Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N-PORT

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Conformed to Federal Register Version
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 270 and 274
[Release Nos. 33-11130; IC-34746; File No. S7-26-22]
RIN 3235-AM98
Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N-PORT
Reporting
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
SUMMARY: The Securities and Exchange Commission (“Commission”) is proposing 
amendments to its current rules for open-end management investment companies (“open-end 
funds”) regarding liquidity risk management programs and swing pricing. The proposed 
amendments are designed to improve liquidity risk management programs to better prepare funds
for stressed conditions and improve transparency in liquidity classifications. The amendments 
are also designed to mitigate dilution of shareholders’ interests in a fund by requiring any open-
end fund, other than a money market fund or exchange-traded fund, to use swing pricing to 
adjust a fund’s net asset value (“NAV”) per share to pass on costs stemming from shareholder 
purchase or redemption activity to the shareholders engaged in that activity. In addition, to help 
operationalize the proposed swing pricing requirement, and to improve order processing more 
generally, the Commission is proposing a “hard close” requirement for these funds. Under this 
requirement, an order to purchase or redeem a fund’s shares would be executed at the current 
day’s price only if the fund, its designated transfer agent, or a registered securities clearing 
agency receives the order before the pricing time as of which the fund calculates its NAV. The 
Commission also is proposing amendments to reporting and disclosure requirements on Forms 

N-PORT, N-1A, and N-CEN that apply to certain registered investment companies, including 
registered open-end funds (other than money market funds), registered closed-end funds, and 
unit investment trusts. The proposed amendments would require more frequent reporting of 
monthly portfolio holdings and related information to the Commission and the public, amend 
certain reported identifiers, and make other amendments to require additional information about 
funds’ liquidity risk management and use of swing pricing. 
DATES: Comments should be received on or before February 14, 2023.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic comments:
Use the Commission’s internet comment form 
(https://www.sec.gov/rules/submitcomments.htm); or 
Send an email to [email protected]. Please include File Number S7-26-22 on the 
subject line.
Paper comments:
Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-26-22. This file number should be 
included on the subject line if email is used. To help the Commission process and review your 
comments more efficiently, please use only one method of submission. The Commission will 
post all comments on the Commission’s website (https://www.sec.gov/rules/proposed.shtml). 
Comments are also available for website viewing and printing in the Commission’s Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission’s 
2

Public Reference Room. All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit personal identifying information
from comment submissions. You should submit only information that you wish to make 
available publicly.
Studies, memoranda, or other substantive items may be added by the Commission or staff
to the comment file during this rulemaking. A notification of the inclusion in the comment file of
any such materials will be made available on our website. To ensure direct electronic receipt of 
such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive 
notifications by email.
FOR FURTHER INFORMATION CONTACT: Mykaila DeLesDernier, Y. Rachel Kuo, 
James Maclean, Nathan R. Schuur, Senior Counsels; Angela Mokodean, Branch Chief; Brian M. 
Johnson, Assistant Director, at (202) 551-6792 or [email protected], Investment Company 
Regulation Office, Division of Investment Management, Securities and Exchange Commission, 
100 F Street NE, Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to amend the 
following rules and forms:
Commission ReferenceCFR Citation 
(17 CFR)
Investment Company Act of 1940
(“Act” or “Investment Company 
Act”)
1
Rule 22c-1§ 270.22c-1
Rule 22e-4§ 270.22e-4
Rule 30b1-9§ 270.30b1-9
Rule 31a-2§ 270.31a-2
Form N-PORT§ 274.150
Form N-CEN§ 274.101
1
 15 U.S.C. 80a-1 et seq. Unless otherwise noted, all references to statutory sections are to the 
Investment Company Act, and all references to rules under the Investment Company Act are to 
title 17, part 270 of the Code of Federal Regulations [17 CFR part 270].    
3

Securities Act of 1933 
(“Securities Act”)
2
 and 
Investment Company Act
Form N-1A§§ 239.15A and 274.11A
2
 15 U.S.C. 77a et seq.
4

TABLE OF CONTENTS
I.Introduction...................................................................................................................
A.Open-End Funds and Existing Regulatory Framework.........................................12
1.Liquidity Risk Management............................................................................15
2.Swing Pricing...................................................................................................17
B.March 2020 Market Events...................................................................................21
C.Rulemaking Overview...........................................................................................33
II.Discussion...................................................................................................................
A.Amendments Concerning Funds’ Liquidity Risk Management Programs............38
1.Amendments to the Classification Framework................................................38
2.Highly Liquid Investment Minimums.............................................................77
3.Limit on Illiquid Investments..........................................................................91
B.Swing Pricing.........................................................................................................93
1.Proposed Swing Pricing Requirement.............................................................95
2.Amendments to Swing Threshold Framework..............................................104
3.Determining Flows........................................................................................112
4.Swing Factors................................................................................................116
C.Hard Close...........................................................................................................132
1.Purpose and Background...............................................................................133
2.Pricing Requirements.....................................................................................135
3.Effects on Order Processing, Intermediaries and Investors, and Certain 
Transaction Types..........................................................................................139
4.Other Proposed Amendments to Rule 22c-1.................................................156
5.Amendments to Form N-1A..........................................................................157
D.Alternatives to Swing Pricing and a Hard Close Requirement............................158
1.Alternatives to Swing Pricing........................................................................158
2.Alternatives to a Hard Close..........................................................................176
3.Additional Illustrative Examples...................................................................188
E.Reporting Requirements......................................................................................200
1.Amendments to Form N-PORT.....................................................................200
2.Amendments to Form N-CEN.......................................................................230
F.Technical and Conforming Amendments............................................................231
G.Exemptive Order Rescission and Withdrawal of Commission Staff Statements232
H.Transition Periods................................................................................................234
III.Economic Analysis....................................................................................................
A.Introduction..........................................................................................................236
B.Baseline................................................................................................................243
1.Regulatory Baseline.......................................................................................243
2.Overview of Certain Industry Order Management Practices........................248
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3.Liquidity Externalities in the Mutual Fund Sector........................................252
4.Affected Entities............................................................................................264
C.Benefits and Costs of the Proposed Amendments...............................................278
1.Liquidity Risk Management Program...........................................................278
2.Swing Pricing.................................................................................................302
3.Hard Close Requirement................................................................................316
4.Commission Reporting and Public Disclosure..............................................322
D.Effects on Efficiency, Competition, and Capital Formation...............................327
1.Efficiency.......................................................................................................327
2.Competition...................................................................................................330
3.Capital Formation..........................................................................................336
E.Alternatives..........................................................................................................338
1.Liquidity Risk Management..........................................................................338
2.Swing Pricing.................................................................................................345
3.Hard Close Requirement................................................................................360
4.Commission Reporting and Public Disclosure..............................................363
F.Request for Comment..........................................................................................365
IV.Paperwork Reduction Act.........................................................................................
A.Introduction..........................................................................................................370
6

B.Rule 22e-4............................................................................................................372
C.Rule 22c-1............................................................................................................375
D.Form N-PORT.....................................................................................................378
E.Form N-1A...........................................................................................................383
F.Form N-CEN.......................................................................................................385
G.Request for Comment..........................................................................................387
V.Initial Regulatory Flexibility Analysis......................................................................
A.Reasons for and Objectives of the Proposed Actions..........................................389
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B.Legal Basis...........................................................................................................390
C.Small Entities Subject to the Amendments.........................................................390
D.Projected Reporting, Recordkeeping, and Other Compliance Requirements......391
1.Liquidity Risk Management Programs..........................................................391
2.Swing Pricing.................................................................................................392
3.Hard Close.....................................................................................................394
4.Reporting Requirements................................................................................396
E.Duplicative, Overlapping, or Conflicting Federal Rules.....................................399
F.Significant Alternatives.......................................................................................399
G.General Request for Comment............................................................................403
VI.Consideration Of Impact On The Economy..............................................................
Statutory Authority..........................................................................................................
I.INTRODUCTION
When the Investment Company Act was enacted, a primary concern was the potential for 
dilution of shareholders’ interests in open-end investment companies.
3
 In addition, the ability of 
shareholders to redeem their shares in an investment company on demand is a defining feature of
open-end investment funds.
4
 Section 22 of the Act reflects these concerns and priorities.
 
For 
example, section 22(c) gives the Commission broad powers to regulate the pricing of redeemable
securities for the purpose of eliminating or reducing so far as reasonably practicable any dilution 
3
 See Investment Trusts and Investment Companies: Hearings on S. 3580 before a Subcomm. of 
the Senate Comm. on Banking and Currency, 76th Cong., 3d Sess. (1940), at 37, 137-145 (stating
that among the abuses that served as a backdrop for the Act were practices that resulted in 
substantial dilution of investors’ interests, including backward pricing by fund insiders to increase
investment in the fund and thus enhance management fees, but causing dilution of existing 
investors in the fund) (statements of Commissioner Healy and Mr. Bane).
4
 See Investment Trusts and Investment Companies: Letter from the Acting Chairman of the SEC, 
A Report on Abuses and Deficiencies in the Organization and Operation of Investment Trusts and
Investment Companies (1939), at n.206 (“[T]he salient characteristic of the open-end investment 
company...was that the investor was given a right of redemption so that he could liquidate his 
investment at or about asset value at any time that he was dissatisfied with the management or for
any other reason.”). An open-end investment company is required to redeem its securities on 
demand from shareholders at a price approximating their proportionate share of the fund’s net 
asset value (“NAV”) next calculated by the fund after receipt of such redemption request. See 
section 22 of the Act; rule 22c-1.
8

of the value of outstanding fund shares.
5
 Section 22(e) of the Act establishes a shareholder right 
of prompt redemption in open-end funds by requiring such funds to make payments on 
shareholder redemption requests within seven days of receiving the request.
6
The open-end fund industry has grown significantly over the last six years as more 
Americans rely on funds to gain exposure to financial markets while having the ability to quickly
redeem their investments.
7
 At the end of 2021, assets in open-end funds (excluding money 
market funds) were approximately $26 trillion, having grown from about $15 trillion at the end 
of 2015.
8
 An estimated 102.6 million Americans owned mutual funds at the end of 2021, up from
5
 Section 22(c) of the Act authorizes the Commission to make rules and regulations applicable to 
registered investment companies and to principal underwriters of, and dealers in, the redeemable 
securities of any registered investment company related to the method of computing purchase and
redemption prices of redeemable securities for the purpose of eliminating or reducing so far as 
reasonably practicable any dilution of the value of other outstanding securities of the fund or any 
other result of the purchase or redemption that is unfair to investors in the fund’s other 
outstanding securities. See also section 22(a) of the Act (authorizing a securities association 
registered under section 15A of the Securities Exchange Act of 1934 (“Exchange Act”) similarly 
to prescribe the prices at which a member may purchase or redeem an investment company’s 
redeemable securities for the purposes of addressing dilution).
6
 Section 22(e) of the Act provides, in part, that no registered investment company shall suspend 
the right of redemption or postpone the date of payment upon redemption of any redeemable 
security in accordance with its terms for more than seven days after tender of the security absent 
specified unusual circumstances.
7
 For purposes of this release, the term “fund” or “open-end fund” generally refers to an open-end 
management investment company registered on Form N-1A or a series thereof, excluding money 
market funds, unless otherwise specified. Mutual funds and most exchange-traded funds 
(“ETFs”) are open-end management companies registered on Form N-1A. An open-end 
management investment company is an investment company, other than a unit investment trust or
face-amount certificate company, that offers for sale or has outstanding any redeemable security 
of which it is the issuer. See sections 4 and 5(a)(1) of the Investment Company Act [15 U.S.C. 
80a-4 and 80a-5(a)(1)]. While a money market fund is an open-end management investment 
company, money market funds generally are not subject to the amendments we are proposing and
thus are not included when we refer to “funds” or “open-end funds” in this release except where 
specified. Although unit investment trusts, like open-end funds, issue redeemable securities, they 
are not included when we refer to open-end funds in this release, unless otherwise specified. 
8
 The $26 trillion figure is based on Form N-CEN filing data as of Dec. 2021. Of the $26 trillion in
assets, ETFs had $5.1 trillion in assets. See Investment Company Liquidity Risk Management 
Programs, Investment Company Act Release No. 32315 (Oct. 13, 2016) [81 FR 82142 (Nov. 18, 
2016)] (“Liquidity Rule Adopting Release”), at text accompanying n.1046 (estimating open-end 
fund assets of approximately $15 trillion at the end of 2015).
9

an estimated 91 million individual investors at the end of 2015.
9
 Open-end funds continue to be 
an important part of the financial markets, and as those markets have grown more complex, some
funds are pursuing more complex investment strategies, including fixed income and alternative 
investment strategies focused on less liquid asset classes. For example, as of December 2021, 
bond funds had assets of more than $6 trillion, funds with alternative investment strategies had 
about $15 billion in assets, and bank loan funds had around $12 billion in assets.
10
 Figure 1 
below shows the amount of assets held by different types of open-end funds. 
Figure 1: Open-End Fund Assets by Fund Type
Open-End Fund Assets – December 2015
($ Trillions, % of Total Open-End Fund Assets)
9
 See Investment Company Institute, 2022 Investment Company Fact Book (2022) (“2022 ICI Fact
Book”), at 44, available at https://www.icifactbook.org/; Investment Company Institute, 2016 
Investment Company Fact Book (2016), at 110, available at https://www.ici.org/fact-book. Retail
investors hold the vast majority of mutual fund net assets. See 2022 ICI Fact Book, at 48 
(estimating that retail investors held 88% of mutual fund assets at year end 2021). An estimated 
13.9 million U.S. households held ETFs in 2021, in addition to many institutional investors. See 
id. at 83.
10
 Based on Morningstar data. Unless otherwise indicated, data discussed throughout this section is 
based on Morningstar data. Bond funds include funds that invest in taxable bonds (approximately 
$5.5 trillion in assets) and funds that invest in municipal bonds (approximately $1 trillion in 
assets).
10

Source: Morningstar
Open-End Fund Assets – December 2021
($ Trillions, % of Total Open-End Fund Assets)
Source: Morningstar
11

Without effective liquidity risk management, a fund may not be able to make timely 
payment on shareholder redemptions, and sales of portfolio investments to satisfy redemptions 
may result in the dilution of outstanding fund shares. Moreover, even when a fund is managing 
its liquidity effectively, the transaction costs associated with meeting redemption requests or 
investing the proceeds of subscriptions can create dilution for fund shareholders. These concerns 
are particularly heightened in times of stress or in funds invested in less liquid investments. To 
that end, the ability of funds to meet investor redemptions, while mitigating the impact of this 
redemption activity on remaining shareholders, is an important aspect of the regulatory regime 
for open-end funds. 
Commission rules currently provide open-end funds with several tools to mitigate 
dilution from shareholder purchase or redemption activity and facilitate a fund’s ability to meet 
shareholder redemptions in a timely manner. These tools include a fund’s liquidity risk 
management program, the option to use swing pricing for certain funds, the ability to impose 
purchase or redemption fees, and/or the ability to redeem in kind.
11
 In March 2020, in connection
with the economic shock from the onset of the COVID-19 pandemic, U.S. open-end funds faced 
a significant volume of investor redemptions.
12
 As investors sought to redeem fund investments 
to free up cash during a time of market uncertainty, open-end funds faced significant 
redemptions and liquidity concerns.
13
 
In light of these events, we have reviewed the effectiveness of funds’ current tools for 
managing liquidity and limiting dilution, including through staff outreach and review of 
11
 See Liquidity Rule Adopting Release, supra note 8; Investment Company Swing Pricing, 
Investment Company Act Release No. 32316 (Oct. 13, 2016) [81 FR 82084 (Nov. 18, 2016)] 
(“Swing Pricing Adopting Release”).
12
 See infra section I.B for a discussion of the fund flows for different types of open-end funds 
during the Mar. 2020 period. 
13
 See infra section I.B discussing the events of Mar. 2020. 
12

information funds are required to report to the Commission.
14
 We have identified weaknesses in 
funds’ liquidity risk management programs that can cause delays in identifying liquidity issues in
stressed periods and cause funds to over-estimate the liquidity of their investments, as well as 
limited use of tools such as redemption fees or swing pricing that are designed to limit dilution 
resulting from a fund’s trading of portfolio investments in response to shareholder redemptions 
or purchases. As a result, we are proposing amendments to enhance funds’ liquidity risk 
management to help better prepare them for stressed market conditions and to require the use of 
swing pricing for certain funds in certain circumstances to limit dilution. We believe the 
proposed amendments would enhance open-end fund resilience in periods of market stress by 
promoting funds’ ability to meet redemptions in a timely manner while limiting dilution of 
remaining shareholders’ interests in the fund.
A.Open-End Funds and Existing Regulatory Framework
Open-end funds are a popular investment choice for investors seeking to gain 
professionally managed, diversified exposure to the capital markets while preserving liquidity.
15
 
There are two kinds of open-end funds: mutual funds and ETFs. Open-end funds offer investors 
daily liquidity, but may invest in assets that cannot be liquidated quickly without significantly 
affecting market prices. Since the 1940s, the Commission has stated that open-end funds should 
maintain highly liquid portfolios and recognized that this may limit their ability to participate in 
certain transactions in the capital markets.
16
 
14
 The review consisted of outreach with funds, advisers, and liquidity vendors that funds use to 
help classify the liquidity of their investments. In addition, staff reviewed data provided on Form 
N-PORT, Form N-CEN, and Form-RN. 
15
 See Liquidity Rule Adopting Release, supra note 8. See also supra note 9 and accompanying text
(discussing an estimated number of Americans who invest in mutual funds). 
16
 See Investment Trusts and Investment Companies: Report of the Securities and Exchange 
Commission (1942), at 76 (“Open-end investment companies, because of their security holders’ 
right to compel redemption of their shares by the company at any time, are compelled to invest 
13

While the Act requires open-end funds to pay redemptions within seven days, as a 
practical matter most investors expect to receive redemption proceeds in fewer than seven days. 
For example, many mutual funds represent in their prospectuses that they will pay redemption 
proceeds on the next business day after the redemption. In addition, open-end funds redeemed 
through broker-dealers must meet redemption requests within two business days because of rule 
15c6-1 under the Exchange Act, which establishes a two-day (T+2) settlement period for trades 
effected by broker-dealers.
17
  
In terms of pricing, an order to purchase or redeem fund shares must receive a price 
based on the current NAV next computed after receipt of the order.
18
 Open-end funds typically 
calculate their NAVs once a day. Purchase and redemption requests submitted throughout the 
day receive the NAV calculated at the end of that day, which is typically calculated as of 4 p.m. 
their funds predominantly in readily marketable securities. Individual open-end investment 
companies, therefore, as presently constituted, could participate in the financing of small 
enterprises and new ventures only to a very limited extent.”).
17
 The Commission has proposed to amend rule 15c6-1 to establish a T+1 settlement period for 
broker-dealer trades. See Shortening the Securities Transaction Settlement Cycle, Exchange Act 
Release No. 34-94196 (Feb. 9, 2022) [87 FR 10436 (Feb. 24, 2022)].
18
 Rule 22c-1 under the Act. The process of calculating or “striking” the NAV of the fund’s shares 
on any given trading day is based on several factors, including the market value of portfolio 
securities, fund liabilities, and the number of outstanding fund shares, among others. Rule 2a-4 
requires, when determining the NAV, that funds reflect changes in holdings of portfolio securities
and changes in the number of outstanding shares resulting from distributions, redemptions, and 
repurchases no later than the first business day following the trade date. As indicated in the 
adopting release for rule 2a-4, this calculation method provides funds with additional time and 
flexibility to incorporate last-minute portfolio transactions into their NAV calculations on the 
business day following the trade date, rather than on the trade date. See Adoption of Rule 2a-4 
Defining the Term “Current Net Asset Value” in Reference to Redeemable Securities Issued by a 
Registered Investment Company, Investment Company Act Release No. 4105 (Dec. 22, 1964) 
[29 FR 19100 (Dec. 30, 1964)].
14

ET.
19
 These provisions are designed to promote equitable treatment of fund shareholders when 
buying and selling fund shares. 
A characteristic of open-end funds is that fund shareholders share the gains and losses of 
the fund, as well as the costs. As a result, there are circumstances in which the transaction 
activity of certain investors leads to costs that are distributed across all shareholders, unfairly 
reducing the value (or “diluting”) the interests of shareholders who did not engage in the 
underlying transactions. For example, while redemption orders receive the next computed NAV, 
the fund may incur costs on subsequent days to meet those redemptions, because the fund may 
engage in trading activity and make other changes in its portfolio holdings over multiple business
days following the redemption order. As a result, the costs of providing liquidity to redeeming 
investors can be borne by the remaining investors in the fund and dilute the interests of non-
redeeming shareholders. Similarly, when shareholders purchase shares in the fund, costs may 
arise when the fund buys portfolio investments to invest the proceeds of the purchase, and the 
fund and its shareholders may bear those costs in days following the purchase request, diluting 
the interests of the non-purchasing shareholders. 
Transaction costs associated with redemptions or purchases can vary. The less liquid the 
fund’s portfolio holdings, the greater the liquidity costs associated with redemption and purchase
activity can become and the greater the possibility of dilution effects on fund shareholders. For 
example, during times of heightened market volatility and wider bid-ask spreads for the fund’s 
underlying holdings, selling fund investments to meet investor redemptions results in greater 
costs to the fund. Moreover, funds also incur transaction costs outside of stressed periods. 
19
 Commission rules do not require that a fund calculate its NAV at, or as of, a specific time of day.
Current NAV must be computed at least once daily, subject to limited exceptions, Monday 
through Friday, at the pricing time set by the board of directors. See rule 22c-1(b)(1).
15

Although these costs would generally be smaller than in times of heighted market volatility, they 
also are borne by fund investors and, particularly over time, also can result in dilution.  
In times of liquidity stress, there may be incentives for shareholders to redeem fund 
shares quickly to avoid further losses, to redeem fund shares for cash in times of uncertainty, or 
to obtain a “first-mover” advantage by avoiding anticipated trading costs and dilution associated 
with other investors’ redemptions. This perceived advantage may lead to increasing outflows, 
further exacerbating the effect on remaining shareholders and incentivizing increased 
shareholder redemptions. Whether investors redeem because they need cash or want to capitalize
on a first-mover advantage, the remaining investors in the fund may, particularly in times of 
stress, experience dilution of their interests in the fund. 
1.Liquidity Risk Management
In 2016, the Commission adopted rule 22e-4 under the Act (the “liquidity rule”) to 
require open-end funds to adopt and implement liquidity risk management programs. Rule 22e-4 
was designed to address concerns that open-end funds investing in less liquid securities may 
have difficulty meeting redemption requests without significant dilution of remaining investors’ 
interests in the fund.
20
 Rule 22e-4 requires: (1) assessment, management, and periodic review of 
a fund’s liquidity risk; (2) classification of the liquidity of each of a fund’s portfolio investments 
into one of four prescribed categories—ranging from highly liquid investments to illiquid 
investments—including at-least-monthly reviews of these classifications; (3) determination and 
periodic review of a highly liquid investment minimum for certain funds; (4) limitation on 
illiquid investments; and (5) board oversight. 
20
 See Liquidity Rule Adopting Release, supra note 8, at section II.B.
16

Funds are also subject to related reporting requirements. For example, funds must report 
the liquidity classifications of their holdings confidentially to the Commission on Form N-
PORT. A fund also must immediately report to the Commission on Form N-RN and to the fund’s
board if its portfolio becomes more than 15% illiquid, as well as if the fund breaches a highly 
liquid investment minimum established as part of its liquidity risk management program for 
seven consecutive days.
21
 While the compliance dates for specific provisions of rule 22e-4 
varied, most funds were required to be in compliance with all requirements of the rule in 2019.
22
In 2018, the Commission adopted amendments designed to improve the reporting and 
disclosures of liquidity information by open-end funds.
23
 These amendments modified certain 
aspects of the liquidity framework by requiring funds to disclose information about the operation
and effectiveness of their liquidity risk management program in their shareholder reports instead 
of requiring funds to disclose aggregate liquidity classifications publicly in Form N-PORT.
24
 
Since that time, some individual investors have stated that they care about being able to redeem 
but do not need narrative information about how a fund manages its liquidity, while some other 
commenters have suggested that aggregate liquidity classifications would be more helpful than 
narrative shareholder report disclosure.
25
 We recently removed the narrative disclosure 
21
 Form N-RN was previously titled Form N-LIQUID. See Use of Derivatives by Registered 
Investment Companies and Business Development Companies, Investment Company Act Release
No. 34084 (Nov. 2, 2020) [85 FR 83162 (Dec. 21, 2020)] (“Derivatives Adopting Release”). 
22
 Small entities were required to be in compliance with the reporting requirements under Form N-
PORT by Mar. 1, 2020. See Investment Company Liquidity Disclosure, Investment Company Act
Release No. 33142 (June 28, 2018) [83 FR 31859 (July 10, 2018)] (“2018 Liquidity Disclosure 
Adopting Release”).
23
 Id. 
24
 The Commission also adopted amendments to Form N-PORT to allow funds classifying the 
liquidity of their investments pursuant to their liquidity risk management programs to report 
multiple liquidity classification categories for a single position under specified circumstances. 
See 2018 Liquidity Disclosure Adopting Release, supra note 22. 
25
 See infra notes 303 to 305 and accompanying text (discussing these comments in more detail).
17

requirement because, in practice, it did not meaningfully augment other information already 
available to shareholders.
26
When the Commission adopted the 2018 amendments, it stated that Commission staff 
would continue to monitor and solicit feedback on the implementation of the liquidity framework
and inform the Commission what steps, if any, the staff recommends in light of this monitoring.
27
The Commission stated its expectation that this evaluation would take into account at least one 
full year’s worth of liquidity classification data from large and small entities to allow funds and 
the Commission to gain experience with the classification process and to allow analysis of its 
benefits and costs based on actual practice. As discussed below, we have had the opportunity 
since the adoption of these amendments to evaluate the liquidity framework while taking into 
account the data available to us regarding funds’ liquidity risk management programs.
28
 We 
discuss our evaluation of the current liquidity framework throughout this release. 
2.Swing Pricing
In 2016, the Commission adopted a rule permitting registered open-end funds (except 
money market funds or ETFs), under certain circumstances, to use swing pricing, which is the 
process of adjusting the price above or below a fund’s NAV per share to effectively pass on the 
costs stemming from shareholder purchase or redemption activity to the shareholders associated 
with that activity.
29
 When a shareholder purchases or redeems fund shares, the price of those 
26
 See Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee 
Information in Investment Company Advertisements, Investment Company Act Release No. 
34731 (Oct. 26, 2022) (“Tailored Shareholder Reports Adopting Release”) at nn.462-472 and 
accompanying text.
27
 See 2018 Liquidity Disclosure Adopting Release, supra note 22, at paragraph accompanying 
n.125.
28
 See infra sections I.B and II.A. 
29
 Swing Pricing Adopting Release, supra note 11; rule 22c-1(a)(3).
18

shares does not typically account for the transactions costs, including trading costs and changes 
in market prices, that may arise when the fund buys portfolio investments to invest proceeds 
from purchasing shareholders or sells portfolio investments to meet shareholder redemptions.
30
 
Swing pricing is an investor protection tool currently available to funds to mitigate potential 
dilution and manage fund liquidity as a result of investor redemption and purchase activity. 
The 2016 swing pricing rule requires that, for funds choosing to use swing pricing, the 
fund’s NAV is adjusted by a specified amount (the “swing factor”) once the level of net 
purchases into or net redemptions from the fund has exceeded a specified percentage of the 
fund’s NAV (the “swing threshold”). A fund’s swing factor is permitted to take into account only
the near-term costs expected to be incurred by the fund as a result of net purchases or net 
redemptions on that day and may not exceed an upper limit of 2% of the NAV per share. The 
rule also requires a fund that uses swing pricing to adopt swing pricing policies and procedures 
that specify the process for determining the fund’s swing factor and swing threshold. The fund’s 
board must approve the fund’s swing pricing policies and procedures, the fund’s swing factor 
upper limit, and the swing threshold. The board also must review a written report on the 
adequacy and effectiveness of the fund’s swing pricing policies and procedures at least annually. 
In the time since the adoption of the rule, no U.S. funds have implemented swing pricing.
While swing pricing has been a commonly employed anti-dilution tool in Europe, including 
among U.S.-based fund managers that also operate funds in Europe, U.S. funds face unique 
operational obstacles in its implementation. When considering the adoption of the 2016 swing 
pricing rule, the Commission received comment letters articulating the operational issues that 
funds may encounter if they implemented swing pricing.
31
 In response to the concerns raised by 
30
 See Swing Pricing Adopting Release, supra note 11, at section II.A.1. 
31
 See Comment Letter of BlackRock on Open-End Fund Liquidity Risk Management Programs; 
19

commenters, the Commission adopted an extended effective date to allow for the creation of 
industry-wide operational solutions to facilitate the implementation of swing pricing more 
effectively. In that release, the Commission stated that it had directed Commission staff to 
review, two years after the rule’s effective date, market practices associated with funds’ use of 
swing pricing to mitigate dilution and to provide the Commission with the results of its review.
32
 
Since that time, we have evaluated market practices associated with funds’ lack of use of swing 
pricing, and this release reflects that evaluation. Despite over five years passing since adoption, 
the industry has not developed an operational solution to facilitate implementation of swing 
pricing, nor have individual market participants.
33
 
We understand that the industry has been unable to develop an operational solution to 
implement swing pricing largely because funds currently are unable to obtain sufficient fund 
flow information before they finalizes their NAVs, a necessary precursor to determining whether
a fund needs to use swing pricing on any particular day. Generating fund flow information 
involves a broad network of market participants with multiple layers of systems, including, 
among others, funds, transfer agents, broker-dealers, retirement plan recordkeepers, banks, and 
Swing Pricing; Re-Opening of Comment Period for Investment Company Reporting 
Modernization Release, Investment Company Act File No. 31835 (Sep. 22, 2015) [80 FR 62274 
(Oct. 15, 2015)] (“2015 Proposing Release”), File No. S7-16-15; Comment Letter of Dodge & 
Cox on 2015 Proposing Release, File No. S7-16-15; Comment Letter of Pacific Investment 
Management Company LLC on 2015 Proposing Release, File No. S7-16-15; Comment Letter of 
Securities Industry and Financial Markets Association on 2015 Proposing Release, File No. S7-
16-15. The comment file for the 2015 Proposing Release, where these comment letters can be 
accessed, is available at https://www.sec.gov/comments/s7-16-15/s71615.shtml.
32
 See Swing Pricing Adopting Release, supra note 11, at section II.A.1. 
33
 After the Commission adopted the current swing pricing rule, the industry formed working 
groups to explore potential operational solutions to facilitate funds’ ability to implement swing 
pricing. See Evaluating Swing Pricing: Operational Considerations, Addendum (June 2017), 
available at 
https://www.ici.org/system/files/attachments/ppr_17_swing_pricing_summary.pdf (“2017
ICI Swing Pricing White Paper”).
20

the National Securities Clearing Corporation (“NSCC”). In general, many mutual funds use 
prices as of 4 p.m. ET (or the “pricing time”) to value the funds’ underlying holdings for 
purposes of computing their NAVs for the current day. This time is established by the fund’s 
board of directors. Typically, investors may place orders to purchase or redeem mutual fund 
shares with the fund’s transfer agent or with intermediaries as late as 3:59 p.m. ET for execution 
at that day’s NAV. When the transfer agent or an intermediary receives an order before the 
pricing time, that order typically receives that day’s price. An investor who submits an order 
after the pricing time must receive the next day’s price. 
While some investors may place orders by opening an account directly with the fund’s 
transfer agent, we understand that the majority of mutual fund orders are placed with 
intermediaries, such as broker-dealers, banks, and retirement plan recordkeepers.
34
 Some 
intermediaries do not transmit flow details to the fund’s transfer agent or the clearing agency 
until after the fund has finalized its NAV calculation and disseminated the NAV to pricing 
vendors, media, and intermediaries (“NAV dissemination”). NAV dissemination tends to occur 
between 6 p.m. ET and 8 p.m. ET. Indeed, the fund’s transfer agent or the clearing agency often 
do not receive a significant portion of orders until after midnight—i.e., the next day.
35
 This 
contributes to a mismatch between the extent of flow information funds require to implement 
swing pricing and the flow information funds currently have before the pricing time. For 
34
 In 2021, an estimated 18% of U.S. households owning mutual funds purchased them directly 
from the mutual fund company. See 2022 ICI Fact Book, supra note 9, at Figure 7.8.
35
 NSCC currently is the only registered clearing agency for fund shares. A significant portion of 
mutual fund orders are processed through NSCC’s Fund/SERV platform. See Depositary Trust 
and Clearing Corporation 2021 Annual Report, available at 
https://www.dtcc.com/annuals/2021/performance/dashboard (stating that the value of transactions
Fund/SERV processed in 2021 was $8.5 trillion and the volume for this period was 261 million 
transactions). A part of the platform, referred to as Defined Contribution Clearance & Settlement,
focuses on purchase, redemption, and exchange transactions in defined contribution and other 
retirement plans. This service handled a volume of nearly 154 million transactions in 2021. See 
id.
21

example, based on staff outreach, we understand that some funds receive only around half of 
their daily volume by 6 p.m. ET.
36
 We are also aware of a separate review of funds’ receipt of 
flow data for a quarter in 2016, which found that only 70% of actual and estimated trade flow 
could be delivered by 6 p.m. ET.
37
 Without sufficient actual or estimated flow information before
the fund finalizes its NAV, funds cannot implement swing pricing because the determination of 
whether to swing the fund’s NAV depends on the size of net flows.
B.March 2020 Market Events
In March 2020, at the onset of the COVID-19 pandemic in the United States, most 
segments of the open-end fund market witnessed large-scale investor outflows. Investors’ 
concerns about the potential impact of the COVID-19 pandemic led investors to reallocate their 
assets into cash and short-dated, near-cash investments.
38
 The resulting outflows from many 
open-end funds placed pressure on these funds to generate liquidity quickly in order to meet 
investor redemptions. Equity and debt security prices fell as yields rose. Uncertainty throughout 
36
 We understand based on staff outreach that the time by which a fund receives flow information 
varies to some extent based on the fund’s investor base. For example, funds with large 
investments by retirement plans generally receive a larger portion of their flow information after 
6 p.m. ET than other funds. 
37
 See 2017 ICI Swing Pricing White Paper, supra note 33 (stating that, for instance, intermediaries
trading via traditional Fund/SERV, such as traditional brokerage and managed account activity, 
transmit orders to the fund by 7 p.m. ET but, with system and procedural enhancements, 
processing and submission of orders as actual trades might be able to occur prior to 6 p.m. ET). 
This paper also suggested that 90% to 100% of trade flow (actual or estimated) is required to 
apply swing pricing between 4 p.m. and 6 p.m. ET.
38
 See SEC Staff Report on U.S. Credit Markets Interconnectedness and the Effects of the COVID-
19 Economic Shock (Oct. 2020) (“SEC Staff Interconnectedness Report”), at 17 to 18, available 
at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf. Staff reports and other 
staff documents (including those cited herein) represent the views of Commission staff and are 
not a rule, regulation, or statement of the Commission. The Commission has neither approved nor
disapproved the content of these documents and, like all staff statements, they have no legal force
or effect, do not alter or amend applicable law, and create no new or additional obligations for 
any person. 
22

the U.S. economy and asset-price volatility rose, and credit spreads and bid-ask spreads 
widened.
39
 The large outflows open-end funds faced during March 2020, combined with the 
widening bid-ask spreads funds encountered when purchasing or selling portfolio investments at 
that time, likely contributed to dilution of the value of funds’ shares for remaining investors.
40
Open-end funds are a large and important component of U.S. markets. At the end of 
2019, assets in open-end funds totaled $21 trillion.
41
 Fixed-income funds accounted for $5.3 
trillion, or 25% of total open-end fund assets.
42
 Bank loan assets were nearly $100 billion, or less
than 2% of total fixed-income fund assets. At the end of March 2020, following the height of the 
COVID-19 related market stress, assets in open-end funds (including ETFs) fell 17% ($3.6 
39
 See id., at 3 and 6 to 8 (discussing that the market structure of certain segments of the credit 
market contributed to market stress in Mar. 2020, including reduced dealer inventories and 
reluctance to accommodate customer demand in some cases). On Apr. 1, 2020, the Board of 
Governors of the Federal Reserve System (“Federal Reserve”) made a temporary change to its 
supplementary leverage ratio rule to allow banking organizations to expand their balance sheets 
as appropriate to continue to serve as financial intermediaries, stating that the rule’s regulatory 
restrictions may constrain the firms’ ability to continue to serve as financial intermediaries and to 
provide credit to households and businesses in the face of rapid deteriorations in Treasury market 
liquidity conditions and significant inflows of customer deposits and increased reserve levels. See
Federal Reserve Board Announces Temporary Changes to its Supplementary Leverage Ratio 
Rule to Ease Strains in the Treasury Market Resulting from the Coronavirus and Increase 
Banking Organizations’ Ability to Provide Credit to Households and Businesses (Apr. 1, 2020), 
available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200401a.htm. 
40
 We do not have specific data about the dilution fund shareholders experienced in Mar. 2020 
because funds do not report information about their trading activity and the prices at which they 
purchase and sell each instrument. However, European funds experienced similar market 
conditions as U.S. funds and, to mitigate dilution during this period, many European funds 
increased their use of swing pricing and the size of their swing factors. See infra paragraph 
accompanying note 60. European funds are subject to regulatory regimes that differ in some 
respects from the U.S. regime for open-end funds. We are not aware, however, of differences 
between the regimes that would have significantly reduced dilution for U.S. funds relative to 
European funds during this period, such that European funds needed to use swing pricing to 
mitigate dilution that U.S. funds were not experiencing due to regulatory or other differences. 
41
 Of this amount, ETFs had assets of $4.4 trillion and other open-end funds had assets of $16.4 
trillion. Money market funds and funds of funds are excluded from calculations relating to the 
size and redemptions of open-end funds.
42
 Fixed-income funds, excluding ETFs, had assets of $4.5 trillion, and fixed-income ETFs had 
assets of $800 billion.
23

trillion) from $20.8 trillion in December 2019 to a total of $17.2 trillion. Assets of open-end 
funds excluding ETFs fell 18% ($2.9 trillion) from $16.4 trillion to $13.5 trillion, and ETF assets
fell 17% (approximately $760 billion) from $4.4 trillion to $3.7 trillion. Of this amount, fixed-
income mutual fund assets fell 5.5%, although fixed-income ETFs’ assets increased slightly.
43
 In 
addition, bank loan fund assets fell by 30% in March 2020, or from $100 billion to $70 billion, 
compared to the level of assets reported in December 2019. 
Figure 2: Trends in Open-End Fund Assets
Open-End Fund (Excluding ETF)
Assets
Open-End Fixed-Income Fund (Excluding
ETF) Assets
43
 Fixed-income funds, excluding ETFs, had assets of approximately $4.1 trillion, while fixed-
income ETFs’ assets increased slightly from Dec. 2019 levels to $830 billion.
24

Source: Morningstar
ETF AssetsFixed-Income ETF Assets
25

Source: Morningstar
The market disruptions of the March 2020 period included significant redemption activity
in open-end funds.
44
 Throughout 2019, net flows into open-end funds averaged approximately 
$32.4 billion, or 0.2% per month.
45
 During this same period, fixed-income funds experienced a 
steady inflow of approximately $41.7 billion, or 0.9% per month on average.
46
 In March 2020, 
however, open-end funds had outflows totaling $329.4 billion, or 1.7% of prior period assets.
47
 
44
 Open-end funds also experienced heightened outflows in other stressed periods, such as the last 
quarter of 2008, but outflows in March 2020 surpassed those witnessed in these other periods. For
example, during the last quarter of 2008, investors withdrew $65 billion from bond funds. Total 
outflows for bond funds during this period never exceeded 1.5% of total net assets. See ICI, 2009 
Investment Company Fact Book, Figure 2.10 and accompanying text, available at 
https://www.ici.org/system/files/attachments/2009_factbook.pdf (calculating net flows as a three-
month moving average of net flows as a percentage of previous month-end assets, and excluding 
high yield bond funds). 
45
 Open-end funds (excluding ETFs) had average net flows of approximately $4.8 billion (or 0.04%
per month). ETFs had average net flows of approximately $27.7 billion (or 0.7% per month).
46
 Fixed-income funds (excluding ETFs) had inflows of $28.8 billion (or 0.7% per month on 
average). Fixed-income ETFs had inflows of $12.5 billion (or 1.7% per month on average).
47
 Open-end funds (excluding ETFs) had outflows totaling $336.8 billion, or 1.7% of prior period 
assets. ETFs had inflows totaling $7.3 billion, or 2% of prior period assets. The majority of ETF 
inflows were for equity ETFs, which had $14.7 billion in inflows. Allocation, alternative, 
commodity, and miscellaneous/other ETFs had inflows of $13.2 billion. The inflows into some 
types of ETFs were partially offset by outflows of $20.6 billion from fixed-income ETFs.
26

The majority of these outflows were from fixed-income funds, which had $286.6 billion in 
outflows.
48
 Taxable bond funds had outflows of $241.7 billion (or 5.2% of prior period assets), of
which, bank loan funds had outflows of $12.4 billion (or 13.4% of prior period assets in these 
funds).
49
 Municipal bond funds had $44.9 billion in outflows (or 4.9% of prior period assets).
50
 
Figure 3: Open-End Fund and Fixed Income Fund Flows
Open-End Fund (Excluding ETF) FlowsOpen-End Fixed-Income Fund (Excluding
ETF) Flows
Source: Morningstar
48
 Open-end funds (excluding ETFs) had outflows of approximately $266 billion, and ETFs had 
outflows of approximately $20.6 billion.
49
 For open-end funds (excluding ETFs) this included outflows of $223.3 billion (5.9%) for taxable 
bond funds (of which, bank loan funds had outflows of $11.4 billion (13.6%)). For ETFs this 
included outflows of $18.4 billion (2.2%) for taxable bond ETFs (of which, bank loan ETFs had 
outflows of approximately $1 billion (11.2%))
50
 For open-end funds (excluding ETFs) this included outflows of $42.6 billion (5%) for municipal 
bond funds. For ETFs this included outflows of $2.2 billion (4.3%) for municipal bond ETFs.
27

ETF FlowsFixed-Income ETF Flows
Source: Morningstar
During the period of market turmoil, bid-ask spreads spiked by as much as 100 basis 
points for high-yield bonds and 150-200 basis points for investment-grade bonds.
51
 In general, 
the bond market and bank loan market experienced significant price declines in March 2020. The
price for 10 year U.S. Treasuries increased by roughly 4.6%. The price of corporate bonds 
declined by 7%.
52
 The price of leveraged loans decreased by roughly 13%.
53
 The heightened 
volatility and demand for liquidity drove stress throughout the market, particularly in the bond 
fund and bank loan fund markets. Price declines were not limited to these markets, however. For 
example, the price for U.S. small cap equities decreased by roughly 24%.
54
Beginning in mid-March 2020, the Federal Reserve, with the approval of the Department 
of the Treasury, used its emergency powers to intervene by providing timely and sizable 
51
 See SEC Staff Interconnectedness Report, supra note 38, at 37. 
52
 The decline in the price of corporate bonds is measured by the BBG U.S. Corporate Bond Index.
53
 The decline in the price of leveraged loans was measured by the S&P Leveraged Loan Price 
Index.
54
 The decline in the price of U.S. small cap equities was measured by the Russell 2000 Total 
Return Index. 
28

interventions in an effort to stabilize the markets. The official sector interventions included, 
among others, the Secondary Market Corporate Credit Facility, introduced on March 23, 2020. 
This facility supported market liquidity by purchasing in the secondary market corporate bonds 
issued by investment grade U.S. companies, as well as U.S.-listed ETFs whose investment 
objective is to provide broad exposure to the market for U.S. corporate bonds.
55
 
After the Federal Reserve announced that it would be using its emergency powers for 
official sector interventions, market stress relating to the COVID-19 pandemic began to subside. 
Assets in open-end funds, including fixed income funds, began to increase. By December 2020, 
open-end fund assets had increased to $24 trillion, with fixed-income funds (excluding ETFs) 
reaching $6 trillion in assets, and fixed-income ETFs surpassing $1 trillion in assets.
56
 Bank loan 
fund assets remained essentially unchanged, however, from March 2020 levels and remained at 
$68 billion. 
Other Observations from March 2020
Beyond data evidencing the liquidity stress funds faced in March 2020, we also observed 
the stress through staff outreach to the industry. During this period, fund managers discussed 
their liquidity concerns with Commission staff and the potential need for emergency relief. Fund 
managers explored various emergency relief actions. For example, some fund managers 
requested emergency relief that would provide additional flexibility for interfund lending and 
55
 See, e.g., Press Release, Federal Reserve Announces Extensive New Measures to Support the 
Economy (Mar. 23, 2020), available at 
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm; 
https://www.federalreserve.gov/monetarypolicy/smccf.htm (describing the Secondary Market 
Corporate Credit Facility in particular).
56
 From Apr. to Dec. 2020, fixed-income funds averaged $75 billion in inflows, or 1.4% per month.
Ultrashort and short-term bond funds experienced average monthly inflows of $16 billion and 2%
of assets over this period.
29

other short-term funding to help meet redemptions, which the Commission provided.
57
 Some 
managers suggested emergency relief to permit funds to impose redemption fees that exceed 2% 
to mitigate dilution, including fees that ETFs can charge authorized participants to cover 
liquidity and transaction costs.
58
 Some fund managers that have successfully used swing pricing 
in Europe urged the Commission to explore emergency actions to facilitate funds’ ability to 
operationalize the Commission’s current swing pricing rule. Some fund managers also suggested
there was a need for Federal Reserve interventions. These discussions indicated that fund 
managers sought additional means to quickly address liquidity and dilution concerns during this 
period of financial stress. 
During these conversations, several fund managers with operations in both the U.S. and 
Europe discussed their experience with swing pricing in Europe and indicated that swing pricing 
would have been a useful tool for U.S. funds to have had in March 2020. Swing pricing was 
widely used in several European jurisdictions during the March 2020 stressed period to reduce 
dilution from rising transaction costs.
59
 In these jurisdictions, some funds used partial swing 
57
 See Order Under Sections 6(c), 12(d)(1)(J), 17(b), 17(d) and 38(b) of the Investment Company 
Act of 1940 and Rule 17d-1 Thereunder Granting Exemptions from Specified Provisions of the 
Investment Company Act and Certain Rules Thereunder, Investment Company Act Release No. 
33821 (Mar. 23, 2020), available at https://www.sec.gov/rules/other/2020/ic-33821.pdf. 
Although the Commission provided this relief for a period of time, we understand funds generally
did not use it.
58
 ETFs typically externalize the costs associated with purchases and redemptions of shares by 
redeeming in kind and by charging a fixed and/or variable fee to authorized participants to offset 
both transfer and other transaction costs that an ETF (or its service provider) may incur, as well 
as brokerage, tax-related, foreign exchange, execution, market impact, and other costs and 
expenses related to the execution of trades resulting from such transaction. The amount of these 
fixed and variable fees typically depends on whether the authorized participant effects 
transactions in kind or with cash and is related to the costs and expenses associated with 
transactions effected in kind versus in cash. For example, when an authorized participants 
redeems ETF shares by selling a creation unit to the ETF, the fees that the ETF imposes defray 
the costs of liquidity the redeeming authorized participant receives. This, in turn, mitigates the 
risk of diluting non-redeeming authorized participants when an ETF redeems its shares. 
59
 Funds in countries such as Luxembourg, Ireland, the United Kingdom, and the Netherlands had 
implemented swing pricing and it was well-established market practice. In Mar. 2020, funds in 
30

pricing (where a NAV adjustment occurs only if net flows exceed a swing threshold), some 
funds used full swing pricing (where a NAV adjustment occurs any time a fund has net inflows 
or net outflows), and some funds did not use swing pricing. Many European funds increased 
their use of swing pricing and increased the size of their swing factors during the stressed period.
For example, a voluntary survey conducted by the Bank of England and Financial Conduct 
Authority of a subset of fund managers in the United Kingdom (“UK”) indicated that the use of 
swing pricing more than doubled from the last quarter of 2019 to the first quarter of 2020.
60
 Due 
to increasing transaction costs, several European funds lowered their swing thresholds in March 
2020, with some moving to full swing pricing for net redemptions.
61
 Funds also increased the 
some countries, such as France, Spain, and Germany, had more recently begun to employ swing 
pricing as an anti-dilution method. See Lessons from COVID-19: Liquidity Risk Management 
and Open-Ended Funds, BlackRock ViewPoint (Jan. 2021), available at 
https://www.blackrock.com/corporate/literature/whitepaper/viewpoint-addendum-lessons-from-
covid-liquidity-risk-management-is-central-to-open-ended-funds-january-2021.pdf.
60
 See Liquidity management in UK open-ended funds: Report based on a joint Bank of England 
and Financial Conduct Authority survey (Mar. 2021), available at 
https://www.bankofengland.co.uk/report/2021/liquidity-management-in-uk-open-ended-funds 
(“Bank of England Survey”). The increase in the use of partial and full swing pricing included the
increase in the number of funds using swing pricing as well as the increase in the frequency of its 
use for funds that already used swing pricing. The survey also found that some funds did not use 
swing pricing or other tools during the period because, for example, net outflows of certain funds 
were below levels at which they would consider applying swing pricing or other tools.
61
 See id. (stating that, out of a total of 202 surveyed funds that were authorized to use swing 
pricing, 45 funds decided to reduce their swing threshold during this period, including 18 funds 
that switched temporarily to full swing pricing during the market stress); ICI, Experiences of 
European Markets, UCITS, and European ETFs During the COVID-19 Crisis (Dec. 2020), 
available at https://www.ici.org/doc-server/pdf%3A20_rpt_covid4.pdf (“Respondents reported 
that some UCITS lowered their partial swing thresholds during March to take into consideration 
the impact flows could have on investors from increased transaction costs in underlying 
markets... Some UCITS using partial swing pricing lowered their threshold for redemptions to 
zero in March (which is equivalent to full swing pricing) in response to market volatility that had 
caused bid-ask spreads to widen on underlying securities.”); Claessens, Stijn, and Lewrick, Ulf, 
“Open-ended bond funds: systemic risks and policy implications” (Dec. 2021) available at 
https://www.bis.org/publ/qtrpdf/r_qt2112c.pdf (stating that, in a survey of 57 Luxembourg 
actively managed bond UCITS based on a supervisory data collection, these funds lowered swing
thresholds on average from net outflows of 1% of total net assets before Mar. 2020 to less than 
0.5% of total net assets) (“Claessens and Lewrick”). See also CSSF Working Paper: An 
Assessment of Investment Funds’ Liquidity Management Tools (June 2022), available at 
https://www.cssf.lu/en/2022/06/publication-of-cssf-working-paper-an-assessment-of-investment-
31

size of their swing factors to account for the increase in liquidity and transaction costs. For 
example, a survey of Luxembourg UCITS found that while the average swing factor for the 
survey sample hovered around zero before the turmoil, it increased by more than 100 basis points
on average during the market stress.
62
 The survey of UK-authorized funds similarly found that 
the size of swing factors increased during this period and that some funds that had capped the 
size of their swing factors needed to temporarily remove these caps.
63
 In terms of the effects of 
using swing pricing during March 2020, one study found that swing pricing allowed surveyed 
funds to recoup roughly 0.06% of total net assets on average from redeeming investors during 
three weeks of elevated redemptions in March 2020.
64
We also observed funds’ liquidity risk management in March 2020 through funds’ filings
with the Commission and other staff outreach. Specifically, during and following the market 
events of March 2020, Commission staff assessed liquidity-related data reported on Forms N-
PORT and N-RN, as well as the development of liquidity risk management programs through 
staff outreach to funds, advisers, and liquidity classification vendors.
65
 Based on review of Form 
funds-liquidity-management-tools/ (“CSSF Paper”). 
62
 See Claessens and Lewrick, supra note 61; CSSF Paper, supra note 61 (stating that “[t]he 
average swing factor of the 42 bond funds participating in the CSSF survey increased by more 
than 100 basis points on average during Mar. 2020 (the median and maximum swing factor were 
60 and 350 basis points, respectively)”).
63
 See Bank of England Survey, supra note 60 (stating that of the 17 surveyed funds that had a cap 
on their swing factors, which ranged from 0.25% to 3%, 13 funds temporarily removed the caps 
in response to heightened outflows and a few managers overrode the caps). We also understand 
that in response to funds’ requests to use swing factors above their disclosed caps, some 
jurisdictions provided guidance on when this is permitted. See Commission de Surveillance du 
Secteur Financier, Swing Pricing Mechanism – FAQ, available at 
https://www.cssf.lu/en/Document/cssf-faq-swing-pricing-mechanism/ (providing guidance for 
increasing the swing factor above the maximum level identified in a fund’s prospectus under 
certain circumstances, and noting that typical maximum swing factors observed in fund 
prospectuses are between 1% and 3%). 
64
 See Claessens and Lewrick, supra note 61.
65
 The Mar. 2020 data collected on Form N-PORT often was not available to the Commission until 
June or July 2020 because a fund files data covering each month of its fiscal quarter on Form N-
32

N-PORT filings for February and March 2020, approximately two-thirds of funds did not appear 
to reclassify any investment held in both months despite the market events described above.
66
 We
saw that reclassifications increased from 25% of funds that held the same investment in both 
January and February 2020 to 33% of funds in March 2020, and stayed elevated for April 2020. 
We understand that many fund and liquidity vendor classification models use data lookback 
periods of 30 days or more that made them slowly adjust to changing market conditions, leaving 
these firms unable to consider their classifications and reclassify when market conditions 
changed quickly. In addition, we understand that classification models generally tend to assess 
liquidity based on relatively small sale sizes that do not necessarily reflect the amount a fund 
may need to sell to meet heightened levels of redemptions in stress periods, and most models do 
not automatically adjust to a higher trade size when market conditions change. Moreover, our 
data indicate that in March 2020 cash levels in the aggregate increased and relatively few funds 
made use of borrowing to meet redemptions, suggesting that funds generally were selling 
portfolio assets to meet redemptions and potentially for other purposes, such as to raise cash in 
anticipation of future redemptions. During March 2020, more than a dozen funds (primarily 
fixed-income funds) filed reports on Form N-RN. Most of these Form N-RN filings related to 
breaches of the 15% limit on illiquid investments.
Overall, the market events in March 2020 show how liquidity can deteriorate rapidly and 
significantly. In the face of such rapid market changes, liquidity risk management program 
features of some funds adjusted slowly, making them less effective during the stress period for 
managing liquidity risk. Additionally, tools, such as swing pricing, that may have helped open-
PORT no later than 60 days after the end of each fiscal quarter. 
66
 See infra note 128 (discussing that fewer equity funds reported reclassifications of investments 
held in both Feb. and Mar. 2020 than fixed-income funds).
33

end funds limit dilution as both transaction costs and redemptions rose were unavailable because 
of operational challenges, although these tools were used in other jurisdictions during this period.
C.Rulemaking Overview
In March 2020, some open-end funds were not prepared for the sudden market stress that 
arose after many years of relative calm and, as the market stress and outflows grew, several 
funds began to explore emergency relief requests or suggest a need for government intervention 
in an effort to withstand or alleviate liquidity stress, address dilution, and improve overall market
conditions. The period of market stress in March 2020 was relatively brief ending upon Federal 
Reserve interventions, and no funds sought to suspend redemptions during this period. We 
believe there are meaningful lessons from this period that our rules should reflect, while also 
recognizing the possibility that future stressed periods—whether specific to certain funds or the 
markets as a whole—may be more protracted or more severe than March 2020, particularly 
absent Federal Reserve action. Fundamentally, we believe funds should be better prepared for 
future stressed conditions, which can occur suddenly and unexpectedly, and should have well-
functioning tools for managing through stress without significantly diluting the interests of their 
shareholders. We are proposing amendments to rules 22e-4 and 22c-1 that are designed to 
achieve these key objectives and to reflect our experience with the rules since they were adopted,
as well as supporting amendments to Form N-PORT and other reporting and disclosure forms. 
Specifically, recognizing that it can be difficult to predict when market stress will occur, 
the proposed amendments to rule 22e-4 would require funds to incorporate stress into their 
liquidity classifications by assuming the sale of a stressed trade size, which would be 10% of 
each portfolio investment, rather than the rule’s current approach of assuming the sale of a 
“reasonably anticipated trade size” in current market conditions. Requiring a fund’s classification
34

model to assume the sale of larger-than-typical position sizes may better emulate the potential 
effects of stress on the fund’s portfolio, similar to an ongoing stress test, and help better prepare 
a fund for future stress or other periods where the fund faces higher than typical redemptions. 
The proposal also would establish other minimum standards for classifying the liquidity of an 
investment, which are designed to improve the quality of classifications by preventing funds 
from over-estimating the liquidity of their investments and to provide clearer guideposts for 
liquidity classifications, reflecting the more effective practices we have observed. 
In addition, we propose to remove the less liquid investment category and to treat these 
investments as illiquid. The less liquid category consists of investments that can be sold in seven 
calendar days but that take longer to settle. For example, many bank loans take longer than seven
days to settle. The proposed amendment is designed to reduce the mismatch between the receipt 
of cash upon the sale of assets with longer settlement periods and the payment of shareholder 
redemptions. This would better position funds to meet redemptions, including in times of stress. 
Currently, treating these investments as “less liquid”—as opposed to “illiquid”—allows funds to 
invest in these assets beyond the 15% limit on illiquid investments, notwithstanding that “less 
liquid” investments settle beyond the statutory seven-day period to pay redemptions. We are also
proposing to amend the definition of illiquid investment to include investments whose fair value 
is measured using an unobservable input that is significant to the overall measurement. We 
understand many funds classify these investments as illiquid today.
We also propose to require daily liquidity classifications. We believe this change would 
promote better monitoring of a fund’s liquidity and an ability to more rapidly understand and 
respond to changes that affect the liquidity of the fund’s portfolio, including the fund’s 
35

compliance with its highly liquid investment minimum and the rule’s limit on illiquid 
investments. 
As another means to prepare funds for stressed conditions, we are proposing to amend the
highly liquid investment minimum provisions in the rule to require all funds to determine and 
maintain a minimum amount of highly liquid assets of at least 10% of net assets. This aspect of 
the proposal is designed to ensure that funds have sufficient liquid investments for managing 
heightened levels of redemptions. Finally, we are proposing amendments to how the highly 
liquid investment minimum calculation and the calculation of the 15% limit on illiquid 
investments take into account the value of assets that are posted as margin or collateral for 
certain derivatives transactions to reflect that the fund cannot access the value of posted assets to 
meet redemptions until the fund is able to exit the derivatives transactions.
In addition, to reduce shareholder dilution during stress and other periods, we are 
proposing to amend rule 22c-1 to require all open-end funds, other than ETFs and money market 
funds, to implement swing pricing. Today, no fund has implemented swing pricing, and funds 
rarely use redemption fees to address dilution other than in the case of short-term trading of fund 
shares, meaning shareholders may experience dilution both in normal and stressed conditions, 
particularly when purchases or redemptions are large or when funds invest in markets with high 
transaction costs relative to other markets.
67
 We believe swing pricing is an important and 
effective tool for dynamically addressing such dilution by recognizing that costs associated with 
shareholder purchases and redemptions rise as net flows increase and liquidity and transaction 
costs grow. 
67
 Based on an analysis of fund prospectuses, approximately 551 open-end funds (or around 4.6% 
of funds) state that they apply redemption fees under certain circumstances for at least one share 
class of the fund. Approximately 3.3% of fund classes have a redemption fee, or 0.6% of net fund
assets. 
36

In addition to proposing mandatory swing pricing, we are proposing to amend the swing 
pricing framework in rule 22c-1 to apply lessons learned from March 2020, including 
information about the European experience with swing pricing during that period. Specifically, 
we propose to amend both when and how a fund would adjust its NAV, which would vary 
depending on whether a fund has net purchases or net redemptions. Rather than require funds to 
determine their own swing thresholds, we propose to specify the amount of net inflows or net 
outflows that would trigger a pricing adjustment in the rule, informed by an analysis of historical
flow amounts. 
In addition, we propose a specific method of calculating the swing factor price 
adjustment, which would require a fund to make good faith estimates of the transaction costs of 
selling or purchasing a pro rata amount of its portfolio investments (or a “vertical slice”) to 
satisfy that day’s redemptions or to invest the proceeds from that day’s purchases. Under the 
proposal, a fund would be required to apply a swing factor on any day it has net redemptions. 
When net redemptions exceed 1% of net assets, the swing factor would also account for market 
impacts of selling a vertical slice of the portfolio to capture the dilutive effect of trading in 
response to large outflows better. We believe trading in response to small levels of net inflows is 
less likely to have a dilutive effect than trading in response to net outflows and, as a result, we 
propose to require a fund to apply a swing factor for net purchases only if net purchases exceed 
2% of net assets. In addition, we propose to remove the 2% swing factor upper limit from the 
current rule because we are proposing a more specific framework for determining swing factors, 
some European funds used swing factors above 2% in order to mitigate dilution in March 2020, 
and we received requests for emergency relief in the United States during this period to allow 
funds to charge redemptions fees exceeding 2% to mitigate dilution. The proposed swing pricing 
37

amendments are designed to reduce the dilution of an investor’s interest in a fund that is caused 
by the redemption or purchase activity of other investors in the fund and to fairly allocate the 
costs associated with redemption and purchase activity. These amendments also may reduce 
potential first-mover advantages that might incentivize early redemptions to avoid anticipated 
trading costs and dilution associated with other investors’ redemptions. 
To operationalize the proposed swing pricing requirement and provide other benefits, we 
are also proposing to amend rule 22c-1 to require that the fund, its transfer agent, or a registered 
clearing agency receive purchase and redemption orders by an established cut-off time to receive
a given day’s price (a “hard close”). Specifically, for an order to be eligible to receive a day’s 
price, these designated parties would have to receive the order before the pricing time, which is 
typically 4 p.m. ET. The proposed hard close would facilitate the receipt of timely flow 
information to inform swing pricing decisions. In addition, we believe it would help prevent late 
trading and reduce operational risk.  
To promote transparency related to fund liquidity and use of swing pricing, we are 
proposing amendments to Form N-PORT to require funds to report their aggregate liquidity 
classifications publicly, as well as the frequency and amount of swing pricing adjustments. With 
respect to liquidity disclosure, this amendment is designed to provide investors with meaningful 
information about fund liquidity, taking into account that our proposed amendments to the 
liquidity classification framework should result in more objective and comparable liquidity 
classifications across funds.
68
 As for the proposed swing pricing reporting requirements, we 
68
 In certain cases, investors consume reported information indirectly through other data users. 
These other data users can include, for example, regulators such as the Commission, fund 
analysts, and third-party data providers. Throughout this release, references to consumption of 
information by investors include indirect consumption by investors enabled by other data users.
38

believe the proposed frequency and size information would allow investors to better understand 
the operation and effects of swing pricing. 
We also propose broader changes to Form N-PORT to require all registered investment 
companies that report on the form, which include open-end funds (other than money-market 
funds), registered closed-end funds, and ETFs registered as unit investment trusts, to file monthly
reports with the Commission within 30 days of month-end. These monthly reports would 
subsequently be publicly available 60 days after month-end. These proposed amendments would 
require filers to provide the Commission with more timely information and would provide 
investors with access to monthly rather than quarterly information. We observed in March 2020 
that timely and full disclosure can be particularly important during and immediately after stress 
events. Finally, we propose amendments to Forms N-PORT, N-CEN, and N-1A to, among other 
things, conform to our other proposed amendments and to improve entity identifiers. 
Taken together, these proposed amendments are designed to provide investors with 
increased protection regarding how liquidity in their funds is managed, thereby reducing the risk 
that funds will be unable to meet redemptions and mitigating dilution of the interests of fund 
shareholders. These reforms also are intended to give investors information to make more 
informed investment decisions, and to give the Commission more timely information to conduct 
comprehensive oversight of an ever-evolving fund industry.
II.DISCUSSION 
A.Amendments Concerning Funds’ Liquidity Risk Management Programs 
1.Amendments to the Classification Framework
Rule 22e-4 currently requires a fund to classify each portfolio investment based on the 
number of days within which it reasonably expects the investment would be convertible to cash, 
39

sold or disposed of, without significantly changing its market value.
69
 Under this framework, 
funds must, using information obtained after reasonable inquiry and taking into account relevant 
market, trading, and investment-specific considerations, classify each portfolio investment into 
one of four liquidity classifications: highly liquid, moderately liquid, less liquid, and illiquid.
70
 A 
fund may generally classify and review its investments by asset class unless the fund or adviser 
has information about any market, trading, and investment-specific considerations that it 
reasonably expects to significantly affect the liquidity characteristics of an investment compared 
to the fund’s other portfolio holdings within that asset class.
71
 In classifying its investments, a 
fund must analyze the number of days that it reasonably expects it would take to sell, or convert 
to cash, portions of a position in a particular investment or asset class that the fund would 
reasonably anticipate trading (the “reasonably anticipated trade size”) without significantly 
changing its market value (“value impact”).
72
 A fund must review its liquidity classifications at 
least monthly in connection with reporting the liquidity classification for each investment on 
Form N-PORT, and more frequently if changes in relevant market, trading, and investment-
69
 In-kind ETFs are included when we refer to “funds” or “open-end funds” throughout this release 
when discussing rule 22e-4, except in the sections discussing classifying the liquidity of a fund’s 
investments and the highly liquid investment minimum requirement, from which in-kind ETFs 
are excepted. See proposed rule 22e-4(a) (defining “in-kind ETF” as an ETF that meets 
redemptions through in-kind transfers of securities, positions, and assets other than a de minimis 
amount of U.S. dollars and that publishes its portfolio holdings daily); see also rule 22e-4(b)(1)
(ii) and 22e-4(b)(1)(iii). In-kind ETFs do not present the same kind of liquidity risks as other 
funds because the redeeming shareholder typically bears the direct costs associated with its 
liquidity needs. See Liquidity Rule Adopting Release, supra note 8, at paragraphs accompanying 
n.842.
70
 See rule 22e-4(b)(1)(ii). 
71
 See rule 22e-4(b)(1)(ii)(A).
72
 See rule 22e-4(b)(1)(ii)(B) (requiring a fund to determine whether trading varying portions of a 
position in sizes that the fund would reasonably anticipate trading is reasonably expected to 
significantly affect its liquidity). The definition of each liquidity category sets out the number of 
days in which a fund reasonably expects to sell, or convert to cash, an investment without 
significantly changing its market value. See rule 22e-4(a)(6), rule 22e-4(a)(8), rule 22e-4(a)(10), 
and rule 22e-4(a)(12).
40

specific considerations are reasonably expected to materially affect one or more of its 
investments’ classifications.
73
 
The liquidity classifications are integral to rule 22e-4. Among other things, these 
classifications help a fund monitor its liquidity, including compliance with the fund’s highly 
liquid investment minimum and the 15% limit on illiquid investments.
74
 The fund’s 
classifications also provide liquidity information to the Commission and, under our proposal, to 
the public. 
The current rule allows funds considerable discretion in how funds determine the 
classification of investments.
75
 Funds may choose which investments to classify individually or 
by asset class, with the composition of asset classes determined by the fund. Funds also may use 
different reasonably anticipated trade sizes and have different standards for evaluating value 
impact. Through staff outreach, we observed that funds had varied approaches in their 
classifications processes. The proposed amendments to the liquidity classifications are intended 
to better prepare funds for future stressed conditions. For example, the reasonably expected trade
sizes and value impact standards some funds and liquidity classification vendors used tended to 
over-estimate a fund’s liquidity in March 2020 because they considered relatively smaller trade 
sizes or used value impact methodologies with longer lookback periods. 
Based on our observations from March 2020 and our review of funds’ liquidity risk 
management practices and classifications, we are proposing amendments to the classification 
73
 See rule 22e-4(b)(1)(ii).
74
 See rule 22e-4(b)(1)(iii) and rule 22e-4(b)(1)(iv).
75
 See Liquidity Rule Adopting Release, supra note 810, at n.163 and accompanying text (stating 
that the primary goals of the liquidity rule program requirements were to reduce the risk that 
funds would be unable to meet redemption and other legal obligations, minimize dilution, and 
elevate the overall quality of liquidity risk management across the fund industry while at the same
time providing funds with reasonable flexibility to adopt policies and procedures that would be 
most appropriate to assess and manage their liquidity risk).
41

framework. The proposed amendments would provide additional standards for making liquidity 
determinations, amend certain aspects of the liquidity categories, and require more frequent 
liquidity classifications. Specifically, we propose to provide objective minimum standards that 
funds would use to classify investments, including by: (1) requiring funds to assume the sale of a
set stressed trade size, rather than the rule’s current approach of assuming the sale of a 
reasonably anticipated trade size in current market conditions; and (2) defining the value impact 
standard with more specificity on when a sale or disposition would significantly change the 
market value of an investment. We also propose to remove classification by asset class. These 
proposed amendments are designed to improve the quality of classifications by preventing funds 
from over-estimating the liquidity of their investments, including in times of stress, and to 
provide classification standards that are consistent with more effective practices the staff has 
observed. In addition, a more objective and comparable framework for how funds classify the 
liquidity of their investments would enhance the Commission’s ability to analyze trends across 
funds’ classifications and establish the groundwork for classification information that investors 
could use to analyze and compare funds.  
We also propose to remove the less liquid investment category, which would reduce the 
number of liquidity categories from four to three, and expand the scope of the illiquid investment
category. We believe these changes would reduce the risk of a fund not being able to meet 
shareholder redemptions. Finally, we propose to require daily classifications, which we believe 
would promote better monitoring by liquidity risk program administrators of a fund’s liquidity 
and an ability to more rapidly understand and respond to changes that affect the liquidity of the 
fund’s portfolio.
76
 
76
 See rule 22e-4(a)(13) (defining “person(s) designated to administer the program”, in part, as the 
investment adviser, officer, or officers responsible for administrating the program).
42

Table 1 sets forth the primary proposed changes to the rule’s liquidity classification 
framework, which are described in more detail below.
Table 1: Proposed Changes to the Liquidity Classifications
Liquidity Classifications
and Related Terms
Current Rule 22e-4 Proposed Rule 22e-4 
Definitions
Highly Liquid 
Investment
Any cash held by a fund and 
any investment that the fund 
reasonably expects to be 
convertible into cash in current 
market conditions in three 
business days or less without 
the conversion to cash 
significantly changing the 
market value of the investment.
Any U.S. dollars held by a fund
and any investment that the 
fund reasonably expects to be 
convertible to U.S. dollars in 
current market conditions in 
three business days or less 
without significantly changing 
the market value of the 
investment.
Moderately Liquid 
Investment
Any investment that the fund 
reasonably expects to be 
convertible into cash in current 
market conditions in more than 
three calendar days but in seven
calendar days or less, without 
the conversion to cash 
significantly changing the 
market value of the investment.
Any investment that is neither a
highly liquid investment nor an 
illiquid investment.
Less Liquid InvestmentAny investment that the fund 
reasonably expects to be able to
sell or dispose of in current 
market conditions in seven 
calendar days or less without 
the sale or disposition 
significantly changing the 
market value of the investment,
but where the sale or 
disposition is reasonably 
Removed.
43

Liquidity Classifications
and Related Terms
Current Rule 22e-4 Proposed Rule 22e-4 
expected to settle in more than 
seven calendar days.
Illiquid Investment
Any investment that the fund 
reasonably expects cannot be 
sold or disposed of in current 
market conditions in seven 
calendar days or less without 
the sale or disposition 
significantly changing the 
market value of the investment.
Any investment that the fund 
reasonably expects not to be 
convertible to U.S. dollars in 
current market conditions in 
seven calendar days or less 
without significantly changing 
the market value of the 
investment and any investment 
whose fair value is measured 
using an unobservable input 
that is significant to the overall 
measurement.
Convertible to Cash / 
U.S Dollars
The ability to be sold, with the 
sale settled.
The ability to be sold or 
disposed of, with the sale or 
disposition settled in U.S. 
dollars.
Related Concepts
Assumed Trade Size
Sizes that the fund would 
reasonably anticipate trading
10% of the fund’s net assets by 
reducing each investment by 
10%
Value Impact Standard
Significantly changing the 
market value of the investment
Significantly changing the 
market value of an investment 
means:
(1) For shares listed on a 
national securities exchange or 
a foreign exchange, any sale or 
disposition of more than 20% 
of average daily trading volume
of those shares, as measured 
over the preceding 20 business 
days.
(2) For any other investment, 
any sale or disposition that the 
fund reasonably expects would 
result in a decrease in sale price
of more than 1%.
44

a.Stressed Trade Size and Significant Changes in Market Value
i.Replacing Reasonably Anticipated Trade Size with   
Stressed Trade Size
Currently, when a fund makes liquidity classifications under rule 22e-4, it must determine
whether trading varying portions of a position in a particular portfolio investment or asset class, 
in sizes that the fund would reasonably anticipate trading, is reasonably expected to significantly
affect its liquidity.
77
 This determination of a reasonably anticipated trade size helps a fund 
analyze market depth. For example, if a fund anticipates trading a large investment position 
relative to the market’s total trading volume, the size of the trade might affect liquidity and 
price.
78
 
Using a small reasonably anticipated trade size to analyze market depth leads to a more 
liquid classification, as a smaller position can be sold more quickly without significantly 
affecting the investment’s liquidity than a larger position. In contrast, using a larger reasonably 
anticipated trade size would often lead to less liquid classifications. Under the current rule, a 
fund may determine its own reasonably anticipated trade size, and we have observed wide 
variation in practice.
79
 From staff outreach, we observed that funds may consider a variety of 
different factors, such as their flow history, flow trends of other similar funds, and shareholder 
makeup and concentration, and a fund may weigh the importance of those factors differently to 
determine what it would reasonably anticipate trading. We believe that using a reasonably 
77
 See rule 22e-4(b)(1)(ii)(B).
78
 See Liquidity Rule Adopting Release, supra note 8, at paragraphs accompanying n.440 and 
n.450.
79
 See SEC staff Investment Company Liquidity Risk Management Programs Frequently Asked 
Questions (Apr. 10, 2019) (“Liquidity FAQs”), available at 
https://www.sec.gov/investment/investment-company-liquidity-risk-management-
programs-faq for discussion of factors funds may consider in determining reasonably anticipated
trading size. The Commission has observed that many funds have set reasonably anticipated trade
size values at 3%. Others have set values of below 3% and up to 100%, signifying wide variation.
45

anticipated trade size based on these, or a subset of these factors, may not help funds prepare for 
future stressed conditions. Even if a fund increased its reasonably anticipated trade size during 
periods of stress, the resulting adjustments in the fund’s liquidity risk management may be too 
late to help the fund prepare for the stressed environment and, thus, may have limited utility. 
In response to the variability in funds’ reasonably anticipated trade sizes and the potential
ineffectiveness of small trade sizes in helping a fund prepare for stress, we propose to require 
funds to assume the sale of a set stressed trade size. Specifically, for a fund to determine the 
liquidity classification of each investment, we propose that it must measure the number of days 
in which the investment is reasonably expected to be convertible to U.S. dollars without 
significantly changing the market value of the investment, while assuming the sale of 10% of the
fund’s net assets by reducing each investment by 10%.
80
 The proposed stressed trade size may 
result in funds classifying fewer investments as highly liquid, and may increase the number of 
investments that are subject to the 15% limit on illiquid investments. These changes, in turn, may
lead some funds to rebalance their portfolio holdings to comply with the proposed changes, 
which could negatively affect the performance of these funds. However, a lack of preparation for
higher than normal redemptions also can negatively affect fund performance when such 
redemptions occur.
81
 We believe that requiring a fund’s classification model to assume the sale 
of larger-than-typical position sizes would better emulate the potential effects of stress on the 
80
 The liquidity classifications define the number of days as business days for highly liquid 
investments or calendar days for illiquid investments. See Table 1. See also rule 22e-4(a)(2) 
(defining “business day” to exclude customary business holidays).
81
 See Liquidity Rule Adopting Release, supra note 8, at paragraphs accompanying nn.109 and 110 
(stating that staff had observed that some funds with more thorough liquidity risk management 
practices appeared to be able to better meet periods of higher than typical redemptions without 
significantly altering their risk profile or materially affecting their performance, while some funds
with substantially less rigorous liquidity risk management practices experienced particularly poor 
performance compared with their benchmark when faced with higher than normal redemptions). 
46

fund’s portfolio, similar to an ongoing stress test, and help better prepare a fund for future stress 
or other periods where the fund faces higher than typical redemptions. 
Based on an analysis of weekly flows of equity and fixed-income funds over a period of 
more than ten years, outflows greater than 6.6% occurred 1% of the time in a pooled sample 
across weeks and funds.
82 
Based on this analysis, we estimate that a random fund in a random 
week has approximately a 0.5% chance of experiencing redemptions in excess of the 10% 
stressed trade size, and there were 3.4% of weeks where more than 1% of funds experienced net 
redemptions exceeding the proposed stressed trade size. We believe that weekly outflows at the 
99
th
 percentile is a useful approximation of the level of outflows funds may experience in future 
stressed conditions.
83
 However, because it is difficult to predict future stress events, including the
effect and length of such events—particularly without official sector interventions—we believe it
is appropriate to require funds to use a stressed trade size amount of 10%, which is moderately 
higher than the 6.6% weekly outflow figure discussed above. We also considered, during this 
same historical period, equity and fixed-income funds had weekly inflows of greater than 8% for 
1% of the time in a pooled sample across weeks and funds. In addition, large, concentrated 
inflows have the possibility of translating to similarly large outflows. For example, if the large 
inflows are the result of investment by an institutional investor or a fund’s inclusion in a model 
82
 Based on an analysis of historical Morningstar weekly fund flow data for equity and fixed 
income funds from 2009 through 2021. See infra sections III.B.4.a and III.C.1.a.i (providing 
additional equity and fixed income flow data and discussing this analysis in more detail). While 
some Morningstar data is available for 2008, we have not included that data in our historical flow
analyses in this release because of gaps in the 2008 data (e.g., the 2008 dataset covers a more 
limited set of funds). Other available flow information for 2008, such as from the ICI Fact Book, 
is not granular enough for purposes of our analyses.
83
 We believe weekly outflows is a better proxy for the stressed trade size than daily outflows 
because stressed conditions may take some time to fully present in flows and often result in 
outflows that continue over several days or more.
47

portfolio, the fund may experience similarly large outflows if the investor mandate changes or if 
the fund is removed from the model portfolio. 
Under the proposed approach, a fund would apply its stressed trade size to each 
investment to determine its liquidity classifications. We have observed that funds generally 
determine and apply a reasonably anticipated trade size to each investment or asset class 
currently (commonly referred to as pro rata or vertical slice methods). We have also observed, 
however, that some funds have applied the reasonably anticipated trade size in such a manner 
that the trading would be satisfied largely by selling the fund’s most liquid investments, resulting
in smaller assumed trade sizes for purposes of classifying the fund’s less liquid investments.
84
 As
recognized above, small assumed sale sizes can result in more liquid classifications generally, as 
sales of small amounts are less likely to affect the market value of the investment significantly 
and typically can be converted to U.S. dollars more quickly. We are particularly concerned that 
use of small assumed sale sizes for non-highly liquid investments can overstate the liquidity of 
these investments and reduce the effectiveness of a fund’s liquidity risk management program 
when a fund needs to sell a larger-than-assumed portion to meet redemptions under stressed 
conditions or for any other portfolio management reason. Requiring funds to apply the 10% 
stressed trade size to each investment would better prepare funds to manage their liquidity in 
stressed conditions, when a fund may be required to sell positions that are larger than the 
assumed sale sizes some funds are using currently. The amendments to replace the determination
of a reasonably anticipated trade size with a stressed trade size are designed to enhance a fund’s 
preparation for stressed conditions, including the potential for sizeable outflows.
84
 See Liquidity Rule Adopting Release, supra note 8, at paragraph accompanying n.1084. We do 
not suggest that a fund should only, or primarily, use its most liquid investments to meet 
shareholder redemptions. See id., at n.661 and accompanying paragraph.
48

We request comment on the proposed requirement for funds to apply a stressed trade size
to each investment in their liquidity classification determinations:
1.Should we require funds to use a stressed trade size, as proposed? Would the change 
from reasonably anticipated trade size to stressed trade size materially change the 
proportion of investments classified in a given liquidity category? If yes, how? Would
the proposed stressed trade size affect certain types of funds more than others? Would
the proposed stressed trade size be likely to overstate or understate liquidity?
2.Is the proposed stressed trade size of 10% appropriate? If not, what minimum trade 
size would be appropriate and why? For example, should we increase or decrease the 
stressed trade size to, for example, 15% or 5% or some other threshold? Is there other 
data that should factor into setting the stressed trade size?
3.Should the stressed trade size vary for different types of funds and, if so, how? For 
instance, should the stressed trade size be a function of the fund’s flow history, such 
as the 99
th
 percentile highest week of the fund’s absolute or net flows over a given 
period (e.g., 3 years, 5 years, 10 years, or the life of the fund)? Should the stressed 
trade size be the higher of a specified value applied to each investment or the 99
th
 
percentile highest week of absolute flows? 
4.Should the method of applying the stressed trade size to each investment vary for 
different types of funds and, if so, how? Are there types of investments that should be
excluded or use a different stressed trade size? Are there other, more appropriate 
methods of applying a stressed trade size across different type of investments and 
portfolios? 
49

5.Instead of establishing a set stressed trade size, should we set a minimum stressed 
trade size and provide factors for determining if a fund should have a higher stressed 
trade size? If so, what factors should funds consider in setting their stressed trade 
size?
ii.Determining a Significant Change to Market Value  
Currently, when a fund makes liquidity classifications under rule 22e-4, it must analyze 
whether a sale or disposition would significantly change the market value of the investment. In 
the adopting release for rule 22e-4, the Commission explained that this value impact analysis 
captures the risk of a fund only being able to meet redemption requests in a manner that 
significantly dilutes the non-redeeming shareholders.
85
 The Commission established the value 
impact standard to capture the risk of dilution in cases of inadequate liquidity, while not 
requiring funds to account for every possible value movement.
86
 We propose to establish a 
minimum value impact standard that defines more specifically what constitutes a significant 
change in market value.
87
 We believe the proposed change would improve the quality of funds’ 
liquidity classifications by preventing funds from over-estimating the liquidity of their 
investments and would improve comparability of funds’ liquidity classifications. In addition, the 
proposed approach is consistent with more effective practices we have observed from some 
funds and liquidity classification vendors, as discussed below. 
Under the current rule, a fund may determine value impact in a variety of ways, 
depending on the type of asset, or vendor, model, or system used. There also is variation in the 
depth and sophistication of funds’ analyses. We believe the variation in how a fund may 
85
 See Liquidity Rule Adopting Release, supra note 8, at paragraph accompanying n.334.
86
 See id., at paragraph accompanying n.339.
87
 See proposed rule 22e-4(a) (definition of “Significantly changing the market value of an 
investment”).
50

determine value impact leads to differences in the quality of funds’ classifications, limits 
comparability of funds’ classifications across the same or similar investments, and may cause 
funds to over-estimate the liquidity of their investments. 
The proposed definition of a significant change in market value would require a fund to 
consider the size of the sale relative to the depth of the market for the instrument.
88
 This would 
vary depending on the type of investment. For shares listed on a national securities exchange or a
foreign exchange, we believe selling or disposing of more than 20% of the security’s average 
daily trading volume would indicate a level of market participation that is significant.
89
 We 
understand that if a fund sold more than 20% of the average daily trading volume of a listed 
equity security, such a large sale is likely to result in a significant change in the security’s market
value, which would dilute remaining investors in the fund. We have observed that a standard 
based on average daily trading volume is consistent with practices many funds and vendors apply
for assessing value impact for listed equity investments today.
90
 To determine average daily 
88
 The proposed rule would continue to provide that an investment’s classification is based on a 
fund’s reasonable expectations in current market conditions. See Liquidity Rule Adopting 
Release, supra note 8, at section III.C.1.d (discussing comments and suggestions on the 
consideration of market conditions). Thus, a fund would be able to rely on its reasonable 
expectations at the time it makes the value impact assessment. Although we are proposing to 
require funds to assume an element of stressed conditions in their liquidity classifications through
the stressed trade size, a broader requirement to predict how an investment may trade in stressed 
market conditions would introduce additional variables into the classification process that could 
increase the risk of misclassifications and decrease the data quality of funds’ liquidity-related 
reporting and disclosure. 
89
 Under this proposal, the sale or disposition must be below 20% of the security’s average daily 
trading volume. A fund may choose to impose a stricter limitation of any percentage under 20%, 
for example, 15% of average daily trading volume.
90
 Through staff outreach, we observed many funds using some percent of average daily trading 
volume (e.g., 15%, 20%, or 25%) that the fund’s investment can represent if it wants to be able to
sell into daily volume without affecting market prices. In practice, this meant funds would 
estimate the number of days it would take to sell or dispose of the reasonably anticipated trade 
size without approaching the set percentage of average daily trading volume to avoid impacting 
the value significantly. We observed funds calculating the average daily trading volume taking 
into account different sources, and for different time periods, ranging from 10 days to 6 months.
51

trading volume, we propose to require funds to measure the average daily trading volume over 
the preceding 20 business days. We believe using a period of 20 business days provides an 
appropriate measure of daily trading volume, which would reflect current market conditions as 
well as consider a period of recent market history. The 20 business day period is intended to 
strike a balance between longer periods that are less reflective of current conditions and shorter 
periods that can be skewed easily by an abnormally high or low volume day. For purposes of 
measuring average daily trading volume, the preceding 20 business days include those days 
where U.S. markets are open but where one or more international markets are closed, such as 
“Golden Week,” a week in Japan including multiple Japanese public holidays. A fund would 
count these and any other trading days where shares were not traded as zero volume days for the 
relevant investment. 
For any investments other than shares listed on a national securities exchange or a foreign
exchange, such as fixed-income securities and derivatives, we propose to define a significant 
change in market value as any sale or disposition that a fund reasonably expects would result in a
decrease in sale price of more than 1%. Funds currently use a variety of methods to determine 
significant changes in market value in fixed-income securities, taking into account different 
groups of comparable securities, asset class characteristics and volatility, number and depth of 
market makers, bid-offer spread size, volume of the security or similar securities, and elasticity 
of prices in the security or similar securities. For purposes of the proposed rule, a decrease of 
more than 1% would indicate a level of value impact that is significant because the fund is 
selling or disposing of a relatively large position or because the market for the investment has 
constricted, and bid-ask spreads have widened. We also understand that several commonly 
employed liquidity models currently use this price decrease measure. We acknowledge that not 
52

all liquidity models specify a price decrease explicitly as the determination for a significant 
change in market value and some funds would have to make changes to convert to this more 
objective threshold. The proposed value impact standard would improve funds’ abilities to 
perform quality checks and back testing and would allow the Commission to better analyze 
classification data across funds. 
In considering whether a sale is reasonably expected to result in a price decrease of more 
than 1%, the fund would be required to consider the size of the sale relative to the depth of the 
market for the instrument. As part of that analysis, we believe a fund generally should consider, 
among other things, the width of bid-offer spreads. This is because the width of bid-offer spreads
is an important consideration in analyzing the costs of selling a security and thus whether a sale 
would result in a price decrease exceeding 1%. For example, a sale would be more likely to 
result in a price decline of more than 1% if the trade size is large in relation to the market for that
instrument or if bid-ask spreads are wide, or if both are the case. Wide, or widening, bid-ask 
spreads may indicate a lower level of demand for the instrument, which makes it more likely that
a sale of the instrument would result in a price decline of more than 1%.
We request comment on our proposed definition of significant change in market value:
6.Would funds have to make significant changes to their liquidity classification 
methodologies to reflect the proposed amendments to the value impact standard? If 
so, what effect would those changes have on a fund’s liquidity risk management 
program?
7.Should we define value impact through average daily trading volume or price decline,
as proposed? Should we use a different definition of value impact instead, and if so, 
53

should it depend on the type of investment? Should different types of funds have 
different value impact standards? If yes, what standards, and for what types of funds?
8.For shares listed on a national securities exchange or a foreign exchange, should we 
define a significant change in market value as selling or disposing of more than 20% 
of the average daily trading volume, as proposed? Are there other types of 
investments for which an average daily trading volume test would be appropriate? For
example, is there data available for fixed-income securities that funds could use 
objectively to analyze market participation under a value impact standard?
9.Should the percent of average daily trading volume be higher or lower (e.g., 15% or 
25%)? Should the measurement period for the average daily trading volume be longer
or shorter than the proposed 20 business days (e.g., 10, 30, or 40 business days)? 
Should days where shares were not traded be counted as zero volume days as 
proposed or in some other manner? Are there circumstances in which the average 
daily trading volume test should vary by instrument, type of instrument, or trading 
venue? 
10.For investments that are not listed on a national securities exchange or foreign 
exchange, should we define a significant change in market value as any sale or 
disposition that the fund reasonably expects would result in a price decline of more 
than 1%, as proposed? Should the identified percentage be higher or lower (e.g., 0.5%
or 2%)? Should this standard for determining a significant change in market value 
apply to all investments? Would funds need additional guidance or parameters to 
measure this standard consistently, including what inputs or comparable investments 
may be used in determining the price decline?
54

11.Should the 1% price decline definition of value impact be applied against the fund’s 
last valuation of an investment, which would include both the effect of the fund’s sale
and market moves? 
iii.Removing Asset Class Classification   
Under current rule 22e-4, a fund may generally classify and review its portfolio 
investments (including the fund’s derivatives transactions) according to their asset class. 
However, a fund must separately classify and review any investment within an asset class if 
the fund or its adviser has information about any market, trading, or investment-specific 
considerations that are reasonably expected to significantly affect the liquidity characteristics of 
that investment as compared to the fund’s other portfolio holdings within that asset class.
91
 The 
current provision was intended to strike a balance between reducing operational burdens 
associated with classification and providing reasonably precise liquidity classifications that 
appropriately reflect investments’ liquidity characteristics.
92
 The burden to determine individual 
investment classifications may have decreased since the adoption of the rule for many funds as 
these funds became more familiar with and developed their liquidity risk management programs 
and, in some cases, developed automated processes for classifying investments or employed 
sophisticated liquidity classification vendors that provide economies of scale. In addition, in 
practice there may be weaknesses in asset class level classifications that may result in a lack of 
reasonably precise classifications. Therefore, we propose to remove the asset class method of 
classification from the rule.
91
 See rule 22e-4(b)(1)(ii)(A).
92
 See Liquidity Rule Adopting Release, supra note 8, at section III.C.3.a. The current approach 
was also intended to leverage fund managers’ current practices and to recognize that many 
investments within an asset class may be considered interchangeable from a liquidity perspective.
55

Through outreach, we understand that asset class level classifications are not widely used 
by many funds. But, where these asset class level classifications are used, this method runs the 
risk of over-estimating the liquidity of a fund’s investments and not adjusting quickly in times of 
stress. After a fund has begun to use asset class level classifications, and particularly if 
classifications are reviewed only on a monthly basis, it might be difficult for a fund to identify 
instances where a given investment’s liquidity characteristics do not align with the characteristics
of other investments in the asset class because individual investment liquidity data is not being 
collected and analyzed. Through outreach, we observed that funds generally established a 
process and timing for liquidity assessments and did not change those processes or timing as 
market conditions changed, and particularly were unlikely to do so under stressed conditions. For
example, during a stress event like March 2020, a fund using asset class level classifications may
not be equipped to re-classify a subset of investments in an asset class adeptly in response to 
changing conditions that affect those investments directly. Also, because funds classify a 
significant portion of their holdings as highly liquid, we believe this potential gap in identifying 
investments that a fund should classify differently from other investments in the asset class is 
more likely to over-estimate, rather than under-estimate, the liquidity of a fund’s investments. 
These tendencies run counter to the premise of the current rule’s classification system, which 
presumed that a fund would use efficiencies such as asset class level classifications and monthly 
review of classifications only when market conditions or other factors did not indicate that a shift
to a more granular or frequent classification is appropriate.
93
 Therefore, we are proposing to 
93
 See rule 22e-4(b)(1)(ii) (identifying the circumstances in which a fund must review its portfolio 
investments’ classifications more frequently than monthly); rule 22e-4(b)(1)(ii)(A) (identifying 
the circumstances in which a fund must separately classify and review an investment within an 
asset class instead of classifying according to the investment’s asset class). 
56

remove asset class level classifications to provide more precise liquidity classifications that 
appropriately reflect investments’ liquidity characteristics. 
Moreover, asset class level classifications are not compatible with the other changes we 
are proposing to the classification framework, including the proposed definitions of the value 
impact standard. It would also be difficult for a fund to meaningfully apply at the asset class 
level a standard based on average daily trading volume or a price decline in a given investment 
because the average trading volume, or market depth generally, can vary from investment to 
investment even within the same asset class. Classifying each investment separately therefore 
allows a more precise assessment of that investment’s liquidity. In addition, because the 
proposed rule would include specific minimum standards for classifying investments, it may 
reduce burdens of classifying investments while improving the quality of classifications relative 
to the current rule, consistent with the Commission’s objectives in originally allowing asset class
level classifications. Finally, staff has observed through outreach that liquidity risk management 
programs have developed so that specific and individual portfolio investment liquidity 
classifications are widely used and the removal of asset class level classifications is consistent 
with that approach. 
We request comment on the proposed removal of the provision permitting funds to 
classify the liquidity of their investments by asset class.
12.Should we preserve the ability of funds to use asset classes for liquidity 
determinations, as currently permitted? To what extent do funds currently rely on the 
provision allowing liquidity classifications by asset class? Would it be more or less 
burdensome for funds to classify investments individually under the proposal’s 
specific minimum standards (such as the stressed trade size and the defining the value
57

impact standard) than to separately classify any investment within an asset class 
whenever the fund or its adviser has market, trading, or investment-specific 
information indicating that the investment should be classified separately rather than 
as part of the relevant asset class? 
13.Would the operational burden of individually classifying be balanced by the 
improved quality of data for each individual investment as compared to classifying by
asset class? To what extent would investment-by-investment classifications differ 
compared to asset class level classification? Are there other benefits to removing 
asset class level classification, such as timely, useful, improved, or increased data?
14.Is reliance on this provision more common for certain types of funds or certain asset 
classes? Should asset class level classifications be limited to specific types of funds or
asset classes? 
15.If we permitted asset class level classifications, how should the stressed trade size and
value impact standard in the proposal apply to asset class level classifications?
b.Amendments to Liquidity Classification Categories
We are proposing changes to the liquidity classification categories to improve funds’ 
abilities to make timely payment on shareholder redemptions, without the sale of portfolio 
investments resulting in the dilution of outstanding fund shares. Section 22(e) of the Act 
establishes a right of prompt redemption in open-end funds by requiring such funds to make 
payments on shareholder redemption requests within seven days of receiving the request. In 
March 2020, in connection with the economic shock from the onset of the COVID-19 pandemic, 
open-end funds faced a significant amount of investor redemptions, and we believe additional 
58

changes to rule 22e-4 would assist funds in managing investor redemptions in future stressed 
conditions. 
Rule 22e-4 currently allows funds to classify as less liquid investments those that the 
fund reasonably expects to be able to sell or dispose of in seven calendar days or less without 
significantly changing the market value of the investment, but that are reasonably expected to 
settle in more than seven calendar days.
94
 Under the current rule, an investment is classified as 
illiquid if it cannot be sold or disposed of in seven calendar days or less without significantly 
changing the market value of the investment.
95
 We propose to eliminate the less liquid 
classification category and amend the definition of illiquid investment to include those 
investments that a fund reasonably expects not to be convertible to U.S. dollars in current market
conditions in seven calendar days or less without significantly changing the market value of the 
investment, as well as those investments whose fair value is measured using an unobservable 
input that is significant to the overall measurement.
96
 Under the proposal to eliminate the less 
liquid classification category, the rule would therefore have only three liquidity classifications: 
highly liquid investments, moderately liquid investments, and illiquid investments. We also 
propose to amend the term “convertible to cash” to “convertible to U.S. dollars,” codifying prior 
Commission statements.
97
 Finally, we propose to specify how to count the identified number of 
days an investment is convertible to U.S. dollars for purposes of the liquidity categories.
94
 See rule 22e-4(a)(10) (defining “less liquid investment”).
95
 See rule 22e-4(a)(8) (defining “illiquid investment”).
96
 See proposed rule 22e-4(a). 
97
 See Liquidity Rule Adopting Release, supra note 8, at n.848 (“Cash means cash held in U.S. 
dollars, and would not include, for example, cash equivalents or foreign currency.”).
59

i.Removing the Less Liquid Investment Category and   
Classifying these Investments as Illiquid
We propose to eliminate the less liquid classification category and amend the definition 
of illiquid investment to include investments, in part, that a fund reasonably expects not to be 
convertible to U.S. dollars in seven calendar days or less without significantly changing the 
market value of the investment. Investments that funds currently classify as less liquid would 
become illiquid investments under the proposed amendments, absent changes to shorten the 
settlement time of many of those investments. Section 22(e) of the Act requires open-end funds 
to make payment on shareholder redemption requests within seven days of receiving the request. 
The proposed amendment to define an investment as illiquid if it does not settle to U.S. dollars in
seven calendar days is designed to reduce the mismatch between the receipt of cash upon the sale
of assets with longer settlement periods and the payment of shareholder redemptions. This would
help prepare funds for future stressed conditions by reducing the risk of a fund not being able to 
meet shareholder redemptions. Unlike the current rule, the proposed rule would directly limit to 
15% the amount of fund assets that are not reasonably expected to be convertible to U.S. dollars 
in seven days. 
While funds may classify different types of investments as less liquid investments today, 
the most common type of investment in this category is bank loans.
98
 Fund investments make up 
approximately 15% of the bank loan market.
99
 Filings on Form N-PORT show that over 90% of 
98
 Based on Form N-PORT data, bank loans made up 77% and 60% of investments reported as less 
liquid in Feb. and Mar. 2020, respectively. In addition to bank loans, a smaller number of fixed-
income securities, mortgage-backed securities, and equities are categorized as less liquid 
investments. 
99
 See Leveraged Loan Primer (last visited Oct. 4, 2022), available at 
https://pitchbook.com/leveraged-commentary-data/leveraged-loan-primer#market-size (stating 
that the Morningstar LSTA U.S. Leveraged Loan Index, which is used as a proxy for market size 
in the U.S., totaled approximately $1.375 trillion as of Feb. 2022). As of Dec. 2021, there are 746
open-end funds that classified approximately $204 billion in bank loan interests as reported on 
Form N-PORT. Using this data, we estimate that funds held approximately 15% of the bank loan 
60

bank loan investments reported by open-end funds are classified as less liquid.
100
 In 2015, 
commenters addressing concerns about liquidity in the bank loan market stated that significant 
efforts were then underway to materially improve settlement times in the bank loan market, 
which are typically longer than other asset classes.
101
 Bank loans are not standardized and have 
individualized legal documentation. This provides flexibility of terms for bank loans, but also 
increases the time for a fund to settle a bank loan trade and receive proceeds from the sale, thus 
increasing the risk of the fund not being able to meet shareholder redemptions.
102
 
