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SEC Wants To Stem Liquidity Risk Of Open-End Funds, ETFs
Sloppy reporting. The SEC is proposing Rule 22e-4 that would require all open end funds (mutual funds and ETFs) to establish practices for managing liquidity risk. Only mutual funds would be permitted swing pricing (via a proposed change to Rule 22c-1.
It is not, however, allowing exchange traded funds to implement swing pricing. That wouldn't make sense, since ETF redemptions don't (usually or directly) require sale of portfolio holdings. As the SEC writes in its proposal:
like mutual funds, ETFs provide redemption rights on a daily basis, but, pursuant to exemptive orders, such redemption rights may only be exercised by certain large market participants – typically broker-dealers – called “authorized participants. ... for most ETFs, when an authorized participant wishes to redeem ETF shares, it presents a creation unit of ETF shares to the ETF for redemption and receives in return a “redemption basket,” the contents of which are made public by the ETF before the beginning of the trading day.”
The prior news stories of the proposal were likely sloppy as well (either that, or I was sloppy in my reading). I had been left with the impression that swing pricing was to be implemented via redemption (and perhaps purchase) fees, not by directly adjusting the NAV. The SEC proposal clearly says the NAV is adjusted, though I haven't yet read how that would be done. This might be a petty distinction, or it might be a serious one as the Investment News report says SEC member Michael Piwowar warned about.
A lot to digest (145 page proposal). Here's the SEC proposals page, with links to the proposal and to submitted comments. Look for the proposal dated Sept 22, 2015. http://www.sec.gov/rules/proposed.shtml
Comments
It is not, however, allowing exchange traded funds to implement swing pricing. That wouldn't make sense, since ETF redemptions don't (usually or directly) require sale of portfolio holdings. As the SEC writes in its proposal: The prior news stories of the proposal were likely sloppy as well (either that, or I was sloppy in my reading). I had been left with the impression that swing pricing was to be implemented via redemption (and perhaps purchase) fees, not by directly adjusting the NAV. The SEC proposal clearly says the NAV is adjusted, though I haven't yet read how that would be done. This might be a petty distinction, or it might be a serious one as the Investment News report says SEC member Michael Piwowar warned about.
A lot to digest (145 page proposal). Here's the SEC proposals page, with links to the proposal and to submitted comments. Look for the proposal dated Sept 22, 2015.
http://www.sec.gov/rules/proposed.shtml