hedge fund investment strategies.\107\ We propose to require advisers
to indicate which investment strategies best describe the reporting
fund's strategies on the last day of the reporting period, rather than
allowing advisers flexibility to report information as of the data
reporting date or throughout the reporting period, as Form PF currently
provides.\108\ This amendment is designed to improve data quality by
specifying how to report information if the reporting fund changes
strategies over time.
---------------------------------------------------------------------------

    \107\ We would amend current Question 20, and redesignate it as
proposed Question 25.
    \108\ See current Question 20.
---------------------------------------------------------------------------

    We also propose to update the strategy categories that advisers can
select to reflect our understanding of hedge fund strategies better,
and improve data quality and comparability, based on experience with
the form. For example, we propose to include more granular categories
for equity strategies, such as factor driven, statistical arbitrage,
and emerging markets. Similarly, we propose to include more granular
categories for credit strategies, such as litigation finance, emerging
markets, and asset-backed/structured products. These more granular
categories are designed to allow the Commissions and FSOC to conduct
more targeted analysis and improve comparability among advisers and
hedge funds, which the Commissions and FSOC can use to more accurately
identify and address systemic risk and investor protection issues in
times of stress. We also propose to add categories that have become
more commonly pursued by hedge funds since Form PF was adopted, such as
categories concerning real estate and digital assets.\109\ Today,
advisers may report information regarding these strategies in the
``other'' category, resulting in less robust Form PF data for analysis,
especially when such analysis filters results based on strategy.\110\
Therefore, the additional categories are designed to improve reporting
quality and data comparability across advisers, based on experience
with the form. If advisers select the ``other'' category, we propose to
require them to describe in Question 4 the investment strategy, why the
reporting fund would not qualify for any of the other categories, and
any other information to explain the selection of ``other.'' This
proposed change is designed to improve data quality by providing
context to the adviser's selection of the ``other'' category. It also
is designed to help us ensure that advisers are not misreporting
information in the ``other'' category when they should be reporting
information in a different category.
---------------------------------------------------------------------------

    \109\ Aggregate qualifying hedge fund gross notional exposure to
physical real estate has grown by 72 percent from the second quarter
2018 through the third quarter of 2021, to $146 billion. See Private
Funds Statistics, supra footnote 7, First Quarter 2020 (showing data
from the second quarter of 2018), and Third Quarter 2021.
    \110\ The amount of hedge fund exposure that advisers attribute
to the ``other'' category has more than doubled to $57 billion, from
2013 through third quarter 2021. See Private Funds Statistics, supra
footnote 7.
---------------------------------------------------------------------------

    In connection with these proposed amendments, we propose to define
the term ``digital asset'' as an asset that is

issued and/or transferred using distributed ledger or blockchain
technology (``distributed ledger technology''), including, but not
limited to, so-called ``virtual currencies,'' ``coins,'' and
``tokens.'' These types of assets also are commonly referred to as
``crypto assets.'' \111\ We view these terms as synonymous. We are
proposing the term and definition to be consistent with the SEC's
recent statement on digital assets, and we believe that such term and
definition would provide a consistent understanding of the type of
assets we intend to address.\112\ The SEC proposed to add the same term
and definition to SEC's section of Form PF in the 2022 SEC Form PF
Proposal.\113\ The definition is designed to help ensure that advisers
report digital asset strategies accurately.
---------------------------------------------------------------------------

    \111\ See e.g., FSOC 2021 Annual Report, at 184-185, available
at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf (noting that another industry term for
``digital asset'' is ``crypto asset'').
    \112\ See Custody of Digital Asset Securities by Special Purpose
Broker-Dealers, Exchange Act Release No. 90788 (Dec. 23, 2020) [86
FR 11627 (Feb. 26, 2021)], at n.1.
    \113\ 2022 SEC Form PF Proposal, supra footnote 13.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    70. Should Form PF direct advisers to report information about the
reporting fund's strategies on the last day of the reporting period, as
proposed? Would this proposed amendment improve data quality, and
reduce ambiguity?
    71. Should Form PF continue to provide that the strategies are
mutually exclusive and direct advisers to not report the same assets
under multiple strategies, as it currently does? Alternatively, should
Form PF allow advisers to report the same assets under multiple
strategies?
    72. Should Form PF include more, fewer, or different categories?
Would the proposed categories improve reporting accuracy and data
comparability across advisers? Are there other strategies that are
important to track for assessing systemic risk or for the protection of
investors?
    73. Are there categories that advisers report in the ``other''
category that Form PF should include as their own categories? Should we
remove the ``other'' category?
    74. Should we require more specific disclosure of what each digital
asset represents? If so, what kinds of descriptions would be needed and
in what detail? For example, should the description include the rights
the digital asset provides to the holder? Should Form PF distinguish,
for example, between digital assets that represent an ability to
convert or exchange the digital asset for fiat currency or another
asset, including another digital asset, and those that do not represent
such a right to convert or exchange? For those digital assets that
represent a right to convert or exchange for fiat currency or another
digital asset, should we distinguish between those where the redemption
obligation is supported by an unconditional guarantee of payment, such
as some ``central bank digital currencies,'' and those digital assets
redeemable upon demand from the issuer, whether or not collateralized
by a pool of assets or a reserve? Should we identify digital assets
that do not represent any direct or indirect obligation of any party to
redeem or those that represent an equity, profit, or other interest in
an entity?
    75. Should Form PF define or re-define any terms that are listed as
a proposed strategy?
    Should Form PF define ``digital asset,'' as proposed? If not,
please identify alternative elements that would better identify the
digital assets held by private funds. Should Form PF use the term
``crypto asset'' instead of the term ``digital asset''?
    76. Some reporting funds report as hedge funds, but may hold
commodities that are not securities or may hold commodity derivatives
such as bitcoin futures that would make them a commodity pool. Should
Form PF include categories for funds that hold digital assets
regardless of how the fund characterizes itself based on the assets it
is holding or would the proposed categories (other than the ``other''
category) apply?
    77. If advisers select the ``other'' category, should Form PF
require them to explain the selection, as proposed? Should Form PF
require the adviser to include more, less, or different information in
the explanation?
    78. Should Form PF require advisers to provide explanations for any
other categories besides the ``other'' category, as proposed? For
example, if advisers report digital assets, should Form PF require
advisers to provide the name of the digital asset, or describe the
characteristics of the digital asset?
    Counterparty exposures. Counterparty exposure informs the
Commissions and FSOC of the interconnectedness of hedge funds with the
broader financial services industry, which is a critical part of
systemic risk assessment and investor protection efforts. Understanding
counterparty exposures allows the Commissions and FSOC to assess who
may be impacted by a reporting fund's failure, and which reporting
funds may be impacted by a counterparty's failure. Counterparty
exposure concerning central clearing counterparties (``CCPs'') is of
importance to FSOC's systemic risk assessment efforts as evidenced by
the fact that FSOC has designated many CCP institutions as
``systemically important,'' and recommended that regulators continue to
coordinate to evaluate threats from both default and non-default losses
associated with CCPs.\114\
---------------------------------------------------------------------------

    \114\ Form PF defines ``CCP'' as central clearing counterparties
(or central clearing houses) (for example, CME Clearing, The
Depository Trust & Clearing Corporation, Fedwire and LCH Clearnet
Limited). See Financial Stability Oversight Council, 2012 Annual
Report, Appendix A, available at https://home.treasury.gov/system/files/261/2012-Annual-Report.pdf. (concerning the designations);
Financial Stability Oversight Council, 2021 Annual Report, p. 14,
available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf. (concerning the recommendation).
---------------------------------------------------------------------------

    The proposal would add proposed Question 26, and revise current
Questions 22 and 23, and redesignate them as proposed Questions 27 and
28, to provide better insight into hedge funds' borrowing and financing
arrangements with counterparties, including CCPs. Proposed Question 26
would require advisers to hedge funds (other than qualifying hedge
funds) to complete a new table (the ``consolidated counterparty
exposure table'') concerning exposures that (1) the reporting fund has
to creditors and counterparties, and (2) creditors and other
counterparties have to the reporting fund.\115\ Advisers would report
the U.S. dollar value of the reporting fund's ``borrowing and
collateral received (B/CR),'' as well as its ``lending and posted
collateral (L/PC),'' aggregated across all counterparties, including
CCPs, as of the

end of the reporting period.\116\ The form would explain what exposures
to net.\117\ Advisers would classify information according to type
(e.g., unsecured borrowing, secured borrowing, derivatives cleared by a
CCP, and uncleared derivatives) and the governing legal agreement
(e.g., a prime brokerage or other brokerage agreement for cash margin
and securities lending and borrowing, a global master repurchase
agreement for repo/reverse repo, and International Swaps and
Derivatives Association (``ISDA'') master agreement for synthetic long
positions, ``synthetic short positions,'' and derivatives).\118\
Advisers would report transactions under a master securities loan
agreement as secured borrowings. Advisers would check a box if one or
more prime brokerage agreements provide for cross-margining of
derivatives and secured financing transactions. If advisers check the
box, we propose to include instructions about how to report secured
financing and derivatives in the consolidated counterparty exposure
table.
---------------------------------------------------------------------------

    \115\ Qualifying hedge funds would not complete this table
because section 2 would be revised to include similar questions that
require additional detail. See discussion at Section II.C of this
Release. Together the proposed questions in section 1c and similar
questions at section 2 would allow the Commissions and FSOC to
consolidate information relating to hedge funds' and qualifying
hedge funds' arrangements with creditors and other counterparties,
to support systemic risk assessment and investor protection efforts.
We propose to define the term ``consolidated counterparty exposure
table'' in the Form PF Glossary of Terms. For hedge funds, other
than qualifying hedge funds, it would mean the section 1c table (at
proposed Question 26) that collects the reporting fund's borrowing
and collateral received and lending and posted collateral aggregated
across all creditors and counterparties as of the end of the
reporting period. For qualifying hedge funds, it would mean the
section 2 table (at proposed Question 41) that collects the
reporting fund's borrowing and collateral received and lending and
posted collateral aggregated across all creditors and counterparties
as of the end of the reporting period.
    \116\ We would define ``borrowing and collateral received (B/
CR)'' and ``lending and posted collateral (L/PC)'' in the Form PF
Glossary of Terms. We are proposing these definitions based on our
understanding of borrowing and lending and to help ensure data
quality and comparability. We also propose to amend the term ``gross
notional value'' to provide more detail on how to report it to aid
advisers completing the consolidated counterparty exposure table.
See proposed Form PF Glossary of Terms.
    \117\ Advisers would net the reporting fund's exposure with each
counterparty and among affiliated entities of a counterparty to the
extent such exposures may be contractually or legally set-off or
netted across those entities or one affiliate guarantees or may
otherwise be obligated to satisfy the obligations of another under
the agreements governing the transactions. We would include
instructions providing that netting must be used to reflect net cash
borrowed from or lent to a counterparty, but must not be used to
offset securities borrowed and lent against one another, when
reporting prime brokerage and repo/reverse repo transactions. These
instructions are designed to help ensure data quality and
comparability. See proposed Question 26.
    \118\ We propose to define ``ISDA'' as the International Swaps
and Derivatives Association. We also propose to define ``synthetic
short positions'' in the Form PF Glossary of Terms (see the proposed
Form PF Glossary of Terms for the proposed definition). We are
proposing this definition based on our understanding of the
instruments and to help ensure data quality to aid comparability.
See also supra footnote 78 (discussing the proposed definition of
``synthetic long position'').
---------------------------------------------------------------------------

    Form PF would continue to require advisers to report information
about individual counterparties that present the greatest exposure to
and from hedge funds.\119\ Under the proposal, however, advisers to
qualifying hedge funds would not complete proposed Questions 27 and 28,
if they complete certain similar questions in Form PF section 2, to
avoid duplication.\120\ We also propose to revise current Questions 22
and 23 to improve data quality.
---------------------------------------------------------------------------

