund would be required to file reports on Form N-
PORT, including:
    201. As proposed, should we require that funds file reports on Form
N-PORT on a monthly, rather than quarterly, frequency? Because funds
are currently required to maintain the information required to prepare
their reports on Form N-PORT on a monthly basis, within 30 days after
the end of the reporting period, would they have any increased burden
due to filing such information monthly, within 30 days after the end of
the reporting period, as proposed?
    202. As proposed, should we shorten the deadline for filing reports
on Form N-PORT to 30 days after the end of the reporting period? Should
we instead use a different deadline, such as 15, 45, or 60 days after
the end of the reporting period?
    203. Should we, as proposed, revise General Instruction A of Form
N-PORT and rule 30b1-9 to remove the requirement for a fund to maintain
in its records the information that is required to be included on Form
N-PORT no later than 30 days after the end of each month because this
information would be filed with the Commission under the proposal?
b. Publication Frequency
    We are proposing to make funds' monthly reports on Form N-PORT
public 60 days after the end of each monthly reporting period.\283\
Currently, only the report for the third month of every quarter is made
public, meaning the proposal would triple the amount of data made
available to investors on Form N-PORT in a given year. Thus, the
proposal would enhance the ability of investors to review and monitor
information about their funds' portfolios.\284\
---------------------------------------------------------------------------

    \283\ See proposed General Instruction F of Form N-PORT.
    \284\ We also propose to include additional information about
the aggregate liquidity profiles of fund portfolios. See infra
section II.E.1.c.
---------------------------------------------------------------------------

    We continue to believe that publication of information collected on
Form N-PORT can benefit investors by assisting them in making more
informed investment decisions.\285\ The public availability of monthly
information, rather than information only for the third month of each
quarter, may enhance these benefits. For example, institutional
investors could directly use

the monthly information reported on Form N-PORT to evaluate fund
portfolios and assess the potential for returns and risks of a
particular fund, and other investors may benefit from third-party
analysis of the monthly data.
---------------------------------------------------------------------------

    \285\ See Reporting Modernization Adopting Release, supra note
274, at section II.A.4.
---------------------------------------------------------------------------

    When the Commission first adopted Form N-PORT, it recognized
potential negative effects from frequent publication of Form N-PORT
data. For example, the Commission acknowledged the risk that frequent
public disclosure could allow market participants to use funds' reports
on Form N-PORT to engage in predatory trading such as front-
running.\286\ The Commission also recognized that more frequent public
disclosure could permit free riding on a fund's research or trading
expenditures by allowing other market participants to copy the fund's
trades.\287\ In determining to maintain the status quo of quarterly
public reporting based on the fund's fiscal quarters, the Commission
stated that it was important to assess the impact of the data reported
on Form N-PORT on the mix of information available to the public, and
the extent to which these changes might affect the potential for
predatory trading, before determining whether more frequent or more
timely public disclosure would be beneficial to investors in
funds.\288\
---------------------------------------------------------------------------

    \286\ See Reporting Modernization Adopting Release, supra note
274, at text accompanying n.488. See also Investment Company
Reporting Modernization, Investment Company Act Release No. 32936
(Dec. 8, 2017) [82 FR 58731 (Dec. 14, 2017)] (noting same concerns).
    \287\ Id. But see Morningstar Comment Letter on Reporting
Modernization Proposing Release, File No. S7-08-15, available at
https://www.sec.gov/comments/s7-08-15/s70815-355.pdf (discussing
data that funds providing more frequent disclosure do not appear to
exhibit lower returns as a result of predatory behavior).
    \288\ Reporting Modernization Adopting Release, supra note 274,
at text accompanying nn.494-499 and accompanying text.
---------------------------------------------------------------------------

    Since the adoption of Form N-PORT, funds' practices with respect to
disclosure of information about their portfolios have continued to
evolve. For example, many funds, including actively managed funds,
voluntarily provide their complete portfolio holdings on their websites
on a monthly basis, typically lagged 30 days. Further, ETFs, including
actively managed ETFs, generally are required to provide transparency
into their portfolio holdings on a daily basis.\289\ Many funds also
provide monthly information about their portfolio holdings to third
party data aggregators, generally with a lag of 30 to 90 days, which in
turn make them available to investors for a fee. We believe this
demonstrates that investor demand for monthly portfolio holdings
already exists and that funds providing the information have determined
the potential for predatory trading is justified by the benefit to
investors. The proposal would simply allow all investors to receive
similar data without paying a fee.\290\ Thus, we believe that many
funds already provide public transparency of their portfolio holdings
more frequently than the proposal would require, and that our proposal
would level the playing field by standardizing the reporting timelines
for all funds, putting the data in a single location that all investors
can access without charge, and using a standardized format that enables
investor analysis of reported data.\291\ In addition, under the
proposal, the public information for each fund's monthly report on Form
N-PORT would not be publicly available until 60 days after the end of
the month, which is the same delay that currently exists for funds'
reports for the third month of every quarter. This is designed to
balance the benefits to investors of more frequent portfolio
disclosure, while also retaining the existing 60-day delay, which we
believe is appropriate in order to make the disclosed positions less
timely and thus less likely to facilitate predatory trading
practices.\292\ As a result, and given that the proposal would provide
data for additional monthly periods but would not change the current
60-day delay in making funds' reports on Form N-PORT public, the
proposal is intended to mitigate opportunities for predatory trading or
free riding of funds' trading strategies.\293\
---------------------------------------------------------------------------

    \289\ See 17 CFR 270.6c-11(c)(1)(i); Exchange-Traded Funds,
Investment Company Act Release No. 33646 (Sep. 25, 2019) [84 FR
57162 (Oct. 24, 2019)] (``ETF Release''), at section II.C.4 (stating
that, although a few commenters raised concerns about front running
or free riding if certain ETFs were required to provide full daily
portfolio transparency, the Commission believed it was likely that
all current ETFs that may rely on the rule already provide full
portfolio transparency as a matter of market practice). In addition,
a small number of ``nontransparent'' ETFs have received an exemptive
order from the Commission permitting them not to disclose their
portfolio holdings on a daily basis. As of Mar. 31, 2022, there were
45 nontransparent ETFs. Several of these nontransparent ETFs
voluntarily disclose their complete portfolios on a monthly basis
with a one-month lag.
    \290\ For example, we understand that a majority of funds
provide monthly information regarding their portfolios to a third-
party data aggregator. Individual investors are able to review the
holdings reported by funds providing data to the aggregator using an
analysis tool for which the aggregator charges a fee.
    \291\ In addition, because we propose to make funds' reports on
Form N-PORT available for every month, investors could use Form N-
PORT to monitor how their funds respond to events regardless of when
they occur. For example, investors in some funds have access to Form
N-PORT filings for Mar. 2020, while investors in other funds do not.
This is because Form N-PORT data is publicly available for the third
month of each fund's fiscal quarter, but fiscal quarters vary among
funds.
    \292\ Section 45(a) of the Investment Company Act requires
information in reports filed with the Commission pursuant to the Act
be made public unless we find that public disclosure is neither
necessary nor appropriate in the public interest or for the
protection of investors. For the reasons discussed above, we
preliminarily believe that keeping the data for the first and second
months of a fund's calendar quarter confidential until the
expiration of the 60-day period provided by the proposal is
necessary or appropriate in the public interest for the protection
of investors.
    \293\ Form 13F is due 45 days after the end of each calendar
quarter, meaning that every third month, a fund's disclosure on Form
N-PORT would not be the first mandatory disclosure of its portfolio.
Funds currently have the ability to designate certain holdings for
the third month in every quarter as ``miscellaneous securities,''
which are not disclosed publicly on Form N-PORT. Because we propose
that all filings would eventually become public, we are extending
this to filings for each month. See text accompanying infra note
319.
---------------------------------------------------------------------------