Around the time that the Commission adopted the liquidity rule, the median settlement 
time for a loan sale was about 12 days.
103
 In the Liquidity Rule Adopting Release, the 
Commission stated that a fund may need to consider re-classifying an investment as illiquid in 
the event of an extended settlement period.
104
 By July 2021, the average time to settle a bank loan
par trade in the secondary market increased to a then seven-year high of T+23, and the median 
was at T+15.
105
 While median settlement time for bank loans in which funds invest has generally 
market.
100
 Based on Form N-PORT data, in 2021, more than 90% of the gross value of loans reported by 
open-end funds were classified as less liquid. This was also the case in Feb. and Mar. 2020.
101
  See, e.g., Comment Letter of the Loan Syndications and Trading Association on 2015 Proposing
Release, supra note 31, File No. S7-16-15, available at https://www.sec.gov/comments/s7-16-
15/s71615-57.pdf (“LSTA Comment Letter”) (stating the goal of transforming syndicated loan 
settlement to a similar settlement period as most other asset classes).
102
 See id.
103
 See LSTA Comment Letter.
104
 See Liquidity Rule Adopting Release, supra note 8, at n.380 and accompanying text.
105
 See LSTA, Secondary Trading & Settlement: Monthly July Executive Summary (Aug. 19, 
2021), available at https://www.lsta.org/news-resources/secondary-trading-settlement-monthly-
july-executive-summary/?utm_source=rss&utm_medium=rss&utm_campaign=secondary-
trading-settlement-monthly-july-executive-summary. In addition, fewer trades settled within T+7,
(just 20% of trades settled within the LSTA guideline during July, a nine-percentage point 
reduction from the previous year’s monthly average) and settlements wider than T+20 increased 
10-percentage points as of July 2021, to a 39% market share, nearly double that of the T+7 
distribution.
61

increased, Form N-PORT data has not shown funds reclassifying these investments to take into 
account extended settlement times.
We are proposing changes to remove the less liquid investment classification to reduce 
the risk that funds that invest significantly in less liquid investments may not be able to meet 
shareholder redemptions. While bank loan funds were able to meet redemption requests during 
March 2020, a period of significant outflows, we are concerned that they may not be able to meet
shareholder redemptions in future stressed conditions, especially as investments in this asset 
class increase. During the month of March 2020, bank loan funds experienced outflows of 
approximately 13% of assets, more than any other type of fund. In addition, since March 2020, 
total registered investment company investments in bank loans have increased 50% to 
approximately $200 billion.
106
 We understand that in past times of large outflows, the median 
buy-side settlement time for bank loans generally decreased and funds had a degree of success in
effecting shorter settlement periods for these investments to help meet redemptions.
107
 We are 
concerned, however, that in future stress events these attempts to shorten settlement times may 
fail since loans are not standardized, have individualized legal documentation, and rely on 
manual processes for settlement. We also understand that funds with significant extended 
settlement investments have used borrowing through lines of credit to meet redemptions, but 
lines of credit may not be available to all funds and borrowing imposes costs that can dilute the 
value of the fund for remaining investors. Based on Form N-CEN filings, several bank loan 
106
 This is based on Form N-PORT information as of Jan. 31, 2022.
107
 See LSTA Comment Letter (stating that settlement times have decreased in periods of large 
outflows, for example, in Aug. 2011, when bank loan funds experienced $8 billion of outflows 
(approximately 13% of assets). Similarly, in Mar. 2020, when bank loan funds experienced $12 
billion of outflows (approximately 13% of assets), we understand that settlement times also 
generally decreased.
62

funds have accessed their lines of credit in their most recent reporting period.
108
 We understand 
that the costs of borrowing have risen and credit has become more difficult to obtain over time.
We believe that investments that funds currently classify as less liquid should be 
classified as illiquid investments and be subject to the 15% limit on illiquid investments, so that 
funds may be better prepared to satisfy redemptions in future stressed conditions without delay 
and without significant dilution. Using Form N-PORT data, we estimate that approximately 200 
funds during March 2020 would have had illiquid investments over the 15% limit if this 
proposed change had been in effect, with bank loan funds being the largest type of affected 
fund.
109
 As a result of the proposed amendments, more bank loan funds may contract for 
expedited settlement, which would involve costs. Alternatively, advisers with strategies that have
15% or more of assets in investments classified as less liquid and illiquid may change those 
strategies, close funds, or consider using a closed-end fund or other investment vehicle structure 
that is not subject to rule 22e-4. Further, potential additional demand for these investments could 
provide incentives to shorten the settlement cycle for bank loans more generally, which may 
reduce trading costs.
110
 We believe that these amendments would reduce the risk of a fund not 
being able to satisfy redemptions without diluting the interests of remaining shareholders while 
waiting for the proceeds from the sale of an investment with extended settlement.
ii.Additional Amendments to the Definition of Illiquid   
Investment
We also propose to amend the definition of illiquid investment to include investments 
whose fair value is measured using an unobservable input that is significant to the overall 
108
 See infra note 459 and accompanying text (providing information about bank loan funds’ use of 
lines of credit as of Dec. 2021).
109
 The number of funds is estimated by dividing the aggregate gross value in the relevant categories
by the aggregate gross value reported.
110
 See infra section III.C.1.b. 
63

measurement. U.S. GAAP establishes a fair value hierarchy that categorizes into three levels the 
inputs to valuation techniques used to measure fair value.
111
 The fair value measurements of 
investments are categorized in accordance with this three-level hierarchy. The highest-level 
measurements are those developed using quoted, observable inputs in active markets for 
identical assets and liabilities (Level 1), such as prices for identical investments on a securities 
exchange; the lowest are those developed using unobservable inputs (Level 3).
112
 We 
acknowledge that observability is a valuation concept and may not always correspond to 
liquidity. The proposed amendment would require those funds not already classifying 
investments valued using unobservable inputs that are significant to the overall measurement as 
illiquid to change their classification practices and may change the liquidity profile for those 
funds under the rule to be less liquid. To the extent there is a liquid market for affected 
investments, this proposed amendment would cause funds to over-estimate the illiquidity of their
portfolios. As of December 2021, 2,006 open-end funds held investments that were valued using 
unobservable inputs that are significant to the overall measurement (Level 3 investments), 
comprising $76.3 billion, or 0.27% of all open-end fund assets.
113
 Among these, $16.9 billion 
111
 See FASB ASC 820-10-35-37, which sets out a fair value hierarchy for accounting purposes, as 
compared to rule 2a-5, which provides a framework for fund valuation practices and determining 
fair value (including applying an appropriate methodology consistent with the principles of FASB
Accounting Standard Codification Topic 820: Fair Value Measurement (“ASC Topic 820”)) for 
purposes of the Act. See Good Faith Determinations of Fair Value, Investment Company Act 
Release No. 34128 (Dec. 3, 2020) [86 FR 748 (Jan. 6, 2021) (“Valuation Adopting Release”)]. 
112
 See ASC Topic 820. U.S. GAAP requires funds to maximize the use of relevant observable 
inputs and minimize the use of unobservable inputs in valuing any asset or liability. In some 
cases, the inputs used to measure fair value might be categorized within different levels of the fair
value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the 
same level of the fair value hierarchy as the lowest level input that is significant to the overall 
measurement. See ASC 820-10-35-16AA and 820-10-35-37A. Examples of particular assets and 
liabilities that may be measured using Level 3 inputs include long-dated currency swaps, three-
year options on exchange-traded shares, interest rate swaps, asset retirement obligations at initial 
recognition, and reporting units. See FASB ASC 820-10-55-22.
113
 See infra note 424 and accompanying paragraph. We observed that the investments classified as 
highly liquid that were Level 3 investments primarily were mortgage-backed securities.
64

were classified as highly liquid investments and $2.1 billion as moderately liquid investments.
114
 
Accordingly, we estimate that approximately 0.07% of all open-end fund assets would be 
affected by this amendment.
Where an investment is valued using unobservable inputs that are significant to the 
overall measurement, this may indicate that an active, liquid, and visible market for the 
investment does not exist. Where there is no active, liquid, and visible market for an investment, 
there may be a corresponding risk that the fund cannot sell the investment in time to meet 
redemptions without dilution. The proposal defines investments whose fair value is measured 
using unobservable inputs that are significant to the overall measurement as illiquid for purposes 
of this rule, which is intended to reduce this risk. By classifying these investments as illiquid, the
proposal would establish a minimum standard for classifying the liquidity of an investment, 
which is designed to provide more consistent guideposts for liquidity classifications. 
iii.Other Amendments Related to Liquidity Classification   
Categories
Amendments to the Definition of Moderately Liquid Investment
We propose to simplify the definition of moderately liquid investment to mean any 
investment that is neither a highly liquid investment nor an illiquid investment.
115
 The 
moderately liquid investment category would continue to provide information about the portion 
114
 We recognize that, in light of the proposed removal of the less liquid category, only those 
investments valued using unobservable inputs that are significant to the overall measurement that 
are classified as highly liquid or moderately liquid would be affected by this proposed 
amendment.
115
 We also are proposing to remove a provision that addresses how to classify an investment that 
could be viewed as either a highly liquid investment or a moderately liquid investment because 
the ambiguity in classification that provision addresses is no longer present under the proposed 
amendments to those classifications. See note to paragraph (b)(1)(ii) introductory text in current 
rule 22e-4.
65

of a fund’s portfolio that is not on the most liquid end of the spectrum, but that still is sufficiently
liquid to meet redemption requests within the statutory seven day period.
Amendments to the Definition of Convertible to Cash and References to Cash
We propose to amend the term “convertible to cash” to “convertible to U.S. dollars” and 
to make conforming amendments to the definition of this term to refer to the ability for a fund to 
sell or dispose of an investment, and for it to settle in U.S. dollars.
116
 These amendments codify 
prior Commission statements. In the adopting release for rule 22e-4, the Commission stated that 
cash means “cash held in U.S. dollars, and would not include, for example, cash equivalents or 
foreign currency.”
117
 The Commission also provided an example in that release in which the 
period of time it took to repatriate or convert a foreign currency to dollars factored into the 
analysis of how quickly a foreign security could convert to cash.
118
 Some funds are classifying 
foreign investments as highly liquid taking into account solely the time it would take to convert 
the proceeds of a sale to the foreign currency. Similarly, some funds classify foreign currency as 
highly liquid without further analysis about the time that would be needed to convert that 
currency to U.S. dollars. We believe it is important to view the liquidity of fund investments in 
terms of convertibility to U.S. dollars within a specified period so that a fund is able to satisfy 
116
 See proposed rule 22e-4(a) (defining “convertible to U.S. dollars” as the ability to be sold or 
disposed of, with the sale or disposition settled in U.S. dollars) (emphasis added). We also 
propose to amend the definition of convertible to U.S. dollars to refer to disposition of an 
investment, and not only sales. This is a conforming amendment, as current rule 22e-4 
classifications otherwise refer to the ability to sell or dispose of an investment.
117
 See Liquidity Rule Adopting Release, supra note 8, at n.848.
118
 See id., at paragraph accompanying n.379 (providing an example where certain foreign securities
may be able to be sold in seven calendar days or less, but may be subject to capital controls that 
would limit the extent to which the foreign currency could be repatriated or converted to dollars 
within this time frame and explaining that these securities would be considered to be less liquid 
investments because they would be reasonably expected to settle in more than seven calendar 
days).
66

redemption requests in U.S. dollars.
119
 This amendment is intended to promote the ability of 
funds to meet redemptions without diluting the interests of the remaining shareholders and 
increase consistency in how funds classify the liquidity of investments, including in foreign 
investments and foreign currencies. In addition to the definition of convertible to cash, we also 
propose to amend other references in rule 22e-4 to refer to U.S. dollars instead of cash for 
consistency and clarity.
120
Method for Counting the Number of Days
We propose to specify when a fund must start to measure the identified number of days in
which it reasonably expects a stressed trade size of an investment would be convertible to U.S. 
dollars without significantly changing its market value. Currently, the rule does not directly 
specify when to begin counting the number of days an investment would be convertible to U.S. 
dollars, and funds have inconsistent practices as to when they begin this measurement. This 
inconsistency may lead certain funds to overestimate their liquidity classifications, and reduce 
their ability to meet redemptions. This also detracts from comparability when analyzing trends 
across funds. For example, some funds may consider an investment highly liquid if it could be 
converted to U.S. dollars three business days after the date of the classification analysis, while 
others include the date of classification when counting the number of days. Those funds that 
begin counting after the date of the classification would have the advantage of counting an 
additional day as compared to those funds that include the date of classification, and their 
liquidity classifications may appear to be more liquid than a similar fund that begins counting on 
119
 See id., at n.105 and accompanying text (noting concerns about the potential mismatch between 
the timing of receipt of cash for sales of fund assets and the payment of cash for shareholder 
redemptions).
120
 See proposed rule 22e-4(a) (defining “highly liquid investment” and “in-kind exchange traded 
fund”); and proposed rule 22e-4(b)(1)(i)(C) (listing liquidity risk factors).
67

the date of classification. Therefore, we propose to specify that funds must count the day of 
classification when determining the period in which an investment is reasonably expected to be 
convertible to U.S. dollars.
121
 For example, in order for a fund to classify an investment as highly
liquid on Monday, it would need to reasonably expect that the investment could be sold and 
settled to U.S. dollars by Wednesday at the latest.
We request comment on the proposed amendments to the liquidity classification 
categories:
16.As proposed, should we eliminate the less liquid investment category and amend the 
illiquid investment definition to include an investment that a fund reasonably expects 
can be sold within seven calendar days without significantly changing the market 
value but is not convertible to U.S. dollars within that period (i.e., investments that 
are currently classified as less liquid under the rule)? What effect would these 
proposed amendments have and how would those funds that significantly invest in 
such less liquid investments likely change? 
17.Would the proposed amendment cause funds that currently hold less liquid 
investments to contract for expedited settlement for such investments? What are the 
advantages or limitations of contracting for expedited settlement? Would the 
proposed amendments provide an incentive to reduce settlement times in bank loan 
and other relevant markets more generally? If so, how long might it take to reduce 
settlement times in response to the rule and what would be the burdens associated 
with this change? Are there certain categories of bank loans or other investments for 
which market participants may be unable to reduce the settlement time to seven 
121
 See proposed rule 22e-4(b)(1)(ii)(A).
68

calendar days or less? Which investments and why? What other effects may occur, 
for example, would some funds change their strategies, liquidate, or choose to be 
structured as a different investment vehicle, such as a closed-end fund? If some funds 
would convert to closed-end funds, what type of closed-end fund would they likely 
choose (e.g., interval fund, or a closed-end fund listed on an exchange)? Should we 
amend other rules, or provide relief from any specific rules or provisions of the 
Federal securities laws, to expedite changes to strategies or conversions to closed-end
funds or other investment vehicles? 
18.Some funds classify certain bank loans as highly liquid or moderately liquid today. 
What characteristics of these bank loans lead to a reasonable expectation that they 
will be convertible to cash in seven days or less without significantly changing the 
market value? Are funds considering contracts for expedited settlement? Would funds
need additional guidance on how to assess the period in which a bank loan or other 
investment is reasonably expected to be convertible to U.S. dollars? For example, 
should we revise the proposed rule to require that funds consider, or provide guidance
suggesting that funds may wish to consider: settlement time history for the individual 
or similar investments, average settlement times for the market, and guarantees for 
settlement or expedited settlement, as well as the contractual settlement period? 
19.Have the costs of borrowing risen and has credit become more difficult to obtain over
time for bank loan funds, particularly during stressed periods? 
20.As proposed, should we remove the less liquid category and require funds to use a 
three category classification framework? Would the proposed changes simplify 
classifications and reduce burdens over time, after funds updated systems to reflect 
69

the change? Would the proposed changes appropriately reflect the liquidity of a fund, 
or would the current framework be more appropriate? Should funds be permitted to 
invest above 15% in less liquid investments if there are other methods or mechanisms
to reduce the mismatch between the receipt of cash upon the sale of assets with longer
settlement periods and the payment of shareholder redemptions or to address potential
dilution associated with this mismatch? If so, what other methods or mechanisms 
should these funds be required or permitted to use (for example, swing pricing, gates 
to suspend redemptions, redemption fees, redemptions in kind, additional limits on 
less liquid investments, notice periods, or lengthening the settlement period for 
paying redemptions)?
122
 If we permit (to the extent not already permitted) or require 
use of one or more of these tools, how should they be used (individually, in some 
combination with each other, or with other protections, such as disclosure, board 
approval, and Commission reporting)? Should we amend other rules, or provide relief
from any specific rules or provisions of the Federal securities laws, to expedite or 
permit use of these methods and mechanisms?
123
 
21.Should we provide that an investment is illiquid if it is not reasonably expected to be 
convertible to U.S. dollars in a shorter or longer period than seven calendar days? 
How would a shorter or longer period align with the requirement in section 22(e) of 
the Act for a fund to satisfy redemptions within seven days? If we provided a longer 
122
 With a notice period, an investor’s redemption request would not be processed until the end of a 
notice period (e.g., after 2 to 5 days). The investor would receive the next calculated price after 
the notice period ends, with payment occurring at the end of a settlement period. With a 
lengthened settlement period, a redeeming investor would receive the price next calculated after 
submitting the redemption order but would not receive payment until the end of a lengthened 
settlement period (e.g., 5 to 7 days after trade date).
123
 See, e.g., section 22(e) of the Act (providing the conditions under which a registered investment 
company may suspend the right, or postpone the date, of redemption for more than seven days).
70

period of time to convert to U.S. dollars before an investment is classified as illiquid, 
how would funds prepare for the potential mismatch during stressed situations 
between the amount of available cash and the size of shareholder redemptions? 
Should we provide additional exemptions to allow funds to delay redemptions to 
shareholders under certain limited circumstances and conditions, such as independent 
director approval?
22.Are there circumstances in which an investment is fair valued using an unobservable 
input that is significant to the overall measurement, but the investment should not be 
treated as illiquid for purposes of the rule? Please explain and provide supporting 
data. Should we permit a fund to classify certain types of investments that are fair 
valued using unobservable inputs that are significant to the overall measurement as 
highly liquid or moderately liquid and, if so, which types? Should we instead treat 
investments that are fair valued using unobservable inputs that are significant to the 
overall measurement as presumptively illiquid, but permit funds to rebut this 
presumption? If so, what process should we require for rebutting the presumption? 
For example, should we require funds to maintain records describing why they did 
not classify such an investment as illiquid? Should we require funds to disclose on 
Form N-PORT any circumstances in which they did not classify such an investment 
as illiquid?
23.Are there other types or characteristics of investments that we should include in the 
definition of illiquid investment? If so, which ones?
24.Should we amend the definition of moderately liquid investment, as proposed? 
Alternatively, should we retain the details in the current definition that specify the 
71

number of days in which a fund must reasonably expect an investment to be 
convertible to U.S. dollars in order to classify it as moderately liquid?
25.Would the proposed changes to the liquidity classifications affect investment options 
available to investors? For example, would bank loan funds only be available in non-
open-end investment vehicles? What effect would these proposed changes have on 
those asset classes that are less available for investment by open-end funds for 
liquidity reasons, the availability of credit to borrowers, and more generally, on 
capital formation? 
26.Should we amend the definition of convertible to cash and other references to cash in 
rule 22e-4 to refer to U.S. dollars, as proposed? Would these amendments raise issues
for specific types of funds? If so, which ones and how? Would these amendments 
affect funds’ investment strategies, including their allocation to foreign investments 
and U.S. dollars, or their performance?
27.Are there circumstances in which a fund would pay redemptions in a different 
currency than U.S. dollars? If so, would it be appropriate for that fund to be able to 
assess the time in which an investment could convert to that other currency for 
purposes of the rule?
28.In addition to sale and disposition, are there other ways an investment may be 
converted to U.S. dollars that should be included in the definition of convertible to 
U.S. dollars? If so, what are they?
29.Would the amendment to refer to U.S. dollars instead of cash in the definitions of 
highly liquid investment and convertible to cash materially change how funds classify
highly liquid investments currently? If so, how? 
72

30.Should we require funds to include the day of classification when counting the 
number of days to convert to U.S. dollars as proposed, or should we require funds to 
begin to count the number of days to convert to U.S. dollars on the following day? 
What are the advantages and disadvantages of this alternative? Would this alternative 
result in less conservative liquidity classifications for some funds or investments (i.e.,
by causing some investments that otherwise would have been classified as moderately
liquid to be classified as highly liquid) or impair a fund’s ability to meet redemptions?
31.Instead of using the days an investment would be convertible to U.S. dollars in the 
liquidity classifications as proposed, should we separately set the number of days to: 
(1) make the trade; and (2) settle the trade or otherwise dispose of an investment, in 
determining liquidity classifications? Why or why not? Is there a different way the 
rule should measure the period that an investment is convertible to U.S. dollars? 
c.Frequency of Classifications
Rule 22e-4 currently requires that funds review their liquidity classifications at least 
monthly in connection with reporting on Form N-PORT, and more frequently if changes in 
relevant market, trading, and investment-specific considerations are reasonably expected to 
materially affect one or more of their investments’ classifications.
124
 The current rule also 
requires a fund to monitor and take timely actions related to the liquidity of its investments, 
including changes to its liquidity profile. Specifically, the rule prohibits a fund from acquiring 
any illiquid investment if, immediately after the acquisition, the fund would have invested more 
than 15% of its net assets in illiquid investments that are assets.
125
 In addition, the rule requires a 
fund to provide timely notice to its board, and to the Commission on Form N-RN, if the fund 
124
 See rule 22e-4(b)(1)(ii).
125
 See rule 22e-4(b)(1)(iv).
73

exceeds the 15% limit on illiquid investments, or if there is a shortfall of the fund’s highly liquid 
investments below its highly liquid investment minimum for seven consecutive calendar days.
126
 
We propose amendments to require a fund to classify all of its portfolio investments each 
business day instead of at least monthly.
127
 Daily classification would reflect current market 
conditions more accurately and would provide funds with more data for analysis to prepare for 
future stressed conditions. We believe that daily classifications would assist liquidity risk 
program administrators in better monitoring of a fund’s liquidity and enhance a fund’s ability to 
more rapidly respond to changes that affect the liquidity of the fund’s portfolio, reflecting more 
effective practices we have observed. In addition, daily classifications would help ensure that 
funds timely report shortfalls below the highly liquid investment minimum or breaches of the 
15% limit on illiquid investments to the fund’s board and to the Commission, which would better
achieve the goals of the current provisions to provide board and Commission oversight of the 
fund’s liquidity risk management program and its effectiveness.
Most funds did not report reclassifications of their portfolio investments despite 
extraordinary liquidity constraints in March 2020.
128
 Based on the liquidity classification 
126
 See rule 22e-4(b)(1)(iv)(A) and rule 22e-4(b)(1)(iii)(A)(3); Form N-RN Parts B through D.
127
 See proposed rule 22e-4(b)(1)(ii). Although rule 22e-4 currently requires funds to classify each 
of the fund’s portfolio investments (including each of the fund's derivatives transactions), we 
have observed that some funds are not classifying all investments in their portfolios, such as 
positions in to-be-announced (TBA) contracts to trade mortgage-backed securities or the 
reinvestment of cash collateral received in securities lending arrangements.
128
 Despite the liquidity constraints in Mar. 2020, we observed through Form N-PORT filings that 
roughly 75% of funds did not reclassify any investment held in both Feb. and Mar. 2020. 
Specifically, roughly 80% of U.S. equity funds did not reclassify any holding that was held in 
both Feb. and Mar. 2020, while roughly 10% reclassified at least one investment into a more 
liquid category and roughly 13% reclassified at least one investment into a less liquid category. 
Roughly 55% of taxable bond funds reclassified on average 4% of their portfolios, with the 
median fund reclassifying 1% of its portfolio. Of the funds that reclassified, roughly 30% 
reclassified at least one investment into a more liquid category and roughly 44% reclassified at 
least one investment into a less liquid category. More funds did, however, reclassify in Mar. 2020
period than for either Feb. or Apr. 2020.
74

practices we observed in March 2020 and on filings covering this period, we are concerned that 
some funds effectively are equipped to classify their investments primarily on a monthly basis to 
meet reporting requirements and are not prepared to review classifications intra-month. Because 
intra-month analyses for these funds would be out of the ordinary and only occur when a fund 
determines that changes in relevant market, trading, and investment-specific considerations are 
reasonably expected to materially affect one or more of their investments’ classifications, it may 
be especially challenging during stressed conditions for these funds to reclassify their 
investments intra-month. Requiring daily classification, while involving costs, may ultimately 
lead to a more efficient classification process for funds than monitoring trading conditions to 
determine if and when intra-month classifications are required. For example, a daily 
classification requirement, in combination with the minimum standards we propose for trade size
and value impact, may lead funds to modify their liquidity classification processes, which would 
make the process more standardized, timely, and efficient. 
We request comment on the proposed amendments to require funds to classify the 
liquidity of their investments on a daily basis. 
32.Should we require funds to classify all portfolio investments on a daily basis, as 
proposed? Would this proposed amendment result in a material change to how funds 
are currently classifying? To what extent do funds already classify the liquidity of 
their investments on a daily basis or collect the information they would need to 
classify daily? Would this proposed amendment better integrate liquidity risk 
management and portfolio management systems?
33.We also are proposing that funds use a stressed trade size and a defined value impact 
standard in determining liquidity classifications. Would those changes affect the 
75

burdens of classifying on a daily basis? Would those effects be different for different 
types of funds? For example, would it be easier to determine on a daily basis whether 
the sale of a stressed trade size of shares listed on an exchange would exceed 20% of 
the average daily trading volume for those shares than to determine whether the sale 
of a stressed trade size of other investments would result in a price decline of more 
than 1%?
34.Instead of classifying on a daily basis, should we require funds to classify the 
liquidity of their investments at some other frequency (e.g., weekly, biweekly, or 
monthly)? If so, should we maintain the requirement for a fund to classify more 
frequently if changes in relevant market, trading, and investment-specific 
considerations are reasonably expected to materially affect one or more of its 
investments’ classifications? Is there a different approach we should use effectively to
require a fund to classify its investments in response to changing conditions? Are 
there certain types of funds that should be excluded from daily classifications? If so, 
which funds?
35.If we require funds to classify on a non-daily frequency, how would they monitor for 
compliance with the 15% limit on illiquid investments and the highly liquid 
investment minimum? How are those limits monitored for compliance now? 
2.Highly Liquid Investment Minimums
a.Proposed Scope of the Requirement and Determination of the 
Minimum
Rule 22e-4 currently requires a fund to determine a highly liquid investment minimum if 
it does not primarily hold assets that are highly liquid investments. Funds that are subject to the 
highly liquid investment minimum requirements must determine a highly liquid investment 
76

minimum considering several factors, review the minimum at least annually, and adopt policies 
and procedures to respond to a shortfall of the fund’s highly liquid investments below the 
minimum required.
129
 We propose to require all funds to determine and maintain a highly liquid 
investment minimum of at least 10% of the fund’s net assets, which is equivalent to the stressed 
trade size. In connection with this proposed requirement, we would remove the exclusion for 
funds that primarily invest in highly liquid investments (the “primarily exclusion”). The 
proposed amendments are designed to ensure that funds have sufficient liquid investments for 
managing stressed conditions and heightened levels of redemptions. 
We assessed liquidity-related data reported on Forms N-PORT, as well as the 
development of liquidity risk management programs, through staff outreach to funds and 
advisers. Based on Form N-PORT filings, most funds do not determine a highly liquid 
investment minimum and instead rely on the primarily exclusion.
130
 For those funds that have 
highly liquid investment minimums, the rule currently requires that they consider various 
liquidity factors, such as their investment strategy and cash-flow projections, in both normal and 
reasonably foreseeable stressed conditions.
131
 We understand that those funds additionally 
consider factors such as asset class, market volatility, and shareholder concentration in their 
determinations. 
As discussed above, by requiring fund liquidity classifications to assume the sale or 
disposition of a set stressed trade size, the proposal is intended to better prepare all funds for 
129
 See rule 22e-4(b)(1)(iii). 
130
 Approximately 83% of funds holding 85% of net assets do not report setting a highly liquid 
investment minimum on Form N-PORT. 
131
 For these purposes, funds are required to consider certain factors during stressed conditions only 
to the extent they are reasonably foreseeable during the period until the next review of the highly 
liquid investment minimum. See rule 22e-4(b)(1)(iii)(A)(1).
77

future stressed conditions.
132
 To help further prepare a fund for heightened levels of redemptions 
in stressed conditions, we are proposing to require the highly liquid investment minimum to be 
equal to or higher than the assumed stressed trade size. In setting the highly liquid investment 
minimum to be at least the stressed trade size, we considered data on fund flows for setting the 
stressed trade size as well as data reported on Form N-PORT on funds’ current highly liquid 
investment minimums. As of March 2020, for funds that had determined a highly liquid 
investment minimum, the majority of those funds reported setting a highly liquid investment 
minimum of less than 10% of the fund’s net assets. In contrast, approximately 8% of those funds 
reported setting a highly liquid investment minimum of more than 50% of the fund’s net assets. 
Thus, while there is a wide divergence in highly liquid investment minimums, most of these 
funds have a minimum that is lower than the proposed 10% level. Given the level of weekly 
outflows some funds have experienced and the difficulty in predicting future stress events, we 
believe that a regulatory minimum of 10% for the highly liquid investment minimum would 
benefit investors by improving the ability of funds to meet shareholder redemptions in stressed 
scenarios.
In addition, the proposal’s requirement for funds to both assume a stressed trade size to 
determine liquidity classifications and also maintain an equal or higher minimum of highly liquid
investments is intended to work together to better prepare them for future stressed conditions and
to reduce the risk of dilution. Not only would funds have highly liquid investments in an amount 
needed to meet the stressed trade size, they would also have more highly liquid assets to meet 
redemptions without having to sell less liquid investments at discounted prices. Funds would 
132
See supra section II.A.1.a.i for discussion of the stressed trade size and of fund flow data.
78

continue to be required to periodically review the highly liquid investment minimum and have 
policies and procedures to address any shortfall in highly liquid investments below the minimum.
While the proposed minimum of 10% of a fund’s net assets may be a suitable highly 
liquid investment minimum for most funds, certain funds may find a higher amount appropriate 
depending on a fund’s liquidity risk factors and investment objectives. Consistent with the 
current rule, a fund would be required to consider a specified set of liquidity risk factors to 
determine whether its highly liquid investment minimum should be above 10%.
133
 We continue 
to believe that the liquidity risk factors funds must consider in determining a highly liquid 
investment minimum under the current rule and the associated guidance the Commission 
provided in the Liquidity Rule Adopting Release regarding these factors are appropriate for a 
fund to take into account for these purposes.
134
 
A broad variety of investments, as well as cash, may qualify towards the highly liquid 
investment minimum.
135
 Since approximately 83% of funds currently rely on the primarily 
exclusion, we would not expect this proposal to affect their strategies. We recognize, however, 
that imposing a highly liquid investment minimum of at least 10% would require some other 
funds to hold a larger amount of highly liquid assets than they currently do, and thus may affect 
these funds’ performance or strategies.
136
 For funds with strategies focused on investments that 
would not be considered highly liquid, they would have to determine how to constitute a 
133
 See Liquidity Rule Adopting Release, supra note 8, at paragraph following n.669.
134
 See id., at section III.B.2.
135
 See id., at n.663 and accompanying text. 
136
 As recognized above, being unprepared for higher than normal redemptions also can affect a 
fund’s performance when such redemptions occur. See supra note 81. For instance, although less 
liquid assets generally offer a higher return, the trading costs associated with selling these assets 
during periods of increased redemptions may offset this risk premium, potentially resulting in a 
lower overall return for fund investors. See infra note 351 and accompanying text.
79

portfolio of investments that would allow the fund to meet its strategy and investing parameters 
while maintaining a highly liquid investment minimum of at least 10%. All funds would be 
subject to the same highly liquid investment minimum of at least 10%, which would minimize 
any competitive advantage for similar funds associated with the proposed highly liquid 
investment minimum requirements. We believe it is important that all funds be prepared to meet 
redemptions in future stressed scenarios, and that funds would be better able to do so with the 
proposed highly liquid investment minimum requirements. 
In establishing a uniform floor for the highly liquid investment minimum, we are also 
proposing to remove the exclusion for funds that invest primarily in highly liquid investments. 
The Commission adopted the primarily exclusion because it believed the benefits associated with
requiring such funds to determine and review a highly liquid investment minimum, or to adopt 
shortfall procedures, would not justify the associated burdens.
137
 Since that time, however, we 
have observed that a fund relying on the primarily exclusion may experience significant declines 
in its liquidity that result in the fund holding less than 50% of its portfolio in highly liquid 
investments for a period of time.
 
For example, a fund that invests significantly in a given foreign 
market and that generally classifies those investments as highly liquid can experience substantial 
declines in the amount of its highly liquid investments if, for example, there is political or 
economic turmoil in or an extended holiday closure of that foreign market. Funds that currently 
use the primarily exclusion instead of determining and maintaining a highly liquid investment 
minimum do not have the benefit of shortfall procedures, including board oversight, to respond 
to events or market conditions that may cause the fund to fall under its previously determined 
level of primarily held highly liquid investments. By requiring a highly liquid investment 
137
 Liquidity Rule Adopting Release, supra note 8, at paragraph accompanying n.724. 
80

minimum for all funds, investors would enjoy the benefit of policies and procedures that are 
designed to ensure not only oversight by the liquidity risk program administrator but also the 
fund’s board. 
Moreover, the burdens of complying with highly liquid investment minimum 
requirements for funds that currently use the primarily exclusion may be reduced because many 
fund complexes already have experience developing highly liquid investment minimum shortfall 
policies and procedures. It may be possible for funds in the same complex to leverage this 
experience to reduce the burdens of developing these policies and procedures for funds that 
previously qualified for the primarily exclusion. As liquidity risk management programs have 
matured, and continue to mature, many fund complexes continue to gain experience with highly 
liquid investment minimum shortfall policies and procedures, which may also reduce burdens. 
By requiring all funds to adopt a highly liquid investment minimum, we are seeking to help 
ensure that funds would be better prepared to handle future stressed conditions, which may occur
suddenly and unexpectedly, as they would have sufficient liquid investments for managing 
heightened levels of redemptions.
We request comment on the proposed amendments to highly liquid investment minimum 
requirements.
36.Should we require all funds to determine and maintain a highly liquid investment 
minimum, as proposed? What effect would this proposal have on funds? For example,
would some funds have to change their strategies or expect effects on performance?
37.Should some types of funds be excluded from the requirement to have a highly liquid 
investment minimum? If yes, which ones and why? For example, should we preserve 
the exclusion for funds that primarily hold highly liquid assets? Alternatively, should 
81

funds currently using the primarily exclusion have a higher highly liquid investment 
minimum requirement? Would funds using the primarily exclusion be as prepared to 
meet redemptions in stressed scenarios without a highly liquid investment minimum 
and its corresponding policies and procedures? 
38.If the primarily exclusion is kept, should we define the amount of highly liquid assets 
a fund must maintain under this standard (e.g., investing at least 51% of the fund’s net
assets in highly liquid assets, or a higher or lower amount)?
39.Should we establish a regulatory minimum for the amount of highly liquid 
investments of 10%, as proposed, or should it be set at 15% or 5% (or some other 
higher or lower amount)? Would establishing a regulatory minimum reduce the 
burdens associated with determining and periodically reviewing the fund’s highly 
liquid investment minimum?
40.Rather than propose a regulatory minimum with factors that a fund must consider to 
determine whether its own highly liquid investment minimum should be higher, 
should we require all funds to use the same highly liquid investment minimum? 
Would this set a level playing field for all funds and diminish any competitive 
advantage for a fund with a lower highly liquid investment minimum? If so, what 
amount would be appropriate for a uniform highly liquid investment minimum for all 
funds (e.g., 5%, 10%, 15%, or a higher or lower amount)?
41.Would providing more detail or guidance on the liquidity risk factors be helpful? If 
so, which factors? 
42.Would funds that do not currently have a highly liquid investment minimum be able 
to leverage policies and procedures already developed for highly liquid investment 
82

minimums, for example by other funds in the same complex, to reduce the burdens of
developing these policies and procedures? If not, what costs would funds incur to 
adopt and implement highly liquid investment minimum policies and procedures?
b.Calculation of the Highly Liquid Investment Minimum 
We are proposing amendments to rule 22e-4 that are designed to help ensure that the 
highly liquid investments a fund holds to meet its highly liquid investment minimum are 
available to support the fund’s ability to meet redemptions. A key aim of the highly liquid 
investment minimum requirement is to decrease the likelihood that funds would be unable to 
meet their redemption obligations.
138
 Building on existing aspects of rule 22e-4, the proposed 
amendments would require that, when determining the amount of assets a fund has classified as 
highly liquid that count toward the highly liquid investment minimum, the fund account for 
limitations in its ability to use some of those assets to meet redemptions.
139
 Specifically, in 
assessing compliance with the fund’s highly liquid investment minimum, the fund would be 
required to: (1) subtract the value of any highly liquid assets that are posted as margin or 
collateral in connection with any derivatives transaction that is classified as moderately liquid or 
illiquid; and (2) subtract any fund liabilities.
140
  
138
 See Liquidity Rule Adopting Release, supra note 8, at text following n.117.
139
 As the Commission explained at the time it adopted rule 22e-4, this is not meant to suggest that a
fund should only, or primarily, use highly liquid investments to meet shareholder redemptions. 
Instead, we believe that a fund holding sufficient highly liquid assets will support the fund in 
meeting redemption requests in a non-dilutive manner, and assist it in readjusting its portfolio in 
times of market stress, heightened volatility, and managing its obligations to derivatives 
counterparties. See Liquidity Rule Adopting Release, supra note 8, at n.680 and accompanying 
text.
140
 Proposed rule 22e-4(b)(1)(iii)(B)(1); 22e-4(b)(1)(iii)(B)(2). Rule 22e-4 currently refers to a 
“pledge” of margin or collateral, rather than “posting.” We are proposing to use the term “post” 
because we believe this term is more commonly used within the industry and by other regulators 
to refer to instances where a party provides margin or collateral to its counterparty to meet the 
performance of its obligation under one or more derivatives transactions as a result of a change in
the value of such obligations since the trade was executed or the last time such collateral was 
provided (commonly referred to as variation margin) or is provided to secure potential future 
83

i.Margin or collateral of moderately liquid and illiquid   
derivatives
The requirement for a fund to reduce the value of its highly liquid assets by the amount 
posted as margin or collateral in connection with a non-highly liquid derivatives transaction 
reflects that this amount of highly liquid assets is not available for the fund to use to meet 
redemptions.
141
 This is because, where a fund enters into a moderately liquid or illiquid 
derivative and posts highly liquid assets as margin or collateral, the posted collateral is highly 
liquid, but the fund cannot access the value of posted assets unless the fund exits the derivatives 
transaction. Since the fund has classified the derivative as moderately liquid or illiquid, it does 
not reasonably expect to be able to exit the derivatives transaction within three business days. 
We recognize that the fund may be able to access the specific assets posted as margin or 
collateral by replacing them with other assets acceptable to the fund’s counterparty. But 
regardless of the specific assets posted, the value of collateral posted in connection with a 
moderately liquid or illiquid derivative would not be convertible to U.S. dollars within three 
business days or less.
Under the current rule, a fund is required to identify the percentage of the fund’s highly 
liquid investments that it has posted as margin or collateral in connection with derivatives 
transactions that the fund has classified as less than highly liquid.
142
 The Commission believed 
exposure following default of a counterparty (commonly referred to as initial margin). See, e.g., 
Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 86 
FR 6850 (Jan. 25, 2021). 
141
 See Liquidity Rule Adopting Release, supra note 8, at nn.727-730 and accompanying text. This 
aspect of the proposed rule would only require an adjustment to the amount of a fund’s highly 
liquid investments that are assets, since investments that are in a liability position are unable to be
used to meet redemption requests. See proposed rule 22e-4(b)(1)(iii)(B)(1).
142
 Rule 22e-4(b)(1)(ii)(C). In addition, funds currently also are required to exclude highly liquid 
assets that are posted as margin or collateral in connection with non-highly liquid derivatives 
transactions when determining whether the fund primarily holds highly liquid assets. Rule 22e-
4(b)(1)(iii)(B). 
84

that this approach struck an appropriate balance between providing transparency and reducing 
burdens on funds.
143
 The Commission observed that a fund generally would not need to 
specifically identify particular assets that are posted as margin or collateral to cover particular 
derivatives transactions, but instead would calculate the percentage of highly liquid investments 
posted as margin or collateral for derivatives transactions classified in each of the other 
classification categories.
144 
Under the rule, a fund that has posted both highly liquid investments 
and non-highly liquid investments as margin or collateral in connection with a non-highly liquid 
derivatives transaction should reduce its highly liquid investments, rather than assume that 
posted non-highly liquid investments would first cover the derivatives transaction, unless the 
fund specifically identifies non-highly liquid investments as margin or collateral in connection 
with a derivatives transaction.
145
 Finally, the Commission observed that the current approach 
responds to commenters’ concerns that linking the liquidity of specific assets posted as margin or
collateral to the liquidity of a fund’s derivatives transactions could understate the liquidity of 
those assets, since a fund may be able to readily substitute another liquid asset for the asset 
posted as margin or collateral.
146
143
 See Liquidity Rule Adopting Release, supra note 8, at n.476 and accompanying text. 
144
 Id. at n.489 and accompanying text.
145
 Note 1 to proposed rule 22e-4(b)(1)(iii)(B)(1). Cf. Note 1 to rule 22e-4(b)(1)(ii)(C). See also 
Liquidity Rule Adopting Release, supra note 8, at nn.489-490 and accompanying text (explaining
that in the absence of such an instruction, some funds might instead take the opposite approach, 
and assume that posted non-highly liquid investments first cover these less liquid derivatives 
transactions, creating inconsistencies between funds). 
146
 We recognize that margin or collateral may be determined and paid by funds on the basis of a 
group of derivatives transactions, with the fund posting or receiving a net amount of margin or 
collateral. When a fund pays margin or collateral in connection with a group that includes 
derivatives transactions that are highly liquid and non-highly liquid, funds already must 
determine the amount of margin or collateral attributable to the non-highly liquid derivatives 
under the current rule. For example, a fund must perform this attribution in order to identify the 
percentage of the fund’s highly liquid investments that it has posted as margin or collateral in 
connection with derivatives transactions that are not themselves highly liquid.
85

The proposed approach is intended to enhance investor protection while continuing to 
strike an appropriate balance with the potential increased burdens on funds. The proposed 
approach would not require funds to identify and reclassify specific assets posted as margin or 
collateral, but rather to reduce the value of the fund’s highly liquid assets available to meet the 
fund’s highly liquid investment minimum by the value of the assets posted as margin or 
collateral. We also propose to maintain, with conforming changes, the explanatory note 
discussed above guiding the allocation of amounts posted as margin or collateral.
147
 By reducing 
the fund’s highly liquid investments by the value of amounts posted as margin or collateral, the 
proposed approach would avoid burdens associated with tracking specific securities posted as 
margin or collateral and reclassifying investments as they are posted as margin or collateral and 
recalled. It also would not understate the liquidity of specific securities that are posted as margin 
or collateral because each security would continue to be classified based on its own 
characteristics, and instead the adjustments would only be made at the aggregate level.
148
 
Moreover, many of the operational concerns commenters raised when rule 22e-4 was proposed, 
which led the Commission to adopt the current approach, related to the treatment of assets 
segregated under the Commission’s Investment Company Act Release 10666, which the 
Commission has since rescinded, effective August 19, 2022.
149
 We therefore believe the 
proposed amendments would enhance investor protections by helping to ensure a fund’s highly 
147
 See supra note 145. In connection with the proposed amendments to the rule’s highly liquid 
investment minimum provisions, we propose to re-number certain existing paragraphs and to add 
paragraphs to the rule. As a result, we propose to update cross-references to the highly liquid 
investment minimum provisions within the rule. See proposed rule 22e-4(b)(1)(iii)(C) through (E)
and proposed rule 22e-4(b)(3)(iii).
148
 See Liquidity Rule Adopting Release, supra note 8, at n.491 and accompanying text.
149
 See Liquidity Rule Adopting Release, supra note 8, at nn.468-472 and accompanying text 
(operational concerns); Derivatives Adopting Release, supra note 21, at section II.L (withdrawal 
of Investment Company Act Release 10666).
86

liquid assets are in fact available to meet redemptions, while continuing to balance the value of 
the provision against the operational burdens to implement it.  
ii.Fund liabilities  
Under the proposal, a fund would also be required to reduce the amount of highly liquid 
assets that count toward the fund’s highly liquid investment minimum by the amount of the 
fund’s liabilities. This proposed change is intended to result in a more accurate calculation of the 
highly liquid investment minimum.
150
 The proposed approach would include any liabilities, as 
defined in 17 CFR 210.6-04 (rule 6.04 of Regulation S-X). For example, this would include 
investment liabilities and amounts payable for investment advisory, management, and service 
fees. Reducing the amount of highly liquid assets by fund liabilities reflects that fund liabilities 
are generally paid in cash, meaning that highly liquid assets may need to be liquidated in order to
satisfy those liabilities rather than to meet redemptions. 
Based on staff outreach, it is our understanding that the proposal reflects many funds’ 
existing practices. For example, when a fund has significant liabilities, they generally will be 
incurred in connection with derivatives transactions or other investments that give rise to a fund 
liability. Because funds are required to classify all investments, including liabilities, investments 
such as highly liquid derivatives in a liability position will reduce the value of the fund’s highly 
liquid investments that are assets.
 
To enhance investor protection by preventing assets that a fund
may in the future use to pay liabilities from also being counted toward the fund’s highly liquid 
investment minimum, and to promote consistency in how funds calculate their highly liquid 
150
 The highly liquid investment minimum is the percentage of a fund’s net assets that it invests in 
highly liquid assets that are eligible to count toward the minimum under the rule. See rule 22e-
4(a)(7) (defining highly liquid investment minimum). Because this calculation uses net assets as 
the denominator (which reflects the amount of assets less any liabilities), we believe the 
numerator of eligible highly liquid assets similarly should be net of liabilities. 
87

investment minimum, we are proposing to require that all funds reduce their highly liquid assets 
used to satisfy their highly liquid investment minimum by the amount of the fund’s liabilities.
151
 
We request comment on these aspects of the proposal, including:
43.Should we, as proposed, require a fund to reduce the amount of its highly liquid 
investments computed for the purposes of determining compliance with its highly 
liquid investment minimum by the value of any highly liquid assets that are posted as 
margin or collateral in connection with any derivatives transaction that is classified as
moderately liquid or illiquid? Why or why not? Should we also require that amounts 
posted as margin or collateral in connection with derivatives transactions that are 
classified as highly liquid be treated in this way? Alternatively, should we exempt 
amounts posted as margin or collateral in connection with certain types or categories 
of derivatives transactions from this requirement? 
44.How frequently do funds calculate the percentage of their highly liquid assets posted 
as margin or collateral in connection with non-highly liquid derivatives transactions 
today? Would the proposed requirement to calculate this value on a daily basis 
present new challenges? 
45.Should we, as proposed, require a fund to reduce the amount of its highly liquid 
assets computed for the purpose of determining compliance with its highly liquid 
investment minimum by the value of any liabilities? Do funds already make this 
reduction when determining compliance with highly liquid investment minimums? 
151
 Depending on the rules of any applicable exchange and local law, a variation margin payment 
with respect to a derivatives transaction may be deemed to settle the fund’s liability for the daily 
mark-to-market loss on the transaction. In that case or any other case where a fund does not have 
a liability in connection with a given transaction, the fund would not be required to reduce its 
highly liquid investments in connection with that transaction under the proposal. 
88

Should we instead require a fund to reduce the amount of its highly liquid assets by a 
different amount, such as the percentage of the fund’s total assets that its liabilities 
represent? Are there certain classes or types of fund liabilities that should not be 
counted? For example, should we provide an exception for liabilities associated with 
fund borrowings that are used to meet redemptions in order to avoid a disincentive for
funds to borrow for this purpose under appropriate circumstances?
46.We propose that, for these purposes, the amount of a fund’s liabilities would be 
computed in the same manner as a fund computes its liabilities for purposes of rule 6-
04 of Regulation S-X. If we use this standard, as proposed, would the amount by 
which funds should reduce their highly liquid assets be clear? Are there any issues 
that may arise from using the standard funds use to prepare their balance sheets? 
Would a different definition of “liabilities” be more appropriate? 
3.Limit on Illiquid Investments 
Rule 22e-4 currently limits a fund’s ability to acquire illiquid investments. Specifically, 
the rule prohibits a fund from acquiring any illiquid investment if, immediately after the 
acquisition, the fund would have invested more than 15% of its net assets in illiquid investments 
that are assets.
152
 We are proposing to amend the rule’s limitation on illiquid investments to 
provide that the value of margin or collateral that a fund could only receive upon exiting an 
illiquid derivatives transaction would itself be treated as illiquid for these purposes.
153
 As the 
Commission stated in 2016, the potential effects of a fund’s use of derivatives are relevant to 
assessing, managing, and periodically reviewing a fund’s liquidity risk.
154
 The potential effects 
152
 See rule 22e-4(b)(1)(iv). A fund also must notify its board, and report confidentially to the 
Commission on Form N-RN, if its illiquid investments that are assets exceed 15% of net assets.
153
 See proposed rule 22e-4(b)(1)(iv).
154
 See Liquidity Rule Adopting Release, supra note 8, at text accompanying nn.218-223. 
89

may be heightened when the derivatives transaction is itself illiquid, and thus may be difficult for
a fund to exit quickly enough to use the associated margin or collateral to meet redemption 
requests, or at all. Funds’ use of illiquid derivatives is subject to several limitations but, for open-
end funds, the risks associated with illiquid derivatives may be heightened as a result of the 
funds’ redeemability.
155
Under the proposal, for purposes of determining whether the fund is in compliance with 
the limitation on illiquid investments, the fund would treat as illiquid the amount of margin or 
collateral it has posted in connection with a derivatives transaction that is classified as an illiquid 
investment and that the fund would receive if it exited the derivatives transaction (“excess 
collateral”).
156
 This proposed requirement recognizes that, because a fund does not reasonably 
expect to be able to convert an illiquid derivatives investment to U.S. dollars within seven days, 
the fund likewise would not be able to convert to U.S. dollars the value of excess collateral 
posted as margin or collateral in connection with the derivatives transaction within seven days. 
Therefore, the proposal would require a fund to include the value of the excess collateral or 
margin when it determines the amount of illiquid assets it holds for purposes of the 15% limit on 
illiquid investments.
155
 The limitations on funds’ issuance of senior securities, which include derivatives creating certain
payment or delivery obligations, in section 18 of the Act and 17 CFR 270.18f-4 (rule 18f-4) 
provide certain protections to investors, and the proposed amendments are designed to 
complement those protections. See Derivatives Adopting Release, supra note 21 (stating that a 
fund’s derivatives risk management program would be part of an adviser’s overall management 
of portfolio risk and would complement—but would not replace—a fund’s other risk 
management activities, such as a fund’s liquidity risk management program adopted under rule 
22e-4).
156
 This does not mean that the investment acting as margin or collateral would need to be classified 
as an illiquid investment under the rule. A fund would classify the relevant investment according 
to the rule’s classification framework. In order to aid understanding of the reported data, we 
propose to require a fund to report the value of investments treated as illiquid as a result of this 
provision. See section II.E.1.d, infra and Item B.8.b of proposed Form N-PORT. 
90

As with the proposed amendments related to the amounts posted as margin or collateral 
for non-highly liquid derivatives, a fund would not be required to specifically identify particular 
assets that it posted as margin or collateral to cover specific derivatives transactions. Instead, a 
fund would calculate the value of its assets posted as margin or collateral in connection with 
illiquid derivatives transactions and treat that value of assets as illiquid.
157
 
We request comment on this aspect of the proposal, including:
47.Should we, as proposed, require funds to treat as illiquid investments the value of 
excess collateral the fund has posted in connection with a derivatives transaction that 
is classified as an illiquid investment? Are there circumstances where a fund would 
have ready access to the value of such collateral even though the associated 
derivatives transaction is illiquid? 
48.Are there challenges to identifying and monitoring the amount of excess collateral a 
fund has posted in connection with a derivatives transaction that is classified as an 
illiquid investment? If so, are there ways to address those challenges? 
49.Are there other instances where we should treat an investment as illiquid for purposes
of the rule’s limit on illiquid investments that the current rule and the proposal do not 
contemplate?
50.Should we amend any other aspects of the illiquid investment limitations in the rule? 
For example, should we change the amount of the limit on illiquid investments from 
15% to a lower amount, such as 10% or 5%, or a higher amount, such as 20% or 
25%?
157
 See Item B.8.b of proposed Form N-PORT. 
91

B.Swing Pricing 
We are proposing amendments to rule 22c-1 that would require all registered open-end 
management investment companies to engage in swing pricing under certain conditions, except 
for money market funds and ETFs (the latter, “excluded funds”).
158
 Swing pricing is a process of 
adjusting a fund’s current NAV when certain conditions are met, such that the transaction price 
effectively passes on costs stemming from shareholder inflows or outflows to the shareholders 
engaged in that activity. Trading activity and other changes in portfolio holdings associated with 
purchases and redemptions may impose costs, including trading costs and costs of depleting a 
fund’s liquidity. These costs, which currently are borne by the non-transacting shareholders in 
the fund, can dilute the interests of these shareholders. In addition, this can create incentives for 
shareholders to redeem quickly to avoid losses, particularly in times of market stress. If 
shareholder redemptions are motivated by this first-mover advantage, they can lead to increasing 
outflows, and as the level of outflows from a fund increases, the incentive for remaining 
shareholders to redeem may also increase.
159
 By imposing the costs associated with net purchases
158
 See proposed rule 22c-1(b). We refer to registered open-end management investment companies 
other than excluded funds as “funds” or “open-end funds” when discussing the swing pricing 
requirement. We continue to believe it is appropriate to limit swing pricing to these funds and to 
not include other fund types, such as unit investment trusts or closed-end funds. See Swing 
Pricing Adopting Release, supra note 8, at nn.62-72 and accompanying text. With respect to 
excluded funds, the Commission recently proposed to require certain money market funds to 
engage in swing pricing under rule 2a-7, but those money market funds would not be subject to 
the proposed swing pricing requirement under rule 22c-1(b). See Money Market Fund Reforms, 
Investment Company Act Release No. 34441 (Dec. 15, 2021) [87 FR 7248 (Feb. 8, 2022)] 
(“Money Market Fund Proposing Release”). ETFs, including an ETF share class of any fund that 
issues multiple classes of shares representing interests in the same portfolio, would not be subject 
to the swing pricing requirement, as discussed below. See definition of “Exchange-traded fund” 
in proposed rule 22c-1(d).
159
 Some research suggests that a first-mover advantage in open-end funds may lead to cascading 
anticipatory redemptions akin to traditional bank runs. This research generally models an 
exogenous response to negative fund returns and not trading costs. However, these results may 
extend to trading costs to the degree that cost based dilution may reduce subsequent fund returns, 
which would trigger runs in these models. See, e.g., Chen, Qi, Itay Goldstein, and Wei Jiang. 
2010. “Payoff Complementarities and Financial Fragility: Evidence from Mutual Fund 
92

or net redemptions on the shareholders who are purchasing or redeeming from the fund at that 
time, swing pricing can more fairly allocate costs, reduce the potential for dilution of investors 
who are not currently transacting in the fund’s shares, and reduce any potential first-mover 
advantages.
1.Proposed Swing Pricing Requirement
Under the proposal, every open-end fund other than an excluded fund would be required 
to establish and implement swing pricing policies and procedures that adjust the fund’s current 
NAV per share by a swing factor either if the fund has net redemptions or if it has net purchases 
that exceed an identified threshold.
160
 We are proposing to require these funds to use swing 
pricing as an anti-dilution tool, in contrast to the optional framework that currently exists in rule 
22c-1. Based on our observations from the events in March 2020, including in other jurisdictions
where swing pricing is a common tool, requiring funds to use swing pricing could result in 
benefits for investors, as discussed below.
161
 However, at present no U.S. funds have 
implemented swing pricing. One reason funds have not implemented swing pricing is that they 
Outflows.” Journal of Financial Economics 97(2): 239-262. See also Goldstein, Itay, Hao Jiang, 
and David Ng. 2017. “Investor Flows and Fragility in Corporate Bond Funds.” Journal of 
Financial Economics 126(3):592-613. See also Morris, Stephen, Ilhyock Shim, and Hyun Song 
Shin. 2017. “Redemption Risk and Cash Hoarding by Asset Managers.” Journal of Monetary 
Economics 89: 71-87. See also Zeng, Yao. 2017. “A Dynamic Theory of Mutual Fund Runs and 
Liquidity Management.” Working Paper. See also Ma, Yiming, Kairong Xiao, and Yao Zeng. 
2021. “Mutual Fund Liquidity Transformation and Reverse Flight to Liquidity.” Working Paper. 
See also Ma, Yiming, Kairong Xiao, and Yao Zeng. 2021. “Bank Debt versus Mutual Fund 
Equity in Liquidity Provision.” Working Paper. See also Christof W. Stahel. 2022. “Strategic 
Complementarity Among Investors with Overlapping Portfolios”, available at 
https://ssrn.com/abstract=3952125 (positing that investors behave similarly regardless of whether 
they hold assets indirectly through a fund or directly through a separately managed account and 
the general explanation for investor decisions to sell assets is that all market participants compete 
for finite market liquidity).
160
 See proposed rule 22c-1(b)(1) and definition of “Inflow swing threshold” in proposed rule 22c-
1(d). 
161
 See supra notes 59 to 63 and accompanying text (stating that some fund managers with both U.S.
and European operations indicated to the staff that swing pricing would have been a useful tool 
for U.S. funds to have had to combat dilution in Mar. 2020).
93

lack timely flow information to operationalize this anti-dilution tool. However, even if all funds 
had access to sufficient flow information in order to implement swing pricing, some may 
nonetheless choose not to implement it due to implementation costs or because investors in U.S. 
funds are unfamiliar with swing pricing. Therefore, funds may not be incentivized to be the first 
to adopt swing pricing. We believe that a regulatory requirement, rather than a permissive 
framework, would accrue benefits to investors that justify the implementation costs and would 
overcome these collective action problems that may have prevented swing pricing 
implementation. In addition, we continue to believe the information a fund that uses swing 
pricing must disclose in its prospectus will improve public understanding regarding a fund’s use 
of swing pricing.
162
Some academics and market participants have suggested that swing pricing has provided 
significant benefits to long-term investors in funds in other jurisdictions, reducing dilution 
attributable to the transaction costs associated with shareholder activity.
163
 As an example, one 
foreign fund industry group has suggested that funds using swing pricing exhibit superior 
performance returns over time compared to funds with identical investment strategies and trading
162
 See Swing Pricing Adopting Release, supra note 11, at n.360 and accompanying text. In 2016, 
when the Commission adopted the optional swing pricing rule for open-end funds that are not 
excluded funds, it also adopted certain amendments to Form N-1A to enhance disclosure related 
to a fund’s use of swing pricing, if applicable. Among other things, these amendments required 
that a fund that uses swing pricing explain the fund’s use of swing pricing, including its meaning, 
the circumstances under which the fund will use it, the effects of swing pricing on the fund and 
investors, and the upper limit it has set on the swing factor. See Item 6(d) of Form N-1A. 
Although no funds currently use swing pricing, and therefore do not provide swing pricing 
disclosures to their investors, under the proposed rule all funds other than excluded funds would 
be required to provide these disclosures, other than the swing factor upper limit disclosure, to 
their investors.
163
 See, e.g., Dunhong Jin, Marcin Kacperczyk, Bige Kahraman, and Felix Suntheim, Swing Pricing 
and Fragility in Open-end Mutual Funds, The Review of Financial Studies, 35(1) (2022), 
available at https://academic.oup.com/rfs/article/35/1/1/6162183 (“Jin, et al.”); BlackRock, 
Swing Pricing - Raising the Bar (Sept. 2021), available at 
https://www.blackrock.com/corporate/literature/whitepaper/spotlight-swing-pricing-raising-the-
bar-september-2021.pdf (“BlackRock Swing Pricing Paper”).
94

patterns that do not employ anti-dilution measures.
164
 In terms of performance benefits, one study
found that, for a 10% rise in monthly outflows, the associated decline in monthly returns relative 
to a fund’s benchmark was double the amount for a fund that does not use swing pricing in 
comparison to a fund that uses swing pricing (a 6 basis point decline versus a 3 basis point 
decline, respectively).
165
 And one investment manager reviewed the effects of swing pricing for 
twenty of its European funds in 2019 and found that the anti-dilution effect of swing pricing 
improved annual performance for these funds by around 10 to more than 60 basis points.
166
 
In addition, in March 2020, many European funds that used swing pricing lowered their 
swing thresholds and increased the size of their swing factors, suggesting there was a need to 
make more frequent and significant adjustments to the funds’ NAVs at that time to avoid 
substantial dilution that otherwise would have occurred.
167
 One study found that surveyed funds 
using swing pricing during a three week period of elevated redemptions in March 2020 recouped
roughly 6 basis points of total net assets on average from redeeming investors.
168
 The swing 
pricing policies that the proposed rule would require, which are similar to those used by some 
foreign funds, are designed to mitigate dilution arising from shareholders’ purchase and 
redemption activity, particularly during times of stress when those dilution costs may increase. In
addition to reducing dilution, some studies also suggest that swing pricing dampens redemption 
164
 See Association of the Luxembourg Fund Industry, Swing Pricing Brochure (July 2022), 
available at https://www.alfi.lu/getattachment/3154f4f7-f150-4594-a9e3-fd7baaa31361/
app_data-import-alfi-alfi-swing-pricing-brochure-2022.pdf.
165
 See CSSF Paper, supra note 61.
166
 See BlackRock Swing Pricing Paper, supra note 163.
167
 See notes 59 to 63 and accompanying text.
168
 See Claessens and Lewrick, supra note 61.
95

pressure, although some have found this effect to be minimal or nonexistent during certain 
periods of market stress.
169
Consistent with our current optional swing pricing framework, the proposed swing 
pricing requirement for open-end funds would apply to both net purchases and net redemptions. 
Although liquidity and transaction costs associated with meeting net redemptions can present 
heightened risks of dilution, particularly in stress periods, we continue to believe that net 
purchases also may cause shareholder dilution.
170
 However, when a fund has net purchases, we 
propose to require swing pricing only if the amount of net purchases exceeds a specified 
threshold. 
While the proposed swing pricing requirement generally would apply to all registered 
open-end funds other than excluded funds, we propose to retain the current provision that does 
not permit feeder funds in a master-feeder fund structure to use swing pricing.
171
 The use of 
swing pricing would generally be inappropriate for feeder funds, because that level of a fund 
structure does not actually transact in underlying portfolio assets as a result of net purchase or net
redemption activity. A master fund, however, generally would be subject to the swing pricing 
requirement. The master fund may purchase portfolio assets to invest purchasing shareholders’ 
cash (as transferred through the feeder fund) or sell portfolio assets to pay redemption proceeds 
(reducing the feeder fund’s interest in the master fund). Thus, to the extent that net purchases 
into or redemptions from the master fund by one or more feeder funds, or any other investors in 
169
 See CSSF Paper, supra note 61 (stating that funds applying swing pricing are less exposed to 
redemption pressure during episodes of elevated market volatility, but this dampening effect 
appears to vanish during episodes of severe market volatility, such as in Mar. 2020); see also 
infra notes 354 to 355 and accompanying text.
170
 See Swing Pricing Adopting Release, supra note 13, at paragraph accompanying n.166.
171
 See proposed rule 22c-1(b)(5) and current rule 22c-1(a)(3)(iv).
96

the master fund, would trigger the application of swing pricing under the proposed rule, the 
swing factor would be applied at the level of the master fund.
Consistent with current rule 22c-1, we propose to exclude ETFs from the swing pricing 
requirement because ETFs often impose fees in connection with the purchase or redemption of 
creation units that are intended to defray operational processing and brokerage costs to prevent 
possible shareholder dilution.
172
 We also are not including ETFs within the scope of the proposed
requirement because we believe that swing pricing could impede the effective functioning of an 
ETF’s arbitrage mechanism. Additionally, notwithstanding section 18(f)(1) of the Act, a fund 
with a share class that is an exchange-traded fund is subject to the swing pricing requirement 
only with respect to any share classes that are not exchange-traded funds.
173
 The proposed rule 
provides this exemption to allow funds with both mutual fund and ETF share classes to apply 
swing pricing to only their mutual fund share classes. Absent an exemption, differences between 
the ETF and mutual fund share classes created by swing pricing could result in a fund being 
deemed to issue a senior security, which would otherwise be prohibited under the Act.
174
 Thus, a 
fund with an ETF share class would exclude the ETF share class’s flow information when 
determining whether and how to apply swing pricing, and would not adjust the NAV of the ETF 
share class by the swing factor in computing the share price of that class.
 
We request comment on our proposal to require any fund that is not an excluded fund to 
implement swing pricing. 
172
 See Swing Pricing Adopting Release, supra note 13, at paragraph accompanying n.68.
173
 See proposed rule 22c-1(b)(6). 
174
 Section 18(f)(1) of the Act generally makes it unlawful for any registered open-end company to 
issue any class of senior security. Section 18(g) defines senior security to include any stock of a 
class having a priority over any other class as to distribution of assets or payment of dividends. 
97

51.As proposed, should we require any fund that is not an excluded fund to implement 
swing pricing? Should we provide any additional exclusions from the swing pricing 
requirement? For example, should funds that invest solely or primarily in highly 
liquid investments be permitted, but not required, to use swing pricing? If we provide 
an exclusion for funds that primarily invest in highly liquid investments, how should 
we define primarily for these purposes (e.g., more than 50%, 66%, or 75%)? Should 
we use the same definition of highly liquid investment as the liquidity rule for these 
purposes? If not, how should we define highly liquid investments for purposes of an 
exclusion from the swing pricing requirement? If a fund primarily invested in highly 
liquid investments were to no longer qualify for this exclusion, when should it be 
required to adopt swing pricing (e.g., immediately or within a certain grace period)? 
Alternatively, should we limit the exclusion from swing pricing to funds that do not 
invest more than a certain percentage of assets in illiquid investments? What 
maximum level of illiquid investments would be appropriate to qualify for the 
exclusion (e.g., 1%, 2%, 5%, or 10%)? When should a fund be required to adopt 
swing pricing if it no longer complies with this exclusion (e.g., immediately or within
a certain grace period)? Should we use the same definition of illiquid investments as 
the liquidity rule for these purposes?
52.Should we limit the swing pricing requirement to only certain types of mutual funds 
and retain an optional framework for other mutual funds? If so, how should we 
identify by rule the types of mutual funds that would most benefit from a swing 
pricing requirement? As an example, would it be appropriate to require swing pricing 
for fixed-income mutual funds only, and to retain an optional approach for other 
98

funds? If so, how would a fixed-income fund be defined for this purpose (e.g., a 
mutual fund that invests at least a certain percentage in fixed-income investments, 
such as 50%, 75%, or 80%)? How would fixed-income investments, or any other type
of portfolio investment, be defined for this purpose?
53.Should we adopt swing pricing as a default tool, with a requirement that an open-end 
fund, other than an excluded fund, implement swing pricing unless certain conditions 
are met? For example, should a fund be required to implement swing pricing unless 
its board of directors makes certain determinations (e.g., that the fund and its 
shareholders are unlikely to experience significant dilution in connection with 
investor purchases and redemptions) and the fund maintains records of such 
determinations? Should a fund be required to report information about the reasons for
such a determination publicly?
54.Should swing pricing remain an optional tool for all mutual funds, other than 
excluded funds? If so, how likely are funds to use the tool if we adopt the proposed 
hard close requirement or take other steps to facilitate a fund’s ability to determine its
daily flows before the NAV is finalized? Are certain types of funds more likely to use
swing pricing if it remained an optional tool? If so, why are these funds more likely to
use swing pricing than others? Are the funds that would use swing pricing if it 
remained optional the same funds that would benefit most from addressing dilution 
associated with shareholder transactions?
55.As proposed, should we retain the current provision in the rule that does not allow 
feeder funds in a master-feeder structure to engage in swing pricing?
99

56.Under the proposal, ETFs, the shares of which are listed and traded on a national 
securities exchange, and that are formed and operate under an exemptive order under 
the Investment Company Act or in reliance on rule 6c-11, would not be subject to 
swing pricing. Is the proposed definition of ETF appropriate? If we adopt the swing 
pricing requirement, would mutual funds seek to convert to an ETF structure? Are 
there any actions or exemptive relief that the Commission should take or grant to 
facilitate the conversion of mutual funds to ETFs? If ETFs were to become the 
predominant form of open-end fund under the Investment Company Act, would that 
affect the need to impose swing pricing? And likewise, if ETFs were to become the 
predominant form of open-end fund, would that benefit or harm investors, and if so, 
how and to what extent?
57.Should we provide that funds with an ETF share class must exclude the ETF share 
class from the application of swing pricing, as proposed? What, if any, operational 
challenges would exist for such funds under this approach? Should we instead require
that ETF share classes be subject to the swing pricing requirement, which would 
result in authorized participant purchases and redemptions being effected at an 
adjusted NAV? 
58.Should we require swing pricing for both net redemptions and net purchases, as 
proposed, or only for net redemptions? Do dilution and liquidity concerns exist for 
open-end funds in both scenarios?
59.What would be the operational challenges and costs for funds to adopt and implement
swing pricing, as proposed? If funds operationalized swing pricing in March 2020, 
would it have been an effective tool to address dilution during that period? To what 
100

extent were funds selling portfolio assets and incurring transaction costs to meet 
redemptions, or in anticipation of future redemptions, during that period?
60.Will the existing swing pricing disclosures required in Form N-1A be sufficient to 
help investors understand swing pricing? How familiar are U.S. investors with swing 
pricing? Are there any amendments we should make to the swing pricing disclosure 
requirements in Form N-1A that would help investors better understand the concept 
of swing pricing? For example, should funds be required to disclose in their 
registration statements the frequency they have applied, or would have applied, a 
swing factor over a specified period of time (e.g., 1, 3, or 5 years) based on historical 
flow information? Should we require a fund to provide additional disclosure about 
swing pricing to investors outside of the registration statement? For example, should 
we require funds to disclose the effects of swing pricing in shareholder reports (e.g., 
in management’s discussion of fund performance)?
61.Is the experience with swing pricing in certain foreign jurisdictions relevant to an 
analysis of whether swing pricing would be an effective tool for U.S. funds? Beyond 
the operational differences identified in this release, are there differences in 
regulatory frameworks, markets, fund investors, or other factors between the U.S. and
these other jurisdictions that might cause U.S. funds’ experiences with swing pricing 
to differ?
175
  
62.Rule 2a-4 under the Act requires a fund, when determining its current NAV, to reflect
changes in holdings of portfolio securities and changes in the number of outstanding 
175
 See infra note 225 (discussing that European jurisdictions in which funds use swing pricing 
generally already have a hard close, which results in European funds receiving order flow much 
earlier than U.S. funds).
101

shares resulting from distributions, redemptions, and repurchases no later than the 
first business day following the trade date. Are there any changes we should make to 
rule 2a-4 to address dilution? For example, should we amend that rule to require that 
funds reflect these changes on trade date? 
2.Amendments to Swing Threshold Framework
The current rule permits a fund to determine its own swing threshold for net purchases 
and net redemptions, based on a consideration of certain factors the rule identifies.
176
 We are 
proposing to specify when a fund must use swing pricing to adjust its current NAV, which would
differ depending on whether the fund has any net redemptions or has net purchases above a 
specified threshold on a given day. 
When the Commission adopted the swing pricing provisions in 2016, it determined to 
require a swing threshold and not to prescribe a swing threshold floor applicable to all funds 
because it believed that different levels of net purchases and net redemptions would create 
different risks of dilution for funds with different strategies, shareholder bases, and other 
liquidity-related characteristics.
177
 At that time, the Commission believed consideration of the 
swing threshold factors—which took into account these different liquidity-related characteristics
—would lead a fund to set a threshold at a level that would trigger the fund’s investment adviser 
to trade portfolio assets in the near term to a degree or of a type that may generate material 
liquidity or transaction costs for the fund. We further believed that after considering these 
176
 The factors a fund currently must consider in determining the size of its swing threshold are: (1) 
the size, frequency, and volatility of historical net purchases or net redemptions of fund shares 
during normal and stressed periods; (2) the fund’s investment strategy and the liquidity of the 
fund’s portfolio investments; (3) the fund’s holdings of cash and cash equivalents, and borrowing 
arrangements and other funding sources; and (4) the costs associated with transactions in the 
markets in which the fund invests. See rule 22c-1(a)(3)(i)(B).
177
 For considerations relating to the swing threshold in the current rule, see generally Swing Pricing
Adopting Release, supra note 11, at nn.150-155 and accompanying text.
102

factors, a fund would be unable to set the swing threshold at zero. Thus the current rule does not 
contemplate full swing pricing, but assessment of the swing threshold factors could lead certain 
funds to set low swing thresholds approximating full swing pricing. 
In the intervening period, however, we have observed that the size of funds’ swing 
thresholds in certain other jurisdictions has depended more on uniform decisions by the manager 
of a fund complex than on an individual fund’s liquidity-related circumstances.
178
 In addition, we
considered our experience with the liquidity rule discussed above, where currently allowed 
discretion has led to favorable liquidity assessments that tend to over-estimate funds’ liquidity 
during stressed market conditions and that fail to change dynamically during stressed market 
conditions. A similar experience translated to swing pricing could cause high swing thresholds 
set during calm market conditions that do not adjust downward as may be appropriate in some 
cases during stressed market conditions. As a result of these experiences, we are concerned that 
retaining the principles-based framework for setting swing thresholds under the current rule 
would not result in the level of fund-specific tailoring the Commission contemplated and, 
instead, would simply result in undue variation among similarly situated funds and, in some 
cases, swing thresholds high enough that swing pricing does not adequately address dilution. 
In the case of net redemptions, the proposed rule would require a fund to apply swing 
pricing always (i.e., without a swing threshold).
179
 Because every net redemption can potentially 
involve trading or borrowing costs that dilute the value of the fund, as well as depletion of a 
fund’s liquidity for remaining shareholders that increases the likelihood of future dilution, the 
178
 See Bank of England Survey, supra note 60 (“In most cases we observed that funds with 
different primary strategies and assets, but managed by the same fund manager, used both the 
same thresholds for applying swing pricing, and the same calculation of the standardised swing 
factor. This appears to indicate that managers may not be fully considering specific factors such 
as in the investor base or asset-specific factors for individual funds.”).
179
 See proposed rule 22c-1(b)(1)(i).
103

proposal, in setting a uniform approach to triggering swing pricing in all circumstances, would 
require a fund to apply a swing factor regardless of the size of its net redemptions, which is 
intended to fairly allocate costs and reduce dilution. Applying swing pricing regardless of the 
size of net redemptions may help reduce any potential first-mover advantage associating with 
redeeming before other investors. However, the types of costs the swing factor must take into 
account would depend on the size of net redemptions. Specifically, the proposed rule would 
require a fund to include market impacts in its swing factor only if net redemptions exceed 1% of
the fund’s net assets (the “market impact threshold”).
180
 Market impact costs are the costs 
incurred when the price of a security changes as a result of the effort to purchase or sell the 
security.
181
We understand that there may be operational challenges and complexities to estimating 
market impact costs. Recognizing these difficulties, and that market impacts are likely to be 
minimal or even negligible when redemptions are not significant, the proposal sets a market 
impact threshold below which estimates of market impact would not be necessary. Based on our 
analysis of historical daily flow data over a period of more than 10 years for equity and fixed-
income mutual funds, a given fund had daily outflows of more than 1% on slightly more than 1%
of trading days.
182
 We propose a 1% market impact threshold to balance the operational 
challenges of frequently estimating market impacts with the goal of reducing dilution, 
particularly in times of stress (i.e., when a fund is more likely to experience redemptions of more
180
 See proposed rule 22c-1(b)(2)(i)(C) and definition of “Market impact threshold” in proposed rule
22c-1(d). 
181
 Market impact costs reflect price concessions (amounts added to the purchase price or subtracted
from the selling price) that are required to find the opposite side of the trade and complete the 
transaction.
182
 Based on Morningstar data for the period of Jan. 2009 through Dec. 2021.
104

than 1% of net assets and market impacts are likely to be larger). We recognize that smaller 
funds may be less likely than larger ones to have market impacts at a 1% threshold, because they 
generally would be selling smaller investment sizes than larger funds would at that threshold. 
However, there are circumstances in which smaller funds may also experience market impact 
costs at the 1% threshold; for example, if the fund holds substantial illiquid investments or 
during periods of market stress. Therefore, the proposal requires all funds to assess whether 
market impact costs would occur when net redemptions exceed a 1% threshold and, if they do 
occur, to include such costs in the swing factor. A uniform market impact threshold for all funds 
would provide a consistent and objective threshold for all funds to consider market impacts. 
When a fund has net purchases, we propose to only require swing pricing—including 
market impact—if the amount of net purchases exceeds 2% of the fund’s net assets (the “inflow 
swing threshold”).
183
 We recognize that smaller levels of net purchases are less likely to result in 
dilution than net redemptions. This is because funds, while required to pay redemptions within 
seven days, are not required to invest cash inflows within a specified period. Therefore, if bid-
ask spreads have widened on a day that the fund receives the cash inflows, the fund manager 
generally can wait to invest the cash to reduce transaction costs.
184
 In addition, while investing 
the cash inflows could decrease the liquidity of the fund, particularly if the cash is used to 
purchase illiquid investments, the liquidity rule curbs this possibility by limiting the amount of 
illiquid investments a fund can acquire. 
183
 See definition of “Inflow swing threshold” in proposed rule 22c-1(d).
184
 Regardless of bid-ask spreads, a fund manager also may choose to use cash inflows to invest in 
derivatives to obtain market exposure quickly while strategizing where to invest that cash on a 
longer-term basis. Funds may be incentivized to invest promptly in an effort to avoid reduced 
returns and tracking error.  
105

For these reasons, the proposal sets a swing threshold for net purchases but not one for 
net redemptions. We also recognize that low levels of net purchases are less likely to result in 
dilution, but that higher levels of net purchases are more likely to result in dilution absent 
appropriate tools for mitigating it. Based on our analysis of historical daily flow data over a 
period of more than 10 years for equity and fixed-income mutual funds, a given fund had daily 
inflows of approximately 2% on about 1% of trading days.
185
 Therefore, similar to the proposed 
market impact threshold, we propose an inflow swing threshold of 2% to balance the operational 
challenges of frequently implementing swing factors for net purchases with the goal of reducing 
dilution, particularly when a fund has significant inflows.
Although the proposed rule would identify a market impact threshold that would apply to 
net redemptions and an inflow swing threshold for net purchases, the rule would permit the 
fund’s swing pricing administrator to use smaller thresholds than the rule identifies in either of 
these instances as the administrator determines is appropriate to mitigate dilution.
186
 Flexibility to
use a smaller threshold is designed to recognize that there may be circumstances in which a 
smaller threshold than the rule requires would help reduce dilution, such as when the fund holds 
a larger amount of investments that are less liquid, in times of market stress, or in the case of a 
large fund (i.e., because a large fund is selling or purchasing a larger amount of instruments than 
a small fund at a 1% market impact threshold for net redemptions or a 2% inflow swing 
185
 Based on Morningstar data for the period of Jan. 2009 through Dec. 2021. 
186
 See definitions of “Inflow swing threshold” and “Market impact threshold” in proposed rule 22c-
1(d). Under the proposed rule, the term “swing pricing administrator” has the same meaning as 
the term “person(s) responsible for administering swing pricing” under the current rule. See 
proposed rule 22c-1(d); current rule 22c-1(a)(3)(ii)(C). The swing pricing administrator is the 
fund’s investment adviser, officer, or officers responsible for administering the fund’s swing 
pricing policies and procedures. The proposed rule specifies that the swing pricing administrator 
may consist of a group of persons. As with the current rule, the fund’s board of directors must 
designate this person or group of persons. 
106

threshold for net purchases). For example, a fund might elect to implement swing pricing if the 
fund experiences net purchases of any amount.
 
We understand that in having the option to set a lower market impact threshold for net 
redemptions and inflow swing threshold for net purchases, the swing pricing administrator would
have discretion that it potentially could use to enhance fund performance in a misleading manner
by adjusting the fund’s NAV more frequently or more substantially than is needed to address 
dilution. To help address this risk, under the proposal the administrator would be required to 
include in its written reports to the board the information and data supporting its determination to
use lower thresholds.
187
 Additionally, consistent with the current rule, a fund’s portfolio manager 
could not be designated as the swing pricing administrator.
188
We request comment on our proposed amendments to the swing pricing threshold. 
63.Should we adopt a framework that, in the case of net redemptions, requires a fund to 
adjust its NAV by a swing factor only when those net redemptions exceed an 
identified threshold (i.e., as we propose for net purchases)? If so, should that 
threshold be the same size as the 1% market impact threshold, or a lower or higher 
amount (e.g., 0.5%, 1.5%, or 2%)? 
64.Should we require the application of the swing factor regardless of the size of net 
purchases or net redemptions, or only when they exceed a certain percentage of a 
fund’s net assets? Should funds have discretion to set their own thresholds? If so, 
187
 See proposed rule 22c-1(b)(3)(iii)(C). Consistent with the current rule, a fund would be required 
to maintain a written copy of the report provided to the board for six years, the first two years in 
an easily accessible place. See rule 22c-1(a)(3)(iii); proposed rule 22c-1(b)(4).
188
 See rule 22c-1(a)(3)(ii)(C) and proposed rule 22c-1(b)(3)(ii). See also Swing Pricing Adopting 
Release, supra note 11, at n.269 and accompanying text.
107

should that discretion be based on the swing threshold factors currently in the rule or 
should we adjust those factors?
65.Should we include a market impact threshold for net redemptions, as proposed? Is 1%
an appropriate level for the market impact threshold? Should it be a lower or higher 
amount (e.g., 0.5%, 1.5%, or 2%)? Is there different data or analysis that we should 
take into account to determine the market impact threshold?
66.Should we include an inflow swing threshold for net purchases, as proposed? Is 2% 
an appropriate level for the inflow swing threshold? Should it be a lower or higher 
amount (e.g., 0.5%, 1%, 1.5%, or 3%)? Is there different data or analysis that we 
should take into account to determine the inflow swing threshold? 
67.Would the proposed inflow swing threshold, or a requirement to use swing pricing in 
the case of net purchases more generally, cause a fund to limit the total amount an 
investor can invest in the fund? If so, what effects would this have on investors?
68.Should we permit the swing pricing administrator to use discretion to establish a 
smaller market impact threshold for net redemptions or a smaller inflow swing 
threshold for net purchases if the administrator determines a smaller threshold is 
appropriate to mitigate dilution, as proposed? Should we prescribe the circumstances 
in which a smaller threshold would be permitted, the timing of such a determination 
by the swing pricing administrator (e.g., if a swing pricing administrator must 
formally establish a smaller threshold that will remain in place for a period of time), 
disclosure of such a determination to the fund’s investors, and recordkeeping 
requirements in support of the determination? Should we require the fund’s board, 
instead of the swing pricing administrator, to approve use of a smaller threshold? 
108

Should we permit the swing pricing administrator to exclude certain types of costs 
from the swing factor if it uses a lower-than-required threshold? For example, should 
a swing pricing administrator be permitted to exclude market impact estimates from 
the swing factor if it uses an inflow swing threshold that is lower than 2%, and 
instead only include market impact estimates when inflows also exceed 2%?
69.Should the swing pricing administrator or the board have flexibility to establish larger
thresholds than proposed (i.e., to apply a swing factor only when net redemptions 
exceed a specified percentage, to include market impacts in the swing factor when net
redemptions are an identified amount that is greater than 1%, or to apply a swing 
factor only when net purchases exceed an identified amount that is greater than 2%)? 
If so, what are the circumstances in which a fund board or the swing pricing 
administrator should have flexibility to use larger thresholds that the proposed rule 
identifies? 
70.Should we allow certain types of funds to use different thresholds than those the 
proposed rule identifies? For example, should we permit or require smaller funds to 
use larger thresholds? If so, how should we identify smaller funds for these purposes?
Should the rule identify larger thresholds for smaller funds, or should smaller funds 
have flexibility to determine their own thresholds? As another example, should we 
permit or require funds that hold significant amounts of highly liquid investments to 
use larger thresholds? If so, how should we identify funds that hold significant 
amounts of highly liquid investments for these purposes? Should the rule identify 
larger thresholds for these funds, or should they have flexibility to determine their 
own thresholds? 
109

3.Determining Flows
Consistent with the current rule, the swing pricing administrator must review investor 
flow information to determine if the fund has net purchases or net redemptions and the amount of
net purchases or net redemptions.
189
 For these purposes, investor flow information means 
information about the fund investors’ daily purchase and redemption activity. Investor flow 
information may consist of individual, aggregated, or netted eligible orders, and excludes any 
purchases or redemptions that are made in kind and not in cash.
190
 Currently it would be difficult 
to determine investor flow information on a given day because some intermediaries do not 
provide order flow until after the fund has finalized its NAV. In recognition of these challenges, 
the current rule permits a swing pricing administrator to make swing pricing determinations 
based on receipt of sufficient investor flow information to allow the fund to estimate reasonably 
whether it has crossed a swing threshold with high confidence.
191
 While the hard close provision 
in the proposed rule is intended to result in funds generally having flow information in a timely 
manner, and therefore greatly reduce the need for estimation, we recognize some estimation may 
still be required. The proposed rule would, therefore, continue to permit the swing pricing 
administrator to make swing pricing determinations based on reasonable, high confidence 
estimates of investor flows.
192
 
189
 See rule 22c-1(a)(3)(i)(A) and proposed rule 22c-1(b)(1)(i).
190
 See definition of “Investor flow information” in proposed rule 22c-1(d). See also infra section 
II.C.2 (discussing the proposed definition of “eligible order” for purposes of the hard close 
requirement).
191
 See rule 22c-1(a)(3)(i)(A).
192
 Under the current rule, the swing pricing administrator is permitted to make swing threshold 
determinations based on receipt of sufficient flow information “to allow the fund to reasonably 
estimate whether it has crossed the swing threshold(s) with high confidence.” See rule 22c-1(a)(3)
(i)(A).
110

Under our proposal, the swing pricing administrator would be required to review investor
flow information on a daily basis to determine: (1) if the fund experiences net purchases or net 
redemptions; and (2) the amount of net purchases or net redemptions. We propose to permit the 
swing pricing administrator to make these determinations based on “reasonable, high confidence 
estimates.” While there would be less of a need to estimate flows under the proposed hard close 
requirement, we understand that a swing pricing administrator still would need to use estimates 
in some cases. For instance, if an investor submits an exchange order to redeem its shares from 
Fund A and simultaneously invest the proceeds in Fund B, the swing pricing administrator for 
Fund B may need to estimate the incoming cash by multiplying the number of shares redeemed 
from Fund A by an estimate of Fund A’s NAV, which may be the prior day’s transaction price. 
In this situation, we recognize it will not be possible for the swing pricing administrator to 
determine the exact size of the related flow information until a later time. Therefore, we propose 
to permit the use of reasonable, high confidence estimates to make swing pricing determinations.
Furthermore, some funds groups with both U.S. and European operations may already have 
experience with this type of estimation, because European funds that have adopted swing pricing
generally use the prior day’s price to estimate today’s flows.
We request comment on our proposal requirements related to shareholder flow 
information. 
71.Should we permit a swing pricing administrator to make reasonable, high confidence 
estimates of investor flows, as proposed? Are there operational complexities to this 
approach? Is the rule’s reference to reasonable, high confidence estimates of investor 
flows sufficiently clear? If not, how should we revise the rule to provide greater 
clarity about permitted estimates? 
111

72.As proposed, should we remove references to receipt of sufficient investor flow 
information in the rule in light of the proposed hard close requirement?
73.Is the proposed definition of “investor flow information” clear and understandable? 
Should the rule continue to exclude any purchases or redemptions that are made in 
kind and not in cash, as proposed?
74.Should we provide additional guidance about circumstances in which a swing pricing 
administrator may need to use estimates in connection with arriving at a reasonable, 
high confidence estimate of the fund’s investor flow information and how the 
administrator should arrive at those estimates? Are there other types of investor 
orders, beyond orders that identify the number of shares to be purchased or sold and 
exchanges, that would still require estimation under a hard close approach? Should 
funds be able to use the prior day’s transaction price for purposes of estimating flows 
where the amount of such flows are dependent on having a transaction price? Should 
funds be permitted to make adjustments to the prior day’s price for these purposes 
(e.g., to reflect market movements relative to fund benchmarks that occurred after the 
prior day’s NAV was struck)? If so, under what circumstances should we permit such
adjustments?
75.If we adopt the proposed hard close requirement, would there be scenarios in which a 
swing pricing administrator would be unable to arrive at a reasonable, high 
confidence estimate of investor flows? If so, when would this occur? How should a 
fund comply with the swing pricing requirement if the administrator is unable to 
arrive at a reasonable, high confidence estimate of investor flows on a given day?
112

76.Would the use of reasonable, high confidence estimates of investor flows subject 
swing pricing determinations to abuse? Should the use of estimates be limited to 
specific circumstances? Are there other ways for the swing pricing administrator to 
make swing pricing determinations without the use of reasonable, high confidence 
estimates of investor flows?
77.Do fund groups with both U.S. and European operations already have experience with
investor flow estimation? If so, would experience with European operations help 
these fund groups use estimates in their U.S. funds? What changes to the proposed 
rule, if any, would help fund groups without prior experience with investor flow 
estimation?
4.Swing Factors
In determining the swing factor, the proposed rule would require a fund’s swing pricing 
administrator to make good faith estimates, supported by data, of the costs the fund would incur 
if it purchased or sold a pro rata amount of each investment in its portfolio to satisfy the amount 
of net purchases or net redemptions (i.e., a vertical slice).
193
 The current swing pricing 
framework requires that the swing factor take into account only the near-term costs expected to 
be incurred by the fund as a result of net purchases or net redemptions that occur on the day the 
swing factor is used, as well as borrowing-related costs associated with satisfying redemptions.
194
Under our proposal, a fund would be required to assume it would purchase or sell a pro rata 
amount of each investment in its portfolio, rather than consider the specific investments it would 
purchase to invest the proceeds from subscriptions or sell to meet redemptions.
195
 Because a fund
193
 See proposed rule 22c-1(b)(2). 
194
 These near-term costs include spread costs, transaction fees and charges arising from asset 
purchases or asset sales resulting from those purchases or redemptions. See rule 22c-1(a)(3)(i)(C).
195
 See proposed rule 22c-1(b)(2).
113

would need to calculate its costs based on the purchase or sale of a vertical slice of its portfolio, 
rather than selecting specific investments or borrowing to meet redemptions, we have proposed 
to remove borrowing costs from the swing factor calculation. We recognize that there are many 
ways a fund could pay redemptions or invest proceeds from investor purchases, and a fund may 
not necessarily sell or purchase a vertical slice of its portfolio holdings to do so. However, we 
believe analyzing costs based on an assumed purchase or sale of a vertical slice of the fund’s 
portfolio would more fairly reflect the costs imposed by redeeming or purchasing investors than 
an approach that focuses solely on the costs associated with the instruments that the fund expects
to buy or sell (or expected borrowing costs, in the case of redemptions). For example, under the 
current rule, if a fund sells only highly liquid investments to meet redemptions, the swing factor 
would typically reflect relatively low transaction costs of selling those investments and any near-
term rebalancing, and generally would not account for the effect of leaving remaining investors 
with a less liquid portfolio or potential longer-term rebalancing costs. In contrast, the proposed 
requirement that a fund calculate costs to purchase or sell a vertical slice of the portfolio is 
designed to recognize the potential longer-term costs of reducing the fund’s liquidity under these 
circumstances. 
In addition, using a vertical slice is more objective than the current approach, because the
swing factor administrator does not need to anticipate what actions the fund will take to pay 
redemptions or invest proceeds from investor purchases, which may vary from day to day. This 
should make the swing factor easier to administer. Further, under the proposed swing pricing 
framework and consistent with the current rule, a swing factor could generally be determined on 
a periodic basis, as long as developments that should affect the swing pricing administrator’s 
good faith estimates of spreads, market impact, and other transaction costs, such as significant 
114

market developments, prompt a quicker reevaluation.
196
 A quicker reevaluation would be 
required to comply with the proposed amendments where developments would otherwise prevent
the prior swing factor from reflecting the cost the fund would incur if it purchased or sold a pro 
rata amount of each portfolio investment under current market conditions. Accordingly, we 
believe a fund would have the incentive to reevaluate promptly its swing factor in these 
circumstances because having an accurate and fair transaction price is crucially important to 
investors. We believe that funds would address the frequency of swing factor determinations 
when designing their policies and procedures relating to swing pricing.
Calculating the swing factor would differ depending on whether the fund is experiencing 
net purchases or net redemptions. In the case of net redemptions, the good faith estimates must 
include, for selling a pro rata amount of each investment in the fund’s portfolio to satisfy the 
amount of net redemptions: (1) spread costs; (2) brokerage commissions, custody fees, and any 
other charges, fees, and taxes associated with portfolio investment sales; and (3) if the amount of 
the fund’s net redemptions exceeds the market impact threshold, the market impact.
197
 In the case
of net purchases, swing pricing would only be applied if the amount of the fund’s net purchases 
exceeds 2%.
198
 In such cases the good faith estimates must include, for purchasing a pro rata 
amount of each investment in the fund’s portfolio to invest the proceeds from the net purchases: 
(1) spread costs; (2) brokerage commissions, custody fees, and any other charges, fees, and taxes
associated with portfolio investment purchases; and (3) the market impact.
199
 We believe these 
components of the swing factor for both net redemptions and net purchases, taken together, 
196
 See Swing Pricing Adopting Release, supra note 11, at paragraph accompanying n.268.
197
 See proposed rule 22c-1(b)(2)(i).
198
 See proposed rule 22c-1(b)(2)(ii).
199
 Id.
115

approximate the aggregate costs associated with dilution. We also believe that providing a 
standard for calculating swing factors, including the vertical slice approach and the identification
of the categories of costs funds must include, would help avoid the variability in how funds 
calculate swing factors, as observed in some other jurisdictions where funds use swing pricing.
200
We understand that in calculating the swing factor, fund managers may have incentives to
over-estimate costs in order to improve fund performance. However, doing so would be 
misleading. To help address this risk, under the proposal funds would be required to report their 
swing factor adjustments publicly on Form N-PORT. We believe this public transparency should
reduce a fund’s incentive to over-estimate costs. Additionally, a fund’s portfolio manager, who 
arguably might have the strongest incentives to over-estimate costs, could not be designated as 
the swing pricing administrator.
201
The method for calculating a fund’s spread costs would differ depending on how the fund
values its portfolio holdings. We understand that funds may value portfolio holdings at the bid 
price or the mid-market price when striking their NAVs.
202
 If a fund values its portfolio holdings 
200
 See Bank of England Survey, supra note 60. This report states that in calculating swing factors, 
some surveyed UK funds only considered bid-ask spreads, some other funds also considered 
explicit transaction costs such as commissions, and a few funds considered market impact as 
well. Moreover, in reviewing the size of swing factors applied in Mar. 2020, the report found that 
corporate bond funds with net outflows applied swing factors ranging between -5% and +0.5% 
from Mar. 10 to 23. The report states that the scale of variation suggests that fund-specific 
experiences are not the sole explanation for differences in swing factors and that different 
approaches fund managers took in applying swing pricing also contributed to these variations. 
201
 See proposed rule 22c-1(b)(3)(ii).
202
 See FASB ASC 820-10-35-36C (providing that if an asset measured at fair value has a bid price 
and an ask price, the price within the bid-ask spread that is most representative of fair value in the
circumstance shall be used to measure fair value, and that the use of bid prices for asset positions 
is permitted but not required for these purposes); FASB ASC 820-10-35-36D (stating that use of 
mid-market pricing as a practical expedient for fair value measurements within a bid-ask spread 
is not precluded). Since a seller generally asks for a higher price for a security than a buyer bids 
for that security, the mid-market price is incrementally higher than the bid price for a security, but
lower than its ask price.
116

at the bid price, it would not need to include spread costs in its swing factor when the fund has 
net redemptions. In contrast, if the fund has net purchases exceeding 2%, the fund would need to 
include spread costs, which would reflect the full bid-ask spread. For a fund that uses mid-
market pricing, it would need to include spread costs in its swing factor any time it applies swing
pricing. When a fund using mid-market pricing has net redemptions, or net purchases exceeding 
2%, the spread cost component of its swing factor would reflect half of the bid-ask spread.
The proposal would require a fund to include market impact in its swing factor only if the
amount of net redemptions exceeds the market impact threshold, and in all cases where the 
amount of net purchases exceeds the inflow swing threshold. The market impact component of 
the swing factor would reflect good faith estimates of the market impact of selling (in the case of 
net redemptions) or purchasing (in the case of net purchases) a vertical slice of a fund’s portfolio 
to satisfy the amount of net redemptions or net purchases. The fund would estimate market 
impacts for each investment in its portfolio by first estimating the market impact factor. This 
factor is the percentage change in the value of the investment if it were purchased or sold, per 
dollar of the amount of the investment that would be purchased or sold. Then, the fund would 
multiply the market impact factor by the dollar amount of the investment that would be 
purchased or sold if the fund purchased or sold a pro rata amount of each investment in its 
portfolio to meet the net redemptions or net purchases.
203
 
We understand that it may be difficult to produce timely, good faith estimates of the 
market impact of purchasing or selling a pro rata portion of each instrument the fund holds. 
Recognizing these difficulties, and because some securities held by mutual funds may have 
similar characteristics and would likely incur similar costs if purchased or sold, the proposed rule
203
 See proposed rule 22c-1(b)(2)(iii).
117

would permit the swing pricing administrator to estimate costs and market impact factors for 
each type of investment with the same or substantially similar characteristics and apply those 
estimates to all investments of that type rather than analyze each investment separately.
204
 
The existing swing pricing framework currently in rule 22c-1 does not permit a fund to 
include market impact costs relating to transacting in the fund’s investments in the swing factor 
calculation. At the time of the rule’s adoption, the Commission stated that it may be difficult for 
many funds to estimate readily market impact costs, and that subjective estimates of market 
impact costs could grant excessive discretion in a fund’s determination of a swing factor.
205
 We 
understand that it may continue to be difficult to determine market impact costs with precision, 
while a fund would be able to determine other relevant factors more precisely.
206
 However, we 
believe the experiences of European funds that employed swing pricing through March 2020 
have highlighted the importance of considering market impact costs, given the stressed nature of 
markets at that time, the level of those funds’ redemptions, and the size of those funds’ swing 
factors. We understand that only some European funds consider market impact costs when 
determining their swing factors.
207
 A recent survey conducted by the Association of the 
Luxembourg Fund Industry (“ALFI”), however, observed an increase in asset managers 
204
 See proposed rule 22(c)-1(b)(iv).
205
 See Swing Pricing Adopting Release, supra note 11, at paragraph accompanying n.240.
206
 Methodologies used to estimate market impact are often created by liquidity measurement 
vendors. These vendors typically create a model to gauge what size of trade will have a market 
impact on a security (using various factors such as bid-offer spreads, issue sizes, recent daily 
average volumes, and recent trade sizes), back-test the model to check its accuracy, and then 
adjust the weights of the various factors used in the model accordingly. 
207
 See Bank of England Survey, supra note 60 (stating that most surveyed fund managers did not 
factor market impact explicitly into their swing factors, and few had models in place to estimate 
spreads when needed). 
118

including market impact in their swing factors, with 35% of surveyed asset managers including 
this component in the factor calculation.
208
 
To address the concern that market impact estimation may be difficult, and that 
subjective estimates of market impact costs could grant excessive discretion in the determination 
of a swing factor, we are providing additional parameters for estimating market impact to make 
the calculation more objective as discussed above. These prescriptive requirements should help 
to limit subjectivity, and recordkeeping requirements would require funds to document their 
market impact factors, facilitating our staff’s review and oversight of mutual fund swing 
pricing.
209
 
The current swing pricing framework requires the establishment of an upper limit on the 
swing factor used.
210
 The Commission included a 2% upper limit in the current rule to make sure 
that swing pricing would not operate as a “de facto gate.”
211
 We are not including an upper limit 
on the swing factor under our proposed framework. We propose to remove the requirement for 
the board to review and approve the fund’s swing threshold and the upper limit on the swing 
factor(s) used, as well as any charges on these items, to conform to our proposed swing pricing 
208
 See ALFI Swing Pricing Survey 2022 (July 2022), available at 
https://www.alfi.lu/getattachment/8417bf51-4871-41da-a892-f4670ed63265/app_data-import-
alfi-alfi-swing-pricing-survey-2022.pdf.
209
See rule 31a-2(a)(2) (requiring funds to preserve for a period of not less than six years all 
schedules evidencing and supporting each computation of an adjustment to the fund’s NAV based
on swing pricing policies and procedures). A fund’s records under the proposed amendments 
should generally include the fund’s unswung NAV, the level of net purchases or net redemptions 
that the fund encountered (and estimated) that triggered the application of swing pricing, the 
swing factor that was used to adjust the fund’s NAV, and relevant data supporting the calculation 
of the swing factor, including the components of the swing factor such as market impact.
210
 See rule 22c-1(a)(3)(i)(C). Additionally, a fund’s board of directors, including a majority of 
directors who are not interested persons of the fund must approve the fund’s swing threshold(s) 
and the upper limit on the swing factor(s) used, and any changes to the swing threshold(s) or the 
upper limit on the swing factor(s) used. See rule 22c-1(a)(3)(ii).
211
 See Swing Pricing Adopting Release, supra note 13, at text accompanying nn.253-254.
119

framework.
212
 The more specific parameters in this proposal for determining a fund’s swing 
factor are intended to sufficiently mitigate the concerns that led to an upper limit in the existing 
swing pricing regime. In addition, although the current rule does not prescribe which investments
a fund would purchase or sell, the current upper limit may provide an incentive for funds to sell 
their most liquid assets first, which may increase the risk of dilution when the fund later 
rebalances its portfolio. Furthermore, we understand that in certain other jurisdictions, several 
funds experienced costs and dilution that led to swing factors above 2% in March 2020.
213
 Those 
cases suggest that the swing factors helped mitigate dilution and did not constitute a de facto 
gate, given that they reflected market conditions at that time. We recognize that liquidity costs 
could vary widely across funds and under different market conditions, and we do not wish to 
limit the extent to which swing pricing could mitigate dilution. Finally, the policies and 
procedures for determining the swing factor would be required to be approved by the fund’s 
board, which has an obligation to act in the best interests of the fund.
Additionally, Form N-1A currently requires funds that use swing pricing to disclose a 
fund’s swing factor upper limit.
214
 Because we propose to remove the swing factor upper limit in 
the rule, we also propose to remove the requirement to provide an upper limit on the swing factor
from Item 6(d) of Form N-1A.
215
We request comment on our proposed calculation of a fund’s swing factor. 
212
 See proposed rule 22c-1(b)(3). We also propose to modify the board’s review of a fund’s swing 
pricing policies and procedures to include “their effectiveness at mitigating dilution” rather than 
“the impact on mitigating dilution.” See proposed rule 22c-1(b)(3)(iii)(A).
213
 See, e.g., Commission de Surveillance du Secteur Financier, Swing Pricing Mechanism – FAQ, 
available at https://www.cssf.lu/en/Document/cssf-faq-swing-pricing-mechanism/ (providing 
guidance for increasing the swing factor above the maximum level identified in a fund’s 
prospectus under certain circumstances, and noting that typical maximum swing factors observed 
in fund prospectuses are between 1% and 3%).
214
 Item 6(d) of Form N-1A. 
215
 See Item 6(d) of proposed Form N-1A.
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78.Does our proposed requirement that a fund calculate the swing factor by assuming it 
would sell or purchase a pro rata amount of each investment in its portfolio properly 
account for liquidity costs? Are there other considerations related to liquidity costs 
that the swing pricing framework should take into account, such as shifts in the fund’s
liquidity management or other repositioning of the fund’s portfolio? 
79.Should funds calculate the swing factor by estimating the costs of purchasing or 
selling only the investments the fund plans to buy or sell to satisfy shareholder 
purchases or redemptions (consistent with the current rule), rather than calculating the
swing factor based on the costs the fund would incur if it sold a pro rata amount of 
each investment in its portfolio (as proposed)? Which approach would more fairly 
reflect the costs imposed by redeeming or purchasing investors?
80.Should we permit a fund not to use the vertical slice assumption when doing so would
require the fund to assume that it is purchasing or selling an amount of a given 
instrument that would not be permissible under other rules (e.g., if it would result in 
an assumption that a fund would purchase an amount of illiquid investments that 
exceeds 15%)? If so, how should we modify the assumption for these purposes? 
Should we require a vertical slice assumption in all cases for administrative ease and 
consistency in calculations?
81.As proposed, should the swing factor calculation take into account spread costs; 
brokerage commissions, custody fees, and any other charges, fees, and taxes 
associated with portfolio investment sales; and the market impact under certain 
circumstances? Should we remove any of these types of costs from the calculation? 
Are there other types of costs we should include?
121

