SEC on Liquidity Risk Management for Open -End Funds
Securities
and Exchange Commission
Open
meeting – SEC Proposal on Liquidity Risk Management for Open-End Funds
Tuesday,
September 22, 2015
Key
Topics & Takeaways
- Unanimously
Approved: SEC Commissioners unanimously approved a staff
recommendation to release a proposed rule regarding liquidity risk
management for mutual funds and exchange-traded funds. The proposed rule
will be open for public comment for 90 days from publication in the Federal
Register.
- Swing
Pricing: Commissioners Piwowar and Gallagher remain
skeptical whether the introduction of swing pricing is the “best way to
allocate the costs stemming from a shareholder’s purchase or redemption
activity to that shareholder.” Commissioner Piwowar warned it could lead
to “gaming behavior” as well as “increase the volatility of a fund’s NAV.”
- Redeemability
Concerns: Commissioner Stein argued that the current proposal does
“not go far enough” to address redeemability concerns considering the
growth in alternative investments, which she argued are “far more complex
than what was envisioned under the Investment Company Act.”
Speakers
- Mary Jo White, Chair
- Michael Piwowar,
Commissioner
- Daniel Gallagher, Commissioner
- Luis Aguilar, Commissioner
- Kara Stein, Commissioner
- David Grim, Director of the Division of Investment Management
- Mark Flannery, Chief Economist and Director of the Division of Economic and Risk Analysis
- Amanda Wagner, Senior Counsel, Division of Investment Management
Introduction
Opening
remarks by Chair White
Chair
White opened
by explaining that the commissioners would consider staff recommendations to
propose for public comment a new rule aiming to strengthen liquidity risk
management by open-end funds, including mutual funds and exchange-traded funds
(ETFs). White claimed the primary goal of the proposed rule is to reduce the
risks of market disruptions, expand regulatory initiatives, and address risks
in the asset management industry “as appropriate.”
White
recalled her “comprehensive” five-part
plan that was unveiled last year to address risks in the asset management
industry, which includes: 1) enhanced data reporting obligations; 2) liquidity
risk management requirements; 3) measures to address risks related to funds’ use
of derivatives; 4) planning for the transition of client assets; and 5) stress
testing requirements. She also recapped the Commission’s proposal from May to
increase data reporting and disclosure requirements for investment companies.
White
claimed that a “defining feature” of open-end funds is that “investors can
redeem their shares on each business day and must receive their assets within
seven days.” As such, she argued that this new rule proposal is necessary to
help “ensure redemption requests can be fulfilled in a timely manner while also
minimizing the impact of those redemptions on the fund’s remaining
shareholders.” White argued that poor liquidity management within funds could
cause an ETF’s share price to diverge from the value of its underlying
portfolio. She also stated that these new rules are necessary to address new
investment strategies – such as relying on less liquid securities including
high yield and emerging market debt – which she claimed are employed by much of
the fund industry.
White
explained that the Commission staff observed inconsistent practices within the
fund management industry with regard to how they manage liquidity risk, which
she argued could benefit from “closer regulatory attention […] to ensure that
all funds adequately manage liquidity risk”.
White
explained that the proposed recommendation sets forth a strong, “versatile”
proposal to enhance liquidity risk management to: 1) reduce the risk that a
fund cannot meet its redemption obligations; 2) minimize dilution of
shareholder interests; and 3) address variations in liquidity risk management
practices among funds. Accordingly, she argued that this proposed rule marks an
“important step forward to address potential risks in the asset management
industry.”
White
summarized the key features of the new rule proposal, which will: 1) require
open-end funds to establish a liquidity risk management framework tailored to
its specific portfolio and risks; 2) permit a fund to use swing pricing under
certain circumstances; and 3) enhance disclosure on liquidity risk management
practices.
White
added that the SEC’s Division of Economic and Risk Analysis (DERA) drafted a
white paper on these issues, entitled “Liquidity and Flows of U.S. Mutual
Funds,” which will be made public later today.
Summary of New Rule Proposal
David Grim,
Director of the Division of Investment Management
Grim
explained that the staff’s proposed rule aims to ensure that open-end funds can
meet redemptions without substantially diluting other shareholders’ interests.
He claimed that the Commission staff observed an increase in the amount of
illiquid securities held by asset managers, as well as a wide range of
liquidity management practices across funds. As such, Grim recommended that the
Commission adopt a proposed rule – 22e-4 – that would require mutual funds and
other open-end management investment companies, including open-end ETFs, to
have a liquidity risk management program. Grim claimed the proposed rule is
flexible enough to recognize the diversity of shareholder bases, assets under
management, and does not constitute a “one size fits all” approach.
