The Quinquennial Report of Foreign-Resident Holdings of U.S. Securities (“TIC Form SHL”) is a benchmark report used by the Department of the Treasury to survey non-U.S. ownership of U.S. securities every five years. TIC Form SHL is used by the U.S. government to collect data on net capital inflows to track the U.S. balance of payments and help guide economic and financial policy. For this reason, data to be reported includes details about U.S. securities held by non-U.S. residents.

TIC Form SHL is required to reflect information as of the last business day of June (June 28, 2019), and must be submitted to the Federal Reserve Bank on or before the last business day of August (August 30, 2019).

Who is Required to File TIC Form SHL?

TIC Form SHL is a mandatory report that must be filed by any U.S.-resident¹ issuer² that: (i) has been contacted by the Federal Reserve Bank of New York; or (ii) met the reporting threshold for TIC Form SHL Schedule 2 as of the last business day of June (each, an “SHL Reporter”)³. The reporting threshold for Schedule 2 is met if the fair market value of reportable U.S. securities⁴ issued by the SHL Reporter and its U.S.-resident entities to non-U.S. residents equaled or exceeded $100 million as of June 28, 2019 (the “Reporting Threshold”). All types of U.S.-resident issuers including investment advisers, private investment funds, registered investment companies and special purpose vehicles may have filing obligations.

A U.S.-resident investment manager will have a filing requirement on behalf of its own organization and also the U.S. funds sponsored by the investment manager. A non-U.S. investment manager will only be required to report with respect to each U.S. fund it sponsors which meets the Reporting Threshold, calculated separately. In determining whether a U.S. issuer’s securities are held by non-U.S. residents, a U.S. issuer is not required to look through omnibus accounts or similar arrangements.

Any U.S. issuer, including for example a U.S. fund sponsored by an investment adviser or management company, has a filing obligation if it has issued non-voting interests to non-U.S. entities or persons, or if it has issued voting interests of less than 10% to a non-U.S. entity or person. If a non-U.S. entity or person owns 10% or more of the voting equity securities of a U.S. issuer, it may be considered a direct investment and would not be reported on the TIC Form SHL. Investments by the entity that formed the funds, such as a general partner or a managing member, are also considered direct investments and should be excluded from the TIC Form SHL.

Calculation of Reporting Threshold

In determining whether it meets the Reporting Threshold, a U.S. issuer should use settlement date accounting, and should report the fair value of securities issued, as defined in ASC 820 (formerly FAS 157).

TIC Form SHL for Investment Advisers and Private Funds

The following are common examples in which a TIC Form SHL filing may be required:

• Master Feeder Structures

If a U.S.-resident investment manager sponsors one or more non-U.S. feeder funds that in the aggregate hold $100 million or more of one or more U.S. master funds’ securities, the U.S.-resident investment manager will be required to file TIC Form SHL with respect to the master fund interests issued to the non-U.S. feeder funds.

• Domestic Stand-Alone Fund

If a U.S.-resident investment manager sponsors one or more U.S. stand-alone funds that have non-U.S. resident investors, the U.S.-resident manager will be required to file TIC Form SHL if the Reporting Threshold is met.

• Registered Investment Companies

Any registered investment company (“RIC”), such as a mutual fund, meeting the requirements of an SHL Reporter will be required to complete TIC Form SHL.

Completing the Form

The TIC Form SHL consists of Schedule 1 and Schedule 2.

Schedule 1

Schedule 1 must be completed by all SHL Reporters. Schedule 1 requires certain identifying information of the SHL Reporter that includes, among other details:

•  the Reporter Identification Number;
• the name and address of the SHL Reporter;
• the reporting status (i.e., whether the SHL Reporter exceeds the threshold for filing a Schedule 2 or is exempt);
• a description of valuation techniques; and
• a summary of any information reported on Schedule 2s (if any).

Schedule 2

Schedule 2 must be completed by all SHL Reporters that meet or exceed the Reporting Threshold and requires details of the U.S. securities owned by non-U.S. residents. A separate Schedule 2 will be required⁵ for each reporting entity, for each type of non-U.S. holder and for each country of residence of non-U.S. holders⁶. Information collected on Schedule 2 includes, among other details:

• details of the U.S. security issuer;
• the type of security issued;
• the fair value of the security held;
• the type of non-U.S. holder; and
• the country of the non-U.S. holder.

Filing Procedures

The form may be submitted either electronically, using the Federal Reserve Reporting Central System, by mail or facsimile to the Federal Reserve Bank of New York. In order to file the TIC Form SHL, the SHL Reporter must acquire a Reporter Identification Number. SHL Reporters that were contacted by the Federal Reserve Bank can find this number on the mailing label of their report booklet; otherwise, a Reporting Identification Number can be requested by contacting the Federal Reserve Bank of New York at 212-720-6300 or 646-720-6300. SHL Reporters must file their TIC Form SHL with the Federal Reserve Bank of New York, regardless of their location.

Information collected from each SHL Reporter is confidential, and will only be released to the public on an aggregated, anonymous level. SHL Reporters that do not report accurate or timely data may face civil penalties of up to $25,000, and a willful failure to submit data may result in a fine of up to $10,000 and up to a year in prison for individuals.

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¹ A U.S. resident is any corporation or other organization established in the United States, including branches, subsidiaries, and affiliates of non-U.S. entities located in the United States. The residency of an entity is determined by where a corporation or subsidiary is incorporated and where a branch is licensed, not by the physical office of the entity. A U.S.-resident individual is any individual that files IRS Form W-9 indicating that he or she is a U.S.-resident.

² A U.S.-resident issuer is any individual, corporation, or other entity located in the United States that issues securities in its own name, including U.S.-resident affiliates of non-U.S. entities.

³ A U.S.-resident custodian will also have a filing obligation if the amount it holds in custody for the account of its non-U.S. resident clients exceeds the Reporting Threshold. U.S-resident custodians are required to file on behalf of their clients.

⁴ For the purposes of TIC Form SHL, reportable securities include equity, debt (including short term debt such as certain money market instruments), restricted stock, limited partnership interests, zero coupon bonds, convertible securities, ABS and floating rate notes, and various other similar interests. Reportable securities do not include derivatives, loans and loan participation certificates, non-negotiable certificates of deposit, bank deposits or annuities.

⁵ Organizations submitting 100 or more Schedule 2s are required to submit data electronically.

⁶ For example, a U.S.-resident master fund that issues the same type of securities to multiple Cayman feeder funds will aggregate the master fund securities held by such Cayman feeder funds on a single Schedule 2. However a U.S. stand-alone fund that has issued the same type of securities to investors in multiple countries will need to complete a separate Schedule 2 for each country of residence for each non-U.S. holder.