[Federal Register Volume 87, Number 169 (Thursday, September 1, 2022)]
[Proposed Rules]
[Pages 53832-53985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17724]



[[Page 53831]]

Vol. 87

Thursday,

No. 169

September 1, 2022

Part II





Commodity Futures Trading Commission





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Securities and Exchange Commission





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17 CFR Parts 275 and 279





Form PF; Reporting Requirements for All Filers and Large Hedge Fund 
Advisers; Proposed Rule

  Federal Register / Vol. 87 , No. 169 / Thursday, September 1, 2022 / 
Proposed Rules  

[[Page 53832]]


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COMMODITY FUTURES TRADING COMMISSION

RIN 3038-AF31

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 275 and 279

[Release No. IA-6083; File No. S7-22-22]
RIN 3235-AN13


Form PF; Reporting Requirements for All Filers and Large Hedge 
Fund Advisers

AGENCIES: Commodity Futures Trading Commission and Securities and 
Exchange Commission.

ACTION: Joint proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'') and the 
Securities and Exchange Commission (``SEC'') (collectively, ``we'' or 
the ``Commissions'') are proposing to amend Form PF, the confidential 
reporting form for certain SEC-registered investment advisers to 
private funds, including those that also are registered with the CFTC 
as a commodity pool operator (``CPO'') or commodity trading adviser 
(``CTA''). The amendments are designed to enhance the Financial 
Stability Oversight Council's (``FSOC's'') ability to monitor systemic 
risk as well as bolster the SEC's regulatory oversight of private fund 
advisers and investor protection efforts. In connection with the 
amendments to Form PF, the SEC proposes to amend a rule under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') to revise 
instructions for requesting a temporary hardship exemption. We also are 
soliciting comment on the proposed rules and a number of alternatives, 
including whether certain possible changes to the proposal should apply 
to Form ADV.

DATES: Comments should be received on or before October 11, 2022.

ADDRESSES: Comments may be submitted by any of the following methods.
    CFTC: Comments may be submitted to the CFTC by any of the following 
methods.
     CFTC Comments portal: https://comments.cftc.gov. Follow 
the instructions for submitting comments through the website.
     Mail: Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581.
     Hand Delivery/Courier: Follow the same instructions as for 
Mail above.
    Please submit your comments using only one method. To avoid 
possible delays with mail or in-person deliveries, submissions through 
the CFTC website are encouraged. ``Form PF'' must be in the subject 
field of comments submitted via email, and clearly indicated on written 
submissions. All comments must be submitted in English, or if not, 
accompanied by an English translation. Comments will be posted as 
received to www.cftc.gov. You should submit only information that you 
wish to make available publicly. If you wish the CFTC to consider 
information that may be exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the established procedures in 
17 CFR 145.9.
    The CFTC reserves the right, but shall have no obligation, to 
review, prescreen, filter, redact, refuse, or remove any or all of your 
submission from www.cftc.gov that it may deem to be inappropriate for 
publication, including, but not limited to, obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
the Freedom of Information Act, 5 U.S.C. 552, et seq. (``FOIA'').
    SEC: Comments may be submitted to the SEC by any of the following 
methods:

Electronic Comments

     Use the SEC's internet comment forms (https://www.sec.gov/regulatory-actions/how-to-submit-comments); or
     Send an email to [email protected]. Please include 
File Number S7-22-22 on the subject line.

Paper Comments

     Send paper comments to Secretary, U.S. Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-22-22. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method. The SEC will post all comments on the SEC's website (https://www.sec.gov/rules/proposed.shtml). Comments also are available for 
website viewing and printing in the SEC's Public Reference Room, 100 F 
Street NE, Washington, DC 20549, on official business days between the 
hours of 10 a.m. and 3 p.m. Operating conditions may limit access to 
the SEC's Public Reference Room. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly.
    Studies, memoranda, or other substantive items may be added by the 
SEC or staff to the comment file during this rulemaking. A notification 
of the inclusion in the comment file of any such materials will be made 
available on the SEC's website. To ensure direct electronic receipt of 
such notifications, sign up through the ``Stay Connected'' option at 
www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: CFTC: Pamela Geraghty, Associate 
Director; Michael Ehrstein, Special Counsel; Andrew Ruggiero, Attorney-
Advisor at (202) 418-6700, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW Washington, DC 20581. SEC: Alexis 
Palascak, Lawrence Pace, Senior Counsels; Christine Schleppegrell, 
Acting Branch Chief at (202) 551-6787 or [email protected], Investment 
Adviser Regulation Office, Division of Investment Management, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-8549.

SUPPLEMENTARY INFORMATION: The CFTC and SEC are requesting public 
comment on the following under the Investment Advisers Act of 1940 [15 
U.S.C. 80b] (``Advisers Act'').1 2
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, when we refer to the 
Advisers Act, or any section of the Advisers Act, we are referring 
to 15 U.S.C. 80b, at which the Advisers Act is codified, and when we 
refer to rules under the Advisers Act, or any section of these 
rules, we are referring to title 17, part 275 of the Code of Federal 
Regulations [17 CFR 275], in which these rules are published.
    \2\ Form PF is a joint form between the SEC and CFTC only with 
respect to sections 1 and 2 of the Form.

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             Agency                    Reference         CFR citation
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CFTC & SEC......................  Form PF \2\.......  17 CFR 279.9.
SEC.............................  Rule 204(b)-1.....  17 CFR 275.204(b)-
                                                       1.
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Table of Contents

I. Introduction
II. Discussion
    A. Proposed Amendments to the General Instructions
    1. Reporting Master-Feeder Arrangements and Parallel Fund 
Structures
    2. Reporting Private Funds that Invest in Other Funds
    3. Reporting Timelines
    B. Proposed Amendments Concerning Basic Information about the 
Adviser and the Private Funds it Advises
    1. Proposed Amendments to Section 1a of Form PF--Identifying 
Information
    2. Proposed Amendments to Section 1b of Form PF--Concerning All 
Private Funds
    3. Proposed Amendments to Section 1c of Form PF--Concerning All 
Hedge Funds
    C. Proposed Amendments Concerning Information about Hedge Funds 
Advised by Large Private Fund Advisers
    1. Proposed Amendments to Section 2a
    2. Proposed Amendments to Section 2b
    D. Proposed Amendments To Enhance Data Quality
    E. Proposed Additional Amendments
III. Economic Analysis
    A. Introduction
    B. Economic Baseline and Affected Parties
    1. Economic Baseline
    2. Affected Parties
    C. Benefits and Costs
    1. Benefits
    2. Costs
    D. Reasonable Alternatives
    1. Alternatives to Proposed Amendments to General Instructions, 
Proposed Amendments to Enhance Data Quality, and Proposed Additional 
Amendments
    2. Alternatives to Proposed Amendments to Basic Information 
about the Adviser and the Private Funds It Advises
    3. Alternatives to Proposed Amendments to Information about 
Hedge Funds Advised by Large Private Fund Advisers
    4. Alternatives to the Definition of the Term ``Hedge Fund''
    E. Request for Comment
IV. Paperwork Reduction Act
    A. Form PF
    1. Purpose and Use of the Information Collection
    2. Confidentiality
    3. Burden Estimates
    B. Request for Comments
V. Regulatory Flexibility Act Certification
VI. Consideration of Impact on the Economy
VII. Statutory Authority

I. Introduction

    The Commissions are proposing to amend sections of Form PF, the 
form that certain SEC-registered investment advisers, including those 
that also are registered with the CFTC as a CPO or CTA, use to report 
confidential information about the private funds that they advise.\3\ 
The proposed amendments are designed to enhance FSOC's monitoring and 
assessment of systemic risk and to provide additional information for 
FSOC's use in determining whether and how to deploy its regulatory 
tools. The proposed amendments also are designed to collect additional 
data for use in the Commissions' regulatory programs, including 
examinations, investigations and investor protection efforts relating 
to private fund advisers.\4\ Finally, the proposed amendments also are 
designed to improve the usefulness of this data.\5\
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    \3\ Specifically, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act''), mandated that the SEC 
and the CFTC, in consultation with the FSOC, jointly promulgate 
rules governing the form and substance of reports required by 
investment advisers to private funds to be filed with the SEC, and 
with the CFTC for those that are dually-registered with both 
Commissions. Public Law 111-203, 124 Stat. 1376 (2010). See, 15 
U.S.C. 80b-11. See also, 17 CFR 4.27(d). The result was Sections 1 
and 2 of Form PF, which were jointly promulgated. See Reporting by 
Investment Advisers to Private Funds and Certain Commodity Pool 
Operators and Commodity Trading Advisors on Form PF, Advisers Act 
Release No. 3308 (Oct. 31, 2011), [76 FR 71128 (Nov. 16, 2011)] 
(``2011 Form PF Adopting Release'') at section I. In 2014, the SEC 
amended Form PF section 3 in connection with certain money market 
fund reforms. See Money Market Fund Reform; Amendments to Form PF, 
Advisers Act Release No. 3879 (July 23, 2014), [79 FR 47736 (Aug. 
14, 2014)] (``2014 Form PF Amending Release'').
    \4\ Any reference to the ``Commissions'', or ``we'', as it 
relates to the collection and use of Form PF data are meant to refer 
to the agencies in their separate or collective capacities, and such 
data from filings made pursuant to 17 CFR 275.204(b)-1, by and 
through Private Fund Reporting Depository, a subsystem of the 
Investment Adviser Registration Depository (``IARD''), and reports, 
analysis, and memoranda produced pursuant thereto. Further, as the 
collection is being made pursuant to the Advisers Act and the IARD 
is subject to the authority and control of the SEC, as of the date 
of this proposal, it should not be assumed that the CFTC has direct, 
or timely access to such data. The Commissions will continue to 
engage in interagency discussions on the sharing of portions of Form 
PF data relevant to the CFTC consistent with the terms of existing 
interagency agreements or arrangements related to the sharing of 
data.
    \5\ Additionally, the Federal Reserve Board uses this data for 
research and analysis.
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    An adviser must file Form PF if (1) it is registered or required to 
register with the SEC as an investment adviser, (2) it manages one or 
more private funds, and (3) the adviser and its related persons 
collectively had at least $150 million in private fund assets under 
management as of the last day of its most recently completed fiscal 
year.\6\ A CPO or CTA that also is registered or required to register 
with the SEC as an investment adviser and satisfies the other 
conditions described above must file Form PF with respect to any 
commodity pool it manages that is a private fund. Most private fund 
advisers file annually to report general information such as the types 
of private funds advised (e.g., hedge funds, private equity funds, or 
liquidity funds), fund size, use of borrowings and derivatives, 
strategy, and types of investors. Certain larger advisers provide more 
information on a more frequent basis, including more detailed 
information on particular hedge funds and liquidity funds.
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    \6\ See 17 CFR 275.204(b)-1. Advisers Act section 202(a)(29) 
defines the term ``private fund'' as an issuer that would be an 
investment company, as defined in section 3 of the Investment 
Company Act of 1940 (``Investment Company Act''), but for section 
3(c)(1) or 3(c)(7) of that Act. Section 3(c)(1) of the Investment 
Company Act provides an exclusion from the definition of 
``investment company'' for any issuer whose outstanding securities 
(other than short-term paper) are beneficially owned by not more 
than one hundred persons (or, in the case of a qualifying venture 
capital fund, 250 persons) and which is not making and does not 
presently propose to make a public offering of its securities. 
Section 3(c)(7) of the Investment Company Act provides an exclusion 
from the definition of ``investment company'' for any issuer, the 
outstanding securities of which are owned exclusively by persons 
who, at the time of acquisition of such securities, are qualified 
purchasers, and which is not making and does not at that time 
propose to make a public offering of such securities. The term 
``qualified purchaser'' is defined in section 2(a)(51) of the 
Investment Company Act.
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    Form PF provides the Commissions and FSOC with important 
information about the basic operations and strategies of private funds 
and has helped establish a baseline picture of the private fund 
industry for use in assessing systemic risk. We now have almost a 
decade of experience analyzing the information collected on Form PF. In 
that time, the private fund industry has grown in size and evolved in 
terms of business practices, complexity of fund structures, and 
investment strategies and exposures.\7\ For example,

[[Page 53834]]

certain investment strategies, including credit, digital asset,\8\ 
litigation finance,\9\ and real estate strategies, have become more 
common since the form was adopted.\10\ Similarly, we understand that 
qualifying hedge fund exposures to repurchase agreements (``repos''), 
reverse repurchase agreements (``reverse repos''), and U.S. treasury 
securities have increased in recent years.\11\ Experience with Form PF 
data also has identified potential ways to improve data quality, 
including in instances where existing reporting may not identify fully 
the potential risks, such as in the reporting of certain master-feeder 
arrangements.
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    \7\ The value of private fund net assets reported on Form PF has 
more than doubled, growing from $5 trillion (net) in 2013 to $12 
trillion (net) by the end of the third quarter of 2021, while the 
number of private funds reported on the form has increased by nearly 
55 percent in that time period. Unless otherwise noted, the private 
funds statistics used in this Release are from the Private Funds 
Statistics Third Quarter 2021. Division of Investment Management, 
Private Fund Statistics Third Quarter 2021, (Mar. 30, 2022), 
available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2021-q3.pdf (``Private Fund 
Statistics Q3 2021''). Any comparisons to earlier periods are from 
the private funds statistics from that period, all of which are 
available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml. SEC staff began publishing the private fund 
statistics in 2015, including data from 2013. Therefore, many 
comparisons in this Release discuss the almost nine year span from 
the beginning of 2013 through third quarter 2021. Some discussion in 
this Release compares data from a shorter time span, because the SEC 
staff published such data later than 2013. Staff reports, 
statistics, and other staff documents (including those cited herein) 
represent the views of SEC staff and are not a rule, regulation, or 
statement of the SEC. The SEC has neither approved nor disapproved 
the content of these documents and, like all staff statements, they 
have no legal force or effect, do not alter or amend applicable law, 
and create no new or additional obligations for any person.
    \8\ See Zuckerman, Gregory, Mainstream Hedge Funds Pour Billions 
of Dollars Into Crypto, The Wall Street Journal (March 2022) 
available at https://www.wsj.com/articles/mainstream-hedge-funds-
pour-billions-of-dollars-into-crypto-
11646808223#:~:text=Brevan%20Howard%20launched%20a%20cryptocurrency,a
nd%20investing%20in%20blockchain%20technology.
    \9\ See Burnett, David and Pierce, John, The Emerging Market for 
Litigation Funding, The Hedge Fund Journal (June 2013) available at 
https://thehedgefundjournal.com/the-emerging-market-for-litigation-funding/.
    \10\ See Private Fund Statistics Q3 2021, supra footnote 7, at 
p. 24.
    \11\ A qualifying hedge fund is defined in Form PF as ``any 
hedge fund that has a net asset value (individually or in 
combination with any feeder funds, parallel funds and/or dependent 
parallel managed accounts) of at least $500 million as of the last 
day of any month in the fiscal quarter immediately preceding [the 
adviser's] most recently completed fiscal quarter.'' See Form PF 
Glossary of Terms. From 2015 through the end of 2020, qualifying 
hedge fund exposure to repos doubled to $2 trillion, while from 2013 
through the end of 2020, qualifying hedge fund borrowings 
attributable to reverse repos more than doubled to $1.3 trillion. 
For the same period, qualifying hedge fund exposure to U.S. treasury 
securities increased by almost 70 percent to $1.7 trillion in 
aggregate qualifying hedge fund gross notional exposure.
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    Based on this experience and in light of these changes, the 
Commissions and FSOC have identified information gaps and situations 
where revised information would improve our understanding of the 
private fund industry and the potential systemic risk within it. We 
believe more detailed information, including with respect to strategies 
and exposures, would provide better empirical data to FSOC with which 
it may assess better the extent to which the activities of private 
funds or their advisers pose systemic risks. We expect that FSOC would 
use the new information collected on Form PF, together with market data 
from other sources, to assist in determining whether and how to deploy 
its regulatory tools.\12\ This may include, for instance, identifying 
private fund advisers that merit further analysis or deciding whether 
to recommend to a primary financial regulator, like the SEC or CFTC, 
more stringent regulation of the financial activities that FSOC 
determines may create or increase systemic risk. This revised 
information also would improve our ability to protect investors.\13\
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    \12\ Under the Dodd-Frank Act, FSOC must monitor emerging risks 
to U.S. financial stability and employ its regulatory tools to 
address those risks. S. REP. NO. 111-176, at 2-3 (2010).
    \13\ The SEC also recently proposed amendments to the SEC-only 
sections of Form PF (sections 3, 4, 5, and newly proposed section 6) 
that would (1) require current reporting for large hedge fund 
advisers and advisers to private equity funds, (2) decrease the 
reporting threshold for large private equity advisers and amend 
reporting requirements for large private equity advisers, and (3) 
amend reporting requirements for large liquidity fund advisers. 
Amendments to Form PF to Require Current Reporting and Amend 
Reporting Requirements for Large Private Equity Advisers and Large 
Liquidity Fund Advisers, Investment Advisers Act Release No. 5950 
(Jan. 26, 2022), [87 FR 9106 (Feb. 17, 2022)] (``2022 SEC Form PF 
Proposal'').
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    The Commissions have consulted with FSOC to gain input on this 
proposal, and to help ensure that Form PF continues to provide FSOC 
with information it can use to carry out its monitoring obligations and 
assess systemic risk in light of changes in the private fund industry 
over the past decade. The Commissions are jointly proposing amendments 
to the form's general instructions, as well as section 1 of Form PF, 
which would apply to all Form PF filers. The Commissions also are 
jointly proposing amendments to section 2 of Form PF, which would apply 
to large hedge fund advisers who advise qualifying hedge funds (i.e., 
hedge funds that have a net asset value of at least $500 million).\14\
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    \14\ Unless stated otherwise, terms in this release that are 
defined in the Form PF Glossary of Terms are as defined therein.
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II. Discussion

A. Proposed Amendments to the General Instructions

    We are proposing amendments to the Form PF general instructions 
designed to improve data quality and comparability and to enhance 
investor protection efforts and systemic risk assessment.\15\
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    \15\ Additional proposed changes to the General Instructions 
concerning amendments to enhance data quality concerning 
methodologies and additional amendments are discussed in sections 
II.D and II.E of this Release, as well as the proposal to amend 
Instruction 3 to reflect our proposal to remove section 2a, which is 
discussed in footnote 138, and accompanying text.
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1. Reporting Master-Feeder Arrangements and Parallel Fund Structures
    Private funds often use complex structures to invest, including 
master-feeder arrangements and parallel fund structures.\16\ We are 
proposing amendments to Form PF that generally would require advisers 
to report separately each component fund of a master-feeder arrangement 
and parallel fund structure.\17\ However, an adviser would continue to 
aggregate these structures for purposes of determining whether the 
adviser meets a reporting threshold.\18\
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    \16\ A ``master-feeder arrangement'' is an arrangement in which 
one or more funds (``feeder funds'') invest all or substantially all 
of their assets in a single private fund (``master fund''). A 
``parallel fund structure'' is a structure in which one or more 
private funds (each, a ``parallel fund'') pursues substantially the 
same investment objective and strategy and invests side by side in 
substantially the same positions as another private fund. See Form 
PF Glossary of Terms.
    \17\ Proposed Instruction 6. We also propose to amend 
Instruction 3 to reflect the proposed approach for reporting master-
feeder arrangements and parallel fund structures. See infra footnote 
18.
    \18\ Proposed Instruction 5. For example, an adviser would 
aggregate private funds that are part of the same master-feeder 
arrangement in determining whether the adviser is a large hedge fund 
adviser that must complete section 2 of Form PF. In connection with 
these proposed changes, we propose to amend the term ``reporting 
fund'' and Instruction 3 so they would no longer discuss reporting 
aggregated information. Additionally, we propose to reorganize 
current Instruction 5 and current Instruction 6 so they reflect the 
proposed approach for when to aggregate certain funds. Current 
Instruction 5 instructs advisers about when to aggregate information 
about certain funds for purposes of reporting thresholds and 
responding to questions. Current Instruction 6 instructs advisers 
about how to aggregate information about certain funds. Proposed 
Instruction 5 would instruct advisers on when to aggregate 
information about certain funds for purposes of determining whether 
they meet reporting thresholds. Proposed Instruction 6 would 
instruct advisers about how to report information about certain 
funds when responding to questions.
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    Currently, Form PF provides advisers with flexibility to respond to 
questions regarding master-feeder arrangements and parallel fund 
structures either in the aggregate or separately, as long as they do so 
consistently throughout Form PF.\19\ In adopting this approach in 2011, 
the Commission stated that requiring advisers to aggregate or 
disaggregate funds in a manner inconsistent with their internal 
recordkeeping and

[[Page 53835]]

reporting may impose additional burdens and that, as long as the 
structure of those arrangements is adequately disclosed, a prescriptive 
approach to aggregation was not necessary.\20\ However, based on 
experience reviewing Form PF data, we observed that when some advisers 
report in aggregate and some advisers report separately, this can 
result in obscured risk profiles (e.g., asset size, counterparty 
exposure, investor liquidity) and made it difficult to compare complex 
structures, undermining the utility of the data collected. We believe 
prescribing the way advisers report a master-feeder arrangement and 
parallel fund structure would provide better insight into the risks and 
exposures of these arrangements.
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    \19\ Current Instruction 5.
    \20\ 2011 Form PF Adopting Release, supra footnote 3, at text 
following n.332.
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    Accordingly, we propose to require an adviser to report each 
component fund of a master-feeder arrangement and parallel fund 
structure, except where a feeder fund invests all its assets in a 
single master fund and/or ``cash and cash equivalents'' (i.e., a 
disregarded feeder fund).\21\ In the case of a disregarded feeder fund 
in Question 6, advisers instead would identify the disregarded feeder 
fund and look through to any disregarded feeder fund's investors in 
responding to certain questions regarding fund investors on behalf of 
the applicable master fund. The master fund effectively is a conduit 
through which a disregarded feeder fund invests and we do not believe 
separate reporting for such a feeder fund is necessary for data 
analysis purposes.
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    \21\ See proposed Instruction 6. The proposal would revise the 
term ``cash and cash equivalents,'' as described in section II.B.2 
in this Release.
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    In addition, we propose to no longer allow advisers to report any 
``parallel managed accounts,'' (which is distinguished from ``parallel 
fund structure''), except advisers would continue to be required to 
report the total value of all parallel managed accounts related to each 
reporting fund.\22\ We continue to believe that including parallel 
managed accounts in the reporting may reduce the quality of data while 
imposing additional burdens on advisers.\23\ Data regarding the total 
value of parallel managed accounts, however, allow FSOC to take into 
account the greater amount of assets an adviser may be managing using a 
given strategy for purposes of analyzing the data reported on Form 
PF.\24\
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    \22\ Proposed Instruction 6. A ``parallel managed account'' is 
any managed account or other pool of assets managed by the adviser 
that pursues substantially the same investment objective and 
strategy and invests side by side in substantially the same 
positions as the identified private fund. See Form PF Glossary of 
Terms. Currently, advisers may, but are not required to, report 
information regarding parallel managed accounts in response to 
certain questions, except they must report the total value of all 
parallel managed accounts related to each reporting fund. See 
current Instruction 5.
    \23\ See 2011 Form PF Adopting Release, supra footnote 3, at 
n.334, and accompanying text (the Commission was persuaded that 
aggregating parallel managed accounts for reporting purposes would 
be difficult and ``result in inconsistent and misleading data'' 
because the characteristics of parallel managed accounts are often 
somewhat different from the funds with which they are managed). For 
example, in a separately managed account a client generally selects 
an adviser's strategy but tailors it to the client's own investment 
guidelines.
    \24\ Id. at text following n.336.
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    We request comment on the proposed amendments.
    1. Should we amend Form PF to require advisers to report component 
funds of master-feeder arrangements and parallel fund structures 
separately except for disregarded feeder funds, as proposed? Would the 
proposed amendments lead to more accurate data regarding the risk 
profiles of reporting funds and improve comparability? Would the 
proposed amendments enhance investor protection efforts and systemic 
risk assessment? Are there better ways to meet these objectives? For 
example, should Form PF require advisers to report only at the master 
fund level or the feeder fund level?
    2. Do you agree that the master fund is effectively a conduit 
through which a disregarded feeder fund invests and that separate 
reporting for such a feeder fund is not necessary for data analysis 
purposes? Should we require advisers to report additional information 
regarding disregarded feeder funds? For example, should we require 
advisers to report the total cash holdings of such funds?
    3. Are there other exceptions for reporting each component of a 
master-feeder arrangement or parallel fund structures separately that 
we should adopt?
    4. Should we continue to require advisers to report only limited 
information on parallel managed accounts? If we should require 
additional reporting from parallel managed accounts, what additional 
information should we require? Should reporting of any such additional 
information be mandatory or voluntary?
    5. Should we continue to require advisers to aggregate structures 
when determining whether they meet reporting thresholds?
    6. Form PF currently does not require an adviser to report 
information regarding a private fund advised by any of the adviser's 
related persons, unless the adviser identified that related person as 
one for which the adviser is filing Form PF. Should we take a different 
approach and require an adviser to include information regarding 
private funds advised by any of the adviser's related persons if they 
are part of a master-feeder arrangement or parallel fund structure 
managed by the adviser? Or, would an adviser have difficulty gathering 
the information necessary to report this information for private funds 
managed by the adviser's related persons whose operations are genuinely 
independent of the adviser's own operations?
    7. Could ``parallel managed accounts,'' be interpreted as 
overlapping with ``parallel fund structure?'' If so, should we remove 
the phrase ``or other pool of assets'' in the definition of ``parallel 
managed account'' to prevent that?
2. Reporting Private Funds That Invest in Other Funds
    We are proposing amendments to Form PF regarding how advisers 
report private fund investments in other private funds, trading 
vehicles, and other funds that are not private funds.
    Investments in other private funds. We propose to amend Instruction 
7, which addresses how advisers treat private fund investments in other 
private funds (e.g., a ``fund of funds''). Currently, advisers include 
the value of private fund investments in other private funds in 
determining whether the adviser meets the filing threshold to file Form 
PF.\25\ We believe this requirement is implicit in the current form and 
we propose to amend Instruction 7 to make it explicit. Current Form PF 
permits an adviser to disregard the value of a private fund's equity 
investments in other private funds for purposes of both the form's 
reporting thresholds (e.g., whether it qualifies as a large hedge fund 
adviser) and responding to questions on Form PF, as long as it does so 
consistently throughout Form PF, subject to certain exceptions.\26\ 
Under the proposal, the form would continue to permit an adviser to 
include or exclude the value of investments in other private funds 
(including internal and external private funds) when determining 
whether the

[[Page 53836]]

adviser meets the thresholds for reporting as a large hedge fund 
adviser, large liquidity fund adviser, or large private equity adviser, 
and whether a hedge fund is a qualifying hedge fund.\27\ The 
Commissions continue to believe that allowing this flexibility for 
these reporting thresholds avoids duplicative reporting, which reduces 
the burden of reporting for advisers and improves the quality of the 
data reported.\28\ For example, under these instructions an adviser may 
exclude an investment in an external private fund that would already be 
counted through another adviser's reporting obligations.
---------------------------------------------------------------------------

    \25\ Form PF Instruction 1 provides that certain advisers meet 
the filing threshold if they and their related persons, 
collectively, had at least $150 million in private fund assets under 
management as of the last day of their most recently completed 
fiscal year.
    \26\ For example, under the current instructions, an adviser is 
not permitted to disregard any liabilities of the private fund, even 
if incurred in connection with an investment in other private funds. 
See current Instruction 7.
    \27\ See current Instruction 7 and proposed Instruction 7.
    \28\ See 2011 Form PF Adopting Release, supra footnote 3, at 
n.128, and accompanying text.
---------------------------------------------------------------------------

    However, we believe the form's current flexibility on whether to 
disregard underlying funds when responding to questions has undermined 
the utility of the data collected, as it provides unclear, inconsistent 
data on the scale of reporting funds' exposures. Therefore, we propose 
to amend Instruction 7 to require an adviser to include the value of a 
reporting fund's investments in other private funds when responding to 
questions on Form PF, unless otherwise directed by the instructions to 
a particular question.\29\ We believe that requiring advisers to report 
fund of funds arrangements in a consistent manner would allow the 
Commissions and FSOC to understand better these fund structures by 
providing greater insight into the scale and exposures of reporting 
funds.
---------------------------------------------------------------------------

    \29\ For example, an adviser would report the value of the 
reporting fund's investments in other private funds when reporting 
its gross asset value and net asset value in proposed Questions 11 
and 12; however, Question 3 would specify that advisers must exclude 
the value of the reporting fund's investment in other internal 
private funds when providing a breakdown of their regulatory assets 
under management and net assets under management.
---------------------------------------------------------------------------

    Currently, advisers are not required to, but nonetheless have the 
option to, ``look through'' a reporting fund's investments in any other 
entity (including other private funds), except in instances when the 
form directs otherwise.\30\ As a result, some advisers may ``look 
through'' a reporting fund's investments in other entities, while 
others do not, leading to unclear data, inconsistent comparisons, and 
less precise analysis across advisers. Therefore, we propose to amend 
Instruction 7 to provide that, when responding to questions, advisers 
must not ``look through'' a reporting fund's investments in internal 
private funds or external private funds (other than a trading vehicle, 
as described below), unless the question instructs the adviser to 
report exposure obtained indirectly through positions in such funds or 
other entities.\31\ We also propose to take the same approach with 
regard to a reporting fund's investments in funds or other entities 
that are not private funds or trading vehicles.\32\ These proposed 
amendments are designed to improve data quality and comparisons, so the 
Commissions and FSOC understand what Form PF data is from advisers 
``looking through'' a reporting fund's investments, which we believe 
would lead to more effective systemic risk assessments and investor 
protection efforts.
---------------------------------------------------------------------------

    \30\ See current Instruction 8.
    \31\ See proposed Instruction 7. For example, advisers would not 
``look through'' to the creditors of or counterparties to other 
private funds in responding to questions that ask about a reporting 
fund's borrowings and counterparty exposures. See proposed Question 
18 (concerning borrowings) and proposed Questions 27 and 28 
(concerning counterparty exposures). However, selected questions in 
section 2 of the form would require advisers to report indirect 
exposure resulting from positions held through other entities 
including private funds, and advisers would ``look through'' the 
reporting fund's investments in internal private funds and external 
private funds in responding to those questions. See e.g., proposed 
Question 32 (concerning reporting fund exposures).
    \32\ See proposed Instruction 8 and supra footnote 31 (which 
provides examples that also apply to advisers to reporting funds 
that invest in funds and other entities that are not private funds 
or trading vehicles).
---------------------------------------------------------------------------

    Trading vehicles. Some private funds wholly own separate legal 
entities that hold assets, incur leverage, or conduct trading or other 
activities as part of the private fund's investment activities, but do 
not operate a business (each, a ``trading vehicle'').\33\ We propose to 
amend Form PF's general instructions to explain how advisers would 
report information if the reporting fund uses a trading vehicle.\34\ 
Specifically, if the reporting fund uses a trading vehicle, and the 
reporting fund is its only equity owner, the adviser would either (1) 
identify the trading vehicle in section 1b, and report answers on an 
aggregated basis for the reporting fund and such trading vehicle, or 
(2) report the trading vehicle as a separate reporting fund. An adviser 
would have to report the trading vehicle separately if the trading 
vehicle holds assets, incurs leverage, or conducts trading or other 
activities on behalf of more than one reporting fund. If reporting 
separately, (1) advisers would report the trading vehicle as a hedge 
fund if a hedge fund invests through the trading vehicle; (2) advisers 
would report the trading vehicle as a qualifying hedge fund if a 
qualifying hedge fund invests through the trading vehicle; (3) 
otherwise, advisers would report the trading vehicle as a liquidity 
fund, private equity fund, or other type of fund based on its 
activities.\35\
---------------------------------------------------------------------------

    \33\ We propose to add ``trading vehicle'' to the Form PF 
Glossary of Terms.
    \34\ See proposed Instruction 7. We propose to make a conforming 
change to Instruction 8 to reference this new instruction.
    \35\ See proposed Instruction 7.
---------------------------------------------------------------------------

    Private funds may use trading vehicles for various purposes, 
including (1) for jurisdictional, tax, or other regulatory purposes, or 
(2) to ``ring-fence'' assets in light of liability or bankruptcy 
concerns associated with a particular investment (i.e., structure 
assets so counterparties would only have recourse against the trading 
vehicle and not against the private fund). Currently, Form PF does not 
require advisers to identify trading vehicles. As a result, Form PF 
does not provide a clear window into the use of trading vehicles and 
the risks they present. For example, if a trading vehicle is ring-
fenced, current Form PF does not provide a view into the assets or 
collateral on which a counterparty to such trading vehicle relies or 
the size and nature of the trading vehicle's exposure. In addition, 
where more than one reporting fund invests through a particular trading 
vehicle, the activities of multiple reporting funds are blended and 
potentially obscured. The proposed amendments are designed to address 
these concerns by providing more information on the extent private 
funds use trading vehicles to conduct investment activities. The 
proposed amendments also are designed to provide improved visibility 
into position sizes and counterparty exposures through trading 
vehicles. Having a clear, unobscured view into position sizes and 
counterparty exposures through trading vehicles is designed to help 
ensure accurate systemic risk assessment and analysis to further 
investor protection efforts, by providing the Commissions and FSOC with 
a view into the assets or collateral on which a counterparty to such 
trading vehicle relies and the size and nature of the trading vehicle's 
exposure.
    Investments in funds that are not private funds. Under the 
proposal, advisers would continue to include the value of the reporting 
fund's investments in funds and other entities that are not private 
funds, in determining reporting thresholds and responding to questions, 
unless otherwise directed, as Form PF currently requires.\36\ For the 
reasons discussed above, we are proposing that, when responding to 
questions, however,

[[Page 53837]]

advisers must not ``look through'' a reporting fund's investments in 
funds or other entities that are not private funds, or trading 
vehicles, unless the question instructs the adviser to report exposure 
obtained indirectly through positions in such funds or other 
entities.\37\
---------------------------------------------------------------------------

    \36\ See Instruction 8.
    \37\ See supra footnote 32, and accompanying text (discussing 
proposed amendments to Instruction 8).
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    8. Would the proposed amendments concerning reporting fund 
investments in other private funds, trading vehicles, and other funds 
that are not private funds provide a better understanding of the 
structure of private funds, and improve data quality and comparability? 
Is there a better way to meet these objectives? Should Form PF provide 
more or less flexibility to advisers in how they treat these types of 
private fund investments? For example, instead of allowing advisers the 
flexibility to include or exclude a private fund's investments in other 
private funds (including internal private funds and external private 
funds) in determining whether they meet thresholds for filing as a 
large hedge fund adviser, large liquidity adviser, or large private 
equity adviser, and whether a reporting fund is a qualifying hedge 
fund, should we require advisers to include or exclude such 
investments? Should we require external qualifying hedge funds to be 
excluded, to avoid receiving duplicate data? If Form PF should provide 
more flexibility, how would we help ensure data is understandable and 
comparable across advisers?
    9. Would the proposed amendments regarding trading vehicles provide 
a clearer picture of how private funds use trading vehicles and their 
market risks? Would the proposed amendments provide improved visibility 
into position sizes and counterparty exposures? Is there a better way 
to meet these objectives? For example, should Form PF require advisers 
to report whether a trading vehicle is ring-fenced for liability 
purposes?
    10. Under the proposal, if an adviser reports a trading vehicle as 
a separate reporting fund, the adviser must report the trading vehicle 
as a hedge fund, qualifying hedge fund, liquidity fund, private equity 
fund, or other type of fund, if it meets certain requirements. Would 
this proposed requirement help ensure advisers could not avoid 
reporting the trading vehicle as a private fund that is subject to 
additional reporting, such as a qualifying hedge fund? Is there a 
better way to meet this objective? Should Form PF instead only require 
advisers to report trading vehicles as investments in another fund?
    11. Are the ``look through'' requirements concerning how to report 
a reporting fund's investments in other entities clear? Should we 
require advisers to not look through a reporting fund's investments in 
other entities, unless the question instructs the adviser to report 
exposure obtained indirectly through positions in such funds or other 
entities, as proposed?
3. Reporting Timelines
    We propose to amend Instruction 9 to require large hedge fund 
advisers and large liquidity fund advisers to update Form PF within a 
certain number of days after the end of each calendar quarter, rather 
than after each fiscal quarter, as Form PF currently requires.\38\ All 
other advisers would continue to file annual updates within 120 
calendar days after the end of their fiscal year.\39\ Form PF would 
continue to require all advisers to use fiscal quarters and years to 
determine filing thresholds because advisers already make such 
calculations under 17 CFR 279.1 (``Form ADV''), which requires annual 
updates based on fiscal year.\40\
---------------------------------------------------------------------------

    \38\ Large hedge fund advisers generally would file within 60 
calendar days after the end of each calendar quarter and large 
liquidity fund advisers generally would file within 15 days after 
the end of each calendar quarter. See proposed Instruction 9.
    \39\ We also propose to amend the term ``data reporting date'' 
to reflect this proposed approach. See Form PF Glossary of Terms.
    \40\ See Form PF Instructions 1 and 3; Form ADV and [17 CFR 
275.204-1] Advisers Act rule 204-1 (amendments to Form ADV).
---------------------------------------------------------------------------

    Currently, fiscal quarter reporting significantly delays the time 
at which the Commissions and FSOC receive a complete data set for a 
calendar quarter. For example, large hedge fund advisers whose first 
fiscal quarter ends on the calendar quarter end of March, would file 
data covering January, February, and March by the end of May.\41\ 
However, large hedge fund advisers whose fiscal quarter ends in May 
would not file their March data until the end of July, delaying 
Commission and FSOC access to full calendar quarter data by all large 
hedge fund advisers by four months. The proposed changes are designed 
to provide a more complete data set sooner to improve the efficiency 
and effectiveness of investor protection efforts and systemic risk 
assessment. Based on Form ADV data as of December 2021, 99.2 percent of 
private fund advisers already effectively file Form PF on a calendar 
basis because their fiscal quarter or year ends on the calendar quarter 
or year end, respectively.\42\ The 0.8 percent of private fund advisers 
that have a non-calendar fiscal approach, which could cause a temporary 
data gap, represents approximately 274 private funds, totaling $200 
billion in gross asset value. Calendar quarter reporting also would 
more closely align with reporting on [17 CFR pt. 4, app. A] Form CPO-
PQR, which requires calendar quarterly reporting, allowing easier 
integration of these data sets.
---------------------------------------------------------------------------

    \41\ See current Instruction 9 (requiring large hedge fund 
advisers to update Form PF within 60 calendar days after the end of 
their first, second, and third fiscal quarters, among other things).
    \42\ We are presenting data from all private fund advisers, not 
just those who would file on a quarterly basis (i.e., large hedge 
fund advisers and large liquidity fund advisers), to avoid 
potentially disclosing proprietary information of individual Form PF 
filers, and to be inclusive considering that the population of 
quarterly filers versus annual filers may change over time.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    12. Should we revise the reporting timelines, as proposed?
    13. Should Form PF continue to require advisers to determine filing 
thresholds by fiscal year given corresponding Form ADV requirements? 
Alternatively, should Form PF require all Form PF filers to use 
calendar years and quarters for all Form PF purposes, including in 
determining filing thresholds and when to update Form PF?
    14. Should we reduce the number of days by which filers must update 
Form PF to receive data sooner? How would this relieve or increase 
burdens? For example, should Form PF require large hedge fund advisers 
to update Form PF within 30 calendar days after the end of each 
calendar or fiscal quarter, rather than 60 calendar days? Should Form 
PF require large liquidity fund advisers to report within 10 calendar 
days after the end of each calendar quarter, rather than 15 calendar 
days? Should annual filers file within 30 calendar days after the end 
of their fiscal year, rather than 120 calendar days?
    15. Should Form PF reporting timelines be more or less consistent 
with Form CPO-PQR?

B. Proposed Amendments Concerning Basic Information About the Adviser 
and the Private Funds it Advises

    Each adviser required to file Form PF must complete all or part of 
section 1. The proposed amendments to section 1 are designed to provide 
greater insight into private funds' operations and strategies, and 
assist in identifying trends, including those that could create 
systemic risk, which in turn is designed to enhance investor protection 
efforts and systemic risk assessment. The

[[Page 53838]]

proposed changes are designed to improve comparability across advisers, 
improve data quality, and reduce reporting errors, based on our 
experience with Form PF filings.
1. Proposed Amendments to Section 1a of Form PF--Identifying 
Information
    Section 1a requires an adviser to report identifying information 
about the adviser and the private funds it manages. We are proposing 
several amendments to collect additional identifying information 
regarding the adviser, its related persons, as well as their private 
fund assets under management.
    LEI for advisers and related persons. Legal entity identifiers, or 
``LEIs,'' help identify entities and link data from different sources 
that use LEIs.\43\ Currently, Form PF requires advisers to report the 
LEI for certain entities, if they have one, such as for the reporting 
fund and any parallel funds.\44\ Form PF's current definition of 
``LEI'' provides that, in the case of a financial institution that has 
not been assigned an LEI, advisers must provide the RSSD ID assigned by 
the National Information Center of the Board of Governors of the 
Federal Reserve System (``Federal Reserve Board''), if the financial 
institution has an RSSD ID.\45\ We propose to remove this requirement 
and, instead, provide that advisers must not substitute any other 
identifier that does not meet the definition of an LEI.\46\ However, 
advisers would use the RSSD ID, if the financial institution has one, 
for questions that specifically request an RSSD ID, and for questions 
that require advisers to report any other identifying information where 
the type of information is not specified.\47\ These proposed amendments 
are designed to improve data quality because, based on experience with 
the current form, reporting RSSD IDs as LEIs makes it more difficult 
for staff to link data efficiently and effectively.
---------------------------------------------------------------------------

    \43\ Form PF generally defines ``LEI'' as: the ``legal entity 
identifier'' assigned by or on behalf of an internationally 
recognized standards setting body and required for reporting 
purposes by the U.S. Department of the Treasury's Office of 
Financial Research or a financial regulator. See Form PF Glossary of 
Terms.
    \44\ See current Question 5(d) and current Question 7(e). 
Current Form PF also requires large liquidity advisers to report the 
LEI for each security and repo held by the reporting fund, if they 
have one. See current Question 63(d) and current Question 63(g), 
respectively. Current Form PF also requires large private equity 
advisers to report the LEI for each of the reporting fund's 
controlled portfolio companies that constitute a financial industry 
portfolio company. See current Question 76.
    \45\ See current Form PF Glossary of Terms. Currently, if an LEI 
has not been assigned and there is no RSSD ID, then the adviser 
would leave that line blank.
    \46\ See proposed Form PF Glossary of Terms.
    \47\ See e.g., proposed Question 9. We also would add ``RSSD 
ID'' to the Form PF Glossary of Terms and define it as the 
identifier assigned by the National Information Center of the 
Federal Reserve Board, if any. See Form PF Glossary of Terms.
---------------------------------------------------------------------------

    While Form PF currently requires advisers to provide the LEI for 
entities such as reporting funds and parallel funds, if the entities 
have one, it does not require advisers to report the LEI for itself and 
its related persons.\48\ We propose to require advisers to provide the 
``LEI'' for themselves and their ``related persons,'' if they have an 
LEI.\49\ This proposed amendment is designed to help identify advisers 
and their related persons and link data from other data sources that 
use this identifier.
---------------------------------------------------------------------------

    \48\ See e.g., current Question 5 and current Question 7.
    \49\ See Proposed Question 1. We also propose to require 
advisers to provide the LEI for other entities, if the other 
entities have one, including internal private funds (see proposed 
Question 7 and proposed Question 15), trading vehicles (see proposed 
Question 9), and counterparties (see proposed Question 27 and 
proposed Question 28). A ``related person'' has the meaning provided 
in Form ADV. See Form PF Glossary of Terms. Form ADV defines a 
``related person'' as any advisory affiliate and any person that is 
under common control with the adviser. See Form ADV Glossary of 
Terms.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    16. Should we require advisers to report ``LEI'' for financial 
institutions that have one and only report ``RSSD ID'' as a secondary 
identification where asked, as proposed? Would the proposed amendments 
help us improve data quality and help link data more efficiently and 
effectively from other sources that use LEIs and RSSD IDs? Is there a 
better way to meet these objectives?
    17. Should Form PF require advisers to report the LEI for certain 
entities, if they have one, as proposed, such as the adviser and each 
related person, as well as internal private funds, trading vehicles, 
creditors, and counterparties, or others? Alternatively, should Form PF 
require any entities to obtain LEIs if they do not have them? Would 
those entities seek to obtain LEIs in the future absent any regulatory 
requirement to do so?
    18. Are there other data sources we also should use that would 
allow us to link entities across forms?
    19. Should we amend the term ``LEI'' in Form PF to match Form ADV 
or any other forms that use the term or a similar term?
    Assets under management. We are proposing to revise how advisers 
report assets under management attributable to certain private funds. 
Current Question 3 requires advisers to provide a breakdown of 
regulatory assets under management and net assets under management. 
These data are designed to show the size of the adviser and the nature 
of the adviser's activities. We propose to amend the instructions to 
direct advisers to exclude the value of private funds' investments in 
other internal private funds to avoid double counting of fund of funds 
assets.\50\ Advisers would include the value of trading vehicle assets 
because, under the proposed definition, they would be wholly owned by 
one or more reporting funds.\51\ These proposed amendments are designed 
to provide a more accurate view of the assets managed by the adviser 
and its related persons, as well as the general distribution of those 
assets among various types of private funds, because accurately viewing 
the scale of these managed assets is important to effectively assess 
systemic risk and further investor protection efforts.
---------------------------------------------------------------------------

    \50\ See proposed Question 3.
    \51\ See proposed Question 3. See proposed Form PF Glossary of 
Terms.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    20. Would the proposed amendments prevent double counting fund of 
funds assets? Is there a better way to meet this objective? Should we 
include private funds managed by the adviser's related persons in the 
definition of internal private fund for these purposes? Are there other 
types of investments that should be disregarded in order to prevent 
double counting? Are there other approaches to trading vehicles?
    21. Form PF currently requires advisers to provide a breakdown of 
assets under management and regulatory assets under management based on 
certain categories of private funds. Should we require advisers to 
provide a breakdown for more, fewer, or different categories of private 
funds than Form PF currently provides? For example, should Question 3 
include categories such as special purpose vehicles, private credit 
funds, or types of fund of funds?
    Explanation of assumptions. We are proposing to amend current 
Question 4, which advisers use to explain assumptions that they make in 
responding to questions on Form PF. Specifically, we propose to add an 
instruction directing advisers to provide the question number when the 
assumptions relate to a particular question.\52\ This amendment is 
designed to help assess data more efficiently and

[[Page 53839]]

improve comparability, based on experience with the form.
---------------------------------------------------------------------------

    \52\ See proposed Question 4.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    22. Is there a better way to achieve our objectives of assessing 
data more efficiently and improving comparability?