82.Should the swing factor calculation take into account borrowing costs like under the 
current rule? Should the proposed rule only include borrowing costs for certain assets,
such as illiquid assets? Should illiquid investments be defined for this purpose using 
the same definition as in rule 22e-4?
83.Should the way in which a fund calculates spread costs depend on whether it uses 
midpoint or bid pricing when valuing its holdings? Should we allow a fund that uses 
bid pricing not to apply a swing factor when it has net redemptions unless the amount 
of net redemptions exceeds a threshold (e.g., the market impact threshold)? Should 
we require all funds to use bid pricing, either instead of or in combination with a 
swing pricing requirement? Would use of bid pricing effectively address dilution, 
particularly when net redemptions are small? Instead of requiring swing pricing as 
proposed, should we require a fund to use bid pricing to compute its share price or 
otherwise adjust its price to reflect spread costs on days the fund estimates that it has 
net redemptions? If so, should the fund also use ask pricing on days the fund 
estimates that it has net purchases? Should we require a fund to use bid pricing to 
compute its share price on all days, regardless of whether the fund has net 
redemptions or purchases? 
84.Should we require the swing factor to include market impact under certain 
circumstances, as proposed? Do some or all funds already estimate market impact 
factors, or perform similar analyses, to inform trading decisions or liquidity rule 
classifications? If so, would these funds’ prior experience smooth the transition to 
making a good faith estimate of the market impact factor under the proposal? Would 
the proposed amendments to the liquidity rule further enhance funds’ ability to 
122

estimate market impacts? What difficulties might funds experience in developing a 
framework to analyze market impact factors and in producing good faith estimates of 
market impact factors for purposes of the proposed swing pricing requirement? What 
are the specific operational challenges in estimating market impact? Are there ways 
we could reduce those difficulties, while still requiring redeeming investors to bear 
costs that reasonably represent the costs they would otherwise impose on the fund and
its remaining shareholders?
85.Should we permit funds to calculate swing factors on a periodic basis, as long as 
developments such as significant market developments prompt a quicker re-
evaluation, as proposed? Does this approach have any effect on the goals of reducing 
dilution, improving fairness, and addressing potential first-mover advantages? Are 
there other circumstances in which a fund should be required to re-evaluate its swing 
factors or certain swing factor components, such as changes in the fund’s investment 
strategy or liquidity? Should we instead require funds to calculate swing factors (or 
certain components of swing factors) on a daily basis or at some other defined 
minimum frequency (e.g., weekly or monthly) unless developments prompt a quicker 
re-evaluation?
86.Should the rule permit, rather than require, funds to follow the identified inflow 
swing threshold, market impact threshold, and swing factor calculations set forth in 
the rule? If so, what considerations or factors should the rule require a fund to 
consider when determining thresholds and swing factors if the fund determines not to 
follow the threshold or calculations set forth in the rule? For example, instead of 
removing the factors a fund must consider when setting swing threshold(s) under the 
123

current rule, should we maintain those or similar factors for purposes of determining a
fund’s market impact threshold or the inflow swing threshold?
216
 
87.Should funds be subject to a numerical limit on the size of swing factors? If so, 
should we retain the current rule’s 2% swing factor upper limit and the disclosure of 
the limit in Form N-1A? Alternatively, should the limit be higher or lower (e.g., 1% 
or 3%)? 
88.Should we allow a fund to use a set swing factor, such as 2% or 3%, in times of 
market stress when estimating a swing factor with high confidence may not be 
possible? How would we define market stress for this purpose? Should a fund’s 
swing pricing administrator, adviser, or a majority of the fund’s independent 
directors, be permitted to determine market conditions were sufficiently stressed such 
that the fund would apply the set swing factor? Are there other circumstances in 
which we should permit or require a fund to use a default swing factor? For example, 
should the rule establish a default swing factor that would apply when a fund has 
illiquid investments that exceed 15% or when a fund drops below its highly liquid 
investment minimum under rule 22e-4?
89.Should the rule permit a fund to apply a market impact factor of zero for certain 
investments or under certain circumstances? For example, should a fund be able to 
use a market impact of zero for certain categories of investments, such as Treasuries 
or other investments that the fund classifies as highly liquid investments under rule 
22e-4? Are there particular circumstances in which it would not be reasonable for the 
216
 See rule 22c-1(a)(3)(i)(B).
124

rule to permit a fund to use a market impact factor of zero, such as in stressed market 
conditions?
90.Instead of specifying swing factor calculations and thresholds in the rule, should we 
require a fund to adopt policies and procedures that specify how the fund would 
determine swing pricing thresholds and swing factors based on principles set forth in 
the rule? If so, should the policies and procedures include the methodologies from the
market impact factor calculation we proposed? Should the policies and procedures be 
required to include the swing factor calculation? Should the policies and procedures 
be required to define the market impact threshold with reference to a metric other 
than net purchases or net redemptions? If we require policies and procedures, should 
we specify the market impacts and dilution costs that a fund’s swing pricing program 
must address, rather than specifying specific principles and calculation 
methodologies?
91.Are there circumstances in which it would not be possible to estimate the market 
impact factor with a high degree of accuracy? If so, what modifications should we 
make to the proposal? 
92.Would our proposed swing pricing requirement cause or incentivize investors to 
move their assets out of the funds that must implement swing pricing into other 
investment vehicles that do not use swing pricing, such as ETFs, collective 
investment trusts (“CITs”), or separately managed accounts? What are the potential 
effects associated with these decisions? For example, when would such movements 
occur (e.g., before the end of the compliance period for a swing pricing requirement, 
if adopted, or over a longer time horizon)? Would retirement plan sponsors or others 
125

remove mutual funds as investment options if swing pricing is required? In the case 
of separately managed accounts, should the Commission take any action with respect 
to how the Investment Company Act may apply to investment advisory programs 
seeking to provide the same or similar professional management services on a 
discretionary basis to a large number of advisory clients having relatively small 
amounts to invest?
217
93.Would a swing pricing requirement change the behavior of funds? For example, 
would it cause any changes to fund strategies or practices? 
94.How might swing pricing affect investor behavior in a period of liquidity stress? 
Would swing pricing increase fund resilience by reducing the first-mover advantage 
that some investors may seek during periods of market stress? Would swing pricing 
encourage investors to redeem smaller amounts over a longer period of time because 
investors will not know whether the fund’s flows during any given pricing period will
trigger swing pricing and, if so, the size of the swing factor for that period?
95.Based on historical data, how would our swing pricing framework affect funds’ 
transaction prices under normal market conditions?
96.Rather than requiring funds to adopt a swing pricing requirement, should we provide 
more than one approach to mitigate dilution and require each fund to implement an 
anti-dilution tool, but permit each fund to determine its own preferred approach? If 
so, which anti-dilution tool options should the rule provide? Should we, for example, 
allow a fund to adopt swing pricing, a liquidity fee (i.e., purchase and/or redemption 
fees), or dual pricing?
218
 Are there other options that would be appropriate under this 
217
 See, e.g., 17 CFR 270.3a-4.
218
 See infra section II.D for a discussion of potential liquidity fee or dual pricing frameworks.
126

approach? Would funds’ use of different approaches benefit investors by increasing 
investor choice or, conversely, would these differences confuse investors or make it 
more difficult for them to compare funds with each other?
97.The current rule requires a fund’s board of directors to approve the fund’s swing 
pricing policies and procedures and to designate the persons responsible for swing 
pricing. Should we require board involvement in the day-to-day administration of a 
fund’s swing pricing program in addition to its compliance oversight role? How 
might funds maintain segregation between portfolio management and swing pricing 
administration? Should a fund’s chief compliance officer have a designated role in 
overseeing how the fund applies the proposed swing pricing requirement?
98.The current rule requires a fund’s board to review, no less frequently than annually, a 
report prepared by the swing pricing administrator on the fund’s use of swing pricing,
including the effectiveness of the fund’s policies and procedures and any material 
changes to them since the last report. Should we require board review of a swing 
pricing report more or less frequently than annually? Should we require less frequent 
board review over time (e.g., every quarter for the first year after implementation and 
then less frequently in following years as the fund gains experience implementing the 
swing pricing program under various market conditions)? Should we require the fund 
to disclose any material inaccuracies in the swing pricing calculation to the board 
(e.g., as they arise, no less frequently than quarterly, or at some other frequency)? 
Would this disclosure requirement be additive, or would fund boards already receive 
127

information about material inaccuracies in the swing pricing calculation in the course 
of existing board oversight?
219
    
99.In addition to the proposed requirement that funds would publicly report their swing 
factor adjustments on Form N-PORT, should funds also be required to post that same 
information on their websites? If so, how promptly should website reporting be 
required (e.g., weekly, monthly, quarterly, annually)? Are there other ways to provide
this information to investors?
C.Hard Close 
Currently if an investor submits an order to an intermediary to purchase or redeem fund 
shares, that order will be executed at the current day’s price as long as the intermediary receives 
the order before the time the fund has established for determining the value of its holdings and 
calculating its NAV (typically 4 p.m. ET).
220
 The fund, however, might not receive information 
about that order until much later, sometimes as late as the next morning. We are proposing 
amendments to rule 22c-1 under the Act to require a hard close for those funds that are required 
to implement swing pricing.
221
 The proposed hard close requirement would provide that a 
direction to purchase or redeem a fund’s shares is eligible to receive the price established at the 
219
 See, e.g., 17 CFR 270.38a-1 (requiring the fund’s chief compliance officer to provide a written 
report to the board addressing each material compliance matter occurring since the date of the 
chief compliance officer’s last report to the board); Compliance Programs of Investment 
Companies and Investment Advisers, Investment Company Act Release No. 26299 (Dec. 17, 
2003) [68 FR 74713 (Dec. 24, 2003)] (“Rule 38a-1 Adopting Release”), at n.84 (“Serious 
compliance issues must, of course, always be brought to the board’s attention promptly, and 
cannot be delayed until an annual report.”).
220
 Although not all funds calculate their NAVs as of 4 p.m. ET, throughout this release we use 
4 p.m. ET as the time as of which a fund calculates its NAV unless otherwise noted. 
221
 As discussed above in section II.B, swing pricing would be required for all registered open-end 
management investment companies other than money market funds and ETFs. The proposal 
would not affect the operation of current rule 22c-1 for money market funds or ETFs, as well as 
unit investment trusts (which are also subject to rule 22c-1). 
128

current day’s price solely if the fund, its designated transfer agent, or a registered securities 
clearing agency (collectively, “designated parties”) receives an eligible order before the pricing 
time as of which the fund calculates its NAV.
222
 Orders received after the fund’s established 
pricing time would receive the next day’s price.
223
 In 2003, the Commission proposed a similar 
hard close requirement but did not adopt the proposed amendments.
224
 The proposed hard close 
amendments would serve multiple goals, such as facilitating mutual funds’ ability to 
operationalize swing pricing by ensuring that funds receive timely flow information, 
modernizing and improving order processing, as well as helping to prevent late trading. 
1.Purpose and Background
We are proposing to require all registered open-end funds (other than money market 
funds and ETFs) to implement swing pricing in order to combat dilution. Our hard close proposal
is designed to support the proposed swing pricing amendments by facilitating the more timely 
receipt of fund order flow information. To implement the proposed swing pricing requirement, 
mutual funds need sufficient net order flow information to determine whether to apply a swing 
factor, and the size of that swing factor, before they finalize that day’s price. Based on staff 
outreach with foreign regulators and asset managers that operate in Europe, we understand that a 
hard close is common in other jurisdictions in which funds currently implement swing pricing, 
and use of a hard close in those jurisdictions facilitates the receipt of timely flow information to 
222
 See proposed rule 22c-1(a)(3).
223
 Funds generally compute their NAVs once per day, although some funds compute their NAVs 
multiple times per day. For simplicity, this discussion assumes that a fund computes its NAV 
once per day.
224
 See Amendments to Rules Governing Pricing of Mutual Fund Shares, Investment Company Act 
Release No. 26288 (Dec. 11, 2003) [68 FR 70388 (Dec. 17, 2003)] (“2003 Hard Close Proposing 
Release”).
129

inform swing pricing decisions.
225
 The proposed hard close requirement would facilitate the more
timely receipt of order flow information by requiring that the fund, its transfer agent, or a 
clearing agency receive all orders that are eligible to receive that day’s price before the fund 
computes its NAV.
Beyond facilitating swing pricing, our proposed hard close amendments to rule 22c-1 
also would help prevent late trading of fund shares. Because a financial intermediary currently 
can submit an order that it received before 4 p.m. ET to a designated party after 4 p.m. ET for 
execution at that day’s NAV, there is a risk that an intermediary could unlawfully alter orders 
using after-hours information to benefit the intermediary or its clients. The Commission and 
others uncovered several instances of late trading in the early 2000s.
226
 While the Commission 
adopted rules to address concerns about late trading, we believe that the hard close proposal, 
when coupled with our current rules, would more effectively prevent late trading.
227
 For example,
some fund intermediaries are not subject to examination by the Commission and staff, and we 
are unable to examine whether those intermediaries permit or engage in unlawful late trading. By
proposing to require that all purchase and redemption orders be received by the fund, its transfer 
225
 We understand that the hard close employed in these other jurisdictions is not necessarily the 
same as the hard close approach we are proposing. For example, we understand it is common in 
some other jurisdictions for the required time of receipt of orders by the fund to be several hours 
before the time as of which the fund values its holdings.
226
 See, e.g., 2003 Hard Close Proposing Release, supra note 224 (discussing investigations by 
Commission staff of suspected late trading, which suggested that, at the time, late trading of fund 
shares was not an isolated event). See, also, e.g., In the Matter of Steven B. Markovitz, 
Investment Company Act Release No. 26201 (Oct. 2, 2003); In the Matter of Theodore Charles 
Sihpol, III, Investment Company Act Release No. 27113 (Oct. 12, 2005); In the Matter of Legg 
Mason Wood Walker, Inc., Investment Company Act Release No. 27071 (Sept. 21, 2005); In the 
Matter of Canadian Imperial Holdings, Inc. and CIBC World Markets Corp., Investment 
Company Act Release No. 26994 (July 20, 2005); In the Matter of Brean Murray & Co., Inc., 
Investment Company Act Release No. 26761 (Feb. 17, 2005).
227
 See, e.g., Rule 38a-1 Adopting Release, supra note 219 (adopting rule 38a-1 under the Act, 
which requires written policies and procedures reasonably designed to prevent violation of the 
securities laws, oversight of compliance by the fund’s service providers, and designation of a 
chief compliance officer).
130

agent, or a registered clearing agency by 4 p.m. ET, the proposal would prevent intermediaries 
from altering orders after 4 p.m. ET or unlawfully misrepresenting that an order was received 
before 4 p.m. ET and entitled to that day’s price. We believe that the proposed amendments 
would aid in the elimination of late trading through intermediaries by requiring certain SEC-
regulated parties to receive orders before the NAV is computed to receive that day’s price. The 
proposed hard close requirement would also modernize and improve order processing and reduce
operational risks, as discussed below. 
2.Pricing Requirements
Under the proposed rule, an eligible order to purchase or redeem would receive the price 
for the next pricing time after a designated party receives the order.
228
 We propose to define the 
terms “pricing time” and “eligible order” for purposes of the rule.
229
 Eligible orders would 
receive a price based on the current NAV as of the next pricing time, which would include an 
adjustment to the NAV to include the swing factor, as applicable. Consistent with the current 
rule, the fund’s board of directors would be required to establish a “pricing time,” which would 
be defined as the time or times of day as of which the fund calculates the current NAV of its 
redeemable shares pursuant to the rule (typically 4 p.m. ET). The price of a fund’s shares would 
typically be finalized several hours after the pricing time, giving funds time to calculate the 
current NAV, apply any swing factor, and finalize and publish the fund share price. 
For purposes of the proposed hard close requirement, an eligible order to purchase or 
redeem fund shares would have to supply certain information about the size of an investor’s 
intended trade. This approach is intended to facilitate swing pricing by providing mutual funds 
with information they can use to calculate investor flows. In addition, this approach requires that 
228
 See proposed rule 22c-1(a)(3). 
229
 See definitions of “Eligible order” and “Pricing time” in proposed rule 22c-1(d).
131

trading intentions are clear before 4 p.m., which would further help prevent late trading. 
Specifically, we propose to define the term “eligible order” to mean a direction to purchase or 
redeem a specific number or value of fund shares. For example, an eligible order would include 
the direction to purchase or sell either (1) a specific number of shares of a fund (e.g., 100 shares, 
or all the shares held in the account), or (2) an indeterminate number of shares of a specific value
(e.g., $10,000 of shares of the fund).  
The proposed definition of eligible order also would include exchange orders. An 
exchange refers to the process in which an investor initiates an order to purchase shares of a fund
using the proceeds from a contemporaneous order to redeem shares of another fund. When an 
exchange is initiated, two transactions are created—a redemption of securities and a purchase. 
We understand that exchanges are often between funds in the same fund complex, however, 
exchanges can occur between funds in different complexes. In either case, exchanges often are 
processed as a single transaction so that both the redemption and purchase components of the 
exchange receive same-day pricing. For exchanges involving a fixed number of shares on the 
redemption leg, the amount and number of shares of the second fund to be purchased will not be 
known until the NAV of the first fund is determined, which will be after the NAV is struck after 
4 p.m. ET. For example, if an investor submits an order to redeem 100 shares of Fund A and 
invest the redemption proceeds in Fund B, the amount of the redemption proceeds from Fund A 
is not known until Fund A determines its price for that day and, likewise, the purchase amount 
for Fund B is not known until that time.
230
 Under our proposed rules, this exchange transaction 
230
 See supra section II.B.3 (discussing how a fund whose shares are purchased in an exchange 
transaction can estimate the size of the inflow for purposes of the proposed swing pricing 
requirement). 
132

would qualify as an eligible order so that these contemporaneous transactions may continue to 
occur. 
To receive that day’s price, a designated party must receive the eligible order before the 
pricing time.
231
 The fund’s designated transfer agent is a registered transfer agent that is 
designated in the fund’s registration statement filed with the Commission.
232
 Currently, NSCC is 
the only registered clearing agency for fund shares, which operates its Fund/SERV service for 
processing fund transactions. The proposed rule would specify that eligible orders are 
irrevocable as of the next pricing time after a designated party receives the order. The proposed 
requirement of irrevocability of an eligible order is designed to prevent the cancellation or 
modification of orders by investors or intermediaries after the pricing time applicable to the 
order.
233
 Preventing the cancellation or modifications of orders after the pricing time would help 
avoid continuing adjustments to the investor flow information that a fund uses to make swing 
pricing decisions. In addition, the alteration or cancellation of fund orders after the pricing time 
may be used as a means to facilitate late trading as fund investors may become aware of new 
market information after the order has been submitted and after the pricing time. We request 
comment on the proposed approach to implementing the hard close requirement, including:
100.Should we make any changes to the definitions included in the proposed rule? Is 
the definition of “eligible order” clear and understandable? Is the definition of 
231
 Although orders would have to be received by Fund/SERV or the designated transfer agent by 4 
p.m. ET to ensure same-day pricing, the clearing agency and designated transfer agent each may 
complete its processing after the pricing time.
232
 See proposed rule 22c-1(d). The term “transfer agent” has the same meaning as in section 3(a)
(25) of the Exchange Act [15 U.S.C. 78c(a)(25)] and does not include underlying or sub-transfer 
agents. A fund may designate more than one transfer agent in its registration statement.
233
 The irrevocability of an order does not prevent a fund from rejecting an order and does not affect
the ability of a fund to maintain policies and procedures for correcting bona fide errors. 
133

“designated transfer agent” clear and understandable? Is the definition of “pricing 
time” clear and understandable”? Are there other terms we should define?
101.Should the proposed hard close requirement permit exchanges, as proposed? If 
not, what goals of the proposed hard close requirement would be supported by no 
longer permitting exchanges?
102.Should the definition of “eligible order” require orders to be irrevocable as of the 
pricing time, as proposed? Should funds be permitted to correct bona fide errors 
under a hard close, as proposed? If not, how should errors be resolved? Are there 
other reasons why an eligible order should not be considered irrevocable as of the 
pricing time? 
103.Should the definition of “eligible order” include directions to purchase or redeem 
a specific percentage of fund shares in an account or a specific percentage of an 
account’s value? 
104.To what extent do designated parties already time stamp orders based on the time 
of receipt? Should we include new requirements for each designated party to time 
stamp order information for purposes of the hard close requirement? 
105.Should we include funds, designated transfer agents, and registered clearing 
agencies as designated parties, as proposed? Would allowing registered clearing 
agencies to receive eligible orders for purposes of the hard close delay the ability of 
the fund’s swing pricing administrator to assess investor flow information to make 
swing pricing decisions? If so, how long would this delay be?
106.Beyond the proposed designated parties, are there other parties involved in 
processing order information that should be eligible to receive eligible orders before 
134

the pricing time so that orders may receive that day’s NAV? For example, should a 
fund’s principal underwriter qualify as a designated party and, if so, why? To what 
extent do direct investors or intermediaries today place orders with a fund’s principal 
underwriter or directly with the fund’s transfer agent? 
107.Should we limit the proposed hard close requirement to funds that must 
implement swing pricing under the amendments to rule 22c-1, as proposed? 
108.The proposed amendments to rule 22c-1 would establish different requirements 
for money market funds, transactions by authorized participants with ETFs, and unit 
investment trusts than for all other open-end funds, which would be required to 
implement a hard close. Would investors, funds, or intermediaries be confused by the 
different pricing requirements that would be created by the proposed amendments to 
rule 22c-1? If so, what confusion would be created? What party to a transaction 
would bear that confusion? Would additional burdens be created by having different 
pricing requirements under proposed rule 22c-1 for these different types of registered 
investment companies? 
3.Effects on Order Processing, Intermediaries and Investors, and 
Certain Transaction Types
The proposed hard close would require changes to current order processing practices. 
Although modernizing these practices is intended to reduce operational risk and enhance 
resilience, in addition to the benefits related to swing pricing and helping deter late trading, we 
recognize these changes would also involve costs.
234
 
234
 See infra section III.C.3 discussing the estimated costs of the hard close proposal on funds, 
designated parties, intermediaries, and investors.  
135

a.Order Processing Improvements
The system updates that would support the implementation of a hard close may provide 
additional benefits by requiring modernization of how orders are processed. Today, some 
intermediaries net their customers’ purchase and redemption orders in a given fund against each 
other, meaning that an intermediary combines and offsets the value of purchase and redemption 
activity across multiple customer accounts. Instead of netting purchases and redemptions 
together, some other intermediaries maintain separation between purchase orders and redemption
orders. After aggregating customers’ orders, intermediaries then submit orders in one or more 
batches, with most orders submitted to the designated party after 4 p.m. ET. As a result of the 
proposed hard close requirement, some intermediaries may opt to discontinue infrequent or even 
once-a-day batch processes for submitting orders and instead adopt more frequent batch 
processing approaches that result in more frequent order submission throughout the business day.
Some intermediaries may even elect to utilize message-based communications for order flow, in 
which orders are submitted on a near-real-time basis.
235
 We understand based on industry 
outreach that some intermediaries currently do not submit orders throughout the day to facilitate 
customers’ ability to cancel or correct orders intra-day, before the orders are submitted to a 
designated party. If intermediaries continue to provide this capability to customers under a hard 
close, they would likely either: (1) need to develop a process with designated parties for 
cancelling and correcting orders submitted to a designated party before the pricing time (as 
eligible orders are irrevocable under the proposal as of the pricing time, but not before); or (2) 
235
 Intermediaries that take advantage of netting likely would be unable to eliminate batch 
processing altogether since netting necessitates definition of a period over which trades are netted
and a process that collects eligible customer orders and nets them together into a single order for 
submission to a fund. Message-based communication is less likely to be implemented when 
netting is utilized.
136

submit orders to a designated party relatively close in time to the pricing time, instead of 
throughout the day. 
If an intermediary submits orders more often or earlier in the day, it would be less 
vulnerable to an intra-day disruption within its own operational environment. Orders that have 
been submitted prior to a disruption are able to be accepted and acknowledged by a fund, even if 
the intermediary experiences delays in its own processing. This improves the intermediary’s 
operational resilience, since some operational activities on which the intermediary is dependent 
will be able to continue. Similarly, earlier order submission should also result in earlier 
confirmations from the fund.
236
 As such, the chances increase for an intermediary to submit an 
order and receive a confirmation even if the fund’s transfer agent has a disruption later in the 
day. This reduces an intermediary’s vulnerability to disruptions in others’ operational processing,
further improving the intermediary’s operational resilience. Collectively, as all intermediaries, 
funds, and fund transfer agents process orders more frequently, operational resilience across all 
market participants improves.
237
The proposed hard close would also eliminate cancellations and corrections that are 
submitted after the pricing time. As a result, an investor or intermediary would bear the cost, if 
any, of the errors leading to a cancel or correct order. We believe it would be unfair for a fund’s 
shareholders to bear the cost of an error in this case, as the investor or intermediary was the 
cause of that error. For errors that were the intermediary’s responsibility, the intermediary should
236
 The term “confirmation,” for the purposes of this release, unless otherwise indicated, refers to 
the process by which a fund accepts a purchase or redemption order. The confirmation process 
discussed in this section is different from the confirmations required by 17 CFR 240.10b-10 
(Exchange Act rule 10b-10). Confirmations under rule 10b-10 require broker-dealers to provide 
specific disclosures in writing to customers at or before the completion of a transaction. See rule 
10b-10 under the Exchange Act.
237
 See infra section II.C.3.b for additional complexity and possible points of failure in current order 
processing practices. 
137

be solely accountable for correcting the error and, if necessary, compensating the investor. We 
understand that currently some intermediaries and funds have complex processes for posting 
cancellations and corrections, including processes for funds to bill intermediaries for errors. 
In addition, the proposed hard close requirement would improve the confirmation process
for funds. The confirmation process helps ensure the accuracy of the trade that will be settled. 
Until the fund provides a confirmation, an intermediary does not know whether the order will be 
accepted or rejected. Under current practice, we understand that because of the delay in 
intermediaries submitting orders, funds likewise issue order confirmations on a delayed basis. 
When an intermediary must submit all orders by a certain time under the hard close proposal, 
funds would be able to issue confirmations to intermediaries earlier. We believe that timelier 
confirmations by funds would support the reduction of operational risks and improve market 
resiliency by providing certainty to intermediaries and investors about whether orders are 
accepted or rejected at an earlier point in the process, meaning they have more time to work 
toward settlement of the trade or determine how to manage a rejected order.
238
 Further, 
intermediaries similarly may be able to issue trade confirmations required by rule 10b-10 of the 
Exchange Act to their customers on a timelier basis, although an intermediary will need to wait 
until the price is published before it can calculate the net money or number of shares to issue the 
trade confirmation to its customer. Requiring a hard close may also facilitate settlement 
modernization. Many funds settle purchases and redemptions on a T+1 basis, and the proposed 
hard close could help improve the settlement process by providing complete information about 
eligible orders on the trade date. 
238
 An order may be rejected for a variety of reasons including, among others, the intermediary is 
not set up to transact with a particular fund, an order to sell is for more than the number of shares 
held, or an order to purchase is less than the fund’s investment minimum. 
138

In addition, providing funds with more timely and accurate information about the fund’s 
daily flows under the proposed hard close would allow funds to make portfolio and risk 
management decisions based on more complete and accurate flow information than is available 
under current practices. Currently, some funds may rely on projected flows when making 
investment decisions, though these projections may be unreliable because of orders that the fund 
does not receive until the next day, including cancellations and corrections. Other funds may 
instead rely on flow information posted at the custodian because of its accuracy, but this 
information is delayed. For example, for a fund that settles on T+1, the custodian often will post 
the flow at the end of the day on T+1, which may not be visible to the portfolio manager until the
morning of T+2. With a hard close, however, flow information should be available from the 
transfer agent on the night of the trade date. In addition, by eliminating the possibility that the 
fund could receive additional orders after the pricing time, including cancellations and 
corrections, the data available that night would be more reliable. Similarly, a fund managing its 
risk would be able to do so more effectively by having access to accurate flow data more 
quickly. Ultimately, the proposed hard close requirement is designed to further the 
Commission’s mission to protect investors and reduce risk by improving the timeliness of order 
flow information communicated to the fund.  
b.Effects on Intermediaries
The proposed amendments would require changes in the ways funds and intermediaries 
process fund purchase and redemption orders. As discussed above, intermediaries generally 
submit aggregated and, in some cases netted, orders in one or more batches, often after 4 p.m. 
ET. Some intermediaries submit orders directly to the fund’s transfer agent or to Fund/SERV, 
while some intermediaries rely on other intermediaries, such as clearing brokers or retirement 
139

platforms, to submit orders to the transfer agent or Fund/SERV. In addition, some 
intermediaries’ systems do not initiate batch processing until a fund’s final NAV is received or 
until final NAVs are received for all funds offered on their platforms. 
In response to the proposed hard close requirement, funds and intermediaries would need 
to make significant changes to their business practices, including updating their computer 
systems, altering their batch processes, or integrating new technologies that facilitate faster order
submission. Intermediaries would need to reengineer their systems to ensure disseminated order 
information reaches the transfer agent or Fund/SERV before 4 p.m., unless they determine to 
process fund orders at the next day’s price as a matter of practice.
239
 For intermediaries with 
reliance on “downstream” intermediaries, coordination in the timing of order communication 
will be essential to ensure orders reach the fund, transfer agent, or registered clearing agency 
prior to the deadline. In addition, Fund/SERV may need to run more batch cycles in the period 
leading up to 4 p.m. than it does today, as currently batch cycles run into the evening and 
overnight to receive and process orders from intermediaries. 
We understand that retirement plan recordkeepers may face particular challenges with 
adhering to the proposed hard close requirement.
240
 Retirement plan recordkeepers may employ a
method of order processing that relies on receiving the current day’s NAV before submitting 
orders. Funds do not typically receive the order flow information for transactions from retirement
239
 While the proposed hard close requirement would require intermediaries to transmit eligible 
orders before 4 p.m. ET, intermediaries would still be able to process orders after 4 p.m. for 
purposes of execution and settlement, as they currently do today. For example, after receiving the
NAV the intermediary would then be able to determine the net money to be paid to the investor 
or to be collected.  
240
 See Comment Letter of The Principal Financial Group on 2003 Hard Close Proposing Release, 
File No. S7-27-03 and Comment Letter of ASPA on 2003 Hard Close Proposing Release, File 
No. S7-27-03. The comment file for the 2003 Hard Close Proposing Release, where these 
comment letters can be accessed, is available at 
https://www.sec.gov/rules/proposed/s72703.shtml.
140

plan recordkeepers until well after the day’s NAV has been calculated. These order flows are 
delayed, we understand, due to the calculations that the retirement plan recordkeepers complete 
under plan rules as well as to legacy systems that require the final NAV before finalizing the 
order. For retirement plan recordkeepers, we understand that current recordkeeping systems 
require that day’s NAV before the participant’s plan instructions may be applied to the 
participant’s order. Once the order has been processed through the investment instructions 
specific to the participant’s plan, it can be placed for execution. In addition, retirement plan 
recordkeepers may perform compliance and other checks on orders before finalizing the orders 
for submission post-NAV strike. 
We understand that the time it currently takes between when some retirement plan 
recordkeepers begin to process their orders and when the order is finally submitted to the fund 
can take upward of six hours due to the limitations of their current processing systems and 
hardware. We believe that retirement plan recordkeepers would need to substantially update or 
alter their processes and systems to accommodate the proposed hard close requirement to submit 
orders more quickly. In the event compliance and other checks are required, plans may need to 
utilize the prior day’s NAV to estimate the share or dollar size of an order for those orders to 
receive same day pricing. 
c.Intermediary Cut-Off Times
To help ensure that order flow information is provided to a designated party before the 
established pricing time, the proposed rule would likely cause some intermediaries to set their 
own internal cut-off time for receiving orders to purchase or redeem fund shares that is earlier 
than the pricing time established by the fund. Intermediaries may use earlier cut-off times to 
provide time to transmit order flow information to a designated party so those orders receive that 
141

day’s price. Investors, therefore, depending on the entity through which an investor is transacting
(e.g., a broker-dealer, retirement plan recordkeeper, or the fund’s transfer agent), may have 
different deadlines for the same fund for submission of orders to receive that day’s price. For 
example, an investor submitting an order to a fund’s transfer agent might have until 3:59 p.m. ET
to submit its order, while an investor submitting an order to an introducing broker would likely 
have to submit its order earlier to provide enough time for the introducing broker to send the 
order to the clearing broker and for the clearing broker to send it to the transfer agent or to 
Fund/SERV. 
Investors transacting through intermediaries may lose some flexibility in when they may 
submit orders through an intermediary to receive that day’s price as intermediaries may institute 
earlier cut-off times. Because technology has advanced since the Commission last considered a 
hard close in 2003, we generally do not believe, however, that intermediaries would need to 
establish cut-off times significantly earlier than the pricing time set by the fund. We recognize, 
however, that layered cut-off times may occur when an intermediary uses one or more tiers of 
other intermediaries to submit orders, and that cut-off times generally would be earlier for 
investors submitting orders to lower-tier intermediaries. We also recognize that intermediaries 
that net order activity or rely on batch processing may require additional time to support such 
netting or batch activities, while those intermediaries that submit orders individually through 
message-based communications may have a higher volume of orders submitted, but a shorter 
time between order submission by an investor and order receipt by a fund, transfer agent, or 
registered clearing agency. While the proposed hard close requirement generally would cause 
intermediaries to establish earlier cut-off times, the proposed rule would not prevent an 
intermediary from transmitting orders it received after its internal deadline but before 4 p.m. ET 
142

on an individual basis to the fund’s transfer agent or to Fund/SERV in order to receive that day’s 
price.
d.Effects on Certain Transaction Types
We recognize that the proposed hard close requirement could extend completion times 
for certain types of transactions, where the specific number or value of fund shares to be 
purchased or redeemed is unknown until that day’s price is available. For example, under certain 
retirement plan rules, certain transactions, such as plan loans or withdrawals, currently remain 
incomplete until all fund positions in the investor’s accounts are valued using that day’s prices. 
Specifically, some plan provisions specify a hierarchy for drawing from different investments to 
accommodate participant loan or withdrawal requests. As an example, the plan may require the 
sale of shares in Fund A to pay the loan or withdrawal before the sale of shares in Fund B. In this
case, until that day’s final price for Fund A shares is available, the retirement plan recordkeeper 
may not know if the value of the participant’s investment in Fund A is sufficient to pay the loan 
or withdrawal amount on its own, or if satisfying the loan or withdrawal request in full will also 
require redemptions from Fund B. 
Under the hard close proposal, although plans would not be required to change their rules
governing these kinds of transactions, transaction requests that are subject to hierarchy rules may
take one or more additional days to complete than they would currently. This is because the 
retirement plan recordkeeper would no longer be able to wait until final prices are available 
before calculating and submitting one or more redemption orders to satisfy the requested plan 
transaction. In the above example, this would mean that the recordkeeper would likely submit an 
order to redeem shares of Fund A on the first day and may submit an order to redeem shares of 
Fund B on a subsequent day if the loan or withdrawal is not fully funded. We understand that 
143

these transactions typically are a small percentage of overall retirement plan flows and that plan 
participants generally do not receive immediate execution of loan or withdrawal requests 
today.
241
 Thus, we believe the aggregate effect of the proposed hard close requirement on such 
transactions would not be significant.
 
As another example, the proposed hard close requirement could extend the period of time
for executing an investor’s request to rebalance its holdings to a target asset allocation or model 
portfolio. We understand that currently these requests may be facilitated by first valuing the 
investor’s existing positions, based on final prices for that day, and then submitting orders that 
would result in the desired allocation. The proposed rule would not permit these orders to receive
same-day pricing if they are submitted after the pricing time, and therefore may require the 
intermediary to achieve the desired rebalancing through a series of orders over more than one 
day or to rebalance using prices from the prior day. In addition, the proposed hard close might 
affect current order processing for funds of funds. We understand that a lower-tier fund in a fund 
of funds structure may not receive purchase or redemption orders from upper-tier funds until 
well after 4 p.m. Under the proposed rule, the lower-tier fund (or another designated party) 
would have to receive an upper-tier fund’s orders to purchase or redeem the lower-tier fund’s 
shares before the lower-tier fund’s pricing time to receive that day’s price for the orders. 
e.Effects on Investors
The extent to which the hard close proposal would affect investors largely depends on the
value investors place on their ability to obtain same-day pricing for orders initiated in the period 
241
 For example, according to one source, in 2021, 4.1% of defined contribution plan participants 
took withdrawals, and at the end of Dec. 2021, 12.5% of participants of plan participants had 
loans outstanding. See ICI Research Report, Defined Contribution Plan Participants’ Activities, 
2021 (Apr. 2022), available at https://www.ici.org/system/files/2022-04/21_rpt_recsurveyq4.pdf.
144

immediately before 4 p.m. ET or on the complex transaction types discussed above.
242
 Most fund
shareholders are long-term investors, and thus we believe that most fund orders are not time 
sensitive. In addition, because of advances in technology, it seems likely that intermediaries 
would set cut-off times that are only incrementally earlier than current cut-off times. As a result, 
it seems likely that many investors would experience a significant change in when they must 
submit their orders to intermediaries. For those investors who place a premium on being able to 
place orders up until 3:59 p.m. ET, they generally could place orders with the fund’s transfer 
agent to retain this option.
243
 While we understand that investors may experience a change in 
how late they may transact through intermediaries that set earlier cut-off times as a result of our 
proposed rule, overall the proposal is intended to better protect shareholders’ interests by 
operationalizing swing pricing to combat shareholder dilution and enhancing fund resiliency. We
request comment on the effects of the proposed hard close on order processing, intermediaries 
and investors, and on different transaction types:
109.Should we require funds to implement the proposed hard close requirement? Are 
there alternatives to the proposed hard close requirement that we should implement? 
Would the proposed hard close requirement help funds operationalize swing pricing? 
Would the proposed hard close requirement help prevent late trading? Are the 
Commission’s efforts to modernize fund order processing supported by the proposed 
hard close requirement? 
242
 Rule 22c-1 already affects investors differently based on the time zone in which the investor 
lives. Investors located in time zones other than the eastern time zone are subject to different cut-
off times today. For example, 4 p.m. ET is 10 a.m. Hawaii time, meaning that an investor in 
Hawaii has to submit its order before 10 a.m. to receive that day’s NAV if the fund’s pricing time
is 4 p.m. ET.
243
 See infra section III.C.3 discussing that some investors may be affected by the proposed hard 
close requirement if they desire to transact later in the day in response to market events and are 
limited in their ability to change intermediaries or place orders with the fund’s transfer agent. 
145

110.What steps would intermediaries be required to take to operationalize the 
proposed hard close requirement? Are there operational impediments to funds 
implementing the proposed hard close requirement? Are there operational 
impediments for intermediaries, transfer agents, and/or registered clearing agencies in
implementing the proposed hard close requirement? Are there other operational 
changes that would be helpful to operationalize swing pricing?
111.Would retirement plan providers need to make changes to plan rules in order to 
accommodate compliance with a hard close? Are plan rules able to be altered for 
plans that are currently owned, or would alterations only be feasible on a going 
forward basis? If a change in plan rules would be necessary, how would plan rules 
need to be altered? How would plan participants be affected by changes to plan rules?
112.Would the proposed rule affect intermediaries’ ability to net order flow? Would 
intermediaries move to message-based communications, where orders are transmitted 
to the transfer agent or registered clearing agency as they are received, in response to 
the proposed hard close requirement?
113.Would elimination of cancellations and corrections that designated parties 
currently may receive after the pricing time streamline processing and reduce costs 
for funds and/or designated parties and, if so, by how much? Would costs for 
investors be affected by the elimination of these cancellations and corrections?  
114.Should there be any exceptions from the proposed hard close requirement for 
exigencies or types of parties? For example, should there be exceptions for certain 
scenarios (e.g., emergencies), fund types (e.g., funds of funds), or intermediaries (e.g.,
retirement plan recordkeepers)? If so, what should be the parameters of such 
146

exceptions? For example, should we permit investor orders to receive same-day 
pricing treatment as the result of an emergency, if the intermediary is unable to send 
orders or a designated transfer agent or clearing agency is unable to receive orders? 
Should an emergency exception be conditioned on the board or the chief executive 
officer of the intermediary, transfer agent, or clearing agency certifying to the nature 
and duration of the emergency and, in the case of an intermediary, that the 
intermediary received the orders before the applicable pricing time? Should we 
permit conduit funds, which invest all their assets in another fund and must calculate 
their NAV on the basis of the other fund’s NAV, and which include master-feeder 
funds and insurance company separate accounts, to receive same-day pricing? Should
we provide an exception to permit certain intermediaries, such as retirement plan 
recordkeepers, to receive same-day pricing for the orders they submit, even if not 
received by a designated party before the pricing time, as long as the relevant 
intermediary received the orders before the pricing time? Should there be other 
conditions associated with such an exception, such as a requirement to provide 
advance notice of certain flow information to the fund or another designated party?
115.Should we provide an exception from the proposed hard close requirement for 
certain transaction types (e.g., retirement plan loans or withdrawals or certain 
rebalancing transactions)? Should we amend the definition of eligible order to include
these or other transaction types? If so, what information should we require the 
intermediary to supply to a designated party before the pricing time to qualify for 
same-day pricing? Should retirement plan recordkeepers or other intermediaries be 
permitted to estimate order flow information for specific transaction types, like loans 
147

or withdrawals? Would the estimates be prepared using the prior day’s price, or 
through some other method? 
116.If exceptions to the hard close were permitted, how would that affect the proposed
swing pricing requirement?
117.Would the proposed hard close requirement help retirement plan recordkeepers to 
reduce their batch processing cycles and, if so, how?
118.Should the rule permit a fund or other designated party to impose a cut-off for 
orders received before that day’s NAV computation? For example, if the time for an 
order to receive that day’s NAV is 4 p.m. ET, should the fund be permitted to impose 
an earlier time of day, say 2 p.m. ET, as an earlier cut-off time to receive orders? 
Would the ability to disconnect the cut-off time for receiving orders from the pricing 
time help facilitate swing pricing by providing additional time to calculate the swing 
factor? 
119.If different funds adopted different cut-off times for receipt of orders pursuant to 
rule 22c-1, would intermediaries and transaction processing systems be able to 
accommodate such differences on a fund specific basis? How would different cut-off 
times affect investors? Would it be confusing or challenging for investors if there 
were variation among funds’ cut-off times?
120.If most funds continue to calculate their NAVs as of 4 p.m. ET and, as proposed, 
funds are required to implement swing pricing and are subject to a hard close, would 
funds have sufficient time between 4 p.m. ET and when they publish their prices to 
assess their flow information and apply the proposed swing pricing requirement, 
including determination of a swing factor, as applicable? If not, how might funds 
148

adjust their practices to provide more time to make swing pricing determinations? For
example, would funds publish their prices later than they typically do, which is 
currently several hours after the pricing time?
244
 Are there any changes we could 
make to facilitate later publication of prices, if needed? As another example, would 
funds begin to calculate their NAVs as of an earlier time than 4 p.m. ET? What affect,
if any, would such a change have on transaction processing and the valuation of the 
fund’s investments?
121.How would the proposed hard close requirement affect investors? For example, 
what percentage of investors place orders shortly before 4 p.m., and how important is 
it for those investors to receive that day’s price as opposed to the next day’s price? 
When intermediaries establish their own cut-off times by which customers must place
orders to receive that day’s price, would these cut-off times be close to 4 p.m. ET as a
result of competition among intermediaries and customer demand? Are intermediaries
able to accelerate the time between receiving an order and relaying that order to a 
designated party compared to current practice? Would it be confusing or challenging 
for investors if there were variation among intermediaries’ cut-off times? Are there 
circumstances in which intermediaries would transmit orders received after their 
internal cut-off times and before 4 p.m. ET to a fund’s transfer agent or to 
Fund/SERV individually to receive same-day pricing? Would this increase the risk of 
errors or otherwise be burdensome on funds or intermediaries? 
122.Should the rule initially require that funds receive order flow information by a 
time that is after the pricing time in order to “phase in” the proposed hard close 
244
 See infra section III.C.2.a (discussing the potential effects on intermediaries and other market 
participants if funds were to publish their prices later than they currently do).
149

requirement? For example, instead of requiring a designated party to receive all of a 
fund’s order flow information by 4 p.m. ET each day, should we initially require 
receipt of order flow information by the designated party one to two hours after the 
pricing time with the goal of eventually moving the time of receipt to before the 
pricing time? Would a delayed phase in of the proposed hard close requirement be 
compatible with the proposed swing pricing requirement? If so, how would a fund 
determine whether to swing its NAV if it does not have all of its order flow 
information until after the pricing time? 
123.We understand that intermediaries currently may adjust trade amounts to account 
for commissions or other fees. Would the proposed hard close requirement affect how
these adjustments are made? If so, should we make any changes to the proposed 
approach to better accommodate such adjustments?
124.Would earlier confirmations from a fund to an intermediary reduce an 
intermediary’s vulnerability to disruptions? Would intermediaries process orders 
more frequently under a hard close? If so, would more frequent order processing 
increase the resiliency of funds and transfer agents? If not, why not? 
125.Would intermediaries need to set earlier cut-off times than is the current practice 
for investors in order to get orders to a designated party before the pricing time? If so,
how early? How much time do intermediaries need to process order flow 
information?
126.Should the rule require that funds set a uniform cut-off time for orders to be 
received by intermediaries? If the rule requires a uniform cut-off time, should we also
require that a fund disclose the cut-off time, such as in the fund’s prospectus? Would 
150

funds, collectively, establish consistent cut-off times for these purposes, or would 
intermediaries need to manage different fund-specific cut-off times? 
127.Some intermediaries may establish earlier cut-off times in order to accommodate 
a hard close. Would investors that want to make an order up until 3:59 p.m. place 
orders with a fund’s transfer agent instead of with an intermediary to preserve this 
flexibility? Are there limitations on certain investors’ abilities to place orders with the
transfer agent instead of through an intermediary?
128.Would some intermediaries choose to no longer distribute open-end funds that 
would be subject to the hard close requirement in order to avoid compliance costs? In 
addition, would retirement plan providers be more likely to replace mutual funds as 
plan investment options with ETFs or CITs? If so, how would this affect investors?
4.Other Proposed Amendments to Rule 22c-1
The proposed amendments would retain the requirements of the current rule concerning 
the frequency and time of determining the NAV, but would reorganize and reword those 
provisions.
245
 The proposed amendment would use the phrase “based on the current net asset 
value of such security established for the next pricing time,” as opposed to “based on the current 
net asset value of such security which is next computed” in the current rule. While its substance 
is already required, this amendment would codify in the rule text that orders received after the 
pricing time, but before calculation of the NAV is complete, do not receive same-day pricing.
246
 
We also propose to reorganize certain other provisions of rule 22c-1, including the existing 
245
 See rule 22c-1(a), (b)(1), and (d); proposed rule 22c-1(a).
246
 See 2003 Hard Close Proposing Release, supra note 224, at n.26.
151

exceptions to the rule’s forward pricing requirement.
247
 In addition, we propose to revise certain 
terminology in the rule.
248
We are also proposing to remove the provision from rule 22c-1 that would allow funds 
not to calculate their current NAV on days in which changes in the value of the fund’s securities 
will not materially affect the current NAV. We believe this provision is no longer necessary 
because a fund generally would need to determine its current NAV in the first instance before it 
could conclude with certainty that changes in the value of the fund’s securities would not 
materially affect the fund’s current NAV.  
We request comment on the other proposed amendments to rule 22c-1, including:
129.Are our proposed amendments to provide that orders received after the pricing 
time, but before calculation of the NAV is complete, do not receive same-day pricing 
sufficiently clear?
130.Should we retain the current provision in rule 22c-1 that allows a fund not to 
calculate its NAV on days when the changes in the value of the fund’s portfolio 
securities do not materially affect the current NAV? If so, how would this affect the 
ability of a fund to implement swing pricing? Do any funds rely on this provision 
today? If so, what are the scenarios in which a fund relies on this provision? How are 
changes in the value of the fund’s securities determined if the fund is not valuing the 
underlying securities and computing the NAV on a daily basis?  
247
 See rule 22c-1(a)(1), (a)(2), and (c); proposed rule 22c-1. 
248
 For example, we propose to replace references to “orders” in the current rule with references to 
“directions” to purchase or redeem, which is intended to distinguish between the concept of 
eligible orders that we propose to add for purposes of the proposed hard close requirement and 
directions to purchase or redeem shares of other registered open-end investment companies that 
are not subject to the proposed hard close requirement. As another example, we propose to 
incorporate the term “pricing time” into provisions of the rule that are not specific to the hard 
close requirement for cohesion of the rule.
152

5.Amendments to Form N-1A
Open-end funds use Form N-1A to register under the Investment Company Act and to 
register offerings of their securities under the Securities Act. Item 11 of Form N-1A requires a 
fund to describe how it prices its shares. Item 11(a) specifically requires that funds state when 
they calculate the NAV and that the price at which a purchase or redemption is effected is based 
on the next NAV calculation after the order is placed. We are proposing to amend this disclosure 
to also require, if applicable, that funds disclose that if an investor places an order with a 
financial intermediary, the financial intermediary may require the investor to submit its order 
earlier than the fund’s pricing time to receive the next calculated NAV. As discussed above, 
intermediaries may set different times by which investors must have their purchase or 
redemption orders in place to receive that day’s price. We believe that this proposed disclosure is
important so that investors may understand the potential variability in the time by which 
intermediaries may require an order to be placed to receive a particular day’s price. 
We request comment on the proposed amendments to Form N-1A, including: 
131.Would the proposed requirement for funds to disclose in their prospectuses that 
orders placed with intermediaries may need to be submitted earlier to receive that 
day’s price be helpful to investors? 
132.In addition to the proposed disclosure requirements, are there additional 
disclosures relating to the proposed hard close requirement that we should require? 
Should funds be required to disclose the cut-off times of their intermediaries in their 
distribution network? If so, where should this disclosure be located (e.g., in the fund’s
registration statement or on its website)? What potential challenges, if any, would a 
fund encounter in providing an up-to-date list of intermediary cut-off times?
153

D.Alternatives to Swing Pricing and a Hard Close Requirement
1.Alternatives to Swing Pricing 
In lieu of the proposed swing pricing requirement, we have also considered whether there
are alternative methods by which we could require funds to pass on costs stemming from 
shareholder purchase or redemption activity to the shareholders engaged in that activity. These 
alternatives could be used independently or in combination with each other. Some of these 
alternatives would be dependent on investor flow information, similar to the proposed swing 
pricing requirement. In those cases, an alternative could be paired with either a hard close 
requirement or one of the alternatives to the hard close that we discuss below. 
a.Liquidity Fees
One alternative we considered is a framework that would apply a charge in the form of a 
liquidity fee rather than an adjustment to the fund’s price.
249
 A liquidity fee would apply as a 
separate charge to a transacting investor and would not change the fund’s price. A liquidity fee 
could be used to impose liquidity costs on purchasing or redeeming investors and address 
dilution, much like a swing pricing-related price adjustment. We recognize that a liquidity fee 
framework could have certain advantages over a swing pricing requirement. For example, 
liquidity fees provide greater transparency for redeeming or purchasing investors of the liquidity 
costs they are incurring. Liquidity fees also provide a mechanism for imposing liquidity costs 
directly on purchasing or redeeming investors, without adjusting the transaction price for 
249
 Although certain U.S. funds may use liquidity fees for redemptions, they are rarely used to 
address dilution, other than in the case of short-term trading of fund shares. See rule 22c-2 under 
the Act. The use of redemption fees and anti-dilution levies in Europe varies to some extent by 
jurisdiction. For example, Irish-domiciled funds are more likely to have adopted anti-dilution 
levies than Luxembourg-domiciled funds. Overall, however, we understand that swing pricing 
was more widely used by European fund complexes in Mar. 2020 than redemption fees or anti-
dilution levies. See ICI, Experiences of European Markets, UCITS, and European ETFs During 
the COVID-19 Crisis (Dec. 2020), available at https://www.ici.org/doc-server/pdf
%3A20_rpt_covid4.pdf.
154

investors who are trading in the other direction.
250
 In addition, some funds and their 
intermediaries are currently equipped to apply certain purchase and/or redemption fees.
251
 
However, the proposed swing pricing requirement may have several advantages over 
liquidity fees for relevant open-end funds. With swing pricing, a fund can pass liquidity costs on 
to redeeming or purchasing investors in a fair and equal manner, without any reliance on 
intermediaries to achieve fair and equal application of costs. Liquidity fees may require more 
coordination with a fund’s intermediaries than swing pricing because fees need to be imposed on
a transaction-by-transaction basis by each intermediary involved—which may be difficult with 
respect to omnibus accounts that intermediaries may create to aggregate all customer activity and
holdings in a fund.
252
 Funds and their transfer agents may contract with intermediaries to have 
them impose liquidity fees under these circumstances, which may include a review of contractual
arrangements with fund intermediaries and service providers to determine whether any 
contractual modifications are necessary or advisable to ensure that liquidity fees are 
appropriately applied to beneficial owners of fund shares. While we could require intermediaries 
to submit purchase and redemption orders separately to transact in a fund’s shares, which could 
250
 For instance, on a day the fund has net redemptions, swing pricing adjusts a fund’s NAV 
downward, and investors who purchase the fund’s shares that day buy at a discount. On a day 
when a fund has net purchases, swing pricing adjusts a fund’s NAV upward, and investors who 
sell the fund’s shares that day sell at a premium. Swing pricing must account for these discounts 
or premiums that other investors are receiving to fully address dilution.
251
 For example, some funds impose redemption fees under rule 22c-2 under the Investment 
Company Act. See supra note 67 for a discussion of how many funds we estimate apply 
redemption fees. 
252
 See infra section III.E.2 (noting certain omnibus accounting practices that may make a liquidity 
fee operationally difficult). Swing pricing, on the other hand, would require some funds and 
intermediaries to create new systems and operational procedures, but once those are in place, 
swing pricing would be incorporated in the process by which a fund strikes its NAV and sets the 
transaction price (including any swing of the NAV). Intermediaries would then effect customer 
transactions at the transaction price, as they do today, without further operational changes or 
coordination with the fund. 
155

allow funds and their transfer agents to apply fees directly, this type of requirement would also 
involve some operational costs. Requiring intermediaries to submit purchase and redemption 
orders separately would require operational changes for some intermediaries because they would 
no longer be able to net otherwise offsetting customer purchases and redemptions.
253
 In addition, 
the volume of transactions that transfer agents and Fund/SERV process would increase if netting 
were not permitted. Further, unlike swing pricing, the amount collected from a liquidity fee is not
available to the fund for a period of time until the intermediary remits to the fund the amount 
charged.
254
 If the fund is under stress, the unavailability of the amount collected from fees might 
cause the fund to incur other costs it might not have otherwise incurred, such as costs associated 
with selling investments to pay redemptions when the fee amount, if remitted, would have helped
the fund pay those redemptions. 
There are many potential variations of a liquidity fee framework. The trigger for applying
fees could be based on net flows, similar to swing pricing, or other indicators that a fund’s 
trading costs are increasing (e.g., widening spreads or reduced liquidity of the fund’s portfolio 
investments). Alternatively, a fee could apply to all trades of a given type (for example, all 
redemption orders). When a fee applies, the determination of the size of the liquidity fee could be
either dynamic to reflect changing costs or simplified to remain relatively static. As for how the 
fee is processed, it could be applied to the purchase or sale or could be processed separately from
the trade. 
253
 See supra section II.C.3.a (discussing that some intermediaries currently net orders, while others 
separately submit purchase and redemption orders). 
254
 While money collected from the fee would not be available to the fund until the intermediary 
remits payment, we understand that a fund would reflect the fee amount it is owed as an accrual 
until the fund receives the fee payment. The accrual would help prevent declines in the fund’s 
NAV that would otherwise result from any delay in remittal. Proper booking of the accrual 
would, however, require the intermediary to inform the fund of the fee amount on an accurate and
timely basis.
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As an example, similar to the proposed swing pricing requirement, a dynamic liquidity 
fee could be calculated to reflect certain costs (e.g., spread, other transaction costs, and market 
impact) a fund is likely to incur to meet redemptions or invest the proceeds from subscriptions 
based on the direction and magnitude of that day’s flows. Dynamic liquidity fees that may 
change in size from one day to the next may involve greater operational complexity and cost than
swing pricing, as intermediaries would have to identify and apply different fee amounts for each 
fund in which their clients transact each day. This approach also generally would necessitate 
timely flow information if the fee were processed as part of a transaction, similar to the proposed
swing pricing requirement. If the fee were processed separately from the transaction and applied 
to an investor’s account on a delayed basis, a fund would likely have more time to receive flow 
information than under the proposed swing pricing requirement, which could avoid the need for 
a hard close or related alternatives. Delayed application of the fee, however, may raise 
complications related to collecting fee amounts from investors, particularly when an investor has 
otherwise redeemed the full amount of its holdings. Follow-on fees also significantly increase the
number of transactions to process, and may complicate reporting for custodians and advisers in 
situations where a transaction may occur in one reporting period but the fee related to the 
transaction is not applied until the next reporting period. In addition, an intermediary may face 
difficulties projecting upcoming cash balances in its client accounts if there are upcoming fees to
be charged, but the amounts of those fees are unknown. The fund itself may also have challenges
with projecting its own cash balance if it cannot predict when accrued fees will be received from 
each intermediary.
Instead of a dynamic liquidity fee, we could require a simplified liquidity fee. A 
simplified liquidity fee, for example, could be a set percentage of the transaction amount, such as
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1%. Or it could be a default fee, such as 1%, that a fund could adjust up (possibly up to a cap) or 
down as it determines is in the best interest of the fund. A simplified liquidity fee could apply to 
both purchases and redemptions, given that both purchases and redemptions can contribute to 
dilution. Under this type of approach, fees could be equivalent for both transactions, or fees 
could be higher on one side and lower on the other (for example, a purchase fee of 0.25% and a 
redemption fee of 1%). Alternatively, we could require a one-sided simplified fee that applies to 
redemptions only or to purchases only, with the premise that a fee charged on redemptions could 
also help to offset dilution that may result from purchases (or vice versa). Because all 
shareholders purchase and redeem the fund’s shares during the life of an investment, a one-sided 
fee would apply to all shareholders at some point and could help mitigate dilution that fund 
investors collectively contribute to through their purchase and redemption activity. A simplified 
liquidity fee would not necessarily require flow information. For instance, if a simplified fee 
applied only to redemptions, a set fee could apply to all redemptions or only to redemptions 
when the fund’s trading costs are significantly increasing, such as in times of stress.
255
 If the 
dependency on flow information is removed, a simplified liquidity fee likely could be processed 
as part of a transaction, avoiding the need to process a fee as a separate follow-on transaction. 
The size of a simplified liquidity fee likely would be more predictable for investors and 
intermediaries than a dynamic fee or swing pricing. This would enhance transparency and would 
likely be easier to implement. While the size of the fee generally would be known in advance, it 
may or may not be easy to predict when a fee would apply. For example, if a fee applied to all 
redemptions, then investors and intermediaries would have certainty on when fees would apply. 
However, if fees applied only in certain circumstances, such as when trading costs are materially 
255
 We discuss an alternative in which a liquidity fee would apply when a fund’s trading costs are 
significantly increasing in more detail in section II.D.3.b. 
158

increasing or the fund has experienced net redemptions over multiple consecutive days, then 
application of a fee may be more difficult to predict, particularly if a fund’s threshold for 
applying a fee is non-public or based on factors that are difficult for other market participants to 
observe or predict. An approach where it is difficult to predict when a fee would apply could 
help avoid preemptive redemptions in anticipation of fees applying in the near future, but it 
would also be less transparent. In addition, if liquidity fees are applied rarely, then application of 
a fee might be viewed as a sign that a fund is under stress, which could incentivize further 
redemptions, particularly if the fee amount is viewed as minimal.  
Between dynamic and simplified fees, a dynamic fee would better reflect the costs 
associated with fund purchases or redemptions on a given day. A simplified fee, however, would 
be less costly to implement because, among other things, it would not necessarily require a hard 
close or any alternatives to the hard close to provide actual or estimated flow information. While 
a simplified fee would be less sensitive to the fluctuating costs associated with fund purchases or 
redemptions, this fee would aid in the offset of costs stemming from purchase and redemption 
activity and could assist with the mitigation of investor dilution. 
On balance, we are proposing a swing pricing requirement because it may have 
operational advantages or be better tailored to mitigate dilution relative to liquidity fee options, 
but we request comment on using a liquidity fee framework to impose liquidity costs and 
whether a liquidity fee alternative may have fewer operational or other burdens than the 
proposed swing pricing requirement while still achieving the same overall goals of reducing 
shareholder dilution.
133.How do the operational implications of swing pricing, as proposed, differ from 
the operational implications of a dynamic liquidity fee framework (e.g., one where 
159

liquidity fees vary in size and increase during periods of stress)? What are the 
operational implications of a requirement for mutual funds to impose a liquidity fee 
that can change in size and that may need to be applied with some frequency (up to 
daily)? Are fund intermediaries equipped to apply dynamic fees on a regular basis? 
Would funds have insight into whether and how intermediaries apply these fees to 
redeeming investors?
134.If we adopt a liquidity fee framework instead of a swing pricing framework, 
should a fund be required to apply a liquidity fee under the same circumstances in 
which a fund would be required to adjust its net asset value under the proposed swing 
pricing requirement? Should a fund be required to use the same approach to 
calculating a liquidity fee as the proposed approach to calculating a swing factor? 
Should the same board oversight framework apply under this approach as the 
proposed swing pricing requirement (e.g., with the board approving the fund’s 
liquidity fee policies and procedures and designating a liquidity fee administrator, and
such administrator would report periodically to the board)?
135.Should funds be required to apply liquidity fees to all redemption or purchase 
orders, or should liquidity fees apply only upon a trigger event? If so, under what 
circumstances should a fee apply? For example, should liquidity fees apply when 
trading costs are materially increasing?
256
 Should liquidity fees apply when a fund has
had net outflows over multiple consecutive days? If so, should net outflows be of a 
certain size (e.g., 2%, 5%, or 10%) and over what period of time should net outflows 
trigger a fee (e.g., 2, 3, or 4 consecutive days)? Would this approach help mitigate 
256
 See infra section II.D.3.b. for additional discussion and requests for comment about such an 
approach.
160

dilution, or would it contribute to first-mover advantages and potentially result in 
unfair application of fees?  
136.Should a liquidity fee apply to both purchasing and redeeming investors? 
Alternatively, should a liquidity fee apply to redeeming investors only or to 
purchasing investors only? 
137.Should funds be required to maintain records related to the application of liquidity
fees? For example, should funds be required to maintain records of the dates on 
which the fund applied liquidity fees and in what amount? If application of liquidity 
fees is subject to fund or board discretion, should a fund be required to maintain 
records documenting why the fund did or did not apply liquidity fees under certain 
circumstances?
138.Should liquidity fees apply to purchase or redemption orders of a specific size 
only? If so, what size? How operationally feasible would such an approach be? 
Would it create incentives for investors to modify their order amounts in an effort to 
avoid a fee, such as by holding smaller amounts of a fund’s shares at multiple 
intermediaries or splitting up a purchase or sale order over multiple days? How 
should such an approach treat separate accounts managed by the same adviser, such 
as separate accounts managed through a wrap program? 
139.Should a liquidity fee framework have an exclusion for purchase or redemption 
orders of a de minimis amount? How should we identify an order for a de minimis 
amount? Should it be a set dollar figure (e.g., $2,500 or less), a set percentage of the 
fund’s net assets, or a set amount that would be collected from application of a fee 
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(e.g., $50 or less)? Should the amount of a de minimis exclusion be adjusted for 
inflation over time?
140.How should the amount of the liquidity fee be determined? Should the liquidity 
fee be dynamic but based only on that day’s spreads? Should it include other 
transaction costs, including market impact? Instead of a dynamic fee amount that 
could change daily, should the fee amount be based on a fund’s historical trading 
costs and evaluated periodically, such as annually, quarterly, or monthly? Should the 
fee be a flat percentage established by rule (such as 0.5%, 1%, or 2%), or should the 
fee increase as net redemptions or net purchases, illiquidity, or other variables 
increase? Should the fee amount be based on reasonably expected transaction costs 
but, if a fund cannot reasonably estimate those costs, it can use a default fee amount 
set by rule? If so, what should that default fee amount be (e.g., 0.5%, 1%, 2%, or 
3%)? Should the rule include a default fee amount that funds can always choose to 
use, with the option to use a higher or lower amount if such amount is determined to 
be in the best interest of the fund? Should there be a minimum or maximum fee 
amount, such as a 0.25% minimum or a 2% maximum?
141.If we adopt a liquidity fee framework instead of a swing pricing framework, are 
there any ways to simplify the application of fees to investors that invest through an 
intermediary, such as investors in an omnibus account, to facilitate funds or fund 
transfer agents applying fees directly to investor purchases or redemptions occurring 
through an omnibus account? For example, should fund intermediaries be required to 
separately submit purchase and redemption orders, rather than net them, in order to 
transact in a fund’s shares? What would the operational consequences of such a 
162

requirement be for fund intermediaries and for investors? To what extent do 
intermediaries already submit purchase and redemption orders separately, and does 
this practice vary by type of intermediary (for example, are broker-dealers more 
likely to submit separate purchase and redemption orders than retirement plan 
recordkeepers)? Would there be consequences for fund transfer agents, Fund/SERV, 
or others associated with increased order volume or other changes that would result 
from a requirement to submit purchase and redemption orders separately? What 
changes, if any, would funds or fund transfer agents need to make to be equipped to 
apply liquidity fees directly? If submission of purchase and redemption orders 
separately is necessary to implement a liquidity fee framework, is it necessary for the 
Commission to mandate receipt of orders in this way to ensure compliance by all 
market participants? If purchase and redemption orders may be submitted on a net 
basis, as some intermediaries do currently, how would a fund accrue for liquidity fees
in a timely manner? Should the Commission require fund transfer agents to apply 
liquidity fees directly and, if so, why or why not?
142.If we adopt a dynamic liquidity fee framework, would it be as reliant on timely 
flow information as the proposed swing pricing requirement? For example, could 
funds and intermediaries apply a dynamic fee to a transacting investor after an order 
begins to be processed at that day’s NAV but before the trade settles? Could dynamic 
fees be applied after settlement, or would that create challenges in collecting a fee 
from investors who redeemed the full amount of their holdings? If a fee applies on a 
delayed basis, how should investors be notified of the application of a fee? Would it 
be preferable to apply a simplified fee that may less accurately reflect the costs of 
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investor transactions and may mitigate dilution with less precision, but that could be 
applied at the same time an order is processed? Are there any other factors to consider
when deciding between dynamic and simplified liquidity fees?
143.If we adopt a liquidity fee framework, should we require that the same liquidity 
fee amount apply to all share classes (for example, if a liquidity fee is 1% on a given 
day, the 1% fee must apply to all share classes)? Alternatively, should we permit the 
fee amount to differ among classes (for example, a 1% fee for one class and a 0.5% 
fee for another class) and, if so, why?
144.Should a liquidity fee apply differently based on the type of fund or the type of 
intermediary through which an investor trades? If so, what would be the basis for the 
differences in how a liquidity fee applies?
145.What investor flow information, if any, would be required to implement a 
liquidity fee alternative? To the extent that a liquidity fee alternative requires timely 
investor flow information, should the alternative be paired with the proposed hard 
close requirement? Are there different considerations or effects related to the 
proposed hard close requirement if we were to require funds to use a liquidity fee? 
Would it be effective to implement the liquidity fee alternative with an alternative to 
the hard close requirement discussed below, such as indicative flows, estimated 
flows, or delayed cut-off times for intermediaries?
146.Should a liquidity fee requirement be implemented through amendments to rule 
22c-2 or through a new rule? To what extent would information that financial 
intermediaries agree to provide under a shareholder information agreement be 
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important for funds to receive under a liquidity fee framework?
257
 Is there other 
information funds would need to receive from financial intermediaries to determine 
that liquidity fees are appropriately applied? Should we amend the definition of 
shareholder information agreement to require that information, or are there other 
mechanisms for funds to receive that information (e.g., distribution agreements)? Are 
there other rules we should amend if we adopt a liquidity fee requirement, such as 
rule 11a-3 under the Act, which permits application of certain fees in connection with
an exchange offer notwithstanding section 11(a) of the Investment Company Act? If 
we amend rule 11a-3, should the rule treat a liquidity fee in the same way as a 
redemption fee, as defined in that rule?
258
147.How should funds be required to disclose liquidity fees to investors? Should 
liquidity fees be reflected in the prospectus fee table, as mutual fund (other than 
money market fund) redemption fees currently are?
259
 Or, similar to money market 
fund liquidity fees, should liquidity fees be excluded from the prospectus fee table?
260
 
Should funds be required to disclose the circumstances in which they would impose 
liquidity fees in the prospectus? If a liquidity fee only applies on some days, should 
the fund be required to disclose on its website that it is applying a liquidity fee that 
257
 See rule 22c-2(c)(5) (defining a shareholder information agreement as a written agreement under 
which a financial intermediary agrees, among other things, to provide certain information to a 
fund promptly upon request, including taxpayer identification number of all shareholders who 
have purchased, redeemed, transferred, or exchanged fund shares held through an account with 
the financial intermediary, and the amount and dates of such activity).
258
 Under rule 11a-3, an offering company may cause a security holder to be charged a redemption 
fee in connection with an exchange offer, subject to certain conditions. See rule 11a-3(b)(2); rule 
11a-3(a)(7) (defining a redemption fee as a fee that a fund imposes pursuant to rule 22c-2).
259
 See Item 3 of Form N-1A.
260
 See Instruction 2(b) to Item 3 of Form N-1A (excluding money market fund liquidity fees 
imposed in accordance with rule 2a-7 from the definition of “redemption fee”).
165

day and the size of the fee? Should funds be required to report information about 
liquidity fees that are imposed? For example, should a fund be required to report on 
Form N-PORT the dates the fund imposed liquidity fees (or the number of days on 
which fees were applied) and the amount of the fee applied on each occurrence? If a 
fund or its board has discretion on when to apply liquidity fees, should a fund be 
required to disclose why a liquidity fee was or was not imposed under certain 
circumstances? Should funds be required to report other information about liquidity 
fees or report information in other locations, such as in shareholder reports, on fund 
websites, or in Forms N-CEN or N-RN? Would any existing items on Form N-PORT,
Form N-CEN, Form N-1A, Form N-RN, or other forms need to be modified if we 
were to adopt a liquidity fee framework instead of swing pricing?
148.How quickly do intermediaries currently remit to funds the amounts collected 
from purchase or redemption fees applied to customer accounts? If remittal currently 
is delayed, what are the causes of delay? If we adopted a liquidity fee, would funds 
reflect any delayed liquidity fee payment as an accrual? Under a liquidity fee 
approach, should intermediaries be required to remit payments to funds within a 
certain amount of time after a purchase or redemption? If so, what is an appropriate 
amount of time for remittal (e.g., on the day of settlement or within one or two days 
after settlement)? For example, should we adopt a rule that would provide that a fund 
must prohibit an intermediary from purchasing the fund’s shares in nominee name on 
behalf of others if the intermediary does not remit payment on a timely basis? Are 
there other appropriate consequences for an intermediary that has a pattern or practice
of late payments, such as a requirement that orders from such an intermediary may 
166

not receive today’s price and will be executed on a subsequent day at that day’s price 
in order to otherwise limit the dilutive effects of purchase and sale orders received 
through that intermediary since fees are not paid in a timely manner? Should we 
require a fund to charge an additional surcharge to an intermediary that does not remit
payment on a timely basis? Should funds be required to report the names of 
intermediaries who are delayed in remitting payment and the amount due? If so, 
where should funds provide this information (for example, Form N-PORT, Form N-
CEN, fund websites, or registration statements)?
149.Would a liquidity fee requirement have different effects on investor behavior than
a swing pricing requirement? For example, because application of liquidity fees is 
more observable than application of swing pricing, would liquidity fees be more 
likely to affect investors’ decisions of whether to purchase or redeem fund shares? 
b.Dual Pricing
We also considered the use of dual pricing as an anti-dilution measure. A fund that uses 
dual pricing would quote two prices—one for incoming shareholders (reflecting the cost of 
buying portfolio securities in the market), and one for outgoing shareholders (reflecting the 
proceeds the fund would receive from selling portfolio securities in the market).
261
 Dual pricing 
is permitted and used by some funds in certain foreign jurisdictions.
262
 In comparison to swing 
pricing and liquidity fees, we believe that dual pricing may impose additional operational 
burdens and complexity on fund intermediaries, service providers, and other third parties as they 
261
 See Swing Pricing Adopting Release, supra note 11, at n.40. Swing pricing would permit a fund 
to continue to transact using one price, as they do today (instead of transacting using separate 
prices for purchasing and redeeming shareholders).
262
 For example, jurisdictions that permit dual pricing include the UK, Ireland, Australia, and Hong 
Kong. See Jin, et al, supra note 163, at n.6 and accompanying text.
167

would need to handle two share prices on each trade date. We understand that mutual fund order 
processing systems currently are designed to accommodate only one price, which is applied both 
to trades and valuation, and a fund’s share price feeds into many analyses that intermediaries, 
funds, or others would need to update if there were two share prices, such as rebalancing activity.
In addition, as recognized above, there would be operational costs associated with intermediaries
needing to submit purchase and redemption orders separately, rather than netting purchase and 
redemption orders.
In addition, with a dual pricing framework, we would also address effects on a fund’s 
financial statements and performance reporting, as the Commission has already done for swing 
pricing.
263
 If we were to adopt a dual pricing framework, we could use the same general 
framework as in swing pricing. Under this approach, a fund would use its “GAAP” NAV (i.e., 
the amount of net assets attributable to each share of capital stock outstanding at the close of the 
period) in its statement of assets and liabilities and in performance reporting, while it would use 
its two transaction prices in reporting the dollar amounts received for shares sold and paid for 
shares redeemed in its statement of changes in net assets and reflect the impact of dual pricing in 
the fund’s financial highlights.
Similar to liquidity fees, dual pricing could be either dynamic (e.g., calculated to reflect 
spread, other transaction costs, and market impact a fund is likely to incur to meet redemptions 
or invest the proceeds from subscriptions and based on the magnitude of those flows) or 
simplified (e.g., a constant spread around a fund’s NAV). Dynamic dual pricing generally would 
necessitate timely flow information, similar to the proposed swing pricing requirement. 
However, simplified dual pricing may not necessitate timely flow information. Between these 
263
 See Swing Pricing Adopting Release, supra note 11, at section II.A.3.g.
168

two types of dual pricing, a dynamic approach would better reflect the costs associated with the 
magnitude of fund purchases or redemptions on a given day. Under a simplified dual pricing 
framework, there also is the potential for either redeeming or subscribing investors to be over-
charged for transaction costs that their investing activity does not trigger, because the fund would
adjust its NAV for both subscribing and redeeming investors daily without regard to whether the 
fund has net inflows or net outflows on a given day. A simplified approach, however, would be 
less costly to implement because, among other things, it would not require a hard close or any 
alternatives to the hard close to provide actual or estimated flow information.
On balance, we are proposing a swing pricing requirement because it may have 
operational advantages over dual pricing. We request comment on using a dual pricing 
framework to impose liquidity costs on transacting shareholders and whether a dual pricing 
alternative may have fewer operational or other burdens than the proposed swing pricing 
requirement or a liquidity fee alternative while still achieving the same overall goals of reducing 
shareholder dilution.
150.How do the operational implications of swing pricing, as proposed, differ from 
the operational implications of dual pricing? As dual pricing involves calculating and 
applying two prices on each trade date, would that approach involve operational 
burdens and complexity for fund intermediaries, service providers, and other third 
parties that would not exist with a single price under our proposed swing pricing 
framework?
151.If we adopt a dual pricing framework instead of a swing pricing framework, how 
should the spread around the NAV be determined? For example, should the spread 
around the NAV be constant or calculated daily or at some other frequency to reflect 
169

transaction costs? If the latter, which transaction costs (e.g., spread, other transaction 
costs, and market impact)? Under a dual pricing framework, would funds need the 
same investor flow information that is needed for swing pricing, or would 
implementation of dual pricing be less dependent on investor flow information? 
152.Should a dual pricing requirement apply differently based on the type of fund or 
the type of intermediary through which an investor trades? If so, what would be the 
basis for the differences in how dual pricing applies?
153.If we adopt a dual pricing framework, should we address the effects of two 
transaction prices on a fund’s financial statements and performance reporting in a 
manner similar to how the Commission has addressed the effects of swing pricing 
(i.e., by clarifying that the GAAP NAV must be used in some cases, while transaction
prices are used in others)? Are there additional implications of two transaction prices 
that we would need to address and that would lead to a different result than our 
current swing pricing approach?
154.Under a dual pricing framework, which value of the fund’s shares would market 
participants use for analyses that currently are based on a fund’s NAV, such as 
rebalancing a client’s holdings of different funds to achieve a desired asset allocation 
or reflecting the value of an investor’s holdings on an account statement? If we adopt 
dual pricing, should we provide guidance on which value to use for these or other 
purposes?
155.Are there differences between liquidity fees and dual pricing that make one a 
better framework than the other to address dilution? If so, what are the differences 
and why is one better than the other (e.g., differences in tax treatment, if any)?
170

156.What investor flow information, if any, would be required to implement a dual 
pricing alternative? To the extent that a dual pricing alternative requires timely 
investor flow information, should the alternative be paired with the proposed hard 
close requirement? Are there different considerations or effects related to the 
proposed hard close requirement if we were to require funds to use dual pricing? 
Would it be effective to implement the dual pricing alternative with an alternative to 
the hard close requirement discussed below, such as indicative flows, estimated 
flows, or delayed cut-off times for intermediaries?
157.If we adopt a dual pricing framework, what other changes should be made to the 
proposal as a result? For example, what reporting should be required on Form N-
PORT, Form N-CEN, Form N-1A, Form N-RN, or other forms used by funds that 
would be subject to the framework? Would any existing reporting items on these or 
other forms need to be modified if we were to adopt a dual pricing framework instead
of swing pricing? Are there other rules (e.g., rule 11a-3 under the Act) that would 
require changes if we adopt an alternative framework?
158.Would a dual pricing framework affect investor behavior differently than a swing 
pricing framework or a liquidity fee framework?    
2.Alternatives to a Hard Close
We are proposing to require a hard close for open-end funds that are subject to the 
proposed swing pricing requirement. Under this proposal an eligible order to purchase or redeem
any redeemable security of such a fund would be executed at the current day’s price only if the 
fund, its designated transfer agent, or a registered clearing agency receives the order before the 
171

fund calculates its NAV. This proposal is designed to facilitate the operation of swing pricing as 
well as to help prevent late trading and to modernize order processing. 
In connection with the swing pricing proposal, we have also considered whether there are
alternative methods by which a fund would be able to generate sufficient investor flow 
information to determine whether to apply swing pricing on a given day. As discussed above, 
swing pricing requires that funds have significant information about their order flows to 
determine with accuracy if the fund should impose a swing factor and to determine what that 
swing factor should be. Instead of requiring that funds operationalize swing pricing based on 
actual order flow information received before the pricing time, we have also considered whether 
reasonable estimates, calculated by either the fund or the intermediary, would provide 
sufficiently accurate information for a swing pricing determination. We have also considered 
whether later cut-off times for flow information and the publication of the day’s NAV would 
facilitate swing pricing. We discuss each alternative below. We also considered how these 
alternatives would work if, rather than require swing pricing, we were to require funds to adopt 
liquidity fees or dual pricing.
264
 Although the below discussion focuses on swing pricing, we 
believe similar considerations would apply in the case of liquidity fees or dual pricing (to the 
extent a liquidity fee or dual pricing regime, like swing pricing, was based on the amount of net 
flows), and these alternatives therefore also could be used in combination with a liquidity fee or 
dual pricing approach.
265
 
264
 See supra section II.D.1.
265
 We provide additional illustrative examples of potential alternatives and pairings in section 
II.D.3.
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a.Indicative Flows 
We considered whether, instead of requiring a hard close, we should require that funds 
receive indicative flow information from intermediaries by an established time. This approach 
would require that intermediaries (e.g., broker-dealers, banks, and retirement plan recordkeepers)
calculate an estimate for what they anticipate the given flows for a particular day to be either 
before the fund’s pricing time or a set time thereafter (e.g., by 4:30 p.m. ET or 5 p.m. ET). 
Consistent with current practices, intermediaries could submit final order flow information after 
the pricing time once the intermediary has received and calculated the final flows for the day. 
For example, we could consider orders to be eligible to receive that day’s price if, in the case of 
orders submitted through an intermediary: (1) the intermediary receives the orders from investors
before 4 p.m. ET; (2) the intermediary provides estimated order flow to the fund by the identified
time; and (3) the intermediary provides final order information by the next morning. Under this 
approach, a fund would be permitted to use the indicative flow information provided by 
intermediaries to determine whether a swing factor should be applied to that day’s NAV. 
In order to calculate the indicative flow information, intermediaries would need to 
generate an estimated flow based on, among other things, the actual flows that they have 
received before the pricing time and the prior day’s price, as well as any indicative historical 
information that is available if the indicative flow information is provided to the fund before the 
pricing time. Alternatively, the intermediary could provide summary net flow information (for 
example, estimated net purchases of $3 million, estimated net redemptions of 250,000 shares, 
and the purchase of an unknown quantity of fund shares with proceeds from redeeming 100 
shares from a different identified fund), and the fund could apply the prior day’s NAV to arrive 
at an estimated net flow. Intermediaries would need to update their systems and processes to 
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calculate indicative flow information by or shortly after the pricing time while continuing to 
provide actual final flow information as it is available. We understand that different 
intermediaries may, based on their different characteristics, use different methods to calculate or 
provide their indicative flows. A broker-dealer and a retirement plan recordkeeper would not 
necessarily use the same method due to the differences in how they are able to generate and 
communicate flow information to funds. Retirement plan recordkeepers, for example, would 
need to generate indicative flow information that accounts for not only purchase and redemption 
activity that is a known number of shares or dollars as of the pricing time, but also estimated loan
and withdrawal activity that is subject to hierarchy provisions under their specific plans. If an 
intermediary is unable to provide indicative flow information by the identified time, the orders 
would receive the next day’s price. 
Unlike the proposed hard close requirement, the alternative of permitting funds to rely on
indicative flows provided by intermediaries would provide intermediaries with more flexibility 
in providing final flow information. Thus, the broader changes that may be needed for 
intermediaries to comply with the proposed hard close requirement that are discussed above may 
not be needed under this alternative. This approach would not ultimately provide funds with the 
most accurate information about anticipated flows. If intermediaries are required to provide 
indicative flows before a fund’s pricing time, the flow information may be less reliable, 
particularly during times of stress since intermediaries may not be able to account for or 
anticipate the effects of a stress event on order flow information. This limitation of indicative 
flow information may create down-stream effects on the accuracy and efficacy of swing pricing, 
particularly in times of stress. For swing pricing to serve the goal of mitigating dilution of 
shareholders’ interests, funds need accurate order flow information, particularly in times of 
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stress. In addition, an approach based on indicative flows would be less effective at preventing 
late trading and at reducing operational risk through improvements to order processing.  
We request comment on the indicative flow alternative, including:
159.Should we allow funds to use indicative flow information to determine whether or
not to apply swing pricing?
160.If intermediaries are required to provide indicative flows to funds, should the rule 
establish this requirement by considering an order as eligible to receive a given day’s 
price only if the intermediary provides indicative or final order flow information by 
an identified time and provides final order information by a later identified time? 
Should we instead provide that a fund must prohibit an intermediary from purchasing 
the fund’s shares in nominee name on behalf of others if the intermediary does not 
provide timely indicative flow information? Should the rule require that funds enter 
into a contractual agreement with intermediaries to require the indicative flow 
information? If so, should this contract be required to specify how indicative flows 
are calculated by the intermediary? In either case, should we prohibit or restrict an 
intermediary from charging fees to funds for the costs associated with providing 
indicative flow information?
161.Would intermediaries have sufficient incentives to provide timely and accurate 
indicative flow information? Are there other consequences we should impose for late 
or materially inaccurate indicative flow information? For example, if an intermediary 
has a pattern of providing late or inaccurate information, should we require a fund to 
prohibit the intermediary from purchasing the fund’s shares in nominee name on 
behalf of others? As another alternative, should we prohibit orders received from that 
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intermediary from receiving that day’s price and instead require that the orders be 
executed and settled on a delayed basis at a future day’s price, in order to limit the 
dilutive effects of orders that intermediary submits?
162.When should intermediaries be required to provide indicative flows under this 
alternative? Are indicative flows needed before the pricing time, or could funds still 
make timely swing pricing decisions if intermediaries provided indicative flows after 
the pricing time? How long after the pricing time could funds receive the indicative 
flow information and still make timely swing pricing decisions? In connection with 
this approach, would funds publish their prices later than they do today to provide 
additional time to make swing pricing decisions? 
163.Should the intermediary or the fund apply the prior day’s price to arrive at an 
indicative flow estimate? Is there value in the fund performing this calculation 
because it would have better information about potential changes to the prior day’s 
price that it could take into account (e.g., the size of any swing factor adjustment 
made on the prior day, as well as potential changes to the value of its portfolio 
holdings)?
164.Should intermediaries that have minimal holdings with the fund be permitted not 
to provide indicative flows under this approach? If so, how should we define 
intermediaries that have minimal holdings of fund shares? How would this approach 
work if an intermediary’s customers began to transact in higher volumes of the fund’s
shares? 
165.Should we provide fund managers a safe harbor from liability under certain 
circumstances (e.g., absent knowing or reckless behavior) if the fund relies on 
176

indicative flows to determine whether to swing the fund’s NAV and the size of the 
swing factor and those indicative flows do not align with the actual flows the fund 
ultimately receives? From what statutory provisions or rules should any safe harbor 
provide relief (for example, section 34(b) under the Investment Company Act, rule 
22c-1, or other provisions and rules)?
166.If we adopt an indicative flows approach, are there any changes we should make 
to the proposed swing pricing requirement? For example, instead of requiring use of 
“reasonable, high confidence” estimates of investor flow information, should we use 
a different standard (e.g., reasonable estimates based on available information)?
167.Do commenters agree with the discussion of the potential benefits, costs, or 
drawbacks of this alternative? During times of stress, would intermediaries be able to 
generate accurate indicative flow information?
168.Does this alternative raise different considerations if we were to require funds to 
use a liquidity fee framework or dual pricing, rather than swing pricing? Should an 
indicative flows approach operate or be structured differently if paired with a liquidity
fee or dual pricing requirement and, if so, how? 
169.Is there information about the indicative flows alternative, if adopted, that would 
be important for investors to understand and that funds should be required to disclose 
in their registration statements or elsewhere? 
b.Estimated Flows
We also considered an approach that would allow funds to estimate their flows for the 
day for the purposes of determining whether to apply a swing factor to the day’s NAV and the 
amount of the swing factor (e.g., whether the amount of net redemptions exceeds the market 
177

impact threshold). In order to estimate flows for a given day, funds could generate models that 
incorporate the information available to them. For example, funds could use the flow information
that they have already received by a pre-established time as well as historical order flow 
information in order to estimate expected flows for the day. 
The ability of a fund to estimate flow information may differ based on the types and 
number of intermediaries from which the fund is ultimately receiving flow information. In order 
to estimate flows, funds may rely on factors that include the historical pattern of flows for a 
particular intermediary while accounting for any observed changes in the flows for a given fund. 
This estimate could be based on all of the information received by the fund by a set time, with 
additional adjustments to account for flows from intermediaries that do not submit orders by that 
time. For example the fund could base its estimate on all information that it has received by 5 
p.m. ET. For some intermediaries, however, like retirement plan recordkeepers, funds would 
likely need to create models that are able to project estimated flow information based on 
historical order flow information as retirement plan recordkeepers may not have sufficient 
information available by the time established by the fund. In addition, to the extent funds do not 
already receive large trade notifications, funds may determine to negotiate arrangements with 
intermediaries for receipt of advance notice of certain large transactions that are known in 
advance by intermediaries, such as replacing a fund as an investment option in a retirement plan. 
The considerations for whether estimates generated by the fund provide sufficiently 
reliable information to implement swing pricing are similar to those discussed above for the 
alternative for indicative flows from intermediaries. Funds have a narrower view of anticipated 
flow activity than intermediaries, however, as intermediaries are closer to investor activity and 
likely have a more accurate estimate of their customers’ flows for a particular fund. This benefit 
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of indicative flows over estimated flows may be mitigated to the extent that intermediaries lack 
incentives or are otherwise unable to provide reasonably accurate indicative flows. During times 
of stress, funds may have a limited view of anticipated order flow information, which may 
impact their ability to effectively implement swing pricing. In addition, an approach based on 
estimated flows would be less effective at preventing late trading and at reducing operational risk
through improvements to order processing than the proposed hard close requirement. On the 
other hand, estimated flows would be less costly than either a hard close or indicative flows.  
We request comment on the estimated flow alternative, including:
170.How accurately can funds estimate flows from different intermediaries? For 
example, are retirement plan flows relatively stable and predictable, or do they vary 
over different periods? To what extent do retirement plans inform funds in advance of
material flows that deviate from historical patterns, such as changes in funds the plan 
offers? Would funds receiving flows from specific intermediaries be better able to 
estimate their flows? For example, would it be easier for funds to estimate flows from
broker-dealers because broker-dealers tend to be able to provide order flow earlier 
than some other intermediaries? Would it be easier for funds to estimate flows from 
retirement plan recordkeepers because those flows are more predictable? To the 
extent that certain events make flows less predictable, such as changes in the funds a 
retirement plan offers to its participants, could funds better estimate their flows if 
intermediaries were required to provide advance notice or other information about 
these events?
171.Should we provide fund managers a safe harbor from liability under certain 
circumstances (e.g., absent knowing or reckless behavior) if the fund relies on 
179

estimated flows to determine whether to swing the fund’s NAV and the size of the 
swing factor and those estimated flows do not align with the actual flows the fund 
ultimately receives? From what statutory provisions or rules should any safe harbor 
provide relief (for example, section 34(b) under the Investment Company Act, rule 
22c-1, or other provisions and rules)?
172.Should we require funds to conduct back-testing of estimated flows using final 
data to refine their estimation process over time and help ensure that estimates used 
for swing pricing are reasonable?
173.Would funds be able to implement swing pricing based on estimated flow 
information? If we adopt an estimated flows approach, are there any changes we 
should make to the proposed swing pricing requirement? For example, instead of 
requiring use of “reasonable, high confidence” estimates of investor flow information,
should we use a different standard (e.g., reasonable estimates based on available 
information)?
174.Does this alternative raise different considerations if we were to require funds to 
use a liquidity fee framework or dual pricing, rather than swing pricing? Should an 
estimated flows approach operate or be structured differently if paired with a liquidity
fee or dual pricing requirement and, if so, how?
175.Is there information about the estimated flows alternative, if adopted, that would 
be important for investors to understand and that funds should be required to disclose 
in their registration statements or elsewhere?
176.To what extent would the estimated flows alternative reduce costs on funds and 
intermediaries relative to the proposed hard close? 
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c.Later Cut-Off Times for Intermediaries
We have considered whether establishing later cut-off times for intermediaries to submit 
order flow information would lessen the burden on intermediaries to comply with the proposed 
hard close requirement while continuing to give funds the necessary order flow information to 
implement swing pricing. Under this alternative, investors would continue to need to submit 
orders before the fund’s pricing time to be eligible to receive that day’s price, but intermediaries 
would have additional time to provide those orders to a designated party after the pricing time, 
such as by 6 or 7 p.m. ET for a fund with a 4 p.m. ET pricing time. To provide time to assess the 
flows and determine whether to apply swing pricing, a fund might push the time of publication 
of its price to a later time, such as 8 to 10 p.m. ET. Much like the proposed hard close, this 
alternative may have additional benefits beyond facilitating swing pricing. Ensuring that all order
flow information is provided to a designated party earlier than it is currently may improve order 
processing. This alternative would be less effective, however, at preventing late trading. 
Allowing intermediaries more time to provide order flow information and delaying 
publication of the NAV would involve many of the systems costs discussed in connection with 
the hard close. For example, intermediaries would still need to transmit orders before the NAV is
available. However, providing intermediaries and funds more time to compile order flow 
information and to calculate the price may lessen the overall burden of the proposed changes, 
and may reduce the need for intermediaries to establish cut-off times prior to the fund’s pricing 
time for receipt of investor orders. 
We request comment on the alternative of later cut-off times for intermediaries, 
including:
181

177.What would an appropriate delayed cut-off time be (e.g., two or three hours after 
the fund’s pricing time)? Would a delayed cut-off time, in combination with a 
delayed price publication, provide funds with sufficient time to make swing pricing 
decisions?
178.If funds were to delay the publication of their price, what steps would funds need 
to take? Would they need to amend agreements with intermediaries? What effects 
would a delayed publication time have on intermediaries or other parties?
179.Would a delayed cut-off time for intermediaries to submit orders to a designated 
party be less burdensome than the proposed hard close? Would a delayed price 
publication time be less burdensome than the proposed hard close? 
180.Would funds be able to implement swing pricing if we require later cut-off times 
for intermediaries instead of the proposed hard close? If we adopt a later cut-off time 
approach, are there any changes we should make to the proposed swing pricing 
requirement? For example, instead of requiring use of “reasonable, high confidence” 
estimates of investor flow information, should we use a different standard (e.g., 
reasonable estimates based on available information)?
181.Does this alternative raise different considerations if we were to require funds to 
use a liquidity fee framework or dual pricing, rather than swing pricing? Should a 
later cut-off time approach operate or be structured differently if paired with a 
liquidity fee or dual pricing requirement and, if so, how?
182.Is there information about the later cut-off times alternative, if adopted, that 
would be important for investors to understand and that funds should be required to 
disclose in their registration statements or elsewhere?
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3.Additional Illustrative Examples
While there are many potential combinations of swing pricing and hard close alternatives,
several of which we have already discussed in this release, this section provides additional 
illustrative examples of alternatives to the proposed swing pricing and hard close requirements 
that are designed to reduce shareholder dilution. The alternatives discussed in this section are 
intended to have lower operational costs than the proposed requirements, although the reduction 
in costs involves other trade-offs, as discussed below.
a.Spread Cost Adjustment on Days with Estimated Net Outflows
Spread costs can be a major component of a fund’s swing factor. Instead of the proposed 
swing pricing and hard close requirements, we could require a simplified version of swing 
pricing in which funds adjust their current NAVs to reflect good faith estimates of spread costs 
on days the fund reasonably expects to have net redemptions based on estimated flows. Under 
this approach, if a fund determined its NAV based on the midpoint of each investment’s bid-ask 
spread, on days of estimated net redemptions the fund would swing its transaction price down by
an amount designed to reflect spread costs in the portfolio. The adjustment would be based on 
good faith estimates of spread costs, consistent with the proposed swing pricing requirement. As 
with the swing factor under the proposal, the estimated spread costs could be determined 
periodically, as long as significant market developments or other developments that affect the 
good faith estimate of spread costs prompt a quicker reevaluation.
266
 If the fund already uses bid 
266
 This approach would not require a fund to use bid prices to value each of its investments when 
determining its NAV. Instead, as appropriate, a fund could continue to value its investments using
the midpoint to determine its NAV and, on days of estimated net outflows, the fund would be 
required to reduce the fund’s transaction price based on good faith estimates of spread costs.
183

prices for valuation purposes, it would not be required to adjust its current NAV to reflect spread 
costs.
267
 
This approach would be designed to mitigate dilution from spread costs associated with 
selling investments to meet redemptions. The reflection of costs would be dynamic when a fund 
expects net outflows, with the adjustment to reduce a fund’s transaction price increasing in size 
as spreads widen during times of stress. A fund would need to estimate the direction of flows 
(i.e., net redemptions or net purchases) based on available information before the fund publishes 
its price, but the fund would not need to estimate the size of net flows. A fund’s reasonable 
expectation of the direction of fund flows may be based on different types of information, 
depending on the fund. For example, a fund could consider indicative flow information from 
intermediaries, trends in orders submitted that day, general market intelligence, or historical 
trends in flows.
This approach would impose lower operational burdens and costs relative to the proposal,
including by not necessitating a hard close and by simplifying the analysis of a swing factor. At 
the same time, the approach would address dilution less fully than the proposal. Unlike the 
proposed swing pricing requirement, this approach would not capture market impact or other 
costs of selling investments to meet redemptions. For one, a fund could not assess market impact 
without an estimate of the size of net flows and, without a hard close, estimating the size of net 
flows with accuracy would be subject to a greater risk of error than estimating only the direction 
of flows. In addition, as previously discussed, there may be operational challenges and 
complexities to estimating market impact costs more generally. Another difference from the 
267
 See supra note 202 (discussing accounting standards that state that the price within the bid-ask 
spread that is most representative of fair value in the circumstances shall be used to measure fair 
value and that provide that use of bid prices is permitted for these purposes, as well as use of mid-
market pricing as a practical expedient).
184

proposed swing pricing requirement is that this approach would not address dilution from 
sizeable net purchases. Because smaller levels of net purchases are less likely to result in dilution
than net redemptions (as funds have more time to invest the proceeds from net purchases than to 
sell investments to meet redemptions), it may not be appropriate to require a fund to adjust its 
current NAV to reflect spread costs on any day it estimates net purchases. For this reason, we 
have a net inflow swing threshold of 2% in the proposal and, as with the potential inclusion of 
market impact in this framework, estimating the size of net flows involves a greater risk of error 
than estimating only the direction of net flows. 
In addition to other requests for comment related to variations of swing pricing and 
estimation of flows, we request comment on requiring a fund to adjust its current NAV to reflect 
good faith estimates of spread costs on days the fund reasonably expects to have net 
redemptions, instead of requiring the proposed version of swing pricing and a hard close.
183.Would this approach reduce operational burdens and costs relative to the 
proposed swing pricing and hard close requirements? Would this approach reduce 
operational burdens and costs relative to the liquidity fee alternative? Would this 
approach reduce operational burdens and costs relative to the dual pricing alternative?
How effective would this approach be in addressing dilution? To what extent would 
this approach protect non-transacting investors from dilution due to the bid-ask 
spread costs and ameliorate any first-mover advantage? Would the effectiveness of 
the tool vary between normal and stressed market conditions? Should this approach 
also reflect transaction costs in addition to spreads, for example, commissions, 
markups, and/or markdowns?  
185