    Furthermore, the proposal is intended to benefit investors through
increased transparency of Form N-PORT information, especially because
it is provided in structured format and made in a single, centralized
database. Giving investors access to this information in monthly
reports on Form N-PORT may result in investors being better able to
monitor the portfolios of their funds in a systematic fashion, and
assist investors in choosing the investment products that most closely
align with their desired levels of risk, asset exposures, and liquidity
profiles.
    The proposed reporting requirement also takes into account the
cybersecurity risk profile of the information we are collecting. Under
the proposal, we would receive the monthly information 30 days after
the end of each month. Because the monthly information reported on Form
N-PORT would be made public 30 days after it is filed with the
Commission, the Commission would retain less confidential information
than under the final rules the Commission adopted in 2016. This is
because, under the proposal, information for each month would become
public shortly after filing instead of information in only the third
month of each quarter being publicly disclosed.
    Currently, certain information reported on Form N-PORT is
nonpublic, even in the report for the third month of the quarter that
is otherwise publicly available. This aspect of the form is unchanged
in this proposal, and that information--which includes liquidity
classifications for individual portfolio investments--would remain
nonpublic in individual reports. However, Commission staff may publish
aggregate or other anonymized information about the nonpublic

elements of reports on Form N-PORT.\294\
---------------------------------------------------------------------------

    \294\ See General Instruction F of Form N-PORT.
---------------------------------------------------------------------------

    We request comment on the proposed changes to the frequency with
which funds' reports on Form N-PORT would be made public, including:
    204. Should we, as proposed, make funds' reports on Form N-PORT
public on a monthly basis, 60 days after the end of the month to which
they relate? How would investors use the additional information? Are
there other potential users of public portfolio disclosures, including
third-party users that provide services to investors, who find the
additional information useful, and through whom investors could benefit
indirectly?
    205. Many funds already provide monthly information about their
portfolio holdings on their websites. Would investors benefit from
having centralized information on Form N-PORT that includes all funds,
rather than having to look at each fund's website? Would investors
benefit from having the information in a structured format rather than
the format the fund uses on its website? Would the proposed requirement
reduce costs for investors who currently use data aggregators to obtain
holdings information regarding the funds in which they invest?
    206. Should the lag between filing and publication be extended, for
example to 45 days after filing, or shortened, for example to 15 days
after filing? Should reports be made public immediately upon filing?
    207. Previously, some have suggested that more frequent public
disclosure could raise costs for investors due to predatory trading or
copy-catting of fund strategies. Given that the proposal would provide
data for additional monthly periods but would not change the current
60-day delay in making funds' reports on Form N-PORT public, would the
proposal raise costs for investors due to predatory trading or copy-
catting? What empirical data exists that supports these assertions?
    208. Would actively managed nontransparent ETFs, which generally do
not disclose their complete portfolios on a daily basis, be affected by
the proposed requirement to disclose their portfolio on a 60-day delay
differently than other actively managed funds, and should we permit
these funds to disclose their portfolios less frequently as a result?
    209. Do funds voluntarily publish data about their portfolios to
compete for investors, notwithstanding potential effects on their
performance?
    210. Are there certain items on Form N-PORT that we propose to make
public on a monthly basis that should only be public on a quarterly
basis? If so, why is monthly disclosure of the relevant item neither
necessary nor appropriate in the public interest or for the protection
of investors?
c. Public Reporting of Aggregate Liquidity Classifications
    We are proposing to require that funds' monthly reports on Form N-
PORT would include the percentage of a fund's assets that fall into
each of the three liquidity categories.\295\ To give effect to the
proposed adjustments to a fund's calculations of its level of highly
liquid investments and illiquid investments in the liquidity rule, a
fund would be required to make the same adjustments to its reported
amount of highly liquid investments and illiquid investments, rather
than simply report the percent of assets the fund has classified in
each category. Specifically, a fund would reduce its reported amount of
highly liquid assets by the amount of highly liquid assets that it
posts as margin or collateral for derivatives transactions that are not
highly liquid and by the amount of the fund's liabilities. A fund also
would increase its reported amount of illiquid assets by the amount of
collateral available upon exit of illiquid derivatives
transactions.\296\ The fund's adjustments are intended to more
accurately reflect the availability of assets to meet redemptions. We
propose to require that a fund's reported aggregate liquidity
classifications include these adjustments, rather than report the
adjustments separately, to make it easier for investors to understand
the information a fund reports about its liquidity.
---------------------------------------------------------------------------

    \295\ See proposed Item B.12.a of Form N-PORT.
    \296\ See proposed Items B.8 and B.12.b of Form N-PORT. In
certain situations, the adjustments could result in the amounts of a
fund's investments in all three categories not summing to 100% of
assets. For example, the reduction in the reportable amount of
highly liquid assets may be greater than the increase in the
reportable amount of illiquid assets, resulting in the percentages
of the fund's assets in each category summing to an amount below
100%. Funds would be required to increase their reported amounts of
moderately liquid investments if necessary to make the amounts the
fund reports sum to 100%. See proposed Item B.12.b of Form N-PORT.
---------------------------------------------------------------------------

    The public disclosure framework we are proposing is similar to the
framework the Commission adopted in 2016.\297\ At that time, the
Commission determined to require a fund to publicly disclose the
aggregate percentage of its portfolio assets representing each of the
classification categories to balance some commenters' concerns about
potential adverse effects that could arise from public reporting of
detailed portfolio liquidity information with investors' need for
improved information about funds' liquidity risk profiles.\298\
---------------------------------------------------------------------------

