Form N-LIQUID Supporting Statement (2017)

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 30b1-10 and Form N-LIQUID
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 30(b) of the Investment Company Act of 1940 [15 U.S.C. 80a-30(b)] (“Act”)
provides that “[e]very registered investment company shall file with the Commission…such
information, documents, and reports (other than financial statements), as the Commission may
require, to keep reasonably current the information and documents contained in the registration
statement of such company…” Rule 30b1-10 under the Act [17 CFR 270.30b1-10], entitled
“Current report for open-end management investment companies,” provides that every registered
open-end management investment company, or series thereof but not a fund that is regulated as a
money market fund under § 270.2a-7, that experiences any event specified on Form N-LIQUID,

must file with the Commission a current report on Form N-LIQUID within the period specified
in that form. Similar to Form 8-K under the Securities Exchange Act of 1934 [17 CFR 249.308]
or Form N-CR under the Investment Company Act [17 CFR 270.30b1-8] for money market
funds, Form N-LIQUID requires disclosure, by means of a current report filed with the
Commission, of certain specific reportable events.
On October 13, 2016, the Commission adopted a new form N-LIQUID under the Act. 1
Rule 30b1-10 and Form N-LIQUID require open-end investment companies, including
exchange-traded funds that redeem in kind (“In-Kind ETFs”) but not including money market
funds, to file a current report on Form N-LIQUID on a non-public basis when certain events

1

Investment Company Act Release No. 33-10233 (Oct. 13, 2016) (the “Adopting Release”).

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related to their liquidity occur. The information reported on Form N-LIQUID concerns events
under which more than 15% of a fund’s or In-Kind ETF’s net assets are, or become, illiquid
investments that are assets as defined in rule 22e-4 and when holdings in illiquid investments are
assets that previously exceeded 15% of a fund’s net assets have changed to be less than or equal
to 15% of the fund’s net assets. 2 The information reported on Form N-LIQUID also regards
events under which a fund’s holdings in assets that are highly liquid investments fall below the
fund’s highly liquid investment minimum for more than 7 consecutive calendar days. A report
on Form N-LIQUID is required to be filed, as applicable, within one business day of the
occurrence of one or more of these events. 3 Compliance with rule 30b1-10 will be mandatory
for all funds other than money market funds. Responses to the disclosure requirements will be
kept confidential.
2.

Purpose and Use of the Information Collection

Certain provisions of the amended rule and form contain “collection of information”
requirements within the meaning of the Paperwork Reduction Act of 1995 [44 U.S.C. 3501, et
seq.], and the Commission is submitting the collection of information to the Office of
Management and Budget (“OMB”) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR
1320.11. The information collection requirements for amended rule 30b1-10 and Form NLIQUID are designed to enable the Commission to receive information on fund liquidity events
more uniformly and efficiently, and will enhance the Commission’s oversight of funds when
significant liquidity events occur and its ability to respond to market events. The Commission

2

See Item C.1 and Item C.2 of Part A of Form N-LIQUID.

3

See General Instruction A.2 of Form N-LIQUID.

2

will be able to use the information provided on Form N-LIQUID in its regulatory, disclosure
review, inspection, and policymaking roles.
3.

Consideration Given to Information Technology

The Commission's Electronic Data Gathering, Analysis and Retrieval System
(“EDGAR”) is designed to automate the filing, processing and dissemination of full disclosure
filings. The system permits publicly-held companies to transmit their filings to the Commission
electronically. EDGAR has increased the speed, accuracy and availability of information,
generating benefits to investors and financial markets. All funds have been required to use
EDGAR for their disclosure filings since November 6, 1995. Form N-LIQUID is required to be
filed with the Commission electronically on EDGAR.
4.

Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it adopts changes in its rules. The
requirements of Form N-LIQUID are not generally duplicated elsewhere.
5.

Effect on Small Entities

The information collection requirements of amended rule 30b1-10 and Form N-LIQUID
do not distinguish between small entities and other funds. The burden of the conditions on
smaller funds may be proportionally greater than for larger funds. The Commission believes,
however, that imposing different requirements on smaller investment companies would not be
consistent with investor protection and the purposes of the rule’s conditions and could potentially
jeopardize the interests of investors in small funds. The Commission reviews all rules
periodically, as required by the Regulatory Flexibility Act, to identify methods to minimize
recordkeeping or reporting requirements affecting small businesses.
6.

