Mutual fund sponsors and their service providers are reevaluating their operating models to support compliance with the SEC’s Mutual Fund Modernization reporting requirements and Liquidity Rule. This discussion explores the challenges that fund sponsors and administrators are facing, as well as insights on how they are responding to each of these emerging regulatory requirements.

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Investment Company Reporting
Modernization and
Liquidity Risk Management
Perspectives on Industry
Readiness For Regulatory Change
January 24, 2018 2:00-3:00pm EST
Sponsored by:

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Agenda
Introductions and Opening Remarks All
Investment Company Reporting Modernization (MFM)
• Rule background and modification to filing requirements
• Operating model challenges and perspective
• Data aggregation and governance concerns
• Service provider readiness
• Bruce Treff, Managing Director, Deloitte &
Touche LLP
• Karl Ehrsam, Principal, Deloitte & Touche LLP
• Lisa Shea, Senior Vice President, Northern
Trust Corporation
Liquidity Risk Management (LRM)
• Overview of the Liquidity Rule
• Industry challenges and perspective
• Compliance strategy considerations
• Summary of representative Liquidity Rule FAQ’s
• Interconnectivity between MFM and LRM rules
• Bob Zakem, Managing Director, Deloitte &
Touche LLP
Questions and Answer All

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Today’s Speakers
Bruce Treff
Managing Director
Deloitte & Touche LLP
Boston, MA
+1 617 437 3087
btreff@deloitte.com
Robert Zakem
Managing Director
Deloitte & Touche LLP
Atlanta, GA
+1 404 220 1369
rzakem@deloitte.com
Lisa Shea
Senior Vice President
Northern Trust
Corporation
Chicago, IL
+1 312 444 4214
ls70@ntrs.com
Karl Ehrsam
Principal
Deloitte & Touche LLP
Parsippany, NJ
+1 212 436 3153
kehrsam@deloitte.com

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Investment Company Reporting Modernization

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Rule background and the modification to filing requirements
SEC’s Modified Approach
 The SEC has now modified the approach for RICs to
file Form N-PORT while the agency continues the
review and uplift of the Electronic Data Gathering,
Analysis and Retrieval (“EDGAR”) and other
systems
 Filing of Form N-PORT through the EDGAR system
will begin in April 2019 for larger fund groups and
April 2020 for smaller fund groups
 Fund groups will be required to maintain Form N-
PORT information in their records and make this
information available to the SEC upon request in
lieu of filing the Form N-PORT on EDGAR
 Fund groups will be required to continue filing
Form N-Q until the fund begins filing Form N-PORT
using EDGAR
 No modifications were made to the June 1, 2018
compliance date for Form N-CEN
Impact to the Industry
Demonstrate June 1, 2018 Compliance
• Large fund complexes and their service
providers will be encouraged to implement
systems and/or modified processes by June
1, 2018 to evidence Form N-PORT
information within the fund’s records upon
SEC request
Finalize Data Sourcing and Aggregation
• The 1,000+ data elements across Form N-
PORT and N-CEN will still need to be
captured via multiple sources and validated
for accuracy, quality and timeliness
Consider Impact To Implementation Planning
• Plans may need to be re-evaluated to
consider the need to evidence Form N-
PORT information by June 2018, and
implement solutions to submit Form N-
CEN by June 2018 and submit Form N-
PORT via EDGAR by April 2019
Background
On October 13, 2016, the US Securities and Exchange Commission1 (SEC) finalized new Forms N-PORT and N-CEN that
require certain Registered Investment Companies (RICs) to report and disclose additional information such as a fund’s
derivatives holdings, liquidity position, and census-type information in a more compressed timeline
1https://www.sec.gov/news/pressrelease/2016-215.html

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Operating model challenges and perspectives
Challenges Industry Perspective
Finalizing Operating
Model Decision
 Evaluating Filing Solution Options – Filing solution offerings are not yet mature enough to finalize
decisions on the future operating model
 Securing Board Approval – Without a finalized decision, the fund’s Board cannot provide approval on
new service agreements, processes and pricing
Enhancing
Oversight /
Interaction Models
 Performing Service Provider Oversight – Oversight models, including internal processes and controls
to perform due diligence and operational assessments of service providers, are becoming a secondary
priority until operating model decisions are finalized
 Managing Ongoing Service Provider Interactions – Fund sponsors and service providers will be
encouraged to establish or enhance third party risk programs to manage the multiple layers of
cascading dependencies between service providers
Managing Internal
and External Data
Requirements
 Creating Structured Data Format – Filing solution providers are still actively developing the
appropriate schema that allows for the creation of the structured data format required by the filing
 Leveraging Existing Data Subscriptions – Organizations may incur additional data costs on data that is
already received because some data providers consider data used for purposes of Form N-PORT a new,
customized service
Identifying
Resourcing Needs
 “Crashing” Staff Resources – Organizations are unclear as to the of amount additional resources that
may be required to support new filings and the impact of these costs to the fund and/or sponsor
 Obtaining Required Expertise – Firms may be challenged in identifying the appropriate resources who
understand the regulatory interpretive, fund accounting and technology aspects of the rule

