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Increased SEC Asset Management Supervision: Portfolio Liquidity
In light of a recent announcement by SEC Chair Mary Jo White that the SEC plans to increase supervision of asset managers, Oyster Consulting will be providing a series of blogs on ways firms can mitigate risks, evaluate their services, and ensure policies and procedures are in place to protect their clients and themselves.
Product Risk Assessment: Portfolio Liquidity
In addition to the mix of a fund’s investments and the impact that mix can have on a fund, portfolio composition risks can also include risks associated with the liquidity and leverage of a fund’s holdings.
One concern expressed by White was the ability of funds to meet redemptions if they come under stress, particularly open-end investment companies, which have to provide shareholders with redemption proceeds within seven days of any redemption request. A fund with too many illiquid assets will not be able to provide those redemption proceeds, which could result in a loss of customer confidence and satisfaction.
What Firms Should Do:
While the SEC plan is still in the development stages, the Commission is considering adopting requirements for updating liquidity standards and disclosures of liquidity risks. In order to stay ahead of the changing regulatory requirements, firms should:
- Evaluate policies and procedures for assessing a fund’s liquid asset accessibility
- Evaluate policies and procedures for addressing any liquidity limitations
- Evaluate supervisory procedures for liquidity policies and procedures
- Evaluate the fund’s current disclosure policy for liquidity risk
- Determine areas where policies for liquidity risk can be enhanced
How Oyster Can Help:
Oyster Consulting will not only provide you firm with a written report of problem areas regarding liquidity policies and procedures and liquidity disclosures, but will also identify best practices. Should your firm need any improvements, Oyster can help you facilitate those changes.
Whether you are looking to change from self-clearing to fully-disclosed (or vice-versa), exploring your clearing options or starting a broker-dealer, Oyster can assist with the assessment, analysis, vendor selection and conversion processes.Download