The SEC has postponed for nine months a requirement that large registered investment companies begin filing information about their monthly portfolio holdings in order to provide more time for an upgrade to the EDGAR system. Given the sensitive nature of the information, and Chairman Jay Clayton’s directive to improve the SEC’s cybersecurity systems and controls, the SEC adopted a temporary final rule to modify the Form N-PORT filing requirements. The larger fund groups must now submit their reports on EDGAR by April 30, 2019, and smaller fund groups will retain the one year delay in their start date and submit their reports by April 2020. The SEC announced the delay in a news release which accompanied the temporary final rule (Release No. 33-10442, December 8, 2017).
Temporary final rule. Under the temporary final rule, the larger funds are required to maintain the Form N-PORT information in their records and make them available to the SEC upon request. Forms N-PORT contain information about a fund’s complete portfolio holdings and additional information to assist the SEC with its risk analysis and oversight. Once effective, the reports must be filed in extensible markup language no later than 30 days after the close of each month. The reports for every third month of each fiscal quarter will not be made public until 60 days after the end of the quarter.
Nonpublic information. Certain information contained in the form will be kept nonpublic to prevent predatory trading practices. The SEC determined when it adopted the form not to make public the information reported for the first and second months of each fiscal quarter that is identifiable to any particular fund or adviser; any information reported about the country of risk and economic exposure; or any explanatory notes related to topics that would be identifiable to any fund or adviser.
EDGAR intrusion. In 2016, the SEC discovered that a software vulnerability in the test filing component of the EDGAR system allowed an intrusion and access to nonpublic information. The SEC learned in 2017 that the incident may have allowed the hacker to make an illicit gain through trading. Clayton issued a statement in which he noted that the SEC collects certain types of sensitive data that is necessary to fulfill its mission and he pledged to regularly assess whether the regulatory protections were appropriate in light of the risks of unauthorized access. He directed the staff to focus first on strengthening EDGAR’s cybersecurity risk profile given the substantial amounts of data, including sensitive nonpublic data, stored on the system.
The improvements to EDGAR could affect its ability to validate and accept Form N-PORT filings in a timely manner, particularly during peak periods, according to the temporary final rule, which is what prompted the nine month delay.
Form N-Q. The SEC also delayed the rescission of Form N-Q and delayed the effectiveness of certain amendments to other rules and forms. Funds will continue to file reports on Form N-Q until they begin filing on N-PORT via EDGAR so that investors and other users will continue to receive the same information they currently receive about portfolio holdings.
Form N-CEN. Form N-CEN is not affected under the temporary final rule. That form does not have the same volume and content as Form N-PORT and its contents are fully public, according to the release.
The SEC adopted the temporary final rule without soliciting public comment so that it could grant immediate certainty to funds that are currently organizing their systems and procedures to comply with Form N-PORT.
The release is No. 33-10442.
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