    \119\ See current Questions 22 and 23, and proposed Questions 27
and 28.
    \120\ See proposed Questions 42 and 43 in Form PF section 2, and
supra footnote 115.
---------------------------------------------------------------------------

     Although current Questions 22 and 23 provide instructions
on how to identify the counterparties, we understand that advisers have
been using different methodologies to identify them, and have
misidentified lending relationships, which has limited the utility and
comparability of the reported information. Therefore, we propose to
provide more detailed instructions for advisers to use to identify the
individual counterparties. For both proposed Questions 27 and 28,
advisers would use the calculations from the consolidated counterparty
exposure table to identify the counterparties.\121\ This proposed
amendment is designed to help ensure that the Commissions' and FSOC's
analysis can identify true data differences, without the distraction of
methodology differences, which can suggest differences where there are
none, and reduce circumstances where advisers would misidentify lending
relationships.
---------------------------------------------------------------------------

    \121\ See proposed Question 26 for the consolidated counterparty
exposure table. The proposal would define new terms related to the
consolidated counterparty exposure table: ``cash borrowing
entries,'' ``cash lending entries,'' ``collateral posted entries,''
and ``collateral received entries.'' See proposed Form PF Glossary
of Terms.
---------------------------------------------------------------------------

     Proposed Question 27 would require advisers to identify
each creditor or other counterparty (including CCPs) to which the
reporting fund owes a certain amount (before posted collateral) equal
to or greater than either (1) five percent of net asset value as of the
data reporting date or (2) $1 billion. If there are more than five such
counterparties, the adviser only would report the five counterparties
to which the reporting fund owes the largest dollar amount, before
taking into account collateral that the reporting fund posted. If there
are fewer than five such counterparties, the adviser only would report
the counterparties that meet the threshold. For example, if only three
counterparties meet the threshold, the adviser would report only three
counterparties. This would be a change from current Question 22, which
requires advisers to identify five counterparties to which the
reporting fund has the greatest mark-to-market net counterparty credit
exposure, regardless of the actual size of the exposure. The proposed
threshold is designed to highlight two different, significant,
potentially systemic, risks: five percent of net asset value represents
an amount of borrowing by a reporting fund that, if repayment was
required, could be a significant loss of financing that could result in
a forced unwind and forced sales from the reporting fund's portfolio.
Additionally, the $1 billion represents an amount that, in the case of
a very large fund, may not represent five percent of its net assets,
but may be large enough to create stress for certain of its
counterparties.
     Proposed Question 28 would require advisers to provide
information for counterparties to which the reporting fund has net
mark-to-market counterparty credit exposure which is equal to or
greater than either (1) five percent of the reporting fund's net asset
value as of the data reporting date or (2) $1 billion, after taking
into account collateral received or posted by the reporting fund. If
there are more than five such counterparties, the adviser would only
report the five to which the reporting fund has the greatest mark-to-
market exposure after taking into account collateral received. If there
are fewer than five such counterparties, the adviser only would report
the counterparties that meet the threshold. This would be a change from
current Question 23, which requires advisers to identify five
counterparties to which the reporting fund has the greatest mark-to-
market net counterparty credit exposure, regardless of the actual size
of the exposure. The proposed threshold is designed to represent an
amount of lending from a reporting fund that, if a default occurred,
could cause a significant loss that could result in a forced unwind and
forced sales from the reporting fund's portfolio. Furthermore, we
believe that the five percent threshold level would be large enough to
constitute a shock to a reporting fund's net asset value and is an
often-used industry metric. The $1 billion threshold represents an
amount that, in the case of a very large counterparty, may not
represent five percent of its net assets, but may be large enough to
create stress for the reporting fund.
     Currently, advisers report exposures that the reporting
fund has to counterparties as a percentage of the reporting fund's net
asset value, and advisers report exposures that counterparties have to
the reporting fund in U.S. dollars.\122\ We propose to require advisers
to report both data sets in U.S. dollars for consistency and
comparability.\123\
---------------------------------------------------------------------------

    \122\ See current Questions 22 and 23.
    \123\ See proposed Questions 27 and 28.

---------------------------------------------------------------------------

     We propose to require advisers to report the amount of
collateral posted, to help inform the Commissions and FSOC of the
potential impact of a reporting fund or counterparty default.
     We also propose to require advisers to report the
counterparty's LEI, if it has one, to help identify counterparties and
more efficiently link data from other data sources that use this
identifier.
     Advisers would continue to indicate if a counterparty is
affiliated with a major financial institution, as Form PF currently
provides.\124\ If the financial institution is not listed on Form PF,
advisers would continue to have the option of selecting ``other'' and
naming the entity in the chart, as Form PF currently provides.
---------------------------------------------------------------------------

    \124\ See current Question 22 and current Question 23.
---------------------------------------------------------------------------

    However, we propose to require the adviser to also describe the
financial institution in Question 4. This proposed amendment is
designed to help the Commissions and FSOC efficiently and accurately
identify the entity, without having to contact advisers individually.
    Together, the proposed amendments are designed to allow the
Commissions and FSOC to identify and align sources of borrowing and
lending to identify significant counterparty exposures, so that
different styles of borrowing would not be not obscured by methodology
differences or misidentified lending relationships, based on our
experience with the form. We request comment on the proposed
amendments.
    79. Would the proposed amendments help us and FSOC identify which
advisers and reporting funds may have counterparty credit risk in the
event of a counterparty failure (including CCP failure) or other market
event that affects performance by prime brokers or other counterparties
(including CCPs)? Is there a better way to meet these objectives?
    80. Are the proposed consolidated counterparty exposure table, its
instructions, and defined terms clear? Could they be clearer? Are there
circumstances not contemplated by the instructions that need to be
addressed? Is there an easier way for advisers to report counterparty
exposures that would provide comparable data? Should Form PF define the
terms ``counterparty exposure table,'' ``borrowing and collateral
received (B/CR),'' ``lending and posted collateral (L/PC),''
``synthetic short position,'' ``cash borrowing entries,'' ``cash
lending entries,'' ``collateral posted entries,'' ``collateral received
entries,'' and redefine ``gross notional value,'' as proposed? For
example, should ``synthetic short position'' provide a different list
of assets to be included or excluded? Should Form PF define or redefine
more, fewer, or different terms?
    81. Should Form PF require advisers to identify more or less than
only significant counterparty exposures? Is the proposed threshold for
identifying the counterparties with the most significant exposure to
and from the reporting fund the right threshold? Does it represent an
amount of borrowing from a reporting fund that, if repayment was
required, could be a significant loss of financing that could result in
a forced unwind and forced sales from the reporting fund's portfolio?
Is there a different threshold that would meet this objective? Should
advisers report all counterparties that meet the threshold, even if
there are more than five such counterparties? Should advisers report
the five counterparties that the reporting fund has the greatest
exposure to and from, even if they don't meet the proposed threshold?
    82. Should Form PF provide more detailed instructions for advisers
to use to identify the individual counterparties, as proposed? Could
the instructions be clearer? If Form PF should have less detailed
instructions on how to identify the counterparties, how could the
Commissions and FSOC help ensure that the data would be comparable?
    83. Should we require advisers to report values in U.S. dollars, as
proposed? Alternatively, should Form PF require advisers to report
values as a percentage of the reporting fund's net asset value? Should
Form PF require advisers to report amounts as both U.S. dollars and as
a percentage of the reporting fund's net asset value, or another way?
    84. Should Form PF require advisers to report collateral posted, as
proposed? Would the proposed amendment help inform the Commissions and
FSOC of the potential impact of a reporting fund or counterparty
default? Is there a better way to meet this objective?
    85. Should Form PF require advisers to report the counterparty's
LEI, if it has one?
    86. If an adviser selects ``other,'' should we require the adviser
to describe the entity in Question 4? Alternatively, should we
eliminate the ``other'' category?
    Trading and clearing mechanisms. We propose to revise how advisers
report information about trading and clearing mechanisms.\125\ These
types of data inform the Commissions and FSOC of the extent of private
fund activities that are conducted on and away from regulated exchanges
and clearing systems, which is important to understanding systemic risk
that could be transmitted through counterparty exposures.\126\ We
propose to require advisers to report (1) the value traded and (2) the
value of positions at the end of the reporting period, rather than
requiring advisers to report information as a percentage in terms of
value and trade volumes, as Form PF currently requires.\127\ This
proposed change is designed to simplify reporting because advisers
would compute the value before they convert it into a percentage;
therefore, this proposed change would eliminate an extra calculation
for advisers. It also is designed to provide the Commissions and FSOC
with data that can be more efficiently compared and aggregated among
advisers and other data sources. With data in dollar values, the
Commissions and FSOC could more effectively estimate the size, extent,
and pace of each hedge fund's participation in activity on or away from
regulated exchanges and clearing systems in relation to total values.
Understanding the size of hedge fund participation in activity on and
away from regulated exchanges and clearing systems is important to
assessing systemic risk, because activity that takes place on regulated
exchanges and clearing systems presents different risks than activity
that takes places away from regulated exchange and clearing systems.
For example, activity that takes place away from a regulated exchange
or clearing system may be less transparent, and may present more credit
risk than activity that takes place on a regulated exchange and a
clearing system that acts as a central counterparty that guarantees
trades.
---------------------------------------------------------------------------

    \125\ See current Questions 24, and 25, which we would
redesignate as proposed Questions 29 and 30.
    \126\ See supra footnote 114 and accompanying text (discussing
the role of CCPs); 2011 Form PF Adopting Release, supra footnote 3,
at n.228, and accompanying text.
    \127\ Proposed Question 29 would specify that ``value traded''
is the total value in U.S. dollars of the reporting fund's
transactions in the instrument category and trading mode during the
reporting period. Proposed Question 29 also would specify that, for
derivatives, value traded would be the weighted average of the
notional amount of aggregate derivatives transactions entered into
by the reporting fund during the reporting period, except for the
following: (1) for options, advisers would use the delta adjusted
notional value, and (2) for interest rate derivatives, advisers
would use the ``10-year bond equivalent.'' This measurement is
designed to track standard industry convention. We propose to add
the term ``10-year bond equivalent'' to the Form PF Glossary of
Terms, as discussed in section II.C.2 of this Release. See infra
footnote 159.
---------------------------------------------------------------------------

    We also propose to require advisers to report information about
trading and clearing mechanisms for transactions in

interest rate derivatives separately from other types of derivatives.
Form PF data show that interest rate derivatives represent the largest
gross investment exposure of qualifying hedge funds.\128\ Therefore,
this amendment is designed to help ensure that the Commissions and FSOC
can identify risks of such a significant volume of activity on and away
from regulated exchanges and clearing systems, without the data being
obscured by other types of derivatives. The proposal would require
advisers to report interest rate derivatives and other types of
derivatives, by indicating the estimated amounts that were (1) traded
on a regulated exchange or swap execution facility, (2) traded over-
the-counter and cleared by a CCP, and (3) traded over the counter or
bilaterally transacted (and not cleared by a CCP). These proposed
categories reflect our understanding of how derivatives may be traded.
---------------------------------------------------------------------------

    \128\ See Private Funds Statistics, supra footnote 7.
---------------------------------------------------------------------------

    The proposal would continue to require advisers to report clearing
information concerning repos, but would specify how to report sponsored
repos, and would specify that advisers must report reverse repos with
repos.\129\ According to the Fixed Income Clearing Corporation
(``FICC''), FICC's sponsored repo service has expanded in 2017 and
2019, ultimately resulting in daily volume up to $300 million per day
as of 2021, with a peak in March 2020 of $564 billion.\130\ Sponsored
repos incorporate a different structure than other repos, in that FICC
serves as a counterparty to any sponsored trade and the sponsored
member bears responsibility for meeting the obligations of the
sponsored member on all transactions that it submits for clearing.
Adding a particular reference to sponsored repos would ensure that
advisers understand how sponsored repos cleared by a CCP should be
reported, i.e., as trades cleared at a CCP.\131\ Therefore, we propose
to provide a separate line item for sponsored repos. The proposed
amendment is designed to improve data quality concerning repos and
sponsored repos, to allow the Commissions and FSOC to conduct more
accurate and targeted systemic risk assessments and analysis concerning
investor protection efforts. We also propose to specify that advisers
must report reverse repos with repos. Current Question 24 requires
advisers to report ``repos,'' which some advisers could interpret to
include reverse repos, while others could interpret as excluding
reverse repos. Therefore, this proposed amendment is designed to
improve data quality.\132\
---------------------------------------------------------------------------

