Fund industry says proposed U.S. SEC rules would harm retirement savers
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[February 16, 2023] By
John McCrank
NEW YORK (Reuters) - The mutual fund industry is warning the U.S.
Securities and Exchange Commission that new proposed rules aimed at
better preparing open-end funds to weather distressed market conditions
would harm investors saving for retirement.
A November proposal from the SEC would require mutual funds, and some
exchange-traded funds, to ensure that at least 10% of their net assets
are highly liquid. It would also require a hard daily close of 4 p.m.
Eastern time for mutual funds, and the use of "swing pricing."
Such pricing, which involves adjusting a fund's value in line with
trading activity so redeeming investors bear the costs of exiting
without diluting remaining investors, is an attempt to prevent liquidity
issues during market disruptions, such as at the beginning of the
pandemic, when many investors tried to exit funds at the same time.
SEC Chairman Gary Gensler argued at the time the tweaks would ensure
such funds are resilient and protect investors.
But industry groups and fund managers criticized the proposal in public
comments, describing them as misguided and harmful.
"The SEC's liquidity, swing pricing, and hard close proposal would
seriously harm the more than 100 million Americans who use mutual funds
to invest for their financial future," said Eric Pan, chief executive
officer of the Investment Company Institute, an industry group.
The proposal also does not accurately reflect key characteristics of
fixed income investments, many of which rarely trade, said Emmanuel
Roman, CEO of PIMCO, which had around $1.74 trillion in assets under
management at the end of last year.
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The U.S. Securities and Exchange
Commission logo adorns an office door at the SEC headquarters in
Washington, June 24, 2011. REUTERS/Jonathan Ernst/File Photo
The plan to require swing pricing presents "overwhelming"
operational challenges, said Rick Wurster, president of Charles
Schwab Corp, and could decrease transparency for investors, who
would not know whether it was being applied until after their
transaction request.
The hard close creates several problems, including for shareholders
who own funds through defined contribution plans, which are not able
to send in orders by 4 p.m. and may be stuck with the next day's
price for their orders, independent trustees of Fidelity's equity
and high income and fixed income allocation funds said in a letter.
The rules could push such plans to move assets to less restrictive
financial products, such as collective investment trusts that do not
have the same oversight as mutual funds, they said.
"This risks reducing protections for investors in general,
increasing costs to fund shareholders that remain in registered
open-end funds, adversely affecting investor choices and investment
outcomes, and generally harming the best interests of tens of
millions of fund investors," they said.
(Reporting by John McCrank in New York; Editing by Pete Schroeder
and Matthew Lewis)
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