CCO Resource Center: Liquidity Risk Management Program Policies and Procedures

Chief Compliance Officer Committee

Liquidity Risk Management Program Policies and Procedures

In 2016, the SEC adopted a new Rule 22e-4 under the Investment Company Act that, in part, requires each fund and in-kind ETF to adopt and implement a written liquidity risk management program (‘‘program’’) that is reasonably designed to assess and manage the fund’s liquidity risk. The program’s elements, which are set forth in Subsection (b) of the rule, in part, require a fund, as part of its program to:   

(i) Assess, manage, and periodically review the fund’s liquidity risk;

(ii) Classify each of the fund’s portfolio investments (including each of the fund’s derivatives transactions) into one of four categories: (1) highly liquid; (2) moderately liquid; (3) less liquid; or (4) illiquid;

(iii) Determine a highly liquid investment management if the fund does not primarily hold assets that are highly liquid investments;

(iv) Periodically review, no less frequently than annually, the fund’s highly liquid investment minimum;

(v) Adopt and implement policies and procedures for responding to a shortfall of the fund’s highly liquid investments below its highly liquid investment minimum. 

The rule also requires a fund’s board, including a majority of directors who are not interested persons of the fund, to oversee the fund’s program. The rule expressly requires the board to: (i) initially approve the liquidity risk management program; (ii) approve the designation of the person(s) designated to administer the program; and (iii) review, no less frequently than annually, a written report prepared by the person(s) designated to administer the program that addresses the operation of the program and assesses its adequacy and effectiveness of implementation, including, if applicable, the operation of the highly liquid investment minimum, and any material changes to the program. To document compliance with the rule, a fund must maintain: (i) a written copy of the program and (ii) any associated policies and procedures adopted pursuant to the rule that are in effect, or at any time within the past five years were in effect, in an easily accessible place.

As part of the funds’ implementation of the rule, they drafted policies and procedures for review and approval by their fund boards. To better understand the policies and procedures that funds were adopting, the Institute asked members to share with us the policies their fund boards had approved so we could post them in our CCO Resource Center as a resource to members. The Institute has redacted identifying information in these policies and procedures and compiled them. They are arranged in no particular order in this compilation, which is available at:.

• Liquidity Risk Management Program Policies and Procedures (pdf)

The documentation provided by ICI that may be accessed by the CCO Committee members is restricted to members’ use only and not for distribution or reproduction. Documentation may be used internally at member organizations as needed.