Letters to Regulators: Letter to the SEC in Support of Open-Ended Fund Proposal

View or download a PDF of the letter here.

AFREF sent a letter in support to the Securities and Exchange Commission on its proposal to better protect investors and the financial system from the problems in the $21 trillion open-end fund market.

Unlike Exchange Traded Funds (ETFs) which issue a finite number of shares, open-end funds issue shares to buyers while repurchasing them from sellers. In times of financial stress however as we saw in March 2020, where the industry experienced over $100 billion in withdrawals in a month representing about 10% of each fund’s assets, those withdrawals may lead the fund to forcibly sell assets to raise more capital to meet redemptions, further depressing the prices of their assets and leading to additional withdrawals.

AFREF therefore supports the SEC’s proposals to implement swing pricing, enact a hard close of trading the fund’s shares at 4pm Eastern, and require funds to hold a certain percentage of their assets in highly liquid assets, depending on how illiquid their portfolio is, to be able to meet those redemptions without further harm to other fund investors and the financial system.

Tagged with: investor protection, liquidity management, liquidity risk, open-ended fund, SEC, Systemic Risk