    \297\ See Liquidity Rule Adopting Release, supra note 8, at
section III.C.6.c.
    \298\ See id., at text accompanying n.621.
---------------------------------------------------------------------------

    As funds began to implement the liquidity rule's classification
requirements, and before funds were required to provide public
disclosure of aggregate liquidity classifications, the Commission
received additional information about the potential challenges and
concerns of publicly disclosing a fund's aggregate liquidity profile at
that time, namely the risk that the data would be subjective, that it
was presented in isolation, and that it lacked the context of other
disclosures about the fund.\299\ In response, the Commission replaced
this disclosure with narrative liquidity disclosure in 2018.\300\ In
removing the requirement to report aggregate liquidity classifications,
the Commission stated that the subjectivity involved in the
classification process raises concerns when applied to public
disclosure. Specifically, the Commission expressed concern that the
quantitative presentation of the aggregate liquidity information may
imply precision and uniformity in a way that obscures its subjectivity,
and that funds may face incentives to classify their investments as
more liquid in order to make their funds appear more attractive to
investors, while also potentially increasing the risk of herding if
funds adjusted their portfolios in response to the disclosure
requirement. In addition, the Commission believed that it would not be
appropriate to adapt Form N-PORT to provide narrative context to help
investors appreciate the fund's liquidity risk profile and the
subjective nature of classification.
---------------------------------------------------------------------------

    \299\ See Investment Company Liquidity Disclosure, Investment
Company Act Release No. 33046 (Mar. 14, 2018) [83 FR 11905 (Mar. 19,
2018)] (``2018 Liquidity Disclosure Proposing Release'') at nn.9-13
and accompanying text.
    \300\ See 2018 Liquidity Disclosure Adopting Release, supra note
22. For discussion generally of the Commission's stated rationale
for making this change, see generally id. and 2018 Liquidity
Disclosure Proposing Release, supra note 299.
---------------------------------------------------------------------------

    The Commission judged at that time that effective disclosure of
liquidity risks and their management would be better achieved through
prospectus and shareholder report disclosure rather than Form N-PORT,
and adopted a requirement to disclose in a narrative format a brief
discussion of the operation and effectiveness of its liquidity risk
management program in the fund's shareholder reports. The

intent of the narrative framework was to provide investors with a
holistic view of the liquidity risks of the fund and how effectively
the fund's liquidity risk management program managed those risks on an
ongoing basis over the reporting period.\301\
---------------------------------------------------------------------------

    \301\ See, e.g., supra section II.A.1. To the extent a fund
would be incentivized to manage its portfolio so as to report higher
amounts of highly liquid investments, we believe this would be
consistent with the focus in section 22 of the Act on preserving the
redeemability of open-end funds.
---------------------------------------------------------------------------

    In practice, though, the narrative disclosure did not meaningfully
augment other disclosure requirements.\302\ Instead, based on staff
experience with several years of shareholder reports covering a range
of market conditions, including a market crisis in March 2020 that
included substantial liquidity concerns for certain securities, we
found that the narrative disclosure often appeared as a lengthy,
boilerplate recitation of the requirements of rule 22e-4 that was not
tailored to a particular fund and did not change as conditions in the
market changed. For example, many funds' liquidity disclosures did not
change after the events of March 2020, even for funds that invested in
assets that had experienced severe liquidity issues. This meant that
investors had limited information about the liquidity of fund
investments or how the fund managed that liquidity risk through these
stressful events. We believe that this prevented investors from fully
evaluating the liquidity risks associated with a particular fund for
purposes of making more informed investment decisions.
---------------------------------------------------------------------------

    \302\ Tailored Shareholder Reports Adopting Release, supra note
26, at text accompanying n.463.
---------------------------------------------------------------------------

    Investors and funds have made similar observations. In 2020, when
the Commission proposed amendments designed to streamline fund
shareholder reports, some commenters requested that we require funds to
disclose their aggregate liquidity buckets.\303\ Other commenters
stated that the narrative disclosure is not particularly relevant to
investment decision making.\304\ Several other commenters also stated
that they believed the narrative disclosure should be moved from
shareholder reports.\305\ We recently adopted amendments that remove
the requirement to disclose the narrative disclosure in the shareholder
reports.\306\
---------------------------------------------------------------------------

    \303\ See, e.g., Comment Letter of Consumer Federation of
America on 2020 Tailored Shareholder Reports Proposing Release, File
No. S7-09-20 (``[S]trongly encourag[ing] the Commission to
reconsider its decision'' to remove aggregate liquidity disclosure
and characterizing narrative disclosure as ``boilerplate.''); see
also Comment Letter of Tom and Mary on 2020 Tailored Shareholder
Reports Proposing Release, File No. S7-09-20 (``We think funds
should be required to disclose their aggregate liquidity bucketing
in their annual report. We believe this information is important to
investors and will help them appreciate any liquidity risk.''). The
comment file for the 2020 Tailored Shareholder Reports Proposing
Release, where these comment letters are available, is at https://www.sec.gov/comments/s7-09-20/s70920.htm.
    \304\ See, e.g., Comment Letter of Ubiquity on 2020 Tailored
Shareholder Reports Proposing Release, File No. S7-09-20
(``Disclosure [of liquidity information in narrative format] is
currently worthless and even with'' the proposed changes which were
designed to retain the narrative format, it ``will continue to be
worthless.''); see also Comment Letter of Tom Williams on 2020
Tailored Shareholder Reports Proposing Release; Feedback Flier of
Olivia Brightly on 2020 Tailored Shareholder Reports Proposing
Release.
    \305\ See, e.g., Comment Letters of Morningstar Trustees, ICI,
SIFMA. Fidelity, Dechert, James Angel, Lisa Barker, and T. Rowe
Price on 2020 Tailored Shareholder Reports Proposing Release.
    \306\ See Tailored Shareholder Reports Adopting Release, supra
note 26.
---------------------------------------------------------------------------

    Our proposed amendments to the liquidity rule, along with the years
of experience that funds have gained in complying with the current
rule, also have made the concerns the Commission identified in 2018
less relevant. Since 2018, the staff has conducted outreach with
numerous market participants, including fund complexes, liquidity
classification vendors, and others, and we are proposing several
changes to rule 22e-4 that would prescribe additional parameters for
many aspects of the classification process. These changes include
introducing the concept of a 10% stressed trade size, establishing a
minimum value impact standard, and removing asset class
classifications, which would reduce subjectivity in classifications and
reduce variation in funds' classification practices, even if incentives
for a fund to mis-classify its investments remain.\307\ These changes
are intended to reduce the risk of subjectivity impeding an investor's
understanding.
---------------------------------------------------------------------------

