The Investment Company Institute (ICI) endorsed a proposal by the Securities and Exchange Commission (SEC) to amend mutual fund disclosure rules.
The disclosure rules about liquidity information. With this new proposal, fund companies must provide a clear and useful narrative in shareholder reports. Specifically, fund companies should discuss the operation and effectiveness of their liquidity risk management programs in their shareholder reports.
This replaces a rule that called for mandatory public disclosure of aggregated liquidity classification, or “bucketing,” information, which the SEC adopted in 2016.
“Allowing funds to provide liquidity risk disclosures in narrative form represents a vast improvement to the status quo,” ICI President and CEO Paul Schott Stevens wrote in a letter to the SEC. “The asset classifications rely on inputs that are complex, hypothetical, and subjective, which will spawn investor confusion and inaccurate and misleading comparisons among funds. We strongly agree with the Commission that its proposal will more effectively promote investor understanding of funds’ liquidity risks and how funds manage them.”
ICI has been fully engaged with the SEC over the years on the development of the liquidity risk management rule. It sent initial comment letters in 2016 on the proposal, followed by additional comments in July and November 2017.