Wall Street Regulator Set to Vote on Mutual-Fund Liquidity Rules

  • SEC says it will consider proposed regulations on Oct. 13
  • Mutual funds would need liquidity risk management programs

Some of the world’s biggest fund managers may soon face new rules designed to ensure they can meet investor redemption demands by easily selling assets.

The U.S. Securities and Exchange Commission will vote Oct. 13 on whether to require mutual funds to adopt liquidity risk-management programs and bolster disclosures, the agency said Thursday. Commissioners proposed the protections a year ago amid concerns that some funds could have trouble meeting redemption demands during a market selloff. The SEC will also consider rules to modernize reporting by registered investment companies.

While mutual funds already face requirements for how quickly they must return cash to investors who want to exit, concern has mounted as managers piled into riskier assets that they could struggle to unload amid market stress. Under the SEC proposal, mutual funds and exchange-traded funds would be required to classify assets based on the amount of time it would take for them to be converted into cash. Funds would have to maintain a minimum cushion of cash or cash-like investments that can be sold within three days.

Under the proposal, mutual funds could use swing pricing, effectively letting asset managers pass on trading costs to the investors who redeem. The mechanism is designed to keep shareholders from being diluted by purchases and redemptions, the SEC said in September 2015 when it agreed to propose the rules.

SEC Chair Mary Jo White said last month in a speech that the proposals around liquidity management were among “several transformative rule makings to modernize our regulatory tools.”

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