Memo #
30867

Draft ICI Comment Letter on IOSCO Liquidity Risk Management Consultations; Please Respond by 9/15
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[30867]

September 11, 2017 TO: ICI Global Regulated Funds Committee
SEC Rules Committee RE: Draft ICI Comment Letter on IOSCO Liquidity Risk Management Consultations; Please Respond by 9/15

 

As we reported in July,[1] the International Organization of Securities Commissions (IOSCO) published two consultation papers on fund liquidity risk management, the first titled Consultation on CIS Liquidity Risk Management Recommendations (the “Recommendations Consultation”)[2] and the second titled Open-ended Fund Liquidity and Risk Management—Good Practices and Issues for Consideration (the “Good Practices Consultation”).[3] 

Attached for your review is our draft comment letter.  Comments are due to IOSCO by September 18.  Please provide your comments on the draft letter to Rachel Graham (rgraham@ici.org), Frances Stadler (frances@ici.org), or Matt Thornton (matt.thornton@ici.org) on or before Friday, September 15.

The draft letter generally supports both consultations, noting that IOSCO’s work (which responds in part to the FSB’s recommendations on so-called liquidity mismatch) “represent[s] a sensible and measured step that should help promote a high bar across jurisdictions for funds’ liquidity risk management practices.”  The draft expresses our agreement with specific elements of IOSCO’s approach, such as (i) the decision to supplement earlier IOSCO work in this area rather than start anew and (ii) the decision to prepare two consultations with different but complementary purposes.  The draft then offers some suggestions for improvements.  Among other things, we recommend that IOSCO:

  • Slightly revise Recommendation 7 regarding the appropriate level of disclosure to investors, and move the list of possible additional disclosure items to the final Good Practices report.
     
  • Slightly revise Recommendation 12, which concerns the identification of liquidity challenges.
     
  • Revise the guidance accompanying Recommendation 14 so that it focuses more broadly on liquidity assessments, and move any discussion of possible stress testing features to the final Good Practices report.
     
  • Make minor changes to the guidance accompanying new Recommendations 16-17, which address contingency planning.

The draft endorses the Good Practices Consultation as a “thorough and well-presented resource” and highlights some of its most helpful aspects.

In closing, the draft letter notes that the consultations represent an important contribution to the public record surrounding a multi-year policy debate about liquidity and redemption risks associated with open-ended investment funds—a debate that unfortunately has been fueled, at times, by unsubstantiated theories about these risks.  We call for re-examination by the policy community of these hypotheses based on empirical evidence, and we urge IOSCO to endorse such a reexamination.

 

Rachel H. Graham
Associate General Counsel

Frances M. Stadler
Associate General Counsel & Corporate Secretary

Matthew Thornton
Assistant General Counsel

 

Attachment

endnotes

[1] See ICI Memorandum No. 30780, dated July 14, 2017.

[2] Available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD573.pdf.

[3] Available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD574.pdf.