2. Proposed Amendments to Section 1b of Form PF--Concerning All Private 
Funds

    Section 1b requires advisers to report certain identifying and 
other basic information about each private fund the adviser manages. 
The proposal would amend section 1b to require advisers to report 
additional identifying information about the private funds they manage 
as well as the private funds' assets, financing, investor 
concentration, and performance. The proposed changes are designed to 
provide greater insight into private funds' operations and strategies 
and assist in identifying trends that we believe would enhance investor 
protection efforts and FSOC's systemic risk assessment. At the same 
time, we believe the proposed amendments would help improve data 
quality and comparability, based on experience with Form PF.
    Type of private fund. We are proposing several amendments to 
identify different types of reporting funds better, and help isolate 
data according to fund type, to allow for more targeted analysis. 
Currently, advisers indicate a reporting fund's type on the Private 
Fund Reporting Depository (``PFRD'') filing system, and by filling out 
particular sections of the form.\53\ We have found instances, however, 
where advisers have identified a reporting fund differently on Form PF 
than on Form ADV, even though the definitions of each fund type are the 
same on both forms. This may be due to error, or may be due to the 
fund's characteristics changing between deadlines for Form ADV and Form 
PF. Accordingly, to help prevent reporting errors and help ensure 
accuracy concerning the reporting fund's type, we propose to require 
advisers to identify the reporting fund by selecting one type of fund 
from a list: hedge fund that is not a qualifying hedge fund, qualifying 
hedge fund, liquidity fund, private equity fund, real estate fund, 
securitized asset fund, venture capital fund, or ``other.'' \54\ If an 
adviser identifies the reporting fund as ``other,'' the adviser would 
describe the reporting fund in Question 4, including why it would not 
qualify for any of the other options.
---------------------------------------------------------------------------

    \53\ For advisers that are also CPOs or CTAs, filing Form PF 
through PFRD is filing with both the SEC and CFTC. See Instruction 3 
(instructing advisers to file particular sections of Form PF, 
depending on their circumstances. For example, all Form PF filers 
must file section 1 and large hedge fund advisers also must file 
section 2).
    \54\ Proposed Question 6(a).
---------------------------------------------------------------------------

    In addition, we propose to require an adviser to indicate whether 
the reporting fund is a ``commodity pool,'' which is categorized as a 
hedge fund on Form PF.\55\ Although the CFTC does not, as of the date 
of this proposal, consider Form PF reporting on commodity pools as 
constituting substituted compliance with CFTC reporting requirements, 
some CPOs may continue to report such information on Form PF.\56\ This 
proposed amendment would allow for analysis of hedge fund data both 
with and without commodity pools reported on the form.
---------------------------------------------------------------------------

    \55\ Proposed Question 6(b). Form PF defines ``commodity pool'' 
as defined in section 1a(10) of the U.S. Commodity Exchange Act, as 
amended. See Form PF Glossary of Terms.
    \56\ Previously, the CFTC permitted dually registered CPO-
investment advisers to submit Form PF in lieu of certain CFTC 
reporting requirements. See Compliance Requirements for Commodity 
Pool Operators on Form CPO-PQR, (Oct. 9, 2020) [85 FR 71772 (Nov. 
10, 2020)] (``Form CPO-PQR Release'').
---------------------------------------------------------------------------

    Finally, we propose to require advisers to report whether a 
reporting fund operates as a UCITS or AIF, or markets itself as a money 
market fund outside the United States, and in which countries (if 
applicable).\57\ These proposed amendments are designed to allow the 
Commissions and FSOC to filter data for more targeted analysis to 
better understand the potential exposure to beneficial owners outside 
the United States and to avoid double counting when Form PF data is 
aggregated with other data sets that include UCITS, AIFs, and money 
market funds that are marketed outside the United States.
---------------------------------------------------------------------------

    \57\ See proposed Question 6(c) through (h). We propose to 
define the term ``UCITS'' as Undertakings for Collective Investment 
in Transferable Securities, as defined in the UCITS Directive of the 
European Parliament and of the Council (No. 2009/65/EC), as amended, 
or as captured by the Collective Investment Schemes (Amendment etc.) 
(EU Exit) Regulations 2019, as amended. We propose to define ``AIF'' 
as an alternative investment fund that is not regulated under the 
UCITS Directive, as defined in the Directive of the European 
Parliament and of the Council on alternative investment fund 
managers (No. 2011/61/EU), as amended, or an alternative investment 
fund that is captured by the Alternative Investment Fund Managers 
(Amendment etc.) (EU Exit) Regulations 2019, as amended. See Form PF 
Glossary of Terms.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    23. Should Form PF require advisers to report additional 
identifying information about the private funds they advise, as 
proposed? Would the proposed amendments help identify each type of 
reporting fund, allow the Commissions and FSOC to filter data 
concerning types of funds, and conduct more targeted analysis? Is there 
a better way to meet these objectives?
    24. Should proposed Question 6 include more, fewer, or different 
categories of private funds? For example, should the form include a 
category for funds that may be ``hybrid'' funds that may have 
characteristics of different types of private funds? Should proposed 
Question 6 include an ``other'' category, as proposed? Alternatively, 
should proposed Question 6 not include an ``other'' category and 
instead require that advisers select the best fit among the specific 
categories? Are there other ways to limit the types of funds that may 
report as ``other?''
    25. Should Form PF require advisers to explain in Question 4 why 
they choose ``other'' as a category, as proposed? Would this proposed 
requirement clarify what type of fund the reporting fund is, if it does 
not fit within the other categories? Is there a better way of 
identifying what type of fund the reporting fund is? Should Form PF 
require the adviser to include more, less, or different information in 
the explanation?
    26. Should Form PF require advisers to identify if the reporting 
fund is a commodity pool, as proposed? Are any CPOs currently reporting 
information regarding any commodity pools, even if they are not private 
funds? If so, why? Alternatively, should we revise the definition of 
``hedge fund'' so it would not include commodity pools? If we exclude 
commodity pools from the definition of ``hedge fund,'' should we amend 
Form PF to require advisers to report the same or different information 
about commodity pools as they do for hedge funds?
    27. Should Form PF require advisers to report whether and in which 
countries the reporting company operates as a UCITS or AIF, or markets 
itself as a money market fund outside the United States, as proposed? 
Would the proposed amendment allow us and FSOC to filter data for more 
targeted analysis to better understand the potential exposure to 
beneficial owners outside the United States and to avoid double 
counting when Form PF data is aggregated with other data sets that 
include UCITS and AIFs? Is there a better way to meet these objectives?
    28. Should Form PF define UCITS and AIF, as proposed? Would the 
proposed definitions keep the terms evergreen if directives change or 
new ones apply? If not, how should we define these terms? For example, 
should we provide less detail in the definition

[[Page 53840]]

about the directives to keep the definitions evergreen?
    Master-feeder arrangements, internal private funds, external 
private funds, and parallel fund structures. To reflect that advisers 
would report components of master-feeder arrangements and parallel fund 
structures separately, we propose to amend Form PF to require advisers 
to report identifying information about master-feeder arrangements and 
other private funds (e.g., funds of funds), including internal private 
funds, and external private funds.\58\ Form PF currently requires 
advisers to report identifying information about parallel funds, and 
would continue to do so under the proposal.\59\ The proposal also would 
require advisers to report the value of the reporting fund's 
investments in other private funds (e.g., funds of funds), as current 
Question 10 requires, but with more detail.\60\ Specifically, the 
proposal would require advisers to report the value of the reporting 
fund's equity investments in external private funds and internal 
private funds (including the master fund and each internal private 
fund), which would comprise the total investments in other private 
funds.\61\ These amendments are designed to help map complex fund 
structures and cross reference private fund information across Form PF 
filings, to provide more complete and accurate information about each 
fund's risk profile.
---------------------------------------------------------------------------

    \58\ For master-feeder arrangements, advisers would report the 
name of the feeder fund, its private fund identification number, and 
whether the feeder fund is a separate reporting fund or a 
disregarded feeder fund. For internal private funds that invest in 
the reporting fund, advisers would report the name of the internal 
private fund, its LEI, if it has one, and its private fund 
identification number. See proposed Question 7. If the reporting 
fund invests in external private funds, advisers would report the 
name of the master fund, its private fund identification number, and 
the master fund's LEI, if it has one. If the reporting fund invests 
in internal private funds, advisers would report the internal 
private fund's name, its private fund identification number, and its 
LEI, if it has one. Proposed Question 15.
    \59\ See current Question 7 and proposed Question 8.
    \60\ This requirement would be part of proposed Question 15.
    \61\ See proposed Question 15.
---------------------------------------------------------------------------

    In connection with these proposed amendments, in the Form PF 
Glossary of Terms, we propose to remove the terms ``investments in 
external private funds'' and ``investments in internal private funds,'' 
and replace them with ``external private funds'' (private funds that 
neither the adviser nor the adviser's related persons advise) and 
``internal private funds'' (private funds that the adviser or any of 
the adviser's related persons advise), respectively. The proposed 
definitions would not direct advisers to exclude ``cash management 
funds,'' as is currently the case under the terms being removed, 
because we observed that advisers determine whether a fund is a cash 
management fund inconsistently. Therefore, this proposed amendment is 
designed to improve data quality.
    We request comments on the proposed amendments.
    29. Would the proposed amendments help to map complex fund 
structures and cross reference them to private fund information across 
Form PF filings? Would the proposed amendments provide more complete 
and accurate information about each fund's risk profile? Is there a 
better way to meet these objectives?
    30. Should the form require different or additional identifying 
information to identify a master fund, feeder fund, internal private 
fund, or external private fund?
    31. Should Form PF require advisers to report the private fund 
identification number for any feeder funds, as proposed, even though 
advisers annually report the private fund identification number of any 
feeder funds that invest in a private fund they advise on Form ADV? 
\62\
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    \62\ Form ADV, section 7.B.(1).A.6.
---------------------------------------------------------------------------

    32. Should Form PF define ``internal private funds,'' ``external 
private funds,'' and ``trading vehicle,'' as proposed? Are there 
alternative definitions we should adopt? For example, should we define 
``internal private funds'' and ``external private funds'' to exclude 
cash management funds as the current definitions of ``investments in 
internal private funds'' and ``investments in external private funds'' 
do?
    Withdrawal or redemption rights. The proposal would change how 
advisers report withdrawal and redemption rights. Form PF currently 
requires only large hedge fund advisers to report whether each 
qualifying hedge fund provides investors with withdrawal or redemption 
rights in the ordinary course.\63\ We propose to require all advisers 
to provide this information for each reporting fund to inform the 
Commissions and FSOC better of all reporting funds' susceptibility to 
stress through investor redemptions, to help identify how widespread 
the stress is.\64\ If the reporting fund provides investors with 
withdrawal or redemption rights in the ordinary course, we propose to 
require advisers to indicate how often withdrawals or redemptions are 
permitted by selecting from a list of categories.\65\ Advisers would 
report this information regardless of whether there are notice 
requirements, gates, lock-ups, or other restrictions on withdrawals or 
redemptions.\66\ We believe these proposed amendments would allow us 
and FSOC to identify better reporting funds that may be affected by 
investor withdrawals during certain market events, or vulnerable to 
failure as a result of investor redemptions. We believe this 
information also would provide insight into other data that all 
reporting funds report. For example, we understand that private equity 
funds that do not typically offer redemption rights in the ordinary 
course likely have certain patterns of subscriptions and withdrawals, 
and also report performance to investors and prospective investors as 
an internal rate of return, rather than reporting based on changes in 
the portfolio market value. We propose to define ``internal rate of 
return'' in the proposed Form PF Glossary of Terms as the discount rate 
that causes the net present value of all cash flows throughout the life 
of the fund to be equal to zero. Analyzing reported information about 
investor withdrawal or redemption rights together with reported 
information about subscriptions and withdrawals or performance is 
designed to help us identify developing trends relevant to identifying 
systemic risk and would help us further investor protection efforts. We 
request comment on the proposed amendments.
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    \63\ Current Question 49(a).
    \64\ To implement this, the proposal would move current Question 
49(a) from section 2b, which requires large hedge fund advisers to 
report information about qualifying hedge funds, to section 1b which 
requires all advisers to report information about all the reporting 
funds they advise, and redesignate it as Question 10. To accommodate 
moving the question, the proposal would make corresponding 
amendments to the instructions in current Question 49, which we 
would redesignate as Question 52.
    \65\ Proposed Question 10(b). The categories would be (1) any 
business day, (2) at intervals of at least two business days and up 
to a month, (3) at intervals longer than monthly up to quarterly, 
(4) at intervals longer than quarterly up to annually, and (5) at 
intervals of more than one year.
    \66\ For example, if the reporting fund allows quarterly 
redemptions that are subject to a gate, then the adviser would 
select ``at intervals longer than monthly up to quarterly.''
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    33. Should we require all advisers to report information about 
withdrawal and redemption rights about all the reporting funds they 
advise, as proposed? Alternatively, should only certain advisers report 
this information for only certain reporting funds? If so, which ones 
and why?
    34. Should Form PF include more, fewer, or different categories for 
the schedule of withdrawal or redemption

[[Page 53841]]

rights? As an alternative, should advisers be able to select ``other'' 
as a schedule category? Under what circumstances would an adviser 
select ``other?''
    35. Should we define ``internal rate of return'' as proposed? If 
not, what alternative definitions should we use?
    Trading vehicles. We are proposing to require advisers to provide 
identifying information for any trading vehicle in which the reporting 
fund holds investments or conducts activities.\67\ Advisers would 
disclose the trading vehicle's legal name; LEI, if it has one; and any 
other identifying information about the trading vehicle, such as the 
RSSD ID, if it has one. This proposed amendment is designed to help the 
Commissions and FSOC understand the reporting fund's activities, 
including how it interacts with the market if the fund trades through a 
trading vehicle and related counterparty exposures. The identifying 
information also is designed to allow comparisons of Form PF data with 
data from other sources that use such information to identify entities. 
Enhancing the ability to compare Form PF data in this way is designed 
to provide a more comprehensive view of the market, and therefore, 
enhance investor protection efforts and systemic risk assessment.
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    \67\ Proposed Question 9.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    36. Should all advisers provide identifying information for a 
trading vehicle, including an LEI if it has one, as proposed? 
Alternatively, should only certain advisers report it for certain 
reporting funds?
    37. Do any trading vehicles not have an LEI?
    38. Should Form PF require more, less, or different identifying 
information for the trading vehicle?
    Gross asset value and net asset value. We propose several 
amendments to the way advisers report gross asset value and net asset 
value. We propose to require advisers who are filing quarterly updates 
to report gross asset value and net asset value as of the end of each 
month of the reporting period, rather than only reporting the 
information as of the end of the reporting period, as Form PF currently 
requires.\68\ This proposed amendment is designed to facilitate 
analysis of other monthly Form PF data, including certain fund 
performance and risk metrics.\69\
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    \68\ See current Questions 8 and 9, and proposed Questions 11 
and 12. We also propose to make amendments to the instructions in 
current Question 8 (which we would redesignate as proposed Question 
11) to correspond with the proposed instructions that would no 
longer allow advisers to aggregate master-feeder arrangements, as 
discussed above.
    \69\ See e.g., proposed Question 23 (requiring all private fund 
advisers to report monthly performance data, to the extent such 
results are calculated for the reporting fund), supra footnote 98, 
and accompanying text, and proposed Question 48 (requiring large 
hedge funds to report monthly data concerning the reporting fund's 
portfolio correlation), infra section II.C.2 of this Release.
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    We also propose to add new Question 13 to require advisers to 
separately report the value of unfunded commitments included in the 
gross and net asset value reported in proposed Questions 11 and 12.\70\ 
Current Questions 8 and 9 require valuations based on the instruction 
in Form ADV for calculating regulatory assets under management, which 
requires advisers to include the amount of any unfunded 
commitments.\71\ This approach reflects that, in the early years of a 
private fund's life, its adviser typically earns fees based on the 
total amount of capital commitments, which we presume reflects 
compensation for efforts expended on behalf of the fund in preparation 
for the investments.\72\ We continue to believe that net asset value 
and gross asset value should include unfunded commitments so Form PF 
data is comparable to Form ADV data. However, there are circumstances 
where understanding the amount represented by unfunded commitments 
would enhance our understanding of changes to a reporting fund's net 
and gross asset value over time, inform us of trends, and improve data 
comparability over the life of the fund. For example, knowing the value 
of uncalled commitments would help the Commissions and FSOC more 
accurately identify how much leverage a fund with uncalled commitments 
has. Currently, the Commissions and FSOC only can infer this 
information but it is unclear whether such inferences are correct. 
Therefore, this proposed amendment is designed to improve data accuracy 
and comparability, which is important for effective systemic risk 
assessment and investor protection efforts.
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    \70\ Form PF currently defines ``unfunded commitments'' as 
``committed capital'' that has not yet been contributed to the 
private equity fund by investors. We propose to amend the definition 
so it refers to all reporting funds, not only private equity funds. 
Form PF defines ``committed capital'' as any commitment pursuant to 
which a person is obligated to acquire an interest in, or make 
capital contributions to, the private fund. See Form PF Glossary of 
Terms.
    \71\ Form PF requires advisers to calculate gross asset value 
and net asset value using regulatory assets under management, a 
regulatory metric from Form ADV. See ``gross asset value'' and ``net 
asset value'' as defined in Form PF Glossary of Terms; Form ADV: 
Instructions for Part 1A, Instruction 5.b. An adviser must calculate 
its regulatory assets under management on a gross basis, that is, 
without deduction of any outstanding indebtedness or other accrued 
but unpaid liabilities. In addition, an adviser must include the 
amount of any uncalled capital commitments made to a private fund 
managed by the adviser.
    \72\ Rules Implementing Amendments to the Investment Advisers 
Act of 1940, Advisers Act Release No. 3221 (June 22, 2011) [76 FR 
42950, 42956 (July 19, 2011)], at text accompanying n.90.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    39. Should Form PF require advisers who are filing quarterly 
updates to report information as of the end of each month of the 
reporting period, as proposed? Would this requirement facilitate our 
and FSOC's analysis of such advisers' other monthly Form PF data? Is 
there a better way to meet this objective?
    40. Should Form PF require advisers to report the value of unfunded 
commitments included in the gross asset value and net asset value, as 
proposed? Would the proposed amendment improve data accuracy and 
comparability? Would the proposed amendment more accurately identify 
how much leverage a fund with uncalled commitments has? Is there a 
better way to meet this objective?
    Inflows and outflows. We propose to add a question requiring 
advisers to report information concerning the reporting fund's 
activity, including contributions to the reporting fund, as well as 
withdrawals and redemptions, which would include all withdrawals, 
redemptions, or other distributions of any kind to investors.\73\ Form 
PF would specify that, for purposes of the question, advisers must 
include all new contributions from investors, but exclude contributions 
of committed capital that they have already included in gross asset 
value calculated in accordance with Form ADV instructions.\74\ 
Quarterly filers would provide this information for each month of the 
reporting period. This proposed requirement is designed to facilitate 
analysis of other monthly Form PF data, including certain fund 
performance and risk metrics.\75\ Therefore, this amendment is designed 
to improve data accuracy, and allow the Commissions and FSOC to analyze 
data more efficiently. Inflows and outflows inform the Commissions and 
FSOC of the relationship between flows and performance, changes to net 
and gross asset value, as well as trends in the private fund industry. 
Accordingly, this question is designed to provide a more accurate 
baseline understanding of

[[Page 53842]]

inflows and outflows, so the Commissions and FSOC can, for example, 
more accurately assess how much the private fund industry has grown 
from flows versus performance. Inflows and outflows also can indicate 
funding fragility, which can have systemic risk implications. 
Therefore, this amendment also is designed to provide more accurate 
data of inflows and outflows for systemic risk assessment and investor 
protection efforts, including identifying activity that may not match 
investor disclosures.
---------------------------------------------------------------------------

    \73\ See proposed Question 14.
    \74\ Form PF would cite to Form ADV, Part 1A Instruction 
6.e.(3).
    \75\ See supra footnote 69.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    41. Should proposed Question 14 apply to advisers to all reporting 
funds, as proposed, or only certain advisers to only certain reporting 
funds?
    42. Should proposed Question 14 instruct advisers to include or 
exclude any other information? Would proposed Question 14 raise 
operational challenges? For example, should the instructions specify 
whether to include or exclude distributions that may be recallable by 
the fund (i.e., ``recyclable capital commitments'' or capital that can 
be recalled to invest during a portion of the investment period)?
    43. Should Form PF require advisers to provide the amount of new 
redemptions or subscriptions based on notices that would be payable or 
expected after Form PF is due? If so, should all advisers submit such 
data for all reporting funds, or should only certain advisers submit it 
for only certain reporting funds?
    Base currency. The proposal would require all advisers to identify 
the base currency of all reporting funds, rather than only large hedge 
fund advisers identifying this information for only qualifying hedge 
funds.\76\ When a reporting fund uses a base currency other than U.S. 
dollars in the current Form PF, the adviser must convert all monetary 
values to U.S. dollars, unless otherwise specified, to complete Form 
PF, which may cause inconsistencies in the data.\77\ Currently, the 
Commissions and FSOC can identify such inconsistencies only for 
qualifying hedge funds from current Question 31. Therefore, this 
proposed change is designed to allow us and FSOC to interpret more 
accurately responses to questions regarding foreign exchange exposures 
and the effect of changes in currency rates on all reporting fund 
portfolios to aid systemic risk assessment and investor protection 
efforts across all reporting fund portfolios.
---------------------------------------------------------------------------

    \76\ To implement this, the proposal would move current Question 
31 from current section 2b, which requires large hedge fund advisers 
to report information about qualifying hedge funds, to section 1b 
which requires all advisers to report information about all the 
reporting funds they advise. See proposed Question 17.
    \77\ See current Instruction 15. We also propose to revise 
Instruction 15 to provide additional instructions concerning 
currency conversions. See section II.D of this Release.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    44. Should we expand reporting of base currency information for all 
reporting funds, as proposed? Would the proposed change allow us and 
FSOC to interpret responses to questions regarding foreign exchange 
exposures and the effect of changes in currency rates for these funds?
    45. Would the proposed amendment improve efficiency?
    Borrowings and types of creditors. The proposal would revise how 
advisers report the reporting fund's ``borrowings.'' We propose to 
revise the term ``borrowings'' to (1) specify that it includes 
``synthetic long positions,'' which Form PF would define in the 
Glossary of Terms, and (2) provide a non-exhaustive list of types of 
borrowings.\78\ This proposed reporting approach is consistent with SEC 
staff guidance from Form PF Frequently Asked Questions.\79\ This 
proposed amendment is designed to improve data quality, based on 
experience with the form. Current Question 12 requires advisers to 
report the value of the reporting fund's borrowings and the types of 
creditors. We propose to amend this question to require advisers to 
indicate whether a creditor is based in the United States and whether 
it is a ``U.S. depository institution,'' rather than a ``U.S. financial 
institution'' as is currently required.\80\ This proposed amendment is 
designed to make the categories more consistent with the categories the 
Federal Reserve Board uses in its reports and analysis, to enhance 
systemic risk assessment. The proposal would not require advisers to 
distinguish between non-U.S. creditors that are depository institutions 
and those that are not. We understand that it is difficult for advisers 
to distinguish non-U.S. creditors by type, resulting in inconsistent 
data that is less valuable for analysis.
---------------------------------------------------------------------------

    \78\ ``Borrowings'' would include, but would not be limited to 
(1) cash and cash equivalents received with an obligation to repay; 
(2) securities lending transactions (count cash and cash equivalents 
and securities received by the reporting fund in the transaction, 
including securities borrowed by the reporting fund for short 
sales); (3) repo or reverse repo (count the cash and cash 
equivalents and securities received by the reporting fund); (4) 
negative mark-to-market of derivative transactions from the 
reporting fund's point of view; and (5) the gross notional value of 
``synthetic long positions.'' We propose to define a ``synthetic 
long position'' in the Form PF Glossary of Terms (see the proposed 
Form PF Glossary of Terms for the proposed definition.) We are 
proposing this definition based on our understanding of the 
instruments and to help ensure data quality to aid comparability.
    \79\ See SEC staff Form PF Frequently Asked Questions, available 
at https://www.sec.gov/divisions/investment/pfrd/pfrdfaq.shtml 
(``Form PF Frequently Asked Questions''). See Form PF Frequently 
Asked Question 12.1 (which provides a non-exhaustive list of types 
of borrowings).
    \80\ See proposed Question 18. Form PF would define ``U.S. 
depository institution'' as any U.S. domiciled depository 
institution, including any of the following: (1) a depository 
institution chartered in the United States, including any federally-
chartered or state-chartered bank, savings bank, cooperative bank, 
savings and loan association, or an international banking facility 
established by a depositary institution chartered in the United 
States; (2) banking offices established in the United States by a 
financial institution that is not organized or chartered in the 
United States, including a branch or agency located in the United 
States and engaged in banking not incorporated separately from its 
financial institution parent, United States subsidiaries established 
to engage in international business, and international banking 
facilities; (3) any bank chartered in any of the following United 
States affiliated areas: U.S. territories of American Samoa, Guam, 
and the U.S. Virgin Islands; the Commonwealth of the Northern 
Mariana Islands; the Commonwealth of Puerto Rico; the Republic of 
the Marshall Islands; the Federated States of Micronesia; and the 
Trust Territory of the Pacific Islands (Palau); or (4) a credit 
union (including a natural person or corporate credit union). Form 
PF defines ``U.S. financial institution'' as any of the following: 
(1) a financial institution chartered in the United States (whether 
federally-chartered or state-chartered); (2) a financial institution 
that is separately incorporated or otherwise organized in the United 
States but has a parent that is a financial institution chartered 
outside the United States; or (3) a branch or agency that resides 
outside the United States but has a parent that is a financial 
institution chartered in the United States. See proposed Form PF 
Glossary of Terms.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    46. Should Form PF define or redefine any terms related to proposed 
Question 18? For example, should Form PF define ``U.S. depository 
institution,'' ``synthetic long positions,'' and revise the term 
``borrowings,'' as proposed? Could the definitions be clearer? Should 
Form PF define the terms differently? For example, should ``synthetic 
long position'' provide a different list of assets to be included or 
excluded? Does the reference to deep-in-the-money options in the 
definition of ``synthetic long position'' need further clarification? 
If so, what clarifications should we make?
    47. Would advisers find it difficult to distinguish among different 
types of non-U.S. creditors? Should Form PF require advisers to 
distinguish between non-U.S. creditors that are depository institutions 
and those that are not, or non-U.S. creditors that are financial 
institutions and those that are not?
    Fair value hierarchy. Current Question 14 requires advisers to 
report the assets and liabilities of each

[[Page 53843]]

reporting fund broken down using categories that are based on the fair 
value hierarchy established under U.S. generally accepted accounting 
principles.\81\ Current Question 14 is designed to provide insight into 
the illiquidity and complexity of a fund's portfolio and the extent to 
which the fund's value is determined using metrics other than market 
mechanisms.\82\ We are proposing to revise how advisers report fair 
value hierarchy in current Question 14, which we would redesignate as 
proposed Question 20, in the following ways to improve data quality and 
better understand the reporting fund's complexity and valuation 
challenges:
---------------------------------------------------------------------------

    \81\ See 2011 Form PF Adopting Release, supra footnote 3, at 
text accompanying n.204.
    \82\ See 2011 Form PF Adopting Release, supra footnote 3, at 
n.204.
---------------------------------------------------------------------------

     We propose to require advisers to indicate the date the 
categorization was performed. This proposed amendment is designed to 
show how old the data is. Some advisers report current fair value 
hierarchy, while others report a prior year's fair value hierarchy if 
the current data is not yet available.\83\ This can cause confusion 
when analyzing the data, because the fair value hierarchy data concerns 
a different time period than the other data advisers report on Form PF. 
Therefore, we believe that adding a categorization date would help 
ensure the data is not incorrectly categorized as applying to the wrong 
time period, and in turn, would allow the Commissions and FSOC to 
correlate data to other Form PF data and market events more accurately.
---------------------------------------------------------------------------

    \83\ Advisers are not required to update information that they 
believe in good faith properly responded to Form PF on the date of 
filing even if that information is subsequently revised for purposes 
of their recordkeeping, risk management, or investor reporting (such 
as estimates that are refined after completion of a subsequent 
audit). See Instruction 16.
---------------------------------------------------------------------------

     We propose to direct advisers to report the absolute value 
of all liabilities. Currently, advisers report liabilities 
inconsistently, with some reporting absolute values and others 
reporting negative values. This inconsistency causes errors when the 
Commissions and FSOC aggregate this data and we believe the proposed 
instruction would help reduce aggregation errors.
     We propose to direct advisers to provide an explanation in 
Question 4 if they report assets as a negative value. We have found 
that some advisers have reported negative values for assets in 
error.\84\ Therefore, this instruction is designed to reduce 
inadvertent errors.
---------------------------------------------------------------------------

    \84\ We recognize that there may be cases when advisers 
correctly report negative values, such as when subtracting fund of 
fund investments.
---------------------------------------------------------------------------

     We propose to require advisers to separately report cash 
and cash equivalents. Currently, Form PF does not explain where 
advisers must report cash and cash equivalents in current Question 14. 
While SEC staff have suggested that advisers generally should report 
cash in the cost based column and cash equivalents in the applicable 
column in the fair value hierarchy or the cost based column, depending 
on the nature of the cash equivalents, we are proposing to add a 
separate column for cash and cash equivalents.\85\ The proposed 
categorization is designed to differentiate reported holdings of cash 
and cash equivalents from harder to value assets that may be valued at 
cost, and in turn, improve data quality and comparability.
---------------------------------------------------------------------------

    \85\ See Form PF Frequently Asked Question 14.3, Form PF 
Frequently Asked Questions, supra footnote 79.
---------------------------------------------------------------------------

     We propose to amend the definition of ``cash and cash 
equivalents.'' The current definition of ``cash and cash equivalents'' 
includes ``government securities.'' \86\ When reporting cash and cash 
equivalents, some advisers may include government securities with 
longer maturities, while others do not, which results in inconsistent 
reporting and may obscure our and FSOC's understanding of fund 
exposures. Therefore, to improve data quality, we propose to remove 
government securities from the definition of ``cash and cash 
equivalents,'' and present it as its own line item in the proposed Form 
PF Glossary of Terms.\87\ We also propose to amend the term ``cash and 
cash equivalents'' so it would direct advisers to not include any 
digital assets when reporting cash and cash equivalents. As discussed 
in section II.B.3 of this Release, we propose to define ``digital 
assets'' and require advisers to report them separately than other 
types of assets.\88\ Therefore, this proposed amendment is designed to 
ensure that the categories of ``cash and cash equivalents'' and 
``digital assets'' are clearly distinct to help ensure accurate 
reporting.
---------------------------------------------------------------------------

    \86\ Current Form PF defines ``government securities'' in the 
current term ``cash and cash equivalents'' as (1) U.S. treasury 
securities, (2) agency securities, and (3) any certificate of 
deposit for any of the foregoing.
    \87\ We propose to make corresponding amendments to the 
definition of ``unencumbered cash'' to reflect that ``government 
securities'' would be a distinct term from ``cash and cash 
equivalents.'' This proposed amendment is not intended to change the 
meaning of the term ``unencumbered cash.'' See Form PF Glossary of 
Terms.
    \88\ See e.g., proposed Question 25, which would include digital 
assets as a strategy category for advisers to hedge funds.
---------------------------------------------------------------------------

     We propose to add instructions directing advisers about 
how to report data if their financial statement's audit is not yet 
completed when Form PF is due. The instructions would state that 
advisers should use the estimated values for the fiscal year and 
explain that the information is an estimate in Question 4. The proposed 
instructions also would provide that the adviser may, but is not 
required to, amend Form PF when the audited financial statements are 
complete.\89\ The instructions are consistent with responses to Form PF 
Frequently Asked Questions and are designed to provide the Commissions 
and FSOC with more recent information regarding the reporting fund than 
may be possible if the reporting fund relied solely on audited 
financial statement information (i.e., the reporting fund's previous 
fiscal year's audited financial statements).\90\ Given that advisers 
file Form PF sometimes months after their quarter and year ends, 
depending on their size and the type of funds they advise, we believe 
the proposed instruction would balance reporting burdens with more 
timely information for assessing potential systemic risk and investor 
protection concerns.
---------------------------------------------------------------------------

    \89\ Form PF Instruction 16 would continue to provide that an 
adviser is not required to update information that it believes in 
good faith properly responds to Form PF on the date of filing, even 
if that information is subsequently revised, as Form PF currently 
provides.
    \90\ See Form PF Frequently Asked Question A.11, Form PF 
Frequently Asked Questions, supra footnote 79.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    48. Should we require advisers to indicate the date the 
categorization was performed, as proposed? Would this proposed 
amendment help ensure the data is correctly categorized as applying to 
the appropriate time period, and in turn, allow the Commissions and 
FSOC to correlate data to other Form PF data and market events more 
accurately? Is there a better way to meet this objective?
    49. Should Form PF direct advisers to report the absolute value of 
all liabilities, as proposed? Would this proposed amendment reduce 
aggregation errors? Is there a better way to meet this objective?
    50. Should Form PF direct advisers to provide an explanation in 
Question 4 if they report assets as a negative value, as proposed? 
Would this proposed instruction reduce inadvertent errors?
    51. Should advisers report cash or cash equivalents separately from 
other

[[Page 53844]]

assets, as proposed? Are there other alternatives we should implement? 
For example, should Form PF require advisers to report cash in the cost 
based column and cash equivalents in the applicable column in the fair 
value hierarchy or the cost based column, depending on the nature of 
the cash equivalents? \91\
---------------------------------------------------------------------------

    \91\ See supra footnote 85.
---------------------------------------------------------------------------

    52. Would the proposed amendments to the terms ``cash and cash 
equivalents'' and ``unencumbered cash,'' and the addition of 
``government securities'' allow for more precise reporting for these 
types of assets? Alternatively, should the definition of ``cash and 
cash equivalents'' provide that government securities would be included 
in cash equivalents if they are eligible to be held by money market 
funds under the risk-limiting condition set forth in [17 CFR 270.2a-
7(d)(1)(i)] Investment Company Act rule 2a-7(d)(1)(i), which generally 
prohibits a money market fund from acquiring any instrument with a 
remaining maturity of greater than 397 calendar days? Should this 
language be more comparable with other requirements of Form PF, which 
require large liquidity fund advisers to report the dollar amount of a 
liquidity fund's assets that have a maturity greater than 397 days? 
\92\ Should Form PF provide distinct line items for the term ``cash'' 
and ``cash equivalents,'' and revise questions to refer to each term, 
as applicable? Should the term ``unencumbered cash'' continue to refer 
to government securities, as proposed, or should we modify the term 
differently? For example, should ``unencumbered cash'' refer to U.S. 
treasury bills, rather than government securities?
---------------------------------------------------------------------------

    \92\ See e.g., Form PF, section 3, current Question 55(i). The 
SEC recently proposed amendments to Form PF section 3, which would 
redesignate current Question 55(i) to reflect new numbering. See 
2022 SEC Form PF Proposal, supra footnote 13.
---------------------------------------------------------------------------

    53. Should Form PF direct advisers to report estimated values if 
their financial statement's audit is not yet completed when Form PF is 
due, as proposed? Alternatively, should we require advisers to update 
Form PF with updated values when the audited financial statements are 
complete?
    Beneficial Ownership of the Reporting Fund. Current Question 16 
requires advisers to specify the approximate percentage of the 
reporting funds' equity that is beneficially owned by different groups 
of investors. We propose to require advisers to provide more granular 
information regarding the following groups of beneficial owners.\93\
---------------------------------------------------------------------------

    \93\ See proposed Question 22.
---------------------------------------------------------------------------

     Advisers would indicate whether beneficial owners that are 
broker-dealers, insurance companies, non-profits, pension plans, 
banking or thrift institutions are U.S. persons or non-U.S. 
persons.\94\ This proposed amendment is designed to allow the 
Commissions and FSOC to conduct more targeted analysis about risks 
presented in the United States separate from risks presented abroad. 
With regard to pension plans, in particular, it is currently unclear 
how advisers must report assets in non-U.S. pension plans: as 
governmental pension plans or foreign official institutions. Therefore, 
this proposed amendment also is designed to improve data quality, based 
on experience with the form.
---------------------------------------------------------------------------

    \94\ We understand that, in some cases, an adviser may not be 
able to determine what type of non-U.S. entity the investor is. 
Current Question 16 already provides a category that would address 
that scenario in certain circumstances, and we would maintain that 
approach. If investors that are not United States persons and about 
which certain beneficial ownership information is not known and 
cannot reasonably be obtained because the beneficial interest is 
held through a chain involving one or more third-party 
intermediaries, advisers currently report this in current Question 
16(m), which we would redesignate as proposed Question 22(s).
---------------------------------------------------------------------------

     Advisers would indicate whether beneficial owners that are 
private funds are either internal private funds (i.e., managed by the 
adviser or its related persons) or external private funds. This 
proposed amendment is designed to help the Commissions and FSOC 
understand the interconnectedness of private funds to each other, which 
would aid systemic risk assessment and investor protection efforts. 
Furthermore, this information is designed to help the Commissions and 
FSOC understand a reporting fund's risk from investor demands for 
liquidity, because beneficial owners that are external private funds 
may have less predictable withdrawals than internal private funds.
     We would specify that ``state'' investors are U.S. state 
investors to improve data quality and reduce potential confusion.\95\
---------------------------------------------------------------------------

    \95\ The proposal also would include instructions to proposed 
Question 22, as well as current Question 15, which we would 
redesignate as proposed Question 21 (concerning a certain percentage 
of beneficial ownership), providing that if the reporting fund is 
the master fund in a master-feeder arrangement, advisers must look 
through any disregarded feeder fund (i.e., a feeder fund that is not 
required to be separately reported). This proposed amendment is 
designed to implement the proposed master-feeder reporting. See 
section II.A.1 of this Release.
---------------------------------------------------------------------------

    The proposal would provide that if advisers report information in 
the ``other'' category, they must describe in Question 4 the type of 
investor, why it would not qualify for any of the other categories, and 
any other information to explain the selection of ``other.'' This 
proposed amendment is designed to improve data quality by providing 
context to the adviser's selection of the ``other'' category, and help 
ensure that advisers do not inadvertently report information in the 
wrong category.
    We request comment on the proposed amendments.
    54. Should we revise the reporting categories as proposed? Should 
we eliminate, add, or change any categories? For example, should we add 
categories for security-based swap dealers that are U.S. persons and 
those that are not? The instructions for current Question 16 require 
advisers to include each investor in only one group. Therefore, if we 
require advisers to report whether an investor is a security-based swap 
dealer, how should they report the investor if the investor also 
qualifies for another category, such as broker-dealers or ``banking or 
thrift institutions?'' For example, should the list be non-exclusive? 
Is there a better way to address cases when advisers may not be able to 
determine what type of entity the investor is? \96\
---------------------------------------------------------------------------

    \96\ See supra footnote 94.
---------------------------------------------------------------------------

    55. Should Form PF require advisers to explain their response when 
they select ``other'' as a category, as proposed? Should Form PF 
require the adviser to include more, less, or different information in 
the explanation? Would this proposed change provide context to the 
adviser's selection of the ``other'' category and help prevent 
misreporting?
    56. Should we add instructions to current Question 15 (which we 
propose to redesignate as proposed Question 21) to allow good faith 
estimates in determining beneficial interests outstanding before March 
31, 2012 (the effective date of Form PF), that have not been 
transferred on or after that date, as current Question 16 does and Form 
PF would continue to provide in proposed Question 22?
    57. Current Question 16 includes a category concerning broker-
dealers. Under the proposal, advisers would distinguish between broker-
dealers that are U.S. persons and those that are not U.S. persons. 
Should Form PF define ``broker-dealer'' or use different terms so the 
categories would be more consistent with the Federal Reserve Board's 
reports and analysis? Is there a way to achieve this objective while 
ensuring the terms are consistent with the SEC's definition of the 
terms? For example, should Form PF use and define the term ``broker'' 
or ``dealer'' as they are defined in the Securities Exchange Act of 
1934 (``Exchange Act'')? \97\ Should Form PF

[[Page 53845]]

use and define the term ``foreign broker or dealer'' as it is defined 
in [17 CFR 240.15a-6(b)(3)] (``Exchange Act rule 15a-6(b)(3)'')? Should 
Form PF use the term ``securities brokers and dealers,'' and define it 
the following way: Firms that buy and sell securities for a fee, hold 
an inventory of securities for resale, or do both? Are the firms that 
make up this sector those that submit information to the SEC on one of 
two reporting forms, either [17 CFR 249.617] Form X-17A-5, Financial 
and Operational Combined Uniform Single Report of Brokers and Dealers 
(``FOCUS Report'') or [17 CFR 449.5] Form G-405, on Finances and 
Operations of Government Securities Brokers and Dealers (``FOGS 
Report'')?
---------------------------------------------------------------------------

    \97\ 15 U.S.C. 78c(a)(4) and 15 U.S.C. 78c(a)(5).
---------------------------------------------------------------------------

    Fund Performance. We are proposing several amendments regarding 
fund performance reporting in current Question 17, which we would 
redesignate as proposed Question 23.\98\ Currently, Form PF requires 
all advisers to report gross and net fund performance for specified 
fiscal periods using a table in current Question 17. The table in 
current Question 17 requires advisers to provide monthly and quarterly 
performance results in the table only if such results are calculated 
for the reporting fund. This requirement would remain, but we propose 
to add instructions specifying which lines to complete depending on 
whether the adviser is submitting an initial filing, annual update, or 
quarterly update.\99\ We also propose to amend the instructions to the 
table to specify that if gross and net performance is reported to 
current and prospective investors, counterparties, or otherwise in a 
currency other than U.S. dollars, advisers must report the data using 
that currency. We believe this instruction is implied in the current 
form and we propose to amend this instruction to make it explicit. We 
also propose to require advisers to identify the currency in Question 
4.\100\ This proposed amendment is designed to inform the Commissions 
and FSOC of the currency the adviser used to report the reporting 
fund's gross and net performance, for more accurate and informed 
analysis.
---------------------------------------------------------------------------

    \98\ In a separate release, the SEC is proposing a new rule 
under the Advisers Act to require advisers to provide certain fund 
performance information to its private funds' investors in quarterly 
statements. See Private Fund Advisers; Documentation of Registered 
Investment Adviser Compliance Reviews, Advisers Act Release No. IA-
5955 (Feb. 9, 2022) [87 FR 16886, (Mar. 24, 2022)].
    \99\ We also propose to reorganize the table so monthly, 
quarterly, and yearly data is presented in separate categories, but 
this change would not affect reporting; advisers would report 
information according to the same intervals, as they currently do. 
We also propose to amend the table to refer to the end date of each 
applicable month, quarter, and year, rather than last day of the 
fiscal period, to reflect the proposed amendments to the reporting 
period, as discussed above. See supra section II.A.3 of this 
Release, and proposed Question 23(a).
    \100\ See proposed Question 23(a).
---------------------------------------------------------------------------

    We also propose to create an exception to the tabular reporting. If 
the reporting fund's performance is reported to current and prospective 
investors, counterparties, or otherwise as an internal rate of return 
since inception, the adviser would report its performance as an 
internal rate of return.\101\ If such information is reported to 
current and prospective investors, counterparties, or otherwise, in a 
currency other than U.S. dollars, advisers would report the data using 
that currency, and identify the currency in Question 4. This approach 
is designed to acknowledge that advisers calculate performance data 
differently for different types of private funds. For example, advisers 
of private equity funds may use internal rate of return to calculate 
performance data, while advisers to liquidity funds and hedge funds may 
use a periodic rate of return. These calculations may differ in the way 
they reflect realized and unrealized gains, among other things. 
Therefore, the proposed change is designed to allow the Commissions and 
FSOC to improve the usefulness and quality of performance data to 
conduct more accurate analysis, including comparisons, and 
aggregations.
---------------------------------------------------------------------------

    \101\ See proposed Question 23 instructions, and proposed 
Question 23(b). Proposed Question 23(b) also would require that if 
the fund reports different performance results to different groups, 
advisers must provide the most representative results and explain 
their selection in Question 4. The instructions to proposed Question 
23(b) would specify that internal rates of return for periods longer 
than one year must be annualized, while internal rates of return for 
periods one year or less must not be annualized. This instruction is 
designed to help ensure consistent reporting for accurate 
comparisons.
---------------------------------------------------------------------------

    The proposal would require advisers to report additional 
performance-related information if the adviser calculates a market 
value on a daily basis for any position in the reporting fund's 
portfolio. In such a case, the adviser would report the following:
     The ``reporting fund aggregate calculated value'' at the 
end of the reporting period.\102\ Advisers that file a quarterly update 
also would report the reporting fund aggregate calculated value as of 
the end of the first and second month of the reporting period.\103\
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    \102\ We would define the term ``reporting fund aggregate 
calculated value'' in the Form PF Glossary of Terms. See proposed 
Form PF Glossary of Terms and proposed Question 23(c).
    \103\ See proposed Question 23(c)(i).
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     The reporting fund's volatility of the natural log of the 
daily ``rate of return'' for each month of the reporting period, 
following a prescribed methodology.\104\ Advisers would report whether 
the reporting fund uses a different methodology than is prescribed in 
Form PF to report to current and prospective investors, counterparties, 
or otherwise, and if so, they would describe it in Question 4.\105\
---------------------------------------------------------------------------

    \104\ We would define ``rate of return'' for a reporting fund as 
the percentage change in the reporting fund aggregate calculated 
value in the reporting fund's base currency from one date to 
another, and adjusted for subscriptions and redemptions. For a 
portfolio position, the ``rate of return'' would be the percentage 
change in the ``position calculated value,'' adjusted for income 
earned. We would define ``position calculated value'' in the Form PF 
Glossary of Terms. The prescribed methodology would be the standard 
deviation of the natural log of one plus each of the daily rates of 
return in the month, annualized by the square root of 252 trading 
days. When calculating the natural log of a daily rate of return, 
the rate of return, which is expressed as a percent, must first be 
converted to a decimal value and then one must be added to the 
decimal value. See proposed Form PF Glossary of Terms and Question 
23(c)(ii).
    \105\ See proposed Question 23(c)(iii).
---------------------------------------------------------------------------

     Whether the reporting fund had one or more days with a 
negative daily rate of return during the reporting period. If so, 
advisers would report (1) the most recent peak to trough drawdown, and 
indicate whether the drawdown was continuing on the data reporting 
date, (2) the largest peak to trough drawdown, (3) the largest single 
day drawdown, and (4) the number of days with a negative daily rate of 
return in the reporting period.\106\ These measures are designed to 
help us and FSOC understand risk, particularly in reporting funds with 
unique return patterns that are poorly measured using volatility alone. 
We understand that advisers use drawdown metrics, therefore, this 
question also is designed to be more reflective of industry practice, 
and in turn improve data quality.
---------------------------------------------------------------------------

    \106\ See proposed Question 23(iv).
---------------------------------------------------------------------------

    Together, the proposed changes are designed to allow the 
Commissions and FSOC to more accurately compare volatility across 
different fund types to identify market trends (e.g., volatility of a 
specific fund type), for systemic risk assessment and investor 
protection efforts. For example, if several reporting funds that engage 
in similar trading activity experience a surge in volatility, the 
volatility itself or the reporting funds' response to the volatility 
may impact others who also are engaging in similar trading activity, 
which could pose systemic risk, and negatively affect investors.
    We request comments on the proposed amendments.