Grim
summarized that the proposed rule would permit funds to use swing pricing,
whereby fund managers could adjust net asset value (NAV) to pass on costs to
investors who are exiting during net outflows. He also shared that pooled
investment vehicles in several foreign jurisdictions use swing pricing.
Mark Flannery,
Chief Economist and Director of Division of Economic and Risk Analysis
Flannery explained that DERA
considered the impacts, costs and benefits of the new rule proposal on
efficiency, competition and capital formation in the fund management industry –
which he stated are summarized in the DERA whitepaper. He explained that DERA
found evidence that a large scale of redemptions could adversely impact
remaining shareholder value, identified “significant variation” in liquidity
risk management across funds, and examined how portfolio liquidity is affected
by large redemptions. He claimed that the proposed rule will promote effective
liquidity risk management within the industry and will improve investor
protection. However, Flannery admitted that benefits come with costs, such as
that all funds will bear the direct costs for designing and implementing
liquidity risk management programs. He claimed that funds will only need to
alter their portfolio if it is necessary under reasonable stress scenarios or
the current portfolio is illiquid.
Amanda Wagner,
Senior Counsel, Division of Investment Management
Wagner explained that the
proposed rule would require open-end funds – including mutual funds and ETFs –
to categorize and monitor liquidity based on the number of days required to
sell a security with limited price impact. In doing so, she claimed the board
of directors of each fund would have to consider price volatility, its position
size, the bid-ask spread, among other indicators of liquidity in order to
categorize assets into liquidity buckets. Funds would also be mandated to
conduct periodic reviews of liquidity risk management practices, she said.
Wagner also explained that the rule would require funds to maintain a minimum percentage
of holdings in cash or cash-equivalent securities redeemable within three
business days. To meet the three-day liquid asset minimum, she claimed the fund
would have to consider factors such as cash flow projections, the use of
liquidity, holdings of cash and cash-equivalent securities, and the use of
derivatives, among other factors.
Wagner claimed that this proposal
will also codify the current regulatory guidelines – which limit investment in
illiquid securities (i.e. investments that take more than seven days to sell
without negatively affecting the price) to no more than 15% of the fund’s total
assets. Wagner also recommended that the Commissioner amend the registration
form used by open-end investment companies (N1-A) and two reporting forms
(N-PORT and N-CEN which were recently introduced by the Commission). Finally,
Wagner claimed the proposal will permit mutual funds – except money market
funds and ETFs – to use swing pricing voluntarily under certain circumstances,
and with board approval. When funds employ swing pricing, she explained that
the swing factor would have to be reported in the NAV.
Aguilar
noted the substantial changes in fund management strategies – including
increased use of derivatives and investment in illiquid securities – over the
years. He claimed that the proposed changes would give investors the tools they
need to understand how funds manage liquidity risk. Aguilar stated that the
proposal was “timely” due to recent bouts of bond market volatility, and noted
that the proposal followed a study
published a day earlier that suggested bonds need to adjust how they price
liquidity.
Aguilar
explained that open-end funds “must stand ready each day to meet investor
redemptions,” and that this determines “virtually every investment decision” by
funds to ensure they can meet such demands. He claimed the new proposal is
necessary to protect investors and remaining shareholders, as well as to avoid
a situation in which assets must be sold at “fire sale prices,” which he feared
could lead to a run on funds. Aguilar explained that the DERA whitepaper illustrated
that funds have gravitated to less liquid securities, and that alternative
mutual funds constitute the fastest growing segment of the fund industry. He
also referenced a study by the International Monetary Fund that he said
illustrated that herding behavior has intensified in recent years, and that
forced sales of less liquid assets creates the incentive for fund investors to
redeem their assets earlier than others. Aguilar claimed these are “key
conditions” for a “run to take hold.”
Aguilar
closed by supporting the staff recommendation to introduce this new proposal on
liquidity risk management for open-end funds. He argued that the proposal would
forward the Commission’s goals to protect investors and promote capital
formation.
In
his remarks,
Gallagher opened by recalling the Commission’s proposal from May to enhance
data reporting and disclosure within the fund management industry, which he
said he was “pleased to support.” He argued that the new proposal on liquidity
risk management would further the Commission’s current “and already robust”
regulatory regime governing the asset management industry, despite concerns
made “by bank regulators and other self-described experts that [the] regulatory
program is deficient and that the industry and its participants pose systemic
risks.”
