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February 16, 2023

SEC Proposal Would Promote the Stability of Mutual Funds, While Raising Some Implementation Concerns

WASHINGTON, D.C.—Legal Director and Securities Specialist Stephen Hall issued the following statement on the filing of Better Markets’ comment letter to the Securities and Exchange Commission (SEC) in response to the agency’s proposed rule to strengthen liquidity risk management programs at open-end funds and implement swing pricing:

“This proposal includes much-needed and long overdue reforms to the liquidity requirements governing mutual funds and other open-end funds, which are significant investment vehicles for the retirement savings of everyday Americans. The proposal is intended to bolster the stability of these funds in times of market stress and also make sure that the shareholders who cash out bear their fair share of the costs and sinking asset values that come with a high volume of redemptions.

“With $34 trillion in assets, the open-ends fund industry plays an important role in the U.S. capital markets and the overall economy. They must be resilient, but the events of March 2020 proved that these funds can be subject to bank-like runs during periods of market stress, which can cause financial instability and investor harm. Those events also made clear that the existing liquidity requirements are not tough enough to ensure funds can meet redemption demand during periods of stress without suffering significant declines in share values.

“The proposal would help ensure that a greater percentage of the assets held by mutual funds are truly liquid. To address the fairness problem, the proposal would require funds to adjust their share price or NAV by a certain amount, known as the ‘swing factor,’ when funds experience high levels of net inflows or outflows.  That means, for example, that investors cashing out would get a share price adjusted to account for the costs and changes in asset values that remaining investors must shoulder.  To operationalize such swing pricing, the proposal would require funds to adopt a ‘hard close’ or firm deadline for all orders to buy or sell shares.  These provisions pose special implementation challenges and might actually create unfairness for some investors.

“Therefore, as we argue in our comment letter, the SEC should finalize the liquidity provisions without delay but take more time to consider alternative methods for ensuring that the costs and asset price changes arising from large numbers of purchases and redemptions are allocated fairly among investors.”

Read our full comment letter here.


Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit

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