    \307\ See, e.g., supra section II.A.1 and note 301.
---------------------------------------------------------------------------

    To the extent that subjectivity remains, investors reviewing this
information on Form N-PORT also will have access to additional
information in fund prospectuses and shareholder reports, which are
delivered directly to investors. Prospectuses and shareholder reports
would provide additional information about the fund and context for the
liquidity disclosure in Form N-PORT, such as information about the
factors affecting a fund's risks, returns, and performance.\308\ In
addition, the fact that the aggregate liquidity information would be
required to change as liquidity conditions in the market change, and
that investors would be able to review these changes on a monthly basis
and compare them against the fund's prior reports would provide
additional context for investors who desire this information. Investors
could also compare the fund's reports to reports of similar funds,
which could aid their understanding by allowing them to focus on the
differences. Finally, the proposed aggregate liquidity disclosure could
improve the mix of information available to investors. Though reports
on Form N-PORT do not provide information regarding a fund's investment
strategy and risk factors, the information reported on Form N-PORT may
complement the other information already available to investors in
order to allow them to develop a fuller understanding of the fund and
its risks.
---------------------------------------------------------------------------

    \308\ See Reporting Modernization Adopting Release, supra note
274, at text following n.486 (``Form N-PORT is not primarily
designed for disclosing information to individual investors . .
.'').
---------------------------------------------------------------------------

    We request comment on the proposed public availability of the
aggregate liquidity classifications funds would report on Form N-PORT,
including:
    211. Should we, as proposed, require funds to report publicly
information regarding the aggregate percentage of their portfolio in
each of the three proposed liquidity classification categories? Should
we, as proposed, require that this information be reported publicly on
a monthly basis and, if not, what factors are unique to liquidity
information that should result in it being publicized on a different
frequency than other information on Form N-PORT? Instead of, or in
addition to, the percentages of a fund's investments in each of the
three proposed liquidity categories, should we require additional
information to be reported? Is there any additional context, such as
narrative disclosure, that would also be useful to investors? Should
that narrative disclosure be located in Form N-PORT or somewhere else
(e.g., a fund prospectus, shareholder report, or website)?
    212. Instead of, or in addition to, aggregate liquidity
information, should we require position-level liquidity classifications
to be reported publicly on Form N-PORT? Should we instead require
position-level liquidity classifications to be reported publicly on a
different form, such in a fund's annual and semi-annual reports? How
frequently should this information be reported? Would position-level
liquidity reporting improve funds' liquidity classifications by
allowing the public to review and scrutinize liquidity classifications?
Would position-level liquidity reporting improve consistency in
classification practices across funds by allowing funds to see how
other

similarly situated funds had classified the same or similar
investments? Would position-level liquidity reporting improve investor
access to or understanding of liquidity information, or would this
information be difficult for investors to synthesize or understand?
Would position-level liquidity reporting simplify the reporting
framework for funds if this disclosure were in lieu of separate
aggregate presentations? Would changes to the proposal, such as changes
to how funds report the effect of the collateral they hold against
derivatives that are not highly liquid, or the effect of liabilities,
be necessary if we were to require position-level liquidity reporting?
Would there be potential negative effects of position-level liquidity
reporting? For example, would position-level liquidity reporting result
in investors being able to infer information about a fund or company,
such as being able to determine that a fund has material nonpublic
information about an issuer because the fund categorizes the issuer's
securities as illiquid? Would position-level liquidity reporting result
in funds' counterparties engaging in predatory trading practices with
funds, for example by adjusting the prices they bid for certain assets
of a fund due to granular knowledge of how the fund categorizes the
liquidity of its portfolio?
    213. Should we, as proposed, require adjustments to the percentages
of funds' assets in the proposed liquidity categories to account for
certain derivatives transactions? Should we instead require information
about derivatives transactions to be reported separately? Should
certain derivatives transactions be treated differently for these
purposes, for example by making differing adjustments based on whether
a derivative is exchange-traded, centrally cleared, made with certain
categories of counterparty, or otherwise? Should we require differing
adjustments for derivatives transactions depending on the purpose, for
example whether they are intended to hedge currency or interest rate
risks associated with one or more specific equity or fixed-income
investments held by the fund as described in rule 18f-4(c)(4)(i)(B)?
Are there any changes we should make to aid investor understanding of
how funds' use of derivatives affects their liquidity?
    214. We propose to require that if the reported sum of a fund's
investments in each of the three categories does not equal 100%, the
fund must adjust the percentage of assets attributed to the moderately
liquid investment category so that the sum of the fund's investments in
each category equals 100%. Should we take a different approach, such as
making the adjustment optional, or permitting a fund to report
aggregate percentages that do not sum to 100%? Should we permit or
require funds to provide additional information, such as an explanatory
note that the totals have been adjusted and the amount of the
adjustment? Are there other metrics for which we should permit or
require funds to modify the reported amounts?
    215. Would fund prospectuses and shareholder reports delivered
directly to investors provide sufficient context for the fund's
aggregate liquidity information that would be disclosed on Form N-PORT
under the proposal? Because Form N-PORT is not delivered to investors,
would investors who have sought out Form N-PORT disclosure in the first
instance be more likely to consider the information in the context of
other publicly available information about the fund? If investors would
not have sufficient context when reviewing Form N-PORT, should we
address this by requiring that funds send their most recent report on
Form N-PORT to investors when they send other communications, such as
their periodic reports or prospectus updates?
    216. Instead of, or in addition to, including information regarding
funds' aggregate liquidity profiles in Form N-PORT, as proposed, should
we require that it be included in other documents, such as funds'
annual and semi-annual shareholder reports? If so, should the
disclosure included in funds' annual and semi-annual shareholder
reports, or other documents, differ from what we propose to include in
Form N-PORT? For example, should any disclosure in funds' annual and
semi-annual shareholder reports, or other documents be in a different
format, such as a pie chart, or also include narrative disclosure to
allow funds to provide additional context?
d. Other Proposed Amendments to Form N-PORT
    In addition to our proposed amendments to require more timely
reporting of information and to enhance public transparency of funds'
portfolio holdings and liquidity classifications, we are proposing a
few additional amendments to Form N-PORT. These additional amendments
include a new reporting item related to swing pricing, amendments to
certain existing items to account for the proposal to make monthly Form
N-PORT information available to the public, other conforming amendments
to reflect the proposed amendments to rule 22e-4, and amendments to
certain entity identifiers.
    In connection with our proposed amendments to swing pricing, we are
proposing to require enhanced transparency into the frequency and
amount of a fund's swing pricing adjustments. Currently, if a fund were
to engage in swing pricing, it would only be required to report on Form
N-CEN if the fund engaged in swing pricing during a given year and, if
so, the swing factor upper limit established by the fund.\309\ We are
proposing to remove that reporting requirement on Form N-CEN and
replace it with a new reporting requirement on Form N-PORT that would
require information about the number of times the fund applied a swing
factor during the month and the amount of each swing factor
applied.\310\ To recognize that a swing factor adjustment could be
positive (when the fund has net purchases) or negative (when the fund
has net redemptions), we propose to specify that a fund must use a plus
sign before a positive swing factor and a minus sign before a negative
swing factor.\311\ More frequent and detailed information about a
fund's use of swing pricing is intended to help the Commission assess
the size of the price adjustments funds are making during normal and
stressed market conditions, as well as how often funds apply swing
factor adjustments. The public may also benefit from this information
to help facilitate an understanding of the frequency and size of swing
factor adjustments.
---------------------------------------------------------------------------

