Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
April 19 — In the weeks following the December collapse of the Third Avenue Focused Credit Fund, the Securities and Exchange Commission examined roughly 70 funds and concluded that the threat of similar meltdown was minimal, a top agency official said today.
“There really weren’t any other funds with the specific holdings that that fund had,” Jane Jarcho, deputy director of the SEC’s Office of Compliance Inspections and Examinations, said at the agency's compliance outreach conference. “They were very, very unique.”
Similar funds had good liquidity buffers, Jarcho said, and OCIE told the commissioners that the Focused Credit Fund's risk profile wasn't widespread in the industry, which wouldn't have caused a crisis unless market conditions significantly worsened.
The $788 million Focused Credit Fund invested in distressed and high-yield debt but was still designed to allow smaller investors to redeem quickly.
As the fund halted redemptions, “there was a brief period of time where liquidity got a little difficult” among similar funds, Jarcho said.
The Third Avenue fund faced more than $700 million in redemptions in previous months, which, combined with losses, made it unable to honor new sell-offs (241 SLD, 12/16/15).
In March, SEC Chairman Mary Jo White urged caution for all funds (61 SLD, 3/30/16).
“Directors of funds should also be thinking about and asking fund managers whether these events could happen at your fund, how to prevent them from happening, and how to respond promptly and effectively if they do occur,” White said then.
The agency in September proposed to require mutual funds and exchange-traded funds to create liquidity risk management programs (184 SLD, 9/23/15). Under the proposal, funds would have to classify and regularly review their fund products' liquidity risks, based on their activity, trading volume, bid/ask spreads, volatility, structure and relationship to other funds.
The Third Avenue collapse was a “petri dish type situation,” allowing the agency to collect useful real-world information and guide the rule, Diane Blizzard, associate director of the SEC's Division of Investment Management, said April 19.
“My staff that’s working on the rulemaking have been involved in the calls, they’ve gone on some of the exams,” she said. “It’s been a really good thing for the staff to have had that opportunity to really get in there.”
Industry commenters have criticized the proposal and asked for more flexibility for funds to comply with the final rule.
To contact the reporter on this story: Rob Tricchinelli in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Susan Jenkins at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)