The Securities and Exchange Commission announced that it will consider proposals for liquidity risk management programs and related disclosures for open-end management investment companies. The Commission will consider the new rule, amendments to existing rules, and new forms at an open meeting scheduled for Tuesday, September 22, 2015.
Based on prior public statements made by Chair Mary Jo White, we expect that the Commission will propose rules to require mutual funds and ETFs to establish broad risk management programs that address risks related to liquidity and derivatives use. The rules likely will set the stage for enhanced oversight by the SEC. The proposals likely also will include specific requirements for disclosures of liquidity risks, and may include specific proposals to tighten liquidity standards and to limit leverage resulting from funds’ use of derivatives.
We also expect the Commission to propose stress testing requirements, similar to the standards that now apply to banks, and more recently, money market funds. The requirements are part of the Commission’s efforts to address concerns expressed by the Financial Stability Oversight Council and other banking regulators that large asset managers present systemic risks to the financial system.
Finally, we expect the Commission to propose rules for transition planning. Among other things, the Commission is concerned that investors face risks when an investment adviser winds down its business.
In any event, these proposals, especially any that relate to limiting the use of derivatives and leverage, will generate many comments from investment managers and investors.
The Sunshine Act notice is available here.