On November 2, 2022, the Securities and Exchange Commission proposed amendments to Rule 22e-4 and Rule 22c-1 of the Investment Company Act of 1940 that would require open-end funds to adjust their approach to liquidity risk management. In particular, the proposed amendments would mandate swing pricing and a “hard close” on most open-end funds, and would amend certain components of open-end funds’ liquidity risk management programs.

Key aspects of the proposed amendments include:

• Required Use of Swing Pricing. All open-end funds (other than ETFs and MMFs) would be required to adjust their net asset values during any period of net redemptions, as well as during periods of net purchases exceeding a specified threshold.

• Mandatory Hard Close. An investor’s order to purchase and sell an open-end fund (excepting ETFs and MMFs) would only be eligible for that day’s net asset value if the fund, its transfer agent or a registered clearing agency receives the order before the time the fund calculates its net asset value (typically 4 pm ET for most funds).

• Amendments to Fund Liquidity Risk Management Programs. Among other changes, the proposed amendments would require funds to incorporate stress into their liquidity classifications by assuming the sale of a stressed trade size. The proposal would also amend the current liquidity classification system by eliminating the “less liquid” category and by requiring daily, rather than monthly, liquidity calculations. The proposed amendments would require funds to maintain a minimum amount of highly liquid assets of at least 10% of net assets.

• Form N-PORT Reporting Frequency. Funds would be required to file Form N-PORT on a monthly basis within 30 days after month-end.

We will provide further details on these proposed amendments in an upcoming client alert. The comment period for the proposed amendments is 60 days after publication in the Federal Register.