U.S. Treasury Department Reporting Obligation — Benchmark Form SHC

November 30, 2011


The U.S. Department of the Treasury recently released a revised Form SHC (and corresponding instructions). Form SHC must be filed by certain U.S.-resident custodians and end-investors that hold foreign securities as of Dec. 31, 2011. Form SHC is a benchmark survey conducted every five years. The data reported on Form SHC, which is collected by the Federal Reserve Board of New York (the “FRBNY”) acting as fiscal agent of the Treasury, will be used by the U.S. government in forming international financial and monetary policies and in computing the U.S. balance of payment accounts and U.S. international investment position.

Who Must Report


Form SHC must be filed by any U.S. person, including any U.S. person that is an affiliate of a foreign entity, that is a U.S.-resident custodian or end-investor that meets the reporting threshold or receives a letter from the FRBNY requiring such a U.S. person to report. 

There are two ways to meet the reporting threshold.  First, Form SHC must be filed by any U.S.-resident custodian or end-investor that, as of Dec. 31, 2011, held $100 million or more of reportable foreign securities that such a U.S. person (i) safe-kept for itself and for other U.S. residents (e.g., securities in a Cayman Islands master fund held by a domestic feeder fund) or (ii) entrusted directly to foreign custodians or U.S. or foreign central securities depositories ("CSDs") for safe-keeping.  Second, Form SHC also must be filed by any U.S.-resident end-investor that, as of Dec. 31, 2011, entrusted $100 million dollars or more of reportable foreign securities to an unaffiliated U.S.-resident custodian (that is not a U.S.-resident CSD) for safe-keeping. 

In addition to the purposes mentioned above, data from Form SHC will be used to determine who must report on annual Form SHCA. Those required to file Form SHCA will receive a notification of their obligation to file directly from the FRBNY. The Form SHC instructions state that Form SHCA will require reports from only the very largest U.S.-resident custodians and end-investors.

Reportable Foreign Securities

In general, securities that are reportable for the purposes of Form SHC are foreign securities, including selected money market instruments, that are held by U.S. residents for investment purposes. For these purposes, foreign securities are all securities issued by entities established under the laws of a foreign country and all securities issued by international or regional organizations (e.g., the World Bank), even where such organizations are physically located in the U.S. Reportable securities include foreign-equity securities, short-term debt securities (including selected money market instruments), long-term debt securities and asset-backed securities. Equity interests or other securities issued by foreign-resident funds or similar investment vehicles (e.g., interests issued by a foreign master fund to a U.S. feeder fund) qualify as reportable securities. Reportable foreign securities do not include, among other things, direct investments (as defined below); derivatives; loans and loan participation certificates; bank deposits; foreign securities temporarily acquired under reverse repurchase, borrowing or lending arrangements; the underlying security of a depositary receipt; or any U.S. securities.

Similar to Form SLT, “direct investments” are excluded for the purposes of Form SHC. A “direct investment” is the ownership or control of 10 percent or more of the voting-equity securities of an incorporated foreign business or an equivalent interest in an unincorporated foreign business or branch. The determination, however, of whether a partner has a direct investment relationship with a limited partnership is based on control of the limited partnership, not the percentage ownership of the limited partnership’s equity. Typically, the general partner of a limited partnership is presumed to have control and, therefore, has a direct investment in the limited partnership. In cases where a partnership agreement grants voting rights to limited partners, a limited partner may have a direct investment with the limited partnership if it meets the 10 percent voting rights criterion for direct investments. Direct investments are not reportable in the TIC system, but instead must be reported on forms issued by the U.S. Department of Commerce Bureau of Economic Analysis, unless an exemption from reporting applies.

Reporting for Organizations

In the case of an organization, reports should be filed on a consolidated basis by the top U.S.-resident parent entity in the organization and should include all reportable securities held or managed by all U.S.-resident parts of the organization, including all U.S.-resident branches, offices and subsidiaries.

In general, investment advisers report as representatives of the “funds” they manage or sponsor. The term “funds,” for purposes of Form SHC, is defined as pooled, separate and general investment accounts of one or more institutional and private investors, including, among other things, hedge funds, private-equity funds, mutual funds and private individuals. A U.S.-resident investment adviser that is subject to the reporting obligation will be required to file one consolidated report covering the reportable securities for all U.S.-resident parts of its own organization and for all U.S.-resident funds that it manages or sponsors.

