The Securities and Exchange Commission advanced rules Tuesday aimed at reducing risk in the multitrillion-dollar market made up of mutual funds and exchange traded funds.
The proposed rules take aim at so-called open-end funds, requiring them to be prepared to weather a significant number of exiting investors without risking the overall fund.
The rules initiative is aimed at boosting oversight in the asset management industry, a portion of financial markets that took a few hits during the financial crisis, leading some to wonder if they are sufficiently protected to weather other significant downturns in the financial system.
“Promoting stronger liquidity risk management is essential to protecting the interests of the millions of Americans who invest in mutual funds and exchange-traded funds,” said SEC Chairwoman Mary Jo White. “These significant reforms would require funds to better manage their liquidity risks, give them new tools to meet that requirement, and enhance the Commission’s oversight.”
The SEC unanimously agreed to advance the rules, which broadly are aimed at ensuring that such funds have access to enough cash to stay afloat even if a large amount of investors decided to cash out.