The International Organization of Securities Commissions (IOSCO) on Thursday issued final recommendations designed to ensure that collective investment schemes (CIS), such as mutual funds and ETFs, are properly managing their liquidity risk, enabling funds to ride out rough market conditions.
The goal of Recommendations for Liquidity Risk Management for Collective Investment Schemes is to “to ensure that liquidity is managed to safeguard and protect the interests of investors, including in stressed market conditions,” IOSCO says in a news release.
With the recommendations, IOSCO is reiterating its position that, “the best line of defense against any structural vulnerabilities that could potentially develop into extended market dislocations and financial instability is for responsible entities to have robust liquidity risk management programs.”
Also Thursday, IOSCO published a final report on good practices, Open-ended Fund Liquidity and Risk Management – Good Practices and Issues for Consideration, to supplement its recommendations. The report is intended to assist regulators, the industry and investors by providing practical information, examples and good practices regarding open-ended fund liquidity risk management.
“Securities regulators also have important roles in encouraging and overseeing the development and execution of these programs to help minimize the possibility of adverse effects on markets when responsible entities do not properly manage a CIS’ liquidity,” IOSCO says.
IOSCO intends to assess the implementation of its recommendations in two to three years’ time.