Reflecting growing fears about liquidity risk in the asset-management arena, the SEC has for the first time in over twenty years revised its liquidity standards and issued a sweeping proposal that establishes principles-based liquidity risk-management standards for open-end funds, including mutual and exchange-traded funds (ETFs). These rules expand the framework established in 2014 for money-market funds (MMFs), albeit without the prescriptive criteria demanded in the MMF rule. The SEC’s goal is to ensure that funds can meet redemption requests without being forced to reduce net asset value (NAV). Reflecting the Commission’s focus on investor protection, not systemic risk, the standards are generally far less prescriptive than those applicable to larger banks (although not directly to their investment-company operations) and do not expressly require buffers or other protection against stress scenarios unless these can be reasonably foreseen.
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