SEC Provides Guidance On Liquidity Rule Compliance

On Aug. 28, 2024, the SEC issued a release providing guidance on certain aspects of open-end funds' compliance with Rule 22e-4, i.e., the Liquidity Rule, under the Investment Company Act of 1940 (the Guidance). The Guidance covers the following three areas: frequency of liquidity classification, the meaning of "cash" under the rule, and highly liquid investment minimums. Most importantly, the Guidance does not address the previously proposed swing pricing requirement.

Frequency of liquidity classification

The Liquidity Rule requires funds to review liquidity classifications more frequently than monthly if changes in relevant market, trading and investment-specific considerations are reasonably expected to materially affect one or more of the funds' investment classifications. The Guidance indicates that funds should be prepared to review classifications intra-monthly and adopt policies and procedures addressing an intra-month review if changes in relevant market,