    \309\ See Item C.21 of current Form N-CEN.
    \310\ See proposed Item B.11 of Form N-PORT. Funds would be
instructed to respond with ``N/A'' when appropriate.
    \311\ We also propose to add a definition of ``swing factor'' to
Form N-PORT, which would cross reference the definition of this term
in proposed rule 22c-1(d). See General Instruction E of proposed
Form N-PORT.
---------------------------------------------------------------------------

    In addition, we are proposing to amend items that currently require
funds to report certain return and flow information for each of the
preceding three months.\312\ Rather than require information for the
preceding three months, we are proposing to instead require a fund to
report that information only for the month that the Form N-PORT report
covers.\313\ The Commission currently requires return and flow
information for the preceding three months in a single report to
provide investors access to monthly data for a given quarter, given
that investors currently only have access to Form N-PORT reports for
the third month of

each quarter.\314\ Monthly data for the preceding three months was also
intended to avoid a potential investor misperception that one month's
returns or flows represented returns or flows for the full
quarter.\315\ Because, under our proposal, investors would have access
to monthly Form N-PORT reports, we propose to amend the period for
which a fund must report return and flow information to align with
monthly public reporting.
---------------------------------------------------------------------------

    \312\ See Item B.5 and Item B.6 of current Form N-PORT.
    \313\ See Item B.5 and Item B.6 of proposed Form N-PORT.
    \314\ See Reporting Modernization Adopting Release, supra note
274, at paragraphs accompanying nn.225, 232, and 250.
    \315\ See id., at paragraphs accompanying nn.225 and 250.
---------------------------------------------------------------------------

    For similar reasons, we are proposing to amend Part F of Form N-
PORT, which currently requires a fund to attach its complete portfolio
holdings for the end of the first and third quarters of the fund's
fiscal year, presented in accordance with Regulation S-X, within 60
days after the end of the reporting period. We are proposing to require
funds to file this disclosure within 60 days of the end of the
reporting period for each month, with the exception of the last month
of the fund's second and fourth fiscal quarters, because the latter
portfolio holdings information is already available in funds' annual
and semi-annual reports.\316\ That is, we propose that funds would be
required to file the portfolio disclosure on Part F of Form N-PORT ten
times per year, instead of the current requirement to file twice per
year. When the Commission adopted Part F of Form N-PORT, it recognized
that not all investors may prefer to receive portfolio holdings
information in a structured XML format, and instead might prefer
portfolio holdings schedules presented using the form and content
specified by Regulation S-X.\317\ The Commission stated that requiring
funds to attach these portfolio holdings schedules to reports on Form
N-PORT would provide the Commission, investors, and other potential
users with access to funds' current and historical portfolio holdings
for those funds' first and third fiscal quarters, as well as
consolidate these disclosures in a central location, together with
other fund portfolio holdings disclosures in reports on Form N-CSR for
funds' second and fourth fiscal quarters.\318\ In conformance with the
proposed requirement for funds to file their structured portfolio
schedules on a monthly basis, and to make the monthly disclosure more
useable for investors, we propose to amend Part F of Form N-PORT so
that investors would be able to access unstructured portfolio schedules
presented in accordance with Regulation S-X on the same frequency.
---------------------------------------------------------------------------

    \316\ See Part F of proposed Form N-PORT. Currently, Part F of
Form N-PORT does not require information for the second and fourth
quarters of the fund's fiscal year for the same reason. See Item 6
of Form N-CSR and Reporting Modernization Adopting Release, supra
note 274, at section II.J.
    \317\ Id. at section II.A.2.j.
    \318\ Id.
---------------------------------------------------------------------------

    Similarly, we are proposing to amend Part D of Form N-PORT
regarding miscellaneous securities to align with the proposal to make
monthly Form N-PORT reports publicly available. Form N-PORT currently
contemplates that detailed information about miscellaneous securities,
which would remain nonpublic, would only be included in reports filed
for the last month of each fiscal quarter.\319\ This is because today
all information reported on Form N-PORT for the first and second months
of each quarter is nonpublic, which means there is no need for funds to
designate any of their investments for those reporting periods as
miscellaneous securities.\320\ Although our proposed shift from
quarterly to monthly public reporting is intended to improve public
transparency of funds' portfolio holdings, we continue to believe that
treating information related to miscellaneous securities as nonpublic
may serve to guard against the premature release of those securities
positions and thus deter front-running and other predatory trading
practices, and that for this reason public disclosure of miscellaneous
securities continues to be neither necessary nor appropriate in the
public interest or for the protection of investors.\321\ At the same
time, it is important for the Commission to receive more detailed
information about miscellaneous securities holdings so the Commission
has a complete record of the portfolio for monitoring, analysis, and
checking for compliance with Regulation S-X.\322\ As a result, we are
proposing to amend Part D of Form N-PORT to remove the language that
limits reporting of nonpublic information about individual
miscellaneous securities holdings to reports filed for the last month
of each fiscal quarter. The proposed amendment would allow funds in
their monthly Form N-PORT reports to report publicly the aggregate
amount of miscellaneous securities held in Part C, while requiring
funds to provide more detailed information in Part D about the
individual holdings in the miscellaneous securities category to the
Commission on a nonpublic basis.
---------------------------------------------------------------------------

    \319\ See Part D of current Form N-PORT. The form permits funds
to report as ``miscellaneous securities'' an aggregate amount of
portfolio investments that does not exceed 5% of the total value of
the fund's portfolio investments, provided that the securities
included in this category are not restricted, have been held for not
more than one year prior to the date of the related balance sheet,
and have not previously been reported by name to the shareholders,
or set forth in any registration statement, application, or report
to shareholders or otherwise made available to the public.
    \320\ See Reporting Modernization Adopting Release, supra note
274, at text following n.424.
    \321\ See id. at n.421 and accompanying text.
    \322\ See Reporting Modernization Adopting Release, supra note
274, at section II.A.2.h (requiring that information about
miscellaneous securities be reported to the Commission on a
nonpublic basis).
---------------------------------------------------------------------------

