SEC Proposes Rules Requiring Funds Increase Liquidity Risk Management

As asset managers face heightened scrutiny from banking regulators over fears their lending and investing activities could pose broader risks to the marketplace, the SEC proposed rules that would require mutual funds and exchange-traded funds to create new programs to better manage their liquidity. Under the rules, funds would need to devise plans to ensure they can meet redemption demands from investors during periods of market stress. These plans would require funds to classify and review the assets in their portfolios based upon how quickly they could be converted into cash. The proposal includes provisions that would allow funds to charge a higher price to investors who make withdrawals during periods of market volatility. The plan would also permit, but not require, funds to use "swing pricing," but calls for additional disclosures related to swing pricing use and how the liquidity of a fund's assets is classified.