“It is imperative that open-end funds manage their liquidity carefully, both to ensure that redemptions can be fulfilled in a timely manner and to minimize the impact of redemptions on remaining investors,” SEC Chair Mary Jo White said. “The recommendation before us today includes all of the essential elements of the proposal, centered on a requirement for funds to establish a liquidity risk management program overseen by the fund’s board of directors.”
Consequently, the new regulations on bond funds may increase costs or potentially diminish the performance of the open-end fixed-income market, which may steer investors toward more cost-efficient ETF options ahead.
The new SEC regulations are a response to growing concerns from the Federal Reserve, the International Monetary Fund and other observers with riskier holdings, notably less liquid high-yield speculative-grade debt, could struggle to return cash to investors during heightened redemption demand. Anxiety over bond fund liquidity mounted after a $788 million Third Avenue Management credit fund halted redemptions in December.
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