184.How accurately can funds estimate the direction of daily net flows? Should the 
requirement apply on days the fund reasonably expects to have net redemptions (such
that the fund uses this approach only if it affirmatively expects net redemptions) or on
days the fund does not reasonably expect to have net purchases (such that the fund 
defaults to this approach unless it affirmatively expects net purchases)?
185.To what extent do funds already value their portfolio investments using bid 
prices? What consequences, if any, would a requirement to reflect good faith 
estimates of spread costs when a fund reasonably expects to have net redemptions 
have on these funds?
186.Would this approach incentivize funds to value their portfolio investments using 
bid prices without properly evaluating whether the bid price is most representative of 
fair value in the circumstances, in order to avoid the need to determine whether the 
fund reasonably expects net redemptions each day? 
187.If we adopt this approach, how should we amend disclosure and reporting 
requirements? For example, if we required funds to use this simplified version of 
swing pricing, should current prospectus and financial statement reporting 
requirements for swing pricing apply? Should we require funds to report the 
frequency and amount of adjustments made to their current NAVs under this 
approach? Should a fund be required to report both its current NAV and its adjusted 
price? Should a fund be required to report information about the accuracy of its 
estimates of flow information? Where should any such information be located (e.g., 
Form N-PORT, fund websites, annual and semi-annual reports)?
186

b.Liquidity Fee When Trading Costs Are Significant
Another alternative we considered is a liquidity fee that would apply only on days when a
fund anticipates significant trading costs. A rule could either define the trigger or require funds to
establish policies and procedures that identify their own fund-specific triggers. In terms of 
establishing the trigger, one alternative would be a trading cost trigger that the fund sets in 
advance or that the Commission establishes by rule (for example, with a set size, a set increase, 
or a set standard deviation in trading costs based on criteria such as spreads or transaction 
volumes for the fund’s portfolio, either in terms of dollars or as a percentage of the fund’s 
portfolio). As another alternative, the trigger for applying a liquidity fee could include other 
factors that indicate an increase in trading costs, such as increasing net flows (e.g., based on the 
fund’s flow history or estimated flows) or decreasing liquidity (e.g., based on declines in the 
percentage of the fund’s investments classified as highly liquid, or increases in the percentage of 
investments classified as illiquid). A fund’s trigger for applying liquidity fees could be required 
to be made public or kept non-public. 
As one example of a policies and procedures based approach, a fund could be required to 
establish written policies and procedures that would define the trigger event(s) that would cause 
a fund to apply a fee. The fund’s policies and procedures would be required to be designed to 
mitigate dilution and recoup the costs the fund reasonably expects to incur as a result of 
shareholder redemptions on days when trading costs are higher. Funds would have discretion to 
define their own trigger events, but all funds would be required to consider certain identified 
factors, such as trading costs, liquidity of the fund’s portfolio, market conditions, and reasonably 
estimated investor flows, in determining their trigger events.
268
 
268
 Consideration of expected investor flows would not require a fund to estimate the size of 
expected flows with accuracy. Rather, this consideration would be intended to recognize the 
187

There are several alternatives for setting a fee amount. For instance, the fund could either 
base the fee amount on reasonable estimates of expected transaction costs, including market 
impact, or if the fund determined this estimation is not feasible, the fund could establish a set fee 
amount, or graduated fee levels, it would apply when a trigger event occurs. The rule could 
either allow a fund to determine that estimating transaction cost amounts is not feasible in 
advance, or the rule could require a fund to consider its ability to estimate transaction costs each 
time a liquidity fee applies. Under another possible approach, the rule could establish a default 
fee amount, such as 1%, that a fund could opt out of or adjust if determined to be in the best 
interest of the fund. 
With respect to board oversight, if fee triggers or amounts were determined based on 
written policies and procedures, we could require board approval of the policies and procedures 
defining a fund’s trigger event or identifying how to determine a fee amount, as well as any 
material changes to those policies and procedures. As for determining when a trigger event 
occurs and the amount of the fee, similar to the proposed swing pricing requirement, we could 
allow a liquidity fee administrator approved by the board to make some or all of these 
determinations. 
If designed incorrectly, a fee that only applies when trading costs are significant could 
incentivize investors to redeem if investors can observe in advance that a fee is likely to apply in 
the near future. There are various mechanisms we could use to reduce these incentives. For one, 
if the rule identified specific trigger events that all funds would use, in that case, the potential for 
preemptive redemptions would be reduced if investors or other market participants could not 
potential relevance of flows, to the extent a fund has sufficient information to reasonably estimate
them. Moreover, if a fund anticipates a significant increase in costs of selling its investments but 
does not expect to need to sell investments due to an anticipation of net inflows, this approach 
would not require a fund to impose a fee.
188

observe with certainty if a fund is nearing a trigger event. Another approach would be to identify 
specific thresholds for triggering a fee in the rule and allow a fund to choose to use one or more 
of those thresholds to determine when to apply a fee. If funds determined their own fee triggers, 
the rule could provide that a fund’s trigger event would be either public or nonpublic. Public 
disclosure of a fund’s trigger for applying liquidity fees would increase transparency. The rule 
could require, however, that the fund’s trigger event be kept nonpublic in order to reduce the 
potential for preemptive redemptions. Under this approach, a fund would not disclose its defined 
trigger event, and instead would be required to disclose in its prospectus that it applies a liquidity
fee on days its trading costs increase, as well as how it determines the amount of the fee. A fund 
could be required to report information about how frequently it applied a liquidity fee and the 
amount of each fee on Form N-PORT.
Unlike the proposed swing pricing requirement, this approach would not address smaller 
levels of dilution that may occur in the normal course. Instead, it would be designed to focus on 
periods where funds have heightened dilution risk, such as in stress events. In addition, this 
approach would not address dilution that may occur from net purchases. 
In addition to other requests for comment related to liquidity fee alternatives, we request 
comment on whether we should require a fund to apply liquidity fees only on days when a fund 
anticipates significant trading costs, instead of requiring swing pricing and a hard close.
188.Should a fund be required to apply a liquidity fee only when trading costs are 
significantly increasing, such as a period of stress? If so, should the rule identify a 
trigger when fees apply, or should funds establish their own trigger events?
189.If the rule establishes a trigger, what should that trigger be based on? For 
example, should the rule require a fund to apply a liquidity fee when spreads are 
189

widening or transaction volumes for the portfolio increase? For instance, should fees 
be required when spreads widen beyond a 95% confidence level for key components 
of the fund’s portfolio, where the mean and standard deviation of these key markets 
are measured for the trailing 252 business days (the average number of trading days 
in a year), and the trigger occurs if the current spread is greater than 1.65 standard 
deviations (i.e., the equivalent of a 95% confidence in a normal distribution) above 
the mean for that period? Should different confidence levels, standard deviations, or 
measurement periods be used? Should a liquidity fee trigger be based on an increase 
in the transaction volume of the fund’s portfolio, such as a trigger when the dollar- or 
percentage-based transaction volume for that day exceeds the 95% confidence level 
compared to the average daily transaction volume for the trailing 252 business days? 
Should different confidence levels or measurement periods be used? Do funds already
track information that would allow them to identify readily when a trigger based on 
widening spreads or increased dollar transaction volume is crossed, or would they 
need to collect or monitor additional information about spreads or transaction 
volumes? Should the rule use other or additional triggers? For example, should a 
trigger be based on or consider large net outflows or a reasonable expectation of large
net outflows above a certain percentage, such as net redemptions above 1% or 2% of 
net assets or net redemptions that are higher than typical for the individual fund based
on historical flows? If the rule included a numerical threshold for net redemptions, 
would funds have concerns about their ability to accurately estimate net flow amounts
and therefore be less likely to apply fees? If so, would a safe harbor address these 
concerns? Should a trigger be based on or consider an identified change in the fund’s 
190

liquidity classifications, such as an identified decrease in the percentage of highly 
liquid investments the fund holds or an identified increase in the percentage of 
illiquid investments the fund holds? Should identification of a trigger event account 
for indicators of market stress in the financial markets overall or in the specific 
markets in which the fund invests? If so, what indicators of market stress should the 
rule include? Should the rule identify multiple potential triggers and allow funds to 
choose whether to use one or more of those triggers to determine when to apply a fee?
190.Instead of identifying specific trigger points by rule, should we require funds to 
establish and implement policies and procedures that describe when the fund will 
impose a fee? Would a policies and procedures approach allow funds to tailor the 
application of a fee to scenarios in which transacting investors are likely to cause 
dilution? Under a policies and procedures approach, should we identify the factors a 
fund must consider in defining its trigger events? If so, what factors should we 
require a fund to consider (e.g., trading costs, liquidity of the fund’s portfolio, market 
conditions, and reasonably estimated investor flows)? Rather than require funds to 
consider these factors, should we require funds to define their trigger events with 
respect to these or other specific factors?
191.Should we permit a fund not to apply a fee upon the occurrence of a defined 
trigger event? For example, should a fund be required to apply a fee when a trigger 
event occurs, unless the board determines that it is not in the interest of the fund to 
apply a fee in the specific circumstance? 
192.What risks are associated with requiring a fund to define its own trigger event, 
and how could we reduce these risks? Would funds define a trigger event such that a 
191

fund would be delayed in determining that a fee should apply relative to potentially 
fast-moving changes in market conditions? If so, would this delay increase the 
potential for preemptive redemptions and contribute to a first-mover advantage? 
Would funds define a trigger event in a way that makes it unlikely that a fund would 
ever apply a fee? Are there ways to ensure that funds’ policies and procedures are 
sufficiently robust, such as requirements to report the policies and procedures to the 
Commission or to report when a fund applied a fee? For example, should funds be 
required to confidentially report their trigger events to the Commission and to report 
how frequently fees applied and in what amounts on Form N-PORT?
193.Should liquidity fees apply only to redemptions if a trigger event occurs? Or 
should liquidity fees apply to both redemptions and purchases under this approach? 
Should a single trigger event result in fees applying to both redemptions and 
purchases, or should funds establish trigger events that differ between redemptions 
and purchases?
194.How should the amount of a liquidity fee be determined under this approach? 
Should the rule set a specified fee amount that would occur upon any fund’s trigger 
event, such as 0.5%, 1%, or 2%? Should any fee amount set by rule be a default 
amount, such that a fund could use a higher or lower fee amount if determined to be 
in the best interest of the fund? Should funds be required to calculate the amount of 
the fee based on reasonable estimates of expected transaction costs, including market 
impact? Should fund policies and procedures, or a rule, establish a set fee amount that
would apply if a fund is unable to reasonably estimate expected transaction costs? 
Should funds be required to consider their ability to reasonably estimate transaction 
192

costs each time a trigger event applies, or should funds be able to determine in 
advance that estimation is not feasible and opt to use a set or graduated fee for all 
trigger events? Should fund policies and procedures, or a rule, establish graduated fee
levels that would apply for different trigger events? Should we establish a limit on the
size of a liquidity fee under this approach (e.g., 2%, 3%, or 5%)?
195.After a fee is triggered, how should the rule permit or require a fund to determine 
when it should no longer apply a fee? For instance, should a fund reassess daily 
whether trading costs have decreased, or should a liquidity fee remain in place for a 
set number of days (e.g., 2 to 5 days) and then no longer apply unless the fund 
determines a fee continues to be in the best interest of the fund?
196.What information should funds be required to disclose in their prospectuses under
this approach? How much detail should funds be required to provide about when they
will impose a liquidity fee? Should the prospectus state only that a fund will impose a
fee when trading costs increase, or should the prospectus also discuss the factors a 
fund considers to make this determination? Should a fund be required to disclose its 
trigger events in its prospectus? Would that disclosure contribute to potential 
preemptive redemptions, or would trigger events be difficult to observe publicly in 
advance? Should funds be required to disclose fee amounts in their prospectuses, or 
their methods for calculating fee amounts? 
197.Should the fund’s board be required to approve the fund’s written policies and 
procedures defining the trigger event(s) and how the fund will determine the amount 
of the fee? Should the board be required to approve any material changes to the 
policies and procedures? Should other board oversight be required? Should the board 
193

have to determine that a fee is appropriate every time a trigger event occurs before the
fund can impose a fee? Or should the board be required to designate a liquidity fee 
administrator that would be responsible for determining when liquidity fees apply and
the size of the fee? Should the definition of a liquidity fee administrator mirror the 
proposed definition of a swing pricing administrator? If not, what changes should be 
made? Similar to the proposed swing pricing requirement, should a liquidity fee 
administrator be required to provide periodic reports to the board (at least annually) 
that describe: (1) the administrator’s review of the adequacy of the policies and 
procedures identifying the fund’s trigger event and the effectiveness of their 
implementation, including the effectiveness in mitigating dilution; (2) any material 
changes to the liquidity fee policies and procedures since the date of the last report (if 
such material changes are not subject to board approval); and (3) the administrator’s 
review and assessment of the fund’s method for determining the size of the liquidity 
fee?
198.What are the operational implications of this approach for funds and 
intermediaries? Would intermediaries be able to apply a liquidity fee on the same day 
the fund announces its imposition? What effects would this approach have on 
investors?  
199.If liquidity fees are only applied rarely under this approach, how would that affect
fund and intermediary preparedness for imposing fees? Would it increase investor 
sensitivity to fees and increase the likelihood of preemptive redemptions?
200.Should we pair a requirement to adjust a fund’s current NAV to reflect spread 
costs on days the fund estimates it will have net redemptions with a requirement to 
194

apply a liquidity fee when trading costs increase? Would this combined framework 
address dilution from net redemptions in a manner similar to the proposed swing 
pricing requirement without the costs of a hard close?
E.Reporting Requirements
1.Amendments to Form N-PORT 
Registered management investment companies and ETFs organized as unit investment 
trusts are required to file periodic reports on Form N-PORT about their portfolios and each of 
their portfolio holdings as of month-end.
269
 While the reports provide monthly information to the 
Commission, funds file these reports on a quarterly basis with a 60-day delay, and the public 
only has access to information for the third month of each quarter. We are proposing to require 
reports on Form N-PORT to be filed within 30 days of month-end, which would be followed by 
public availability of much of the reported information 60 days after month-end. We are also 
proposing to require an open-end fund that is subject to classification requirements in the 
liquidity rule to provide information regarding the aggregate percentage of its portfolio 
represented in each of the three proposed liquidity categories, which would be publicly available.
The reported aggregate percentages would include adjustments to give effect to other aspects of 
the proposal. Finally, we are proposing amendments relating to funds’ use of swing pricing, 
conforming amendments to reflect the proposed amendments to rule 22e-4, and amendments to 
certain entity identifiers. 
269
 For purposes of this section, the term “fund” refers to registrants that currently are required to 
report on Form N-PORT, including open-end funds, registered closed-end funds, and ETFs 
registered as unit investment trusts, and excluding money market funds and small business 
investment companies.
195

a.Filing Frequency
We are proposing to amend rule 30b1-9 and Form N-PORT to require funds to file 
reports on Form N-PORT on a more timely basis, with changes to both the frequency with which
a fund would file reports on Form N-PORT and when the reports are due.
270
 Specifically, rather 
than filing monthly reports with the Commission 60 days after the end of each fiscal quarter, we 
are proposing to require that funds file reports on a monthly basis.
271
 These monthly filings 
would be due within 30 days after the end of the month to which they relate and would be made 
public 60 days after the end of the month to which they relate.
272
 As an example, currently a fund
files Form N-PORT reports for the first, second, and third months of each fiscal quarter with the 
Commission 60 days after the end of the third month of the quarter. Under the proposal, funds 
would separately file reports for the first, second, and third months of the quarter, with each 
month’s report due within 30 days of month-end. 
These changes are intended to provide more timely information regarding the fund’s 
portfolio, including its liquidity profile. Both the current quarterly reporting cadence and the 60-
day delay after the end of the quarter before reports are due make it difficult to use reported data 
to assess events that are developing quickly, or to identify early warning signs of potential 
distress. By the time the information is filed, it is at least two, and could be as many as four, 
months out of date.
273
 
270
 The proposal would also make a conforming edit to the filing instructions for Form N-PORT. 
See proposed 17 CFR 274.150(a). 
271
 We would also make conforming changes to General Instruction A of Form N-PORT and rule 
30b1-9 to remove references to the requirement for a fund to maintain in its records the 
information that is required to be included on Form N-PORT no later than 30 days after the end 
of each month; this would no longer be necessary because the information would be filed with the
Commission. See Proposed General Instruction A of Form N-PORT; proposed rule 30b1-9. 
272
 Id; proposed General Instruction F of Form N-PORT. As is the case currently, if the due date 
falls on a weekend or holiday, the filing deadline would be the next business day. 
273
 Because reports are due 60 days after the end of a fund’s fiscal quarter, deadlines vary based on 
196

As proposed in 2015 and adopted in 2016, Form N-PORT would have provided for 
monthly filings with the Commission, within 30 days after the end of each month.
274
 Only reports
for every third month would have been available to the public.
275
 The Commission originally 
required monthly portfolio reporting because it would be useful for fund monitoring, particularly 
in times of market stress.
276
 The Commission originally required funds to file each monthly 
report within 30 days of month end because more delayed data would reduce the utility of the 
information to the Commission and lag times of more than 30 days would make monthly 
reporting impractical, as reports would overlap with preparation time.
277
 
Before the date funds would have been required to comply with this requirement, the 
Commission experienced a cybersecurity incident that resulted in unauthorized access to certain 
nonpublic information on the EDGAR system.
278
 As part of the Commission’s ongoing 
assessment of its internal cybersecurity risk profile, the Commission re-evaluated and modified 
the filing frequency for reports on Form N-PORT. The Commission required funds to file a 
the fund’s fiscal year. As an example, depending on a given fund’s fiscal year, reports on Form 
N-PORT that included information for Mar. 2020 were due between June 1, 2020, and July 30, 
2020. For instance, for funds with fiscal years ending Dec. 31, Sept. 30, June 30, or Mar. 30—
which is just under half of all funds—the due date of the filing was May 30, 2020. Because this 
was a Saturday, the filing deadline was extended until the next business day on Monday, June 1. 
See General Instruction A to Form N-PORT. 
274
 See Investment Company Reporting Modernization, Investment Company Act Release No. 
32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (“Reporting Modernization Adopting 
Release”), at section II.A; Investment Company Reporting Modernization, Investment Company 
Act Release No. 31610 (May 20, 2015) [80 FR 33589 (June 12, 2015)] (“Reporting 
Modernization Proposing Release”).
275
 See Reporting Modernization Adopting Release, supra note 274, at section II.A.
276
 See id., at paragraph following n.453.
277
 See id., at nn.461-462 and accompanying text.
278
 See Statement on Cybersecurity (Sept. 20, 2017), available at https://www.sec.gov/news/public-
statement/statement-clayton-2017-09-20; see also Testimony before the Financial Services and 
General Government Subcommittee of the Senate Committee on Appropriations (June 5, 2018), 
available at https://www.sec.gov/news/testimony/testimony-financial-services-and-general-
government-subcommittee-senate-committee.
197

report with the Commission for each month in the fund’s fiscal quarter no later than 60 days after
the end of each fiscal quarter and to maintain in their records the information that is required to 
be included on Form N-PORT not later than 30 days after the end of each month. In making this 
change, the Commission stated that it significantly reduced the sensitivity of the non-public data,
but that the staff would continue to monitor and solicit feedback on the data received and the use 
made (or expected to be made) of such data in furtherance of the Commission's statutory 
mission, as well as cybersecurity considerations and other matters deemed relevant by the 
staff.
279
The Commission applies controls and systems for the use and handling of filing systems 
for confidential information and associated confidential data in a manner that reflects the 
sensitivity of the data and is consistent with the maintenance of its confidentiality. The 
Commission also has gained additional experience in receiving and maintaining sensitive 
portfolio data on the EDGAR system. This experience includes, for example, the existing non-
public portions of Form N-PORT, which are subject to controls and systems designed to protect 
their confidentiality, as well as confidential treatment requests for reports on Form 13F.
280
 
Market events have reinforced the need for timely data regarding funds’ portfolios and 
the liquidity of those portfolios. For example, disruptions in the markets for Treasury securities 
and corporate bonds began near the end of the first quarter of 2020, but many funds’ reports on 
Form N-PORT reflecting these events were not due until June 1, 2020, or as late as the end of 
279
 See Amendments to the Timing Requirements for Filing Reports on Form N-PORT, Investment 
Company Act Release No. 33384 (Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)] at nn.36-39 and 
accompanying text.
280
 See Electronic Submission of Applications for Orders under the Advisers Act and the Investment
Company Act, Confidential Treatment Requests for Filings on Form 13F, and Form ADV-NR; 
Amendments to Form 13F, Investment Company Act Release No. 34635 (June 23, 2022) [87 FR 
38943 (June 30, 2022)], at section II.C.
198

July 2020. This meant that Commission staff were not able to review monthly filings, for 
example, to assess and analyze how the events were affecting funds or identify issues for further 
inquiry. Similarly, the Russian invasion of Ukraine began in late February 2022, when many 
funds were just filing their reports for the final quarter of 2021. This meant that when 
Commission staff were reviewing data to assess funds’ exposures to securities that could be 
affected by the invasion, the data was several months out of date.
281
 As a result, during major 
market events, the staleness of Form N-PORT data limits the Commission staff’s ability to 
develop a comprehensive understanding of the market. The stale data also can impede our ability
to contribute fully to interagency discussions of and responses to market events. 
Although funds are required to maintain the monthly data and produce it to Commission 
staff upon request, any such production would be done on an individual basis. In addition, 
making individual requests requires Commission staff to determine the appropriate funds from 
which to collect data, which can be particularly challenging when Commission staff is 
responding to market events but may not have the market data necessary to determine quickly 
which funds to prioritize in responding to the event. 
Requiring funds to file monthly reports on Form N-PORT within 30 days of the end of 
each month, consistent with the filing frequency the Commission initially adopted for Form N-
PORT, would enhance our ability to effectively oversee and monitor the activities of investment 
companies in order to better carry out our regulatory functions, consistent with the goals of Form
N-PORT reporting.
282
281
 As evidence mounted that an invasion was likely to occur, funds may have adjusted their 
exposure to securities that could be affected, but Commission staff were unable to review this on 
a market-wide basis until months after the invasion due to the delay in receiving information. 
282
 See, e.g., Reporting Modernization Proposing Release, supra note 274, at section IV.A. See also 
2015 Proposing Release, supra note 31, at text accompanying n.562.
199

We request comment on the proposed changes to the timing and frequency with which 
fund would be required to file reports on Form N-PORT, including:
201.As proposed, should we require that funds file reports on Form N-PORT on a 
monthly, rather than quarterly, frequency? Because funds are currently required to 
maintain the information required to prepare their reports on Form N-PORT on a 
monthly basis, within 30 days after the end of the reporting period, would they have 
any increased burden due to filing such information monthly, within 30 days after the 
end of the reporting period, as proposed?
202.As proposed, should we shorten the deadline for filing reports on Form N-PORT 
to 30 days after the end of the reporting period? Should we instead use a different 
deadline, such as 15, 45, or 60 days after the end of the reporting period? 
203.Should we, as proposed, revise General Instruction A of Form N-PORT and rule 
30b1-9 to remove the requirement for a fund to maintain in its records the information
that is required to be included on Form N-PORT no later than 30 days after the end of
each month because this information would be filed with the Commission under the 
proposal? 
b.Publication Frequency
We are proposing to make funds’ monthly reports on Form N-PORT public 60 days after 
the end of each monthly reporting period.
283
 Currently, only the report for the third month of 
every quarter is made public, meaning the proposal would triple the amount of data made 
available to investors on Form N-PORT in a given year. Thus, the proposal would enhance the 
ability of investors to review and monitor information about their funds’ portfolios.
284
283
 See proposed General Instruction F of Form N-PORT.
284
 We also propose to include additional information about the aggregate liquidity profiles of fund 
200

We continue to believe that publication of information collected on Form N-PORT can 
benefit investors by assisting them in making more informed investment decisions.
285
 The public 
availability of monthly information, rather than information only for the third month of each 
quarter, may enhance these benefits. For example, institutional investors could directly use the 
monthly information reported on Form N-PORT to evaluate fund portfolios and assess the 
potential for returns and risks of a particular fund, and other investors may benefit from third-
party analysis of the monthly data.
 
When the Commission first adopted Form N-PORT, it recognized potential negative 
effects from frequent publication of Form N-PORT data. For example, the Commission 
acknowledged the risk that frequent public disclosure could allow market participants to use 
funds’ reports on Form N-PORT to engage in predatory trading such as front-running.
286
 The 
Commission also recognized that more frequent public disclosure could permit free riding on a 
fund’s research or trading expenditures by allowing other market participants to copy the fund’s 
trades.
287
 In determining to maintain the status quo of quarterly public reporting based on the 
fund’s fiscal quarters, the Commission stated that it was important to assess the impact of the 
data reported on Form N-PORT on the mix of information available to the public, and the extent 
to which these changes might affect the potential for predatory trading, before determining 
portfolios. See infra section II.E.1.c.
285
 See Reporting Modernization Adopting Release, supra note 274, at section II.A.4. 
286
 See Reporting Modernization Adopting Release, supra note 274, at text accompanying n.488. 
See also Investment Company Reporting Modernization, Investment Company Act Release No. 
32936 (Dec. 8, 2017) [82 FR 58731 (Dec. 14, 2017)] (noting same concerns).  
287
 Id. But see Morningstar Comment Letter on Reporting Modernization Proposing Release, File 
No. S7-08-15, available at https://www.sec.gov/comments/s7-08-15/s70815-355.pdf (discussing 
data that funds providing more frequent disclosure do not appear to exhibit lower returns as a 
result of predatory behavior).
201

whether more frequent or more timely public disclosure would be beneficial to investors in 
funds.
288
 
Since the adoption of Form N-PORT, funds’ practices with respect to disclosure of 
information about their portfolios have continued to evolve. For example, many funds, including 
actively managed funds, voluntarily provide their complete portfolio holdings on their websites 
on a monthly basis, typically lagged 30 days. Further, ETFs, including actively managed ETFs, 
generally are required to provide transparency into their portfolio holdings on a daily basis.
289
 
Many funds also provide monthly information about their portfolio holdings to third party data 
aggregators, generally with a lag of 30 to 90 days, which in turn make them available to 
investors for a fee. We believe this demonstrates that investor demand for monthly portfolio 
holdings already exists and that funds providing the information have determined the potential 
for predatory trading is justified by the benefit to investors. The proposal would simply allow all 
investors to receive similar data without paying a fee.
290
 Thus, we believe that many funds 
already provide public transparency of their portfolio holdings more frequently than the proposal
would require, and that our proposal would level the playing field by standardizing the reporting 
288
 Reporting Modernization Adopting Release, supra note 274, at text accompanying nn.494-499 
and accompanying text. 
289
 See 17 CFR 270.6c-11(c)(1)(i); Exchange-Traded Funds, Investment Company Act Release No. 
33646 (Sep. 25, 2019) [84 FR 57162 (Oct. 24, 2019)] (“ETF Release”), at section II.C.4 (stating 
that, although a few commenters raised concerns about front running or free riding if certain 
ETFs were required to provide full daily portfolio transparency, the Commission believed it was 
likely that all current ETFs that may rely on the rule already provide full portfolio transparency as
a matter of market practice). In addition, a small number of “nontransparent” ETFs have received 
an exemptive order from the Commission permitting them not to disclose their portfolio holdings 
on a daily basis. As of Mar. 31, 2022, there were 45 nontransparent ETFs. Several of these 
nontransparent ETFs voluntarily disclose their complete portfolios on a monthly basis with a one-
month lag. 
290
 For example, we understand that a majority of funds provide monthly information regarding their
portfolios to a third-party data aggregator. Individual investors are able to review the holdings 
reported by funds providing data to the aggregator using an analysis tool for which the aggregator
charges a fee. 
202

timelines for all funds, putting the data in a single location that all investors can access without 
charge, and using a standardized format that enables investor analysis of reported data.
291
 In 
addition, under the proposal, the public information for each fund’s monthly report on Form N-
PORT would not be publicly available until 60 days after the end of the month, which is the 
same delay that currently exists for funds’ reports for the third month of every quarter. This is 
designed to balance the benefits to investors of more frequent portfolio disclosure, while also 
retaining the existing 60-day delay, which we believe is appropriate in order to make the 
disclosed positions less timely and thus less likely to facilitate predatory trading practices.
292
 As a
result, and given that the proposal would provide data for additional monthly periods but would 
not change the current 60-day delay in making funds’ reports on Form N-PORT public, the 
proposal is intended to mitigate opportunities for predatory trading or free riding of funds’ 
trading strategies.
293
Furthermore, the proposal is intended to benefit investors through increased transparency 
of Form N-PORT information, especially because it is provided in structured format and made in
291
 In addition, because we propose to make funds’ reports on Form N-PORT available for every 
month, investors could use Form N-PORT to monitor how their funds respond to events 
regardless of when they occur. For example, investors in some funds have access to Form N-
PORT filings for Mar. 2020, while investors in other funds do not. This is because Form N-PORT
data is publicly available for the third month of each fund’s fiscal quarter, but fiscal quarters vary 
among funds. 
292
 Section 45(a) of the Investment Company Act requires information in reports filed with the 
Commission pursuant to the Act be made public unless we find that public disclosure is neither 
necessary nor appropriate in the public interest or for the protection of investors. For the reasons 
discussed above, we preliminarily believe that keeping the data for the first and second months of
a fund’s calendar quarter confidential until the expiration of the 60-day period provided by the 
proposal is necessary or appropriate in the public interest for the protection of investors.
293
 Form 13F is due 45 days after the end of each calendar quarter, meaning that every third month, 
a fund’s disclosure on Form N-PORT would not be the first mandatory disclosure of its portfolio. 
Funds currently have the ability to designate certain holdings for the third month in every quarter 
as “miscellaneous securities,” which are not disclosed publicly on Form N-PORT. Because we 
propose that all filings would eventually become public, we are extending this to filings for each 
month. See text accompanying infra note 319.
203

a single, centralized database. Giving investors access to this information in monthly reports on 
Form N-PORT may result in investors being better able to monitor the portfolios of their funds in
a systematic fashion, and assist investors in choosing the investment products that most closely 
align with their desired levels of risk, asset exposures, and liquidity profiles. 
The proposed reporting requirement also takes into account the cybersecurity risk profile 
of the information we are collecting. Under the proposal, we would receive the monthly 
information 30 days after the end of each month. Because the monthly information reported on 
Form N-PORT would be made public 30 days after it is filed with the Commission, the 
Commission would retain less confidential information than under the final rules the 
Commission adopted in 2016. This is because, under the proposal, information for each month 
would become public shortly after filing instead of information in only the third month of each 
quarter being publicly disclosed.
Currently, certain information reported on Form N-PORT is nonpublic, even in the report
for the third month of the quarter that is otherwise publicly available. This aspect of the form is 
unchanged in this proposal, and that information—which includes liquidity classifications for 
individual portfolio investments—would remain nonpublic in individual reports. However, 
Commission staff may publish aggregate or other anonymized information about the nonpublic 
elements of reports on Form N-PORT.
294
  
We request comment on the proposed changes to the frequency with which funds’ reports
on Form N-PORT would be made public, including:
204.Should we, as proposed, make funds’ reports on Form N-PORT public on a 
monthly basis, 60 days after the end of the month to which they relate? How would 
294
 See General Instruction F of Form N-PORT.
204

investors use the additional information? Are there other potential users of public 
portfolio disclosures, including third-party users that provide services to investors, 
who find the additional information useful, and through whom investors could benefit
indirectly? 
205.Many funds already provide monthly information about their portfolio holdings 
on their websites. Would investors benefit from having centralized information on 
Form N-PORT that includes all funds, rather than having to look at each fund’s 
website? Would investors benefit from having the information in a structured format 
rather than the format the fund uses on its website? Would the proposed requirement 
reduce costs for investors who currently use data aggregators to obtain holdings 
information regarding the funds in which they invest? 
206.Should the lag between filing and publication be extended, for example to 45 days
after filing, or shortened, for example to 15 days after filing? Should reports be made 
public immediately upon filing?  
207.Previously, some have suggested that more frequent public disclosure could raise 
costs for investors due to predatory trading or copy-catting of fund strategies. Given 
that the proposal would provide data for additional monthly periods but would not 
change the current 60-day delay in making funds’ reports on Form N-PORT public, 
would the proposal raise costs for investors due to predatory trading or copy-catting? 
What empirical data exists that supports these assertions? 
208.Would actively managed nontransparent ETFs, which generally do not disclose 
their complete portfolios on a daily basis, be affected by the proposed requirement to 
disclose their portfolio on a 60-day delay differently than other actively managed 
205

funds, and should we permit these funds to disclose their portfolios less frequently as 
a result? 
209.Do funds voluntarily publish data about their portfolios to compete for investors, 
notwithstanding potential effects on their performance? 
210.Are there certain items on Form N-PORT that we propose to make public on a 
monthly basis that should only be public on a quarterly basis? If so, why is monthly 
disclosure of the relevant item neither necessary nor appropriate in the public interest 
or for the protection of investors?
c.Public Reporting of Aggregate Liquidity Classifications
We are proposing to require that funds’ monthly reports on Form N-PORT would include
the percentage of a fund’s assets that fall into each of the three liquidity categories.
295
 To give 
effect to the proposed adjustments to a fund’s calculations of its level of highly liquid 
investments and illiquid investments in the liquidity rule, a fund would be required to make the 
same adjustments to its reported amount of highly liquid investments and illiquid investments, 
rather than simply report the percent of assets the fund has classified in each category. 
Specifically, a fund would reduce its reported amount of highly liquid assets by the amount of 
highly liquid assets that it posts as margin or collateral for derivatives transactions that are not 
highly liquid and by the amount of the fund’s liabilities. A fund also would increase its reported 
amount of illiquid assets by the amount of collateral available upon exit of illiquid derivatives 
transactions.
296
 The fund’s adjustments are intended to more accurately reflect the availability of 
295
 See proposed Item B.12.a of Form N-PORT.
296
 See proposed Items B.8 and B.12.b of Form N-PORT. In certain situations, the adjustments 
could result in the amounts of a fund’s investments in all three categories not summing to 100% 
of assets. For example, the reduction in the reportable amount of highly liquid assets may be 
greater than the increase in the reportable amount of illiquid assets, resulting in the percentages of
the fund’s assets in each category summing to an amount below 100%. Funds would be required 
206

assets to meet redemptions. We propose to require that a fund’s reported aggregate liquidity 
classifications include these adjustments, rather than report the adjustments separately, to make it
easier for investors to understand the information a fund reports about its liquidity.  
The public disclosure framework we are proposing is similar to the framework the 
Commission adopted in 2016.
297
 At that time, the Commission determined to require a fund to 
publicly disclose the aggregate percentage of its portfolio assets representing each of the 
classification categories to balance some commenters’ concerns about potential adverse effects 
that could arise from public reporting of detailed portfolio liquidity information with investors’ 
need for improved information about funds’ liquidity risk profiles.
298
 
As funds began to implement the liquidity rule’s classification requirements, and before 
funds were required to provide public disclosure of aggregate liquidity classifications, the 
Commission received additional information about the potential challenges and concerns of 
publicly disclosing a fund’s aggregate liquidity profile at that time, namely the risk that the data 
would be subjective, that it was presented in isolation, and that it lacked the context of other 
disclosures about the fund.
299
 In response, the Commission replaced this disclosure with narrative
liquidity disclosure in 2018.
300
 In removing the requirement to report aggregate liquidity 
classifications, the Commission stated that the subjectivity involved in the classification process 
to increase their reported amounts of moderately liquid investments if necessary to make the 
amounts the fund reports sum to 100%. See proposed Item B.12.b of Form N-PORT.
297
See Liquidity Rule Adopting Release, supra note 8, at section III.C.6.c.
298
 See id., at text accompanying n.621.
299
 See Investment Company Liquidity Disclosure, Investment Company Act Release No. 33046 
(Mar. 14, 2018) [83 FR 11905 (Mar. 19, 2018)] (“2018 Liquidity Disclosure Proposing Release”)
at nn.9-13 and accompanying text.  
300
 See 2018 Liquidity Disclosure Adopting Release, supra note 22. For discussion generally of the 
Commission’s stated rationale for making this change, see generally id. and 2018 Liquidity 
Disclosure Proposing Release, supra note 299.
207

raises concerns when applied to public disclosure. Specifically, the Commission expressed 
concern that the quantitative presentation of the aggregate liquidity information may imply 
precision and uniformity in a way that obscures its subjectivity, and that funds may face 
incentives to classify their investments as more liquid in order to make their funds appear more 
attractive to investors, while also potentially increasing the risk of herding if funds adjusted their 
portfolios in response to the disclosure requirement. In addition, the Commission believed that it 
would not be appropriate to adapt Form N-PORT to provide narrative context to help investors 
appreciate the fund’s liquidity risk profile and the subjective nature of classification. 
The Commission judged at that time that effective disclosure of liquidity risks and their 
management would be better achieved through prospectus and shareholder report disclosure 
rather than Form N-PORT, and adopted a requirement to disclose in a narrative format a brief 
discussion of the operation and effectiveness of its liquidity risk management program in the 
fund’s shareholder reports. The intent of the narrative framework was to provide investors with a
holistic view of the liquidity risks of the fund and how effectively the fund’s liquidity risk 
management program managed those risks on an ongoing basis over the reporting period.
301
 
In practice, though, the narrative disclosure did not meaningfully augment other 
disclosure requirements.
302
 Instead, based on staff experience with several years of shareholder 
reports covering a range of market conditions, including a market crisis in March 2020 that 
included substantial liquidity concerns for certain securities, we found that the narrative 
disclosure often appeared as a lengthy, boilerplate recitation of the requirements of rule 22e-4 
that was not tailored to a particular fund and did not change as conditions in the market changed. 
301
 See, e.g., supra section II.A.1. To the extent a fund would be incentivized to manage its portfolio
so as to report higher amounts of highly liquid investments, we believe this would be consistent 
with the focus in section 22 of the Act on preserving the redeemability of open-end funds. 
302
 Tailored Shareholder Reports Adopting Release, supra note 26, at text accompanying n.463.
208

For example, many funds’ liquidity disclosures did not change after the events of March 2020, 
even for funds that invested in assets that had experienced severe liquidity issues. This meant 
that investors had limited information about the liquidity of fund investments or how the fund 
managed that liquidity risk through these stressful events. We believe that this prevented 
investors from fully evaluating the liquidity risks associated with a particular fund for purposes 
of making more informed investment decisions. 
Investors and funds have made similar observations. In 2020, when the Commission 
proposed amendments designed to streamline fund shareholder reports, some commenters 
requested that we require funds to disclose their aggregate liquidity buckets.
303
 Other commenters
stated that the narrative disclosure is not particularly relevant to investment decision making.
304
 
Several other commenters also stated that they believed the narrative disclosure should be moved
from shareholder reports.
305
 We recently adopted amendments that remove the requirement to 
disclose the narrative disclosure in the shareholder reports.
306
 
303
 See, e.g., Comment Letter of Consumer Federation of America on 2020 Tailored Shareholder 
Reports Proposing Release, File No. S7-09-20 (“[S]trongly encourag[ing] the Commission to 
reconsider its decision” to remove aggregate liquidity disclosure and characterizing narrative 
disclosure as “boilerplate.”); see also Comment Letter of Tom and Mary on 2020 Tailored 
Shareholder Reports Proposing Release, File No. S7-09-20 (“We think funds should be required 
to disclose their aggregate liquidity bucketing in their annual report. We believe this information 
is important to investors and will help them appreciate any liquidity risk.”). The comment file for 
the 2020 Tailored Shareholder Reports Proposing Release, where these comment letters are 
available, is at https://www.sec.gov/comments/s7-09-20/s70920.htm.
304
 See, e.g., Comment Letter of Ubiquity on 2020 Tailored Shareholder Reports Proposing Release,
File No. S7-09-20 (“Disclosure [of liquidity information in narrative format] is currently 
worthless and even with” the proposed changes which were designed to retain the narrative 
format, it “will continue to be worthless.”); see also Comment Letter of Tom Williams on 2020 
Tailored Shareholder Reports Proposing Release; Feedback Flier of Olivia Brightly on 2020 
Tailored Shareholder Reports Proposing Release. 
305
See, e.g., Comment Letters of Morningstar Trustees, ICI, SIFMA. Fidelity, Dechert, James 
Angel, Lisa Barker, and T. Rowe Price on 2020 Tailored Shareholder Reports Proposing Release.
306
 See Tailored Shareholder Reports Adopting Release, supra note 26. 
209

Our proposed amendments to the liquidity rule, along with the years of experience that 
funds have gained in complying with the current rule, also have made the concerns the 
Commission identified in 2018 less relevant. Since 2018, the staff has conducted outreach with 
numerous market participants, including fund complexes, liquidity classification vendors, and 
others, and we are proposing several changes to rule 22e-4 that would prescribe additional 
parameters for many aspects of the classification process. These changes include introducing the 
concept of a 10% stressed trade size, establishing a minimum value impact standard, and 
removing asset class classifications, which would reduce subjectivity in classifications and 
reduce variation in funds’ classification practices, even if incentives for a fund to mis-classify its 
investments remain.
307
 These changes are intended to reduce the risk of subjectivity impeding an 
investor’s understanding. 
To the extent that subjectivity remains, investors reviewing this information on Form N-
PORT also will have access to additional information in fund prospectuses and shareholder 
reports, which are delivered directly to investors. Prospectuses and shareholder reports would 
provide additional information about the fund and context for the liquidity disclosure in Form N-
PORT, such as information about the factors affecting a fund’s risks, returns, and performance.
308
In addition, the fact that the aggregate liquidity information would be required to change as 
liquidity conditions in the market change, and that investors would be able to review these 
changes on a monthly basis and compare them against the fund’s prior reports would provide 
additional context for investors who desire this information. Investors could also compare the 
fund’s reports to reports of similar funds, which could aid their understanding by allowing them 
307
 See, e.g., supra section II.A.1 and note 301. 
308
 See Reporting Modernization Adopting Release, supra note 274, at text following n.486 (“Form 
N–PORT is not primarily designed for disclosing information to individual investors . . .”).
210

to focus on the differences. Finally, the proposed aggregate liquidity disclosure could improve 
the mix of information available to investors. Though reports on Form N-PORT do not provide 
information regarding a fund’s investment strategy and risk factors, the information reported on 
Form N-PORT may complement the other information already available to investors in order to 
allow them to develop a fuller understanding of the fund and its risks. 
We request comment on the proposed public availability of the aggregate liquidity 
classifications funds would report on Form N-PORT, including:
211.Should we, as proposed, require funds to report publicly information regarding 
the aggregate percentage of their portfolio in each of the three proposed liquidity 
classification categories? Should we, as proposed, require that this information be 
reported publicly on a monthly basis and, if not, what factors are unique to liquidity 
information that should result in it being publicized on a different frequency than 
other information on Form N-PORT? Instead of, or in addition to, the percentages of 
a fund’s investments in each of the three proposed liquidity categories, should we 
require additional information to be reported? Is there any additional context, such as 
narrative disclosure, that would also be useful to investors? Should that narrative 
disclosure be located in Form N-PORT or somewhere else (e.g., a fund prospectus, 
shareholder report, or website)?
212.Instead of, or in addition to, aggregate liquidity information, should we require 
position-level liquidity classifications to be reported publicly on Form N-PORT? 
Should we instead require position-level liquidity classifications to be reported 
publicly on a different form, such in a fund’s annual and semi-annual reports? How 
frequently should this information be reported? Would position-level liquidity 
211

reporting improve funds’ liquidity classifications by allowing the public to review 
and scrutinize liquidity classifications? Would position-level liquidity reporting 
improve consistency in classification practices across funds by allowing funds to see 
how other similarly situated funds had classified the same or similar investments? 
Would position-level liquidity reporting improve investor access to or understanding 
of liquidity information, or would this information be difficult for investors to 
synthesize or understand? Would position-level liquidity reporting simplify the 
reporting framework for funds if this disclosure were in lieu of separate aggregate 
presentations? Would changes to the proposal, such as changes to how funds report 
the effect of the collateral they hold against derivatives that are not highly liquid, or 
the effect of liabilities, be necessary if we were to require position-level liquidity 
reporting? Would there be potential negative effects of position-level liquidity 
reporting? For example, would position-level liquidity reporting result in investors 
being able to infer information about a fund or company, such as being able to 
determine that a fund has material nonpublic information about an issuer because the 
fund categorizes the issuer’s securities as illiquid? Would position-level liquidity 
reporting result in funds’ counterparties engaging in predatory trading practices with 
funds, for example by adjusting the prices they bid for certain assets of a fund due to 
granular knowledge of how the fund categorizes the liquidity of its portfolio? 
213.Should we, as proposed, require adjustments to the percentages of funds’ assets in
the proposed liquidity categories to account for certain derivatives transactions? 
Should we instead require information about derivatives transactions to be reported 
separately? Should certain derivatives transactions be treated differently for these 
212

purposes, for example by making differing adjustments based on whether a derivative
is exchange-traded, centrally cleared, made with certain categories of counterparty, or
otherwise? Should we require differing adjustments for derivatives transactions 
depending on the purpose, for example whether they are intended to hedge currency 
or interest rate risks associated with one or more specific equity or fixed-income 
investments held by the fund as described in rule 18f-4(c)(4)(i)(B)? Are there any 
changes we should make to aid investor understanding of how funds’ use of 
derivatives affects their liquidity? 
214.We propose to require that if the reported sum of a fund’s investments in each of 
the three categories does not equal 100%, the fund must adjust the percentage of 
assets attributed to the moderately liquid investment category so that the sum of the 
fund’s investments in each category equals 100%. Should we take a different 
approach, such as making the adjustment optional, or permitting a fund to report 
aggregate percentages that do not sum to 100%? Should we permit or require funds to
provide additional information, such as an explanatory note that the totals have been 
adjusted and the amount of the adjustment? Are there other metrics for which we 
should permit or require funds to modify the reported amounts? 
215.Would fund prospectuses and shareholder reports delivered directly to investors 
provide sufficient context for the fund’s aggregate liquidity information that would be
disclosed on Form N-PORT under the proposal? Because Form N-PORT is not 
delivered to investors, would investors who have sought out Form N-PORT 
disclosure in the first instance be more likely to consider the information in the 
context of other publicly available information about the fund? If investors would not 
213

have sufficient context when reviewing Form N-PORT, should we address this by 
requiring that funds send their most recent report on Form N-PORT to investors when
they send other communications, such as their periodic reports or prospectus updates?
216.Instead of, or in addition to, including information regarding funds’ aggregate 
liquidity profiles in Form N-PORT, as proposed, should we require that it be included
in other documents, such as funds’ annual and semi-annual shareholder reports? If so,
should the disclosure included in funds’ annual and semi-annual shareholder reports, 
or other documents, differ from what we propose to include in Form N-PORT? For 
example, should any disclosure in funds’ annual and semi-annual shareholder reports,
or other documents be in a different format, such as a pie chart, or also include 
narrative disclosure to allow funds to provide additional context? 
d.Other Proposed Amendments to Form N-PORT
In addition to our proposed amendments to require more timely reporting of information 
and to enhance public transparency of funds’ portfolio holdings and liquidity classifications, we 
are proposing a few additional amendments to Form N-PORT. These additional amendments 
include a new reporting item related to swing pricing, amendments to certain existing items to 
account for the proposal to make monthly Form N-PORT information available to the public, 
other conforming amendments to reflect the proposed amendments to rule 22e-4, and 
amendments to certain entity identifiers. 
In connection with our proposed amendments to swing pricing, we are proposing to 
require enhanced transparency into the frequency and amount of a fund’s swing pricing 
adjustments. Currently, if a fund were to engage in swing pricing, it would only be required to 
report on Form N-CEN if the fund engaged in swing pricing during a given year and, if so, the 
214

swing factor upper limit established by the fund.
309
 We are proposing to remove that reporting 
requirement on Form N-CEN and replace it with a new reporting requirement on Form N-PORT 
that would require information about the number of times the fund applied a swing factor during 
the month and the amount of each swing factor applied.
310
 To recognize that a swing factor 
adjustment could be positive (when the fund has net purchases) or negative (when the fund has 
net redemptions), we propose to specify that a fund must use a plus sign before a positive swing 
factor and a minus sign before a negative swing factor.
311
 More frequent and detailed information
about a fund’s use of swing pricing is intended to help the Commission assess the size of the 
price adjustments funds are making during normal and stressed market conditions, as well as 
how often funds apply swing factor adjustments. The public may also benefit from this 
information to help facilitate an understanding of the frequency and size of swing factor 
adjustments.
In addition, we are proposing to amend items that currently require funds to report certain
return and flow information for each of the preceding three months.
312
 Rather than require 
information for the preceding three months, we are proposing to instead require a fund to report 
that information only for the month that the Form N-PORT report covers.
313
 The Commission 
currently requires return and flow information for the preceding three months in a single report 
to provide investors access to monthly data for a given quarter, given that investors currently 
309
 See Item C.21 of current Form N-CEN.
310
 See proposed Item B.11 of Form N-PORT. Funds would be instructed to respond with “N/A” 
when appropriate. 
311
 We also propose to add a definition of “swing factor” to Form N-PORT, which would cross 
reference the definition of this term in proposed rule 22c-1(d). See General Instruction E of 
proposed Form N-PORT.
312
 See Item B.5 and Item B.6 of current Form N-PORT.
313
 See Item B.5 and Item B.6 of proposed Form N-PORT.
215

only have access to Form N-PORT reports for the third month of each quarter.
314
 Monthly data 
for the preceding three months was also intended to avoid a potential investor misperception that 
one month’s returns or flows represented returns or flows for the full quarter.
315
 Because, under 
our proposal, investors would have access to monthly Form N-PORT reports, we propose to 
amend the period for which a fund must report return and flow information to align with monthly
public reporting.
For similar reasons, we are proposing to amend Part F of Form N-PORT, which currently
requires a fund to attach its complete portfolio holdings for the end of the first and third quarters 
of the fund’s fiscal year, presented in accordance with Regulation S-X, within 60 days after the 
end of the reporting period. We are proposing to require funds to file this disclosure within 60 
days of the end of the reporting period for each month, with the exception of the last month of 
the fund’s second and fourth fiscal quarters, because the latter portfolio holdings information is 
already available in funds’ annual and semi-annual reports.
316
 That is, we propose that funds 
would be required to file the portfolio disclosure on Part F of Form N-PORT ten times per year, 
instead of the current requirement to file twice per year. When the Commission adopted Part F of
Form N-PORT, it recognized that not all investors may prefer to receive portfolio holdings 
information in a structured XML format, and instead might prefer portfolio holdings schedules 
presented using the form and content specified by Regulation S-X.
317
 The Commission stated that
314
 See Reporting Modernization Adopting Release, supra note 274, at paragraphs accompanying 
nn.225, 232, and 250.
315
 See id., at paragraphs accompanying nn.225 and 250.
316
 See Part F of proposed Form N-PORT. Currently, Part F of Form N-PORT does not require 
information for the second and fourth quarters of the fund’s fiscal year for the same reason. See 
Item 6 of Form N-CSR and Reporting Modernization Adopting Release, supra note 274, at 
section II.J.
317
Id. at section II.A.2.j.
216

requiring funds to attach these portfolio holdings schedules to reports on Form N-PORT would 
provide the Commission, investors, and other potential users with access to funds’ current and 
historical portfolio holdings for those funds’ first and third fiscal quarters, as well as consolidate 
these disclosures in a central location, together with other fund portfolio holdings disclosures in 
reports on Form N-CSR for funds’ second and fourth fiscal quarters.
318
 In conformance with the 
proposed requirement for funds to file their structured portfolio schedules on a monthly basis, 
and to make the monthly disclosure more useable for investors, we propose to amend Part F of 
Form N-PORT so that investors would be able to access unstructured portfolio schedules 
presented in accordance with Regulation S-X on the same frequency. 
Similarly, we are proposing to amend Part D of Form N-PORT regarding miscellaneous 
securities to align with the proposal to make monthly Form N-PORT reports publicly available. 
Form N-PORT currently contemplates that detailed information about miscellaneous securities, 
which would remain nonpublic, would only be included in reports filed for the last month of 
each fiscal quarter.
319
 This is because today all information reported on Form N-PORT for the 
first and second months of each quarter is nonpublic, which means there is no need for funds to 
designate any of their investments for those reporting periods as miscellaneous securities.
320
 
Although our proposed shift from quarterly to monthly public reporting is intended to improve 
public transparency of funds’ portfolio holdings, we continue to believe that treating information 
318
 Id. 
319
 See Part D of current Form N-PORT. The form permits funds to report as “miscellaneous 
securities” an aggregate amount of portfolio investments that does not exceed 5% of the total 
value of the fund’s portfolio investments, provided that the securities included in this category are
not restricted, have been held for not more than one year prior to the date of the related balance 
sheet, and have not previously been reported by name to the shareholders, or set forth in any 
registration statement, application, or report to shareholders or otherwise made available to the 
public.
320
 See Reporting Modernization Adopting Release, supra note 274, at text following n.424.
217

related to miscellaneous securities as nonpublic may serve to guard against the premature release
of those securities positions and thus deter front-running and other predatory trading practices, 
and that for this reason public disclosure of miscellaneous securities continues to be neither 
necessary nor appropriate in the public interest or for the protection of investors.
321
 At the same 
time, it is important for the Commission to receive more detailed information about 
miscellaneous securities holdings so the Commission has a complete record of the portfolio for 
monitoring, analysis, and checking for compliance with Regulation S-X.
322
 As a result, we are 
proposing to amend Part D of Form N-PORT to remove the language that limits reporting of 
nonpublic information about individual miscellaneous securities holdings to reports filed for the 
last month of each fiscal quarter. The proposed amendment would allow funds in their monthly 
Form N-PORT reports to report publicly the aggregate amount of miscellaneous securities held 
in Part C, while requiring funds to provide more detailed information in Part D about the 
individual holdings in the miscellaneous securities category to the Commission on a nonpublic 
basis.
We are also proposing amendments to Form N-PORT to reflect the proposed 
amendments to rule 22e-4. For example, because we are proposing to remove the concept of a 
reasonably anticipated trade size from rule 22e-4, we are proposing to replace references to this 
concept in an instruction related to classifying portions of a single holding in multiple liquidity 
categories with references to the stressed trade size concept.
323
 We are also proposing to revise 
the liquidity classifications a fund will report to reflect the revisions to the liquidity categories in 
321
 See id. at n.421 and accompanying text. 
322
 See Reporting Modernization Adopting Release, supra note 274, at section II.A.2.h (requiring 
that information about miscellaneous securities be reported to the Commission on a nonpublic 
basis).  
323
 See Instructions to Item C.7 in proposed Form N-PORT.
218

rule 22e-4.
324
 Because we are proposing improvements to the way that a fund treats collateral for 
certain derivatives transactions when calculating whether it holds sufficient assets to meet its 
highly liquid investment minimum or holds an amount of illiquid assets that exceeds the 15% 
limit, we also are proposing to revise the information open-end funds must report about the 
collateral posted as margin or collateral in connection with certain derivatives transactions.
325
 We
are similarly proposing to revise the information a fund would report about the fund’s highly 
liquid investments to reflect that not all highly liquid investments will count toward the fund’s 
highly liquid investment minimum.
326
 In addition to reflecting changes to rule 22e-4, these 
changes are also designed to provide additional information to Commission staff regarding a 
fund’s level of highly liquid assets and illiquid assets and the effect of derivatives transactions on
that amount. 
In addition, we propose to amend certain items and definitions related to entity identifiers
in the form. Specifically, we propose to amend the definition of LEI in the form to remove 
language providing that, in the case of a financial institution that does not have an assigned LEI, 
a fund should instead disclose the RSSD ID assigned by the National Information Center of the 
Board of Governors of the Federal Reserve System, if any.
327
 Instead of classifying an RSSD ID 
as an LEI for these purposes, we propose to provide separate line items where a fund would 
324
 See Item B.8 in proposed Form N-PORT; General Instruction E (Definitions) in proposed Form 
N-PORT.
325
 See Item B.8 in proposed Form N-PORT. The proposed revisions would require a fund to report 
the value of its highly liquid investments that are assets that are posted as margin or collateral in 
connection with moderately liquid or illiquid investments, and would require a fund to report the 
value of any margin or collateral posted in connection with an illiquid derivatives transaction, 
where the fund would receive the value of the margin or collateral if it exited the derivatives 
transaction. 
326
 See Item B.7.b in proposed Form N-PORT. 
327
 See General Instruction E of proposed Form N-PORT.
219

report an RSSD ID, if available, in the event that an LEI is not available for an entity.
328
 This 
change is designed to improve consistency and comparability of information funds report about 
the instruments they hold, including issuers of those instruments and counterparties to certain 
transactions. 
217.Should we require funds to report the number of times the fund applied a swing 
factor and each swing factor applied, as proposed? Should we require the median, 
highest, and lowest (non-zero) swing factor applied for each reporting period on Form
N-PORT, rather than require disclosure of each swing factor applied? 
218.Should we require funds to provide additional information about swing pricing in 
Form N-PORT reports, such as the swing pricing administrator’s determination to use
a lower market impact threshold or lower inflow swing threshold, if applicable? 
Should we separately require funds to disclose information about market impact 
factors, such as how many times a market impact factor was included in the swing 
factor each month and the size of those market impact factors (e.g., either the size of 
any market impact factor applied, or the median, highest, and lowest (non-zero) 
amount)? Should we require funds to provide information about their imposition of 
redemption fees under rule 22c-2, which funds can use to recoup some of the direct 
and indirect costs incurred as a result of short-term trading strategies, such as market 
timing? If so, should we require funds to disclose in reports on Form N-PORT the 
number of times they imposed redemption fees during the period and the amount of 
the fees? Should funds be required to itemize each fee charged, disclose the total 
328
 See Items B.4, C.1, C.10, and C.11 of proposed Form N-PORT.
220

amount charged during the period and the average fee charged, or some other 
presentation? 
219.Instead of, or in addition to, requiring information about swing pricing on Form 
N-PORT, should we require funds to provide information about their use of swing 
pricing in other locations? For example, would investors find this information more 
accessible if it were on fund websites, in registration statements, or in shareholder 
reports?
220.Should we require funds to provide return and flow information only for a single 
month, as proposed, or should we continue to require funds to provide return and flow
information for the preceding three months? Even though investors would have 
access to monthly reports on Form N-PORT, is it helpful to have return or flow 
information for previous months in a single report to have a readily available point of 
comparison?
221.Should we amend Form N-PORT to continue to maintain the confidentiality of 
information about a fund’s miscellaneous securities for each reporting period, as 
proposed? Are there other conforming amendments we should make to align Form N-
PORT reporting requirements with the proposed changes to the frequency funds must 
file these reports and the timeline for filing and public availability?
222.Should we amend Form N-PORT to require a fund to attach its complete portfolio
holdings presented in accordance with Regulation S-X within 60 days after the end of
each month except for the last month of the fund’s second and fourth fiscal quarters, 
as proposed? Should we instead require a fund to file this information on a different 
frequency, such as every month, without exception? Should we maintain the current 
221

filing schedule? Should we require funds to attach this information within a different 
timeframe, such as no later than 45 days or 75 days after the end of the reporting 
period? If we make changes to other aspects of the proposal, such as changes to the 
frequency funds file reports on Form N-PORT, the delay between the end of the 
reporting period and filing, or the time at which filings are made public, should we 
also make conforming changes to Part F? 
223.Are our proposed amendments to remove references to the concept of a 
reasonably anticipated trade size in Form N-PORT and replace them with references 
to the stressed trade size effective? Are there other conforming amendments we 
should make to align Form N-PORT with the liquidity rule amendments?
224.Should we, as proposed, amend Form N-PORT to require funds to identify the 
value of margin or collateral the fund has posted as margin or collateral in connection
with an illiquid derivatives transaction in order to provide a complete picture of the 
amount of illiquid investments for purposes of the liquidity rule’s 15% limit?
225.As proposed, should we amend the definition of LEI in the form and provide a 
separate item for providing an RSSD ID as an identifier, as applicable?
2.Amendments to Form N-CEN
We are proposing amendments to Form N-CEN to identify and provide certain 
information about service providers a fund uses to fulfill the requirements of rule 22e-4. The 
amendments would require a fund to: (1) name each liquidity service provider; (2) provide 
identifying information, including the legal entity identifier and location, for each liquidity 
service provider; (3) identify if the liquidity service provider is affiliated with the fund or its 
investment adviser; (4) identify the asset classes for which that liquidity service provider 
222

provided classifications; and (5) indicate whether the service provider was hired or terminated 
during the reporting period. This information would allow the Commission and other participants
to track certain liquidity risk management practices.
329
 As liquidity classification services have 
become more widely used, the proposal would require information about whether and which 
liquidity service providers are used, for what purpose, and for what period. Among other things, 
this information would help us better understand potential trends or outliers in funds’ liquidity 
classifications reported on Form N-PORT; for example, by analyzing classifications trends of 
specific vendors, we might distinguish patterns in how classifications might differ due to vendor 
models or data.
As described above, we also propose to remove the current disclosure in Item C.21 of 
Form N-CEN and replace it with a new reporting requirement on Form N-PORT to provide 
enhanced transparency into the frequency and amount of a fund’s swing pricing adjustments.
330
 
In addition, consistent with our proposed amendments to the definition of LEI in Form N-PORT,
we are proposing to make the same changes in Form N-CEN to separate the concepts of LEIs 
and RSSD IDs.
331
 
We request comment on the proposed amendments to Form N-CEN:
226.Would the proposed reporting on liquidity classification service providers assist 
investors and funds in better understanding how liquidity risk is managed at a fund? 
Should any other information be provided about the liquidity classification service 
provider?
329
 See Liquidity Rule Adopting Release, supra note 8, at n.973.
330
 Item C.21 of Form N-CEN is proposed to be revised to require disclosure on liquidity 
classification services, as described above.
331
 See Items B.16, B.17, C.5, C.6, C.9, C.10, C.11, C.12, C.13, C.14, C.15, C.16, C.17, D.12, D.13, 
D.14, E.2, F.1, F.2, F.4, and Instructions to Item G.1 of proposed Form N-CEN.
223

227.Should we require any information about a fund’s use of swing pricing on Form 
N-CEN? How would this information relate to the information we propose to require 
on Form N-PORT?
228.As proposed, should we amend Form N-CEN to separate the concepts of LEI and 
RSSD ID? As proposed, should funds be required to provide an RSSD ID, if 
available, when an LEI is not available?
F.Technical and Conforming Amendments 
In September 2019, the Commission adopted new rule 6c-11 to allow ETFs that satisfy 
certain conditions to operate without obtaining an exemptive order from the Commission.
332
 We 
are proposing to make a technical amendment to the definition of ETF in rules 22e-4 and 22c-1, 
as well as in Forms N-CEN and N-PORT, as a result of this rulemaking. Specifically, the 
proposed amendments would replace language in each definition that refers to “an exemptive 
rule adopted by the Commission” with a direct reference to rule 6c-11.
333
We are also proposing to make a conforming amendment to rule 31a-2. Specifically, this 
proposed amendment to the recordkeeping rule would replace the reference to the current swing 
pricing provisions in rule 22c-1(a)(3) with a reference to the proposed swing pricing provisions 
in rule 22c-1(b).
334
G.Exemptive Order Rescission and Withdrawal of Commission Staff 
Statements
In light of the scope of our proposed amendments to the liquidity rule, and pursuant to 
our authority under the Act to amend or rescind our orders when necessary or appropriate to the 
332
 See ETF Release, supra note 289.
333
 See proposed rule 22e-4(a) and proposed rule 22c-1(d); General Instruction E of proposed Form 
N-CEN and General Instruction E of proposed Form N-PORT.
334
 See proposed rule 31a-2(a)(2).
224

exercise of the powers conferred elsewhere in the Investment Company Act, we are proposing to 
rescind an exemptive order that relates to rule 22e-4.
335
 As this order’s representations and 
conditions, and the relief provided, are predicated on rule 22e-4 in its current form, the proposed 
amendments, if adopted, would render the order moot, superseded, and inconsistent with the 
final rule amendments. In addition, staff in the Division of Investment Management is reviewing 
its no-action letters and other statements addressing compliance with rules 22e-4 and 22c-1 to 
determine which letters and other staff statements, or portions thereof, should be withdrawn in 
connection with any adoption of this proposal. Upon the adoption of any final rule amendments, 
some of these letters and other staff statements, or portions thereof, would be moot, superseded, 
or otherwise inconsistent with the final rule amendments and, therefore, would be withdrawn. 
The staff review would include, but would not necessarily be limited to, the staff no-action 
letters and other staff statements listed below: 
Investment Company Liquidity Risk Management Programs Frequently Asked 
Questions (April 10, 2019);
Reflow, SEC Staff No-Action Letter (July 15, 2002);
Charles Schwab & Co., Inc., SEC Staff No-Action Letter (July 7, 1997);
Investment Company Institute, SEC Staff No-Action Letter (Feb. 9, 1973);
United Benefit, SEC Staff No-Action Letter (July 13, 1971);
Investment Company Institute, SEC Staff No-Action Letter (Mar. 24, 1970); and
Investment Companies: Share Pricing: SEC Staff Views, Investment Company Act 
Release No. 5569 [34 FR 383 (Dec. 27, 1968)].
335
 See J.P. Morgan Investment Management Inc., et al., Investment Company Act Release No. 
34180 (Jan. 21, 2021). See also section 38(a) of the Act, 15 U.S.C. 80a-37(a)
225

Additionally, the staff statements, or portions thereof, may be withdrawn following the 
relevant underlying transition period discussed in section II.H below, if adopted, as determined 
appropriate in connection with the staff’s review of those staff statements.
We request comment on the proposed rescission or withdraw of past Commission or staff
statements, and specifically on the following items:
229.Are there additional letters or other statements, or portions thereof, that should be 
withdrawn or rescinded? If so, commenters should identify the letter or statements, 
state why it is relevant to the proposed rule, how it or any specific portion thereof 
should be treated, and the reason.
230.If the amendments to the liquidity rule are adopted, are there any questions and 
responses in the staff FAQs that would still be relevant and helpful to retain?
336
H.Transition Periods 
We propose to provide a transition period after the effective date of the proposed 
amendments to give affected funds sufficient time to comply with any of the proposed changes 
and associated disclosure and reporting requirements, if adopted, as described below. Based on 
our experience, we believe the proposed compliance dates would provide an appropriate amount 
of time for funds to comply with the proposed rules, if adopted.
Twenty-Four-Month Compliance Date. We propose that 24 months after the effective 
date of the amendments, all registered open-end management investment companies, 
except for money market funds and exchange-traded funds, must comply with the 
proposed swing pricing requirement in rule 22c-1, as well as the swing pricing 
disclosures applicable to these funds in the proposed amendments to Forms N-PORT and 
336
 See Liquidity FAQs, supra note 79.
226

N-1A.
337
 We also propose that 24 months after the effective date of the amendments, 
funds, transfer agents, registered clearing agencies, and intermediaries must comply with 
the proposed “hard close” requirement in rule 22c-1, and funds must comply with related 
disclosure requirements we propose to require in Form N-1A.
338
Twelve-Month Compliance Date. The proposed compliance period for all other aspects of
the proposal is 12 months after the effective date of the amendments, if adopted, and 
includes the following:
oThe proposed amendments to rule 22e-4, which include: (1) amending the rule’s 
liquidity categories, including reducing the number of liquidity categories from 
four to three; (2) providing specific and consistent standards that funds would use 
to classify investments, including by setting a stressed trade size and defining 
when a sale or disposition would significantly change the market value of an 
investment; and (3) requiring daily classifications;
339
 and
oThe proposed amendments to Forms N-PORT and N-CEN, except the swing 
pricing-related disclosure on Form N-PORT.
We request comment on the proposed transition dates, and specifically on the following 
items:
231.Are the proposed compliance dates appropriate? If not, why not? Is a longer or 
shorter period necessary to allow affected funds to comply with one or more of these 
particular amendments, if adopted? If so, what would be a recommended compliance 
337
 See proposed rule 22c-1(b); Item B.11 of proposed Form N-PORT; and Item 6(d) of proposed 
Form N-1A.
338
 See proposed rule 22c-1(a); Item 11(a) of proposed Form N-1A.
339
 See proposed rule 22e-4.
227

date? Should we provide a longer compliance date for smaller funds, and if so what 
should this be (for example, 36 months for compliance with the swing pricing 
requirements, and 18 months for the other aspects of the proposal)? How should we 
define a “smaller fund” for this purpose? For example, should a smaller fund be a 
fund that, together with other investment companies in the same group of related 
investment companies, has net assets of less than $1 billion as of the end of its most 
recent fiscal year?
232.In particular, is a longer period necessary for funds to comply with the proposed 
removal of the less liquid investment category and the amendment to the scope of 
illiquid investments? How long might it take for funds and other parties to reduce the 
settlement times for bank loans and other investments that funds currently classify as 
less liquid investments? Is a longer period necessary for retirement plan 
recordkeepers or other intermediaries to make necessary changes to their systems?
233.Should the compliance dates be staggered for certain provisions? For example, 
should the compliance date for the hard close occur prior to the compliance date for 
swing pricing?
III.ECONOMIC ANALYSIS 
A.Introduction 
The Commission is mindful of the economic effects, including the benefits and costs, of 
the proposed amendments. Section 2(c) of the Act, Section 202(c) of the Advisers Act, and 
Section 3(f) of the Exchange Act direct the Commission, when engaging in rulemaking where it 
is required to consider or determine whether an action is necessary or appropriate in the public 
interest, to consider, in addition to the protection of investors, whether the action will promote 
228

efficiency, competition, and capital formation. In addition, Section 23(a)(2) of the Exchange Act,
requires the Commission, when making rules under the Exchange Act, to consider among other 
matters the impact that the rules would have on competition, and prohibits the Commission from 
adopting any rule that would impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Exchange Act. The analysis below addresses the likely 
economic effects of the proposed amendments, including the anticipated benefits and costs of the
amendments and their likely effects on efficiency, competition, and capital formation. The 
Commission also discusses the potential economic effects of certain alternatives to the 
approaches taken in this proposal. 
Open-end funds serve as intermediaries between investors seeking to allocate capital and 
issuers seeking to raise capital by pooling a portfolio of investments and selling the shares of this
portfolio to investors. A prominent feature of open-end funds is the mismatch between the 
immediate liquidity funds provide to their shareholders
340
 and the potential illiquidity of fund 
portfolio investments (“liquidity mismatch”). In order to pay net redemptions or invest proceeds 
from net subscriptions, a fund generally incurs trading costs, which can, among other things, take
the form of bid-ask spreads, commissions, markups, markdowns, or market impact (the tendency
of large trades to shift prices in the market). Therefore, the liquidity mismatch can lead to non-
negligible trading costs associated with selling the fund’s less liquid portfolio investments in 
order to meet investor redemptions or buying portfolio investments in order to accommodate 
investor subscriptions.
341
 
340
 Section 22(e) of the Act establishes a shareholder right of prompt redemption in open-end funds 
by requiring such funds to make payments on shareholder redemption requests within seven days 
of receiving the request.
341
 Unless otherwise specified, we use the term “less liquid” in this section to refer to investments 
that are on the lower end of the liquidity spectrum, and not solely investments that are classified 
as “less liquid investments” under the current rule 22e-4.
229

As such, the liquidity mismatch and associated trading costs in the open-end fund sector 
present several potential problems, including: (1) funds may not be able to meet the statutory 
obligation to satisfy investor redemptions within seven days without incurring significant trading
costs; (2) fund investors are subject to the risk of dilution; (3) fund investors’ anticipation that 
they may be diluted may create a first-mover advantage that incentivizes them to redeem their 
shares before other investors do; and (4) fire sales that can be provoked by an increased pressure 
to meet redemptions could further disrupt already stressed markets.
342
 
Market stress events, such as the one that occurred during March 2020, may exacerbate 
these issues.
343
 For example, during stress events investors may rebalance away from some 
investments into others for many reasons, including but not limited to, their general risk 
tolerance, legal or investment policy restrictions, or short-term cash needs. To the extent that 
such rebalancing activity is correlated across investors of the same fund or is correlated with 
deterioration in the liquidity of the fund’s underlying assets, trading costs for the funds’ 
underlying investments may increase and non-transacting fund shareholders may become 
exposed to increased dilution risk, which may lower future fund returns. In addition, the risk of 
investor dilution associated with the illiquidity of funds’ underlying investments may create a 
first-mover advantage that could lead to increased mutual fund redemptions.
344
Fund managers may not fully incorporate potential future fund shareholder dilution into 
their investment decisions for several reasons. First, potentially misaligned incentives between 
fund shareholders and fund managers may cause some fund managers to hold portfolios with 
liquidity levels that could be insufficient to meet redemptions without imposing significant 
342
 See infra section III.B.3 for additional discussion of these issues.
343
 See supra section I.B for a detailed discussion of the Mar. 2020 market events.
344
 See infra section III.B.3 for additional discussion.
230

dilution costs on non-transacting fund investors, especially during periods of market stress. 
Second, fund investors may not have granular and timely enough information to adequately 
assess the extent of the liquidity risk they are taking on and, therefore, cannot discipline the 
extent to which a fund manager exposes the fund’s shareholders to dilution risk. Finally, to the 
extent that first-mover advantage can lead to anticipatory mutual fund redemptions that could 
impose costs on other market participants,
345
 fund managers do not necessarily have an incentive 
to factor such costs into their investment decisions.
In light of these issues and our associated regulatory experience,
346
 the proposal seeks to 
further address liquidity externalities in the open-end fund sector. In particular, we expect the 
proposal to: (1) enhance open-end funds’ liquidity; (2) improve funds’ anti-dilution and 
resilience mechanisms for any given level of liquidity; and (3) increase the transparency of open-
end funds’ liquidity management practices. Together, the proposed amendments may mitigate 
liquidity externalities in the open-end fund sector by improving the ability of funds to meet 
redemptions without imposing significant trading costs on investors. This, in turn, may reduce 
the first-mover advantage associated with the dilution from trading costs and curtail run risk in 
open-end funds,
347
 which is consistent with recent analyses discussing how more robust liquidity 
345
 See e.g., Bing Zhu & René-Ojas Woltering, Is Fund Performance Driven by Flows into 
Connected Funds? Spillover Effects in the Mutual Fund Industry, 45 J. ECON. & FIN. 544, no. 9 
(2021). See infra section III.B.3 for additional discussion.
346
 See supra sections I and II for the discussion of regulatory experience.
347
 We recognize that factors other than dilution related to trading costs – such as dilution from 
falling asset prices (market risk) and from potential differences between prices of underlying 
investments used for a fund’s net asset value calculation and execution prices for these 
investments – may also contribute to the first-mover advantage in redemptions and potential runs 
in open-end funds. These and other considerations are discussed in greater detail in section III.B.3
below.
231

management may mitigate this risk.
348
 The proposed amendments may also reduce the likelihood 
or the extent of future government interventions.
349
The proposed amendments to the liquidity risk management (“LRM”) program
350
 are 
designed to support funds’ ability to meet redemptions without significant trading costs, such as 
larger haircuts associated with less liquid investments that open-end funds may hold in their 
portfolios. Although less liquid investments generally offer a higher return, the trading costs 
associated with selling these assets during periods of increased redemptions may offset this risk 
premium, potentially resulting in a lower overall return for fund investors.
351
 Therefore, a more 
robust liquidity management program that requires funds to hold more highly liquid investments 
may benefit fund investors in the longer term. In addition, requiring funds to hold a greater share 
of highly liquid investments may help limit the price impact that funds impose on underlying 
markets when they sell less liquid assets to meet investor redemptions, especially during periods 
of market stress.
352
 
348
 See Nicolas Valderrama, Can the Liquidity Rule Keep Mutual Funds Afloat? Contextualizing the
Collapse of Third Avenue Management Focused Credit Fund, 70 CATH. U. L. REV. 317 (2021). 
See also Landon Thomas Jr., A New Focus on Liquidity After a Fund's Collapse, N.Y. TIMES, Jan.
11, 2016, available at https://www.nytimes.com/2016/01/12/business/dealbook/a-new-
focus-on-liquidity-after-a-funds-collapse.html.
349
 See e.g., Antonio Falato et. al., Financial Fragility in the COVID-19 Crisis: The Case of 
Investment Funds in Corporate Bond Markets, 123 J. MONETARY ECON. 35 (2021). The authors 
discuss how the Federal Reserve bond purchase program helped to reverse mutual funds’ 
outflows during the Mar. 2020 period.
350
 See supra section II.A.
351
 See e.g., Mikhail Simutin, Cash Holdings and Mutual Fund Performance, 18 REV. FIN. 1425, no.
4 (2014), See also Aleksandra Rźeznik, Skilled Active Liquidity Management: Evidence from 
Shocks to Fund Flows, (Jul. 29, 2021), available at SSRN: https://ssrn.com/abstract=4106412 
(retrieved from SSRN Elsevier database).
352
 See e.g., Sergey Chernenko & Adi Sunderam, Liquidity Transformation in Asset Management: 
Evidence From the Cash Holdings of Mutual Funds (National Bureau of Economic Research 
(NBER) working paper no. w22391, Jul. 11, 2016), available at 
https://ssrn.com/abstract=2807702.  
232

The goal of the proposed swing pricing and hard close requirements is to reduce the 
dilution of non-transacting fund shareholders by charging redeeming and subscribing investors 
the trading costs they impose on a fund,
353
 which may mitigate the first-mover advantage 
associated with the dilution from trading costs. Although swing pricing has not yet been 
implemented by any fund in the U.S., usage of swing pricing in other jurisdictions has been 
shown in certain cases to mitigate redemption pressure during periods of elevated market 
volatility.
354
 We recognize that swing pricing may not always fully reduce the potential first-
mover advantage associated with increasing trading costs and discourage associated investor 
redemptions.
355
 However, even in these cases, we believe that investors would nevertheless 
benefit from the proposed requirement because it would reduce the dilution of non-transacting 
fund shareholders, regardless of the amount of trading activity by redeeming or subscribing 
investors. 
Coupled with the proposed amendments to the LRM program and the proposed swing 
pricing and hard close requirements, the proposed reporting and public disclosure requirements 
are aimed at promoting transparency and facilitating investors’ understanding of liquidity risk in 
the open-end fund sector, as well as promoting transparency regarding funds’ application of 
353
 See supra sections II.B and II.C.
354
 See e.g., CSSF Paper, supra note 61; Dunghong Jin et. al., Swing Pricing and Fragility in Open-
End Mutual Funds 35 REV. FIN. STUD. (2022); Benjamin King & James Semark, Reducing 
Liquidity Mismatch in Open-Ended Funds: A Cost-Benefit Analysis (Bank of England working 
paper no. 975, Apr. 22, 2022), available at https://ssrn.com/abstract=4106646.    
355
 See CSSF Paper, supra note 61; Claessens & Lewrick, supra note 61; ESMA, Recommendation 
of the European Systemic Risk Board (ESRB) on Liquidity Risk in Investment Funds (Nov. 12, 
2020), available at https://www.esma.europa.eu/document/recommendation-european-systemic-
risk-board-esrb-liquidity-risk-in-investment-funds.
233

liquidity management tools.
356
 As a result, the proposed public disclosure requirements may aid 
investors in making more efficient portfolio allocation decisions.
Many of the benefits and costs discussed below are difficult to quantify. For example, we
lack data that would help us predict how funds may adjust the liquidity of their portfolios in 
response to the proposed liquidity rule amendments; the extent to which investors may reduce 
their holdings in open-end funds as a result of the proposed swing pricing requirement and other 
amendments; the extent to which investors may move capital from mutual funds to other 
investment vehicles, such as closed-end funds, ETFs, or CITs; and the reduction in dilution costs 
to investors in open-end funds as a result of the proposed amendments (which would depend on 
investor subscription and redemption activity and the liquidity risk of underlying fund 
investments). Form N-PORT data is not sufficiently granular to allow such quantification, and 
many of these effects will depend on how affected funds and investors would react to the 
proposed amendments. While we have attempted to quantify economic effects where possible, 
much of the discussion of economic effects is qualitative in nature. We seek comment on all 
aspects of the economic analysis, especially any data or information that would enable a 
quantification of the proposal’s economic effects.
B.Baseline
1.Regulatory Baseline
a.Liquidity Risk Management Program
Under the current rule,
357
 open-end funds classify each portfolio investment into one of 
the four defined liquidity categories, based on the number of days within which a fund 
reasonably expects the investment to be convertible to cash or sold or disposed of, without 
356
 See supra section II.E.
357
 See Liquidity Rule Adopting Release, supra note 8.
234

significantly changing the investment’s market value. The four categories are: (1) “highly liquid 
investments,” which are cash and investments convertible into cash in current market conditions 
in three business days or less; (2) “moderately liquid investments,” which are convertible into 
cash in current market conditions in more than three calendar days but in seven calendar days or 
less; (3) “less liquid investments,” which are those the fund reasonably expects to be able to sell 
or dispose of in current market conditions in seven calendar days or less, but where the sale or 
disposition is reasonably expected to settle in more than seven calendar days; and (4) “illiquid 
investments,” which cannot be sold or disposed of in current market conditions in seven calendar
days or less.
 
A fund may generally classify and review its investments by asset class unless the fund or
adviser has information about any market, trading, and investment-specific considerations that it 
reasonably expects to affect significantly the liquidity characteristics of an investment compared 
to the fund’s other portfolio holdings within that asset class.
358
 Among other requirements, open-
end funds generally are required to determine a minimum amount of highly liquid investments 
they should maintain. In addition, all open-end funds are prohibited from acquiring any illiquid 
investment if, immediately after the acquisition, the funds would have invested more than 15% 
of their net assets in illiquid assets; however, an investment in a liability position, such as a 
derivative, is not subject to this limitation. Under the current rule, a fund is required to identify 
the percentage of the fund’s highly liquid investments that it has posted as margin or collateral in
connection with derivatives transactions that the fund has classified as less than highly liquid.
359
358
 See rule 22e-4(b)(1)(ii)(A).
359
 See rule 22e-4(b)(1)(ii)(C). In addition, funds currently are also required to exclude highly liquid 
assets that are posted as margin or collateral in connection with non-highly liquid derivatives 
transactions when determining whether the fund primarily holds highly liquid assets. See rule 
22e-4(b)(1)(iii)(B). 
235

In classifying its investments under the current rule, a fund analyzes how quickly it can 
sell an investment without the sale “significantly” changing the investment’s market value. 
Funds are required to determine two key inputs for this analysis. The first is the fund’s 
reasonably anticipated trade size.
360
 Reasonably anticipated trade size interacts with a fund’s 
assessment of future redemption/subscription activity: for example, if the fund would anticipate 
selling a large position relative to trading volume, the sale may depress the price. The second is 
the determination of what constitutes a “significant” change in value. In both cases, the rule 
allows funds to make their own reasonable assumptions.
Rule 22e-4 currently requires that funds review their liquidity classifications at least 
monthly in connection with reporting on Form N-PORT, and more frequently if changes in 
relevant market, trading, and investment-specific considerations are reasonably expected to 
materially affect one or more of their investments’ classifications.
361
 The current rule also 
requires a fund to monitor and take timely actions related to the liquidity of its investments, 
including changes to its liquidity profile. Specifically, the rule prohibits a fund from acquiring 
any illiquid investment, if immediately after the acquisition, the fund would have invested more 
than 15% of its net assets in illiquid investments that are assets.
362
 In addition, the rule requires a 
fund to provide timely notice to its board, and to the Commission on Form N-RN, if the fund 
exceeds the 15% limit on illiquid investments, or if there is a shortfall of the fund’s highly liquid 
investments below its highly liquid investment minimum for seven consecutive calendar days.
363
360
 Funds’ current practices in classifying the liquidity of their investments and otherwise complying
with rule 22e-4 may take consideration of the staff’s Liquidity FAQs. See, e.g., supra note 79.
361
 See rule 22e-4(b)(1)(ii).
362
 See rule 22e-4(b)(1)(iv).
363
 See rule 22e-4(b)(1)(iv)(A) and rule 22e-4(b)(1)(iii)(A)(3); Form N-RN Parts B through D.
236

Rule 22e-4 currently requires a fund to determine a highly liquid investment minimum if 
it does not primarily hold investments that are highly liquid. Funds that are subject to the highly 
liquid investment minimum requirement must determine a highly liquid investment minimum 
considering several factors, review this minimum at least annually, and adopt policies and 
procedures to respond to a shortfall of the fund’s highly liquid investments below the 
minimum.
364
 The current exclusion for funds that invest primarily in highly liquid investments 
provides some discretion to determine the level of highly liquid investments that constitutes 
primarily.
b.Swing Pricing
Currently, the rule allows open-end funds that are not excluded funds to use swing 
pricing. The required swing pricing policies and procedures provide that funds must adjust their 
NAV per share by a single swing factor or multiple factors that may vary based on the swing 
threshold(s) crossed once the level of net purchases into or net redemptions from such fund has 
exceeded the applicable swing threshold for the fund. The current rule permits a fund to 
determine its own swing threshold for net purchases and net redemptions, based on a 
consideration of certain factors the rule identifies.
365
 The fund’s swing factor is permitted to take 
into account only the near-term costs expected to be incurred by the fund as a result of net 
purchases or net redemptions on that day and may not exceed an upper limit of 2% of the day’s 
NAV per share. 
The determination of whether the fund’s level of net purchases or net redemptions has 
exceeded the applicable swing threshold is permitted to be made based on receipt of sufficient 
364
 See rule 22e-4(b)(1)(iii). 
365
 See supra note 176.
237

information about the fund investors’ daily purchase and redemption activity to allow the fund to
reasonably estimate whether it has crossed the swing threshold with high confidence. This 
investor flow information may consist of individual, aggregated, or netted orders, and may 
include reasonable estimates where necessary. 
In addition, rule 2a-4 requires, when determining the NAV, that funds reflect changes in 
holdings of portfolio securities and changes in the number of outstanding shares resulting from 
distributions, redemptions, and repurchases no later than the first business day following the 
trade date. This calculation method provides funds with additional time and flexibility to 
incorporate last-minute portfolio transactions into their NAV calculations on the business day 
following the trade date, rather than on the trade date.
366
 
c.Reporting Requirements
Registered management investment companies and ETFs organized as unit investment 
trusts are required to file periodic reports on Form N-PORT about their portfolios and each of 
their portfolio holdings as of month-end.
367
 Funds file these reports on a quarterly basis, with 
each report due 60 days after the end of a fund’s fiscal quarter. Only information about the 
fund’s holdings for the third month of each fiscal quarter is available to the public. In addition to 
the publicly available information on Form N-PORT, investors also have access to information 
about the holdings of ETFs, including actively managed ETFs, which generally are required to 
366
 See Adoption of rule 2a-4 Defining the Term “Current Net Asset Value” in Reference to 
Redeemable Securities Issued by a Registered Investment Company, Investment Company Act 
Release No. 4105 (Dec. 22, 1964) [29 FR 19100 (Dec. 30, 1964)].
367
 For purposes of discussions of filing requirements on Form N-PORT, the term “fund” refers to 
registrants that currently are required to report on Form N-PORT, including open-end funds, 
registered closed-end funds, and ETFs registered as unit investment trusts, and excluding money 
market funds and small business investment companies.
238

provide transparency into their portfolio holdings on a daily basis.
368
 Many funds also provide 
monthly information about their portfolio holdings to third party data aggregators, generally with
a lag of 30 to 90 days, which in turn make them available to the public for a fee. 
Registered investment companies other than face amount certificate companies also 
report census-type information to the Commission annually on Form N-CEN, including 
information related to fund service providers and whether a fund engaged in swing pricing 
during the fiscal year and if so, what was the upper limit for the swing factor. The current 
definition of LEI in Forms N-PORT and N-CEN provides that, in the case where a financial 
institution does not have an assigned LEI, a fund should instead disclose the RSSD ID assigned 
by the National Information Center of the Board of Governors of the Federal Reserve System, if 
any.
369
Item 6 of Form N-1A also requires disclosure of a fund’s use of swing pricing if the fund 
chooses to use swing pricing. Specifically, these provisions require that a fund that uses swing 
pricing explains the fund’s use of swing pricing, including its meaning, the circumstances under 
which the fund will use it, and the effects of swing pricing on the fund and investors, as well as 
the upper limit the fund has set on the swing factor. Open-end funds are also required to file 
Form N-RN with the Commission if more than 15% of the registrant’s net assets are, or become, 
illiquid investments as defined in rule 22e-4 and if a registrant’s holdings in assets that are highly
liquid investments fall below its highly liquid investment minimum for more than 7 consecutive 
calendar days. The form is required to be filed within one business day of the occurrence of these
events.
368
 See supra note 289. 
369
 See General Instruction E of proposed Form N-PORT and Instructions to Item G.1 of the Form 
N-CEN.
239

2.Overview of Certain Industry Order Management Practices
Mutual fund orders can be submitted to funds directly or via an intermediary. An order 
will be executed at a given day’s NAV if an intermediary—rather than solely the fund, its 
designated transfer agent, or a registered securities clearing agency—receives the order by the 
fund’s pricing time, typically 4 p.m. ET, unless an intermediary specifically established an 
earlier cut-off time for investor orders. In particular, a financial intermediary currently can 
submit an order that it received before 4 p.m. ET to a designated party after 4 p.m. ET for 
execution at that day’s NAV.
370
 A fund discloses in its prospectus its pricing time and that a 
purchase or redemption is effected at a price that is based on the next NAV calculation after the 
order is placed.
371
 After a fund finalizes its NAV calculation for a day, it disseminates the NAV 
to pricing vendors, media, and intermediaries, typically between 6 p.m. ET and 8 p.m. ET. We 
understand that certain intermediaries use order-processing systems that require knowledge of a 
fund’s NAV. In addition, certain investor orders may also require knowledge of a fund’s NAV 
before the order is sent to the fund.
372
 As a result, a fund does not receive certain orders until 
after the fund distributed its NAV. For example, most retirement plan recordkeepers currently do
not process orders from investors until they receive a fund’s NAV and funds typically receive 
orders from these intermediaries the next morning.
We understand that for orders submitted to funds by an intermediary, an intermediary 
may net orders to varying degrees before their submission to a fund, a practice known as 
omnibus accounting. In addition, intermediaries may submit one or more netted orders at a single
time, or may submit netted orders in batches at different times. For example, if an intermediary 
370
 We note that this practice differs from other jurisdictions. See supra note 225.
371
 See Item 11(a) of Form N-1A.
372
 See supra section II.C.3.d.
240

does not submit orders until after it has received the fund’s final price, it may submit a single 
order to the fund that reflects the net dollar amount or the number of fund shares to be purchased 
or redeemed across all investors that submitted orders through that intermediary. If an 
intermediary does not wait until the fund’s final price is received, it may submit two orders: one 
order expressed in the net number of shares purchased or sold and one order expressed in the net 
amount of dollars purchased or sold. Other intermediaries may aggregate orders at finer levels, 
providing aggregate purchase and sale figures separately. While netting practices vary, they may 
generally save intermediaries money, to the extent that intermediaries incur per transaction costs 
when submitting orders to a fund. 
Intermediaries may track investor orders to various degrees before they send the finalized
orders to funds. As such, the processing time of investor order may vary depending on the 
tracking and netting process of an intermediary. For example, retirement accounts track holdings 
and trades at the level of individual participants. Each participant account typically has multiple 
sub accounts that are organized by contribution type or source (pretax, after-tax, employer 
match, profit sharing, and other). We understand that, at least according to some plan rules, 
compliance restrictions require plans to track an account according to contribution type or 
source. For example, we understand that in at least some 401(k) plans, the third party 
administrator or retirement plan recordkeeper receives participant trades at the participant 
account level, after which, trades must be pro-rated (usually done based on today’s market value)
and posted to each contribution type or source. The administrator or recordkeeper then 
aggregates all participant trades for a particular plan and sends them to the trustee/custodian. The
trustee then posts the aggregated plan trades on a trust/custody system (i.e., for mandatory plan 
241

reporting purposes). Most trust companies then aggregate all of their client trades at the asset 
level, generally to minimize trading or NSCC costs.
A significant portion of mutual fund orders is processed through NSCC’s Fund/SERV 
platform. Within this platform, there exists a separate system that processes orders from defined 
contribution plans called Defined Contribution Clearance & Settlement (“DCC&S”). 
Fund/SERV for non-retirement clients allows firms to submit orders in currency, shares, or 
exchanges before knowing the NAV.
373
 DCC&S, on the other hand, as a matter of practice does 
not initiate order processing until the recordkeeper/third party administrator receives NAVs, as 
well as daily and periodic distribution (dividend and capital gain) rates.
374
 
We recognize that the current industry practices related to intermediaries’ order 
submissions prevent funds from knowing their final net flows until later hours, which may be 
one reason why no funds in the U.S. have implemented the optional swing pricing. We also 
recognize that swing pricing has been employed in Europe, including by U.S.-based fund 
managers that also operate funds in Europe.
375
 There can be various reasons why swing pricing 
has been successfully implemented in certain jurisdictions. For example, we understand that 
intermediary order submission practices in Europe differ from those in the U.S.,
376
 allowing 
funds to have more complete flow information before funds’ pricing time. Another factor that 
may contribute to successful implementation of swing pricing in Europe is that the European 
mutual fund sector does not depend as much as the U.S. mutual fund sector on defined 
contribution retirement plans. According to ECB’s investment fund statistics, as of Q2 2022, 
373
 See https://www.dtcc.com/wealth-management-services/mutual-fund-services/fund-serv.
374
 Id.
375
 See supra section I.B for a more detailed discussion about use of swing pricing in Europe.
376
 See supra note 225.
242

pension funds held approximately EUR 1.4 trillion (10%) in investment fund shares
377
 out of 
14.8 trillion in aggregate value of European investment fund shares issued.
378
 This is in contrast 
to U.S. where 54% of all mutual fund assets were held in retirement accounts as of Q1 2022.
379
 
Further, according to one estimate, defined contribution retirement plans which, at least in the 
U.S., have certain transactions that require knowledge of NAV in order to be processed by an 
intermediary represent only 17% of Europe’s total pension assets.
380
3.Liquidity Externalities in the Mutual Fund Sector
As discussed above, the liquidity mismatch can lead to non-negligible trading costs (e.g., 
spread or market impact costs) associated with selling the fund’s less liquid portfolio investments
in order to meet investor redemptions or buying portfolio investments in order to accommodate 
investor subscriptions. The magnitude of these costs can vary depending on market conditions, 
the liquidity of the underlying investments held in a fund’s portfolio, and the size of funds’ 
transactions in the market. Consequently, if investors transact at a NAV that does not account for
ex-post trading costs, investors remaining in the fund have to bear these trading costs because 
they are ultimately reflected in the fund’s future NAV.
381
 Therefore, the value of shares held by 
377
 See Aggregated Balance Sheet of the Euro Area Pension Fund Sector, Section 1.1.1, European 
Central Bank Statistical Data Warehouse, available at https://sdw.ecb.europa.eu/reports.do?
node=1000006465.
378
 See Aggregated Balance Sheet of Euro Area Investment Funds, Section 1.1.2, European Central 
Bank, Statistical Data Warehouse, available at https://sdw.ecb.europa.eu/reports.do?
node=1000003516.
379
 See infra section III.B.4.ii.
380
 See Press Release, Cerulli Associates, Europe’s Defined Contribution Market Is Set to Keep 
Growing, (Mar. 3, 2022), available at https://www.cerulli.com/press-releases/europes-defined-
contribution-market-is-set-to-keep-growing.
381
 For example, suppose a fund is fully invested in an underlying asset which can be bought at 
$1.01 and sold at $0.99. If the NAV is struck at the “mid,” the fund’s share price is $1, and that is
what redeeming investors receive for each fund share redeemed. However, after paying the 
spread costs, the fund receives only $0.99 for each unit of the underlying asset that is sold to meet
redemptions. The fund therefore needs to sell more of its underlying asset position relative to the 
size of the redemptions it experiences, reducing the assets held by non-transacting shareholders 
243

non-transacting investors can be diluted due to the trading costs associated with the past trading 
activity of transacting fund investors, lowering the future returns of non-transacting fund 
shareholders. 
We recognize that factors other than trading costs may contribute to dilution. For 
example, some funds may hold investments that do not have an active and robust secondary 
market (e.g., high-yield bonds or municipal securities), making them opaque and difficult to 
accurately price in a timely manner, especially during times of market stress when some of these 
assets may stop trading. In such events, the last reported prices for these assets may be prices 
realized during pre-stress market conditions. As a result, the risk that the fund’s NAV may be 
based on “stale” information if contemporaneous information about an asset’s current value is 
unavailable or less reliable may increase. If a fund’s NAV on a given date is based on such stale 
information, net redemptions at that NAV can dilute non-transacting fund shareholders when 
assets are eventually sold at prices that reflect their true, lower value.
382
 Prior to the compliance 
date with the recent rule 2a-5,
383
 which aims to improve fund valuation practices, the stale pricing
phenomenon has been documented in fixed income funds, and has been found to contribute to 
and the fund’s subsequent NAV. For example, if 10% of the fund’s investors redeem their shares 
at the NAV of $1, the fund needs to sell 10% / $0.99 = 10.1% of its underlying asset position to 
meet redemptions and pay the spread costs. This leaves the remaining 90% of fund shares held by
non-transacting fund investors with 100% – 10.1% = 89.9% of the fund’s prior asset position. 
Valued at the mid-price of $1, this reduces the fund’s NAV to 89.9% / 90% = $0.999. 
382
 We recognize that fund investors can also be diluted due to factors other than trading costs or 
stale pricing, such as market risk. Market risk can also result in accretion for non-transacting fund
investors. For example, if a fund redeems shareholders at an NAV of $100 based on market 
prices at the time NAV is struck, but is then able to liquidate assets at a higher valuation on 
subsequent days due to changes in market prices, the value of shares held by non-transacting 
shareholders will increase beyond the increase due solely to the change in the value of the 
underlying investments held by the fund. While the value of the fund’s holdings can go both up 
and down, such market risk amplifies the risk fund shareholders would otherwise experience. 
However, since market prices may be very difficult to forecast, the degree to which such dilution 
contributes to the first-mover advantage is unclear.
383
The Commission adopted rule 2a-5 in Dec. 2020, and the compliance date for funds was Sept. 8, 
2022. See Valuation Adopting Release, supra note 110.
244

strategic redemptions.
384
 However, we recognize that while trading costs are strictly dilutive, 
pricing based on stale information can also result in accretion for non-transacting fund investors 
if realized sale prices are higher than prices that were based on stale information and used for the
NAV calculation. 
The stylized example illustrated in Figure 4 below shows how trading costs can dilute a 
fund that experiences net redemptions under two scenarios.
385
 Under the first scenario (the dotted
line), the fund is able to sell investments to accommodate redemptions prior to striking its NAV 
for the day and to reflect these trades as well as trading costs in the calculated NAV for that 
day.
386
 This scenario is a theoretical benchmark that shows the minimum amount of dilution that 
must occur in order to accommodate redemptions. Under the second scenario (the solid line), the 
fund trades to accommodate redemptions after striking its NAV for the day. This scenario is 
generally the way U.S. funds currently accommodate investor redemptions, possibly because 
funds do not have complete order flow information before the end of the trading day.
387
 
Figure 4: Dilution Effects of Different Trading Timelines over 1 Day.
384
See, e.g., Jaewon Choi et. al., Sitting Bucks: Stale Pricing in Fixed Income Funds, 145 J. FIN. 
ECON. 296, no. 2, Part A, (Aug. 2022).
385
 The examples in the figure assume that a fund holds a portfolio of assets whose value is constant 
and that liquidating any portion of the portfolio to meet redemptions incurs a haircut of 10%. By 
assuming that the value of the asset does not change, the examples isolate the effect of trading 
costs on dilution from the effects of other sources of dilution such as market risk or stale NAVs. 
See supra note 384. The haircut assumption in these stylized examples is used purely for 
illustrative purposes; haircuts on most assets held by open-end funds generally tend to be smaller.
386
 We recognize that under the current rule 2a-4 under the Investment Company Act, funds are 
permitted to reflect changes in their portfolio holdings in the first NAV calculation following the 
trade date and, thus, are not required to include today’s trades in the calculation of today’s NAV.
387
 We recognize that there may be other operational considerations that result in this common 
practice. Therefore, even if a fund has complete order flow information before the trading day is 
over, it may choose to trade at a later date to accommodate today’s redemptions. 
245

-100-80-60-40-200
0
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Trading after NAV
Trading before NAV
While these two scenarios result in similar dilution for lower levels of redemptions, larger
levels of redemptions can contribute nonlinearly to higher fund dilution under the second 
scenario.
388
 This occurs because increasing redemptions result in increasing trading costs for the 
fund. These trading costs are borne solely by shareholders remaining in the fund, the number of 
which decreases as more investors redeem. Under this hypothetical scenario, the fund eventually 
runs out of assets to sell and is unable to meet further redemptions. In contrast, under the 
theoretical benchmark, the trading costs are borne by both redeeming investors and investors 
remaining in the fund; therefore, the shareholder base absorbing the trading costs remains 
constant regardless of the extent of redemptions. Accordingly, dilution increases proportionally 
to the amount of redemptions and the corresponding increase in trading costs. 
388
 To the degree that funds determine their NAV using holdings as of the prior trading day, such 
practices may also contribute to dilution. 
246

Figure 5 removes the theoretical benchmark scenario illustrated in Figure 4 and focuses 
on how dilution affects both redemptions and subscriptions when trading to accommodate 
investor transactions occurs after the fund’s NAV has been struck.
389
 