Gallagher
agreed that liquidity considerations play an important role for open-end funds,
considering that a “hallmark feature” of open-end funds is the investor’s
ability to redeem shares for their proportional share of the fund’s NAV within
seven days. Gallagher noted that he is “pleased” to see a scaled compliance
period for small funds, stating that he hopes the Commission will “continue to
recognize the challenges faced by small funds” in the future. He also expressed
satisfaction that the comment period for the proposed rule extended beyond 60
days, which he claimed would enable thoughtful and comprehensive feedback on
the proposed rule.
However,
Gallagher stated that he had two reservations about the proposal, including the
three-day asset minimum and swing pricing. He explained that the three-day
asset minimum would require funds to set aside a minimum amount of assets to be
redeemed into cash within three days. However, he noted that a “sizeable
proportion of the industry” is not restricted by the existing regulation – Rule
15c6-1, and therefore, would only be required to pay redemptions within seven
days, so he argued that the “one size fits all” three-day approach was
inappropriate. Also, Gallagher noted that many funds offer redeemability within
three days already, so setting aside a certain portion of assets would be a
“meaningless exercise given that the entire portfolio would be comprised of
assets settled in three days or less.”
Gallagher
also cautioned that swing pricing “could cause disruption to retail investors.”
He argued that the equal application to net redemptions and net purchases could
adversely impact retail investors who might have the “unfortunate luck” of
trading on the same day as a larger institutional investor and settle at the
amended price. Gallagher encouraged the Commission to enable funds to adopt
swing pricing as it deemed appropriate (i.e. without requiring funds to apply
the swing threshold equally to both net purchases and net redemptions). In
particular, he argued that the single swing threshold “does not account for
variation in funds,” and “greatly reduces the utility of swing pricing as a
tool to mitigate dilution.” Gallagher also expressed concern that the
disclosure of swing pricing may not be understood by retail investors, and that
the higher regulatory costs as a result of this new rule would increase expense
ratios and decrease shareholder returns for “the many Americans who rely on
funds to save for retirement, college, and other important financial goals.”
In
her remarks,
Stein noted that open-end funds “matter more than ever” for many Americans who
can no longer rely on pension funds and social security for retirement and
college savings. She also noted that the Commission has a “responsibility to
the public” to ensure funds retain redeemability, which is a “cornerstone” of
the Investment Company Act. Stein maintained that the new proposal on liquidity
risk management was necessary to update the SEC’s regulatory regime to meet the
redeemability expectation of investors.
Stein
recapped key features of the new proposal, which mandates funds to: 1) maintain
a liquidity risk management plan; 2) monitor fund liquidity on an ongoing
basis; 3) improve transparency by classifying assets into liquidity “buckets”
depending on the time necessary to convert such assets to cash; and 4) set
aside a minimum amount of assets which can be converted into cash within three
business days.
However,
Stein expressed concern that the proposal does “not go far enough” in certain
areas, such as the growth in alternative investments which she argued are “far
more complex than what was envisioned under the Investment Company Act.” Stein
also expressed particular interest in receiving comments with regard to how the
Commission can tailor the regulation for funds that present the most concern
from a redeemability perspective. Despite such concerns, Stein expressed
support for the staff proposal.
Piwowar
explained in his remarks
that the Commission’s proposed rulemaking on liquidity risk management was
important to ensure that funds “adequately manage” liquidity to meet redemption
obligations. He expressed support for the overall package of reforms.
However,
Piwowar conveyed several concerns with the proposed three-day minimum asset
requirement. Piwowar explained that Section 22(e) of the Investment Company Act
“only requires that the fund make payment within seven days of the securities
being tendered.” Therefore, he claimed he would “prefer that the rule track the
statute and require a seven-day liquid asset minimum rather than the proposed
three-day liquid asset minimum,” and he invited public feedback on that issue
during the comment period.
Piwowar
also encouraged commenters to provide input on the swing pricing option, which
he said he was “not convinced” was the “best way to allocate the costs stemming
from a shareholder’s purchase or redemption activity to that shareholder” and
could lead to “gaming behavior” as well as “increase the volatility of a fund’s
NAV.”
Chair
White asked her fellow Commissioners to vote on whether the proposed rule on
liquidity risk management open-end funds would be approved and publicly
disseminated for public comment. The motion was unanimously approved by the
Commissioners.
