“We urge that the commission's rulemaking take into account a more nuanced balance of shareholder, market and public interests, combined with a deeper inquiry into the foreseeable effects of the commission's rulemaking,” Knowles wrote. “We are concerned that the proposed rules go further than necessary in attempting to rectify a problem which is lesser in magnitude than the proposal would suggest, and in so doing impose disproportionate costs on fund investors.”
In its comments to the SEC, Vanguard supported the SEC’s efforts but criticized the rules for being inflexible, writing “we believe liquidity risk management should be informed by historical and fundamental traits of the mutual fund industry while remaining adaptable to dynamic market conditions. As a result, we recommend that the SEC require mutual funds to adopt and implement board-approved liquidity risk management programs that would permit funds to rely on top-down portfolio analysis as opposed to the proposal’s prescriptive bottom-up classification framework.”
David Grim, director of the SEC Division of Investment Management, responded in published comments from the Investment Company Institute’s recent Mutual Funds and Investment Management Conference.
“The spirited response to the liquidity-risk management proposal is certainly understandable,” Grim said. “But I think many would agree that recent events, particularly in certain areas of the bond markets, have led some advisers to renew their focus on liquidity risk management.”
In the mean time, the proposed rules might have a positive impact on advisors and investors, Chase says.
“The rules are really designed for the protection of the investor,” Chase says. “Ideally, these funds are in a position to respond to redemption requests at any given time. At the very least, these rules will ensure that investors receive better disclosures on the liquidity of their funds’ holdings.”