Mutual funds and exchange-traded funds (ETFs) will be required to adopt a variety of measures to manage liquidity risk under proposals the U.S. Securities and Exchange Commission (SEC) put forth on Tuesday.
The SEC voted to propose a comprehensive package of rule reforms designed to enhance effective liquidity risk management by U.S. mutual funds and ETFs. The reforms aim to ensure that investors can redeem their units in a timely way.
The SEC proposals would require open-ended funds to implement liquidity risk-management programs and to enhance disclosure regarding fund liquidity and redemption practices, among other things.
These liquidity risk-management programs would be required to contain certain elements, including: classifying the liquidity of portfolio assets; assessing, reviewing and managing a fund’s liquidity risk; and establishing a fund’s three-day liquid asset minimum.
“Promoting stronger liquidity risk management is essential to protecting the interests of the millions of Americans who invest in mutual funds and exchange-traded funds,” says SEC chairwoman Mary Jo White in a statement. “These significant reforms would require funds to better manage their liquidity risks, give them new tools to meet that requirement, and enhance the commission’s oversight.”
The proposals will be published in the Federal Register for a 90-day comment period.
“Several of the SEC’s proposals, including provisions for liquidity risk management policies, minimum levels for highly liquid holdings, swing pricing, and enhanced disclosure and oversight represent potentially significant changes to current business practices. As such, we look forward to reviewing these proposals in detail with members and providing more substantive comments,” says Timothy Cameron, managing director and head of the Securities Industry and Financial Markets Association’s asset-management group, in a statement.
“These rules have the potential to provide asset managers with important new tools to complement existing robust practices for managing assets in a stressed market environment,” Cameron