[Federal Register Volume 83, Number 39 (Tuesday, February 27, 2018)]
[Rules and Regulations]
[Pages 8342-8354]
[FR Doc No: 2018-03917]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 270 and 274

[Release No. IC-33010; File No. S7-03-18]
RIN 3235-AM26

Investment Company Liquidity Risk Management Programs; Commission
Guidance for In-Kind ETFs

AGENCY: Securities and Exchange Commission.

ACTION: Interim final rule; request for comment; interpretation.

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SUMMARY: The Securities and Exchange Commission is adopting an interim
final rule that revises the compliance date for the requirements of
rule 22e-4 for classification, highly liquid investment minimum, and
board approval, as well as related reporting requirements of Part D on
Form N-LIQUID and liquidity disclosures on Form N-PORT under the
Investment Company Act of 1940. The revised compliance date will be
June 1, 2019, for larger entities (revised from December 1, 2018) and
December 1, 2019, for smaller entities (revised from June 1, 2019). The
Commission is not extending the compliance date for the other
provisions of rule 22e-4 and Form N-LIQUID, and liquidity-related
changes to Form N-CEN--which remain December 1, 2018 for larger
entities and June 1, 2019 for smaller entities. The Commission also is
not extending the compliance date for the liquidity-related provisions
of Form N-1A, which has already passed. Finally, the Commission is
providing guidance to assist funds that will not be engaging in full
portfolio classification before the revised compliance date, and In-
Kind ETFs, which are not required to engage in full portfolio
classification, in identifying illiquid investments for purposes of
complying with the 15% illiquid investment limit.

DATES:
    Effective Dates: The effective date of the interim final rule is
March 29, 2018. The effective date for 17 CFR 270.22e-4 and 270.30b1-10
and the amendments to Form N-PORT (referenced in 17 CFR 274.150)
published at 81 FR 82267 (November 18, 2016) remains January 17, 2017,
and the effective date for amendments to Form N-CEN (referenced in 17
CFR 274.101) published at 81 FR 82267 (November 18, 2016) remains June
1, 2018.
    Compliance Dates: The compliance date for 17 CFR 270.22e-
4(b)(1)(ii) except to the extent referenced in 17 CFR 270.22e-
4(a)(8),\1\ 17 CFR 270.22e-4(b)(1)(iii), 17 CFR 270.22e-4(b)(2)(i) and
(iii), certain elements of 17 CFR 270.22e-4(b)(3) related to the
delayed provisions of rule 22e-4, and the liquidity-related amendments
to Form N-PORT (discussed in section I.C below) and Part D of Form N-
LIQUID have been extended until June 1, 2019 for larger entities, and
December 1, 2019 for smaller entities, as defined in section I below.
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    \1\ See infra footnote 71.
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    Comment Date: Comments should be received on or before April 27,
2018.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/interim-final-temp.shtml);
     Send an email to [email protected]. Please include
File Number S7-03-18 on the subject line; or

Paper Comments

     Send paper comments to Brent J. Fields, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-03-18. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (http://www.sec.gov/rules/interim-final-temp.shtml).
Comments are also available for website viewing and printing in the
Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Zeena Abdul-Rahman, Senior Counsel, or
Thoreau Bartmann, Senior Special Counsel, at<PHONE_NUMBER>, Division
of Investment Management, Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission
(``Commission'') is extending the compliance dates associated with
following provisions of rule 22e-4 [17 CFR 270.22e-4]: Rule 22e-
4(b)(1)(ii) [17 CFR 270.22e-4(b)(1)(ii)] except to the extent it is
referenced in rule 22e-4(a)(8) [17 CFR 270.22e-4(a)(8)]; rule 22e-
4(b)(1)(iii) [17 CFR 270.22e-4(b)(1)(iii)];

rule 22e-4(b)(2)(i) [17 CFR 270.22e-4(b)(2)(i)]; rule 22e-4(b)(2)(iii)
[17 CFR 270.22e-4(b)(2)(iii)]; and certain elements of rule 22e-4(b)(3)
[17 CFR 270.22e-4(b)(3)] under the Investment Company Act of 1940 [15
U.S.C. 80a-1 et seq.] (``Investment Company Act'' or ``Act''). The
Commission also is extending the compliance dates associated with Part
D of Form N-LIQUID [referenced in 17 CFR 274.223] as well as amendments
to Form N-PORT [referenced in 17 CFR 274.150] under the Investment
Company Act.

I. Discussion

    On October 13, 2016, the Commission adopted rule 22e-4 and related
rule and form amendments to enhance the regulatory framework for
liquidity risk management of registered open-end investment companies
(``funds'').\2\ Specifically, we adopted rules 22e-4 and 30b1-10, new
Form N-LIQUID, as well as amendments to Forms N-1A, N-PORT, and N-CEN
(collectively, the ``Liquidity Rule Requirements'').\3\ We designed
these rules and forms to promote effective liquidity risk management
throughout the fund industry and to enhance disclosure regarding fund
liquidity and redemption practices.\4\
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    \2\ The term ``funds'' used in this release includes open-end
management companies, including exchange-traded funds (``ETFs'')
that do not qualify as In-Kind ETFs (as defined in rule 22e-
4(a)(9)), and excludes money market funds.
    \3\ Investment Company Liquidity Risk Management Programs,
Investment Company Act Release No IC-32315 (Oct. 13, 2016) [81 FR
82142 (Nov. 18, 2016)] (``Adopting Release'').
    \4\ See id., at text accompanying n.112.
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    The compliance date for the amendments to Form N-1A was June 1,
2017. For the remainder of the Liquidity Rule Requirements, the
Commission established a tiered set of compliance dates based on a fund
group's asset size. Specifically, for larger entities,\5\ we adopted a
compliance date of December 1, 2018. For smaller entities, we adopted a
compliance date of June 1, 2019. As discussed in more detail below, the
Commission believes it is appropriate to revise the compliance date for
certain elements of the Liquidity Rule Requirements until June 1, 2019
for larger entities and December 1, 2019 for smaller entities.\6\
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    \5\ ``Larger entities'' are defined as funds that, together with
other investment companies in the same ``group of related investment
companies,'' have net assets of $1 billion or more as of the end of
the most recent fiscal year of the fund. ``Smaller entities'' are
defined as funds that, together with other investment companies in
the same group of related investment companies, have net assets of
less than $1 billion as of the end of its most recent fiscal year.
See Adopting Release, supra footnote 3, at n.997. We adopted this
tiered set of compliance dates based on asset size because we
anticipated that smaller groups would benefit from this extra time
to comply and from the lessons learned by larger investment
companies. See Adopting Release, supra footnote 3, at n.1009 and
accompanying text.
    \6\ The effective date of January 17, 2017 for these elements is
unchanged. As described in this release, the Commission is revising
compliance dates associated with certain aspects of rule 22e-4, Form
N-PORT and Form N-LIQUID.
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A. Summary of the Liquidity Rule Requirements

Rule 22e-4--Liquidity Risk Management Programs
    Rule 22e-4 requires each fund to adopt and implement a written
liquidity risk management program reasonably designed to assess and
manage the fund's liquidity risk. A fund's liquidity risk management
program must incorporate certain specified elements: (i) Assessment,
management, and periodic review of the fund's liquidity risk; (ii)
classification of the liquidity of each of the fund's portfolio
investments, as well as at least monthly reviews of the fund's
liquidity classifications (``portfolio classification'' or
``classification''); (iii) determining and periodically reviewing a
highly liquid investment minimum (the ``HLIM''); (iv) limiting the
fund's investment in illiquid investments that are assets to no more
than 15% of the fund's net assets (``15% illiquid investment limit'');
and (v) for funds that engage in, or reserve the right to engage in,
redemptions in-kind, the establishment of policies and procedures
regarding how they will engage in such redemptions in-kind.
    The rule requires each fund to adopt a liquidity risk management
program and obtain board approval of such program. Fund boards must
also approve an administrator for the program (``program
administrator''), and review annual reports from the fund's program
administrator on the operation of the program and the program's
adequacy and effectiveness of implementation, including, if applicable,
the operation of the HLIM, and any material changes to the program.
    The portfolio classification requires a fund to classify each
portfolio investment into one of four defined liquidity categories,
known as ``buckets'': Highly liquid investments, moderately liquid
investments, less liquid investments, and illiquid investments.\7\
These buckets are intended to take into account relevant market-,
trading-, and investment-specific considerations, as well as market
depth and whether sales of an investment would significantly change the
market value of the investment.\8\ While the rule permits a fund to
classify portfolio investments based on asset class, it requires the
fund to implement a ``reasonable exceptions process'' for investments
that should be classified separately from their class.\9\ Finally,
portfolio classification requires a fund to review its portfolio
investments' classifications monthly unless a ``reasonable exceptions
process'' requires a more frequent review.\10\
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    \7\ Rule 22e-4(b)(1)(ii). This classification is based on the
number of days in which a fund reasonably expects an investment
would be convertible to cash (or, in the case of the less-liquid and
illiquid categories, sold or disposed of) without the conversion
significantly changing the market value of the investment.
    \8\ Rule 22e-4(b)(1)(ii).
    \9\ Rule 22e-4(b)(1)(ii)(A) (``The fund may generally classify
and review its portfolio investments . . . according to their asset
class, provided, however, that the fund must separately classify and
review any investment within an asset class if the fund or its
adviser has information about any market, trading, or investment-
specific considerations that are reasonably expected to
significantly affect the liquidity characteristics of that
investment as compared to the fund's other portfolio holdings within
that asset class.'').
    \10\ Rule 22e-4(b)(1)(ii)(``A fund must review its portfolio
investments' classifications, at least monthly in connection with
reporting the liquidity classification for each portfolio investment
on Form N-PORT . . . and more frequently if changes in relevant
market, trading, and investment-specific considerations are
reasonably expected to materially affect one or more of its
investments' classifications.'').
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    The HLIM requires a fund to determine the minimum amount of net
assets that it will invest in highly liquid investments that are
assets.\11\ This requirement relies on the portfolio classification
process to identify which investments are bucketed as highly liquid.
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    \11\ Rule 22e-4(a)(7).
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    The 15% illiquid investment limit prohibits a fund (as well as an
In-Kind ETF) from acquiring any illiquid investment if, immediately
after such acquisition, it would have invested more than 15% of its net
assets in illiquid investments that are assets.\12\ This limit on
illiquid investments also refers to the classification element of the
rule, but we are providing guidance on how funds may comply with this
requirement without engaging in full portfolio classification. In-Kind
ETFs, which are exempt from the classification requirement, may look to
this guidance to assist them in complying with the 15% illiquid
investment limit on a permanent basis.
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    \12\ Rule 22e-4(b)(1)(iv).
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Disclosure Amendments
    In addition to rule 22e-4, the Commission adopted certain public
disclosure requirements to provide shareholders and other users with
additional information on fund liquidity