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Representative data challenges and considerations
What the Industry Is Facing? What Can the Industry Do?
Sourcing Derivative
Return and Reference
Information
• Many derivative transactions and
positions are recorded in offline
spreadsheets and are not at the
granular level Form N-PORT requires
• Fund administrators or custodians
often may not have readily available
access to a derivative’s reference
instrument information
Develop a uniform approach to:
• classify derivatives for ongoing
fund reporting and accounting
purposes
• calculate profit and loss for those
N-PORT’s classification levels
Engage upstream parties (i.e., brokers)
for reference instrument information
Reconcile internal and external security
master databases
Establishing New Data
Processes and Controls
• Fund sponsors have more access to a
majority of the ~500 Form N-CEN
requirements such as Legal Entity
Identifiers, SEC File Numbers, and
Central Registration Depository
numbers than fund administrators
Develop a data governance model
across multiple functions (e.g. Legal,
Compliance, Operations, external) to
confirm their acknowledgment and
responsibility in providing data into the
reporting process
Finalizing Data
Strategy and
Warehousing Needs
• Data warehouse requirements have
not been fully explored / vetted as
fund sponsors and administrators are
still finalizing N-PORT and N-CEN
sources
Leverage technology professionals to
identify and evaluate a data strategy
not only for ongoing regulatory
reporting, but for other business uses
(e.g., internal analytics and data
visualization)

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Perspective on service provider readiness
Technology
Product
Offering
Implementation
Timeline
Service Model
Support
Representative
Strengths
• Developed initial user
interfaces and
workflows tools /
capabilities
• Contemplating a data
model used for
multiple reporting
purposes and not
only Form N-PORT /
N-CEN filings
• Previous experience
in offering and
providing services to
support similar
reporting
requirements
• Fully mobilized teams
that have been
working through the
rule for months
• Existing relationships
with fund reporting /
administration teams
that may assist in the
resolution of future
escalation issues
Representative
Challenges
• Not yet demonstrated
a comprehensive
Form N-PORT and N-
CEN filing solution
• Developing the
appropriate XML
schema to support
the new filings is an
ongoing exercise
• Articulating additional
services and
associated pricing
(e.g., data sourcing /
enrichment, data
warehousing)
• Accommodating a
comprehensive time
period for testing due
to approaching
compliance date
• Not yet finalized a
plan for service level
agreements, help
desk structure, and
new processes
• Supporting multiple
initiatives related to
mutual fund servicing
The evolution of new tools and service models to support MFM should be an iterative process between service providers and fund
sponsors. Both parties should seek to engage each other in the development and advancement of their respective operating models

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Liquidity Risk Management

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‫‏‬Rule 22e-41 (the “Liquidity Rule”) requires funds and Exchange
Traded Funds (“ETFs”) to adopt, implement, and manage a
written liquidity risk management program that involves the
following:
 Periodic review of a newly established liquidity risk
management program and its components
 Monthly classification of fund investments into one of
four liquidity classes
 For certain funds, determination of a ‘highly liquid
investment minimum’ – failure to maintain requires a
subsequent report to the Fund Board and—in some
cases—to the SEC
 Adoption of related written policies and procedures,
including record-keeping requirements
 Limiting illiquid investments to 15% of net assets
 Reporting certain liquidity events to the SEC via form N-
LIQUID within one business day of occurrence
 Adjusting responses to form N-1A, N-PORT and N-CEN
based on new liquidity reporting requirements
Elements of the
Liquidity Rule
Classify assets into
liquidity groups
Establish liquidity
thresholds to
quantify liquidity
for monitoring
purposes
Increase
transparency through
standardization of
reporting
Formalize liquidity
program, policies
and procedures
Liquidity Rule Summary
Overview of the Liquidity Rule
1https://www.sec.gov/rules/final/2016/33-10233.pdf

