Briefing

Prepare for SEC proposed rules: Liquidity risk management

With a mid-January due date for comments on the SEC’s proposed rules, open-end mutual funds and Exchange-Traded Funds (ETFs) and their boards should get ready by reviewing their liquidity risk management policies and programs. The rules are designed to reduce risks associated with large redemption obligations in distressed or less liquid markets. They would require funds to adopt formal liquidity risk management programs. Comments on the proposed rules must be received by the SEC by January 13, 2016.

Proposed Rule 22e-4 under the Investment Company Act of 1940 would require funds to adopt and implement written liquidity risk management programs for each series of the registered open-end investment company.

Programs would have to include four components:

  • liquidity classification;
  • three-day liquid asset minimum;
  • determining liquidity risk; and
  • board reports.
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