The Securities and Exchange Commission has released updated guidance on liquidity risk management programs, with a specific focus on subadvised funds, in-kind ETFs, and funds’ use of Form N-Port.
“The liquidity rule FAQs are welcome and provide needed clarity for all mutual funds and ETFs, including those that are subadvised and those that provide in-kind redemptions,” an ICI spokesperson told ThinkAdvisor on Monday. “ICI and its members continue to analyze these complex FAQs so that we may address any remaining questions with the SEC.”
The FAQ includes updated responses the IM division prepared related to the investment company liquidity risk management (“LRM”) program requirements adopted in October 2016. IM said it expects to update the document from time to time to include responses to additional questions.
The most recent update, for instance, includes a question on whether an advisor (including a subadvisor) has an independent obligation to adopt and implement a liquidity risk management program.
Answer: No. The rule requires funds — not advisers — to adopt and implement LRM programs. However, the staff believes that the rule and Adopting Release clearly contemplate a role for advisers and their personnel in handling responsibilities under funds’ LRM programs. For example, this role could take the form of administering funds’ LRM programs or handling specific program responsibilities delegated by the program administrator.
Another question asks if an ETF, including an ETF with little or no operating history, should consider factors other than its redemption history in determining whether it qualifies as an in-kind ETF.