Fund Liquidity Risk Management Task Force

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Dechert LLP

Implementing the U.S. Securities and Exchange Commission’s (SEC) fund liquidity risk management rules presents distinct challenges for open-end mutual funds and exchange-traded funds (ETFs), and compliance with the rules will benefit from careful planning. To assist the industry, Dechert’s financial services practice has organized a task force, comprised of more than 20 lawyers, to help clients prepare.

As a reminder, the primary liquidity risk management rule – Rule 22e-4 under the Investment Company Act – was adopted in October 2016, and the tiered compliance dates for that rule are:

Compliance Date

Fund Group Category

December 1, 2018

Large Fund Groups (i.e., groups with net assets of $1 billion or more as of the end of the most recent fiscal year)

June 1, 2019

Small Fund Groups (i.e., groups with net assets of less than $1 billion as of the end of the most recent fiscal year)


By the relevant compliance date, a fund group will be required to adopt and implement a board-approved written liquidity risk management program, as contemplated by the Rule 22e-4.1 For many large fund groups, this means that a fund board should approve the fund’s program no later than the 2018 third-quarter board meeting.

The Dechert task force is analyzing the issues that fund groups will face in moving from the initial working group phase to the implementation phase, as well as communicating with the SEC staff, trade associations, vendors and other industry participants regarding these issues. Among other areas, the task force is addressing:

  • Liquidity risk management program criteria
  • Board issues and related materials
  • Rule terms and interpretations
  • Liquidity classifications
  • Highly liquid investment minimums and illiquid investment limits
  • ETF-specific considerations
  • Sub-adviser and manager-of-managers considerations
  • Derivatives issues
  • Interplay with reporting modernization rules and swing pricing
  • Operational systems and relationships with third-party service providers

Our task force will be issuing ... compliance alerts regularly ... with the objective of assisting in smooth implementation of policies, procedures and programs relating to the rules and related filings and disclosures.

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