SEC bolsters reporting and liquidity rules
14 October 2016 Washington DC
Image: Shutterstock
The US Securities and Exchange Commission (SEC) has voted to adopt changes to reporting and disclosure of information rules for registered investment companies, and to improve liquidity risk management among open-ended funds.
The changes are intended to improve the quality of information available to investors and to the SEC, and to help the commission more effectively collect and use data reported by funds.
Promoting more effective liquidity risk management across the open-ended fund industry is intended to improve disclosure regarding fund liquidity and redemption practices.
Both changes are part of the SEC’s initiative to improve monitoring and regulation of the asset management industry.
Under the new reporting rules, registered investment companies such as exchange-traded funds (ETFs) and mutual funds, will have to file new monthly and annual reporting forms, which, according to the SEC, will require ‘census-type’ information.
The information will be reported in a structures format, allowing both the SEC and the public to analyse it more easily.
New rules will also require improved and standardised disclosures in financial statements, including relating to securities lending activity.
The new liquidity risk management rules are intended to further promote effective liquidity risk management for mutual funds and ETFs, thereby reducing the risk of funds being unable to meet shareholder redemptions and of dilution of the interests of shareholders.
Funds will be required to establish liquidity risk management programmes that address classification of liquidity for fund portfolio investments and ensure a highly liquid investment minimum.
There will also be a 15 percent minimum on illiquid investments, and further disclosure requirements on fund liquidity and redemption practices.
SEC Chair Mary Jo White said: “These new rules represent a sweeping change for the industry by requiring strong transparency provisions and enhanced investor protections.”
She added: “Funds will more effectively manage liquidity risk and both commission staff and investors will receive additional and better quality information about fund holdings.”
It is expected that the majority of funds will be required to comply with the new and amended rules on 1 December 2018, however, those with less than $1 billion in net assets will be required to comply on 1 June 2019.
The changes are intended to improve the quality of information available to investors and to the SEC, and to help the commission more effectively collect and use data reported by funds.
Promoting more effective liquidity risk management across the open-ended fund industry is intended to improve disclosure regarding fund liquidity and redemption practices.
Both changes are part of the SEC’s initiative to improve monitoring and regulation of the asset management industry.
Under the new reporting rules, registered investment companies such as exchange-traded funds (ETFs) and mutual funds, will have to file new monthly and annual reporting forms, which, according to the SEC, will require ‘census-type’ information.
The information will be reported in a structures format, allowing both the SEC and the public to analyse it more easily.
New rules will also require improved and standardised disclosures in financial statements, including relating to securities lending activity.
The new liquidity risk management rules are intended to further promote effective liquidity risk management for mutual funds and ETFs, thereby reducing the risk of funds being unable to meet shareholder redemptions and of dilution of the interests of shareholders.
Funds will be required to establish liquidity risk management programmes that address classification of liquidity for fund portfolio investments and ensure a highly liquid investment minimum.
There will also be a 15 percent minimum on illiquid investments, and further disclosure requirements on fund liquidity and redemption practices.
SEC Chair Mary Jo White said: “These new rules represent a sweeping change for the industry by requiring strong transparency provisions and enhanced investor protections.”
She added: “Funds will more effectively manage liquidity risk and both commission staff and investors will receive additional and better quality information about fund holdings.”
It is expected that the majority of funds will be required to comply with the new and amended rules on 1 December 2018, however, those with less than $1 billion in net assets will be required to comply on 1 June 2019.
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