More
information about this proposal can be accessed here.
Securities
and Exchange Commission
Open
meeting – SEC Proposal on Liquidity Risk Management for Open-End Funds
Tuesday,
September 22, 2015
Key
Topics & Takeaways
- Unanimously
Approved: SEC Commissioners unanimously approved a staff
recommendation to release a proposed rule regarding liquidity risk
management for mutual funds and exchange-traded funds. The proposed rule
will be open for public comment for 90 days from publication in the Federal
Register. - Swing
Pricing: Commissioners Piwowar and Gallagher remain
skeptical whether the introduction of swing pricing is the “best way to
allocate the costs stemming from a shareholder’s purchase or redemption
activity to that shareholder.” Commissioner Piwowar warned it could lead
to “gaming behavior” as well as “increase the volatility of a fund’s NAV.” - Redeemability
Concerns: Commissioner Stein argued that the current proposal does
“not go far enough” to address redeemability concerns considering the
growth in alternative investments, which she argued are “far more complex
than what was envisioned under the Investment Company Act.”
Speakers
- Mary Jo White, Chair
- Michael Piwowar,
Commissioner - Daniel Gallagher, Commissioner
- Luis Aguilar, Commissioner
- Kara Stein, Commissioner
- David Grim, Director of the Division of Investment Management
- Mark Flannery, Chief Economist and Director of the Division of Economic and Risk Analysis
- Amanda Wagner, Senior Counsel, Division of Investment Management
Introduction
Opening
remarks by Chair White
Chair
White opened
by explaining that the commissioners would consider staff recommendations to
propose for public comment a new rule aiming to strengthen liquidity risk
management by open-end funds, including mutual funds and exchange-traded funds
(ETFs). White claimed the primary goal of the proposed rule is to reduce the
risks of market disruptions, expand regulatory initiatives, and address risks
in the asset management industry “as appropriate.”
White
recalled her “comprehensive” five-part
plan that was unveiled last year to address risks in the asset management
industry, which includes: 1) enhanced data reporting obligations; 2) liquidity
risk management requirements; 3) measures to address risks related to funds’ use
of derivatives; 4) planning for the transition of client assets; and 5) stress
testing requirements. She also recapped the Commission’s proposal from May to
increase data reporting and disclosure requirements for investment companies.
White
claimed that a “defining feature” of open-end funds is that “investors can
redeem their shares on each business day and must receive their assets within
seven days.” As such, she argued that this new rule proposal is necessary to
help “ensure redemption requests can be fulfilled in a timely manner while also
minimizing the impact of those redemptions on the fund’s remaining
shareholders.” White argued that poor liquidity management within funds could
cause an ETF’s share price to diverge from the value of its underlying
portfolio. She also stated that these new rules are necessary to address new
investment strategies – such as relying on less liquid securities including
high yield and emerging market debt – which she claimed are employed by much of
the fund industry.
White
explained that the Commission staff observed inconsistent practices within the
fund management industry with regard to how they manage liquidity risk, which
she argued could benefit from “closer regulatory attention […] to ensure that
all funds adequately manage liquidity risk”.
White
explained that the proposed recommendation sets forth a strong, “versatile”
proposal to enhance liquidity risk management to: 1) reduce the risk that a
fund cannot meet its redemption obligations; 2) minimize dilution of
shareholder interests; and 3) address variations in liquidity risk management
practices among funds. Accordingly, she argued that this proposed rule marks an
“important step forward to address potential risks in the asset management
industry.”
White
summarized the key features of the new rule proposal, which will: 1) require
open-end funds to establish a liquidity risk management framework tailored to
its specific portfolio and risks; 2) permit a fund to use swing pricing under
certain circumstances; and 3) enhance disclosure on liquidity risk management
practices.
White
added that the SEC’s Division of Economic and Risk Analysis (DERA) drafted a
white paper on these issues, entitled “Liquidity and Flows of U.S. Mutual
Funds,” which will be made public later today.
Summary of New Rule Proposal
David Grim,
Director of the Division of Investment Management
Grim
explained that the staff’s proposed rule aims to ensure that open-end funds can
meet redemptions without substantially diluting other shareholders’ interests.
He claimed that the Commission staff observed an increase in the amount of
illiquid securities held by asset managers, as well as a wide range of
liquidity management practices across funds. As such, Grim recommended that the
Commission adopt a proposed rule – 22e-4 – that would require mutual funds and
other open-end management investment companies, including open-end ETFs, to
have a liquidity risk management program. Grim claimed the proposed rule is
flexible enough to recognize the diversity of shareholder bases, assets under
management, and does not constitute a “one size fits all” approach.
