BlackRock To Vanguard Earn ETF Win In Fund Liquidity Rule

Comments

• msf

  October 2016 edited October 2016

  SEC Final Rules page: https://www.sec.gov/rules/final.shtml
  
  Perhaps the bigger item got buried - funds are now allowed to use swing pricing in times of stress (essentially impose redemption fees by passing through the cost of selling underlying securities to meet redemptions).
  
  Here's that SEC final rule (198 pages):
  https://www.sec.gov/rules/final/2016/33-10234.pdf
  
  
  There's got to be more on the liquidity rule than is being reported, especially regarding Vanguard. Here's the SEC final rule (459 pages): https://www.sec.gov/rules/final/2016/33-10233.pdf
  
  First, because ETFs would seem to have a liquidity problem similar to open end funds. When there is large selling pressure, authorized participants (AP) are supposed to swoop in, buy up the ETF shares being sold on the open market, and then sell the underlying securities at a profit. So even though the fund itself doesn't sell assets, the APs are expected to. if they don't (because of illiquidity) the ETF price could go into free fall.
  
  Second, the report says that this rule applies to funds that provide daily portfolio information. What sort of info? All ETFs provide indicative NAV and portfolio composition files, but they are not required to provide daily portfolios. In fact, Vanguard discloses its ETF portfolios only monthly.
  
  Third, Vanguard's ETFs are unique in that they are simply shares of an open end fund portfolio. Is this a back door way for Vanguard to avoid meeting liquidity requirements on its open end funds?
  
  P.S. No, I have not read the 650+ pages from the SEC.
• heezsafe

  October 2016 edited October 2016

  The agency also voted 2-1 to allow open-ended funds, not money market funds or ETFs, to use swing pricing, effectively letting asset managers pass on trading costs to investors who redeem. The change permits funds to cash out investors at less favorable pricing during periods of market stress, potentially slowing withdrawals. The SEC says the mechanism aims to keep fund shareholders from being diluted by purchases and redemptions. [my emphasis]

  Hmmmmm............ yeah, sorta important.
  Other takes:
  http://www.reuters.com/article/us-sec-funds-idUSKCN12D21R
  http://www.thinkadvisor.com/2016/10/13/sec-imposes-sweeping-liquidity-rules-for-mutual-fu
• catch22

  October 2016

  Hi @heezsafe
  An observation. Kinda like, if a too-big-to-fail or other event sets the wheels spinning again; and some folks (like we folks here) want to leave the party early or during a melt; this becomes a type of "Hotel California", you know: "You can check in any time you want, but you can never leave."
  One may suppose if enough folks had gone below decks to fill the gash in the hull of the Titanic, perhaps the vessel would have stayed afloat longer and more people would have survived.
  Well, anyway; just a sideways view of what you noted from an "agency" of the people.
  Take care,
  Catch
• heezsafe

  October 2016 edited October 2016

  For more on the principles of swing pricing, and the different ways it can be applied:
  http://www.alfi.lu/sites/alfi.lu/files/ALFI-Swing-Pricing-Survey-2015-FINAL.pdf