Rules requiring more frequent and detailed fund reporting requirements will “significantly expand” the disclosure of securities lending and repo activity for certain US investment funds, according to law firm Ropes & Gray.

In a note to clients, legal experts at the company spelt out the changes adopted by the primary regulator of the investment management industry, the SEC, earlier this month on registered investment companies (RICs).

RICs can be any one of several investment entities, for example, a mutual fund or exchange-traded fund (ETF), a real estate investment trust (REIT) or unit investment trust (UIT). 

All RICs with assets over $1bn, except money market funds, will have to file a new form, known as Form N-PORT, monthly from June 2018. 

Money market funds already file their monthly portfolio investments with the SEC.

N-PORT replaces a quarterly Form N-Q and captures information such as portfolio holdings and prices, leverage statistics, and counterparty risk metrics. 

Smaller groups of related investment companies have until June 2019.

“Form N-PORT expands significantly disclosure about certain investment activities, including repurchase agreements, reverse repurchase agreements and securities lending,” experts at Ropes & Gray wrote in their report.

For repo and reverse repo agreements, N-PORT requires a fund to report the identity of the counterparty (or central counterparty), the terms of each transaction, and the category of investments that most closely represents the collateral.

For securities lending, a fund will have to report the identity of each securities borrower, the aggregate value of all securities on loan to each borrower, and the aggregate principal amount and aggregate value of each type of non-cash collateral received for loaned securities.

The funds will also be required to provide enhanced, standardised disclosure of each derivative contract, including, among other things, the category of derivative instrument that most closely represents the investment (e.g., forward, future, option, etc.). 

The changes advance components of the SEC’s regulatory agenda on improving data reporting requirements to address risks at the fund level and within the asset management industry.

There also securities lending-specific amendments to regulation S-X, which lays out the specific format and content of annual financial reports to shareholders.

These changes, due to take effect in August 2017, require an open end fund to provide information on income and expenses in its statement of additional information.

The disclosure includes gross and net income to the fund from its securities lending activities, fees paid to a securities lending agent from a revenue split and and rebates paid to securities borrowers.

Earlier this year, Nathan McConarty, assistant vice president, investor services at BBH said though the industry appreciates the need for certain aspects of the proposed rule, taking it all in is daunting. 

"The most difficult part of compliance will be the development of appropriate technology, processes, and procedures," he wrote in an online blog.

"One of the key challenges for managers will be identifying the correct sources of information, and discovering how to extract it each month. Managers should begin working now to locate gaps in fund data, and work with providers to facilitate ready and accurate access.

"The increased data reporting called for by the new rules is also accompanied by several concessions, notably the electronic distribution of financial statements. 

"Under the terms of the proposal, instead of mailing quarterly statements to shareholders, managers would be allowed to mail a notice directing shareholders to a website to find the information."