[[Page 53846]]

    58. Would the proposed changes improve data quality and provide the 
Commissions and FSOC with a more robust picture of fund performance?
    59. Should we amend the table in current Question 17, as proposed? 
For example, should we specify that if a reporting fund's gross and net 
performance is reported to current and prospective investors, 
counterparties, or others in a currency other than U.S. dollars, 
advisers must report the data using that currency, as proposed? Should 
we require advisers to identify the currency in Question 4, as 
proposed?
    60. Do different types of private funds calculate performance data 
differently based on industry conventions, or otherwise? Do the 
proposed requirements and defined terms accurately capture the right 
types of performance reporting for investor protection and systemic 
risk assessment? Is there a better way to meet these objectives?
    61. As an alternative, should Form PF require advisers to report 
the reporting fund aggregate calculated value information only for 
reporting funds that meet a certain asset threshold?
    62. Should Form PF require advisers to follow the prescribed 
methodology to compute the reporting fund's volatility of the daily 
rate of return, as proposed, or should Form PF require advisers to 
follow a different methodology? If so, what methodology should Form PF 
prescribe and why? Should advisers have the flexibility to use their 
own methodology to compute the reporting fund's volatility of the daily 
rate of return? If advisers use their own methodology, how could the 
Commissions and FSOC ensure data could be aggregated and compared?
    63. Could the instructions on how to calculate the volatility of 
the daily rate of return be clearer? For example, should the form 
include a calculation worksheet for advisers to fill out to help 
advisers calculate the volatility of rates of return?
    64. Should we define ``position calculated value,'' ``reporting 
fund aggregate calculated value,'' and ``rate of return,'' as proposed?
    65. We are not defining the term ``drawdown.'' Should Form PF 
define ``drawdown?'' For example, should Form PF define ``drawdown'' as 
the maximum loss in the value over a specified time internal? Should 
Form PF define or redefine any other terms?
    66. Should Form PF specify what ``peak to trough'' means? For 
example, should ``peak to trough'' mean the percentage decline from 
portfolio's highest value (peak) to lowest value (trough) following the 
establishment of the highest value (peak)? Are there industry standards 
for determining peak to trough? For example, should Form PF provide 
guidance on when the ``peak'' or ``trough'' should be reset? As an 
alternative to requiring information about ``peak to trough,'' should 
Form PF require advisers to report the maximum drawdown? If so, should 
Form PF define ``maximum drawdown'' as the largest decline over any 
time interval within the reporting period?
    67. Should Form PF require advisers to report information about the 
negative daily rates of return, as proposed? Alternatively, should Form 
PF require the largest peak to trough drawdown over a rolling 10-day 
period, or in each month?
    68. Alternatively, should Form PF require advisers to report the 
daily mark to market calculations, or both the daily rate of return and 
the daily mark to market calculations?
    69. Are the instructions clear for reporting funds that have base 
currencies other than U.S. dollars? Should we revise the form further 
to accommodate data concerning such funds?
3. Proposed Amendments to Section 1c of Form PF--Concerning All Hedge 
Funds
    Section 1c requires advisers to report information about the hedge 
funds they advise. We propose to require advisers to report additional 
information about hedge funds to provide greater insight into hedge 
funds' operations and strategies, assist in identifying trends, and 
improve data quality and data comparability for purposes of systemic 
risk assessments and to further investor protection efforts. We also 
propose to remove certain questions where other questions would provide 
the same or more useful data to streamline reporting and reduce 
reporting burdens without compromising investor protection efforts and 
systemic risk analysis.
    Investment Strategies. We propose to amend how advisers report 
hedge fund investment strategies.\107\ We propose to require advisers 
to indicate which investment strategies best describe the reporting 
fund's strategies on the last day of the reporting period, rather than 
allowing advisers flexibility to report information as of the data 
reporting date or throughout the reporting period, as Form PF currently 
provides.\108\ This amendment is designed to improve data quality by 
specifying how to report information if the reporting fund changes 
strategies over time.
---------------------------------------------------------------------------

    \107\ We would amend current Question 20, and redesignate it as 
proposed Question 25.
    \108\ See current Question 20.
---------------------------------------------------------------------------

    We also propose to update the strategy categories that advisers can 
select to reflect our understanding of hedge fund strategies better, 
and improve data quality and comparability, based on experience with 
the form. For example, we propose to include more granular categories 
for equity strategies, such as factor driven, statistical arbitrage, 
and emerging markets. Similarly, we propose to include more granular 
categories for credit strategies, such as litigation finance, emerging 
markets, and asset-backed/structured products. These more granular 
categories are designed to allow the Commissions and FSOC to conduct 
more targeted analysis and improve comparability among advisers and 
hedge funds, which the Commissions and FSOC can use to more accurately 
identify and address systemic risk and investor protection issues in 
times of stress. We also propose to add categories that have become 
more commonly pursued by hedge funds since Form PF was adopted, such as 
categories concerning real estate and digital assets.\109\ Today, 
advisers may report information regarding these strategies in the 
``other'' category, resulting in less robust Form PF data for analysis, 
especially when such analysis filters results based on strategy.\110\ 
Therefore, the additional categories are designed to improve reporting 
quality and data comparability across advisers, based on experience 
with the form. If advisers select the ``other'' category, we propose to 
require them to describe in Question 4 the investment strategy, why the 
reporting fund would not qualify for any of the other categories, and 
any other information to explain the selection of ``other.'' This 
proposed change is designed to improve data quality by providing 
context to the adviser's selection of the ``other'' category. It also 
is designed to help us ensure that advisers are not misreporting 
information in the ``other'' category when they should be reporting 
information in a different category.
---------------------------------------------------------------------------

    \109\ Aggregate qualifying hedge fund gross notional exposure to 
physical real estate has grown by 72 percent from the second quarter 
2018 through the third quarter of 2021, to $146 billion. See Private 
Funds Statistics, supra footnote 7, First Quarter 2020 (showing data 
from the second quarter of 2018), and Third Quarter 2021.
    \110\ The amount of hedge fund exposure that advisers attribute 
to the ``other'' category has more than doubled to $57 billion, from 
2013 through third quarter 2021. See Private Funds Statistics, supra 
footnote 7.
---------------------------------------------------------------------------

    In connection with these proposed amendments, we propose to define 
the term ``digital asset'' as an asset that is

[[Page 53847]]

issued and/or transferred using distributed ledger or blockchain 
technology (``distributed ledger technology''), including, but not 
limited to, so-called ``virtual currencies,'' ``coins,'' and 
``tokens.'' These types of assets also are commonly referred to as 
``crypto assets.'' \111\ We view these terms as synonymous. We are 
proposing the term and definition to be consistent with the SEC's 
recent statement on digital assets, and we believe that such term and 
definition would provide a consistent understanding of the type of 
assets we intend to address.\112\ The SEC proposed to add the same term 
and definition to SEC's section of Form PF in the 2022 SEC Form PF 
Proposal.\113\ The definition is designed to help ensure that advisers 
report digital asset strategies accurately.
---------------------------------------------------------------------------

    \111\ See e.g., FSOC 2021 Annual Report, at 184-185, available 
at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf (noting that another industry term for 
``digital asset'' is ``crypto asset'').
    \112\ See Custody of Digital Asset Securities by Special Purpose 
Broker-Dealers, Exchange Act Release No. 90788 (Dec. 23, 2020) [86 
FR 11627 (Feb. 26, 2021)], at n.1.
    \113\ 2022 SEC Form PF Proposal, supra footnote 13.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    70. Should Form PF direct advisers to report information about the 
reporting fund's strategies on the last day of the reporting period, as 
proposed? Would this proposed amendment improve data quality, and 
reduce ambiguity?
    71. Should Form PF continue to provide that the strategies are 
mutually exclusive and direct advisers to not report the same assets 
under multiple strategies, as it currently does? Alternatively, should 
Form PF allow advisers to report the same assets under multiple 
strategies?
    72. Should Form PF include more, fewer, or different categories? 
Would the proposed categories improve reporting accuracy and data 
comparability across advisers? Are there other strategies that are 
important to track for assessing systemic risk or for the protection of 
investors?
    73. Are there categories that advisers report in the ``other'' 
category that Form PF should include as their own categories? Should we 
remove the ``other'' category?
    74. Should we require more specific disclosure of what each digital 
asset represents? If so, what kinds of descriptions would be needed and 
in what detail? For example, should the description include the rights 
the digital asset provides to the holder? Should Form PF distinguish, 
for example, between digital assets that represent an ability to 
convert or exchange the digital asset for fiat currency or another 
asset, including another digital asset, and those that do not represent 
such a right to convert or exchange? For those digital assets that 
represent a right to convert or exchange for fiat currency or another 
digital asset, should we distinguish between those where the redemption 
obligation is supported by an unconditional guarantee of payment, such 
as some ``central bank digital currencies,'' and those digital assets 
redeemable upon demand from the issuer, whether or not collateralized 
by a pool of assets or a reserve? Should we identify digital assets 
that do not represent any direct or indirect obligation of any party to 
redeem or those that represent an equity, profit, or other interest in 
an entity?
    75. Should Form PF define or re-define any terms that are listed as 
a proposed strategy?
    Should Form PF define ``digital asset,'' as proposed? If not, 
please identify alternative elements that would better identify the 
digital assets held by private funds. Should Form PF use the term 
``crypto asset'' instead of the term ``digital asset''?
    76. Some reporting funds report as hedge funds, but may hold 
commodities that are not securities or may hold commodity derivatives 
such as bitcoin futures that would make them a commodity pool. Should 
Form PF include categories for funds that hold digital assets 
regardless of how the fund characterizes itself based on the assets it 
is holding or would the proposed categories (other than the ``other'' 
category) apply?
    77. If advisers select the ``other'' category, should Form PF 
require them to explain the selection, as proposed? Should Form PF 
require the adviser to include more, less, or different information in 
the explanation?
    78. Should Form PF require advisers to provide explanations for any 
other categories besides the ``other'' category, as proposed? For 
example, if advisers report digital assets, should Form PF require 
advisers to provide the name of the digital asset, or describe the 
characteristics of the digital asset?
    Counterparty exposures. Counterparty exposure informs the 
Commissions and FSOC of the interconnectedness of hedge funds with the 
broader financial services industry, which is a critical part of 
systemic risk assessment and investor protection efforts. Understanding 
counterparty exposures allows the Commissions and FSOC to assess who 
may be impacted by a reporting fund's failure, and which reporting 
funds may be impacted by a counterparty's failure. Counterparty 
exposure concerning central clearing counterparties (``CCPs'') is of 
importance to FSOC's systemic risk assessment efforts as evidenced by 
the fact that FSOC has designated many CCP institutions as 
``systemically important,'' and recommended that regulators continue to 
coordinate to evaluate threats from both default and non-default losses 
associated with CCPs.\114\
---------------------------------------------------------------------------

    \114\ Form PF defines ``CCP'' as central clearing counterparties 
(or central clearing houses) (for example, CME Clearing, The 
Depository Trust & Clearing Corporation, Fedwire and LCH Clearnet 
Limited). See Financial Stability Oversight Council, 2012 Annual 
Report, Appendix A, available at https://home.treasury.gov/system/files/261/2012-Annual-Report.pdf. (concerning the designations); 
Financial Stability Oversight Council, 2021 Annual Report, p. 14, 
available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf. (concerning the recommendation).
---------------------------------------------------------------------------

    The proposal would add proposed Question 26, and revise current 
Questions 22 and 23, and redesignate them as proposed Questions 27 and 
28, to provide better insight into hedge funds' borrowing and financing 
arrangements with counterparties, including CCPs. Proposed Question 26 
would require advisers to hedge funds (other than qualifying hedge 
funds) to complete a new table (the ``consolidated counterparty 
exposure table'') concerning exposures that (1) the reporting fund has 
to creditors and counterparties, and (2) creditors and other 
counterparties have to the reporting fund.\115\ Advisers would report 
the U.S. dollar value of the reporting fund's ``borrowing and 
collateral received (B/CR),'' as well as its ``lending and posted 
collateral (L/PC),'' aggregated across all counterparties, including 
CCPs, as of the

[[Page 53848]]

end of the reporting period.\116\ The form would explain what exposures 
to net.\117\ Advisers would classify information according to type 
(e.g., unsecured borrowing, secured borrowing, derivatives cleared by a 
CCP, and uncleared derivatives) and the governing legal agreement 
(e.g., a prime brokerage or other brokerage agreement for cash margin 
and securities lending and borrowing, a global master repurchase 
agreement for repo/reverse repo, and International Swaps and 
Derivatives Association (``ISDA'') master agreement for synthetic long 
positions, ``synthetic short positions,'' and derivatives).\118\ 
Advisers would report transactions under a master securities loan 
agreement as secured borrowings. Advisers would check a box if one or 
more prime brokerage agreements provide for cross-margining of 
derivatives and secured financing transactions. If advisers check the 
box, we propose to include instructions about how to report secured 
financing and derivatives in the consolidated counterparty exposure 
table.
---------------------------------------------------------------------------

    \115\ Qualifying hedge funds would not complete this table 
because section 2 would be revised to include similar questions that 
require additional detail. See discussion at Section II.C of this 
Release. Together the proposed questions in section 1c and similar 
questions at section 2 would allow the Commissions and FSOC to 
consolidate information relating to hedge funds' and qualifying 
hedge funds' arrangements with creditors and other counterparties, 
to support systemic risk assessment and investor protection efforts. 
We propose to define the term ``consolidated counterparty exposure 
table'' in the Form PF Glossary of Terms. For hedge funds, other 
than qualifying hedge funds, it would mean the section 1c table (at 
proposed Question 26) that collects the reporting fund's borrowing 
and collateral received and lending and posted collateral aggregated 
across all creditors and counterparties as of the end of the 
reporting period. For qualifying hedge funds, it would mean the 
section 2 table (at proposed Question 41) that collects the 
reporting fund's borrowing and collateral received and lending and 
posted collateral aggregated across all creditors and counterparties 
as of the end of the reporting period.
    \116\ We would define ``borrowing and collateral received (B/
CR)'' and ``lending and posted collateral (L/PC)'' in the Form PF 
Glossary of Terms. We are proposing these definitions based on our 
understanding of borrowing and lending and to help ensure data 
quality and comparability. We also propose to amend the term ``gross 
notional value'' to provide more detail on how to report it to aid 
advisers completing the consolidated counterparty exposure table. 
See proposed Form PF Glossary of Terms.
    \117\ Advisers would net the reporting fund's exposure with each 
counterparty and among affiliated entities of a counterparty to the 
extent such exposures may be contractually or legally set-off or 
netted across those entities or one affiliate guarantees or may 
otherwise be obligated to satisfy the obligations of another under 
the agreements governing the transactions. We would include 
instructions providing that netting must be used to reflect net cash 
borrowed from or lent to a counterparty, but must not be used to 
offset securities borrowed and lent against one another, when 
reporting prime brokerage and repo/reverse repo transactions. These 
instructions are designed to help ensure data quality and 
comparability. See proposed Question 26.
    \118\ We propose to define ``ISDA'' as the International Swaps 
and Derivatives Association. We also propose to define ``synthetic 
short positions'' in the Form PF Glossary of Terms (see the proposed 
Form PF Glossary of Terms for the proposed definition). We are 
proposing this definition based on our understanding of the 
instruments and to help ensure data quality to aid comparability. 
See also supra footnote 78 (discussing the proposed definition of 
``synthetic long position'').
---------------------------------------------------------------------------

    Form PF would continue to require advisers to report information 
about individual counterparties that present the greatest exposure to 
and from hedge funds.\119\ Under the proposal, however, advisers to 
qualifying hedge funds would not complete proposed Questions 27 and 28, 
if they complete certain similar questions in Form PF section 2, to 
avoid duplication.\120\ We also propose to revise current Questions 22 
and 23 to improve data quality.
---------------------------------------------------------------------------

    \119\ See current Questions 22 and 23, and proposed Questions 27 
and 28.
    \120\ See proposed Questions 42 and 43 in Form PF section 2, and 
supra footnote 115.
---------------------------------------------------------------------------

     Although current Questions 22 and 23 provide instructions 
on how to identify the counterparties, we understand that advisers have 
been using different methodologies to identify them, and have 
misidentified lending relationships, which has limited the utility and 
comparability of the reported information. Therefore, we propose to 
provide more detailed instructions for advisers to use to identify the 
individual counterparties. For both proposed Questions 27 and 28, 
advisers would use the calculations from the consolidated counterparty 
exposure table to identify the counterparties.\121\ This proposed 
amendment is designed to help ensure that the Commissions' and FSOC's 
analysis can identify true data differences, without the distraction of 
methodology differences, which can suggest differences where there are 
none, and reduce circumstances where advisers would misidentify lending 
relationships.
---------------------------------------------------------------------------

    \121\ See proposed Question 26 for the consolidated counterparty 
exposure table. The proposal would define new terms related to the 
consolidated counterparty exposure table: ``cash borrowing 
entries,'' ``cash lending entries,'' ``collateral posted entries,'' 
and ``collateral received entries.'' See proposed Form PF Glossary 
of Terms.
---------------------------------------------------------------------------

     Proposed Question 27 would require advisers to identify 
each creditor or other counterparty (including CCPs) to which the 
reporting fund owes a certain amount (before posted collateral) equal 
to or greater than either (1) five percent of net asset value as of the 
data reporting date or (2) $1 billion. If there are more than five such 
counterparties, the adviser only would report the five counterparties 
to which the reporting fund owes the largest dollar amount, before 
taking into account collateral that the reporting fund posted. If there 
are fewer than five such counterparties, the adviser only would report 
the counterparties that meet the threshold. For example, if only three 
counterparties meet the threshold, the adviser would report only three 
counterparties. This would be a change from current Question 22, which 
requires advisers to identify five counterparties to which the 
reporting fund has the greatest mark-to-market net counterparty credit 
exposure, regardless of the actual size of the exposure. The proposed 
threshold is designed to highlight two different, significant, 
potentially systemic, risks: five percent of net asset value represents 
an amount of borrowing by a reporting fund that, if repayment was 
required, could be a significant loss of financing that could result in 
a forced unwind and forced sales from the reporting fund's portfolio. 
Additionally, the $1 billion represents an amount that, in the case of 
a very large fund, may not represent five percent of its net assets, 
but may be large enough to create stress for certain of its 
counterparties.
     Proposed Question 28 would require advisers to provide 
information for counterparties to which the reporting fund has net 
mark-to-market counterparty credit exposure which is equal to or 
greater than either (1) five percent of the reporting fund's net asset 
value as of the data reporting date or (2) $1 billion, after taking 
into account collateral received or posted by the reporting fund. If 
there are more than five such counterparties, the adviser would only 
report the five to which the reporting fund has the greatest mark-to-
market exposure after taking into account collateral received. If there 
are fewer than five such counterparties, the adviser only would report 
the counterparties that meet the threshold. This would be a change from 
current Question 23, which requires advisers to identify five 
counterparties to which the reporting fund has the greatest mark-to-
market net counterparty credit exposure, regardless of the actual size 
of the exposure. The proposed threshold is designed to represent an 
amount of lending from a reporting fund that, if a default occurred, 
could cause a significant loss that could result in a forced unwind and 
forced sales from the reporting fund's portfolio. Furthermore, we 
believe that the five percent threshold level would be large enough to 
constitute a shock to a reporting fund's net asset value and is an 
often-used industry metric. The $1 billion threshold represents an 
amount that, in the case of a very large counterparty, may not 
represent five percent of its net assets, but may be large enough to 
create stress for the reporting fund.
     Currently, advisers report exposures that the reporting 
fund has to counterparties as a percentage of the reporting fund's net 
asset value, and advisers report exposures that counterparties have to 
the reporting fund in U.S. dollars.\122\ We propose to require advisers 
to report both data sets in U.S. dollars for consistency and 
comparability.\123\
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    \122\ See current Questions 22 and 23.
    \123\ See proposed Questions 27 and 28.

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[[Page 53849]]

     We propose to require advisers to report the amount of 
collateral posted, to help inform the Commissions and FSOC of the 
potential impact of a reporting fund or counterparty default.
     We also propose to require advisers to report the 
counterparty's LEI, if it has one, to help identify counterparties and 
more efficiently link data from other data sources that use this 
identifier.
     Advisers would continue to indicate if a counterparty is 
affiliated with a major financial institution, as Form PF currently 
provides.\124\ If the financial institution is not listed on Form PF, 
advisers would continue to have the option of selecting ``other'' and 
naming the entity in the chart, as Form PF currently provides.
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    \124\ See current Question 22 and current Question 23.
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    However, we propose to require the adviser to also describe the 
financial institution in Question 4. This proposed amendment is 
designed to help the Commissions and FSOC efficiently and accurately 
identify the entity, without having to contact advisers individually.
    Together, the proposed amendments are designed to allow the 
Commissions and FSOC to identify and align sources of borrowing and 
lending to identify significant counterparty exposures, so that 
different styles of borrowing would not be not obscured by methodology 
differences or misidentified lending relationships, based on our 
experience with the form. We request comment on the proposed 
amendments.
    79. Would the proposed amendments help us and FSOC identify which 
advisers and reporting funds may have counterparty credit risk in the 
event of a counterparty failure (including CCP failure) or other market 
event that affects performance by prime brokers or other counterparties 
(including CCPs)? Is there a better way to meet these objectives?
    80. Are the proposed consolidated counterparty exposure table, its 
instructions, and defined terms clear? Could they be clearer? Are there 
circumstances not contemplated by the instructions that need to be 
addressed? Is there an easier way for advisers to report counterparty 
exposures that would provide comparable data? Should Form PF define the 
terms ``counterparty exposure table,'' ``borrowing and collateral 
received (B/CR),'' ``lending and posted collateral (L/PC),'' 
``synthetic short position,'' ``cash borrowing entries,'' ``cash 
lending entries,'' ``collateral posted entries,'' ``collateral received 
entries,'' and redefine ``gross notional value,'' as proposed? For 
example, should ``synthetic short position'' provide a different list 
of assets to be included or excluded? Should Form PF define or redefine 
more, fewer, or different terms?
    81. Should Form PF require advisers to identify more or less than 
only significant counterparty exposures? Is the proposed threshold for 
identifying the counterparties with the most significant exposure to 
and from the reporting fund the right threshold? Does it represent an 
amount of borrowing from a reporting fund that, if repayment was 
required, could be a significant loss of financing that could result in 
a forced unwind and forced sales from the reporting fund's portfolio? 
Is there a different threshold that would meet this objective? Should 
advisers report all counterparties that meet the threshold, even if 
there are more than five such counterparties? Should advisers report 
the five counterparties that the reporting fund has the greatest 
exposure to and from, even if they don't meet the proposed threshold?
    82. Should Form PF provide more detailed instructions for advisers 
to use to identify the individual counterparties, as proposed? Could 
the instructions be clearer? If Form PF should have less detailed 
instructions on how to identify the counterparties, how could the 
Commissions and FSOC help ensure that the data would be comparable?
    83. Should we require advisers to report values in U.S. dollars, as 
proposed? Alternatively, should Form PF require advisers to report 
values as a percentage of the reporting fund's net asset value? Should 
Form PF require advisers to report amounts as both U.S. dollars and as 
a percentage of the reporting fund's net asset value, or another way?
    84. Should Form PF require advisers to report collateral posted, as 
proposed? Would the proposed amendment help inform the Commissions and 
FSOC of the potential impact of a reporting fund or counterparty 
default? Is there a better way to meet this objective?
    85. Should Form PF require advisers to report the counterparty's 
LEI, if it has one?
    86. If an adviser selects ``other,'' should we require the adviser 
to describe the entity in Question 4? Alternatively, should we 
eliminate the ``other'' category?
    Trading and clearing mechanisms. We propose to revise how advisers 
report information about trading and clearing mechanisms.\125\ These 
types of data inform the Commissions and FSOC of the extent of private 
fund activities that are conducted on and away from regulated exchanges 
and clearing systems, which is important to understanding systemic risk 
that could be transmitted through counterparty exposures.\126\ We 
propose to require advisers to report (1) the value traded and (2) the 
value of positions at the end of the reporting period, rather than 
requiring advisers to report information as a percentage in terms of 
value and trade volumes, as Form PF currently requires.\127\ This 
proposed change is designed to simplify reporting because advisers 
would compute the value before they convert it into a percentage; 
therefore, this proposed change would eliminate an extra calculation 
for advisers. It also is designed to provide the Commissions and FSOC 
with data that can be more efficiently compared and aggregated among 
advisers and other data sources. With data in dollar values, the 
Commissions and FSOC could more effectively estimate the size, extent, 
and pace of each hedge fund's participation in activity on or away from 
regulated exchanges and clearing systems in relation to total values. 
Understanding the size of hedge fund participation in activity on and 
away from regulated exchanges and clearing systems is important to 
assessing systemic risk, because activity that takes place on regulated 
exchanges and clearing systems presents different risks than activity 
that takes places away from regulated exchange and clearing systems. 
For example, activity that takes place away from a regulated exchange 
or clearing system may be less transparent, and may present more credit 
risk than activity that takes place on a regulated exchange and a 
clearing system that acts as a central counterparty that guarantees 
trades.
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    \125\ See current Questions 24, and 25, which we would 
redesignate as proposed Questions 29 and 30.
    \126\ See supra footnote 114 and accompanying text (discussing 
the role of CCPs); 2011 Form PF Adopting Release, supra footnote 3, 
at n.228, and accompanying text.
    \127\ Proposed Question 29 would specify that ``value traded'' 
is the total value in U.S. dollars of the reporting fund's 
transactions in the instrument category and trading mode during the 
reporting period. Proposed Question 29 also would specify that, for 
derivatives, value traded would be the weighted average of the 
notional amount of aggregate derivatives transactions entered into 
by the reporting fund during the reporting period, except for the 
following: (1) for options, advisers would use the delta adjusted 
notional value, and (2) for interest rate derivatives, advisers 
would use the ``10-year bond equivalent.'' This measurement is 
designed to track standard industry convention. We propose to add 
the term ``10-year bond equivalent'' to the Form PF Glossary of 
Terms, as discussed in section II.C.2 of this Release. See infra 
footnote 159.
---------------------------------------------------------------------------

    We also propose to require advisers to report information about 
trading and clearing mechanisms for transactions in

[[Page 53850]]

interest rate derivatives separately from other types of derivatives. 
Form PF data show that interest rate derivatives represent the largest 
gross investment exposure of qualifying hedge funds.\128\ Therefore, 
this amendment is designed to help ensure that the Commissions and FSOC 
can identify risks of such a significant volume of activity on and away 
from regulated exchanges and clearing systems, without the data being 
obscured by other types of derivatives. The proposal would require 
advisers to report interest rate derivatives and other types of 
derivatives, by indicating the estimated amounts that were (1) traded 
on a regulated exchange or swap execution facility, (2) traded over-
the-counter and cleared by a CCP, and (3) traded over the counter or 
bilaterally transacted (and not cleared by a CCP). These proposed 
categories reflect our understanding of how derivatives may be traded.
---------------------------------------------------------------------------

    \128\ See Private Funds Statistics, supra footnote 7.
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    The proposal would continue to require advisers to report clearing 
information concerning repos, but would specify how to report sponsored 
repos, and would specify that advisers must report reverse repos with 
repos.\129\ According to the Fixed Income Clearing Corporation 
(``FICC''), FICC's sponsored repo service has expanded in 2017 and 
2019, ultimately resulting in daily volume up to $300 million per day 
as of 2021, with a peak in March 2020 of $564 billion.\130\ Sponsored 
repos incorporate a different structure than other repos, in that FICC 
serves as a counterparty to any sponsored trade and the sponsored 
member bears responsibility for meeting the obligations of the 
sponsored member on all transactions that it submits for clearing. 
Adding a particular reference to sponsored repos would ensure that 
advisers understand how sponsored repos cleared by a CCP should be 
reported, i.e., as trades cleared at a CCP.\131\ Therefore, we propose 
to provide a separate line item for sponsored repos. The proposed 
amendment is designed to improve data quality concerning repos and 
sponsored repos, to allow the Commissions and FSOC to conduct more 
accurate and targeted systemic risk assessments and analysis concerning 
investor protection efforts. We also propose to specify that advisers 
must report reverse repos with repos. Current Question 24 requires 
advisers to report ``repos,'' which some advisers could interpret to 
include reverse repos, while others could interpret as excluding 
reverse repos. Therefore, this proposed amendment is designed to 
improve data quality.\132\
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    \129\ The proposal also would explain that ``repo'' means 
``securities in'' transactions and ``reverse repo'' means 
``securities out'' transactions. Sponsored repos and sponsored 
reverse repos would apply to transactions in which the reporting 
fund has been sponsored by a sponsoring member of the Fixed Income 
Clearing Corporation. We would revise how Form PF explains tri-party 
repos to help ensure they do not exclude sponsored tri-party repos. 
Currently, Form PF explains that a tri-party repo applies where repo 
collateral is held at a custodian (not including a CCP) that acts as 
a third party agent to both the repo buyer and the repo seller. We 
propose to amend Form PF so it would explain that tri-party repo 
would apply where the repo or reverse repo collateral is executed 
using collateral management and settlement services of a third party 
that does not act as a CCP. See Form PF Glossary of Terms (modifying 
the terms ``repo'' and ``reverse repo'') and Question 29 
instructions (discussing sponsored repos, sponsored reverse repos, 
and tri-party repos).
    \130\ See FICC Sponsored Repo in 2021, by DTCC Connection Staff 
(Feb. 9, 2021), available at https://www.dtcc.com/dtcc-connection/articles/2021/february/09/ficc-sponsored-repo-in-2021.
    \131\ Current Question 24.
    \132\ See proposed Question 29.
---------------------------------------------------------------------------

    The proposal also would revise current Question 25, which requires 
advisers to report the percentage of the reporting fund's net asset 
value related to transactions not described in current Question 24, 
which we would redesignate as proposed Question 29. The proposal would, 
instead, require advisers to report both the value traded and the 
position value as of the end of the reporting period for transactions 
not described in proposed Question 29. These amendments are designed to 
make proposed Question 30 data comparable with data from proposed 
Question 29, so that together, Questions 29 and 30 would provide the 
Commissions and FSOC with a complete data set of the adviser's trading 
and clearing mechanisms during the reporting period.
    We request comment on the proposed amendments.
    87. Would the proposed amendments enhance analysis of clearance and 
settlement, interest rate derivatives, as well as repos, reverse repos, 
and sponsored repos?
    88. Should Form PF require advisers to add repos and reverse repos 
together when reporting information about trading and clearing 
mechanisms, as proposed? Alternatively, should Form PF require advisers 
to report information about repos separately from reverse repos?
    89. Do the proposed reporting categories cover the types of trading 
and clearing mechanisms used to trade derivatives? Should Form PF 
include more or fewer trading and clearing categories?
    90. Would the proposed amendments make data from proposed Questions 
29 and 30 comparable, so that together, the questions would provide the 
Commissions and FSOC with a complete data set of the adviser's trading 
and clearing mechanisms during the reporting period? Is there a better 
way to meet this objective?
    91. Would the proposal to require advisers to report the value 
traded and the value of positions as of the end of the reporting period 
improve our ability to aggregate data and compare data among advisers? 
Would requiring the values, instead of the percentages, provide the 
Commissions and FSOC with a view into the extent of exposures across 
reporting funds, which would inform the Commissions and FSOC as to how 
much value would be at stake, given a market event? Are there better 
ways to meet these objectives?
    92. Should we amend the terms ``repo'' and ``reverse repo,'' as 
proposed? Are the proposed definitions more consistent with how the 
private fund industry understands repos and reverse repos? If not, how 
should we define the terms, and would such definitions be consistent 
with how the Commissions use the terms in other contexts? Should Form 
PF refer to sponsored repos, as proposed?
    Removing Certain Questions Concerning Hedge Funds. We propose to 
remove current Questions 19 and 21 from the form. Current Question 19 
requires advisers to hedge funds to report whether the hedge fund has a 
single primary investment strategy or multiple strategies. Proposed 
Question 25, which requires hedge fund advisers to disclose certain 
information about each investment strategy, would provide this 
information, as discussed above in this section II.B.3 of the Release.
    We also propose to remove current Question 21, which requires hedge 
fund advisers to approximate what percentage of the hedge fund's net 
asset value was managed using high frequency trading strategies. We 
believe the form's question on portfolio turnover, with proposed 
revisions, would better inform our and FSOC's understanding of the 
extent of trading by large hedge fund advisers and would better show 
how larger hedge funds interact with the markets and provide trading 
liquidity.\133\
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    \133\ See proposed revisions to current Question 27, as 
discussed in section II.C of this Release.
---------------------------------------------------------------------------

    We request comments on the proposed amendments.
    93. Should we remove current Questions 19 and 21, as proposed? 
Alternatively, should Form PF keep current Question 21, but revise it 
to improve data quality? For example,

[[Page 53851]]

should Form PF define ``high frequency trading?''
    94. Does the turnover data Form PF would collect provide more 
informative data than current Question 21, which we propose to remove?
    95. Should Form PF require advisers to report more or less turnover 
data? For example, should Form PF require only large hedge fund 
advisers to report the value of turnover during the month for the 
qualifying hedge funds that they advise, as proposed, or should Form PF 
require such information for all advisers who advise hedge funds of any 
size?
    96. Should Form PF remove any other questions that would be 
answered by other questions that would provide the same or more useful 
data?

C. Proposed Amendments Concerning Information About Hedge Funds Advised 
by Large Private Fund Advisers

    A private fund adviser must complete section 2 of Form PF if it had 
at least $1.5 billion in hedge fund assets under management as of the 
last day of any month in the fiscal quarter immediately preceding the 
adviser's most recently completed fiscal quarter.\134\ This section 
requires additional information regarding the hedge funds these 
advisers manage, which is tailored to focus on relevant areas of 
financial activity that have the potential to raise systemic concerns. 
We are proposing several amendments to this section, including 
amendments that would remove aggregate reporting in section 2a, which 
we have found to be less meaningful for analysis and more burdensome 
for advisers to report, while preserving and enhancing reporting on a 
per fund basis in section 2b. We also propose to retain certain 
questions previously reported by advisers on an aggregate basis that we 
believe are important for data analysis and systemic risk assessment, 
but require reporting on a per fund basis. Collectively, the proposed 
changes to section 2 are designed to provide better insight into the 
operations and strategies employed by qualifying hedge funds and their 
advisers, and improve data quality and comparability to enable FSOC to 
monitor systemic risk better and enhance the Commissions' regulatory 
programs and investor protection efforts. Furthermore, the proposal 
would remove certain other reporting requirements that we have found to 
be less useful based on our experience with Form PF since adoption, 
which would help reduce reporting burdens for advisers while preserving 
the Commissions' and FSOC's regulatory oversight.
---------------------------------------------------------------------------

    \134\ Section 2a requires a large hedge fund adviser to report 
certain aggregate information about any hedge fund it advises and 
section 2b requires a large hedge fund adviser to report certain 
additional information about any hedge fund it advises that has a 
net asset value of at least $500 million as of the last day of any 
month in the fiscal quarter immediately preceding the adviser's most 
recently completed fiscal quarter (a ``qualifying hedge fund'').
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    Currently, the Form PF Glossary of Terms defines a ``hedge fund'' 
generally as any private fund (other than a securitized asset fund):
    (a) with respect to which one or more investment advisers (or 
related persons of investment advisers) may be paid a performance fee 
or allocation calculated by taking into account unrealized gains (other 
than a fee or allocation the calculation of which may take into account 
unrealized gains solely for the purpose of reducing such fee or 
allocation to reflect net unrealized losses);
    (b) that may borrow an amount in excess of one-half of its net 
asset value (including any committed capital) or may have gross 
notional exposure in excess of twice its net asset value (including any 
committed capital); or
    (c) that may sell securities or other assets short or enter into 
similar transactions (other than for the purpose of hedging currency 
exposure or managing duration).\135\
---------------------------------------------------------------------------

    \135\ See current Form PF Glossary of Terms for the complete 
definition.
---------------------------------------------------------------------------

    The definition is designed to include any private fund having any 
one of three common characteristics of a hedge fund: (1) a performance 
fee that takes into account market value (instead of only realized 
gains); (2) leverage; or (3) short selling. We request comment on 
whether we should amend the definition of ``hedge fund'' as such term 
is defined in the Form PF Glossary of Terms in order to address 
potential data mismatches and improve data quality. Specifically, we 
request comment on the following:
    97. We understand that some reporting funds may consider themselves 
``private equity funds,'' but advisers report them as hedge funds as 
Form PF directs because the reporting fund's governing documents permit 
the fund to engage in certain borrowing and short selling (even though 
it did not do so at any time in the past, for example, 12 months) (a 
``deemed hedge fund'' for purposes of this Release). Should we amend 
the definition of ``hedge fund'' in the Form PF Glossary of Terms so 
that such deemed hedge funds report as private equity funds and not 
hedge funds? If so, how? Would such changes improve data quality by 
excluding private equity strategies from reporting as hedge funds and 
instead requiring such funds to report as private equity funds? If so, 
and if we were to amend the definition of ``hedge fund'' in Form PF, 
should we amend it for all purposes under Form PF or only certain 
sections such as sections 1 and 2? Should we concurrently make 
conforming definitional changes to any other forms, such as Form ADV 
(or alternatively amend Form ADV so it would reference any revised 
definition of ``hedge fund'' in Form PF)?
    98. As an example, should we amend the definition of ``hedge fund'' 
so that, to qualify as a hedge fund under the leverage prong of the 
definition, a fund would have to continue to satisfy subsection (b) of 
the definition, but also must have actually borrowed or used any 
leverage during the past 12 months, excluding any borrowings secured by 
unfunded commitments (i.e., subscription lines of credit); \136\ and to 
qualify as a hedge fund under the short selling prong of the 
definition, the fund must have actually engaged in the short selling 
activities described in subsection c of the definition during the past 
12 months? \137\ If we were to amend the definition, would excluding 
actual borrowings secured by unfunded commitments (i.e., subscription 
lines of credit) appropriately exclude private equity funds, which 
typically engage in such borrowings? Should any amended definition 
require actual borrowing or short selling in the last 12 months? 
Alternatively, should any amended definition require a longer or 
shorter time period, such as 18 months or nine months, or different 
time periods for borrowing versus short selling?
---------------------------------------------------------------------------

    \136\ Subsection (b) of the current definition of ``hedge fund'' 
states that a hedge fund is any private fund (other than a 
securitized asset fund) that may borrow an amount in excess of one-
half of its net asset value (including any committed capital) or may 
have gross notional exposure in excess of twice its net asset value 
(including any committed capital). See current Form PF Glossary of 
Terms.
    \137\ Subsection (c) of the current definition of ``hedge fund'' 
states that a hedge fund is any private fund (other than a 
securitized asset fund) that may sell securities or other assets 
short or enter into similar transactions (other than for the purpose 
of hedging currency exposure or managing duration). See current Form 
PF Glossary of Terms.
---------------------------------------------------------------------------

    99. Should any amended definition include a requirement for the 
reporting fund to provide redemption rights in the ordinary course or 
exclude actual portfolio company guarantees in the past 12 months (or 
some other time period)? What other alternative changes to any amended 
definition of ``hedge fund'' do you suggest?
    100. Should any revised definition specify that subscription lines 
of credit encompass both short term and long term subscription lines of 
credit? If so,

[[Page 53852]]

should we specify what constitutes ``short term'' and ``long term''? 
For example, should ``short term'' mean three to six months, or less 
than the life of the fund, and should ``long term'' mean longer than 
six months, or the life of the fund?
    101. Would it be appropriate for any amended definition of ``hedge 
fund'' to continue to include commodity pools or should commodity pools 
be excluded?
1. Proposed Amendments to Section 2a
    Removal of aggregate reporting. We propose to eliminate the 
requirement for large hedge fund advisers to report certain aggregated 
information about the hedge funds they manage.\138\ Based on our 
experience using data obtained from Form PF since its adoption, we have 
found that aggregated adviser level information combines funds with 
different strategies and activities, thus making analyses less 
meaningful. Aggregation can mask the directional exposures of 
individual funds (e.g., positions held by one reporting fund may appear 
to be offset by positions held in a different fund). Additionally, 
there can be inconsistencies between data reported in the aggregate in 
section 2a and on a per fund basis in section 2b (e.g., we have 
observed in some instances that the sum of fund exposures advisers 
report in current Question 30 on a per fund basis exceed the aggregate 
figure reported in current Question 26). We believe that aggregating 
information across funds may be burdensome for some advisers because 
certain advisers may keep fund records on different systems, and 
``rolling-up'' the data from different sources to report on the form 
may be complex and time consuming. While advisers may be required to 
aggregate certain types of investment holdings across their funds for 
other regulatory purposes (e.g., certain U.S. registered equities for 
Form 13F reporting), advisers generally do not aggregate all portfolio 
investment exposure information across their funds other than for Form 
PF reporting purposes, given that counterparties, markets, and 
investors tend to interact with funds on an individual basis and not in 
the aggregate at the adviser level.
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    \138\ We propose to remove section 2a and redesignate section 2b 
as section 2. In connection with the proposed removal of section 2a, 
we propose to revise the general instructions to make corresponding 
changes (including amending Instruction 3 to reflect the proposed 
removal of section 2a), and propose to revise current Question 27 
(reporting on the value of turnover in certain asset classes in 
advisers' hedge funds' portfolios) and current Question 28 
(reporting on the geographical breakdown of investments held by 
advisers' hedge funds), move each of these questions to new section 
2, and redesignate them as Question 34 and Question 35, 
respectively. Furthermore, in connection with the proposed changes, 
we would revise the term ``sub-asset class'' so it no longer refers 
to Question 26, which the proposal would remove.
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    We do not believe that removing section 2a would result in a 
meaningful deterioration in the information collected because the vast 
majority of gross hedge fund assets on which advisers report in the 
aggregate in section 2a constitute the gross assets of qualifying hedge 
funds that are reported in section 2b. For example, large hedge fund 
advisers reported total gross notional exposure for qualifying hedge 
funds in section 2b that constituted approximately 91 percent of the 
total gross notional exposure reported on an aggregate basis by large 
hedge fund advisers in section 2a as of the same date.\139\ 
Furthermore, as discussed in section II.B.3. above, we are also 
proposing to enhance reporting for all hedge funds in section 1 
(particularly section 1c), which we believe would mitigate against 
potential data gaps that could result from the removal of section 2a, 
given that advisers currently report information on all their hedge 
funds in section 2a but only report on qualifying hedge funds in 
section 2b. Additionally, certain information collected in section 2a 
is duplicative of information already collected on a per fund basis in 
section 2b.\140\ By continuing to require reporting on a per fund 
basis, information reported in section 2b would allow the Commissions 
and FSOC to compile aggregate figures.\141\
---------------------------------------------------------------------------

    \139\ As noted above, based on experience with Form PF since 
adoption, we have found information gathered in section 2a for the 
remaining 9 percent of funds to not be very useful given that it is 
aggregated data across different funds.
    \140\ For example, Question 26 of section 2a requires large 
hedge fund advisers to report aggregated information on exposure to 
different types of assets, which is effectively the same exposure 
information reported on a per fund basis for each qualifying hedge 
fund in current Question 30 of section 2b.
    \141\ Additionally, we are proposing to move current Question 31 
(base currency) currently required only for qualifying hedge funds 
to section 1b. We are also proposing to enhance section 1c to 
require more detailed information about hedge funds' borrowing and 
financing arrangements (including posted collateral) and also 
proposing to revise current Question 25 and current Question 26 to 
require end of period reporting of the value of certain instrument 
categories (including listed equities, interest rate derivatives and 
other derivatives, and repo/reverse repos).
---------------------------------------------------------------------------

    We request comments on the proposed amendments.
    102. Should we remove aggregate reporting by eliminating section 2a 
as proposed? Alternatively, should we retain a subset of the questions 
in section 2a to be reported on an aggregate basis? If so, which 
questions and why?
    103. Do you agree that counterparties, markets, and investors tend 
to look at funds on an individual basis and not in the aggregate at the 
adviser level and as such the proposed removal of section 2a would 
reduce the burden on advisers having to report fund level data on an 
aggregated basis?
    104. Do you agree that aggregating information across funds may be 
burdensome for some advisers? Do some advisers maintain fund records on 
different systems such that ``rolling-up'' the data from different 
sources to report on the form would be complex and time consuming?
2. Proposed Amendments to Section 2b
    Current section 2b requires a large hedge fund adviser to report 
certain additional information about any hedge fund it advises that is 
a qualifying hedge fund.\142\ As noted in the 2011 Form PF Adopting 
Release, information reported in section 2b is designed to assist FSOC 
in monitoring the composition of hedge fund exposures over time as well 
as the liquidity of those exposures. The information also aids FSOC in 
its monitoring of credit counterparties' unsecured exposure to hedge 
funds as well as hedge funds' exposure and ability to respond to market 
stresses and interconnectedness with CCPs. Based on our experience with 
the data since Form PF was first adopted and our consultations with 
FSOC, we are proposing to amend section 2b to do the following:
---------------------------------------------------------------------------

    \142\ In connection with the proposed amendments, we propose to 
redesignate section 2b as section 2.
---------------------------------------------------------------------------

    (1) Enhance, expand, and simplify investment exposure reporting;
    (2) Revise open and large position reporting;
    (3) Revise borrowing and counterparty exposure reporting;
    (4) Revise market factor effects reporting; and
    (5) Make certain other changes designed to streamline and enhance 
the value of data collected on qualifying hedge funds by: (a) adding 
reporting on currency exposure, turnover, country and industry 
exposure; (b) adding new reporting on CCPs; (c) streamlining risk 
metric reporting and collecting new information on investment 
performance by strategy and portfolio correlation; and (d) enhancing 
portfolio and financing liquidity reporting.
a. Investment Exposure Reporting.
    Reporting on qualifying hedge fund exposures to different types of 
assets has been critical in helping to monitor the composition of hedge 
fund exposures over time, particularly as it relates to

[[Page 53853]]

systemic risk monitoring. The proposal would (1) replace the table 
format of current Question 30, which we would redesignate as Question 
32, with narrative instructions and a ``drop-down'' menu while also 
revising the instructions to specify how to report certain positions, 
(2) require reporting based on ``instrument type'' within sub-asset 
classes to identify whether the fund's investment exposure is achieved 
through cash or physical investment exposure, through derivatives or 
other synthetic positions, or indirectly (e.g., through a pooled 
investment such as an ETF, an investment company, or a private fund), 
(3) require the calculation of ``adjusted exposure'' for each sub-asset 
class (i.e., require (in addition to value as currently reported) the 
calculation of ``adjusted exposure'' for each sub-asset class that 
allows netting across instrument types representing the same reference 
asset within each sub-asset class, and, for fixed income, within a 
prescribed set of maturity buckets), (4) require uniform interest rate 
risk measure reporting for sub-asset classes that have interest rate 
risk (while eliminating the current option to report one of duration, 
weighted average tenor (WAT) or 10-year equivalents), and (5) amend the 
list of reportable sub-asset classes consistent with these other 
changes and collect enhanced information for some asset types.\143\
---------------------------------------------------------------------------

    \143\ In connection with the proposed amendments, we also 
propose to remove Question 44, which under the proposal would be 
duplicative of the new reporting requirements in proposed Question 
32.
---------------------------------------------------------------------------

