Form N-PORT Supporting Statement (Derivatives Adoption 2020)

Form N-PORT Supporting Statement (Derivatives Adoption 2020).pdf

Rule 30b1-9 and Form N-PORT

OMB: 3235-0730

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OMB CONTROL NUMBER: 3235-0730
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 30b1-9 and Form N-PORT
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….” Final rule 30b1-9 under the Act (17 CFR 270.30b1-9), entitled
“Monthly Report,” provides that each registered management investment company or exchangetraded fund organized as a unit investment trust, or series thereof, other than a registered open-end
management investment company that is regulated as a money market fund under rule 2a-7 (17

CFR 270.2a-7) or a small business investment company registered on Form N-5 (17 CFR 239.24
and 274.5), must file a monthly report of portfolio holdings on Form N-PORT (17 CFR 274.150},
current as of the last business day, or last calendar day, of the month.

On October 28, 2020, the Commission adopted rule 18f-4 under the Act to provide an
updated, comprehensive approach to the regulation of funds’ use of derivatives. 1 The new rule
applies to mutual funds (other than money market funds), exchange-traded funds, registered
closed-end funds, and companies that have elected to be treated as business development

1

See Use of Derivatives by Registered Investment Companies and Business Development Companies,
Investment Company Act Release No. 34084 (Nov. 2, 2020) (“Derivatives Adopting Release”); see also
Use of Derivatives by Registered Investment Companies and Business Development Companies; Required
Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’
Transactions in Certain Leveraged/Inverse Investment Vehicles, Investment Company Act Release No.
33704 (Nov. 25, 2019) (“Derivatives Proposing Release”).

1

companies under the Act (collectively, “funds”). 2 It will permit these funds to enter into
derivatives transactions and certain other transactions, notwithstanding the restrictions under
sections 18 and 61 of the Act, provided that the funds comply with the conditions of the rule.
Funds that are not “limited derivatives users” or that are “leveraged/inverse funds” under the
rule and meet other conditions, as the rule describes will be required to comply with an outer
limit on fund leverage risk based on value at risk (“VaR”). The outer limit is based on a relative
VaR test that compares the fund’s VaR to the VaR of a designated reference portfolio for that
fund. If the fund’s derivatives risk manager reasonably determines that a designated reference
portfolio would not provide an appropriate reference portfolio for purposes of the relative VaR
test, the fund will be required to comply with an absolute VaR test. Rule 18f-4 will also require a
fund to apply the relative VaR or absolute VaR test at least once each business day.
In addition to adopting new rule 18f-4, the Commission amended Form N- PORT to add
new items to Part B (“Information About the Fund”) and to make certain amendments to the
form’s General Instructions. Form N-PORT, as amended, will require funds that are limited
derivatives users to provide information about their derivatives exposure and exceedances of
their derivatives exposure over 10% of their net assets as of the end of the reporting period.
Funds that are subject to the limit on fund leverage risk will have to report on Form N-PORT
certain information about their median daily VaR for the monthly reporting period. Funds
subject to the relative VaR test during the reporting period will also report the name of the
fund’s designated index or a statement that the fund’s designated reference portfolio is its
securities portfolio, and as applicable, the index identifier. These funds also will have to report
the fund’s highest median VaR ratio during the reporting period, reported as a percentage of the
2

Rule 18-f4 includes a provision that will permit funds, as well as money market funds, to invest in
securities on a when-issued or forward-settling basis, or with a non-standard settlement cycle, subject to
conditions (i.e., when-issued U.S. Treasury securities).

2

VaR of the fund’s designated reference portfolio. A fund that is subject to the limit on fund
leverage risk also will have to report the number of exceptions identified during the reporting
period arising from backtesting the fund’s VaR calculation model.
Information about a limited derivatives user’s derivatives exposure, as well as a fund’s
median daily VaR, median VaR ratio and VaR backtesting exceptions, will be confidentially
reported to allow the Commission to oversee funds’ use of derivatives and compliance with rule
18f-4, and not publicly disclosed. The information about the fund’s designated reference
portfolio will be made publicly available for the third month of each fund’s quarter.
2.

Purpose and Use of the Information Collection

The title for the collection of information is: Rule 30b1-9 and Form N-PORT. The
information provided in reports on Form N-PORT will be used by the Commission in its
regulatory, disclosure review, inspection, and policymaking roles. Unlike many other federal
information collections, which are primarily for the use and benefit of the collecting agency, this
information collection will also be for the use and benefit of investors. The Commission
generally will make information reported for the third month of each fund’s fiscal quarter on
Form N-PORT publicly available, unless otherwise specified.
3.

Consideration Given to Information Technology

The Commission’s EDGAR electronic filing system is designed to automate the filing,
processing and dissemination of full disclosure filings. The system permits filers to transmit
filings to the Commission electronically. This automation has increased the speed, accuracy and
availability of information, generating benefits to investors and financial markets. Reports on
Form N-PORT are filed with the Commission electronically on EDGAR. The public may access
filings on EDGAR through the Commission’s Internet Web site (http://www.sec.gov) or at

3

EDGAR terminals located at the Commission’s public reference rooms.
4.

Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it proposes a rule or a change in a
rule. The information collection required by the amendments to Form N-PORT is not duplicated
elsewhere.
5.

Effect on Small Entities

The information collection required by the amendments to Form N- PORT will not
distinguish between small entities and other funds in terms of what information will be required
to be reported. The Commission believes that believe that the form amendments are necessary to
help identify and provide the Commission timely information about funds that comply with rule
18f-4, and that imposing different reporting requirements on smaller funds could compromise
the effectiveness of the reporting requirements and would not be consistent with the goals of
industry oversight and investor protection. Differing reporting requirements would not provide
comparable information about derivatives use by small entities and other funds that could be
used by the Commission to identify trends and outliers as part of its monitoring and oversight of
the fund industry.
The Commission reviews all rules periodically, as required by the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.), to identify methods to minimize recordkeeping or reporting
requirements affecting small entities.
6.

Consequences of Not Conducting Collection

Funds will be required to file reports on Form N-PORT with the Commission no later
than 30 days after the end of each month. Less frequent collection would mean that current
information will not be available to the Commission.
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7.

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

Rule 30b1-9 requires funds to submit reports on Form N-PORT for each month in the
fund’s fiscal quarter not later than 60 days after the end of that fiscal quarter. The collections of
information required by the amendments to Form N-PORT, which require monthly portfolio
investment information, also are required to be filed with the Commission on a quarterly basis.
Given the rapidly changing composition of fund portfolios, including funds’ use of derivatives,
monthly portfolio information filed on a quarterly basis is necessary to ensure that the
Commission receives timely and accurate derivatives exposure and VaR-related information.
8.

Consultation Outside the Agency

Before adopting the amendments to Form N-PORT, the Commission solicited and
evaluated public comments on the proposal, including its collection of information requirements.
The public was given the opportunity to comment on the Commission’s estimated burdens for
Form N-PORT, which were described in the proposing release. One commenter broadly opposed
any new Form N-PORT reporting requirements on the grounds that they generally increase
burdens on funds, but did not comment on PRA related burdens specifically. Otherwise, the
Commission did not receive comments specifically addressing the estimated burdens associated
with the proposed Form N-PORT reporting requirements. In addition, the Commission and 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 industry.
9.

Payment or Gift

Not applicable.

5

10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, is required under
this collection of information. The information collection required by the amendments to Form
N-PORT will not collect Personally Identifiable Information (PII), such as names, job titles and
work addresses. The agency has determined that a system of records notice (SORN) and privacy
impact assessment (PIA) are not required in connection with the collection of information that
will be required by the amendments to Form N-PORT.
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act (“PRA”) (44 U.S.C. 3501 et seq.) and are not derived from a
comprehensive or even representative survey or study of the cost of the Commission rules and
forms.
Preparing reports on Form N-PORT is mandatory for all management investment
companies (other than money market funds and small business investment companies) and UITs
that operate as ETFs, 3 and is a collection of information under the PRA. The information
required by Form N-PORT must be data-tagged in XML format. Responses to the reporting
requirements will be kept confidential, subject to the provisions of applicable law, for reports
filed with respect to the first two months of each quarter; the third month of the quarter will not
be kept confidential, but made public 60 days after the quarter end, unless otherwise stated in the
form. Form N-PORT is designed to assist the Commission its regulatory, disclosure review,
3

Because section 18 of the Investment Company Act applies only to open-end or closed-end companies (i.e.,
management investment companies), rule 18f-4 will not apply to unit investment trusts (“UITs”), including
ETFs that are UITs, because they are not management investment companies.