    We are also proposing amendments to Form N-PORT to reflect the
proposed amendments to rule 22e-4. For example, because we are
proposing to remove the concept of a reasonably anticipated trade size
from rule 22e-4, we are proposing to replace references to this concept
in an instruction related to classifying portions of a single holding
in multiple liquidity categories with references to the stressed trade
size concept.\323\ We are also proposing to revise the liquidity
classifications a fund will report to reflect the revisions to the
liquidity categories in rule 22e-4.\324\ Because we are proposing
improvements to the way that a fund treats collateral for certain
derivatives transactions when calculating whether it holds sufficient
assets to meet its highly liquid investment minimum or holds an amount
of illiquid assets that exceeds the 15% limit, we also are proposing to
revise the information open-end funds must report about the collateral
posted as margin or collateral in connection with certain derivatives
transactions.\325\ We are similarly proposing to revise the information
a fund would report about the fund's highly liquid investments to
reflect that not all highly liquid investments will count toward the
fund's highly liquid investment minimum.\326\ In addition to reflecting
changes to rule 22e-4, these changes are also designed to provide
additional information to Commission staff regarding a fund's level of
highly liquid assets and illiquid assets and the

effect of derivatives transactions on that amount.
---------------------------------------------------------------------------

    \323\ See Instructions to Item C.7 in proposed Form N-PORT.
    \324\ See Item B.8 in proposed Form N-PORT; General Instruction
E (Definitions) in proposed Form N-PORT.
    \325\ See Item B.8 in proposed Form N-PORT. The proposed
revisions would require a fund to report the value of its highly
liquid investments that are assets that are posted as margin or
collateral in connection with moderately liquid or illiquid
investments, and would require a fund to report the value of any
margin or collateral posted in connection with an illiquid
derivatives transaction, where the fund would receive the value of
the margin or collateral if it exited the derivatives transaction.
    \326\ See Item B.7.b in proposed Form N-PORT.
---------------------------------------------------------------------------

    In addition, we propose to amend certain items and definitions
related to entity identifiers in the form. Specifically, we propose to
amend the definition of LEI in the form to remove language providing
that, in the case of a financial institution that does not have an
assigned LEI, a fund should instead disclose the RSSD ID assigned by
the National Information Center of the Board of Governors of the
Federal Reserve System, if any.\327\ Instead of classifying an RSSD ID
as an LEI for these purposes, we propose to provide separate line items
where a fund would report an RSSD ID, if available, in the event that
an LEI is not available for an entity.\328\ This change is designed to
improve consistency and comparability of information funds report about
the instruments they hold, including issuers of those instruments and
counterparties to certain transactions.
---------------------------------------------------------------------------

    \327\ See General Instruction E of proposed Form N-PORT.
    \328\ See Items B.4, C.1, C.10, and C.11 of proposed Form N-
PORT.
---------------------------------------------------------------------------

    217. Should we require funds to report the number of times the fund
applied a swing factor and each swing factor applied, as proposed?
Should we require the median, highest, and lowest (non-zero) swing
factor applied for each reporting period on Form N-PORT, rather than
require disclosure of each swing factor applied?
    218. Should we require funds to provide additional information
about swing pricing in Form N-PORT reports, such as the swing pricing
administrator's determination to use a lower market impact threshold or
lower inflow swing threshold, if applicable? Should we separately
require funds to disclose information about market impact factors, such
as how many times a market impact factor was included in the swing
factor each month and the size of those market impact factors (e.g.,
either the size of any market impact factor applied, or the median,
highest, and lowest (non-zero) amount)? Should we require funds to
provide information about their imposition of redemption fees under
rule 22c-2, which funds can use to recoup some of the direct and
indirect costs incurred as a result of short-term trading strategies,
such as market timing? If so, should we require funds to disclose in
reports on Form N-PORT the number of times they imposed redemption fees
during the period and the amount of the fees? Should funds be required
to itemize each fee charged, disclose the total amount charged during
the period and the average fee charged, or some other presentation?
    219. Instead of, or in addition to, requiring information about
swing pricing on Form N-PORT, should we require funds to provide
information about their use of swing pricing in other locations? For
example, would investors find this information more accessible if it
were on fund websites, in registration statements, or in shareholder
reports?
    220. Should we require funds to provide return and flow information
only for a single month, as proposed, or should we continue to require
funds to provide return and flow information for the preceding three
months? Even though investors would have access to monthly reports on
Form N-PORT, is it helpful to have return or flow information for
previous months in a single report to have a readily available point of
comparison?
    221. Should we amend Form N-PORT to continue to maintain the
confidentiality of information about a fund's miscellaneous securities
for each reporting period, as proposed? Are there other conforming
amendments we should make to align Form N-PORT reporting requirements
with the proposed changes to the frequency funds must file these
reports and the timeline for filing and public availability?
    222. Should we amend Form N-PORT to require a fund to attach its
complete portfolio holdings presented in accordance with Regulation S-X
within 60 days after the end of each month except for the last month of
the fund's second and fourth fiscal quarters, as proposed? Should we
instead require a fund to file this information on a different
frequency, such as every month, without exception? Should we maintain
the current filing schedule? Should we require funds to attach this
information within a different timeframe, such as no later than 45 days
or 75 days after the end of the reporting period? If we make changes to
other aspects of the proposal, such as changes to the frequency funds
file reports on Form N-PORT, the delay between the end of the reporting
period and filing, or the time at which filings are made public, should
we also make conforming changes to Part F?
    223. Are our proposed amendments to remove references to the
concept of a reasonably anticipated trade size in Form N-PORT and
replace them with references to the stressed trade size effective? Are
there other conforming amendments we should make to align Form N-PORT
with the liquidity rule amendments?
    224. Should we, as proposed, amend Form N-PORT to require funds to
identify the value of margin or collateral the fund has posted as
margin or collateral in connection with an illiquid derivatives
transaction in order to provide a complete picture of the amount of
illiquid investments for purposes of the liquidity rule's 15% limit?
    225. As proposed, should we amend the definition of LEI in the form
and provide a separate item for providing an RSSD ID as an identifier,
as applicable?
2. Amendments to Form N-CEN
    We are proposing amendments to Form N-CEN to identify and provide
certain information about service providers a fund uses to fulfill the
requirements of rule 22e-4. The amendments would require a fund to: (1)
name each liquidity service provider; (2) provide identifying
information, including the legal entity identifier and location, for
each liquidity service provider; (3) identify if the liquidity service
provider is affiliated with the fund or its investment adviser; (4)
identify the asset classes for which that liquidity service provider
provided classifications; and (5) indicate whether the service provider
was hired or terminated during the reporting period. This information
would allow the Commission and other participants to track certain
liquidity risk management practices.\329\ As liquidity classification
services have become more widely used, the proposal would require
information about whether and which liquidity service providers are
used, for what purpose, and for what period. Among other things, this
information would help us better understand potential trends or
outliers in funds' liquidity classifications reported on Form N-PORT;
for example, by analyzing classifications trends of specific vendors,
we might distinguish patterns in how classifications might differ due
to vendor models or data.
---------------------------------------------------------------------------