    Narrative reporting instructions and additional information on how 
to report. The proposal would replace the existing complex table in 
current Question 30 with reporting instructions that would use a series 
of ``drop-down'' menu selections for each sub-asset class and the 
applicable information required for each sub-asset class. This approach 
is similar to the narrative instructions (and drop-down menus) already 
in effect for current section 3 with respect to liquidity fund position 
reporting.\144\ We believe that these changes and new format would 
simplify and specify how to report the required information in proposed 
Question 32. Additionally, the proposed changes may reduce filer 
burdens compared to the current form because advisers are currently 
required to enter ``N/A'' in each field for which there is not a 
relevant position, while the proposal would only require advisers to 
provide information for sub-asset classes in which their qualifying 
hedge funds hold relevant positions. Furthermore, the proposal would 
require advisers to report the absolute value of short positions, 
include positions held in side-pockets as positions of the reporting 
fund, and include any closed out and OTC forward positions that have 
not yet expired or matured.
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    \144\ See Form PF, Section 3, Question 63(f) and (g).
---------------------------------------------------------------------------

    We propose to amend the instructions to current Question 30 to 
specify how advisers should classify certain positions. Specifically, 
the proposed instructions would require advisers to choose the sub-
asset class that describes the position with the highest degree of 
precision, which we believe would result in more accurate 
classification of positions and therefore better data, rather than 
simply noting that any particular position should only be included in a 
single sub-asset class. This proposed change is designed to instruct 
advisers on how to classify positions that could be accurately 
classified in multiple sub-asset classes, and is consistent with SEC 
staff Form PF Frequently Asked Questions.\145\ The proposal also would 
add a new instruction that directs advisers to report cash borrowed via 
reverse repo as the short value of repos, and refer advisers to the 
proposed revised definitions of ``repo'' and ``reverse repo'' in the 
Glossary of Terms, also consistent with SEC staff Form PF Frequently 
Asked Questions.\146\ We believe this proposed change would reduce 
confusion on how to report repo information and help reduce filer 
errors. Finally, the amended instructions also would include a revised 
list of sub-asset classes.\147\
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    \145\ See Form PF Frequently Asked Questions, supra footnote 79, 
Question 26.2.
    \146\ See Form PF Frequently Asked Questions, supra footnote 79, 
Question 26.5. See also supra footnote 129.
    \147\ The proposed amendments to this list, as well as other 
changes to instructions in specific parts of proposed Question 32, 
are discussed below.
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    We also propose to require advisers to provide additional 
explanatory information in situations where a qualifying hedge fund 
reports long or short dollar value exposure to ``catch-all'' sub-asset 
class categories \148\ equal to or exceeding either (1) five percent of 
a fund's net asset value or (2) $1 billion.\149\ We have observed that 
some funds report significant amounts of assets in these ``catch-all'' 
categories. We chose the five percent threshold level because we 
believe it represents a level that would identify exposure that could 
be material to a fund's investment performance. The $1 billion 
threshold represents a level for large funds (e.g., those with net 
asset values in excess of $20 billion) that is large enough so as to 
have potential systemic risk implications even if the position is less 
than five percent of the fund. We propose to add this explanatory 
requirement to inform our understanding of significant exposure 
reported in these ``other'' sub-asset classes better, which we believe 
is important for assessing systemic risk.
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    \148\ These sub-asset classes include: loans (excluding 
leveraged loans and repos), other structured products, other 
derivatives, other commodities, digital assets, and investments in 
other sub-asset classes.
    \149\ Some filers report significant exposure to these ``other'' 
categories. For example, the public Private Fund Statistics Second 
Quarter 2020 (``Private Fund Statistics Q2 2020'') (Table 46) shows 
about $100 billion in aggregate QHF GNE reported as ``other loans,'' 
more than other asset categories of interest, such as ABS/structured 
products (ex. MBS but including CLO/CDOs) (about $53 billion) and 
convertible bonds ($95 billion) as of 2020 Q1. See Private Fund 
Statistics Q2 2020 available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2020-q2.pdf.
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    We request comment on the proposed amendments.
    105. Should we amend the format of current Question 30 as proposed? 
Do the proposed narrative instructions clarify and simplify reporting 
for advisers? Alternatively, if the proposed format creates additional 
complexity for filers, should only a subset of qualifying hedge funds 
be required to complete proposed Question 32? If so, what should the 
threshold be and why?
    106. Do you agree that the proposed changes requiring advisers to 
choose the sub-asset class that describes positions with the highest 
degree of precision would result in more accurate classification of 
positions and therefore better data for analysis? If not, what 
alternatives do you suggest?
    107. Currently, most sub-asset classes (e.g., equities, corporate 
bonds) are not further divided to account for exposure by the sub-asset 
class to a particular country or region. Instead, other questions on 
Form PF collect this information (e.g., current Question 28). Should we 
further divide sub-asset classes by geographic exposure? If so, would 
the separation of sub-asset classes by U.S. and non-U.S. be helpful or 
would even more granularity be appropriate?
    108. As an alternative to the proposed requirement that advisers 
provide additional explanatory information in situations where a 
qualifying hedge fund has significant exposure to ``catch-all'' sub-
asset class categories (i.e., if the long or short dollar value is 
equal to or exceeds either (1) five percent of a fund's net asset value 
or (2) $1 billion), should we add additional sub-asset classes to 
further break out the types of instruments that are being classified in

[[Page 53854]]

these ``catch-all'' buckets? If we should add more sub-asset classes, 
what should they be? Is the proposed threshold for requiring that 
advisers provide additional explanatory information set at the 
appropriate level? Should it be higher or lower?
    109. With respect to sub-asset classes pertaining to loans, should 
we add additional sub-asset classes to capture loans originated by 
banks versus other entities for purposes of monitoring systemic risk? 
Should we require reporting on private funds' origination activities in 
a separate question that would ask whether the private fund originate 
loans and if so much has it originated?
    110. Should any other sub-asset classes reflected in the proposal 
be broken out separately in proposed Question 32? If so, what sub-asset 
classes and why?
    111. Should the short dollar value of repo match borrowings by 
reverse repo reported in the counterparty exposure table in Question 
41, and if they do not match, should we require explanation?
    112. The current instructions to Question 30 require advisers to 
include closed out and OTC forward positions that have not yet expired/
matured. However, SEC staff Form PF Frequently Asked Question 44.1 
states that reporting is not required for closed out positions if 
closed out with the same counterparty if there is no remaining legally 
enforceable obligation. Further, we understand that advisers use 
different internal methods to account for closed out and OTC forward 
positions not yet expired/matured, which introduces inconsistencies in 
data reported on Form PF. Should we require advisers to report closed 
out and OTC forward positions that have not yet expired/matured even if 
closed out as suggested by the current instructions? Alternatively, 
should we only require reporting unless the OTC forward positions are 
closed out with the same counterparty and there is no remaining legally 
enforceable obligation (consistent with our proposed revision to 
Instruction 15)?
    113. Is it clear in proposed Question 32 how to classify positions 
in certain sub-asset classes as ``long'' or ``short'' in light of the 
proposed changes to Instruction 15 \150\ with respect to classifying 
positions? Should we provide additional guidance specific to proposed 
Question 32? If so, what additional instructions or guidance would be 
helpful?
---------------------------------------------------------------------------

    \150\ See discussion at Section II.D of this Release.
---------------------------------------------------------------------------

    114. Current Question 30 and several other current and/or proposed 
questions in Section 2 of Form PF would not be necessary if large hedge 
fund advisers instead filed information about each qualifying hedge 
fund's portfolio positions similar to what is required by Section 3 for 
large liquidity fund advisers or on Form N-PORT for registered 
investment companies. Should we require, or permit, large hedge fund 
advisers to file this kind of position level information for qualifying 
hedge private funds instead of, or as an optional alternative to, 
responding to current Question 30 and certain other questions 
concerning portfolio holdings, such as position concentrations, 
currency, geographic and industry exposure, and market factor testing? 
For example, if in lieu of completing current Question 30 (exposure 
reporting), current Question 28 (country exposure), current Question 34 
(position concentration), current Question 35 (large positions), and 
current Question 44 (aggregate value of derivatives positions), and 
potentially additional questions including those concerning 
counterparty exposures, advisers could instead choose to file position 
level information, would this help alleviate the reporting burden?
    Separate reporting for positions held physically, synthetically or 
through derivatives and indirect exposure. The proposal would require 
advisers to report the dollar value of a qualifying hedge fund's long 
positions and the dollar value of the fund's short positions in certain 
sub-asset classes by ``instrument type'' (i.e., cash/physical 
instruments, futures, forwards, swaps, listed options, unlisted 
options, and other derivative products, ETFs, exchange traded product, 
U.S. registered investment companies (excluding ETFs and money market 
funds), non-U.S. registered investment companies, internal private fund 
or external private fund, commodity pool, or other company, fund or 
entity).\151\ For each month of the reporting period, advisers would be 
required to report long and short positions in these sub-asset classes 
held physically, synthetically or through derivatives, and indirectly 
through certain entities,\152\ separately in order to provide the 
Commissions and FSOC sufficient information to understand, monitor, and 
assess qualifying hedge funds' exposures to certain types of assets and 
investment products. The current instructions (and the associated 
definitions) require advisers to combine exposure held physically, 
synthetically, or through

[[Page 53855]]

derivatives when reporting certain fixed income and other sub-asset 
classes.\153\ Even when certain sub-asset classes currently separate 
physical and derivative exposure (e.g., listed equities), all 
derivative instrument types are combined regardless of each derivative 
instrument type's risk characteristics. Furthermore, the form's current 
instructions for reporting investment exposure obtained through funds 
or other entities are different. For example, instructions require 
advisers to categorize ETFs based on the assets the ETF holds, while 
other registered investment companies are reported as a separate sub-
asset class, and may obscure the extent of a reporting fund's exposure 
to particular sub-asset classes. This difference and lack of 
granularity in reporting makes it difficult to understand the 
activities of qualifying hedge funds and limits the utility of data 
collected for purposes of understanding the role qualifying hedge funds 
play in certain market events. For example, when monitoring funds' 
activities during recent market events like the March 2020 COVID-19 
turmoil, the existing aggregation of U.S. treasury securities with 
related derivatives did not reflect the role hedge funds played in the 
U.S treasury market.
---------------------------------------------------------------------------

    \151\ See Form PF Glossary of Terms (proposed definition of 
``instrument type''). See also proposed Question 32(a). Sub-asset 
classes that would require reporting by instrument type (see 
proposed Question 32(a)(1)) include: listed equity issued by 
financial institutions; American Depositary Receipts; other single 
name listed equity; indices on listed equity; other listed equity; 
unlisted equity issued by financial institutions; other unlisted 
equity, investment grade corporate bonds issued by financial 
institutions (other than convertible bonds); investment grade 
corporate bonds not issued by financial institutions (other than 
convertible bonds); non-investment grade corporate bonds issued by 
financial institutions (other than convertible bonds); non-
investment grade corporate bonds not issued by financial 
institutions (other than convertible bonds); investment grade 
convertible bonds issued by financial institutions; investment grade 
convertible bonds not issued by financial institutions; non-
investment grade convertible bonds issued by financial institutions; 
non-investment grade convertible bonds not issued by financial 
institutions; U.S. treasury bills; U.S. treasury notes and bonds; 
agency securities; GSE bonds; sovereign bonds issued by G10 
countries other than the U.S, other sovereign bonds (including 
supranational bonds); U.S. state and local bonds; MBS; ABCP; CDO 
(senior or higher); CDO (mezzanine); CDO (junior equity); CLO 
(senior or higher); CLO (mezzanine); CLO (junior equity); other ABS, 
other structured products; U.S. dollar interest rate derivatives; 
non-U.S. currency interest rate derivatives; foreign exchange 
derivatives; correlation derivatives; inflation derivatives; 
volatility derivatives; variance derivatives; other derivatives, 
agricultural commodities; crude oil commodities; natural gas 
commodities; power and other energy commodities; gold commodities; 
other (non-gold) precious metal commodities; base metal commodities; 
other commodities; real estate; digital assets; investments in other 
sub-asset classes. These sub-asset classes are reported at the sub-
asset class level and not by instrument type (see proposed Question 
30(a)(2)): leveraged loans, loans (excluding leveraged loans and 
repo); overnight repo, term repo (other than overnight), open repo; 
sovereign single name CDS; financial institution single name CDS; 
other single name CDS, index CDS; exotic CDS; U.S. currency 
holdings, non-U.S. currency holdings, certificates of deposit, other 
deposits, money market funds, other cash and cash equivalents 
(excluding bank deposits, certificates of deposit and money market 
funds). In connection with the proposal we also propose to amend the 
Glossary of Terms to (i) amend the definitions of agency securities, 
convertible bonds, corporate bonds, GSE bonds, leveraged loans, 
sovereign bonds, and U.S. treasury securities, in each case to 
include positions held indirectly through another entity, (ii) 
remove the definitions of crude oil, derivative exposures to 
unlisted equities, gold, natural gas, and power, and (iii) amend the 
definitions of commodities and other commodities. See Form PF 
Glossary of Terms. Additionally, for foreign exchange derivatives, 
advisers would report forex swaps and currency swaps separately, and 
in determining dollar value, would not net long and short positions 
within sub-asset classes or instrument types (with the exception of 
spot foreign exchange longs and shorts).
    \152\ In determining the reporting fund's exposure to sub-asset 
classes for positions held indirectly through entities, the proposal 
would permit advisers to allocate the position among sub-asset 
classes and instrument types using reasonable estimates consistent 
with its internal methodologies and conventions of service 
providers. Furthermore, if a reporting fund's position in any such 
entity represents less than (1) 5% of the reporting fund's net asset 
value and (2) $1 billion, the proposal would permit advisers to 
report an entire entity position in one sub-asset class and 
instrument type that best represents the sub-asset class exposure of 
the entity, unless the adviser would allocate the exposure more 
granularly under its own internal methodologies and conventions of 
its service providers.
    \153\ We propose to require advisers to report the dollar value 
of long and short positions for the sub-asset class (and not 
instrument type) for following sub-asset classes: leveraged loans, 
loans (excluding leveraged loans and repo); overnight repo, term 
repo (other than overnight), open repo; sovereign single name CDS; 
financial institution single name CDS; other single name CDS, index 
CDS; exotic CDS; U.S. currency holdings, non-U.S. currency holdings, 
certificates of deposit, other deposits, money market funds, other 
cash and cash equivalents (excluding bank deposits, certificates of 
deposit and money market funds). See proposed Question 32(a).
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    115. Do advisers' internal risk reporting systems track long and 
short positions by instrument type? Does the proposed definition of 
``instrument type'' present different types of risk such that it would 
be valuable to collect information separately for each instrument? Are 
the proposed instrument types appropriate? Alternatively, should we 
aggregate instrument types so that there are fewer options or should 
there be a different set of instrument types for different sub-asset 
classes? If so, what should they be?
    116. Should we require reporting of dollar value by instrument type 
as proposed or for fewer sub-asset classes?
    117. In proposed Question 32 we would not require advisers to 
report positions in certain sub-asset classes by instrument type \154\ 
because we understand that exposure to these sub-asset classes would 
generally be held physically (e.g., currency holdings) or through a 
single instrument type (e.g., repo and credit-default swaps). Should we 
also require reporting by instrument type for any of these sub-asset 
classes?
---------------------------------------------------------------------------

    \154\ See supra footnote 151.
---------------------------------------------------------------------------

    118. Do the proposed amendments better capture exposures to sub-
asset classes held physically, synthetically or through derivatives, 
and indirectly through certain entities? If not, how should we modify 
the proposal to better capture these types of exposures?
    Adjusted exposure reporting. While we would continue to require 
advisers to report ``gross'' long and short exposure, i.e., the dollar 
value of a qualifying hedge fund's long positions and dollar value of 
the fund's short positions for various sub-asset classes (and by 
instrument type for certain sub-asset classes as explained above), we 
propose to require advisers to also report the ``adjusted'' exposure of 
long and short positions for each sub-asset class in which a fund has a 
reportable position.\155\ Based on our experience, we have found that 
gross exposure reporting, while useful because the information 
indicates fund size on a comparable basis among funds, may inflate some 
qualifying hedge funds' reported long and short exposures in a way that 
does not properly represent the economic exposure and market risk of a 
reporting fund's portfolio. For example, when only looking at gross 
exposure, certain relative value strategies that are designed to match 
long and short exposures in the same or similar (highly correlated) 
assets may reflect very high leverage, but not have the same level of 
risk as portfolios with less leverage but that are more exposed 
directionally. Furthermore, some advisers, for purposes of managing 
risk, do not view their portfolio on a ``gross'' basis because they do 
not believe it provides a meaningful measure of risk. We believe that 
``gross'' exposure reporting by itself presents an incomplete picture 
that represents a significant data gap for purposes of systemic risk 
analysis.
---------------------------------------------------------------------------

    \155\ Proposed Question 32(b). See also Form PF Glossary of 
Terms (proposed definition of ``adjusted exposure'').
---------------------------------------------------------------------------

    We propose to require advisers to determine adjusted exposure for 
each ``sub-asset'' using a specified methodology that is designed to 
facilitate comparisons of the reported data. Specifically, the proposal 
would require advisers to calculate and report ``adjusted exposure'' of 
long and short positions for each sub-asset class by netting (1) 
positions that have the same underlying ``reference asset'' across 
``instrument type'' (i.e., cash/physical instruments, futures, 
forwards, swaps, listed options, unlisted options, other derivative 
products, and positions held indirectly through another entity such as 
ETFs, other exchange traded products,\156\ U.S. registered investment 
companies (excluding ETFs and money market funds), investments in non-
U.S. registered investment companies,\157\ other private funds, 
commodity pools, or other companies, funds or entities) and (2) fixed 
income positions that fall within certain predefined maturity buckets 
(i.e., 0 to 1 year, 1 to 2 year, 2 to 5 year, 5 to 10 year, 10 year, 10 
to 15 year, 15 year, 15 to 20 year, and 20+ year).\158\
---------------------------------------------------------------------------

    \156\ In connection with this proposed amendment, we also 
propose to define ``exchange traded product'' as ``an investment 
traded on a stock exchange that invests in underlying securities or 
assets, such as an ETF or exchange traded note.'' See Form PF 
Glossary of Terms. Given that the exchange traded product market has 
grown significantly since Form PF was first adopted, we believe that 
activity in exchange traded products may present different systemic 
risks than traditional listed equities and other instruments that 
might be used to obtain exposure to underlying assets owned within 
an ETF. Furthermore, we believe added insight into whether the 
underlying sub-asset class exposure is held through an ETF would 
enhance FSOC's analysis of systemic risk associated with this asset 
class.
    \157\ See Form PF Glossary of Terms (proposed definition of 
``investments in non-U.S. registered investment companies''). 
Furthermore, we also propose to remove the term ``U.S. registered 
investment companies'' from the Form PF Glossary of Terms.
    \158\ See Form PF Glossary of Terms. We propose to define 
``reference asset'' as a security or other investment asset to which 
a fund is exposed through direct ownership (i.e., a physical or cash 
position), synthetically (i.e. the subject of a derivative or 
similar instrument held by the fund), or indirect ownership (e.g., 
through ETFs, other exchange traded products, U.S. registered 
investment companies, non-U.S. registered investment companies, 
internal private funds, external private funds, commodity pools, or 
other companies, funds, or entities). An adviser may identify a 
reporting fund's reference assets according to its internal 
methodologies and the conventions of service providers, provided 
that these methodologies and conventions are consistently applied, 
do not conflict with any instructions or guidance relating to Form 
PF and reported information is consistent with information it 
reports internally and to investors and counterparties.
---------------------------------------------------------------------------

    For purposes of determining ``adjusted exposure,'' we propose to 
permit cross counterparty netting consistent with information reported 
by a fund internally and to current and prospective investors, because 
we believe it would better reflect the fund's economic exposure. For 
example, a fund with market-neutral trades may lose substantial amounts 
of capital in a period of market stress if prices diverge, regardless 
of the identities of the counterparties. Additionally, counterparty 
identification may be

[[Page 53856]]

ambiguous for some positions, such as when a fund simply has a long 
position in an equity security traded over an exchange or purchased 
from a broker without the use of any financing.
    Finally, if a fund does not net across all instrument types in 
monitoring the economic exposure of the fund's investment positions for 
purposes of internal reporting and reporting to investors, we would (in 
addition to adjusted exposure determined as specified above) also 
require the adviser to report adjusted exposure based on an adviser's 
internal methodologies and describe in Question 4 how the adviser's 
internal methodology differs from the standard approach in proposed 
Question 32. This additional information would provide better insight 
into how these advisers assess the economic exposure of their reporting 
fund's portfolio, while still ensuring an adviser provides information 
that supports our and FSOC's ability to aggregate and compare the data 
across funds.
    We request comment on the proposed amendments.
    119. The proposal would permit advisers to net across 
counterparties without limit if consistent with methodologies used for 
internal reporting and reporting to investors. Is this appropriate? 
Alternatively, should we only allow cross-counterparty netting to the 
extent that it is permitted by legal agreement?
    120. Is the proposed definition of ``reference asset'' sufficiently 
clear? Should we instead propose a definition that tailors the 
definition to different asset classes (e.g., repo exposures could be 
netted in accordance with GAAP rules for balance sheet netting, 
treasury exposures could be netted within maturity buckets)?
    121. The proposed definition of ``reference asset'' specifies using 
the cheapest-to-deliver security for bond futures. Should additional or 
alternative approaches for bond futures be included in the proposed 
definition? Are there other potentially ambiguous cases that should be 
clarified? If so, what are they?
    122. Is the proposed method for determining adjusted exposure 
appropriate? For example, is the proposed netting of fixed income 
positions that fall within certain predefined maturity buckets 
appropriate? Should we identify additional or different maturity 
buckets? If so, which maturity buckets?
    123. As an alternative, should we instead require ETFs, exchange 
traded products, U.S. and non-U.S. registered investment companies, 
other private funds, commodity pools, or other companies, funds or 
entities to be reported as stand-alone sub-asset classes?
    Require advisers to report a uniform interest rate risk measure. We 
propose to require advisers to report the 10-year zero coupon bond 
equivalent \159\ for all sub-asset classes with interest rate risk (by 
instrument type if applicable) \160\ rather than providing advisers 
with a choice to report duration, weighted average tenor (``WAT''), or 
an unspecified 10-year bond equivalent.\161\ The proposal would require 
advisers to report the 10-year zero coupon bond equivalent of the 
dollar value of long and short positions in each sub-asset class (and 
by instrument type, if applicable) as well as for the adjusted exposure 
of long and short exposures for each sub-asset class for each monthly 
period.
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    \159\ We are proposing a new glossary definition of 10-year bond 
equivalent to explain that the term 10-year bond equivalent means 
``the equivalent position in a 10-year zero coupon bond, expressed 
in the base currency of the reporting fund.'' See Form PF Glossary 
of Terms (proposed definition of ``10-year bond equivalent''). We 
also would make a conforming change to the definition of interest 
rate derivative to use this new definition.
    \160\ We propose to require advisers to report the 10-year zero 
coupon bond equivalent for the following sub-asset classes: 
investment grade corporate bonds issued by financial institutions 
(other than convertible bonds); investment grade corporate bonds not 
issued by financial institutions (other than convertible bonds); 
non-investment grade corporate bonds issued by financial 
institutions (other than convertible bonds); non-investment grade 
corporate bonds not issued by financial institutions (other than 
convertible bonds); investment grade convertible bonds issued by 
financial institutions; investment grade convertible bonds not 
issued by financial institutions; non-investment grade convertible 
bonds issued by financial institutions; non-investment grade 
convertible bonds not issued by financial institutions; U.S. 
treasury bills; U.S. treasury notes and bonds; U.S. agency 
securities; GSE bonds; sovereign bonds issued by G10 countries other 
than the U.S; other sovereign bonds (including supranational bonds); 
U.S. state and local bonds; leveraged loans; loans (excluding 
leveraged loans and repo); overnight repo; term repo (other than 
overnight); open repo; MBS; ABCP; Senior or higher CDO; Mezzanine 
CDO; Junior equity CDO; Senior or higher CLO; Mezzanine CLO; Junior 
equity CLO; other ABS; other structured product; U.S. dollar 
interest rate derivatives; non-U.S. currency interest rate 
derivatives; and certificates of deposit. See proposed Question 
32(c).
    \161\ See proposed Question 32(c).
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    The proposed change is designed to improve reporting and obtain 
better data, because the current approach, while providing optionality, 
makes it difficult to compare and aggregate data reported by different 
funds effectively. Furthermore, we believe that the 10-year zero coupon 
bond equivalent is commonly used by hedge fund advisers and would be a 
better and more consistent measure of interest rate risk than duration, 
WAT, or the current unspecified 10-year equivalent. WAT may be an 
incomplete measure because it does not always reflect the presence of 
options embedded in bonds or differing sensitivity to interest rate 
changes in circumstances where base currencies are subject to a higher 
or lower risk-free rate, and it also may not be meaningful for interest 
rate derivative products. Duration can tend toward infinity for certain 
derivatives, which can provide little meaning or utility. In addition, 
methodologies for calculations of duration and a 10-year equivalent (if 
not standardized to a zero coupon bond) may vary, which can result in 
variability among calculations. Therefore, we believe that by 
eliminating additional reporting options, requiring the 10-year zero 
coupon bond equivalent would provide a common denominator across funds 
that advisers would be able to easily calculate and that would provide 
a consistent and comparable metric. In this regard, we do not believe 
the proposed requirement would create an additional burden for advisers 
that currently report based on a 10-year equivalent for these types of 
assets, which we estimate represents roughly 40 percent of the total 
number of advisers responding to Question 30.\162\
---------------------------------------------------------------------------

    \162\ Based on analysis of Form PF data 2021Q4 and 2020Q4.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    124. Are the proposed changes with respect to reporting of the 10-
year zero coupon bond appropriate? If not, what alternative do you 
suggest?
    125. What would be the burden on advisers of standardizing 
reporting to the 10-year zero coupon bond equivalent for sub-asset 
classes with interest rate risk, by instrument type?
    126. Alternatively, should we use a measure other than the 10-year 
zero coupon bond equivalent and if so, what measure should be used 
(e.g., duration, WAT or another measure?).
    127. As an alternative to the 10-year zero coupon bond equivalent, 
we considered whether to standardize the interest rate risk measure to 
DV01, which we would define as the gain or loss for a 1 basis point 
decline in the risk-free interest rate, expressed in U.S. dollars. In 
this regard, we understand that both duration and a 10-year bond 
equivalent rely on an initial calculation of DV01. Would DV01 be a 
better alternative for standardization to provide consistent reporting 
across all funds compared to the 10-year zero coupon bond equivalent? 
If DV01 is preferred, should we use a different formula (e.g., a 1 
basis point increase)? If we should use a different formula,

[[Page 53857]]

what should it be and why? Would the burden on advisers of 
standardizing reporting to DV01 be different than standardizing to the 
10-year zero coupon bond equivalent?
    128. Should we define 10-year bond equivalent in the Glossary of 
Terms as ``the equivalent position in a 10-year zero coupon bond, 
expressed in the base currency of the reporting fund,'' as proposed? 
The glossary definition of ``interest rate derivative'' requires 
reporting relating to interest rate derivatives to be presented as ``in 
terms of 10-year bond-equivalents.''
    129. Do you agree that the 10-year zero coupon bond equivalent is 
commonly used by hedge fund advisers and would be a better and more 
consistent measure of interest rate risk than duration, WAT, or the 
current unspecified 10-year equivalent?
    Amended list of sub-asset classes. In proposed Question 32, we 
would revise the list of reportable sub-asset classes in two ways. 
First, some sub-asset classes are consolidated and tailored to reflect 
our proposed reporting of the dollar value of long and short positions 
by instrument type. For example, sub-asset classes for listed and 
unlisted equity derivatives are combined with sub-asset classes for 
listed and unlisted equities, and similarly, sub-asset classes for 
physical commodities and commodity derivatives are combined.\163\ 
Likewise, some current sub-asset classes would now be reflected as 
instrument types, such as internal private funds, external private 
funds and registered investment companies (now separated in to ETFs, 
U.S. registered investment companies and non-U.S. registered investment 
companies). Second, the proposal would add new sub-asset classes to 
provide additional information to help the Commissions and FSOC better 
understand qualifying hedge funds' investment exposures to certain 
asset types, and reduce reporting in certain ``catch-all'' sub-asset 
classes, such as ``other listed equity.''
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    \163\ In connection with the proposed amendments, we would amend 
the definitions of ``listed equity'' and ``unlisted equity'' to 
reflect that filers should include synthetic or derivative exposure 
as well as positions held indirectly through another entity (e.g., 
through an ETF, exchange traded product, U.S.-registered investment 
companies, non-U.S. registered investment companies, internal 
private fund or external private fund, commodity pool, or other 
company, fund or entity). Additionally, we would amend the 
definition of ``listed equity derivatives'' to include derivatives 
relating to ADRs, and other derivatives relating to indices on 
listed equities. See Form PF Glossary of Terms (proposed definition 
of ``listed equity,'' ``unlisted equity,'' and ``listed equity 
derivatives'').
---------------------------------------------------------------------------

    Specifically, the proposal would: (1) expand equity exposure 
reporting to add sub-asset classes for (a) listed equity securities 
(including new sub-asset classes for other single name listed equities 
and indices on listed equities), and (b) American depository receipts 
(``ADRs''); (2) add additional sub-asset classes for reporting ``repo'' 
and ``reverse repo'' positions, based on term; (3) add additional sub-
asset classes for asset backed securities (``ABS'') and other 
structured products; (4) add new sub-asset classes and revise existing 
sub-asset classes that capture certain derivatives, including certain 
credit derivatives and volatility and variance derivatives; (5) specify 
sub-asset classes pertaining to investments in cash and cash 
equivalents and commodities; and (6) add a new sub-asset class for 
digital assets.
Listed Equity Securities
    We propose to add new sub-asset classes for certain categories of 
listed equity securities, specifically, for other single name listed 
equities and indices on listed equities. This change is designed to 
provide added granularity to reporting on listed equities \164\ given 
the potential impact of these new sub-asset classes from an overall 
systemic risk perspective, as the form currently only requires advisers 
to single out and report for listed equities issued by financial 
institutions with all other listed equities reported in a catch-all 
category ``other listed equity.'' Identifying single equities 
separately from equity index exposure can help distinguish broadly 
diversified portfolios from those that could be more concentrated, and 
also help to identify what strategies are being pursued by multi-
strategy funds. Additionally, single equity positions may be more 
vulnerable to short squeezes \165\ (i.e., a type of manipulation in 
which prices are manipulated upward to force short sellers out of their 
positions, as short sellers are required by brokers to maintain margin 
above a certain level, and as prices rise short sellers must add cash 
to their margin accounts or close out their short positions) than index 
positions, so the level of granularity the proposal would obtain with 
respect to this information would help to identify better entities that 
may be affected during a short squeeze event.
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    \164\ See current Question 26 and current Question 30, which 
require reporting on listed equities but do not separate out single 
names from indices. Investments in single name equities involve 
materially more idiosyncratic risks, such as the potential for more 
extreme price movements that are not correlated to other market 
movements, than investments in indices, and therefore we propose to 
require separate reporting.
    \165\ Single stock shorts often account for a higher portion of 
the available float and/or often have a larger days to cover (i.e., 
the number of trading days to cover a short) than do shorts on ETFs. 
As a result, a potential need to cover a short could generally have 
a more pronounced effect on single stocks.
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    We request comments on the proposed amendments.
    130. Should we add new sub-asset classes for other single name 
listed equities and indices on listed equities as proposed? Are the 
proposed categories appropriate? If not, is there another alternative 
that we should use?
ADRs
    We propose to add a new sub-asset class for ADRs in line with how 
ADRs are reported on the CFTC's Form CPO-PQR.\166\ While ADRs are 
purchased in U.S. dollars, these instruments have currency risk because 
the underlying security is priced in its home country currency, and the 
ADR's U.S. dollar price fluctuates one-for-one with each movement in 
the home currency. Accordingly, the proposal would require ADRs to be 
reported separately from other listed equity instruments. This 
requirement also would help increase the utility of the information 
reported under the ``other listed equity'' sub-asset class on Form PF, 
which requires reporting of multiple other sub-asset classes.
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    \166\ As noted above, where applicable, we have proposed to 
align Form PF with Form CPO-PQR to (1) enable filers that currently 
are required to file both Form PF and Form CPO-PQR independently to 
compile and use similar data in completing both forms and (2) enable 
users of the reported data (e.g., FSOC and other regulatory 
agencies) to (i) link data for funds that file both forms and (ii) 
aggregate and compare data across data sets more easily.
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    We request comment on the proposed amendments.
    131. Should we break out ADRs separately from the ``other listed 
equity'' category on Form PF as proposed?
Repurchase Agreements (``Repos'')
    We propose to add additional sub-asset classes to the ``repos'' 
section of proposed Question 32 to capture a breakdown of repos by term 
(e.g., overnight, other than overnight, and open term). Hedge funds 
often borrow cash overnight and pledge securities such as government 
bonds as collateral. We believe that collecting more information on the 
different types of repos held by qualifying hedge funds would allow the 
Commissions and FSOC to understand better the role of these funds in 
potentially amplifying funding stresses and the risks associated with 
short-term funding for certain trading strategies, particularly in 
light of the issues the repo market experienced during the fall of 2019 
and in March 2020.\167\
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    \167\ See. e.g., 2021 Financial Stability Oversight Council 
Annual Report at 12 and 159 available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.

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[[Page 53858]]

    We request comment on the proposed amendments.
    132. Should we add additional sub-asset classes to the ``repos'' 
section of proposed Question 32 as proposed? Are the proposed 
additional sub-asset classes appropriate? If not, is there another 
alternative that we should use?
    133. How often do hedge funds use ``open'' repo transactions (i.e., 
a repo with no defined term and which rolls over each day) and should 
we combine the open and overnight repo categories? Alternatively, 
should we require a breakdown of repo exposure by term in a separate 
question in Item C ``financing information'' of section 2 instead of in 
proposed Question 32?
Asset Backed Securities (``ABS'')/Structured Products
    We propose to separate the collateralized debt obligation (``CDO'') 
and collateralized loan obligation (``CLO'') sub-asset class in 
proposed Question 32 into two separate sub-asset classes (one for CDOs 
and one for CLOs), and further break out each of these new sub-asset 
classes based on the seniority of the instrument (e.g., senior, 
mezzanine, and junior tranches) similar to the reporting approach on 
the CFTC's Form CPO-PQR.\168\ The proposed changes are designed to 
provide separate reporting for CDOs and CLOs, which we believe is 
important because CDOs and CLOs are fundamentally different financial 
products and the current combined reporting obscures the specific 
attributes of each product. Furthermore, given the recent focus on CLOs 
by FSOC \169\ in monitoring systemic risk, we believe that having 
detailed product specific data for CDOs and CLOs is justified due to 
the potential value this information would provide for systemic risk 
monitoring.
---------------------------------------------------------------------------

    \168\ See Form PF Glossary of Terms (proposed definitions of 
``CDO'' and ``CLO''). The proposal would separate the current 
definition of ``CDO/CLO'' into a separate definition for each 
financial product. The definition of CDO would only include 
collateralized debt obligations (including cash flow and synthetic) 
and the definition of CLO would include collateralized loan 
obligations (including cash flow and synthetic) other than MBS, and 
would not include any positions held via CDS. See also supra 
footnote 166 (regarding the proposed alignment of Form PF with Form 
CPO-PQR).
    \169\ See United States Government Accountability Office, Report 
to Agency Officials, ``FINANCIAL STABILITY Agencies Have Not Found 
Leveraged Lending to Significantly Threaten Stability but Remain 
Cautious Amid Pandemic,'' December 2020, available at: https://www.gao.gov/assets/gao-21-167.pdf.
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    We request comment on the proposed amendments.
    134. Should we break out the CDO and CLO sub-asset class in 
proposed Question 32 into two separate sub-asset classes (one for CDOs 
and one for CLOs) as proposed? If not, what alternatives do you 
suggest?
    135. In proposed Question 32, we do not break out sub-asset classes 
for derivatives exposures to ABS and structured products (e.g., 
forwards on MBS). Should these types of financial instruments be 
reported as ``other derivatives'' in proposed Question 32 or should we 
add additional sub-asset classes for reporting derivative exposures to 
these instruments?
    136. Would more granular reporting for CLOs and CDOs inform 
monitoring and assessment of systemic risk? Instead of senior, 
mezzanine, and junior categories, would investment grade and non-
investment grade categories be simpler and less burdensome for advisers 
to report? Should other categories be added? If so, what categories? 
Should advisers separately report securitizations and re-
securitizations, as required on the CFTC's Form CPO-PQR?
    137. Should we collect separate information about MBS 
securitizations and re-securitizations in proposed Question 32?
    138. Does the real estate sub-asset class capture real estate 
exposure through vehicles that are not MBS or other structured products 
(e.g., commercial leases)? If not, how should we modify the proposal to 
do so?
Credit, Foreign Exchange, Interest Rate, and Other Derivatives
    We propose to revise the credit, foreign exchange (``forex''), and 
interest rate and other derivative sub-asset classes to provide more 
detailed reporting. For example, with respect to credit derivatives, 
the proposal would collect more detail on single name CDS exposure to 
capture better information on risk signals from these instruments by 
adding separate sub-asset classes for sovereign single name CDS, 
financial institution single name CDS, and other single name CDS (to 
capture any credit derivatives that do not fall into the other 
enumerated CDS categories).\170\ We believe that an increase in single 
name CDS exposure may signify a bet against an entity or the market 
more generally, which may have significant systemic risk implications, 
particularly with respect to concentrated single-issuer positions that 
can drive more extreme price movements and face difficulties in the 
unwinding process, and for counterparties on the other side of highly 
leveraged trades when the market moves against these positions.\171\ 
Furthermore, single name CDS exposure can represent important, 
concentrated risk positions for a fund, similar to large single equity 
positions, which can be connected to market contagion events, and have 
systemic risk and market liquidity implications.
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    \170\ See also Form PF Glossary of Terms (proposed revised 
definition of ``single name CDS'').
    \171\ The CFTC's Form CPO-PQR also requests information on 
single name financial CDS, and the revised IOSCO Global Fund 
Investment Survey also collects this information.
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    Similarly, we propose to add more detailed reporting for foreign 
exchange derivatives by adding separate sub-asset classes for forex 
swaps and currency swaps consistent with reporting to the Bank for 
International Settlements (``BIS''), while removing the less useful 
requirement of separate reporting for foreign exchange derivatives used 
for investment and hedging, as we have found the data of limited value 
because we do not believe that information is reported consistently 
across filers.\172\ We believe that adding separate reporting for 
different types of foreign exchange instruments (e.g., forex swaps and 
currency swaps) is appropriate because they have materially different 
risk characteristics, including different maturity profiles, and may be 
executed under different documentation which could affect their ability 
to be netted against one another. We refer to the BIS framework because 
we understand that it reflects a commonly accepted industry approach 
for classifying these instruments. Furthermore, given the significance 
of hedge funds' exposure to these instruments, we believe that more 
granular information would better inform our understanding of systemic 
risk issues that may arise from holdings in these different types of 
instruments. We also propose to divide the current ``interest rate 
derivatives'' sub-asset class into ``U.S. dollar interest rate 
derivatives'' and ``non-U.S. currency interest rate derivatives.'' We 
believe that added granularity would be important because we have found 
that Form PF data consistently shows interest rate derivatives as the 
sub-asset class to which qualifying hedge funds have the greatest 
exposure over time. A

[[Page 53859]]

better understanding of whether these exposures are related to the U.S. 
dollar yield curve or other countries' yield curves is important from a 
systemic risk analysis perspective. Finally, we propose to add new sub-
asset classes for various types of derivatives that are regularly used 
by hedge funds including correlation derivatives, inflation 
derivatives, volatility derivatives, and variance derivatives, which 
would both provide additional insight into how qualifying hedge funds 
use these types of financial instruments and further limit the number 
and type of derivatives that advisers report in the ``catch-all'' 
``other derivatives'' category.\173\
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    \172\ In connection with these proposed changes, we also propose 
to make changes to the definition of ``foreign exchange derivative'' 
to improve data quality with respect to how advisers report foreign 
exchange derivative exposure. We propose to revise the definition to 
(1) now include any derivative whose underlying asset is a currency 
other than the base currency of the reporting fund, (2) provide 
additional information on the treatment of cross- foreign exchange 
versus regular foreign exchange, and (3) require reporting of both 
legs of cross currency foreign exchange derivatives to reflect 
exposures from such transactions. See Form PF Glossary of Terms 
(proposed revised definition of ``foreign exchange derivative'').
    \173\ In connection with these proposed amendments, we also 
propose to add new definitions to the Glossary of Terms for 
``correlation derivative,'' ``inflation derivative,'' ``volatility 
derivative,'' and ``variance derivative.'' See Form PF Glossary of 
Terms (proposed definitions of ``correlation derivatives,'' 
``inflation derivative,'' ``volatility derivative,'' and ``variance 
derivative'').
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    139. As proposed, are the sub-asset classes for reporting on types 
of derivatives appropriate? For example, for forex derivatives, should 
we clarify, for cross-currency pairs (where U.S. dollars are not 
involved), that each leg of the transaction should be reported as long 
and/or short? What other types of derivatives sub-asset classes should 
be included or excluded, if any? Would the proposed sub-asset classes 
for reporting on derivatives be overly burdensome for advisers?
    140. Form CPO-PQR requires separate reporting for futures, 
forwards, swaps and options. The proposed revisions captured in 
proposed Question 32 would collect similar detail for the interest rate 
derivative and foreign exchange categories, but not for other asset 
categories. Would it be helpful to collect this level of detail for 
other derivatives positions beyond interest rate and foreign exchange? 
Additionally, should we add additional and/or standardization of 
derivative reporting that would align with Financial Conduct Authority/
European Securities and Markets Authority data collection by capturing, 
for each sub-asset class, the total gross notional value of contracts 
including the total notional of futures and delta-adjusted notional of 
options? Finally, should we amend the instructions to Question 30 to 
require reporting of closed out and OTC forward positions which have 
not yet expired/matured?
    141. Should we give guidance on reporting total return swaps (e.g., 
as ``other credit derivatives'' or ``interest rate swaps'')?
    142. With respect to the proposed addition of a new sub-asset class 
for volatility derivatives, do hedge funds use volatility derivatives? 
Additionally, are the sub-asset class categories in the proposed 
volatility derivative section appropriate? If not, should we add other 
sub-asset class categories or combine some of these categories?
    143. Should we require a more granular break out of interest rate 
derivative exposures? If so, what categories should we include? The 
definition of ``interest rate derivative'' instructs advisers to 
present interest rate derivatives as 10-year bond equivalents. As 
noted, the proposal would specify that the 10-year zero coupon bond 
equivalent would be required. Should we change how interest rate 
derivatives should be reported (e.g., the total gross notional value of 
outstanding contracts including the total notional value of futures and 
delta-adjusted value of options)?
    144. We propose to add new definitions for ``correlation 
derivative,'' ``inflation derivative,'' ``volatility derivative,'' and 
``variance derivative.'' Are these definitions appropriate? If not, how 
would you modify one or more definitions?
    145. As noted above, we believe adding separate reporting for 
different types of foreign exchange instruments (e.g., forex swaps and 
currency swaps) is appropriate because they have materially different 
risk characteristics and may be executed under different documentation 
and we refer to the BIS framework because we understand that it 
reflects a commonly accepted industry approach for classifying these 
instruments. Do you agree with our view, and is the proposed approach 
appropriate? If not, what alternative approach do you suggest?
Cash and Commodities
    We propose to make revisions to the sub-asset class categories for 
cash and commodities.
    We would require advisers to break out cash and cash equivalents 
\174\ between U.S. currency holdings and non-U.S. currency holdings, 
while also removing the current requirement to report on investments in 
funds for cash management purposes (other than money market funds) 
because in our experience advisers use inconsistent methods for 
determining whether a private fund investment is being used for cash 
management purposes and we believe that other information reported in 
current section 2b is more useful for assessing liquidity management 
(e.g., current Question 33 with respect to unencumbered cash).\175\
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    \174\ Some advisers include treasuries in their reporting of 
``cash'' because it was part of the definition of ``cash and cash 
equivalents.'' We propose to revise the definition of ``cash and 
cash equivalents'' to reflect that treasuries should not be included 
in ``cash and cash equivalents'' sub-asset class. In connection with 
this proposed change we also propose to add a new separate 
definition for ``government securities.'' See Form PF Glossary of 
Terms (proposed revised definition of ``cash and cash equivalents'' 
and proposed definition of ``government securities''). See also 
discussion at Section II.B.2 of this Release regarding the revised 
definitions of cash and cash equivalents and government securities.
    \175\ Additionally, in many cases we would be able obtain more 
information about all internal fund investments (including whether a 
fund looks like a cash management vehicle) through the new 
information the proposal would require to be reported in section 1b. 
See discussion at Section II.B.2 of this Release.
---------------------------------------------------------------------------

    Additionally, we propose to broaden the current power commodity 
sub-asset classes to also capture other energy commodities, and add 
additional commodity sub-asset classes (e.g., other (non-gold) precious 
metals, agricultural commodities, and base metal commodities) to 
provide added granularity with respect to these financial products 
given their potential systemic risk implications and to better inform 
our and FSOC's understanding of the activities of hedge funds in these 
important commodities markets. We have found that a limitation of the 
current form is that very different commodities (e.g., wheat and 
nickel) are reported together in the same sub-asset class (i.e., 
``other commodities'') making the reported data less meaningful for 
analysis. We believe that, with added granularity, we would be in a 
better position to identify concentrated exposures to particular 
commodities, data that could be valuable in the event of a dislocation 
in a particular commodity market.\176\ The additional