Consequences of Not Conducting Collection
3

Rule 30b1-10 and Form N-LIQUID set forth the disclosure requirements for current
reports filed by funds to enable the Commission to receive information on fund liquidity events
more uniformly and efficiently and will enhance the Commission’s oversight of funds when
significant liquidity events occur and its ability to respond to market events. Less frequent
collection would mean that timely disclosure of information regarding significant liquidity
events would not be available to the Commission.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Under applicable federal regulations, OMB generally will not approve a collection of
information that includes a pledge of confidentiality unless the pledge is “supported by
disclosure and data security policies that are consistent with the pledge....” 4 In addition, if an
agency proposes to collect confidential information, it must be able to “demonstrate that it has
instituted procedures to protect the information’s confidentiality to the extent permitted by law.” 5
Form N-LIQUID elicits non-public information about circumstances when a fund
breaches the 15% illiquid investment limit, returns to compliance with the 15% illiquid
investment limit, or breaches its highly liquid investment minimum for longer than 7 consecutive
calendar days. When these events occur, reporting to the Commission is necessary to provide
the Commission with timely information that may prompt the Commission to inquire further into
the circumstances that gave rise to the requirement to file Form N–LIQUID. The Commission
finds that it is neither necessary nor appropriate in the public interest or for the protection of investors

4

5 CFR 1320.5(d)(2)(vii).

5

5 CFR 1320.5(d)(2)(viii).

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to make the information filed on Form N-LIQUID publicly available and, therefore, does not intend

to make public Form N-LIQUID. 6
In addition, the Commission recognizes the importance of sound data security practices
and protocols for non-public information, including information that may be competitively
sensitive. The Commission has substantial experience with storage and use of non-public
information reported on Form PF and delayed public disclosure of information on Form N-MFP
(although the Commission no longer delays public disclosure of reports on Form N-MFP), as
well as other non-public information that the Commission handles in its ordinary course of
business. Commission staff is carefully evaluating the data security protocols that will apply to
non-public data reported on Form N-LIQUID in light of the specific recommendations and
concerns raised by commenters. Drawing on its experience, the staff is working to design
controls and systems for the use and handling of Form N-LIQUID data in a manner that reflects
the sensitivity of the data and is consistent with the maintenance of its confidentiality. In
advance of the compliance date, we expect that the staff will have reviewed the controls and
systems in place for the use and handling of non-public information reported on Form NLIQUID.
8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company industry through public
conferences, meetings and informal exchanges. These various forums provide the Commission
and the staff with a means of ascertaining and acting upon paperwork burdens confronting the

6

See section 45(a) of the Investment Company Act, which requires information in investment company
forms to be made available to the public, unless we find that public disclosure is neither necessary nor
appropriate in the public interest or for the protection of investors.

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industry. The Commission requested public comment on the collection requirements in rule
30b1-10 and Form N-LIQUID before it submitted this request for revision and approval to the
Office of Management and Budget. The Commission received no comments in response to its
request. 7
9.

Payment or Gift

Not applicable.
10.

Confidentiality

See section A.7 of this supporting statement.
11.

Sensitive Questions

The form does not request Social Security Numbers. A System of Records Notice has
been published in the Federal Register and can also be found at
http://www.sec.gov/about/privacy/sorn/secsorn6.pdf.
No information of a sensitive nature, including social security numbers, will be required
under this collection of information.
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act and are not derived from a comprehensive or even
representative survey or study of the cost of Commission rules and forms. Compliance with rule
with rule 30b1-10 and Form N-LIQUID would be mandatory. The staff estimates that the

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In the Proposing Release, the Commission proposed that the contents of Form N-LIQUID be reported on
Form N-PORT. The Commission made the decision to require funds to separately report liquidity events
on Form N-LIQUID in response to commenters who supported this early notification process to the
Commission, but expressed their concerns regarding allowing a fund to wait until its Form N-PORT filing
deadline to notify the Commission of liquidity events.