risk. It also adopted certain non-public reporting requirements to
assist the Commission in its monitoring efforts.\13\ Specifically:
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    \13\ See Adopting Release, supra footnote 3, at n.120.
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     Rule 30b1-10 and related Form N-LIQUID provide non-public
notification to the Commission whenever a fund's illiquid investments
exceed 15% of its net assets and if its amount of highly liquid
investments declines below its HLIM for more than seven days.
     Amendments to Form N-PORT generally require a fund to
report monthly to the Commission, on a non-public basis, the portfolio
investments in each of the defined buckets and the fund's HLIM.\14\ The
form also requires a fund to disclose publicly the aggregated
percentage of its portfolio representing each of the four liquidity
classification categories as of the end of each of its fiscal
quarters.\15\
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    \14\ Items B.7 and C.7 of Form N-PORT.
    \15\ Item B.8 of Form N-PORT.
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     The amendments to Form N-1A require a fund to disclose
publicly certain information regarding the fund's redemption
procedures.\16\
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    \16\ Item 11(c)(7) and (8) of Form N-1A.
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     The amendments to Form N-CEN require funds to provide
public disclosure about funds' use of lines of credit and interfund
lending.\17\
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    \17\ Item C.20 of Form N-CEN.
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B. Monitoring and Compliance Date Extension Requests

    The Commission has received numerous requests to extend the
compliance date for the Liquidity Rule Requirements.\18\ Some have
requested that the Commission delay compliance with the entire
rule,\19\ while others requested that the Commission only delay
compliance with the portfolio classification and related
requirements.\20\ Several industry members, including trade
associations (on behalf of their members) and funds, have expressed
concerns regarding the difficulties that funds are facing in preparing
to comply in a timely manner (i.e., by the December 1, 2018 compliance
date for larger entities).\21\ They requested that the Commission
extend the compliance date for these elements for an additional period
of time ranging from six months to one year.\22\
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    \18\ These comment letters (File No. S7-03-18) are available at
https://www.sec.gov/comments/s7-03-18/s70318.htm.
    \19\ See, e.g., Letter from Wellington Management Company LLP
(Nov. 17, 2017) (``Wellington Letter'').
    \20\ See Letter from the Investment Company Institute to The
Honorable Jay Clayton (July 20, 2017) (``ICI Letter I'').
    \21\ See, e.g., Supplemental Comments on Investment Company
Liquidity Risk Management Programs from the Investment Company
Institute (Nov. 3, 2017) (``ICI Letter II''); Letter from SIFMA AMG
to Chairman Jay Clayton, Commissioner Stein, and Commissioner
Piwowar (Sept. 12, 2017) (``SIFMA AMG Letter''); Letter from TCW to
Chairman Jay Clayton, Commissioner Stein, and Commissioner Piwowar
(Sept. 15, 2017); Letter from Vanguard on Investment Company
Liquidity Risk Management Programs (Nov. 8, 2017) (``Vanguard
Letter''); and Letter from Nuveen LLC to Chairman Jay Clayton (Nov.
22, 2017) (``Nuveen Letter'').
    \22\ Id.
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    Since the Commission adopted rule 22e-4 and the related rule and
form amendments, Commission staff has engaged actively with funds to
discuss complex compliance and implementation challenges and evaluate
operational issues relating to portfolio classification. The staff also
has met with third-party service providers (``service providers'') who
expect to assist fund groups in implementing the classification
requirements of the rule. Based on this staff engagement, we have
observed that: (1) Due to a lack of readily available market data for
certain asset classes (e.g., fixed income), the implementation of the
portfolio classification requirement will be heavily dependent on
service providers to provide funds with scalable liquidity models and
assessment tools that are necessary for bucketing and reporting (see
``Role of Service Providers'' below); (2) fund groups believe that full
implementation of service provider and fund systems will require
additional time for further refinement and testing of systems,
classification models, and liquidity data, as well as for finalizing
certain policies and procedures (see ``Systems Readiness'' below); and
(3) funds are facing compliance challenges due to questions that they
have raised about the Liquidity Rule Requirements that may require
interpretive guidance (see ``Interpretive Questions'' below).\23\
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    \23\ As of the date of this release, the staff has responded to
some requests for interpretive guidance the Commission received. The
staff is also publishing additional interpretive guidance in
conjunction with this release. Due to the tiered nature and
complexity of the rule's implementation process, we expect to
receive additional requests for guidance in the future, and will
respond to them accordingly.
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Role of Service Providers
    Based on our staff's engagement, we understand that market data
gaps and the need to develop efficient and effective systems for
liquidity classification and reporting are leading many fund groups to
rely extensively on technology tools developed by service
providers.\24\ It is our understanding that these tools will collect
relevant data, feed that data and other related information into
liquidity models and assessment tools, and then provide the resulting
information to the funds. To reasonably rely on these tools, fund
groups have told our staff they expect to conduct significant diligence
before determining which service provider systems to use and whether to
build out some form of proprietary liquidity assessment and
classification systems.\25\ In the Adopting Release, we discussed the
appropriate role of service providers in funds' liquidity risk
management programs, and provided guidance on the type of due diligence
and oversight we expect that funds would provide when using such
service providers.\26\ This diligence and oversight would take time to
accomplish upon inception and on an ongoing basis.
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    \24\ See ICI Letter II (reporting a survey of its members that
found that a large majority of respondents (91%) are considering
using a service provider).
    \25\ For example, we understand that fund groups expect to
conduct extensive classification system testing and model
validation, including the installation of cybersecurity and disaster
recovery protections, before these systems are usable for compliance
with Commission rules.
    \26\ See Adopting Release, supra footnote 3, at text following
n.323 (encouraging program administrators for funds that choose to
rely on service providers for liquidity risk management to maintain
oversight of these service providers by: (1) Reviewing the quality
of the liquidity data received from service providers; (2) reviewing
the relevant methodologies and metrics used by service providers to
determine the effectiveness of the data to inform or supplement the
fund's consideration of its portfolio holdings' liquidity
characteristics, and (3) assessing whether any modifications to an
``off-the-shelf'' service provider liquidity model are necessary to
accurately reflect the liquidity characteristics of the fund's
portfolio investments).
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    While the fund groups with whom our staff has met vary in their
degree of dependency on service providers for classification, we
understand that virtually all will rely on such service providers to a
significant degree. It is our understanding that many will rely heavily
on the liquidity data and tools provided by these service providers,
while others may use service providers largely as a source of trading
and other market information that will feed into the funds' internal
classification systems. We also understand that many fund groups will
use service providers to assist with the reporting obligations under
the rule, which may be accomplished more efficiently through third
party systems, where funds benefit from the service provider's
technology and economies of scale. Similarly, we understand that even
for those funds that may be able to gather market data on their own or
develop liquidity assessment tools internally, they may rely on service
provider systems and tools to the extent it is more cost-

