What does the SEC's Modification to N-PORT Submission Really Mean?

On Friday, December 8, 2017, the SEC issued a press release announcing a nine-month delay in the submission of the upcoming Form N-PORT regulation. However, careful inspection of the announcement indicates a delay in the submission process, not the reporting aspect. What does this mean? Firms are still obligated to go through the reporting motions, maintaining data and records on servers in the event that the SEC requests these reports. The delay itself stems from a 2016 breach of the SEC’s EDGAR system. Commission Chairman Jay Clayton has halted accepting N-PORT from filers until cyber security issues are cleaned up.

The fund world is collectively breathing a little easier as this delay is widely seen to be an opportunity for the vendor community to catch up to SEC requirements. In the past, Mutual Funds have pushed back against the labor intensiveness and frequency of these new filings, which have jumped from quarterly to monthly. In addition, Form N-PORT places great emphasis on risk and stress testing as well as a robust liquidity component. Liquidity bucketing and assignation by investment will be a tremendous undertaking for registered investment companies (RICs), especially those invested in the fixed income space.  As a result, the Investment Company Institute (ICI) has been pushing for delays on behalf of the RIC community, especially those invested in the fixed income space.

As it relates to the 2016 cyber breach, the SEC is right to tackle any lingering doubt about EDGAR security integrity ahead of the implementation of new filings. Any cyber breach can cost investors an untold amount of money as well as chip away at overall trust in markets. And despite the eventuality that most information submitted to the SEC EDGAR system becomes publicly available anyway, getting to that information quicker – even by mere fractions of a second – can impact high-frequency trading. Monthly filing requirements give potential hackers access to month-end + 30 days data (previously quarter-end + 60 days), representing a significant difference when attempting to piggyback trading strategies. The N-LIQUID aspect of N-PORT also requires funds to confidentially report breaches in mandated Liquidity levels within a day; a hack of this data would certainly provoke market panic.

While firms are still bustling in preparation for impending N-PORT, the 2016 hack has sparked a slight alteration – not to be taken as a reprieve. Keep in mind that filers are still required to maintain N-PORT data at the ready in anticipation of an SEC request despite a nine-month moratorium on submission. Reports must still be compiled, run and stored, which means that data still needs to be sourced. Will the SEC follow up? The risk of being found non-compliant is too great.

Funds can certainly take full advantage of this delay by exploring reporting solutions designed to make the new SEC filings a painless undertaking. This means securely storing data and filings, and automating the reporting process at whatever frequency is required. This also includes the straightforward integration of firm-wide risk data that may or may not have been previously identified.

At Axioma, our reporting solution leverages Axioma Risk to ensure that consistent underlying risk management data is used to produce risk measurements required by the SEC. The Axioma Reporting Solutions platform and calculation engine deliver the market’s only single software package, which clients use to automate and scale their regulatory reporting processes and produce any report to satisfy any regulator query or regulation.

Want to see Axioma Reporting Solutions in action? Contact us for a free demo.

Denis Tarpey

As part of the Reporting Solutions team, Denis works with new and existing Axioma clients to ensure they are up-to-date with the rapidly evolving regulatory environment. Denis began in the RegTech space in 2012, with the advent of the Dodd-Frank driven Form PF. Prior to Axioma, Denis was at ConceptOne, where he helped develop, implement and advise clients on the ...