Figure 5: The Dilutive Effects of Redemptions and Subscriptions.
-100-50050100
0
.
0
0
.
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0
.
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(
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)
The theoretical example in Figure 5 illustrates that the dilutive effect of trading costs is 
asymmetric for redemptions and subscriptions: while redemptions and subscriptions are similarly
dilutive for small levels of net flows, their effects are different for more extreme levels of net 
flows. This occurs because a fund is not able to redeem 100% of its shares due to the non-linear 
impact of trading costs related to meeting redemptions being absorbed solely by investors 
remaining in the fund, as described above. In contrast, the trading costs related to subscriptions 
389
 To model the effect of net subscriptions, the example assumes that any new cash received by the 
fund is invested in the same underlying portfolio of investments, and that doing so incurs the 
same 10% spread cost. Redemptions are represented as negative net flows to the left of 0 on the 
x-axis and subscriptions are represented as positive net flows to the right of 0 on the x-axis. We 
recognize that dilution due to subscriptions does not occur until a fund incurs costs investing the 
subscription proceeds. Therefore, a fund that holds its subscription proceeds in cash indefinitely 
will not experience dilution.
247

are shared by both new subscribers and existing fund shareholders, which limits the maximum 
amount of dilution that can occur due to subscriptions.
The simplified examples above illustrate that non-transacting fund investors are exposed 
to the dilution risk that arises from accommodating redemptions and subscriptions of transacting 
fund investors. Incentives of mutual fund managers may not be sufficient to alleviate this risk for
various reasons. For example, it is possible that investors do not have enough information to 
fully understand the nature of the risk they are exposed to by investing in funds that hold less 
liquid investments. In addition, investors in a fund may have varying preferences for risk and 
return, with some investors preferring investments with higher expected returns. Although 
investments that face increased liquidity risk may deliver such higher returns, the returns of 
funds that hold these investments may also be subject to greater amounts of volatility.
390
 A fund 
manager may choose to hold investments that are less liquid because of their potentially higher 
returns, or because they offer exposure to a different set of risks (e.g., some investments may be 
less correlated with the market) than other investments in the fund’s portfolio. Because higher 
returns tend to be associated with future inflows, it is possible that a fund manager’s incentives 
are tilted towards earning higher returns relative to the risk they are taking on (though the 
opposite is also possible).
391
 In particular, to the extent that holding less liquid investments may 
increase a fund’s return (e.g., during normal market conditions) and consequently its AUM, 
390
 See, e.g., Kuan-Hui Lee, The World Price of Liquidity Risk, 99 J. FIN. ECON. 136 (2011). See 
also Viral V. Acharya & Lasse H. Pedersen, Asset Pricing with Liquidity Risk, 77 J. FIN. ECON. 
375 (2005). See also Lubos Pastor & Robert Stambaugh, Liquidity Risk and Expected Stock 
Returns, 111 J. POL. ECON. 642 (2003).
391
 In an open-end fund context, fund inflows are sensitive to fund returns, which can incentivize 
fund managers to take on more risk. See, e.g., Jaewon Choi & Mathias Kronlund, Reaching for 
Yield in Corporate Bond Mutual Funds, 31 REV. FIN. STUD. 1930 (2018); Jon A. Fulkerson et. 
al., Return Chasing in Bond Funds, 22 J. FIXED INCOME, 90 (2013); Ferreira, Miguel A., et al., 
The Flow-Performance Relationship around the World, 36 J. BANKING & FIN. 1759, no. 6 
(2012). 
248

which determine the amount of management fees a fund manager collects, the fund manager may
choose to over-invest in such assets,
392
 not accounting for potential future trading costs these 
investments may impose on a fund if the market conditions change, which would result in a 
higher dilution risk for the fund’s investors. Investors may currently lack sufficiently granular 
information to monitor for this possibility and to discipline the extent to which a fund manager 
exposes the fund’s shareholders to dilution risk.
Investor dilution associated with illiquidity of funds’ underlying investments may create 
a first-mover advantage that may lead to increased mutual fund redemptions similar to bank 
runs.
393
 Such redemptions have been observed prior to the adoption of the current liquidity 
rule.
394
 More specifically, fund investors may have an incentive to redeem their shares quickly if 
they believe that other investors will also redeem their shares and, by doing so, these other 
investors will dilute the fund’s non-transacting shareholders. This first-mover advantage effect in
mutual funds has been documented
395
 and studied as a mechanism for runs on mutual funds in 
392
 See, e.g., Linlin Ma et. al., Portfolio Manager Compensation in the U.S. Mutual Fund Industry, 
74(2) J. Fin. 587 (2019). See also Abhishek Bhardwaj et. al., Incentives of Fund Managers and 
Precautionary Fire Sales (Oct. 29, 2021), available at https://ssrn.com/abstract=3952358. 
393
 Liquidity mismatch between assets and liabilities is a mechanism that creates bank run dynamics 
that is well-accepted in the academic literature. See, e.g., Douglas Diamond & Philip Dybvig, 
Bank Runs, Deposit Insurance, and Liquidity, 91 J. POL. ECON., 401 (1983).
394
 See Third Avenue Trust and Third Avenue Management LLC; Notice of Application and 
Temporary Order, Investment Company Act Release No. 31943 (Dec. 16, 2015). See also note
348. 
395
 See Qi Chen et. al., Payoff Complementarities and Financial Frailty: Evidence From Mutual 
Fund Outflows, 97 J. FIN. ECON. 239 (2010). See also Itay Goldstein et. al., Investor Flows and 
Fragility in Corporate Bond Funds, 126 J. FIN. ECON. 592 (2017); Yiming Ma et. al., Bank Debt 
Versus Mutual Fund Equity in Liquidity Provision (working paper, May 29, 2020), available at 
https://ssrn.com/abstract=3489673; Luis Molestina et. al., Burned by Leverage? Flows and 
Fragility in Bond Mutual Funds (European Central Bank (ECB) working paper no. 20202413, 
May 19, 2020) available at https://ssrn.com/abstract=3605159 (retrieved from SSRN Elsevier 
database); Michael Feroli et. al., Market Tantrums and Monetary Policy (Chicago Booth 
Research Paper no. 14-09, Mar. 15, 2014), available at https://ssrn.com/abstract=2409092 
(retrieved from SSRN Elsevier database). 
249

the academic literature.
396
 In addition, it has been shown that the effect of the first-mover 
advantage may be larger for funds that hold less liquid investments.
397
 While the academic 
literature on mutual fund runs generally relies on an exogenous mechanism to generate initial 
redemptions from a fund or relies on frictions such as an inability of a fund to raise capital and 
exogenous shocks such as negative fund returns, the results may extend to trading costs to the 
degree that dilution due to trading costs may reduce subsequent fund returns, which would 
trigger runs in these models. At the same time, we recognize that while dilution risk arising from 
trading costs can create incentives for early redemptions, redemptions may also occur for reasons
unconnected to the pooled vehicle nature of the fund. For example, a recent working paper
398
 
concludes that the behavior of mutual fund investors is similar to that of direct investors with 
overlapping holdings, and suggests that systemic implications of mutual fund investors’ activities
are not necessarily due to the liquidity transformation feature of the mutual fund structure, but 
396
 See e.g., Yao Zeng, A Dynamic Theory of Mutual Fund Runs and Liquidity (working paper no. 
42, Apr. 2017), available at https://ssrn.com/abstract=2907718 (retrieved from SSRN Elsevier 
database). See also Stephen Morris et. al., Redemption Risk and Cash Hoarding by Asset 
Managers, 89 J. MONETARY ECON. 71 (2017); Yiming Ma et. al., Mutual Fund Liquidity 
Management, Transformation and Reverse Flight to Liquidity (working paper, Jul. 29, 2020), 
available at https://ssrn.com/abstract=3640861(retrieved from SSRN Elsevier database); 
and Philipp König & David Pothier, Safe but Fragile: Information Acquisition, Liquidity Support 
and Redemption Runs, J. FIN. INTERMEDIATION (in press, corrected proof Dec. 15, 2020). 
397
 For example, one paper argues that fund investors’ behavior is affected by the expected behavior 
of other investors in the fund and finds that funds with less liquid assets (where this investor 
effect is stronger) exhibit stronger sensitivity of outflows to bad past performance than funds with
more liquid assets. See Qi Chen et. al., Payoff Complementarities and Financial Frailty: 
Evidence From Mutual Fund Outflows, 97 J. FIN. ECON. 239 (2010). Also see Meijun Qian and 
Başak Tanyeri, Litigation and Mutual-Fund Runs, 31 J FIN. STABILITY 119, (2017); and Sirio 
Aramonte et. al., Measuring the Liquidity Profile of Mutual Funds (FEDS working paper no. 
2019-55, Oct. 22, 2019), available at https://ssrn.com/abstract=3473039 (retrieved from SSRN 
Elsevier database). 
398
 See Christof W. Stahel, Strategic Complementarity Among Investors with Overlapping 
Portfolios (working paper, May 1, 2022), available at https://ssrn.com/abstract=3952125 
(retrieved from SSRN Elsevier database).
250

rather to the fact that mutual funds’ investors compete for finite asset market liquidity when they 
decide to sell assets.
Mutual fund shareholders’ transactions may also affect markets for funds’ underlying 
portfolio holdings. Academic research suggests that redemption-induced sales of securities by 
mutual funds can create price pressure in underlying markets which may result in a fire-sale for 
these securities.
399
 Two studies have constructed measures of mutual fund outflow-induced price 
pressure on various securities that are widely-used in the academic literature.
400
 Subsequent 
studies use these price impact measures and claim that fire sales induced by investor redemptions
hurt peer funds’ performance and flows, leading to further asset sales that have a negative price 
impact.
401
 Another paper suggests that redemptions from mutual fund that hold less liquid 
investments may contribute further to already existing poor market conditions by putting further 
downward pressure on prices of illiquid stocks.
402
 In addition, one paper suggests that the 
399
 See e.g., Shiyang Huang et. al., Does Liquidity Management Induce Fragility in Treasury Prices:
Evidence From Bond Mutual Funds (Dec. 30, 2021), available at 
https://ssrn.com/abstract=3689674 (retrieved from SSRN Elsevier database). See also Hao Jiang 
et. al., Does Mutual Fund Illiquidity Introduce Fragility Into Asset Prices? Evidence From the 
Corporate Bond Market, 143 J. FIN. ECON. 277 (2021); Joshua D. Coval & Erik Stafford, Asset 
Fire Sales (and Purchases) in Equity Markets, 86 J. FIN. ECON. 479, no. 2 (2007); Donald J. 
Berndt et. al., Using Agent-Based Modeling to Assess Liquidity Mismatch in Open-End Bond 
Funds, SUMMER SIM ’17: PROCEEDINGS OF THE SUMMER SIMULATION MULTI-CONFERENCE 
(Society for Computer Simulation International, San Diego, CA) (Jul. 2017); Valentin Haddad et.
al., When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the 
Fed’s Response, 34 REV. FIN. STUD. 5309, no.11 (2021).   
400
 See Coval & Stafford, supra. Also see Alex Edmans et. al., The Real Effects of Financial 
Markets: The Impact of Prices on Takeovers, 67 J. FIN. 933 (2012).The constructed measures 
exploit the idea that large investor redemptions place pressure on mutual funds to sell portfolio 
holdings, and if these sales are sufficiently large, the funds’ liquidity needs may put downward 
pressure on prices that is unrelated to the fundamental value of the underlying stocks.
401
 See e.g., Pekka Honkanen & Daniel Schmidt, Learning From Noise? Price and Liquidity 
Spillovers Around Mutual Fund Fire Sales, 12(2) REV. ASSET PRICING STUD. 593 (Jun. 2022); 
Antonio Falato et. al., Fire-Sale Spillovers in Debt Markets, 76 J FIN. 3055 no. 6 (2021). 
402
 See Azi Ben-Rephael, Flight-to-Liquidity, Market Uncertainty, and the Actions of Mutual Fund 
Investors, 31 J. FIN. INTERMEDIATION 30 (2017). 
251

exposure of stocks to fire-sale risk is bigger when mutual funds represent a larger share of the 
stock’s owners.
403
 Moreover, academic research also documents the potential effect of mutual 
fund flows on market-wide return volatility,
404
 on a wide array of corporate decisions,
405
 on the 
choices of ETF security baskets,
406
 and on sell-side analysts’ recommendations on stocks subject 
to mutual-fund flow-driven stock mispricings.
407
 However, several recent studies argue that the 
aforementioned price impact measures are biased and that with the removal of this bias many 
established in the prior literature results above no longer hold.
408
 Notwithstanding, while we 
recognize that there is an ongoing debate in the academic literature as to the size of these effects, 
the literature does point to a potential link between mutual fund flows and prices in the 
underlying markets. 
403
 See George O. Aragon & Min S. Kim, Fire Sale Risk and Expected Stock Returns (Mar. 11, 
2022), available at https://ssrn.com/abstract=3663567 (retrieved from SSRN Elsevier database).
404
 See e.g., Charles Cao et. al., An Empirical Analysis of the Dynamic Relationship Between Mutual
Fund Flow and Market Return Volatility, 32 J. BANKING & FIN. 2111, no. 10 (2008). 
405
 See e.g., Alex Edmans, supra. The authors find that mutual fund investor flows lead to pressure 
on the price of underlying securities, which may in turn affect the probability of takeover of the 
firm issuing the security. Also see Derrien, François et. al., Investor Horizons and Corporate 
Policies, 48 J. FIN. & QUANTITATIVE ANALYSIS 1755 no. 6 (2013). Also see Norli, Øyvind et. al., 
Liquidity and Shareholder Activism, 28 REV. FIN. STUD. 486 (2015). Also see B. Espen Eckbo et. 
al., Are Stock-Financed Takeovers Opportunistic? 128 J. FIN. ECON. 443 (2018).
406
 See Han Xiao, The Economics of ETF Redemptions (Apr. 10, 2022), available at 
https://ssrn.com/abstract=4096222 (retrieved from SSRN Elsevier database).
407
 See Johan Sulaeman & Kelsey D. Wei, Sell-Side Analysts and Stock Mispricing: Evidence From 
Mutual Fund Flow-Driven Trading Pressure, 65 MGMT. SCI. 5427 no. 11 (2019).
408
 See Elizabeth Berger, Selection Bias in Mutual Fund Fire Sales (Apr. 18, 2021), available at 
https://ssrn.com/abstract=3011027 (retrieved from SSRN Elsevier database). See also Malcolm 
Wardlaw, Measuring Mutual Fund Flow Pressure as Shock to Stock Returns, 75(6) J. FIN. 3221 
(2020). See also Aleksandra and Rüdiger Weber, Money in the Right Hands: The Price Effects of
Specialized Demand (Jan. 27, 2022), available at https://ssrn.com/abstract=4022634 (retrieved 
from SSRN Elsevier database). Also see Simon Schmickler, Identifying the Price Impact of Fire 
Sales Using High-Frequency Surprise Mutual Fund Flows (Jul. 8, 2020) available at 
https://ssrn.com/abstract=3488791 (retrieved from SSRN Elsevier database). 
252

We recognize that the proposed rules may not address all of the mechanisms that amplify 
dilution in the mutual fund sector, such as system-wide market stress, misaligned incentives of 
fund managers and investors, or stale information used for pricing of funds’ portfolio holdings. 
However, even if these dilution-amplification mechanisms were not present, several factors may 
inhibit mutual fund managers’ ability to allocate trading costs to transacting investors by using 
currently available swing pricing. First, as discussed above, funds generally do not have 
complete information regarding their order flows at the time the NAV is struck, which may 
restrict the ability to operationalize swing pricing. These U.S.-market specific operational 
impediments cannot be mitigated by any single fund, which presents a collective action problem.
Second, even if funds were currently able to obtain complete flow data prior to striking their 
NAVs, funds may be hesitant to implement swing pricing to the extent that some investors are 
averse to bearing the full costs of their transactions via swing pricing, even if it is in the best 
interest of fund shareholders overall, or because investors in U.S. funds are unfamiliar with 
swing pricing.
409
 In addition, there may be a stigma attached to being the first fund to implement 
swing pricing. To the extent that such a stigma effect is present in relation to swing pricing, it 
may deter investors from choosing funds that could implement swing pricing under the optional 
approach, and that could be a reason why no fund currently chooses to implement swing pricing. 
Finally, even where fund managers are willing and able to employ liquidity risk management 
tools, they may not be able to forecast accurately the extent to which episodes of market stress 
can create challenges for mitigating dilution and meeting shareholder redemptions.
410
409
 We recognize, however, that open-end funds in other jurisdictions have successfully 
implemented swing pricing, as discussed in section I.B and accompanying notes 59-63.  
410
 See supra section I.B for a discussion of how market stress events in Mar. 2020 caused some 
funds to explore the potential of various emergency relief actions due to the combination of 
abnormally large redemptions and deteriorating liquidity in markets for underlying fund 
investments.
253

4.Affected Entities
a.Registered Investment Companies
The proposed amendments would mainly affect open-end funds registered with the 
Commission that are ETFs and mutual funds, excluding money-market funds (hereafter “mutual 
funds”). Based on Form N-CEN filing data as of December 2021, we estimate that there are 
11,488 of such funds that hold approximately $26 trillion in net assets.
411
 Among these, there are 
9,043 mutual funds that hold approximately $21 trillion in net assets and 2,445 ETFs that hold 
approximately $5.1 trillion in net assets.
412
 In addition, there are 1,650 mutual funds of funds that
hold approximately $3.1 trillion in net assets,
413
 as well as 150 feeder funds structured as ETFs 
that hold $0.6 trillion in net assets.
414
411
 We use information reported on Form N-CEN to the Commission for each fund as of Dec. 2021, 
incorporating filings and amendments to filings received through May 15, 2022. Net assets are 
monthly average net assets during the reporting period identified on part C.19.a of Form N-CEN, 
and validated with Bloomberg (for ETFs). Current values are based on the most recent filings and
amendments, which are based on fiscal years and are therefore not synchronous. We exclude 
money market funds identified in Item C.3.g of the Form N-CEN from the count of the affected 
open-end funds. These exclusions were also applied to the estimates that follow. 
We note that the submission on the Form N-CEN is required on a yearly basis. Therefore, these 
estimates do not include newly established funds that have not completed their first fiscal year 
and ,therefore, have not filed the Form N-CEN yet, as well as they do not account for the funds 
that have been terminated since the last Form N-CEN was filed. Therefore, the estimates for the 
number of funds and their net assets may be over- or under-estimated. 
412
 See id. ETFs are identified on Form N-CEN, Item C.3.a.i and include 781 in-kind ETFs with 
average total net assets of $1.2 trillion. UIT ETFs and exchange-traded managed funds are 
excluded from ETF totals. Mutual funds are identified as those funds that are not identified as 
ETFs or money market funds.
413
 Funds of funds are identified in Item C.3.e. A fund of funds means a fund that acquires securities
issued by any other investment company in excess of the amounts permitted under paragraph (A) 
of section 12(d)(1) of the Act (15 U.S.C. 80a-12(d)(1)(A)), but does not include a fund that 
acquires securities issued by another investment company solely in reliance on rule 12d1-1 under 
the Act (CFR 270.12d1-1). We note that at most 29 closed-end funds of funds with net assets of 
$10 billion may be affected by the proposal indirectly, to the extent that they hold shares of open-
end funds. 
414
 See note 411. Master-feeder fund means a two-tiered arrangement in which one or more funds 
(each a feeder fund) holds shares of a single fund (the master fund) in accordance with section 
12(d)(1)(E) of the Act (15 U.S.C. 80a-12(d)(1)(E)) or pursuant to exemptive relief granted by the 
Commission. See Instruction 4 to Item C.3 of Form N-CEN. Feeder funds are identified on Form 
254

Different parts of the proposal would affect these two subsets of open-end funds 
differently. In particular, the proposed amendments to the liquidity management program and 
certain reporting requirements would affect both mutual funds and ETFs and the proposed hard 
close and swing pricing requirements and related reporting requirements would affect only 
mutual funds that are not feeder funds. 
We estimate that there are 12,153 funds currently required to file reports on Form N-
PORT
415
 and there are 2,754 registrants required to file reports on Form N-CEN that would be 
affected by the proposed reporting requirements.
416
 Among these, we estimate that the proposed 
changes to the reporting requirements on Form N-PORT would also affect 660 closed-end funds 
and 5 ETFs registered as unit investment trusts with assets of $0.4 trillion and $0.7 trillion, 
respectively.
417
 
i.Open-End Fund Characteristics  
Table 2 below shows the number and total assets of open-end funds by fund type.
418
 The 
largest share (by assets) of funds (approximately 63.5% of assets held by all open-end funds) that
would be affected by the proposal are equity funds, including U.S. and international equity 
N-CEN, Item C.3.f.ii. 
415
 See infra note 540 and accompanying text.
416
 See infra note 547 and accompanying text. 
417
 Closed-end investment companies are identified on Form N-CEN, Item B.6.b. Unit investment 
trust (UIT) ETFs are funds of Form N-8B-2 registrants identified in Item B.6.g. which are also 
reported in Item E.
418
 We note that these statistics are estimated with the Morningstar data; therefore, there is a 
discrepancy in the number of funds estimated based on the Form N-CEN and the number of funds
estimated based on the Morningstar data. This discrepancy exists for two reasons. First, 
Morningstar data may not include all open-end funds due to its voluntary submission nature; as 
such, the number of funds based on the Morningstar data may be under-estimated. Second, funds 
may submit their data to Morningstar on a monthly data, while the submission on the Form N-
CEN is required on a yearly basis. Therefore, the number of funds estimated based on the Form 
N-CEN may be under-estimated because it may not include new funds that haven’t filed the Form
yet. 
255

funds. The second largest type of funds affected by the proposal is taxable bond funds, which on 
aggregate holds approximately 19.6% of all open-end fund assets. 
Table 2. Number of Affected Funds by Fund Type, as of December 2021.
419
CATEGORY
ETFs
1
Other Open-End (not
including MMFs)
Total
# of
Funds
Assets
, $ trln
% of Total
Assets
# of
Funds
Assets,
$ trln
% of
Total
Assets
# of
Funds
Assets, $
trln
% of
Total
Assets
Allocation 90 $0.030.37% 377 $1.587.59% 467 $1.615.72%
Alternative 193 $0.010.21% 167 $0.130.64% 360 $0.150.53%
Bank Loan 7 $0.020.26% 53 $0.100.47% 60 $0.120.42%
Commodities 116 $0.141.88% 28 $0.030.16% 144 $0.170.60%
Intern. Equity 507 $1.1015.20% 1,108 $3.1815.30% 1,615 $4.2915.27%
Miscellaneous 246 $0.141.86% 90 $0.010.03% 336 $0.140.51%
Municipal Bond 68 $0.081.13% 546 $0.984.71% 614 $1.063.79%
Nontrad. Equity 33 $0.020.23% 92 $0.030.13% 125 $0.040.15%
Sector Equity 481 $0.8411.62% 398 $0.633.02% 879 $1.475.24%
Taxable Bond
2
  426 $1.1716.06% 1,268 $4.3220.77% 1,694 $5.4919.55%
US Equity 684 $3.7251.18% 1,952 $9.8247.18% 2,636 $13.5448.22%
TOTAL 2,851 $7.26100% 6,079 $20.82100% 8,930 $28.08100%
419
Morningstar data, excluding funds of funds, feeder funds, and money market funds. 5 UIT ETFs, 
with assets of approximately $0.7 trillion are included in the Morningstar ETF totals.
256

1. Includes ETFs that are UITs.
2. Excludes bank loan funds. 
The proposal would disproportionally affect open-end funds that hold less liquid 
investments. Among the investments classified by open-end funds in December 2021, $27.3 
trillion of all investments were reported as highly liquid, $441 billion of all investments were 
reported as moderately liquid, $276 billion of all investments were reported as less liquid, and 
$198 billion of all investments were reported as illiquid. Among the investments reported as less 
liquid, 71% ($194 billion) are bank loan interests, 10% ($26 billion) are debt securities, 9% ($25 
billion) are equities, and 6% ($17 billion) are mortgage-backed securities.
420
 Therefore, we 
believe that the proposal to remove the less liquid category would primarily affect open-end 
funds that hold bank loan interests. As of December 2021, there are 746 open-end funds that 
classified approximately $204 billion in bank loan interests, which represents approximately 
0.7% of all open-end fund investments classified,
421
 and makes up approximately 15% of the 
bank loan market.
422
 Among these bank loan interests, 95% were reported as less liquid. We 
recognize that some open-end funds have large concentrations in bank loan interests and are 
typically referred to as “bank loan” funds. As shown in Table 2 above, as of December 2021, 
there are 53 bank loan funds that hold approximately 0.5% of total open-end fund assets.
 
The proposal would also disproportionally affect open-end funds that hold investments 
whose fair value is measured using an unobservable input that is significant to the overall 
420
 In addition to these, a smaller number of other categories are classified as less liquid 
investments. 
421
 Source: Form N-PORT. Loan investments are identified via Form N-PORT, Item C.4.a and 
liquidity classifications are from Form N-PORT, Item C.7.
422
 See Leveraged Loan Primer, supra note 99 (stating that the S&P/LSTA Loan Index, which is 
used as a proxy for market size in the U.S., totaled approximately $1.375 trillion as of Feb. 2022).
257

measurement.
423
 We estimate that, as of December 2021, 2,006 open-end funds reported $76.5 
billion in investments that were valued using unobservable inputs that are significant to the 
overall measurement, which is approximately 0.27% of all open-end fund assets.
424
 Among these,
$16.9 billion were classified as highly liquid investments and $2.1 billion as moderately liquid 
investments by 541 funds.
425
 In addition, $7.8 billion were classified into less liquid category and
$49.8 billion were classified into the illiquid category. 
ii.Open-End Fund Flows  
To inform our understanding of historical redemption and subscription patterns, we 
analyzed daily fund flow data during the period between January 2009 and December 2021.
426
 
Table 3 below shows net fund flow percentiles pooled across time and funds. Figure 6 below 
shows the time series of daily fund flow percentiles for equity and fixed income funds, showing 
1
st
, 5
th
, 50
th
, 95
th
, and 99
th
 percentiles of fund flows for each day. Similarly, Figure 7 shows the 
423
 See supra note 111.
424
 Source: Form N-PORT. The fair value hierarchy for an investment are identified on Form N-
PORT, Item C.8., and liquidity classifications are identified on Form N-PORT, Item C.7. We 
observed that the investments classified as highly liquid that were Level 3 investments primarily 
were mortgage-backed securities.
425
 Id.
426
 Data source: Morningstar Fund Flow Data. We restrict our analysis to funds that have a “Global 
Broad Category Group” of Equity or Fixed Income because we believe the data for other types of 
funds (e.g., Alternative and Commodity funds) contain more extreme values that may be 
spurious. We restrict our analysis to include fund flow data starting 2009. While some 
Morningstar data is available for 2008, we have not included that data in our historical flow 
analyses because of gaps in the 2008 data (e.g., the 2008 dataset covers a more limited set of 
funds). We trim outliers from the dataset by restricting outflows from a fund to be no more than 
100% of AUM and inflows to be no more than 300% of AUM on a given day or 1000% of AUM 
for a given week when analyzing weekly flows. For daily flows, we determine the flow 
percentage by dividing dollar flows on date T by total net assets on date T. This assume that total 
net assets on a given day do not account for that day’s flows. Similarly, for weekly flows, we 
aggregate by business week, summing dollar flows over the course of the week and dividing by 
the first available day’s net assets in that week. Making the opposite assumption, that total net 
assets on a given day do incorporate that day’s flows, does not significantly alter our results.
258

time series of weekly fund flow percentiles for equity and fixed income funds, showing the 1
st
, 
5
th
, 50
th
, and 95
th
, and 99
th
 percentiles of fund flows for each week.
Table 3 shows, for example, that weekly outflows exceed roughly 7% in one out of one 
hundred fund-week observations and that weekly outflows exceed 1.3% in five out of one 
hundred observations.
427
 To help put these figures in context statistically, we see that the fund 
flow distribution exhibits heavy left (and right) tails relative to the normal distribution. That is, 
events such as outflows of 6.6% should occur far fewer than one out of one hundred times if 
fund flows were normally distributed. Similarly, events such as inflows of 8.3% should occur far 
fewer than one out of one hundred times if fund flows are normally distributed. 
Whereas Table 3 looks at percentages across all funds and days or weeks, Figure 6 shows
the cross-section of daily fund flows at each point in time and breaks up the fund universe into 
fixed income and equity funds. Figure 6 shows that the dispersion of flows exhibits significant 
variation; there are times when percentiles widen out considerably, even during non-stressed 
market conditions.
428
 Times of substantial flows into bond funds do not necessarily correspond to
flows into equity funds. What this implies is that looking at the distributions separately may 
reveal greater dispersion, as flows across the sectors diversify each other. For equities, a number 
of time periods exhibit cross-sections in which the lowest percentile of funds have daily outflows
in excess of 10%. For bond funds, flows of this magnitude are rarer. However, such episodes do 
427
 See supra note 426 for a description of how the data set was constructed.
428
 See id. Daily flows for equity funds have notable seasonal spikes that tend to occur during the 
month of Dec., independent of market stress events. These flow spikes may be attributable to any 
year-end rebalancing of investors from, e.g., underperforming funds into outperforming funds; to 
year-end distributions that are characterized as flows by Morningstar and subsequently re-
invested; or to spurious or errant data points. We believe that latter is less likely because these 
seasonal spikes are still evident when the data is aggregated to the weekly level in Figure 7. To 
the extent seasonal fund flow spikes are driven by predictable events such as, e.g., capital gains 
distributions, fund managers are more likely to be able to plan for any impacts of such events on a
fund, include funds that hold investments with lower liquidity. 
259

occur for bond funds and correspond with times of broader stress in fixed income markets. 
Similarly, Figure 7, which shows weekly flows, also shows that outflows in the lowest percentile
of funds of below 10% are not uncommon, both in bonds and in equities.
429
 For fixed income 
funds, both the daily and weekly flow plots in Figures 6 and 7 show that during March 2020, 
some funds experienced significant outflows, consistent with the aggregate monthly outflows 
discussed in section I.B.
Table 3. Pooled Fund Flows, as a % of Net Assets.
 Percentile
 1st5th50th95th99th
Daily fund flows-1.60%-0.30%0%0.40%2%
Weekly fund flows-6.60%-1.30%0%1.80%8.30%
429
 See id.
260

Figure 6. Daily Equity and Fixed Income Fund Flows over Time, % of Net Assets.
Fixed Income
Equity
20092010201120122013201420152016201720182019202020212022
-20
-10
0
10
20
-20
-10
0
10
20
Date
D
a
i
l
y
 
F
u
n
d
 
F
l
o
w
 
(
%
)
Flow Percentile:
1
st
 and 99
th
5
th
 and 95
th
50
th
 (median)
261

Figure 7. Weekly Equity and Fixed Income Fund Flows over Time, % of Net Assets.
Fixed Income
Equity
20092010201120122013201420152016201720182019202020212022
-20
-10
0
10
20
-20
-10
0
10
20
Date
W
e
e
k
l
y
 
F
u
n
d
 
F
l
o
w
 
(
%
)
Flow Percentile:
1
st
 and 99
th
5
th
 and 95
th
50
th
 (median)
262

b.Fund Intermediaries
As discussed above, the proposed hard close requirement would affect a large group of 
intermediaries. Specifically, under the hard close requirement, intermediaries generally would 
need to submit orders for fund shares earlier than they currently do for those orders to receive 
that day’s price. As discussed in greater detail below, this may affect all market participants 
sending orders to relevant funds, including broker-dealers, registered investment advisers, 
retirement plan recordkeepers and administrators, banks, insurance companies, and other 
registered investment companies. 
i.Broker-Dealers  
Based on an analysis of Financial and Operational Combined Uniform Single (FOCUS) 
Reports filings as of December 2021, there were approximately 3,508 registered broker-dealers 
with over 240 million customer accounts.
430
 In total, these broker-dealers have over $5 trillion in 
total assets as reported on Form X-17A-5.
431
 More than two-thirds of all broker-dealer assets and 
just under one-third of all customer accounts are held by the 21 largest broker-dealers, as shown 
in Table 4.
432
 Of the broker-dealers registered with the Commission as of December 2021, 434 
broker-dealers were dually registered as investment advisers.
433
430
 The data is obtained from FOCUS filings as of Dec. 2021. There may be a double-counting of 
customer accounts among, in particular, the larger broker-dealers as they may report introducing 
broker-dealer accounts as well in their role as clearing broker-dealers. Customer Accounts 
includes both broker-dealer and investment adviser accounts for dual-registrants.
431
Assets are estimated by Total Assets (allowable and non-allowable) from Part II of the FOCUS 
filings (Form X-17A-5 Part II and Part IIA, available at https://www.sec.gov/files/formx-17a-
5_2.pdf) and correspond to balance sheet total assets for the broker-dealer. The Commission does
not have an estimate of the total amount of customer assets for broker-dealers because that 
information is not included in FOCUS filings. The Commission estimates broker-dealer size from
the total balance sheet assets as described above.  
432
 Approximately $4.97 trillion of total assets of broker-dealers (98.7%) are at broker-dealers with 
total assets in excess of $1 billion. 
433
 This estimate includes the number of broker-dealers who are also registered with either the 
Commission or a state as an investment adviser.
263

Table 4. Number of Broker-Dealers by Total Assets, as of December 2021.
Size of Broker-Dealer
 (Total Assets) 
Total Num. 
of BDs
Cumulative
Total Assets
 ($ bln)
Cumulative Num. 
of Customer 
Accounts
>$50 billion213,68275,808,084
$1 billion to $50 billion1241,581153,243,391
$500 million to $1 billion3022518,545
$100 million to $500 million147319,559,082
$10 million to $100 million53219128,669
$1 million to $10 million1,0654885,269
<$1 million1,5890.510,854
Total3,5085,338240,153,894
ii.Retirement Plans  
Retirement plans and accounts are major holders of mutual funds. We estimate that, as of 
2022Q1, approximately 54% of non-MMF mutual fund assets were held in retirement accounts, 
which include employer-sponsored defined contribution (“DC”) plans and individual retirement 
accounts (“IRAs”).
434
 At year-end 2021, mutual funds accounted for 58% ($6.4 trillion) of DC 
plan assets and 45% ($6.2 trillion) of IRA assets.
435
 Among DC plans, 401(k) plans held $5 
trillion of assets in mutual funds, 403(b) plans held $670 billion, other private-sector DC plans 
held $539 billion, and 457 plans held $177 billion.
436
 Combined, the mutual fund assets held in 
DC plans and IRAs at the end of 2021 accounted for 32% of the $39.4 trillion U.S. retirement 
market.
437
 
434
 See Inv. Co. Inst. (ICI), The U.S. Retirement Market, First Quarter 2022 (June), Table 28, 
available at https://www.ici.org/system/files/2022-06/ret_22_q1_data.xls.
435
 See ICI, 2022 Investment Company Factbook, Chapter 8, available at 
https://www.icifactbook.org/pdf/2022_factbook.pdf. 
436
 Id.
437
 Id.
264

According to a recent study, DC plans vary in size by both number of participants and 
plan assets.
438
 For example, as shown in the Table 5 below, among 401(k) plans, 94.1% of plans 
had less than $10 million of plan assets. While the number of plans with plan assets over $1 
billion is relatively small, these largest plans manage approximately 47.8% of all assets held in 
401(k) plans.
Table 5. Distribution of 401(k) Plans by Plan Assets, 2018.
Plan assetsPlansParticipantsAssets
NumberPercentThousandsPercentBillions
of dollars
Percent
Less than $1M343,10858.5%6,007.58.4%$107.1 2.1%
$1M to $10M208,78935.613,660.619.1620.712.2
>$10M to $50M26,4584.59,894.513.9532.410.4
>$50M to $100M3,5640.64,808.06.7247.14.8
>$100M to $250M2,4070.46,744.89.5374.77.3
>$250M to $500M1,0340.25,395.17.6362.17.1
>$500M to $1B6030.14,763.96.7424.18.3
More than $1B6590.120,073.428.12,439.747.8
All plans586,622100.071,347.7100.05,108.0100.0
The same study shows that mutual funds held 43% of private-sector 401(k) plan assets in 
the sample in 2018. CITs held 33% of assets, guaranteed investment contracts (GICs) held 7%, 
separate accounts held 3%, and the remaining 14% were invested in individual stocks (including 
company stock), individual bonds, brokerage, and other investments.
439
 While mutual funds 
438
 See BrightScope & Investment Company Institute, 2021, The BrightScope/ICI Defined 
Contribution Plan Profile: A Close Look at 401(k) Plans, 2018 (“BrightScope/ICI Report”), at 7, 
Ex. 1.2, available at www.ici.org/files/2021/21_ppr_dcplan_profile_401k.pdf. These data is 
limited to 401(k) plans covered in the Department of Labor Form 5500 research file, as we do not
have data on the size distribution for other types of DC plans. We note, however, that 401(k) 
plans represent approximately 70.4% of all DC plan assets. Investment Company Institute, “The 
US Retirement Market, First Quarter 2022” (June), Table 6, available at 
https://www.ici.org/system/files/2022-06/ret_22_q1_data.xls. 
439
 Id.
265

accounted for at least 55% of assets in plans with less than $1 billion of plan assets, they 
accounted for only 23% of assets in plans with more than $1 billion of plan assets (dominated by 
CITs that accounted for 49% of plan assets).
440
iii.Retirement Plan Recordkeepers  
According to one source, as of September 2021, the total DC recordkeeping assets were 
approximately $9.7 trillion, as shown in Table 6 below.
441
 The largest recordkeeper managed 
approximately 33% of all recordkeeping assets, and the 10 largest recordkeepers managed 
approximately 83% of all recordkeeping assets.
Table 6. Largest Retirement Plan Recordkeepers, as of September 30, 2021.
Recordkeeper
Recordkeeping
Assets, $ billion
Fidelity Investments
$3,169
Empower
$1,048
TIAA-CREF
$710
Vanguard Group
$702
Alight Solutions
$545
Voya Financial
$499
Principal Financial Group
$449
Bank of America
$346
Prudential Financial
$283
T. Rowe Price Group
$268
All others
$1,676
TOTAL$9,695
440
 Id.  
441
 Larry Rothman, Large Record Keepers Keep Dominating Market, PENSIONS & INVESTMENTS, 
(Apr. 11, 2022), available at https://www.pionline.com/interactive/large-record-keepers-keep-
dominating-market.
266

c.Other Affected Entities
A significant portion of mutual fund orders are processed through NSCC’s Fund/SERV 
platform: in 2021 Fund/SERV processed 261 million mutual fund transactions with the aggregate
value of $8.5 trillion,
442
 which we estimate to be at least 36.8% of the value of all mutual fund 
transactions.
443
 A part of the platform, referred to as Defined Contribution Clearance & 
Settlement, focuses on purchase, redemption, and exchange transactions in defined contribution 
and other retirement plans. This service handled a volume of nearly 154 million transactions in 
2021.
444
 
Mutual funds may employ the services of third-party or affiliate transfer agents. We 
estimate that, as of March 2022, there are 99 mutual fund transfer agents that serve both open- 
and closed-end funds for the 2021 reporting year.
445
442
 See Depository Trust and Clearing Corporation (DTCC), 2021 Annual Report, pg. 57, available 
at https://www.dtcc.com/~/media/files/downloads/about/annual-reports/DTCC-2021-Annual-
Report. 
443
 We do not have data to calculate the value of all mutual fund transactions directly. Therefore, we
use ICI data on long-term mutual funds’ portfolio purchases and sales as a proxy for the total 
value of transactions in mutual fund shares, assuming that a significant portion of portfolio 
purchases reflects investor subscriptions and a significant portion of portfolio sales reflects 
investor redemptions. We estimate this value to be $27.07 trillion by adding the total value of 
purchases and the total value of sales for long-term mutual funds. See ICI, 2022 Investment 
Company Factbook, Table 31, available at https://www.icifactbook.org/22-fb-data-tables.html.
We estimate the share of the value of mutual fund transactions processed by Fund/SERV as the 
aggregate value reported by Fund/SERV divided by the long-term mutual funds’ portfolio 
purchases and sales. We recognize that mutual funds may effect portfolio purchases and sales for 
purposes other than investing new cash from subscribing investors and meeting investor 
redemptions, such as portfolio rebalancing. Therefore, the total value of transactions in long-term 
mutual fund shares may be overestimated. Accordingly, the share of mutual fund transaction 
value processed by Fund/SERV may be underestimated. We also recognize that the aggregate 
value reported by Fund/SERV may or may not include the value of mutual fund transactions via 
DCC&S. To the extent that the reported value excludes such transactions, the share of mutual 
fund transaction value processed by Fund/SERV may be further underestimated. We solicit 
comments on these statistics. 
444
 See id.
445
 Mutual fund transfer agents are those transfer agents that answered with a positive value for any 
of Items 5(d)(iii-iv), 6(a-c)(iii-iv), or 10(a) on a Form TA-2. We note that the identified mutual 
fund transfer agents may serve both open-end and closed-end funds. To the extent that some of 
267

We expect that a range of other entities would be affected by the proposal:
Mutual fund order processing entities (besides Fund/SERV);
Mutual fund liquidity service providers;
Other third-party service providers.
We do not currently have data on the number and size of these entities. We solicit 
comments on these statistics. In addition, we solicit comment on what other entities would be 
affected by the proposed amendments.
C.Benefits and Costs of the Proposed Amendments
1.Liquidity Risk Management Program
The proposed rule would make several changes to the liquidity risk management 
framework adopted in 2016. In particular, it makes changes to (1) the manner and frequency in 
which funds must classify each of their portfolio holdings into one of several liquidity buckets; 
(2) the minimum amount a fund must hold in the highly liquid investment category; (3) the 
treatment of margin and collateral for certain derivatives transactions, for purposes of the highly 
liquid investment minimum and 15% limit on illiquid investments, as well as the treatment of a 
fund’s liabilities for purposes of the highly liquid investment minimum; and (4) the definition of 
the liquidity buckets, including illiquid investments. Whereas the existing rule provides funds 
with a considerable level of discretion regarding how fund investments are classified, as well as 
regarding the determination of a highly liquid investment minimum, the proposed rule would 
reduce that discretion and is intended to prepare funds for future stressed conditions by 
improving the quality of liquidity classifications by preventing funds from over- or under-
estimating the liquidity of their investments, including in times of stress. The proposed rule is 
the identified transfer agents only serve closed-end funds, the number of affected transfer agents 
may be over-estimated.
268

also intended to provide classification standards that are consistent with more effective practices 
the staff has observed across funds. As a result, we expect enhanced liquidity across open-end 
funds and lower risk of a fund not being able to meet shareholder redemptions without 
significant investor dilution, which could reduce the risk of runs arising from the first-mover 
advantage. Thus, the proposed amendments may improve overall market resiliency. 
The proposed amendments to the liquidity risk management program would impose costs
on open-end funds. We estimate, for Paperwork Reduction Act purposes, that the modification of
existing collection of information requirements of rule 22e-4 will result in an annual cost 
increase of $7,101 per fund.
446
 In addition, funds may experience other costs related to changing 
business practices, computer systems, integrating new technologies, etc. We are not able to 
quantify many of these costs for several reasons. First, we do not have granular data on the 
current systems, business practices, and operating costs of all affected parties, which would 
allow us to estimate how their systems and practices would change along with any associated 
costs. Second, we cannot predict how many funds would respond to the proposed changes to the 
liquidity risk management program by changing their portfolio allocation in order to be 
compliant with the proposed highly liquid investment minimum and the 15% limit on the illiquid
investments and how many funds may choose to convert to the closed-end form or cease to exist.
Finally, we cannot predict how many investors would decide to exit open-end funds in a 
response to the portfolio allocation changes that funds may implement as a result of the proposed
amendments to the liquidity risk management. We request comment on these and other potential 
costs of the proposed changes to the liquidity risk management program, particularly any dollar 
estimates of the costs that funds and other affected parties will incur as a result of the rule.
446
 See infra section IV.B.
269

a.Methodology for Liquidity Classifications
The proposed rule would substitute the fund’s reasonably anticipated trade size 
determination with a stressed trade size (“STS”) determination, with an STS being a set 
percentage of the fund’s net assets. The proposed rule would also prescribe specific methods to 
determine when a price change should be considered “significant” and remove the funds’ ability 
to perform liquidity classification at the asset-class level.
Generally, the three proposed amendments to the liquidity classification methodology 
may help funds to prepare better for future stress events or periods of high levels of redemptions 
by improving the quality of liquidity classifications via the requirement for more frequent 
classification and making the methodology more disciplined, objective, and consistent across 
funds. This, in turn, may help funds meet investor redemptions without significant trading costs, 
potentially decreasing dilution risk. We recognize, however, that the proposed liquidity 
classification methodology would still be dependent on the size of an investment position within 
a fund’s portfolio relative to the size of the market for the investment. Therefore, although funds 
would follow a more standardized methodology for liquidity classifications, the same investment
could be classified differently by different funds, depending on how much of this investment a 
fund holds, thereby reducing comparability of liquidity classifications between different funds. 
The specific economic effects for each of three proposed amendments are discussed below. 
i.Replacing Reasonably Anticipated Trade Size with   
Stressed Trade Size
Funds may currently use their subjective judgment when determining the meaning and 
calculation of reasonably anticipated trade size. The proposed requirement to replace the 
reasonably anticipated trade size with the STS as a set percentage of a fund’s net assets would 
decrease such subjectivity because funds would no longer have discretion in determining the 
270

amount of each investment they should assume will be sold or disposed of in determining the 
liquidity classifications. A stricter methodology for liquidity classifications of funds’ investments
may be more objective and consistent, which would benefit investors by improving funds’ ability
to meet investor redemptions without significant levels of dilution in both normal and stressed 
market conditions. In particular, requiring a fund’s classification model to assume the sale of the 
proposed stressed position size would better emulate the potential effects of stress on the fund’s 
portfolio and help better prepare a fund for future stress or other periods where the fund faces 
higher than typical redemptions. In addition, to the extent that the proposed STS would be 
simpler and more objective than the determination of a reasonably anticipated trade size, all else 
equal, the operational burden or costs that funds currently experience in making liquidity 
classifications may be reduced.
We also propose to set the STS minimum of 10%. Based on an analysis of historical 
weekly fund flows for equity and fixed income funds, we estimate that a random fund in a 
random week has approximately a 0.5% chance of experiencing redemptions in excess of the 
10% STS, and there were 3.4% of weeks where more than 1% of funds experienced net 
redemptions exceeding 10%.
447
 Although this data analysis implies that funds infrequently 
experience redemptions of 10% or more, we believe that the 10% STS has the advantage of 
simulating a stress event and would better prepare funds to accommodate redemptions during 
such events. Although funds could consider events larger than 10% for their STS calculation 
voluntarily, we believe that the proposed requirement would achieve a more consistent 
447
 An analysis of historical Morningstar weekly fund flow data for equity and fixed income funds 
from 2009 through 2021 shows that the 1st percentile flow is approximately -6.6% while the 5th 
percentile flow is approximately -1.3%. The same analysis shows that the 10% STS corresponds 
to approximately the 0.5th percentile of pooled weekly fund flows. The same analysis shows that 
if the 5th percentile fund flow is computed for each week, it never exceeds the 10% STS. If the 
1st percentile fund flow is computed for each week, it exceeds the 10% STS for approximately 
3.4% of the weeks in the sample.
271

methodology for liquidity measurement across funds. However, we recognize that specific funds 
may experience varying costs and benefits associated with the 10% STS. For example, two funds
with comparable levels of AUM but with underlying investments that have different liquidity 
characteristics may experience stress at different levels of redemptions. For example, a large-cap 
equity fund may not experience stress at the 10% level of redemptions, whereas a fixed income 
fund with comparable AUM might. As such, the extent to which investors of a given fund benefit
from the 10% STS will vary based on the liquidity of its underlying investments.
448
Funds and their investors may incur costs as a result of replacing reasonably anticipated 
trade size with the STS. To the extent that funds would assign a higher liquidity category under 
the current reasonably anticipated trade size approach compared to the liquidity category that 
would be assigned using the proposed STS, the proposed amendment may result in funds 
rebalancing their portfolios in order to meet the highly liquid investment minimum and to 
comply with the limit on the illiquid investments. As such, a fund either may have to increase its 
holdings of highly liquid investments or decrease its holdings of moderately liquid and illiquid 
investments. As a result, the risk-return profile of the fund’s portfolio would change towards 
more liquid and less risky investments that may have lower returns. To the extent that such 
reallocation would result in deviations from a benchmark return (if any), funds may experience 
higher tracking error.
449
 In addition, to the extent that investors seek particular risk exposures and
returns that would be difficult for the affected funds to provide under the proposed amendments, 
the proposed amendments may drive them towards other investment vehicles that do not face 
daily redemptions, such as closed-end funds, or to other vehicles or means of investing that are 
448
 See also section III.B.4.a.ii for discussion of fund flows based on fund type.
449
 Tracking error is the difference between the fund’s return and that of the benchmark which 
measures how closely a fund replicates the returns of the identified benchmark.
272

not subject to the liquidity rule, such as separately managed accounts or CITs. However, to the 
extent that these other vehicles or means of investing do not offer the same investment strategies 
or do not provide the same benefits and protections as the open-end funds to investors, investors 
may find such investment avenues less favorable compared to open-end funds. As a result, the 
set of investment options available to investors with particular risk-return preferences may 
decrease. 
ii.Determining a Significant Change to Market Value  
Under the current rule, a fund may determine value impact (a “significant price change”) 
in a variety of ways, including methods that depend on the type of asset, or vendor, model, or 
system used. The proposed amendments would establish a uniform standard of how funds should
determine what constitutes a significant price change, which would improve consistency and 
objectivity of liquidity classification methodologies across mutual funds. To the extent that some
funds may currently use definitions of a significant price change that result in under-estimation 
of the price impact and classification of investments in more liquid categories, the proposal 
would limit the extent to which funds are able to do so. This, in turn, would help funds to prepare
better for potential stress events and potentially reduce the risk of not being able to meet 
investors’ redemptions without incurring significant trading costs, thereby decreasing dilution 
risk. The proposed amendment may also decrease ongoing costs related to the liquidity 
classification process, all else equal, by reducing the number of determinations a fund must 
perform during the liquidity classification process.
For shares listed on a national securities exchange or a foreign exchange, the proposed 
rule would require funds to use an average daily trading volume threshold of 20% to determine 
273

whether a trade will cause a significant price change.
450
 Funds will have less discretion in this 
circumstance than under the existing rule. This should result in a more robust and consistent 
liquidity classification process that would help ensure that the liquidity classifications for all 
holdings of a certain investment of particular size are classified in the same manner across funds 
which, in turn, may help all funds to prepare better for periods of high investor redemptions.  
For any investments other than shares listed on a national securities exchange or a foreign
exchange, the proposed rule would define a significant change in market value as any sale or 
disposition that a fund reasonably expects would result in a decrease in sale price of more than 
1%, which is the measure used in several commonly employed liquidity models.
451
 This 
alternative measure is proposed because we recognize that average daily trading volume in, for 
example, a single bond issue would not be representative because it does not represent the full 
pool of liquidity available for a debt security, since bonds are split into many different issues and
differ from common shares, where volume is concentrated because there generally is only one 
class of shares for each issuer.
Although not all liquidity classification models currently specify a price decrease 
explicitly as the determination for a significant change in market value, we believe it would 
improve the quality of classifications to require a more objective principle. However, the 
proposed rule may still result in some heterogeneity in how funds classify otherwise similar 
holdings because funds and liquidity classification vendors would still be able to choose which 
price impact model to use for their classifications,
452
 depending on the assumptions of the fund or
450
 See supra section II.A.1.a.ii.
451
 Id.
452
 There are various estimation techniques for price impact (market impact), such as those that use 
linear models, power law models, log models, I-STAR model, and other. See, e.g., Albert S. 
Kyle, Continuous Auctions and Insider Trading, 53 ECONOMETRICA, 1315 (1985), Robert 
Almgren et. al., Direct Estimation of Equity Market Impact, 18 RISK 58 (2005); Elia Zarinelli et. 
274

a liquidity classification provider. As a result, liquidity classifications for the same investment of 
the same size may vary across funds, to the extent that funds or liquidity classification vendors 
have different theoretical assumptions about the same investment. For example, it may be 
difficult to choose a price impact model for assets that do not have readily available recent price 
information, and funds may have to use subjective judgment in determining the sale amount that 
constitutes a significant change in market value. To the extent that such subjectivity could still 
result in over-estimation of liquidity of funds’ investments, the potential increase in the ability of
funds to meet investors’ redemptions without significant dilution under the proposed rule may be
lower than anticipated. In addition, to the extent that the reference price against which the price 
impact is calculated is stale for some investments (i.e., investments that are traded infrequently), 
the estimated trading volume that would not cause a significant price change may be less 
accurate for such investments. 
iii.Removing Asset Class Classification   
The proposal to remove funds’ ability to perform liquidity classifications at the asset-
class level may improve the quality of liquidity classifications by reducing the potential of funds 
over- or under-estimating the liquidity of their investments. Currently, because the definitions of 
asset classes are not consistent across funds in terms of their scope and granularity, an 
investment (of the same size) could be classified as belonging to different asset classes by 
al., Beyond the Square Root: Evidence for Logarithmic Dependence of Market Impact on Size 
and Participation Rate, MARKET MICROSTRUCTURE AND LIQUIDITY no. 2 (Dec. 5, 2014) 
available at https://arxiv.org/pdf/1412.2152.pdf; Bence Toth, et.al, Anomalous Price Impact and 
the Critical Nature of Liquidity in Financial Markets (working paper, Nov. 1, 2011), available at 
https://arxiv.org/abs/1105.1694; Robert Kissell et. al., OPTIMAL TRADING STRATEGIES: 
QUANTITATIVE APPROACHES FOR MANAGING MARKET IMPACT AND TRADING RISK, (AMACON 
2003); Saerom Park et. al., Predicting Market Impact Costs Using Nonparametric Machine 
Learning Models (research article Feb. 29, 2016), available at 
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0150243. 
275

different funds. Moreover, if a classification is performed on an asset-class basis, changes in 
liquidity profiles of individual investments may not be accounted for in the way these 
investments are classified, which may lead to an over- or under-estimation of funds’ 
investments’ liquidity. In contrast, under the proposal, funds would more specifically gauge the 
liquidity of each investment, which could strengthen their liquidity management, potentially 
decreasing the risk of not being able to meet investors’ redemptions without significant costs that
could arise from an over-estimation of fund’s investments’ liquidity. To the extent that the 
liquidity classifications of investments within the same asset class would not differ between 
asset-level and investment-level classifications, the proposal to remove funds’ ability to perform 
liquidity classifications on the asset-class level may increase ongoing operational burden for 
funds that rely on this classification method without any commensurate benefits. However, the 
asset-class level classification is not expected to be compatible with other proposed changes to 
the liquidity risk management program, such as the value impact standard. Specifically, a fund 
would not be able meaningfully to apply a standard based on average daily trading volume or a 
price decline in a given investment at the asset class level because the average trading volume, or
market depth generally, can vary from investment to investment even within the same asset class.
b.Removal of the Less Liquid Category
We propose to eliminate the less liquid investment category. Currently, investments are 
defined as less liquid if it is reasonably expected that they could be sold within seven calendar 
days but the sale is reasonably expected to settle in more than seven days. Under the proposal, 
investments that do not sell and settle within seven calendar days without significant price 
change would be classified as illiquid. We believe that the proposal to remove the less liquid 
276

category would primarily affect open-end funds that hold bank loan interests, as the most 
common type of investment in this category is bank loan interests.
453
 
On the one hand, recent research suggests that during the period between March 1 and 23
of 2020, bank loan mutual funds experienced outflows of approximately 11% of their AUM; 
substantially higher than high-yield bond funds (which investors may consider close substitutes 
to bank loan funds) and all other types of funds.
454
 Moreover, these outflows had longer duration,
which suggests greater risk of investor runs in these funds. On the other hand, other research
455
 
examines the resilience of bank loan funds to liquidity shocks and does not find substantial 
evidence of lower liquidity among bank loan funds compared to corporate bond funds generally. 
However, the risk of not being able to meet investor redemptions within seven days without 
significant costs may be higher for bank loan funds compared with other types of funds, as the 
trading costs related to bank loan fund outflows (including costs associated with obtaining 
financing to bridge the settlement gap) may be larger than those of other types of funds. 
Specifically, as noted by LSTA, over the course of the first three weeks of March of 2020, bid-
ask spreads for bank loans widened by 288 basis points to a record 422 basis points.
456
 In 
contrast, recent research shows that, between February 3 and March 20 of 2020, high-yield 
453
 See supra section III.B.4.a.
454
Nicola Cetorelli et. al., Outflows From Bank-Loan Funds During COVID-19, Federal Reserve 
Bank of New York, LIBERTY STREET ECONOMICS (June 16, 2020), available at 
https://libertystreeteconomics.newyorkfed.org/2020/06/outflows-from-bank-loan-funds-during-
covid-19/. See also Ayelen Banegas & Jessica Goldenring, Leveraged Bank Loan Versus High 
Yield Bond Mutual Funds, FIN. & ECON. DISCUSSION SERIES 2019-047 (Board of Governors of 
the Federal Reserve System, Washington, D.C.), Jun. 2019, (“Banegas/Goldenring paper”) 
available at https://www.federalreserve.gov/econres/feds/leveraged-bank-loan-versus-
high-yield-bond-mutual-funds.htm. This paper finds that, as of end of 2018, flows as a share 
of assets have been larger and more volatile for bank loan funds than for high-yield bond funds.
455
 Mustafa Emin et. al., How Fragile Are Loan Mutual Funds? (working paper, Nov. 18, 2021) 
available at https://ssrn.com/abstract=4024592 (retrieved from SSRN Elsevier database). 
456
 See Loan Syndication & Trading Association (LSTA), March Loan Returns (April 2, 2020), 
available at https://www.lsta.org/news-resources/march-loan-returns-total-12-37.
277

corporate bonds’ bid-ask spreads widened by an estimated range between 79
457
 and 166
458
 basis 
points to 102 and 223 basis points respectively. 
Moreover, bank loan funds, unlike other funds, experience specific trading costs related 
to bridging the settlement gap, i.e., the costs related to using financing during the time it takes for
a loan trade to settle. Although other types of open-end funds may use bank credit lines, most 
instruments held by open-end funds do not come with the same level of settlement uncertainty. 
Because the process of trade settlement for bank loans is not standardized and involves many 
parties, the settlement process can take longer. Therefore, when an open-end fund sells a bank 
loan interest, it is possible that the trade will not be settled for an extended amount of time. As 
shown in Table 7 below, bank loan funds on average use higher amounts of financing via credit 
lines and use them for longer/shorter period of time on average.
Table 7: Open-End Funds’ Use of Credit Lines by Fund Type, as of December 2021.
459
 
 
Number
of Funds
Has Line
of Credit
Used Line
of Credit
Avg. Credit
Line Use
Avg. Number
of Days Used
Bank Loan
56489$29,411,240114
Other Categories
8,9795,462969$8,431,14224
Total
9,0355,510978$8,624,21024
In contrast, high yield bonds primarily have T+2 settlement. Although high yield bonds 
may have the same or lower liquidity compared to bank loans,
460
 from the perspective of funding 
457
 See Nina Boyarchenko, et. al., It's What You Say and What You Buy: A Holistic Evaluation of the
Corporate Credit Facilities (working paper no. 8679, Nov. 11, 2020), available at 
https://ssrn.com/abstract=3728422 (retrieved from SSRN Elsevier database).   
458
 See Simon Gilchrist, et. al., The Fed Takes On Corporate Credit Risk: An Analysis of the 
Efficacy of the SMCCF (working paper no. 2020-18, Apr. 20, 2021), available at 
https://ssrn.com/abstract=3829900 (retrieved from SSRN Elsevier database).
459
 N-1A RIC credit line usage is from Form N-CEN, and excludes ETFs and MMFs. Data is as of 
Dec. 2021, incorporating filings received through June 3, 2022.
460
 See supra, note 455. Authors show that, controlling for the fund size and rating, bank loan 
278

investor redemptions, bank loans are less certain to be converted to U.S. dollars within a specific 
timeframe. As a result, when engaging in financing to bridge the settlement gap, a fund that sells 
a high-yield bond would likely use the credit line only for two days while a fund that sells a bank
loan will have to use it for a longer period. This, in turn, may increase the risk of bank loan funds
not being able to meet investor redemptions within seven days without imposing additional 
financing costs on fund investors, which may increase dilution. Therefore, we believe that a limit
on the amount of time a trade is reasonably expected to settle and convert to U.S. dollars to 
qualify as a non-illiquid investment is intended to promote liquidity in open-end funds and 
reduce investor dilution from trading costs, including wide bid-ask spreads and the costs related 
to bridging the gap between the maximum time allowed to meet investor redemptions and 
prolonged settlement of certain investments.
461
The removal of the less liquid category may also reduce the risk of runs in the open-end 
fund sector. As discussed above, bank loan funds may be more prone to sector-wide outflows 
compared to other types of funds due to the low dispersion of returns across bank loan funds 
(i.e., the correlation of bank loan fund returns is higher relative to the correlation of returns for 
other types of funds), which may lead to further redemptions and higher investor dilution, and 
may consequently be amplified by a fund’s usage of financing for a prolonged period of time. To
the extent that bank loan funds rebalance their portfolios to hold bank loans with shorter 
settlement times, investor dilution and the risk of runs on bank loan funds may be reduced.
liquidity is similar to or greater than liquidity of similarly rated public bonds. The authors 
construct two indirect measures of liquidity: the first measure is based on the difference between 
the transaction prices and net asset values (NAVs) of shares of loan and high yield bond ETFs; 
the second measure is the perceived liquidity of corporate bonds based on the relationship among 
cash holdings, flow volatility, and fund holdings. See also Sergey Chernenko & Adi Sunderam, 
Measuring the Perceived Liquidity of the Corporate Bond Market (working paper no. 27092, 
May 2020), available at https://www.nber.org/papers/w27092.
461
 See also section II.A.1.b.iii.
279

Open-end funds may experience costs as a result of this amendment.
462
 First, open-end 
funds would experience a one-time switching cost to adapt the classification and reporting 
systems for the removal of the less liquid category, which would be passed on to funds’ 
investors. To the extent that the settlement time for bank loan interests cannot be reduced, these 
loan interests would have to be reclassified as illiquid. As a result, funds that hold these 
investments may be required to rebalance their portfolio by divesting from bank loans interests in
order to comply with the maximum allowed allocation towards illiquid investments, which may 
result in both aggregate holdings and individual portfolio concentrations of bank loan interests 
among open-end funds to be reduced. Such portfolio reallocation may result in one-time 
switching costs that would be passed on to investors. In addition, to the extent that portfolio 
concentration of bank loan interests decreases significantly for some bank loan funds as a result 
of the proposal, these funds’ investment strategy would have to be redefined. Moreover, to the 
extent that some funds would not be able to successfully rebalance their portfolios away from 
bank loan interests with longer settlement times without losing investors, these funds may cease 
to exist or may seek shareholder approval to convert to a closed-end form.
Furthermore, to the extent that such portfolio reallocation results in lower fund returns, 
this may drive investors of these funds to either substitute their investments in open-end bank 
loan funds to other types of open-end funds or choose other types of funds or investment vehicles
that are able to hold higher amounts of bank loan interests. To the extent that these other vehicles
or means of investing do not offer the same investment strategies or do not provide the same 
benefits and protections as the open-end bank loan funds to investors, investors may find such 
462
 We recognize that those funds that primarily hold bank loan interests with shorter settlement 
times may be less affected by this proposed amendment. For example, loans that are larger in 
size, more standardized, and more frequently traded, such as those that are a part of S&P/LSTA 
U.S. Leveraged Loan 100 Index, may have shorter settlement times.
280

investment avenues less favorable compared to open-end bank loan funds. As a result, the set of 
investment options available to investors with this particular strategy preference may decrease. 
This effect may be more pronounced for retail investors who generally have limited access to the
bank loan market and to private funds that may hold bank loan interests.
To the extent that investor demand for holding bank loans in a fund structure is high, 
some funds may choose to restructure as closed-end funds, in order to be able to keep their 
current holdings of bank loan interests. The funds that choose to do so may experience one-time 
switching costs related to shareholder votes for the fund conversion, such as costs of preparing 
and distributing proxy materials and costs associated with the solicitation process.
463
 In addition, 
some investors may rush to redeem their shares before the conversion which may increase 
dilution of the remaining investors. 
However, we recognize that while operational constraints may play a role in why 
settlement times for bank loan interests are prolonged, misaligned incentives of trading parties 
(such as delayed settlement compensation) and a collective action problem may also be 
important factors in determining settlement time for bank loan interests.
464
 Therefore, to the 
extent that it is currently operationally possible to have a shorter settlement time for bank loan 
interests, and to the extent that non-fund transaction parties would be able to speed up the 
settlement process at a relatively low cost, open-end bank loan funds may not have to rebalance 
their portfolios or restructure to a closed-end form under the proposal. 
463
 We recognize that there may be other costs funds could incur to convert to a closed-end fund, 
such as potential exchange listing costs or costs of conducting periodic repurchase offers.
464
 See supra section II.A.1.b.i and note 106.
281

c.Definition of Illiquid Investments
We propose to amend the definition of illiquid investments to include investments whose 
fair value is measured using an unobservable input that is significant to the overall 
measurement.
465
 We recognize that, in light of the proposed removal of the less liquid category, 
only a small fraction of these investments that are classified as highly liquid or moderately liquid
would be affected by this proposed amendment. We estimate that approximately 0.07% of all 
open-end fund assets would be affected by this amendment.
466
 Therefore, we do not anticipate 
that this amendment would significantly impact open-end fund sector.
This amendment may improve the quality of investments’ liquidity classifications. To the
extent that valuation using unobservable inputs that are significant to the overall measurement 
may have an increased risk that the fund cannot sell the investment in time to meet redemptions 
without dilution, classifying such investments as illiquid may reduce this risk. To the extent that 
this risk results in investor dilution, and to the extent that the overall open-end funds’ holdings of
these investments would decrease as a result of this amendment, investor dilution may be 
reduced and overall liquidity of funds that hold such investments may increase as a result. 
Although we understand that some funds already have a practice of classifying these 
investments as illiquid, this amendment may result in a one-time switching cost for funds that do 
not currently follow this practice. In addition, to the extent that some funds hold a significant 
share of their portfolio in such investments and these investments are not currently classified as 
illiquid, these funds would have to rebalance their portfolios and potentially change their 
investment strategy.
465
 See supra note 112.
466
 See supra section III.B.4.a.
282

d.Proposed Minimum for Highly Liquid Investments
Rule 22e-4 currently requires a fund to determine a highly liquid investment minimum if 
it does not primarily hold investments that are highly liquid investments. We propose for open-
end funds to have a highly liquid investment minimum of at least 10% of the fund’s net assets, 
which is the assumed stressed trade size.
467
 In addition, we propose to remove the provision 
allowing funds not to establish a highly liquid investment minimum if they “primarily” hold 
highly liquid assets. 
Requiring a highly liquid investment minimum that is equal to or above the assumed 
stressed trade size of 10% of net assets may benefit funds and their investors by creating more 
standardized liquidity risk management among funds, thereby increasing their liquidity and 
helping all mutual funds to be better prepared to meet investor redemptions without incurring 
significant trading costs. A higher amount of liquid assets may help fund managers to avoid 
transacting at fire-sale prices during market stress and, therefore, control trading costs better over
time. This, in turn, may decrease dilution risk for fund shareholders.
468
 By requiring a minimum 
of 10% of highly liquid assets, we set a minimum baseline level of liquidity that would help 
reduce dilution risk. 
Funds may experience costs as a result of the proposed requirement. We recognize that 
funds that currently have an established highly liquid investment minimum already have the 
procedures in place for ongoing monitoring for meeting the minimum. As such, we do not expect
the direct compliance costs related to meeting the highly liquid investment minimum, such as 
467
 See supra note 69 (recognizing that in-kind ETFs would not be subject to the proposed highly 
liquid investment minimum amendments).
468
 Section III.B.3.b analyzes the frequency of large percentage redemptions from funds. We 
recognize that if a fund were to experience a 10% redemption, it could sell primarily its highly 
liquid assets (which would then be significantly more than 10% of each of these holdings), or it 
could sell a vertical slice of its portfolio, in which case it would sell 10% of all assets. 
283

monitoring costs and costs related to shortfall policies and procedures, to increase for these 
funds. However, those funds that have an established minimum of less than 10% may have to 
rebalance their portfolios in order to meet the proposed requirement if they do not hold more 
highly liquid investments than the proposed requirement. In addition, funds may need to shift 
their portfolios away from less liquid holdings, potentially leading to higher tracking error 
relative to their benchmarks (if any)
469
 and lower returns. However, a higher amount of liquid 
investments may help fund managers to control trading costs better over time, which may result 
in a higher long-term returns for investors. Therefore, the return loss of holding more liquid 
investments (relative to less liquid investments) may be fully or partially offset by the savings on
funds’ trading costs.
470
 
To the extent that some open-end funds’ portfolio allocations change significantly as a 
result of this proposal, these funds may experience additional costs related to disclosure of 
changes to the fund’s allocations and/or strategy and costs related to a potential change of the 
fund’s name. These costs would be passed on to fund investors.
Funds that do not currently have an established highly liquid investment minimum may 
experience a one-time switching cost related to establishing shortfall policies and procedures and
to reviewing the highly liquid investment minimum at least annually as a result of the proposed 
amendment. Funds may also experience one-time switching costs related to establishing 
monitoring procedures related to the highly liquid investment minimum. To the extent that some 
funds that do not currently have an established highly liquid investment minimum are able to 
leverage the experience of the funds in the same complex that do have an established highly 
liquid investment minimum, these one-time switching costs may be reduced for these funds. 
469
 See supra note 449.
470
 See supra note 351 and accompanying text.
284

The proposal to remove the provision allowing funds to not establish a highly liquid 
investment minimum if they “primarily” hold highly liquid assets may eliminate compliance 
costs related to monitoring whether a fund primarily holds highly liquid assets. Because funds 
that hold a substantial amount of highly liquid investments would generally hold an amount of 
highly liquid investments that is above the proposed 10% highly liquid investment minimum, a 
separate compliance system that would identify whether a fund “primarily” holds highly liquid 
assets may be operationally inefficient. We believe that the “primarily” determination would 
become unnecessary in light of the proposed highly liquid investment minimum that would be 
applicable to all funds. We recognize that cost savings from the removal of the “primarily” 
provision would be partially or fully offset by the cost increase stemming from the proposed 
highly liquid investment minimum because funds currently relying on the “primarily” provision 
would have to build a compliance and monitoring systems around the highly liquid investment 
minimum. 
e.Amendments to Calculation of the Amount of Assets that 
Count Toward the Highly Liquid Investment Minimum or the Limit 
on Illiquid Investments
We also propose to amend how the highly liquid investment minimum calculation and 
the calculation of the 15% limit on illiquid investments account for the value of assets that are 
posted as margin or collateral for certain derivatives transactions, as well as the value of fund 
liabilities in the case of the highly liquid investment minimum. Specifically, in assessing 
compliance with the fund’s highly liquid investment minimum, the proposal would require a 
fund to: (1) subtract the value of any highly liquid assets that are posted as margin or collateral in
connection with any derivatives transaction that is not classified as highly liquid; and (2) subtract
285

any fund liabilities. In addition, the proposal would amend the rule’s limitation on illiquid 
investments to provide that the value of margin or collateral that a fund could only receive upon 
exiting an illiquid derivatives transaction would itself be treated as illiquid for purposes of that 
limit.
The amendments to the highly liquid investment minimum calculation and the calculation
of the 15% illiquid investment limit may benefit funds and investors. Particularly, these 
amendments would require funds to calculate the amount of highly liquid investments and 
illiquid investments in a way that more accurately reflects the amount of assets a fund could sell 
quickly to meet redemptions without significant dilution and the amount of assets that could not 
be sold within seven days without significant trading costs respectively. This, in turn, would 
better prepare funds for periods of increased investor redemptions and thereby enhance investor-
protection benefits of funds’ liquidity risk management programs.
More specifically, we recognize that, although investments used for collateral are 
generally classified as highly liquid, the value of those highly liquid investments cannot be 
accessed unless the derivative is exited, which takes a longer time for derivatives classified as 
moderately liquid or illiquid. In addition, an unrealized loss on a derivative or other liability may 
result in a margin call, for which highly liquid investments may be used. Moreover, if a fund 
may use highly liquid investments to service its liabilities (e.g., paying interest on a loan), this 
fraction of highly liquid investments would also be unavailable to meet investors’ redemptions. 
While we recognize that funds generally already subtract investment liabilities when calculating 
highly liquid investment minimum,
471
 subtracting all of the fund’s liabilities may further reduce 
the amount of highly liquid investments available to satisfy the fund’s highly liquid investment 
471
 See supra section II.A.2.b.ii.
286

minimum. Therefore, the amendments to the highly liquid investment minimum calculation 
would help to ensure that highly liquid investments used to satisfy the fund’s highly liquid 
investment minimum actually are available to meet shareholder redemptions. 
Similarly, the proposed amendment to add the value of excess collateral of illiquid 
derivatives investments to the amount of illiquid investments for the purposes of determining 
compliance with the 15% limit on illiquid investments would limit the extent to which the fund’s
assets would be unavailable to meet redemptions because of the fund’s associated illiquid 
derivatives investments. This amendment would effectively increase the amount of illiquid 
investments a fund holds, potentially pushing these holdings over the 15% limit and triggering 
the compliance procedures for going over the limit, which may impose additional costs on the 
fund. 
The proposed amendments may result in funds rebalancing their portfolios in order to 
meet the highly liquid investment minimum and comply with the limit on illiquid investments. 
Depending on the value of highly liquid assets a fund has that are posted as collateral or margin 
for non-highly liquid derivatives and the value of the fund’s liabilities relative to the fund’s total 
amount of highly liquid investments, under the proposed amendment, a fund may have to either 
increase its holdings of highly liquid assets or decrease its holdings of moderately liquid and 
illiquid derivatives in order to meet the highly liquid investment minimum. A fund similarly may
have to decrease its holdings of illiquid investments or increase its holdings of highly liquid or 
moderately liquid investments as a result of the proposed amendment to the calculation of the 
limit on illiquid investments. To the extent that such portfolio reallocation would significantly 
change a fund’s strategy, funds may experience additional costs related to disclosure of changes 
to the strategy. In addition, the risk-return profile of the fund’s portfolio may change towards 
287

more liquid and less risky investments that may have lower returns. To the extent that some 
investors demand higher returns, they may choose to invest in other investment vehicles that 
could offer higher returns. 
f.Other Amendments Related to Liquidity Categories 
We also propose other amendments related to the liquidity classification categories. First,
we propose to amend the term “convertible to cash” and its definition to instead refer to 
conversion to U.S. dollars, codifying prior Commission statements. Second, we propose to 
specify that funds must count the day of classification when determining the period in which an 
investment is reasonably expected to be convertible to cash. Third, we propose to simplify the 
definition of moderately liquid investments as those that are neither a highly liquid investment 
nor an illiquid investment.
To the extent that, at present, open-end funds use differing definitions of convertible to 
cash and may inconsistently include or exclude the day of liquidity classification when 
performing the classifications, the two related proposed amendments would benefit funds and 
investors, as these amendments may improve the quality of liquidity classifications by reducing 
over- or under-estimation of investments’ liquidity, thereby potentially reducing trading costs 
related to investors’ redemptions. On the other hand, open-end funds that do not currently define 
“convertible to cash” as convertible to U.S. dollars, which may include some funds that invest in 
foreign securities, and open-end funds that do not currently count the day of classification during
the classification process may experience a one-time switching cost. In addition, these funds may
have to rebalance their portfolios, to the extent that their current approach results in an over-
estimation of investments’ liquidity. 
288

g.Frequency of Liquidity Classifications
Currently, rule 22e-4 requires that funds review their liquidity classifications at least 
monthly and more frequently if changes in relevant market, trading, and investment-specific 
considerations are reasonably expected to materially affect one or more of their investments’ 
classifications. We propose to require that funds classify all of their portfolio investments each 
business day.
To the extent that funds already monitor their classifications on a daily basis in order to 
be in compliance with the current highly liquid investment minimum and 15% limit on illiquid 
investments requirements, we believe that this amendment likely will not produce significant 
additional benefits or costs. However, to the extent that funds do not monitor their classifications
daily, or to the extent that monitoring classifications is a less stringent procedure relative to 
performing classifications for the funds that do monitor classifications daily, this amendment 
may produce benefits and costs.
On the one hand, requiring daily liquidity classification could help ensure efficient 
implementation of funds’ liquidity management programs and enhance their investor protection 
benefits. Specifically, daily liquidity classifications may help funds identify changes in liquidity 
profiles of their investments in a timelier manner and monitor potential increases in trading costs 
for specific investments, thereby preparing funds for more efficient trading during times of 
increased redemptions and increasing their ability to respond more quickly to rapid changes in 
liquidity of portfolio investments, which may decrease investor dilution. In addition, the daily 
classification requirement, in combination with the proposed standards for trade size and value 
impact, may make the liquidity classification process more standardized, timely, and efficient. 
289

On the other hand, funds may experience a one-time set-up cost and increased ongoing 
costs as a result of this amendment. First, those funds that generally do not evaluate their 
classifications more frequently than monthly would have to change their systems for performing 
classifications on a daily basis. In addition, these funds would experience increased ongoing 
costs due to increased frequency of classifications.
472
 Second, those funds that already monitor 
their classifications on a daily basis would have to change their systems, to the extent that 
monitoring classifications on a daily basis is a different procedure compared to the proposed 
requirement to perform classifications. 
In addition, in times of market stress some highly liquid investments may become less 
liquid due to unusual selling pressure (e.g., Treasuries during March 2020), and more frequent 
classification may move these investments to less liquid buckets. In such instances where funds 
do not typically expect highly liquid investments to decrease in liquidity, more frequent 
reclassification of these investments may not help funds better accommodate increased 
redemptions compared to the baseline.
473
 However, to the extent funds would prefer to avoid 
triggering events that would cause additional compliance requirements such as Form N-RN 
filings, the potential for some investments to become less liquid in times of market stress could 
incentivize funds to be more conservative, ex-ante, in how they classify holdings and manage 
472
 Under the proposed amendments, a more frequent classification may not necessarily result in 
more frequent portfolio rebalancing. For example, if a fund exceeds the 15% illiquid threshold, it 
would not have to sell its illiquid investments, rather it would not be able to acquire more. In 
addition, if a fund falls below the highly liquid investment minimum, it would still be able to 
purchase and sell highly liquid investments. However, both of these events would trigger filing of
Form N-RN.
473
 For example, during Mar. 2020 the liquidity of U.S. government securities unexpectedly 
decreased. Under the proposal, this event would trigger more rapid re-classification into a lower 
liquidity category. However, because of the unexpected nature of this event, a fund would still 
not be prepared to immediately meet an increased level of redemptions.
290

liquidity risk. This, in turn, may result in funds investing in more liquid assets, thereby 
decreasing the dilution risk in the mutual fund sector.
2.Swing Pricing
The proposed amendments would make several changes to the swing pricing framework 
adopted by the Commission in 2016. In particular, the proposed amendments would (1) require 
funds to implement swing pricing for each pricing period when a fund has any amount of net 
redemptions or when net subscriptions exceed 2% of the fund’s NAV; (2) establish specific 
thresholds that determine when a fund is required to adjust its NAV and the factors a fund needs 
to incorporate into its swing factor; (3) require that swing factors are calculated assuming a 
vertical slice of the fund’s portfolio; and (4) remove the upper limit on the swing factor of 2%. 
By requiring all funds to implement swing pricing, the proposed amendments would impose the 
estimated trading costs associated with redemptions and subscriptions onto investors whose 
transactions generate these costs, reducing the dilution of non-transacting fund shareholders. As 
such, the proposed amendments are also intended to reduce the first-mover advantage that stems 
from the dilution of non-transacting shareholders, particularly during stressed market conditions. 
The proposed swing pricing framework would impose costs on mutual funds that would 
be passed on to their investors. We estimate, for Paperwork Reduction Act purposes, that the 
modification of existing collection of information requirements of rule 22c-1 associated with 
establishing and implementing swing pricing policies and procedures, board reporting, and 
recordkeeping will result in an annual cost increase of $7,775 per fund.
474
 Funds would also incur
additional operational costs associated with establishing and implementing swing pricing policies
and procedures, including the periodic calculation of swing factors associated with the swing 
474
 See infra section IV.C.
291

pricing framework’s thresholds.
475
 In addition, the economic benefits of swing pricing would be 
offset by the costs associated with the proposed hard close requirement.
476
 Finally, to the extent 
that the proposed swing pricing framework would make mutual funds less attractive to investors,
mutual funds may experience investor outflows and/or reduced inflows. 
We are not able to quantify many of the costs associated with the proposed swing pricing 
framework for several reasons. First, we do not have granular data on the current practices and 
operating costs for all funds, which might allow us to estimate how their systems would change 
as a result of the proposed swing pricing requirement. Second, we cannot predict the number of 
investors that would choose to keep their investments in the mutual fund sector nor the number 
of investors that would exit mutual funds and instead invest in other fund structures such as 
ETFs, closed-end funds, or CITs. We also cannot estimate how many funds would choose to 
upgrade their systems and processes in order to comply with the proposed swing pricing 
requirement versus how many funds would instead convert to an ETF or a closed-end structure. 
We request comment on the full costs of the swing pricing requirement, particularly any dollar 
estimates of the costs that funds and other affected parties will incur as a result of the rule.
a.Mandatory Swing Pricing
At present, rule 22c-1 permits mutual funds to use swing pricing, and yet no U.S. open-
end fund has chosen to use it as an anti-dilution tool. We propose to require all affected mutual 
475
 Note that the swing factor itself in theory does not impose a net cost across all types of 
shareholders. Instead, swing pricing affects a zero-sum distribution of estimated future trading 
costs among transacting and non-transacting shareholders. The dilution that different types of 
fund shareholders ultimately experience will reflect this distribution in addition to the actual 
trading costs incurred by the fund from transactions that accommodate investor subscriptions or 
redemptions. Beyond the economic effects of the swing factor itself, the processes for calculating 
and applying the factor as well as the hard close will impose additional costs on all shareholders 
and intermediaries, which are discussed below.
476
 See infra section III.C.3 for a detailed discussion of benefits and costs of the proposed hard close
requirement.  
292

funds to use swing pricing. In particular, we propose to require every fund to establish and 
implement swing pricing policies and procedures that would adjust the fund’s NAV per share by 
a swing factor either if the fund has net redemptions of any amount or if the fund has net 
subscriptions that exceed an identified threshold. 
We expect the proposed mandatory swing pricing requirement to benefit investors. First, 
swing pricing would protect non-transacting mutual fund investors because it would require 
transacting fund shareholders to bear the estimated trading costs that arise due to their trading 
activity. In contrast, currently, investors transacting in fund shares generally do not bear the costs
associated with their trading activity, imposing dilution on non-transacting shareholders.
477
 For 
example, an industry study on the use of swing pricing in other jurisdictions estimates that 
dilution effects can be significant, with effects on annual returns of selected funds in one 
complex ranging from 10 to 66 basis points in 2019.
478
 While these estimates from other 
jurisdictions may be based on fund transaction cost components that differ from the U.S., such as
those associated with government taxes and levies, to the extent that dilution effects are 
comparably significant in the U.S., the proposed mandatory swing pricing requirement would 
reduce the dilution of non-transacting fund shareholders.
479
 Second, mandatory swing pricing 
477
 In this section when we discuss trading costs, we refer to both direct (e.g., spread costs) and 
indirect trading costs (e.g., market impact costs).
478
 See BlackRock, Swing Pricing: The Dilution Effects of Investor Trading Activity on Mutual 
Funds (white paper, Oct. 2020), available at 
https://www.blackrock.com/corporate/literature/whitepaper/swing-pricing-dilution-effects-of-
trading-activity-on-mutual-funds-october-2020.pdf. To our knowledge, such data on fund dilution
are not available for the U.S. and we solicit data that could enable quantification of the benefits of
swing pricing. See also supra section I.B and supra notes 59, 60, 61, and 161 for additional 
discussion of swing pricing experience in other jurisdictions.
479
 See supra section III.B.3 for a discussion of other sources that may contribute to dilution. We 
solicit comment on the relative impact of these sources on dilution. While the proposed swing 
pricing requirement is unlikely to reduce dilution associated with stale valuations directly, the 
proposed requirements would nevertheless help mitigate dilution resulting from trading costs 
associated with strategic trading behavior that may seek to take advantage of stale valuations. 
293

could benefit markets overall because it may reduce the first-mover advantage that arises from 
dilution associated with trading costs. As a result, the proposed amendment may mitigate the risk
of runs on mutual funds and may decrease the risk of fire-sales for the funds’ underlying 
investments.
 
We believe that these benefits may be more pronounced in the case of net redemptions 
because dilution may be more severe when net redemptions occur. One reason for this 
asymmetry is that investor redemptions are required to be met within seven days, whereas the 
money a fund receives from new subscriptions is not required to be invested within a specific 
timeframe. Therefore, funds must incur the trading costs that exist during the seven days 
following investor redemptions, regardless of how large or small these costs are. On the other 
hand, while fund managers may generally accommodate new subscriptions by investing 
promptly to increase fund returns and reduce tracking error, they may also elect to wait to 
purchase investments at more advantageous prices or lower trading costs, resulting in lower 
dilution of non-transacting fund shareholders. Another reason for asymmetry in dilution from 
redemptions and subscriptions is that large redemptions can have a greater correlation across 
funds exposed to the same asset class in times of market stress, which in turn may induce more 
redemptions and further increase trading costs and associated dilution.
480
 Therefore, while swing 
pricing would reduce dilution from trading costs associated with both net subscriptions and 
redemptions, we believe that the magnitude of this anti-dilution benefit would be greater in the 
case of net redemptions.
480
 See, e.g., Dunhong Jin et. al., Swing Pricing and Fragility in Open-End Mutual Funds (working 
paper, revised Jan. 7, 2021) available at https://ssrn.com/abstract=3280890 (retrieved from SSRN
Elsevier database). Also see section III.B.3 and note 395 for additional research references.
294

Another potential benefit of the mandatory swing pricing approach is that it would help 
overcome the collective action problem that may exist under the current optional framework and 
may have prevented voluntary swing pricing implementation due to the stigma that could be 
attached to being the first fund to implement swing pricing. To the extent that such a stigma 
effect is present in relation to swing pricing, it may deter investors from choosing funds that 
could implement swing pricing under the optional approach, and that could be a reason why no 
U.S. fund currently chooses to implement swing pricing.
481
 We also recognize that U.S. mutual 
funds are currently also allowed to implement certain purchase and redemption fee approaches 
(which do not necessarily require substantial operational changes in contrast to swing pricing), 
yet these funds do not widely use redemption fees as an anti-dilution tool, possibly because of 
any stigma attached to anti-dilution tools generally.
482
The mandatory swing pricing requirement would impose costs on mutual funds, 
investors, their intermediaries, and other market participants. In addition to the costs associated 
with the proposed hard close requirement discussed below, mutual funds would experience 
initial and ongoing operational costs associated with developing and administering swing pricing
policies and procedures, changing their systems to accommodate swing pricing, updating fund 
prospectuses, as well as any costs associated with educating investors about swing pricing 
procedures. These costs would ultimately be passed on to fund investors.
481
 While we recognize that swing pricing has been successfully implemented in other jurisdictions, 
these other jurisdictions do not have the same regulatory frameworks and investor base, which 
may influence investors’ sentiment towards anti-dilution tools and the extent of the potential 
stigma effects. In addition, other jurisdictions do not have the same intermediary structures 
between funds and their investors as in the U.S. See supra section III.B.2. 
482
 See supra note 67 (stating that, based on staff review of fund prospectuses, fewer than 5% of 
funds impose a redemption fee on at least one share class).
295

To the extent that investors expect an increase in the costs of investing in mutual funds as
a result of the proposed mandatory swing pricing, they may choose to divest from the mutual 
fund sector. To the extent that such investor outflows would be substantial, funds may 
experience a reduction in their economies of scale, which may lead to a further increase in fund 
fees. In addition, the mandatory swing pricing approach would reduce the set of investment 
choices available to investors, relative to the optional approach, where investors can choose to 
invest in funds that use swing pricing or funds that do not use swing pricing. 
The determination and application of a fund’s swing factor could delay the publication 
and dissemination of the fund’s NAV relative to current practices. To the extent that 
intermediaries require NAVs for purposes such as updating and publishing client account 
statements, they would incur costs updating their operations and systems to adapt to later NAV 
publication times. In addition, any other market participants, such as financial data aggregators, 
that depend on fund NAV publication would also incur costs updating their operations and 
systems to adapt to later NAV publication times.
b.Swing Threshold Framework
The current rule permits a fund to determine its own swing threshold for net purchases 
and net redemptions, based on a consideration of certain factors the rule identifies.
483
 For a fund 
experiencing net redemptions, the proposal would require the fund to apply a swing factor for 
any level of net redemptions. In addition, the proposed rule would establish a threshold for 
inclusion of market impact costs in its swing factor when net redemptions exceed 1% of the 
483
 The factors a fund currently must consider in determining the size of its swing threshold are: (1) 
the size, frequency, and volatility of historical net purchases or net redemptions of fund shares 
during normal and stressed periods; (2) the fund’s investment strategy and the liquidity of the 
fund’s portfolio investments; (3) the fund’s holdings of cash and cash equivalents, and borrowing 
arrangements and other funding sources; and (4) the costs associated with transactions in the 
markets in which the fund invests. See rule 22c-1(a)(3)(i)(B).
296

fund’s net assets (the “market impact threshold”). For funds experiencing net subscriptions, the 
proposal would require funds to apply a swing factor that accounts for all trading costs (i.e., 
including market impact costs) when net purchases exceed the threshold of 2% (the “inflow 
swing threshold”). 
Under the current rule, funds are able to tailor their swing pricing thresholds to their size, 
the characteristics of their underlying portfolio holdings, and the characteristics of their investor 
base. While this principles-based approach may be less burdensome for funds, some funds may 
find it suboptimal to implement swing pricing routinely due to the operational costs of doing so 
frequently. As a result, they may choose thresholds that reduce the frequency and impact of 
swing pricing on transaction prices for fund shares. This, in turn, could reduce the benefits of the 
proposed swing pricing requirement, including protecting non-transacting investors from dilution
due to trading costs and reducing the first-mover advantage associated with such costs. 
Therefore, we believe that a uniform approach to swing thresholds would better protect non-
transacting investors in the mutual fund sector by ensuring that trading costs are passed on to 
transacting investors, regardless of which fund’s shares investors hold in their portfolios. 
Trading costs incurred by a fund can be dilutive when a fund experiences either 
redemptions or subscriptions. However, as discussed above, subscriptions are likely to be less 
dilutive than redemptions. To the extent that determining the swing factor is costly, as discussed 
below, only requiring funds to do so when net subscriptions exceed 2% would limit the 
frequency with which funds incur such costs. Based on the analysis of historical daily fund flows
in Table 3, a random fund on a random day has approximately a 1% chance of exceeding the 
inflow swing threshold. In addition, there were only 0.2% of days where more than 5% of funds 
297

in the sample experienced net subscriptions exceeding the inflow swing threshold.
484
 Therefore, 
we do not expect most funds to experience the costs of applying a swing factor in the case of net 
subscriptions frequently. The anti-dilutive benefits of swing pricing in response to net 
redemptions are likely to be more than those associated with net subscriptions, as discussed 
above. Therefore, we believe that applying swing factor on any day with net redemptions may 
benefit non-transacting investors compared to applying swing factor only when a certain 
threshold is crossed. However, to the extent that applying the swing factor more frequently is 
costly, these benefits may be offset by such costs. 
The proposed market impact threshold of 1% may result in varying costs and benefits for 
funds and their investors. For example, two funds that invest in underlying assets with similar 
liquidity characteristics may experience market impact at significantly different levels of 
redemptions, as measured in percentage, if they are significantly different in size. A 1% 
redemption from a fund with low AUM may not result in sales of assets that result in market 
impact, whereas a 1% redemption from an otherwise similar fund with significantly larger AUM 
might. Similarly, two funds with comparable levels of AUM holding investments with different 
liquidity characteristics may experience market impact at different levels of redemptions. For 
example, a large cap equity fund may not experience market impact at the 1% threshold, whereas
a fixed income fund with comparable AUM might. As such, the extent to which a given fund and
its investors benefit from evaluating market impact at the 1% threshold will vary based on 
factors such as the fund’s size and the liquidity of its underlying investments. For funds that may 
experience market impact even when redemptions are below the 1% threshold, we note that 
funds can choose to incorporate market impact into their swing factor at a lower threshold than 
484
 The analysis also shows that if the 99
th
 percentile net fund flow is computed on each date, it 
exceeds the inflow swing threshold on approximately 34% of days. 
298

1%. To the extent that calculating market impact may be costly, only requiring funds to do so 
when net redemptions exceed 1% would limit the frequency with which funds incur such costs. 
We estimate that a random fund on a random date has approximately a 1.6% chance of 
exceeding the market impact threshold, and there were 2.3% of dates where more than 5% of 
funds experienced net redemptions exceeding the market impact threshold.
485
c.Calculation of the Swing Factor
The current swing pricing framework provides an upper limit of 2% for the swing factor 
and requires that the swing factor take into account only the near-term costs expected to be 
incurred by the fund as a result of net purchases or net redemptions that occur on the day the 
swing factor is used,
486
 as well as borrowing-related costs associated with satisfying redemptions;
however, it does not specify how a fund should select investments for the purposes of estimating 
the trading costs and it does not require a fund to include market impact costs in the swing 
factor.
487
 We propose removing the current upper limit of 2% for the swing factor and requiring a
fund’s swing pricing administrator to make good faith estimates, supported by data, of the 
overall costs, including market impact costs under certain conditions, that the fund would incur if
it purchased or sold a pro rata amount of each investment in its portfolio equal to the amount of 
net purchases or net redemptions (i.e., a vertical slice).
488
 Because a fund would need to calculate
its costs based on the purchase or sale of a vertical slice of its portfolio, rather than selecting 
485
 An analysis of historical Morningstar daily fund flow data for equity and fixed income funds 
from 2009 through 2021 shows that the 1
st
 percentile flow is approximately -1.6% while the 5
th
 
percentile flow is approximately -0.3%. The same analysis shows that the 1% market impact 
threshold corresponds to approximately the 0.016 percentile of pooled daily net fund flows. The 
same analysis shows that if the 1
st
 percentile fund flow is computed on each date, it exceeds the 
market impact threshold on approximately 84.6% of dates.
486
 These near-term costs include spread costs, transaction fees, and charges arising from asset 
purchases or asset sales resulting from those purchases or redemptions.
487
 See rule 22c-1(a)(3)(i)(C). 
488
 See proposed rule 22c-1(b)(2). 
299

specific investments to be sold/purchased and estimating the cost of selling/purchasing those 
specific investments, we propose removing borrowing costs from the swing factor calculation. 
i.Vertical Slice Assumption  
The vertical slice assumption may benefit investors of the affected funds. Specifically, 
the vertical slice assumption is designed to recognize the potential longer-term costs of reducing 
a fund’s liquidity and would more fairly reflect the costs imposed by redeeming or purchasing 
investors than an approach that focuses solely on the costs associated with the instruments that a 
fund expects to buy or sell (or expected borrowing costs, in the case of redemptions). For 
example, if investor redemptions continue for multiple days, a fund that sells its most liquid 
investments on the first day could experience increased trading costs on subsequent days because
it has to sell a bigger fraction (relative to a vertical slice) of its less liquid assets. As a result, 
redeeming investors on subsequent days would be charged more than investors who redeemed on
the earlier date via a higher swing factor. In addition, the future costs associated with rebalancing
the fund portfolio to its pre-redemption level of highly liquid investments are not currently 
permitted to be incorporated into the swing factor because they are not near-term costs that may 
be considered under the current rule. Therefore, the proposed vertical slice assumption would 
help to ensure that redeeming investors bear not just the immediate trading costs they impose on 
the fund, but also, in cases where a fund sells its most liquid investments to meet redemptions 
first, the estimated transaction costs associated with rebalancing the fund’s portfolio to its pre-
redemption level of highly liquid investments, such that subsequent redeeming investors are not 
charged for the costs associated with past redemptions. 
We recognize that selling a vertical slice of a portfolio in order to meet investor 
redemptions may not be a practice used by all mutual funds during all times. For example, recent
300

research documents that during tranquil market conditions, corporate bond funds tend to reduce 
liquid asset holdings to meet redemptions; however, when aggregate uncertainty rises these 
funds tend to scale down their liquid and illiquid assets proportionally to preserve portfolio 
liquidity.
489
 Another paper finds that some funds holding less liquid assets reacted to redemptions
in March 2020 by adding to their cash buffers even after meeting investor redemptions, rather 
than selling their most liquid assets first or selling a vertical slice of their portfolio.
490
 Therefore, 
we recognize that the vertical slice assumption could result in using estimates of transaction costs
in the calculation of the swing factor that differ from the estimated trading costs tailored to a 
different asset liquidation approach. As a consequence, to the extent that the trading costs 
estimated based on the vertical slice assumption are higher or lower than estimated trading costs 
of the fund’s portfolio liquidation strategy, redeeming investors may be over- or under-charged 
relative to the immediate trading costs of a fund’s actual liquidation strategy. 
ii.Market Impact Costs  
We propose requiring funds to include a good faith estimate of market impact costs in the
calculation of their swing factors when (1) net subscriptions are above the inflow swing 
threshold or (2) when net redemptions exceed the market impact threshold of 1%. To the extent 
that funds are able to forecast market impact costs accurately, this requirement would ensure that
transacting investors bear, in addition to direct transaction costs, the estimated impact of their 
transactions on the ultimate price a fund pays or receives for any investments it buys or sells. 
This may allow non-transacting shareholders to recapture more of the dilution imposed on the 
489
 See Hao Jiang, et. al,. Dynamic Liquidity Management by Corporate Bond Mutual Funds, J. FIN. 
& QUANTITATIVE ANALYSIS 1622, no. 5 (Aug. 2021).
490
 See Andreas Schrimpf, et. al., Liquidity Management and Asset Sales by Bond Funds in the Face
of Investor Redemptions in March 2020 (Mar. 17, 2021) available at 
https://ssrn.com/abstract=3799868 (retrieved from SSRN Elsevier database).
301

fund by transacting fund investors. As a result, the proposed market impact inclusion may also 
help reduce first-mover advantage. 
Several factors may limit the anti-dilution benefits of including market impact costs in 
the swing factor. First, funds may incur costs in obtaining reasonable ex-ante estimates of market
impact costs, either because they need to pay vendors for such estimates or because they need to 
exert costly effort to develop such estimates internally. These costs may ultimately be passed on 
to investors. Second, it may be difficult and sometimes not feasible to develop objective 
estimates of market impact for some of the investments that mutual funds hold, such as those that
generally lack a robust and liquid secondary market (e.g., municipal securities and small-cap 
equities). In addition, market impact may be more difficult to estimate during periods of stress 
when trading in certain markets may be limited or stop. Therefore, funds may need to use 
subjective discretion to determine market impact estimates in certain circumstances, which may 
result in funds over- or under-estimating the true ultimate market impact costs associated with a 
given day’s orders. This, in turn, would result in over- or under-charging transacting investors, 
exposing them to additional risk regarding the price at which they will ultimately transact their 
shares.
491
 