effective to do so. We also understand that, because service providers
vary in the level of data they currently have about different asset
classes, some funds may need to contract with multiple service
providers to gain access to the trading and market information
necessary to classify all of their investments or assume responsibility
for certain investments for which service providers do not currently
provide classification data. In sum, we expect that virtually all fund
groups will rely on service providers to some extent in meeting their
obligations under the Liquidity Rule Requirements.
Systems Readiness
    As a consequence of this heavy reliance on service providers, those
requesting a later compliance date have focused primarily on the
readiness of service providers to deploy fully-functional products to
assist funds with their classification obligations.\27\ In meeting with
funds and service providers, the staff has learned that most of the
service providers that plan on offering liquidity data and assessment
tools to assist with classification still have gaps in the investments
that they cover. For example, most do not currently have the ability to
assess effectively the liquidity of certain asset classes, such as
over-the-counter derivatives and certain fixed income securities.\28\
For most of these remaining asset classes, market and trading data is
more limited or unavailable and thus many plan to create models to
evaluate the liquidity of these investments based on the limited data
available and other information, such as the structural characteristics
of the asset and analysis of comparable securities. Accordingly, we
understand that under current timelines, most service providers'
products will not provide full coverage for all asset classes until the
end of the first quarter of 2018 or perhaps later.\29\ Two trade
associations expressed concern that, without a compliance date
extension, the challenges in building classification systems would
shorten the time for liquidity model validation, testing, service
provider oversight, and implementing cybersecurity and disaster
recovery protections for the new technology-dependent liquidity risk
management programs.\30\
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    \27\ See ICI Letter I (noting that most funds will engage third-
party service providers to help with classification and that those
service providers will not have mature products for fund groups to
evaluate for some time); see also SIFMA AMG Letter (noting that the
lack of readiness on the part of service providers makes it
difficult for funds to make ``build or buy'' decisions regarding
their classification systems).
    \28\ See ICI Letter II (noting that certain investment types not
yet covered by one or more service providers include asset-backed
securities, mortgage-backed securities, preferred securities, bank
loans, and to-be-announced (TBA) securities).
    \29\ See ICI Letter II (discussing a survey of members which
found that 73% of respondents did not believe that service
providers' offerings will be sufficiently mature for funds to make
an informed selection until 2018, with 37% of respondents believing
that it will take until the second quarter of 2018 or beyond).
    \30\ See SIFMA AMG Letter (arguing that a compliance date
extension is necessary to give funds time to implement cybersecurity
and disaster recovery protections). See also ICI Letter II
(discussing the need for a compliance date extension in order to
test the classification models of service providers).
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    Fund groups have informed our staff that they are not able to
evaluate fully the liquidity assessment tools and market data offered
by these service providers until the buildout of coverage for asset
classes and related models is complete.\31\ In addition, even for asset
classes where service provider offerings are currently available, fund
groups have informed us that different service providers' liquidity
assessments of certain securities have been unexpectedly disparate.\32\
This has led to further delays as fund groups seek to evaluate the
cause of the differences between service providers' data and assessment
tools (including underlying models and assumptions), and attempt to
determine whether such tools are reliable and effective.\33\ As a
consequence, our staff understands that many fund groups have not been
able to make significant progress in finalizing the selection of their
service provider(s), and do not expect to be able to do so in the near
term.\34\ Once service provider selection is completed, fund groups
then expect to evaluate the need for additional internal systems to
implement their classification programs, and then to build out those
systems as needed.
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    \31\ See ICI Letter II (noting that it will take two to six
months for fund complexes to select a service provider once they can
evaluate their offerings, and an additional three to nine months to
``onboard'' the vendor; also noting that fund complexes will not be
in position to complete other critical implementation work (e.g.,
conducting an initial liquidity risk assessment for all funds,
determining whether a fund qualifies as a ``primarily highly liquid
fund,'' and determining an appropriate HLIM for applicable funds).
Only when all of this work is complete will fund complexes be in a
position to present substantially complete liquidity risk management
programs (able to perform full classification) to their boards for
approval, which funds expect will take place over multiple meetings
with final approval occurring after the program is substantially
complete, adding additional months to the process).
    \32\ See ICI Letter II (noting an evaluation of sample output
from five service providers' current offerings, which showed a
fund's liquidity classifications, when run through multiple service
providers' models, may differ widely, and pointing in particular to
scenarios where, depending on the vendor used, analysis of a large
high yield bond fund's portfolio resulted in ranges from 7% to 95%
for the fund's highly liquid bucket).
    \33\ See ICI Letter II (describing its September 2017 survey
results of selected members where the majority of respondents cited
multiple areas in which service providers need to do additional
work, including gaps in asset coverage, improving the quality of
underlying methodologies, improving the depth, breadth and quality
of data, and improving the user interface/delivery of data).
    \34\ Id. The ICI also stated that, beyond the survey results,
additional factors suggested even more time would be necessary due
to challenges that may emerge in the coming months, given that
hundreds of fund complexes will be performing due diligence on and
attempting to onboard the same handful of service providers at the
same time. Providing the requested delay will allow for a smoother
onboarding of the new services for both funds and service providers.
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    In general, the service providers with whom the staff has met have
indicated that they expect to have tools and market data for all asset
classes available before the current compliance date of the rule,
though they are not complete yet. They also generally indicated that
they expected to have products with complete asset coverage by the
first or second quarter of 2018. They also informed our staff that
entering into contracts and onboarding fund groups are progressing at
different paces and that fund group classification systems similarly
are in various stages of development and readiness. The service
providers have also acknowledged that significant disparities can exist
between service providers in assessing the liquidity of the same
security as a result of different models, market data, or assumptions
used. The service providers informed our staff that they believed their
products generally would be ready in time for most funds to meet the
current compliance date of the rule, though some of the fund groups
with whom they have engaged suggested that additional time may be
needed to implement the required classification process and related
program and reporting requirements.
    Fund groups have also told our staff that they generally plan to
develop processes and/or systems to provide service providers with
fund-specific portfolio information relevant to classification and to
provide ongoing input and oversight over any classification information
derived from service provider tools. These data provision and oversight
elements require additional processes or system modifications, or both,
that are currently being evaluated as the service providers' offerings
near completion and also may require some customization by service

providers or fund groups.\35\ Finally, for asset classes where trading
and market data is constrained, some fund groups and service providers
have told our staff that they are building models to more qualitatively
assess liquidity, which may take additional time to develop and test.
The ability for a fund to classify its assets is a foundation for other
aspects of the rule, such as establishing the HLIM, and thus funds
generally need to establish a classification system before finalizing
policies and procedures for other aspects of the rule.\36\
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    \35\ See ICI Letter II (noting because the liquidity rule is
new, funds will need to complete an extensive assessment of the new
services and how they will be incorporated into existing oversight
programs).
    \36\ See supra footnote 30.
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    One association also noted that additional complexity and time
pressures exist for fund groups that engage sub-advisers for portfolio
management, relating to sharing and reconciling classification
information across multiple sub-advisers each of whom may have their
own liquidity classification methodologies and systems.\37\ We also
understand that additional complexity results when a fund group uses
multiple sub-advisers for portfolio management of certain funds and
that funds with sub-advisers require additional coordination (and thus
additional technology infrastructure) for portfolio classification and
to potentially reconcile classification information that may be
distributed among various investment advisory firms.
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    \37\ See SIFMA AMG Letter. See also Wellington Letter, noting
that more time is necessary and appropriate due to the additional
complications that sub-advised funds face in implementing the rule.
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Interpretive Questions
    In meeting with fund groups and service providers, our staff has
learned that many of the most difficult interpretive questions relating
to the rule have only become apparent as funds have worked through the
design, evaluation, and testing of the new and complex systems that
will support compliance with their liquidity risk management programs.
As a consequence, funds are still in the process of identifying certain
issues that may need interpretive guidance in order to complete the
build-out of their classification systems and to design and draft
policies and procedures implementing their programs.\38\ One
association has requested that Commission staff provide interpretive
guidance on certain questions relating to classification, and stated
that any such interpretive guidance may shape how its members design
certain aspects of their classification systems.\39\ Funds have
indicated that they will need time to evaluate and incorporate any such
guidance as they implement the new systems and policies and procedures
for managing liquidity risk required under the rule.
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    \38\ See supra footnote 22.
    \39\ See SIFMA AMG Letter.
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    In addition, fund groups have cautioned that if no compliance date
extension is provided, fund groups may have to incur the expense of
implementing classification once now and then again to make any
necessary changes to classification systems after any interpretive
guidance on new questions has been issued.\40\ However, if an extension
is provided, funds could take the time to evaluate any guidance
provided in connection with building their systems, thereby avoiding
the costs of rushed builds or redone systems.
---------------------------------------------------------------------------

    \40\ See SIFMA AMG Letter. As noted above, Commission staff is
publishing guidance today on the classification process and may
publish additional guidance in the future if it deems it
appropriate.
---------------------------------------------------------------------------

    Finally, as we discussed in the Adopting Release, we understood
that service providers may have some role in assisting funds in
complying with the liquidity rule requirements, especially in providing
data and collating data for reporting.\41\ Nonetheless, we believed
that many fund groups would build and create their own classification
methodologies, considering that funds have significant practical
experience in observing the liquidity of the assets that they
trade.\42\ As discussed above, however, our staff has learned that with
respect to most funds, implementation is more complex than anticipated
and the role for service providers is going to be more extensive than
we had originally understood, thereby resulting in even more complexity
and raising interpretive questions.
---------------------------------------------------------------------------

    \41\ See Adopting Release, supra footnote 3, at n.323 and
accompanying text.
    \42\ See Adopting Release, supra footnote 3, at text following
n.709.
---------------------------------------------------------------------------

    We believe that the interpretive guidance our staff has provided,
and any additional guidance it may provide in the future, should ease
the complexity of compliance, and may result in more funds refining
their classification systems and liquidity assessment models, whether
developed internally or when using vendor-provided tools. Our staff
also will consider providing future interpretive guidance as needed to
assist funds as they comply with the requirements of the rule.

