Gensler Delivers Remarks on Market Structure, Asset Management at ICI Washington DC Conference

In May, SEC Chair Gary Gensler delivered virtual remarks at the Investment Company Institute’s Washington DC Leadership Conference. His remarks, entitled “Bear in the Woods,” touched on investment and liquidity risks posed by certain types of investment funds as well as the SEC’s recent proposals addressing those perceived risks. On liquidity, Chair Gensler stated, “[m]oney market funds and open-end bond funds, by their design, have a potential liquidity mismatch—between investors’ ability to redeem daily on the one hand, and on the other, funds’ securities holdings that may have lower liquidity.” He remarked that during the onset of Covid-19, when the short-term funding markets experienced volatility, certain market participants reached out for relief and added, “I’m not going to name any names, but you in the industry who called the SEC and other agencies know who you are.” Chair Gensler noted the SEC’s proposals regarding money market funds and open-end funds address key liquidity issues experienced during the March 2020 volatility. When referencing the recent open-end fund proposal, Chair Gensler stated the Commission put forward “a number of alternatives” including “either within the framework of swing pricing or liquidity fees…” Last, he touched on products overseen by banking regulators such as collective investment trusts, noting that these funds “lack limits on illiquid investments and minimum levels of liquid assets” as well as lacking limits on leverage, reports on holdings, or the requirement for an independent board. He closed by noting the goal of the proposed reforms is “the rules help keep investors from getting eaten by the bear and minimize calls for fire department support.”

Click here to read Chair Gensler’s speech “Bear in the Woods.”