Third, because funds would still have some discretion in determining their swing factors, 
such as discretion over which price impact model is used to estimate market impact, some funds 
may have an incentive to under- or overestimate their swing factors, depending on the 
circumstances. For example, a fund may choose to underestimate market impact, biasing the 
swing factor estimate downwards, in order to attract investors that prefer less volatile transaction 
491
 Transacting investors already face market risk when submitting an order to buy or sell fund 
shares because these orders must be submitted prior to the time at which a fund determines its 
NAV.   
302

prices for fund shares. On the other hand, funds may have an incentive to overestimate market 
impact and overcharge transacting investors relative to the trading costs they are expected to 
impose on the fund, because doing so may increase the performance of the fund.
492
 However, the 
proposed requirement that funds report each swing factor on Form N-PORT may mitigate any 
incentive funds have to under- or overestimate their swing factors, as it will provide public 
transparency regarding the size of these NAV adjustments.
493
 
iii.Removal of the Upper Limit on the Swing Factor  
The proposed removal of the upper limit on the swing factor may benefit fund investors 
by permitting swing pricing to address the dilution that transacting investors impose on a fund 
more fully. The magnitude of this benefit would depend on how often funds’ trading costs 
exceed the current 2% swing factor. To the extent that trading costs are more likely to exceed 
this threshold during stressed periods, we expect this amendment to benefit non-transacting fund 
investors during such periods when dilution may be increasing, which may further address the 
first-mover advantage related to dilution from trading costs. In addition, to the extent that trading
costs for certain types of funds are more likely to exceed the current 2% swing factor, the 
proposed amendment would ensure that investors in these funds are as protected from dilution as
investors in funds for which trading costs generally correspond to a swing factor lower than 2%. 
These benefits may be partially offset because the removal of the upper limit for the swing factor
may also have a destabilizing effect during periods of stress. For example, if investors expect 
that trading costs will continuously increase, and that the swing factor will increase accordingly, 
492
 When a fund overcharges transacting investors, the fund increases its assets and hence the 
performance of the fund. 
493
 See supra section III.B.4.
303

they may be incentivized to redeem their shares at the onset of market stress, when the swing 
factor is lower. 
iv.Removal of Borrowing Costs from the Swing Factor  
We propose removing borrowing costs from the costs that should be included in the 
swing factor. To the extent that the vertical slice assumption would result in higher magnitude 
swing factors, any decrease in swing factor magnitude due to the proposed removal of borrowing
costs from the swing factor calculation may be fully or partially offset. Therefore, we do not 
expect this aspect of proposal to have substantial effects. Although affected funds would still be 
allowed to engage in bank or inter-fund borrowing in order to fund investor redemptions, the 
proposed swing factor calculation will not reflect potential borrowing costs for funds that do use 
borrowing to fund redemptions.
494
 To the extent that these costs are higher than the estimated 
costs of buying or selling a vertical slice of a fund’s portfolio, they would be borne by investors 
remaining in the fund, limiting the anti-dilution benefits of the proposal. 
3.Hard Close Requirement
With respect to putting swing pricing into practice, requiring a hard close would ensure 
that funds receive more timely flow information. Because swing pricing requires both fund flows
and estimates of trading costs, requiring a hard close should reduce any flow estimation error that
would otherwise occur if funds had to rely heavily on estimated fund flows in adjusting their 
NAV. In addition, by providing funds with more complete flow information, the hard close 
requirement could have auxiliary benefits unrelated to swing pricing, including settlement 
494
 Fund borrowing may defer but not always eliminate the need for a fund to sell portfolio 
investments, as a fund will eventually have to re-pay the loan. As a result, a fund may incur 
borrowing costs in addition to trading costs, but only the latter would be captured by the 
adjustment of NAV by the swing factor under the proposal.
304

modernization, and order processing improvements.
495
 Also, a fund that knows its flows sooner 
may be able to plan and implement trading strategies to meet those flows in a more cost effective
manner. 
The hard close requirement may change operational burdens for mutual funds and other 
parties related to mutual fund order processing. Currently, because mutual fund flows from 
different intermediaries and investors are received by funds at different times, fund transfer 
agents may have to process the orders in multiple batches that may span until the next day. On 
the one hand, if doing so is costly in terms of labor and/or strain on the processing systems and to
the extent that these costs are non-negligible, the hard close requirement may decrease 
operational burden by allowing all orders to be processed within a shorter time frame. On the 
other hand, to the extent that processing all orders in a short amount of time, as it would be 
implied under the proposal, requires more manpower and/or more processing capabilities, the 
hard close requirement may increase operational burden of open-end fund transfer agents. This 
effect may be more pronounced for smaller transfer agents that do not enjoy economies of scale.
In addition, the hard close requirement may allow funds to plan next-day and future 
activity related to today’s redemptions or subscriptions more efficiently. For example, the hard 
close would in some cases improve the reliability of the flow information fund portfolio 
managers use by eliminating cancellations and corrections. In addition, if a portfolio manager 
uses flow information posted at the custodian, the hard close generally would provide timelier 
flow information. To the extent that these effects are present, the hard close requirement would 
allow funds to have timelier information that would permit them to plan and execute their trades 
495
 See supra section II.C.3.a for additional discussion.
305

in a more efficient manner. This, in turn, may reduce funds’ tracking errors and may help prevent
any error corrections or trade cancellations after the pricing time. 
However, requiring a hard close may impose significant switching costs (e.g., changing 
business practices, computer systems, integrating new technologies, etc.) on funds, their 
intermediaries, and service providers that could ultimately be passed on to investors. We 
recognize that these switching costs could be larger for certain types of intermediaries. For 
example, some intermediaries may have more layers of intermediation than others, and, 
therefore, would have to update more systems and processes. As another example, some 
intermediaries may have more reporting and recordkeeping requirements than others, and would 
have to update more systems and processes to comply with the hard close requirement. In 
addition, some intermediaries have their processes and systems set up such that the daily price 
information is required before any orders can be processed. For example, retirement plan 
recordkeepers and any affiliated brokers and trust companies, as well as DCS&S, would have to 
modify their processes and systems substantially, as these processes currently require daily price 
information for all investments prior to processing of any investment instructions from the plan 
participants. In addition, retirement plans may have to modify their provisions, and employers 
sponsoring these plans may need to modify payroll systems, as well as change the information 
(e.g., websites, manuals, and training materials) they provide to employees regarding how to 
submit orders, as a result of the hard close requirement. 
A substantial number of affected retirement plans are small in size as shown in Table 5. 
Therefore, a large number of small plans may be disproportionally affected by the 
implementation costs related to the proposed hard close because they may not enjoy economies 
of scale. To the extent that these costs are too large relative to the size of assets under 
306

management, some of the plans may cease to exist or choose to offer other investment vehicles 
such as ETFs or CITs. For example, in 2003, one commenter stated that one cost related to a 
hard close that was substantially similar to what we are proposing would be requiring submission
of trades on sub-account levels rather than on an omnibus level, which would result in an 
incremental cost increase of $4.1 million per year for this commenter with 1.3 million of 
omnibus trades per year.
496
 To the extent that not all investors have a choice of intermediary, 
such as participants in employee-provided retirement plans, the costs stemming from the 
proposed hard close requirement may be borne by either investors (i.e., plan participants) or their
employers that sponsor the plan. 
In addition, to the extent that not all intermediaries may be able to comply with the hard 
close requirement, the investors that use these intermediaries may face a decreased ability to 
invest in mutual funds via certain intermediaries. To the extent that the strategies that open-end 
funds subjected to the proposed requirement cannot be replicated or to the extent that such 
replication would be more costly outside of the mutual fund sector (e.g., via a separately 
managed account), investors may end up with either less diversified portfolios, or experience 
higher costs of investing.
The hard close requirement may disadvantage certain investors that do not have a choice 
in their intermediary, if it precludes them from responding to market events after a specific cut-
off time that is earlier than 4 p.m. ET or lengthens the amount of time for completing certain 
types of transactions
497
 compared to investors that submit orders directly to funds. For example, 
if an intermediary sets up a cut-off time for transactions that is earlier than the fund cut-off time 
496
 Comment Letter of Charles Schwab (Oct. 27, 2003) on 2003 Hard Close Proposing Release, File 
No. S7-27-03, available at https://www.sec.gov/rules/proposed/s72703/s72703-2.pdf.
497
 See supra section II.C.3.d.
307

(4 p.m.), investors in mutual funds that use these intermediaries will not be able to react to 
market events that take place between an intermediary cut-off and the fund cut-off time, thereby 
increasing a market risk for investors that trade via intermediaries with earlier cut-off times. 
However, investors that trade directly with a fund or use intermediaries with later cut-off times 
would have an advantage and still be able to respond to some or all market events during this 
time frame (depending on the applicable cut-off time), allowing them to decrease their market 
risk relative to investors that would be pushed to next-day pricing.
In addition, to the extent that investors designate their employers to make retirement 
contributions to intermediaries via payroll procedures, and to the extent that payroll procedures 
have to be performed during a specific time frame in order for transaction to receive that day’s 
price, the employers may experience a cost of switching the system to accommodate an earlier 
cut-off time for orders. These effects may be more pronounced for employers and investors in 
the western regions of the U.S. who may not have a sufficient time window to process 
contributions and/or (re)allocate their portfolios. In addition, to the extent that some 
intermediaries already impose an earlier cut-off time for investors’ orders, the hard close may 
entail an even earlier cut-off time, which may further disadvantage investors. 
In addition, the proposed hard close might affect current order processing for funds of 
funds. We understand that an upper-tier fund in a fund of funds structure may not submit its 
purchase or redemption orders for lower-tier funds’ shares until after 4 p.m. Under the proposed 
rule, the upper-tier fund would have to submit purchase or redemption orders for lower-tier 
funds’ shares before the lower-tier funds’ designated pricing time in order to receive that day’s 
price for the orders.
308

We are not able to quantify many of the costs of the hard close requirement for several 
reasons. First, we cannot predict how the costs would be allocated between funds and their 
intermediaries because we do not have detailed information about the number of intermediate 
steps required to be completed between the time an investor places an order and the time a fund 
receives this order for each type of an intermediary and which party currently bears the costs of 
each intermediate step. Second, we do not have granular data related to the current practices and 
operating costs for each intermediary type, both those that are regulated by the Commission and 
those that are not. Therefore, we cannot predict how their systems and practices would change in 
response to the hard close requirement and estimate the associated costs of these changes. Third, 
we cannot predict how many intermediaries will choose to upgrade their systems and processes 
in order to maintain their ability to offer mutual funds to the client, how many intermediaries will
choose to impose an earlier cut-off time for investor orders, and the number of intermediaries 
that will retain their existing systems and order cut-off times and offer products that would not be
subject to the proposed hard close requirement, such as CITs, ETFs, or closed-end funds in place
of mutual funds. Finally, we cannot predict how many investors will respond to changes that 
intermediaries may implement in response to the hard close requirement by divesting from the 
mutual fund sector. We request comment on these costs of the hard close requirement, 
particularly any dollar estimates of the costs that funds, intermediaries, and other affected parties 
will incur as a result of the rule.
4.Commission Reporting and Public Disclosure
The Commission is proposing to change reporting frequency of Form N-PORT, to change 
public availability of certain items on Form N-PORT, and to amend Forms N-PORT, N-CEN, 
and N-1A. The proposed amendments are intended to increase transparency around funds’ 
309

activities related to liquidity management and anti-dilution tools and to make information more 
usable by filers, regulators, investors, and other potential data users. The proposed amendments 
would also provide more information about a fund’s portfolio and its liquidity risk profile to 
investors, thereby improving their portfolio allocation decisions. 
Open-end funds will experience costs as a result of the proposed changes to the three 
forms. In connection with the proposed information collection requirements under the Paperwork
Reduction Act, we estimate that the proposed changes to Form N-PORT would result in an 
internal cost increase of $2,472,356 and an external cost increase of $5,613,175, the proposed 
changes to Form N-1A would result in internal cost increase of $10,609,390; and the proposed 
changes to Form N-CEN would not on aggregate result in an increase of ongoing costs.
498
 
a.Commission Reporting Frequency
Currently funds file Form N-PORT reports for the first, second, and third months of each 
fiscal quarter with the Commission 60 days after the end of the third month of the quarter. We 
are proposing to require funds to file Form N-PORT reports with the Commission within 30 days
after the end of each month. We believe that this amendment would help the Commission to 
oversee funds’ activities on a timelier basis. We do not expect this part of proposal to have 
substantial economic effects on funds, as funds already are required to maintain records of the 
information that Form N-PORT requires no later than 30 days after the end of each month and 
many funds report monthly information about their portfolio holdings on a voluntary basis to 
third party data aggregators, generally with a lag of 30 to 90 days, which in turn make them 
available to investors and other data users for a fee.
499
 To the extent it is less efficient for fund 
498
 See infra sections IV.D, IV.E, and IV.F. These annual direct costs include ongoing as well as 
initial costs, with the latter being amortized over three years.
499
 See rule 30b1-9. Also see section II.E.1.b. and note 287.
310

groups to submit on a more frequent monthly basis instead of in one batch after quarter-end, the 
costs borne by fund groups may marginally increase under the proposal.
The data the Commission would receive on Form N-PORT reports within 30 days of 
month-end would include portfolio information which, depending on the fund, may not currently
be public. To the extent this nonpublic information was subject to a data breach before its 
scheduled publication 60 days after month-end, unauthorized access could harm shareholders by 
expanding the opportunities for professional traders or others to exploit the information. 
However, the Commission has controls and systems for the use and handling of the proposed 
modified and new data in a manner that reflects the sensitivity of the data and is consistent with 
the maintenance of its confidentiality. In addition, as discussed below, many funds already 
publicize their monthly holdings, which reduces the sensitivity of the information the 
Commission would store confidentially, and Form N-PORT reports would become publicly 
available 60 days after month-end. 
b.Public Availability of Form N-PORT Data and Aggregate 
Liquidity Disclosure 
Currently, funds are required to make the report for the third month of every quarter 
available to the public. We are proposing to make funds’ monthly reports on Form N-PORT 
public 60 days after the end of each monthly reporting period. We are also proposing to require 
an open-end fund to provide information regarding the aggregate percentage of its portfolio in 
each of the three proposed liquidity classification categories, which would become public on the 
same time frame. 
Public disclosure of aggregate liquidity classifications would help investors to assess the 
liquidity profile of the funds in which they are investing, and may be more useful to investors 
311

than the narrative liquidity disclosure the Commission adopted in 2018. The proposed disclosure 
may provide more information about a fund’s liquidity risk profile to investors, thereby 
improving their portfolio allocation decisions. In addition, observing other funds’ aggregate 
liquidity profiles might provide some information that is useful in a fund’s own liquidity 
classification process. These benefits may be offset to the extent that liquidity classifications are 
not directly comparable across mutual funds, although the proposal would establish minimum 
standards that reduce the amount of discretion funds currently have in classifying their 
investments. We expect that funds will incur one-time and ongoing costs associated with 
preparing the portion of Form N-PORT associated with the aggregate liquidity profile, as 
discussed in section IV.
The proposal would triple the amount of data made available to investors and other 
potential users on Form N-PORT in a given year. To the extent that investors currently are not 
able to obtain monthly portfolio data from other sources, such as fund websites or third-party 
data aggregators the proposed requirement would enhance the ability of investors to monitor 
funds’ portfolios, which in turn may help investors to make more efficient investment 
decisions.
500
 Many funds report their monthly portfolios to third party data aggregators. Because 
the data made available to data aggregators is inconsistent across funds and time, the proposed 
amendment would increase consistency of portfolio data available to investors and other data 
users. To the extent that 60 days is not a long enough delay in disclosure of portfolio data, funds 
may be subject to predatory trading or “copycatting activities” that could potentially affect 
500
 See e.g., Ji-Woong Chung et. al., Intended Consequences of More Frequent Portfolio Disclosure 
(working paper, Apr. 17, 2022), available at https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=4086186 (retrieved from SSRN Elsevier database).
312

portfolio returns.
501
 This effect may be more pronounced for funds with more proprietary trading 
strategies. 
c.Other Amendments to Forms N-PORT, N-CEN, and N-1A 
We are proposing to remove the reporting requirement for swing pricing on Form N-CEN
and replace it with a new reporting requirement on Form N-PORT that would require 
information about the number of times the fund applied a swing factor during the month and the 
amount of each swing factor applied. We are also proposing amendments to Form N-CEN to 
identify and provide certain information about service providers a fund uses to fulfill the 
requirements of rule 22e-4. In addition, instead of classifying an RSSD ID as an LEI, we propose
to provide separate line items where a fund would report an RSSD ID, if available, in the event 
that an LEI is not available for an entity. We also propose to amend certain items and definitions 
on Form N-PORT to conform them to the proposed amendments. Finally, we propose to amend 
Item 11(a) of Form N-1A to require, if applicable, that funds disclose that if an investor places an
order with a financial intermediary, the financial intermediary may require the investor to submit
its order earlier to receive the next calculated NAV. In addition, as a result of the proposed swing
pricing requirement, funds would be required to disclose information about swing pricing in 
response to certain existing items in the form.
502
The proposed amendments would increase transparency around funds’ activities in 
several ways. First, additional information about funds’ service providers would enable investors
and other data users to assess fund liquidity management practices and help the Commission 
501
 A recent working paper examines the costs of Form 13F disclosure and finds that additional 
disclosure may harm portfolio returns over time. See David Kwon, The Differential Effects of the 
13f Disclosure Rule on Institutional Investors (working paper, May 5, 2022), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4095482 (retrieved from SSRN Elsevier 
database).
502
 See Items 6(d), 4(b)(2)(ii), 4(b)(2)(iv)(E), and 13(a) of Form N-1A.
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oversee the industry better. Second, information about swing pricing application can help the 
Commission and investors understand swing factor adjustments a given fund makes and evaluate
how often a fund has any net redemptions or has net subscriptions of more than 2% and the 
amount of the swing factor adjustment.
The proposed amendments would impose PRA costs, as discussed in above. Some funds 
may already maintain some of the information they would be required to report under the 
proposal in the ordinary course of business. However, we recognize that funds would incur some
costs in reporting the information. We recognize that, due to economies of scale, such costs may 
be more easily borne by larger fund families, and that costs borne by funds would be passed 
along to investors in the form of higher fees and expenses. In addition, the proposed disclosures 
of each swing factor and the number of times a swing factor was applied may create incentives 
for funds to compete on this dimension. Specifically, investors who prefer lower variability in 
the value of their investments may move capital from funds that had high historical swing factors
to funds with lower swing factors. However, while NAV swings penalize redeemers or 
subscribers under certain circumstances, they benefit investors remaining in the fund, which may
make funds actively using swing pricing more attractive to longer term investors.
The proposed amendments related to entity identifying information would help the 
Commission and market participants to identify entities related to funds’ businesses more 
efficiently. 
D.Effects on Efficiency, Competition, and Capital Formation
1.Efficiency
The proposed amendments may affect allocative efficiency in several ways. First, the 
proposed changes to the liquidity classification methodology, proposed public disclosure of 
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funds’ aggregate liquidity classifications, and swing pricing disclosures are expected to benefit 
investors by reducing information asymmetries between funds and investors. To the degree that 
some investors may currently be uninformed about liquidity risks of funds’ investments, the 
proposed disclosure requirements may increase transparency about liquidity costs transacting 
investors impose on remaining fund investors and liquidity risks in open-end funds. To the 
degree that greater transparency about liquidity risk of mutual funds may lead some risk averse 
investors to use other instruments, in lieu of mutual funds for long-term investment, allocative 
efficiency may increase.
503
 In addition, the increased transparency may result in greater allocative
efficiency as investors with low tolerance of liquidity risk and costs may choose to reallocate 
capital to funds that have lower liquidity risk and costs. Further, to the degree that uncertainty 
about the proposed swing pricing requirement may reduce the attractiveness of affected funds to 
investors, transparency about historical swing factors may reduce those adverse effects. 
Second, market efficiency for funds’ underlying investments may increase, to the extent 
that the proposed amendments mitigate the risk of runs on open-end funds and decrease fire-sales
for the funds’ underlying investments. In addition, a potential shift in demand from illiquid to 
liquid investments may encourage the development of market structures that increase the 
liquidity of investments that are currently less liquid. For example, currently, only a fraction of 
traded bank loan interests has a standardized settlement process and transparent prices and 
quotations. To the extent that the proposed amendments would lead market participants to 
standardize and shorten the settlement process for bank loan interests, the prices and spreads for 
bank loans may become more transparent at a sector level, increasing the efficiency in this 
503
 See, e.g., Jennifer Huang et. al., Shifting and Mutual Fund Performance, 24 REV. FIN. STUD. 
2575, no. 8 (2011). The paper argues that if investors are not fully aware of risk-shifting behavior
or if the changing risk level hampers their ability to assess fund performance, then individual 
portfolios are less likely to be efficient.
315

market. On the other hand, the proposed liquidity requirements may lead funds to allocate less to 
these investments. Absent other frictions, the difference in demand for these investments could 
be made up for by other investors or other the same investors through other structures (such as 
more direct investment). However, if this difference in demand is not fully absorbed by other 
market participants, the efficiency in this market may decrease.
Third, the hard close requirement may make portfolio allocation less efficient for 
investors, to the extent that intermediaries used by these investors would impose an earlier cut-
off time for orders and investors would not be able to reflect the entire day’s market information 
into their allocation decisions. In addition, to the extent that certain types of orders would no 
longer be executed at today’s prices and rather would be sent to funds the next day, investors 
may be exposed to additional market risk as well as potentially decreased portfolio returns 
because an intermediary may hold the cash from investors’ orders submitted after the cut-off 
time (but before 4p.m. ET) until it could submit these orders at the end of the next day. 
The proposed amendments may affect funds’ portfolio efficiency. For example, funds 
may start considering the liquidity of investments and their overall portfolios to a higher degree 
when making portfolio allocation decisions and considering other factors, such as an 
investment’s risk and expected return, to a relatively lower degree. This may reflect an optimal 
choice, to the extent that funds’ investors believe that illiquidity of a fund’s portfolio is more 
costly relative to the cost of foregoing less liquid portfolio investments that may offer higher 
returns. On the other hand, if liquidity considerations lead to deviations from the fund’s 
investment strategy or benchmark return, the proposed amendments may decrease the efficiency 
of funds’ portfolios.
316

The proposed daily classifications may also affect funds’ portfolio efficiency. On the one 
hand, if daily fluctuations in market values of a fund’s portfolio investments are large (and 
therefore the daily changes in the dollar value of the stressed trade size is also large) but revert to
the mean within several days, liquidity classification for the same portfolio position may also 
fluctuate daily while eventually reverting to the mean. In this scenario, funds may start managing
the portfolio positions inefficiently in order to be in compliance with the highly liquid investment
minimum and the 15% limit on illiquid investments. On the other hand, daily classifications may
increase informational efficiency of the funds’ investments, to the extent that funds’ demand for 
daily information results in increased availability of such information offered by third-party 
providers. As a result, funds’ portfolio allocation decisions may become more efficient.
The proposed amendments may also affect operational efficiency of funds and 
intermediaries. First, to the extent that the proposed removal of the less liquid category results in 
an increased standardization of settlement practices and a reduction of settlements times for bank
loan interests and other investments that are currently classified as less liquid, a reduction in 
allowed settlement time for investments in order to qualify as moderately liquid investments may
facilitate operational efficiency of funds that trade these investments. Second, the proposed 
removal of the less liquid category may facilitate operationalizing funds’ swing pricing by 
reducing uncertainty related to trading costs for investments that are currently classified as less 
liquid. In particular, to the extent that open-end funds will become more certain about trades’ 
settlement dates, it may allow them to more accurately estimate trading costs and, therefore, 
more accurately estimate the swing factor. Third, intermediaries may improve their order-
317

processing systems as a result of the proposed hard close requirement, improving ongoing 
operational efficiency for both intermediaries and funds.
504
2.Competition
The proposed amendments may affect the competitive landscape for open-end funds. 
There are two main economic effects discussed above that may cause the change in the 
competitive landscape for open-end funds: (1) cost increases for funds, fund managers, and fund 
administrators stemming from proposed changes in the liquidity risk management program, 
proposed mandatory swing pricing, and the hard close; and (2) additional constraints on funds’ 
holdings of certain investments that could limit these funds’ investment strategies due to 
proposed changes to funds’ liquidity classifications, the proposed definition of illiquid 
investments, and proposed changes to the highly liquid investment minimum.
Competition within the open-end fund sector may evolve as a result of the two effects 
stated above in several ways. First, to the extent that certain funds substantially change their 
investment strategies towards more liquid investments, the number of open-end funds that hold 
more liquid investments may increase, and competition among those funds for investors may 
increase. Conversely, competition among funds that hold less liquid investments may decrease. 
These effects depend also upon how investor demand for funds with liquid and illiquid 
investments may change with the proposed amendments. Second, to the extent that smaller open-
end funds would experience a more substantial operational burden compared to larger fund 
complexes that exhibit economies of scale and may be able to set up their trading desks in a more
efficient manner,
505
 smaller funds may become less competitive than larger funds. As a result, 
504
 See supra section II.C.3 for additional discussion.
505
 See e.g., Gjergii Cici et. al., Trading Efficiency of Fund Families: Impact on Fund Performance 
and Investment Behavior, 88 J. BANKING & FIN.1 (Dec. 22, 2015, rev. Jan. 12, 2016), available 
at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2514203. The authors find that by 
318

smaller funds may decide to liquidate or to convert to other fund structures, such as ETF or 
closed-end structures, to the extent such conversion would be less costly compared to remaining 
a mutual fund. Third, to the extent that some open-end funds may currently deliver higher returns
because they set a lower highly liquid investment minimum and reasonably anticipated trade size
compared to other funds with similar investment strategies but higher highly liquid investment 
minimums and reasonably anticipated trade sizes, the proposed amendments to apply uniform 
minimum for the stressed trade size and highly liquid investment minimum may minimize such a
competitive advantage in performance and level the field among open-end funds. Finally, to the 
extent that investors would prefer funds with less volatile transaction prices for fund shares under
the proposed swing pricing requirement, funds with larger trading costs may become less 
competitive relative to the funds with smaller trading costs.
Competition for investment flows between open-end funds and other collective 
investment vehicles within retail and institutional non-retirement space may also be affected. To 
the extent that the proposed amendments reduce investor dilution and the liquidity risk of open-
end funds, some investors may increase their holdings of open-end funds relative to other 
investment vehicles. That said, we also recognize that some investors may attach more 
importance to investing in less liquid investments through a pooled vehicle with the ability to 
redeem on a daily basis and may view potential costs of dilution as the price of shareholder 
liquidity. 
In addition, there are three reasons why investors may reduce their investment in open-
end funds, making open-end funds less competitive with other types of investment vehicles, such
as closed-end funds (e.g., interval funds), ETFs, or CITs. First, holding open-end funds may 
operating more efficient trading desks that help reduce trading costs, fund families improve the 
performance of their funds significantly relative to fund families with less efficient trading desks.
319

become relatively more costly compared to these other collective investment vehicles. Second, 
some investors may prefer to have holdings of less liquid investments, such as bank loan 
interests or investments that are valued using unobservable inputs that are significant to the 
overall measurement, such as long-dated currency swaps and three-year options on exchange-
traded shares, within a collective investment vehicle structure. Third, some investors may be 
averse to the potential effects of the proposed swing pricing requirements, such as redeeming 
investors that may be charged for more than the dilutive costs they impose on the fund, as well as
any investor averse to the increased uncertainty regarding the price at which the investor’s fund 
transactions will ultimately execute. 
For these reasons, some open-end funds may decide to offer their existing strategies in 
alternative fund structures, such as ETF or closed-end fund structures instead of maintaining 
these strategies within open-end funds under the proposed rule.
506
 Funds may make such a 
determination if doing so would be more cost-efficient, if they anticipate that investors would 
prefer to invest in their strategies via these alternative structures, or if their existing strategies 
would no longer be viable under the proposed amendments that call for an increased share of 
more liquid investments in funds’ portfolios. This may give fund complexes or other financial 
institutions that have more experience in these alternative structures a competitive advantage 
over those that do not. In addition, some open-end fund strategies may be more amenable to 
being migrated to other structures than others. For example, a passive open-end fund that does 
not rely on specialized skills or knowledge of a fund manager may be relatively easy to offer as 
an ETF. On other hand, while some active investment strategies are available as ETFs, funds 
may consider the structure less attractive if they consider the daily revelation of their holdings 
506
 To the extent existing mutual funds convert to ETFs, certain investors in these funds may incur 
long-term capital gains taxes as a result of such conversions.
320

undesirable and they determine that obtaining the exemptive relief that would enable them to 
structure the fund as a non-transparent ETF would be too costly.
507
 Such funds may end up at a 
competitive disadvantage to those that can more easily offer their strategies in other structures 
under the proposal.
Competition between open-end funds and other collective investment vehicles, such as 
ETFs, and CITs,
508
 as well as separately managed accounts, within the retirement space may also 
be affected. As discussed in section III.B.2, processes and systems related to executing investors’
orders within their retirement plans require knowledge of NAVs prior to sending investors’ 
trades to funds, and it may be costly to change these processes. To the extent that retirement 
plans can offer collective investment vehicles or ETFs that are not open-end funds but have 
similar investment strategies to open-end funds at a lower cost, open-end funds would become 
less competitive within the retirement sector. One type of a vehicle that offers similar investment
strategies to open-end funds at a lower cost is CITs. CITs differ in certain respects, however. For 
instance, CIT fees are bespoke for each plan, meaning that fees are individually negotiated and a 
plan participant cannot roll a CIT investment to an IRA when leaving the plan. Recent analysis 
from ICI demonstrates that, as of 2018, among all assets held in 401(k) plans, mutual funds 
comprise 43% while CITs amount to 33%.
509
 To the extent that the proposed hard close 
507
 See Precidian ETFs Trust, et al., Investment Company Act Release Nos. 33440 (Apr. 8, 2019) 
[84 FR 14690 (Apr. 11, 2019)] (notice) and 33477 (May 20, 2019) (order) and related application
(“2019 Precidian”) for an example of exemptive relief pertaining to non-transparent ETFs.
508
 CITs are an alternative to mutual funds for defined contribution plans. Like mutual funds, CITs 
pool the assets of investors and invest those assets according to a particular strategy. Unlike 
mutual funds, which are regulated under the Investment Company Act of 1940, CITs are 
regulated under banking laws and are not marketed as widely as mutual funds; which reduces 
their operational and compliance costs compared with mutual funds.
509
 See BrightScope/ICI working paper at 2. 
321

requirement would make mutual funds more costly or difficult to trade relative to CITs, the share
of CITs among retirement assets may further grow making open-end funds less competitive.
The proposed hard close requirement may have effects on competition among 
intermediaries. First, to the extent that intermediaries that are affiliated with fund complexes 
have an advantage in processing fund orders more swiftly compared to intermediaries that are 
not affiliated with the funds they offer, the former may not have to impose earlier order deadlines
on investors, which would result in competitive advantage over intermediaries that are not 
affiliated with the funds they offer. Second, to the extent that larger intermediaries enjoy 
economies of scale and would be able to implement the hard close in a more cost-effective way 
relative to smaller intermediaries, smaller intermediaries may become less competitive as they 
may have to pass the implementation costs on to their investors. 
To the extent that daily classifications would require a more frequent use of liquidity 
classification providers, demand for liquidity classification providers may increase. To the extent
that funds would expand their outsourcing of liquidity classifications, competition among outside
liquidity classification providers may increase. However, to the extent that some liquidity 
classification providers currently used by funds have operational capacity only for less frequent 
than daily provision of services, they may become less competitive compared to those that can 
provide the service on a daily basis.
The proposed amendments may also affect competition in markets for funds’ underlying 
investments. To the extent that open-end funds would change their overall portfolio towards 
more liquid investments as a result of the proposed amendments, and to the degree that such 
reallocation would be correlated across funds, competition in the markets for more liquid 
investments may increase, while competition in market for less liquid investments may decrease,
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which may further decrease the liquidity of these investments. For example, the proposed 
removal of the less liquid category may affect competition in the secondary market for bank loan
interests. To the extent that open-end funds would demand bank loan interests that are more 
liquid and standardized in terms of the settlement process, competition in the bank loan market 
may be affected – both among the loan issuers and loan administrators. Specifically, increased 
demand for shorter settlement may drive bank loan market participants to compete with each 
other via offering shorter settlement for their trades, including among counterparties who are 
willing to contract for expedited settlement, to the extent that 15% of bank loan interests held by 
open-end funds
510
 is a substantial enough share of the bank loan market for funds to have 
bargaining power in this market. To the extent that settlement times do not improve as a result of
this amendment, bank loan interests with longer settlement times may become less competitive 
with loan interests that have shorter settlement times. Third, to the extent that open-end fund 
investors would substitute funds that hold bank loans for funds that hold close alternatives, such 
as high-yield bond funds, as a result of the proposal, demand for funds holding these instruments 
may increase. In addition, to the extent that open-end funds become more limited in how much 
of bank loan interests they can hold directly, open-end funds may increase their holdings of 
CLOs, which in turn could increase demand for CLOs and competition among CLOs. Finally, to 
the extent that the demand for bank loan interests decreases as a result of the proposal, these 
instruments would become less competitive overall.
3.Capital Formation
The proposed amendments may affect capital formation. First, to the extent that the 
above efficiency and competition effects result in investor outflows from the mutual fund sector, 
510
 See note 422 and accompanying text.
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capital formation within the sector may be reduced, while capital formation via banks and trust 
companies, ETFs, or other vehicles may increase. Second, to the extent that open-end funds 
would demand more liquid investments, the capital formation for issuers of these investments 
may increase. On the other hand, to the extent that funds would become more limited in the 
amount of investments with lower liquidity profiles they are able to make (such as investments 
that are valued using unobservable inputs that are significant to the overall measurement and 
investments that are currently classified as less liquid and illiquid), the capital formation for 
issuers of investments that are currently classified in less liquid categories may decrease. 
For example, a recent paper
511
 shows that, although CLOs (the largest lender of leveraged
loans) increase their purchases of outstanding bank loan interests in the secondary market at 
times when bank loan funds face outflows, they reduce their lending in primary market at the 
same time; which highlights the externality imposed by bank loan fund redemptions on capital 
formation for non-investment grade firms. Therefore, to the extent that open-end funds would 
hold fewer bank loans in their portfolios as a result of this amendment, the externality discussed 
above may be reduced and capital formation for non-investment grade firms could improve. On 
the other hand, to the extent that market settlement processes do not change, and to the extent 
that open-end bank loan funds are not converted to closed-end funds, the demand for bank loan 
interests may decrease, reducing capital formation for non-investment grade firms. This effect 
may be more pronounced for smaller issuers, to the extent that their securities are classified into 
less liquid categories more frequently compared to larger issuers. 
Finally, the proposed amendments are expected to decrease the risk of fire sales of funds’
underlying investments that may occur as a result of an increased selling pressure experienced by
511
 Thomas Mählmann, Negative Externalities of Mutual Fund Instability: Evidence from Leveraged
Loan Funds, 134 J. BANKING & FIN. (2022).
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open-end funds during periods of high redemptions. This, in turn may increase confidence in 
markets for investments held in open-end funds’ portfolios, thereby aiding capital formation for 
these investments.
E.Alternatives
1.Liquidity Risk Management
a.Stressed Trade Size and Significant Changes in Market Value
Although tightening of inputs would reduce fund discretion in the methodology for 
liquidity classification relative to the baseline, funds would still have discretion in the use of 
models to calculate price impact under the proposal. One alternative that could alleviate this 
concern would be to define a list of investments that qualify as highly liquid investments 
explicitly, as well as the list of illiquid investments or to define liquidity of each security, 
regardless of its amount held by a fund. For example, we could define highly liquid investments 
similarly to the way Federal banking agencies define high quality liquid assets (“HQLA”) for the
purposes of liquidity coverage ratio rules.
512
 This approach would simplify funds’ compliance 
and may eliminate the need to calculate reasonably anticipated trade size or stressed trade size. 
As a result, an investment would be more consistently classified across funds, regardless of the 
amounts of this investment held by each fund. However, this approach would put the 
512
 See 12 CFR 50.20 (Office of the Comptroller of the Currency); 12 CFR 249.20 (Federal Reserve 
Board); 12 CFR 329.20 (Federal Deposit Insurance Corporation). HQLA are composed of Level 
1 and Level 2 assets. Level 1 assets generally include cash, central bank reserves, Treasuries, 
certain agency securities, and certain marketable securities backed by sovereigns and central 
banks, among others. Level 2 assets are composed of Level 2A and Level 2B assets. Level 2A 
assets include, for example, certain debt guaranteed by a government sponsored entity or by a 
sovereign entity. Level 2B assets include, for example, investment grade corporate bonds, and 
publicly traded common equities that meet certain conditions, and investment grade municipal 
obligations. See also Bank for International Settlements (BIS), Basel Committee on Banking 
Supervision, LCR30 High-Quality Liquid Assets (final report, Dec. 31, 2019), available at 
https://www.bis.org/basel_framework/chapter/LCR/30.htm?
tldate=20191231&inforce=20191215.
325

Commission in the position of determining the liquidity of each investment or investment type in
the market, which may be difficult to maintain over time and may over- or under-include 
securities that may demonstrate equal liquidity characteristics, as this alternative regime only 
covers HQLA and not all investments that could be held by a fund.
As an alternative, we could have proposed a higher level of STS. For example, an STS 
that is equal to 100% would assume a full liquidation of a position. Under this alternative, the 
classification of an investment would depend on the absolute value of the whole position rather 
than a percentage of a position. This approach may more accurately reflect liquidity needs during
the times of increased redemptions, to the extent that funds sell their most liquid holdings first in 
order to meet redemptions.
513
 An STS that is higher than 10% but lower than 100% would have 
the effect that is similar but lower in magnitude. While a higher STS might better reflect that 
funds may need to sell a higher fraction of a particular investment than 10%, it nonetheless could
be the case that a 10% STS is a better measure for determining liquidity under the proposed 
requirement for vertical slice assumption.
As another alternative, we could have proposed a lower level of STS. To the extent that 
some funds currently set their reasonably anticipated trade size lower than 10%, these funds may 
experience less changes in the classifications of their investments, which may result in less 
portfolio adjustments in order to comply with the 15% limit on illiquid investments and the 
highly liquid investments minimum. However, we believe that the 10% STS has the advantage of
simulating a stress event and would better prepare funds to accommodate redemptions during 
513
 For example, if a fund experiences net outflows equal to 10% of its net assets, and the fund’s 
highly liquid assets comprise 20% of its portfolio, the fund would be able to fund all outflows 
with the proceeds from highly liquid assets. On the other hand, a 10% STS would test whether 
10%x20%=2% of the fund’s holdings could be sold without significantly changing the price of 
these holdings in order to meet redemptions. In this scenario, the fund may need to sell additional 
holdings that may be more costly to trade due to their lower liquidity classification.    
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such events. We seek comment on whether a level of STS lower than 10% would be a more 
appropriate STS that would ensure funds classify their investments in a way that would 
safeguard the fund and its shareholders during stressed times. 
As another alternative, we could have proposed an STS that would depend on an 
individual fund’s flows. For example, each fund could be required to use an STS that is equal to 
a certain percentile (e.g., 99
th
 percentile) of the fund’s highest week of absolute flows or net 
outflows over a specified period of time (e.g., 3, 5, or 10 years).
514
 Under this alternative, funds 
would have a liquidity classification approach that is more tailored to their strategy and investor 
base. This approach would be less discretionary compared to the baseline but more discretionary 
compared to the proposal. To the extent that some funds may never experience net outflows that 
amount to 10% of their net assets, this alternative could be more appropriate for such funds. 
However, this alternative may result in inconsistent classifications among funds that have similar
holdings. For example, if an established fund and a new fund have identical portfolios, the new 
fund would not have the same level of historical flows as the established fund, to the extent that 
the established fund existed during periods of stress and the new fund did not. This would result 
in two different STSs for identical funds. 
As another alternative, we could have proposed an STS that would differ for funds with 
different investment strategies. For example, because during times of stress certain investments 
generally remain relatively liquid, we could have proposed a lower STS for funds with strategies 
that generally invest in more liquid assets, such as certain equities or government securities. 
However, under certain circumstances, large concentrations of any asset type (including those 
assets that are generally very liquid) held by a fund may weaken the fund’s ability to dispose of 
514
 Basing the calculation on absolute, rather than net, flows would be designed to reflect that large 
inflows have the possibility of translating to similarly large outflows.
327

such assets without a significant cost imposed on the fund’s investors.
515
 Therefore, we believe 
that requiring funds with different types of strategies to have the same STS would appropriately 
prepare all funds for stress events. In addition, although this approach would be more tailored to 
net flows trends specific to particular types of funds, this alternative may result in inconsistent 
application of the STS because there is no single taxonomy of fund types and there would be 
limited utility in proposing a new taxonomy given the previously noted concerns about an 
approach that differs by fund type. 
For determining whether a sale or disposition would significantly change the market 
value of an investment, we could have proposed a higher or lower value impact standard. For 
example, we could have proposed that a sale or disposition of less than or more than 20% of a 
security listed on a national securities exchange or foreign exchange, or a decrease in sale price 
of less than or more than 1% for other investments, would result in a significant change in 
market value. Setting a stricter test for what would constitute a significant change in market 
value may lead funds to classify investments as less liquid than under the proposed rule, and 
correspondingly, setting a more lenient test would lead to more liquid classifications. Because 
funds currently use different value impact standards today, increasing or reducing the thresholds 
in the rule may align with some funds’ current practices, while the proposed rule may align with 
other funds’ current practices. Therefore, any approach to defining the value impact standard 
would require some funds to change their current methodologies.
515
 For example, during Mar. 2020, the U.S. Treasury market became less liquid than usual.
328

b.Amendments to Liquidity Classification Categories and 
Definitions
As an alternative, we could have proposed an approach that provides additional time, 
beyond seven calendar days, for a sale to settle and convert to U.S. dollars before a fund must 
classify the investment as illiquid. For example, we could have proposed to define moderately 
liquid investments as those that a fund reasonably expects to be able to sell within seven days 
without a significant change in market value and to be convertible to U.S. dollars within an 
additional seven days. Under this alternative, all the economic effects of removing the less liquid
investment category discussed above would still be present, however, their magnitude may be 
reduced. As a result, not as many bank loan funds would have to rebalance their portfolios 
towards shorter-settlement loans and other investments, contract for expedited settlement, or 
restructure as a different investment vehicle. At the same time, the potential need to arrange 
expedited settlement to meet redemptions in the midst of market stress, as well as the potential 
borrowing costs a fund incurs to meet redemptions and the resulting dilution of fund investors, 
would not be reduced by as much as it would under the proposal. Therefore, we believe that 
aligning the time it takes to receive proceeds from the trade with the statutory requirement to 
meet investor redemptions within seven days would be a more economically sound step towards 
helping to ensure funds can meet redemptions within seven days and reducing investor dilution.
We could have proposed that a fund start measuring the number of days in which it 
reasonably expects a stressed trade size would be convertible to U.S. dollars without 
significantly changing its market value after the date of classification, instead of on the date of 
classification as proposed. Under this alternative, funds’ liquidity classifications would be 
marginally less liquid. We understand some funds are using this method of counting the number 
329

of days currently and would not have to make any changes to their methodology; however, those 
funds that begin counting on the date after classification would need to make changes and their 
classifications would be more liquid than they are currently. We believe that funds should 
measure days consistently in order to help funds meet redemptions within seven days without 
significant trading costs.
c.Frequency of Liquidity Classifications
As an alternative, we could have proposed to require classification on a less frequent 
basis, for example, weekly. Under this alternative, funds would have less operational burden 
relative to the proposed daily classification requirement. In addition, to the extent that portfolio 
allocations of funds are noisy on a daily basis due to, for example, trading related to tracking 
errors or inability to invest newly incoming cash from investors immediately, weekly 
classifications may be more appropriate from an operational perspective. However, weekly 
classifications could reduce the effectiveness of the rule by delaying the identification of 
significant liquidity issues, such as a rise in illiquid investments or a drop in highly liquid 
investments, particularly at the onset of market stress when a fund might begin to face increasing
levels of redemptions. Therefore, we believe daily classifications would promote better 
monitoring of a fund’s liquidity and ability to more rapidly understand and respond to changes 
that affect the liquidity of the fund’s portfolio.
d.Definition and Calculation of Highly Liquid Investment 
Minimum and Proposed Limit on Illiquid Investments 
As an alternative, we could have proposed different highly liquid investment minimums 
for different type of funds, with lower highly liquid investment minimums for funds with 
strategies that generally invest in more liquid assets, such as equities or government securities. 
330

However, under certain circumstances, large concentrations of any asset type (including those 
assets that are generally very liquid) held by a fund may weaken the fund’s ability to dispose of 
such assets without a significant cost imposed on the fund’s investors.
516
 Therefore, we believe 
that requiring funds with different types of strategies to have a highly liquid investment 
minimum of at least 10% would appropriately prepare all funds for stress events. In addition, 
although this approach would be more tailored to net flows trends specific to particular types of 
funds, this alternative may result in the inconsistent application of highly liquid investment 
minimums because there is no single taxonomy of fund types and there would be limited utility 
in proposing a new taxonomy given the previously noted concerns about an approach that differs
by fund type.
As another alternative, we could have proposed to require funds to maintain a highly 
liquid investment minimum that is lower or higher than the proposed 10% minimum, such as a 
minimum of at least 5% or 15%. A lower required threshold would require fewer changes to 
some funds’ portfolios and would be less likely to affect performance. However, a lower 
minimum would result in funds being less prepared to meet redemptions in stressed periods. A 
higher highly liquid investment minimum would better ensure that a fund can meet redemptions 
in stressed periods, but would require more significant changes to some funds’ portfolios and 
would likely have a larger effect on fund performance. Further, to the extent that certain funds 
would benefit from a highly liquid investment minimum that is greater than 10% because, for 
example, they have a concentrated shareholder base, such funds could establish a higher 
minimum under the proposal. Similarly, we considered a lower limit on a fund’s illiquid 
investments, such as a 5% or 10% limit. The alternatives would further limit a fund’s ability to 
516
 See note 515.
331

acquire illiquid investments, which would limit the mismatch between the time a fund must pay 
redemptions and the time it can sell its investments without significant dilution. However, 
lowering the limit on illiquid investments while also expanding the definition of illiquid 
investment would more significantly affect funds that currently invest in less liquid investments. 
As another alternative, we could have proposed to define investments used for collateral 
and margin purposes of moderately liquid and illiquid investments as moderately liquid and 
illiquid respectively. However, by reducing the fund’s highly liquid investments by the value of 
amounts posted as margin or collateral, the proposed approach would avoid burdens associated 
with tracking specific securities posted as margin or collateral and reclassifying investments as 
they are posted as margin or collateral and recalled. The proposed approach also would not 
understate the liquidity of securities that are posted as margin or collateral because each security 
would continue to be classified based on its own characteristics rather than based on the 
characteristics of the derivative it is tied to, and instead the adjustments would only be made at 
the aggregate level. 
2.Swing Pricing
This section discusses alternatives to the proposed swing pricing requirements. These 
alternatives include variations on the swing pricing requirements, variations on the thresholds 
used to determine the swing factor, and tools other than swing pricing that may achieve some of 
the same anti-dilutive goals of the proposed rule. These alternatives could be used independently 
or in combination with each other, and also could be paired with a hard close or the alternatives 
to the hard close we discuss in the next section, depending on the degree to which a given 
alternative does or does not require a fund to have complete order flow information at the time a 
fund strikes its NAV. 
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a.Alternative Approaches within the Swing Pricing Framework 
As an alternative, we could have proposed different thresholds for net redemptions, net 
subscriptions, and inclusion of market impact. For example, we could have required funds to 
adjust the NAV only when net redemptions exceed a specified swing threshold, allowing funds 
to not adjust the NAV at all when redemptions are low in magnitude, as the proposal does for net
subscriptions. To the extent that determining a swing factor is costly, only requiring funds to do 
so when net redemptions exceeded a threshold would limit the frequency with which funds incur 
such costs. However, because net redemptions are likely to dilute fund shareholders by a larger 
magnitude compared to net subscriptions, such an alternative may forego some of the benefits 
non-transacting fund shareholders would be expected to receive under the proposal. 
The proposal also could have used a different market impact threshold, or no threshold, 
requiring that funds always include market impact in their swing factor calculations. A higher 
(lower) market impact threshold would reduce (increase) the number of days for which affected 
funds must calculate market impact costs for their portfolio investments, reducing (increasing) 
any related costs and operational challenges. However, a higher (lower) market impact threshold 
would also reduce (increase) the amount of dilution from redemptions that is recaptured by funds
and accrued to non-transacting shareholders, assuming some funds do not opt to set lower market
impact thresholds, as permitted under the proposal.
Similarly, the proposal could have used a different swing threshold for net subscriptions, 
or no threshold, requiring that funds always adjust their NAV in response to net subscriptions. A 
higher (lower) threshold for net subscriptions would reduce (increase) the number of days for 
which affected funds must calculate swing factors, reducing (increasing) any related costs and 
operational challenges. However, a higher (lower) threshold for net subscriptions would also 
333

reduce (increase) the amount of dilution from subscriptions that is recaptured by open-end funds 
and accrue to non-transacting shareholders, assuming some funds do not opt to set lower 
threshold for net subscriptions, as permitted under the proposal.
As another alternative, we could have required that funds only apply a swing factor when 
they experience net redemptions rather than requiring that they also apply a swing factor when 
net subscriptions exceed 2%. Removing the requirement that funds apply a swing factor for net 
subscriptions would remove any operational costs funds may incur in implementing swing 
pricing for net subscriptions and may reduce the uncertainty that subscribing investors face 
regarding the share price at which their subscription orders will ultimately transact. However, 
while we recognize that subscriptions tend to be less dilutive than redemptions, the trading costs 
incurred by funds to accommodate subscriptions can still be dilutive. Therefore, non-transacting 
investors would be exposed to more dilution risk under this alternative. 
As an alternative, the proposal could have also permitted funds to use a default swing 
factor (e.g., 2% or 3%) when estimating trading costs accurately may be more difficult, such as 
in times of market stress. A fund’s swing pricing administrator, adviser, or a majority of the 
fund’s independent directors could be permitted to determine whether market conditions are 
sufficiently stressed to invoke this default swing factor. This alternative could benefit investors 
by mitigating shareholder dilution during periods of increased market uncertainty when standard 
analyses that funds use to estimate trading costs may fail to capture these costs accurately, to the 
extent that the standard analyses result in underestimation of trading costs. However, this 
alternative would provide funds with more discretion in determining when their swing factor 
applies in a way that is less transparent and consistent for fund shareholders, which increases the 
chance that funds may take advantage of such discretion in order to boost the performance of a 
334

fund. In addition, a default swing factor may not be a good approximation of the actual trading 
costs a fund will incur during the periods it is applied, which could either overcharge transacting 
investors relative to the trading costs they impost on a fund or undercharge transacting investors, 
limiting the extent to which non-transacting shareholder dilution is mitigated.
As another alternative, the proposal could have defined the market impact threshold or 
inflow swing threshold on a fund-by-fund basis, with a reference to a fund’s historical flows. For
example, each fund could have been required to determine the trading days for which it had its 
highest outflows over a set time period, and set its market impact threshold based on the 1-5% of
trading days with the highest redemptions. Similarly, each fund could have been required to 
determine the trading days for which it had its highest inflows or outflows over a set time period,
and set its inflow or outflow swing threshold based on the 1-5% of trading days with the highest 
redemptions or subscriptions. While this alternative could allow funds to customize their swing 
thresholds to their historical flows, such an alternative may create strategic incentives for fund 
complexes to open and close funds depending on historical transaction activity. For example, to 
the degree that the estimation of market impact factors or other trading costs may be costly, or to 
the extent that investors prefer funds that do not apply swing factors as frequently, fund families 
may choose to close funds that experienced high redemptions to avoid the application of market 
impact factors. In addition, allowing funds to determine their own thresholds based on historical 
data may lead to less comparability across funds with respect to when investors expect funds to 
incorporate market impact or swing their NAV in response to net subscriptions or net 
redemptions.
335

b.Alternatives to Swing Pricing
i.Liquidity Fees  
517
   
As an alternative to the proposed swing pricing requirement, we could have proposed to 
require funds to charge liquidity fees to transacting investors. There are various types of fees that
we considered, which are discussed below.
(a)Dynamic Liquidity Fee  
As an alternative, we could have proposed a dynamic liquidity fee that could, in 
principle, be equivalent to swing pricing from the point of view of the transacting investor. For 
example, this alternative could charge transacting investors the estimated trading, spread, and, in 
some cases, market impact costs associated with their subscription or redemption activity, 
allowing remaining shareholders to recoup these costs and mitigate dilution. Under this 
alternative, like under the proposed swing pricing framework, a fund would be required to 
determine a given day’s liquidity fee for subscribers or redeemers based on the fund’s net flows. 
Specifically, on a day with net redemptions (subscriptions), the fund would determine a liquidity 
fee that reflects the costs redeeming (subscribing) investors are expected to impose on the fund 
and would only charge redeeming (subscribing) investors the fee. 
From an economic (namely non-operational) perspective, the difference between a 
liquidity fee and swing pricing is the effect on subscribing (redeeming) investors when a fund 
experiences net redemptions (subscriptions) and how the anti-dilution benefit is shared among 
transacting and non-transacting fund investors. Specifically, under swing pricing, in the case of 
net redemptions, subscribing investors would purchase fund shares at a discount relative to the 
NAV because there will be only one transaction price for fund shares determined by swing 
517
 See also section II.D.1.a for additional discussion of liquidity fee alternatives.
336

pricing. Similarly, in the case of net subscriptions, redeeming investors would receive a premium
for their redeemed shares because the transaction price for fund shares would be adjusted above 
the NAV. As a result, some of the recouped dilution costs from net redemptions (subscriptions) 
are diverted to other transacting investors – subscribers (redeemers) – rather than to non-
transacting fund investors.
518
 If the fund charges a liquidity fee, on the other hand, subscribing 
(redeeming) investors would not be purchasing (selling) fund shares at a discount (premium) in 
the case of net redemptions (subscriptions). Instead, the fee would be borne by redeemers 
(subscribers) without the commensurate benefit to subscribers (redeemers) and would fully 
accrue to the fund instead.
519
 From this perspective, a liquidity fee may be fairer to redeeming 
(subscribing) fund investors in the case of net redemptions (subscriptions) compared to swing 
pricing. In addition, relative to swing pricing, liquidity fees would be more transparent regarding 
the liquidity costs transacting investors are charged and would not change day-to day fund 
returns that investors observe.
520
 
However, liquidity fees may be more operationally challenging to implement relative to 
the proposed swing pricing requirement. With swing pricing, a fund can pass liquidity costs on to
redeeming or purchasing investors via downward or upward adjustments in the NAV to 
determine the transaction price for fund shares, with intermediaries receiving this price at the end
518
 Under the proposed swing pricing requirement, a fund would still recoup the full dilution costs 
associated with net redemptions by charging redeemers for both the dilution cost of redemptions 
as well as the cost of allowing subscribers to fund shares at a discount when the fund experiences 
net redemptions. Similarly, a fund would still recoup the full dilution costs associated with net 
subscriptions by charging subscribers for both the dilution cost of subscriptions as well as the cost
of allowing redeemers to sell shares at a premium when the fund experiences net subscriptions in 
excess of 2%.
519
 See e.g., Eaton Vance Comment Letter at https://www.sec.gov/comments/s7-16-15/s71615-
151.pdf for a description of mechanics and an assertion that fees are economically superior.
520
 We recognize that while swing pricing may change the returns that investors see on a daily basis,
it would not change monthly returns and returns reported on a fund’s statement relative to a fee.
337

of the trading day. With a liquidity fee, however, a fund would have to rely on intermediaries to 
pass the liquidity costs on to transacting investors, which may involve greater operational 
complexity for intermediaries compared to swing pricing. While we recognize that some funds 
and their intermediaries are currently able to apply redemption fees under rule 22c-2, applying 
dynamic liquidity fees that may change in size from day-to-day may involve greater operational 
complexity and costs. For instance, liquidity fees may require more coordination with a fund’s 
intermediaries because these fees need to be imposed on a transaction-by-transaction basis by 
each intermediary involved—which may be difficult with respect to omnibus accounts that 
intermediaries may create to aggregate all customer activity and holdings in a fund. We could 
instead require intermediaries to submit purchase and redemption orders separately to transact in 
a fund’s shares, as some intermediaries already do. This could allow funds or their transfer 
agents to apply fees directly, but this type of requirement would also require some intermediaries
to make operational changes because they would no longer be able to net otherwise offsetting 
customer purchases and redemptions.
As noted above, this type of dynamic fee would depend on fund flow information. A 
dynamic fee could be applied at the time of an investor transaction, in which case a hard close 
would still be required so that a fund has complete flow information by the time the NAV is 
struck, allowing the fund to determine the corresponding dynamic fee. Alternatively, the fee 
could be processed separately and applied to an investor’s account on a delayed basis, obviating 
the need for a hard close because funds would no longer need complete flow information at the 
time of the initial investor transaction.
521
 Delayed application of the fee, however, may raise 
complications related to collecting fee amounts from investors, particularly when an investor has 
521
 See also section II.D.1.a for additional discussion of delayed fee application.
338

otherwise redeemed the full amount of its holdings. Follow-on fees also significantly increase the
number of transactions to process, and may complicate reporting for custodians and advisers in 
situations where a transaction may occur in one reporting period but the fee related to the 
transaction is not applied until the next reporting period. In addition, an intermediary may face 
difficulties projecting upcoming cash balances in its client accounts if there are upcoming fees to
be charged, but the amounts of those fees are unknown. The fund itself may also have challenges
with projecting its own cash balance if it cannot predict when accrued fees will be received from 
each intermediary. 
(b)Set Fee   
Another alternative could be a simple fee framework that would require funds to charge a
set fee of a specified percentage of the transaction (e.g., 1%). This fee could be designed to either
apply for all investor transactions, apply if redemptions or subscriptions exceed certain 
thresholds, or apply only on the redemption side or only on the purchase side. Such an alternative
could reduce the operational burdens imposed on funds with respect to estimating trading costs 
and market impact and, in the case of a fee that is always charged, also would not require that a 
fund receive full order flow data before its NAV is struck. However, this alternative could also 
lead funds to over- or under-charge transacting investors because the trading costs a fund 
experiences for a given level of net redemptions or subscriptions may vary nonlinearly with the 
size of net redemptions or net subscriptions. For example, a fund trading to accommodate 
relatively small redemptions or subscriptions would most likely not result in market impact costs,
while accommodating substantial redemption or subscription activity might result in market 
impact costs. As a result, a fund might undercharge transacting investors relative to the trading 
costs their activity imposes on a fund in cases when the set fee is lower than the trading costs 
339

implied by the fund’s aggregate investor activity. Therefore, in such instances this alternative 
may be less effective than swing pricing at mitigating dilution. Similarly, a fund might 
overcharge transacting investors relative to the trading costs their activity imposes on a fund in 
cases when the set fee is higher than the trading costs implied by the fund’s aggregate investor 
activity, non-transacting investors are enriched at the expense of transacting investors. If such a 
set fee could be calibrated correctly, the effects of under- or over-charging transacting investors 
might offset each other. However, perfectly calibrating a fee would require that a fund correctly 
forecast the likelihood and magnitude of net redemptions and net subscriptions, as well as the 
corresponding trading costs associated with such flows, which may not be feasible.
(c)Fee Adjusted for Bid-Ask Spreads or other   
Transaction Costs
Relatedly, another simpler liquidity fee alternative could still use fees that are dynamic in
the sense that they respond to market conditions such as bid-ask spreads or other known 
transaction costs associated with trading underlying investments, but are not tailored to the order 
flow a fund receives on a given day. For example, a fund could charge a liquidity fee on both 
subscriptions and redemptions on a given day that reflects the estimated costs of buying and 
selling the fund’s underlying assets, respectively, excluding factors that depend on order flow, 
such as market impact. Such an alternative would still require funds to estimate trading costs, but
would not require that a fund receive full order flow data before its NAV is struck. 
Economically, this alternative is equivalent to dual pricing, discussed below, which instead 
charges these costs by establishing separate transaction prices for subscriptions and redemptions.
340

(d)Liquidity Fee When Trading Costs Significantly   
Increase  
522
   
As another alternative, we could have proposed a liquidity fee that would only apply 
under certain conditions, such as when trading costs are significantly above those typically 
experienced. Under this approach, either the Commission could define the circumstances that 
would trigger the fee or funds could define the conditions under which the fee would apply. In 
the latter case, a fund would establish written policies and procedures designed to mitigate 
dilution and recoup the costs the fund reasonably expects to incur as a result of shareholder 
redemptions. 
In both scenarios, this alternative may be less costly for funds relative to the above 
alternatives, to the extent that applying the fee less frequently is less operationally burdensome. 
Under this alternative, funds would be able to recoup trading costs when these costs significantly
increase (e.g., during periods of market stress), without increasing the costs of operation during 
other times. The benefits of this approach to investors would depend on the relative magnitude of
dilution realized during normal periods when trading costs are not significantly increasing versus
the cost of applying an anti-dilution tool on a daily basis. To the extent that dilution during 
normal times is negligible while the operational burden of applying the fee is not, a fee that 
applies only when trading costs increase significantly may benefit fund investors. However, to 
the extent that dilution during normal times can accumulate to a significant amount over time, 
fund investors would not be protected against it. The benefit of this alternative would also 
depend on whether the specified conditions that trigger the fee could be anticipated by investors 
prior to the fund imposing the fee. To the extent that investors would be able to forecast that a 
fund is moving closer to the fee trigger, they may decide to preemptively redeem their shares 
522
 See also section II.D.3.b for additional discussion of this alternative.
341

before the fee is initiated, potentially exacerbating the first-mover advantage and contributing to 
further fund stress. 
The economic tradeoffs of this alternative would also depend on whether a fund defines 
the circumstances under which the fee would apply or the Commission would define such 
circumstances. Under the first scenario, funds would be able to tailor the triggers to their specific
circumstances, such as the fund size, the portfolio characteristics, and investor base composition,
as well as the historically observed dilution. As a result, funds may be better equipped to protect 
their investors during times of increased trading costs. However, under this scenario, fund 
discretion over the fee triggers may result in some funds defining triggers in a suboptimal way in
order to compete with similar funds for investors. Under the second scenario, funds would not 
have such discretion, which could better protect investors from dilution. However, because 
mutual funds vary significantly in their portfolios and sizes, it would be challenging to establish 
a trigger that is not dependent on timely flow information and would equally protect investors of 
all funds from dilution.
(e)Liquidity Fee for Funds That Are Not Primarily   
Highly Liquid When Trading Costs Increase Significantly
As another alternative, we could have proposed a liquidity fee only for certain types of 
funds. For example, we could have proposed a fee that funds that are not primarily highly liquid 
(e.g., funds that hold less than an identified percentage of their portfolio in highly liquid assets, 
such as less than 50%, 66%, or 75%) would be required to impose during periods of increased 
trading costs. Under this alternative, affected funds and their investors would experience similar 
benefits and costs as in the alternative above. However, the aggregate magnitude of these effects 
would be smaller because it would not affect all mutual funds. To the extent that funds that 
invest primarily in highly liquid investments do not experience trading cost increases that are as 
342

substantial as all other funds during periods of market stress, this alternative may benefit 
investors in primarily highly liquid funds by not imposing additional costs related to establishing 
policies and procedures related to the liquidity fee. However, all funds would have to establish 
procedures for monitoring whether they hold primarily highly liquid investments or not. 
The cost savings of this alternative relative to the alternative that would require a fee for 
all funds during periods of increased trading costs would depend on how often highly liquid 
investments may become temporarily less liquid. To the extent that funds expect certain 
investments that are highly liquid during normal times to become less liquid during stress 
periods, these funds may have to preemptively establish compliance around the liquidity fee 
implementation. This effect would be more pronounced for funds that are near the 50% 
threshold. 
This alternative may also affect competition in the mutual fund sector, to the extent it 
could make investment in mutual funds that are not primarily highly liquid less attractive to 
investors. In addition, some funds may exit some of their moderately liquid and illiquid 
investments in order to fall under the definition of primarily highly liquid. This, in turn, may 
make markets for moderately liquid and illiquid investments more illiquid and negatively affect 
capital formation for these investments. 
ii.Dual Pricing  
523
   
As an alternative to the proposed swing pricing requirement, we could have required that 
funds implement dual pricing, which is used in some other jurisdictions. Dual pricing would 
effectively set two transaction prices for a fund: one price for purchases and another for 
redemptions. The price adjustments for the funds’ shares could either be constant or calculated to
523
 See also section II.D.1.b for additional discussion of this alternative.
343

reflect the estimated costs of buying and selling the fund’s underlying investments, excluding 
factors that depend on order flow, such as market impact. The first approach would be similar to 
one of the set fee alternative discussed above, as it would be less reliant on fund flow 
information than the proposed swing pricing requirement, but the charge imposed on transacting 
investors would also less accurately reflect the specific liquidity features of the fund’s current 
investments in light of the size of the redemptions the fund is experiencing. As an example of the
second approach, a fund would set its purchase price to be the fund’s NAV on that day plus an 
amount that reflects the potential trading costs such as bid-ask spreads that subscriptions impose 
on a fund given current market conditions, and exclude factors such as market impact that may 
require knowledge of the fund’s order flow on that day. Similarly, the redemption price of a fund
share would be the fund’s NAV minus an amount that reflects the potential trading costs 
redemptions would impose on a fund given current market conditions. Operationally, dual 
pricing would not require that funds receive complete order flow data prior to determining their 
dual transaction prices, removing the need for a hard close. However, dual pricing would require 
intermediaries and other market participants to update their processes to handle two potential 
transaction prices rather than a single NAV, which would impose costs on such intermediaries. 
In addition, intermediaries that currently submit a single net order (e.g., using omnibus 
accounting) would need to separately submit aggregate purchases and aggregate redemptions to a
fund, which would impose costs on such intermediaries. 
iii.Spread Cost Adjustment on Days with Estimated Net   
Outflows  
524
   
Another alternative to the proposed swing pricing requirement would be to require that 
funds use estimated flows to determine whether they expect to have net redemptions on a given 
524
 See also section II.D.3.a for additional discussion of this alternative.
344

day and, if so, to require that the fund adjust its current NAV to reflect good faith estimates of 
spread costs.
525
 This alternative would not require funds to assess market impact, nor would it 
require that funds use swing pricing on days when a fund estimates that there will be net 
subscriptions. By setting the price for fund shares to reflect good faith estimates of spread costs 
on days when a fund estimates it will have net outflows, the fund would protect non-transacting 
investors from dilution due to the spread costs, to the extent that the fund correctly estimates the 
direction of the net flows. This approach could ameliorate first-mover advantage because 
redeeming shareholders would be required to pay at least the spread component of transaction 
costs imposed on the fund by their redemptions on days where the fund accurately predicts that it
will experience net redemptions. As a result, this alternative may help to mitigate run risk and 
potential fire sales of funds’ portfolio holdings. However, basing the decision to apply a spread 
cost adjustment on estimated flows may reduce the effectiveness of this alternative by possibly 
causing the fund to adjust its share price down on days where transacting investors ultimately do 
not dilute remaining fund shareholders. While applying a spread cost adjustment on days when a 
fund incorrectly predicts net redemptions could result in more shareholder dilution than if an 
adjustment had not been applied, this possibility would not impede the effectiveness of the 
alternative to mitigate first-mover advantage.
The alternative would impose lower costs on funds and intermediaries relative to the 
proposed swing pricing requirement because there would be no requirement for a hard close and 
525
 U.S. GAAP states that if an asset measured at fair value has a bid price and an ask price (for 
example, an input from a dealer market), the price within the bid-ask spread that is most 
representative of fair value in the circumstances shall be used to measure fair value, and that the 
use of bid prices for asset positions is permitted but not required for these purposes. See FASB 
ASC 820-10-35-36C. Therefore, we recognize that requiring a fund’s share price to be 
determined using bid-side values for the underlying investments would introduce inconsistency in
instances where the fund does not use bid prices to value securities for purposes of U.S. GAAP. 
As a result, funds needing to apply different pricing for these different purposes could experience 
incremental effort and cost.
345

no requirement to estimate market impact factors or other transaction costs. By limiting the 
adjustment of the share price to a step function (i.e., share price is either adjusted to reflect 
spread costs or not at all), the alternative avoids any imprecision that may be introduced by 
having the size of the fund’s share price adjustment also depend on the size of predicted net 
outflows. To the extent that funds currently do not implement swing pricing because of existing 
operational challenges or any stigma that may be associated with the use of that tool, this 
alternative would likely overcome these challenges by prescribing an approach that is mandatory
and that could be implemented more easily under existing operational structures compared to the 
proposed swing pricing requirement that would rely on a hard close while still providing some 
anti-dilution benefits to mutual fund investors.
iv.A Choice of an Anti-Dilution Tool  
As another alternative to the proposed swing pricing requirement, we could have 
proposed to require all funds to implement an anti-dilution tool, while allowing them to choose 
among several tools, such as swing pricing, liquidity fees, or other alternative approaches 
discussed above. This alternative may benefit funds and their investors, to the extent that certain 
anti-dilution tools are better suited for certain types of funds in reducing investor dilution. For 
example, funds that have infrequent subscriptions or redemptions may find a liquidity fee less 
operationally costly to implement compared to other tools. Similarly, funds that have more 
volatile flows on a day-to-day basis may find that swing pricing would be a more effective 
approach to combat dilution because the trading costs would be recouped instantaneously with 
investors’ trading activity, compared to liquidity fees that would not be recouped by a fund until 
a later date. Further, funds that have de minimis transaction costs for prolonged periods of time 
may find a liquidity fee that would only apply during stressed conditions more appropriate from 
346

the operational prospective. This alternative may benefit mutual fund investors by increasing 
investor choice relative to the proposal. To the extent that different investors have varying 
preferences for anti-dilution tools, they would be able to invest in the mutual fund sector 
according to their preferences. As such, this alternative may increase competition in the mutual 
fund sector. However, this alternative could be more costly relative to the proposal and other 
alternatives discussed above because fund intermediaries and service providers would need to 
establish systems that accommodate all the anti-dilution options that would exist across mutual 
funds. 
3.Hard Close Requirement 
The proposal would require a hard close, meaning that an order may be executed at the 
current day’s price only if the fund or its designated parties receive the order before 4 p.m. ET. 
As discussed in section III.B.3, funds and intermediaries are likely to incur significant costs in 
order to comply with the hard close requirement. Therefore, we have considered alternative 
approaches to the hard close requirement.
a.Indicative Flows
526
One alternative to the proposed hard close requirement would be to require that funds 
receive indicative flow information from intermediaries by an established time. This approach 
would be less likely to affect investors who place orders near the 4 p.m. ET pricing time, as 
intermediaries may not necessarily need to establish earlier cut-off times. While intermediaries 
would incur one-time costs to update their systems and processes to calculate indicative flow 
information, as well as ongoing costs related to the transmission of the indicative flow 
information to funds or their designated parties, these costs would be lower than the costs 
526
 See also section II.D.2.a for additional discussion of this alternative.
347

intermediaries would incur under the proposed hard close requirement. The proposed hard close 
requirement, however, would likely not result in the same ongoing costs for intermediaries that 
this alternative would require. For example, intermediaries may need to develop a process for 
estimating indicative flows and sending them to funds, separate from the process of submitting 
orders to fund transfer agents and Fund/SERV. Likewise, funds would need to develop processes
for receiving the indicative flow information and monitoring whether each intermediary has 
provided indicative flow information in a timely manner. Moreover, indicative flow information 
likely would be less accurate and complete than the flow information funds would receive under 
the proposed hard close requirement. As a result, funds’ swing pricing determinations may be 
less accurate than under the proposal (e.g., a fund may not adjust its NAV when it should have, 
or vice versa, due to incomplete flow information), which would limit a fund’s ability to mitigate
dilution through swing pricing. 
b.Estimated Flows
527
Another alternative approach to a hard close would be to continue allowing funds to use 
reasonable estimates of their flows in determining transaction costs from investors’ trading 
activity and to provide them with a safe harbor in cases where the produced estimates of the 
funds’ net flows are different from realized net flows. This approach would have limited effect 
on intermediaries, as funds would base their estimates on models incorporating available 
information. However, because funds would base anti-dilution decisions on less precise flow 
data, this alternative could reduce the effectiveness of a fund’s swing pricing by possibly causing
it to adjust its NAV on days where transacting investors ultimately do not dilute remaining fund 
shareholders. On days where a fund estimates the direction of flows incorrectly, e.g., if a fund 
527
 See also section II.D.2.b for additional discussion of this alternative.
348

forecasts that it will experience net subscriptions but actually experiences net redemptions, 
applying a swing factor could result in more shareholder dilution than if a swing factor had not 
been applied. This may make mutual funds less attractive to investors. However, the success of 
this approach would depend on how well funds can predict the additional flows that they receive 
after their NAV has been determined. 
c.Later Cut-Off Times for Intermediaries
528
Another alternative is to establish later cut-off times for intermediaries to submit order 
flow information, for example, two or three hours after the fund’s pricing time (e.g., 6 or 7 p.m. 
ET if the fund’s pricing time is 4 p.m. ET). Under this alternative, intermediaries would have 
more time to submit their orders to funds and may not need to impose a cut-off time for investor 
orders earlier than the pricing time. To the extent that investors would not be subjected to an 
earlier cut-off time under this alternative, investors that use affected intermediaries would not 
experience disadvantage over investors that trade with the fund directly in terms of different 
degree of market risk described above. However, although this alternative may be more 
beneficial to investors compared to the proposed hard close requirement, it would require similar
operational changes and impose similar costs. For example, retirement plan recordkeepers would
still need to submit orders before receiving funds’ prices. This alternative, however, may be less 
disruptive than the proposed hard close requirement for intermediaries that typically provide 
orders by around 6 or 7 p.m. ET, which we understand is the case for many broker-dealers. 
Under this approach, funds would likely need to publish their prices later than current practice to 
provide time to make swing pricing decisions. This could delay the distribution of pricing 
information to the public and to intermediaries. However, because intermediaries would no 
528
 See also section II.D.2.c for additional discussion of this alternative.
349

longer be revising orders contingent on the fund’s share price to the same extent, this may not be 
as disruptive as a later NAV publication would be under the status quo.
4.Commission Reporting and Public Disclosure
As an alternative, we could have proposed public disclosure of position-level liquidity 
classifications. This alternative may provide more information about a fund’s liquidity risk 
profile to investors, thereby improving their portfolio allocation decisions. While funds may have
gained some insight into how other funds manage liquidity risk via their narrative disclosures, to 
the extent those disclosures tended to be boilerplate, observing other funds’ liquidity profiles 
might provide some information that is useful in a fund’s own liquidity classification process. 
Although the process for funds’ liquidity classifications will be more uniform across funds under
the proposal, we recognize that the same investment may still be classified differently by 
different funds due to classifications being position-dependent (i.e., the more of a security is held
by a fund, the less liquid its classification would be). Therefore, even if position-level liquidity 
classifications are disclosed, the comparison of classifications across funds may still not be as 
meaningful for investors in all cases. Position-level disclosure also could potentially reveal 
additional information about a fund’s trading strategy if, for example, a security was classified as
illiquid solely because the fund had material non-public information about the security. In 
addition, investors also may find the proposed aggregate liquidity information more useful, to the
extent that they are focused on a fund’s overall liquidity profile rather than the liquidity of any 
particular investment. 
We also could have proposed filings would become public when they are filed as 
opposed to keeping the filings confidential until 30 days after they are filed (60 days after the 
end of the reporting period). This could take several forms. For example, we could maintain the 
350

proposed filing deadline, which would mean that a fund’s filing would be due and become public
30 days after the end of the reporting period. Alternatively, we could pair a publication-upon-
filing framework with lengthening the delay between the end of the reporting period (for 
example, to 45 days after the end of the period). Making filings public immediately upon filing 
could improve investor understanding of fund portfolios because they would be able to review 
the information closer to real time (though still with a substantial delay), assuming that the filing 
deadline was 30 days after each month end as proposed. This would enhance the ability of 
investors to choose the right fund that suits their portfolio construction goals. Many funds 
already make portfolio information public with a 30-day delay on a voluntary basis, but this 
alternative would result in a consistent framework across the entire open-end fund industry. This 
approach would also reduce the amount of information the Commission would be required to 
keep confidential.
529
 On the other hand, to the extent funds are at risk of predatory trading or 
copy-catting when their portfolios become public sooner, this approach could serve to increase 
those risks.
530
We could have taken the inverse approach as well. Instead of providing for publication at 
the same time information is filed, we could have provided for a longer period between the time 
information is filed and when it is made public, and also could have extended the deadline for 
filing. The benefits and costs of this alternative would likewise be the reverse of the publication-
upon-filing alternative. Namely, this alternative could reduce the risks of predatory trading or 
copy-catting because by the time the information became public, it would be more likely to be 
529
 Certain data would remain confidential, such as the composition of the fund’s “miscellaneous 
securities.” See supra section II.E.1.d.
530
 See supra note 287 (comment letter from major industry participant citing research showing that 
risk of predatory trading or copycatting as a result of increased publication frequency is 
overstated). 
351

stale. On the other hand, it would also be less useful to investors seeking to understand their 
funds and, if we paired a delay in publication with a delay in the deadline for filing with the 
Commission, it would be less useful to the Commission as well. 
F.Request for Comment
 We request comment on all aspects of the economic analysis of the proposed 
amendments. To the extent possible, we request that commenters provide supporting data and 
analysis with respect to the benefits, costs, and effects on competition, efficiency, and capital 
formation of adopting the proposed amendments or any reasonable alternatives. In particular, we 
ask commenters to consider the following questions:
234.What additional qualitative or quantitative information should be considered as 
part of the baseline for the economic analysis of these amendments? 
235.Are the benefits and costs of proposed amendments accurately characterized? If 
not, why not? Should any of the costs or benefits be modified? What, if any, other 
costs or benefits should be taken into account? If possible, please offer ways of 
estimating these benefits and costs. What additional considerations can be used to 
estimate the benefits and costs of the proposed amendments?
236.Are the benefits and costs of the proposed swing pricing amendments accurately 
characterized? If not, why not? What, if any, other costs or benefits should be taken 
into account? If possible, please offer ways of estimating these benefits and costs.
237.Are the effects on competition, efficiency, and capital formation arising from the 
proposed amendments accurately characterized? If not, why not? 
352

238.Are the economic effects of the above alternatives accurately characterized? If 
not, why not? Should any of the costs or benefits be modified? What, if any, other 
costs or benefits should be taken into account?
239.Are the economic effects of the alternative approaches to implementing swing 
pricing adequately characterized? If not, why not? Should any of the costs or benefits 
be modified? What, if any, other costs or benefits should be taken into account?
240.Are there other reasonable alternatives to the proposed amendments that should 
be considered? What are the costs, benefits, and effects on competition, efficiency, 
and capital formation of any other alternatives?
241.What effects would the proposed changes have on (1) investment options 
available to investors if certain asset classes are not available or are less available in 
open-end vehicles (including UITs); and (2) the markets for those underlying assets, 
including, but not limited to, the market for bank loan interests.
242.How likely is it that open-end fund managers will choose to offer their products 
via different structures, such as ETFs, closed-end funds, or CITs, rather than comply 
with the proposed requirements? Relatedly, how likely is it that investors will move 
assets from open-end funds to other types of funds in response to the proposed 
requirements?
243.Are there data sources or data sets that can help refine the estimates of the 
benefits and costs associated with the proposed amendments? If so, please identify 
them. 
244.Are there data sources that can help us estimate the aggregate number and value 
of transactions in mutual fund shares with more accuracy? If so, please identify them.
353

245.Which third-party service providers would be affected the most by the proposed 
amendments? Please explain why. If possible, please provide data on the number and 
size of such entities. 
246.Would these amendments cause a fund or any third-party service providers 
assessing liquidity to have new or unforeseen burdens? Would this increase the cost 
of third-party services?
247.Would certain types of funds have to substantially rebalance their portfolios as a 
result of the proposed changes to the liquidity risk management program? Provide a 
list of specific investments that funds would have to hold in limited amounts under 
the proposed amendments. Are there close alternatives to these investments that funds
would be able to hold? For example, can bank loan interests be substituted with 
CLOs? If no, please explain why.
248.Can the vertical slice assumption for the purposes of calculation of stressed trade 
size be implemented for all types of fund investments? For example, are there 
indivisible minimum trade units for any investments for which 10% of such an 
investment would not be possible to sell due to such indivisibility? How do funds 
currently operationalize the calculation of the reasonably anticipated trade size: via a 
vertical slice assumption or in any other way for indivisible investments?
249.What price impact models do funds currently use for liquidity classifications of 
their investments? Are there advantages of using one model over another? Are there 
price impact models available to use only through certain third-party service 
providers assessing liquidity? Do service providers assessing liquidity vary in costs 
for their services? 
354

250.What would be the costs of obtaining daily pricing and liquidity information for 
the purposes of daily liquidity classifications? What are the current costs related to 
obtaining such information? 
251.Do funds currently monitor their liquidity classifications on a daily basis? Are 
there specific types of funds that do not currently evaluate their classifications more 
frequently than monthly? 
252.To what extent would funds implement swing pricing if it were optional, rather 
than mandatory, as long as funds received complete order flow data prior to 
determining their NAVs on a given day?
253.How dilutive are fund purchases relative to fund sales? How do the benefits of 
swing pricing in response to purchases compare to the benefits of swing pricing in 
response to sales? 
254.Which components of trading costs contribute the most to fund dilution? How 
significant are market impact costs? If we adopted an alternative that excluded market
impact from swing factor calculations, would the rule’s effectiveness at mitigating 
dilution be significantly reduced?
255.Of the alternatives to swing pricing discussed above, which strikes the most 
appropriate balance of investor benefits and implementation costs? Is it more 
operationally complex and costly to charge fund investors a liquidity fee, or to use 
dual pricing? 
256.What are the benefits of processing trade information via omnibus accounts? How
costly would transmitting individual investor order information to funds be for 
intermediaries? Are per-trade costs the same for all intermediaries? Would there be 
355

other ancillary benefits associated with a move away from omnibus account and order
netting?
257.What other costs or impediments beyond system switching costs would the 
proposed hard close requirement impose? Will these costs be different for different 
types of intermediaries? If so, what is the differential? How do these costs compare to
the potential future benefits of the hard close, such as more efficient order 
processing?
258.Will certain intermediaries be unable to bear the costs of the proposed hard close 
requirement? If yes, please explain why. Would the costs differ, depending on 
whether an intermediary or a service provider is affiliated with a fund family or not?
259.What effect will a hard close requirement have on the availability of certain 
transaction types offered to investors? Please list the types of transactions that would 
become unavailable under the proposed hard close requirement? 
260.Would investors and other data users benefit significantly from the proposed 
monthly N-PORT disclosures? Would the quality and availability of mutual funds’ 
portfolio data available to investors and other users improve significantly under the 
proposed amendments?
261.Would the proposed aggregate liquidity disclosure benefit investors? What are the
benefits and costs of such disclosure relative to investment-by-investment liquidity 
classification disclosure? Are there any substantial burdens that funds would 
experience with the detailed liquidity classification disclosure beyond the costs 
associated with the disclosure process itself?
356

IV.PAPERWORK REDUCTION ACT
A.Introduction
Certain provisions of the proposed amendments contain “collection of information” 
requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
531
 We are 
submitting the proposed collections of information to the Office of Management and Budget 
(“OMB”) for review in accordance with the PRA.
532
 The proposed amendments would have an 
effect on the current collection of information burdens of rules 22e-4 and 22c-1 under the 
Investment Company Act, as well as Forms N-PORT and N-CEN under the Investment 
Company Act and Form N-1A under the Investment Company Act and the Securities Act. 
The titles for the existing collections of information we are amending are: (1) “Rule 22e-
4 (17 CFR 270.22e-4) under the Investment Company Act of 1940, Investment Company 
Liquidity Risk Management Programs” (OMB control number 3235-0737); (2) “Rule 22c-1 
Under the Investment Company Act of 1940, Pricing of redeemable securities for distribution, 
redemption and repurchase” (OMB control number 3235-0734); (3) “Rule 30b1-9 and Form N-
PORT” (OMB control number 3235-0730); (4) “Form N-1A under the Securities Act of 1933 
and under the Investment Company Act of 1940, Registration Statement of Open-End 
Management Investment Companies” (OMB control number 3235-0307); and (5) “Form N-
CEN” (OMB control number 3235-0729). 
An agency may not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid OMB control number. Each 
requirement to disclose information, offer to provide information, or adopt policies and 
procedures constitutes a collection of information requirement under the PRA. These collections 
531
 44 U.S.C. 3501 through 3521.
532
 44 U.S.C. 3507(d); 5 CFR 1320.11.
357

of information would help funds manage liquidity, mitigate dilution of shareholders’ interests, 
and provide information to the Commission and investors. The Commission staff would also use 
the collection of information in its examination and oversight program in identifying patterns and
trends across registrants. We discuss below the collection of information burdens associated with
the proposed rule and form amendments.  
B.Rule 22e-4 
Rule 22e-4 requires funds to establish a written liquidity risk management program that is
reasonably designed to assess and manage liquidity risk. Several of the proposed amendments to 
rule 22e-4 would modify existing collection of information requirements. These amendments 
include: 
Changing the framework for classifying the liquidity of a fund’s portfolio 
investments, including requiring use of a stressed trade size, defining the value 
impact standard, and requiring daily reviews of the fund’s liquidity classifications.
We believe funds would update their policies and procedures that incorporate 
liquidity risk management program elements to reflect these proposed 
amendments.
Expanding the scope of funds that must determine and maintain a highly liquid 
investment minimum. As a result of this proposed change, additional funds would
be required to comply with the current rule’s collection of information 
requirements related to highly liquid investment minimums. These collection of 
information requirements include:
oThe fund’s investment adviser or officers designated to administer the 
liquidity risk management program must provide a written report to the 
358

fund’s board at least annually that describes a review of the adequacy and 
effectiveness of the fund’s liquidity risk management program, including 
the operation of the highly liquid investment minimum. 
oThe fund must adopt and implement policies and procedures for 
responding to a shortfall of the fund’s assets that are highly liquid 
investments below its highly liquid investment minimum, which must 
include reporting to the fund’s board of directors with a brief explanation 
of the causes of the shortfall, the extent of the shortfall, and any actions 
taken in response, and, if the shortfall lasts more than 7 consecutive 
calendar days, an explanation of how the fund plans to come back into 
compliance with its minimum within a reasonable period of time.
oA fund must maintain a written record of how its highly liquid investment 
minimum and any adjustments to the minimum were determined, as well 
as any reports to the board regarding a shortfall in the fund’s highly liquid 
investment minimum, for five years, the first two years in an easily 
accessible place.
The respondents to rule 22e-4 are open-end management investment companies, 
including, under certain circumstances, in-kind ETFs and the principal underwriters or depositors
of unit investment trusts, but excluding money market funds. None of the proposed amendments 
would affect the rule’s collection of information requirements for unit investment trusts or in-
kind ETFs. Compliance with rule 22e-4 is mandatory for funds. Information provided to the 
Commission in connection with staff examinations or investigations is kept confidential subject 
to the provisions of applicable law. If information collected pursuant to rule 22e-4 is reviewed by
359

the Commission’s examination staff, it is accorded the same level of confidentiality accorded to 
other responses provided to the Commission in the context of its examination and oversight 
program.
In our most recent Paperwork Reduction Act submission for rule 22e-4, we estimated a 
total aggregate annual hour burden of 28,150 hours, and a total aggregate annual external cost 
burden of $0.
533
 Based on filing data as of December 2021, we estimate that 11,488 funds would 
be subject to these proposed amendments.
534
 The proposed collections of information are 
designed to help increase the likelihood that funds are better prepared to manage liquidity during 
stressed conditions, and help protect investors from dilution. These collections would also help 
facilitate the Commission’s inspection and enforcement capabilities.
The table below summarizes our PRA initial and ongoing annual burden estimates 
associated with the proposed amendments to rule 22e-4. The following estimates of average 
burden hours and costs are made for purposes of the Paperwork Reduction Act. 
Table 8: Rule 22e-4 PRA Estimates
Internal
initial
burden hours
Internal annual
burden hours
1
Wage rate
2
Internal time
costs
Annual external
cost burden
RULE 22e-4 PRA ESTIMATES
Adopting and implementing
revised policies and
procedures
9 hours4 hours
3
$463
4
$1,852$1,000
5
3 hours1 hour$3,313
6
 $3,313$0
533
 The most recent rule 22e-4 PRA submission was approved in 2020 (OMB Control No. 3235-
0737). That PRA estimated that 846 fund complexes were subject to rule 22e-4. We continue to 
believe that funds within the same fund complex would experience certain efficiencies in 
responding to the collection of information requirements and, depending on the size of the fund 
complex, per fund costs may be higher or lower than our estimated averages; however, we are 
changing from a fund complex to a per fund estimate based on staff experience with per fund 
burdens and to improve the quality of this estimate.
534
 As of Dec. 2021, we estimate 11,488 open-end funds, excluding money market funds. 
360

Internal
initial
burden hours
Internal annual
burden hours
1
Wage rate
2
Internal time
costs
Annual external
cost burden
RULE 22e-4 PRA ESTIMATES
Board reporting1 hour
7
$319
8
 $319$531
9
Recordkeeping1 hour$86
10
$86$0
Total new annual burden
per fund
7 hours$5,570$1,531
Number of funds
× 11,488
funds
11
× 11,488 funds× 11,488 funds
Total new aggregate annual
burden
80,416 hours$63,988,160$17,588,128
TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS
Current aggregate annual
burden estimates
+ 28,150 hours+ $0
Revised aggregate annual
burden estimates
108,566 hours$17,588,128
Notes:
. Includes initial burden estimates annualized over a 3-year period. 
2. The Commission’s estimates of the relevant wage rates are based on the salary information for the securities industry compiled by Securities 
Industry and Financial Markets Association’s Office Salaries in the Securities Industry 2013, as modified by Commission staff (“SIFMA Wage 
Report”). The estimated figures are modified by firm size, employee benefits, overhead, and adjusted to account for the effects of inflation.
3. Reflects 9 hours of initial internal burden hours of amending existing policies and procedures, annualized over a 3-year period, and 1 hour of 
ongoing annual internal burden to maintain the policies and procedures.
4. This blended rate is based on the following: $360 (hourly rate for a senior portfolio manager); $510 (hourly rate for an assistant general 
counsel); $580 (hourly rate for a chief compliance officer); and $400 (hourly rate for a compliance attorney). 
5. We estimate that the average cost of external services is $1,000 per fund. The Commission’s estimates of the relevant wage rates for external 
time costs, such as outside legal services, take into account staff experience, a variety of sources including general information websites, and 
adjustments for inflation. The cost of external services for rule 22e-4 has not been previously estimated. We estimate this cost for external 
services for the proposed amendments to rule 22e-4 taking into account staff experience and outreach on liquidity classification vendors.
6. This blended rate is based on the following estimates: 2 hours of time for a board of directors at an average cost per hour of $4,770 and 1 hour 
of time for a compliance attorney to prepare materials for the board’s review at an average cost per hour of $400. This estimated cost for a board 
of directors assumes an average of 9 board members and has been adjusted for inflation.
7. Although the average reporting burden per fund may be greater than 1 hour when a fund has to report a highly liquid investment minimum 
shortfall to its board, we estimate that not all funds would experience a highly liquid investment minimum shortfall each year.
8. This blended rate is based on the following: $360 (hourly rate for a senior portfolio manager); $339 (hourly rate for a compliance manager); 
$510 (hourly rate for an assistant general counsel); and $68 (hourly rate for a general clerk). 
9. This estimated burden is based on the estimated wage rate of $531/hour, for 1 hour, for outside legal services. The Commission’s estimates of 
the relevant wage rates for external time costs, such as outside legal services, take into account staff experience, a variety of sources including 
general information websites, and adjustments for inflation.
10. This blended rate is based on the following: $104 (hourly rate for a senior computer operator); and $68 (hourly rate for a general clerk). 
11. Includes open-end funds, excluding money market funds, as reported on Form N-CEN as of Dec. 2021. The internal and external burdens in 
the table represent per fund estimates. The most recent rule 22e-4 PRA submission approved in 2020 (OMB Control No. 3235-0737) used per 
fund complex estimates. We continue to believe that funds within the same fund complex would experience certain efficiencies in responding to 
361

the collection of information requirements and, depending on the size of the fund complex, per fund costs may be higher or lower than our 
estimated averages.
C.Rule 22c-1 
Rule 22c-1 enables funds to use swing pricing as a tool to mitigate shareholder dilution. 
Swing pricing is currently optional for certain open-end funds. The proposed amendments would
amend rule 22c-1 to make swing pricing for open-end funds (other than ETFs or money market 
funds) mandatory instead of optional. Funds that would be required to implement swing pricing 
under our amendments must establish and implement swing pricing policies and procedures.
535
 
The policies and procedures must: (1) provide that the fund will adjust its net asset value if the 
fund has net redemptions or if it has net purchases exceeding the inflow swing threshold; and (2) 
specify the process for determining the swing factor. The rule also would require a fund to retain 
a written copy of the periodic report provided to the board prepared by the swing pricing 
administrator that describes, among other things, the swing pricing administrator’s review of the 
adequacy of the fund’s swing pricing policies and procedures and the effectiveness of their 
implementation. The retention of these records is necessary to allow the staff during 
examinations of funds to determine whether a fund is in compliance with its swing pricing 
policies and procedures and with rule 22c-1.  
Compliance with rule 22c-1(b) would be mandatory for funds subject to the proposed 
swing pricing requirements. Based on filing data as of December 2021, we estimate that 9,043 
funds would be subject to these proposed amendments.
536
 Information provided to the 
Commission in connection with staff examinations or investigations is kept confidential subject 
to the provisions of applicable law. If information collected pursuant to rule 22c-1 is reviewed by
the Commission’s examination staff, it is accorded the same level of confidentiality accorded to 
535
 See proposed rule 22c-1(b).
536
 As of Dec. 2021, we estimate 9,043 open-end funds, excluding money market funds and ETFs. 
362

other responses provided to the Commission in the context of its examination and oversight 
program.
The most recent PRA submission estimated that 5 fund complexes had funds that might 
adopt swing pricing policies and procedures under the optional rule.
537
 The current estimated 
hour burdens and time costs associated with rule 22c-1, including the burden associated with the 
requirements that funds adopt policies and procedures and obtain board approval of them, 
provide periodic written reports by the swing pricing administrator to the board, and retain 
certain records and written reports related to swing pricing, are an average aggregate annual 
burden of 113 hours and average aggregate time costs of $73,803.
538
    
The table below summarizes our PRA initial and ongoing annual burden estimates 
associated with the proposed amendments to rule 22c-1. The following estimates of average 
burden hours and costs are made solely for purposes of the Paperwork Reduction Act.
Table 9: Rule 22c-1 PRA Estimates
Initial internal
burden hoursInternal annual
burden hours
1
Wage rate
2
Internal time
costs
Annual
external cost
burden
Swing Pricing Policies
and Procedures
12 hours5 hours
3
x$409
4
$2,045$1,000
5
3 hours1 hour
$3,313
6
$3,313$0
537
 The most recent rule 22c-1 PRA submission was approved in 2020 (OMB Control No. 3235-
0734). We continue to believe that funds within the same fund complex would experience certain 
efficiencies in responding to the collection of information requirements and, depending on the 
size of the fund complex, per fund costs may be higher or lower than our estimated averages; 
however, we are changing from a fund complex to a per fund estimate based on staff experience 
with per fund burdens and to improve the quality of this estimate.
538
 The estimated burden hours include 280 total hours (or 56 hours per fund complex) to initially 
prepare and approve swing pricing policies and procedures, amortized over 3 years, and 20 total 
hours (or 4 hours per fund complex) to retain swing pricing records under rule 22c-1 each year.  
363

Swing Pricing Board
Reporting
2 hours
$400
7
$800$531
8
Swing Pricing
Recordkeeping
1 hourx$86
9
$86$0
Total new annual
burden per fund
9 hours$6,244$1,531
Number of funds× 9,043 funds
10
× 9,043 funds
10
× 9,043 funds
10
Total new annual
burden
81,387 hours$56,464,492$13,844,833
TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS
Current burden
estimates
113 hours$73,803
Revised burden
estimates
81,387 hours$56,464,492$13,844,833
Notes:
1. Includes initial burden estimates annualized over a 3-year period. 
2. See supra Table 8, at note 2.
3. We estimate that each fund would spend 1 hour each year, on average, to update its swing pricing policies and procedures. 
4. The $409 wage rate reflects current estimates of the blended hourly rate for a senior accountant ($237) and a chief compliance officer 
($580).
5. We estimate that the average cost of external services is $1,000 per fund. The Commission’s estimates of the relevant wage rates for 
external time costs, such as outside legal services, take into account staff experience, a variety of sources including general information 
websites, and adjustments for inflation.
6. This blended rate is based on the following estimates: 2 hours of time for a board of directors at an average cost per hour of $4,770 
and 1 hour of time for a compliance attorney to prepare materials for the board’s review at an average cost per hour of $400. This 
estimated cost for a board of directors assumes an average of 9 board members and has been adjusted for inflation.
7. Reflects an estimated wage rate of $400 per hour for a compliance attorney.
8. This estimated burden is based on the estimated wage rate of $531/hour, for 1 hour, for outside legal services. The Commission’s 
estimates of the relevant wage rates for external time costs, such as outside legal services, take into account staff experience, a variety of 
sources including general information websites, and adjustments for inflation.
9. The $86 wage rate reflects current estimates of the blended hourly rate for a senior computer operator ($104) and a general clerk 
($68).
10. Includes open-end funds, excluding money market funds and ETFs, as reported on Form N-CEN as of Dec. 2021. The internal and 
external burdens in the table represent per fund estimates. The most recent rule 22c-1 PRA submission approved in 2019 (OMB Control 
No. 3235-0734) used fund complex estimates. We continue to believe, however, that funds within the same fund complex would 
experience certain efficiencies in responding to the collection of information requirements and, depending on the size of the fund complex,
per fund costs may be higher or lower than our estimated averages.   
D.Form N-PORT 
Form N-PORT requires registered management investment companies (except for money
market funds and small business investment companies) and ETFs that are organized as unit 
investment trusts to report portfolio holdings information in a structured, XML format. The form 
is filed electronically using the Commission’s electronic filing system, EDGAR. We propose the 
following amendments to Form N-PORT:
364

The proposed amendments to Form N-PORT would require filing Form N-PORT on 
a monthly basis, within 30 days after the end of each month. Currently, a fund must 
maintain in its records the information that is required to be included on Form N-
PORT not later than 30 days after the end of each month, but is only required to file 
that information within 60 days after the end of every third month. We are not 
proposing to adjust the estimated collection of information burden in connection with 
this change, in part because we believe the reduced recordkeeping burden is 
commensurate with the increased burden associated with filing the information that 
previously would have been preserved as a record. The Commission similarly did not 
adjust the PRA burden estimate when it amended Form N-PORT to move from a 
requirement to file reports monthly to a requirement to prepare the information 
monthly but file it quarterly.
539
 
We are proposing to require each open-end fund (other than money market funds and 
in-kind ETFs) to report the aggregate percentage of its portfolio represented in each 
of the three proposed liquidity categories, which would be publicly available. These 
funds would be required to adjust the reported amounts to account for the amounts of 
margin or collateral posted in connection with certain derivatives transactions as well 
as outstanding liabilities, and to report information about the value of these 
adjustments. Currently, these funds are required to report position-level liquidity 
information on a non-public section of Form N-PORT, meaning the amendments 
would require aggregating that information, making the required adjustments, and 
539
 See 2018 Liquidity Disclosure Adopting Release, supra note 22, at section IV.B. 
365

reporting the adjusted aggregate information as well as information about the 
adjustments that were made. 
For open-end funds that would be subject to the swing pricing requirement under the 
proposal, we are proposing to provide enhanced transparency into the frequency and 
amount of each fund’s swing pricing adjustments. Specifically, the proposal would 
require these funds to report information about the number of days a fund applied a 
swing factor during the month and the amount of each swing factor applied.
We also propose conforming amendments to certain existing items to account for 
other aspects of the proposal, including amendments to the filing frequency of 
unstructured portfolio information on Part F of Form N-PORT and miscellaneous 
holdings disclosure to account for the proposal to make monthly Form N-PORT 
information available to the public, amendments to reflect the proposed amendments 
to rule 22e-4, and amendments to certain entity identifiers.
The respondents to these collections of information will be management investment 
companies (other than money market funds and small business investment companies) and ETFs 
that are organized as unit investment trusts. We estimate that there are 12,153 such funds 
required to file on Form N-PORT, although certain of the proposed new collections of 
information would apply to subsets of these funds, as reflected in the below table.
540
 The 
proposed collections of information are mandatory for the identified types of funds. Certain 
information reported on the form is kept confidential, and we propose that this would continue to
be the case.
541
 We propose that all other responses to Form N-PORT reporting requirements 
540
 The most recent Form N-PORT PRA submission was approved in 2022 (OMB Control No. 
3235-0730). That PRA submission estimated that 11,980 funds were required to file on Form N-
PORT. Our current estimate has increased due to changes in the numbers of funds. 
541
 See General Instruction F of Form N-PORT; General Instruction F of proposed Form N-PORT. 
366

would not be kept confidential, and instead would be made public 60 days after the end of the 
month to which they relate (30 days after they are filed); currently, only the report for every third
month is made public. The proposed amendments are designed to assist the Commission in its 
regulatory, disclosure review, inspection, and policymaking roles, and to help investors and other
market participants better assess different fund products.
In our most recent PRA submission for Form N-PORT, we estimated the annual 
aggregate compliance burden to comply with the current collection of information requirements 
in Form N-PORT is 1,839,903 burden hours with an internal cost burden of $654,658,288 and an
external cost burden estimate of $113,858,133. We estimate that funds prepare and file their 
reports on Form N-PORT either by (1) licensing a software solution and preparing and filing the 
reports in house, or (2) retaining a service provider to provide data aggregation, validation, 
and/or filing services as part of the preparation and filing of reports on behalf of the fund. We 
estimate that 35% of funds subject to the N-PORT filing requirements will license a software 
solution and file reports on Form N-PORT in house, and the remaining 65% will retain a service 
provider to file reports on behalf of the fund.
Table 10 below summarizes our initial and ongoing annual burden estimates associated 
with the proposed amendments to Form N-PORT. The following estimates of average burden 
hours and costs are made solely for purposes of the Paperwork Reduction Act.
Table 10: Form N-PORT PRA Estimates
Initial internal
burden hours
Internal annual
burden hours
1
Wage rate
2
Internal time
costs
Annual external
cost burden
PROPOSED AMENDMENTS TO FORM N-PORT
Aggregate Liquidity Classification Reporting
Funds that license a 
software solution to 
prepare Form N-PORT
3 hours2 hours
3
x
$381
4
$762$250
5
Number of funds× 4,021 funds
6
× 4,021 funds
6
× 4,021 funds
6
367

