Comment letter to SEC regarding liquidity risk assessment of open-ended funds

SUMMARY

The Committee on Investment Management Regulation responded to the request of the Securities and Exchange Commission for comment on Release No. IC-31835 (Oct. 15, 2015), in which the Commission proposed a new rule 22e-4 under the Investment Company Act of 1940 and certain amendments to certain of the Commission’s rules and forms (the “Proposal”). The Proposal is intended to promote effective management of liquidity risk for registered open-end funds, including open-end exchange-traded funds but not including money market funds, to attempt to reduce the risk that Covered Funds will be unable to meet redemption obligations, and to try to mitigate dilution of the interests of Covered Fund shareholders. While the Committee strongly supports the primary goal of the Commission in issuing the Proposal, to underscore the importance of the implementation by open-end funds and their investment advisers of portfolio security liquidity risk management processes, it outlines a number of concerns about certain aspects of the Proposal, including the potential for certain proposed requirements to confuse or mislead investors, especially in time of market stress, and the fact that the responsibility assigned to Fund Directors under the Proposal does not align with the appropriate functions of directors under state laws.