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Certain U.S. investment managers and certain U.S. private funds may be required to file a Department of Treasury Report of U.S. Ownership of Foreign Securities, Including Selected Money Market Instruments called “Form SHC.”^[1] Form SHC is a mandatory benchmark survey that is conducted as part of the Treasury International Capital (“TIC”) data reporting system, which is designed to collect reliable information on international portfolio capital. Form SHC data is used by the U.S. government to formulate international economic and monetary policies by computing the U.S. balance of payment accounts as well as the U.S. international investment position.

Who Is Required to Report?

The following U.S. resident^[2] custodians and end-investors with holdings of foreign portfolio securities^[3] having an aggregate fair value of $200 million or more as of December 31, 2021, must complete a Form SHC: (i) U.S. resident custodians who manage, as custodians, the safekeeping of foreign securities for themselves and other U.S. residents, and (ii) U.S. residents who own foreign securities and/or who invest in foreign securities on behalf of others, such as investment managers and sponsors of hedge funds and other private funds (“end-investors”). In addition, certain U.S. residents may receive written notice from the Federal Reserve Bank of New York (“FRBNY”) that they must file a Form SHC, without regard to the value of their foreign portfolio securities holdings.

Form SHC filings are generally required once every five (5) years, with certain of the largest filers subject to annual filings (via Form SHCA) in non-benchmark years.

Any U.S. resident investment manager providing investment advisory services by way of a master-feeder fund structure generally must report any foreign portfolio securities investments on behalf of a U.S. feeder fund that is invested in a non-U.S. master fund if such investment equals or exceeds $200 million. Furthermore, for foreign resident investment managers, the equity investment that a U.S. feeder fund has in a foreign master fund should be reported by the U.S. feeder fund as ownership of foreign equity on a Form SHC. However, if a U.S. resident custodian holds the equity interests of the U.S. feeder fund in the foreign master fund, then the U.S. resident custodian would have the responsibility of reporting those interests on Form SHC.

Information Required to be Reported

Form SHC is divided into three (3) schedules.

Schedule 1 generally requests identifying and contact information about the filer as well as a summary of the information reported on Schedules 2 and 3. Schedule 1 must be completed by all U.S. residents required to report via Form SHC.

Schedule 2 requires information on foreign securities owned by U.S. resident investors equal to or exceeding the reporting threshold of $200 million: (1) that the filer safe-keeps for itself or for its U.S. resident clients, (2) for which the filer directly employs foreign resident sub-custodians or U.S. resident or foreign resident central securities depositories (“CSDs”) to manage the safekeeping of those securities, or (3) that are instruments of the type for which there is no U.S. resident custodian to manage the safekeeping. Each filer must file a separate Schedule 2 for each qualifying reportable security.

Schedule 3 is used to report summary amounts for all foreign securities held for safe-keeping by unaffiliated U.S. resident custodians (but excluding those securities entrusted to a U.S. resident CSD) that meet or exceed the reporting threshold (aggregated over all accounts with such custodian). End-investors that entrust foreign securities to the safe-keeping of U.S. resident custodians must report on Schedule 3. Each filer must complete a separate Schedule 3 with regard to each U.S.-resident custodian with which it meets the threshold requirement.

Confidentiality

U.S. resident custodians and end-investors must file Form SHC with the FRBNY^[4] by Friday, March 4, 2022 either by paper or electronically via the FRBNY’s Internet Electronic Submission System; provided that, if a filer is submitting 100 or more Schedule 2 records, the Schedule 2 data must be submitted electronically.

The information collected by Form SHC may be used only for analytical and statistical purposes and to enforce the International Investment and Trade in Services Survey Act (the “Act”). Access to the information will be available only to officials and employees (including consultants and contractors and their employees) designated to perform functions under the Act. Unauthorized disclosures by persons with access to the information may result in penalties. The results of the survey will be made available to the public at an aggregated level such that no U.S. resident filer who submitted information can be identified.

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If you believe you may need to file Form SHC or you would like to discuss the filing further, please reach out to your usual contact at Tannenbaum Helpern.

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[1] Form SHC and its accompanying instructions are available at: https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/shc2021in.pdf

[2] A “U.S. resident” for the purposes of Form SHC is any individual domiciled in the U.S. or any entity incorporated or legally established in the U.S.

[3] For the purposes of Form SHC, “foreign portfolio securities” includes most foreign equity as well as both short-term (including selected money market instruments) and long-term debt securities held by U.S. residents for investment purposes. Foreign securities includes all securities issued by entities that are established under the laws of a foreign country and all securities issued by international or regional organizations (such as the International Bank for Reconstruction and Development), even if these organizations are physically located in the U.S. Excluded from the definition of foreign portfolio securities are certain derivative contracts, loans and loan participation certificates, letters of credit, direct investments (i.e. the ownership or control of 10% or more of the voting equity securities of an incorporated foreign business or an equivalent interest in an unincorporated foreign business or branch, including investments in real estate and general partner ownership interests but not including limited partner ownership interests which are reportable), among others. For a complete list of non-reportable securities, please see the Department of Treasury’s website at www.treasury.gov.

[4] The FRBNY is collecting the data as fiscal agent for the Department of Treasury.

For more information on the topic discussed, contact:

• Wayne H. Davis  |  davis@thsh.com  |  212-508-6705
• Michele Itri  |  itri@thsh.com  |  212-508-6732
• James Rieger  |  rieger@thsh.com  |  212-508-6728
• Beth Smigel  |  smigel@thsh.com  |  212-702-3176
• Michael G. Tannenbaum  |  tannenbaum@thsh.com  |  212-508-6701
• Haylie Gordon  |  gordon@thsh.com  |  212-508-6745