C. Extension of Certain Elements of the Rule

    Today, we are extending by six months the compliance date for the
rule's portfolio classification and certain related requirements. Based
on the staff's engagement with fund groups and service providers, as
well as the representations of the commenters discussed above, we
believe that a six-month extension of the compliance date for the
portfolio classification and certain related requirements that are
dependent on the classification requirement is appropriate. We believe
this additional time will allow fund groups and service providers to
adequately address these complex and technology-dependent requirements
and promote a smooth and efficient implementation of the rule.
    In providing this extension, we considered not only the issues
discussed above, but also the objective of the Liquidity Rule
Requirements more generally in advancing effective liquidity risk
management across the fund industry. As a result, while we are
extending the compliance date for the portfolio classification and
certain related requirements, we are limiting such extension to six
months, and we are maintaining the existing compliance dates for the
other aspects of the rule. Indeed, two provisions of the rule that are
at the heart of the investor protection benefits that the rule seeks to
achieve--the requirement that a fund institute a liquidity risk
management program and the 15% illiquid investment limit--will go into
effect as planned.
1. Extension of Portfolio Classification, HLIM, and Related Reporting
Compliance Dates
    In light of the concerns discussed above, the Commission believes
that it is appropriate to extend the compliance date for the portfolio
classification requirement of rule 22e-4 and the HLIM requirement. Rule
22e-4 defines ``highly liquid investments'' that count towards the HLIM
requirement by referencing the broader classification framework. For a
fund to establish and monitor an HLIM, it will need to determine which
investments meet the definition of highly liquid investments as defined
by the rule and then determine and monitor its HLIM as compared to that
bucket of investments.\43\ Therefore, a

fund's ability to comply with the HLIM requirement is dependent on the
fund's ability to classify its highly liquid investments under the
rule. Funds have experience following the 15% guideline restricting
purchases of illiquid assets when considering whether to purchase
additional illiquid assets. By contrast, the HLIM is a new requirement
that funds have not previously been required to establish and about
which funds have not received previous Commission guidance. In order to
implement the HLIM independent of the full classification requirements,
funds would have to establish policies, procedures, and systems to
determine their highly liquid investments so that they may be able to
determine and monitor their HLIM. In addition, in adopting the 15%
illiquid investment limit, we specifically recognized that it was
possible to comply with such limit without classification for a
category of funds, the In-Kind ETFs.\44\ The HLIM, on the other hand,
is a new requirement specifically tied to classification for which
there has been no previous Commission guidance. As a result, we believe
that even with guidance, implementing the HLIM and identifying highly
liquid investments would be more likely to require funds to either
incur significant expenses to build out an interim system or redo
certain elements of their systems as they implement the full portfolio
classification requirements, or both. Therefore, we believe it is
appropriate to extend consistently the compliance date for both the
portfolio classification and HLIM requirements.
---------------------------------------------------------------------------

    \43\ See Rule 22e-4(a)(6) (defining highly liquid investments as
``any cash held by a fund and any investment that the fund
reasonably expects to be convertible into cash in current market
conditions in three business days or less without the conversion to
cash significantly changing the market value of the investment'' as
determined pursuant to rule 22e-4(b)(1)(ii)).
    \44\ See Adopting Release, supra footnote 3, at nn.745 and 836
and accompanying text.
---------------------------------------------------------------------------

    As a consequence of the delay in portfolio classification and HLIM,
the Commission is also extending the compliance date for the
classification and HLIM reporting requirements of Forms N-PORT and N-
LIQUID.\45\ Form N-PORT requires a fund to disclose information
regarding the fund's HLIM and individual portfolio holding liquidity
classifications on a non-public basis.\46\ Currently, it also requires
a fund to disclose publicly the aggregate percentage of its portfolio
that is highly liquid, moderately liquid, less liquid, and illiquid on
a quarterly basis.\47\ Part D of Form N-LIQUID requires non-public
notifications to the Commission when the fund's HLIM is breached for
more than a specified period of time.\48\ Because the information
required by these items of Form N-PORT is related to the fund's
classification of its investments, a delay in the classification
requirement would also require a delay for these items. Similarly,
because notifications on Part D of Form N-LIQUID are tied to the HLIM,
the Commission believes that revising the compliance date for these
notifications is also necessary.\49\
---------------------------------------------------------------------------

    \45\ We are not delaying reporting to the Commission information
required by Form N-CEN related to lines of credit, and inter-fund
lending and borrowing. It is our understanding that information
related to lines of credit and inter-fund lending and borrowing
activities is currently readily available to funds. Therefore, we do
not believe that a delay is necessary and are not revising the
compliance date for Form N-CEN. Because we are delaying compliance
with the classification requirement of rule 22e-4(b)(1)(ii) and the
HLIM requirement of rule 22e-4(b)(1)(iii), the in-kind status of
certain ETFs may be noted as ``N/A'' on Form N-CEN until funds are
required to comply with those requirements.
    \46\ Items B.7 and C.7 of Form N-PORT.
    \47\ Item B.8 of Form N-PORT.
    \48\ Part D of Form N-LIQUID.
    \49\ We are not delaying the implementation of rule 30b-10 (the
obligation to file Form N-LIQUID or the other parts of the form).
The parts of the form that are not being delayed (parts A, B, and C)
relate to breaches of the 15% illiquid investment limit, which as
discussed below is not being delayed. Accordingly, funds should file
Form N-LIQUID reports related to such incidents as scheduled.
---------------------------------------------------------------------------

    Finally, we are providing a six-month extension of the compliance
date for the recordkeeping requirements related to the elements of rule
22e-4 we are delaying today,\50\ though we are not delaying the
recordkeeping requirement related to the liquidity risk management
program itself, the 15% illiquid investments restriction, or the board
designation of the program administrator.\51\
---------------------------------------------------------------------------

    \50\ We are extending the compliance date for the recordkeeping
requirements of rule 22e-4(b)(3)(i) that relate to classification as
well as the recordkeeping requirements of rule 22e-4(b)(3)(iii)
related to the HLIM requirements. Similarly, we are delaying the
recordkeeping requirements of rule 22e-4(b)(3)(ii) related to the
materials provided to the fund's board regarding the liquidity risk
management program.
    \51\ Rule 22e-4(b)(3)(i).
---------------------------------------------------------------------------

    The Commission seeks comment on the delay in the classification,
HLIM, and related reporting and recordkeeping requirements.
     Should the Commission provide an extension in the
compliance dates for the classification requirement? Why or why not?
     Should the Commission provide an extension in the
compliance dates for the requirements related to classification such as
the HLIM requirement? Is it feasible to let the HLIM requirement go
into effect without the related classification requirement?
     Should we delay the liquidity-related reporting
requirements of Form N-PORT and Part D of Form N-LIQUID?
2. Length of Extension
    In light of the staff's monitoring and conversations with service
providers and fund groups, as well as the commenters' statements
regarding the projected timelines to effectively implement the
classification requirement, we believe that a six-month extension is
more appropriate than a one-year extension. One association stated that
a compliance date extension of at least six months is necessary for the
portfolio classification and related elements of the rule,\52\ and the
other requested that the Commission extend the compliance date at least
one year for these requirements.\53\
---------------------------------------------------------------------------

    \52\ See SIFMA AMG Letter.
    \53\ See ICI Letters I and II. Several fund groups supported the
ICI's one-year extension request. See, e.g., the Nuveen and Vanguard
Letters.
---------------------------------------------------------------------------

    We believe that a six-month period should provide sufficient time
for funds to comply with the elements of the rule we are extending
today. Specifically this should provide enough time to allow for
service providers to provide effective classification tools and data,
as well as for funds to integrate and implement these tools and certain
related requirements into their programs and gain board approvals. We
considered delaying the compliance date for one year rather than six
months. As discussed above, many funds believe that service providers
will have sufficiently mature offerings for funds to make informed
service provider selections by approximately the second quarter of
2018. If funds select their service providers by June of 2018, we
believe that they will be able to effectively comply with all of the
Liquidity Rule Requirements, including classification, by the revised
compliance dates. Therefore, we do not believe a one-year extension is
necessary.\54\
---------------------------------------------------------------------------

    \54\ See supra footnote 28.
---------------------------------------------------------------------------

    We previously adopted temporary rule 30b1-9(T), which will require
larger entities to maintain in their records the information that is
required to be included in Form N-PORT, in lieu of filing reports with
the Commission, until April 2019. As a result, larger entities that
previously would have been required to submit their first reports on
Form N-PORT on Electronic Data Gathering, Analysis, and Retrieval
(``EDGAR'') by July 30, 2018 would submit their first reports on EDGAR
by April 30, 2019.\55\ Because we are revising the compliance date for
the disclosures related to liquidity on Form N-PORT, larger entities
will not need to

include those disclosures in their reports on Form N-PORT until July
30, 2019.\56\
---------------------------------------------------------------------------

    \55\ See Investment Company Reporting Modernization, Investment
Company Act Release No. 32936 (Dec. 8, 2017) [82 FR 58731 (Dec. 14,
2017)] (``N-PORT Release'').
    \56\ Smaller entities will be subject to classification, HLIM,
and the related requirements we are delaying today on December 1,
2019, but would not be required to file that information through
EDGAR on Form N-PORT until April 30, 2020.
---------------------------------------------------------------------------

    We request comment on the six-month compliance period extension
that we are adopting today.
     Is six months a sufficient amount of time for funds to
implement classification and other related requirements we are delaying
today? If not, how much additional time would funds need to comply and
why?
     Should we provide a shorter compliance date extension,
such as three months, or none? If so, why?
     Should we provide an additional six-month (or other
period) extension in the compliance date for smaller entities, so that
their liquidity classification obligations also align with their N-PORT
filing requirements?
3. Board Oversight
    We are providing a six-month extension of the compliance date for
board approval of the liquidity risk management program and the related
annual review requirements.\57\ Although funds will need to implement
liquidity risk management programs as originally scheduled, these
programs need not, for now, include the rule's classification or HLIM
requirements. Other than the elements that are not being delayed, funds
may implement a program that achieves the goals laid out in the rule
using any additional elements they view as reasonable during the period
of the compliance date extension, but need not get board approval of
that program until the end of the extension period. Because the
Commission is granting funds additional time to incorporate the delayed
elements into their programs, we believe that it would be unnecessarily
burdensome to require the board to review the fund's program before
funds incorporate all elements of the program. Similarly, we believe it
is unnecessarily burdensome to require the board to conduct annual
reviews of the program prior to the complete development of the fund's
program.
---------------------------------------------------------------------------

    \57\ Rule 22e-4(b)(2)(i) and (iii).
---------------------------------------------------------------------------

    However, as we stated in the Adopting Release and as we continue to
believe, requiring that the board designate a program administrator
independent from portfolio management is necessary for the program to
be administered with sufficient independence.\58\ We also expect that
having a designated program administrator will better enable funds to
create and operate the liquidity risk management program, and
facilitate implementation of the delayed aspects of the rule when they
go into effect. Accordingly, we are not delaying the requirement for
the board to designate the program administrator.
---------------------------------------------------------------------------

