SEC’s proposed liquidity risk management rules for mutual funds

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September 2015


Last week, the Securities and Exchange Commission (SEC) proposed a set of liquidity risk management requirements for registered open-end mutual funds and ETFs. The proposal is part of a broader SEC agenda to modernize the Investment Company Act of 1940 (’40 Act) and to address perceived systemic risk concerns relating to the asset management industry. 

  1. The proposal addresses liquidity concerns arising in a changing industry.
  2. The Financial Stability Oversight Council is influencing the SEC.
  3. The biggest impact will be felt by the front office.
  4. Swing pricing provides more flexibility for fund managers.
  5. Approval of the liquidity risk management program necessitates a deeper understanding of risk for management and directors.
  6. Flexibility is provided with respect to the periodic risk assessment.
  7. Portfolio liquidity assessment outliers will raise regulatory questions.
  8. Shorter term liquid assets are required.
  9. The 15% cap on illiquid assets is now codified.
  10. The compliance period is phased-in based on the asset manager’s size. 

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