By way of example, in the event that an investment adviser is required to file Form SHC, one type of security that the investment adviser will be required to report is a U.S. feeder fund’s equity interests in a foreign master fund. If a U.S.-resident investment adviser manages a Cayman master fund with U.S. and Cayman feeder funds, the adviser will be required to report the U.S. feeder fund’s investment in the Cayman master fund as ownership of foreign-equity interests by a U.S. resident. The Cayman feeder fund’s investment in the Cayman master fund, however, will not be reportable on Form SHC.

Information Required by Form SHC

Form SHC is comprised of three schedules. Schedule 1, which requires identifying information and a summary of data reported, if any, on the other two schedules, must be filed by all U.S.-resident custodians or end-investors with holdings of foreign securities that meet a reporting threshold.

Schedule 2 is used to report position-level data on foreign securities owned by U.S.-resident investors (i) that the reporter holds for itself or for its U.S.-resident clients; (ii) for which the reporter directly employs foreign-resident sub-custodians or U.S.-resident or foreign-resident CSDs to manage the safe-keeping of such securities; or (iii) that are instruments of the type that there is no U.S.-resident custodian to hold such securities. A reporter must file a separate Schedule 2 for each reportable security. A reporter is exempt from reporting on Schedule 2 if the total fair value of foreign securities reportable on Schedule 2 (as discussed in clauses (i) through (iii) of this paragraph) is less than $100 million.

Schedule 3 is used to report summary amounts for all foreign securities entrusted to the safe-keeping of an unaffiliated U.S.-resident custodian, excluding those entrusted to a U.S.-resident CSD. U.S.-resident end-investors that entrust foreign securities to the safe-keeping of a U.S.-resident custodian must report on Schedule 3. U.S.-resident custodians only report on Schedule 3 when the U.S.-resident custodian is entrusting foreign securities to the safe-keeping of another U.S.-resident custodian. A reporter must file a separate Schedule 3 for each U.S.-resident custodian with which the reporter has holdings of foreign securities that exceed $100 million, aggregated over all accounts with such custodian. This reporting obligation is different from that required by Form SLT, which requires only U.S.-resident custodians to report securities for which they manage the safe-keeping on behalf of U.S. entities and does not require the end-investor or the end-investor’s representative to report its holdings of such securities.

Timing and Confidentiality

All reports on Form SHC must be submitted to the FRBNY by March 2, 2012, for data reportable as of Dec. 31, 2011. Completed reports generally may be submitted on paper to the FRBNY or electronically through the Federal Reserve’s Internet Electronic Submission (IESUB) System.

The data collected on Form SHC reports may be used only for analytical and statistical purposes and to enforce the International Investment and Trade in Services Survey Act. The information may only be accessed by officials and employees (including consultants, contractors and their employees) designated to perform functions under that Act. Aggregate data obtained from reports on Form SHC will be publicly disclosed, but only in a manner that will not reveal information as reported by any individual respondent.


The FRBNY held a seminar on Form SHC on Nov. 10, 2011. Investment advisers may view the webcast of the seminar and download the items handed out at the seminar for 120 days following the presentation. Form SHC and the instructions may be found here.


For assistance, please contact the following lawyers in the Financial Services Area

Investment Management Partners:

Marion Giliberti Barish, 617.951.8801

David C. Boch, 617.951.8485

Lea Anne Copenhefer, 617.951.8515

Steven M. Giordano, 617.951.8205

Michael Glazer, 213.680.6646

Anne-Marie Godfrey, +852.3182.1705

Richard A. Goldman, 617.951.8851

Thomas John Holton, 617.951.8587

Barry N. Hurwitz, 617.951.8267

Roger P. Joseph, Practice Group Leader; Co-chair, Financial Services Area, 617.951.8247

Amy Natterson Kroll, 202.373.6118

Michael P. O’Brien, 617.951.8302

Nancy M. Persechino, 202.373.6185

Paul B. Raymond, 617.951.8567

Toby R. Serkin, 617.951.8760

L. Kevin Sheridan Jr., 212.705.7738

Edwin E. Smith, Co-chair, Financial Services Area, 617.951.8615

Joshua B. Sterling, 202.373.6556

Stephen C. Tirrell, 617.951.8833

This article was originally published by Bingham McCutchen LLP.