[[Page 53860]]

commodity sub-asset classes that we propose to add, i.e., other (non-
gold) precious metals, agricultural commodities and base metal 
commodities, were chosen because we believe they are most relevant from 
a systemic risk perspective given the size of these markets and what we 
currently know of hedge fund exposures to these markets.\177\
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    \176\ For example, we believe the addition of a base metal 
commodities sub-asset class would allow for identification of large 
players in the base metals market (such as those impacted by the 
March 2022 ``nickel squeeze''). During the March 2022 ``nickel 
squeeze,'' the price of nickel rose unusually steeply and rapidly in 
response to commodity price increases caused by Russia's invasion of 
Ukraine, and this event, coupled with one or more market 
participants holding large short positions, caused prices to 
increase in an extreme manner (e.g., a one-day increase of 63% for 
the generic first futures contract on March 7, 2022). See e.g., 
Shabalala, Zandi, Nickel booms on short squeeze while other metals 
retreat, Reuters (March 2022) available at https://www.reuters.com/markets/europe/lme-nickel-jumps-another-10-after-record-rally-supply-fears-2022-03-08/; Nagarajan, Shalini, Nickel Trading Halted 
at LME Until Friday After Wild Price Spike (businessinsider.com) 
(March 2022) available at https://markets.businessinsider.com/news/
commodities/nickel-price-london-metal-exchange-suspends-trading-
shanghai-short-squeeze-2022-
3#:~:text=The%20London%20Metal%20Exchange%20has,17%25%20to%20their%20
daily%20limit.
    \177\ These proposed change with respect to commodities sub-
asset classes would also better align Form PF with Form CPO-PQR.
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    We request comment on the proposed amendments.
    146. With respect to reporting on cash and cash equivalents, should 
we request separate reporting for US and non-US deposits? Would 
additional detail be burdensome for advisers? With respect to the 
proposed category ``other cash and cash equivalents (excluding bank 
deposits, certificates of deposit, money market funds and U.S. treasury 
bills, notes and bonds),'' should we require advisers to provide a 
description in Question 4 of what is reported in this sub-asset class?
    147. We propose to add additional sub-asset classes for 
commodities. Are the proposed additional commodities sub-asset classes 
appropriate? If not, what alternatives do you suggest? Should we add 
more or fewer sub-asset classes for commodities? If we should add more, 
what additional sub-asset classes do you recommend? Should we add a 
sub-asset class for other physical assets?
Digital Assets
    The proposal would add a new sub-asset class for digital assets and 
define the term ``digital asset.'' \178\ We have observed the growth as 
well as the volatility of this asset class in recent years.\179\ We 
understand that many hedge funds have been formed recently to invest in 
digital assets, while many existing hedge funds are also allocating a 
portion of their portfolios to digital assets.\180\ Accordingly, we 
believe it is important to collect information on funds' exposures to 
digital assets in order to understand better their overall market 
exposures.
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    \178\ See discussion at Section II.B.3 of this Release. See also 
Form PF Glossary of Terms (proposed definitions of ``digital 
asset'').
    \179\ In early 2021 the digital asset market surpassed $1 
trillion, mostly driven by the rise in Bitcoin's price, which some 
speculate may be driven in part by hedge fund investments. See 
Brettell, Karen and Chavez-Dreyfuss, Crypto market cap surges above 
$1 trillion for first time, Reuters (January 2021) available at 
https://www.reuters.com/world/china/crypto-market-cap-surges-above-1-trillion-first-time-2021-01-07/.
    \180\ See C. Williamson, Managers Taking Bigger Steps Into 
Crypto, Pensions&Investments (March 2022) available at https://www.pionline.com/cryptocurrency/hedge-fund-managers-taking-bigger-steps-cryptocurrency.
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    We request comment on the proposed amendments.
    148. Should the sub-asset class for ``digital assets'' provide more 
granularity? For example, should we have separate sub-asset classes for 
digital assets that represent an ability to convert or exchange the 
digital asset for fiat currency or another asset, including another 
digital asset, and those that do not represent such a right to convert 
or exchange; for digital assets that represent a right to convert or 
exchange for fiat currency or another digital asset, those where the 
redemption obligation is supported by an unconditional guarantee of 
payment, such as some ``central bank digital currencies,'' and those 
redeemable upon demand from the issuer, whether or not collateralized 
by a pool of assets or a reserve; for digital assets that do not 
represent any direct or indirect obligation of any party to redeem; and 
for digital assets that represent an equity, profit, or other interest 
in an entity? Should we require advisers to report the digital asset by 
name (e.g., Bitcoin and Ether) or describe its characteristics?
Open and Large Position Reporting
    Advisers to qualifying hedge funds currently report (1) a fund's 
total number of ``open positions'' determined on the basis of each 
position and not with reference to a particular issuer or 
counterparty,\181\ and (2) the percentage of a fund's net asset value 
and sub-asset class for each open position that represents five percent 
or more of a fund's net asset value.\182\ We have found that advisers 
use different methods for identifying and counting their ``open 
positions,'' which has made making meaningful comparisons among funds 
difficult. This has also potentially obscured certain large exposures, 
which may make concentration assessments less exact. For example, an 
``open position'' might indicate a position held physically, or 
synthetically through derivatives, or both. As such, we propose to 
require that advisers provide information about a fund's investment 
exposures based on ``reference assets,'' which would capture securities 
or other assets to which a fund has exposure, be it direct or indirect 
ownership, synthetic exposure, or exposure through derivatives.\183\ 
The proposal is designed to provide insight into the extent of a fund's 
portfolio concentration and large exposures to any reference assets. 
The proposal would require advisers to report (1) the total number of 
reference assets to which a fund holds long and short netted exposure, 
(2) the percentage of net asset value represented by the aggregated 
netted exposures of reference assets with the top five long and short 
netted exposures, and (3) the percentage of net asset value represented 
by the aggregate netted exposures of reference assets representing the 
top ten long and short netted exposures. We are proposing to require 
reporting for the top five long and short netted positions and the top 
ten netted long and short positions because combined these two metrics 
provide a holistic view of a reporting fund's portfolio concentration. 
We also understand that these are commonly used industry metrics for 
assessing portfolio concentration levels. We propose to define ``netted 
exposure'' as the sum of all positions with legal and contractual 
rights that provide exposure to the same reference asset, taking into 
account all positions, including offsetting and partially offsetting 
positions, relating to the same reference asset (without regard to 
counterparties or issuers of a derivative or other instrument that 
reflects the price of the reference asset).\184\
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    \181\ Current Question 34.
    \182\ Current Question 35.
    \183\ See proposed Question 39.
    \184\ Netted exposure to a reference asset would either be long 
or short, and advisers would determine the value of each netted 
exposure to each reference asset in U.S. dollars, expressed as the 
delta adjusted notional value, or as the 10-year bond equivalent for 
reference assets that are fixed income assets. Advisers would not 
report exposure to cash and cash equivalents. See proposed Question 
39. See also Form PF Glossary of Terms (proposed definition of 
``netted exposure'').
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    The proposal also would require advisers to provide certain 
information on a fund's reference asset to which the fund has gross 
exposure (as of the end of each month of the reporting period) equal to 
or exceeding (1) one percent of net asset value, if the reference asset 
is a debt security and the reporting fund's gross exposure to the 
reference asset exceeds 20 percent of the size of the debt security 
issuance, (2) one percent of net asset value, if the reference asset is 
a listed equity security and the reporting fund's gross exposure to the 
reference asset exceeds 20 percent of average daily trading volume 
measured over 90 days preceding the reporting date, or (3) (a) five 
percent of the reporting fund's net asset value or (b) $1 billion. 
Advisers would be required to report: (1) the dollar value (in U.S. 
dollars) of all long and the dollar value (in U.S. dollars) of all 
short positions with legal and contractual rights that provide exposure 
to the reference asset; (2) netted exposure to the reference asset; (3) 
sub-asset class and instrument

[[Page 53861]]

type; (4) the title or description of the reference asset; (5) the 
reference asset issuer (if any) name and LEI; (6) CUSIP (if any); \185\ 
and (7) if the reference asset is a debt security, the size of issue, 
and if the reference asset is a listed equity, the average daily 
trading volume, measured over 90 days preceding the reporting date. 
Additionally, advisers may at their option choose to provide the FIGI 
for the reference asset, but they are not required to do so.\186\ We 
propose to define ``gross exposure'' to a ``reference asset'' as the 
sum of the absolute value of all long and short positions with legal 
and contractual rights that provide exposure to the reference 
asset.\187\ We considered varying levels of thresholds and believe that 
the proposed thresholds described above are appropriate based on the 
following reasoning. First, the five percent threshold has been carried 
over from the current version of Form PF and is also a commonly used 
metric for identifying significant positions in a portfolio.\188\ In 
addition, while a portfolio is generally viewed as diversified when it 
holds at least 20 different positions, when a position goes above five 
percent it reduces portfolio diversification. Second, the $1 billion 
threshold represents a level for large funds (e.g., those with net 
asset values in excess of $20 billion) that is large enough so as to 
have potential systemic risk implications even if the position is less 
than five percent of the fund. Finally, the proposed one percent 
threshold is aimed at limiting filer burdens while still providing 
insight into the risks associated with a position that may be small 
relative to a fund's overall portfolio but which constitutes a large 
fraction of the market for a particular holding, given that a 
liquidation by one fund can trigger a disorderly liquidation. A 
disorderly liquidation of this kind may raise systemic risk concerns as 
it may lead to liquidation losses at other funds for which the position 
is more impactful and possibly lead to a cascade of additional unwinds.
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    \185\ Advisers would also be required to provide at least one of 
the following other identifiers: (1) ISIN; (2) ticker if ISIN is not 
available); (3) other unique identifier (if ticker and ISIN are not 
available). For reference assets with no CUSIP, or other identifier, 
advisers would be required to describe the reference asset. See 
proposed Question 40(a).
    \186\ See proposed Question 40(a)(xi).
    \187\ See proposed Question 40 and Form PF Glossary of Terms 
(proposed revised definition of ``gross exposure'').
    \188\ E.g., Schedule 13G/13D uses a five percent threshold.
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    The purpose of these amendments is to improve our ability to assess 
the magnitude of hedge fund portfolio concentration, as well as to 
identify directional exposure. From a systemic risk and an investor 
protection perspective, high portfolio concentration carries the risk 
of amplified losses that can occur when a fund's investment represents 
a large portion of a particular investment, asset class, or market 
segment. Leveraged portfolios further amplify this risk. The proposed 
amendments are designed to better capture a fund's concentration risk 
(e.g., where gross exposure to a reference asset is large compared to 
the fund's NAV and/or compared to the market for a reference security). 
Reporting positions that are large compared to market size also may 
provide some insight about whether multiple firms are ``crowding'' into 
trades in certain types of securities or other financial assets. We 
believe that such ``crowding'' may increase the risk that one fund's 
forced selling may trigger systemic effects across a particular market. 
We also believe that collecting information about the composition of 
exposure to a reference asset would allow us and FSOC to link the 
information reported in proposed Question 40 to exposure reporting in 
proposed Question 32, which would give the reported data added context 
and facilitate understanding of a fund's investment portfolio and 
assessment of any implications for systemic risk and investor 
protection purposes. For example, in a convertible arbitrage trade 
involving a position in a convertible bond and an offsetting position 
in the equity securities of the same issuer, reference asset exposure 
might be obtained by positions in two different sub-asset classes 
(i.e., investment grade convertible bonds and equities) and using a 
combination of instrument types (e.g., physical ownership and futures 
or a swap). The combination of information reported in proposed 
Question 32 and proposed Question 40 would facilitate our ability to 
identify this type of situation, better understand a qualifying hedge 
fund's investment approach and whether it is taking on concentrated 
positions (potentially with leverage), and assess whether or not a 
qualifying hedge fund's activities may have systemic risk or investor 
protection implications.
    We request comment on these proposed amendments.
    149. The proposal would require advisers to report (1) the total 
number of reference assets to which a fund holds long and short netted 
exposure, (2) the percent of net asset value represented by the 
aggregated netted exposures of reference assets with the top five long 
and short netted exposures, and (3) the percent of net asset value 
represented by the aggregate netted exposures of reference assets 
representing the top ten long and short netted exposures. Are these 
requirements appropriate? If not, how should we modify them? For 
example, should we require reporting on more or fewer long and short 
netted exposures rather than just the top five and the top ten? Instead 
of requiring disclosure on specific exposures described above, should 
we require a full position disclosure filing similar to Form N-PORT?
    150. Does our proposed ``reference asset'' definition work in the 
context of these questions? For example, does the definition capture 
interest rate derivatives? If not, how should we modify the definition 
or these questions to capture interest rate derivatives? If we should 
collect information about interest rate derivatives, should we specify 
reporting by maturity bucket and currency? If so, should we use the 
same maturity buckets that we have proposed for purposes of calculating 
``adjusted'' exposure in proposed Question 32?
    151. Should the ``reference asset'' definition be more specific or 
provide more guidance on how to ``look through'' certain instruments 
(e.g., a correlation basket or an index (such as the NASDAQ) or ETFs or 
other pooled vehicles and private funds)?
    152. Should we provide additional guidance in the definition of 
``reference asset'' such as instructing advisers to refer to the 
``issuer''? Should we provide instructions or guidance on how advisers 
should address ``reference assets'' that have varying term structures 
(e.g., use maturity buckets)?
    153. The proposal would require advisers to provide certain 
information on a fund's reference asset to which the fund has gross 
exposure (as of the end of each month of the reporting period) equal to 
or exceeding (1) one percent of net asset value, if the reference asset 
is a debt security and the reporting fund's gross exposure to the 
reference asset exceeds 20 percent of the size of the debt security 
issuance, (2) one percent of net asset value, if the reference asset is 
a listed equity security and the reporting fund's gross exposure to the 
reference asset exceeds 20 percent of average daily trading volume 
measured over 90 days preceding, or (3) either (a) five percent of the 
reporting fund's net asset value or (b) $1 billion. Are these 
thresholds appropriate? If not, how should they be modified? Should 
separate thresholds be used to compare netted exposures, and gross 
exposures, to equity volume and debt issue size?

[[Page 53862]]

For fixed income, is the reference to ``debt security issuance'' clear? 
While this reference is designed to capture a full issue size, should 
it instead reference individual tranches of an issue?
    154. For position reporting in Question 40, should we also require 
advisers to report the number of shares, principal amount or other 
unit, currency value and percent of value compared to NAV? Would this 
be burdensome to report?
    155. In Question 40, are there other unique identifiers, in 
addition to or in lieu of LEI or CUSIP that we should add in addition 
to those proposed (e.g., for commodities or indices)? Alternatively, 
should we permit advisers to report FIGI in lieu of CUSIP in Question 
40 rather the requiring advisers to report CUSIP?
b. Borrowing and Counterparty Exposure
    Counterparty exposure. As noted above, we propose to revise and 
enhance how advisers report information about their relationships with 
creditors and other counterparties (including CCPs) and the associated 
collateral arrangements for their hedge funds.\189\ For qualifying 
hedge funds, we propose to include a new consolidated counterparty 
exposure table, similar to the new consolidated counterparty exposure 
table proposed for hedge funds in section 1c of the form,\190\ which 
would capture all cash, securities, and synthetic long and short 
positions by a reporting fund, a fund's credit exposure to 
counterparties, and amounts of collateral posted and received. This 
table would replace the information currently required by Questions 43, 
44, 45, and 47, each of which would be deleted under the proposal.\191\ 
Under the proposal, proposed Questions 42 and 43 would continue to 
collect information about a reporting fund's key individual 
counterparties, but in more detail. These revisions are designed to 
improve data quality and comparability, close data gaps and provide 
better insight into qualifying hedge funds' borrowing and financing 
relationships, their credit exposure to counterparties and collateral 
practices, and also would enhance the Commissions' and FSOC's ability 
to assess the activities of qualifying hedge funds and their 
counterparties for investor protection purposes and in monitoring 
systemic risk.
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    \189\ See discussion at Section II.B.3 of this Release.
    \190\ See discussion at Section II.B.3 of this Release.
    \191\ In connection with the proposed removal of current 
Question 44, we propose to make a corresponding amendment to current 
Question 13, which would be redesignated as Question 19, to remove 
an instruction that would no longer be relevant.
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    The proposed new consolidated counterparty exposure table would be 
designed to capture information on all non-portfolio credit exposure 
that a qualifying hedge fund has to its counterparties (including CCPs) 
and the exposure that creditors and other counterparties have to the 
fund, taking into account netting. The new table would require advisers 
to report in U.S. dollars, as of the end of each month of the reporting 
period, a qualifying hedge fund's borrowings and other transactions 
with creditors and other counterparties by type of borrowing or 
transaction (e.g., unsecured, secured borrowing and lending under a 
prime brokerage agreement, secured borrowing and lending via repo or 
reverse repo, other secured borrowing and lending, derivatives cleared 
by a CCP, and uncleared derivatives) and the collateral posted or 
received by a reporting fund in connection with each type of borrowing 
or other transaction.\192\ The proposed table also would require 
advisers to qualifying hedge funds to (1) classify each type of 
borrowing by creditor type (i.e., U.S. depository institution, U.S. 
creditors that are not depository institutions, and non-U.S. 
creditors); (2) classify posted collateral by type (e.g., cash and cash 
equivalents, government securities, securities other than cash and cash 
equivalents and government securities and other types of collateral or 
credit support (including the face amount of letters of credit and 
similar third party credit support) received and posted by a reporting 
fund, and secured borrowing and lending (prime brokerage or other 
brokerage agreement), and (3) report, at the end of each month of the 
reporting period, the expected increase in collateral required to be 
posted by the reporting fund if the margin increases by one percent of 
position size for each type of borrowing or other transaction. We 
believe that measuring the impact of a one percent margin change will 
allow for a meaningful assessment of qualifying hedge funds' 
vulnerability to changes in financing costs and identification of funds 
that are most sensitive to potential margin changes. We also believe 
that measuring this impact would provide a conventional way to obtain 
data on funds' vulnerability to margin increases that is easy to scale 
up for analysis purposes and allows for uniform comparisons across 
hedge funds to see which funds have lockup agreements and which funds 
do not. Furthermore, the proposed table is designed to consolidate 
existing questions and provide more specific instructions in an effort 
to eliminate information gaps and improve the reliability of data 
collected. We believe that this new approach would collect better 
information about a qualifying hedge fund's borrowing and financing, 
cleared and uncleared derivatives positions, and collateral practices 
as well as a fund's credit exposure to counterparties resulting from 
excess margin, haircuts and positive mark-to-market derivatives 
transactions, which we believe would enhance FSOC's systemic risk 
assessments.
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    \192\ The instructions would direct advisers to classify 
borrowings and other transactions and associated collateral based on 
the governing legal agreement (e.g., a prime brokerage or other 
brokerage agreement for cash margin and securities lending and 
borrowing, a global master repurchase agreement for repo/reverse 
repo, and ISDA master agreement for synthetic long positions, 
synthetic short positions and other derivatives), and instruct 
advisers how to report when there is cross-margining under a fund's 
prime brokerage agreement. We are also proposing to add new 
definitions of ``synthetic long position'' and ``synthetic short 
position'' to the Glossary of Terms. See Form PF Glossary of Terms 
(proposed definitions of ``synthetic long position'' and ``synthetic 
short position''). Additionally, the instructions would permit 
advisers to net a reporting fund's exposure with each counterparty 
and among affiliated entities of a counterparty to the extent such 
exposures may be contractually or legally set-off or netted across 
those entities and/or one affiliate guarantees or may otherwise be 
obligated to satisfy the obligations of another under the agreements 
governing the transactions. The instructions would also direct 
advisers to classify borrowing by creditor type (e.g., percentage 
borrowed from U.S. depository institutions, U.S. creditors that are 
not U.S. depository institutions, non-U.S. creditors) based on the 
legal entity that is the contractual counterparty for such borrowing 
and not based on parent company or other affiliated group.
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    We request comment on the proposed addition of this new table.
    156. Is the information to be collected in the proposed new table 
appropriate? If not, how should we modify the proposed reporting 
requirements? Would reporting in the proposed new table be overly 
burdensome for advisers? If so, how should we modify the proposed table 
to reduce burdens on advisers?
    157. Would the proposed table capture an accurate overall view of 
the non-portfolio credit exposure that a qualifying hedge fund has in 
aggregate to its counterparties (including CCPs) and the exposure that 
creditors and other counterparties have to the fund? Are the table 
instructions clear? Would the instructions properly capture a reporting 
fund's borrowing and other transactions with creditors? Do we need to 
modify the proposed instructions for calculating and reporting 
associated collateral to clarify any matters? Do we need to modify the 
instructions with

[[Page 53863]]

respect to netting to increase clarity or avoid undue burden?
    158. We propose to specify how to classify certain types of 
transactions based on legal agreement. We are proposing to classify all 
transactions under a master securities loan agreement (``MSLA'') as 
other secured borrowing. Is another classification more appropriate? If 
so, what classification do you suggest? For example, should borrowing 
and collateral received and lending and posted collateral under an MSLA 
be reported in a separate category of borrowing or consolidated with 
prime broker borrowing? Are the instructions provided for cross 
margining reasonable and practicable, or should they be changed in any 
way?
    159. In connection with the proposal, we propose to add a new 
definition for ``synthetic short position.'' Is the list of assets to 
be included or excluded from the definition appropriate or should we 
provide a different list of assets? If we should provide a different 
list, what assets should be included and excluded?
    160. Is it clear that advisers should calculate the expected 
increase or decrease based on a margin increase of one percent of 
position size in proposed Question 41 or should we provide further 
guidance or clarify the question? Should the metric be something other 
than the expected increase or decrease based on a margin increase of 
one percent of position size? If so, what metric should be used?
    161. As an alternative, should we include a drop-down box with 
possible types of other secured borrowings (e.g., letters of credit, 
loans secured by other collateral such as real estate, equipment, 
receivables, etc.) and also include an ``other'' ``catch-all'' category 
that would need to be explained in Question 4?
    Significant counterparty reporting. The proposal would require 
advisers, for each of their qualifying hedge funds, to identify all 
creditors and counterparties (including CCPs) where the amount a fund 
has borrowed (including any synthetic long positions) before posted 
collateral equals or is greater than either (1) five percent of the 
fund's net asset value or (2) $1 billion.\193\ We believe this 
threshold is appropriate because it highlights two different but 
potentially significant risks. First, five percent of a fund's net 
asset value represents an amount of borrowing that, if repayment was 
required, could be a significant loss of financing that could result in 
a forced unwind and forced sales from the reporting fund's portfolio. 
Second, $1 billion represents an amount that, in the case of a very 
large fund, may not represent five percent of the fund's net asset 
value, but may be large enough to create stress for certain of its 
counterparties. This change is designed to specify how securities held 
should be treated, avoiding a common source of error in how advisers 
have completed the current form, and allowing both counterparty risks 
related to collateralized transactions to be viewed in one place, i.e., 
the risk that collateral will not be returned, and the risk that the 
borrower of cash will fail to repay the amount borrowed, risks that we 
have found cannot be fully observed based on information collected on 
the current form. For the top five creditors and other counterparties 
from which a fund has borrowed the most (including any synthetic long 
positions) before posted collateral, advisers would be required to 
identify the counterparty (by name, LEI, and financial institutional 
affiliation) and to provide information detailing a fund's transactions 
and the associated collateral. We have proposed a ``top five'' 
reporting threshold as this level is consistent with the current 
threshold for reporting on collateral practices on Form PF.\194\ 
Advisers would be required to present this information using a proposed 
individual counterparty exposure \195\ table that follows the same 
format as the new consolidated counterparty exposure table described 
above for Question 41, including borrowings and other transactions by 
type and collateral posted and received by type. For all other 
creditors and counterparties from which the amount a fund has borrowed 
(including any synthetic long positions) before posted collateral that 
equals or is greater than either (1) five percent of the fund's net 
asset value or (2) $1 billion, advisers would be required to identify 
each counterparty (by name, LEI, and financial institution affiliation) 
and report the amount of such borrowings and the collateral posted by 
the fund in U.S. dollars.
---------------------------------------------------------------------------

    \193\ See proposed Question 42. Advisers would use calculations 
performed to complete the new table in proposed Question 41 for 
purposes of identifying the counterparties to be reported in 
proposed Question 42 and Question 43, and the calculation method 
would be designed to be similar to the calculations used to identify 
counterparties in proposed Question 27 and proposed Question 28 in 
order to facilitate aggregation and analysis of data across hedge 
funds and qualifying hedge funds. Furthermore, if more than five 
counterparties meet the threshold, advisers would complete an 
individual counterparty exposure table for the top five creditors or 
other counterparties to which a reporting fund owed the greatest 
amount in respect of cash borrowing entries (before posted 
collateral), and also identify all other creditors and 
counterparties (including CCPs) to which the reporting fund owed an 
amount in respect of cash borrowing entries (before posted 
collateral) equal to or greater than either (1) five percent of the 
reporting fund's net asset value as of the data reporting date or 
(2) $1 billion. See also Form PF Glossary of Terms (proposed 
definitions of ``cash borrowing entries'' and ``collateral posted 
entries'').
    \194\ See current Question 36.
    \195\ In connection with the proposal, we propose to add a new 
definition for ``individual counterparty exposure table'' to the 
Form PF Glossary of Terms.
---------------------------------------------------------------------------

    Similarly, the proposal would require advisers, for each of their 
qualifying hedge funds, to identify all counterparties (including CCPs) 
to which a fund has net mark-to-market counterparty credit exposure 
after collateral that equals or is greater than either (1) five percent 
of the fund's net asset value or (2) $1 billion.\196\ We believe this 
threshold is appropriate because both portions of the threshold 
highlight potential systemic risk: five percent of net asset value is a 
level that we believe represents significant exposure (based on the 
impact on performance) in the event of counterparty default, and $1 
billion, while it may not equal five percent of a large hedge fund's 
assets, may indicate a larger systemic stress involving a fund's 
counterparties. For the top five of these counterparties, advisers 
would identify the counterparty (by name, LEI and financial institution 
affiliation) and provide information detailing a fund's relationship 
with these counterparties including associated collateral using the 
same table required for individual counterparty reporting.\197\ The 
proposal also would require qualifying hedge funds to identify all 
other counterparties (by name, LEI, and financial institution 
affiliation) to which a fund has net mark-to-market exposure after 
collateral that equals or is greater than either (1) five percent of a 
fund's net asset value or (2) $1 billion and would require these 
advisers to report the amount of the exposure before and after 
collateral posted by either the counterparty or the reporting fund as 
applicable. The purpose of this new requirement is to enhance our 
ability to understand the impact a particular counterparty failure like 
those that occurred during the 2008 financial crisis and in the period 
since (e.g., the failure of MF Global in 2011),\198\ which we believe 
is important

[[Page 53864]]

for systemic risk assessments and from an investor protection 
perspective. In assessing the risk to a fund of a counterparty default, 
the proposal would look at whether a fund has net borrowing exposure or 
net lending exposure to a counterparty. If the fund is a net borrower 
with respect to a counterparty, we would measure cash borrowed by the 
fund against collateral posted by fund. Alternatively, when the fund is 
a net lender with respect to a counterparty, we would measure cash 
loaned to the counterparty against collateral posted by the 
counterparty to assess whether the counterparty has posted insufficient 
collateral (relative to the amount borrowed).\199\
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    \196\ See proposed Question 43.
    \197\ Under the proposal, however, if an adviser completes the 
table in Question 42 for a particular counterparty, the adviser 
would not be required to complete the table twice.
    \198\ See e.g., Gapper, John and Kaminska, Izabella, Downfall of 
MF Global--US broker-dealer bankruptcy highlights global reach of 
eurozone crisis, Financial Times (November 2011) available at 
https://www.ft.com/content/2882d766-06fb-11e1-90de-00144feabdc0.
    \199\ See Form PF Glossary of Terms (proposed definitions of 
``cash borrowing entries,'' ``collateral posted entries,'' ``cash 
lending entries,'' and ``collateral received entries'') for a 
detailed description of these calculations.
---------------------------------------------------------------------------

    These proposed amendments are designed to streamline the form by 
consolidating information currently collected in Question 47 into 
proposed Question 42, and to improve the quality and comparability of 
reported information and our ability to integrate the data obtained for 
analysis with other regulatory data sets by specifying how advisers 
determine borrowing and counterparty credit exposure.\200\ The proposed 
changes, in conjunction with the proposed new consolidated counterparty 
exposure table, would also provide a better overall view of hedge 
funds' borrowing and other financing arrangements and counterparty 
credit exposure and associated collateral, which we believe would 
provide critical insight into (1) creditor and counterparty exposure to 
qualifying hedge funds through synthetic long positions through 
derivatives, (2) potential gaps in margin received by and posted by 
qualifying hedge funds and the size of any such gaps, (3) qualifying 
hedge funds' exposure to a large counterparty failure, and (4) the 
expected impact on a fund's financing arrangements of a change in 
margin requirements.
---------------------------------------------------------------------------

    \200\ The proposal would require creditor legal name and LEI, 
which would aid in the identification of counterparties and 
facilitate analysis of the interconnectedness of market participants 
(e.g., Form N-PORT and Form N-CEN already collect LEI for registered 
investment company counterparties, and including LEIs here would 
facilitate analysis across data sets).
---------------------------------------------------------------------------

    Finally, the proposal would remove the requirement from current 
Question 38 for advisers to report the percentage of the total amount 
of collateral and other credit support that a fund has posted to 
counterparties that may be re-hypothecated.\201\ We are proposing this 
change because we believe that this reporting is burdensome for 
advisers, and we have found that the data obtained is generally not 
reliable because advisers cannot easily collect and report the required 
information as re-hypothecation commonly occurs from omnibus accounts 
into which advisers generally do not have visibility.\202\ We request 
comment on the proposed amendments.
---------------------------------------------------------------------------

    \201\ We would redesignate Question 38 as Question 45.
    \202\ See MFA Letter to Chairman Clayton, Sept. 17, 2018, 
available at https://www.managedfunds.org/wp-content/uploads/2020/04/MFA.Form-PF-Recommendations.attachment.final_.9.17.18.pdf (noting 
the rehypothecated securities are taken out of an omnibus account, 
which makes reporting for advisers with any certainty difficult).
---------------------------------------------------------------------------

    162. Should we amend counterparty reporting as proposed, including 
the proposed counterparty identifying information? Is the proposed 
identifying information appropriate? If not, what alternatives do you 
suggest? Would the proposed amendments lead to more accurate data 
regarding counterparties?
    163. We have proposed to limit more detailed reporting in proposed 
Question 42 to the top five creditor and counterparties from which a 
fund has borrowed the most (including any synthetic long positions) 
before posted collateral, and in proposed Question 43 to the top five 
counterparties to which a fund has the greatest net mark to market 
counterparty credit exposure after collateral. Should we expand this 
question to require more detailed reporting for the top, for example, 
ten creditors and/or counterparties, as applicable? Alternatively, 
should we further limit the scope of creditor and/or counterparty 
reporting? Should we require that all creditor and/or counterparties be 
listed?
    164. Do advisers find the re-hypothecation reporting burdensome? 
Are advisers able to collect and report information currently required 
by Question 38 given omnibus accounts?
    165. Are securities lending and borrowing different from other 
types of trading and financing activities (e.g., repo/reverse repo, 
prime broker borrowing) for purposes of counterparty monitoring and 
risk assessment? If so, should we treat them differently?
    166. As proposed, calculations in these questions would exclude 
collateral that is not cash and cash equivalents or other securities to 
avoid including letters of credit and other illiquid assets (e.g., real 
estate) posted as collateral. What other types of collateral would be 
omitted under this instruction? Would it omit types of collateral 
commonly accepted by creditors and other counterparties? If so, how 
should we modify the question?
    167. This proposal would collect information about top 
counterparties based on a fund's borrowing from each counterparty legal 
entity, rather than borrowing from all entities affiliated with a major 
financial institution. Could this approach result in data gaps where a 
fund borrows from different counterparties with one affiliated group 
below the reporting threshold? Alternatively, should we require funds 
to aggregate borrowings from all affiliates of major counterparties, 
and report on each affiliate in this counterparty reporting? What data 
gaps might occur using this alternative approach? Is the proposed 
threshold (i.e., equal to or greater than either (1) five percent of 
the fund's net asset value or (2) $1 billion) for identifying 
counterparties to which the fund is exposed appropriate? Will it 
capture those counterparties to which the fund may have material 
counterparty credit exposure? Should we adopt a combination of 
thresholds (e.g., greater than five percent or $1 billion for 
individual counterparties and greater than 10 percent or $1 billion for 
any affiliated group of counterparties)?
c. Market Factor Effects
    The proposal would require advisers to qualifying hedge funds to 
respond to all market factors to which their portfolio is directly 
exposed, rather than allowing advisers to omit a response to any market 
factor that they do not regularly consider in formal testing in 
connection with the reporting fund's risk management, as Form PF 
currently provides.\203\ These proposed changes are designed to enhance 
investor protection efforts and systemic risk assessment by allowing 
the Commissions and FSOC to track better common market factor 
sensitivities, as well as correlations and trends in those market 
factor sensitivities.
---------------------------------------------------------------------------

    \203\ See current Question 42 and proposed Question 47. For 
market factors that have no direct effect on a reporting fund's 
portfolio, we propose to instruct filers to enter zero.
---------------------------------------------------------------------------

    We also propose to change the stress thresholds to (1) require 
advisers to report one threshold for each market factor, rather than 
two as is currently required, and (2) propose different thresholds for 
certain market factors to capture stress scenarios that are plausible 
but still infrequent market moves.\204\ Information resulting from

[[Page 53865]]

stress testing at thresholds in the current form (one low and one high) 
is not useful because the thresholds are either too frequent (for the 
lower threshold) or too extreme and may not result in accurate 
estimates (for the higher threshold). Based on our experience with this 
information, we do not believe that collecting data at multiple 
thresholds \205\ for each market factor is significantly more 
meaningful than collecting market factor sensitivity at a single 
plausible but still infrequent threshold.
---------------------------------------------------------------------------

    \204\ For example, on the current form, advisers must report the 
effect of an increase or decrease in equity prices by five percent 
and by 20 percent, while under the proposal advisers would only 
report the effect of a 10 percent increase or decrease, which is a 
more plausible but still infrequent scenario.
    \205\ See current Question 42.
---------------------------------------------------------------------------

    The proposal also would add a market factor test concerning non-
parallel risk free interest rate movements. It would test hedge fund 
exposure to changes in the slope of the yield curve, which is currently 
untested and can be a source of systemic risk when there are sudden 
interest rate changes. For example, this market factor could provide 
meaningful information on hedge funds that take complex positions, such 
as market neutral strategies (e.g., basis trading in particular) and 
other strategies that employ trades that take advantage of spreads in 
yield curves coupled with high use of leverage.
    The proposal also would revise the instructions so advisers would 
report the long component and short component consistently with market 
convention, rather than opposite from market convention, as Form PF 
currently provides in order to reduce inadvertent mistakes in 
completing the form.\206\ We request comment on the proposed 
amendments.
---------------------------------------------------------------------------

    \206\ The proposal would amend the instructions to provide that 
``risk free interest rates'' would include interest rate swap rates 
in which a fixed rate is exchanged for a risk-free floating rate 
such as the secured overnight financing rate (``SOFR'') or the 
sterling overnight index average (``SONIA''). Additionally, the 
proposal would amend the instructions to specify that (1) for market 
factors involving interest rates and credit spreads, advisers should 
separate the effect on its portfolio into long and short components 
where (i) the long component represents the aggregate result of all 
positions whose valuation changes in the opposite direction from the 
market factor under a given stress scenario, and (ii) the short 
component represents the aggregate result of all positions whose 
valuation changes in the same direction as the market factor under a 
given stress scenario, and (2) for market factors other than 
interest rates and credit spreads, advisers should separate the 
effect on its portfolio into long and short components where (i) the 
long component represents the aggregate result of all positions 
whose valuation changes in the same direction as the market factor 
under a given stress scenario and (ii) the short component 
represents the aggregate result of all positions whose valuation 
changes in the opposite direction from the market factor under a 
given stress scenario. See proposed Question 47.
---------------------------------------------------------------------------

    168. Should Form PF require advisers to qualifying hedge funds to 
respond to all market factors, as proposed? Alternatively, should Form 
PF allow advisers to omit a response to any market factor that it does 
not regularly consider in formal testing in connection with the 
reporting fund's risk management? Do advisers or their reporting funds 
regularly consider all, some, or other market factors we are proposing? 
If so which ones and why? Are adjustments needed for advisers that use 
a different stress test methodology than that required by the question 
as proposed?
    169. Should we revise the stress thresholds, as proposed? Would the 
proposed thresholds capture stress scenarios that are plausible but 
still infrequent market moves? Is there a better way to meet this 
objective? Are adjustments needed for advisers that test thresholds 
similar, but not identical to, those proposed?
    170. Should Form PF include a market factor concerning non-parallel 
risk free interest rate movements, as proposed? Would this proposed 
amendment provide meaningful exposure information for hedge funds that 
take complex positions, such as market neutral strategies (e.g., basis 
trading in particular) and other strategies that employ trades that 
take advantage of spreads in yield curves coupled with a high use of 
leverage? Would any of the other market factors better describe the 
risks such strategies are exposed to?
    171. Are the proposed amendments to how advisers would report long 
and short components consistent with market convention? Do market 
conventions vary by asset type? Would the proposed change relieve or 
increase burdens? Please provide supportive data. Is there a more 
effective way to require advisers to report long and short components 
that would be consistent with market conventions and allow for data 
comparability?
    172. Are there any definitions or instructions that we should 
clarify or change in this question?
    173. As an alternative, should Form PF require all advisers to all 
types of reporting funds to report market factor data? Which ones and 
why?
d. Additional Amendments to Section 2b
    Currency exposure reporting. The proposal would require qualifying 
hedge funds to report for each month of the reporting period, in U.S. 
dollars, (1) the net long value and short value of a fund's currency 
exposure arising from foreign exchange derivatives and all other assets 
and liabilities denominated in currencies other than a fund's base 
currency, and (2) each currency to which the fund has long dollar value 
or short dollar value exposure equal to or exceeding either (a) five 
percent of a fund's net asset value or (b) $1 billion.\207\ In 
responding, advisers would be required to include currency exposure 
obtained indirectly though positions held in other entities (e.g., 
investment companies, other private funds, commodity pools or other 
companies, funds or entities) and could report reasonable estimates if 
consistent with internal methodologies and conventions of service 
providers.\208\ This proposed requirement is designed to provide 
insight into whether notional currency exposures reported by qualifying 
hedge funds in Question 30 represent directional exposure or are hedges 
of equity and/or fixed income positions. This new question would allow 
us to understand whether a qualifying hedge fund's portfolio is exposed 
to a given currency, and it would also provide a view into the fund's 
currency exposure resulting from holdings in foreign securities (e.g., 
Eurobonds). While current Question 30 requires advisers to separate 
currency exposure relating to hedging from other currency, we have 
found that this data has not been very useful for determining whether a 
currency position is speculative or a hedge. Additionally, we believe 
that it is important to consider a qualifying hedge fund's currency 
exposure to identify vulnerabilities to currency fluctuations and 
market events that affect different countries and regions. Finally, we 
believe the proposed threshold of either (1) five percent of a fund's 
net asset value or (2) $1 billion for reporting individual currency 
exposure is appropriate because it represents, in each prong of the 
threshold, a material level of portfolio exposure to currency risk at 
which we believe a deterioration in the value of a particular currency 
could have a significant negative impact on a fund's investors. We also 
believe that if multiple large funds have significant exposure to a 
currency that is rapidly devaluing, this circumstance could raise 
financial stability concerns, and this proposed reporting would better 
enable review of this type of situation. More broadly, we also would be 
able to use

[[Page 53866]]

the information obtained to identify concentrations in particular 
currencies and assess the potential impact of market events that affect 
particular currencies. We request comment on the proposed amendments.
---------------------------------------------------------------------------

    \207\ Proposed Question 33.
    \208\ This instruction is designed to simplify and reduce the 
burdens of reporting sub-asset class exposures. Furthermore, the 
proposal would permit advisers to provide good faith estimates and 
take currency hedges into account, if consistent with their internal 
methodologies and information reported internally and to investors.
---------------------------------------------------------------------------

    174. Should we add new Question 33, as proposed?
    175. Would this new question enhance systemic risk analysis, 
including the impact of currency risk? Is there a better way to meet 
this objective? How could we modify the proposed question to better 
meet its objective?
    176. Is the proposed threshold of either (1) five percent of a 
fund's net asset value or (2) $1 billion for reporting individual 
currency exposure appropriate? If not, what threshold is appropriate?
    Turnover. The proposal would require reporting on a per fund basis 
on the value of turnover in certain asset classes rather than on an 
aggregate basis as currently required.\209\ We believe that requiring 
this reporting on a per fund basis would provide more detailed 
information to us and FSOC while at the same time simplifying reporting 
for advisers. We understand that advisers do not currently aggregate 
turnover related information among funds. Aggregating solely for Form 
PF reporting is particularly burdensome as the required data is 
typically on separate reporting systems and advisers must ``roll-up'' 
data from these sources to report on the form.
---------------------------------------------------------------------------

    \209\ Proposed Question 34. In connection with the proposed 
amendments, the proposal would move reporting on the value of 
turnover in certain asset classes and the geographical breakdown of 
investments from section 2a to section 2b.
---------------------------------------------------------------------------

    We also propose to add new categories for turnover reporting that 
would disaggregate combined categories and better capture turnover of 
potentially relevant securities, such as various types of derivatives 
(e.g., listed equity, interest rate, foreign exchange), which we 
believe would help support analysis of hedge fund market activity.\210\ 
Furthermore, we propose to add a new consolidated foreign exchange and 
currency swaps category and make other changes.\211\ During the March 
2020 COVID-19-related market turmoil, FSOC sought to evaluate the role 
hedge funds played in disruptions in the U.S. treasury market by 
unwinding cash-futures basis trade positions and taking advantage of 
the near-arbitrage between cash and futures prices of U.S. treasury 
securities.\212\ Because the existing requirement regarding turnover 
reporting on U.S. treasury securities is highly aggregated, the SEC 
staff, during retrospective analyses on the March 2020 market events, 
was unable to obtain a complete picture of activity relating to long 
treasuries and treasury futures. Given the significant size of hedge 
funds' exposures to certain derivative products, we believe it is 
important to gain more insight into trading activities with respect to 
these financial instruments to better enable the Commissions and FSOC 
to assess and monitor the activity of qualifying hedge funds for 
systemic risk implications.\213\ Expanded reporting on turnover also 
would provide better information for assessing trading frequency in 
lieu of requiring advisers to report what percentage of their hedge 
funds' net asset value is managed using high-frequency trading 
strategies.\214\
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    \210\ We also propose to break out some categories by futures, 
swaps, and options as different types of derivatives have different 
risk profiles and implications for systemic risk, and to add a 
category for ``other derivative instrument types'' so that all 
derivatives are reported.
    \211\ We propose to add instructions requiring advisers to 
report turnover in derivatives separately from turnover in physical 
holdings for asset classes in proposed Question 32 and to make other 
conforming changes to reflect changes to defined terms in the Form 
PF Glossary of Terms.
    \212\ See U.S. Credit Markets Interconnectedness and the Effects 
of the COVID-19 Economic Shock, U.S. Securities Exchange Commission, 
October 2020 available at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf. See Financial Stability Oversight 
Council 2021 Annual Report, available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.
    \213\ As of the end of the third quarter of 2021, interest rate 
derivatives currently make up approximately 25 percent of gross 
notional exposure (GNE) reported on Form PF, while foreign exchange 
derivatives make up 15 percent of GNE. Additionally, commodity, 
credit, and other derivatives when combined make up five percent, or 
nearly $1.5 trillion. See Private Fund Statistics Q3 2021, supra 
footnote 7.
    \214\ See current Question 21. We propose to remove Question 21 
as it would be redundant in light of the proposed expanded turnover 
reporting.
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    We request comment on the proposed Question 34.
    177. Would the proposed detailed turnover reporting provide 
additional insight into a fund's activities in key markets? Should 
additional categories be added to provide a clearer view of turnover 
and its potential to help us and FSOC identify and monitor activities 
that could indicate systemic risk in the market? If so, what categories 
do you suggest and why? Should we exclude any of the proposed 
categories? If so, why?
    178. The current instructions state that turnover value should be 
reported as the sum of the absolute value of transactions, and as such 
the reported value of turnover for certain derivatives may be very 
large (reflecting notional value). Should we use a different measure 
for valuing turnover (e.g., market value)? Recognizing that the current 
instructions result in consistency in reported value among questions on 
Form PF, would a different measure be more or less useful?
    179. Do you agree that aggregating information may be burdensome 
for some advisers? Do some advisers maintain the required data on 
different systems such that ``rolling-up'' the data from different 
sources to report on the form would be complex and time consuming?
    Country and industry exposure. We are proposing to require advisers 
to report all countries (by ISO country code) \215\ to which a 
reporting fund has exposure equal to or exceeding either (1) five 
percent of its net asset value or (2) $1 billion, and to report the 
dollar value of long exposure and the dollar value of short exposure in 
U.S. dollars, for each monthly period to improve data comparability 
across funds.\216\ Under the current approach, only certain regions are 
identified and these regions are not uniformly defined, which results 
in data that is not consistent.\217\ In addition, at times we have 
needed to identify countries of interest not on this list. As such, we 
propose to replace the country of interest and regional reporting with 
this new country level information. Finally, we believe that the 
proposed threshold of either (1) five percent of net asset value or (2) 
$1 billion is appropriate because it represents a material level of 
portfolio exposure to risk relating to individual countries and 
geographic regions, and is a level that could significantly impact a 
fund and its investors if, for example, there are currency fluctuations 
or geopolitical instability. Furthermore, the data obtained would allow 
for identification of industry concentrations in particular countries 
and/or regions and help assess the potential impact of market events on 
these geographic segments. We believe that the five percent threshold 
level constitutes a reasonable shock to a fund's net asset value. For 
example, to the extent there is a market-wide event, a worst-case 
scenario would be for long positions to lose their full value, in this 
shock case

[[Page 53867]]

at least five percent. Furthermore, and particularly for funds without 
a benchmark, five percent is often evaluated for industry, individual 
position, and country risk, and is a common and easy to measure 
threshold. With respect to the $1 billion threshold, we believe it 
constitutes sufficiently large nominal value exposure from a risk 
perspective.
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    \215\ This is similar to reporting on Form N-PORT and will 
improve the comparability of data between Form PF and Form N-PORT.
    \216\ Proposed Question 35. In connection with the proposed 
amendments, the proposal would move reporting on geographical 
breakdown of investments from section 2a to section 2b.
    \217\ Currently, consistent with staff guidance in Form PF 
Frequently Asked Questions 28.1 and 28.2 advisers may report 
geographical exposure based on internal methods and indicate in 
Question 4 if methods do not reflect risk and economic exposure. See 
Form PF Frequently Asked Questions, supra footnote 79.
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    We also propose to add a new question that would require advisers 
to provide information about each industry to which a reporting fund 
has exposure equal to or exceeding either (1) five percent of its net 
asset value or (2) $1 billion.\218\ Advisers would be required to 
report, for each monthly period, the long dollar value and short dollar 
value of a reporting fund's exposure by industry based on the NAICS 
\219\ code of the underlying exposure. The purpose of this new question 
would be to collect information that would provide insight into hedge 
funds' industry exposures in a standardized way to allow for 
comparability among funds and meaningful aggregation of data to assess 
overall industry-specific concentrations. Further, we believe the 
proposed threshold of either (1) five percent of net asset value or (2) 
$1 billion is appropriate because it represents a material level of 
portfolio exposure to risk relating to individual industries, and is a 
level that could significantly impact a fund and its investors if, for 
example, there are market or geopolitical events that affect 
performance by a particular industry, such as the burst of the ``tech 
bubble'' in the early 2000s or COVID-19's impact on airline, 
accommodation and food service industries. Furthermore, the data 
obtained would allow for identification of industry concentrations and 
help assess the potential impact of market events on industries. While 
we considered a lower threshold, we believe that the proposed threshold 
strikes an appropriate balance between identifying significant industry 
exposure and the burdens of reporting this information on Form PF. We 
believe this information would be useful to the Commissions and FSOC in 
monitoring systemic risk, particularly if multiple funds have 
significant concentrations in industries that are experiencing periods 
of stress or disruption.
---------------------------------------------------------------------------

    \218\ Proposed Questions 36.
    \219\ North American Industry Classification System.
---------------------------------------------------------------------------

    When responding to these questions about country and industry 
exposure, advisers would be required to include exposure obtained 
indirectly though positions held in other entities (e.g., investment 
companies, other private funds, commodity pools or other company, funds 
or entities). Without this requirement, a fund's exposure to geographic 
regions and industries could be obscured and hinder the Commissions' 
and FSOC's ability to assess risks and the potential impact of events 
and trends that affect a particular industry or geographic region, both 
of which could have implications for investors. While we believe that 
advisers typically maintain this information, the proposed instructions 
to these questions seek to minimize filer burdens by permitting 
advisers to report reasonable estimates if such reporting is consistent 
with internal methodologies and information reported internally and to 
investors.
    We request comment on the proposed Question 35 and proposed 
Question 36.
    180. Should we require advisers to report all countries (by ISO 
country code) \220\ to which a reporting fund has exposure of equal to 
or exceeding (1) five percent or more of its net asset value or (2) $1 
billion, and to report exposure in U.S. dollars? Is this threshold 
appropriate? If not, should the threshold be higher or lower? Do you 
agree that removing regional level reporting is appropriate? Are there 
any other alternatives? If so, what alternatives?
---------------------------------------------------------------------------