    \129\ The proposal also would explain that ``repo'' means
``securities in'' transactions and ``reverse repo'' means
``securities out'' transactions. Sponsored repos and sponsored
reverse repos would apply to transactions in which the reporting
fund has been sponsored by a sponsoring member of the Fixed Income
Clearing Corporation. We would revise how Form PF explains tri-party
repos to help ensure they do not exclude sponsored tri-party repos.
Currently, Form PF explains that a tri-party repo applies where repo
collateral is held at a custodian (not including a CCP) that acts as
a third party agent to both the repo buyer and the repo seller. We
propose to amend Form PF so it would explain that tri-party repo
would apply where the repo or reverse repo collateral is executed
using collateral management and settlement services of a third party
that does not act as a CCP. See Form PF Glossary of Terms (modifying
the terms ``repo'' and ``reverse repo'') and Question 29
instructions (discussing sponsored repos, sponsored reverse repos,
and tri-party repos).
    \130\ See FICC Sponsored Repo in 2021, by DTCC Connection Staff
(Feb. 9, 2021), available at https://www.dtcc.com/dtcc-connection/articles/2021/february/09/ficc-sponsored-repo-in-2021.
    \131\ Current Question 24.
    \132\ See proposed Question 29.
---------------------------------------------------------------------------

    The proposal also would revise current Question 25, which requires
advisers to report the percentage of the reporting fund's net asset
value related to transactions not described in current Question 24,
which we would redesignate as proposed Question 29. The proposal would,
instead, require advisers to report both the value traded and the
position value as of the end of the reporting period for transactions
not described in proposed Question 29. These amendments are designed to
make proposed Question 30 data comparable with data from proposed
Question 29, so that together, Questions 29 and 30 would provide the
Commissions and FSOC with a complete data set of the adviser's trading
and clearing mechanisms during the reporting period.
    We request comment on the proposed amendments.
    87. Would the proposed amendments enhance analysis of clearance and
settlement, interest rate derivatives, as well as repos, reverse repos,
and sponsored repos?
    88. Should Form PF require advisers to add repos and reverse repos
together when reporting information about trading and clearing
mechanisms, as proposed? Alternatively, should Form PF require advisers
to report information about repos separately from reverse repos?
    89. Do the proposed reporting categories cover the types of trading
and clearing mechanisms used to trade derivatives? Should Form PF
include more or fewer trading and clearing categories?
    90. Would the proposed amendments make data from proposed Questions
29 and 30 comparable, so that together, the questions would provide the
Commissions and FSOC with a complete data set of the adviser's trading
and clearing mechanisms during the reporting period? Is there a better
way to meet this objective?
    91. Would the proposal to require advisers to report the value
traded and the value of positions as of the end of the reporting period
improve our ability to aggregate data and compare data among advisers?
Would requiring the values, instead of the percentages, provide the
Commissions and FSOC with a view into the extent of exposures across
reporting funds, which would inform the Commissions and FSOC as to how
much value would be at stake, given a market event? Are there better
ways to meet these objectives?
    92. Should we amend the terms ``repo'' and ``reverse repo,'' as
proposed? Are the proposed definitions more consistent with how the
private fund industry understands repos and reverse repos? If not, how
should we define the terms, and would such definitions be consistent
with how the Commissions use the terms in other contexts? Should Form
PF refer to sponsored repos, as proposed?
    Removing Certain Questions Concerning Hedge Funds. We propose to
remove current Questions 19 and 21 from the form. Current Question 19
requires advisers to hedge funds to report whether the hedge fund has a
single primary investment strategy or multiple strategies. Proposed
Question 25, which requires hedge fund advisers to disclose certain
information about each investment strategy, would provide this
information, as discussed above in this section II.B.3 of the Release.
    We also propose to remove current Question 21, which requires hedge
fund advisers to approximate what percentage of the hedge fund's net
asset value was managed using high frequency trading strategies. We
believe the form's question on portfolio turnover, with proposed
revisions, would better inform our and FSOC's understanding of the
extent of trading by large hedge fund advisers and would better show
how larger hedge funds interact with the markets and provide trading
liquidity.\133\
---------------------------------------------------------------------------

    \133\ See proposed revisions to current Question 27, as
discussed in section II.C of this Release.
---------------------------------------------------------------------------

    We request comments on the proposed amendments.
    93. Should we remove current Questions 19 and 21, as proposed?
Alternatively, should Form PF keep current Question 21, but revise it
to improve data quality? For example,

should Form PF define ``high frequency trading?''
    94. Does the turnover data Form PF would collect provide more
informative data than current Question 21, which we propose to remove?
    95. Should Form PF require advisers to report more or less turnover
data? For example, should Form PF require only large hedge fund
advisers to report the value of turnover during the month for the
qualifying hedge funds that they advise, as proposed, or should Form PF
require such information for all advisers who advise hedge funds of any
size?
    96. Should Form PF remove any other questions that would be
answered by other questions that would provide the same or more useful
data?

C. Proposed Amendments Concerning Information About Hedge Funds Advised
by Large Private Fund Advisers

    A private fund adviser must complete section 2 of Form PF if it had
at least $1.5 billion in hedge fund assets under management as of the
last day of any month in the fiscal quarter immediately preceding the
adviser's most recently completed fiscal quarter.\134\ This section
requires additional information regarding the hedge funds these
advisers manage, which is tailored to focus on relevant areas of
financial activity that have the potential to raise systemic concerns.
We are proposing several amendments to this section, including
amendments that would remove aggregate reporting in section 2a, which
we have found to be less meaningful for analysis and more burdensome
for advisers to report, while preserving and enhancing reporting on a
per fund basis in section 2b. We also propose to retain certain
questions previously reported by advisers on an aggregate basis that we
believe are important for data analysis and systemic risk assessment,
but require reporting on a per fund basis. Collectively, the proposed
changes to section 2 are designed to provide better insight into the
operations and strategies employed by qualifying hedge funds and their
advisers, and improve data quality and comparability to enable FSOC to
monitor systemic risk better and enhance the Commissions' regulatory
programs and investor protection efforts. Furthermore, the proposal
would remove certain other reporting requirements that we have found to
be less useful based on our experience with Form PF since adoption,
which would help reduce reporting burdens for advisers while preserving
the Commissions' and FSOC's regulatory oversight.
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    \134\ Section 2a requires a large hedge fund adviser to report
certain aggregate information about any hedge fund it advises and
section 2b requires a large hedge fund adviser to report certain
additional information about any hedge fund it advises that has a
net asset value of at least $500 million as of the last day of any
month in the fiscal quarter immediately preceding the adviser's most
recently completed fiscal quarter (a ``qualifying hedge fund'').
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    Currently, the Form PF Glossary of Terms defines a ``hedge fund''
generally as any private fund (other than a securitized asset fund):
    (a) with respect to which one or more investment advisers (or
related persons of investment advisers) may be paid a performance fee
or allocation calculated by taking into account unrealized gains (other
than a fee or allocation the calculation of which may take into account
unrealized gains solely for the purpose of reducing such fee or
allocation to reflect net unrealized losses);
    (b) that may borrow an amount in excess of one-half of its net
asset value (including any committed capital) or may have gross
notional exposure in excess of twice its net asset value (including any
committed capital); or
    (c) that may sell securities or other assets short or enter into
similar transactions (other than for the purpose of hedging currency
exposure or managing duration).\135\
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    \135\ See current Form PF Glossary of Terms for the complete
definition.
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    The definition is designed to include any private fund having any
one of three common characteristics of a hedge fund: (1) a performance
fee that takes into account market value (instead of only realized
gains); (2) leverage; or (3) short selling. We request comment on
whether we should amend the definition of ``hedge fund'' as such term
is defined in the Form PF Glossary of Terms in order to address
potential data mismatches and improve data quality. Specifically, we
request comment on the following:
    97. We understand that some reporting funds may consider themselves
``private equity funds,'' but advisers report them as hedge funds as
Form PF directs because the reporting fund's governing documents permit
the fund to engage in certain borrowing and short selling (even though
it did not do so at any time in the past, for example, 12 months) (a
``deemed hedge fund'' for purposes of this Release). Should we amend
the definition of ``hedge fund'' in the Form PF Glossary of Terms so
that such deemed hedge funds report as private equity funds and not
hedge funds? If so, how? Would such changes improve data quality by
excluding private equity strategies from reporting as hedge funds and
instead requiring such funds to report as private equity funds? If so,
and if we were to amend the definition of ``hedge fund'' in Form PF,
should we amend it for all purposes under Form PF or only certain
sections such as sections 1 and 2? Should we concurrently make
conforming definitional changes to any other forms, such as Form ADV
(or alternatively amend Form ADV so it would reference any revised
definition of ``hedge fund'' in Form PF)?
    98. As an example, should we amend the definition of ``hedge fund''
so that, to qualify as a hedge fund under the leverage prong of the
definition, a fund would have to continue to satisfy subsection (b) of
the definition, but also must have actually borrowed or used any
leverage during the past 12 months, excluding any borrowings secured by
unfunded commitments (i.e., subscription lines of credit); \136\ and to
qualify as a hedge fund under the short selling prong of the
definition, the fund must have actually engaged in the short selling
activities described in subsection c of the definition during the past
12 months? \137\ If we were to amend the definition, would excluding
actual borrowings secured by unfunded commitments (i.e., subscription
lines of credit) appropriately exclude private equity funds, which
typically engage in such borrowings? Should any amended definition
require actual borrowing or short selling in the last 12 months?
Alternatively, should any amended definition require a longer or
shorter time period, such as 18 months or nine months, or different
time periods for borrowing versus short selling?
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    \136\ Subsection (b) of the current definition of ``hedge fund''
states that a hedge fund is any private fund (other than a
securitized asset fund) that may borrow an amount in excess of one-
half of its net asset value (including any committed capital) or may
have gross notional exposure in excess of twice its net asset value
(including any committed capital). See current Form PF Glossary of
Terms.
    \137\ Subsection (c) of the current definition of ``hedge fund''
states that a hedge fund is any private fund (other than a
securitized asset fund) that may sell securities or other assets
short or enter into similar transactions (other than for the purpose
of hedging currency exposure or managing duration). See current Form
PF Glossary of Terms.
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    99. Should any amended definition include a requirement for the
reporting fund to provide redemption rights in the ordinary course or
exclude actual portfolio company guarantees in the past 12 months (or
some other time period)? What other alternative changes to any amended
definition of ``hedge fund'' do you suggest?
    100. Should any revised definition specify that subscription lines
of credit encompass both short term and long term subscription lines of
credit? If so,