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LRM Program
Governance
Data
Management
Parametrization Technology
• Establishing
guiding principles
• Process
formalization
• Global v.
jurisdictional
approach
• Delineating roles
& responsibilities
across the three
lines of defense
• Articulating LRM
practices
• Enriching
portfolio holding
data
• Internal &
external data
aggregation and
analysis
• Potential release
of confidential
data
• Defining security-
level liquidity
assumptions
• Determining the
fund assessment
methodology
• Centralizing fund
flow data
• Establishing the
highly liquid
investment
minimum
• Build v. buy
solutions
• Automating pre-
and post-trade
liquidity
monitoring
• Creating
dashboard
reporting
• Connectivity to
fund reporting
requirements
Common challenges when implementing effective LRM Programs
ETF Challenges
• Testing the de
minimus
exemption for
ETFs with
infrequent basket
redemption
activity
Subadvisor
Challenges
• Divergent
classifications
• Delegation of
responsibilities
across multiple
subadvisors
• Reconciliation of
data and security
classifications
Potential Challenges Based on
Recent SEC FAQ
LRM has historically been a portfolio management process, however, global regulatory changes and a focus on reputational risk
management have elevated liquidity risk to board-level attention which requires cross-functional involvement

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Quantitative and
qualitative considerations
for the liquidity risk
program
Amount of
excess liquidity
available and
monitoring under
the Rule
Cash-flow
projections
under normal
and stressed
conditions
Maturity
profiles of
available
funding
sources
Price volatility and
correlation trends
with respect to
certain asset
classes
Usage and limits
of secured and
unsecured lines
of credit
Funding
and position
concentrations at
each counterparty
Position
concentrations
in related
asset classes
Liquidation and
mark-down
assumptions
for positions
Compliance strategy considerations

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Summary of representative Liquidity Rule FAQ’s
Roles and Responsibilities
• The Funds' LRM Program Administrator may delegate specific
responsibilities to one or more subadvisers, subject to oversight
by the LRM Program Administrator
 Subadvisers to multiple funds and that are subject to multiple
LRM programs are not obligated to reconcile the various
elements of multiple LRM programs
 The Funds' LRM program should control how an
adviser/subadviser carries out its responsibilities under the
Liquidity Rule
Security Classification
 If there are multiple subadviser for the same fund, and each
reach a different conclusion as to the liquidity of a security,
neither the fund, adviser, or subadvisers are obligated to
reconcile the classification differences for compliance purposes
 The Fund's LRM program should have procedures to reconcile
different classification conclusions for purposes of Form N-PORT
filing
Subadvised Fund
Redemption In-kind ETF Exemptions
 The In-kind status of an ETF is ultimately facts and circumstances
based, and an ETF that lost its status could decide to avail itself of
the in-kind exemption as soon as reasonably practicable
 For new ETF's (i.e., those with no or limited operating history to
test historical redemptions), an ETF could determine that it
qualifies as an in-kind ETF based on its policies and procedures
 An ETF that loses its status under the in-kind exemption does not
have to wait for a defined period (e.g., 2 years) before claiming
the exemption
Defining De minimus for purposes of classifying an in-kind ETF
 If an ETF issues a redemption in cash proportionate to the ETF's
cash position, such redemption will be considered an in-kind
redemption
 A cash redemption exceeding 10% of the redemption proceeds is
unlikely to qualify as a de minimus amount of cash for purposes
of qualifying as an in-kind ETF
 For the purposes of testing whether an ETF meets the de minimus
test for qualifying as an in-kind ETF, ETF's should adopt a
consistent testing methodology that can include:
 Back testing
 Proven ability to facilitate redemption baskets under
varied market conditions
ETF’s

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Interconnectivity between MFM and LRM Rules
• The Liquidity Rule provides the foundation for reporting on the liquidity of a fund’s portfolio position including Form N-
LIQUID and new liquidity classifications, which would be required on Form N-PORT
• Form N-PORT requires reporting of monthly liquidity classifications and highly liquid investment minimums, which will be
made public on the third month of each fiscal quarter with a 60-day delay
• Form N-CEN requires reporting of a fund’s use of lines of credit, interfund lending / borrowing and whether the fund
qualifies as an In-Kind ETF
Investment Company
Reporting Modernization
Liquidity Risk Management
Program
N-PORT
• Highly Liquid Investment
Minimum
• Liquidity Classifications (both at
aggregate and the security level)
N-CEN
• Lines of credit, Interfund lending
and interfund borrowing
• In-Kind ETFs
N-LIQUID
• Above 15% Illiquid Threshold
• At or Below 15% Illiquid
Investments
• Highly Liquid Investments
Below Highly Liquid Investment
Minimum

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