The financial crisis that began in 2008 was one of the biggest shocks to the global financial system since the 1930s, and the resulting regulatory reform efforts have been widespread. One area of particular focus has been market liquidity; regulators around the globe have worked to establish new rules targeting liquidity risk. While liquidity can be defined in different ways, we define it as the ability to buy or sell a position at or near its current value.
Concern about market participants’ ability to effectively manage liquidity risk is being stoked by a combination of factors, including: a multi-year decline in dealer inventories; a sharp increase in the supply of outstanding debt instruments (with no comparable increase in trading volume); proliferation of less liquid instruments such as leveraged loans; and concerns that future interest rate increases could trigger market disruptions.
On Oct. 13, 2016, the SEC released a new set of rules for liquidity risk management and report modernization of open-end mutual funds and ETFs. Currently, funds are subject to requirements that establish how quickly they need to return funds to clients who want to exit their position. One of the liquidity management risks facing funds is the risk that a fund won’t be able to keep up with redemption demand if the fund is unable to timely liquidate sufficient assets under stressed market conditions. The new rules, which take effect in January 2018, are designed to enhance effective liquidity risk management.
Join Us for a Webinar to Learn More:
Overview of the SEC Liquidity Risk and Report Modernization Rules for Funds
We’re hosting a webinar on Oct. 27 to discuss the SEC’s final rules, what they mean for your firm and what steps firms can take to position themselves to comply with the new mandates. This webinar is open to all industry participants.
October 27, 2016
11 a.m. EST