08/28/2024 | Press release | Distributed by Public on 08/28/2024 08:32
Today, the Commission is considering amendments to reporting requirements for registered mutual funds, closed-end funds, and exchange-traded funds ("funds").[1]
I am pleased to support this adoption because it will benefit investors through greater transparency of funds' investment portfolios and improve the Commission's oversight of the asset management industry.
Adam Smith, known as the father of modern economics, noted in The Wealth of Nations more than 200 years ago that the whole economy benefits when the price of information is lowered, or information is free. Smith's maxim is relevant every day in our modern capital markets.
Reliable, accessible data benefits everyone. No one private entity, though, has the incentive to create a database with reliable, comparable, and accessible data, even if they themselves may benefit. Thus, such data is a public good.[2]
Similarly, consistent, accessible information for funds is a public good.
I believe the Commission understood this back in 2004, in requiring that funds' investment portfolios be provided to investors on a quarterly basis.[3] Twenty years later, life moves so much more quickly.
By making portfolio data available more frequently to the public, the amendments will enhance investors' ability to review and monitor their funds. For instance, investors could more regularly assess how their funds are meeting their investment objectives, and to what extent their funds' portfolios overlap.
The amendments also provide the Commission with timelier information. As the primary regulator of the asset management industry, the Commission relies on such information in its oversight. Increasing the timeliness of the reports helps the Commission monitor industry trends, identify risks, inform policy and rulemaking, and examination and enforcement efforts.
More timely fund data is particularly important in enhancing the Commission's ability to respond during times of stress or fast-moving events. Lest we need any reminders, the past few years have brought disruptions in markets, reacting to the start of COVID-19, wars abroad, and major bank failures.
The amendments balance the benefits of timelier information with the desire to protect sensitive data. Consistent with the current rule, information will be made public only 60 days after the period. Thus, funds will have two months before information reaches the public.
Additionally, the adopting release provides guidance related to an existing rule that requires open-end funds to have liquidity risk management programs. Since that rule was implemented, Commission staff has monitored funds' liquidity classifications and observed funds' liquidity risk management programs in practice, including during the market stress event in March 2020.
The guidance addresses questions raised through this staff outreach and monitoring. It also reflects the importance of our staff observing how rules work in practice and providing guidance where appropriate based on these observations.
These amendments will provide more public information for investors and the Commission. As Adam Smith said, this information will better protect investors and protect the public good.
I'd like to thank members of the SEC staff for their work on this adopting release, including:
[1] Specifically, the amendments to Form N-PORT would apply to all investment companies required to file reports on the form, i.e. registered management investment companies (except for money market funds and small business investment companies) and exchange-traded funds that are organized as unit investment trusts.
[2]See Chair Gensler, "Adam Smith, the SEC, Data, and the Public Good" (May 2024), available athttps://www.sec.gov/newsroom/speeches-statements/gensler-remarks-11th-annual-conference-financial-market-regulation-0509240
[3]See Securities and Exchange Commission, "SEC Adopts Enhanced Mutual Fund Expense and Portfolio Disclosure; Proposes Improved Disclosure of Board Approval of Investment Advisory Contracts and Prohibition on the Use of Brokerage Commissions to Finance Distribution," (February 2004), available athttps://www.sec.gov/news/press/2004-16.htm#:~:text=The%20amendments%20will%20require%20a%20registered%20management%20investment,Electronic%20Data%20Gathering%2C%20Analysis%2C%20and%20Retrieval%20System%20%28EDGAR%29.