    \329\ See Liquidity Rule Adopting Release, supra note 8, at
n.973.
---------------------------------------------------------------------------

    As described above, we also propose to remove the current
disclosure in Item C.21 of Form N-CEN and replace it with a new
reporting requirement on Form N-PORT to provide enhanced transparency
into the frequency and amount of a fund's swing pricing
adjustments.\330\ In addition, consistent with our proposed amendments
to the definition of LEI in Form N-PORT, we are proposing to make the
same changes

in Form N-CEN to separate the concepts of LEIs and RSSD IDs.\331\
---------------------------------------------------------------------------

    \330\ Item C.21 of Form N-CEN is proposed to be revised to
require disclosure on liquidity classification services, as
described above.
    \331\ See Items B.16, B.17, C.5, C.6, C.9, C.10, C.11, C.12,
C.13, C.14, C.15, C.16, C.17, D.12, D.13, D.14, E.2, F.1, F.2, F.4,
and Instructions to Item G.1 of proposed Form N-CEN.
---------------------------------------------------------------------------

    We request comment on the proposed amendments to Form N-CEN:
    226. Would the proposed reporting on liquidity classification
service providers assist investors and funds in better understanding
how liquidity risk is managed at a fund? Should any other information
be provided about the liquidity classification service provider?
    227. Should we require any information about a fund's use of swing
pricing on Form N-CEN? How would this information relate to the
information we propose to require on Form N-PORT?
    228. As proposed, should we amend Form N-CEN to separate the
concepts of LEI and RSSD ID? As proposed, should funds be required to
provide an RSSD ID, if available, when an LEI is not available?

F. Technical and Conforming Amendments

    In September 2019, the Commission adopted new rule 6c-11 to allow
ETFs that satisfy certain conditions to operate without obtaining an
exemptive order from the Commission.\332\ We are proposing to make a
technical amendment to the definition of ETF in rules 22e-4 and 22c-1,
as well as in Forms N-CEN and N-PORT, as a result of this rulemaking.
Specifically, the proposed amendments would replace language in each
definition that refers to ``an exemptive rule adopted by the
Commission'' with a direct reference to rule 6c-11.\333\
---------------------------------------------------------------------------

    \332\ See ETF Release, supra note 289.
    \333\ See proposed rule 22e-4(a) and proposed rule 22c-1(d);
General Instruction E of proposed Form N-CEN and General Instruction
E of proposed Form N-PORT.
---------------------------------------------------------------------------

    We are also proposing to make a conforming amendment to rule 31a-2.
Specifically, this proposed amendment to the recordkeeping rule would
replace the reference to the current swing pricing provisions in rule
22c-1(a)(3) with a reference to the proposed swing pricing provisions
in rule 22c-1(b).\334\
---------------------------------------------------------------------------

    \334\ See proposed rule 31a-2(a)(2).
---------------------------------------------------------------------------

G. Exemptive Order Rescission and Withdrawal of Commission Staff
Statements

    In light of the scope of our proposed amendments to the liquidity
rule, and pursuant to our authority under the Act to amend or rescind
our orders when necessary or appropriate to the exercise of the powers
conferred elsewhere in the Investment Company Act, we are proposing to
rescind an exemptive order that relates to rule 22e-4.\335\ As this
order's representations and conditions, and the relief provided, are
predicated on rule 22e-4 in its current form, the proposed amendments,
if adopted, would render the order moot, superseded, and inconsistent
with the final rule amendments. In addition, staff in the Division of
Investment Management is reviewing its no-action letters and other
statements addressing compliance with rules 22e-4 and 22c-1 to
determine which letters and other staff statements, or portions
thereof, should be withdrawn in connection with any adoption of this
proposal. Upon the adoption of any final rule amendments, some of these
letters and other staff statements, or portions thereof, would be moot,
superseded, or otherwise inconsistent with the final rule amendments
and, therefore, would be withdrawn. The staff review would include, but
would not necessarily be limited to, the staff no-action letters and
other staff statements listed below:
---------------------------------------------------------------------------

    \335\ See J.P. Morgan Investment Management Inc., et al.,
Investment Company Act Release No. 34180 (Jan. 21, 2021). See also
section 38(a) of the Act, 15 U.S.C. 80a-37(a).
---------------------------------------------------------------------------

     Investment Company Liquidity Risk Management Programs
Frequently Asked Questions (April 10, 2019);
     Reflow, SEC Staff No-Action Letter (July 15, 2002);
     Charles Schwab & Co., Inc., SEC Staff No-Action Letter
(July 7, 1997);
     Investment Company Institute, SEC Staff No-Action Letter
(Feb. 9, 1973);
     United Benefit, SEC Staff No-Action Letter (July 13,
1971);
     Investment Company Institute, SEC Staff No-Action Letter
(Mar. 24, 1970); and
     Investment Companies: Share Pricing: SEC Staff Views,
Investment Company Act Release No. 5569 [34 FR 383 (Dec. 27, 1968)].
    Additionally, the staff statements, or portions thereof, may be
withdrawn following the relevant underlying transition period discussed
in section II.H below, if adopted, as determined appropriate in
connection with the staff's review of those staff statements.
    We request comment on the proposed rescission or withdraw of past
Commission or staff statements, and specifically on the following
items:
    229. Are there additional letters or other statements, or portions
thereof, that should be withdrawn or rescinded? If so, commenters
should identify the letter or statements, state why it is relevant to
the proposed rule, how it or any specific portion thereof should be
treated, and the reason.
    230. If the amendments to the liquidity rule are adopted, are there
any questions and responses in the staff FAQs that would still be
relevant and helpful to retain?\336\
---------------------------------------------------------------------------

    \336\ See Liquidity FAQs, supra note 79.
---------------------------------------------------------------------------

