Washington, DC, February 14, 2023 – SIFMA and SIFMA Asset Management Group (SIFMA AMG) today filed comment letters expressing strong concern with the Securities and Exchange Commission’s (the Commission) proposals to make certain revisions to liquidity risk management programs and to require swing pricing for open-end mutual funds. SIFMA submitted a comment letter on behalf of mutual fund intermediary members with respect to the proposed swing pricing and hard close. SIFMA AMG submitted two comments letters – one addressing the swing pricing and hard close aspects of the proposal, and a separate letter on liquidity risk management programs and related disclosures.

In the SIFMA letter, Kenneth E. Bentsen, Jr., SIFMA president and CEO wrote, “In light of our concerns, we strongly urge the Commission to withdraw or formally stay this proposal, pending more thorough and thoughtful engagement with the industry to assess the costs, benefits, and potential downstream consequences to other industry participants.”

“SIFMA AMG strongly recommends that the Commission take a more holistic approach to the swing pricing proposal. The proposal will impact many entities, beginning with shareholders and extending through investment companies, fund intermediaries, recordkeepers, and others. This impact warrants a collective and cooperative approach to evaluating the feasibility of swing pricing in the U.S.,” wrote Lindsey Keljo, Managing Director, Head of the SIFMA AMG and Kevin Ehrlich, Managing Director, SIFMA AMG in the letter addressing the swing pricing, among other aspects of the proposals.

SIFMA AMG further detailed the following primary concerns:

• SIFMA AMG strongly opposes a hard close requirement to facilitate swing pricing. A hard close, which some of our members believe is necessary to facilitate swing pricing, is incompatible with the current mutual fund infrastructure, would up-end the entire mutual fund ecosystem, and would have a direct detrimental impact on retail investors and retirement plan participants, the very investors the proposal is seeking to protect.
  • If a hard close is a prerequisite to swing pricing, we believe the potential costs of implementation and market-wide disruption from requiring a hard close would be too great.

• SIFMA AMG opposes mandatory swing pricing in its proposed form, specifically its prescriptive elements. This prescriptiveness stands in stark contrast to the European model, which is characterized by its flexibility and is often cited by the Commission in the proposal.

In their letter, SIFMA similarly expressed concerns that the swing pricing requirement and the attendant “hard close” elements would have significant adverse consequences for the millions of investors who invest in mutual funds through intermediaries or retirement plans. These intermediaries provide important services to investors by offering financial planning assistance and guidance, completing paperwork associated with investing in a fund, monitoring portfolio performance, and efficiently processing orders.

SIFMA is concerned that the benefits the Commission seeks to provide are speculative and unbalanced in relation to the costs that the proposal would force on funds and investors.  Specifically, as discussed in more detail in the letter, the proposal could have the following significant negative implications:

• the swing pricing requirement will create investor confusion and introduce new delays into the mutual fund order management infrastructure;
• the “hard close” requirement would negatively impact or entirely eliminate the ability of investors who transact in mutual funds through intermediaries or retirement plans to purchase or sell shares at the net asset value of a fund on the same day they submit their orders;
• this element would also require the mutual fund industry to re-engineer the entire process though which orders are collected, submitted and processed by intermediaries and retirement plans, at great cost.

Regarding the liquidity risk management proposals, SIFMA AMG recognizes the Commission’s interest in enhancing open-end mutual fund resilience, however the letter outlined the following substantial concerns with the proposal:

• In presuming worst-case market scenarios for each proposed element of the liquidity management framework, the proposal would fundamentally alter and dictate the way funds manage their portfolio, to the detriment of investors. The aggregate impact of the Proposal would result in reduced returns, constraints on portfolio decision-making, and limited availability of strategies.
• Requiring daily liquidity classifications with the level of precision contemplated in the proposal would provide little to no marginal benefit to those making investment decisions and would present a substantial challenge, particularly without the ability to classify by asset class.
• Proposed changes to Form N-PORT reporting timeframes would impose operational burdens and costs to shareholders and may mislead investors regarding the liquidity of larger funds as compared to smaller funds with similar holdings.

The full letters can be found here:

• SIFMA letter on swing pricing and hard close
• SIFMA AMG letter on the swing pricing and hard close aspects
• SIFMA AMG letter on liquidity risk management programs

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SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development

SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).

 

 

SIFMA’s Asset Management Group (SIFMA AMG) brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms – both independent and broker-dealer affiliated – whose combined assets under management exceed $62 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds.