The Securities and Exchange Commission will have a heavy hand in the mutual fund industry, potentially adding new regulations that could raise costs for fund companies and setting up liquidity rules that may affect bond-related exchange traded funds.
The SEC is will enact greater regulation over the $60 trillion money-management business, reports Daisy Maxey for the Wall Street Journal.
Some analysts have warned that the increased red tape will add on costs for fund companies. The fund industry may even have to go through “stress tests,” similar to what banks have to undergo. In the end, the new regulations should protection investors.
So far, the SEC has required fund firms to disclose greater data on holdings, such as potentially risky derivatives. Additionally, a recent proposal requires funds to prove they can handle extreme stress. Consequently, funds would have o set up programs to classify “liquidity risks” for trading positions.
Funds will have to hold a minimum percentage of assets that can be converted to cash in three business days and will be barred from acquiring assets that can’t be sold within seven calendar days.
Dave Nadig, director of ETF research at FactSet, argues that it will be difficult for some funds to meet the seven-day liquidity requirement. [How ETFs Are Traded]