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Rep. Virginia Foxx

Regulation and Compliance > Federal Regulation > SEC

SEC's Fund Liquidity Plan Hurts Retirement Savers, Lawmakers Say

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GOP lawmakers expressed “strong opposition” on Wednesday to the SEC’s proposed rule titled “Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N-Port Reporting,” which they said would ultimately hurt retirement savers.

Sen. Bill Cassidy, R-La., ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, and Rep. Virginia Foxx, R-N.C., chairwoman of the House Education and the Workforce Committee, told SEC Chairman Gary Gensler in a letter that the “hard close” in the agency’s proposed rule “limits Americans’ ability to trade in mutual funds, threatening millions of retirement plans.”

The SEC’s proposed rule “would deny same-day pricing for mutual fund trade orders that are not received by the mutual fund, its transfer agent, or a registered clearing agency by an established cut-off time,” typically 4 p.m. Eastern, the lawmakers told Gensler.

In proposing the plan, SEC Chairman Gary Gensler stated that it better prepares “open-end funds for stressed conditions and to mitigate dilution of shareholders’ interests.”

The rule and form amendments, Gensler said, “would enhance how funds manage their liquidity risks, require mutual funds to implement liquidity management tools, and provide for more timely and detailed reporting of fund information.”

Gensler added that “a defining feature of open-end funds is the ability for shareholders to redeem their shares daily, in both normal times and times of stress.”

Open-end funds, though, Gensler pointed out, “have an underlying structural liquidity mismatch. This can raise issues for investor protection, our capital markets, and the broader economy. We saw such systemic issues during the onset of the COVID-19 pandemic, when many investors sought to redeem their investments from open-end funds. Today’s proposal addresses these investor protection and resiliency challenges.”

The SEC plans to issue a final rule on the plan in October, according to its regulatory flexibility agenda.

The plan requires open-end funds other than money market funds and exchange-traded funds to use a liquidity management tool called “swing pricing,” which the SEC states is “a method to allocate costs stemming from inflows or outflows to the investors engaged in that activity, rather than diluting other shareholders.” The proposal would also require a “hard close” for relevant funds.

Trading Lag

The proposal “would particularly burden American retirement plan investors with investments in mutual funds by forcing a lag of up to a day on retirement plan investor mutual fund purchases and sales,” the lawmakers said.

“Investors who trade directly with a fund’s transfer agent will have a significant advantage over retirement plan participants, whose trades are typically placed through recordkeepers,” the lawmakers wrote.

Foxx and Cassidy encouraged the SEC “to reverse course and eliminate a hard close from any future rulemakings.”


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