    \58\ See Adopting Release, supra footnote 3 at n.814 and
accompanying text. Rule 22e-4(b)(2)(ii).
---------------------------------------------------------------------------

    The Commission seeks comment on the delay of these board oversight
requirements.
     Should we provide this delay to the board approval
requirements? Why or why not?
     Should we instead require the board to approve the initial
programs without the classification and related requirements? If so,
why?
     Should we provide the delay to the board's annual review
requirement?
4. Liquidity Risk Management Programs
    We are not extending the compliance date for the general obligation
that each fund implement a liquidity risk management program, including
the required assessment, management, and periodic review of the fund's
liquidity risk.\59\ We believe that implementing a liquidity risk
management program, even in the absence of the classification and HLIM
requirements, will enhance fund liquidity risk management practices and
provide protection to investors.\60\
---------------------------------------------------------------------------

    \59\ Rule 22e-4(b) requires each fund and In-Kind ETF to adopt
and implement a program that is reasonably designed to assess and
manage its liquidity risk. See rule 22e-4(b)(1)(i).
    \60\ Accordingly, by December 1, 2018, larger entities will be
required to adopt and implement a written liquidity risk management
program that is reasonably designed to assess and manage its
liquidity risk. See rule 22e-4(b). Smaller entities will be required
to comply on June 1, 2019. The program must include policies and
procedures reasonably designed to incorporate the elements
articulated in rule 22e-4(b)(1)(i) related to a fund's assessment,
management, and periodic review of its liquidity risk. The fund's
board must also designate a program administrator pursuant to rule
22e-4(b)(2)(ii).
---------------------------------------------------------------------------

    While we understand that there are issues with the classification
requirement, we are unaware of any claims that funds are or anticipate
experiencing difficulties in implementing a liquidity risk management
program by the original compliance date.\61\ We understand that many
funds already have in place systems to assess and manage the liquidity
of their funds. In addition, both trade associations that commented
indicated that they believed that compliance with the overall
obligation to implement a liquidity risk management program under the
rule was feasible by the original compliance date.\62\ We believe that
funds can establish a program that assesses, manages, and reviews their
liquidity risk without the elements we are delaying today, using
elements they view as reasonable to achieve these goals during the
period of the compliance date extension.
---------------------------------------------------------------------------

    \61\ The requirement for funds that engage in redemptions in-
kind to implement policies and procedures under rule 22e-4(b)(1)(v)
(and their related recordkeeping requirements in rule 22e-4(b)(3))
and the requirements for unit investment trusts (``UITs'') to comply
with rule 22e-4(c) related to a UIT's liquidity assessment and
related recordkeeping requirements will go into effect as originally
scheduled. We do not believe that these requirements pose a burden
on funds such that a delay in compliance would be necessary or
appropriate, and some commenters suggested that they could go into
effect as scheduled. See, e.g., SIFMA AMG Letter.
    \62\ See SIFMA AMG Letter and ICI Letter I.
---------------------------------------------------------------------------

5. 15% Illiquid Investment Limit and Guidance
    We are not extending the compliance date for the 15% illiquid
investment limit of rule 22e-4, or the related board and Commission
reporting requirements.\63\ Limiting the amount of illiquid investments
held by open-end funds is critical to effective liquidity risk
management and is a cornerstone of rule 22e-4. As stated in the
Adopting Release, ``a limit on funds' illiquid investments should be a
central element of managing open-end funds' liquidity risk, which in
turn would further the protection of investors.'' \64\
---------------------------------------------------------------------------

    \63\ Rule 22e-4(b)(1)(iv); Parts A, B, and C of Form N-LIQUID.
    \64\ Adopting Release, supra footnote 3, at text following
n.757.
---------------------------------------------------------------------------

    While we agree that additional time is necessary to efficiently and
effectively comply with the portfolio classification and certain
related requirements of the rule, we do not believe that complying with
the 15% illiquid investment limit presents challenges that warrant a
similar delay in compliance. Funds have experience following the
previous guideline to limit an open-end fund's aggregate holding of
illiquid assets to no more than 15% of the fund's net assets.\65\
Although the final rule's definition of illiquid investments differs in
some respects from the previous 15% guideline definition of illiquid
asset, we believe funds have gained significant experience in
evaluating and identifying illiquid assets consistent with the prior
guidance, and should be able to apply that experience and associated
systems in complying with the 15% limit in rule 22e-4.\66\ In addition,
the guidance we

provide below on complying with the 15% illiquid investment limit for
funds that do not engage in full portfolio classification during the
compliance extension period should assist such funds in their
compliance with this requirement, and reduce the challenges associated
with its implementation.
---------------------------------------------------------------------------

    \65\ Adopting Release, supra footnote 3, at n.38 and
accompanying text.
    \66\ Adopting Release, supra footnote 3, at n.836 and
accompanying text (noting that In-Kind ETFs are exempt only from the
classification and HLIM requirements of rule 22e-4).
---------------------------------------------------------------------------

    While this limit on illiquid investments refers to the
classification element of the rule, as we discuss below, we are
providing guidance on how funds can comply with this requirement
without engaging in full portfolio classification during the period of
the extension we are providing today.\67\ As noted above, In-Kind ETFs
are required to abide by the 15% illiquid investment limit but are not
required to classify their investments.\68\ We expect many In-Kind ETFs
will rely on the guidance provided below, or use other reasonable
methods, to identify and monitor their illiquid investments during the
period of the compliance date extension and thereafter. Accordingly, we
believe that funds can effectively comply with the 15% illiquid
investment limit during the compliance extension period.
---------------------------------------------------------------------------

    \67\ Rule 22e-4(b)(1)(iv).
    \68\ Rule 22e-4(b)(1)(ii).
---------------------------------------------------------------------------

    We are providing the following guidance to assist In-Kind ETFs and
funds not engaging in full portfolio classification during the
compliance extension period in identifying illiquid investments as a
part of their application of the 15% illiquid investment limit.\69\ We
believe one reasonable method for a fund to comply with these
requirements is to preliminarily identify certain asset classes or
investments that the fund reasonably believes are likely to be illiquid
(``preliminary evaluation''). We expect that the fund could base this
reasonable belief on its previous trading experience (including its
experience in the investment's typical market depth and price impact
when trading), on its understanding of the general characteristics of
the asset classes it is preliminarily evaluating, or through other
means. A fund could choose to determine that certain investments
identified in such asset classes that it purchases are illiquid based
solely on this preliminary evaluation, and not engage in any further
analysis under the rule at that time.\70\ This evaluation need not
occur prior to the trade being placed. Alternatively, if the
preliminary evaluation establishes a reasonable basis for believing
that an investment is likely to be illiquid, but the fund wishes to
further evaluate its status, the fund may then, as a secondary step,
determine whether that investment is illiquid through the full
classification process set forth in the rule (``secondary
evaluation''). Investments in asset classes the fund acquires that it
does not reasonably believe are likely to be illiquid would not need to
be classified when performing this preliminary analysis.
---------------------------------------------------------------------------

    \69\ See Rule 22e-4(b)(1)(iv) (``No fund or In-Kind ETF may
acquire any illiquid investment if, immediately after the
acquisition, the fund or In-Kind ETF would have invested more than
15% of its net assets in illiquid investments that are assets. . .
.'').
    \70\ Rule 22e-4(b)(1)(ii).
---------------------------------------------------------------------------

    Funds could automate such a preliminary evaluation of asset classes
or investments, and they could base that evaluation on the general
characteristics of the investments the fund purchases. For example, in
establishing the list of asset classes or investments that the fund
believes have a reasonable likelihood of being illiquid, the fund could
take into account the trading characteristics of the investment (for
example, whether it is a restricted security or has structural
liquidity limitations, the trading history of the asset class, or
whether the investment typically requires significant negotiations to
trade) and use such characteristics to form the reasonable belief of
illiquidity. We expect that a fund making use of preliminary evaluation
would conduct periodic testing of the results of the preliminary
evaluations to determine whether they continue to be accurate as part
of their required review of the adequacy and effectiveness of the
liquidity risk management program's implementation.
    In evaluating the likelihood of an asset class or investment being
illiquid, we do not believe it would be reasonable to assume that a
fund is only selling a single trading lot when looking at the market
depth of the asset or class. However, a fund would not need to evaluate
the actual size of its holdings in the asset class or engage in the
full process of evaluating its reasonably anticipated trading size for
the asset class under the rule. Instead, a fund could use any
reasonable method in evaluating the market depth of the asset classes
or investments it identifies as likely being illiquid in the
preliminary evaluation.
    Although the illiquidity status of an investment is generally
evaluated upon acquisition (and then at least monthly thereafter),\71\
certain events may lead an In-Kind ETF or fund not yet subject to the
classification requirement to re-evaluate the liquidity status of an
investment more frequently. For example, a reasonable approach for a
fund to re-evaluate the liquidity of an investment might be by
identifying in its policies and procedures in advance certain events
that it reasonably expects would materially affect the investment's
classification. Reasonable policies and procedures could limit such
events to those that are objectively determinable (e.g., a trading halt
or delisting of a security, an issuer or counterparty default or
bankruptcy, significant macro-economic developments (such as a
sovereign default), or events like extraordinary natural disasters or
political upheavals, for funds with concentrated geographic exposures).
This intra-month review would not create a de facto ongoing review
requirement for classification. However, a fund generally should
regularly monitor the amount of its illiquid investments to ensure that
it does not exceed the limit as a result of the purchase or redemption
activity of the fund or changes in the value of the fund's holdings.
---------------------------------------------------------------------------

    \71\ See rule 22e-4(a)(8) which references rule 22e-4(b)(1)(ii).
An ``illiquid investment'' is defined as being determined, in part,
through the classification process, which requires at least monthly
review. Though we are revising the compliance date for the
classification provisions of the rule, we are not revising the
compliance date for those provisions related to the 15% illiquid
investment limit, including the related monthly (or more frequent)
review requirement in rule 22e-4(b)(1)(ii) referenced in 22e-
4(a)(8), subject to the guidance in this release.
---------------------------------------------------------------------------

    We believe that the method discussed in the guidance above would be
a reasonable approach for a fund to help assure itself that it has not
violated the 15% illiquid investment limit during the intra-month
period between scheduled classifications. However, funds may use
reasonable approaches other than the one described in this guidance as
well.