Funds that retain the 
services of a third-party 
vendor to prepare Form 
N-PORT
3 hours2 hours
3
$381
5
$762$286
7
Number of funds× 7,467 funds
6
× 7,467 funds
6
× 7,467 funds
6
Subtotal: 
Aggregate 
Liquidity 
Classification 
22,976 hours$8,753,856$3,140,819
Swing Pricing Reporting
Funds that license a 
software solution to 
prepare Form N-PORT
9 hours4 hoursx
$381
5
$1,524$250
6
Number of funds× 3,165 funds
8
× 3,165 funds
8
× 3,165 funds
8
Funds that retain the 
services of a third-party 
vendor to prepare Form 
N-PORT
9 hours4 hoursx
$381
5
$1,524$286
7
Number of funds× 5,878 funds
8
× 5,878 funds
8
× 5,878 funds
8
Subtotal: 
Swing Pricing 
Reporting 
36,172 hours$13,781,532$2,472,356
Other Proposed Amendments to Form N-PORT
Funds that license a 
software solution to 
prepare Form N-PORT
1 hoursx
$381
5
$381
Number of funds× 4,254 funds
9
× 4,254 funds
9
Funds that retain the 
services of a third-party 
vendor to prepare Form 
N-PORT
1 hoursx
$381
5
$381
Number of funds× 7,899 funds
9
× 7,899 funds
9
Subtotal: 
Other 
Proposed 
Amendments 
12,153 hours$4,630,293 
Total estimated burdens for proposed amendments
Total new annual burden71,301 hours$27,165,681$5,613,175
TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS
Current burden
estimates
1,848,326 hours$108,457,536
Revised burden
estimates
1,919,627 hours$114,070,711
Certain products and sums do not tie due to rounding.
Notes:
1. Includes initial burden estimates annualized over a 3-year period. 
2. See supra Table 8, at note 2. 
3. Reflects estimated initial internal burden of 3 hours, annualized over 3 years, as well as an estimated ongoing annual internal 
burden of 1 hour.
4. The $381 wage rate reflects current estimates of the blended hourly rate for a senior programmer ($362) and a compliance attorney
($400). 
5. Represents additional licensing fees that may be incurred as a result of required new functionality.
368

6. Based on Commission filings, we estimate that there are 11,488 open-end funds that would be required to report aggregate liquidity 
classification information. We estimate that 35% of these funds (or 4,021) would license a software solution to prepare Form N-PORT 
while 65% (7,467) would rely on a third-party vendor.
7. Represents an assumed 2.5% increase in the current $11,440 external cost associated with the proposed collection of information 
(5% in aggregate for liquidity classification and swing pricing reporting).
8. Based on Commission filings, we estimate that there are 9,043 open-end funds that would be required to report swing pricing 
information. We estimate that 35% of these funds (or 3,165) would license a software solution to prepare Form N-PORT while 65% 
(5,878) would rely on a third-party vendor.
9. Based on Commission filings, we estimate that there are 12,153 funds that file reports on Form N-PORT. We estimate that 35% of 
these funds (or 4,254) would license a software solution to prepare Form N-PORT while 65% (7,899) would rely on a third-party vendor.
E.Form N-1A 
Form N-1A is used by registered open-end management investment companies (except 
insurance company separate accounts and small business investment companies licensed under 
the United States Small Business Administration), to register under the Investment Company Act
and to offer their shares under the Securities Act. Unlike many other Federal information 
collections, which are primarily for the use and benefit of the collecting agency, this information 
collection is primarily for the use and benefit of investors. The information filed with the 
Commission also permits the verification of compliance with securities law requirements and assures
the public availability and dissemination of the information. In our most recent Paperwork 
Reduction Act submission for Form N-1A, we estimated for Form N-1A a total annual aggregate
ongoing hour burden of 1,672,077 hours, and the total annual aggregate external cost burden is 
$132,940,008.
542
 Compliance with the disclosure requirements of Form N-1A is mandatory, and 
the responses to the disclosure requirements will not be kept confidential.
We propose to amend Item 11(a) of Form N-1A to require, if applicable, that funds 
disclose that if an investor places an order with a financial intermediary, the financial 
intermediary may require the investor to submit its order earlier to receive the next calculated 
NAV. In addition, as a result of the proposed amendments to rule 22c-1 to require that certain 
funds use swing pricing, we estimate that additional funds would be required to disclose 
542
 The most recent Form N-1A PRA submission was approved in 2021 (OMB Control No. 3235-
0307). 
369

information about swing pricing in response to certain existing items in the form.
543
 The 
Commission previously estimated that 474 funds would choose to use swing pricing under the 
optional framework.
544
 We now estimate that 9,043 funds would be required to use swing pricing
and to disclose relevant information on Form N-1A.
545
 We also propose to remove the 
requirement to provide an upper limit on the swing factor from Item 6(d). 
Table 11 below summarizes our initial and ongoing annual burden estimates associated 
with the proposed amendments to Form N-1A. The following estimates of average burden hours 
and costs are made solely for purposes of the Paperwork Reduction Act.
Table 11: Form N-1A PRA Estimates
Initial internal
burden hours
Internal annual
burden hours
1
Wage rate
2
Internal time
costs
Annual external
cost burden
Hard Close
Disclosure of Information
Related to Hard Close
3 hours1.5 hours
3
x$381
4
$572
Number of funds× 9,043 funds× 9,043 funds× 9,043 funds
Subtotal: 
Hard Close 
13,565 hours$5,168,075$0
Swing Pricing Reporting
Swing Pricing Disclosure2 hours1.67 hours
5
x
$381
4
$635
Number of funds× 8,569 funds
6
× 8,569 funds
6
× 8,569 funds
6
Subtotal: 
Swing Pricing 
14,282 hours$5,441,315$0
Total estimated burdens for proposed amendments
Total new annual burden27,846 hours$10,609,390
TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS
Current burden
estimates
1,672,102 hours$132,940,008
Revised burden
estimates
1,699,948 hours$132,940,008
Certain products and sums do not tie due to rounding.
Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. See supra Table 8, at note 2. 
543
 See Items 6(d), 4(b)(2)(ii), 4(b)(2)(iv)(E), and 13(a) of Form N-1A.
544
 See Swing Pricing Adopting Release, supra note 11, at n.544 and accompanying text.
545
 This estimate, which is as of Dec. 2021, is based on Form N-CEN filings received through May 
2022. 
370

3. Reflects estimated initial internal burden of 3 hours, annualized over 3 years, as well as an estimated ongoing annual internal 
burden of 0.5 hours.
4. Reflects current estimates of the blended hourly rate of a compliance attorney and a senior programmer. 
5. Reflects estimated initial internal burden of 2 hours, annualized over 3 years, as well as an estimated ongoing annual internal 
burden of 1 hour.
6. Reflects the number of registered open-end funds (other than money market funds and ETFs) minus 474 funds. While all registered 
open-end funds (other than money market funds and ETFs) would be required to provide the swing pricing disclosure, the Commission 
previously estimated that 474 funds would opt to provide optional swing pricing disclosure on Form N-1A and has already accounted 
for the filing burden of such funds in its PRA estimates for Form N-1A. See Swing Pricing Adopting Release, supra note 9, at Section VI. 
F.Form N-CEN 
Form N-CEN requires registered investment companies, other than face-amount 
certificate companies to report annual, census-type information. Filers must submit this report 
electronically using the Commission’s EDGAR system in XML format. We propose the 
following amendments to Form N-CEN:
Adding a requirement that an open-end fund that uses a liquidity service provider 
report: (a) the name each liquidity service provider; (b) identifying information, 
including the legal entity identifier and location, for each liquidity service provider; 
(c) if the liquidity service provider is affiliated with the fund or its investment adviser;
(d) the asset classes for which that liquidity service provider provided classifications; 
and (e) whether the service provider was hired or terminated during the reporting 
period; 
Removing requirements that a filer report certain information regarding its use of 
swing pricing; and
Revising the approach to certain entity identifiers.
546
The respondents to these collections of information will be registered investment 
companies with the exception of face amount certificate companies. We estimate that there are 
546
 We do not believe that the proposed amendments to separate the concepts of LEI and RSSD ID 
more clearly in the form would change the burdens of the current form, as the form already 
requires a fund to report the RSSD ID, if any, if a financial institution does not have an assigned 
LEI. 
371

2,754 such registrants required to file on Form N-CEN.
547
 The proposed collections of 
information are mandatory. Responses are not kept confidential. The purpose of Form N-CEN is 
to satisfy the filing and disclosure requirements of section 30 of the Investment Company Act, 
and of rule 30a-1 thereunder. The proposed amendments are designed to facilitate the 
Commission’s oversight of registered funds and its ability to assess trends and risks.
In our most recent PRA submission for Form N-CEN, we estimated the annual aggregate 
compliance burden to comply with the current collection of information requirements in Form N-
CEN is 54,890 burden hours with an internal cost burden of $19,267,461 and an external cost 
burden estimate of $1,344,981.
548
Table 12 below summarizes our initial and ongoing annual burden estimates associated 
with the proposed amendments to Form N-CEN. The following estimates of average burden 
hours and costs are made solely for purposes of the Paperwork Reduction Act.
Table 12: Form N-CEN PRA Estimates
Initial internal
burden hoursInternal annual
burden hours
1
Wage rate
2
Internal time
costs
Annual
external cost
burden
Liquidity Service
Provider Reporting
1.5 hours1 hour
3
x$381
4
$381
Number of registrants
x 2,754
registrants
x 2,754
registrants
Subtotal: Liquidity
Service Provider
Reporting
2,754 hours$1,049,274
Removal of Swing
Pricing Reporting
(0.5) hours
5
x$351
5
$(175.5)
Number of fundsx 9,854 funds
5
x 9,854 funds
5
Subtotal: Removal of(4,927 hours)($1,729,377)
547
 This estimate, which is as of Dec. 2021, is based on Form N-CEN filings received through May 
2022.
548
 The most recent Form N-CEN PRA submission was approved in 2021 (OMB Control No. 3235-
0729). The previous PRA submission estimated that 2,835 registrants were required to file on 
Form N-CEN. Our current estimate has decreased due to changes in the numbers of registrants.
372

Swing Pricing
Reporting
Total new annual
burden
(2,173 hours)($680,103)
TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS
Current burden
estimates
54,890 hours$1,344,981
Revised burden
estimates
52,718 hours$1,344,981
Notes:
1. Includes initial burden estimates annualized over a 3-year period. 
2. See supra Table 8, at note 2.
3. Reflects an initial burden of 1.5 hours, annualized over a 3-year period, with an estimated ongoing annual burden of 0.5 hours.
4. The $381 wage rate reflects current estimates of the blended hourly rate for 15 minutes each from a senior programmer ($362) and
a compliance attorney ($400).
5. In the most recent PRA submission for Form N-CEN, we estimated that 9,854 funds would incur an additional burden of 0.5 hours 
per fund at an internal cost of $351 per hour to report use of swing pricing. The estimated reduced burden on Form N-CEN differs from 
the increased burden we are estimating for Form N-PORT due to the differing requirements. In addition, because it is reversing a 
previously estimated increase, the estimated reduced burden on Form N-CEN uses the same estimated wage rate as the previous 
estimate, even though we estimate that wage rates have increased.
G.Request for Comment
We request comment on whether these estimates are reasonable. Pursuant to 44 U.S.C. 
3506(c)(2)(B), the Commission solicits comments in order to: (1) evaluate whether the proposed 
collection of information is necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical utility; (2) evaluate the 
accuracy of the Commission’s estimate of the burden of the proposed collection of information; 
(3) determine whether there are ways to enhance the quality, utility, and clarity of the 
information to be collected; and (4) determine whether there are ways to minimize the burden of 
the collection of information on those who are to respond, including through the use of 
automated collection techniques or other forms of information technology.
Persons wishing to submit comments on the collection of information requirements of the
proposed amendments should direct them to the OMB Desk Officer for the Securities and 
Exchange Commission, [email protected], and should send a 
copy to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street 
373

NE, Washington, DC 20549-1090, with reference to File No. S7-26-22. OMB is required to 
make a decision concerning the collections of information between 30 and 60 days after 
publication of this release; therefore a comment to OMB is best assured of having its full effect if
OMB receives it within 30 days after publication of this release. Requests for materials 
submitted to OMB by the Commission with regard to these collections of information should be 
in writing, refer to File No. S7-26-22, and be submitted to the Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736. 
V.INITIAL REGULATORY FLEXIBILITY ANALYSIS
The Commission has prepared the following Initial Regulatory Flexibility Analysis 
(“IRFA”) in accordance with section 3(a) of the Regulatory Flexibility Act (“RFA”).
549
 It relates 
to: (1) the proposed amendments concerning funds’ liquidity risk management programs under 
rule 22e-4; (2) the proposed swing pricing amendments under rule 22c-1(b); (3) the proposed 
hard close requirement under rule 22c-1(a); and (4) the proposed disclosure amendments to Form
N-1A, Form N-PORT, and Form N-CEN.
A.Reasons for and Objectives of the Proposed Actions
 The Commission is proposing amendments to its current rules for open-end funds 
regarding liquidity risk management programs and swing pricing. The proposed amendments 
would provide additional standards for making liquidity determinations, amend certain aspects of
the liquidity categories, and require more frequent liquidity classifications. The objectives of the 
proposed liquidity amendments are to improve liquidity risk management programs to better 
prepare these funds for stressed conditions and improve transparency in liquidity classifications. 
The proposed amendments also require any open-end fund, other than a money market fund or 
549
 5 U.S.C. 603(a).
374

exchange-traded fund, to use swing pricing. The objectives of swing pricing are to more fairly 
allocate costs, reduce the potential for dilution of investors who are not currently transacting in 
the fund’s shares, and reduce any potential first-mover advantages. In addition, the Commission 
is proposing a “hard close” requirement for these funds. The proposed hard close amendments 
would serve multiple objectives, including facilitating funds’ ability to operationalize swing 
pricing by ensuring that funds receive timely flow information and to modernize order 
processing generally. Finally, the Commission is proposing amendments to reporting 
requirements that apply to certain registered investment companies, including registered open-
end funds (other than money market funds), registered closed-end funds, and unit investment 
trusts. These proposed amendments seek to improve fund disclosure by requiring more timely 
reporting of monthly portfolio holdings and related information to the Commission and the 
public, amend certain reported identifiers, and make other amendments to require additional 
information about open-end funds’ liquidity risk management and use of swing pricing. Each of 
these objectives is discussed in detail in section II above.
B.Legal Basis
The Commission is proposing the rule and form amendments contained in this document 
under the authority set forth in the Investment Company Act, particularly sections 6, 8, 22, 24, 
30, 31, 34, 38, and 45 thereof [15 U.S.C. 80a-1 et seq.], the Investment Advisers Act, particularly
section 206 thereof [15 U.S.C. 80b-1 et seq.], the Exchange Act, particularly sections 10, 13, 15, 
23, and 35A thereof [15 U.S.C. 78a et seq.], the Securities Act, particularly sections 7, 10, 17, 
and 19 thereof [15 U.S.C. 77a et seq.], and the Trust Indenture Act, particularly section 319 
thereof [15 U.S.C. 77aaa et seq.].
375

C.Small Entities Subject to the Amendments
An investment company is a small entity if, together with other investment companies in 
the same group of related investment companies, it has net assets of $50 million or less as of the 
end of its most recent fiscal year.
550
 Commission staff estimates that, as of June 2022, there were 
46 open-end management investment companies that would be considered small entities; this 
number includes 2 money market funds and 11 open-end ETFs. Commission staff also estimates 
that, as of June 2022, there were 31 closed-end investment management companies and 5 unit 
investment trusts that would be considered small entities. 
D.Projected Reporting, Recordkeeping, and Other Compliance Requirements
1.Liquidity Risk Management Programs
The proposed amendments to rule 22e-4 would provide additional standards for making 
liquidity determinations, amend certain aspects of the liquidity categories, and require more 
frequent liquidity classifications. Specifically, the proposal would provide objective minimum 
standards that funds would use to classify investments, including by: (1) requiring funds to 
assume the sale of a stressed trade size, rather than the rule’s current approach of assuming the 
sale of a reasonably anticipated trade size in current market conditions; (2) defining the value 
impact standard with more specificity on when a sale or disposition would significantly change 
the market value of an investment; and (3) removing classification by asset class. The proposed 
amendments would also remove the less liquid investment category, which would reduce the 
number of liquidity categories from four to three, and expand the scope of the illiquid investment
category. In addition, the proposed amendments would extend the requirement to maintain a 
highly liquid investment minimum to a broader scope of funds and would change how the highly
liquid investment minimum calculation and the calculation of the 15% limit on illiquid 
550
 See 17 CFR 270.0-10(a).
376

investments take into account the amount of assets that are posted as margin or collateral for 
certain derivatives transactions. Finally, the proposal would require daily classifications. 
We estimate that approximately 44 funds are small entities that would be required to 
comply with the proposed amendments to the liquidity risk management program requirement.
551
The proposed amendments would impose burdens on all open-end funds subjected to the rule, 
including those that are small entities. We discuss the specifics of these burdens in the Economic
Analysis and Paperwork Reduction Act sections above. These sections also discuss the 
professional skills that we believe compliance with this aspect of the proposal would require. 
While we would expect larger funds or funds that are part of a large fund complex to incur 
higher costs related to the proposed liquidity rule amendments in absolute terms relative to a 
smaller fund or a fund that is part of a smaller fund complex, we would expect a smaller fund to 
find it more costly, per dollar managed, to comply with the proposed requirements because it 
would not be able to benefit from a larger fund complex’s economies of scale. For example, 
larger fund complexes would have economies of scale in amending existing liquidity risk 
management policies and procedures and in revising their frameworks for classifying the 
liquidity of investments. 
2.Swing Pricing
Under the proposal, every open-end fund other than an excluded fund would be required 
to establish and implement swing pricing policies and procedures that adjust the fund’s current 
NAV per share by a swing factor either if the fund has net redemptions or if it has net purchases 
551
 See text following supra note 550. Money market funds are excluded from the proposed liquidity
risk management program requirement. In addition, in-kind ETFs are not subject to the current 
rule’s classification requirements or highly liquid investment minimum requirements and, 
therefore, would not be subject to the proposed amendments to these provisions. Because in-kind 
ETFs are subject to certain of the proposed amendments, such as amendments to the calculation 
of the 15% limit on illiquid investments, we include all 11 of the small funds that are open-end 
ETFs in the estimated number of small entities affected.
377

of more than 2% of the fund’s net assets. The swing pricing administrator would be required to 
review investor flow information to determine: (1) if the fund experiences net purchases or net 
redemptions; and (2) the amount of net purchases or net redemptions. In determining the swing 
factor, the proposed rule would require a fund’s swing pricing administrator to make good faith 
estimates, supported by data, of the costs the fund would incur if it purchased or sold a pro rata 
amount of each investment in its portfolio to satisfy the amount of net purchases or net 
redemptions (i.e., a vertical slice). Additionally, under the proposed rule, the fund’s board of 
directors would be required to: (1) approve the fund’s swing pricing policies and procedures; (2) 
designate the fund’s swing pricing administrator; and (3) review, no less frequently than 
annually, a written report prepared by the swing pricing administrator. Finally, under the 
proposed rule the fund would be required to maintain the swing pricing policies and procedures 
and a copy of the written report in an easily accessible place.
We estimate that approximately 33 funds are small entities that would be required to 
comply with the proposed swing pricing requirement.
552
 The proposed requirement would 
impose burdens on all open-end funds (other than money market funds and ETFs), including 
those that are small entities. We discuss the specifics of these burdens in the Economic Analysis 
and Paperwork Reduction Act sections above. These sections also discuss the professional skills 
that we believe compliance with this aspect of the proposal would require. While we would 
expect larger funds or funds that are part of a large fund complex to incur higher costs related to 
the proposed swing pricing requirement in absolute terms relative to a smaller fund or a fund that
is part of a smaller fund complex, we would expect a smaller fund to find it more costly, per 
dollar managed, to comply with the proposed requirement because it would not be able to benefit
552
 See text following supra note 550. ETFs and money market funds are excluded from the 
proposed swing pricing requirement.
378

from a larger fund complex’s economies of scale. For example, a larger fund complex would 
have economies of scale in developing and adopting swing pricing policies and procedures. This 
is particularly true for larger fund complexes that currently employ swing pricing in their 
operations in a foreign jurisdiction, such as in Europe.
 
3.Hard Close
We are proposing amendments to rule 22c-1 to require a hard close for funds that are 
subject to the proposed swing pricing requirement. The hard close would provide that a request 
to redeem or purchase a fund’s shares may be executed at the current day’s price only if the fund,
its designated transfer agent, or a registered securities clearing agency receives the eligible order 
before the pricing time as of which the fund calculates its NAV. Orders received after the fund’s 
established pricing time would receive the next day’s price.
We estimate that approximately 33 funds are small entities that would be required to 
comply with the proposed hard close requirement.
553
 The proposed amendments would impose 
burdens on all open-end funds (except for money market funds and ETFs), including those that 
are small entities. We discuss the specifics of these burdens in the Economic Analysis section 
above. The proposed hard close may involve costs to change business practices, operations, and 
computer systems, including integration of new technologies, for funds, including small entities, 
which may require specialized operational and technology skills. We would expect that the 
burdens of these changes would be greater for smaller entities relative to the size of their 
business than for larger entities, which would benefit from economies of scale.
553
 See text following supra note 550. ETFs and money market funds are excluded from the 
proposed hard close requirement.
379

We estimate that the proposed hard close would also affect 8 small transfer agents.
554
 
Intermediaries that are small entities would also be affected; however, we lack data for 
accurately estimating the number of these other intermediaries that are small entities that service 
open-end fund shareholders and would be affected by the proposed hard close amendments. 
Those other intermediaries may include a subset of: 471 small advisers,
555
 731 small broker-
dealers,
556
 1,280 small recordkeepers,
557
 3,529 small bank entities,
558
 and small insurance 
554
 A “small transfer agent” is a transfer agent that: (1) received less than 500 items for transfer and 
less than 500 items for processing during the preceding six months (or in the time that it has been 
in business, if shorter); (2) transferred items only of issuers that would be deemed small 
businesses or small organizations; and (3) maintained master shareholder files that in the 
aggregate contained less than 1,000 shareholder accounts or was the named transfer agent for less
than 1,000 shareholder accounts at all times during the preceding fiscal year (or in the time that it 
has been in business, if shorter); and (4) is not affiliated with any person (other than a natural 
person) that is not a small business or small organization. See rule 0-10(h) under the Exchange 
Act. We estimate 8 affected small transfer agents, based on the number of small transfer agents 
reporting mutual fund activity in their filings on Form TA-2 as of Mar. 31, 2022.
555
 A “small adviser” is a SEC-registered investment adviser that: (1) has assets under management 
having a total value of less than $25 million; (2) did not have total assets of $5 million or more on
the last day of the most recent fiscal year; and (3) does not control, is not controlled by, and is not
under common control with another investment adviser that has assets under management of $25 
million or more, or any person (other than a natural person) that had total assets of $5 million or 
more on the last day of its most recent fiscal year. We estimate 471 small advisers, based on 
filings on Form ADV as of Dec. 2021.
556
 A “small broker-dealer” is a broker or dealer that: (1) had total capital (net worth plus 
subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its 
audited financial statements were prepared pursuant to rule 17a-5(d) under the Exchange Act or, 
if not required to file such statements, a broker or dealer that had total capital (net worth plus 
subordinated liabilities) of less than $500,000 on the last business day of the preceding fiscal year
(or in the time that it has been in business, if shorter); and (2) is not affiliated with any person 
(other than a natural person) that is not a small business or small organization. See rule 0-10(c) 
under the Exchange Act. We estimate 731 small broker-dealers, based on filings of FOCUS 
Reports as of Dec. 2021.
557
 See Pension Benefit Statements—Lifetime Income Illustrations [85 FR 59132 (Sept. 18, 2020)], 
at n.71 and accompanying text. We estimate 1,280 small recordkeepers, based on filings of Form 
5500 as reported by the Department of Labor, in the 2017 plan year. According to that data, there 
were 1,725 recordkeepers servicing defined contribution plans. The 445 largest recordkeepers 
serviced plans holding approximately 99% of total plan assets, while the remaining 1,280 (small 
recordkeepers) serviced plans holding a mere 1%. The Department of Labor considered other 
thresholds for recordkeepers and selected the 99 percent threshold for recordkeepers to 
include more recordkeepers in cost estimates, and thus avoid underestimating costs. 
558
 See Rules Regarding Availability of Information [85 FR 57616 (Sept. 15, 2020)], at n.7 and 
380

companies.
559
 Furthermore, how much these proposed amendments would affect these 
intermediaries would be determined largely by the importance these intermediaries and their 
clients place on receiving the NAV calculated on the day a client places an order.
4.Reporting Requirements
a.Form N-1A
 Form N-1A is the form used by certain open-end management investment companies to 
register under the Investment Company Act and to register their securities under the Securities 
Act. We propose to amend Item 11(a) of Form N-1A to require, if applicable, that funds disclose 
that if an investor places an order with a financial intermediary, the financial intermediary may 
require the investor to submit its order earlier to receive the next calculated NAV. We also 
propose to remove the requirement to provide an upper limit on the swing factor from Item 6(d).
We estimate that approximately 33 funds are small entities that would be required to 
comply with our proposed amendments for Form N-1A.
560
 The proposed amendments would 
impose burdens on all open-end funds (other than money market funds and ETFs), including 
those that are small entities. We discuss the specifics of these burdens in the Economic Analysis 
and Paperwork Reduction Act sections above. These sections also discuss the professional skills 
that we believe compliance with this aspect of the proposal would require. We recognize that, 
due to economies of scale, the costs associated with the proposed amendments to Form N-1A 
accompanying text (stating that as of Mar. 2020, there were approximately 2,925 small bank 
holding companies, 132 small savings and loan holding companies, and 472 small State member 
banks). We estimate a total of 3,529 small banks supervised by the Federal Reserve as of Mar. 
2020.
559
 We lack data for estimating the number of small insurance companies.
560
 See text following supra note 550. ETFs and money market funds file reports on Form N-1A but 
would not be impacted by our proposed amendments.
381

may be more easily borne by larger fund complexes than smaller ones, and that costs borne by 
funds would be passed along to investors in the form of higher fees and expenses.
b.Form N-PORT
Form N-PORT requires open-end and closed-end funds, as well as ETFs organized as 
UITs, to report monthly portfolio holdings information on a quarterly basis in a structured, XML 
format. We propose the following amendments to Form N-PORT: (1) require funds to file Form 
N-PORT on a monthly basis, within 30 days after the end of each month; (2) require open-end 
funds to report the aggregate percentage of a fund’s portfolio represented in each of the three 
proposed liquidity categories, which would be publicly available; (3) provide enhanced 
transparency into the frequency and amount of a fund’s swing pricing adjustments; and (4) 
changes to entity identifiers.
We estimate that approximately 75 open-end and closed-end funds are small entities that 
would be required to comply with our proposed amendments for Form N-PORT.
561
 The proposed
amendments would impose burdens on all Form N-PORT filers, including those that are small 
entities. We discuss the specifics of these burdens in the Economic Analysis and Paperwork 
Reduction Act sections above. These sections also discuss the professional skills that we believe 
compliance with this aspect of the proposal would require. We recognize that, due to economies 
of scale, the costs associated with the proposed amendments to Form N-PORT may be more 
easily borne by larger fund complexes than smaller ones, and that costs borne by funds would be 
passed along to investors in the form of higher fees and expenses.
561
 See text following supra note 550. Money market funds do not file Form N-PORT. While 
exchange-traded funds organized as unit investment trusts file Form N-PORT, there are no such 
funds that would be considered small entities.
382

c.Form N-CEN
Form N-CEN is used to collect annual, census-type information for all registered 
investment companies, other than face-amount certificate companies. Filers must submit this 
report electronically using the Commission’s EDGAR system in XML format. We propose 
amendments to Form N-CEN that would identify liquidity service providers and certain related 
information, as well as remove the requirements that a filer report information regarding its use 
of swing pricing, which is being moved to Form N-PORT. We also propose amendments related 
to entity identifiers.
We estimate that approximately 82 funds are small entities that would be required to 
comply with our proposed amendments for Form N-CEN.
562
 The proposed amendments would 
impose burdens on all Form N-CEN filers, including those that are small entities. We discuss the 
specifics of these burdens in the Economic Analysis and Paperwork Reduction Act sections 
above. These sections also discuss the professional skills that we believe compliance with this 
aspect of the proposal would require. We recognize that, due to economies of scale, the costs 
associated with the proposed amendments to Form N-CEN may be more easily borne by larger 
fund complexes than smaller ones, and that costs borne by funds would be passed along to 
investors in the form of higher fees and expenses.
E.Duplicative, Overlapping, or Conflicting Federal Rules
We do not believe that the proposed amendments would duplicate, overlap, or conflict 
with other existing Federal rules.
562
 See text following supra note 550. In-kind ETFs would not be affected by the proposed 
amendments to report information about liquidity classification vendors but, to avoid under-
estimating the number of small entities, we assume that the 11 small entity ETFs are not in-kind 
ETFs and would be affected by the change. We similarly assume that all 44 funds that are small 
entities would use a liquidity classification vendor, although this may not be the case. If a fund 
does not use a liquidity classification vendor, it would not be required to report information about
a vendor on Form N-CEN. 
383

F.Significant Alternatives
The RFA directs the Commission to consider significant alternatives that would 
accomplish our stated objectives, while minimizing any significant economic impact on small 
entities. We considered the following alternatives for small entities in relation to the proposed 
amendments to rules 22e-4 and 22c-1, as well as the proposed disclosure and reporting 
requirements: (1) establishing different requirements that take into account the resources 
available to small entities; (2) exempting small entities from all or part of the requirements; (3) 
clarifying, consolidating, or simplifying requirements under the rules for small entities; and (4) 
using performance rather than design standards.
We do not believe that establishing different requirements for, or exempting, any subset 
of funds, including funds that are small entities, from the proposed amendments to rule 22e-4 
would permit us to achieve our stated objectives. As discussed above, we believe that the 
proposed liquidity amendments would improve liquidity risk management programs to better 
prepare funds for stressed conditions and improve transparency in liquidity classifications. Small
funds do not entail less liquidity risk than larger funds, and investors in small funds would 
benefit from improvements in the liquidity risk management programs and more transparent 
liquidity classifications just as investors in larger funds would. We therefore do not believe it 
would be appropriate to establish different requirements for, or exempt, funds that are small 
entities from the proposed liquidity risk management amendments to rule 22e-4. Similarly, our 
objectives would not be served by clarifying, consolidating, or simplifying the liquidity 
requirements for small entities. With respect to using performance rather than design standards, 
the proposed amendments primarily use design rather than performance standards to better 
384

prepare funds for stressed market conditions, prevent funds from over-estimating the liquidity of 
their investments, and improve transparency of fund liquidity.
Regarding the proposed changes to the liquidity classification framework, we 
acknowledge that to the extent that small funds would experience a more substantial operational 
burden compared to larger fund complexes that exhibit economies of scale, smaller funds may 
become less competitive than larger funds. However, we believe there are no significant 
alternatives for smaller funds other than exemption, and providing an exemption from the 
proposed liquidity classification changes could subject investors in small funds to greater 
liquidity risk and would create diverging liquidity frameworks among funds, as small funds are 
already subject to the current rule’s liquidity classification requirements.
Additionally, we are not establishing different requirements for, or exempting, funds that 
are small entities from the swing pricing requirement, because we believe that all funds should 
be required to use swing pricing as a tool to mitigate potential shareholder dilution. We do not 
believe that the potential dilution that proposed rule 22c-1(b) is meant to prevent would affect 
large funds and their shareholders more significantly than small funds and their shareholders. We
acknowledge that a fund that is a small entity would need to incur the costs of compliance with 
the proposed amendments to the rule, which may constitute a greater percentage of the small 
fund’s net assets than with a larger fund. We also acknowledge that certain larger fund groups 
with both U.S. and European operations may already have experience with swing pricing that 
smaller funds would not, which could result in greater costs, relative to a fund’s net assets, for 
smaller funds than larger ones. However, despite these considerations, we do not believe that 
investors in small funds should be afforded less protection against the risk of dilution than 
investors in large funds.
385

We therefore do not believe it would be appropriate to establish different requirements 
for, or to exempt, funds that are small entities from the proposed swing pricing requirement. For 
example, we are not allowing funds that are small entities to use a different inflow swing 
threshold or market impact threshold than those the proposed rule identifies. As discussed above,
we do not believe the potential dilution that the proposed swing pricing requirement is meant to 
prevent would affect large funds and their shareholders more significantly than small funds and 
their shareholders. Permitting funds that are small entities to use higher thresholds could subject 
small funds to greater dilution than larger funds, and we believe all investors should be afforded 
the same protection against the risk of dilution.
563
 Similarly, our objectives would not be served 
by clarifying, consolidating, or simplifying the swing pricing requirements for small entities. 
With respect to using performance rather than design standards, the proposed amendments 
primarily use design rather than performance standards to promote more consistent and uniform 
standards for all funds. We are also not establishing different requirements for, or exempting, 
funds that are small entities from the proposed hard close requirement because we believe the 
requirement is important to every fund’s ability to operationalize swing pricing. Our hard close 
proposal is designed to support the proposed swing pricing amendments by facilitating the more 
timely receipt of fund order flow information. We believe that requiring a hard close would 
reduce a fund’s reliance on estimates, providing more accurate swing factor determinations. We 
do not believe investors in smaller funds would benefit from a greater use of estimates than 
investors in larger funds. We therefore do not believe it would be appropriate to establish 
different requirements for, or exempt, funds that are small entities from the proposed hard close 
563
 While we recognize that smaller funds may be less likely than larger funds to have market 
impact costs at the 1% threshold for net redemptions or the 2% threshold for net purchases, as 
discussed above, we believe uniform thresholds for all funds would provide a consistent and 
objective threshold for all funds to consider market impacts.
386

requirement in rule 22c-1. Similarly, our objectives would not be served by clarifying, 
consolidating, or simplifying the hard close requirement for small entities. With respect to using 
performance rather than design standards, the proposed amendments primarily use design rather 
than performance standards to promote more consistent and uniform standards for all funds.
Finally, we do not believe that the interest of investors would be served by establishing 
different requirements for, or exempting, funds that are small entities from the proposed 
disclosure and reporting amendments, or subjecting these funds to different disclosure and 
reporting requirements than larger funds. We believe that all fund investors, including investors 
in funds that are small entities, would benefit from disclosure and reporting requirements that 
would permit them to make investment choices that better match their risk tolerances. 
Furthermore, we note that the current disclosure requirements on Form N-1A, Form N-PORT, 
and Form N-CEN do not distinguish between small entities and other funds. Similarly, our 
objectives would not be served by clarifying, consolidating or simplifying the proposed 
disclosure and reporting requirements for small entities. With respect to using performance 
rather than design standards, the proposed amendments primarily use design rather than 
performance standards to promote more consistent and uniform standards for all funds.
We recognize that, due to economies of scale, the costs associated with the proposed 
amendments to these forms may be more easily borne by larger fund complexes than smaller 
ones, and that costs borne by funds would be passed along to investors in the form of higher fees 
and expenses. However, we believe there are no significant alternatives for smaller funds other 
than exemption, and providing exemptions for smaller funds from the proposed reporting and 
disclosure requirements would disadvantage investors in smaller funds by creating a lack of 
information about these funds’ use of swing pricing or aggregate liquidity classifications. 
387

G.General Request for Comment
The Commission requests comments regarding this IRFA. We request comments on the 
number of small entities that may be affected by our proposed amendments, including for the 
affected small intermediaries that we lack data to quantify with accuracy, and whether the 
proposed amendments would have any effects not considered in this analysis. We request that 
commenters describe the nature of any effects on small entities subject to the rules and forms, 
and provide empirical data to support the nature and extent of such effects. We also request 
comment on the proposed compliance burdens and the effect these burdens would have on 
smaller entities.
VI.CONSIDERATION OF IMPACT ON THE ECONOMY 
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, or 
“SBREFA,”
564
 we must advise OMB whether a proposed regulation constitutes a “major” rule. 
Under SBREFA, a rule is considered “major” where, if adopted, it results in or is likely to result 
in (1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or 
prices for consumers or individual industries; or (3) significant adverse effects on competition, 
investment or innovation.
We request comment on whether the proposal would be a “major rule” for purposes of 
SBREFA. We request comment on the potential impact of the proposed rule on the economy on 
an annual basis; any potential increase in costs or prices for consumers or individual industries; 
and any potential effect on competition, investment, or innovation. Commenters are requested to 
provide empirical data and other factual support for their views to the extent possible.
564
 Public Law 104-121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C., 15 
U.S.C. and as a note to 5 U.S.C. 601).
388

STATUTORY AUTHORITY 
The Commission is proposing the rule and form amendments contained in this document 
under the authority set forth in the Investment Company Act, particularly sections 6, 8, 22, 24, 
30, 31, 34, 38, and 45 thereof [15 U.S.C. 80a-1 et seq.], the Investment Advisers Act, particularly
section 206 thereof [15 U.S.C. 80b-1 et seq.], the Exchange Act, particularly sections 10, 13, 15, 
23, and 35A thereof [15 U.S.C. 78a et seq.], the Securities Act, particularly sections 7, 10, 17, 
and 19 thereof [15 U.S.C. 77a et seq.], the Trust Indenture Act, particularly section 319 thereof 
[15 U.S.C. 77aaa et seq.], and 44 U.S.C. 3506-3507.
List of Subjects in 17 CFR Parts 270 and 274
Investment companies, Reporting and recordkeeping requirements, Securities.
Text of Proposed Rules and Rule and Form Amendments
For the reasons set forth in the preamble, the Commission is proposing to amend title 17, 
chapter II of the Code of Federal Regulations as follows:
PART 270 - RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
1. The authority citation for part 270 continues to read, in part, as follows: 
Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, and Pub. L. 111-203, sec.
939A, 124 Stat. 1376 (2010), unless otherwise noted.
*  *  *  *  *
Section 270.22c-1 also issued under secs. 6(c), 22(c), and 38(a) (15 U.S.C. 80a-6(c), 80a-
22(c), and 80a-37(a));
*  *  *  *  *
Section 270.31a-2 is also issued under 15 U.S.C. 80a-30.
2. Amend § 270.22c-1 by revising it to read as follows: 
389

§ 270.22c-1 Pricing of redeemable securities for distribution, redemption and repurchase.
(a) Forward pricing required. No registered investment company issuing any redeemable
security, no person designated in such issuer’s prospectus as authorized to consummate 
transactions in any such security, no principal underwriter of, or dealer in, any such security shall
sell, redeem, or repurchase any such security except at a price based on the current net asset 
value of such security established for the next pricing time after receipt of a direction to purchase
or redeem such security.
(1) The investment company’s board of directors must initially set the pricing time(s), 
and must make and approve any changes to the pricing time(s).
(2) The investment company must calculate the current net asset value of any redeemable
security at least once daily, Monday through Friday, at the pricing time(s) its board of directors 
set, except on:
(i) Days during which the investment company receives no direction to purchase or 
redeem its redeemable securities; or
(ii) Customary national business holidays described or listed in the prospectus and local 
and regional business holidays listed in the prospectus.
(3) For an investment company that is required to implement swing pricing under 
paragraph (b) of this section:
(i) A direction to purchase or redeem the investment company’s redeemable securities is 
eligible to receive the price established for a pricing time solely if the investment company, its 
designated transfer agent, or a registered clearing agency receives an eligible order before that 
pricing time; and
390

(ii) The price an eligible order receives is based on the current net asset value as of the 
pricing time and includes any adjustment to the current net asset value required by paragraph (b) 
of this section.
(b) Swing pricing requirement. A registered open-end management investment company 
(but not a registered open-end management investment company that is regulated as a money 
market fund under § 270.2a-7 or an exchange-traded fund as defined in paragraph (d) of this 
section) (a “fund”) must establish and implement swing pricing policies and procedures as 
described in paragraphs (b)(1) through (5) of this section in order to adjust its current net asset 
value per share to mitigate dilution of the value of its outstanding redeemable securities as a 
result of shareholder purchase or redemption activity. 
(1) The fund’s swing pricing policies and procedures must: 
(i) Provide that the fund must adjust its net asset value per share by a swing factor if the 
fund has net redemptions or if the fund has net purchases exceeding its inflow swing threshold. 
The swing pricing administrator must review investor flow information to determine if the fund 
has net purchases or net redemptions and the amount of net purchases or net redemptions. The 
swing pricing administrator is permitted to make such determination based on reasonable, high 
confidence estimates; and 
(ii) Specify the process for determining the swing factor, in accordance with paragraph 
(b)(2) of this section. 
(2) In determining the swing factor, the swing pricing administrator must make good faith
estimates, supported by data, of the costs the fund would incur if it purchased or sold a pro rata 
amount of each investment in its portfolio equal to the amount of net purchases or net 
redemptions.  
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(i) If the fund has net redemptions, the good faith estimates must include, for selling the 
pro rata amount of each investment in the fund’s portfolio:
(A) Spread costs;
(B) Brokerage commissions, custody fees, and any other charges, fees, and taxes 
associated with portfolio investment sales; and
(C) If the amount of the fund’s net redemptions exceeds the market impact threshold, the 
market impact, as described in paragraph (b)(2)(iii) of this section.
(ii) If the amount of the fund’s net purchases exceeds the inflow swing threshold, the 
good faith estimates must include, for purchasing the pro rata amount of each investment in the 
fund’s portfolio:
(A) Spread costs;
(B) Brokerage commissions, custody fees, and any other charges, fees, and taxes 
associated with portfolio investment purchases; and
(C) The market impact, as described in paragraph (b)(2)(iii) of this section.
(iii) A fund must determine market impact by: 
(A) Establishing a market impact factor for each investment, which is an estimate of the 
percentage change in the value of the investment if it were purchased or sold, per dollar of the 
amount of the investment that would be purchased or sold; and
(B) Multiplying the market impact factor for each investment by the dollar amount of the 
investment that would be purchased or sold if the fund purchased or sold a pro rata amount of 
each investment in its portfolio to invest the net purchases or meet the net redemptions. 
392

(iv) The swing pricing administrator may estimate costs and market impact factors for 
each type of investment with the same or substantially similar characteristics and apply those 
estimates to all investments of that type rather than analyze each investment separately. 
(3) The fund’s board of directors, including a majority of directors who are not interested 
persons of the fund, must: 
(i) Approve the fund’s swing pricing policies and procedures; 
(ii) Designate the fund’s swing pricing administrator. The administration of swing pricing
must be reasonably segregated from portfolio management of the fund and may not include 
portfolio managers; and 
(iii) Review, no less frequently than annually, a written report prepared by the swing 
pricing administrator that describes: 
(A) The swing pricing administrator’s review of the adequacy of the fund’s swing pricing
policies and procedures and the effectiveness of their implementation, including their 
effectiveness at mitigating dilution; 
(B) Any material changes to the fund’s swing pricing policies and procedures since the 
date of the last report; and 
(C) The swing pricing administrator’s review and assessment of the fund’s swing factors, 
considering the requirements of paragraph (b)(2) of this section, including the information and 
data supporting the determination of the swing factors and, if the swing pricing administrator 
implements either an inflow swing threshold lower than 2 percent of the fund’s net assets or a 
market impact threshold lower than 1 percent of the fund’s net assets, the information and data 
supporting the determination of such threshold. 
393

(4) The fund must maintain the policies and procedures adopted by the fund under this 
paragraph (b) that are in effect, or at any time within the past six years were in effect, in an easily
accessible place, and must maintain a written copy of the report provided to the board under 
paragraph (b)(3)(iii) of this section for six years, the first two in an easily accessible place. 
(5) Any fund (a “feeder fund”) that invests, pursuant to section 12(d)(1)(E) of the Act (15
U.S.C. 80a-12(d)(1)(E)), in another fund (a “master fund”) may not use swing pricing to adjust 
the feeder fund’s net asset value per share; however, a master fund must use swing pricing to 
adjust the master fund’s net asset value per share, pursuant to the requirements set forth in this 
paragraph (b). 
(6) Notwithstanding section 18(f)(1) of the Act (15 U.S.C. 80a-18(f)(1)), a fund with a 
share class that is an exchange-traded fund is subject to the swing pricing requirement only with 
respect to any share classes that are not exchange-traded funds.
(c) Exceptions permitted. Notwithstanding paragraph (a) of this section:
(1) Secondary market transactions. A sponsor of a unit investment trust (“trust”) engaged 
exclusively in the business of investing in eligible trust securities (as defined in § 270.14a-3(b)) 
may sell or repurchase trust units in a secondary market at a price based on the offering side 
evaluation of the eligible trust securities in the trust’s portfolio, determined at any time on the 
last business day of each week, effective for all sales made during the following week, if on the 
days that such sales or repurchases are made the sponsor receives a letter from a qualified 
evaluator stating, in its opinion, that:
(i) In the case of repurchases, the current bid price is not higher than the offering side 
evaluation, computed on the last business day of the previous week; and 
394

(ii) In the case of resales, the offering side evaluation, computed as of the last business 
day of the previous week, is not more than one-half of one percent ($5.00 on a unit representing 
$1,000 principal amount of eligible trust securities) greater than the current offering price. 
(2) Notwithstanding the provisions above, any registered separate account offering 
variable annuity contracts, any person designated in such account's prospectus as authorized to 
consummate transactions in such contracts, and any principal underwriter of or dealer in such 
contracts must be permitted to apply the initial purchase payment for any such contract at a price 
based on the current net asset value of such contract which is next computed: 
(i) Not later than two business days after receipt of the direction to purchase by the 
insurance company sponsoring the separate account (“insurer”), if the contract application and 
other information necessary for processing the direction to purchase (collectively, “application”) 
are complete upon receipt; or 
(ii) Not later than two business days after an application which is incomplete upon receipt
by the insurer is made complete, provided that, if an incomplete application is not made 
complete within five business days after receipt,
(A) The prospective purchaser is informed of the reasons for the delay; and 
(B) The initial purchase payment is returned immediately and in full, unless the 
prospective purchaser specifically consents to the insurer retaining the purchase payment until 
the application is made complete. 
(3) This paragraph does not prevent any registered investment company from adjusting 
the price of its redeemable securities sold pursuant to a merger, consolidation or purchase of 
substantially all of the assets of a company that meets the conditions specified in § 270.17a-8.
(d) Definitions. For the purposes of this section:
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Designated transfer agent means a registered transfer agent (as defined in section 3(a)
(25) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(25))) that is designated in the 
fund’s registration statement filed with the Commission. 
Eligible order means a direction, which is irrevocable as of the next pricing time after 
receipt, to:
(i) Purchase or redeem a specific number of fund shares or an indeterminate number of 
fund shares of a specific value; or 
(ii) Purchase the fund’s shares using the proceeds of a contemporaneous order to redeem 
a specific number of shares of another registered investment company (an exchange).
Exchange-traded fund means an open-end management investment company (or series or
class thereof), the shares of which are listed and traded on a national securities exchange, and 
that has formed and operates under an exemptive order under the Act granted by the Commission
or in reliance on § 270.6c-11.  
Inflow swing threshold means an amount of net purchases equal to 2 percent of a fund’s 
net assets, or such smaller amount of net purchases as the swing pricing administrator determines
is appropriate to mitigate dilution.
Initial purchase payment means the first purchase payment submitted to the insurer by, or
on behalf of, a prospective purchaser. 
Investor flow information means information about the fund investors’ daily purchase and
redemption activity, which may consist of individual, aggregated, or netted eligible orders, and 
which excludes any purchases or redemptions that are made in kind and not in cash. 
396

Market impact threshold means an amount of net redemptions equal to 1 percent of a 
fund’s net assets, or such smaller amount of net redemptions as the swing pricing administrator 
determines is appropriate to mitigate dilution.
Pricing time means the time or times of day as of which the investment company 
calculates the current net asset value of its redeemable securities pursuant to paragraph (a) of this
section.
Prospective purchaser means either an individual contract owner or an individual 
participant in a group contract. 
Qualified evaluator means any evaluator that represents it is in a position to determine, 
on the basis of an informal evaluation of the eligible trust securities held in a unit investment 
trust’s portfolio, whether: 
(i) The current bid price is higher than the offering side evaluation, computed on the last 
business day of the previous week; and 
(ii) The offering side evaluation, computed as of the last business day of the previous 
week, is more than one-half of one percent ($5.00 on a unit representing $1,000 principal amount
of eligible trust securities) greater than the current offering price. 
Swing factor means the amount, expressed as a percentage of the fund’s net asset value 
and determined pursuant to the fund’s swing pricing policies and procedures, by which a fund 
adjusts its net asset value per share. 
Swing pricing means the process of adjusting a fund's current net asset value per share to 
mitigate dilution of the value of its outstanding redeemable securities as a result of shareholder 
purchase and redemption activity, pursuant to the requirements set forth in paragraph (b) of this 
section. 
397

Swing pricing administrator means the fund’s investment adviser, officer, or officers 
responsible for administering the swing pricing policies and procedures. The swing pricing 
administrator may consist of a group of persons.
3. Amend § 270.22e-4 by:
a. Removing paragraphs (a)(3) and (10);
b. Removing the designations for paragraphs (a)(1) and (2) and (a)(4) through (14) and 
placing in alphabetical order; 
c. Adding, in alphabetical order, a definition for “Convertible to U.S. dollars”;
d. Revising the definitions for “Exchange-traded fund”, “Highly liquid investment”, 
“Illiquid investment”, “In-Kind Exchange Traded Fund or In-Kind ETF”, “Liquidity risk”, 
“Moderately liquid investment”, and “Person(s) designated to administer the program”;
e. Adding, in alphabetical order, a definition for “Significantly changing the market value
of an investment”; and
f. Revising paragraphs (b)(1)(i)(C), (b)(1)(ii) and (iii), (b)(1)(iv) introductory text, and (b)
(3)(iii).
The revisions read as follows:
§ 270.22e-4 Liquidity risk management programs.
(a) * * *
Convertible to U.S. dollars means the ability to be sold or disposed of, with the sale or 
disposition settled in U.S. dollars.
Exchange-traded fund or ETF means an open-end management investment company (or 
series or class thereof), the shares of which are listed and traded on a national securities 
398

exchange, and that has formed and operates under an exemptive order under the Act granted by 
the Commission or in reliance on § 270.6c-11.
* * * * *
Highly liquid investment means any U.S. dollars held by a fund and any investment that 
the fund reasonably expects to be convertible to U.S. dollars in current market conditions in three
business days or less without significantly changing the market value of the investment, as 
determined pursuant to the provisions of paragraph (b)(1)(ii) of this section.
* * * * *
Illiquid investment means any investment that the fund reasonably expects not to be 
convertible to U.S. dollars in current market conditions in seven calendar days or less without 
significantly changing the market value of the investment, as determined pursuant to the 
provisions of paragraph (b)(1)(ii) of this section. Any investment whose fair value is measured 
using an unobservable input that is significant to the overall measurement is an illiquid 
investment.
In-Kind Exchange Traded Fund or In-Kind ETF means an ETF that meets redemptions 
through in-kind transfers of securities, positions, and assets other than a de minimis amount of 
U.S. dollars and that publishes its portfolio holdings daily.
Liquidity risk means the risk that the fund could not meet requests to redeem shares 
issued by the fund without significant dilution of remaining investors' interests in the fund.
Moderately liquid investment means any investment that is neither a highly liquid 
investment nor an illiquid investment.
Person(s) designated to administer the program means the fund or In-Kind ETF's 
investment adviser, officer, or officers (which may not be solely portfolio managers of the fund 
399

or In-Kind ETF) responsible for administering the program and its policies and procedures 
pursuant to paragraph (b)(2)(ii) of this section.
Significantly changing the market value of an investment means:
(i) For shares listed on a national securities exchange or a foreign exchange, any sale or 
disposition of more than 20% of the average daily trading volume of those shares, as measured 
over the preceding 20 business days. 
(ii) For any other investment, any sale or disposition that the fund reasonably expects 
would result in a decrease in sale price of more than 1%. 
* * * * * 
(b) * * * 
(1) * * * 
(i) * * *
(C) Holdings of U.S. dollars and cash equivalents, as well as borrowing arrangements and
other funding sources; and
* * * * *
(ii) Classification. Each fund must, using information obtained after reasonable inquiry 
and taking into account relevant market, trading, and investment-specific considerations, classify
daily each of the fund’s portfolio investments (including each of the fund’s derivatives 
transactions) as a highly liquid investment, moderately liquid investment, or illiquid investment. 
To determine the liquidity classification of each investment, the fund must:
(A) Measure the number of days in which the investment is reasonably expected to be 
convertible to U.S. dollars without significantly changing the market value of the investment, 
and include the day on which the liquidity classification is made in that measurement; and
400

(B) Assume the sale of 10% of the fund’s net assets by reducing each investment by 10%.
(iii) Highly liquid investment minimum. A fund must determine and maintain a highly 
liquid investment minimum that is equal to or higher than 10% of the fund’s net assets. 
(A) When determining a highly liquid investment minimum, a fund must consider the 
factors specified in paragraphs (b)(1)(i)(A) through (D) of this section, as applicable (but 
considering those factors specified in paragraphs (b)(1)(i)(A) and (B) only as they apply during 
normal conditions, and during stressed conditions only to the extent they are reasonably 
foreseeable during the period until the next review of the highly liquid investment minimum). 
(B) For purposes of determining compliance with its highly liquid investment minimum, 
the fund must reduce the value of its highly liquid investments that are assets otherwise eligible 
to meet the fund’s highly liquid investment minimum by an amount equal to:
(1) The value of any highly liquid investments that are assets posted as margin or 
collateral in connection with any derivatives transaction that the fund has classified as a 
moderately liquid investment or illiquid investment; and 
Note 1 to paragraph (b)(1)(iii)(B)(1): A fund that has posted highly liquid investments 
and non-highly liquid investments as margin or collateral in connection with derivatives 
transactions classified as moderately liquid or illiquid investments first should apply posted 
assets that are highly liquid investments in connection with these transactions, unless it has 
specifically identified non-highly liquid investments as margin or collateral in connection with 
such derivatives transactions.
(2) Any fund liabilities.
(C) The highly liquid investment minimum determined pursuant to paragraph (b)(1)(iii) 
of this section may not be changed during any period of time that a fund's assets that are highly 
401

liquid investments are below the determined minimum without approval from the fund's board of
directors, including a majority of directors who are not interested persons of the fund;
(D) A fund must periodically review, no less frequently than annually, the highly liquid 
investment minimum; and
(E) A fund must adopt and implement policies and procedures for responding to a 
shortfall of the fund’s highly liquid investments below its highly liquid investment minimum, 
which must include requiring the person(s) designated to administer the program to report to the 
fund’s board of directors no later than its next regularly scheduled meeting with a brief 
explanation of the causes of the shortfall, the extent of the shortfall, and any actions taken in 
response, and if the shortfall lasts more than 7 consecutive calendar days, must include requiring 
the person(s) designated to administer the program to report to the board within one business day
thereafter with an explanation of how the fund plans to restore its minimum within a reasonable 
period of time.
(iv) Illiquid investments. No fund or In-Kind ETF may acquire any illiquid investment if, 
immediately after the acquisition, the fund or In-Kind ETF would have invested more than 15% 
of its net assets in illiquid investments that are assets. In determining its compliance with this 
paragraph, in addition to the value of a fund’s illiquid investments that are assets, where a fund 
has posted margin or collateral in connection with a derivatives transaction that is classified as an
illiquid investment, the fund also must include as illiquid investments that are assets the value of 
margin or collateral posted in connection with the derivatives transaction that the fund would 
receive if it exited the transaction. If a fund or In-Kind ETF holds more than 15% of its net assets
in illiquid investments that are assets: 
* * * * * 
402

(3) * * * 
(iii) If applicable, a written record of the policies and procedures related to how the 
highly liquid investment minimum, and any adjustments thereto, were determined, including 
assessment of the factors incorporated in paragraph (b)(1)(iii)(A) of this section and any 
materials provided to the board pursuant to paragraph (b)(1)(iii)(E) of this section, for a period of
not less than five years (the first two years in an easily accessible place) following the 
determination of, and each change to, the highly liquid investment minimum.
* * * * *
4. Amend § 270.30b1-9 by revising it to read as follows:
§ 270.30b1-9 Monthly report.
Each registered management investment company or exchange-traded fund organized as 
a unit investment trust, or series thereof, other than a registered open-end management 
investment company that is regulated as a money market fund under §270.2a-7 or a small 
business investment company registered on Form N-5 (§§239.24 and 274.5 of this chapter), must
file a monthly report of portfolio holdings on Form N-PORT (§274.150 of this chapter), current 
as of the last business day, or last calendar day, of the month. A registered investment company 
that has filed a registration statement with the Commission registering an offering of its 
securities for the first time under the Securities Act of 1933 is relieved of this reporting 
obligation with respect to any reporting period or portion thereof prior to the date on which that 
registration statement becomes effective or is withdrawn.  Reports on Form N-PORT must be 
filed with the Commission no later than 30 days after the end of each month.
5. Amend § 270.31a-2 by revising paragraph (a)(2) to read as follows: 
403

§ 270.31a-2 Records to be preserved by registered investment companies, certain majority-
owned subsidiaries thereof, and other persons having transactions with registered 
investment companies.
(a) * * *
(2) Preserve for a period not less than six years from the end of the fiscal year in which 
any transactions occurred, the first two years in an easily accessible place, all books and records 
required to be made pursuant to paragraphs (b)(5) through (12) of §270.31a-1 and all vouchers, 
memoranda, correspondence, checkbooks, bank statements, cancelled checks, cash 
reconciliations, cancelled stock certificates, and all schedules evidencing and supporting each 
computation of net asset value of the investment company shares, including schedules 
evidencing and supporting each computation of an adjustment to net asset value of the 
investment company shares based on swing pricing policies and procedures established and 
implemented pursuant to §270.22c-1(b), and other documents required to be maintained by 
§270.31a-1(a) and not enumerated in §270.31a-1(b).
* * * * *
PART 274 — FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF
1940 
6. The general authority citation for part 274 continues to read as follows: 
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 80a-
24, 80a-26, 80a-29, and 80a-37, unless otherwise noted.
* * * * *
7. Amend Form N-1A (referenced in §§ 239.15A and 274.11A) by revising Item 6(d) and
Item 11(a)(2). The revisions read as follows: 
404

Note: The text of Form N-1A does not, and these amendments will not, appear in the Code 
of Federal Regulations.  
FORM N-1A
* * * * *
Item 6. Purchase and Sale of Fund Shares
* * * * *
(d) If the Fund uses swing pricing, explain the Fund’s use of swing pricing; including what 
swing pricing is, the circumstances under which the Fund will use it, and the effects of swing 
pricing on the Fund and investors. With respect to any portion of a Fund’s assets that is invested in 
one or more open-end management investment companies that are registered under the Investment 
Company Act, the Fund shall include a statement that the Fund’s net asset value is calculated based
upon the net asset values of the registered open-end management companies in which the Fund 
invests, and, if applicable, state that the prospectuses for those companies explain the 
circumstances under which they will use swing pricing and the effects of using swing pricing.
* * * * *
Item 11. Shareholder Information
(a) * * *
(2) A statement as to when calculations of net asset value are made and that the price at 
which a purchase or redemption is effected is based on the next calculation of net asset value after 
the order is placed. If applicable, explain that if an investor places an order with a financial 
intermediary, the financial intermediary may require the investor to submit its order earlier to 
receive the next calculated net asset value.
* * * * *
405

8. Amend § 274.150(a) by revising it to read as follows:
§ 274.150 Form N-PORT, Monthly portfolios holdings report.
(a) Except as provided in paragraph (b) of this section, this form shall be used by 
registered management investment companies or exchange-traded funds organized as unit 
investment trusts, or series thereof, to file reports pursuant to §270.30b1-9 of this chapter not 
later than 30 days after the end of each month.
* * * * * *
9. Amend Form N-PORT (referenced in § 274.150) by: 
a. Revising General Instructions A, E, and F and Items B.4, B.5, B.6, B.7, B.8, C.1, C.7, 
C.10, C.11, Part D, and Part F; and
b. Adding Items B.11 and B.12. 
The revisions and addition read as follows:
Note: The text of Form N-PORT does not, and these amendments will not, appear in the 
Code of Federal Regulations.  
FORM N-PORT
* * * * *
GENERAL INSTRUCTIONS
A.Rule as to Use of Form N-PORT 
Form N-PORT is the reporting form that is to be used for monthly reports of Funds other 
than money market funds and SBICs under section 30(b) of the Act, as required by rule 30b1-9 
under the Act (17 CFR 270.30b1-9). Funds must report information about their portfolios and 
each of their portfolio holdings as of the last business day, or last calendar day, of each month. A
registered investment company that has filed a registration statement with the Commission 
406

registering its securities for the first time under the Securities Act of 1933 is relieved of this 
reporting obligation with respect to any reporting period or portion thereof prior to the date on 
which that registration statement becomes effective or is withdrawn.
Reports on Form N-PORT must disclose portfolio information as calculated by the fund 
for the reporting period’s ending net asset value (commonly, and as permitted by rule 2a-4, the 
first business day following the trade date). Reports on Form N-PORT for each month must be 
filed with the Commission no later than 30 days after the end of such month. If the due date falls 
on a weekend or holiday, the filing deadline will be the next business day. 
A Fund may file an amendment to a previously filed report at any time, including an 
amendment to correct a mistake or error in a previously filed report. A Fund that files an 
amendment to a previously filed report must provide information in response to all items of 
Form N-PORT, regardless of why the amendment is filed.
* * * * *
E.Definitions
References to sections and rules in this Form N-PORT are to the Act, unless otherwise 
indicated. Terms used in this Form N-PORT have the same meanings as in the Act or related 
rules (including rule 18f-4 solely for Items B.9 and 10 of the Form), unless otherwise indicated. 
As used in this Form N-PORT, the terms set out below have the following meanings: 
“Absolute VaR Test” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].
“Class” means a class of shares issued by a Fund that has more than one class that represents 
interests in the same portfolio of securities under rule 18f-3 [17 CFR 270.18f-3] or under an 
order exempting the Fund from provisions of section 18 of the Act [15 U.S.C. 80a-18].
407

“Controlled Foreign Corporation” has the meaning provided in section 957 of the Internal 
Revenue Code [26 U.S.C. 957].
“Derivatives Exposure” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].
“Designated Index” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].
“Designated Reference Portfolio” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-
4(a)]
“Exchange-Traded Fund” means an open-end management investment company (or Series or
Class thereof) or unit investment trust (or series thereof), the shares of which are listed and 
traded on a national securities exchange at market prices, and that has formed and operates under
an exemptive order under the Act granted by the Commission or in reliance on rule 6c-11 [17 
CFR 270.6c-11]. 
“Fund” means the Registrant or a separate Series of the Registrant.  When an item of Form 
N-PORT specifically applies to a Registrant or a Series, those terms will be used. 
“Highly Liquid Investment Minimum” has the meaning defined in rule 22e-4 [17 CFR 
270.22e-4].
“Illiquid Investment” has the meaning defined in rule 22e-4 [17 CFR 270.22e-4]. 
“ISIN” means, with respect to any security, the “international securities identification 
number” assigned by a national numbering agency, partner, or substitute agency that is 
coordinated by the Association of National Numbering Agencies. 
“LEI” means, with respect to any company, the “legal entity identifier” as assigned by a 
utility endorsed by the Global LEI Regulatory Oversight Committee or accredited by the Global 
LEI Foundation.  
“Multiple Class Fund” means a Fund that has more than one Class.
408

“Registrant” means a management investment company, or an Exchange-Traded Fund 
organized as a unit investment trust, registered under the Act.
“Relative VaR Test” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].
“Restricted Security” has the meaning defined in rule 144(a)(3) under the Securities Act of 
1933 [17 CFR 230.144(a)(3)].
“RSSD ID” means the identifier assigned by the National Information Center of the Board of
Governors of the Federal Reserve System.
“Securities Portfolio” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].
“Series” means shares offered by a Registrant that represent undivided interests in a portfolio
of investments and that are preferred over all other series of shares for assets specifically 
allocated to that series in accordance with rule 18f-2(a) [17 CFR 270.18f-2(a)]. 
“Swap” means either a “security-based swap” or a “swap” as defined in sections 3(a)(68) and
(69) of the Securities Exchange Act of 1934 [15 U.S.C. 78c(a)(68) and (69)] and any rules, 
regulations, or interpretations of the Commission with respect to such instruments. 
“Swing Factor” has the meaning defined in rule 22c-1 [17 CFR 270.22c-1].
“Value-at-Risk” or VaR has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].
“VaR Ratio” means the value of the Fund’s portfolio VaR divided by the VaR of the 
Designated Reference Portfolio.
F.Public Availability
Information reported on Form N-PORT will be made publicly available 60 days after the end
of the reporting period. 
The SEC does not intend to make public the information reported on Form N-PORT with 
respect to a Fund’s Highly Liquid Investment Minimum (Item B.7), derivatives transactions 
409

(Item B.8), Derivatives Exposure for limited derivatives users (Item B.9), median daily VaR 
(Item B.10.a), median VaR Ratio (Item B.10.b.iii), VaR backtesting results (Item B.10.c), 
country of risk and economic exposure (Item C.5.b), delta (Items C.9.f.v, C.11.c.vii, or 
C.11.g.iv), liquidity classification for individual portfolio investments (Item C.7), or 
miscellaneous securities (Part D), or explanatory notes related to any of those topics (Part E) that
is identifiable to any particular fund or adviser. However, the SEC may use information reported 
on this Form in its regulatory programs, including examinations, investigations, and enforcement
actions.
* * * * *
Item B.4.Securities Lending
a.* * * 
iii.  If the borrower does not have an LEI, provide the borrower’s RSSD ID, if any.
iv.Aggregate value of all securities on loan to the borrower.
* * * * * 
Item B.5.Return Information
a. Total return of the Fund during the reporting period.  If the Fund is a Multiple Class 
Fund, report the return for each Class.  Such return(s) shall be calculated in accordance 
with the methodologies outlined in Item 26(b)(1) of Form N-1A, Instruction 13 to sub-
Item 1 of Item 4 of Form N-2, or Item 26(b)(i) of Form N-3, as applicable.
* * * * *
c. Net realized gain (loss) and net change in unrealized appreciation (or depreciation) 
attributable to derivatives for each of the following asset categories during the reporting 
period:  commodity contracts, credit contracts, equity contracts, foreign exchange 
410

contracts, interest rate contracts, and other contracts.  Within each such asset category, 
further report the same information for each of the following types of derivatives 
instrument:  forward, future, option, swaption, swap, warrant, and other.  Report in U.S. 
dollars.  Losses and depreciation shall be reported as negative numbers. 
d. Net realized gain (loss) and net change in unrealized appreciation (or depreciation) 
attributable to investments other than derivatives during the reporting period.  Report in 
U.S. dollars.  Losses and depreciation shall be reported as negative numbers. 
Item B.6.Flow information.  Provide the aggregate dollar amounts for sales and 
redemptions/repurchases of Fund shares during the reporting period.  If shares of the Fund are 
held in omnibus accounts, for purposes of calculating the Fund’s sales, redemptions, and 
repurchases, use net sales or redemptions/repurchases from such omnibus accounts.  The 
amounts to be reported under this Item should be after any front-end sales load has been 
deducted and before any deferred or contingent deferred sales load or charge has been deducted. 
Shares sold shall include shares sold by the Fund to a registered unit investment trust.  For 
mergers and other acquisitions, include in the value of shares sold any transaction in which the 
Fund acquired the assets of another investment company or of a personal holding company in 
exchange for its own shares.  For liquidations, include in the value of shares redeemed any 
transaction in which the Fund liquidated all or part of its assets.  Exchanges are defined as the 
redemption or repurchase of shares of one Fund or series and the investment of all or part of the 
proceeds in shares of another Fund or series in the same family of investment companies.
* * * * * 
Item B.7.Highly Liquid Investment Minimum information.
* * * * *
411

b. If applicable, provide the number of days that the eligible value of the Fund’s holdings in 
highly liquid investments fell below the Fund’s Highly Liquid Investment Minimum 
during the reporting period.
* * * * *
Item B.8.Derivatives Transactions. For portfolio investments of open-end management 
investment companies, provide:
a.The value of the Fund’s highly liquid investments that are assets that it has posted as 
margin or collateral in connection with derivatives transactions that are classified as 
moderately liquid investments or illiquid investments under rule 22e-4 [17 CFR 270.22e-
4]. 
 b. The value of any margin or collateral posted in connection with any derivatives 
transaction that is classified as an illiquid investment under rule 22e-4 [17 CFR 270.22e-
4] where the fund would receive the value of the margin or collateral if it exited the 
derivatives transaction.
* * * * *
Item B.11.Swing Factor
a.Provide the number of times the Fund applied a Swing Factor during the reporting period.
b.  For each business day during the reporting period, provide the amount of any Swing 
Factor applied by the Fund. Indicate whether each Swing Factor applied is positive 
(reflecting net purchases) or negative (reflecting net redemptions) with the appropriate 
sign (+ or –). Report N/A for any business day on which the fund did not apply a Swing 
Factor.
412

Item B.12.Liquidity aggregate classification information. For portfolio investments of open-
end management investment companies:
a.Provide the aggregate percentage of investments that are assets (excluding any 
investments that are reflected as liabilities on the Fund’s balance sheet) compared to total 
investments that are assets of the Fund for each of the following categories as specified in
rule 22e-4:
1.Highly Liquid Investments.
2.Moderately Liquid Investments. 
3.Illiquid Investments.
b.   To calculate the aggregate percentages under Item B.12.a, reduce the amount of the 
Fund’s assets that are classified as highly liquid investments by the amount reported 
under Item B.8.a and by the amount of the fund’s liabilities. Increase the amount of the 
Fund’s assets that are classified as illiquid investments by the amount reported under 
Item B.8.b. To the extent these adjustments result in the sum of the Fund’s investments in
each category not equaling 100% of the Fund’s total investments that are assets, the Fund
may adjust the percentage of investments attributed to the moderately liquid investment 
category so that the sum of the Fund’s investments in each category equals 100% of the 
Fund’s total investments that are assets.
Item C.1.Identification of investment.
* * * * * 
c.If the issuer does not have an LEI, provide the issuer’s RSSD ID, if any.
d.Title of the issue or description of the investment.
e.CUSIP (if any).
413

f.At least one of the following other identifiers:
i.ISIN.
ii.Ticker (if ISIN is not available).
iii.Other unique identifier (if ticker and ISIN are not available).  Indicate the type of 
identifier used.
* * * * * 
Item C.7.Liquidity classification information.
a.For portfolio investments of open-end management investment companies, provide the 
liquidity classification(s) for each portfolio investment among the following categories as
specified in rule 22e-4 [17 CFR 270.22e-4]. For portfolio investments with multiple 
liquidity classifications, indicate the percentage amount attributable to each classification.
i.Highly Liquid Investments 
ii.Moderately Liquid Investments 
iii.Illiquid Investments
* * * * *
Instructions to Item C.7. Funds may choose to indicate the percentage amount of a 
holding attributable to multiple classification categories only in the following circumstances: (1) 
if portions of the position have differing liquidity features that justify treating the portions 
separately; (2) if a fund has multiple sub-advisers with differing liquidity views; or (3) if the fund
chooses to classify the position through evaluation of how long it would take to liquidate the 
entire position. In (1) and (2), a fund would classify by treating each portion of the position as a 
separate investment to arrive at an assumed sale size that is equal to 10% of the fund’s net assets 
by reducing each investment by 10%.
414

* * * * * 
Item C.10.For repurchase and reverse repurchase agreements, also provide:
* * * * *
b.* * * 
iii.If the counterparty does not have an LEI, provide the counterparty’s RSSD ID, if any.
* * * * *
Item C.11.For derivatives, also provide:
* * * * *
b.* * *
ii.If the counterparty does not have an LEI, provide the counterparty’s RSSD ID, if any.
* * * * *
Part D: Miscellaneous Securities
Report miscellaneous securities, if any, using the same Item numbers and reporting the same 
information that would be reported for each investment in Part C if it were not a miscellaneous 
security.  Information reported in this Item will be nonpublic.
* * * * *
Part F: Exhibits
Attach no later than 60 days after the end of the reporting period the Fund’s complete portfolio 
holdings as of the close of the period covered by the report, except for reports covering the last 
month of the Fund’s second and fourth fiscal quarters. These portfolio holdings must be 
presented in accordance with the schedules set forth in §§210.12-12 – 210.12-14 of Regulation 
S-X [17 CFR 210.12-12 – 210.12-14].
* * * * *
415

10. Amend Form N-CEN (referenced in § 274.101) by revising General Instruction E and
Items B.16, B.17, C.5, C.6, C.9, C.10, C.11, C.12, C.13, C.14, C.15, C.16, C.17, C.21, D.12, 
D.13, D.14, E.2, F.1, F.2, F.4, and Instructions to Item G.1 to read as follows:
Note: The text of Form N-CEN does not, and these amendments will not, appear in the 
Code of Federal Regulations.  
FORM N-CEN
* * * * *
GENERAL INSTRUCTIONS
* * * * *
E.Definitions
Except as defined below or where the context clearly indicates the contrary, terms used in
Form N-CEN have meanings as defined in the Act and the rules and regulations thereunder.  
Unless otherwise indicated, all references in the form or its instructions to statutory sections or to
rules are sections of the Act and the rules and regulations thereunder.
In addition, the following definitions apply: 
“Class” means a class of shares issued by a Fund that has more than one class that 
represents interest in the same portfolio of securities under rule 18f-3 under the Act (17 CFR 
270.18f-3) or under an order exempting the Fund from provisions of section 18 of the Act (15 
U.S.C. 80a-18).
“CRD number” means a central licensing and registration system number issued by the 
Financial Industry Regulatory Authority.
“Exchange-Traded Fund” means an open-end management investment company (or 
Series or Class thereof) or unit investment trust (or series thereof), the shares of which are listed 
416

and traded on a national securities exchange at market prices, and that has formed and operates 
under an exemptive order under the Act granted by the Commission or in reliance on rule 6c-11 
under the Act (17 CFR 270.6c-11).
“Exchange-Traded Managed Fund” means an open-end management investment 
company (or Series or Class thereof) or unit investment trust (or series thereof), the shares of 
which are listed and traded on a national securities exchange at net asset value-based prices, and 
that has formed and operates under an exemptive order under the Act granted by the Commission
or in reliance on an exemptive rule under the Act adopted by the Commission.
“Fund” means the Registrant or a separate Series of the Registrant.  When an item of 
Form N-CEN specifically applies to a Registrant or Series, those terms will be used.
“LEI” means, with respect to any company, the “legal entity identifier” as assigned by a 
utility endorsed by the Global LEI Regulatory Oversight Committee or accredited by the Global 
LEI Foundation.  
“Money Market Fund” means an open-end management investment company 
registered under the Act, or Series thereof, that is regulated as a money market fund pursuant to 
rule 2a-7 under the Act (17 CFR 270.2a-7).
 “PCAOB number” means the registration number issued to an independent public 
accountant registered with the Public Company Accounting Oversight Board.
“Registrant” means the investment company filing this report or on whose behalf the 
report is filed.
“RSSD ID” means the identifier assigned by the National Information Center of the 
Board of Governors of the Federal Reserve System.
417

“SEC File number” means the number assigned to an entity by the Commission when 
that entity registered with the Commission in the capacity in which it is named in Form N-CEN.  
“Series” means shares offered by a Registrant that represent undivided interests in a 
portfolio of investments and that are preferred over all other Series of shares for assets 
specifically allocated to that Series in accordance with rule 18f-2(a) (17 CFR 270.18f-2(a)).
* * * * *
Item B.16.Principal underwriters.
a.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  ____ 
vii.Foreign country, if applicable:  ____
viii.Is the principal underwriter an affiliated person of the Registrant, or its investment 
adviser(s) or depositor?  [Y/N]
* * * * *
Item B.17.Independent public accountant.  Provide the following information about each 
independent public accountant:
* * * * *
d.If no LEI is provided, RSSD ID, if any: ___
e.State, if applicable:  ____ 
f.Foreign country, if applicable:  ____
g.Has the independent public accountant changed since the last filing?  [Y/N]
* * * * *
Item C.5.Investments in certain foreign corporations.
418

* * * * *
b.* * *
iii.If no LEI is provided, RSSD ID, if any: ___ 
* * * * *
Item C.6.Securities lending. 
* * * * *
c.* * *
iii.If no LEI is provided, RSSD ID, if any: ___
iv.Is the securities lending agent an affiliated person, or an affiliated person of an affiliated 
person, of the Fund?  [Y/N]
v.Does the securities lending agent or any other entity indemnify the fund against borrower 
default on loans administered by this agent?  [Y/N]
vi.If the entity providing the indemnification is not the securities lending agent, provide the 
following information:
  1.Name of person providing indemnification:  ____
  2.LEI, if any, of person providing indemnification:  ____
  3.If no LEI is provided, RSSD ID, if any: ___
vii.Did the Fund exercise its indemnification rights during the reporting period?  [Y/N] 
d.* * *
iii.If no LEI is provided, RSSD ID, if any: ___
iv.Is the cash collateral manager an affiliated person, or an affiliated person of an affiliated 
person, of a securities lending agent retained by the Fund?  [Y/N]
419

v.Is the cash collateral manager an affiliated person, or an affiliated person of an affiliated 
person, of the Fund?  [Y/N]
* * * * *
Item C.9.Investment advisers.
a.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  ____ 
vii.Foreign country, if applicable:  ____  
viii.Was the investment adviser hired during the reporting period?  [Y/N]
1.If the investment adviser was hired during the reporting period, indicate the investment 
adviser’s start date:  ____
b.* * * 
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  ____ 
vii.Foreign country, if applicable:  ____
viii.Termination date:  ____
c.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  ____ 
vii.Foreign country, if applicable:  ____
viii.Is the sub-adviser an affiliated person of the Fund’s investment adviser(s)?  [Y/N] 
ix.Was the sub-adviser hired during the reporting period?  [Y/N]
420

1.If the sub-adviser was hired during the reporting period, indicate the sub-adviser’s start 
date:  ____
d.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  ____
vii.Foreign country, if applicable:  ____
viii.Termination date:  ____
Item C.10.Transfer agents.
a.* * *
iv.If no LEI is provided, RSSD ID, if any: ___
v.State, if applicable:  ____
vi.Foreign country, if applicable:  ____
vii.Is the transfer agent an affiliated person of the Fund or its investment adviser(s)?  [Y/N]
viii.Is the transfer agent a sub-transfer agent?  [Y/N]
* * * * *
Item C.11.Pricing services
a.* * *
ii.LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  
____
* * * * *
Item C.12.Custodians
a.* * *
iii.If no LEI is provided, RSSD ID, if any: ___
421

iv.State, if applicable:  ____ 
v.Foreign country, if applicable:  ____
vi.Is the custodian an affiliated person of the Fund or its investment adviser(s)?  [Y/N]
vii.Is the custodian a sub-custodian?  [Y/N]
viii.With respect to the custodian, check below to indicate the type of custody:
1.Bank — section 17(f)(1) (15 U.S.C. 80a-17(f)(1)):  ____
2.Member national securities exchange — rule 17f-1 (17 CFR 270.17f-1):  ____
3.Self — rule 17f-2 (17 CFR 270.17f-2):  ____
4.Securities depository — rule 17f-4 (17 CFR 270.17f-4):  ____
5.Foreign custodian — rule 17f-5 (17 CFR 270.17f-5):  ____
6.Futures commission merchants and commodity clearing organizations — rule 17f-6 (17 
CFR 270.17f-6):  ____
7.Foreign securities depository — rule 17f-7 (17 CFR 270.17f-7):  ____
8.Insurance company sponsor — rule 26a-2 (17 CFR 270.26a-2):  ____
9.Other:  ____.  If other, describe:  ______.
* * * * *
Item C.13.Shareholder servicing agents.
a.* * *
ii.LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  
____
* * * * *
Item C.14.Administrators
a.* * *
422

ii.LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  
____
* * * * *
Item C.15.Affiliated broker-dealers. Provide the following information about each affiliated 
broker-dealer:
* * * * *
e.If no LEI is provided, RSSD ID, if any: ___
f.State, if applicable:  _____
g.Foreign country, if applicable:  ____
h.Total commissions paid to the affiliated broker-dealer for the reporting period:  ____ 
Item C.16.Brokers.
a.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  _____
vii.Foreign country, if applicable:  ____
viii.Gross commissions paid by the Fund for the reporting period:  ____
* * * * *
Item C.17.Principal transactions.
a.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  _____
vii.Foreign country, if applicable:  ____
viii.Total value of purchases and sales (excluding maturing securities) with Fund:  ____
423

* * * * * 
Item C.21.Liquidity classification services. For open-end management investment 
companies subject to rule 22e-4 (17 CFR 270.22e-4), respond to the following:
a.Provide the following information about each person that provided liquidity classification
services to the Fund during the reporting period:
i.Full name:  ____
ii.LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  
____
iii.State, if applicable:  _____
iv.Foreign country, if applicable:  ____
v.Is the liquidity classification service an affiliated person of the Fund or its investment 
adviser(s)?  [Y/N]
vi.Asset class(es) for which liquidity classification services were provided to the Fund: 
_____ 
b.Was a liquidity classification service hired or terminated during the reporting period?  
[Y/N]
* * * * *
Item D.12.Investment advisers (small business investment companies only).
a.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  _____
vii.Foreign country, if applicable:  ____
viii. Was the investment adviser hired during the reporting period?  [Y/N]
424

1.If the investment adviser was hired during the reporting period, indicate the 
investment adviser’s start date:  ____
b.* * *  
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  _____
vii.Foreign country, if applicable:  ____
viii. Termination date:  ____
c.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  _____
vii.Foreign country, if applicable:  ____
viii. Is the sub-adviser an affiliated person of the Fund’s investment adviser(s)?  [Y/N] 
ix.Was the sub-adviser hired during the reporting period?  [Y/N]
1.If the sub-adviser was hired during the reporting period, indicate the sub-adviser’s
start date:  ____
d.* * *
v.If no LEI is provided, RSSD ID, if any: ___
vi.State, if applicable:  _____
vii.Foreign country, if applicable:  ____
viii. Termination date:  ____
Item D.13.Transfer agents (small business investment companies only).
a.* * *
iv.If no LEI is provided, RSSD ID, if any: ___
425

v.State, if applicable:  ____
vi.Foreign country, if applicable:  ____
vii.Is the transfer agent an affiliated person of the Fund or its investment adviser(s)?  
[Y/N]
viii. Is the transfer agent a sub-transfer agent?  [Y/N]
* * * * *
Item D.14.Custodians (small business investment companies only).
a.* * *
iii.If no LEI is provided, RSSD ID, if any: ___
iv.State, if applicable:  ____ 
v.Foreign country, if applicable:  ____
vi.Is the custodian an affiliated person of the Fund or its investment adviser(s)?  [Y/N]
vii.Is the custodian a sub-custodian?  [Y/N]
viii. With respect to the custodian, check below to indicate the type of custody:
1.Bank — section 17(f)(1) (15 U.S.C. 80a-17(f)(1)):  ____
2.Member national securities exchange — rule 17f-1 (17 CFR 270.17f-1):  ____
3.Self — rule 17f-2 (17 CFR 270.17f-2):  ____
4.Securities depository — rule 17f-4 (17 CFR 270.17f-4):  ____
5.Foreign custodian — rule 17f-5 (17 CFR 270.17f-5):  ____
6.Futures commission merchants and commodity clearing organizations — rule 
17f-6 (17 CFR 270.17f-6):  ____
7.Foreign securities depository — rule 17f-7 (17 CFR 270.17f-7):  ____
8.Insurance company sponsor — rule 26a-2 (17 CFR 270.26a-2):  ____
426

9.Other:  ____.  If other, describe:  ______.
* * * * *
Item E.2.Authorized participants. For each authorized participant of the Fund, provide the 
following information:
* * * * *
b.SEC file number:  ____
c.CRD number:  ____
d.LEI, if any:  ____
e.If no LEI is provided, RSSD ID, if any: ___
f.The dollar value of the Fund shares the authorized participant purchased from the Fund 
during the reporting period:  ____
g.The dollar value of the Fund shares the authorized participant redeemed during the 
reporting period:  ____
h.Did the Fund require that an authorized participant post collateral to the Fund or any of 
its designated service providers in connection with the purchase or redemption of Fund 
shares during the reporting period?  [Y/N]
 Instruction. The term “authorized participant” means a member or participant of a clearing 
agency registered with the Commission, which has a written agreement with the Exchange-
Traded Fund or Exchange-Traded Managed Fund or one of its service providers that allows the 
authorized participant to place orders for the purchase and redemption of creation units.
* * * * *
Item F.1.Depositor. Provide the following information about each depositor:
* * * * *
427

d.If no LEI is provided, RSSD ID, if any: ___
e.State, if applicable:  ____
f.Foreign country, if applicable:  ____
g.Full name of ultimate parent of depositor:  ____
Item F.2.Administrators.
a.* * *
ii.LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  
____
* * * * *
Item F.4.Sponsor. Provide the following information about each sponsor:
* * * * *
d.If no LEI is provided, RSSD ID, if any: ___
e.State, if applicable:  ____
f.Foreign country, if applicable:  ____
* * * * *
Item G.1.Attachments.
* * * * *
Instructions.
* * * * *
2. * * *
428

(f) Security supported (if applicable). Disclose the full name of the issuer, the title of the issue 
(including coupon or yield, if applicable) and at least two identifiers, if available (e.g., CIK, 
CUSIP, ISIN, LEI, RSSD ID).
* * * * *
By the Commission.
Dated: November 2, 2022.
Vanessa A. Countryman, 
Secretary.
429

Conformed to Federal Register Version

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 270 and 274

[Release Nos. 33-11130; IC-34746; File No. S7-26-22]

RIN 3235-AM98

Open-End Fund Liquidity Risk Management Programs and Swing Pricing; Form N-PORT

Reporting

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is proposing 

amendments to its current rules for open-end management investment companies (“open-end 

funds”) regarding liquidity risk management programs and swing pricing. The proposed 

amendments are designed to improve liquidity risk management programs to better prepare funds

for stressed conditions and improve transparency in liquidity classifications. The amendments 

are also designed to mitigate dilution of shareholders’ interests in a fund by requiring any open-

end fund, other than a money market fund or exchange-traded fund, to use swing pricing to 

adjust a fund’s net asset value (“NAV”) per share to pass on costs stemming from shareholder 

purchase or redemption activity to the shareholders engaged in that activity. In addition, to help 

operationalize the proposed swing pricing requirement, and to improve order processing more 

generally, the Commission is proposing a “hard close” requirement for these funds. Under this 

requirement, an order to purchase or redeem a fund’s shares would be executed at the current 

day’s price only if the fund, its designated transfer agent, or a registered securities clearing 

agency receives the order before the pricing time as of which the fund calculates its NAV. The 

Commission also is proposing amendments to reporting and disclosure requirements on Forms 



N-PORT, N-1A, and N-CEN that apply to certain registered investment companies, including 

registered open-end funds (other than money market funds), registered closed-end funds, and 

unit investment trusts. The proposed amendments would require more frequent reporting of 

monthly portfolio holdings and related information to the Commission and the public, amend 

certain reported identifiers, and make other amendments to require additional information about 

funds’ liquidity risk management and use of swing pricing. 

DATES: Comments should be received on or before February 14, 2023.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic comments:

 Use the Commission’s internet comment form 

(https://www.sec.gov/rules/submitcomments.htm); or 

 Send an email to [email protected]. Please include File Number S7-26-22 on the 

subject line.

Paper comments:

 Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange 

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-26-22. This file number should be 

included on the subject line if email is used. To help the Commission process and review your 

comments more efficiently, please use only one method of submission. The Commission will 

post all comments on the Commission’s website (https://www.sec.gov/rules/proposed.shtml). 

Comments are also available for website viewing and printing in the Commission’s Public 

Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between 

the hours of 10 a.m. and 3 p.m. Operating conditions may limit access to the Commission’s 

2



Public Reference Room. All comments received will be posted without change. Persons 

submitting comments are cautioned that we do not redact or edit personal identifying information

from comment submissions. You should submit only information that you wish to make 

available publicly.

Studies, memoranda, or other substantive items may be added by the Commission or staff

to the comment file during this rulemaking. A notification of the inclusion in the comment file of

any such materials will be made available on our website. To ensure direct electronic receipt of 

such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive 

notifications by email.

FOR FURTHER INFORMATION CONTACT:  Mykaila DeLesDernier, Y. Rachel Kuo, 

James Maclean, Nathan R. Schuur, Senior Counsels; Angela Mokodean, Branch Chief; Brian M. 

Johnson, Assistant Director, at (202) 551-6792 or [email protected], Investment Company 

Regulation Office, Division of Investment Management, Securities and Exchange Commission, 

100 F Street NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION:  The Commission is proposing to amend the 

following rules and forms:

Commission Reference CFR Citation 
(17 CFR)

Investment Company Act of 1940
(“Act” or “Investment Company 
Act”)1

Rule 22c-1 § 270.22c-1

Rule 22e-4 § 270.22e-4
Rule 30b1-9 § 270.30b1-9
Rule 31a-2 § 270.31a-2
Form N-PORT § 274.150
Form N-CEN § 274.101

1  15 U.S.C. 80a-1 et seq. Unless otherwise noted, all references to statutory sections are to the 
Investment Company Act, and all references to rules under the Investment Company Act are to 
title 17, part 270 of the Code of Federal Regulations [17 CFR part 270].    

3



Securities Act of 1933 
(“Securities Act”)2 and 
Investment Company Act

Form N-1A §§ 239.15A and 274.11A

2  15 U.S.C. 77a et seq.

4



TABLE OF CONTENTS

I. Introduction...................................................................................................................
A. Open-End Funds and Existing Regulatory Framework.........................................12

1. Liquidity Risk Management............................................................................15
2. Swing Pricing...................................................................................................17

B. March 2020 Market Events...................................................................................21
C. Rulemaking Overview...........................................................................................33

II. Discussion...................................................................................................................
A. Amendments Concerning Funds’ Liquidity Risk Management Programs............38

1. Amendments to the Classification Framework................................................38
2. Highly Liquid Investment Minimums.............................................................77
3. Limit on Illiquid Investments..........................................................................91

B. Swing Pricing.........................................................................................................93
1. Proposed Swing Pricing Requirement.............................................................95
2. Amendments to Swing Threshold Framework..............................................104
3. Determining Flows........................................................................................112
4. Swing Factors................................................................................................116

C. Hard Close...........................................................................................................132
1. Purpose and Background...............................................................................133
2. Pricing Requirements.....................................................................................135
3. Effects on Order Processing, Intermediaries and Investors, and Certain 

Transaction Types..........................................................................................139
4. Other Proposed Amendments to Rule 22c-1.................................................156
5. Amendments to Form N-1A..........................................................................157

D. Alternatives to Swing Pricing and a Hard Close Requirement............................158
1. Alternatives to Swing Pricing........................................................................158
2. Alternatives to a Hard Close..........................................................................176
3. Additional Illustrative Examples...................................................................188

E. Reporting Requirements......................................................................................200
1. Amendments to Form N-PORT.....................................................................200
2. Amendments to Form N-CEN.......................................................................230

F. Technical and Conforming Amendments............................................................231
G. Exemptive Order Rescission and Withdrawal of Commission Staff Statements 232
H. Transition Periods................................................................................................234

III. Economic Analysis....................................................................................................
A. Introduction..........................................................................................................236
B. Baseline................................................................................................................243

1. Regulatory Baseline.......................................................................................243
2. Overview of Certain Industry Order Management Practices........................248

5



3. Liquidity Externalities in the Mutual Fund Sector........................................252
4. Affected Entities............................................................................................264

C. Benefits and Costs of the Proposed Amendments...............................................278
1. Liquidity Risk Management Program...........................................................278
2. Swing Pricing.................................................................................................302
3. Hard Close Requirement................................................................................316
4. Commission Reporting and Public Disclosure..............................................322

D. Effects on Efficiency, Competition, and Capital Formation...............................327
1. Efficiency.......................................................................................................327
2. Competition...................................................................................................330
3. Capital Formation..........................................................................................336

E. Alternatives..........................................................................................................338
1. Liquidity Risk Management..........................................................................338
2. Swing Pricing.................................................................................................345
3. Hard Close Requirement................................................................................360
4. Commission Reporting and Public Disclosure..............................................363

F. Request for Comment..........................................................................................365
IV. Paperwork Reduction Act.........................................................................................

A. Introduction..........................................................................................................370

6



B. Rule 22e-4............................................................................................................372
C. Rule 22c-1............................................................................................................375
D. Form N-PORT.....................................................................................................378
E. Form N-1A...........................................................................................................383
F. Form N-CEN.......................................................................................................385
G. Request for Comment..........................................................................................387

V. Initial Regulatory Flexibility Analysis......................................................................
A. Reasons for and Objectives of the Proposed Actions..........................................389

7



B. Legal Basis...........................................................................................................390
C. Small Entities Subject to the Amendments.........................................................390
D. Projected Reporting, Recordkeeping, and Other Compliance Requirements......391

1. Liquidity Risk Management Programs..........................................................391
2. Swing Pricing.................................................................................................392
3. Hard Close.....................................................................................................394
4. Reporting Requirements................................................................................396

E. Duplicative, Overlapping, or Conflicting Federal Rules.....................................399
F. Significant Alternatives.......................................................................................399
G. General Request for Comment............................................................................403

VI. Consideration Of Impact On The Economy..............................................................
Statutory Authority..........................................................................................................

I. INTRODUCTION

When the Investment Company Act was enacted, a primary concern was the potential for 

dilution of shareholders’ interests in open-end investment companies.3 In addition, the ability of 

shareholders to redeem their shares in an investment company on demand is a defining feature of

open-end investment funds.4 Section 22 of the Act reflects these concerns and priorities. For 

example, section 22(c) gives the Commission broad powers to regulate the pricing of redeemable

securities for the purpose of eliminating or reducing so far as reasonably practicable any dilution 

3  See Investment Trusts and Investment Companies: Hearings on S. 3580 before a Subcomm. of 
the Senate Comm. on Banking and Currency, 76th Cong., 3d Sess. (1940), at 37, 137-145 (stating
that among the abuses that served as a backdrop for the Act were practices that resulted in 
substantial dilution of investors’ interests, including backward pricing by fund insiders to increase
investment in the fund and thus enhance management fees, but causing dilution of existing 
investors in the fund) (statements of Commissioner Healy and Mr. Bane).

4  See Investment Trusts and Investment Companies: Letter from the Acting Chairman of the SEC, 
A Report on Abuses and Deficiencies in the Organization and Operation of Investment Trusts and
Investment Companies (1939), at n.206 (“[T]he salient characteristic of the open-end investment 
company…was that the investor was given a right of redemption so that he could liquidate his 
investment at or about asset value at any time that he was dissatisfied with the management or for
any other reason.”). An open-end investment company is required to redeem its securities on 
demand from shareholders at a price approximating their proportionate share of the fund’s net 
asset value (“NAV”) next calculated by the fund after receipt of such redemption request. See 
section 22 of the Act; rule 22c-1.

8



of the value of outstanding fund shares.5 Section 22(e) of the Act establishes a shareholder right 

of prompt redemption in open-end funds by requiring such funds to make payments on 

shareholder redemption requests within seven days of receiving the request.6

The open-end fund industry has grown significantly over the last six years as more 

Americans rely on funds to gain exposure to financial markets while having the ability to quickly

redeem their investments.7 At the end of 2021, assets in open-end funds (excluding money 

market funds) were approximately $26 trillion, having grown from about $15 trillion at the end 

of 2015.8 An estimated 102.6 million Americans owned mutual funds at the end of 2021, up from

5  Section 22(c) of the Act authorizes the Commission to make rules and regulations applicable to 
registered investment companies and to principal underwriters of, and dealers in, the redeemable 
securities of any registered investment company related to the method of computing purchase and
redemption prices of redeemable securities for the purpose of eliminating or reducing so far as 
reasonably practicable any dilution of the value of other outstanding securities of the fund or any 
other result of the purchase or redemption that is unfair to investors in the fund’s other 
outstanding securities. See also section 22(a) of the Act (authorizing a securities association 
registered under section 15A of the Securities Exchange Act of 1934 (“Exchange Act”) similarly 
to prescribe the prices at which a member may purchase or redeem an investment company’s 
redeemable securities for the purposes of addressing dilution).

6  Section 22(e) of the Act provides, in part, that no registered investment company shall suspend 
the right of redemption or postpone the date of payment upon redemption of any redeemable 
security in accordance with its terms for more than seven days after tender of the security absent 
specified unusual circumstances.

7  For purposes of this release, the term “fund” or “open-end fund” generally refers to an open-end 
management investment company registered on Form N-1A or a series thereof, excluding money 
market funds, unless otherwise specified. Mutual funds and most exchange-traded funds 
(“ETFs”) are open-end management companies registered on Form N-1A. An open-end 
management investment company is an investment company, other than a unit investment trust or
face-amount certificate company, that offers for sale or has outstanding any redeemable security 
of which it is the issuer. See sections 4 and 5(a)(1) of the Investment Company Act [15 U.S.C. 
80a-4 and 80a-5(a)(1)]. While a money market fund is an open-end management investment 
company, money market funds generally are not subject to the amendments we are proposing and
thus are not included when we refer to “funds” or “open-end funds” in this release except where 
specified. Although unit investment trusts, like open-end funds, issue redeemable securities, they 
are not included when we refer to open-end funds in this release, unless otherwise specified. 

8  The $26 trillion figure is based on Form N-CEN filing data as of Dec. 2021. Of the $26 trillion in
assets, ETFs had $5.1 trillion in assets. See Investment Company Liquidity Risk Management 
Programs, Investment Company Act Release No. 32315 (Oct. 13, 2016) [81 FR 82142 (Nov. 18, 
2016)] (“Liquidity Rule Adopting Release”), at text accompanying n.1046 (estimating open-end 
fund assets of approximately $15 trillion at the end of 2015).

9



an estimated 91 million individual investors at the end of 2015.9 Open-end funds continue to be 

an important part of the financial markets, and as those markets have grown more complex, some

funds are pursuing more complex investment strategies, including fixed income and alternative 

investment strategies focused on less liquid asset classes. For example, as of December 2021, 

bond funds had assets of more than $6 trillion, funds with alternative investment strategies had 

about $15 billion in assets, and bank loan funds had around $12 billion in assets.10 Figure 1 

below shows the amount of assets held by different types of open-end funds. 

Figure 1: Open-End Fund Assets by Fund Type

Open-End Fund Assets – December 2015

($ Trillions, % of Total Open-End Fund Assets)

9  See Investment Company Institute, 2022 Investment Company Fact Book (2022) (“2022 ICI Fact
Book”), at 44, available at https://www.icifactbook.org/; Investment Company Institute, 2016 
Investment Company Fact Book (2016), at 110, available at https://www.ici.org/fact-book. Retail
investors hold the vast majority of mutual fund net assets. See 2022 ICI Fact Book, at 48 
(estimating that retail investors held 88% of mutual fund assets at year end 2021). An estimated 
13.9 million U.S. households held ETFs in 2021, in addition to many institutional investors. See 
id. at 83.

10  Based on Morningstar data. Unless otherwise indicated, data discussed throughout this section is 
based on Morningstar data. Bond funds include funds that invest in taxable bonds (approximately 
$5.5 trillion in assets) and funds that invest in municipal bonds (approximately $1 trillion in 
assets).

10

https://www.ici.org/fact-book
https://www.icifactbook.org/


Source: Morningstar

Open-End Fund Assets – December 2021

($ Trillions, % of Total Open-End Fund Assets)

Source: Morningstar

11



Without effective liquidity risk management, a fund may not be able to make timely 

payment on shareholder redemptions, and sales of portfolio investments to satisfy redemptions 

may result in the dilution of outstanding fund shares. Moreover, even when a fund is managing 

its liquidity effectively, the transaction costs associated with meeting redemption requests or 

investing the proceeds of subscriptions can create dilution for fund shareholders. These concerns 

are particularly heightened in times of stress or in funds invested in less liquid investments. To 

that end, the ability of funds to meet investor redemptions, while mitigating the impact of this 

redemption activity on remaining shareholders, is an important aspect of the regulatory regime 

for open-end funds. 

Commission rules currently provide open-end funds with several tools to mitigate 

dilution from shareholder purchase or redemption activity and facilitate a fund’s ability to meet 

shareholder redemptions in a timely manner. These tools include a fund’s liquidity risk 

management program, the option to use swing pricing for certain funds, the ability to impose 

purchase or redemption fees, and/or the ability to redeem in kind.11 In March 2020, in connection

with the economic shock from the onset of the COVID-19 pandemic, U.S. open-end funds faced 

a significant volume of investor redemptions.12 As investors sought to redeem fund investments 

to free up cash during a time of market uncertainty, open-end funds faced significant 

redemptions and liquidity concerns.13 

In light of these events, we have reviewed the effectiveness of funds’ current tools for 

managing liquidity and limiting dilution, including through staff outreach and review of 

11  See Liquidity Rule Adopting Release, supra note 8; Investment Company Swing Pricing, 
Investment Company Act Release No. 32316 (Oct. 13, 2016) [81 FR 82084 (Nov. 18, 2016)] 
(“Swing Pricing Adopting Release”).

12  See infra section I.B for a discussion of the fund flows for different types of open-end funds 
during the Mar. 2020 period. 