H. Transition Periods

    We propose to provide a transition period after the effective date
of the proposed amendments to give affected funds sufficient time to
comply with any of the proposed changes and associated disclosure and
reporting requirements, if adopted, as described below. Based on our
experience, we believe the proposed compliance dates would provide an
appropriate amount of time for funds to comply with the proposed rules,
if adopted.
     Twenty-Four-Month Compliance Date. We propose that 24
months after the effective date of the amendments, all registered open-
end management investment companies, except for money market funds and
exchange-traded funds, must comply with the proposed swing pricing
requirement in rule 22c-1, as well as the swing pricing disclosures
applicable to these funds in the proposed amendments to Forms N-PORT
and N-1A.\337\ We also propose that 24 months after the effective date
of the amendments, funds, transfer agents, registered clearing
agencies, and intermediaries must comply with the proposed ``hard
close'' requirement in rule 22c-1, and funds must comply with related
disclosure requirements we propose to require in Form N-1A.\338\
---------------------------------------------------------------------------

    \337\ See proposed rule 22c-1(b); Item B.11 of proposed Form N-
PORT; and Item 6(d) of proposed Form N-1A.
    \338\ See proposed rule 22c-1(a); Item 11(a) of proposed Form N-
1A.
---------------------------------------------------------------------------

     Twelve-Month Compliance Date. The proposed compliance
period for all other aspects of the proposal is 12 months after the
effective date of the amendments, if adopted, and includes the
following:
    [cir] The proposed amendments to rule 22e-4, which include: (1)
amending the rule's liquidity categories, including reducing the number
of liquidity categories from four to three; (2) providing specific and
consistent standards that funds would use to classify investments,
including by setting a stressed trade size and defining when a sale or
disposition would significantly change the market value of an
investment; and (3) requiring daily classifications; \339\ and
---------------------------------------------------------------------------

    \339\ See proposed rule 22e-4.
---------------------------------------------------------------------------

    [cir] The proposed amendments to Forms N-PORT and N-CEN, except the
swing pricing-related disclosure on Form N-PORT.

    We request comment on the proposed transition dates, and
specifically on the following items:
    231. Are the proposed compliance dates appropriate? If not, why
not? Is a longer or shorter period necessary to allow affected funds to
comply with one or more of these particular amendments, if adopted? If
so, what would be a recommended compliance date? Should we provide a
longer compliance date for smaller funds, and if so what should this be
(for example, 36 months for compliance with the swing pricing
requirements, and 18 months for the other aspects of the proposal)? How
should we define a ``smaller fund'' for this purpose? For example,
should a smaller fund be a fund that, together with other investment
companies in the same group of related investment companies, has net
assets of less than $1 billion as of the end of its most recent fiscal
year?
    232. In particular, is a longer period necessary for funds to
comply with the proposed removal of the less liquid investment category
and the amendment to the scope of illiquid investments? How long might
it take for funds and other parties to reduce the settlement times for
bank loans and other investments that funds currently classify as less
liquid investments? Is a longer period necessary for retirement plan
recordkeepers or other intermediaries to make necessary changes to
their systems?
    233. Should the compliance dates be staggered for certain
provisions? For example, should the compliance date for the hard close
occur prior to the compliance date for swing pricing?

III. Economic Analysis

A. Introduction

    The Commission is mindful of the economic effects, including the
benefits and costs, of the proposed amendments. Section 2(c) of the
Act, Section 202(c) of the Advisers Act, and Section 3(f) of the
Exchange Act direct the Commission, when engaging in rulemaking where
it is required to consider or determine whether an action is necessary
or appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation. In addition, Section 23(a)(2) of
the Exchange Act, requires the Commission, when making rules under the
Exchange Act, to consider among other matters the impact that the rules
would have on competition, and prohibits the Commission from adopting
any rule that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act. The
analysis below addresses the likely economic effects of the proposed
amendments, including the anticipated benefits and costs of the
amendments and their likely effects on efficiency, competition, and
capital formation. The Commission also discusses the potential economic
effects of certain alternatives to the approaches taken in this
proposal.
    Open-end funds serve as intermediaries between investors seeking to
allocate capital and issuers seeking to raise capital by pooling a
portfolio of investments and selling the shares of this portfolio to
investors. A prominent feature of open-end funds is the mismatch
between the immediate liquidity funds provide to their shareholders
\340\ and the potential illiquidity of fund portfolio investments
(``liquidity mismatch''). In order to pay net redemptions or invest
proceeds from net subscriptions, a fund generally incurs trading costs,
which can, among other things, take the form of bid-ask spreads,
commissions, markups, markdowns, or market impact (the tendency of
large trades to shift prices in the market). Therefore, the liquidity
mismatch can lead to non-negligible trading costs associated with
selling the fund's less liquid portfolio investments in order to meet
investor redemptions or buying portfolio investments in order to
accommodate investor subscriptions.\341\
---------------------------------------------------------------------------

    \340\ Section 22(e) of the Act establishes a shareholder right
of prompt redemption in open-end funds by requiring such funds to
make payments on shareholder redemption requests within seven days
of receiving the request.
    \341\ Unless otherwise specified, we use the term ``less
liquid'' in this section to refer to investments that are on the
lower end of the liquidity spectrum, and not solely investments that
are classified as ``less liquid investments'' under the current rule
22e-4.
---------------------------------------------------------------------------

    As such, the liquidity mismatch and associated trading costs in the
open-end fund sector present several potential problems, including: (1)
funds may not be able to meet the statutory obligation to satisfy
investor redemptions within seven days without incurring significant
trading costs; (2) fund investors are subject to the risk of dilution;
(3) fund investors' anticipation that they may be diluted may create a
first-mover advantage that incentivizes them to redeem their shares
before other investors do; and (4) fire sales that can be provoked by
an increased pressure to meet redemptions could further disrupt already
stressed markets.\342\
---------------------------------------------------------------------------

    \342\ See infra section III.B.3 for additional discussion of
these issues.
---------------------------------------------------------------------------

    Market stress events, such as the one that occurred during March
2020, may exacerbate these issues.\343\ For example, during stress
events investors may rebalance away from some investments into others
for many reasons, including but not limited to, their general risk
tolerance, legal or investment policy restrictions, or short-term cash
needs. To the extent that such rebalancing activity is correlated
across investors of the same fund or is correlated with deterioration
in the liquidity of the fund's underlying assets, trading costs for the
funds' underlying investments may increase and non-transacting fund
shareholders may become exposed to increased dilution risk, which may
lower future fund returns. In addition, the risk of investor dilution
associated with the illiquidity of funds' underlying investments may
create a first-mover advantage that could lead to increased mutual fund
redemptions.\344\
---------------------------------------------------------------------------

    \343\ See supra section I.B for a detailed discussion of the
Mar. 2020 market events.
    \344\ See infra section III.B.3 for additional discussion.
---------------------------------------------------------------------------

    Fund managers may not fully incorporate potential future fund
shareholder dilution into their investment decisions for several