SEC Releases Updated FAQ on Liquidity Risk Management Programs

Another question asks if an ETF, including an ETF with little or no operating history, should consider factors other than its redemption history in determining whether it qualifies as an in-kind ETF.

Answer: Although the staff believes that an ETF's backward-looking redemption history is ordinarily relevant in determining whether it qualifies as an in-kind ETF, it is not, by itself, dispositive. The staff believes that an ETF's "in-kind" analysis also may have a forward-looking component. For example, the staff believes that a new ETF could conclude that it qualifies as an in-kind ETF based on an analysis of its policies and procedures and its expected redemption practices.

The updated FAQ also answers questions on how a fund should report its investment's liquidity classification on Form N-PORT.

The SEC voted on Feb. 22 to extend by six months the deadline for open-end funds' compliance with provisions of the Commission's liquidity risk management program rule.

Funds now have more time to implement the final rule's classification requirement, along with specified other elements that are tied to the classification requirement.

The compliance date for implementing the classification and classification-related elements of the liquidity rule is June 1, 2019, for larger fund groups, and Dec. 1, 2019, for smaller fund groups.