Open End Funds Liquidity Risk Management and Swing Prices – Hard Close 

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.

Purpose of the Amendments:  

• • - The proposed amendments to Rule 22c-1 aim to better prepare open-end funds for stressed conditions and mitigate the dilution of shareholder’s interests.  
  • - SEC would implement safeguards to protect shareholders using an effective tool called “Swing Pricing” which helps Fund companies handle large net asset flows, so shareholders do not get adversely impacted. 
    • - The amended provision would be required for all Open-end funds (money market funds and exchange traded funds are excluded).  
    • - All shareholders' orders must be received by the transfer agent or clearing agency before the close of the NYSE so they can process and transmit orders. 

Pricing Requirement:  

• - Under the amendments, swing pricing will go into effect whenever the funds Net inflows or outflows exceed the present level. 
• - The provider calculates the NAV  then will adjust it by the “Swing factor,” 
• - There becomes a hard close – Orders would need to be received by 4 pm to receive that day’s price.  
• - This hard close will help to operationalize swing pricing. It will also prevent late trading which would help improve the overall trade order processing .

Effects on Your Trade Processing