Liquidity Management And Reporting Modernization Rulemaking

 On October 13, 2016, the Securities and Exchange Commission (SEC) approved three new rules under the Investment Company Act of 1940 (Investment Company Act).¹ The new rules will impose liquidity requirements, authorize the use of swing pricing for certain funds and set forth new reporting obligations. In general, the final rules are more flexible and somewhat less prescriptive than the proposal, and exempt exchange-traded funds (ETFs) that effect redemptions in-kind from certain key requirements.

I. Liquidity Risk Management Programs (Rule 22e-4)

The SEC adopted Rule 22e-4 under the Investment Company Act (Rule 22e-4), which will require funds, including ETFs, to establish a written liquidity risk management program that is reasonably designed to assess and manage liquidity risk.² The new rule includes a definition of "liquidity risk" focused on whether a fund can meet redemption requests without significant dilution of remaining investors' interests, rather