6

inspection, and policymaking roles, and to help investors and other market participants better
assess different fund products.
Form N-PORT, as amended, will require funds that are limited derivatives users to report
information about derivatives exposure, including the number of business days that a fund’s
derivatives exposure exceeds 10% of its net assets during the reporting period. We estimate that
2,437 funds will be subject to this exposure-related disclosure requirement. 4 In addition, funds
that are subject to rule 18f-4’s limit on fund leverage risk will have to report the fund’s median
daily VaR for the reporting period, reported as a percentage of the fund’s net asset value. Funds
subject to the relative VaR test during the reporting period also will report: (1) the name of the
fund’s designated index or a statement that the fund’s designated reference portfolio is its
securities portfolio; (2) the index identifier, as applicable; and (3) the fund’s median VaR ratio
for the reporting period. Finally, all funds that are subject to the limit on fund leverage risk also
will have to report the number of exceptions that the fund identified as a result of backtesting its
VaR calculation model during the reporting period. We estimate that 2,696 funds will be subject
to these VaR-related reporting requirements.4
Table 1 below summarizes our initial and ongoing annual PRA burden estimates
associated with the proposed and final amendments to Form N-PORT. We have adjusted the
proposed estimated annual burden hours and total time costs to account for certain modifications
to the proposed Form N-PORT requirements that we are adopting. 5

4

See Derivatives Adopting Release, supra note 1, at nn.1036-1037 and accompanying paragraph.

5

The final amendments to Form N-PORT incorporate several modifications from the proposal: (1) the
proposed requirements would have required all funds, not just limited derivatives users, to report
derivatives exposure information; (2) the proposed requirements did not include the requirement for funds
that are limited derivatives users to report exceedances of their derivatives exposure over the 10%
threshold; and (3) the final VaR reporting requirements decrease the number of reported items that the
proposal would have required.

7

Table 1: Form N-PORT PRA Estimates
Internal initial
burden hours

Internal annual
burden hours

Wage rate1

Internal time
costs

Initial external
cost burden

Annual external
cost burden

$5,590

$4,210

PROPOSED ESTIMATES
Report derivatives exposure
information

2 hours
2 hours

4.33

hours2, 3

4.33 hours

×

$365 (compliance attorney)

$1,580

×

$331 (senior programmer)

$1,433

Total new burden for derivatives
exposure information

8.66 hours

$3,013

Number of funds for derivatives
exposure information

× 5,091

× 5,091

Total new annual burden for
derivatives exposure information (I)

44,088 hours

$15,339,183

Report VaR-related information

2 hours

4.33 hours

×

$365 (compliance attorney)

$1,580

2 hours

4.33 hours

×

$331 (senior programmer)

$1,433

Total new burden for VaR-related
information

8.66 hours

$3,013

Number of funds for VaR-related
information

× 2,424

× 2,424

Total new annual burden for VaRrelated information (II)

20,992 hours

$7,303,512

Total new annual burden (I + II)

65,080 hours

$22,642,695

Current burden estimates

1,803,826 hours

Revised burden estimates

1,868,906 hours

$21,433,1104
$103,776,240
$125,209,350

FINAL ESTIMATES
Report derivatives exposure
information for limited derivative
users

Total new burden for derivatives
exposure information for limited
derivatives users

2 hours

4.33 hours2

×

$368 (compliance attorney)

2 hours

4.33 hours

×

$334 (senior programmer)

$1,593

$1,446

8.66 hours

$3,039

× 2,437

× 2,437

Number of funds

10

$9125

× 2,437

Total new annual burden for limited
derivatives user derivatives exposure
information (I)
Report exceedance of 10%
derivatives exposure threshold for
limited derivatives users

21,104 hours

$7,406,043

0 hours

0.01 hours

×

$368 (compliance attorney)

$3.68

0 hours

0.01 hours

×

$334 (senior programmer)

$3.34

Total new burden for exceedancerelated information

0.02 hours

$7.02

Number of funds

× 2,437

× 2,437

Total new annual burden for limited
derivatives users exceedance-related
information (II)

48.74 hours

$ 17,108

Report VaR-related information

2 hours

4.33 hours

×

$368 (compliance attorney)

$1,593

2 hours

4.33 hours

×

$334 (senior programmer)

$1,446

$2,222,5446

$9125

Total new burden for VaR-related
information

8.66 hours

$3,039

Number of funds

× 2,696

× 2,696

× 2,696

Total new annual burden for VaRrelated information (III)

23,347 hours

$8,193,144

$2,458,752

Total new annual burden (I + II + III)

