On November 2nd, the SEC voted to propose amendments with the goal of preparing Open-Ended Funds for future stressed conditions.
The management of liquidity, use of liquidity management tools, and more detailed reporting of fund information would be affected by these amendments. Money Market Funds and most ETFs would be excluded.
What Would Change Under The Proposed Rule?
- The liquidity classifications for open-end funds would have minimum standards based off liquidity analysis.
- Liquidity classifications would also consider a fund’s ability to liquidate under stressed conditions.
- Investments in securities unable to settle within seven days would greatly affect liquidity classification.
- Affected funds would need at least 10% of their assets in highly liquid investments.
- Open Ended Funds would be required to use “swing pricing” for liquidity management instead of diluting other shareholders.
- Affected Funds would also require a “hard close”, in which investor orders must be received and sent for clearing by the time of the fund’s pricing.
- Funds would be required to file a Form N-PORT monthly, within 30 days, with the intention of publicizing the report in another 30 days.
Vigilant’s Final Conclusion
This new proposal may have a significant impact on the liquidity requirements of your Funds (if applicable).
The proposal would require almost triple the amount of information currently reported by firms.
If your firm is affected by the proposal, or if you are unsure about how your firm would be affected, please reach out to Vigilant for any compliance concerns and future planning your firm may require.