By John I. Sanders and Lauren Henderson
On March 14, 2018, the SEC proposed an amendment to the Liquidity Rule. As adopted, the Liquidity Rule requires open-end investment companies to establish a written liquidity risk management program.[1] As part of this program funds must (i) submit position-level data to the SEC on a non-public basis each month and (ii) publicly disclose the fund’s aggregates liquidity profile on a quarterly basis by classifying securities, also called the “bucket approach.”[2] The proposed amendment replaces the bucket approach. Instead, funds will be required to discuss the operation and effectiveness of its liquidity risk management program in its annual report.[3] The SEC seeks to replace the bucket approach because classifying assets is inherently subjective and the bucket approach does not provide investors the necessary context to understand how the classification relates to the fund’s liquidity and risk management.[4] The SEC believes a narrative description in the fund’s annual report will “better inform investors of how the fund’s liquidity risk and liquidity risk management practices affect their investment.”[5] It is important to understand the practical implications of the proposed amendment on open-end investment companies. Specifically, while the proposed amendment changes the information that they must publicly disclose, it does not change the data they must report to the SEC.[6] If you have any questions about the Liquidity Rule or the proposed amendment, please feel free to contact us. John I. Sanders and Lauren Henderson are associates based in the firm’s Winston-Salem office. [1] SEC, Final Rule: Investment Company Liquidity Risk Management Programs, Release No. 33-10233, IC-32315, available at https://www.sec.gov/rules/final/2016/33-10233.pdf. [2] Id. [3] SEC, Proposed Rule: Investment Company Liquidity Disclosure, Release No. IC-33046, available at https://www.sec.gov/news/press-release/2018-42. [4] Id. [5] Id. [6] Id.; SEC Chairman Jay Clayton, Statement on Proposed Amendments to Public Reporting of Fund Liquidity Information (Mar. 14, 2018), available at https://www.sec.gov/news/public-statement/statement-clayton-open-meeting-fund-liquidity-2018-03-14.
Disclaimer
While we are pleased to have you contact us by telephone, surface mail, electronic mail, or by facsimile transmission, contacting Kilpatrick Townsend & Stockton LLP or any of its attorneys does not create an attorney-client relationship. The formation of an attorney-client relationship requires consideration of multiple factors, including possible conflicts of interest. An attorney-client relationship is formed only when both you and the Firm have agreed to proceed with a defined engagement.
DO NOT CONVEY TO US ANY INFORMATION YOU REGARD AS CONFIDENTIAL UNTIL A FORMAL CLIENT-ATTORNEY RELATIONSHIP HAS BEEN ESTABLISHED.
If you do convey information, you recognize that we may review and disclose the information, and you agree that even if you regard the information as highly confidential and even if it is transmitted in a good faith effort to retain us, such a review does not preclude us from representing another client directly adverse to you, even in a matter where that information could be used against you.
