The Securities and Exchange Commission approved final rules aimed at enhancing liquidity risk management by open-end investment funds and increasing the reporting and disclosure obligations of registered investment companies. Under the SEC’s new rules, impacted funds will be required to assess, manage and periodically review their liquidity risk based on enumerated factors to minimize the likelihood that they could not meet requests to redeem shares without detrimentally impacting remaining shareholders. In addition, impacted funds would be required to decide a minimum percentage of their net assets that they would have to maintain in highly liquid assets (i.e., cash or investments that could reasonably be expected to be liquidated in three business days or less without significantly deteriorating their market value) and cap its holding of illiquid assets to 15 percent of its overall assets (i.e., investments that could not reasonably be expected to be liquidated in current market conditions within seven calendar dates without significantly deteriorating their market value). Open-end management investment companies would be required to disclose on their registration forms their procedures for redeeming fund shares, the number of days reasonably expected to pay redemption proceeds and the method for meeting redemption requests, and on reporting forms, information regarding the aggregated percentage of their portfolios representing each of four ease of salability classification categories and information on the use of lines of credit and inter-fund borrowing and lending. The SEC also proposed rules permitting funds to pass along costs incurred in meeting redemption requests (i.e., swing pricing). The SEC deferred adopting final rules related to the use of derivatives by funds. (Click here for details regarding the SEC’s proposal to restrict the use of derivatives by registered investment companies in the article, “SEC Considers New Rule to Restrict Use of Derivatives by Investment Companies” in the December 13, 2015 edition of Bridging the Week.) Different final rules have different compliance dates, with the largest funds being required to comply with the liquidity management rules by December 1, 2018.