should we specify what constitutes ``short term'' and ``long term''?
For example, should ``short term'' mean three to six months, or less
than the life of the fund, and should ``long term'' mean longer than
six months, or the life of the fund?
    101. Would it be appropriate for any amended definition of ``hedge
fund'' to continue to include commodity pools or should commodity pools
be excluded?
1. Proposed Amendments to Section 2a
    Removal of aggregate reporting. We propose to eliminate the
requirement for large hedge fund advisers to report certain aggregated
information about the hedge funds they manage.\138\ Based on our
experience using data obtained from Form PF since its adoption, we have
found that aggregated adviser level information combines funds with
different strategies and activities, thus making analyses less
meaningful. Aggregation can mask the directional exposures of
individual funds (e.g., positions held by one reporting fund may appear
to be offset by positions held in a different fund). Additionally,
there can be inconsistencies between data reported in the aggregate in
section 2a and on a per fund basis in section 2b (e.g., we have
observed in some instances that the sum of fund exposures advisers
report in current Question 30 on a per fund basis exceed the aggregate
figure reported in current Question 26). We believe that aggregating
information across funds may be burdensome for some advisers because
certain advisers may keep fund records on different systems, and
``rolling-up'' the data from different sources to report on the form
may be complex and time consuming. While advisers may be required to
aggregate certain types of investment holdings across their funds for
other regulatory purposes (e.g., certain U.S. registered equities for
Form 13F reporting), advisers generally do not aggregate all portfolio
investment exposure information across their funds other than for Form
PF reporting purposes, given that counterparties, markets, and
investors tend to interact with funds on an individual basis and not in
the aggregate at the adviser level.
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    \138\ We propose to remove section 2a and redesignate section 2b
as section 2. In connection with the proposed removal of section 2a,
we propose to revise the general instructions to make corresponding
changes (including amending Instruction 3 to reflect the proposed
removal of section 2a), and propose to revise current Question 27
(reporting on the value of turnover in certain asset classes in
advisers' hedge funds' portfolios) and current Question 28
(reporting on the geographical breakdown of investments held by
advisers' hedge funds), move each of these questions to new section
2, and redesignate them as Question 34 and Question 35,
respectively. Furthermore, in connection with the proposed changes,
we would revise the term ``sub-asset class'' so it no longer refers
to Question 26, which the proposal would remove.
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    We do not believe that removing section 2a would result in a
meaningful deterioration in the information collected because the vast
majority of gross hedge fund assets on which advisers report in the
aggregate in section 2a constitute the gross assets of qualifying hedge
funds that are reported in section 2b. For example, large hedge fund
advisers reported total gross notional exposure for qualifying hedge
funds in section 2b that constituted approximately 91 percent of the
total gross notional exposure reported on an aggregate basis by large
hedge fund advisers in section 2a as of the same date.\139\
Furthermore, as discussed in section II.B.3. above, we are also
proposing to enhance reporting for all hedge funds in section 1
(particularly section 1c), which we believe would mitigate against
potential data gaps that could result from the removal of section 2a,
given that advisers currently report information on all their hedge
funds in section 2a but only report on qualifying hedge funds in
section 2b. Additionally, certain information collected in section 2a
is duplicative of information already collected on a per fund basis in
section 2b.\140\ By continuing to require reporting on a per fund
basis, information reported in section 2b would allow the Commissions
and FSOC to compile aggregate figures.\141\
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    \139\ As noted above, based on experience with Form PF since
adoption, we have found information gathered in section 2a for the
remaining 9 percent of funds to not be very useful given that it is
aggregated data across different funds.
    \140\ For example, Question 26 of section 2a requires large
hedge fund advisers to report aggregated information on exposure to
different types of assets, which is effectively the same exposure
information reported on a per fund basis for each qualifying hedge
fund in current Question 30 of section 2b.
    \141\ Additionally, we are proposing to move current Question 31
(base currency) currently required only for qualifying hedge funds
to section 1b. We are also proposing to enhance section 1c to
require more detailed information about hedge funds' borrowing and
financing arrangements (including posted collateral) and also
proposing to revise current Question 25 and current Question 26 to
require end of period reporting of the value of certain instrument
categories (including listed equities, interest rate derivatives and
other derivatives, and repo/reverse repos).
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    We request comments on the proposed amendments.
    102. Should we remove aggregate reporting by eliminating section 2a
as proposed? Alternatively, should we retain a subset of the questions
in section 2a to be reported on an aggregate basis? If so, which
questions and why?
    103. Do you agree that counterparties, markets, and investors tend
to look at funds on an individual basis and not in the aggregate at the
adviser level and as such the proposed removal of section 2a would
reduce the burden on advisers having to report fund level data on an
aggregated basis?
    104. Do you agree that aggregating information across funds may be
burdensome for some advisers? Do some advisers maintain fund records on
different systems such that ``rolling-up'' the data from different
sources to report on the form would be complex and time consuming?
2. Proposed Amendments to Section 2b
    Current section 2b requires a large hedge fund adviser to report
certain additional information about any hedge fund it advises that is
a qualifying hedge fund.\142\ As noted in the 2011 Form PF Adopting
Release, information reported in section 2b is designed to assist FSOC
in monitoring the composition of hedge fund exposures over time as well
as the liquidity of those exposures. The information also aids FSOC in
its monitoring of credit counterparties' unsecured exposure to hedge
funds as well as hedge funds' exposure and ability to respond to market
stresses and interconnectedness with CCPs. Based on our experience with
the data since Form PF was first adopted and our consultations with
FSOC, we are proposing to amend section 2b to do the following:
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    \142\ In connection with the proposed amendments, we propose to
redesignate section 2b as section 2.
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    (1) Enhance, expand, and simplify investment exposure reporting;
    (2) Revise open and large position reporting;
    (3) Revise borrowing and counterparty exposure reporting;
    (4) Revise market factor effects reporting; and
    (5) Make certain other changes designed to streamline and enhance
the value of data collected on qualifying hedge funds by: (a) adding
reporting on currency exposure, turnover, country and industry
exposure; (b) adding new reporting on CCPs; (c) streamlining risk
metric reporting and collecting new information on investment
performance by strategy and portfolio correlation; and (d) enhancing
portfolio and financing liquidity reporting.
a. Investment Exposure Reporting.
    Reporting on qualifying hedge fund exposures to different types of
assets has been critical in helping to monitor the composition of hedge
fund exposures over time, particularly as it relates to

systemic risk monitoring. The proposal would (1) replace the table
format of current Question 30, which we would redesignate as Question
32, with narrative instructions and a ``drop-down'' menu while also
revising the instructions to specify how to report certain positions,
(2) require reporting based on ``instrument type'' within sub-asset
classes to identify whether the fund's investment exposure is achieved
through cash or physical investment exposure, through derivatives or
other synthetic positions, or indirectly (e.g., through a pooled
investment such as an ETF, an investment company, or a private fund),
(3) require the calculation of ``adjusted exposure'' for each sub-asset
class (i.e., require (in addition to value as currently reported) the
calculation of ``adjusted exposure'' for each sub-asset class that
allows netting across instrument types representing the same reference
asset within each sub-asset class, and, for fixed income, within a
prescribed set of maturity buckets), (4) require uniform interest rate
risk measure reporting for sub-asset classes that have interest rate
risk (while eliminating the current option to report one of duration,
weighted average tenor (WAT) or 10-year equivalents), and (5) amend the
list of reportable sub-asset classes consistent with these other
changes and collect enhanced information for some asset types.\143\
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    \143\ In connection with the proposed amendments, we also
propose to remove Question 44, which under the proposal would be
duplicative of the new reporting requirements in proposed Question
32.
---------------------------------------------------------------------------

    Narrative reporting instructions and additional information on how
to report. The proposal would replace the existing complex table in
current Question 30 with reporting instructions that would use a series
of ``drop-down'' menu selections for each sub-asset class and the
applicable information required for each sub-asset class. This approach
is similar to the narrative instructions (and drop-down menus) already
in effect for current section 3 with respect to liquidity fund position
reporting.\144\ We believe that these changes and new format would
simplify and specify how to report the required information in proposed
Question 32. Additionally, the proposed changes may reduce filer
burdens compared to the current form because advisers are currently
required to enter ``N/A'' in each field for which there is not a
relevant position, while the proposal would only require advisers to
provide information for sub-asset classes in which their qualifying
hedge funds hold relevant positions. Furthermore, the proposal would
require advisers to report the absolute value of short positions,
include positions held in side-pockets as positions of the reporting
fund, and include any closed out and OTC forward positions that have
not yet expired or matured.
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    \144\ See Form PF, Section 3, Question 63(f) and (g).
---------------------------------------------------------------------------

    We propose to amend the instructions to current Question 30 to
specify how advisers should classify certain positions. Specifically,
the proposed instructions would require advisers to choose the sub-
asset class that describes the position with the highest degree of
precision, which we believe would result in more accurate
classification of positions and therefore better data, rather than
simply noting that any particular position should only be included in a
single sub-asset class. This proposed change is designed to instruct
advisers on how to classify positions that could be accurately
classified in multiple sub-asset classes, and is consistent with SEC
staff Form PF Frequently Asked Questions.\145\ The proposal also would
add a new instruction that directs advisers to report cash borrowed via
reverse repo as the short value of repos, and refer advisers to the
proposed revised definitions of ``repo'' and ``reverse repo'' in the
Glossary of Terms, also consistent with SEC staff Form PF Frequently
Asked Questions.\146\ We believe this proposed change would reduce
confusion on how to report repo information and help reduce filer
errors. Finally, the amended instructions also would include a revised
list of sub-asset classes.\147\
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    \145\ See Form PF Frequently Asked Questions, supra footnote 79,
Question 26.2.
    \146\ See Form PF Frequently Asked Questions, supra footnote 79,
Question 26.5. See also supra footnote 129.
    \147\ The proposed amendments to this list, as well as other
changes to instructions in specific parts of proposed Question 32,
are discussed below.
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    We also propose to require advisers to provide additional
explanatory information in situations where a qualifying hedge fund
reports long or short dollar value exposure to ``catch-all'' sub-asset
class categories \148\ equal to or exceeding either (1) five percent of
a fund's net asset value or (2) $1 billion.\149\ We have observed that
some funds report significant amounts of assets in these ``catch-all''
categories. We chose the five percent threshold level because we
believe it represents a level that would identify exposure that could
be material to a fund's investment performance. The $1 billion
threshold represents a level for large funds (e.g., those with net
asset values in excess of $20 billion) that is large enough so as to
have potential systemic risk implications even if the position is less
than five percent of the fund. We propose to add this explanatory
requirement to inform our understanding of significant exposure
reported in these ``other'' sub-asset classes better, which we believe
is important for assessing systemic risk.
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    \148\ These sub-asset classes include: loans (excluding
leveraged loans and repos), other structured products, other
derivatives, other commodities, digital assets, and investments in
other sub-asset classes.
    \149\ Some filers report significant exposure to these ``other''
categories. For example, the public Private Fund Statistics Second
Quarter 2020 (``Private Fund Statistics Q2 2020'') (Table 46) shows
about $100 billion in aggregate QHF GNE reported as ``other loans,''
more than other asset categories of interest, such as ABS/structured
products (ex. MBS but including CLO/CDOs) (about $53 billion) and
convertible bonds ($95 billion) as of 2020 Q1. See Private Fund
Statistics Q2 2020 available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2020-q2.pdf.
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    We request comment on the proposed amendments.
    105. Should we amend the format of current Question 30 as proposed?
Do the proposed narrative instructions clarify and simplify reporting
for advisers? Alternatively, if the proposed format creates additional
complexity for filers, should only a subset of qualifying hedge funds
be required to complete proposed Question 32? If so, what should the
threshold be and why?
    106. Do you agree that the proposed changes requiring advisers to
choose the sub-asset class that describes positions with the highest
degree of precision would result in more accurate classification of
positions and therefore better data for analysis? If not, what
alternatives do you suggest?
    107. Currently, most sub-asset classes (e.g., equities, corporate
bonds) are not further divided to account for exposure by the sub-asset
class to a particular country or region. Instead, other questions on
Form PF collect this information (e.g., current Question 28). Should we
further divide sub-asset classes by geographic exposure? If so, would
the separation of sub-asset classes by U.S. and non-U.S. be helpful or
would even more granularity be appropriate?
    108. As an alternative to the proposed requirement that advisers
provide additional explanatory information in situations where a
qualifying hedge fund has significant exposure to ``catch-all'' sub-
asset class categories (i.e., if the long or short dollar value is
equal to or exceeds either (1) five percent of a fund's net asset value
or (2) $1 billion), should we add additional sub-asset classes to
further break out the types of instruments that are being classified in

these ``catch-all'' buckets? If we should add more sub-asset classes,
what should they be? Is the proposed threshold for requiring that
advisers provide additional explanatory information set at the
appropriate level? Should it be higher or lower?
    109. With respect to sub-asset classes pertaining to loans, should
we add additional sub-asset classes to capture loans originated by
banks versus other entities for purposes of monitoring systemic risk?
Should we require reporting on private funds' origination activities in
a separate question that would ask whether the private fund originate
loans and if so much has it originated?
    110. Should any other sub-asset classes reflected in the proposal
be broken out separately in proposed Question 32? If so, what sub-asset
classes and why?
    111. Should the short dollar value of repo match borrowings by
reverse repo reported in the counterparty exposure table in Question
41, and if they do not match, should we require explanation?
    112. The current instructions to Question 30 require advisers to
include closed out and OTC forward positions that have not yet expired/
matured. However, SEC staff Form PF Frequently Asked Question 44.1
states that reporting is not required for closed out positions if
closed out with the same counterparty if there is no remaining legally
enforceable obligation. Further, we understand that advisers use
different internal methods to account for closed out and OTC forward
positions not yet expired/matured, which introduces inconsistencies in
data reported on Form PF. Should we require advisers to report closed
out and OTC forward positions that have not yet expired/matured even if
closed out as suggested by the current instructions? Alternatively,
should we only require reporting unless the OTC forward positions are
closed out with the same counterparty and there is no remaining legally
enforceable obligation (consistent with our proposed revision to
Instruction 15)?
    113. Is it clear in proposed Question 32 how to classify positions
in certain sub-asset classes as ``long'' or ``short'' in light of the
proposed changes to Instruction 15 \150\ with respect to classifying
positions? Should we provide additional guidance specific to proposed
Question 32? If so, what additional instructions or guidance would be
helpful?
---------------------------------------------------------------------------

