Nov 2 (Reuters) – The U.S. Securities and Exchange Commission on Wednesday proposed new rules aimed at better preparing the mutual fund industry for troubled market conditions, including a new pricing mechanism that drew opposition from fund managers.
In the year Market disruptions in March 2020 reinforced the potential for liquidity to escalate quickly, said the SEC, which adopted the proposal in a 3-2 vote.
“In times of stress, when many investors can redeem their shares in a fund, a fund may need to sell less liquid securities quickly to generate cash,” SEC Chairman Gary Gensler said. “When acted upon in large numbers, this could raise issues for investor protection, our capital markets and the wider economy.”
The proposed rule would require mutual funds and certain exchange-traded funds to ensure that at least 10% of their net assets are highly liquid.
The new requirements require mutual funds to have stricter daily closing times and the use of “swing pricing,” which involves adjusting the fund’s price in line with trading activity, so that redeeming investors bear the costs of not meeting remaining investors.
The rules can have a big impact on how you handle your retirement savings. Mutual funds accounted for $4.1 trillion, or 63 percent, of assets held in 401(k) plans at the end of June, and $5.1 trillion, or 43 percent, of IRA assets, according to the Investment Company Institute.
A group representing top asset managers criticized Wednesday’s proposal. CEO Eric Pan said it could have a “huge negative impact” on “very liquid” products for Americans investing in such funds.
The plan will be open for comment before it is finalized.
Asset managers have pushed back since December on an SEC proposal to implement price capping for money market funds, which would have imposed excessive costs on fund sponsors and reduced daily amounts for investors, potentially killing some popular products.
Separately, the SEC voted 3-2 to approve new rules for the reporting of proxy votes by registered investment management companies and the reporting of executive compensation votes by institutional investment managers.
Funds must now apportion the votes uniformly and disclose the number of shares voted to the proxy cards filed with the SEC. Investment managers must report how they vote proxies or “say with pay” votes related to executive compensation.
By John McCrank in New York and Chris Prentice in Washington Editing by Matthew Lewis, Kirsten Donovan
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