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Friday, January 15, 2016

Are You the Next Third Avenue? The SEC Wants to Know

News summary by MFWire's editors

Thanks to the infamous collapse last month of the Third Avenue Focused Credit Fund [profile], regulators are scrutinizing the rest of the high-yield bond mutual fund marketplace.

Sarah Lynch of Reuters reports that "within weeks of the Third Avenue event" SEC examiners reached out to ask mutual fund and ETF shops about the challenges of pricing less liquid securities. The wire service cites both unnamed sources and a copy of the SEC's letter.

Norm Champ
Harvard Law School
Lecturer on Law
Barron's and Wall Street Journal also reported on the news.

The SEC's examiners reportedly wanted: "daily internal illiquidity calculations" for August 31 through December 15, "a list of large fund shareholders, daily inflow and outflow data and any disclosures concerning 'liquidity, quality of portfolio composition and/or redemption activity for each fund.'" Fundsters had just one day to hand in more than half of the stuff and an extra week to gather and hand in the rest.

"I think that SEC examiners are better now at reacting quickly to these problem situations," Norm Champ tells Reuters. Champ stepped down a year ago as head of the SEC's investment management division.

News of the SEC's interest in liquidity issues at junk bond mutual funds and ETFs comes shortly after the regulatory agency revealed that liquidity controls will be an examination priority this year for its office of compliance inspections and examinations. Also this week, mutual fund trade group ICI expressed support for the SEC trying to formalize liquidity risk management programs at mutual funds while offering critiques on other pieces of the idea. The SEC issued that proposal back in September. 

Edited by: Neil Anderson, Managing Editor

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