SEC Re-Proposes Mutual Fund “Hard Close”
The Securities and Exchange Commission (SEC) has released a proposed rule titled “Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N-PORT Reporting.” The SEC indicates in a fact sheet that the proposal would
- Enhance how open-end funds other than money market funds (“MMFs”) and certain exchange traded funds (“ETFs”) classify the liquidity of their investments and require a minimum amount of highly liquid assets of at least 10 percent of net assets;
- Require any open-end fund, other than a MMF or ETF, to use swing pricing and implement a “hard close” to operationalize this pricing and to improve order processing more generally; and
- Provide for more frequent, timely, and more detailed public reporting of fund information, including information about funds’ liquidity and use of swing pricing.
According to the fact sheet, the proposal would require a “hard close” for open-end funds other than a MMF or ETF. An investor’s order to purchase or redeem a fund’s shares would be eligible for a given day’s price only if the fund, its transfer agent, or a registered clearing agency receives the order before the time the fund calculates its net asset value (NAV), typically 4.p.m. ET.
The SEC released a similar proposal in 2003 due largely to concerns over late trading abuses, but later backed away from the proposal. Comments on the proposal are due within 60 days of publication in the Federal Register.