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Commission will receive, in the aggregate, an average of 30 reports 8 per year filed in response to
an event specified on Part B (“Above 15% Illiquid Investments”), an average of 30 reports 9 per
year filed in response to an event specified on Part C (“At or Below 15% Illiquid Investments”),
and an average of 30 reports 10 per year filed in response to an event specified on Part D (“Highly
Liquid Investments Below the Highly Liquid Investment Minimum”) of the form.
When filing a report on Form N-LIQUID, 11 staff estimates that a fund will spend on
average approximately 4 hours 12 of an in-house attorney’s time and one 13 hour of an in-house
accountant’s time to prepare, review, and submit Form N-LIQUID, at a total time cost of
$1,745. 14 Accordingly, in the aggregate, staff estimates that compliance with new rule 30b1-10
and Form N-LIQUID will result in a total annual burden of approximately 450 burden hours and
total annual time costs of approximately $157,050. 15 Given an estimated 10,633 funds will be

8

Commission staff estimates this figure based, in part, by reference to the total of 28 Form N-CR filings
received by the Commission from mid-July 2015 to mid-July 2016. We recognize that the circumstances
under which money market funds report events on Form N-CR are not the same as the liquidity events
reported on Form N-LIQUID and that reported occurrences may be less than or more than 30. We believe,
however, that Form N-CR provides a helpful guidepost for estimation purposes and believe an estimation
of 30 reports is appropriate for purposes of this PRA.

9

See id.

10

See id.

11

For purposes of this estimate, the staff expects that it would take approximately the same amount of time to
prepare and file a report on Form N-LIQUID, regardless under which Part of Form N-LIQUID it is filed.

12

This estimate is derived in part from our current PRA estimate for Form N-CR and Form 8-K.

13

Id.

14

This estimate is based on the following calculations: (4 hours x $386/hour for an attorney = $1,544), plus
(1 hour x $201/hour for a senior accountant = $201), for a combined total of 5 hours at total time costs of
$1,745.

15

This estimate is based on the following calculations: (30 reports filed per year with respect to Part B) + (30
reports filed per year with respect to Part C) + (30 reports filed per year with respect to Part D) = 90 reports
filed per year. 90 reports filed per year x 5 hours per report = approximately 450 total annual burden hours.
90 reports filed per year x $1,745 in costs per report = $157,050 total annual costs.

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required to comply with new rule 30b1-10 and Form N-LIQUID, 16 this would result in an annual
burden of approximately 0.04 burden hours and annual time costs of approximately $15 on a perfund basis.
13.

Cost to Respondents

Cost burden is the cost of goods and services purchased to comply with rule 30b1-10 and
Form N-LIQUID, such as licensing software solutions or for the services of external service
providers. The cost burden does not include the hour burden discussed in Item 12. Estimates are
based on the Commission’s experience with the filing of registration forms. The Commission
estimates that there will be no external costs associated with this collection of information.
14.

Cost to the Federal Government

The annual cost of reviewing and processing registration statements, post-effective
amendments, proxy statements, shareholder reports, and other filings of investment companies
amounted to approximately $19.5 million in fiscal year 2015, based on the Commission’s
computation of the value of staff time devoted to this activity and related overhead. A portion of
those costs will relate to processing and reviewing Form N-LIQUID filings submitted to the
Commission for compliance with rule 30b1-10.
15.

Change in Burden

Not applicable. This is the first request for approval of the collection of information for
this rule.
16.

Information Collection Planned for Statistical Purposes

Not applicable.

16

This estimate is based on the number of funds the staff estimates will be required to file reports on Form NPORT with the Commission. For purposes of this PRA, the staff assumes that the universe of funds
affected by rule 30b1-9 for Form N-PORT would be similar to the universe of funds affected by rule 30b110 for Form N-LIQUID.

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17.

Approval to Omit OMB Expiration Date

We request authorization to omit the expiration date on the electronic version of the form,
although the OMB control number will be displayed. Including the expiration date on the
electronic version of this form will result in increased costs, because the need to make changes to
the form may not follow the application’s scheduled version release dates.
18.

Exceptions to Certification for Paperwork Reduction Act Submission

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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