    \220\ This is similar to reporting on Form N-PORT and will 
improve the comparability of data between Form PF and Form N-PORT.
---------------------------------------------------------------------------

    181. Should we require advisers to provide information about each 
industry to which a reporting fund has exposure equal to or exceeding 
(1) five percent or more of its net asset value or (2) $1 billion? Is 
this threshold appropriate? If not, should the threshold be higher or 
lower?
    182. With respect to requiring advisers to provide information 
about portfolio industry exposure, what level of industry detail should 
be gathered (for example, 2-digit NAICS codes represent 20 unique 
industries)? Is it more burdensome to provide more detail, or does 
aggregation to broader industry categories create additional burden?
    183. We propose to modify the instructions to require that 
investments be categorized based on concentration of risk and economic 
exposure. Should we add instructions or guidance for currency crosses 
or dollar denominated non-U.S. sovereign debt? Furthermore, current 
Question 77 (for private equity funds) also uses NAICS codes for 
reporting industry exposure. Should we use Global Industry 
Classification Standard (GICS) codes or another classification 
standard? Finally, how should ETFs and other exchange traded products 
be reported in this question? Are these financial instruments typically 
coded to industry sector? If not, what alternatives do you suggest and 
why?
    184. We propose to require advisers, when responding to proposed 
Question 35 and proposed Question 36 to include exposure obtained 
indirectly though positions held in other entities (e.g., investment 
companies, other private funds, commodity pools or other funds or 
entities). Is this appropriate? If not, why? Would this be overly 
burdensome for advisers?
    Central clearing counterparty (CCP) reporting. We propose to 
require advisers to identify each CCP or other third party holding 
collateral posted by a qualifying hedge fund in respect of cleared 
exposures (including tri-party repo) equal to or exceeding either (1) 
five percent of a reporting fund's net asset value or (2) $1 
billion.\221\ The proposed new question would exclude counterparties 
already reported in proposed Question 42 and proposed Question 43,\222\ 
and require advisers to provide information on: (1) the legal name of 
the CCP or third party; (2) LEI (if available); (3) whether the CCP or 
third party is affiliated with a major financial institution; (4) the 
reporting fund's posted margin (in U.S. dollars); and (5) the reporting 
fund's net exposure (in U.S. dollars). We are proposing this new 
question based on our experience with Form PF since adoption as we have 
found data gaps with respect to identifying qualifying hedge fund 
exposures to CCPs and other third parties that hold collateral in 
connection with cleared exposures. Furthermore, we understand that (1) 
many large hedge fund advisers already track margin posted for cleared 
exposures because margin requirements at any given time may well exceed 
the clearinghouse's exposure to a fund and therefore are an important 
credit risk exposure metric for a fund, and (2) that CCP recovery, 
resiliency and resolution also are current concerns for some 
advisers.\223\ Given these factors, we

[[Page 53868]]

believe that the burden of this proposed new question would be 
justified by valuable insight the data obtained would provide into an 
area that could have significant implications from a systemic risk 
perspective. Additionally, we have chosen a reporting threshold of 
equal to or exceeding either (1) five percent of net asset value or (2) 
$1 billion to be consistent with the thresholds for other counterparty 
exposure questions,\224\ as we believe that a qualifying hedge fund is 
similarly exposed where a third party holds collateral irrespective of 
whether the third party is a CCP or other counterparty. The proposal 
would also remove current Question 39, which requires information about 
transactions cleared directly through a CCP, as the information 
collected is duplicative of information already collected in current 
Question 24. We request comment on the proposed addition of new 
Question 44.
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    \221\ Proposed Question 44.
    \222\ See discussion at Section II.C.2.b of this Release.
    \223\ See ``A Path Forward For CCP Resilience, Recovery, And 
Resolution,'' March 10, 2020 available at https://www.blackrock.com/corporate/literature/whitepaper/path-forward-for-ccp-resilience-recovery-and-resolution.pdf. See also J.P. Morgan Press Release, 
March 10, 2020, available at https://www.jpmorgan.com/solutions/cib/markets/a-path-forward-for-ccp-resilience-recovery-and-resolution.
    \224\ See discussion at Section II.C.2.b of this Release.
---------------------------------------------------------------------------

    185. Should we collect information about the exposure of qualifying 
hedge funds to CCPs and other third parties holding collateral in 
respect of cleared exposures? If so, what information should be 
collected on these exposures? Does the proposed question collect 
helpful information? Should we collect different information, more 
information or less information? Is the proposed reported threshold of 
equal to or exceeding either (1) five percent of a reporting fund's net 
asset value or (2) $1 billion appropriate? If not, how should the 
threshold be modified?
    186. Do you agree that many large hedge fund advisers already track 
margin posted for cleared exposures because margin requirements at any 
given time may well exceed the clearinghouse's exposure to a fund and 
therefore are an important credit risk exposure metric for a fund? 
Additionally, do you agree that CCP recovery, resiliency, and 
resolution also are current concerns for some advisers?
    Risk metrics. We propose to eliminate the requirement that an 
adviser indicate whether there are risk metrics other than, or in 
addition to, Value at Risk (``VaR'') that the adviser considers 
important to managing a reporting fund's risks.\225\ Advisers generally 
do not report detailed information in response to this requirement. 
Currently, about 60 percent of advisers to qualifying hedge funds 
(representing about 75 percent of the aggregate gross asset value of 
qualifying hedge funds) report using VaR or market factor changes in 
managing their hedge funds.\226\ Instead, we propose to require 
advisers to provide additional information about a reporting fund's 
portfolio risk profile, including reporting on portfolio correlation, 
investment performance by strategy and volatility of returns and 
drawdowns.\227\ The proposal would expand the amount of data collected 
by collecting risk data in circumstances where advisers do not use VaR 
or market factor changes, and thus provide insight across all (rather 
than only some) qualifying hedge funds. This new information would 
provide uniform and consistently reported risk information that will 
enhance our ability to monitor and assess investment risks of 
qualifying hedge funds to gauge systemic risk. In particular, 
volatility of returns and drawdown data is a simple measure of risk 
that enables us to monitor risk-adjusted returns, changes in volatility 
and thereby risk profiles.
---------------------------------------------------------------------------

    \225\ See current Question 41.
    \226\ See Private Funds Statistics Q2 2020 (Table 58/59). 
Current Question 40 requires advisers to report certain risk data if 
the adviser regularly calculates VaR of the reporting fund. Current 
Question 42 requires advisers, for specific market factors, to 
determine the effect of specified changes on a reporting fund's 
portfolio, but permits advisers to omit a response to any market 
factor that they do not regularly consider in formal testing in 
connection with a reporting fund's risk management.
    \227\ See Proposed Question 48 (portfolio correlation), proposed 
Question 49 (investment performance breakdown by strategy), and 
proposed Question 23(c) (volatility of returns and drawdown 
reporting). See discussion at Section II.B.2 of this Release. We 
propose to also revise the title of Item C. of current section 2b to 
``Reporting fund risk metrics and performance'' to reflect that the 
proposal would add new questions on performance to this section of 
the form.
---------------------------------------------------------------------------

    We request comment on the proposed removal of Question 41.
    187. Do you agree with the proposed removal of Question 41? 
Instead, should we change this question to make it easier for advisers 
to report more detailed information? Do you believe that new Questions 
48, 49 and 23(c) will provide better information about the risk 
profiles of qualifying hedge funds?
    Investment performance by strategy. The proposal would require 
advisers to qualifying hedge funds that indicate more than one 
investment strategy for a fund in proposed Question 25 to report 
monthly gross investment performance by strategy if the adviser 
calculates and reports this data for such fund, whether to current and 
prospective investors, counterparties, or otherwise.\228\ An adviser 
would be required to provide monthly performance results only if such 
results are calculated for a reporting fund (whether for purposes of 
reporting to current and prospective investors, counterparties, or 
otherwise), but would not be required to respond to this question if 
the adviser reports performance for the fund as an internal rate of 
return. This question is designed to integrate Form PF hedge fund data 
with the Federal Reserve Board's reporting on Financial Accounts of the 
United States, which the Federal Reserve uses to track the sources and 
uses of funds by sector, and which are a component of a system of 
macroeconomic accounts including the National Income and Product 
accounts and balance of payments accounts, all of which serve as a 
comprehensive set of information on the economy's performance. We also 
believe that this information could be helpful to the Commissions' and 
FSOC's monitoring and analysis of strategy-specific systemic risk in 
the hedge fund industry. We request comment on the proposed addition of 
new Question 49.
---------------------------------------------------------------------------

    \228\ Proposed Question 49. The strategies in proposed Question 
49 would be based on the strategies set forth in proposed Question 
25 (the proposal would also revise the strategy categories in 
current Question 20, which we would redesignate as Question 25, to 
better reflect our understanding of hedge fund strategies and to 
improve data quality and comparability). See discussion at Section 
II.B.3 of this Release.
---------------------------------------------------------------------------

    188. Do you agree with the addition of new Question 49 as proposed? 
If not, what alternatives would you suggest and why? Would responding 
to this question be burdensome? If it would be overly burdensome, how 
would you suggest we modify the proposal?
    Portfolio correlation. The proposal would add a new question on 
portfolio correlation to collect data on the effects of a breakdown in 
correlation.\229\ Based on feedback from advisers filing Form PF and 
data reported on Form PF, it appears that hedge funds using the most 
leverage tend to engage in long/short, relative value, and similar 
strategies that seek to pair trades in highly correlated instruments, 
possibly with a focus on factor models. For these hedge funds, VaR 
calculations that rely on static correlation matrices may not factor in 
periods of market turmoil when assumed correlations break down. 
Therefore, a breakdown in assumed correlations could cause these funds 
to de-lever and could have a significant impact on financial stability, 
particularly if there are ``crowded'' or overlapping positions across 
funds, which could lead to cascade effects. We recommend a new question 
that gathers data on the effects of a breakdown in assumed correlations 
rather than just historical correlations. The proposed new question 
would focus on assessing the risks associated with a correlation 
breakdown, and would require qualifying hedge funds to report for

[[Page 53869]]

their portfolios (as of the end of each month of the reporting period) 
(1) the average pairwise 3-month realized prior Pearson correlation of 
each portfolio position's periodic (e.g., daily or weekly) total rates 
of return using the greatest available frequency of data over the 
measurement window (e.g., daily or weekly), (2) the frequency of the 
data used over the prior 3-month window (e.g., daily or weekly) (3) the 
expected annualized volatility utilizing 3-month realized prior Pearson 
correlations of each portfolio position's periodic (e.g., daily or 
weekly) total rates of return and assuming realized prior volatilities 
of portfolio positions with the same frequency window as that chosen 
when computing 3-month realized correlations, and (4) what the 
resulting annualized volatility would be if a reporting fund uniformly 
reduced or increased pairwise correlations by 20 percentage points 
utilizing 3-month realized prior Pearson correlations of portfolio 
positions' periodic rates of return and assuming 3-month realized prior 
volatilities of portfolio positions' periodic rates of return with the 
same frequency window as that chosen when computing 3-month realized 
correlations. This question is designed to (1) isolate the impact of a 
breakdown in correlation on the volatility of long/short funds that may 
de-lever if there is an increase in their volatility, (2) avoid some of 
the pitfalls of VaR models such as relying on backwards looking 
assumptions on the relationship between securities, and (3) provide a 
measure of volatility sensitivity in addition to one-day VaR. We 
believe that this new question would not create a significant burden 
for advisers because portfolio positions' periodic total rates of 
return and corresponding correlation matrices are likely available for 
most qualifying hedge funds. We request comment on the proposed 
addition of new Question 48.
---------------------------------------------------------------------------

    \229\ Proposed Question 48.
---------------------------------------------------------------------------

    189. Are the effects of a breakdown in correlations useful for 
monitoring systemic risk? Would this question provide helpful 
information for purposes of comparing fund activities and assessing 
risk? Does it offer insight into funds with a range of strategies or is 
it useful for only some strategies? What other questions could isolate 
the effects of a breakdown in correlations? Will it be burdensome for 
advisers to qualifying hedge funds to respond to this question and, if 
so, what burdens will be imposed? Are total rates of return and 
corresponding correlation matrices readily available for most 
qualifying hedge funds? If not, what strategies would have the most 
difficulty completing this question? Are there less burdensome 
questions that could help isolate the effects of a breakdown in 
correlations?
    190. As an alternative or in addition to measuring sensitivity to 
correlation, would any of the following approaches be preferable to our 
proposal: (1) subtract aggregate portfolio VaR from the sum of VaR 
computed at the asset class level, or some other sub-portfolio level, 
to measure the impact of diversification and the sensitivity to 
correlation, or (2) combine single factor stress tests for the 
portfolio assuming zero correlation?
    191. As proposed, would responding to new Question 48 create an 
undue burden for advisers? If so, how should we modify the question to 
make it less burdensome for respondents? Does the flexibility embedded 
in the proposed question (i.e., the flexibility for a fund to choose 
its own frequency of position marks (be it daily, weekly, monthly)) 
make it easier for funds to respond?
    192. Is the proposed 20 percentage point sensitivity metric 
appropriate? If not, what alternative do you suggest?
    Portfolio Liquidity. We propose to require advisers to include cash 
and cash equivalents when reporting portfolio liquidity, rather than 
excluding them, as the question currently provides.\230\ We understand 
that reporting funds typically include cash and cash equivalents when 
analyzing their portfolio liquidity. We believe the proposed change 
would improve data quality by reducing inadvertent errors that result 
from requiring advisers to report in a way that is different from how 
they may report internally. We believe this proposed change is more 
reflective of industry practice, and it is preferable to receive 
reported data in a format that reflects how advisers typically analyze 
portfolio liquidity.
---------------------------------------------------------------------------

    \230\ See current Question 32 and proposed Question 37.
---------------------------------------------------------------------------

    We also propose to amend the form's instructions to allow advisers 
to assign each investment to more than one period, rather than 
directing advisers to assign each investment to only one period, as 
Question 32 currently provides. We understand that directing advisers 
to assign an investment to only one period may make a reporting fund's 
portfolio appear less liquid than it is because it would not reflect 
that reporting funds may divide up sales in different periods (e.g., a 
reporting fund could sell off a portion in the first time period, and 
sell of the remainder in subsequent time periods). Therefore, this 
proposed change is designed to reflect the liquidity of a reporting 
fund's portfolio more accurately.
    While advisers would continue to be able to rely on their own 
methodologies to report portfolio liquidity, we propose to add an 
instruction explaining that estimates must be based on a methodology 
that takes into account changes in portfolio composition, position 
size, and market conditions over time. Based on experience with the 
form, we have found that some advisers have used static methodologies 
that do not consider portfolio composition and position size relative 
to the market, and therefore do not reflect a reasoned view about when 
positions could be liquidated at or near carrying value. Therefore, 
this proposed change is designed to continue to allow advisers to use 
their own methodologies, but improve data quality to ensure that the 
methodologies generate reporting that reflects a reasonable view of 
portfolio liquidity in light of changes in portfolio composition and 
size, and market conditions, over time.
    Finally, to facilitate more accurate reporting, collect better 
data, and reduce filer errors, we propose to amend the table to be 
included in proposed Question 37 to reflect that information should be 
reported as a percentage of NAV consistent with SEC staff Form PF 
Frequently Asked Questions.\231\
---------------------------------------------------------------------------

    \231\ See Form PF Frequently Asked Questions, supra footnote 79, 
Question 32.3.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    193. Should proposed Question 37's portfolio liquidity requirements 
include cash and cash equivalents, as proposed, regardless of what 
types of advisers would complete it? Would this proposed amendment help 
the Commissions and FSOC better analyze portfolio liquidity? Would this 
proposed change make Form PF more consistent with how the industry 
analyzes portfolio liquidity? Is there a better way to meet these 
objectives? For example, should Form PF instead require advisers to 
report cash and cash equivalents for all reporting funds separately 
than other positions when reporting portfolio liquidity?
    194. Do you agree that reporting funds typically include cash and 
cash equivalents when analyzing their portfolio's liquidity?
    195. Should Form PF allow advisers to assign investments to more 
than one period, as proposed? Would this proposed change more 
accurately reflect the liquidity of a reporting fund's portfolio?
    196. Should Form PF continue to allow advisers to rely on their own

[[Page 53870]]

methodologies in reporting on portfolio liquidity?
    197. Should Form PF include an instruction that provides that 
estimates must be based on a methodology that takes into account 
changes in portfolio composition, position size, and market conditions 
over time, as proposed? Would this proposed change improve data 
quality? Is there a better way to achieve this objective? If we add the 
instruction to this question, in particular, would it suggest that the 
instruction would not apply to other liquidity analysis, or other 
portfolio metrics?
    198. As an alternative, should Form PF require all advisers to 
report portfolio liquidity for all reporting funds?
    199. Should Form PF change how advisers report portfolio liquidity 
in any other ways? For example, should we require advisers to report 
information in dollars, in addition to or instead of reporting as a 
percentage of the portfolio, as Form PF currently requires? Would such 
a requirement help the Commissions and FSOC to compare portfolio 
liquidity with other data on Form PF that advisers report in dollars?
    Financing Liquidity. Question 46 is designed to show the extent to 
which financing may become rapidly unavailable for qualifying hedge 
funds.\232\ We propose to amend current Question 46 to improve data 
quality thereby supporting more effective systemic risk analysis.\233\ 
Advisers would provide the dollar amount of financing that is available 
to the reporting fund, including financing that is available but not 
used, by the following types: (1) ``unsecured borrowing,'' (2) 
``secured borrowing'' via prime brokerage, (3) secured borrowing via 
reverse repo, and (4) other secured borrowings.\234\ Currently, the 
Commissions and FSOC infer this data from this question and current 
Question 43 (concerning the reporting fund's borrowings).\235\ However, 
these inferences may not be accurate given the number of assumptions 
that currently go into making such inferences. This proposed 
information would help us understand the extent to which a fund's 
financing could be rapidly withdrawn and not replaced.
---------------------------------------------------------------------------

    \232\ See 2011 Form PF Adopting Release, supra footnote 3, at 
text accompanying n.281.
    \233\ We would redesignate Question 46 as Question 50.
    \234\ Form PF defines ``unsecured borrowing'' as obligations for 
borrowed money in respect of which the borrower has not posted 
collateral or other credit support. Form PF defines ``secured 
borrowing'' as obligations for borrowed money in respect of which 
the borrower has posted collateral or other credit support. For 
purposes of this definition, reverse repos are secured borrowings. 
See Form PF Glossary of Terms. These categories are designed to be 
consistent with borrowing categories that qualifying hedge funds 
would report on the new counterparty exposure table.
    \235\ Current Question 43 collects data on the reporting fund's 
borrowing by type (e.g., unsecured, and secured by type, i.e., prime 
broker, reverse repo or other), while current Question 46 only 
collects a total amount of financing available, both used and 
unused, with no breakdown by type of financing.
---------------------------------------------------------------------------

    We request comment on the proposed amendments.
    200. Should Form PF require advisers to report the amount of 
financing that is available to the reporting fund but not used, as a 
dollar amount, as proposed? Alternatively, should Form PF require 
advisers to report this information in a different way? For example, 
should Form PF require advisers to report the amount of financing that 
is available to the reporting fund but not used, as a percentage of 
total financing? Would it be more or less burdensome for advisers to 
report this information as a dollar amount than as a percentage of 
total financing? Please provide supportive data.
    201. As an alternative, should Form PF require all advisers to 
report financing liquidity for any size hedge funds they advise? If so, 
why?

D. Proposed Amendments To Enhance Data Quality

    We are also proposing several amendments to the instructions to 
Form PF to enhance data quality.\236\ Specifically, we are proposing 
the following changes:
---------------------------------------------------------------------------

    \236\ Proposed Instruction 15 (provides guidelines for advisers 
in responding to questions on Form PF relying on their own 
methodology).
---------------------------------------------------------------------------

    Reporting of percentages. For questions that require information to 
be expressed as a percentage, we propose to require that percentages be 
rounded to the nearest one hundredth of one percent rather than rounded 
to the nearest whole percent. We believe that this additional level of 
precision is important, especially for questions where it is common for 
filers to report low percentage values (e.g., risk metric questions 
such as current Question 40 and current Question 42) to avoid 
situations where advisers round to zero and no data is reported, 
potentially obscuring small changes that may be meaningful from a risk 
analysis or stress testing perspective.
    Value of investment positions and counterparty exposures. We 
propose to specify how private fund advisers determine the value of 
investment positions (including derivatives) and counterparty 
exposures. The proposed changes are designed to provide a more 
consistent presentation of reported information on investment and 
counterparty exposures to support more accurate aggregation and 
comparisons among private funds by us and FSOC in assessing systemic 
risk. Under the form's current instructions, advisers may report 
portfolios with similar exposures differently.\237\ We understand that 
some advisers net legs of partially offsetting trades when calculating 
the value of derivatives positions in accordance with internal 
methodologies, but others do not, resulting in inconsistent reporting 
that may obscure a fund's risk profile. We propose to require these 
trades to be reported independently on a gross basis, consistent with 
derivatives reporting on Form N-PORT.\238\ We also propose to instruct 
advisers that for all positions reported on Form PF, advisers should 
not include as ``closed-out'' a position if the position is closed out 
with the same counterparty and results in no credit or market exposure 
to the fund, making the approach on Form PF with respect to closed out 
positions consistent with rule 18f-4 of the Investment Company Act and 
our understanding of filers' current practices.\239\
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    \237\ See Form PF: General Instruction 15.
    \238\ Specifically, proposed Instruction 15 requires that if a 
question in Form PF requests information regarding a ``position'' or 
``positions,'' advisers must treat legs of a transaction even if 
offsetting or partially offsetting, or even if entered into with the 
same counterparty under the same master agreement as two separate 
positions, even if reported internally as part of a larger 
transaction. See also instructions to N-PORT, General Instruction G.
    \239\ See Use of Derivatives by Registered Investment Companies 
and Business Development Companies, IC Release No. 34084 (Nov. 2, 
2020), Section II.E.2.c. [85 FR 83162, 83210] Dec. 21, 2020. See 
also Form PF Frequently Asked Questions, supra footnote 79, Question 
44.1.
---------------------------------------------------------------------------

    Reporting of long and short positions. We propose to amend the 
instructions regarding the reporting of long and short positions on 
Form PF to improve the accuracy and consistency of reported data used 
for systemic risk analysis. We propose to specify that if a question 
requires the adviser to distinguish long positions from short 
positions, the adviser should classify positions based on the 
following: (1) a long position experiences a gain when the value of the 
market factor to which it relates increases (and/or the yield of that 
factor decreases), and (2) a short position experiences a loss when the 
value of the market factor to which it relates increases (and/or the 
yield of that factor decreases).
    Calculating certain derivative values. We propose to amend the 
instruction to provide that, (1) for calculating the value of interest 
rate derivatives, ``value'' means the 10-year bond

[[Page 53871]]

equivalent, and (2) for calculating the value of options, ``value'' 
means the delta adjusted notional value (expressed as a 10-year bond 
equivalent for options that are interest rate derivatives).\240\ The 
amended instruction would also provide that in determining the value of 
these derivatives, advisers should not net long and short positions or 
offset trades, but should exclude closed-out positions that are closed 
out with the same counterparty provided that there is no credit or 
market exposure to the fund. The proposed amendments are designed to 
provide more consistent reporting by advisers, which we believe would 
help support more accurate aggregation of data, better comparisons 
among funds, and a more accurate picture for purposes of assessing 
systemic risk.\241\
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    \240\ See Form PF Glossary of Terms (proposed definition of 
``10-year bond equivalent'' specifies the zero coupon bond 
equivalent).
    \241\ This is consistent with prior staff positions. See Form PF 
Frequently Asked Questions, supra footnote 79, Questions 24.3 and 
26.1.
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    Currency Conversions for Reporting in U.S. Dollars. We propose to 
amend Instruction 15 to clarify that if a question requests a monetary 
value, advisers should provide the information in U.S. dollars as of 
the data reporting date or other requested date (as applicable) and use 
a foreign exchange rate for the applicable date. We also propose to 
amend Instruction 15 to provide that if a question requests a monetary 
value for transactional data that covers a reporting period, advisers 
should provide the information in U.S. dollars, rounded to the nearest 
thousand, using foreign exchange rates as of the dates of any 
transactions to convert local currency values to U.S. dollars.\242\
---------------------------------------------------------------------------

    \242\ See proposed Instruction 15.
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    We request comment on the proposed amendments to Instruction 15.
    202. Should we require reporting of ``gross'' positions and 
exposure as proposed? Would the proposed approach cause advisers to 
report misleading data? Would the proposed approach cause compliance or 
operational issues? What other approach could we take to obtain 
consistent data that would better reveal risks associated with a 
particular fund? We understand that most advisers' risk management 
systems incorporate offsetting or netting methods, but they may take 
different approaches. Should we permit advisers to report using the 
offsetting or netting methods they use internally? Would that provide 
useful data? Should we instead require advisers to offset and net based 
on a consistent, prescribed method?
    203. The proposal would instruct advisers to not include as 
``closed-out'' a position if the position is closed out with the same 
counterparty and results in no credit or market exposure to the fund. 
Do you agree that the proposed changes would make the approach on Form 
PF with respect to closed out positions consistent with rule 18f-4 of 
the Investment Company Act and filers' current practices? If not, what 
alternative approach do you suggest?
    204. Should we capture derivative exposure differently or request 
additional measures of derivatives? For example, the CFTC's Form CPO-
PQR requires reporting of positive/negative open trade equity (OTE), 
which refers to the amount of unrealized gain/loss on open derivative 
positions. Would this measure improve our ability to assess and compare 
private fund activities and assess systemic risk?
    205. Does reporting to the nearest one hundredth of one percent 
involve additional burdens compared to the current requirement to round 
to the nearest one percent? Would it meaningfully increase the accuracy 
of the reporting? Would permitting rounding to the nearest one percent 
on any of the questions on Form PF that request information expressed 
as a percentage reduce burdens on filers?
    206. Are the proposed instructions with respect to classifying long 
and short positions consistent with industry conventions? Are these 
instructions clear for different types of products? If not, how should 
they be modified? For example, are there any elements of the 
Alternative Investment Fund Managers Directive or Open Protocol 
Enabling Risk Aggregation that would be helpful to incorporate?
    207. The proposal would require that advisers report two or more 
legs of a transaction--even if offsetting--as separate positions. This 
proposed amendment is designed to elicit a more consistent presentation 
of investment and counterparty exposures. We understand, however, that 
this approach may inflate the value of a reporting fund's long and 
short investment exposures in a way that does not represent the 
adviser's view of a reporting fund's investment exposures and the 
associated risks. Is this a valid concern? Are there other approaches 
we should use for investment exposure reporting? For example, should we 
require netting of long and short positions under certain conditions 
(e.g., identical underlying securities and same counterparty) when 
consistent with the adviser's internal recordkeeping and risk 
management? Should we require advisers to report exposures on both a 
``gross'' basis as well as after all netting consistent with the 
adviser's internal recordkeeping and risk management?
    208. The proposal would amend the instruction to provide that, (1) 
for calculating the value of interest rate derivatives, ``value'' means 
the 10-year bond equivalent, and (2) for calculating the value of 
options, ``value'' means the delta adjusted notional value (expressed 
as a 10-year bond equivalent for options that are interest rate 
derivatives). Is this approach appropriate? If not, what alternatives 
do you suggest?
    209. Are the proposed instructions with respect to reporting in 
U.S. dollars when a question requests a monetary value appropriate? If 
not, how should they be modified? If a reporting fund's base currency 
is not U.S. dollars, how and when do advisers convert the base currency 
to U.S. dollars? Should Form PF include additional instructions on how 
or when to convert base currency to U.S. dollars? For example, should 
Form PF require advisers to report the conversion rate? Is further 
specificity needed regarding return series, volatility and other 
percentage measures for funds that have base currencies other than the 
U.S. dollar?

E. Proposed Additional Amendments

    The proposal would make several additional amendments to the 
general instructions to Form PF. Specifically, we propose to amend 
Instruction 14 to allow advisers to request a hardship exemption 
electronically to make it easier to submit a temporary hardship 
exemption,\243\ and provide, by way of an amendment to rule 204(b)-1(f) 
under the Advisers Act, that for purposes of determining the date on 
which a temporary hardship exemption is filed, ``filed'' means the 
earlier of the date the request is postmarked or the date it is 
received by the Commission.\244\ We are

[[Page 53872]]

proposing the latter change to assist advisers with determining what 
constitutes a ``filed'' temporary hardship exemption in the context of 
the requirement that the request be filed no later than one business 
day after a filer's electronic Form PF filing was due as required under 
Instruction 14. Additionally, the proposal would amend Instruction 18 
based on recent rule changes made by the CFTC with respect to Form CPO-
PQR.\245\ While the CFTC no longer considers Form PF reporting on 
commodity pools as constituting substituted compliance with CFTC 
reporting requirements, some CPOs may continue to report such 
information on Form PF.
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    \243\ The proposal would also update the mailing address to 
which advisers requesting a temporary hardship exemption should mail 
their exemption filing, include the email address for submitting 
electronically the adviser's signed exemption filing in PDF format, 
add an instruction noting that filers should not complete or file 
any other sections of Form PF if they are filing a temporary 
hardship exemption. See Proposed Instruction 14. The proposal would 
indicate that the reference regarding the instruction pertaining to 
temporary hardship exemptions should refer to Instruction 14 instead 
of Instruction 13. See Form PF General Instruction 3, Section 5--
Advisers requesting a temporary hardship exemption.
    \244\ We are also amending rule 204(b)-1(f) under the Advisers 
Act to remove certain filing instructions in the rule for temporary 
hardship exemptions and instead direct filers to the instructions in 
the form. See 204(b)-1(f)(2)(i) (indicating that advisers should 
complete and file Form PF in accordance with the instructions to 
Form PF, no later than one business day after the electronic Form PF 
filing was due).
    \245\ See Form CPO-PQR Release, supra footnote 56.
---------------------------------------------------------------------------

    The proposal would revise the terms ``EEA,'' which Form PF defines 
as the European Economic Area and ``G10,'' which Form PF defines as The 
Group of Ten, to (1) remove outdated country compositions and (2) 
include an instruction that if the composition of the EEA or G10 
changes after the effective date of these proposed amendments to Form 
PF if adopted, advisers would use the current composition as of the 
data reporting date. This proposed amendment is designed to address 
questions from advisers about whether to report data based on the 
composition of the EEA and G10 as of the effective date of these 
proposed amendments to Form PF if adopted, or the current composition 
of the EEA and G10, if it changes.
    We request comment on the proposed amendments.
    210. Would the proposed amendments to Instruction 14 and to rule 
204(b)-1(f) under the Advisers Act make it easier to submit a temporary 
hardship exemption and assist advisers in determining the date on which 
a temporary hardship exemption is filed? If not, are there 
alternatives?
    211. Would the proposed amendments to the Glossary of Terms 
appropriately update the terms and provide clarification? Is there a 
better way to meet these objectives? If so, please provide examples.
    212. The proposal would amend Instruction 18 based on recent rule 
changes made by the CFTC with respect to Form CPO-PQR. Is this proposed 
change appropriate?
    213. The proposal would remove the list of country compositions and 
include an instruction that if the composition of the EEA or G10 
changes after the effective date of these proposed amendments to Form 
PF (if adopted), advisers would use the current composition as of the 
data reporting date. Is this approach appropriate? If not, what 
alternative approach do you suggest?

III. Economic Analysis

A. Introduction

    The SEC is mindful of the economic effects, including the costs and 
benefits, of the proposed amendments. Section 202(c) of the Advisers 
Act provides that when the SEC is engaging in rulemaking under the 
Advisers Act and is required to consider or determine whether an action 
is necessary or appropriate in the public interest, the SEC shall also 
consider whether the action will promote efficiency, competition, and 
capital formation, in addition to the protection of investors.\246\ The 
analysis below addresses the likely economic effects of the proposed 
amendments, including the anticipated and estimated benefits and costs 
of the amendments and their likely effects on efficiency, competition, 
and capital formation. The SEC also discusses the potential economic 
effects of certain alternatives to the approaches taken in this 
proposal.
---------------------------------------------------------------------------

    \246\ 15 U.S.C. 80b-2(c).
---------------------------------------------------------------------------

    Many of the benefits and costs discussed below are difficult to 
quantify. For example, the SEC cannot quantify the effects of how 
regulators may adjust their policies and oversight of the private fund 
industry in response to the additional data collected under the 
proposed rule. Also, in some cases, data needed to quantify these 
economic effects are not currently available and the SEC does not have 
information or data that would allow such quantification. For example, 
costs associated with the proposal may depend on existing systems and 
levels of technological expertise within the private fund advisers, 
which could differ across reporting persons. While the SEC has 
attempted to quantify economic effects where possible, much of the 
discussion of economic effects is qualitative in nature. The SEC seeks 
comment on all aspects of the economic analysis, especially any data or 
information that would enable a quantification of the proposal's 
economic effects.

B. Economic Baseline and Affected Parties

1. Economic Baseline
    As discussed above, the Commissions adopted Form PF in 2011, with 
additional amendments made to section 3 along with certain money market 
reforms in 2014.\247\ Form PF complements the basic information about 
private fund advisers and funds reported on Form ADV.\248\ Unlike Form 
ADV, Form PF is not an investor-facing disclosure form. Information 
that private fund advisers report on Form PF is provided to regulators 
on a confidential basis and is nonpublic.\249\ The purpose of Form PF 
is to provide the Commissions and FSOC with data that regulators can 
deploy in their regulatory and oversight programs directed at assessing 
and managing systemic risk and protecting investors.\250\
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    \247\ See supra footnote 3. When the SEC adopted the amendments 
to section 3 in 2014 in connection with certain money market 
reforms, it noted that under the proposal it was concerned that some 
of the proposed money market reforms could result in assets shifting 
from registered money market funds to unregistered products such as 
liquidity funds, and that the proposed amendments were designed to 
help the SEC and FSOC track any potential shift in assets and better 
understand the risks associated with the proposed money market 
reforms. See, e.g., D. Hiltgen, Private Liquidity Funds: 
Characteristics and Risk Indicators (DERA White Paper Jan. 2017) 
(``Hiltgen Paper''), available at https://www.sec.gov/files/2017-03/Liquidity%20Fund%20Study.pdf; 2011 Form PF Adopting Release; 2014 
Form PF Amending Release at 466; Commissioner Aguilar Statement, 
July 23, 2014, available at https://www.sec.gov/news/public-statement/2014-07-23-open-meeting-statment-laa.
    \248\ Investment advisers to private funds report on Form ADV, 
on a public basis, general information about private funds that they 
advise, including basic organizational, operational information, and 
information about the fund's key service providers. Information on 
Form ADV is available to the public through the Investment Adviser 
Public Disclosure System, which allows the public to access the most 
recent Form ADV filing made by an investment adviser. See, e.g., 
Form ADV, available at https://www.investor.gov/introduction-investing/investing-basics/glossary/form-adv. See also Investment 
Adviser Public Disclosure, available at https://adviserinfo.sec.gov/.
    \249\ As discussed above, SEC staff publish quarterly reports of 
aggregated and anonymized data regarding private funds on the SEC's 
website. See supra footnote 7; see also Private Fund Statistics Q3 
2021
    \250\ See supra section I.
---------------------------------------------------------------------------

    Private funds and their advisers play an important role in both 
private and public capital markets. These funds, including hedge funds, 
currently have more than $18.0 trillion in gross private fund 
assets.\251\ Hedge funds in particular have more than $9.7 trillion in 
gross private fund assets.\252\ Private funds invest in large and small 
businesses and use strategies that range from long-term investments in 
equity

[[Page 53873]]

securities to frequent trading and investments in complex instruments. 
Their investors include individuals, institutions, governmental and 
private pension funds, and non-profit organizations.
---------------------------------------------------------------------------

    \251\ These estimates are based on staff review of data from the 
Private Fund Statistics report for the third quarter of 2021, issued 
in March 2022. Private fund advisers who file Form PF currently have 
$18.1 trillion in gross assets. See Private Fund Statistics Q3 2021.
    \252\ See Division of Investment Management, Private Fund 
Statistics, (Aug. 21, 2021), available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
---------------------------------------------------------------------------

    Before Form PF was adopted, the SEC and other regulators, including 
the CFTC, had limited visibility into the economic activity of private 
fund advisers and relied largely on private vendor databases about 
private funds that covered only voluntarily provided private fund data 
and did not represent the total population.\253\ Form PF represented an 
improvement in available data about private funds, both in terms of its 
reliability and completeness.\254\ Generally, investment advisers 
registered (or required to be registered) with the Commission with at 
least $150 million in private fund assets under management must file 
Form PF. Smaller private fund advisers and all private equity fund 
advisers file annually to report general information such as the types 
of private funds advised (e.g., hedge funds, private equity funds, or 
liquidity funds), fund size, use of borrowings and derivatives, 
strategy, and types of investors.\255\ In addition, large private 
equity advisers provide data about each private equity fund they 
manage. Large hedge fund and liquidity fund advisers also provide data 
about each reporting fund they manage, and are required to file 
quarterly.\256\
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    \253\ See, e.g., SEC 2020 Annual Staff Report Relating to the 
Use of Form PF Data (Nov. 2020), available at https://www.sec.gov/files/2020-pf-report-to-congress.pdf.
    \254\ Id.
    \255\ Id.
    \256\ Id.
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    The SEC and other regulators now have almost a decade of experience 
with analyzing the data collected on Form PF. The collected data has 
helped FSOC establish a baseline picture of the private fund industry 
for the use in assessing systemic risk \257\ and improved the SEC's 
oversight of private fund advisers.\258\ Form PF data also has enhanced 
the SEC's and FSOC's ability to frame regulatory policies regarding the 
private fund industry, its advisers, and the markets in which they 
participate, as well as more effectively evaluate the outcomes of 
regulatory policies and programs directed at this sector, including the 
management of systemic risk and the protection of investors.\259\ 
Additionally, based on the data collected through Form PF filings, 
regulators have been able to regularly inform the public about ongoing 
private fund industry statistics and trends by generating quarterly 
Private Fund Statistics reports \260\ and by making publicly available 
certain results of staff research regarding the characteristics, 
activities, and risks of private funds.\261\ As discussed above, these 
data may also be used by the CFTC for the purposes of its regulatory 
programs, including examinations, investigations and investor 
protection efforts.\262\
---------------------------------------------------------------------------

    \257\ See, e.g., OFR, 2021 Annual Report to Congress (Nov. 
2021), available at https://www.financialresearch.gov/annual-reports/files/OFR-Annual-Report-2021.pdf; Financial Stability 
Oversight Council, 2020 Annual Report, available at https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf.
    \258\ See, e.g., SEC 2020 Annual Staff Report Relating to the 
Use of Form PF Data (Nov. 2020), available at https://www.sec.gov/files/2020-pf-report-to-congress.pdf.
    \259\ See supra footnotes 257, 258.
    \260\ See supra footnote 249.
    \261\ See, e.g., David C. Johnson and Francis A. Martinez, Form 
PF Insights on Private Equity Funds and Their Portfolio Companies 
(OFR Brief Series No. 18-01, June 14, 2018), available at https://www.financialresearch.gov/briefs/2018/06/14/form-pf-insights-on-private-equity-funds/; Hiltgen Paper; G. Aragon, T. Ergun, M. 
Getmansky, and G. Girardi, Hedge Funds: Portfolio, Investor, and 
Financing Liquidity, (DERA White Paper, May 2017), available at 
https://www.sec.gov/files/dera_hf-liquidity.pdf; George Aragon, 
Tolga Ergun, and Giulio Girardi, Hedge Fund Liquidity Management: 
Insights for Fund Performance and Systemic Risk Oversight (DERA 
White Paper, Apr. 2021), available at https://www.sec.gov/files/dera_hf-liquidity-management.pdf; Mathis S. Kruttli, Phillip J. 
Monin, and Sumudu W. Watugala, The Life of the Counterparty: Shock 
Propagation in Hedge Fund-Prime Broker Credit Networks (OFR Working 
Paper No. 19-03, Oct., 2019), available at https://www.financialresearch.gov/working-papers/files/OFRwp-19-03_the-life-of-the-counterparty.pdf; Mathias S. Kruttli, Phillip J. Monin, 
Lubomir Petrasek, and Sumudu W. Watugala, Hedge Fund Treasury 
Trading and Funding Fragility: Evidence from the COVID-19 Crisis 
(Federal Reserve Board, Finance and Economics Discussion Series No. 
2021-038, Apr. 2021), available at https://www.federalreserve.gov/econres/feds/hedge-fund-treasury-trading-and-funding-fragility-evidence-from-the-covid-19-crisis.htm; Mathias S. Kruttli, Phillip 
J. Monin, and Sumudu W. Watugala, Investor Concentration, Flows, and 
Cash Holdings: Evidence from Hedge Funds (Federal Reserve Board, 
Finance and Economics Discussion Series No. 2017-121 Dec. 15, 2017), 
available at https://www.federalreserve.gov/econres/feds/investor-concentration-flows-and-cash-holdings-evidence-from-hedge-funds.htm.
    \262\ See supra section I.
---------------------------------------------------------------------------

    However, this decade of experience with analyzing Form PF data has 
also highlighted certain limitations of information collected on Form 
PF, including information gaps and situations where more granular and 
timely information would improve the SEC's and FSOC's understanding of 
the private fund industry and the potential systemic risk relating to 
its activities, and improve regulators' ability to protect 
investors.\263\ For example, as discussed above, when monitoring funds' 
activities during recent market events like the March 2020 COVID-19 
turmoil, the existing aggregation of U.S. treasury securities with 
related derivatives did not reflect the role hedge funds played in the 
U.S treasury market.\264\ Also during the COVID-19 market turmoil, FSOC 
sought to evaluate the role hedge funds played in disruptions in the 
U.S. treasury market by unwinding cash-futures basis trade positions 
and taking advantage of the near-arbitrage between cash and futures 
prices of U.S. treasury securities. Because the existing requirement 
regarding turnover reporting on U.S. treasury securities is highly 
aggregated, the SEC staff, during retrospective analyses on the March 
2020 market events, was unable to obtain a complete picture of activity 
relating to long treasuries and treasury futures.\265\ The need for 
more granular and timely information collected on Form PF is further 
heightened by the increasing significance of the private fund industry 
to financial markets, and resulting regulatory concerns regarding 
potential risks to U.S. financial stability from this sector.\266\ The 
SEC's and FSOC's experiences analyzing Form PF data has also identified 
certain areas of Form PF where questions result in data received that 
is redundant to other questions, or instructions that result in 
unnecessary reporting burden for some advisers.\267\
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    \263\ See supra section I.
    \264\ See supra section II.C.2.a.
    \265\ See supra section II.C.2.d. This also includes the SEC's 
and FSOC's experience analyzing data from multiple regulatory 
filings. For example, one SEC staff paper has used Form PF data and 
Form N-MPF data to study rule 2a-7 risk limits and implications of 
money market reforms. See, e.g., Hiltgen Paper.
    \266\ The private fund industry has experienced significant 
growth in size and changes in terms of business practices, 
complexity of fund structures, and investment strategies and 
exposures in the past decade. See supra footnote 7. See also 
Financial Stability Oversight Council Update on Review of Asset 
Management Product and Activities (2014), available at https://www.treasury.gov/initiatives/fsoc/news/Documents/FSOC%20Update%20on%20Review%20of%20Asset%20Management%20Products%20and%20Activities.pdf.
    \267\ Based on the PRA analysis in section IV.A.3, the current 
costs associated with filing Form PF report are estimated to be 
$4,173.75 per quarterly filing or $16,695 annually for smaller 
private fund advisers, $41,737.50 per quarterly filing or $166,950 
annually for large hedge fund advisers, $19,477.50 per quarterly 
filing or $77,910 annually for large liquidity fund advisers, and 
$27,825 per quarterly filing or $111,300 annually for large private 
equity advisers. The calculation for large liquidity fund advisers 
incorporates the adjustment explained in footnote 9 to Table 6 
(yielding an estimate of costs prior to the proposal of $29,216.25/
105*70 = $19477.50). See Table 6. A 2018 industry survey of large 
hedge fund advisers observed filing costs that ranged from 35% to 
72% higher than SEC cost estimates. See Managed Funds Association, 
``A Streamlined Form PF: Reducing Regulatory Burden,'' September 17, 
2018, p. 3, available at https://www.managedfunds.org/wp-content/uploads/2018/09/MFA.Form-PF-Recommendations.attachment.final_.9.17.18.pdf. However, a 2015 
academic survey of SEC-registered investment advisers to private 
funds affirmed the SEC's cost estimates for smaller private fund 
advisers' Form PF compliance costs, and observed that the SEC 
overestimated Form PF compliance costs for larger private fund 
advisers. See Wulf Kaal, Private Fund Disclosures Under the Dodd-
Frank Act, 9 Brooklyn Journal of Corporate, Financial, and 
Commercial Law 428 (2015).

