Mutual fund and ETF managers will have new reporting and liquidity risk management rules following approval Thursday by the Securities and Exchange Commission to finalize new guidelines proposed in September 2015.
The reporting modernization rules will require mutual funds, exchange-traded funds and other registered investment companies to file a new monthly portfolio report and a new annual report with census-type information, plus enhanced disclosures in financial statements.
The final rules produced “a more targeted approach to ETFs” than what was originally proposed, Chairwoman Mary Jo White said before the vote, with exemptions for ETFs that redeem in-kind securities instead of cash and provide daily portfolio information, and liquidity risk management rules specific to the way the funds are structured.
Ms. White also said SEC officials responded to industry concerns about how to classify liquidity by offering what she called “an improved classification scheme.” Instead of the original idea of six categories of investments, funds now just need to identify highly liquid, moderately liquid, less liquid and illiquid.
The rules kept a 15% limit on illiquid investments and require enhanced disclosure regarding fund liquidity and redemption practices.
Mutual funds will be allowed to use swing pricing.
“The reforms are a game changer,” said David Grim, SEC investment management division director, before the commission vote, predicting it would allow regulators and investors more information on funds' risks. The SEC oversees registered investment companies with combined assets of about $18 trillion and registered investment advisers with more than $67 trillion in regulatory assets under management.
The new rules and forms will be published on the SEC's website and in the Federal Register.
Funds with $1 billion or more in net assets would be required to begin filing reports on their portfolios and census data after June 1, 2018, and report on liquidity risk management on Dec. 1, 2018.
Paul Schott Stevens, president and CEO of the Investment Company Institute, said in a statement that his group is still reviewing the rules. “It is clear, however, that this is a tough set of new rules that will spur a number of operational changes across the registered fund industry.”
The SEC also said it will consider further changes to require that fund registration statements disclose more information about securities lending activities, including income and fees.