Report

SEC Proposes Mandatory Swing Pricing for Mutual Funds and Revised Liquidity Requirements

November 2022

The US Securities and Exchange Commission (SEC) on November 2, 2022, by a 3-2 party line vote, proposed amendments (the Proposal) to the liquidity risk management programs rule (Rule 22e-4) under the Investment Company Act of 1940, as amended; and amendments that would require certain funds to implement “swing pricing” and impose a “hard close” on the acceptance of purchase and redemption orders. The SEC described the Proposal as intended to “better prepare open-end funds for stressed conditions,” citing systemic issues associated with the onset of the COVID-19 pandemic, as well as to “mitigate dilution of shareholders’ interests” and “enhance how funds manage their liquidity risks.”

The proposed swing pricing and “hard close” requirements that would apply to open-end mutual funds other than exchange traded funds and money market funds (Mutual Funds) would fundamentally alter how (and when) fund shares are sold and priced, and may reduce the attractiveness of Mutual Funds compared to other investment products. In addition, the Proposal would have significant implications for funds’ portfolio compositions and investment strategies and would also impose substantial new costs and operational complexities for both funds and intermediaries.

Comments are due on the Proposal 60 days after its publication in the Federal Register.