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[[Page 53874]]

2. Affected Parties
    The proposal amends the general instructions and basic information 
reporting requirements facing all categories of private fund advisers. 
As discussed above, these include, but are not limited to, advisers to 
hedge funds, private equity funds, real estate funds, securitized asset 
funds, liquidity funds, and venture capital funds.\268\ The proposal 
further amends reporting requirements for large hedge fund advisers, 
including specific revisions for large hedge fund advisers to 
qualifying hedge funds.\269\
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    \268\ See supra section I.
    \269\ Form PF currently defines ``hedge fund'' broadly to 
include any private fund (other than a securitized asset fund) that 
has any of the following three characteristics: (1) a performance 
fee or allocation that takes into account unrealized gains, or (2) a 
high leverage (i.e., the ability to borrow more than half of its net 
asset value (including committed capital) or have gross notional 
exposure in excess of twice its net asset value (including committed 
capital)) or (3) the ability to short sell securities or enter into 
similar transactions (other than for the purpose of hedging currency 
exposure or managing duration). Any non-exempt commodity pools about 
which an investment adviser is reporting or required to report are 
automatically categorized as hedge funds. Excluded from the ``hedge 
fund'' definition in Form PF are vehicles established for the 
purpose of issuing asset backed securities (``securitized asset 
funds''). See Form PF Glossary of Terms. ``Large'' hedge fund 
advisers are those, collectively with their related persons, with at 
least $1.5 billion in hedge fund assets under management as of the 
last day of any month in the fiscal quarter immediately preceding 
the adviser's most recently completed fiscal quarter. Qualifying 
hedge funds are hedge funds that have a net asset value 
(individually or in combination with any feeder funds, parallel 
funds and/or dependent parallel managed accounts) of at least $500 
million as of the last day of any month in the fiscal quarter 
immediately preceding the adviser's most recently completed fiscal 
quarter. See supra section II.C.
---------------------------------------------------------------------------

    Hedge funds, the focus of part of the proposal, are one of the 
largest categories of private funds,\270\ and as such play an important 
role in the U.S. financial system due to their ability to mobilize 
large pools of capital, take economically important positions in a 
market, and their extensive use of leverage, derivatives, complex 
structured products, and short selling.\271\ While these features may 
enable hedge funds to generate higher returns as compared to other 
investment alternatives, the same features may also create spillover 
effects in the event of losses (whether caused by their investment and 
derivatives positions or use of leverage or both) that could lead to 
significant stress or failure not just at the affected fund but also 
across financial markets.\272\
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    \270\ See infra footnote 273.
    \271\ See, e.g., Lloyd Dixon, Noreen Clancy, and Krishna B. 
Kumar, Hedge Fund and Systemic Risk, RAND Corporation (2012); John 
Kambhu, Til Schuermann, and Kevin Stiroh, Hedge Funds, Financial 
Intermediation, and Systemic Risk, Federal Reserve Bank of New 
York's Economic Policy Review (2007).
    \272\ See supra footnotes 257, 266.
---------------------------------------------------------------------------

    In the third quarter of 2021, there were 9,484 hedge funds reported 
on Form PF, managed by 1,758 advisers, with nearly $9.8 trillion in 
gross assets under management, which represented approximately 54% of 
assets reported by private fund advisers.\273\ Currently, hedge fund 
advisers with between $150 million and $2 billion in regulatory assets 
(that do not qualify as large hedge fund advisers) file Form PF 
annually, in which they provide general information about funds they 
advise such as the types of private funds advised, fund size, their use 
of borrowings and derivatives, strategy, and types of investors. Large 
hedge fund advisers (those with at least $1.5 billion in regulatory 
assets under management attributable to hedge funds) \274\ file Form PF 
quarterly, in which they provide data about each hedge fund they 
managed during the reporting period (irrespective of the size of the 
fund). Large hedge fund advisers must report more information on Form 
PF about qualifying hedge funds (those with at least $500 million as of 
the last day of any month in the fiscal quarter immediately preceding 
the adviser's most recently completed fiscal quarter) \275\ than other 
hedge funds they manage during the reporting period. In the third 
quarter of 2021, there were 2,013 qualifying hedge funds reported on 
Form PF, managed by 592 advisers, with $8.3 trillion in gross assets 
under management, which represented approximately 85 percent of the 
reported hedge fund assets.\276\
---------------------------------------------------------------------------

    \273\ In the third quarter of 2021, hedge fund assets accounted 
for 54 percent of the gross asset value (``GAV'') ($9.8/$18.1 
trillion) and 42.5 percent of the net asset value (``NAV'') ($5.1/
$12.0 trillion) of all private funds reported on Form PF. Private 
Fund Statistics Q3 2021 at p. 5.
    \274\ See supra footnote 269.
    \275\ Id.
    \276\ In the third quarter of 2021, qualifying hedge fund assets 
accounted for 85 percent of the GAV ($8.3/$9.8 trillion) and 82 
percent of the NAV ($4.2/$5.1 trillion) of all hedge funds reported 
on Form PF. Private Fund Statistics Q3 2021 at pp. 4-5.
---------------------------------------------------------------------------

    Private equity funds are another large category of funds in the 
private fund industry. In the third quarter of 2021, there were 15,835 
private equity funds reported on Form PF, managed by 1,455 advisers, 
with $4.8 trillion in gross assets under management, which represented 
over one quarter of the reported gross assets in the private fund 
industry.\277\ Many private equity funds focus on long-term returns by 
investing in a private, non-publicly traded company or business--the 
portfolio company--and engage actively in the management and direction 
of that company or business in order to increase its value.\278\ Other 
private equity funds may specialize in making minority investments in 
fast-growing companies or startups.\279\
---------------------------------------------------------------------------

    \277\ In the third quarter of 2021, private equity assets 
accounted for 26 percent of the GAV ($4.8/$18.1 trillion) and 35 
percent of the NAV ($4.1/$12.0 trillion) of all private funds 
reported on Form PF. Private Fund Statistics Q3 2021 at p. 5.
    \278\ After purchasing controlling interests in portfolio 
companies, private equity advisers frequently get involved in 
managing those companies by serving on the company's board; 
selecting and monitoring the management team; acting as sounding 
boards for CEOs; and sometimes stepping into management roles 
themselves. See, e.g., Private Equity Funds, Securities and Exchange 
Commission, available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity.
    \279\ Id.
---------------------------------------------------------------------------

    For the remaining categories of funds (real estate funds, 
securitized asset funds, liquidity funds, venture capital funds, and 
other private funds), advisers required to file Form PF had, in the 
third quarter of 2021, investment discretion over $3.5 trillion in 
gross assets under management.\280\ These assets were managed by 1,442 
fund advisers managing 12,019 funds.\281\
---------------------------------------------------------------------------

    \280\ Private Fund Statistics Q3 2021 at p. 5.
    \281\ Private Fund Statistics Q3 2021 at p. 4.
---------------------------------------------------------------------------

    Private funds are typically limited to accredited investors and 
qualified clients such as pension funds, insurance companies, 
foundations and endowments, and high income and net worth 
individuals.\282\ Private funds that rely on the exclusion from the 
definition of ``investment company'' provided in Section 3(c)(7) of the 
Investment Company Act are limited to investors that are also qualified 
purchasers (as defined in section 2(a)(51) of the Investment Company 
Act). Retail U.S. investors with exposure to private funds are 
typically invested in private funds indirectly through public and 
private pension plans and other institutional investors.\283\ In the 
third quarter of 2021, public pension plans had $1,586

[[Page 53875]]

billion invested in reporting private funds while private pension plans 
had $1,263 billion invested in reporting private funds, making up 13.2 
percent and 10.5 percent of the overall beneficial ownership in the 
private equity industry, respectively.\284\ Private fund advisers have 
also sought to be included in individual investors' retirement plans, 
including their 401(k)s.\285\
---------------------------------------------------------------------------

    \282\ See, e.g., Private Equity Funds, Securities and Exchange 
Commission, (Investor.gov: Private Equity Funds), available at 
https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/private-equity; Hedge 
Funds, Securities and Exchange Commission (Investor.gov: Hedge 
Funds), available at https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/hedge-funds.
    \283\ See supra footnotes 251, 282.
    \284\ Private Fund Statistics Q3 2021 at p. 15.
    \285\ See, e.g., Dep't of Labor, Information Letter (June 3, 
2020), available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-2020.
---------------------------------------------------------------------------

C. Benefits and Costs

1. Benefits
    The proposal is designed to facilitate two primary goals the SEC 
sought to achieve with reporting on Form PF as articulated in the 
original adopting release, namely: (1) facilitating FSOC's 
understanding and monitoring of potential systemic risk relating to 
activities in the private fund industry and assisting FSOC in 
determining whether and how to deploy its regulatory tools with respect 
to nonbank financial companies; and (2) enhancing the SEC's abilities 
to evaluate and develop regulatory policies and improving the 
efficiency and effectiveness of the SEC's efforts to protect investors 
and maintain fair, orderly, and efficient markets.\286\
---------------------------------------------------------------------------

    \286\ See supra section I. While the proposed amendments are 
also designed to improve the usefulness of this data for the CFTC, 
this economic analysis does not include the benefits associated with 
enhancements to the CFTC's use of reporting on Form PF.
---------------------------------------------------------------------------

    The SEC believes the proposal would accomplish these goals in three 
key ways, each discussed in detail in the following sections. First, 
the proposal would provide for solutions to potential reporting errors 
and issues of data quality when analyzing Form PF filings across 
advisers and when analyzing multiple different regulatory filings. 
Higher quality data across different funds and across different 
regulatory filings can allow the SEC and FSOC to develop an 
understanding of one set of advisers and apply it to other advisers 
more rapidly, or apply lessons from one financial market to other 
financial markets. This can help the SEC and FSOC develop more 
effective regulatory responses, and help the SEC protect investors by 
identifying areas in need of outreach, examinations, and investigations 
in response to potential systemic risks, conflicting arrangements 
between advisers and investors, and other sources of investor harm.
    Second, the proposal would help Form PF more completely and 
accurately capture information relevant to ongoing trends in the 
private fund industry in terms of ownership, size, investment 
strategies, and exposures. This can improve the SEC's and FSOC's 
understanding of new developing systemic risks and potential 
conflicting arrangements, thereby further aiding in the development of 
regulatory responses, and also aiding the SEC in efforts to protect 
investors by identifying areas in need of outreach, examinations, and 
investigations.
    Third, the proposal would streamline reporting and reduce reporting 
burdens without compromising investor protection efforts and systemic 
risk analysis. This would improve the efficiency and effectiveness of 
the SEC's efforts to protect investors and maintain fair, orderly and 
efficient markets.
    The SEC anticipates that the increased ability for the SEC's and 
FSOC's oversight, resulting from the proposed amendments, could promote 
better functioning and more stable financial markets, which may lead to 
efficiency improvements. The SEC does not anticipate significant 
effects of the proposed amendments on competition in the private fund 
industry because the reported information generally would be nonpublic 
and similar types of advisers would have comparable burdens under the 
amended Form. For similar reasons, the SEC does not anticipate 
significant effects of the proposed amendments on capital formation.
    The proposal would amend the general instructions (as well as 
implement additional amendments), section 1 (requiring basic 
information about advisers and the private funds they advise), and 
section 2 (requiring information about hedge funds advised by large 
private fund advisers) of Form PF. The benefits associated with each of 
these specific elements are discussed in greater detail below.
a. Proposed Amendments to General Instructions, Proposed Amendments To 
Enhance Data Quality, and Proposed Additional Amendments
    The proposal would update the Form PF general instructions to 
revise how all private fund advisers satisfy certain requirements on 
Form PF, it would issue a series of amendments to enhance data quality, 
and it would lastly issue a series of additional amendments.\287\ There 
are five categories of such proposals.
---------------------------------------------------------------------------

    \287\ See supra section II.A, II.D, II.E.
---------------------------------------------------------------------------

    First, the proposal would amend the general instructions for 
reporting of master-feeder arrangements and parallel fund 
structures.\288\ These revisions to the general instructions would 
improve consistency of reporting associated with measuring private fund 
interconnectedness and investment in other private funds by revising 
instructions for reporting of ownership structures and revising 
instructions that were previously ambiguous and resulted in reporting 
errors and issues of data quality across advisers. For example, as 
discussed above, Form PF currently provides advisers with flexibility 
to respond to questions regarding master-feeder arrangements, parallel 
fund structures, and use of funds of funds either in the aggregate or 
separately, as long as they do so consistently throughout Form PF. The 
revised instructions would specify how to respond to these questions to 
prevent some advisers from responding in the aggregate and some 
advisers from responding separately.\289\ The proposal would also 
require reporting on the total value of parallel managed accounts.\290\ 
The SEC anticipates these improved data would assist the SEC and FSOC 
in assessing potential risks to financial stability resulting from 
increasingly complex ownership and investment structures of private 
funds. While master-feeder arrangements, parallel fund structures, and 
use of funds of funds all allow private funds to benefit from larger 
pools of capital, diversify risk, and enjoy shared returns,\291\ these 
same features have inherent risks of

[[Page 53876]]

spillovers in losses, as losses in a master fund or underlying 
investment of a fund of funds cause losses in connected funds as well. 
Complex ownership structures may also create conflicts of interest when 
the same individuals serve as directors on boards of both master and 
feeder funds under a single owner,\292\ and may also mask instances of 
fraud and a private fund's methods for committing fraud.\293\ Investor 
protection efforts would therefore benefit from more consistent data 
providing connections from master funds to feeder funds and other 
ownership information.
---------------------------------------------------------------------------

    \288\ See supra section II.A.1. However, an adviser would 
continue to aggregate these structures for purposes of determining 
whether the adviser meets a reporting threshold.
    \289\ Similar benefits would be obtained from proposed revisions 
to Instruction 7, which address that advisers to funds of funds 
currently have flexibility to choose whether to disregard a private 
fund's equity investments in other private funds for all Form PF 
purposes so long as they do so consistently throughout Form PF. 
Other proposed revisions could also provide benefits associated with 
consistency of reporting by revising instructions to avoid error 
across filers, such as the revisions to Instruction 8 that the 
instruction on which investments to include in determining reporting 
thresholds and responding to questions applies only to investments 
in funds that are not private funds, and to provide that advisers 
would not be required to look through a reporting fund's investments 
in any other fund that is not a private fund, other than a trading 
vehicle. See supra section II.A.2. Similar benefits would also be 
obtained from the proposed amendments updating instructions to 
provide conformity with CFTC's amendments to Form CPO-PQR, including 
those that specify when advisers that are also CPOs should complete 
particular sections of Form PF. See supra section II.E, see also 
Proposed Instruction 18.
    \290\ See supra section II.A.1.
    \291\ See, e.g., Robert Harris, Tim Jenkinson, Steven Kaplan, 
Ruediger Stucke, Financial Intermediation in Private Equity: How 
Well Do Funds of Funds Perform?, 129 Journal of Financial Economics 
2, 287-305 (Aug. 2018).
    \292\ See, e.g., Todd Ehret, Platinum Fraud Charges Shine Light 
On Cayman Director Responsibilities, Reuters Financial Regulatory 
Forum, March 30, 2017, available at https://www.reuters.com/article/bc-finreg-cayman-private-structure/platinum-fraud-charges-shine-light-on-cayman-director-responsibilities-idUSKBN17030J.
    \293\ See, e.g., Melvyn Teo, Lessons Learned from Hedge Fund 
Fraud, Eureka Hedge, Oct. 2009, available at https://www.eurekahedge.com/Research/News/506/Lessons-Learned-From-Hedge-Fund-Fraud.
---------------------------------------------------------------------------

    Second, the proposal would amend the general instructions for 
reporting for private funds that invest in other funds or trading 
vehicles.\294\ Specifically, the proposal would revise Instructions 7 
and 8 to require advisers to include information pertaining to their 
trading vehicles when completing Form PF.\295\ Because private funds 
may use trading vehicles for a wide variety of purposes, more complete 
and accurate visibility into asset class exposures, position sizes, and 
counterparty exposures relied on by trading vehicles can enhance the 
SEC's and FSOC's systemic risk and financial stability assessment 
efforts and the SEC's efforts to protect investors by identifying areas 
in need of outreach, examination, or investigation.
---------------------------------------------------------------------------

    \294\ These proposed amendments would include requiring advisers 
to include the value of a private fund's investments in other 
private funds when determining whether the adviser must file Form 
PF; requiring an adviser to include the value of a reporting fund's 
investments in other private funds when responding to questions on 
the fund, but to not look through its investments in other private 
funds when responding to questions about the reporting fund's 
investment and other activities; amending the general instructions 
to explain how advisers would report information if the reporting 
fund holds investments or conducts activities through a trading 
vehicle; amending Instruction 8 to indicate that the instruction on 
which investments to include in determining reporting thresholds and 
responding to questions applies only to investments in funds that 
are not private funds; and providing that advisers would not be 
required to look through a reporting fund's investments in any other 
fund that is not a private fund, other than a trading vehicle. See 
supra section II.A.2.
    \295\ See supra section II.A.2.
---------------------------------------------------------------------------

    Third, the proposal would amend the general instructions for 
reporting timelines by revising Instruction 9 to require large hedge 
fund advisers and large liquidity fund advisers to update Form PF 
within a certain number of days after the end of each calendar quarter, 
rather than each fiscal quarter, as Form PF currently requires.\296\ 
The SEC anticipates that these amendments would improve the consistency 
of reporting across different private fund advisers, across quarterly 
and annual filings, and across different regulatory forms,\297\ which 
may improve the ability of regulators to analyze filing data across 
fund advisers and across different regulatory forms by resolving 
reporting errors and issues of data quality. These data analyses are 
important contributors to the SEC's and FSOC's efforts to assess 
systemic risk and develop a complete picture of private fund markets. 
The SEC anticipates that these improved reporting alignments may 
enhance the SEC's and FSOC's abilities to assess potential risks 
presented by private funds.\298\ For example, as discussed above, 
academic research has used Form PF data and Form N-MPF data to study 
rule 2a-7 risk limits and implications of money market reforms.\299\ 
Standardizing data across regulatory filings can lead to further 
industry insights from combined regulatory filing data, and these 
industry insights may improve systemic risk assessment and regulator 
investor protection efforts. However, as discussed above, because 
almost all large hedge fund advisers and large liquidity fund advisers 
already effectively file on a calendar quarter basis because their 
fiscal quarter ends on the calendar quarter, the SEC anticipates that 
these benefits may be marginal.\300\
---------------------------------------------------------------------------

    \296\ See supra section II.A.3.
    \297\ See supra section II.A.3.
    \298\ While the amendments to general instructions associated 
with reporting timelines would primarily offer economic benefits 
associated with improvement in data quality and resolutions to data 
gaps, the proposed amendments to reporting timelines would also 
provide a potential improvement to regulators' ability to evaluate 
markets for investor protection efforts and systemic risk 
assessment, in that they accelerate the provision of data from 
quarterly reporting. See supra section II.A.3. Moreover, as the 
proposal would make reporting timelines more consistent, there could 
be reduced costs associated with regulatory filings, as private fund 
advisers reduce their need to track differentiated calendar quarter 
and fiscal quarter data.
    \299\ See supra section III.B.1.
    \300\ See supra section II.A.3. Specifically, and as discussed 
above, based on staff analysis of Form ADV data as of December 2021, 
99.2 percent of private fund advisers already effectively file on a 
calendar basis because their fiscal quarter or year ends on the 
calendar quarter or year end, respectively. The 0.8 percent of 
private fund advisers that have a non-calendar fiscal approach 
represents approximately 274 private funds, totaling $200 billion in 
gross asset value. See supra section II.A.3.
---------------------------------------------------------------------------

    Fourth, the proposal would issue a series of amendments that impact 
several sections of Form PF and which would broadly enhance data 
quality by potentially resolving reporting errors and issues of data 
quality. These amendments would specify that reported percentages be 
rounded to the nearest one hundredth of one percent, provide consistent 
instruction for reporting of investment and counterparty exposures, 
provide consistent instruction on the reporting of long and short 
positions, and provide consistent instruction for reporting of 
derivative values.\301\ We believe the resulting improved data quality 
would improve the ability of the SEC and FSOC to evaluate market risk 
and measure industry trends, thereby increasing the efficiency with 
which regulatory responses are developed, improving systemic risk 
assessment and regulator programs to protect investors.
---------------------------------------------------------------------------

    \301\ See supra section II.D.
---------------------------------------------------------------------------

    Lastly, the proposal would issue a series of additional amendments 
that would amend instructions related to temporary hardship exemptions, 
provide conformity with the CFTC's amendments to Form CPO-PQR 
(including those that specify when advisers that are also CPOs should 
complete particular sections of Form PF), and revise definitions of the 
terms EEA and G10 within Form PF.\302\ The additional amendments 
updating instructions to the temporary hardship exemption to Form PF, 
by way of an amendment to rule 204(b)-1(f) under the Advisers Act, 
would make it easier to submit a temporary hardship exemption and would 
assist advisers in determining what constitutes a ``filed'' temporary 
hardship exemption.\303\ These amendments may facilitate more 
successful submissions of temporary hardship exemptions by private fund 
advisers who require one, and may thereby reduce costs to those private 
fund advisers. Similarly, by providing conformity with the CFTC's 
amendments to Form CPO-PQR, including those that specify when advisers 
that are also CPOs should complete particular sections of Form PF, and 
revising definitions associated with the terms EEA and G10, the 
proposal may reduce confusion for advisers filing Form PF, thereby 
reducing the burden of filing.\304\
---------------------------------------------------------------------------

    \302\ See supra section II.E, Proposed Instruction 18.
    \303\ See supra section II.E.
    \304\ See supra section II.E, Proposed Instruction 18.

---------------------------------------------------------------------------

[[Page 53877]]

b. Proposed Amendments to Basic Information About the Adviser and the 
Private Funds it Advises
    The proposed amendments to section 1, which requires all private 
fund advisers to report information about the adviser and the private 
funds they manage, include revisions to section 1a (concerning basic 
identifying information),\305\ revisions to section 1b (concerning all 
of a private fund adviser's private funds),\306\ and revisions to 
section 1c (more specifically concerning all of a private fund 
adviser's hedge funds).\307\ The proposed changes would provide greater 
insight into all private funds' operations and strategies, and would 
further assist in assessing industry trends. This section discusses how 
the SEC believes the proposed changes would thereby enhance the SEC's 
and FSOC's systemic risk assessment efforts and the SEC's efforts to 
protect investors by identifying areas in need of outreach, 
examination, or investigation. This would be accomplished in four key 
ways.
---------------------------------------------------------------------------

    \305\ See supra section II.B.1.
    \306\ See supra section II.B.2.
    \307\ See supra section II.B.3.
---------------------------------------------------------------------------

    First, the proposed changes would provide more prescriptive 
requirements to improve comparability across advisers and reduce 
reporting errors and issues of data quality by aligning data across 
filers and across regulatory filings, based on experience with the 
form. This greater alignment could improve the efficiency with which 
the SEC and FSOC evaluate market risk and measure industry trends, 
thereby increasing the efficiency with which regulatory responses are 
developed, improving systemic risk assessment and regulator programs to 
protect investors. For example, revisions to section 1a (relating to 
adviser reporting of identifying information for all private funds they 
advise) would revise instructions on the use of LEIs and RSSD IDs for 
advisers and related persons, and could help link data more efficiently 
between Form PF and other regulatory filings that use these universal 
identifiers.\308\ Several revisions to section 1b (relating to adviser 
reporting of basic information for all private funds they advise) would 
modify instructions and could prevent advisers from inadvertently 
reporting different fund types on different regulatory filings (or, 
when different reporting on two different forms is appropriate, the 
revised instructions are designed to solicit the reason for 
differentiated reporting), facilitating more robust data analyses that 
use combined data from multiple regulatory forms.\309\ Revisions to 
section 1c would require advisers to indicate which investment 
strategies best describe the reporting fund's strategies on the last 
day of the reporting period, addressing any ambiguity about how to 
report information if the reporting fund changes strategies over 
time.\310\ The SEC believes these revisions to section 1, and 
others,\311\ would improve the accuracy and reliability of Form PF 
data, thereby potentially improving the SEC's and FSOC's efforts to 
assess developing systemic risks and FSOC's efforts to assess broader 
financial instability, as well as potentially improving the SEC's 
efforts to protect investors by identifying areas in need of outreach, 
examination, or investigation.
---------------------------------------------------------------------------

    \308\ See supra section II.B.1. For example, the proposed 
reporting of a fund's and its adviser's LEI is consistent with the 
way fund relationships are reported in the Global LEI system. See, 
e.g., LEI ROC, Policy on Fund Relationships and Guidelines for the 
Registration of Investment Funds in the Global LEI System (May 20, 
2019), available at https://www.leiroc.org/publications/gls/roc_20190520-1.pdf.
    \309\ See supra section II.B.2. For example, the Division of 
Investment Management relies on Form PF and Form ADV filings in 
providing quarterly summaries of private fund industry statistics 
and trends. See, e.g., Division of Investment Management, Private 
Fund Statistics, (Aug. 21, 2021), available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
    \310\ See supra section II.B.3.
    \311\ Other proposed revisions that would provide this benefit 
include the proposal revising reporting of regulatory versus net 
assets under management; reporting of assumptions the adviser makes 
in responding to questions on Form PF; reporting of types of fund; 
reporting of master-feeder arrangements, internal/external private 
funds, and parallel fund structures; reporting of monthly gross and 
net asset values; reporting of the value of unfunded commitments; 
reporting on the value of borrowing activity; reporting of fair 
value hierarchy; reporting of beneficial ownership; reporting of 
fund performance; more granular reporting of hedge fund strategies; 
more granular reporting of hedge fund counterparty exposures 
including identification of counterparties representing a fund's 
greatest exposure; and more granular reporting of hedge fund trading 
and clearing mechanisms. See supra section II.B.
---------------------------------------------------------------------------

    Second, the proposal would expand the data collected by the forms 
into newly emerging areas of risk. These expanded areas of reporting 
broadly capture key trends in (i) private fund advisers' ownership 
structures, and (ii) private fund advisers' investment and trading 
strategies, including increasing exposures to new asset classes, 
changing exposures across different categories of counterparties, and 
increasing use of financial tools for increasing fund performance.
    With respect to updated reporting on ownership structures, as 
discussed above, interconnected ownership structures have inherent 
risks of spillovers in losses, as losses in a master fund or underlying 
investment of a fund of funds cause losses in connected funds as well, 
and so enhanced data on detailed ownership structures could improve 
systemic risk assessment efforts.\312\ These improved data could also 
contribute to efforts to protect investors from conflicts of interest 
and other sources of potential harm.\313\ The types of enhancements to 
Form PF's data on interconnected ownership structures include, for 
example, requiring advisers to provide LEIs for themselves and any of 
their related persons, such as reporting funds and parallel funds,\314\ 
and expanding the required reporting detail on the value of the 
reporting fund's investments in funds of funds.\315\ Similar to the 
amendments to general instructions, the SEC believes that these 
revisions would improve measurement of these complex ownership 
structures, thereby potentially improving the SEC's and FSOC's efforts 
to assess developing systemic risks and FSOC's efforts to assess 
broader financial instability, as well as potentially improving the 
SEC's efforts to protect investors from conflicting arrangements and 
identify other areas in need of outreach, examination, or 
investigation.\316\
---------------------------------------------------------------------------

    \312\ See supra section III.C.1.a.
    \313\ Id.
    \314\ See supra section II.B.1.
    \315\ See supra section II.B.2.
    \316\ See supra section III.C.1.a.
---------------------------------------------------------------------------

    Many revisions would also keep Form PF filings up to date with key 
developing trends among private fund advisers' investing and trading 
practices. These revisions would improve consistency of reporting of 
modern private fund issues across fund advisers, provide more complete 
and accurate information on developing trends, and improve the SEC's 
and FSOC's abilities to effectively and efficiently assess new systemic 
risks and other potential sources of investor harm, as well as inform 
the SEC's and FSOC's broader views on the private fund landscape.
    For example, in Form PF section 1c, the proposal would require 
hedge funds to report whether their investment strategy includes 
digital assets,\317\ which are a growing and increasingly important 
area of hedge fund strategy.\318\ The proposal would

[[Page 53878]]

therefore help the SEC and FSOC to assess new sources of potential 
systemic risk and develop regulatory responses, and would further allow 
the SEC to analyze new areas of potential investor harm to determine 
any necessary outreach, examination, or investigation.
---------------------------------------------------------------------------

    \317\ See supra section II.B.3.
    \318\ See, e.g., AIMA, PwC, and Elwood Asset Management, 3rd 
Annual Global Crypto Hedge Fund Report 2021, available at https://www.aima.org/educate/aima-research/third-annual-global-crypto-hedge-fund-report-2021.html (concluding that approximately a fifth of 
hedge funds were investing in such assets in 2021, with on average 
three percent of their total hedge fund assets under management 
invested, and 86 percent of those hedge funds intended to deploy 
more capital into this asset class by the end of 2021); see also 
supra footnote 111 and accompanying text.
---------------------------------------------------------------------------

    As another example, the proposal would introduce several questions 
on counterparty exposures, corresponding to both CCP exposures and 
bilateral counterparty (i.e., non-CCP) exposures. These additions to 
Form PF include requiring advisers to report hedge fund borrowing, 
lending, and collateral with respect to transactions involving both 
their bilateral counterparties and CCPs, requiring reporting of hedge 
fund derivative and repo activity that was cleared by a CCP (as well as 
activity not cleared by a CCP), and instructing advisers on what 
exposures to net.\319\ There are two economic considerations associated 
with counterparty exposure reporting on Form PF. First and foremost, 
bilateral exposures and CCP exposures have different risk profiles, 
with CCPs offering risk reduction mechanisms and other economic 
benefits by netting trading across counterparties and across different 
assets within an asset class or by centralizing clearance and 
settlement activities.\320\ The SEC therefore believes the proposal 
could help Form PF provide insight into relative trends in bilateral 
trading versus central counterparty trading and resulting systemic 
risks from counterparty exposures. Second, while CCPs reduce the 
systemic risk associated with the failure of any single hedge fund or 
other private fund, the failure of a large CCP itself could potentially 
represent a substantial systemic risk event in the future.\321\ While a 
systemic risk event such as the failure of a CCP has never occurred in 
the United States, CCPs in other countries have failed,\322\ and the 
SEC believes the proposal could help Form PF provide new insights into 
the potential for such systemic risk events in the future. FSOC has 
also designated many CCP institutions as ``systemically important,'' 
\323\ and recommends that regulators continue to coordinate to evaluate 
threats from both default and non-default losses associated with 
CCPs.\324\
---------------------------------------------------------------------------

    \319\ See supra section II.B.3.
    \320\ Siro Aramonte and Wenqian Huang, Costs and Benefits of 
Switching to Central Clearing, BIS Quarterly Review (Dec. 2019), 
available at https://www.bis.org/publ/qtrpdf/r_qt1912z.htm; Albert 
J. Menkveld & Guillaume Vuillemey, The Economics of Central 
Clearing, 13 Ann. Rev. Fin. Econ. 153 (2021).
    \321\ Id.
    \322\ For example, the Hong Kong Futures Guarantee Corporation 
failed during the stock market crash of 1987. See Menkveld & 
Vuillemey, supra footnote 320.
    \323\ Financial Stability Oversight Council, 2012 Annual Report, 
Appendix A, available at https://home.treasury.gov/system/files/261/2012-Annual-Report.pdf.
    \324\ Financial Stability Oversight Council, 2021 Annual Report, 
p. 14, available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf.
---------------------------------------------------------------------------

    The SEC therefore believes these revisions, and others like 
them,\325\ would help the SEC and FSOC better understand the modern 
landscape of the private fund industry, thereby potentially improving 
the SEC's and FSOC's efforts to assess developing systemic risks and 
FSOC's efforts to assess broader financial instability, as well as 
potentially improving the SEC's efforts to protect investors by 
identifying areas in need of outreach, examination, or investigation.
---------------------------------------------------------------------------

    \325\ Other proposed revisions that would provide this benefit 
include the proposal reporting of withdrawal and redemption rights; 
reporting of other inflows and outflows; more granular reporting of 
hedge fund strategies; more granular reporting of hedge fund 
counterparty exposures including identification of counterparties 
representing a fund's greatest exposure; and more granular reporting 
of hedge fund trading and clearing mechanisms. See supra section 
II.B.
---------------------------------------------------------------------------

    Third, there are revisions that would expand the scope of certain 
questions from only covering qualifying hedge funds advised by large 
hedge fund advisers to covering all hedge funds advised by any private 
fund adviser. By expanding the universe of private funds that are 
covered by several questions, the proposal would enhance the SEC's and 
FSOC's ability to conduct broad, representative measurements regarding 
the private fund industry. For example, the proposal would require all 
advisers to report whether each reporting fund they advise provides 
investors with withdrawal or redemption rights in the ordinary course, 
rather than only requiring large hedge fund advisers to report it for 
the qualifying hedge funds they advise, as Form PF currently 
requires.\326\ Because the activities of private fund advisers may 
differ significantly depending on their size, this enhanced coverage 
would potentially enhance regulators' abilities to obtain a 
representative picture of the private fund industry and lead to more 
robust conclusions regarding emerging industry trends and 
characteristics. The SEC believes these proposed amendments, and 
others,\327\ would enhance regulator's picture of the private fund 
industry, thereby potentially improving the SEC's and FSOC's efforts to 
assess developing systemic risks and FSOC's efforts to assess broader 
financial instability, as well as potentially improving the SEC's 
efforts to protect investors by identifying areas in need of outreach, 
examination, or investigation.
---------------------------------------------------------------------------

    \326\ See supra section II.B.2.
    \327\ The proposed revisions to reporting of base currency would 
provide similar benefits. See supra section II.B.
---------------------------------------------------------------------------

    Lastly, certain proposed changes would streamline reporting and 
reduce reporting burden by removing certain questions where other 
questions provide the same or superseding information. For example, the 
proposal would remove current Question 19, which requires advisers to 
hedge funds to report whether the hedge fund has a single primary 
investment strategy or multiple strategies, and would also remove 
current Question 21, which requires advisers to hedge funds to 
approximate what percentage of the hedge fund's net asset value was 
managed using high frequency trading strategies.\328\ The SEC believes 
that these revisions would directly lower the costs and help reduce 
part of the burden on advisers of completing Form PF filings.\329\
---------------------------------------------------------------------------

    \328\ See supra section II.B.3.
    \329\ These benefits from streamlined reporting and reduced 
reporting burden would be offset by increased costs associated with 
the additional and more granular detail that would be required on 
Form PF under the proposal. See infra section III.C.2, IV.A.3.
---------------------------------------------------------------------------

c. Proposed Amendments to Information About Hedge Funds Advised by 
Large Private Fund Advisers
    The proposed changes to section 2 would provide greater insight 
into operations and strategies into hedge funds advised by large 
private fund advisers specifically, and would also assist in assessing 
broader hedge fund industry trends. This section discusses how the SEC 
believes the proposed changes would thereby enhance the SEC's and 
FSOC's investor protection and systemic risk assessment efforts. This 
would be accomplished in three key ways.
    As with section 1, first, the proposed changes would provide more 
prescriptive requirements to improve comparability across advisers and 
reduce reporting errors and issues of data quality, based on experience 
with the form. This would be accomplished by standardizing reporting of 
information across different advisers and across different regulatory 
filings. For example, the proposed amendments to Question 30 (on 
qualifying hedge fund exposures to different types of assets) would 
replace the existing

[[Page 53879]]

complex table in Question 30 with reporting instructions that would use 
a series of drop-down menu selections and provide additional narrative 
reporting instructions and additional information on how to report 
exposures.\330\ Similarly, advisers to qualifying hedge funds would now 
be required to report the 10-year zero coupon bond equivalent for all 
sub-asset classes with interest rate risk, rather than providing 
advisers with a choice to report duration, WAT, or an unspecified 10-
year equivalent.\331\ Several revisions (relating to adviser reporting 
of basic information for all hedge funds that it advises) would revise 
instructions relating to reporting of adjusted long and short exposures 
and market factor effects on a hedge fund's portfolio.\332\ These 
revisions could potentially prevent, for example, data errors 
associated with reporting of long and short components of a portfolio 
or discrepancies across advisers in their choices of which market 
factors to report (as Form PF currently allows advisers to omit a 
response to any market factor that they do not regularly consider in 
formal risk management testing).\333\ As another example, the proposal 
would provide for a new sub-asset class in investment exposure 
reporting for ADRs, in line with how ADRs are reported on the CFTC's 
Form CPO-PQR, potentially improving assessment of currency risk across 
regulatory filings.\334\ As a final example, the proposal would revise 
reporting for positions held physically, synthetically, or through 
derivatives and indirect exposure, and would require reporting turnover 
on a per fund basis instead of in the aggregate as well as providing 
for more granular reporting of turnover.\335\ The SEC believes these 
revisions, and others,\336\ would align Form PF data across filers, 
thereby potentially improving the efficiency with which the SEC and 
FSOC evaluate market risk and measure industry trends, thereby 
increasing the efficiency with which regulatory responses are 
developed, improving systemic risk assessment and regulatory programs 
to protect investors.
---------------------------------------------------------------------------

    \330\ See supra section II.C.2.
    \331\ Id.
    \332\ See supra section II.C.2.a; II.C.2.c.
    \333\ Id. For example, higher quality data on short positions 
could facilitate more accurate and timely identification of 
significant market participants during periods of volatility related 
to shorting activity, such as the January 2021 ``meme stock'' 
episodes. See, e.g., Staff Report on Equity and Options Market 
Structure Conditions in Early 2021 (Oct. 14, 2021), available at 
https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf.
    \334\ See supra section II.C.2.a.
    \335\ As discussed above, when monitoring funds' activities 
during recent market events like the March 2020 COVID-19 turmoil, 
the existing aggregation of U.S. treasury securities with related 
derivatives did not reflect the role hedge funds played in the U.S. 
treasury market. See supra section II.C.2.a, III.B.1. Also during 
the COVID-19 market turmoil, FSOC sought to evaluate the role hedge 
funds played in disruptions in the U.S. treasury market by unwinding 
cash-futures basis trade positions and taking advantage of the near-
arbitrage between cash and futures prices of U.S. treasury 
securities. Because the existing requirement regarding turnover 
reporting on U.S. treasury securities is highly aggregated, the SEC 
staff, during retrospective analyses on the March 2020 market 
events, was unable to obtain a complete picture of activity relating 
to long treasuries and treasury futures. See supra section II.C.2.d, 
III.B.1.
    \336\ Other proposed revisions that would provide this benefit 
include the proposal revising reporting of reportable sub-asset 
classes, including those for certain categories of listed equity 
securities, repos, asset-backed securities and other structured 
products, derivatives, and cash and commodities; revising reporting 
of open and large position reporting; revising reporting of 
counterparty exposures including reporting of significant 
counterparties; revising currency reporting; requiring significant 
country and industry exposure; requiring additional reporting on 
fund portfolio risk profiles; requiring more granular reporting of 
investment performance by strategy; amending reporting of portfolio 
liquidity; and amending reporting of financing liquidity. See supra 
section II.C.
---------------------------------------------------------------------------

    Second, the proposed changes would help Form PF provide greater 
insight into newly emerging areas of risk, including increasing 
exposures to new asset classes, changing exposures across different 
categories of counterparties, and changing risk management practices 
(such as changing practices around posting of collateral). The SEC 
believes these proposed changes would help Form PF more completely and 
accurately capture information relevant to ongoing trends in the 
private fund industry. For example, in addition to the more general 
investment strategy questions in section 1c described above,\337\ 
section 2b would define the term ``digital asset'' and would require 
large advisers to qualifying hedge funds to report their total 
exposures to digital assets.\338\ As another example, large advisers to 
qualifying hedge funds would be required to report exposures to 
additional commodity sub-asset classes (e.g., other (non-gold) precious 
metals, agricultural commodities, and base metal commodities).\339\ 
They would also be required to report all other counterparties (by 
name, LEI, and financial institution affiliation) to which a fund has 
net mark-to-market exposure after collateral that equals or is greater 
than either (1) five percent of a fund's net asset value or (2) $1 
billion, facilitating regulators' abilities to understand the impact a 
particular counterparty failure like those that occurred during the 
2008 financial crisis and in the period since (e.g., the failure of MF 
Global in 2011).\340\ Advisers would also be required to report certain 
of their exposures to CCPs,\341\ and would be required to report each 
CCP (or other third party) holding collateral in respect of cleared 
exposures in excess of 5 percent of the fund's net asset value, or $1 
billion.\342\ As discussed above, these (and other) new granular 
reporting requirements would represent new possible sources of systemic 
risk for the SEC and FSOC to evaluate, and also new areas of focus for 
the SEC's regulatory outreach, examination, and investigation.\343\ The 
SEC believes these revisions, and others,\344\ would improve the SEC's 
and FSOC's efforts to assess developing systemic risks and FSOC's 
efforts to assess broader financial stability, as well as potentially 
improve the SEC's efforts to protect investors by identifying areas in 
need of outreach, examination, or investigation.
---------------------------------------------------------------------------

    \337\ See supra section III.C.1.b.
    \338\ See supra section II.C.2.a.
    \339\ See supra section II.C.2.a.
    \340\ See supra section II.C.2.a, footnote 198 and accompanying 
text.
    \341\ See supra section II.C.2.b.
    \342\ See supra section II.C.2.d.
    \343\ See supra section III.C.1.b. For example, the SEC believes 
the addition of a base metal commodities sub-asset class would allow 
for identification of large players in the base metals market (such 
as those impacted by the March 2022 ``nickel squeeze,'' during which 
the price of nickel rose unusually steeply and rapidly in response 
to commodity price increases caused by Russia's invasion of 
Ukraine). See supra footnote 176.
    \344\ Other proposed revisions that would provide this benefit 
include revising reporting for positions held physically, 
synthetically, or through derivatives and indirect exposure; 
revising reportable sub-asset classes, including those for certain 
categories of listed equity securities, repos, asset-backed 
securities and other structured products, derivatives, and other 
cash and commodities; further revising reporting of counterparty 
exposures including reporting of significant counterparties (in 
addition to the revisions to CCP exposures); revising currency 
reporting; requiring more granular reporting of turnover; requiring 
significant country and industry exposure; requiring additional 
reporting on fund portfolio risk profiles; requiring more granular 
reporting of investment performance by strategy; requiring new 
reporting on portfolio correlation; amending reporting of portfolio 
liquidity; and amending reporting of financing liquidity. See supra 
section II.C.
---------------------------------------------------------------------------

    Lastly, the proposal would remove certain questions where other 
questions provide the same or superseding information, which the SEC 
believes would streamline reporting and reduce reporting burden. For 
example, the proposal would remove section 2a entirely, proposing that 
the aggregated information in section 2a is redundant to information 
required to be reported in other sections,\345\ and would remove the 
requirement from Question 38 for advisers to report the percentage of 
the

[[Page 53880]]

total amount of collateral and other credit support that a fund has 
posted to counterparties that may be re-hypothecated.\346\ The SEC 
believes that these revisions, and others,\347\ would directly lower 
the costs and reduce the burden to advisers of completing Form PF 
filings.
---------------------------------------------------------------------------

    \345\ See supra section II.C.1.
    \346\ See supra section II.C.1.
    \347\ Other proposed revisions that would provide this benefit 
include the proposal consolidating Question 47 into Question 36; 
removing the requirement from Question 38 for advisers to report the 
percentage of the total amount of collateral and other credit 
support that a fund has posted to counterparties that may be re-
hypothecated; and requiring reporting turnover on a per fund basis 
instead of in the aggregate. See supra section II.C.
---------------------------------------------------------------------------

2. Costs
    The proposed amendments to Form PF would lead to certain additional 
costs for private fund advisers. Any portion of these costs that is not 
borne by advisers would ultimately be passed on to private funds' 
investors. These costs would vary depending on the scope of the 
required information, which is determined based on the size and types 
of funds managed by the adviser as well as each fund's investment 
strategies, including choices of asset classes and counterparties. 
These costs are quantified, to the extent possible, by examination of 
the analysis in section IV.A.3.
    The SEC anticipates that the costs to advisers associated with Form 
PF would be composed of both direct compliance costs and indirect 
costs. Direct costs for advisers would consist of internal costs (for 
compliance attorneys and other non-legal staff of an adviser, such as 
computer programmers, to prepare and review the required disclosure) 
and external costs (including filing fees as well as any costs 
associated with outsourcing all or a portion of the Form PF reporting 
responsibilities to a filing agent, software consultant, or other 
third-party service provider).\348\
---------------------------------------------------------------------------

    \348\ See section IV.A.3 (for an analysis of the direct costs 
associated with the new Form PF requirements for quarterly and 
annual filings).
---------------------------------------------------------------------------

    The SEC believes that the direct costs associated with the proposed 
amendments would be most significant for the first updated Form PF 
report that a private fund adviser would be required to file because 
the adviser would need to familiarize itself with the new reporting 
form and may need to configure its systems to gather the required 
information efficiently. In subsequent reporting periods, the SEC 
anticipates that filers would incur significantly lower costs because 
much of the work involved in the initial report is non-recurring and 
because of efficiencies realized from system configuration and 
reporting automation efforts accounted for in the initial reporting 
period. This is consistent with the results of a survey of private fund 
advisers, finding that the majority of respondents identified the cost 
of subsequent annual Form PF filings at about half of the initial 
filing cost.\349\
---------------------------------------------------------------------------

    \349\ See Wulf Kaal, Private Fund Disclosures Under the Dodd-
Frank Act, 9 Brooklyn Journal of Corporate, Financial, and 
Commercial Law 428 (2015).
---------------------------------------------------------------------------

    The SEC anticipates that the proposed amendments aimed at improving 
data quality and comparability would impose limited direct costs on 
advisers given that advisers already accommodate similar requirements 
in their current Form PF reporting and can utilize their existing 
capabilities for preparing and submitting an updated Form PF. The SEC 
expects that most of the costs would arise from the proposed 
requirements to report additional and more granular information on Form 
PF. These direct costs would mainly include an initial cost to setup a 
system for collecting, verifying additional more granular information, 
and limited ongoing costs associated with periodic reporting of this 
additional information.\350\ We believe that the proposed amendment to 
rule 204(b)-1(f) under the Advisers Act would have minimal costs 
associated with it, as the proposed amendment only makes it easier to 
submit a temporary hardship exemption and assists advisers in 
determining what constitutes a ``filed'' temporary hardship 
exemption.\351\ As discussed in the benefits section, the SEC believes 
that part of the costs to advisers arising from the proposed amendments 
would be mitigated by the cost savings resulting from reduced 
ambiguities and inefficiencies that currently exist in the reporting 
requirements, as this may reduce the amount of time and effort required 
for some advisers to prepare and submit Form PF information.\352\
---------------------------------------------------------------------------

    \350\ Based on the PRA analysis in section IV.A.3, initial costs 
associated with filing the first updated Form PF report are 
estimated to increase by $4,790 for smaller private fund advisers, 
$15,557 for large hedge fund advisers, $8,780 for large liquidity 
fund advisers, and $8,780 for large private equity advisers. These 
figures are calculated as the cost of filing under the proposal 
minus the cost of filing prior to the proposal for each category of 
adviser. See Table 5. Direct internal compliance costs associated 
with the proposal are estimated at $1,866.25 per quarterly filing or 
$7,465 annually for smaller private fund advisers. Direct internal 
compliance costs associated with the proposal are estimated at 
$6,582.5 per quarterly filing or $26,330 annually for large hedge 
fund advisers. Direct internal compliance costs associated with the 
proposal are estimated at $3,172.5 per quarterly filing or $12,690 
annually for large liquidity fund advisers. Direct internal 
compliance costs associated with the proposal are estimated at 
$3,885 per quarterly filing or $15,540 annually for large private 
equity advisers. These figures are calculated as the cost of filing 
under the proposal minus the cost of filing prior to the proposal 
for each category of adviser, with an additional correction for 
large liquidity fund advisers to incorporate the adjustment 
explained in footnote 9 to Table 6 (yielding an estimate of costs 
prior to the proposal of $29,216.25/105*70 = $19477.50). See Table 
6. It is estimated that there will be no additional direct external 
costs and no changes to filing fees associated with the proposed 
amendments. See Table 8. The SEC anticipates that there may be 
additional first-time filing costs for filers who do not currently 
file on a calendar quarter basis, but that these costs are likely to 
be small and not likely to impact subsequent filings beyond the 
first. As discussed above, a 2018 industry survey of large hedge 
fund advisers found filing costs that ranged from 35% to 72% higher 
than SEC cost estimates. These industry cost estimates would 
therefore suggest costs associated with the proposed changes to Form 
PF that are potentially 35% to 72% higher than those estimated here. 
See MFA Letter to Chairman Clayton, supra note 202, at 3. However, a 
2015 survey of SEC-registered investment advisers to private funds 
affirmed the SEC's cost estimates for smaller private fund advisers' 
Form PF compliance costs, and found that the SEC overestimated Form 
PF compliance costs for larger private fund advisers. These academic 
literature cost estimates would therefore suggest that the costs 
associated with the proposed changes to Form PF estimated here are 
potentially conservatively large. See Wulf Kaal, Private Fund 
Disclosures Under the Dodd-Frank Act, 9 Brooklyn Journal of 
Corporate, Financial, and Commercial Law 428 (2015). See also supra 
footnote 267.
    \351\ See supra section II.E.
    \352\ The proposal also seeks to limit unnecessary costs by 
avoiding redundancies between new questions and existing questions. 
For example, if the proposal is adopted, the SEC would remove 
current Question 22, as it would be redundant in light of the 
proposed expanded turnover reporting. See supra footnote 214.
---------------------------------------------------------------------------

    Indirect costs for advisers would include the costs associated with 
additional actions that advisers may decide to undertake in light of 
the additional reporting requirements on Form PF. Specifically, to the 
extent that the proposed amendments provide an incentive for advisers 
to improve internal controls and devote additional time and resources 
to managing their risk exposures and enhancing investor protection, 
this may result in additional expenses for advisers, some of which may 
be passed on to the funds and their investors.
    Form PF collects confidential information about private funds and 
their trading strategies, and the inadvertent public disclosure of such 
competitively sensitive and proprietary information could adversely 
affect the funds and their investors. However, the SEC anticipates that 
these adverse effects would be mitigated by certain aspects of the Form 
PF reporting requirements and controls and systems designed by the SEC 
for handling the data. For example, because data on Form PF generally 
could not, on its own, be used to identify individual investment 
positions, the ability of a

[[Page 53881]]

competitor to use Form PF data to replicate a trading strategy or trade 
against an adviser is limited. The SEC has controls and systems for the 
use and handling of the proposed modified and new Form PF data in a 
manner that reflects the sensitivity of the data and is consistent with 
the maintenance of its confidentiality. The SEC has substantial 
experience with the storage and use of nonpublic information reported 
on Form PF as well as other nonpublic information that the SEC handles 
in the course of business.