44,500 hours

$15,616,295

Current burden estimates

1,803,826 hours

$103,776,240

Revised burden estimates

1,848,326 hours

$108,457,536

10

$4,681,296

Notes to Table 1:
1. Estimates of the relevant wage rates for internal time costs in the table above
are based on salary information for the securities industry compiled by and
reported in the Securities Industry and Financial Markets Association’s Report on
Management & Professional Earnings in the Securities Industry 2013 (“SIFMA
Report”), and modified by Commission staff to account for an 1,800-hour work-year
and multiplied by 5.35 to account for bonuses, firm size, employee benefits,
overhead, and adjusted to account for the effects of inflation. The final internal
wage figures are slightly higher than the proposed estimates due to inflation.
Estimates of the relevant wage rates for external time costs, such as outside legal
services, take into account staff experience, information from a variety of sources
including general information websites, and adjustments for inflation.
These PRA estimates assume that the same types of professionals will be involved
in the reporting requirements that we believe otherwise will be involved in preparing
and filing reports on Form N-PORT.
2. Includes initial burden estimates annualized over a three-year period.
3. This estimate assumes that, annually after the initial 2 hours to comply with the
new N-PORT requirements, a compliance attorney and a senior programmer will
each incur 1 burden hour per filing associated with the new reporting requirements.
The estimate of 4.33 hours is based on the following calculation: ((2 hours for the
first filing x 1 = 2) + (3 additional filings in year 1 x 1 hour for each of the additional
3 filings in year 1 = 3) + (4 filings in years 2 and 3 x 1 hour per filing x 2 years) = 8)
/ 3 = 4.33.
4. This estimate is based on the following calculation: $4,210 (average costs for
funds reporting the information on Form N-PORT) * 5,091 funds (which includes
funds reporting derivative exposure information and VaR-related information).
5. This estimate is based on the following information and calculations: (35% x
$4,805 (the average cost to license a third-party software solution per year) =
$1,681.75) + (65% x $11,440 (the average cost of retaining the services of a thirdparty vendor to prepare and file reports on Form N-PORT on the fund’s behalf) =
$7,436) = basis for existing external N-PORT filing costs. We estimate that the new
N-PORT requirements will add an additional 10% costs (e.g., ($1,681.75 + $7,436
= $9,117.75) x 10% = $912 per fund).
6. This estimate of the external annual cost burden of Form N-PORT reporting for
limited derivatives users encompasses any external costs burdens associated with
reporting derivatives exposure and any reporting related to exceedances of the 10%
derivatives exposure threshold on the Form N-PORT.

10

13.

Cost to Respondents

Annual external cost burden is the cost of goods and services purchased to prepare and
update filings on Form N-PORT. It does not include the internal hour burden or corresponding
internal time costs reflected in Table 1. Based on current PRA estimates, we estimate that funds
prepare and file their reports on Form N-PORT either by (1) licensing a software solution and
preparing and filing the reports in house, or (2) retaining a service provider to provide data
aggregation, validation and/or filing services as part of the preparation and filing of reports on
behalf of the fund. We estimate that 35% of funds subject to the proposed N-PORT filing
requirements will license a software solution and file reports on Form N-PORT in house, and the
remainder will retain a service provider to file reports on behalf of the fund. The last two
columns in Table 1 above summarize our initial and ongoing annual PRA cost estimates
associated with the proposed and final amendments to Form N-PORT.
14.

Cost to the Federal Government

The annual cost of reviewing and processing new registration statements, post-effective
amendments, proxy statements, and shareholder reports of investment companies amounted to
approximately $22.1 million in fiscal year 2019, based on the Commission’s computation of the
value of staff time devoted to this activity and related overhead.
15.

Change in Burden

The total annual internal hour burden of 1,848,326 hours represents an increase of 44,500
hours over the previous internal hour burden estimate of 1,803,826 hours. In addition, the total
annual external cost burden of $108,457,536 represents an increase of $4,681,296 over the
previous external cost burden estimate of $103,776,240. The changes in burden hours and
external cost burdens are due to the staff’s estimates of the time costs and external costs that will
result from the final amendments to Form N-PORT.

16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to not display the expiration date for OMB
approval.
18.

Exceptions to Certification Statement for Paperwork Reduction Act
Submission

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.


File Typeapplication/pdf
File TitleOMB CONTROL NUMBER: 3235-0730
AuthorMukerjee, Sirimal
File Modified2021-01-26
File Created2021-01-26

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