Trade settlement cycles will be transitioning from T+2 to T+1 in April 2024, aiming to promote market efficiency, strengthen investor protection and reduce counterparty and market risk. However, this change will present obstacles for Non-US ETF’s.   

Pending amendments to Rule 22c-1 of the Investment Co. Act of 1940 (CFR Citation: 270.22c-1) would create a new hard close policy as the SEC plans to impose swing pricing. Getting to the heart of the proposed amendment means wading through complex documentation and given the potentially big impact of this proposed change I am diving in to help outline the upcoming changes.

The August 19, 2022 compliance date of rule 18f-4 of the Investment Company Act of 1940 is approaching. The new rule is described by the Securities and Exchange Commission as an effort “to provide an updated, comprehensive approach to the regulation of funds’ “use of derivatives and certain other transactions”.  It imposes derivatives management duties on mutual funds (other than money market funds), exchange traded funds, registered closed-end funds, and business development companies. An example of a necessary step in adhering to the new policy is a written derivatives risk management program, relying upon stress testing, led by a Derivatives Risk Manager. In addition, there are Value at Risk (VaR) measurements of leverage risk and Board derivatives oversight and reporting.