    \150\ See discussion at Section II.D of this Release.
---------------------------------------------------------------------------

    114. Current Question 30 and several other current and/or proposed
questions in Section 2 of Form PF would not be necessary if large hedge
fund advisers instead filed information about each qualifying hedge
fund's portfolio positions similar to what is required by Section 3 for
large liquidity fund advisers or on Form N-PORT for registered
investment companies. Should we require, or permit, large hedge fund
advisers to file this kind of position level information for qualifying
hedge private funds instead of, or as an optional alternative to,
responding to current Question 30 and certain other questions
concerning portfolio holdings, such as position concentrations,
currency, geographic and industry exposure, and market factor testing?
For example, if in lieu of completing current Question 30 (exposure
reporting), current Question 28 (country exposure), current Question 34
(position concentration), current Question 35 (large positions), and
current Question 44 (aggregate value of derivatives positions), and
potentially additional questions including those concerning
counterparty exposures, advisers could instead choose to file position
level information, would this help alleviate the reporting burden?
    Separate reporting for positions held physically, synthetically or
through derivatives and indirect exposure. The proposal would require
advisers to report the dollar value of a qualifying hedge fund's long
positions and the dollar value of the fund's short positions in certain
sub-asset classes by ``instrument type'' (i.e., cash/physical
instruments, futures, forwards, swaps, listed options, unlisted
options, and other derivative products, ETFs, exchange traded product,
U.S. registered investment companies (excluding ETFs and money market
funds), non-U.S. registered investment companies, internal private fund
or external private fund, commodity pool, or other company, fund or
entity).\151\ For each month of the reporting period, advisers would be
required to report long and short positions in these sub-asset classes
held physically, synthetically or through derivatives, and indirectly
through certain entities,\152\ separately in order to provide the
Commissions and FSOC sufficient information to understand, monitor, and
assess qualifying hedge funds' exposures to certain types of assets and
investment products. The current instructions (and the associated
definitions) require advisers to combine exposure held physically,
synthetically, or through

derivatives when reporting certain fixed income and other sub-asset
classes.\153\ Even when certain sub-asset classes currently separate
physical and derivative exposure (e.g., listed equities), all
derivative instrument types are combined regardless of each derivative
instrument type's risk characteristics. Furthermore, the form's current
instructions for reporting investment exposure obtained through funds
or other entities are different. For example, instructions require
advisers to categorize ETFs based on the assets the ETF holds, while
other registered investment companies are reported as a separate sub-
asset class, and may obscure the extent of a reporting fund's exposure
to particular sub-asset classes. This difference and lack of
granularity in reporting makes it difficult to understand the
activities of qualifying hedge funds and limits the utility of data
collected for purposes of understanding the role qualifying hedge funds
play in certain market events. For example, when monitoring funds'
activities during recent market events like the March 2020 COVID-19
turmoil, the existing aggregation of U.S. treasury securities with
related derivatives did not reflect the role hedge funds played in the
U.S treasury market.
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    \151\ See Form PF Glossary of Terms (proposed definition of
``instrument type''). See also proposed Question 32(a). Sub-asset
classes that would require reporting by instrument type (see
proposed Question 32(a)(1)) include: listed equity issued by
financial institutions; American Depositary Receipts; other single
name listed equity; indices on listed equity; other listed equity;
unlisted equity issued by financial institutions; other unlisted
equity, investment grade corporate bonds issued by financial
institutions (other than convertible bonds); investment grade
corporate bonds not issued by financial institutions (other than
convertible bonds); non-investment grade corporate bonds issued by
financial institutions (other than convertible bonds); non-
investment grade corporate bonds not issued by financial
institutions (other than convertible bonds); investment grade
convertible bonds issued by financial institutions; investment grade
convertible bonds not issued by financial institutions; non-
investment grade convertible bonds issued by financial institutions;
non-investment grade convertible bonds not issued by financial
institutions; U.S. treasury bills; U.S. treasury notes and bonds;
agency securities; GSE bonds; sovereign bonds issued by G10
countries other than the U.S, other sovereign bonds (including
supranational bonds); U.S. state and local bonds; MBS; ABCP; CDO
(senior or higher); CDO (mezzanine); CDO (junior equity); CLO
(senior or higher); CLO (mezzanine); CLO (junior equity); other ABS,
other structured products; U.S. dollar interest rate derivatives;
non-U.S. currency interest rate derivatives; foreign exchange
derivatives; correlation derivatives; inflation derivatives;
volatility derivatives; variance derivatives; other derivatives,
agricultural commodities; crude oil commodities; natural gas
commodities; power and other energy commodities; gold commodities;
other (non-gold) precious metal commodities; base metal commodities;
other commodities; real estate; digital assets; investments in other
sub-asset classes. These sub-asset classes are reported at the sub-
asset class level and not by instrument type (see proposed Question
30(a)(2)): leveraged loans, loans (excluding leveraged loans and
repo); overnight repo, term repo (other than overnight), open repo;
sovereign single name CDS; financial institution single name CDS;
other single name CDS, index CDS; exotic CDS; U.S. currency
holdings, non-U.S. currency holdings, certificates of deposit, other
deposits, money market funds, other cash and cash equivalents
(excluding bank deposits, certificates of deposit and money market
funds). In connection with the proposal we also propose to amend the
Glossary of Terms to (i) amend the definitions of agency securities,
convertible bonds, corporate bonds, GSE bonds, leveraged loans,
sovereign bonds, and U.S. treasury securities, in each case to
include positions held indirectly through another entity, (ii)
remove the definitions of crude oil, derivative exposures to
unlisted equities, gold, natural gas, and power, and (iii) amend the
definitions of commodities and other commodities. See Form PF
Glossary of Terms. Additionally, for foreign exchange derivatives,
advisers would report forex swaps and currency swaps separately, and
in determining dollar value, would not net long and short positions
within sub-asset classes or instrument types (with the exception of
spot foreign exchange longs and shorts).
    \152\ In determining the reporting fund's exposure to sub-asset
classes for positions held indirectly through entities, the proposal
would permit advisers to allocate the position among sub-asset
classes and instrument types using reasonable estimates consistent
with its internal methodologies and conventions of service
providers. Furthermore, if a reporting fund's position in any such
entity represents less than (1) 5% of the reporting fund's net asset
value and (2) $1 billion, the proposal would permit advisers to
report an entire entity position in one sub-asset class and
instrument type that best represents the sub-asset class exposure of
the entity, unless the adviser would allocate the exposure more
granularly under its own internal methodologies and conventions of
its service providers.
    \153\ We propose to require advisers to report the dollar value
of long and short positions for the sub-asset class (and not
instrument type) for following sub-asset classes: leveraged loans,
loans (excluding leveraged loans and repo); overnight repo, term
repo (other than overnight), open repo; sovereign single name CDS;
financial institution single name CDS; other single name CDS, index
CDS; exotic CDS; U.S. currency holdings, non-U.S. currency holdings,
certificates of deposit, other deposits, money market funds, other
cash and cash equivalents (excluding bank deposits, certificates of
deposit and money market funds). See proposed Question 32(a).
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    115. Do advisers' internal risk reporting systems track long and
short positions by instrument type? Does the proposed definition of
``instrument type'' present different types of risk such that it would
be valuable to collect information separately for each instrument? Are
the proposed instrument types appropriate? Alternatively, should we
aggregate instrument types so that there are fewer options or should
there be a different set of instrument types for different sub-asset
classes? If so, what should they be?
    116. Should we require reporting of dollar value by instrument type
as proposed or for fewer sub-asset classes?
    117. In proposed Question 32 we would not require advisers to
report positions in certain sub-asset classes by instrument type \154\
because we understand that exposure to these sub-asset classes would
generally be held physically (e.g., currency holdings) or through a
single instrument type (e.g., repo and credit-default swaps). Should we
also require reporting by instrument type for any of these sub-asset
classes?
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    \154\ See supra footnote 151.
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    118. Do the proposed amendments better capture exposures to sub-
asset classes held physically, synthetically or through derivatives,
and indirectly through certain entities? If not, how should we modify
the proposal to better capture these types of exposures?
    Adjusted exposure reporting. While we would continue to require
advisers to report ``gross'' long and short exposure, i.e., the dollar
value of a qualifying hedge fund's long positions and dollar value of
the fund's short positions for various sub-asset classes (and by
instrument type for certain sub-asset classes as explained above), we
propose to require advisers to also report the ``adjusted'' exposure of
long and short positions for each sub-asset class in which a fund has a
reportable position.\155\ Based on our experience, we have found that
gross exposure reporting, while useful because the information
indicates fund size on a comparable basis among funds, may inflate some
qualifying hedge funds' reported long and short exposures in a way that
does not properly represent the economic exposure and market risk of a
reporting fund's portfolio. For example, when only looking at gross
exposure, certain relative value strategies that are designed to match
long and short exposures in the same or similar (highly correlated)
assets may reflect very high leverage, but not have the same level of
risk as portfolios with less leverage but that are more exposed
directionally. Furthermore, some advisers, for purposes of managing
risk, do not view their portfolio on a ``gross'' basis because they do
not believe it provides a meaningful measure of risk. We believe that
``gross'' exposure reporting by itself presents an incomplete picture
that represents a significant data gap for purposes of systemic risk
analysis.
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    \155\ Proposed Question 32(b). See also Form PF Glossary of
Terms (proposed definition of ``adjusted exposure'').
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    We propose to require advisers to determine adjusted exposure for
each ``sub-asset'' using a specified methodology that is designed to
facilitate comparisons of the reported data. Specifically, the proposal
would require advisers to calculate and report ``adjusted exposure'' of
long and short positions for each sub-asset class by netting (1)
positions that have the same underlying ``reference asset'' across
``instrument type'' (i.e., cash/physical instruments, futures,
forwards, swaps, listed options, unlisted options, other derivative
products, and positions held indirectly through another entity such as
ETFs, other exchange traded products,\156\ U.S. registered investment
companies (excluding ETFs and money market funds), investments in non-
U.S. registered investment companies,\157\ other private funds,
commodity pools, or other companies, funds or entities) and (2) fixed
income positions that fall within certain predefined maturity buckets
(i.e., 0 to 1 year, 1 to 2 year, 2 to 5 year, 5 to 10 year, 10 year, 10
to 15 year, 15 year, 15 to 20 year, and 20+ year).\158\
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    \156\ In connection with this proposed amendment, we also
propose to define ``exchange traded product'' as ``an investment
traded on a stock exchange that invests in underlying securities or
assets, such as an ETF or exchange traded note.'' See Form PF
Glossary of Terms. Given that the exchange traded product market has
grown significantly since Form PF was first adopted, we believe that
activity in exchange traded products may present different systemic
risks than traditional listed equities and other instruments that
might be used to obtain exposure to underlying assets owned within
an ETF. Furthermore, we believe added insight into whether the
underlying sub-asset class exposure is held through an ETF would
enhance FSOC's analysis of systemic risk associated with this asset
class.
    \157\ See Form PF Glossary of Terms (proposed definition of
``investments in non-U.S. registered investment companies'').
Furthermore, we also propose to remove the term ``U.S. registered
investment companies'' from the Form PF Glossary of Terms.
    \158\ See Form PF Glossary of Terms. We propose to define
``reference asset'' as a security or other investment asset to which
a fund is exposed through direct ownership (i.e., a physical or cash
position), synthetically (i.e. the subject of a derivative or
similar instrument held by the fund), or indirect ownership (e.g.,
through ETFs, other exchange traded products, U.S. registered
investment companies, non-U.S. registered investment companies,
internal private funds, external private funds, commodity pools, or
other companies, funds, or entities). An adviser may identify a
reporting fund's reference assets according to its internal
methodologies and the conventions of service providers, provided
that these methodologies and conventions are consistently applied,
do not conflict with any instructions or guidance relating to Form
PF and reported information is consistent with information it
reports internally and to investors and counterparties.
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    For purposes of determining ``adjusted exposure,'' we propose to
permit cross counterparty netting consistent with information reported
by a fund internally and to current and prospective investors, because
we believe it would better reflect the fund's economic exposure. For
example, a fund with market-neutral trades may lose substantial amounts
of capital in a period of market stress if prices diverge, regardless
of the identities of the counterparties. Additionally, counterparty
identification may be

