Fund Boards Submit Comments on SEC Swing Pricing, Liquidity Management Proposal

In response to the SEC’s recent rule proposal for open-end funds, over 25 fund boards submitted comment letters opposing the swing pricing mandate, imposition of the hard close, and changes to fund liquidity management. The comments overwhelming objected to the SEC’s proposal citing costs, impact on shareholders, and complications in implementation as reasons for the opposition.

On the implementation of swing pricing, comments cited that while swing pricing has been permitted on a voluntary basis in the U.S. since 2016, no fund has elected to implement swing pricing. Additional arguments posited that shareholders have not advocated for swing pricing, the Commission’s cost benefit analysis is not adequately supported and lacks hard data, it treats shareholders differently depending on redemptions and purchases, as well as citing issues with the intermediary system that exists between most fund shareholders and mutual funds. Directors also raised concerns regarding shareholders moving to less regulated products such as CITs and SMAs, which may have unintended consequences. Many fund boards pushed back against the Commission for what they noted is a “one-size-fits-all” approach to managing risk.

The comments also opposed the imposition of a hard close, noting that instituting a hard close may confuse shareholders who are used to the current system. Additionally, directors noted the difficulty smaller funds would have with costs and argued they would have to lean heavily on third party service providers for implementation and ongoing compliance. A few letters commented about the disadvantage investors in other time zones may have when they attempt to purchase or redeem shares of a mutual fund if the hard close is advanced.

Additionally, many fund boards expressed their disagreement with proposed liquidity management changes. One fund board noted the rule as proposed is too rigid and does not take into account differences in trading between smaller funds and larger funds. Some comment letters addressed the costs associated with calculating and reporting liquidity figures more frequently.

Many letters suggested that the Commission make additional efforts to understand the extent of dilution in funds. These letters encourage the Commission to engage with industry participants to explore a range of possible solutions and their potential impact on the industry and shareholders rather than mandating the changes without this information. 

Click here to read the comments submitted on the SEC’s website.