Trade Groups, Funds Rip SEC's Liquidity Proposal

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By Rob Tricchinelli

Jan. 14 — Top mutual funds and industry trade groups raised issues with large portions of the SEC's proposals to require funds to create and maintain liquidity risk management programs for funds.

The Investment Company Institute and the Securities Industry and Financial Markets Association both submitted a battery of public comment letters on the Securities and Exchange Commission initiative, which was unanimously proposed in September (184 SLD, 9/23/15).

The proposal would also allow funds to adjust their net asset value to account for the costs of providing liquidity, which could cost investors who try rush to redeem their funds during market downturns or volatile periods.

‘Prescriptive.'

Both SIFMA and ICI said the risk management proposal would unnecessarily restrict funds and attempts to awkwardly apply a uniform set of standards to funds of many different sizes and structures.

Under the proposal, funds would have to classify and periodically review the liquidity risk of their fund products. They also would have to determine what minimum percentage of their funds would have to be held in cash, or assets that could be turned into cash within three days, in order to not significantly affect the value of the fund.

SIFMA called for “a more flexible and less prescriptive approach” that would allow open-end funds to design liquidity risk management programs that fit their “specific circumstances.”

The SEC's proposed guidelines for funds to assess their liquidity risks is a “one-size-fits-all approach to liquidity management with an unproven methodology that, as best we can determine, no fund uses today,” ICI said.

Those guidelines could go so far as to “misrepresent the liquidity of funds,” ICI said. 

Funds

Individual fund companies have also taken issue with parts of the SEC's proposal.

In a Jan. 13 comment letter, BlackRock Inc. asked the SEC to drop exchange-traded funds from its proposed rule (09 SLD, 1/14/16)(See previous story, 01/14/16)(48 SRLR 120, 1/18/16). Vanguard Group Inc. wanted the SEC to pull back the part of its proposal that would require funds to disclose how long it would take them to sell their assets at a fair price(48 SRLR 78, 1/11/16)(See previous story, 01/08/16) (05 SLD, 1/8/16).

OppenheimerFunds Inc. criticized the proposals on similar grounds. 

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

For More Information 
For a full list of comment letters, visit https://www.sec.gov/comments/s7-16-15/s71615.shtml