On October 13, 2016, the US Securities and Exchange Commission (SEC) approved new and comprehensive rules to address liquidity risks for mutual funds. In addition, the SEC adopted new mutual fund reporting rules and an optional “swing pricing” rule.
Key elements of the liquidity risk management rule include:
Liquidity risk management programs: All mutual funds and open-end ETFs (except for money market funds and unit investment trusts) must implement a formal program for liquidity risk management which includes risk assessments of liquidity risk, a “highly liquid investment minimum” and liquidity classifications for investment funds.
Disclosure Requirements: There are increased disclosure requirements for policies to meet redemptions. Specifically, Form N-PORT will require funds to provide detailed liquidity information to the SEC, including position level liquidity classifications that will remain private and aggregate liquidity information that will be made public.
Breach Reporting: Funds will be required to inform the SEC on Form N-LIQUID any time they breach
their 15% illiquid investment threshold and of any breaches of their highly liquid investment minimum
that continue for more than seven consecutive days. Any breaches must also be reported to the
fund’s board of directors.
To read the article, please click Key Operational and Risk Management Considerations for Complying with N-PORT Reporting