D. Reasonable Alternatives

1. Alternatives to Proposed Amendments to General Instructions, 
Proposed Amendments To Enhance Data Quality, and Proposed Additional 
Amendments
    The SEC has considered alternatives to the proposed amendments to 
general instructions, proposed amendments to enhance data quality, and 
the proposed additional amendments considered in this proposal 
(including the amendments to the process for requesting temporary 
hardship exemptions, by way of an amendment to rule 204(b)-1(f) under 
the Advisers Act). The alternatives considered have been in the form of 
different choices of framing, level of additional detail requested by 
Form PF, level of detail removed from Form PF, and precise information 
targeted.
    For example, in the general instructions, the SEC considered an 
alternative that would require advisers to report only at the master 
fund level or only at the feeder fund level. As another example, with 
respect to trading vehicles, the proposal currently would require 
advisers to report a trading vehicle as a separate reporting fund, the 
adviser must report the trading vehicle as a hedge fund, qualifying 
hedge fund, liquidity fund, private equity fund, or other type of fund, 
if it meets certain requirements, but the SEC considered an alternative 
that would only require advisers to report trading vehicles as 
investments in another fund. As a final example, the SEC considered 
requiring annual filers to file within 30 calendar days after the end 
of their fiscal year, rather than 120 calendar days.
    While many alternatives may be able to capture more detailed 
information, or may be able to capture relevant information with a 
smaller reporting burden for advisers, the SEC believes that each of 
the amendments to general instructions, amendments to enhance data 
quality, and additional amendments as proposed improve data quality and 
enhance the usefulness of reported data without imposing undue 
reporting burden. As discussed above we request suggestions and 
comments on each proposed revision and addition.\353\
---------------------------------------------------------------------------

    \353\ See supra section II.A, II.D, II.E.
---------------------------------------------------------------------------

2. Alternatives to Proposed Amendments to Basic Information About the 
Adviser and the Private Funds It Advises
    The SEC has also considered alternatives to the proposed amendments 
to basic information about advisers and the private funds they advise. 
As above, these alternatives are in the form of different choices of 
framing, level of additional detail requested by Form PF, level of 
detail removed from Form PF, and precise information targeted.
    For example, with respect to identifying information for private 
funds in section 1a, the SEC considered an alternative that would 
provide more granularity for advisers to list categories of funds, such 
as differentiating between different types of funds of funds (for 
example, differentiating between multi-manager funds of funds and 
multi-asset funds of funds). As another example, with respect to basic 
information reported for all private funds in section 1b, the SEC 
considered alternatives that would limit reporting information about 
withdrawal rights, redemption rights, and contributions to only funds 
and advisers of a certain size. The SEC also considered various 
alternatives with respect to reporting of digital assets, such as 
distinguishing between digital assets that represent an ability to 
convert or exchange the digital asset for fiat currency or another 
asset, including another digital asset, and those that do not represent 
such a right to convert or exchange; for digital assets that represent 
a right to convert or exchange for fiat currency or another digital 
asset, those where the redemption obligation is supported by an 
unconditional guarantee of payment, such as some ``central bank digital 
currencies,'' and those redeemable upon demand from the issuer, whether 
or not collateralized by a pool of assets or a reserve; for digital 
assets that do not represent any direct or indirect obligation of any 
party to redeem; and for digital assets that represent an equity, 
profit, or other interest in an entity. As a final example, with 
respect to basic information reported for all hedge funds, the proposal 
would currently require advisers to identify each creditor or other 
counterparty (including CCPs) to which the reporting fund owes cash and 
synthetic financing borrowing (before posted collateral) equal to or 
greater than either (1) five percent of net asset value of the 
reporting fund as of the data reporting date or (2) $1 billion, but the 
SEC considered alternatives that would change the proposed thresholds, 
either increasing or decreasing Form PF's definition of what 
constitutes a significant counterparty.
    The SEC believes that each of the amendments as proposed improve 
data quality and enhance the usefulness of reported data without 
imposing undue reporting burden, but as discussed above we request 
suggestions and comments on each proposed revision and addition.\354\
---------------------------------------------------------------------------

    \354\ See supra section II.B.
---------------------------------------------------------------------------

3. Alternatives to Proposed Amendments to Information About Hedge Funds 
Advised by Large Private Fund Advisers
    The SEC has considered alternatives to the proposed amendments to 
information about hedge funds advised by large private fund advisers. 
As above, these alternatives are in the form of different choices of 
framing, level of additional detail requested by Form PF, level of 
detail removed from Form PF, and precise information targeted.
    For example, with respect to investment exposure reporting, the 
proposal would continue to require reporting on qualifying hedge fund 
exposures to different types of assets, but would revise the 
instructions and format of this reporting. As an alternative, the SEC 
considered a proposal that would require or permit large hedge fund 
advisers to file portfolio position-level information for qualifying 
hedge funds similar to what is required for large liquidity fund 
advisers, and large hedge fund advisers who do so would be allowed to 
forgo responding to certain specific investment exposure questions in 
section 2, including Question 30. We believe that the questions as 
currently proposed improve data quality and enhance the usefulness of 
reported data without imposing undue reporting burden, but we request 
comment on each proposed revision and addition.\355\
---------------------------------------------------------------------------

    \355\ See supra section II.C.
---------------------------------------------------------------------------

    As another example, the SEC considered alternative approaches for 
instructing reporting advisers on how to net long and short positions 
for each sub-asset class. One prong of the proposed instructions for 
netting long and short positions relies on a newly defined term 
``reference asset,'' with which we propose to define as ``a security or 
other investment asset to which the reporting fund is exposed

[[Page 53882]]

through direct ownership, synthetically, or indirect ownership,'' \356\ 
and instructs advisers to net positions that have the same underlying 
reference asset across instrument types. The SEC has considered instead 
tailoring these instructions to different asset classes. For example, 
the SEC considered instructing advisers to net repo exposures in 
accordance with GAAP rules for balance sheet netting, or instructing 
advisers with exposures whose underlying reference assets are treasury 
securities to net within predefined maturity buckets. However, the SEC 
believes that providing netting instructions through the proposed 
single definition of ``reference asset'' improves data quality and 
enhances the usefulness of report data without imposing undue 
burden.\357\
---------------------------------------------------------------------------

    \356\ See Proposed Form PF Glossary of Terms. The proposal would 
also instruct advisers to net fixed income positions that fall 
within certain predefined maturity buckets. See supra section II.C.
    \357\ See supra section II.C.
---------------------------------------------------------------------------

    As final example, the SEC also considered requiring advisers to 
report DV01 instead of the 10-year zero coupon bond equivalent. We 
understand that the 10-year zero coupon bond equivalent is the most 
widely used duration measure currently applied in the industry, and 
would require the fewest number of private funds to update their 
calculations of duration to comply with the reporting requirement, but 
as discussed above the SEC requests comment on whether DV01 would be a 
more appropriate reporting requirement.\358\
---------------------------------------------------------------------------

    \358\ See supra section II.C.
---------------------------------------------------------------------------

    Broadly, the SEC believes that each of the amendments as proposed 
improve data quality and enhance the usefulness of reported data 
without imposing undue reporting burden, but as discussed above we 
request suggestions and comments on each proposed revision and 
addition.\359\
---------------------------------------------------------------------------

    \359\ See supra section II.C.
---------------------------------------------------------------------------

4. Alternatives to the Definition of the Term ``Hedge Fund''
    The SEC has also considered amending the definition of ``hedge 
fund'' which is defined in the Glossary of Terms as any private fund 
(other than a securitized asset fund) (a) with respect to which one or 
more investment advisers (or related persons of investment advisers) 
may be paid a performance fee or allocation calculated by taking into 
account unrealized gains (other than a fee or allocation the 
calculation of which may take into account unrealized gains solely for 
the purpose of reducing such fee or allocation to reflect net 
unrealized losses); (b) that may borrow an amount in excess of one-half 
of its net asset value (including any committed capital) or may have 
gross notional exposure in excess of twice its net asset value 
(including any committed capital); or (c) that may sell securities or 
other assets short or enter into similar transactions (other than for 
the purpose of hedging currency exposure or managing duration).\360\ As 
noted above, the current definition of ``hedge fund'' is designed to 
include any private fund having any one of three common characteristics 
of a hedge fund: (1) a performance fee, (2) leverage, or (3) short 
selling. In particular, this existing definition in Form PF of ``hedge 
fund'' focuses on a reporting fund's ability to engage in certain 
borrowing and short selling, rather than actual or intended borrowing 
and short selling. Some reporting funds may consider themselves 
``private equity funds,'' but advisers report them as hedge funds, 
because the reporting fund's governing documents permit the fund to 
engage in certain borrowing and short selling (even though it did not 
do so at any time in the past 12 months).
---------------------------------------------------------------------------

    \360\ See supra section II.C.
---------------------------------------------------------------------------

    As discussed above, hedge funds and private equity funds are two 
separate categories of private funds, and typically differ in their 
characteristics, such as a hedge fund being more likely to engage in 
extensive use of (non-subscription lines of credit) leverage, 
derivatives, complex structured products, and short selling, and a 
private equity fund being more likely to focus on long-term returns and 
engage actively in the management and direction of the companies it 
invests in.\361\ Under the existing definition, an adviser to a fund 
that holds itself out as a private equity fund and is permitted in its 
fund governing documents to engage in certain short-selling, but has 
not done so in the past 12 months, would be reported in Form PF data as 
a hedge fund with zero short exposure. Depending on how widespread this 
definitional mismatch is, it could have an impact on data quality.\362\
---------------------------------------------------------------------------

    \361\ See supra section III.B.2.
    \362\ The SEC does not have data on how many reporting funds 
would be considered deemed hedge funds, but the SEC estimates that 
up to 30 percent of qualifying hedge funds could be deemed hedge 
funds that advisers should report as private equity funds. See Form 
PF data from current Question 49(a), as of the third quarter of 
2021.
---------------------------------------------------------------------------

    Accordingly, the SEC is requesting additional information on the 
issue.\363\ In doing so, the SEC is requesting comment on a potential 
alternative definition of ``hedge fund,'' under which, to qualify as a 
hedge fund under the leverage prong of the potential alternative 
definition, a fund would have to satisfy subsection (b) of the 
definition (the leverage prong), as it does today, but also must have 
actually borrowed or used any leverage during the past 12 months, 
excluding any borrowings secured by unfunded commitments (i.e., 
subscription lines of credit). Additionally, to qualify as a hedge fund 
under the short selling prong of the potential alternative definition 
(the short selling prong), the fund must have actually engaged in 
certain short selling during the past 12 months. The SEC also 
considered alternative definitions requiring, for example, longer or 
shorter time periods, different time periods for borrowing versus short 
selling, or requirements for the reporting fund to provide redemption 
rights in the ordinary course.
---------------------------------------------------------------------------

    \363\ See supra section II.C.
---------------------------------------------------------------------------

    A revised definition could better ensure advisers report 
information in closer accordance with their characteristics.\364\ For 
example, an adviser to a private fund that has actually engaged in 
short selling in the preceding 12 months would meet this alternative 
definition of hedge fund and thus report the value of its short 
positions as part of section 2, Item B.\365\ Meanwhile, for example, an 
adviser to a private fund that holds itself out as a private equity 
fund, has not borrowed or used any leverage during the preceding 12 
months (excluding subscription lines of credit), and has not sold 
securities or other assets short (or entered into similar transactions) 
would not meet this alternative definition of a hedge fund, and would 
report information more relevant for a private equity fund such as, 
among other items, the average debt-to-equity ratio of its portfolio 
investments.\366\ The SEC also believes an alternative definition would 
reduce the unnecessary reporting burden faced by advisers to deemed 
hedge funds that

[[Page 53883]]

hold themselves out as private equity funds but currently comply with 
instructions to report information on Form PF section 2; however, this 
benefit would be partially mitigated by the impacted private fund 
advisers who would now need to report on necessary Form PF sections for 
private equity fund advisers.\367\
---------------------------------------------------------------------------

    \364\ This benefit may be mitigated to the extent that any 
private fund advisers deliberately seek to fill hedge fund reporting 
requirements because they believe their burden of reporting the 
hedge fund sections of Form PF is lower than the burden they would 
face from reporting the private equity sections of Form PF. Any such 
private fund advisers could, under the proposed definition, have 
their funds take on de minimis leverage or short selling, and 
therefore still be instructed to report as a hedge fund. However, we 
estimate that Form PF filing is on average more burdensome for large 
hedge fund advisers than for large private equity advisers, and so 
there may be very few, if any, private fund advisers deliberately 
filing as a hedge fund adviser instead of as a private equity 
adviser. See infra section IV.A.3
    \365\ See supra section II.C.2.
    \366\ See supra section II.C.2; see also Form PF, section 4.
    \367\ See supra section II.C.2; III.C.2; see also infra section 
IV.A.3. We estimate that for advisers who would be required to file 
an initial filing as a large private equity adviser instead of a 
large hedge fund adviser because of the potential alternative 
definition of ``hedge fund,'' the impact on their filing costs would 
be the difference in the proposed new cost of filing for large 
private equity advisers minus the current cost of filing for large 
hedge fund advisers. We estimate this figure would be negative, 
reflecting a cost savings. Thus, the potential alternative 
definition would reduce the costs for initial filers who would be 
impacted by the definition of ``hedge fund'' by approximately 
$30,883. See infra section IV.A.3, Table 5. We estimate that for the 
advisers who would be impacted by the potential alternative 
definition of ``hedge fund'' and would have to make ongoing annual 
filings as a large private equity adviser instead of ongoing 
quarterly filings as a large hedge fund adviser, the impact of the 
alternative definition on their filing costs would be the difference 
in the proposed new cost of filing for large private equity advisers 
minus four times the cost of filing prior to the proposal for large 
hedge fund advisers. We again estimate this figure to be negative, 
and estimate an ongoing annual cost savings to these advisers of 
$135,240. See infra section IV.A.3, Table 6. Because Form PF defines 
large hedge fund advisers by considering a threshold of $1.5 billion 
in assets under management but defines large private equity advisers 
by considering a threshold of $2 billion in assets under management, 
there may be private fund advisers who, under the potential 
alternative definition, would no longer be required to file as a 
large hedge fund adviser, and would also not be required to instead 
report as a large private equity adviser.
---------------------------------------------------------------------------

    A potential unintended consequence of the existing reporting 
approach for hedge funds could be incomplete data sets for private 
equity funds, as well as less accurate reporting about hedge funds. 
However, a revised definition that focuses on actual or contemplated 
use may also result in incomplete data sets for hedge funds, which are 
a class of funds that may be systemically significant. In particular, 
when first adopting the definition, the Commissions reasoned that even 
a reporting fund for which leverage or short selling is an important 
part of its strategy may not engage in that practice during every 
reporting period.\368\ Because a reporting fund may vary from year to 
year in its use of leverage or short selling, a revised definition that 
focuses on actual or contemplated use would also cause fluctuations in 
the data from year to year, depending on which funds use leverage or 
short selling in a particular year, potentially impacting the quality 
or usefulness of resulting data. The potential costs of this 
alternative definition also include transition filing costs for 
advisers impacted by the definition, who would be required to update 
their reporting methods to capture information from their funds 
relevant for reporting on Form PF as a private equity fund instead of 
as a hedge fund, and completing corresponding sections of the form 
targeted at each category.\369\
---------------------------------------------------------------------------

    \368\ See supra footnote 3; see also 2011 Form PF Adopting 
Release, at text accompanying footnote 78.
    \369\ We estimate that the average cost of a transition filing 
is $19.25. See Table 7.
---------------------------------------------------------------------------

    The SEC has also considered conforming changes to the definition of 
``hedge fund'' for the purposes of Form ADV.\370\ Form ADV relies on a 
definition of ``hedge fund'' for the purposes of only one question, 
which requires advisers to identify the type of private fund they 
advise by selecting from a list of funds, including hedge funds.\371\ 
As a result, we do not believe there would be any substantial 
additional economic effects of making conforming changes to Form ADV. 
By amending the definition in Form ADV so that it would be consistent 
with how the proposal would define it in Form PF, this alternative 
would maintain the baseline consistency of information between Form PF 
and Form ADV. The SEC anticipates that the costs associated with a 
potential alternative definition of ``hedge fund'' on Form ADV would be 
de minimis, as private fund advisers would not be required to complete 
any more or fewer questions on Form ADV, at any more or fewer 
intervals.
---------------------------------------------------------------------------

    \370\ See supra section II.C. Form ADV filers include advisers 
registered with the SEC and those applying for registration with the 
SEC, as well as exempt reporting advisers. Some private fund 
advisers that are required to report on Form ADV are not required to 
file Form PF (for example, exempt reporting advisers and advisers 
with less than $150 million in private fund assets under 
management). Other advisers are required to file Form PF and are not 
required to file Form ADV (for example, advisers to commodity pools 
that are not private funds). Based on the staff review of Form ADV 
filings and the Private Fund Statistics, less than 10 percent of 
funds reported on Form ADV but not on Form PF in 2020.
    \371\ See Form ADV: Instructions for Part 1A, Instruction 6 and 
Form ADV Part 1A, Schedule D, section 7.B.(1), Question 10 
(``Question 10'') (defining the term ``hedge fund,'' and specifying 
that the definition applies for purposes of Question 10). Form ADV 
also uses the term ``hedge fund'' in Part 2A, but does not refer to 
the definition provided for Question 10.
---------------------------------------------------------------------------

E. Request for Comment

    The SEC requests comment on all aspects of our economic analysis, 
including the potential costs and benefits of the proposed amendments 
and alternatives thereto, and whether the amendments, if the SEC were 
to adopt them, would promote efficiency, competition, and capital 
formation. In addition, the SEC requests comments on our selection of 
data sources, empirical methodology, and the assumptions the SEC has 
made throughout the analysis. Commenters are requested to provide 
empirical data, estimation methodologies, and other factual support for 
their views, in particular, on costs and benefits estimates. In 
addition, the SEC requests comment on:
    214. Whether there are any additional costs and benefits associated 
with the proposed amendments to Form PF that we should include in our 
analysis? What additional materials and data should the SEC consider 
for estimating these costs and benefits?
    215. Whether our assumptions about costs associated with the 
proposal are accurate? For example, is it accurate to assume that 
certain costs may be mitigated given that advisers already accommodate 
similar requirements in their current Form PF and Form ADV reporting 
and can utilize their existing capabilities for preparing and 
submitting an updated Form PF?
    216. Whether there are any additional benefits or costs that should 
be included associated with the reasonable alternatives considered?

IV. Paperwork Reduction Act

    CFTC:
    The information collection titled ``Form PF and Rule 204(b)-1'' 
(OMB Control No. 3235-0679) was issued to the SEC and implements 
sections 404 and 406 of the Dodd-Frank Act by requiring private fund 
advisers that have at least $150 million in private fund assets under 
management to report certain information regarding the private funds 
they advise on Form PF. The SEC makes information on Form PF available 
to the CFTC, subject to the confidentiality provisions of the Dodd-
Frank Act, and the CFTC may use information collected on Form PF in its 
regulatory programs, including examinations, investigations and 
investor protection efforts relating to private fund advisers.
    CFTC rule 4.27 \372\ does not impose any additional burden upon 
registered CPOs and CTAs that are dually registered as investment 
advisers with the SEC (``dual registrants''). There is no requirement 
to file Form PF with the CFTC, and any filings made by dual registrants 
with the SEC are made pursuant to the Advisers Act. While

[[Page 53884]]

CFTC rule 4.27(d) states that dually registered CPOs and CTAs that file 
Form PF with the SEC will be deemed to have filed Form PF with the CFTC 
for purposes of any enforcement action regarding any false or 
misleading statement of material fact in Form PF, the CFTC is not 
imposing any additional burdens herein. Therefore, any burden imposed 
by Form PF on entities registered with both the CFTC and the SEC has 
been fully accounted for within the SEC's calculations regarding the 
impact of this collection of information under the PRA, as set forth 
below.\373\
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    \372\ CFTC rule 4.27, 17 CFR 4.27, was adopted pursuant to the 
CFTC's authority set forth in section 4n of the Commodity Exchange 
Act (``CEA''), 7 U.S.C. 6n. CFTC regulations are found at Title 17 
Chapter I of the Code of Federal Regulations (``CFR'').
    \373\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

    SEC:
    The proposal would revise an existing ``collection of information'' 
within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\374\ The SEC is submitting the collection of information to 
the Office of Management and Budget (``OMB'') for review in accordance 
with the PRA.\375\ The title for the collection of information is 
``Form PF and Rule 204(b)-1'' (OMB Control Number 3235-0679), and 
includes both Form PF and rule 204(b)-1 (``the rules'').\376\ An agency 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless it displays a currently valid OMB 
control number.
---------------------------------------------------------------------------

    \374\ 44 U.S.C. 3501 through 3521.
    \375\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
    \376\ The SEC also submitted the collection of information to 
OMB in connection with the 2022 SEC Form PF Proposal (ICR Reference 
No. 202202-3235-026) (conclusion date May 17, 2022) available at 
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202202-3235-026; 2022 SEC Form PF Proposal, supra footnote 3.
---------------------------------------------------------------------------

A. Form PF

    Compliance with the information collection titled ``Form PF and 
Rule 204(b)-1'' is mandatory. The respondents are investment advisers 
that (1) are registered or required to be registered under Advisers Act 
section 203, (2) advise one or more private funds, and (3) managed 
private fund assets of at least $150 million at the end of their most 
recently completed fiscal year (collectively, with their related 
persons).\377\ Form PF divides respondents into groups based on their 
size and types of private funds they manage, requiring some groups to 
file more information more frequently than others. The types of 
respondents are (1) smaller private fund advisers, that report annually 
(i.e., private fund advisers that do not qualify as large private fund 
advisers), (2) large hedge fund advisers, that report more information 
quarterly (i.e., advisers with at least $1.5 billion in hedge fund 
assets under management), (3) large liquidity fund advisers, that 
report more information quarterly (i.e., advisers that manage liquidity 
funds and have at least $1 billion in combined money market and 
liquidity fund assets under management), and (4) large private equity 
advisers, that report more information annually (i.e., advisers with at 
least $2 billion in private equity fund assets under management). As 
discussed more fully in section II above and as summarized in sections 
IV.A.1 and IV.A.3.a below, the proposal would revise how all types of 
respondents report certain information on Form PF.
---------------------------------------------------------------------------

    \377\ See 17 CFR 275.204(b)-1.
---------------------------------------------------------------------------

1. Purpose and Use of the Information Collection
    The rules implement provisions of Title IV of the Dodd-Frank Act, 
which amended the Advisers Act to require the SEC to, among other 
things, establish reporting requirements for advisers to private 
funds.\378\ The information collected on Form PF is designed to 
facilitate FSOC's monitoring of systemic risk in the private fund 
industry and assist FSOC in determining whether and how to deploy its 
regulatory tools with respect to nonbank financial companies.\379\ The 
SEC also may use information collected on Form PF in its regulatory 
programs, including examinations, investigations, and investor 
protection efforts relating to private fund advisers.\380\
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    \378\ See 15 U.S.C. 80b-4(b) and 15 U.S.C. 80b-11(e).
    \379\ See Form PF.
    \380\ Id.
---------------------------------------------------------------------------

    The proposed amendments are designed to enhance FSOC's ability to 
monitor systemic risk as well as bolster the SEC's regulatory oversight 
of private fund advisers and investor protection efforts. The proposal 
would amend the form's general instructions, as well as section 1 of 
Form PF, which would apply to all Form PF filers. The proposal also 
would amend section 2 of Form PF, which would apply to large hedge fund 
advisers that advise qualifying hedge funds (i.e., hedge funds with a 
net asset value of at least $500 million).
2. Confidentiality
    Responses to the information collection will be kept confidential 
to the extent permitted by law.\381\ Form PF elicits non-public 
information about private funds and their trading strategies, the 
public disclosure of which could adversely affect the funds and their 
investors. The SEC does not intend to make public Form PF information 
that is identifiable to any particular adviser or private fund, 
although the SEC may use Form PF information in an enforcement action 
and FSOC may use it to assess potential systemic risk.\382\ SEC staff 
issues certain publications designed to inform the public of the 
private funds industry, all of which use only aggregated or masked 
information to avoid potentially disclosing any proprietary 
information.\383\ The Advisers Act precludes the SEC from being 
compelled to reveal Form PF information except (1) to Congress, upon an 
agreement of confidentiality, (2) to comply with a request for 
information from any other Federal department or agency or self-
regulatory organization for purposes within the scope of its 
jurisdiction, or (3) to comply with an order of a court of the United 
States in an action brought by the United States or the SEC.\384\ Any 
department, agency, or self-regulatory organization that receives Form 
PF information must maintain its confidentiality consistent with the 
level of confidentiality established for the SEC.\385\ The Advisers Act 
requires the SEC to make Form PF information available to FSOC.\386\ 
For advisers that are also commodity pool operators or commodity 
trading advisers, filing Form PF through the Form PF filing system is 
filing with both the SEC and CFTC.\387\ Therefore, the SEC makes Form 
PF information available to FSOC and the CFTC, pursuant to Advisers Act 
section 204(b), making the information subject to the confidentiality 
protections applicable to information required to be filed under that 
section. Before sharing any Form PF information, the SEC requires that 
any such department, agency, or self-regulatory organization represent 
to the SEC that it has in place controls designed to ensure the use and 
handling of Form PF information in a manner consistent with the 
protections required by the Advisers Act. The SEC has instituted 
procedures to protect the confidentiality of Form PF information in a 
manner consistent with the protections required in the Advisers 
Act.\388\
---------------------------------------------------------------------------

    \381\ See 5 CFR 1320.5(d)(2)(vii) and (viii).
    \382\ See 15 U.S.C. 80b-10(c) and 15 U.S.C. 80b-4(b).
    \383\ See e.g., Private Funds Statistics, issued by staff of the 
SEC Division of Investment Management's Analytics Office, which we 
have used in this PRA as a data source, available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
    \384\ See 15 U.S.C. 80b-4(b)(8).
    \385\ See 15 U.S.C. 80b-4(b)(9).
    \386\ See 15 U.S.C. 80b-4(b)(7).
    \387\ See 2011 Form PF Adopting Release, supra footnote 3 at 
n.17.
    \388\ See 5 CFR 1320.5(d)(2)(viii).

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[[Page 53885]]

3. Burden Estimates
    We are revising our total burden estimates to reflect the proposed 
amendments, updated data, and new methodology for certain 
estimates.\389\ The tables below map out the Form PF requirements as 
they apply to each group of respondents and detail our burden 
estimates.
---------------------------------------------------------------------------

    \389\ For the previously approved estimates, see ICR Reference 
No. 202011-3235-019 (conclusion date Apr. 1, 2021), available at 
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202011-3235-019.
---------------------------------------------------------------------------

a. Proposed Form PF Requirements by Respondent
BILLING CODE 8011-01-P
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[[Page 53886]]


b. Annual Hour Burden Estimates
    Below are tables with annual hour burden estimates for (1) initial 
filings, (2) ongoing annual and quarterly filings, and (3) transition 
filings, final filings, and temporary hardship requests.
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c. Annual Monetized Time Burden Estimates

    Below are tables with annual monetized time burden estimates for 
(1) initial filings, (2) ongoing annual and quarterly filings, and (3) 
transition filings, final filings, and temporary hardship 
requests.\390\
---------------------------------------------------------------------------

    \390\ The hourly wage rates are based on (1) SIFMA's Management 
& Professional Earnings in the Securities Industry 2013, modified by 
SEC staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead; and (2) SIFMA's Office Salaries in the 
Securities Industry 2013, modified by SEC staff to account for an 
1,800-hour work-year and inflation, and multiplied by 2.93 to 
account for bonuses, firm size, employee benefits and overhead.
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d. Annual External Cost Burden Estimates
    Below is a table with annual external cost burden estimates for 
initial filings as well as ongoing annual and quarterly filings. There 
are no filing fees for transition filings, final filings, or temporary 
hardship requests and we continue to estimate there would be no 
external costs for those filings, as previously approved.

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[[Page 53896]]


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e. Summary of Estimates and Change in Burden

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[[Page 53898]]


[GRAPHIC] [TIFF OMITTED] TP01SE22.013

BILLING CODE 8011-01-C

B. Request for Comments

    We request comment on whether our estimates for burden hours and 
external costs as described above are reasonable. Pursuant to 44 U.S.C. 
3506(c)(2)(B), the SEC solicits comments in order to (1) evaluate 
whether the proposed collection of information is necessary for the 
proper performance of the functions of the SEC, including whether the 
information will have practical utility; (2) evaluate the accuracy of 
the SEC's estimate of the burden of the proposed collection of 
information; (3) determine whether there are ways to enhance the 
quality, utility, and clarity of the information to be collected; and 
(4) determine whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons wishing to submit comments on the collection of information 
requirements of the proposed amendments should direct them to the OMB 
Desk Officer for the Securities and Exchange Commission, 
[email protected], and should send a copy to 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090, with reference to File No. S7-22-22. OMB is 
required to make a decision concerning the collections of information 
between 30 and 60 days after publication of this release; therefore a 
comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days after publication of this release. Requests 
for materials submitted to OMB by the Commission with regard to these 
collections of information should be in writing, refer to File No. S7-
22-22, and be submitted to the Securities and Exchange Commission, 
Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736.

V. Regulatory Flexibility Act Certification

    CFTC:
    The Regulatory Flexibility Act (the ``RFA'') \391\ requires that 
Federal agencies consider whether the rules they propose will have a 
significant economic impact on a substantial

[[Page 53899]]

number of ``small entities'' \392\ whenever an agency publishes a 
general notice of proposed rulemaking for any rule, pursuant to the 
notice-and-comment provisions of the Administrative Procedure Act.\393\
---------------------------------------------------------------------------

    \391\ 5 U.S.C. 601, et. seq.
    \392\ See 5 U.S.C. 603(a) and 5 U.S.C. 605(b).
    \393\ 5 U.S.C. 553. The Administrative Procedure Act is found at 
5 U.S.C. 551 et seq.
---------------------------------------------------------------------------

    Registered CPOs and CTAs that are dually registered as investment 
advisers with the SEC are only required to file Form PF with the SEC 
pursuant to the Advisers Act. CFTC rule 4.27(d) provides that dually 
registered CPOs and CTAs that file Form PF with the SEC will be deemed 
to have filed Form PF with the CFTC, for purposes of any enforcement 
action regarding any false or misleading statement of material fact in 
Form PF. The CFTC is not imposing any additional obligation herein 
beyond what is already required of these entities when filing Form PF 
with the SEC.
    Entities impacted by the Form PF are the SEC's regulated entities 
and no small entity on its own would meet the Form PF's minimum 
reporting threshold of $150 million in regulatory assets under 
management attributable to private funds. Also, any economic impact 
imposed by Form PF on small entities registered with both the CFTC and 
the SEC has been accounted for within the SEC's initial regulatory 
flexibility analysis regarding the impact of this collection of 
information under the RFA. Accordingly, the Chairman, on behalf of the 
CFTC, hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed 
rules will not have a significant economic impact on a substantial 
number of small entities.
    SEC:
    The Regulatory Flexibility Act of 1980 (``Regulatory Flexibility 
Act'') \394\ requires the SEC to prepare and make available for public 
comment an initial regulatory flexibility analysis of the impact of the 
proposed rule amendments on small entities, unless the SEC certifies 
that the rules, if adopted would not have a significant economic impact 
on a substantial number of small entities.\395\ For the purposes of the 
Advisers Act and the Regulatory Flexibility Act, an investment adviser 
generally is a small entity if it (1) has assets under management 
having a total value of less than $25 million, (2) did not have total 
assets of $5 million or more on the last day of the most recent fiscal 
year, and (3) does not control, is not controlled by, and is not under 
common control with another investment adviser that has assets under 
management of $25 million or more, or any person (other than a natural 
person) that had total assets of $5 million or more on the last day of 
its most recent fiscal year.\396\
---------------------------------------------------------------------------

    \394\ 5 U.S.C. 601, et. seq.
    \395\ See 5 U.S.C. 603(a) and 5 U.S.C. 605(b).
    \396\ 17 CFR 275.0-7.
---------------------------------------------------------------------------

    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
SEC hereby certifies that the proposed amendments to Advisers Act rule 
204(b)-1 and Form PF would not, if adopted, have a significant economic 
impact on a substantial number of small entities. By definition, no 
small entity on its own would meet rule 204(b)-1 and Form PF's minimum 
reporting threshold of $150 million in regulatory assets under 
management attributable to private funds. Based on Form PF and Form ADV 
data as of December 2021, the SEC estimates that no small entity 
advisers are required to file Form PF. The SEC does not have evidence 
to suggest that any small entities are required to file Form PF but are 
not filing Form PF. Therefore, there would be no significant economic 
impact on a substantial number of small entities. The SEC encourages 
written comments on the certifications. Commentators are asked to 
describe the nature of any impact on small entities and provide 
empirical data to support the extent of the impact.

VI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\397\ the SEC must advise OMB whether a 
proposed regulation constitutes a ``major'' rule. Under SBREFA, a rule 
is considered ``major'' where, if adopted, it results in or is likely 
to result in the following:
---------------------------------------------------------------------------

    \397\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    The SEC requests comment on whether the proposal would be a ``major 
rule'' for purposes of SBREFA. The SEC solicits comment and empirical 
data on the following:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment, or 
innovation.
    Commenters are requested to provide empirical data and other 
factual support for their views to the extent possible.

VII. Statutory Authority

    CFTC:
    The CFTC is not proposing any amendments to its rules in this 
rulemaking.
    SEC:
    The SEC is proposing amendment to rule 204(b)-1 [17 CFR 275.204(b)-
1] pursuant to its authority set forth in sections 204(b) and 211(e) of 
the Advisers Act [15 U.S.C. 80b-4 and 15 U.S.C. 80b-11], respectively.
    The SEC is proposing amendments to rule 279.9 pursuant to its 
authority set forth in sections 204(b) and 211(e) of the Advisers Act 
[15 U.S.C. 80b-4 and 15 U.S.C. 80b-11], respectively.

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements, Securities.

    For the reasons set forth in the preamble, title 17, chapter II of 
the Code of Federal Regulations is proposed to be amended as follows.

PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940

0
1. The general authority citation for part 275 continues to read as 
follows.

    Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-
2(a)(17), 80b-3, 80b-4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless 
otherwise noted.
* * * * *
0
2. Amend Sec.  275.204(b)-1 by:
0
a. Revising paragraph (f)(2)(i) to remove the phrases ``in paper 
format,'' and ``, Item A of Section 1a and Section 5 of Form PF, 
checking the box in Section 1a indicating that you are requesting a 
temporary hardship exemption'';
0
b. Redesignating paragraph (f)(4) as paragraph (f)(5); and
0
c. Adding new paragraph (f)(4).
    The addition reads as follows:


Sec.  275.204(b)-1  Reporting by investment advisers to private funds.

* * * * *
    (f) * * *
    (4) A request for a temporary hardship exemption is considered 
filed upon the earlier of the date the request is postmarked or the 
date it is received by the Commission.
* * * * *

[[Page 53900]]

PART 279--FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF 
1940

0
3. The authority citation for part 279 continues to read as follows:

    Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1, 
et seq., Pub. L. 111-203, 124 Stat. 1376.

0
4. Sec.  279.9 Form, PF, reporting by investment bankers to private 
funds. Form PF [referenced in Sec.  279.9] is revised to read as 
follows. The revised version of Form PF is attached as Appendix A.

    Note: The text of Form PF does not, and the amendments will not, 
appear in the Code of Federal Regulations.


    By the Commissions.

    Dated: August 10, 2022.
Christopher Kirkpatrick,
Secretary, Commodity Futures Trading Commission.
Vanessa A. Countryman,
Secretary, Securities and Exchange Commission.
BILLING CODE 8011-01-P

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BILLING CODE 8011-01-C

    Note: The following Commodity Futures Trading Commission (CFTC) 
appendices will not appear in the Code of Federal Regulations.

CFTC Appendices to Amendments to Form PF To Amend Reporting 
Requirements for All Filers and Large Hedge Fund Advisers--CFTC Voting 
Summary and Commissioners' Statements

CFTC Appendix 1--Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson and 
Goldsmith Romero voted in the affirmative. Commissioners Mersinger 
and Pham voted in the negative.

CFTC Appendix 2--Statement of Chairman Rostin Behnam

    I appreciate all of the hard work of the staff in the Commodity 
Futures Trading Commission's Market Participants Division as well as 
the staff at the Securities and Exchange Commission, the Department 
of the Treasury, the Federal Reserve Board, and the Financial 
Stability Oversight Council for their work on this proposal. I look 
forward to the public's thoughtful comments on the proposal to 
improve the usefulness of Form PF.

CFTC Appendix 3--Statement of Commissioner Kristin N. Johnson

    Transparency is an integral component of the regulatory 
framework that ensures the safety and soundness and enduring 
preeminence our financial markets.
    Working in collaboration with our colleagues at the Securities 
and Exchange Commission (SEC) to enhance oversight and improve 
visibility through thoughtfully designed and well-calibrated 
collection approaches is consistent with our mission and statutory 
mandate--to ``insure the financial integrity of all transactions 
subject to this Act and the avoidance of systemic risk.'' \398\
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    \398\ Section 3(b) of the Commodity Exchange Act, 7 U.S.C. 5(b).
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    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) \399\ incorporated innovative regulatory features 
for promoting the stability of the US financial system, including 
establishing the Financial Stability Oversight Council (FSOC) to 
monitor for emerging systemic risks that could significantly impact 
our financial markets and American consumers.\400\
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    \399\ Public Law 111-203, 124 Stat. 1376 (2010).
    \400\ See Sections 111 and 120 of the Dodd-Frank Act.
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    Today's proposal seeks to further our commitment to achieving 
these values. Consequently, I support issuing for comment the 
proposal to amend Form PF, and look forward to the thoughtful, 
substantive contributions that the proposed amendments will 
engender.
    Congress in drafting the Dodd-Frank Act recognized that risks 
with systemic import are best monitored through collaboration 
amongst the US financial regulators, each with distinct regulatory 
mandates, and leveraging their resources and expertise to support 
FSOC's overarching responsibilities. Form PF reflects these 
statutory qualities. As directed by the Dodd-Frank Act, the 
Commission and SEC in 2011 jointly issued rules to provide FSOC with 
important information about private fund operations and strategies 
through Form PF.\401\
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    \401\ Reporting by Investment Advisers to Private Funds and 
Certain Commodity Pool Operators and Commodity Trading Advisors on 
Form PF, 76 FR 71128, 71129 (Nov. 16, 2011).
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    The private fund industry has only grown in size and importance 
since 2011. In the third quarter of 2021, private funds reported a 
staggering $12 trillion of assets on Form PF.\402\ The sheer 
aggregate size of private funds signifies the potential for events 
in this industry to produce reverberating effects on the integrity 
of our financial markets and, in turn, remarkably influence the 
welfare of American consumers. Form PF over the last decade has 
provided financial regulators with needed transparency into this 
potentially systemically significant sector of the financial 
system.\403\
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    \402\ Amendments to Form PF to Amend Reporting Requirements for 
All Filers and Large Hedge Fund Advisers (Voting Copy--As approved 
by the Commodity Futures Trading Commission on 8/10/2022) (Proposed 
Rules) at 8 n.7, https://www.cftc.gov/media/7536/votingdraft081022Parts275and279/download.
    \403\ See Proposed Rules at 150.
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    I support the Commissions' endeavor to build on data collection 
points that need clarity and to propose revisions in response to 
changes in financial markets as well as market participants and 
regulators' experience with Form PF as a tool for gathering 
information. Over the last decade, private funds have adopted new 
practices, investment strategies and an appetite for investing in 
non-traditional assets.\404\ The proposed revisions to Form PF aim 
to adapt to these developments as informed by experience in 
administering Form PF.
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    \404\ Proposed Rules at 7-8.
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    Notwithstanding these important gains, I note that it will be 
important to hear from and consider the concerns raised by all 
stakeholders, including for example, concerns regarding the costs 
and challenges of reporting, particularly for smaller entities. I 
anticipate the proposal to amend Form PF will engender important 
substantive contributions that will refine our understanding of the 
benefits of data collection, enhance transparency, and improve our 
ability to preserve the integrity of our markets.

CFTC Appendix 4--Statement of Commissioner Christy Goldsmith Romero

    As a U.S. financial markets regulator and a member of the 
Financial Stability Oversight Council (``FSOC''), the Commission has 
a

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critical responsibility to monitor, identify, and respond to 
systemic risks and emerging threats to U.S. financial stability. I 
support the proposed amendments to Form PF because they will enhance 
one of the Commission's tools to fulfill that critical 
responsibility and facilitate our regulatory oversight of private 
funds.\1\
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    \1\ The data collected also supports the CFTC's supervision, 
examinations, enforcement investigations, and customer protections.
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    One lesson from the financial crisis was the risk of contagion 
to U.S. financial markets from private-fund activities, strategies, 
and exposures, including those related to novel or complex 
derivatives. This was evident with the failure of Bear Stearns' 
structured credit funds in the lead-up to the financial crisis, and 
more recently, with the failure of Archegos Capital Management. 
These examples, and others, highlight the necessity for U.S. 
financial regulators to have visibility into funds' activities and 
exposures to fulfill their regulatory responsibilities and 
ultimately, to prevent or mitigate the buildup of systemic risk in 
the U.S. financial system.
    This proposal marks important coordination with the Securities 
and Exchange Commission (``SEC'') to enhance joint reporting 
requirements and guard against hidden risks in the U.S. financial 
system.
    The CFTC and SEC embark on this proposed rulemaking after nearly 
a decade of experience of private fund reporting.\2\ It is 
particularly appropriate to revisit our reporting framework given 
that, as U.S. financial markets have evolved over the past decade, 
the private fund space has grown and evolved in tandem. This is why 
we seek public comment on new or revised areas of data--including 
those intended to provide further insight into complex structures, 
new types of instruments, identification data, redemption and 
withdrawal rights, ownership, and counterparty exposures, among 
other subjects. It is also important that we collect information on 
fund exposure to digital assets in order to understand evolving 
market risk.
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    \2\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, section 112, Public Law 111-203, 124 Stat. 1376 (2010) (the 
``Dodd-Frank Act''), required the SEC and CFTC to establish joint 
rules in furtherance of the FSOC's critical mission to monitor 
systemic risk through the creation of Form PF. See Section 406 of 
the Dodd-Frank Act. Since 2012, private fund advisers, including 
certain commodity pool operators and commodity trading advisors that 
are dually-registered with both the CFTC and SEC, have been required 
to file reports regarding their operations and holdings through Form 
PF. See also Reporting by Investment Advisers to Private Funds and 
Certain Commodity Pool Operators and Commodity Trading Advisors on 
Form PF, 76 FR 71128 (Nov. 16, 2011).
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    Our objective is to increase the usefulness of the data 
collected; to ensure that it is actually used as Congress intended 
to bring transparency to risk previously hidden. I look forward to 
reviewing public comment on whether the proposal would meet our 
objective.
    Thank you to Commission staff for working with my office to 
improve the proposal to facilitate effective oversight by the CFTC. 
I commend staff from both agencies on this proposal, and on future 
information sharing, that will promote the financial stability of 
U.S. financial markets.

CFTC Appendix 5--Dissenting Statement of Commissioner Summer K. 
Mersinger

    I am respectfully voting to dissent on the joint SEC/CFTC 
proposed rulemaking to amend Form PF, the confidential reporting 
form for certain SEC-registered investment advisers to private 
funds. The class of registered investment advisers required to 
submit Form PF includes those that also are registered with the CFTC 
as commodity pool operators or commodity trading advisors.
    As I previously stated in my concurrence to the CFTC's recent 
Request for Information on Climate-Related Financial Risk (``Climate 
RFI''),\1\ I support efforts to engage market participants, 
industry, and the general public in our policy-making process. And I 
agree that after a decade of experience with Form PF, it is 
appropriate to evaluate possible amendments. If improvements can be 
made that would enable us to collect more efficiently data that we 
truly need to fulfill our responsibilities, while reducing 
unnecessary burdens on those required to supply that data, we should 
consider them.
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    \1\ See Concurring Statement of Commissioner Summer K. Mersinger 
Regarding Request for Information on Climate-Related Financial Risk 
(June 2, 2022), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement060222.
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    However, I do not support this particular proposal. Data and 
information that federal regulators request from market participants 
should be narrowly tailored to the purpose intended under our 
governing statutes, and unfortunately, that does not appear to be 
the overall approach in this proposal. I am even more concerned that 
constructive input the agencies already have received over the years 
from market participants that actually complete Form PF receives 
little attention in the proposal.
    I look forward to receiving the public's comments, which I hope 
will inform the Commissions' consideration of final amendments to 
Form PF that provide for the collection of necessary data as 
efficiently as possible.

CFTC Appendix 6--Dissenting Statement of Commissioner Caroline D. Pham

    I respectfully dissent from the proposed amendments to the 
Reporting Form for Investment Advisers to Private Funds and Certain 
Commodity Pool Operators and Commodity Trading Advisors (Form PF). 
The proposed joint amendments, an action of the CFTC as well as the 
SEC, seem to impose overly broad obligations that would be 
unnecessarily burdensome and would present potentially significant 
operational challenges and costs without a persuasive cost-benefit 
analysis under the Commodity Exchange Act (CEA).\1\ In a time of 
economic challenges, including rising inflation, we must be careful 
when considering proposals that could inhibit positive economic 
activity that supports American businesses and jobs. I look forward 
to hearing from commenters as to the proposed amendments, including 
practical implementation issues and the relative costs and benefits 
of the proposal.
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    \1\ 7 U.S.C. 19.

[FR Doc. 2022-17724 Filed 8-31-22; 8:45 am]
BILLING CODE 8011-01-P 6351-01-P


