ICE Data

ICE DATA SERVICES SUMMARY: FINAL SEC RULES FOR LIQUIDITY RISK MANAGEMENT PROGRAMS

On October 13, the SEC issued final rules for Liquidity Risk Management Programs. The tables below summarize certain key provisions of those rules, points where the final form deviated from the September 2015 rule proposal, and aspects of the ICE Liquidity Indicators product that may assist funds in complying with new liquidity requirements.

The ICE Liquidity IndicatorsTM service provides measurements of security-level liquidity classifications and portfolio-level aggregations, based on multiple scenarios tailored to the particular client's needs, in order to support clients’ liquidity risk management programs. ICE Liquidity Indicators are powered by our award-winning fixed income evaluation and reference data services. ICE Data Services provides clients with transparency into our approach for measuring liquidity, along with back-testing reports and related research.

Requirement Final Rule Description ICE Liquidity IndicatorsTM Additional Comments
Compliance Period Dec 1, 2018 (funds=>$1BN)
  • 6 months later than proposed
June 1, 2019 (funds < $1BN)
  • Capable today to assist firms in measuring liquidity of securities and portfolios
  • Modest refinements are planned to support new bucketing schema specified in final rule
N-PORT disclosures (required June 2018 for funds >=$1BN but not released to the public until Dec 2018) might include liquidity classifications
Fund Type Scope Open-ended funds incl. ETFs and certain UITs Excludes MMFs ETFs could qualify for exemption (based on additional factors) from classification and highly liquid minimum requirements (different from proposal)
Formal LRM Program Written policies & procedures approved by Board
Highly Liquid Assets Minimum Set by fund management
  • Proposal: set by fund board
Helps firms determine percentage of portfolio classifiable as Highly Liquid (and the 3 other liquidity buckets) Our service can help support trend analysis over time and help validate client’s compliance efforts with Highly Liquid minimum
Fund must follow written policies and procedures for responding to a shortfall
  • Proposal: restrict purchases when a shortfall exists
Can assist firms in validating or determining if portfolio is in breach of internal policies
Illiquid Instrument Cap Codification of cap of 15% Instruments classified in same manner as the other 3 buckets
  • Proposal tied 15% cap to instruments classified by a separate method.
Planned enhancement will align display with final rule’s 4 liquidity buckets, including "Illiquid" category Interactive Data Pricing and Reference Data (an ICE Data Services company) commented in favor of unifying the proposal’s 2 distinct classification scales into a single framework
Public Disclosures Portfolio-level bucket aggregations only
  • Proposal would have made security-level data public
Generates both security-level liquidity estimates (to help clients with SEC reporting obligations) and portfolio level aggregates
Liquidity Classification Requirements Retained quantitative bucketing based on number of days to liquidate Estimates projected days to liquidate a position within cost threshold chosen by the user; or projected price impact to liquidate under a target time horizon Our estimates of liquidation time and cost are determined through quantitative methods relevant to each asset class and validated through back-testing
4 Buckets (Highly Liquid, Moderately Liquid, Less Liquid and Illiquid)
  • A change from 6 buckets as proposed
SEE SEPARATE TABLE BELOW
  • We will adjust displayed days-to-liquidate categories to conform to final rule bucketing schema
  • We will add settlement day convention per asset class
Our current outputs can be converted into the final rule’s 4 liquidity buckets upon downloading our content package
“Considerations” for security-level liquidity classification are stated as guidance, not codified
  • Proposal would have codified 9 liquidity factors
Factors used for estimating liquidity for each security vary by asset class Interactive Data Pricing and Reference Data LLC (an ICE Data Services company) commented in favor of treating the proposed risk factors as "guidance"
Asset class can be used as a “starting point”
Fund must make “reasonable inquiry” to ID exceptions at security level
  • Can aggregate security-level outputs per asset class to support identifying common liquidity characteristics
  • Can support identifying exceptions at the security level
Based on “sizes that the fund would reasonably anticipate trading”
  • Proposal focused on fund’s entire position in a security
Service can accommodate any position size submitted by a user
Without “significantly changing” the investment’s market value
  • Proposal: “not materially affect” value of investment
User can enter a projected (target) market price impact threshold, which varies with projected days to liquidate and vice versa Tying projected market price impact with number projected days to liquidate lets the service support diverse views on what degree of price change is "significant"
Current market conditions Our service also can support scenario analysis for stressed market conditions (not required by SEC rule)

 

Classification Category Days to Liquidation (DTL) Days to Covert to Cash (DCC) Notes
Highly Liquid Investment - <= 3 Business Days Applies to “Highly Liquid Asset Minimum”
Moderately Liquid Investment - > 7 Calendar Days -
Less Liquid Investment <= 7 Calendar Days - Any long settlement instruments will at best map here.
Illiquid Investment > 7 Calendar Days - Applies to 15% cap on Illiquid Instruments

Note: DCC = DTL + Settlement Days