D. Compliance Date Extension Chart

    The following chart identifies the provisions of the Liquidity Rule
Requirements that we are delaying and those we are not. For the items
subject to the six-month extension, the compliance date will be June 1,
2019 for larger entities and December 1, 2019 for smaller entities. For
the provisions that we are not delaying, the original compliance dates
of December 1, 2018 for larger entities and June 1, 2019 for smaller
entities remain in effect.

------------------------------------------------------------------------
                                             Requirements subject to
 Requirements not subject to extension              extension
------------------------------------------------------------------------
Rule 22e-4: \72\                         Rule 22e-4: \73\
     Liquidity Risk Management       Classification
     Program [paragraph (b)].                [paragraph (b)(1)(ii)].\74\
    [cir] Assessment, management, and     Highly liquid
     periodic review of liquidity risk    investment minimum [paragraph
     [paragraph (b)(1)(i)].               (b)(1)(iii)].
    [cir] Illiquid investments            Board Oversight.
     [paragraph (b)(1)(iv)].             [cir] Initial approval of the
    [cir] Redemptions in Kind             liquidity risk management
     [paragraph (b)(1)(v)].               program [paragraph (b)(2)(i)].
    [cir] Board Designation of Program   [cir] Annual Board Reporting
     Administrator [paragraph             [paragraph (b)(2)(iii)].
     (b)(2)(ii)].
     UIT Liquidity [paragraph
     (c)].
N-LIQUID                                 N-LIQUID
     Part A. General                 Part D. Assets that
     Information.                            are Highly Liquid
     Part B. Above 15% Illiquid      Investments Below the HLIM.
     Investments.
     Part C. At or Below 15%
     Illiquid Investments.
N-CEN:                                   N-PORT:
     Item C.20. Lines of             Item B.7. Highly
     credit, interfund lending, and          Liquid Investment Minimum.
     interfund borrowing.                 Item B.8. Liquidity
     Part E.5. In-Kind ETF.       aggregate classification
                                          information.
                                          Item C.7. Liquidity
                                          Classification Information.
------------------------------------------------------------------------

II. Procedural and Other Matters

    The Administrative Procedure Act (``APA'') generally requires an
agency to publish notice of a rulemaking in the Federal Register and
provide an opportunity for public comment.\75\ This requirement does
not apply, however, if the agency ``for good cause finds . . . that
notice and public procedure thereon are impracticable, unnecessary, or
contrary to the public interest.'' \76\
---------------------------------------------------------------------------

    \72\ The recordkeeping requirements of rule 22e-4(b)(3) related
to these elements are similarly not subject to extension. See supra
footnote 50 and accompanying text.
    \73\ The recordkeeping requirements of rule 22e-4(b)(3) related
to these elements are similarly subject to extension. See supra
footnote 49.
    \74\ As discussed in footnote 71, we are not delaying the
aspects of classification that relate to the implementation of the
illiquid investment limit, subject to the guidance in this release.
    \75\ See 5 U.S.C. 553(b)-(c).
    \76\ 5 U.S.C. 553(b)(3)(B).
---------------------------------------------------------------------------

    We have determined to adopt this interim final rule delaying
certain of the Liquidity Rule Requirements. Specifically, the
Commission is extending the compliance date for the classification
requirement of rule 22e-4(b)(1)(ii) except to the extent referenced in
rule 22e-4(a)(8).\77\ The Commission also is extending the compliance
date for rule 22e-4(b)(1)(iii) pertaining to the HLIM. Furthermore, the
Commission is extending the compliance date for rule 22e-4(b)(2)(i) and
(iii) pertaining to the requirement that fund boards initially approve
the fund's liquidity risk management program as well as the requirement
that the fund's board review annual reports on the operation of the
program and the program's adequacy and effectiveness of implementation
from the fund's program administrator. Finally, the Commission is
extending the compliance date for the liquidity-related reporting
requirements of Form N-PORT as well as Part D of Form N-LIQUID.
---------------------------------------------------------------------------

    \77\ See supra footnote 71.
---------------------------------------------------------------------------

    The trade associations expressed concern that, because of the
significant investment funds will have to incur and the time commitment
involved, funds will have to continue to build their classification
technology infrastructure well before the compliance date of the
Liquidity Rule Requirements, and they therefore requested that the
Commission make any extension in the compliance date as quickly as
possible. The SIFMA AMG Letter argued that a prompt extension of the
compliance date for the classification requirement of the rule will
``provide the industry with the breathing room it needs to build,
implement and test the necessary systems in an orderly and prudent
manner'' and the ICI Letter I echoed the sentiment, asking for
``[q]uick and decisive action--with respect to delaying the rule's
classification requirements.''
    The Commission has determined that funds are encountering
significant challenges in their efforts to achieve timely compliance
with the classification and related requirements of rule 22e-4 and
related forms. Most notably, as discussed in detail in section I.B
above, compliance with these requirements entails service providers and
funds building complex, technology-dependent liquidity classification
systems. These systems are not yet complete nor are they projected to
be fully developed and tested by the current compliance date. We are
basing this judgment on Commission staff outreach to funds and service
providers, and information they have provided us discussed above. Based
on this information, we believe the projected timelines for completing
the development of classification tools, along with the time necessary
to effectively evaluate, implement and test new systems and
infrastructure, further enhance liquidity programs, and obtain approval
from fund boards justify a six-month delay limited to the
classification and related requirements. The scope of the difficulties
that are being experienced in developing liquidity classification
systems, the extent of fund reliance on external service providers to
provide liquidity classification solutions, and the substantial number
of implementation questions that have been posed, are matters that were
not anticipated in the Adopting Release.
    As discussed previously, providing immediate certainty regarding
this compliance date extension is critical because funds currently are
evaluating and making decisions on the source and structure of their
classification systems in an effort to meet the original compliance
date. By providing an extension, funds may take the time to evaluate
the staff interpretive guidance that is being issued along with this
release in connection with building their systems, thereby avoiding the
costs of expediting the construction of their systems (in dollar value
and/or reduced quality) after having reviewed the staff interpretive
guidance or revising their systems as may be occasioned by any
additional subsequently-issued staff or Commission guidance. Because
funds are making decisions now as to the structure of their programs
and the service providers they will use, funds need to have certainty
that there will be a six-month delay of the classification and related
requirements so that they can take this time to evaluate and design the
necessary systems and infrastructure and evaluate the need for and
choice of a service provider to assist in this process. This certainty
will allow them time to adjust their implementation process accordingly
and avoid costs of rushed implementation and potential revisions to
their programs and use or

choice of service providers after service providers complete their
product offerings, which costs could be passed on to the fund's
investors. Waiting until after the notice and comment period to make
the necessary delay effective would undermine this effort to give
certainty for these complex technology infrastructure timelines and
thus we believe it would be impracticable, unnecessary, and contrary to
the public interest.
    For these reasons, the Commission finds that good cause exists to
dispense with advance notice and comment regarding the delay of the
classification and related requirements outlined above.\78\ The
Commission and its staff will continue to monitor implementation of the
Liquidity Rule Requirements to determine if further action is necessary
to address questions or issues that may arise in addition to the delay
in compliance we are providing today and to address interpretive issues
as they arise.
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    \78\ See section 553(b)(3)(B) of the Administrative Procedure
Act (5 U.S.C. 553(b)(3)(B)) (an agency may dispense with prior
notice and comment when it finds, for good cause, that notice and
comment are ``impracticable, unnecessary, or contrary to the public
interest''). This finding also satisfies the requirements of 5
U.S.C. 808(2) (stating that if a federal agency finds that notice
and public comment are impractical, unnecessary or contrary to the
public interest, a rule shall take effect at such time as the
federal agency promulgating the rule determines). This section would
allow the rule amendment to become effective notwithstanding the
requirement of 5 U.S.C. 801. The interim final rule also does not
require analysis under the Regulatory Flexibility Act. See 5 U.S.C.
604(a).
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III. Economic Analysis

A. Introduction

    The Commission is sensitive to the potential economic effects of
extending the compliance date for certain provisions of the Liquidity
Rule Requirements. These effects include the benefits and costs to
funds, their investors and investment advisers, issuers of the
portfolio securities in which funds invest, and other market
participants potentially affected by fund and investor behavior as well
as any effects on efficiency, competition, and capital formation.