ambiguous for some positions, such as when a fund simply has a long
position in an equity security traded over an exchange or purchased
from a broker without the use of any financing.
    Finally, if a fund does not net across all instrument types in
monitoring the economic exposure of the fund's investment positions for
purposes of internal reporting and reporting to investors, we would (in
addition to adjusted exposure determined as specified above) also
require the adviser to report adjusted exposure based on an adviser's
internal methodologies and describe in Question 4 how the adviser's
internal methodology differs from the standard approach in proposed
Question 32. This additional information would provide better insight
into how these advisers assess the economic exposure of their reporting
fund's portfolio, while still ensuring an adviser provides information
that supports our and FSOC's ability to aggregate and compare the data
across funds.
    We request comment on the proposed amendments.
    119. The proposal would permit advisers to net across
counterparties without limit if consistent with methodologies used for
internal reporting and reporting to investors. Is this appropriate?
Alternatively, should we only allow cross-counterparty netting to the
extent that it is permitted by legal agreement?
    120. Is the proposed definition of ``reference asset'' sufficiently
clear? Should we instead propose a definition that tailors the
definition to different asset classes (e.g., repo exposures could be
netted in accordance with GAAP rules for balance sheet netting,
treasury exposures could be netted within maturity buckets)?
    121. The proposed definition of ``reference asset'' specifies using
the cheapest-to-deliver security for bond futures. Should additional or
alternative approaches for bond futures be included in the proposed
definition? Are there other potentially ambiguous cases that should be
clarified? If so, what are they?
    122. Is the proposed method for determining adjusted exposure
appropriate? For example, is the proposed netting of fixed income
positions that fall within certain predefined maturity buckets
appropriate? Should we identify additional or different maturity
buckets? If so, which maturity buckets?
    123. As an alternative, should we instead require ETFs, exchange
traded products, U.S. and non-U.S. registered investment companies,
other private funds, commodity pools, or other companies, funds or
entities to be reported as stand-alone sub-asset classes?
    Require advisers to report a uniform interest rate risk measure. We
propose to require advisers to report the 10-year zero coupon bond
equivalent \159\ for all sub-asset classes with interest rate risk (by
instrument type if applicable) \160\ rather than providing advisers
with a choice to report duration, weighted average tenor (``WAT''), or
an unspecified 10-year bond equivalent.\161\ The proposal would require
advisers to report the 10-year zero coupon bond equivalent of the
dollar value of long and short positions in each sub-asset class (and
by instrument type, if applicable) as well as for the adjusted exposure
of long and short exposures for each sub-asset class for each monthly
period.
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    \159\ We are proposing a new glossary definition of 10-year bond
equivalent to explain that the term 10-year bond equivalent means
``the equivalent position in a 10-year zero coupon bond, expressed
in the base currency of the reporting fund.'' See Form PF Glossary
of Terms (proposed definition of ``10-year bond equivalent''). We
also would make a conforming change to the definition of interest
rate derivative to use this new definition.
    \160\ We propose to require advisers to report the 10-year zero
coupon bond equivalent for the following sub-asset classes:
investment grade corporate bonds issued by financial institutions
(other than convertible bonds); investment grade corporate bonds not
issued by financial institutions (other than convertible bonds);
non-investment grade corporate bonds issued by financial
institutions (other than convertible bonds); non-investment grade
corporate bonds not issued by financial institutions (other than
convertible bonds); investment grade convertible bonds issued by
financial institutions; investment grade convertible bonds not
issued by financial institutions; non-investment grade convertible
bonds issued by financial institutions; non-investment grade
convertible bonds not issued by financial institutions; U.S.
treasury bills; U.S. treasury notes and bonds; U.S. agency
securities; GSE bonds; sovereign bonds issued by G10 countries other
than the U.S; other sovereign bonds (including supranational bonds);
U.S. state and local bonds; leveraged loans; loans (excluding
leveraged loans and repo); overnight repo; term repo (other than
overnight); open repo; MBS; ABCP; Senior or higher CDO; Mezzanine
CDO; Junior equity CDO; Senior or higher CLO; Mezzanine CLO; Junior
equity CLO; other ABS; other structured product; U.S. dollar
interest rate derivatives; non-U.S. currency interest rate
derivatives; and certificates of deposit. See proposed Question
32(c).
    \161\ See proposed Question 32(c).
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    The proposed change is designed to improve reporting and obtain
better data, because the current approach, while providing optionality,
makes it difficult to compare and aggregate data reported by different
funds effectively. Furthermore, we believe that the 10-year zero coupon
bond equivalent is commonly used by hedge fund advisers and would be a
better and more consistent measure of interest rate risk than duration,
WAT, or the current unspecified 10-year equivalent. WAT may be an
incomplete measure because it does not always reflect the presence of
options embedded in bonds or differing sensitivity to interest rate
changes in circumstances where base currencies are subject to a higher
or lower risk-free rate, and it also may not be meaningful for interest
rate derivative products. Duration can tend toward infinity for certain
derivatives, which can provide little meaning or utility. In addition,
methodologies for calculations of duration and a 10-year equivalent (if
not standardized to a zero coupon bond) may vary, which can result in
variability among calculations. Therefore, we believe that by
eliminating additional reporting options, requiring the 10-year zero
coupon bond equivalent would provide a common denominator across funds
that advisers would be able to easily calculate and that would provide
a consistent and comparable metric. In this regard, we do not believe
the proposed requirement would create an additional burden for advisers
that currently report based on a 10-year equivalent for these types of
assets, which we estimate represents roughly 40 percent of the total
number of advisers responding to Question 30.\162\
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    \162\ Based on analysis of Form PF data 2021Q4 and 2020Q4.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    124. Are the proposed changes with respect to reporting of the 10-
year zero coupon bond appropriate? If not, what alternative do you
suggest?
    125. What would be the burden on advisers of standardizing
reporting to the 10-year zero coupon bond equivalent for sub-asset
classes with interest rate risk, by instrument type?
    126. Alternatively, should we use a measure other than the 10-year
zero coupon bond equivalent and if so, what measure should be used
(e.g., duration, WAT or another measure?).
    127. As an alternative to the 10-year zero coupon bond equivalent,
we considered whether to standardize the interest rate risk measure to
DV01, which we would define as the gain or loss for a 1 basis point
decline in the risk-free interest rate, expressed in U.S. dollars. In
this regard, we understand that both duration and a 10-year bond
equivalent rely on an initial calculation of DV01. Would DV01 be a
better alternative for standardization to provide consistent reporting
across all funds compared to the 10-year zero coupon bond equivalent?
If DV01 is preferred, should we use a different formula (e.g., a 1
basis point increase)? If we should use a different formula,

what should it be and why? Would the burden on advisers of
standardizing reporting to DV01 be different than standardizing to the
10-year zero coupon bond equivalent?
    128. Should we define 10-year bond equivalent in the Glossary of
Terms as ``the equivalent position in a 10-year zero coupon bond,
expressed in the base currency of the reporting fund,'' as proposed?
The glossary definition of ``interest rate derivative'' requires
reporting relating to interest rate derivatives to be presented as ``in
terms of 10-year bond-equivalents.''
    129. Do you agree that the 10-year zero coupon bond equivalent is
commonly used by hedge fund advisers and would be a better and more
consistent measure of interest rate risk than duration, WAT, or the
current unspecified 10-year equivalent?
    Amended list of sub-asset classes. In proposed Question 32, we
would revise the list of reportable sub-asset classes in two ways.
First, some sub-asset classes are consolidated and tailored to reflect
our proposed reporting of the dollar value of long and short positions
by instrument type. For example, sub-asset classes for listed and
unlisted equity derivatives are combined with sub-asset classes for
listed and unlisted equities, and similarly, sub-asset classes for
physical commodities and commodity derivatives are combined.\163\
Likewise, some current sub-asset classes would now be reflected as
instrument types, such as internal private funds, external private
funds and registered investment companies (now separated in to ETFs,
U.S. registered investment companies and non-U.S. registered investment
companies). Second, the proposal would add new sub-asset classes to
provide additional information to help the Commissions and FSOC better
understand qualifying hedge funds' investment exposures to certain
asset types, and reduce reporting in certain ``catch-all'' sub-asset
classes, such as ``other listed equity.''
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    \163\ In connection with the proposed amendments, we would amend
the definitions of ``listed equity'' and ``unlisted equity'' to
reflect that filers should include synthetic or derivative exposure
as well as positions held indirectly through another entity (e.g.,
through an ETF, exchange traded product, U.S.-registered investment
companies, non-U.S. registered investment companies, internal
private fund or external private fund, commodity pool, or other
company, fund or entity). Additionally, we would amend the
definition of ``listed equity derivatives'' to include derivatives
relating to ADRs, and other derivatives relating to indices on
listed equities. See Form PF Glossary of Terms (proposed definition
of ``listed equity,'' ``unlisted equity,'' and ``listed equity
derivatives'').
---------------------------------------------------------------------------

    Specifically, the proposal would: (1) expand equity exposure
reporting to add sub-asset classes for (a) listed equity securities
(including new sub-asset classes for other single name listed equities
and indices on listed equities), and (b) American depository receipts
(``ADRs''); (2) add additional sub-asset classes for reporting ``repo''
and ``reverse repo'' positions, based on term; (3) add additional sub-
asset classes for asset backed securities (``ABS'') and other
structured products; (4) add new sub-asset classes and revise existing
sub-asset classes that capture certain derivatives, including certain
credit derivatives and volatility and variance derivatives; (5) specify
sub-asset classes pertaining to investments in cash and cash
equivalents and commodities; and (6) add a new sub-asset class for
digital assets.
Listed Equity Securities
    We propose to add new sub-asset classes for certain categories of
listed equity securities, specifically, for other single name listed
equities and indices on listed equities. This change is designed to
provide added granularity to reporting on listed equities \164\ given
the potential impact of these new sub-asset classes from an overall
systemic risk perspective, as the form currently only requires advisers
to single out and report for listed equities issued by financial
institutions with all other listed equities reported in a catch-all
category ``other listed equity.'' Identifying single equities
separately from equity index exposure can help distinguish broadly
diversified portfolios from those that could be more concentrated, and
also help to identify what strategies are being pursued by multi-
strategy funds. Additionally, single equity positions may be more
vulnerable to short squeezes \165\ (i.e., a type of manipulation in
which prices are manipulated upward to force short sellers out of their
positions, as short sellers are required by brokers to maintain margin
above a certain level, and as prices rise short sellers must add cash
to their margin accounts or close out their short positions) than index
positions, so the level of granularity the proposal would obtain with
respect to this information would help to identify better entities that
may be affected during a short squeeze event.
---------------------------------------------------------------------------

