SEC Deadline for Open-End Fund Liquidity Classification is Extended

However, the deadlines for creating a liquidity risk management program and to limit illiquid investments to 15% of a fund’s portfolio remain unchanged: December 1, 2018, for larger fund groups and June 1, 2019, for smaller fund groups.

The Securities and Exchange Commission has voted to extend by six months the deadline by which open-end funds must comply with certain elements of the Commission’s liquidity risk management program rule.

According to the SEC, the new compliance date will provide funds additional time to complete implementation of the final rule’s classification requirement, along with specified other elements that are tied to the classification requirement. Other provisions of the rule that provide important investor protection benefits, including the requirements to adopt a liquidity risk management program and to limit illiquid investments to 15% of the fund’s portfolio, will go into effect as originally scheduled.

The SEC adopted the open-end fund liquidity rule in October 2016 to help funds meet their statutory obligation, and investors’ expectations, regarding redemption of shares. Since that time, SEC staff have reached out to investment management firms to identify any issues with compliance.

As a result of this review, the new deadline for the classification requirement for larger fund groups is now June 1, 2019, and for smaller fund groups, December 1, 2019. The deadline for the formation of liquidity risk programs and the 15% cap on illiquid securities remains unchanged as December 1, 2018, for larger fund groups and June 1, 2019, for smaller fund groups.

“Today’s Commission action is a measured step designed to help preserve key market oversight and investor protection benefits of the Commission’s liquidity rule while addressing certain concerns that have been raised since adoption,” said SEC Chairman Jay Clayton in a statement. “I expect our action will promote a smoother and more effective implementation process for the rule. I appreciate the valuable engagement with stakeholders we have received thus far, and welcome further engagement, particularly from fund investors, as the implementation process continues.”

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