B. Economic Baseline

    The costs and benefits of the compliance date extension as well as
any impact of the extension on efficiency, competition, and capital
formation are considered relative to an economic baseline. For the
purposes of this economic analysis, the baseline is the regulatory
framework and liquidity risk management practices currently in effect,
any systems and processes that funds have already implemented in order
to comply with the Liquidity Rule Requirements as adopted, and the
expected changes to liquidity risk management practices assuming the
compliance dates established in the Adopting Release remain in effect.
    The economic baseline's regulatory framework consists of the
Liquidity Rule Requirements adopted by the Commission on October 12,
2016. With respect to current liquidity risk management market
practices, the baseline remains as described in the Adopting Release,
with two exceptions. First, funds are already complying with Form N-
1A's requirement that they make additional disclosures about redemption
practices.\79\ Second, we expect that funds will rely more extensively
on third-party service providers to comply with the classification
requirement relative to the baseline in the Adopting Release.\80\ Under
the baseline, larger entities must comply with the Liquidity Rule
Requirements by December 1, 2018, while smaller entities must comply by
June 1, 2019.\81\ The baseline also includes funds' efforts to develop
the systems and processes necessary to comply with the Liquidity Rule
Requirements since the rule was adopted, but we do not have data
sufficient to quantify the extent to which funds have already invested
in such systems and processes.\82\
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    \79\ See section IV.B of the Adopting Release for a detailed
discussion of funds' current liquidity risk management practices.
See section III.L of the Adopting Release for a discussion of the
enhanced disclosure requirements regarding redemption practices on
Form N-1A.
    \80\ See supra footnote 23 and surrounding text for a discussion
of how funds will rely on service providers in complying with the
Liquidity Rule Requirements.
    \81\ See supra footnote 5 for a detailed description of larger
and smaller entities.
    \82\ We received comment letters providing certain information,
including a survey of funds, regarding fund reliance on vendor
solutions and vendor readiness, see supra footnote 20. While these
letters indicate that the funds surveyed are still in the early
stages of developing their classification systems because of vendor
readiness issues, they do not provide concrete estimates of the
extent to which funds have invested in implementing portfolio
classification systems. In addition, while a large number of funds
with significant assets under management responded to the survey,
the survey was self-reported by members of the commenter's
organization and may not necessarily reflect the state of the entire
fund industry.
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    The primary SEC-regulated entities affected by this interim final
rule are mutual funds and ETFs. As of the end of 2016, there were 9,090
mutual funds managing assets of approximately $16 trillion,\83\ and
there were 1,716 ETFs managing assets of approximately $2.5
trillion.\84\ Other potentially affected parties include investors,
investment advisers that advise funds, issuers of the securities in
which these funds invest, and other market participants that could be
affected by fund and investor behavior.
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    \83\ See 2017 ICI Fact Book, available at https://www.ici.org/pdf/2017_factbook.pdf, at 22, 170, 174. The number of open-end
mutual funds includes funds that primarily invest in other mutual
funds but excludes 421 money-market funds.
    \84\ See 2017 ICI Fact Book, available at https://www.ici.org/pdf/2017_factbook.pdf, at 180, 181.
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C. Economic Impacts

    We are mindful of the costs and benefits of this interim final
rule. The Commission, where possible, has sought to quantify the
benefits and costs, and effects on efficiency, competition and capital
formation expected to result from the compliance date extension for
certain provisions of the Liquidity Rule Requirements. However, as
discussed below, the Commission is unable to quantify certain of the
economic effects because it lacks information necessary to provide
reasonable estimates.
Impacts on Funds
    The compliance date extension provides funds with the option to
delay the implementation of a full portfolio classification system.
This option allows funds to forgo some or all of the additional costs
that may be associated with implementing a classification system by the
compliance date in the Adopting Release,\85\ depending on how they
choose to comply with the 15% illiquid investment limit during the
compliance date extension period.\86\ The option to delay may also be
valuable to funds because it permits them to adjust the manner in which
they comply with the classification related elements of the Liquidity
Rule Requirements in response to new information about implementation
choices, including new technologies or

classification software.\87\ The value of the option to delay the
implementation of a full portfolio classification system for a given
fund will depend on the extent to which the fund has already invested
in implementing a full classification system, the remaining costs the
fund expects to incur by implementing such a system by the compliance
date in the Adopting Release, and the manner in which the fund would
comply with the 15% illiquid investment limit during the compliance
period if it chooses to exercise the option to delay.
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    \85\ See supra section I.B for a discussion of the issues funds
may face in complying with the rule by the compliance date in the
Adopting Release.
    \86\ For example, as discussed above (see supra footnote 70 and
surrounding text), some funds that delay the implementation of a
full portfolio classification system might comply with the 15%
illiquid investment limit through the preliminary evaluation process
discussed in the guidance above, which allows them to forgo most of
the costs associated with the implementation of a classification
system. Alternatively, some funds may choose to comply with the 15%
illiquid investment limit by supplementing such an evaluation with
the secondary evaluation discussed in the guidance. Funds making
this compliance choice will still incur the costs of implementing
systems that assess whether a given holding is an illiquid
investment according to the portfolio classification requirement but
will not incur the costs associated with implementing systems
associated with the other portfolio classification categories.
    \87\ See supra footnote 39 and surrounding text for an example
of how funds might modify their implementation of portfolio
classification systems in response to new information.
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    Under the interim final rule, funds will also be able to amortize
the costs of establishing systems associated with the elements of the
Liquidity Rule Requirements for which the compliance date is being
extended over an additional six months. As above, any change in the
amortization of these costs relative to the baseline will vary with the
extent to which a fund has already invested in building systems and
processes to comply with these elements, whether it opts to delay its
implementation of a full portfolio classification system under the
interim final rule, and the manner in which the fund would comply with
the 15% illiquid investment limit during the compliance date extension
period. We cannot quantify these because we do not have sufficient data
and cannot anticipate how funds will choose to comply with the 15%
illiquid investment limit during the compliance date extension period.
Funds will also save six months' worth of any ongoing costs associated
with the elements of the Liquidity Rule Requirements being delayed.
    In the Adopting Release, we estimated aggregate costs associated
with some of these elements. First, some portion of the aggregate
onetime cost of approximately $641 million associated with the
establishment of liquidity classification systems that has not already
been incurred by funds will be amortized over an additional six months
for funds that opt to delay the implementation of their classification
systems, and those funds will not incur some portion of six months'
worth of the associated ongoing annual costs, which we estimated to
range from $30,000 to $2.5 million per fund complex.\88\ Second, while
we did not individually estimate the costs associated with implementing
other elements of the Liquidity Rule Requirements that are being
delayed such as the establishment of an HLIM, they constitute some
fraction of the $214 million we estimated as being associated with
implementing the liquidity risk management program. Funds have the
option to amortize the portion of these costs that has not yet been
incurred over an additional six months. Funds will also not incur six
months' worth of the ongoing costs associated with the delayed elements
of the liquidity risk management program if they opt to delay
implementation of those elements, which we estimated as ranging from
$10,000 to $0.8 million depending on the size of a given fund complex.
Third, the portion of the aggregate onetime costs of approximately $158
million associated with the rule's disclosure and reporting
requirements on Form N-PORT that has not already been incurred by funds
will be amortized over an additional six months. Funds will also not
incur six months' worth of the associated aggregate ongoing annual
costs, which we estimated as being approximately $3.9 million.\89\
Finally, funds will not have to incur six months' worth of the annual
aggregate costs associated with filing Part D of form N-LIQUID, which
we estimated as being $52,350.\90\
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    \88\ See Adopting Release, supra footnote 3, at n.1101. We
assumed the classification process constitutes 75% of both onetime
and ongoing costs. Estimated onetime aggregate costs of $855 million
consist of approximately $641 million (75%) associated with a
classification system and approximately $214 million associated with
the remaining elements of rule 22e-4. Similarly, the range of
ongoing costs, estimated to be $40,000 to $3.3 million, imply a
range of $30,000 to $2.5 million associated with the classification
system and $10,000 to $0.8 million associated with the remaining
elements of rule 22e-4. We do not have sufficient data to estimate
the portion of these costs that has already been incurred.
    \89\ See Adopting Release, supra footnote 3, at n.1188-1191. We
estimated the total one-time costs associated with the rule's
disclosure and reporting requirements on Form N-PORT as being
approximately $55 million for funds that will file reports on Form
N-PORT in house and approximately $103 million for funds that will
use a third-party service provider. Similarly, we estimated the
total ongoing annual costs as being approximately $1.6 million for
funds filing reports in house and $2.3 million for funds that will
use a third-party service provider.
    \90\ See Adopting Release, supra footnote 3, at n.1287-1288. We
estimated that an average of 30 reports would be filed per year in
response to an event specified on Part D of Form N-LIQUID at a total
cost of $1,745 per filing, resulting in an aggregate cost of 30 x
$1,745 = $52,350.
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    As a result of the compliance date extension, some funds that do
not already have a liquidity risk management program in place and opt
to delay the implementation of a full portfolio classification system
may incur additional costs, relative to the baseline, associated with
the development of interim systems and processes that allow for
compliance with those elements of the Liquidity Risk Requirements that
are not being delayed. For example, funds that intended to base their
implementation of a liquidity risk management program on portfolio
classification but opt to delay the implementation of a classification
system will need to establish other interim systems and processes to
assess, manage, and periodically review the fund's liquidity during the
compliance date extension period.\91\ In addition, funds that opt to
delay the implementation of their classification system under the
interim final rule will have to develop systems and processes to comply
with the 15% limit in the absence of a classification system. In
deciding whether they should exercise their option to delay, funds will
weigh the costs of implementing any interim systems and processes
during the compliance date extension period if they opt to delay the
implementation of a full portfolio classification system against the
costs of implementing a full portfolio classification system by the
original compliance date if they do not.
---------------------------------------------------------------------------

    \91\ See supra footnote 62 and surrounding text for a discussion
of liquidity risk management program implementation in the absence
of a portfolio classification system.
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Impacts on Investors and Other Market Participants
    As discussed above, the compliance date extension provides funds
with the option to delay the implementation of a full portfolio
classification system. The compliance date extension for certain of the
Liquidity Rule Requirements will delay benefits to fund investors and
other market participants who otherwise would have benefited from those
portions of the rule during the compliance date extension period. These
delayed benefits include, for example, the increased likelihood that
funds would be able to effectively meet redemption obligations by
establishing an HLIM and any benefits associated with the Commission's
ability to monitor and analyze trends in fund liquidity based on the
portfolio holding classifications reported on Form N-PORT.\92\ However,
because smaller entities will not begin filing Form N-PORT until April
30, 2020 and the compliance date for larger entities filing Form N-PORT
has been delayed until

