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 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 saying the changes’ costs to market players would outweigh the benefits to regulators and investors.
SEC Chair Gary Gensler said more frequent reporting would help investors monitor their holdings and identify overlapping investments while giving the SEC 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 said in prepared remarks.
Under current reporting rules, registered investment management companies are required to file quarterly reports on portfolio holdings with the commission 60 days after the close of each quarter. But investors only gain access to data that cover the third month of the quarter.
With the rule amendments approved on Wednesday, the same funds will be required to file those reports within 30 days of the end of each month, with each such report becoming public after a further 30 days.
Republican Commissioner Hester Peirce said the commission had not allowed for enough public comment which might have shown more of changes’ inconveniences.
“The amendments will yield benefits but they’re limited,” she said, adding that even under the new rules the commission would still have to wait 30 days for information during market events.
The Investment Company Institute, a trade group, said that increased transparency could expose funds to predatory trading, which can include copying rivals’ portfolio decisions.
More frequent filing was also questionable “given the volume of information required and the SEC’s history of data-security breaches,” ICI president Eric Pan said in a statement.
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 related regulations that govern how open-end funds manage liquidity risk. In such funds, investors may redeem their shares on a daily basis.
An earlier swing-pricing proposal aimed to help open-end funds better withstand market stresses, like those seen at the start of the pandemic, by shifting the costs of hasty redemptions to those who cash out rather than those who remain in the fund. The agency disclosed last month that it expects to re-draft the proposal.
In advance of the vote, SEC officials told reporters the guidance issued on Wednesday addresses questions such as how frequently open-end funds classify their assets’ liquidity, meaning how readily they can be sold for cash, and reviewing required minimums for highly liquid investments.
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