Grim
summarized that the proposed rule would permit funds to use swing pricing,
whereby fund managers could adjust net asset value (NAV) to pass on costs to
investors who are exiting during net outflows. He also shared that pooled
investment vehicles in several foreign jurisdictions use swing pricing.
Mark Flannery,
Chief Economist and Director of Division of Economic and Risk Analysis
Flannery explained that DERA
considered the impacts, costs and benefits of the new rule proposal on
efficiency, competition and capital formation in the fund management industry –
which he stated are summarized in the DERA whitepaper. He explained that DERA
found evidence that a large scale of redemptions could adversely impact
remaining shareholder value, identified “significant variation” in liquidity
risk management across funds, and examined how portfolio liquidity is affected
by large redemptions. He claimed that the proposed rule will promote effective
liquidity risk management within the industry and will improve investor
protection. However, Flannery admitted that benefits come with costs, such as
that all funds will bear the direct costs for designing and implementing
liquidity risk management programs. He claimed that funds will only need to
alter their portfolio if it is necessary under reasonable stress scenarios or
the current portfolio is illiquid.
Amanda Wagner,
Senior Counsel, Division of Investment Management
Wagner explained that the
proposed rule would require open-end funds – including mutual funds and ETFs –
to categorize and monitor liquidity based on the number of days required to
sell a security with limited price impact. In doing so, she claimed the board
of directors of each fund would have to consider price volatility, its position
size, the bid-ask spread, among other indicators of liquidity in order to
categorize assets into liquidity buckets. Funds would also be mandated to
conduct periodic reviews of liquidity risk management practices, she said.
Wagner also explained that the rule would require funds to maintain a minimum percentage
of holdings in cash or cash-equivalent securities redeemable within three
business days. To meet the three-day liquid asset minimum, she claimed the fund
would have to consider factors such as cash flow projections, the use of
liquidity, holdings of cash and cash-equivalent securities, and the use of
derivatives, among other factors.
Wagner claimed that this proposal
will also codify the current regulatory guidelines – which limit investment in
illiquid securities (i.e. investments that take more than seven days to sell
without negatively affecting the price) to no more than 15% of the fund’s total
assets. Wagner also recommended that the Commissioner amend the registration
form used by open-end investment companies (N1-A) and two reporting forms
(N-PORT and N-CEN which were recently introduced by the Commission). Finally,
Wagner claimed the proposal will permit mutual funds – except money market
funds and ETFs – to use swing pricing voluntarily under certain circumstances,
and with board approval. When funds employ swing pricing, she explained that
the swing factor would have to be reported in the NAV.
Aguilar
noted the substantial changes in fund management strategies – including
increased use of derivatives and investment in illiquid securities – over the
years. He claimed that the proposed changes would give investors the tools they
need to understand how funds manage liquidity risk. Aguilar stated that the
proposal was “timely” due to recent bouts of bond market volatility, and noted
that the proposal followed a study
published a day earlier that suggested bonds need to adjust how they price
liquidity.
Aguilar
explained that open-end funds “must stand ready each day to meet investor
redemptions,” and that this determines “virtually every investment decision” by
funds to ensure they can meet such demands. He claimed the new proposal is
necessary to protect investors and remaining shareholders, as well as to avoid
a situation in which assets must be sold at “fire sale prices,” which he feared
could lead to a run on funds. Aguilar explained that the DERA whitepaper illustrated
that funds have gravitated to less liquid securities, and that alternative
mutual funds constitute the fastest growing segment of the fund industry. He
also referenced a study by the International Monetary Fund that he said
illustrated that herding behavior has intensified in recent years, and that
forced sales of less liquid assets creates the incentive for fund investors to
redeem their assets earlier than others. Aguilar claimed these are “key
conditions” for a “run to take hold.”
Aguilar
closed by supporting the staff recommendation to introduce this new proposal on
liquidity risk management for open-end funds. He argued that the proposal would
forward the Commission’s goals to protect investors and promote capital
formation.
In
his remarks,
Gallagher opened by recalling the Commission’s proposal from May to enhance
data reporting and disclosure within the fund management industry, which he
said he was “pleased to support.” He argued that the new proposal on liquidity
risk management would further the Commission’s current “and already robust”
regulatory regime governing the asset management industry, despite concerns
made “by bank regulators and other self-described experts that [the] regulatory
program is deficient and that the industry and its participants pose systemic
risks.”