April 30, 2019, the only delayed benefits associated with disclosures
on Form N-PORT would be for larger entities during the three-month
period between April 30, 2019 and the extended compliance date of July
30, 2019.\93\ In addition, to the extent that funds would not have been
able to effectively comply with the provisions of the Liquidity Risk
Requirements that are being extended as of the original compliance
date, such benefits would not have existed under the baseline, and thus
the diminution of the expected benefits would be not be attributable to
the compliance date extension.
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    \92\ See section IV.C of the Adopting Release for a
comprehensive discussion of the benefits associated with the
Liquidity Rule Requirements. See Adopting Release, supra footnote 3,
at n.1089 and surrounding text for a discussion of why we are unable
to quantify these benefits.
    \93\ See N-PORT Release, supra footnote 55.
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Efficiency, Competition, and Capital Formation
    In the Adopting Release, we discussed the effects of the Liquidity
Rule Requirements on efficiency, competition, and capital formation. In
general, the interim final rule will delay, for six months, those
effects that are associated with the elements of the Liquidity Rule
Requirements that we are delaying today. For example, funds may shift
their portfolios away from less liquid assets and towards more liquid
assets as a result of the HLIM. Some of the potential economic effects
associated with such a shift, as discussed in the Adopting Release,
include a potentially lower yield on the funds available to investors,
a decrease in the investment options available to investors, an
additional decrease in the liquidity of less liquid securities, and an
additional increase in the liquidity of more liquid securities.\94\
With respect to capital formation, any shift by funds or investors away
from less liquid assets and towards more liquid assets could discourage
new issuance of illiquid securities or a shift in the capital structure
of issuers away from less liquid assets such as bonds and towards more
liquid asset such as equities.\95\
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    \94\ See section IV.C of the Adopting Release for a detailed
discussion of the Liquidity Rule Requirements' effect on efficiency,
competition, and capital formation.
    \95\ See Adopting Release, supra footnote 3, at n.1128 and
surrounding text for a discussion of the effects of a shift away
from illiquid assets on capital formation.
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    The compliance date extension may disadvantage some funds that have
already invested in systems and processes to implement the Liquidity
Rule Requirements and would be able to effectively comply with those
requirements as of the compliance date established in the Adopting
Release. To the extent that the capital invested by these funds makes
them less able to invest in other aspects of their business, the rule
may put them at a competitive disadvantage relative to funds that have
not invested as heavily in complying with the Liquidity Rule
Requirements. However, to the extent that investors have a preference
for funds with complete liquidity risk management programs, some funds
may prefer to comply with the Liquidity Rule Requirements by the
compliance date in the Adopting Release, and may perceive having
significant capital invested already as a competitive advantage. In
addition, to the extent that funds have complete liquidity risk
management programs, they would not have to implement systems for
complying with the 15% illiquid investment limit under the guidance
provided in this release, which would diminish any potential
competitive differential. As is the case with the amortization of one-
time costs over an additional six months discussed above, this effect
will vary with the extent to which a fund has already invested in
implementing systems and processes to comply with these elements, which
we cannot quantify.
    As discussed above, funds that opt to delay the implementation of a
full classification system may choose different ways of complying with
the 15% illiquid investment limit during the compliance date extension
period. The manner in which funds choose to comply with the 15%
illiquid investment limit may lead otherwise similar funds to have
different capacities for holding illiquid investments. For example, two
otherwise identical funds could perform the same preliminary evaluation
discussed in the guidance above, while only one of the funds might
perform the secondary evaluation under the guidance. Any secondary
evaluation in which it is determined that some investments are not
illiquid results in the fund that performs the secondary evaluation
holding a lower percentage of illiquid assets than the otherwise
identical fund that only performs a preliminary evaluation. If having a
higher capacity to invest in illiquid investments allows some funds to
increase the expected return of their portfolios, these funds will
consider this potential competitive advantage when determining how they
will comply with the 15% illiquid investment limit. In-kind ETFs will
consider this potential competitive advantage on an ongoing basis.
Other types of funds will consider this potential competitive advantage
in determining how they will comply with the 15% illiquid investment
limit during the compliance date extension period if they opt to delay
the implementation of a classification system and whether it is worth
exercising their option to delay.

D. Reasonable Alternatives

    The Commission considered several alternatives to the interim final
rule's six-month compliance date extensions. First, the compliance date
could have been extended for a shorter or longer period of time. A
shorter extension would have reduced the extent to which investors and
other market participants will forgo any benefits associated with the
delayed elements of the Liquidity Rule Requirements, but may not have
provided ample time to fully mitigate the concerns raised by the
commenters regarding the industry's ability to effectively comply with
the elements of the rule related to classification. A longer extension
would provide more time to mitigate commenters' concerns but also would
have further delayed any potential benefits associated with the
Liquidity Rule Requirements.
    Second, the Commission could have delayed all of the Liquidity Rule
Requirements. Delaying all of the Liquidity Rule Requirements would
have saved funds from incurring the costs associated with any interim
systems or processes required to implement a liquidity risk management
program (rule 22e-4(b)(1)(i)) and to comply with the 15% illiquid
investment limit during the compliance date extension period. It also
would have allowed funds to amortize startup costs for the rest of the
elements of the Liquidity Rule Requirements that are not being delayed
over an additional six months and would have saved the ongoing costs
associated with those elements for six months. However, delaying all of
the Liquidity Rule Requirements would also delay any of the benefits to
investors and market participants associated with the general liquidity
risk management program and the 15% illiquid investment limit, such as
the reduced risk that funds are unable to meet their redemption
obligations.
    Third, the compliance date extension could have been applied to all
elements of the Liquidity Rule Requirements that refer to the
classification requirement, including the 15% illiquid investment
limit, the associated board reporting requirement, and the associated
reporting requirements on Form N-PORT. This alternative would have
saved funds from incurring the costs associated with any interim
systems required to perform a preliminary evaluation of whether an
asset is likely to be illiquid and, to the extent funds opt to
implement classification systems during the interim period to allow for
a

secondary evaluation of asset liquidity in the context of the 15%
illiquid investment limit, the costs associated with building such
interim systems by the compliance date in the Adopting Release.
Delaying all of the classification-related elements would have also
delayed any benefits associated with the 15% illiquid investment limit,
such as the increased likelihood that a fund's portfolio is not overly
concentrated in illiquid investments and the decreased likelihood that
a fund's portfolio remains overly concentrated in illiquid investments
for an extended period of time as result of the requirements that funds
report violations of their 15% illiquid investment limit to their
boards and the Commission on Form N-LIQUID.
    Finally, the Commission could have chosen not to delay the
compliance date for the HLIM requirement, and instead provided guidance
as to how funds could comply with that requirement during the period
that portfolio classification requirements are extended. Maintaining
the original compliance date for the HLIM requirement also would have
maintained any benefits associated with the HLIM during the compliance
date extension period such as the increased likelihood that funds would
be able to effectively meet redemption obligations. However, as
discussed previously, not delaying the HLIM requirement may have caused
funds that opted to delay the implementation of a portfolio
classification system to incur costs in developing any interim systems
required to comply with the HLIM requirement absent a portfolio
classification system, or redo certain elements of their systems when
they implement full portfolio classification. Because HLIM is a new
requirement for which there has been no previous Commission guidance
and the establishment of an HLIM may depend more heavily on a full
portfolio classification system, implementing interim systems to comply
with HLIM could be more costly to funds than implementing interim
systems to comply with the 15% illiquid investment limit.

E. Request for Comment

    We are requesting comment on our analysis of the potential economic
effects of the interim final rule delaying the compliance date for
those elements of the Liquidity Rule Requirements associated with the
classification requirement:
     Are there any other costs or benefits we should consider
in our analysis? If so please explain why those costs or benefits are
relevant and provide quantitative estimates where possible.
     Are there other reasonable alternatives to the interim
final rule's delayed compliance date that we should consider?

IV. Paperwork Reduction Act Analysis

    We do not believe that the revision of the compliance date for Part
D of Form N-LIQUID, amendments to Form N-PORT, and certain provisions
of rule 22e-4 make any substantive modifications to any existing
collection of information requirements or impose any new substantive
recordkeeping or information collection requirements within the meaning
of the Paperwork Reduction Act of 1995 (``PRA'').\96\
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    \96\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    We believe that the current burden and cost estimates for the
existing collection of information requirements remain appropriate.\97\
We are only delaying certain burdens for six months. Thus, we believe
that there are no new substantive burdens imposed on the overall
population of respondents and the current overall burden estimates for
the relevant forms are not affected.\98\ Accordingly, we are not
revising any burden and cost estimates in connection with the revision
of the compliance date. We request comment on whether our belief is
correct.
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    \97\ The titles for the existing collections of information are:
``Rule 22e-4 (17 CFR 270.22e-4) under the Investment Company Act of
1940'' (OMB Control No. 3235-0737); ``Rule 30b1-10 (17 CFR 270.30b1-
10) under the Investment Company Act of 1940, `Current report for
open-end management investment companies' and Form N-LIQUID,
`Current report, open-end investment company.' '' (OMB Control No.
3235-0754); ``Rule 30b1-9 and Form N-PORT'' (OMB Control No. 3235-
0730).
    \98\ See section III above.

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    By the Commission.

    Dated: February 22, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-03917 Filed 2-26-18; 8:45 am]
BILLING CODE 8011-01-P