The Securities and Exchange Commission voted unanimously to propose measures Tuesday to try to insure open-end mutual funds and exchange traded funds are able to continuously meet redemption requests without significantly lowering the individual share price known as net asset value (NAV).

The rules would not apply to money market mutual funds.

High-yield bond, emerging market equity and alternative strategies funds would be restricted to having 15 percent of their worth in illiquid assets that could be sold without damage in seven days.

Under the rules, an open-end fund would have to set a minimum percentage of assets in cash and assets that could be converted into cash within three days at prices that would not harm the NAV.

The funds would also be required to list the expected ability to sell individual assets without materially harming their value in groups from one business day to more than 30 days.

These would be part of an overall liquidity risk management program a fund would be require to establish and have approved and monitored by the fund’s board.

SEC Chair Mary Jo White said the rules are necessary as more of the money that 43 percent of American families have placed in mutual funds has ended up in funds making risky investments.

Accounting for 17 percent of mutual fund assets, foreign bond funds and alternative strategy funds have historically experienced more unpredictable purchases and redemptions than the average fund, she cautioned.

In addition to harming individual funds, White said their sell offs of illiquid assets have the potential to harm the overall securities market.

Experts have said the increasing use of illiquid investments by funds makes runs more likely. SEC Commissioner Luis Aguilar said the rules should reduce the potential for a rush by investors to redeem in troubled markets.

Democratic Commissioner Kara Stein said she is worried the funds pose too much redemption risk even with the new rules.

In a related rule, open-end funds other than mutual funds and ETFs would be allowed to use “swing pricing” that would reduce the money investors get when redeeming shares by imposing and disclosing the trading costs to get the money into their hands.


The SEC regulates registered investment companies with assets of $18.8 trillion and registered investment advisors with $67 trillion in assets under management.

The public will have an official limit of roughly 60 days to comment on the proposals. However, the SEC regularly accepts submissions after the formal deadline.