Gallagher
agreed that liquidity considerations play an important role for open-end funds,
considering that a “hallmark feature” of open-end funds is the investor’s
ability to redeem shares for their proportional share of the fund’s NAV within
seven days. Gallagher noted that he is “pleased” to see a scaled compliance
period for small funds, stating that he hopes the Commission will “continue to
recognize the challenges faced by small funds” in the future. He also expressed
satisfaction that the comment period for the proposed rule extended beyond 60
days, which he claimed would enable thoughtful and comprehensive feedback on
the proposed rule.
However,
Gallagher stated that he had two reservations about the proposal, including the
three-day asset minimum and swing pricing. He explained that the three-day
asset minimum would require funds to set aside a minimum amount of assets to be
redeemed into cash within three days. However, he noted that a “sizeable
proportion of the industry” is not restricted by the existing regulation – Rule
15c6-1, and therefore, would only be required to pay redemptions within seven
days, so he argued that the “one size fits all” three-day approach was
inappropriate. Also, Gallagher noted that many funds offer redeemability within
three days already, so setting aside a certain portion of assets would be a
“meaningless exercise given that the entire portfolio would be comprised of
assets settled in three days or less.”
Gallagher
also cautioned that swing pricing “could cause disruption to retail investors.”
He argued that the equal application to net redemptions and net purchases could
adversely impact retail investors who might have the “unfortunate luck” of
trading on the same day as a larger institutional investor and settle at the
amended price. Gallagher encouraged the Commission to enable funds to adopt
swing pricing as it deemed appropriate (i.e. without requiring funds to apply
the swing threshold equally to both net purchases and net redemptions). In
particular, he argued that the single swing threshold “does not account for
variation in funds,” and “greatly reduces the utility of swing pricing as a
tool to mitigate dilution.” Gallagher also expressed concern that the
disclosure of swing pricing may not be understood by retail investors, and that
the higher regulatory costs as a result of this new rule would increase expense
ratios and decrease shareholder returns for “the many Americans who rely on
funds to save for retirement, college, and other important financial goals.”
In
her remarks,
Stein noted that open-end funds “matter more than ever” for many Americans who
can no longer rely on pension funds and social security for retirement and
college savings. She also noted that the Commission has a “responsibility to
the public” to ensure funds retain redeemability, which is a “cornerstone” of
the Investment Company Act. Stein maintained that the new proposal on liquidity
risk management was necessary to update the SEC’s regulatory regime to meet the
redeemability expectation of investors.
Stein
recapped key features of the new proposal, which mandates funds to: 1) maintain
a liquidity risk management plan; 2) monitor fund liquidity on an ongoing
basis; 3) improve transparency by classifying assets into liquidity “buckets”
depending on the time necessary to convert such assets to cash; and 4) set
aside a minimum amount of assets which can be converted into cash within three
business days.
However,
Stein expressed concern that the proposal does “not go far enough” in certain
areas, such as the growth in alternative investments which she argued are “far
more complex than what was envisioned under the Investment Company Act.” Stein
also expressed particular interest in receiving comments with regard to how the
Commission can tailor the regulation for funds that present the most concern
from a redeemability perspective. Despite such concerns, Stein expressed
support for the staff proposal.
Piwowar
explained in his remarks
that the Commission’s proposed rulemaking on liquidity risk management was
important to ensure that funds “adequately manage” liquidity to meet redemption
obligations. He expressed support for the overall package of reforms.
However,
Piwowar conveyed several concerns with the proposed three-day minimum asset
requirement. Piwowar explained that Section 22(e) of the Investment Company Act
“only requires that the fund make payment within seven days of the securities
being tendered.” Therefore, he claimed he would “prefer that the rule track the
statute and require a seven-day liquid asset minimum rather than the proposed
three-day liquid asset minimum,” and he invited public feedback on that issue
during the comment period.
Piwowar
also encouraged commenters to provide input on the swing pricing option, which
he said he was “not convinced” was the “best way to allocate the costs stemming
from a shareholder’s purchase or redemption activity to that shareholder” and
could lead to “gaming behavior” as well as “increase the volatility of a fund’s
NAV.”
Chair
White asked her fellow Commissioners to vote on whether the proposed rule on
liquidity risk management open-end funds would be approved and publicly
disseminated for public comment. The motion was unanimously approved by the
Commissioners.
More
information about this proposal can be accessed here.