SEC Working on Mutual Fund Regulations, Conducts Dark Pool Probes, Enacts New Exchange Rules

The U.S. Securities and Exchange Commission is developing regulations that would make sure that mutual funds are liquid enough to satisfy client redemptions and money managers have a plan should a fund fail. Part of the regulator’s strategy may include limiting how mutual funds are allowed to place in assets that are hard-to-sell and use derivatives to enhance returns.

InvestmentNews reports that according to a report issued by the International Monetary Fund last month, mutual funds’ holdings of leveraged loans, junk bonds, and other assets that don’t trade often had higher market and liquidity risks. The IMF said that this could “compromise” financial stability unless the matter is dealt with. Mutual funds also have come under the Financial Stability Oversight Council’s scrutiny.

Per the SEC’s agenda, regulators could propose new mutual fund rules in October of next year. Earlier this year, when Commission Chair Mary Jo White talked about an action plan that the agency was developing to enhance asset management oversight, she noted that the regulator intends to mandate that mutual fund investments provide more disclosures. The SEC has been seeking to gain greater insight into whether the asset management industry presents a risk to the financial system.

In other SEC news, Daniel Hawke’s, who runs the regulator’s market abuse unit, said this month that the regulator has opened several probes into alternative trading systems. Hawke spoke at a panel at Columbia Law School. His statement comes following the SEC’s approval of new reporting rules for dark pools and exchanges. This includes a rule that orders stock exchanges and certain larger trading platforms and dark pools to protect against market disruptions, including natural disasters and technology glitches.

The regulation takes the place of the existing regulatory model that had exchanges depending on voluntary guidance to tackle stability and security matters. It obligates certain large alternative platforms, exchanges, and a number of self-regulatory groups to set up and enforce policies to make sure their systems are secure.

About a dozen big equities trading platforms run by companies, including Credit Suisse (CS) and Goldman Sachs (GS), are likely to be impacted. Fixed-income platforms will not be affected.

Also, under the rule, trading platforms and exchange will have to conduct yearly compliance reviews and turn these in to senior management.

Rakoff Wonders Whether ALJ’s Should Preside Over SEC Cases
A judge is questioning the SEC’s practice of taking its cases to administrative judges that it appoints. U.S. District Judge Jed Rakoff voiced his concerns during a panel, also at Columbia Law School. Rakoff pointed out that civil judicial proceedings brought in front of administrative judges have less due process, fewer limits regarding evidence, and don’t require a jury.

Mutual funds to face new rules from SEC on portfolio holdings, Investment News, November 4, 2014

SEC Preps Mutual Fund Rules
, WSJ, September 7, 2014

Rakoff Continues Crusade Against SEC Admin Courts, Law 360, November 21, 2014


More Blog Posts:

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed, Stockbroker Fraud Blog, November 18, 2014