    \164\ See current Question 26 and current Question 30, which
require reporting on listed equities but do not separate out single
names from indices. Investments in single name equities involve
materially more idiosyncratic risks, such as the potential for more
extreme price movements that are not correlated to other market
movements, than investments in indices, and therefore we propose to
require separate reporting.
    \165\ Single stock shorts often account for a higher portion of
the available float and/or often have a larger days to cover (i.e.,
the number of trading days to cover a short) than do shorts on ETFs.
As a result, a potential need to cover a short could generally have
a more pronounced effect on single stocks.
---------------------------------------------------------------------------

    We request comments on the proposed amendments.
    130. Should we add new sub-asset classes for other single name
listed equities and indices on listed equities as proposed? Are the
proposed categories appropriate? If not, is there another alternative
that we should use?
ADRs
    We propose to add a new sub-asset class for ADRs in line with how
ADRs are reported on the CFTC's Form CPO-PQR.\166\ While ADRs are
purchased in U.S. dollars, these instruments have currency risk because
the underlying security is priced in its home country currency, and the
ADR's U.S. dollar price fluctuates one-for-one with each movement in
the home currency. Accordingly, the proposal would require ADRs to be
reported separately from other listed equity instruments. This
requirement also would help increase the utility of the information
reported under the ``other listed equity'' sub-asset class on Form PF,
which requires reporting of multiple other sub-asset classes.
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    \166\ As noted above, where applicable, we have proposed to
align Form PF with Form CPO-PQR to (1) enable filers that currently
are required to file both Form PF and Form CPO-PQR independently to
compile and use similar data in completing both forms and (2) enable
users of the reported data (e.g., FSOC and other regulatory
agencies) to (i) link data for funds that file both forms and (ii)
aggregate and compare data across data sets more easily.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    131. Should we break out ADRs separately from the ``other listed
equity'' category on Form PF as proposed?
Repurchase Agreements (``Repos'')
    We propose to add additional sub-asset classes to the ``repos''
section of proposed Question 32 to capture a breakdown of repos by term
(e.g., overnight, other than overnight, and open term). Hedge funds
often borrow cash overnight and pledge securities such as government
bonds as collateral. We believe that collecting more information on the
different types of repos held by qualifying hedge funds would allow the
Commissions and FSOC to understand better the role of these funds in
potentially amplifying funding stresses and the risks associated with
short-term funding for certain trading strategies, particularly in
light of the issues the repo market experienced during the fall of 2019
and in March 2020.\167\
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    \167\ See. e.g., 2021 Financial Stability Oversight Council
Annual Report at 12 and 159 available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.

---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    132. Should we add additional sub-asset classes to the ``repos''
section of proposed Question 32 as proposed? Are the proposed
additional sub-asset classes appropriate? If not, is there another
alternative that we should use?
    133. How often do hedge funds use ``open'' repo transactions (i.e.,
a repo with no defined term and which rolls over each day) and should
we combine the open and overnight repo categories? Alternatively,
should we require a breakdown of repo exposure by term in a separate
question in Item C ``financing information'' of section 2 instead of in
proposed Question 32?
Asset Backed Securities (``ABS'')/Structured Products
    We propose to separate the collateralized debt obligation (``CDO'')
and collateralized loan obligation (``CLO'') sub-asset class in
proposed Question 32 into two separate sub-asset classes (one for CDOs
and one for CLOs), and further break out each of these new sub-asset
classes based on the seniority of the instrument (e.g., senior,
mezzanine, and junior tranches) similar to the reporting approach on
the CFTC's Form CPO-PQR.\168\ The proposed changes are designed to
provide separate reporting for CDOs and CLOs, which we believe is
important because CDOs and CLOs are fundamentally different financial
products and the current combined reporting obscures the specific
attributes of each product. Furthermore, given the recent focus on CLOs
by FSOC \169\ in monitoring systemic risk, we believe that having
detailed product specific data for CDOs and CLOs is justified due to
the potential value this information would provide for systemic risk
monitoring.
---------------------------------------------------------------------------

    \168\ See Form PF Glossary of Terms (proposed definitions of
``CDO'' and ``CLO''). The proposal would separate the current
definition of ``CDO/CLO'' into a separate definition for each
financial product. The definition of CDO would only include
collateralized debt obligations (including cash flow and synthetic)
and the definition of CLO would include collateralized loan
obligations (including cash flow and synthetic) other than MBS, and
would not include any positions held via CDS. See also supra
footnote 166 (regarding the proposed alignment of Form PF with Form
CPO-PQR).
    \169\ See United States Government Accountability Office, Report
to Agency Officials, ``FINANCIAL STABILITY Agencies Have Not Found
Leveraged Lending to Significantly Threaten Stability but Remain
Cautious Amid Pandemic,'' December 2020, available at: https://www.gao.gov/assets/gao-21-167.pdf.
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    We request comment on the proposed amendments.
    134. Should we break out the CDO and CLO sub-asset class in
proposed Question 32 into two separate sub-asset classes (one for CDOs
and one for CLOs) as proposed? If not, what alternatives do you
suggest?
    135. In proposed Question 32, we do not break out sub-asset classes
for derivatives exposures to ABS and structured products (e.g.,
forwards on MBS). Should these types of financial instruments be
reported as ``other derivatives'' in proposed Question 32 or should we
add additional sub-asset classes for reporting derivative exposures to
these instruments?
    136. Would more granular reporting for CLOs and CDOs inform
monitoring and assessment of systemic risk? Instead of senior,
mezzanine, and junior categories, would investment grade and non-
investment grade categories be simpler and less burdensome for advisers
to report? Should other categories be added? If so, what categories?
Should advisers separately report securitizations and re-
securitizations, as required on the CFTC's Form CPO-PQR?
    137. Should we collect separate information about MBS
securitizations and re-securitizations in proposed Question 32?
    138. Does the real estate sub-asset class capture real estate
exposure through vehicles that are not MBS or other structured products
(e.g., commercial leases)? If not, how should we modify the proposal to
do so?
Credit, Foreign Exchange, Interest Rate, and Other Derivatives
    We propose to revise the credit, foreign exchange (``forex''), and
interest rate and other derivative sub-asset classes to provide more
detailed reporting. For example, with respect to credit derivatives,
the proposal would collect more detail on single name CDS exposure to
capture better information on risk signals from these instruments by
adding separate sub-asset classes for sovereign single name CDS,
financial institution single name CDS, and other single name CDS (to
capture any credit derivatives that do not fall into the other
enumerated CDS categories).\170\ We believe that an increase in single
name CDS exposure may signify a bet against an entity or the market
more generally, which may have significant systemic risk implications,
particularly with respect to concentrated single-issuer positions that
can drive more extreme price movements and face difficulties in the
unwinding process, and for counterparties on the other side of highly
leveraged trades when the market moves against these positions.\171\
Furthermore, single name CDS exposure can represent important,
concentrated risk positions for a fund, similar to large single equity
positions, which can be connected to market contagion events, and have
systemic risk and market liquidity implications.
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    \170\ See also Form PF Glossary of Terms (proposed revised
definition of ``single name CDS'').
    \171\ The CFTC's Form CPO-PQR also requests information on
single name financial CDS, and the revised IOSCO Global Fund
Investment Survey also collects this information.
---------------------------------------------------------------------------

    Similarly, we propose to add more detailed reporting for foreign
exchange derivatives by adding separate sub-asset classes for forex
swaps and currency swaps consistent with reporting to the Bank for
International Settlements (``BIS''), while removing the less useful
requirement of separate reporting for foreign exchange derivatives used
for investment and hedging, as we have found the data of limited value
because we do not believe that information is reported consistently
across filers.\172\ We believe that adding separate reporting for
different types of foreign exchange instruments (e.g., forex swaps and
currency swaps) is appropriate because they have materially different
risk characteristics, including different maturity profiles, and may be
executed under different documentation which could affect their ability
to be netted against one another. We refer to the BIS framework because
we understand that it reflects a commonly accepted industry approach
for classifying these instruments. Furthermore, given the significance
of hedge funds' exposure to these instruments, we believe that more
granular information would better inform our understanding of systemic
risk issues that may arise from holdings in these different types of
instruments. We also propose to divide the current ``interest rate
derivatives'' sub-asset class into ``U.S. dollar interest rate
derivatives'' and ``non-U.S. currency interest rate derivatives.'' We
believe that added granularity would be important because we have found
that Form PF data consistently shows interest rate derivatives as the
sub-asset class to which qualifying hedge funds have the greatest
exposure over time. A

better understanding of whether these exposures are related to the U.S.
dollar yield curve or other countries' yield curves is important from a
systemic risk analysis perspective. Finally, we propose to add new sub-
asset classes for various types of derivatives that are regularly used
by hedge funds including correlation derivatives, inflation
derivatives, volatility derivatives, and variance derivatives, which
would both provide additional insight into how qualifying hedge funds
use these types of financial instruments and further limit the number
and type of derivatives that advisers report in the ``catch-all''
``other derivatives'' category.\173\
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    \172\ In connection with these proposed changes, we also propose
to make changes to the definition of ``foreign exchange derivative''
to improve data quality with respect to how advisers report foreign
exchange derivative exposure. We propose to revise the definition to
(1) now include any derivative whose underlying asset is a currency
other than the base currency of the reporting fund, (2) provide
additional information on the treatment of cross- foreign exchange
versus regular foreign exchange, and (3) require reporting of both
legs of cross currency foreign exchange derivatives to reflect
exposures from such transactions. See Form PF Glossary of Terms
(proposed revised definition of ``foreign exchange derivative'').
    \173\ In connection with these proposed amendments, we also
propose to add new definitions to the Glossary of Terms for
``correlation derivative,'' ``inflation derivative,'' ``volatility
derivative,'' and ``variance derivative.'' See Form PF Glossary of
Terms (proposed definitions of ``correlation derivatives,''
``inflation derivative,'' ``volatility derivative,'' and ``variance
derivative'').
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    139. As proposed, are the sub-asset classes for reporting on types
of derivatives appropriate? For example, for forex derivatives, should
we clarify, for cross-currency pairs (where U.S. dollars are not
involved), that each leg of the transaction should be reported as long
and/or short? What other types of derivatives sub-asset classes should
be included or excluded, if any? Would the proposed sub-asset classes
for reporting on derivatives be overly burdensome for advisers?
    140. Form CPO-PQR requires separate reporting for futures,
forwards, swaps and options. The proposed revisions captured in
proposed Question 32 would collect similar detail for the interest rate
derivative and foreign exchange categories, but not for other asset
categories. Would it be helpful to collect this level of detail for
other derivatives positions beyond interest rate and foreign exchange?
Additionally, should we add additional and/or standardization of
derivative reporting that would align with Financial Conduct Authority/
European Securities and Markets Authority data collection by capturing,
for each sub-asset class, the total gross notional value of contracts
including the total notional of futures and delta-adjusted notional of
options? Finally, should we amend the instructions to Question 30 to
require reporting of closed out and OTC forward positions which have
not yet expired/matured?
    141. Should we give guidance on reporting total return swaps (e.g.,
as ``other credit derivatives'' or ``interest rate swaps'')?
    142. With respect to the proposed addition of a new sub-asset class
for volatility derivatives, do hedge funds use volatility derivatives?
Additionally, are the sub-asset class categories in the proposed
volatility derivative section appropriate? If not, should we add other
sub-asset class categories or combine some of these categories?
    143. Should we require a more granular break out of interest rate
derivative exposures? If so, what categories should we include? The
definition of ``interest rate derivative'' instructs advisers to
present interest rate derivatives as 10-year bond equivalents. As
noted, the proposal would specify that the 10-year zero coupon bond
equivalent would be required. Should we change how interest rate
derivatives should be reported (e.g., the total gross notional value of
outstanding contracts including the total notional value of futures and
delta-adjusted value of options)?
    144. We propose to add new definitions for ``correlation
derivative,'' ``inflation derivative,'' ``volatility derivative,'' and
``variance derivative.'' Are these definitions appropriate? If not, how
would you modify one or more definitions?
    145. As noted above, we believe adding separate reporting for
different types of foreign exchange instruments (e.g., forex swaps and
currency swaps) is appropriate because they have materially different
risk characteristics and may be executed under different documentation
and we refer to the BIS framework because we understand that it
reflects a commonly accepted industry approach for classifying these
instruments. Do you agree with our view, and is the proposed approach
appropriate? If not, what alternative approach do you suggest?
Cash and Commodities
    We propose to make revisions to the sub-asset class categories for
cash and commodities.
    We would require advisers to break out cash and cash equivalents
\174\ between U.S. currency holdings and non-U.S. currency holdings,
while also removing the current requirement to report on investments in
funds for cash management purposes (other than money market funds)
because in our experience advisers use inconsistent methods for
determining whether a private fund investment is being used for cash
management purposes and we believe that other information reported in
current section 2b is more useful for assessing liquidity management
(e.g., current Question 33 with respect to unencumbered cash).\175\
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    \174\ Some advisers include treasuries in their reporting of
``cash'' because it was part of the definition of ``cash and cash
equivalents.'' We propose to revise the definition of ``cash and
cash equivalents'' to reflect that treasuries should not be included
in ``cash and cash equivalents'' sub-asset class. In connection with
this proposed change we also propose to add a new separate
definition for ``government securities.'' See Form PF Glossary of
Terms (proposed revised definition of ``cash and cash equivalents''
and proposed definition of ``government securities''). See also
discussion at Section II.B.2 of this Release regarding the revised
definitions of cash and cash equivalents and government securities.
    \175\ Additionally, in many cases we would be able obtain more
information about all internal fund investments (including whether a
fund looks like a cash management vehicle) through the new
information the proposal would require to be reported in section 1b.
See discussion at Section II.B.2 of this Release.
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    Additionally, we propose to broaden the current power commodity
sub-asset classes to also capture other energy commodities, and add
additional commodity sub-asset classes (e.g., other (non-gold) precious
metals, agricultural commodities, and base metal commodities) to
provide added granularity with respect to these financial products
given their potential systemic risk implications and to better inform
our and FSOC's understanding of the activities of hedge funds in these
important commodities markets. We have found that a limitation of the
current form is that very different commodities (e.g., wheat and
nickel) are reported together in the same sub-asset class (i.e.,
``other commodities'') making the reported data less meaningful for
analysis. We believe that, with added granularity, we would be in a
better position to identify concentrated exposures to particular
commodities, data that could be valuable in the event of a dislocation
in a particular commodity market.\176\ The additional

