SEC Investment Management Director David Grim Outlines Rulemaking Initiatives

SEC Division of Investment Management ("IM") Director David Grim summarized the SEC's 2015 rulemaking initiatives in derivatives, liquidity management, and registered funds reporting, and the SEC's 2016 rulemaking agenda on transition planning and stress testing. At the Investment Company Institute 2015 Securities Law Development Conference, Director Grim urged securities regulators not to "rest on [their] laurels" during the upcoming year.

Director Grim highlighted the following SEC 2015 initiatives:

• Enhancing Derivatives Regulation. SEC staff has been evaluating whether the current regulatory framework, as applied to funds' use of derivatives, is appropriate. One example is the SEC-proposed new exemptive rule 18f-4, which addresses the "investor protection purposes and concerns" underlying Investment Company Act Section 18, and also provides an updated approach to the regulation of funds' use of derivative transactions.
• Liquidity Management. In order to enhance funds' management of liquidity, the SEC unanimously approved proposed rules that are designed to enhance the liquidity risk management of open-end funds, and that require such funds to implement liquidity risk management programs and enhance disclosure regarding fund liquidity and redemption practices.
• Modernizing and Enhancing Information Reported by Registered Investment Companies and Investment Advisers. The SEC approved proposed rules that establish a new monthly portfolio reporting form, which would require: (i) registered funds, other than money market funds, to provide portfolio-wide and position-level holdings data to the SEC on a monthly basis; and (ii) registered funds to report certain "census-type information" to the SEC annually.

Mr. Grim outlined the following rulemaking initiatives for 2016:

• Transition Planning. The Division of Investment Management is considering whether to recommend a requirement to the SEC that registered investment advisers create and maintain transition plans in the event of a major disruption in their business.
• Stress Testing. SEC rulemaking that is under consideration includes the following: (i) new requirements for stress testing by large investment advisers and investment companies; (ii) a uniform fiduciary standard of conduct for broker-dealers and investment advisers who provide personalized investment advice about securities to retail customers; and (iii) a new requirement for registered investment advisers that would establish a program of third-party compliance reviews.

In addition, Mr. Grim noted specific areas on which the SEC intends to focus moving forward, including the analysis of "relevant data" through the IM's Risk and Examinations Office and further examinations of emerging risks.