SEC Increases Transparency in Mutual and Exchange-Traded Funds

By Douglas Gillison

WASHINGTON (Reuters) – Wall Street’s top regulator moved on Wednesday to increase transparency for regulators and investors in mutual and exchange-traded funds by requiring them to report portfolio holdings on a monthly basis rather than four times a year.

However, in a retreat from earlier plans, the U.S. Securities and Exchange Commission (SEC) did not consider more substantial proposed “swing-pricing” regulations that have faced stiff industry opposition. The SEC instead offered guidance on complying with related rules already in force.

In a public meeting, the five-person commission voted 3-2 to approve the measures along party lines, with Republican members contending that the changes’ costs to market players would outweigh the benefits to regulators and investors.

SEC Chair Gary Gensler stated that more frequent reporting would assist investors in monitoring their holdings, identifying overlapping investments, and providing the SEC with greater visibility to identify trends and respond during market stress.

“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,” he remarked in prepared statements.

Under current rules, registered investment management companies must file quarterly reports on portfolio holdings with the SEC 60 days after the end of each quarter. However, investors only gain access to data covering the third month of the quarter.

With the approved rule amendments, these funds will need to file monthly reports within 30 days of each month’s end, with each report becoming public after a subsequent 30 days.

Republican Commissioner Hester Peirce noted that not enough public comment had been allowed, potentially obscuring the inconveniences of the changes.

“The amendments will yield benefits but they’re limited,” she stated, highlighting that the SEC would still need to wait 30 days for information during market events.

The Investment Company Institute (ICI), a trade group, expressed concern that increased transparency could expose funds to predatory trading, including copying rivals’ portfolio decisions.

In a statement, ICI president Eric Pan questioned more frequent filing, citing the volume of information required and the SEC’s history of data-security breaches.

If adopted, the regulations are set to take effect in November next year, or May of 2026 for funds with net assets of $1 billion or less.

The SEC also issued guidance on complying with existing regulations that govern liquidity risk management in open-end funds. Investors in these funds can redeem their shares daily.

An earlier swing-pricing proposal aimed to help open-end funds withstand market stresses, like those during the pandemic, by shifting the costs of hasty redemptions onto those who cash out instead of those remaining in the fund. The agency disclosed last month that it expects to re-draft the proposal.

Prior to the vote, SEC officials informed reporters that the guidance issued on Wednesday addresses questions regarding the frequency with which open-end funds classify their assets’ liquidity, meaning how readily they can be sold for cash, and reviewing required minimums for highly liquid investments.