commodity sub-asset classes that we propose to add, i.e., other (non-
gold) precious metals, agricultural commodities and base metal
commodities, were chosen because we believe they are most relevant from
a systemic risk perspective given the size of these markets and what we
currently know of hedge fund exposures to these markets.\177\
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    \176\ For example, we believe the addition of a base metal
commodities sub-asset class would allow for identification of large
players in the base metals market (such as those impacted by the
March 2022 ``nickel squeeze''). During the March 2022 ``nickel
squeeze,'' the price of nickel rose unusually steeply and rapidly in
response to commodity price increases caused by Russia's invasion of
Ukraine, and this event, coupled with one or more market
participants holding large short positions, caused prices to
increase in an extreme manner (e.g., a one-day increase of 63% for
the generic first futures contract on March 7, 2022). See e.g.,
Shabalala, Zandi, Nickel booms on short squeeze while other metals
retreat, Reuters (March 2022) available at https://www.reuters.com/markets/europe/lme-nickel-jumps-another-10-after-record-rally-supply-fears-2022-03-08/; Nagarajan, Shalini, Nickel Trading Halted
at LME Until Friday After Wild Price Spike (businessinsider.com)
(March 2022) available at https://markets.businessinsider.com/news/
commodities/nickel-price-london-metal-exchange-suspends-trading-
shanghai-short-squeeze-2022-
3#:~:text=The%20London%20Metal%20Exchange%20has,17%25%20to%20their%20
daily%20limit.
    \177\ These proposed change with respect to commodities sub-
asset classes would also better align Form PF with Form CPO-PQR.
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    We request comment on the proposed amendments.
    146. With respect to reporting on cash and cash equivalents, should
we request separate reporting for US and non-US deposits? Would
additional detail be burdensome for advisers? With respect to the
proposed category ``other cash and cash equivalents (excluding bank
deposits, certificates of deposit, money market funds and U.S. treasury
bills, notes and bonds),'' should we require advisers to provide a
description in Question 4 of what is reported in this sub-asset class?
    147. We propose to add additional sub-asset classes for
commodities. Are the proposed additional commodities sub-asset classes
appropriate? If not, what alternatives do you suggest? Should we add
more or fewer sub-asset classes for commodities? If we should add more,
what additional sub-asset classes do you recommend? Should we add a
sub-asset class for other physical assets?
Digital Assets
    The proposal would add a new sub-asset class for digital assets and
define the term ``digital asset.'' \178\ We have observed the growth as
well as the volatility of this asset class in recent years.\179\ We
understand that many hedge funds have been formed recently to invest in
digital assets, while many existing hedge funds are also allocating a
portion of their portfolios to digital assets.\180\ Accordingly, we
believe it is important to collect information on funds' exposures to
digital assets in order to understand better their overall market
exposures.
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    \178\ See discussion at Section II.B.3 of this Release. See also
Form PF Glossary of Terms (proposed definitions of ``digital
asset'').
    \179\ In early 2021 the digital asset market surpassed $1
trillion, mostly driven by the rise in Bitcoin's price, which some
speculate may be driven in part by hedge fund investments. See
Brettell, Karen and Chavez-Dreyfuss, Crypto market cap surges above
$1 trillion for first time, Reuters (January 2021) available at
https://www.reuters.com/world/china/crypto-market-cap-surges-above-1-trillion-first-time-2021-01-07/.
    \180\ See C. Williamson, Managers Taking Bigger Steps Into
Crypto, Pensions&Investments (March 2022) available at https://www.pionline.com/cryptocurrency/hedge-fund-managers-taking-bigger-steps-cryptocurrency.
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    We request comment on the proposed amendments.
    148. Should the sub-asset class for ``digital assets'' provide more
granularity? For example, should we have separate sub-asset classes for
digital assets that represent an ability to convert or exchange the
digital asset for fiat currency or another asset, including another
digital asset, and those that do not represent such a right to convert
or exchange; for digital assets that represent a right to convert or
exchange for fiat currency or another digital asset, those where the
redemption obligation is supported by an unconditional guarantee of
payment, such as some ``central bank digital currencies,'' and those
redeemable upon demand from the issuer, whether or not collateralized
by a pool of assets or a reserve; for digital assets that do not
represent any direct or indirect obligation of any party to redeem; and
for digital assets that represent an equity, profit, or other interest
in an entity? Should we require advisers to report the digital asset by
name (e.g., Bitcoin and Ether) or describe its characteristics?
Open and Large Position Reporting
    Advisers to qualifying hedge funds currently report (1) a fund's
total number of ``open positions'' determined on the basis of each
position and not with reference to a particular issuer or
counterparty,\181\ and (2) the percentage of a fund's net asset value
and sub-asset class for each open position that represents five percent
or more of a fund's net asset value.\182\ We have found that advisers
use different methods for identifying and counting their ``open
positions,'' which has made making meaningful comparisons among funds
difficult. This has also potentially obscured certain large exposures,
which may make concentration assessments less exact. For example, an
``open position'' might indicate a position held physically, or
synthetically through derivatives, or both. As such, we propose to
require that advisers provide information about a fund's investment
exposures based on ``reference assets,'' which would capture securities
or other assets to which a fund has exposure, be it direct or indirect
ownership, synthetic exposure, or exposure through derivatives.\183\
The proposal is designed to provide insight into the extent of a fund's
portfolio concentration and large exposures to any reference assets.
The proposal would require advisers to report (1) the total number of
reference assets to which a fund holds long and short netted exposure,
(2) the percentage of net asset value represented by the aggregated
netted exposures of reference assets with the top five long and short
netted exposures, and (3) the percentage of net asset value represented
by the aggregate netted exposures of reference assets representing the
top ten long and short netted exposures. We are proposing to require
reporting for the top five long and short netted positions and the top
ten netted long and short positions because combined these two metrics
provide a holistic view of a reporting fund's portfolio concentration.
We also understand that these are commonly used industry metrics for
assessing portfolio concentration levels. We propose to define ``netted
exposure'' as the sum of all positions with legal and contractual
rights that provide exposure to the same reference asset, taking into
account all positions, including offsetting and partially offsetting
positions, relating to the same reference asset (without regard to
counterparties or issuers of a derivative or other instrument that
reflects the price of the reference asset).\184\
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    \181\ Current Question 34.
    \182\ Current Question 35.
    \183\ See proposed Question 39.
    \184\ Netted exposure to a reference asset would either be long
or short, and advisers would determine the value of each netted
exposure to each reference asset in U.S. dollars, expressed as the
delta adjusted notional value, or as the 10-year bond equivalent for
reference assets that are fixed income assets. Advisers would not
report exposure to cash and cash equivalents. See proposed Question
39. See also Form PF Glossary of Terms (proposed definition of
``netted exposure'').
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    The proposal also would require advisers to provide certain
information on a fund's reference asset to which the fund has gross
exposure (as of the end of each month of the reporting period) equal to
or exceeding (1) one percent of net asset value, if the reference asset
is a debt security and the reporting fund's gross exposure to the
reference asset exceeds 20 percent of the size of the debt security
issuance, (2) one percent of net asset value, if the reference asset is
a listed equity security and the reporting fund's gross exposure to the
reference asset exceeds 20 percent of average daily trading volume
measured over 90 days preceding the reporting date, or (3) (a) five
percent of the reporting fund's net asset value or (b) $1 billion.
Advisers would be required to report: (1) the dollar value (in U.S.
dollars) of all long and the dollar value (in U.S. dollars) of all
short positions with legal and contractual rights that provide exposure
to the reference asset; (2) netted exposure to the reference asset; (3)
sub-asset class and instrument

type; (4) the title or description of the reference asset; (5) the
reference asset issuer (if any) name and LEI; (6) CUSIP (if any); \185\
and (7) if the reference asset is a debt security, the size of issue,
and if the reference asset is a listed equity, the average daily
trading volume, measured over 90 days preceding the reporting date.
Additionally, advisers may at their option choose to provide the FIGI
for the reference asset, but they are not required to do so.\186\ We
propose to define ``gross exposure'' to a ``reference asset'' as the
sum of the absolute value of all long and short positions with legal
and contractual rights that provide exposure to the reference
asset.\187\ We considered varying levels of thresholds and believe that
the proposed thresholds described above are appropriate based on the
following reasoning. First, the five percent threshold has been carried
over from the current version of Form PF and is also a commonly used
metric for identifying significant positions in a portfolio.\188\ In
addition, while a portfolio is generally viewed as diversified when it
holds at least 20 different positions, when a position goes above five
percent it reduces portfolio diversification. Second, the $1 billion
threshold represents a level for large funds (e.g., those with net
asset values in excess of $20 billion) that is large enough so as to
have potential systemic risk implications even if the position is less
than five percent of the fund. Finally, the proposed one percent
threshold is aimed at limiting filer burdens while still providing
insight into the risks associated with a position that may be small
relative to a fund's overall portfolio but which constitutes a large
fraction of the market for a particular holding, given that a
liquidation by one fund can trigger a disorderly liquidation. A
disorderly liquidation of this kind may raise systemic risk concerns as
it may lead to liquidation losses at other funds for which the position