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SEC Proposes to Amend Open-End Funds’ Liquidity Requirements

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The Securities and Exchange Commission Wednesday proposed amendments to public liquidity-related disclosure requirements for certain open-end investment management companies.

Under the proposal, funds would discuss in their annual report the operation and effectiveness of their liquidity risk management program, replacing a pending requirement that funds publicly provide the aggregate liquidity classification profile of their portfolios on Form N-PORT on a quarterly basis.

The Commission adopted the open-end fund liquidity rule in October 2016 in an effort to promote effective liquidity risk management programs in the fund industry

The proposed rule “is another step toward completing the implementation of the 2016 final rule in a manner that protects investors while minimizing unnecessary costs on funds,” said SEC Chairman Jay Clayton.

“I look forward to ongoing engagement with investors, funds and other market participants as we continue enhancing our ability to be effective overseers of the U.S. mutual fund industry.”

Management of liquidity risk is important to funds’ ability to meet their statutory obligation — and their investors’ expectations — regarding redeemability of their shares, the SEC states.

The agency also recently adopted a rule that extends by six months the compliance date for the classification and classification-related elements of the Commission’s liquidity risk management program rule, Rule 22e-4, and related reporting requirements.

Updated guidance was also released recently by the agency on liquidity risk management programs, with a specific focus on subadvised funds, in-kind ETFs, and funds’ use of Form N-Port.

The actions, according to the agency, “are aimed at providing investors with accessible and useful information about liquidity risk management of the funds they hold while providing sufficient time for funds to implement the requirement to classify their holdings in an efficient and effective manner.”


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