Delta Data CEO Cameron Routh was recently featured in an interview with Ignites on the implications of the Securities and Exchange Commission’s (SEC) swing pricing proposal.
Last year, the SEC proposed significant revisions that would require, among other reforms, the adoption of swing pricing and a “hard close” for transacting in fund shares. The proposals would apply to all open-end funds, excluding money market funds and exchange-traded funds (ETFs).
A “hard close” would require funds to receive a purchase and redemption order by 4 p.m. ET for the investor to receive that day’s price. This would be a stark change from current practice, where an investor can receive that day’s price if an intermediary receives the order by 4 p.m. ET, even if the fund itself, or the DTCC, receives the order information later.
In the Ignites interview, Routh noted the impact the SEC’s swing pricing proposal, especially the 4 p.m. cutoff for trading, would have on funds’ ability to track data and prevent errors.
“It obviously shortens the window for processing,” Routh told Ignites reporter Sonya Swink. “I don’t know that the SEC has fully thought through all the implications of the rule.”
According to the SEC, the proposed rules are intended to enhance liquidity within open-end funds and reduce dilution of shareholder interests due to significant redemption activity, particularly in times of market stress or significant market disruptions.
“They’re looking at it from the standpoint of pricing and giving fair pricing to the investors, but the changes required for firms to support that would be throughout the firm, in every aspect of the business,” Routh said. “It would be very expensive.”
In a comment letter to the SEC, Delta Data’s Burton Keller also noted the enormous financial expense, as funds will face considerable compliance costs and burdens associated with implementing these policies and procedures, as well as ongoing costs associated with monitoring and administering swing pricing.
Many in the mutual fund industry have expressed concern with the SEC’s proposed rules on swing pricing, citing a plethora of fallacies in the agency’s reasoning and questioning the basis for such a proposal.
“I’m not sure it’s going to solve the problem that the SEC thinks exists. In fact, I don’t know that this problem is as big as the SEC thinks it is,” Routh said.
If adopted, the swing pricing and hard close proposals will come into effect 24 months after the effective date.
View the full Ignites video interview with Delta Data CEO Cameron Routh here. (Please note that you will need an Ignites subscription to access).
Contact Delta Data to learn more about how the SEC’s swing pricing mandate and ‘hard close’ proposal could impact the mutual fund industry.