The SEC’s Liquidity Risk Management Proposal

January 04, 2016

The Securities and Exchange Commission’s (SEC or Commission) recent liquidity risk management proposal represents potentially significant changes to current liquidity risk management practices. Under the Commission’s proposal, all registered open-end funds and open-end exchange-traded funds (ETFs), other than money market funds (MMFs), would be required to adopt liquidity risk management programs. Registered open-end funds, other than ETFs and MMFs, also would be permitted to utilize “swing pricing” under certain circumstances. In addition, the proposal would impose new disclosure and reporting requirements.

According to the Proposing Release, these proposals generally are intended to reduce the risk that funds would be unable to meet shareholder redemption requests and to minimize the dilutive impact of fund shareholder purchase and redemption transactions. The proposal is the second part of a five-part plan “to enhance the regulation of the risks arising from the portfolio composition and operations of funds and investment advisers.” The Commission recently proposed the first part of this five-part plan – a proposal to modernize fund reporting and disclosure. The remaining parts will include measures to “better address risks related to funds’ use of derivatives, plan for the transition of client assets, and to stress test funds and advisers.”

Read "The SEC’s Liquidity Risk Management Proposal."