U.S. SEC To Make Serious Rules Change On Pricing For Mutual Funds
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The U.S. Securities and Exchange Commission is proposing a new rule that will set out a comprehensive protocol for the mutual fund industry. The SEC revealed that the new rules will help to address the distressed market conditions, which includes a new pricing system.
The market disruptions experienced in March 2020 showed that liquidity can deteriorate quickly, according to the SEC.
ETFs And Mutual Finds To Maintain Highly Liquid Assets
SEC Chair Gary Gensler stated that a fund might need to sell less-liquid securities quickly to generate cash, especially in times of stress. In this case, investors may decide to redeem their shares in a fund as soon as possible.
“This can raise issues for investor protection, our capital markets, and the broader economy,” he added.
The proposed rule would require some exchange-traded funds (ETFs) and mutual funds to ensure that about 10% of their net assets are highly liquid.
Additionally, the new requirements would need a strong daily closing time for mutual funds. It will also involve swing pricing. This is a way of adjusting the fund’s value according to the trading activity to place the cost on investors who exit without diluting other investors.
Asset Managers Push Back Against The New Rule Change
The rule may have a massive impact on how retirement savings are handled. At the end of June, about 63% of assets held in 401(k) plans totaling about $4.1 trillion were held by mutual funds. They also held 43% of or $5.1 trillion of IRA assets, according to the Investment Company Institute.
Asset managers are also pushing back against a proposal by the SEC that seeks to implement swing pricing for money market funds. They argued that such a rule will lower daily liquidity, impose an excessive cost on fund sponsors, and be potentially very challenging for investors. The asset managers believe that such rule imposition will likely kill off some popular products.
In another policy change, the SEC voted massively to adopt new rules that will enhance reporting of proxy votes. The new rule also looked into the reporting of executive compensation votes by institutional managers.
The votes will now be categorized in a consistent way for each fund, and they will also reveal the number of shares voted for proxy cards.
