The SEC wants to require swing pricing for all mutual funds, which would involve funds having to ‘swing’ their daily share price, changing the net asset value any time transactions cross a threshold
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The SEC wants to require swing pricing for all mutual funds, which would involve funds having to “swing” their daily share price, changing the net asset value any time transactions, such as large redemptions, cross a threshold mandated by the SEC. This dramatic change is ostensibly so that funds can apply swing pricing based on flows. Yet, it will require brokers and retirement plans to impose far earlier cut-off times for orders, meaning investors will lose full access to trading at today’s price during normal market hours.
The SEC claims that mandatory swing pricing will address dilution: the idea that redeeming shareholders imposes costs on those remaining in the fund. But this is the nature of a collective investment – everyone enters and exits at some point. Unfortunately, destabilizing runs in the banking sector in recent weeks confirm that policymakers’ narrow focus on open-ended funds has been misplaced. And there’s scant evidence that mandatory swing pricing will do much to change investors’ responses to economic turmoil.
The proposal is not supported by data and barely addresses the costs or benefits to investors. Funds themselves would also incur significant costs, with the “hard close” necessitating system upgrades for all users including custodians and transfer agents.
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