SEC Proposes Overhauled Open-End Fund Liquidity Framework Including Mandatory Swing Pricing

On November 2, 2022, the SEC issued a release (the "Release") proposing amendments to its current rules for registered open-end funds¹ regarding liquidity risk management programs, swing pricing, and various reporting forms (the "Proposals"). The Release states that "[t]he proposed amendments are designed to improve liquidity risk management programs and better prepare funds for stressed conditions and improve transparency in liquidity classifications" and also "to mitigate dilution of shareholders' interests in a fund by requiring any open-end fund, other than a money market fund or exchange-traded fund, to use swing pricing" under certain conditions.

The Release explains that, in light of the market stress experienced in March 2020 in connection with the onset of the COVID-19 pandemic, the SEC staff has reviewed the effectiveness of funds' current tools for managing liquidity and limiting dilution and is proposing amendments to funds' liquidity risk management