A conversation with Walt Palmer on the Changing Regulatory Landscape in the U.S.

Key rules implemented in 2024

Money market fund reform (but without swing pricing)

• This SEC rule, adopted July 2023 with various compliance dates in 2024, requires institutional prime money market funds to impose a mandatory liquidity fee when daily net redemptions exceed 5% of net assets.  The reforms aim to enhance market stability, protect shareholders from dilution, and to fairly allocate costs.  The new regulations, driven by investor behavior during periods of market stress, removes the discretionary power of fund managers to implement fees or gates.  Investors must now have an understanding of the risks and opportunities presented by these regulatory changes.

T+1 settlement

• On May 28, 2024, the U.S. securities market successfully moved to an accelerated settlement cycle of T+1 for equities, corporate bonds, municipal bonds, unit investment trusts, and financial instruments comprised of these security types.  This required more than three years of industry planning and collaboration which was coordinated by SIFMA, the ICI, and DTCC, and as a result, the industry is recognizing reduced settlement risk across the U.S. capital markets.  This effort was not easily coordinated, however, and the lessons learned from such a sweeping and far-reaching initiative are already being applied as the U.S. works towards implementing the changes required for the U.S. Treasury Central Clearing regulation.  Of course, outstanding global challenges such as funding, F/X, and cross-border issues remain due to settlement misalignment, which are hurdles to be addressed as the UK/EU (and ultimately APAC) plan to implement a T+1 settlement cycle.   

Tailored shareholder reporting

• The rule amendments were effective July 2024 and requires open-end mutual funds, and most ETFs, to send annual and semi-annual “tailored” summary shareholder reports to all shareholders. The streamlined reports include simplified fee and expense information, performance, portfolio holdings and other key information investors use to monitor their funds. 

Rules approved and going effective in 2025 / 2026

On January 20, President Trump signed an executive order giving agencies permission to “consider postponing for 60 days” any rules that have been finalized but not yet fully implemented.  To date, the SEC has not delayed the implementation of any of these rules.

Investment company names (Dec 2025)

• This rule requires funds to adopt an 80% investment policy, including funds with names that suggest a focus in investments with particular characteristics such as “growth” or “value”, or a thematic investment focus such as ESG.  The aim of this rule is to prevent fund names from misrepresenting their investments and risks.  This is considered an important step by the SEC to prevent potential misrepresentations. 

US Treasury Central Clearing (Dec 2025)

• Rule was finalized December 2023 with newly extended critical implementation dates of December 31, 2026 for cash trade transactions, and June 30, 2027 for the central clearing of repos and reverse repos.  The SEC has been concerned with leverage and financial stability in this market because of the large volume of non-centrally cleared transactions.  The central clearing expansion requires Repo transactions, with some exclusions, to be centrally cleared through DTCC FICC’s netting process, which will create much less monetary risk and allows for greater risk management.  While DTCC’s FICC is currently the only registered clearing agency and central counterparty for US Treasury transaction, ICE and CME are both developing US Treasury clearing houses which will provide additional options to DTCC’s process.  This rule has mostly bi-partisan agreement regarding its merits and the SEC recently granted extensions to the effective dates in order to properly address the many complexities.

N-PORT / N-CEN reporting with guidance on liquidity risk (Nov 2025)

• Forms N-PORT and N-CEN are used by mutual funds to disclose their portfolio holdings and related information to the SEC, including details about their liquidity risk management practices.  In August of 2024, the SEC made amendments to both forms requiring the funds to provide more granular information about their liquidity risk management practices, including details about the service providers used to asses liquidity and the rationale behind their asset classification methodologies.  These amendments are scheduled to be effective November 17, 2025 for fund groups with $1 billion or more in net assets. 

Reporting on loans (Jan 2026) and short activities (Dec 2025)

• Securities Lending Transparency Rule 10c-1a requires the reporting of lending transactions to a registered national securities association (FINRA) to increase transparency of lending information in the market.  This rule was adopted October 2023 and covered persons are expected to begin reporting transactions to FINRA in January 2026.  On Jan 2nd 2025, the SEC approved  FINRA Rule 6500 (the SLATE Rules), which establishes the Securities Lending and Transparency Engine (SLATE) , a new facility for the reporting and dissemination of information about certain securities loans.  The rule is designed to increase transparency to investors, however, the rule has an ongoing legal challenge by trade associations representing the industry in the U.S. Court of Appeals for the Fifth Circuit.  The challenges are that the cost outweighs the benefits and that the target info should not be shared publicly.  The outcome of this legal challenge has not yet been determined.

• SEC Rule to increase transparency into short selling, Rule 13f-2 and new form SHO is designed to provide greater transparency through the publication of short sale-related data to investors and other market participants.  Under this rule, investment managers that meet certain thresholds are required to report, on a monthly basis using Form SHO, specified short position data and short activity for equity securities.  The rule was adopted in October 2023  and went into effect on January 2, 2025.  However, this rule, too, has an ongoing legal challenge by trade associations representing the industry in the U.S. Court of Appeals for the Fifth Circuit.  The challenges are that the cost outweighs the benefits and there was no consideration of how this rule interacts with other rules, such as the securities lending transparency rule.  The outcome of this legal challenge has not yet been determined.

Financial Data Transparency Act – FDTA

• FDTA was signed into law 2022 and published in the Federal Register August 2024, with a comment period that ended October, 2024.  The FDTA directs nine federal agencies to promote the interoperability of financial regulatory data with the intention to make this data more accessible, uniform and useful to investors.  The most common identifiers proposed in the Act are:
  • Legal Entity Identifier (LEI)
  • Unique Product Identifier (UPI)
  • Classification of Financial Instruments (CFI)
  • Financial Instrument Global Identifier (FIGI)

• The most troubling of these for U.S. Custodians is the adoption of Bloomberg’s FIGI as a common financial instrument identifier conflicting with CUSIP/ISIN.  This is because of the lack of a cost/benefit analysis and the numerous operational challenges that would potentially have to be managed with the switch to a single security identifier for regulatory reporting.  There is also clarity needed on the open-source nature of FIGI and the information readily available.  Multiple financial services industry associations have submitted comment letters to the federal agencies and it is unclear how this Act will move forward under the new administration.