13  See infra section I.B discussing the events of Mar. 2020. 

12



information funds are required to report to the Commission.14 We have identified weaknesses in 

funds’ liquidity risk management programs that can cause delays in identifying liquidity issues in

stressed periods and cause funds to over-estimate the liquidity of their investments, as well as 

limited use of tools such as redemption fees or swing pricing that are designed to limit dilution 

resulting from a fund’s trading of portfolio investments in response to shareholder redemptions 

or purchases. As a result, we are proposing amendments to enhance funds’ liquidity risk 

management to help better prepare them for stressed market conditions and to require the use of 

swing pricing for certain funds in certain circumstances to limit dilution. We believe the 

proposed amendments would enhance open-end fund resilience in periods of market stress by 

promoting funds’ ability to meet redemptions in a timely manner while limiting dilution of 

remaining shareholders’ interests in the fund.

A. Open-End Funds and Existing Regulatory Framework

Open-end funds are a popular investment choice for investors seeking to gain 

professionally managed, diversified exposure to the capital markets while preserving liquidity.15 

There are two kinds of open-end funds: mutual funds and ETFs. Open-end funds offer investors 

daily liquidity, but may invest in assets that cannot be liquidated quickly without significantly 

affecting market prices. Since the 1940s, the Commission has stated that open-end funds should 

maintain highly liquid portfolios and recognized that this may limit their ability to participate in 

certain transactions in the capital markets.16 

14  The review consisted of outreach with funds, advisers, and liquidity vendors that funds use to 
help classify the liquidity of their investments. In addition, staff reviewed data provided on Form 
N-PORT, Form N-CEN, and Form-RN. 

15  See Liquidity Rule Adopting Release, supra note 8. See also supra note 9 and accompanying text
(discussing an estimated number of Americans who invest in mutual funds). 

16  See Investment Trusts and Investment Companies: Report of the Securities and Exchange 
Commission (1942), at 76 (“Open-end investment companies, because of their security holders’ 
right to compel redemption of their shares by the company at any time, are compelled to invest 

13



While the Act requires open-end funds to pay redemptions within seven days, as a 

practical matter most investors expect to receive redemption proceeds in fewer than seven days. 

For example, many mutual funds represent in their prospectuses that they will pay redemption 

proceeds on the next business day after the redemption. In addition, open-end funds redeemed 

through broker-dealers must meet redemption requests within two business days because of rule 

15c6-1 under the Exchange Act, which establishes a two-day (T+2) settlement period for trades 

effected by broker-dealers.17  

In terms of pricing, an order to purchase or redeem fund shares must receive a price 

based on the current NAV next computed after receipt of the order.18 Open-end funds typically 

calculate their NAVs once a day. Purchase and redemption requests submitted throughout the 

day receive the NAV calculated at the end of that day, which is typically calculated as of 4 p.m. 

their funds predominantly in readily marketable securities. Individual open-end investment 
companies, therefore, as presently constituted, could participate in the financing of small 
enterprises and new ventures only to a very limited extent.”).

17  The Commission has proposed to amend rule 15c6-1 to establish a T+1 settlement period for 
broker-dealer trades. See Shortening the Securities Transaction Settlement Cycle, Exchange Act 
Release No. 34-94196 (Feb. 9, 2022) [87 FR 10436 (Feb. 24, 2022)].

18  Rule 22c-1 under the Act. The process of calculating or “striking” the NAV of the fund’s shares 
on any given trading day is based on several factors, including the market value of portfolio 
securities, fund liabilities, and the number of outstanding fund shares, among others. Rule 2a-4 
requires, when determining the NAV, that funds reflect changes in holdings of portfolio securities
and changes in the number of outstanding shares resulting from distributions, redemptions, and 
repurchases no later than the first business day following the trade date. As indicated in the 
adopting release for rule 2a-4, this calculation method provides funds with additional time and 
flexibility to incorporate last-minute portfolio transactions into their NAV calculations on the 
business day following the trade date, rather than on the trade date. See Adoption of Rule 2a-4 
Defining the Term “Current Net Asset Value” in Reference to Redeemable Securities Issued by a 
Registered Investment Company, Investment Company Act Release No. 4105 (Dec. 22, 1964) 
[29 FR 19100 (Dec. 30, 1964)].

14



ET.19 These provisions are designed to promote equitable treatment of fund shareholders when 

buying and selling fund shares. 

A characteristic of open-end funds is that fund shareholders share the gains and losses of 

the fund, as well as the costs. As a result, there are circumstances in which the transaction 

activity of certain investors leads to costs that are distributed across all shareholders, unfairly 

reducing the value (or “diluting”) the interests of shareholders who did not engage in the 

underlying transactions. For example, while redemption orders receive the next computed NAV, 

the fund may incur costs on subsequent days to meet those redemptions, because the fund may 

engage in trading activity and make other changes in its portfolio holdings over multiple business

days following the redemption order. As a result, the costs of providing liquidity to redeeming 

investors can be borne by the remaining investors in the fund and dilute the interests of non-

redeeming shareholders. Similarly, when shareholders purchase shares in the fund, costs may 

arise when the fund buys portfolio investments to invest the proceeds of the purchase, and the 

fund and its shareholders may bear those costs in days following the purchase request, diluting 

the interests of the non-purchasing shareholders. 

Transaction costs associated with redemptions or purchases can vary. The less liquid the 

fund’s portfolio holdings, the greater the liquidity costs associated with redemption and purchase

activity can become and the greater the possibility of dilution effects on fund shareholders. For 

example, during times of heightened market volatility and wider bid-ask spreads for the fund’s 

underlying holdings, selling fund investments to meet investor redemptions results in greater 

costs to the fund. Moreover, funds also incur transaction costs outside of stressed periods. 

19  Commission rules do not require that a fund calculate its NAV at, or as of, a specific time of day.
Current NAV must be computed at least once daily, subject to limited exceptions, Monday 
through Friday, at the pricing time set by the board of directors. See rule 22c-1(b)(1).

15



Although these costs would generally be smaller than in times of heighted market volatility, they 

also are borne by fund investors and, particularly over time, also can result in dilution.  

In times of liquidity stress, there may be incentives for shareholders to redeem fund 

shares quickly to avoid further losses, to redeem fund shares for cash in times of uncertainty, or 

to obtain a “first-mover” advantage by avoiding anticipated trading costs and dilution associated 

with other investors’ redemptions. This perceived advantage may lead to increasing outflows, 

further exacerbating the effect on remaining shareholders and incentivizing increased 

shareholder redemptions. Whether investors redeem because they need cash or want to capitalize

on a first-mover advantage, the remaining investors in the fund may, particularly in times of 

stress, experience dilution of their interests in the fund. 

1. Liquidity Risk Management

In 2016, the Commission adopted rule 22e-4 under the Act (the “liquidity rule”) to 

require open-end funds to adopt and implement liquidity risk management programs. Rule 22e-4 

was designed to address concerns that open-end funds investing in less liquid securities may 

have difficulty meeting redemption requests without significant dilution of remaining investors’ 

interests in the fund.20 Rule 22e-4 requires: (1) assessment, management, and periodic review of 

a fund’s liquidity risk; (2) classification of the liquidity of each of a fund’s portfolio investments 

into one of four prescribed categories—ranging from highly liquid investments to illiquid 

investments—including at-least-monthly reviews of these classifications; (3) determination and 

periodic review of a highly liquid investment minimum for certain funds; (4) limitation on 

illiquid investments; and (5) board oversight. 

20  See Liquidity Rule Adopting Release, supra note 8, at section II.B.

16



Funds are also subject to related reporting requirements. For example, funds must report 

the liquidity classifications of their holdings confidentially to the Commission on Form N-

PORT. A fund also must immediately report to the Commission on Form N-RN and to the fund’s

board if its portfolio becomes more than 15% illiquid, as well as if the fund breaches a highly 

liquid investment minimum established as part of its liquidity risk management program for 

seven consecutive days.21 While the compliance dates for specific provisions of rule 22e-4 

varied, most funds were required to be in compliance with all requirements of the rule in 2019.22

In 2018, the Commission adopted amendments designed to improve the reporting and 

disclosures of liquidity information by open-end funds.23 These amendments modified certain 

aspects of the liquidity framework by requiring funds to disclose information about the operation

and effectiveness of their liquidity risk management program in their shareholder reports instead 

of requiring funds to disclose aggregate liquidity classifications publicly in Form N-PORT.24 

Since that time, some individual investors have stated that they care about being able to redeem 

but do not need narrative information about how a fund manages its liquidity, while some other 

commenters have suggested that aggregate liquidity classifications would be more helpful than 

narrative shareholder report disclosure.25 We recently removed the narrative disclosure 

21  Form N-RN was previously titled Form N-LIQUID. See Use of Derivatives by Registered 
Investment Companies and Business Development Companies, Investment Company Act Release
No. 34084 (Nov. 2, 2020) [85 FR 83162 (Dec. 21, 2020)] (“Derivatives Adopting Release”). 

22  Small entities were required to be in compliance with the reporting requirements under Form N-
PORT by Mar. 1, 2020. See Investment Company Liquidity Disclosure, Investment Company Act
Release No. 33142 (June 28, 2018) [83 FR 31859 (July 10, 2018)] (“2018 Liquidity Disclosure 
Adopting Release”).

23  Id. 
24  The Commission also adopted amendments to Form N-PORT to allow funds classifying the 

liquidity of their investments pursuant to their liquidity risk management programs to report 
multiple liquidity classification categories for a single position under specified circumstances. 
See 2018 Liquidity Disclosure Adopting Release, supra note 22. 

25  See infra notes 303 to 305 and accompanying text (discussing these comments in more detail).

17



requirement because, in practice, it did not meaningfully augment other information already 

available to shareholders.26

When the Commission adopted the 2018 amendments, it stated that Commission staff 

would continue to monitor and solicit feedback on the implementation of the liquidity framework

and inform the Commission what steps, if any, the staff recommends in light of this monitoring.27

The Commission stated its expectation that this evaluation would take into account at least one 

full year’s worth of liquidity classification data from large and small entities to allow funds and 

the Commission to gain experience with the classification process and to allow analysis of its 

benefits and costs based on actual practice. As discussed below, we have had the opportunity 

since the adoption of these amendments to evaluate the liquidity framework while taking into 

account the data available to us regarding funds’ liquidity risk management programs.28 We 

discuss our evaluation of the current liquidity framework throughout this release. 

2. Swing Pricing

In 2016, the Commission adopted a rule permitting registered open-end funds (except 

money market funds or ETFs), under certain circumstances, to use swing pricing, which is the 

process of adjusting the price above or below a fund’s NAV per share to effectively pass on the 

costs stemming from shareholder purchase or redemption activity to the shareholders associated 

with that activity.29 When a shareholder purchases or redeems fund shares, the price of those 

26  See Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee 
Information in Investment Company Advertisements, Investment Company Act Release No. 
34731 (Oct. 26, 2022) (“Tailored Shareholder Reports Adopting Release”) at nn.462-472 and 
accompanying text.

27  See 2018 Liquidity Disclosure Adopting Release, supra note 22, at paragraph accompanying 
n.125.

28  See infra sections I.B and II.A. 
29  Swing Pricing Adopting Release, supra note 11; rule 22c-1(a)(3).

18



shares does not typically account for the transactions costs, including trading costs and changes 

in market prices, that may arise when the fund buys portfolio investments to invest proceeds 

from purchasing shareholders or sells portfolio investments to meet shareholder redemptions.30 

Swing pricing is an investor protection tool currently available to funds to mitigate potential 

dilution and manage fund liquidity as a result of investor redemption and purchase activity. 

The 2016 swing pricing rule requires that, for funds choosing to use swing pricing, the 

fund’s NAV is adjusted by a specified amount (the “swing factor”) once the level of net 

purchases into or net redemptions from the fund has exceeded a specified percentage of the 

fund’s NAV (the “swing threshold”). A fund’s swing factor is permitted to take into account only

the near-term costs expected to be incurred by the fund as a result of net purchases or net 

redemptions on that day and may not exceed an upper limit of 2% of the NAV per share. The 

rule also requires a fund that uses swing pricing to adopt swing pricing policies and procedures 

that specify the process for determining the fund’s swing factor and swing threshold. The fund’s 

board must approve the fund’s swing pricing policies and procedures, the fund’s swing factor 

upper limit, and the swing threshold. The board also must review a written report on the 

adequacy and effectiveness of the fund’s swing pricing policies and procedures at least annually. 

In the time since the adoption of the rule, no U.S. funds have implemented swing pricing.

While swing pricing has been a commonly employed anti-dilution tool in Europe, including 

among U.S.-based fund managers that also operate funds in Europe, U.S. funds face unique 

operational obstacles in its implementation. When considering the adoption of the 2016 swing 

pricing rule, the Commission received comment letters articulating the operational issues that 

funds may encounter if they implemented swing pricing.31 In response to the concerns raised by 

30  See Swing Pricing Adopting Release, supra note 11, at section II.A.1. 
31  See Comment Letter of BlackRock on Open-End Fund Liquidity Risk Management Programs; 

19



commenters, the Commission adopted an extended effective date to allow for the creation of 

industry-wide operational solutions to facilitate the implementation of swing pricing more 

effectively. In that release, the Commission stated that it had directed Commission staff to 

review, two years after the rule’s effective date, market practices associated with funds’ use of 

swing pricing to mitigate dilution and to provide the Commission with the results of its review.32 

Since that time, we have evaluated market practices associated with funds’ lack of use of swing 

pricing, and this release reflects that evaluation. Despite over five years passing since adoption, 

the industry has not developed an operational solution to facilitate implementation of swing 

pricing, nor have individual market participants.33 

We understand that the industry has been unable to develop an operational solution to 

implement swing pricing largely because funds currently are unable to obtain sufficient fund 

flow information before they finalizes their NAVs, a necessary precursor to determining whether

a fund needs to use swing pricing on any particular day. Generating fund flow information 

involves a broad network of market participants with multiple layers of systems, including, 

among others, funds, transfer agents, broker-dealers, retirement plan recordkeepers, banks, and 

Swing Pricing; Re-Opening of Comment Period for Investment Company Reporting 
Modernization Release, Investment Company Act File No. 31835 (Sep. 22, 2015) [80 FR 62274 
(Oct. 15, 2015)] (“2015 Proposing Release”), File No. S7-16-15; Comment Letter of Dodge & 
Cox on 2015 Proposing Release, File No. S7-16-15; Comment Letter of Pacific Investment 
Management Company LLC on 2015 Proposing Release, File No. S7-16-15; Comment Letter of 
Securities Industry and Financial Markets Association on 2015 Proposing Release, File No. S7-
16-15. The comment file for the 2015 Proposing Release, where these comment letters can be 
accessed, is available at https://www.sec.gov/comments/s7-16-15/s71615.shtml.

32  See Swing Pricing Adopting Release, supra note 11, at section II.A.1. 
33  After the Commission adopted the current swing pricing rule, the industry formed working 

groups to explore potential operational solutions to facilitate funds’ ability to implement swing 
pricing. See Evaluating Swing Pricing: Operational Considerations, Addendum (June 2017), 
available at 
https://www.ici.org/system/files/attachments/ppr_17_swing_pricing_summary.pdf (“2017
ICI Swing Pricing White Paper”).

20

https://www.ici.org/system/files/attachments/ppr_17_swing_pricing_summary.pdfthe National Securities Clearing Corporation (“NSCC”). In general, many mutual funds use 

prices as of 4 p.m. ET (or the “pricing time”) to value the funds’ underlying holdings for 

purposes of computing their NAVs for the current day. This time is established by the fund’s 

board of directors. Typically, investors may place orders to purchase or redeem mutual fund 

shares with the fund’s transfer agent or with intermediaries as late as 3:59 p.m. ET for execution 

at that day’s NAV. When the transfer agent or an intermediary receives an order before the 

pricing time, that order typically receives that day’s price. An investor who submits an order 

after the pricing time must receive the next day’s price. 

While some investors may place orders by opening an account directly with the fund’s 

transfer agent, we understand that the majority of mutual fund orders are placed with 

intermediaries, such as broker-dealers, banks, and retirement plan recordkeepers.34 Some 

intermediaries do not transmit flow details to the fund’s transfer agent or the clearing agency 

until after the fund has finalized its NAV calculation and disseminated the NAV to pricing 

vendors, media, and intermediaries (“NAV dissemination”). NAV dissemination tends to occur 

between 6 p.m. ET and 8 p.m. ET. Indeed, the fund’s transfer agent or the clearing agency often 

do not receive a significant portion of orders until after midnight—i.e., the next day.35 This 

contributes to a mismatch between the extent of flow information funds require to implement 

swing pricing and the flow information funds currently have before the pricing time. For 
34  In 2021, an estimated 18% of U.S. households owning mutual funds purchased them directly 

from the mutual fund company. See 2022 ICI Fact Book, supra note 9, at Figure 7.8.
35  NSCC currently is the only registered clearing agency for fund shares. A significant portion of 

mutual fund orders are processed through NSCC’s Fund/SERV platform. See Depositary Trust 
and Clearing Corporation 2021 Annual Report, available at 
https://www.dtcc.com/annuals/2021/performance/dashboard (stating that the value of transactions
Fund/SERV processed in 2021 was $8.5 trillion and the volume for this period was 261 million 
transactions). A part of the platform, referred to as Defined Contribution Clearance & Settlement,
focuses on purchase, redemption, and exchange transactions in defined contribution and other 
retirement plans. This service handled a volume of nearly 154 million transactions in 2021. See 
id.

21

https://www.dtcc.com/annuals/2021/performance/dashboard


example, based on staff outreach, we understand that some funds receive only around half of 

their daily volume by 6 p.m. ET.36 We are also aware of a separate review of funds’ receipt of 

flow data for a quarter in 2016, which found that only 70% of actual and estimated trade flow 

could be delivered by 6 p.m. ET.37 Without sufficient actual or estimated flow information before

the fund finalizes its NAV, funds cannot implement swing pricing because the determination of 

whether to swing the fund’s NAV depends on the size of net flows.

B. March 2020 Market Events

In March 2020, at the onset of the COVID-19 pandemic in the United States, most 

segments of the open-end fund market witnessed large-scale investor outflows. Investors’ 

concerns about the potential impact of the COVID-19 pandemic led investors to reallocate their 

assets into cash and short-dated, near-cash investments.38 The resulting outflows from many 

open-end funds placed pressure on these funds to generate liquidity quickly in order to meet 

investor redemptions. Equity and debt security prices fell as yields rose. Uncertainty throughout 

36  We understand based on staff outreach that the time by which a fund receives flow information 
varies to some extent based on the fund’s investor base. For example, funds with large 
investments by retirement plans generally receive a larger portion of their flow information after 
6 p.m. ET than other funds. 

37  See 2017 ICI Swing Pricing White Paper, supra note 33 (stating that, for instance, intermediaries
trading via traditional Fund/SERV, such as traditional brokerage and managed account activity, 
transmit orders to the fund by 7 p.m. ET but, with system and procedural enhancements, 
processing and submission of orders as actual trades might be able to occur prior to 6 p.m. ET). 
This paper also suggested that 90% to 100% of trade flow (actual or estimated) is required to 
apply swing pricing between 4 p.m. and 6 p.m. ET.

38  See SEC Staff Report on U.S. Credit Markets Interconnectedness and the Effects of the COVID-
19 Economic Shock (Oct. 2020) (“SEC Staff Interconnectedness Report”), at 17 to 18, available 
at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf. Staff reports and other 
staff documents (including those cited herein) represent the views of Commission staff and are 
not a rule, regulation, or statement of the Commission. The Commission has neither approved nor
disapproved the content of these documents and, like all staff statements, they have no legal force
or effect, do not alter or amend applicable law, and create no new or additional obligations for 
any person. 

22

https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf


the U.S. economy and asset-price volatility rose, and credit spreads and bid-ask spreads 

widened.39 The large outflows open-end funds faced during March 2020, combined with the 

widening bid-ask spreads funds encountered when purchasing or selling portfolio investments at 

that time, likely contributed to dilution of the value of funds’ shares for remaining investors.40

Open-end funds are a large and important component of U.S. markets. At the end of 

2019, assets in open-end funds totaled $21 trillion.41 Fixed-income funds accounted for $5.3 

trillion, or 25% of total open-end fund assets.42 Bank loan assets were nearly $100 billion, or less

than 2% of total fixed-income fund assets. At the end of March 2020, following the height of the 

COVID-19 related market stress, assets in open-end funds (including ETFs) fell 17% ($3.6 

39  See id., at 3 and 6 to 8 (discussing that the market structure of certain segments of the credit 
market contributed to market stress in Mar. 2020, including reduced dealer inventories and 
reluctance to accommodate customer demand in some cases). On Apr. 1, 2020, the Board of 
Governors of the Federal Reserve System (“Federal Reserve”) made a temporary change to its 
supplementary leverage ratio rule to allow banking organizations to expand their balance sheets 
as appropriate to continue to serve as financial intermediaries, stating that the rule’s regulatory 
restrictions may constrain the firms’ ability to continue to serve as financial intermediaries and to 
provide credit to households and businesses in the face of rapid deteriorations in Treasury market 
liquidity conditions and significant inflows of customer deposits and increased reserve levels. See
Federal Reserve Board Announces Temporary Changes to its Supplementary Leverage Ratio 
Rule to Ease Strains in the Treasury Market Resulting from the Coronavirus and Increase 
Banking Organizations’ Ability to Provide Credit to Households and Businesses (Apr. 1, 2020), 
available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200401a.htm. 

40  We do not have specific data about the dilution fund shareholders experienced in Mar. 2020 
because funds do not report information about their trading activity and the prices at which they 
purchase and sell each instrument. However, European funds experienced similar market 
conditions as U.S. funds and, to mitigate dilution during this period, many European funds 
increased their use of swing pricing and the size of their swing factors. See infra paragraph 
accompanying note 60. European funds are subject to regulatory regimes that differ in some 
respects from the U.S. regime for open-end funds. We are not aware, however, of differences 
between the regimes that would have significantly reduced dilution for U.S. funds relative to 
European funds during this period, such that European funds needed to use swing pricing to 
mitigate dilution that U.S. funds were not experiencing due to regulatory or other differences. 

41  Of this amount, ETFs had assets of $4.4 trillion and other open-end funds had assets of $16.4 
trillion. Money market funds and funds of funds are excluded from calculations relating to the 
size and redemptions of open-end funds.

42  Fixed-income funds, excluding ETFs, had assets of $4.5 trillion, and fixed-income ETFs had 
assets of $800 billion.

23



trillion) from $20.8 trillion in December 2019 to a total of $17.2 trillion. Assets of open-end 

funds excluding ETFs fell 18% ($2.9 trillion) from $16.4 trillion to $13.5 trillion, and ETF assets

fell 17% (approximately $760 billion) from $4.4 trillion to $3.7 trillion. Of this amount, fixed-

income mutual fund assets fell 5.5%, although fixed-income ETFs’ assets increased slightly.43 In 

addition, bank loan fund assets fell by 30% in March 2020, or from $100 billion to $70 billion, 

compared to the level of assets reported in December 2019. 

Figure 2: Trends in Open-End Fund Assets

Open-End Fund (Excluding ETF)
Assets

Open-End Fixed-Income Fund (Excluding
ETF) Assets

43  Fixed-income funds, excluding ETFs, had assets of approximately $4.1 trillion, while fixed-
income ETFs’ assets increased slightly from Dec. 2019 levels to $830 billion.

24



Source: Morningstar

ETF Assets Fixed-Income ETF Assets

25



Source: Morningstar

The market disruptions of the March 2020 period included significant redemption activity

in open-end funds.44 Throughout 2019, net flows into open-end funds averaged approximately 

$32.4 billion, or 0.2% per month.45 During this same period, fixed-income funds experienced a 

steady inflow of approximately $41.7 billion, or 0.9% per month on average.46 In March 2020, 

however, open-end funds had outflows totaling $329.4 billion, or 1.7% of prior period assets.47 

44  Open-end funds also experienced heightened outflows in other stressed periods, such as the last 
quarter of 2008, but outflows in March 2020 surpassed those witnessed in these other periods. For
example, during the last quarter of 2008, investors withdrew $65 billion from bond funds. Total 
outflows for bond funds during this period never exceeded 1.5% of total net assets. See ICI, 2009 
Investment Company Fact Book, Figure 2.10 and accompanying text, available at 
https://www.ici.org/system/files/attachments/2009_factbook.pdf (calculating net flows as a three-
month moving average of net flows as a percentage of previous month-end assets, and excluding 
high yield bond funds). 

45  Open-end funds (excluding ETFs) had average net flows of approximately $4.8 billion (or 0.04%
per month). ETFs had average net flows of approximately $27.7 billion (or 0.7% per month).

46  Fixed-income funds (excluding ETFs) had inflows of $28.8 billion (or 0.7% per month on 
average). Fixed-income ETFs had inflows of $12.5 billion (or 1.7% per month on average).

47  Open-end funds (excluding ETFs) had outflows totaling $336.8 billion, or 1.7% of prior period 
assets. ETFs had inflows totaling $7.3 billion, or 2% of prior period assets. The majority of ETF 
inflows were for equity ETFs, which had $14.7 billion in inflows. Allocation, alternative, 
commodity, and miscellaneous/other ETFs had inflows of $13.2 billion. The inflows into some 
types of ETFs were partially offset by outflows of $20.6 billion from fixed-income ETFs.

26

https://www.ici.org/system/files/attachments/2009_factbook.pdf


The majority of these outflows were from fixed-income funds, which had $286.6 billion in 

outflows.48 Taxable bond funds had outflows of $241.7 billion (or 5.2% of prior period assets), of

which, bank loan funds had outflows of $12.4 billion (or 13.4% of prior period assets in these 

funds).49 Municipal bond funds had $44.9 billion in outflows (or 4.9% of prior period assets).50 

Figure 3: Open-End Fund and Fixed Income Fund Flows

Open-End Fund (Excluding ETF) Flows Open-End Fixed-Income Fund (Excluding
ETF) Flows

Source: Morningstar

48  Open-end funds (excluding ETFs) had outflows of approximately $266 billion, and ETFs had 
outflows of approximately $20.6 billion.

49  For open-end funds (excluding ETFs) this included outflows of $223.3 billion (5.9%) for taxable 
bond funds (of which, bank loan funds had outflows of $11.4 billion (13.6%)). For ETFs this 
included outflows of $18.4 billion (2.2%) for taxable bond ETFs (of which, bank loan ETFs had 
outflows of approximately $1 billion (11.2%))

50  For open-end funds (excluding ETFs) this included outflows of $42.6 billion (5%) for municipal 
bond funds. For ETFs this included outflows of $2.2 billion (4.3%) for municipal bond ETFs.

27



ETF Flows Fixed-Income ETF Flows

Source: Morningstar

During the period of market turmoil, bid-ask spreads spiked by as much as 100 basis 

points for high-yield bonds and 150-200 basis points for investment-grade bonds.51 In general, 

the bond market and bank loan market experienced significant price declines in March 2020. The

price for 10 year U.S. Treasuries increased by roughly 4.6%. The price of corporate bonds 

declined by 7%.52 The price of leveraged loans decreased by roughly 13%.53 The heightened 

volatility and demand for liquidity drove stress throughout the market, particularly in the bond 

fund and bank loan fund markets. Price declines were not limited to these markets, however. For 

example, the price for U.S. small cap equities decreased by roughly 24%.54

Beginning in mid-March 2020, the Federal Reserve, with the approval of the Department 

of the Treasury, used its emergency powers to intervene by providing timely and sizable 

51  See SEC Staff Interconnectedness Report, supra note 38, at 37. 
52  The decline in the price of corporate bonds is measured by the BBG U.S. Corporate Bond Index.
53  The decline in the price of leveraged loans was measured by the S&P Leveraged Loan Price 

Index.
54  The decline in the price of U.S. small cap equities was measured by the Russell 2000 Total 

Return Index. 

28



interventions in an effort to stabilize the markets. The official sector interventions included, 

among others, the Secondary Market Corporate Credit Facility, introduced on March 23, 2020. 

This facility supported market liquidity by purchasing in the secondary market corporate bonds 

issued by investment grade U.S. companies, as well as U.S.-listed ETFs whose investment 

objective is to provide broad exposure to the market for U.S. corporate bonds.55 

After the Federal Reserve announced that it would be using its emergency powers for 

official sector interventions, market stress relating to the COVID-19 pandemic began to subside. 

Assets in open-end funds, including fixed income funds, began to increase. By December 2020, 

open-end fund assets had increased to $24 trillion, with fixed-income funds (excluding ETFs) 

reaching $6 trillion in assets, and fixed-income ETFs surpassing $1 trillion in assets.56 Bank loan 

fund assets remained essentially unchanged, however, from March 2020 levels and remained at 

$68 billion. 

Other Observations from March 2020

Beyond data evidencing the liquidity stress funds faced in March 2020, we also observed 

the stress through staff outreach to the industry. During this period, fund managers discussed 

their liquidity concerns with Commission staff and the potential need for emergency relief. Fund 

managers explored various emergency relief actions. For example, some fund managers 

requested emergency relief that would provide additional flexibility for interfund lending and 

55  See, e.g., Press Release, Federal Reserve Announces Extensive New Measures to Support the 
Economy (Mar. 23, 2020), available at 
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm; 
https://www.federalreserve.gov/monetarypolicy/smccf.htm (describing the Secondary Market 
Corporate Credit Facility in particular).

56  From Apr. to Dec. 2020, fixed-income funds averaged $75 billion in inflows, or 1.4% per month.
Ultrashort and short-term bond funds experienced average monthly inflows of $16 billion and 2%
of assets over this period.

29

https://www.federalreserve.gov/monetarypolicy/smccf.htm
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm


other short-term funding to help meet redemptions, which the Commission provided.57 Some 

managers suggested emergency relief to permit funds to impose redemption fees that exceed 2% 

to mitigate dilution, including fees that ETFs can charge authorized participants to cover 

liquidity and transaction costs.58
 Some fund managers that have successfully used swing pricing 

in Europe urged the Commission to explore emergency actions to facilitate funds’ ability to 

operationalize the Commission’s current swing pricing rule. Some fund managers also suggested

there was a need for Federal Reserve interventions. These discussions indicated that fund 

managers sought additional means to quickly address liquidity and dilution concerns during this 

period of financial stress. 

During these conversations, several fund managers with operations in both the U.S. and 

Europe discussed their experience with swing pricing in Europe and indicated that swing pricing 

would have been a useful tool for U.S. funds to have had in March 2020. Swing pricing was 

widely used in several European jurisdictions during the March 2020 stressed period to reduce 

dilution from rising transaction costs.59 In these jurisdictions, some funds used partial swing 

57  See Order Under Sections 6(c), 12(d)(1)(J), 17(b), 17(d) and 38(b) of the Investment Company 
Act of 1940 and Rule 17d-1 Thereunder Granting Exemptions from Specified Provisions of the 
Investment Company Act and Certain Rules Thereunder, Investment Company Act Release No. 
33821 (Mar. 23, 2020), available at https://www.sec.gov/rules/other/2020/ic-33821.pdf. 
Although the Commission provided this relief for a period of time, we understand funds generally
did not use it.

58  ETFs typically externalize the costs associated with purchases and redemptions of shares by 
redeeming in kind and by charging a fixed and/or variable fee to authorized participants to offset 
both transfer and other transaction costs that an ETF (or its service provider) may incur, as well 
as brokerage, tax-related, foreign exchange, execution, market impact, and other costs and 
expenses related to the execution of trades resulting from such transaction. The amount of these 
fixed and variable fees typically depends on whether the authorized participant effects 
transactions in kind or with cash and is related to the costs and expenses associated with 
transactions effected in kind versus in cash. For example, when an authorized participants 
redeems ETF shares by selling a creation unit to the ETF, the fees that the ETF imposes defray 
the costs of liquidity the redeeming authorized participant receives. This, in turn, mitigates the 
risk of diluting non-redeeming authorized participants when an ETF redeems its shares. 

59  Funds in countries such as Luxembourg, Ireland, the United Kingdom, and the Netherlands had 
implemented swing pricing and it was well-established market practice. In Mar. 2020, funds in 

30

https://www.sec.gov/rules/other/2020/ic-33821.pdf


pricing (where a NAV adjustment occurs only if net flows exceed a swing threshold), some 

funds used full swing pricing (where a NAV adjustment occurs any time a fund has net inflows 

or net outflows), and some funds did not use swing pricing. Many European funds increased 

their use of swing pricing and increased the size of their swing factors during the stressed period.

For example, a voluntary survey conducted by the Bank of England and Financial Conduct 

Authority of a subset of fund managers in the United Kingdom (“UK”) indicated that the use of 

swing pricing more than doubled from the last quarter of 2019 to the first quarter of 2020.60 Due 

to increasing transaction costs, several European funds lowered their swing thresholds in March 

2020, with some moving to full swing pricing for net redemptions.61 Funds also increased the 

some countries, such as France, Spain, and Germany, had more recently begun to employ swing 
pricing as an anti-dilution method. See Lessons from COVID-19: Liquidity Risk Management 
and Open-Ended Funds, BlackRock ViewPoint (Jan. 2021), available at 
https://www.blackrock.com/corporate/literature/whitepaper/viewpoint-addendum-lessons-from-
covid-liquidity-risk-management-is-central-to-open-ended-funds-january-2021.pdf.

60  See Liquidity management in UK open-ended funds: Report based on a joint Bank of England 
and Financial Conduct Authority survey (Mar. 2021), available at 
https://www.bankofengland.co.uk/report/2021/liquidity-management-in-uk-open-ended-funds 
(“Bank of England Survey”). The increase in the use of partial and full swing pricing included the
increase in the number of funds using swing pricing as well as the increase in the frequency of its 
use for funds that already used swing pricing. The survey also found that some funds did not use 
swing pricing or other tools during the period because, for example, net outflows of certain funds 
were below levels at which they would consider applying swing pricing or other tools.

61  See id. (stating that, out of a total of 202 surveyed funds that were authorized to use swing 
pricing, 45 funds decided to reduce their swing threshold during this period, including 18 funds 
that switched temporarily to full swing pricing during the market stress); ICI, Experiences of 
European Markets, UCITS, and European ETFs During the COVID-19 Crisis (Dec. 2020), 
available at https://www.ici.org/doc-server/pdf%3A20_rpt_covid4.pdf (“Respondents reported 
that some UCITS lowered their partial swing thresholds during March to take into consideration 
the impact flows could have on investors from increased transaction costs in underlying 
markets… Some UCITS using partial swing pricing lowered their threshold for redemptions to 
zero in March (which is equivalent to full swing pricing) in response to market volatility that had 
caused bid-ask spreads to widen on underlying securities.”); Claessens, Stijn, and Lewrick, Ulf, 
“Open-ended bond funds: systemic risks and policy implications” (Dec. 2021) available at 
https://www.bis.org/publ/qtrpdf/r_qt2112c.pdf (stating that, in a survey of 57 Luxembourg 
actively managed bond UCITS based on a supervisory data collection, these funds lowered swing
thresholds on average from net outflows of 1% of total net assets before Mar. 2020 to less than 
0.5% of total net assets) (“Claessens and Lewrick”). See also CSSF Working Paper: An 
Assessment of Investment Funds’ Liquidity Management Tools (June 2022), available at 
https://www.cssf.lu/en/2022/06/publication-of-cssf-working-paper-an-assessment-of-investment-

31

https://www.bis.org/publ/qtrpdf/r_qt2112c.pdf


size of their swing factors to account for the increase in liquidity and transaction costs. For 

example, a survey of Luxembourg UCITS found that while the average swing factor for the 

survey sample hovered around zero before the turmoil, it increased by more than 100 basis points

on average during the market stress.62 The survey of UK-authorized funds similarly found that 

the size of swing factors increased during this period and that some funds that had capped the 

size of their swing factors needed to temporarily remove these caps.63 In terms of the effects of 

using swing pricing during March 2020, one study found that swing pricing allowed surveyed 

funds to recoup roughly 0.06% of total net assets on average from redeeming investors during 

three weeks of elevated redemptions in March 2020.64

We also observed funds’ liquidity risk management in March 2020 through funds’ filings

with the Commission and other staff outreach. Specifically, during and following the market 

events of March 2020, Commission staff assessed liquidity-related data reported on Forms N-

PORT and N-RN, as well as the development of liquidity risk management programs through 

staff outreach to funds, advisers, and liquidity classification vendors.65 Based on review of Form 

funds-liquidity-management-tools/ (“CSSF Paper”). 
62  See Claessens and Lewrick, supra note 61; CSSF Paper, supra note 61 (stating that “[t]he 

average swing factor of the 42 bond funds participating in the CSSF survey increased by more 
than 100 basis points on average during Mar. 2020 (the median and maximum swing factor were 
60 and 350 basis points, respectively)”).

63  See Bank of England Survey, supra note 60 (stating that of the 17 surveyed funds that had a cap 
on their swing factors, which ranged from 0.25% to 3%, 13 funds temporarily removed the caps 
in response to heightened outflows and a few managers overrode the caps). We also understand 
that in response to funds’ requests to use swing factors above their disclosed caps, some 
jurisdictions provided guidance on when this is permitted. See Commission de Surveillance du 
Secteur Financier, Swing Pricing Mechanism – FAQ, available at 
https://www.cssf.lu/en/Document/cssf-faq-swing-pricing-mechanism/ (providing guidance for 
increasing the swing factor above the maximum level identified in a fund’s prospectus under 
certain circumstances, and noting that typical maximum swing factors observed in fund 
prospectuses are between 1% and 3%). 

64  See Claessens and Lewrick, supra note 61.
65  The Mar. 2020 data collected on Form N-PORT often was not available to the Commission until 

June or July 2020 because a fund files data covering each month of its fiscal quarter on Form N-

32

https://www.cssf.lu/en/Document/cssf-faq-swing-pricing-mechanism/


N-PORT filings for February and March 2020, approximately two-thirds of funds did not appear 

to reclassify any investment held in both months despite the market events described above.66 We

saw that reclassifications increased from 25% of funds that held the same investment in both 

January and February 2020 to 33% of funds in March 2020, and stayed elevated for April 2020. 

We understand that many fund and liquidity vendor classification models use data lookback 

periods of 30 days or more that made them slowly adjust to changing market conditions, leaving 

these firms unable to consider their classifications and reclassify when market conditions 

changed quickly. In addition, we understand that classification models generally tend to assess 

liquidity based on relatively small sale sizes that do not necessarily reflect the amount a fund 

may need to sell to meet heightened levels of redemptions in stress periods, and most models do 

not automatically adjust to a higher trade size when market conditions change. Moreover, our 

data indicate that in March 2020 cash levels in the aggregate increased and relatively few funds 

made use of borrowing to meet redemptions, suggesting that funds generally were selling 

portfolio assets to meet redemptions and potentially for other purposes, such as to raise cash in 

anticipation of future redemptions. During March 2020, more than a dozen funds (primarily 

fixed-income funds) filed reports on Form N-RN. Most of these Form N-RN filings related to 

breaches of the 15% limit on illiquid investments.

Overall, the market events in March 2020 show how liquidity can deteriorate rapidly and 

significantly. In the face of such rapid market changes, liquidity risk management program 

features of some funds adjusted slowly, making them less effective during the stress period for 

managing liquidity risk. Additionally, tools, such as swing pricing, that may have helped open-

PORT no later than 60 days after the end of each fiscal quarter. 
66  See infra note 128 (discussing that fewer equity funds reported reclassifications of investments 

held in both Feb. and Mar. 2020 than fixed-income funds).

33



end funds limit dilution as both transaction costs and redemptions rose were unavailable because 

of operational challenges, although these tools were used in other jurisdictions during this period.

C. Rulemaking Overview

In March 2020, some open-end funds were not prepared for the sudden market stress that 

arose after many years of relative calm and, as the market stress and outflows grew, several 

funds began to explore emergency relief requests or suggest a need for government intervention 

in an effort to withstand or alleviate liquidity stress, address dilution, and improve overall market

conditions. The period of market stress in March 2020 was relatively brief ending upon Federal 

Reserve interventions, and no funds sought to suspend redemptions during this period. We 

believe there are meaningful lessons from this period that our rules should reflect, while also 

recognizing the possibility that future stressed periods—whether specific to certain funds or the 

markets as a whole—may be more protracted or more severe than March 2020, particularly 

absent Federal Reserve action. Fundamentally, we believe funds should be better prepared for 

future stressed conditions, which can occur suddenly and unexpectedly, and should have well-

functioning tools for managing through stress without significantly diluting the interests of their 

shareholders. We are proposing amendments to rules 22e-4 and 22c-1 that are designed to 

achieve these key objectives and to reflect our experience with the rules since they were adopted,

as well as supporting amendments to Form N-PORT and other reporting and disclosure forms. 

Specifically, recognizing that it can be difficult to predict when market stress will occur, 

the proposed amendments to rule 22e-4 would require funds to incorporate stress into their 

liquidity classifications by assuming the sale of a stressed trade size, which would be 10% of 

each portfolio investment, rather than the rule’s current approach of assuming the sale of a 

“reasonably anticipated trade size” in current market conditions. Requiring a fund’s classification

34



model to assume the sale of larger-than-typical position sizes may better emulate the potential 

effects of stress on the fund’s portfolio, similar to an ongoing stress test, and help better prepare 

a fund for future stress or other periods where the fund faces higher than typical redemptions. 

The proposal also would establish other minimum standards for classifying the liquidity of an 

investment, which are designed to improve the quality of classifications by preventing funds 

from over-estimating the liquidity of their investments and to provide clearer guideposts for 

liquidity classifications, reflecting the more effective practices we have observed. 

In addition, we propose to remove the less liquid investment category and to treat these 

investments as illiquid. The less liquid category consists of investments that can be sold in seven 

calendar days but that take longer to settle. For example, many bank loans take longer than seven

days to settle. The proposed amendment is designed to reduce the mismatch between the receipt 

of cash upon the sale of assets with longer settlement periods and the payment of shareholder 

redemptions. This would better position funds to meet redemptions, including in times of stress. 

Currently, treating these investments as “less liquid”—as opposed to “illiquid”—allows funds to 

invest in these assets beyond the 15% limit on illiquid investments, notwithstanding that “less 

liquid” investments settle beyond the statutory seven-day period to pay redemptions. We are also

proposing to amend the definition of illiquid investment to include investments whose fair value 

is measured using an unobservable input that is significant to the overall measurement. We 

understand many funds classify these investments as illiquid today.

We also propose to require daily liquidity classifications. We believe this change would 

promote better monitoring of a fund’s liquidity and an ability to more rapidly understand and 

respond to changes that affect the liquidity of the fund’s portfolio, including the fund’s 

35



compliance with its highly liquid investment minimum and the rule’s limit on illiquid 

investments. 

As another means to prepare funds for stressed conditions, we are proposing to amend the

highly liquid investment minimum provisions in the rule to require all funds to determine and 

maintain a minimum amount of highly liquid assets of at least 10% of net assets. This aspect of 

the proposal is designed to ensure that funds have sufficient liquid investments for managing 

heightened levels of redemptions. Finally, we are proposing amendments to how the highly 

liquid investment minimum calculation and the calculation of the 15% limit on illiquid 

investments take into account the value of assets that are posted as margin or collateral for 

certain derivatives transactions to reflect that the fund cannot access the value of posted assets to 

meet redemptions until the fund is able to exit the derivatives transactions.

In addition, to reduce shareholder dilution during stress and other periods, we are 

proposing to amend rule 22c-1 to require all open-end funds, other than ETFs and money market 

funds, to implement swing pricing. Today, no fund has implemented swing pricing, and funds 

rarely use redemption fees to address dilution other than in the case of short-term trading of fund 

shares, meaning shareholders may experience dilution both in normal and stressed conditions, 

particularly when purchases or redemptions are large or when funds invest in markets with high 

transaction costs relative to other markets.67 We believe swing pricing is an important and 

effective tool for dynamically addressing such dilution by recognizing that costs associated with 

shareholder purchases and redemptions rise as net flows increase and liquidity and transaction 

costs grow. 

67  Based on an analysis of fund prospectuses, approximately 551 open-end funds (or around 4.6% 
of funds) state that they apply redemption fees under certain circumstances for at least one share 
class of the fund. Approximately 3.3% of fund classes have a redemption fee, or 0.6% of net fund
assets. 

36



In addition to proposing mandatory swing pricing, we are proposing to amend the swing 

pricing framework in rule 22c-1 to apply lessons learned from March 2020, including 

information about the European experience with swing pricing during that period. Specifically, 

we propose to amend both when and how a fund would adjust its NAV, which would vary 

depending on whether a fund has net purchases or net redemptions. Rather than require funds to 

determine their own swing thresholds, we propose to specify the amount of net inflows or net 

outflows that would trigger a pricing adjustment in the rule, informed by an analysis of historical

flow amounts. 

In addition, we propose a specific method of calculating the swing factor price 

adjustment, which would require a fund to make good faith estimates of the transaction costs of 

selling or purchasing a pro rata amount of its portfolio investments (or a “vertical slice”) to 

satisfy that day’s redemptions or to invest the proceeds from that day’s purchases. Under the 

proposal, a fund would be required to apply a swing factor on any day it has net redemptions. 

When net redemptions exceed 1% of net assets, the swing factor would also account for market 

impacts of selling a vertical slice of the portfolio to capture the dilutive effect of trading in 

response to large outflows better. We believe trading in response to small levels of net inflows is 

less likely to have a dilutive effect than trading in response to net outflows and, as a result, we 

propose to require a fund to apply a swing factor for net purchases only if net purchases exceed 

2% of net assets. In addition, we propose to remove the 2% swing factor upper limit from the 

current rule because we are proposing a more specific framework for determining swing factors, 

some European funds used swing factors above 2% in order to mitigate dilution in March 2020, 

and we received requests for emergency relief in the United States during this period to allow 

funds to charge redemptions fees exceeding 2% to mitigate dilution. The proposed swing pricing 

37



amendments are designed to reduce the dilution of an investor’s interest in a fund that is caused 

by the redemption or purchase activity of other investors in the fund and to fairly allocate the 

costs associated with redemption and purchase activity. These amendments also may reduce 

potential first-mover advantages that might incentivize early redemptions to avoid anticipated 

trading costs and dilution associated with other investors’ redemptions. 

To operationalize the proposed swing pricing requirement and provide other benefits, we 

are also proposing to amend rule 22c-1 to require that the fund, its transfer agent, or a registered 

clearing agency receive purchase and redemption orders by an established cut-off time to receive

a given day’s price (a “hard close”). Specifically, for an order to be eligible to receive a day’s 

price, these designated parties would have to receive the order before the pricing time, which is 

typically 4 p.m. ET. The proposed hard close would facilitate the receipt of timely flow 

information to inform swing pricing decisions. In addition, we believe it would help prevent late 

trading and reduce operational risk.  

To promote transparency related to fund liquidity and use of swing pricing, we are 

proposing amendments to Form N-PORT to require funds to report their aggregate liquidity 

classifications publicly, as well as the frequency and amount of swing pricing adjustments. With 

respect to liquidity disclosure, this amendment is designed to provide investors with meaningful 

information about fund liquidity, taking into account that our proposed amendments to the 

liquidity classification framework should result in more objective and comparable liquidity 

classifications across funds.68 As for the proposed swing pricing reporting requirements, we 

68  In certain cases, investors consume reported information indirectly through other data users. 
These other data users can include, for example, regulators such as the Commission, fund 
analysts, and third-party data providers. Throughout this release, references to consumption of 
information by investors include indirect consumption by investors enabled by other data users.

38



believe the proposed frequency and size information would allow investors to better understand 

the operation and effects of swing pricing. 

We also propose broader changes to Form N-PORT to require all registered investment 

companies that report on the form, which include open-end funds (other than money-market 

funds), registered closed-end funds, and ETFs registered as unit investment trusts, to file monthly

reports with the Commission within 30 days of month-end. These monthly reports would 

subsequently be publicly available 60 days after month-end. These proposed amendments would 

require filers to provide the Commission with more timely information and would provide 

investors with access to monthly rather than quarterly information. We observed in March 2020 

that timely and full disclosure can be particularly important during and immediately after stress 

events. Finally, we propose amendments to Forms N-PORT, N-CEN, and N-1A to, among other 

things, conform to our other proposed amendments and to improve entity identifiers. 

Taken together, these proposed amendments are designed to provide investors with 

increased protection regarding how liquidity in their funds is managed, thereby reducing the risk 

that funds will be unable to meet redemptions and mitigating dilution of the interests of fund 

shareholders. These reforms also are intended to give investors information to make more 

informed investment decisions, and to give the Commission more timely information to conduct 

comprehensive oversight of an ever-evolving fund industry.

II. DISCUSSION 

A. Amendments Concerning Funds’ Liquidity Risk Management Programs 

1. Amendments to the Classification Framework

Rule 22e-4 currently requires a fund to classify each portfolio investment based on the 

number of days within which it reasonably expects the investment would be convertible to cash, 

39



sold or disposed of, without significantly changing its market value.69 Under this framework, 

funds must, using information obtained after reasonable inquiry and taking into account relevant 

market, trading, and investment-specific considerations, classify each portfolio investment into 

one of four liquidity classifications: highly liquid, moderately liquid, less liquid, and illiquid.70 A 

fund may generally classify and review its investments by asset class unless the fund or adviser 

has information about any market, trading, and investment-specific considerations that it 

reasonably expects to significantly affect the liquidity characteristics of an investment compared 

to the fund’s other portfolio holdings within that asset class.71 In classifying its investments, a 

fund must analyze the number of days that it reasonably expects it would take to sell, or convert 

to cash, portions of a position in a particular investment or asset class that the fund would 

reasonably anticipate trading (the “reasonably anticipated trade size”) without significantly 

changing its market value (“value impact”).72 A fund must review its liquidity classifications at 

least monthly in connection with reporting the liquidity classification for each investment on 

Form N-PORT, and more frequently if changes in relevant market, trading, and investment-

69  In-kind ETFs are included when we refer to “funds” or “open-end funds” throughout this release 
when discussing rule 22e-4, except in the sections discussing classifying the liquidity of a fund’s 
investments and the highly liquid investment minimum requirement, from which in-kind ETFs 
are excepted. See proposed rule 22e-4(a) (defining “in-kind ETF” as an ETF that meets 
redemptions through in-kind transfers of securities, positions, and assets other than a de minimis 
amount of U.S. dollars and that publishes its portfolio holdings daily); see also rule 22e-4(b)(1)
(ii) and 22e-4(b)(1)(iii). In-kind ETFs do not present the same kind of liquidity risks as other 
funds because the redeeming shareholder typically bears the direct costs associated with its 
liquidity needs. See Liquidity Rule Adopting Release, supra note 8, at paragraphs accompanying 
n.842.

70  See rule 22e-4(b)(1)(ii). 
71  See rule 22e-4(b)(1)(ii)(A).
72  See rule 22e-4(b)(1)(ii)(B) (requiring a fund to determine whether trading varying portions of a 

position in sizes that the fund would reasonably anticipate trading is reasonably expected to 
significantly affect its liquidity). The definition of each liquidity category sets out the number of 
days in which a fund reasonably expects to sell, or convert to cash, an investment without 
significantly changing its market value. See rule 22e-4(a)(6), rule 22e-4(a)(8), rule 22e-4(a)(10), 
and rule 22e-4(a)(12).

40

https://www.law.cornell.edu/definitions/index.php?width=840&height=800&iframe=true&def_id=c249dd258655eee764854b1f40ee57e0&term_occur=999&term_src=Title:17:Chapter:II:Part:270:270.22e-4specific considerations are reasonably expected to materially affect one or more of its 

investments’ classifications.73 

The liquidity classifications are integral to rule 22e-4. Among other things, these 

classifications help a fund monitor its liquidity, including compliance with the fund’s highly 

liquid investment minimum and the 15% limit on illiquid investments.74 The fund’s 

classifications also provide liquidity information to the Commission and, under our proposal, to 

the public. 

The current rule allows funds considerable discretion in how funds determine the 

classification of investments.75 Funds may choose which investments to classify individually or 

by asset class, with the composition of asset classes determined by the fund. Funds also may use 

different reasonably anticipated trade sizes and have different standards for evaluating value 

impact. Through staff outreach, we observed that funds had varied approaches in their 

classifications processes. The proposed amendments to the liquidity classifications are intended 

to better prepare funds for future stressed conditions. For example, the reasonably expected trade

sizes and value impact standards some funds and liquidity classification vendors used tended to 

over-estimate a fund’s liquidity in March 2020 because they considered relatively smaller trade 

sizes or used value impact methodologies with longer lookback periods. 

Based on our observations from March 2020 and our review of funds’ liquidity risk 

management practices and classifications, we are proposing amendments to the classification 

73  See rule 22e-4(b)(1)(ii).
74  See rule 22e-4(b)(1)(iii) and rule 22e-4(b)(1)(iv).
75  See Liquidity Rule Adopting Release, supra note 810, at n.163 and accompanying text (stating 

that the primary goals of the liquidity rule program requirements were to reduce the risk that 
funds would be unable to meet redemption and other legal obligations, minimize dilution, and 
elevate the overall quality of liquidity risk management across the fund industry while at the same
time providing funds with reasonable flexibility to adopt policies and procedures that would be 
most appropriate to assess and manage their liquidity risk).

41



framework. The proposed amendments would provide additional standards for making liquidity 

determinations, amend certain aspects of the liquidity categories, and require more frequent 

liquidity classifications. Specifically, we propose to provide objective minimum standards that 

funds would use to classify investments, including by: (1) requiring funds to assume the sale of a

set stressed trade size, rather than the rule’s current approach of assuming the sale of a 

reasonably anticipated trade size in current market conditions; and (2) defining the value impact 

standard with more specificity on when a sale or disposition would significantly change the 

market value of an investment. We also propose to remove classification by asset class. These 

proposed amendments are designed to improve the quality of classifications by preventing funds 

from over-estimating the liquidity of their investments, including in times of stress, and to 

provide classification standards that are consistent with more effective practices the staff has 

observed. In addition, a more objective and comparable framework for how funds classify the 

liquidity of their investments would enhance the Commission’s ability to analyze trends across 

funds’ classifications and establish the groundwork for classification information that investors 

could use to analyze and compare funds.  

We also propose to remove the less liquid investment category, which would reduce the 

number of liquidity categories from four to three, and expand the scope of the illiquid investment

category. We believe these changes would reduce the risk of a fund not being able to meet 

shareholder redemptions. Finally, we propose to require daily classifications, which we believe 

would promote better monitoring by liquidity risk program administrators of a fund’s liquidity 

and an ability to more rapidly understand and respond to changes that affect the liquidity of the 

fund’s portfolio.76 

76  See rule 22e-4(a)(13) (defining “person(s) designated to administer the program”, in part, as the 
investment adviser, officer, or officers responsible for administrating the program).

42



Table 1 sets forth the primary proposed changes to the rule’s liquidity classification 

framework, which are described in more detail below.

Table 1: Proposed Changes to the Liquidity Classifications

Liquidity Classifications
and Related Terms

Current Rule 22e-4 Proposed Rule 22e-4 

Definitions

Highly Liquid 
Investment

Any cash held by a fund and 
any investment that the fund 
reasonably expects to be 
convertible into cash in current 
market conditions in three 
business days or less without 
the conversion to cash 
significantly changing the 
market value of the investment.

Any U.S. dollars held by a fund
and any investment that the 
fund reasonably expects to be 
convertible to U.S. dollars in 
current market conditions in 
three business days or less 
without significantly changing 
the market value of the 
investment.

Moderately Liquid 
Investment

Any investment that the fund 
reasonably expects to be 
convertible into cash in current 
market conditions in more than 
three calendar days but in seven
calendar days or less, without 
the conversion to cash 
significantly changing the 
market value of the investment.

Any investment that is neither a
highly liquid investment nor an 
illiquid investment.

Less Liquid Investment Any investment that the fund 
reasonably expects to be able to
sell or dispose of in current 
market conditions in seven 
calendar days or less without 
the sale or disposition 
significantly changing the 
market value of the investment,
but where the sale or 
disposition is reasonably 

Removed.

43



Liquidity Classifications
and Related Terms

Current Rule 22e-4 Proposed Rule 22e-4 

expected to settle in more than 
seven calendar days.

Illiquid Investment

Any investment that the fund 
reasonably expects cannot be 
sold or disposed of in current 
market conditions in seven 
calendar days or less without 
the sale or disposition 
significantly changing the 
market value of the investment.

Any investment that the fund 
reasonably expects not to be 
convertible to U.S. dollars in 
current market conditions in 
seven calendar days or less 
without significantly changing 
the market value of the 
investment and any investment 
whose fair value is measured 
using an unobservable input 
that is significant to the overall 
measurement.

Convertible to Cash / 
U.S Dollars

The ability to be sold, with the 
sale settled.

The ability to be sold or 
disposed of, with the sale or 
disposition settled in U.S. 
dollars.

Related Concepts

Assumed Trade Size
Sizes that the fund would 
reasonably anticipate trading

10% of the fund’s net assets by 
reducing each investment by 
10%

Value Impact Standard

Significantly changing the 
market value of the investment

Significantly changing the 
market value of an investment 
means:
(1) For shares listed on a 
national securities exchange or 
a foreign exchange, any sale or 
disposition of more than 20% 
of average daily trading volume
of those shares, as measured 
over the preceding 20 business 
days.
(2) For any other investment, 
any sale or disposition that the 
fund reasonably expects would 
result in a decrease in sale price
of more than 1%.

44



a. Stressed Trade Size and Significant Changes in Market Value

i. Replacing Reasonably Anticipated Trade Size with   
Stressed Trade Size

Currently, when a fund makes liquidity classifications under rule 22e-4, it must determine

whether trading varying portions of a position in a particular portfolio investment or asset class, 

in sizes that the fund would reasonably anticipate trading, is reasonably expected to significantly

affect its liquidity.77 This determination of a reasonably anticipated trade size helps a fund 

analyze market depth. For example, if a fund anticipates trading a large investment position 

relative to the market’s total trading volume, the size of the trade might affect liquidity and 

price.78 

Using a small reasonably anticipated trade size to analyze market depth leads to a more 

liquid classification, as a smaller position can be sold more quickly without significantly 

affecting the investment’s liquidity than a larger position. In contrast, using a larger reasonably 

anticipated trade size would often lead to less liquid classifications. Under the current rule, a 

fund may determine its own reasonably anticipated trade size, and we have observed wide 

variation in practice.79 From staff outreach, we observed that funds may consider a variety of 

different factors, such as their flow history, flow trends of other similar funds, and shareholder 

makeup and concentration, and a fund may weigh the importance of those factors differently to 

determine what it would reasonably anticipate trading. We believe that using a reasonably 

77  See rule 22e-4(b)(1)(ii)(B).
78  See Liquidity Rule Adopting Release, supra note 8, at paragraphs accompanying n.440 and 

n.450.
79  See SEC staff Investment Company Liquidity Risk Management Programs Frequently Asked 

Questions (Apr. 10, 2019) (“Liquidity FAQs”), available at 
https://www.sec.gov/investment/investment-company-liquidity-risk-management-
programs-faq for discussion of factors funds may consider in determining reasonably anticipated
trading size. The Commission has observed that many funds have set reasonably anticipated trade
size values at 3%. Others have set values of below 3% and up to 100%, signifying wide variation.

45

https://www.sec.gov/investment/investment-company-liquidity-risk-management-programs-faq
https://www.sec.gov/investment/investment-company-liquidity-risk-management-programs-faq


anticipated trade size based on these, or a subset of these factors, may not help funds prepare for 

future stressed conditions. Even if a fund increased its reasonably anticipated trade size during 

periods of stress, the resulting adjustments in the fund’s liquidity risk management may be too 

late to help the fund prepare for the stressed environment and, thus, may have limited utility. 

In response to the variability in funds’ reasonably anticipated trade sizes and the potential

ineffectiveness of small trade sizes in helping a fund prepare for stress, we propose to require 

funds to assume the sale of a set stressed trade size. Specifically, for a fund to determine the 

liquidity classification of each investment, we propose that it must measure the number of days 

in which the investment is reasonably expected to be convertible to U.S. dollars without 

significantly changing the market value of the investment, while assuming the sale of 10% of the

fund’s net assets by reducing each investment by 10%.80 The proposed stressed trade size may 

result in funds classifying fewer investments as highly liquid, and may increase the number of 

investments that are subject to the 15% limit on illiquid investments. These changes, in turn, may

lead some funds to rebalance their portfolio holdings to comply with the proposed changes, 

which could negatively affect the performance of these funds. However, a lack of preparation for

higher than normal redemptions also can negatively affect fund performance when such 

redemptions occur.81 We believe that requiring a fund’s classification model to assume the sale 

of larger-than-typical position sizes would better emulate the potential effects of stress on the 

80  The liquidity classifications define the number of days as business days for highly liquid 
investments or calendar days for illiquid investments. See Table 1. See also rule 22e-4(a)(2) 
(defining “business day” to exclude customary business holidays).

81  See Liquidity Rule Adopting Release, supra note 8, at paragraphs accompanying nn.109 and 110 
(stating that staff had observed that some funds with more thorough liquidity risk management 
practices appeared to be able to better meet periods of higher than typical redemptions without 
significantly altering their risk profile or materially affecting their performance, while some funds
with substantially less rigorous liquidity risk management practices experienced particularly poor 
performance compared with their benchmark when faced with higher than normal redemptions). 

46



fund’s portfolio, similar to an ongoing stress test, and help better prepare a fund for future stress 

or other periods where the fund faces higher than typical redemptions. 

Based on an analysis of weekly flows of equity and fixed-income funds over a period of 

more than ten years, outflows greater than 6.6% occurred 1% of the time in a pooled sample 

across weeks and funds.82 Based on this analysis, we estimate that a random fund in a random 

week has approximately a 0.5% chance of experiencing redemptions in excess of the 10% 

stressed trade size, and there were 3.4% of weeks where more than 1% of funds experienced net 

redemptions exceeding the proposed stressed trade size. We believe that weekly outflows at the 

99th percentile is a useful approximation of the level of outflows funds may experience in future 

stressed conditions.83 However, because it is difficult to predict future stress events, including the

effect and length of such events—particularly without official sector interventions—we believe it

is appropriate to require funds to use a stressed trade size amount of 10%, which is moderately 

higher than the 6.6% weekly outflow figure discussed above. We also considered, during this 

same historical period, equity and fixed-income funds had weekly inflows of greater than 8% for 

1% of the time in a pooled sample across weeks and funds. In addition, large, concentrated 

inflows have the possibility of translating to similarly large outflows. For example, if the large 

inflows are the result of investment by an institutional investor or a fund’s inclusion in a model 

82  Based on an analysis of historical Morningstar weekly fund flow data for equity and fixed 
income funds from 2009 through 2021. See infra sections III.B.4.a and III.C.1.a.i (providing 
additional equity and fixed income flow data and discussing this analysis in more detail). While 
some Morningstar data is available for 2008, we have not included that data in our historical flow
analyses in this release because of gaps in the 2008 data (e.g., the 2008 dataset covers a more 
limited set of funds). Other available flow information for 2008, such as from the ICI Fact Book, 
is not granular enough for purposes of our analyses.

83  We believe weekly outflows is a better proxy for the stressed trade size than daily outflows 
because stressed conditions may take some time to fully present in flows and often result in 
outflows that continue over several days or more.

47



portfolio, the fund may experience similarly large outflows if the investor mandate changes or if 

the fund is removed from the model portfolio. 

Under the proposed approach, a fund would apply its stressed trade size to each 

investment to determine its liquidity classifications. We have observed that funds generally 

determine and apply a reasonably anticipated trade size to each investment or asset class 

currently (commonly referred to as pro rata or vertical slice methods). We have also observed, 

however, that some funds have applied the reasonably anticipated trade size in such a manner 

that the trading would be satisfied largely by selling the fund’s most liquid investments, resulting

in smaller assumed trade sizes for purposes of classifying the fund’s less liquid investments.84 As

recognized above, small assumed sale sizes can result in more liquid classifications generally, as 

sales of small amounts are less likely to affect the market value of the investment significantly 

and typically can be converted to U.S. dollars more quickly. We are particularly concerned that 

use of small assumed sale sizes for non-highly liquid investments can overstate the liquidity of 

these investments and reduce the effectiveness of a fund’s liquidity risk management program 

when a fund needs to sell a larger-than-assumed portion to meet redemptions under stressed 

conditions or for any other portfolio management reason. Requiring funds to apply the 10% 

stressed trade size to each investment would better prepare funds to manage their liquidity in 

stressed conditions, when a fund may be required to sell positions that are larger than the 

assumed sale sizes some funds are using currently. The amendments to replace the determination

of a reasonably anticipated trade size with a stressed trade size are designed to enhance a fund’s 

preparation for stressed conditions, including the potential for sizeable outflows.

84  See Liquidity Rule Adopting Release, supra note 8, at paragraph accompanying n.1084. We do 
not suggest that a fund should only, or primarily, use its most liquid investments to meet 
shareholder redemptions. See id., at n.661 and accompanying paragraph.

48



We request comment on the proposed requirement for funds to apply a stressed trade size

to each investment in their liquidity classification determinations:

1. Should we require funds to use a stressed trade size, as proposed? Would the change 

from reasonably anticipated trade size to stressed trade size materially change the 

proportion of investments classified in a given liquidity category? If yes, how? Would

the proposed stressed trade size affect certain types of funds more than others? Would

the proposed stressed trade size be likely to overstate or understate liquidity?

2. Is the proposed stressed trade size of 10% appropriate? If not, what minimum trade 

size would be appropriate and why? For example, should we increase or decrease the 

stressed trade size to, for example, 15% or 5% or some other threshold? Is there other 

data that should factor into setting the stressed trade size?

3. Should the stressed trade size vary for different types of funds and, if so, how? For 

instance, should the stressed trade size be a function of the fund’s flow history, such 

as the 99th percentile highest week of the fund’s absolute or net flows over a given 

period (e.g., 3 years, 5 years, 10 years, or the life of the fund)? Should the stressed 

trade size be the higher of a specified value applied to each investment or the 99th 

percentile highest week of absolute flows? 

4. Should the method of applying the stressed trade size to each investment vary for 

different types of funds and, if so, how? Are there types of investments that should be

excluded or use a different stressed trade size? Are there other, more appropriate 

methods of applying a stressed trade size across different type of investments and 

portfolios? 

49



5. Instead of establishing a set stressed trade size, should we set a minimum stressed 

trade size and provide factors for determining if a fund should have a higher stressed 

trade size? If so, what factors should funds consider in setting their stressed trade 

size?

ii. Determining a Significant Change to Market Value  

Currently, when a fund makes liquidity classifications under rule 22e-4, it must analyze 

whether a sale or disposition would significantly change the market value of the investment. In 

the adopting release for rule 22e-4, the Commission explained that this value impact analysis 

captures the risk of a fund only being able to meet redemption requests in a manner that 

significantly dilutes the non-redeeming shareholders.85 The Commission established the value 

impact standard to capture the risk of dilution in cases of inadequate liquidity, while not 

requiring funds to account for every possible value movement.86 We propose to establish a 

minimum value impact standard that defines more specifically what constitutes a significant 

change in market value.87 We believe the proposed change would improve the quality of funds’ 

liquidity classifications by preventing funds from over-estimating the liquidity of their 

investments and would improve comparability of funds’ liquidity classifications. In addition, the 

proposed approach is consistent with more effective practices we have observed from some 

funds and liquidity classification vendors, as discussed below. 

Under the current rule, a fund may determine value impact in a variety of ways, 

depending on the type of asset, or vendor, model, or system used. There also is variation in the 

depth and sophistication of funds’ analyses. We believe the variation in how a fund may 
85  See Liquidity Rule Adopting Release, supra note 8, at paragraph accompanying n.334.
86  See id., at paragraph accompanying n.339.
87  See proposed rule 22e-4(a) (definition of “Significantly changing the market value of an 

investment”).

50



determine value impact leads to differences in the quality of funds’ classifications, limits 

comparability of funds’ classifications across the same or similar investments, and may cause 

funds to over-estimate the liquidity of their investments. 

The proposed definition of a significant change in market value would require a fund to 

consider the size of the sale relative to the depth of the market for the instrument.88 This would 

vary depending on the type of investment. For shares listed on a national securities exchange or a

foreign exchange, we believe selling or disposing of more than 20% of the security’s average 

daily trading volume would indicate a level of market participation that is significant.89 We 

understand that if a fund sold more than 20% of the average daily trading volume of a listed 

equity security, such a large sale is likely to result in a significant change in the security’s market

value, which would dilute remaining investors in the fund. We have observed that a standard 

based on average daily trading volume is consistent with practices many funds and vendors apply

for assessing value impact for listed equity investments today.90 To determine average daily 

88  The proposed rule would continue to provide that an investment’s classification is based on a 
fund’s reasonable expectations in current market conditions. See Liquidity Rule Adopting 
Release, supra note 8, at section III.C.1.d (discussing comments and suggestions on the 
consideration of market conditions). Thus, a fund would be able to rely on its reasonable 
expectations at the time it makes the value impact assessment. Although we are proposing to 
require funds to assume an element of stressed conditions in their liquidity classifications through
the stressed trade size, a broader requirement to predict how an investment may trade in stressed 
market conditions would introduce additional variables into the classification process that could 
increase the risk of misclassifications and decrease the data quality of funds’ liquidity-related 
reporting and disclosure. 

89  Under this proposal, the sale or disposition must be below 20% of the security’s average daily 
trading volume. A fund may choose to impose a stricter limitation of any percentage under 20%, 
for example, 15% of average daily trading volume.

90  Through staff outreach, we observed many funds using some percent of average daily trading 
volume (e.g., 15%, 20%, or 25%) that the fund’s investment can represent if it wants to be able to
sell into daily volume without affecting market prices. In practice, this meant funds would 
estimate the number of days it would take to sell or dispose of the reasonably anticipated trade 
size without approaching the set percentage of average daily trading volume to avoid impacting 
the value significantly. We observed funds calculating the average daily trading volume taking 
into account different sources, and for different time periods, ranging from 10 days to 6 months.

51



trading volume, we propose to require funds to measure the average daily trading volume over 

the preceding 20 business days. We believe using a period of 20 business days provides an 

appropriate measure of daily trading volume, which would reflect current market conditions as 

well as consider a period of recent market history. The 20 business day period is intended to 

strike a balance between longer periods that are less reflective of current conditions and shorter 

periods that can be skewed easily by an abnormally high or low volume day. For purposes of 

measuring average daily trading volume, the preceding 20 business days include those days 

where U.S. markets are open but where one or more international markets are closed, such as 

“Golden Week,” a week in Japan including multiple Japanese public holidays. A fund would 

count these and any other trading days where shares were not traded as zero volume days for the 

relevant investment. 

For any investments other than shares listed on a national securities exchange or a foreign

exchange, such as fixed-income securities and derivatives, we propose to define a significant 

change in market value as any sale or disposition that a fund reasonably expects would result in a

decrease in sale price of more than 1%. Funds currently use a variety of methods to determine 

significant changes in market value in fixed-income securities, taking into account different 

groups of comparable securities, asset class characteristics and volatility, number and depth of 

market makers, bid-offer spread size, volume of the security or similar securities, and elasticity 

of prices in the security or similar securities. For purposes of the proposed rule, a decrease of 

more than 1% would indicate a level of value impact that is significant because the fund is 

selling or disposing of a relatively large position or because the market for the investment has 

constricted, and bid-ask spreads have widened. We also understand that several commonly 

employed liquidity models currently use this price decrease measure. We acknowledge that not 

52



all liquidity models specify a price decrease explicitly as the determination for a significant 

change in market value and some funds would have to make changes to convert to this more 

objective threshold. The proposed value impact standard would improve funds’ abilities to 

perform quality checks and back testing and would allow the Commission to better analyze 

classification data across funds. 

In considering whether a sale is reasonably expected to result in a price decrease of more 

than 1%, the fund would be required to consider the size of the sale relative to the depth of the 

market for the instrument. As part of that analysis, we believe a fund generally should consider, 

among other things, the width of bid-offer spreads. This is because the width of bid-offer spreads

is an important consideration in analyzing the costs of selling a security and thus whether a sale 

would result in a price decrease exceeding 1%. For example, a sale would be more likely to 

result in a price decline of more than 1% if the trade size is large in relation to the market for that

instrument or if bid-ask spreads are wide, or if both are the case. Wide, or widening, bid-ask 

spreads may indicate a lower level of demand for the instrument, which makes it more likely that

a sale of the instrument would result in a price decline of more than 1%.

We request comment on our proposed definition of significant change in market value:

6. Would funds have to make significant changes to their liquidity classification 

methodologies to reflect the proposed amendments to the value impact standard? If 

so, what effect would those changes have on a fund’s liquidity risk management 

program?

7. Should we define value impact through average daily trading volume or price decline,

as proposed? Should we use a different definition of value impact instead, and if so, 

53



should it depend on the type of investment? Should different types of funds have 

different value impact standards? If yes, what standards, and for what types of funds?

8. For shares listed on a national securities exchange or a foreign exchange, should we 

define a significant change in market value as selling or disposing of more than 20% 

of the average daily trading volume, as proposed? Are there other types of 

investments for which an average daily trading volume test would be appropriate? For

example, is there data available for fixed-income securities that funds could use 

objectively to analyze market participation under a value impact standard?

9. Should the percent of average daily trading volume be higher or lower (e.g., 15% or 

25%)? Should the measurement period for the average daily trading volume be longer

or shorter than the proposed 20 business days (e.g., 10, 30, or 40 business days)? 

Should days where shares were not traded be counted as zero volume days as 

proposed or in some other manner? Are there circumstances in which the average 

daily trading volume test should vary by instrument, type of instrument, or trading 

venue? 

10. For investments that are not listed on a national securities exchange or foreign 

exchange, should we define a significant change in market value as any sale or 

disposition that the fund reasonably expects would result in a price decline of more 

than 1%, as proposed? Should the identified percentage be higher or lower (e.g., 0.5%

or 2%)? Should this standard for determining a significant change in market value 

apply to all investments? Would funds need additional guidance or parameters to 

measure this standard consistently, including what inputs or comparable investments 

may be used in determining the price decline?

54



11. Should the 1% price decline definition of value impact be applied against the fund’s 

last valuation of an investment, which would include both the effect of the fund’s sale

and market moves? 

iii. Removing Asset Class Classification   

Under current rule 22e-4, a fund may generally classify and review its portfolio 

investments (including the fund’s derivatives transactions) according to their asset class. 

However, a fund must separately classify and review any investment within an asset class if 

the fund or its adviser has information about any market, trading, or investment-specific 

considerations that are reasonably expected to significantly affect the liquidity characteristics of 

that investment as compared to the fund’s other portfolio holdings within that asset class.91 The 

current provision was intended to strike a balance between reducing operational burdens 

associated with classification and providing reasonably precise liquidity classifications that 

appropriately reflect investments’ liquidity characteristics.92 The burden to determine individual 

investment classifications may have decreased since the adoption of the rule for many funds as 

these funds became more familiar with and developed their liquidity risk management programs 

and, in some cases, developed automated processes for classifying investments or employed 

sophisticated liquidity classification vendors that provide economies of scale. In addition, in 

practice there may be weaknesses in asset class level classifications that may result in a lack of 

reasonably precise classifications. Therefore, we propose to remove the asset class method of 

classification from the rule.

91  See rule 22e-4(b)(1)(ii)(A).
92  See Liquidity Rule Adopting Release, supra note 8, at section III.C.3.a. The current approach 

was also intended to leverage fund managers’ current practices and to recognize that many 
investments within an asset class may be considered interchangeable from a liquidity perspective.

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Through outreach, we understand that asset class level classifications are not widely used 

by many funds. But, where these asset class level classifications are used, this method runs the 

risk of over-estimating the liquidity of a fund’s investments and not adjusting quickly in times of 

stress. After a fund has begun to use asset class level classifications, and particularly if 

classifications are reviewed only on a monthly basis, it might be difficult for a fund to identify 

instances where a given investment’s liquidity characteristics do not align with the characteristics

of other investments in the asset class because individual investment liquidity data is not being 

collected and analyzed. Through outreach, we observed that funds generally established a 

process and timing for liquidity assessments and did not change those processes or timing as 

market conditions changed, and particularly were unlikely to do so under stressed conditions. For

example, during a stress event like March 2020, a fund using asset class level classifications may

not be equipped to re-classify a subset of investments in an asset class adeptly in response to 

changing conditions that affect those investments directly. Also, because funds classify a 

significant portion of their holdings as highly liquid, we believe this potential gap in identifying 

investments that a fund should classify differently from other investments in the asset class is 

more likely to over-estimate, rather than under-estimate, the liquidity of a fund’s investments. 

These tendencies run counter to the premise of the current rule’s classification system, which 

presumed that a fund would use efficiencies such as asset class level classifications and monthly 

review of classifications only when market conditions or other factors did not indicate that a shift

to a more granular or frequent classification is appropriate.93 Therefore, we are proposing to 

93  See rule 22e-4(b)(1)(ii) (identifying the circumstances in which a fund must review its portfolio 
investments’ classifications more frequently than monthly); rule 22e-4(b)(1)(ii)(A) (identifying 
the circumstances in which a fund must separately classify and review an investment within an 
asset class instead of classifying according to the investment’s asset class). 

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remove asset class level classifications to provide more precise liquidity classifications that 

appropriately reflect investments’ liquidity characteristics. 

Moreover, asset class level classifications are not compatible with the other changes we 

are proposing to the classification framework, including the proposed definitions of the value 

impact standard. It would also be difficult for a fund to meaningfully apply at the asset class 

level a standard based on average daily trading volume or a price decline in a given investment 

because the average trading volume, or market depth generally, can vary from investment to 

investment even within the same asset class. Classifying each investment separately therefore 

allows a more precise assessment of that investment’s liquidity. In addition, because the 

proposed rule would include specific minimum standards for classifying investments, it may 

reduce burdens of classifying investments while improving the quality of classifications relative 

to the current rule, consistent with the Commission’s objectives in originally allowing asset class

level classifications. Finally, staff has observed through outreach that liquidity risk management 

programs have developed so that specific and individual portfolio investment liquidity 

classifications are widely used and the removal of asset class level classifications is consistent 

with that approach. 

We request comment on the proposed removal of the provision permitting funds to 

classify the liquidity of their investments by asset class.

12. Should we preserve the ability of funds to use asset classes for liquidity 

determinations, as currently permitted? To what extent do funds currently rely on the 

provision allowing liquidity classifications by asset class? Would it be more or less 

burdensome for funds to classify investments individually under the proposal’s 

specific minimum standards (such as the stressed trade size and the defining the value

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impact standard) than to separately classify any investment within an asset class 

whenever the fund or its adviser has market, trading, or investment-specific 

information indicating that the investment should be classified separately rather than 

as part of the relevant asset class? 

13. Would the operational burden of individually classifying be balanced by the 

improved quality of data for each individual investment as compared to classifying by

asset class? To what extent would investment-by-investment classifications differ 

compared to asset class level classification? Are there other benefits to removing 

asset class level classification, such as timely, useful, improved, or increased data?

14. Is reliance on this provision more common for certain types of funds or certain asset 

classes? Should asset class level classifications be limited to specific types of funds or

asset classes? 

15. If we permitted asset class level classifications, how should the stressed trade size and

value impact standard in the proposal apply to asset class level classifications?

b. Amendments to Liquidity Classification Categories

We are proposing changes to the liquidity classification categories to improve funds’ 

abilities to make timely payment on shareholder redemptions, without the sale of portfolio 

investments resulting in the dilution of outstanding fund shares. Section 22(e) of the Act 

establishes a right of prompt redemption in open-end funds by requiring such funds to make 

payments on shareholder redemption requests within seven days of receiving the request. In 

March 2020, in connection with the economic shock from the onset of the COVID-19 pandemic, 

open-end funds faced a significant amount of investor redemptions, and we believe additional 

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changes to rule 22e-4 would assist funds in managing investor redemptions in future stressed 

conditions. 

Rule 22e-4 currently allows funds to classify as less liquid investments those that the 

fund reasonably expects to be able to sell or dispose of in seven calendar days or less without 

significantly changing the market value of the investment, but that are reasonably expected to 

settle in more than seven calendar days.94 Under the current rule, an investment is classified as 

illiquid if it cannot be sold or disposed of in seven calendar days or less without significantly 

changing the market value of the investment.95 We propose to eliminate the less liquid 

classification category and amend the definition of illiquid investment to include those 

investments that a fund reasonably expects not to be convertible to U.S. dollars in current market

conditions in seven calendar days or less without significantly changing the market value of the 

investment, as well as those investments whose fair value is measured using an unobservable 

input that is significant to the overall measurement.96 Under the proposal to eliminate the less 

liquid classification category, the rule would therefore have only three liquidity classifications: 

highly liquid investments, moderately liquid investments, and illiquid investments. We also 

propose to amend the term “convertible to cash” to “convertible to U.S. dollars,” codifying prior 

Commission statements.97 Finally, we propose to specify how to count the identified number of 

days an investment is convertible to U.S. dollars for purposes of the liquidity categories.

94  See rule 22e-4(a)(10) (defining “less liquid investment”).
95  See rule 22e-4(a)(8) (defining “illiquid investment”).
96  See proposed rule 22e-4(a). 
97  See Liquidity Rule Adopting Release, supra note 8, at n.848 (“Cash means cash held in U.S. 

dollars, and would not include, for example, cash equivalents or foreign currency.”).

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i. Removing the Less Liquid Investment Category and   
Classifying these Investments as Illiquid

We propose to eliminate the less liquid classification category and amend the definition 

of illiquid investment to include investments, in part, that a fund reasonably expects not to be 

convertible to U.S. dollars in seven calendar days or less without significantly changing the 

market value of the investment. Investments that funds currently classify as less liquid would 

become illiquid investments under the proposed amendments, absent changes to shorten the 

settlement time of many of those investments. Section 22(e) of the Act requires open-end funds 

to make payment on shareholder redemption requests within seven days of receiving the request. 

The proposed amendment to define an investment as illiquid if it does not settle to U.S. dollars in

seven calendar days is designed to reduce the mismatch between the receipt of cash upon the sale

of assets with longer settlement periods and the payment of shareholder redemptions. This would

help prepare funds for future stressed conditions by reducing the risk of a fund not being able to 

meet shareholder redemptions. Unlike the current rule, the proposed rule would directly limit to 

15% the amount of fund assets that are not reasonably expected to be convertible to U.S. dollars 

in seven days. 

While funds may classify different types of investments as less liquid investments today, 

the most common type of investment in this category is bank loans.98 Fund investments make up 

approximately 15% of the bank loan market.99 Filings on Form N-PORT show that over 90% of 
98  Based on Form N-PORT data, bank loans made up 77% and 60% of investments reported as less 

liquid in Feb. and Mar. 2020, respectively. In addition to bank loans, a smaller number of fixed-
income securities, mortgage-backed securities, and equities are categorized as less liquid 
investments. 

99  See Leveraged Loan Primer (last visited Oct. 4, 2022), available at 
https://pitchbook.com/leveraged-commentary-data/leveraged-loan-primer#market-size (stating 
that the Morningstar LSTA U.S. Leveraged Loan Index, which is used as a proxy for market size 
in the U.S., totaled approximately $1.375 trillion as of Feb. 2022). As of Dec. 2021, there are 746
open-end funds that classified approximately $204 billion in bank loan interests as reported on 
Form N-PORT. Using this data, we estimate that funds held approximately 15% of the bank loan 

60bank loan investments reported by open-end funds are classified as less liquid.100 In 2015, 

commenters addressing concerns about liquidity in the bank loan market stated that significant 

efforts were then underway to materially improve settlement times in the bank loan market, 

which are typically longer than other asset classes.101 Bank loans are not standardized and have 

individualized legal documentation. This provides flexibility of terms for bank loans, but also 

increases the time for a fund to settle a bank loan trade and receive proceeds from the sale, thus 

increasing the risk of the fund not being able to meet shareholder redemptions.102 

Around the time that the Commission adopted the liquidity rule, the median settlement 

time for a loan sale was about 12 days.103 In the Liquidity Rule Adopting Release, the 

Commission stated that a fund may need to consider re-classifying an investment as illiquid in 

the event of an extended settlement period.104 By July 2021, the average time to settle a bank loan

par trade in the secondary market increased to a then seven-year high of T+23, and the median 

was at T+15.105 While median settlement time for bank loans in which funds invest has generally 

market.
100  Based on Form N-PORT data, in 2021, more than 90% of the gross value of loans reported by 

open-end funds were classified as less liquid. This was also the case in Feb. and Mar. 2020.
101   See, e.g., Comment Letter of the Loan Syndications and Trading Association on 2015 Proposing

Release, supra note 31, File No. S7-16-15, available at https://www.sec.gov/comments/s7-16-
15/s71615-57.pdf (“LSTA Comment Letter”) (stating the goal of transforming syndicated loan 
settlement to a similar settlement period as most other asset classes).

102  See id.
103  See LSTA Comment Letter.
104  See Liquidity Rule Adopting Release, supra note 8, at n.380 and accompanying text.
105  See LSTA, Secondary Trading & Settlement: Monthly July Executive Summary (Aug. 19, 

2021), available at https://www.lsta.org/news-resources/secondary-trading-settlement-monthly-
july-executive-summary/?utm_source=rss&utm_medium=rss&utm_campaign=secondary-
trading-settlement-monthly-july-executive-summary. In addition, fewer trades settled within T+7,
(just 20% of trades settled within the LSTA guideline during July, a nine-percentage point 
reduction from the previous year’s monthly average) and settlements wider than T+20 increased 
10-percentage points as of July 2021, to a 39% market share, nearly double that of the T+7 
distribution.

61



increased, Form N-PORT data has not shown funds reclassifying these investments to take into 

account extended settlement times.

We are proposing changes to remove the less liquid investment classification to reduce 

the risk that funds that invest significantly in less liquid investments may not be able to meet 

shareholder redemptions. While bank loan funds were able to meet redemption requests during 

March 2020, a period of significant outflows, we are concerned that they may not be able to meet

shareholder redemptions in future stressed conditions, especially as investments in this asset 

class increase. During the month of March 2020, bank loan funds experienced outflows of 

approximately 13% of assets, more than any other type of fund. In addition, since March 2020, 

total registered investment company investments in bank loans have increased 50% to 

approximately $200 billion.106 We understand that in past times of large outflows, the median 

buy-side settlement time for bank loans generally decreased and funds had a degree of success in

effecting shorter settlement periods for these investments to help meet redemptions.107 We are 

concerned, however, that in future stress events these attempts to shorten settlement times may 

fail since loans are not standardized, have individualized legal documentation, and rely on 

manual processes for settlement. We also understand that funds with significant extended 

settlement investments have used borrowing through lines of credit to meet redemptions, but 

lines of credit may not be available to all funds and borrowing imposes costs that can dilute the 

value of the fund for remaining investors. Based on Form N-CEN filings, several bank loan 

106  This is based on Form N-PORT information as of Jan. 31, 2022.
107  See LSTA Comment Letter (stating that settlement times have decreased in periods of large 

outflows, for example, in Aug. 2011, when bank loan funds experienced $8 billion of outflows 
(approximately 13% of assets). Similarly, in Mar. 2020, when bank loan funds experienced $12 
billion of outflows (approximately 13% of assets), we understand that settlement times also 
generally decreased.

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funds have accessed their lines of credit in their most recent reporting period.108 We understand 

that the costs of borrowing have risen and credit has become more difficult to obtain over time.

We believe that investments that funds currently classify as less liquid should be 

classified as illiquid investments and be subject to the 15% limit on illiquid investments, so that 

funds may be better prepared to satisfy redemptions in future stressed conditions without delay 

and without significant dilution. Using Form N-PORT data, we estimate that approximately 200 

funds during March 2020 would have had illiquid investments over the 15% limit if this 

proposed change had been in effect, with bank loan funds being the largest type of affected 

fund.109 As a result of the proposed amendments, more bank loan funds may contract for 

expedited settlement, which would involve costs. Alternatively, advisers with strategies that have

15% or more of assets in investments classified as less liquid and illiquid may change those 

strategies, close funds, or consider using a closed-end fund or other investment vehicle structure 

that is not subject to rule 22e-4. Further, potential additional demand for these investments could 

provide incentives to shorten the settlement cycle for bank loans more generally, which may 

reduce trading costs.110 We believe that these amendments would reduce the risk of a fund not 

being able to satisfy redemptions without diluting the interests of remaining shareholders while 

waiting for the proceeds from the sale of an investment with extended settlement.

ii. Additional Amendments to the Definition of Illiquid   
Investment

We also propose to amend the definition of illiquid investment to include investments 

whose fair value is measured using an unobservable input that is significant to the overall 

108  See infra note 459 and accompanying text (providing information about bank loan funds’ use of 
lines of credit as of Dec. 2021).

109  The number of funds is estimated by dividing the aggregate gross value in the relevant categories
by the aggregate gross value reported.

110  See infra section III.C.1.b. 

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measurement. U.S. GAAP establishes a fair value hierarchy that categorizes into three levels the 

inputs to valuation techniques used to measure fair value.111 The fair value measurements of 

investments are categorized in accordance with this three-level hierarchy. The highest-level 

measurements are those developed using quoted, observable inputs in active markets for 

identical assets and liabilities (Level 1), such as prices for identical investments on a securities 

exchange; the lowest are those developed using unobservable inputs (Level 3).112 We 

acknowledge that observability is a valuation concept and may not always correspond to 

liquidity. The proposed amendment would require those funds not already classifying 

investments valued using unobservable inputs that are significant to the overall measurement as 

illiquid to change their classification practices and may change the liquidity profile for those 

funds under the rule to be less liquid. To the extent there is a liquid market for affected 

investments, this proposed amendment would cause funds to over-estimate the illiquidity of their

portfolios. As of December 2021, 2,006 open-end funds held investments that were valued using 

unobservable inputs that are significant to the overall measurement (Level 3 investments), 

comprising $76.3 billion, or 0.27% of all open-end fund assets.113 Among these, $16.9 billion 
111  See FASB ASC 820-10-35-37, which sets out a fair value hierarchy for accounting purposes, as 

compared to rule 2a-5, which provides a framework for fund valuation practices and determining 
fair value (including applying an appropriate methodology consistent with the principles of FASB
Accounting Standard Codification Topic 820: Fair Value Measurement (“ASC Topic 820”)) for 
purposes of the Act. See Good Faith Determinations of Fair Value, Investment Company Act 
Release No. 34128 (Dec. 3, 2020) [86 FR 748 (Jan. 6, 2021) (“Valuation Adopting Release”)]. 

112  See ASC Topic 820. U.S. GAAP requires funds to maximize the use of relevant observable 
inputs and minimize the use of unobservable inputs in valuing any asset or liability. In some 
cases, the inputs used to measure fair value might be categorized within different levels of the fair
value hierarchy. In those cases, the fair value measurement is categorized in its entirety in the 
same level of the fair value hierarchy as the lowest level input that is significant to the overall 
measurement. See ASC 820-10-35-16AA and 820-10-35-37A. Examples of particular assets and 
liabilities that may be measured using Level 3 inputs include long-dated currency swaps, three-
year options on exchange-traded shares, interest rate swaps, asset retirement obligations at initial 
recognition, and reporting units. See FASB ASC 820-10-55-22.

113  See infra note 424 and accompanying paragraph. We observed that the investments classified as 
highly liquid that were Level 3 investments primarily were mortgage-backed securities.

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were classified as highly liquid investments and $2.1 billion as moderately liquid investments.114 

Accordingly, we estimate that approximately 0.07% of all open-end fund assets would be 

affected by this amendment.

Where an investment is valued using unobservable inputs that are significant to the 

overall measurement, this may indicate that an active, liquid, and visible market for the 

investment does not exist. Where there is no active, liquid, and visible market for an investment, 

there may be a corresponding risk that the fund cannot sell the investment in time to meet 

redemptions without dilution. The proposal defines investments whose fair value is measured 

using unobservable inputs that are significant to the overall measurement as illiquid for purposes 

of this rule, which is intended to reduce this risk. By classifying these investments as illiquid, the

proposal would establish a minimum standard for classifying the liquidity of an investment, 

which is designed to provide more consistent guideposts for liquidity classifications. 

iii. Other Amendments Related to Liquidity Classification   
Categories

Amendments to the Definition of Moderately Liquid Investment

We propose to simplify the definition of moderately liquid investment to mean any 

investment that is neither a highly liquid investment nor an illiquid investment.115 The 

moderately liquid investment category would continue to provide information about the portion 

114  We recognize that, in light of the proposed removal of the less liquid category, only those 
investments valued using unobservable inputs that are significant to the overall measurement that 
are classified as highly liquid or moderately liquid would be affected by this proposed 
amendment.

115  We also are proposing to remove a provision that addresses how to classify an investment that 
could be viewed as either a highly liquid investment or a moderately liquid investment because 
the ambiguity in classification that provision addresses is no longer present under the proposed 
amendments to those classifications. See note to paragraph (b)(1)(ii) introductory text in current 
rule 22e-4.

65



of a fund’s portfolio that is not on the most liquid end of the spectrum, but that still is sufficiently

liquid to meet redemption requests within the statutory seven day period.

Amendments to the Definition of Convertible to Cash and References to Cash

We propose to amend the term “convertible to cash” to “convertible to U.S. dollars” and 

to make conforming amendments to the definition of this term to refer to the ability for a fund to 

sell or dispose of an investment, and for it to settle in U.S. dollars.116 These amendments codify 

prior Commission statements. In the adopting release for rule 22e-4, the Commission stated that 

cash means “cash held in U.S. dollars, and would not include, for example, cash equivalents or 

foreign currency.”117 The Commission also provided an example in that release in which the 

period of time it took to repatriate or convert a foreign currency to dollars factored into the 

analysis of how quickly a foreign security could convert to cash.118 Some funds are classifying 

foreign investments as highly liquid taking into account solely the time it would take to convert 

the proceeds of a sale to the foreign currency. Similarly, some funds classify foreign currency as 

highly liquid without further analysis about the time that would be needed to convert that 

currency to U.S. dollars. We believe it is important to view the liquidity of fund investments in 

terms of convertibility to U.S. dollars within a specified period so that a fund is able to satisfy 

116  See proposed rule 22e-4(a) (defining “convertible to U.S. dollars” as the ability to be sold or 
disposed of, with the sale or disposition settled in U.S. dollars) (emphasis added). We also 
propose to amend the definition of convertible to U.S. dollars to refer to disposition of an 
investment, and not only sales. This is a conforming amendment, as current rule 22e-4 
classifications otherwise refer to the ability to sell or dispose of an investment.

117  See Liquidity Rule Adopting Release, supra note 8, at n.848.
118  See id., at paragraph accompanying n.379 (providing an example where certain foreign securities

may be able to be sold in seven calendar days or less, but may be subject to capital controls that 
would limit the extent to which the foreign currency could be repatriated or converted to dollars 
within this time frame and explaining that these securities would be considered to be less liquid 
investments because they would be reasonably expected to settle in more than seven calendar 
days).

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redemption requests in U.S. dollars.119 This amendment is intended to promote the ability of 

funds to meet redemptions without diluting the interests of the remaining shareholders and 

increase consistency in how funds classify the liquidity of investments, including in foreign 

investments and foreign currencies. In addition to the definition of convertible to cash, we also 

propose to amend other references in rule 22e-4 to refer to U.S. dollars instead of cash for 

consistency and clarity.120

Method for Counting the Number of Days

We propose to specify when a fund must start to measure the identified number of days in

which it reasonably expects a stressed trade size of an investment would be convertible to U.S. 

dollars without significantly changing its market value. Currently, the rule does not directly 

specify when to begin counting the number of days an investment would be convertible to U.S. 

dollars, and funds have inconsistent practices as to when they begin this measurement. This 

inconsistency may lead certain funds to overestimate their liquidity classifications, and reduce 

their ability to meet redemptions. This also detracts from comparability when analyzing trends 

across funds. For example, some funds may consider an investment highly liquid if it could be 

converted to U.S. dollars three business days after the date of the classification analysis, while 

others include the date of classification when counting the number of days. Those funds that 

begin counting after the date of the classification would have the advantage of counting an 

additional day as compared to those funds that include the date of classification, and their 

liquidity classifications may appear to be more liquid than a similar fund that begins counting on 

119  See id., at n.105 and accompanying text (noting concerns about the potential mismatch between 
the timing of receipt of cash for sales of fund assets and the payment of cash for shareholder 
redemptions).

120  See proposed rule 22e-4(a) (defining “highly liquid investment” and “in-kind exchange traded 
fund”); and proposed rule 22e-4(b)(1)(i)(C) (listing liquidity risk factors).

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the date of classification. Therefore, we propose to specify that funds must count the day of 

classification when determining the period in which an investment is reasonably expected to be 

convertible to U.S. dollars.121 For example, in order for a fund to classify an investment as highly

liquid on Monday, it would need to reasonably expect that the investment could be sold and 

settled to U.S. dollars by Wednesday at the latest.

We request comment on the proposed amendments to the liquidity classification 

categories:

16. As proposed, should we eliminate the less liquid investment category and amend the 

illiquid investment definition to include an investment that a fund reasonably expects 

can be sold within seven calendar days without significantly changing the market 

value but is not convertible to U.S. dollars within that period (i.e., investments that 

are currently classified as less liquid under the rule)? What effect would these 

proposed amendments have and how would those funds that significantly invest in 

such less liquid investments likely change? 

17. Would the proposed amendment cause funds that currently hold less liquid 

investments to contract for expedited settlement for such investments? What are the 

advantages or limitations of contracting for expedited settlement? Would the 

proposed amendments provide an incentive to reduce settlement times in bank loan 

and other relevant markets more generally? If so, how long might it take to reduce 

settlement times in response to the rule and what would be the burdens associated 

with this change? Are there certain categories of bank loans or other investments for 

which market participants may be unable to reduce the settlement time to seven 

121  See proposed rule 22e-4(b)(1)(ii)(A).

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calendar days or less? Which investments and why? What other effects may occur, 

for example, would some funds change their strategies, liquidate, or choose to be 

structured as a different investment vehicle, such as a closed-end fund? If some funds 

would convert to closed-end funds, what type of closed-end fund would they likely 

choose (e.g., interval fund, or a closed-end fund listed on an exchange)? Should we 

amend other rules, or provide relief from any specific rules or provisions of the 

Federal securities laws, to expedite changes to strategies or conversions to closed-end

funds or other investment vehicles? 

18. Some funds classify certain bank loans as highly liquid or moderately liquid today. 

What characteristics of these bank loans lead to a reasonable expectation that they 

will be convertible to cash in seven days or less without significantly changing the 

market value? Are funds considering contracts for expedited settlement? Would funds

need additional guidance on how to assess the period in which a bank loan or other 

investment is reasonably expected to be convertible to U.S. dollars? For example, 

should we revise the proposed rule to require that funds consider, or provide guidance

suggesting that funds may wish to consider: settlement time history for the individual 

or similar investments, average settlement times for the market, and guarantees for 

settlement or expedited settlement, as well as the contractual settlement period? 

19. Have the costs of borrowing risen and has credit become more difficult to obtain over

time for bank loan funds, particularly during stressed periods? 

20. As proposed, should we remove the less liquid category and require funds to use a 

three category classification framework? Would the proposed changes simplify 

classifications and reduce burdens over time, after funds updated systems to reflect 

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the change? Would the proposed changes appropriately reflect the liquidity of a fund, 

or would the current framework be more appropriate? Should funds be permitted to 

invest above 15% in less liquid investments if there are other methods or mechanisms

to reduce the mismatch between the receipt of cash upon the sale of assets with longer

settlement periods and the payment of shareholder redemptions or to address potential

dilution associated with this mismatch? If so, what other methods or mechanisms 

should these funds be required or permitted to use (for example, swing pricing, gates 

to suspend redemptions, redemption fees, redemptions in kind, additional limits on 

less liquid investments, notice periods, or lengthening the settlement period for 

paying redemptions)?122 If we permit (to the extent not already permitted) or require 

use of one or more of these tools, how should they be used (individually, in some 

combination with each other, or with other protections, such as disclosure, board 

approval, and Commission reporting)? Should we amend other rules, or provide relief

from any specific rules or provisions of the Federal securities laws, to expedite or 

permit use of these methods and mechanisms?123 

21. Should we provide that an investment is illiquid if it is not reasonably expected to be 

convertible to U.S. dollars in a shorter or longer period than seven calendar days? 

How would a shorter or longer period align with the requirement in section 22(e) of 

the Act for a fund to satisfy redemptions within seven days? If we provided a longer 

122  With a notice period, an investor’s redemption request would not be processed until the end of a 
notice period (e.g., after 2 to 5 days). The investor would receive the next calculated price after 
the notice period ends, with payment occurring at the end of a settlement period. With a 
lengthened settlement period, a redeeming investor would receive the price next calculated after 
submitting the redemption order but would not receive payment until the end of a lengthened 
settlement period (e.g., 5 to 7 days after trade date).

123  See, e.g., section 22(e) of the Act (providing the conditions under which a registered investment 
company may suspend the right, or postpone the date, of redemption for more than seven days).

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period of time to convert to U.S. dollars before an investment is classified as illiquid, 

how would funds prepare for the potential mismatch during stressed situations 

between the amount of available cash and the size of shareholder redemptions? 

Should we provide additional exemptions to allow funds to delay redemptions to 

shareholders under certain limited circumstances and conditions, such as independent 

director approval?

22. Are there circumstances in which an investment is fair valued using an unobservable 

input that is significant to the overall measurement, but the investment should not be 

treated as illiquid for purposes of the rule? Please explain and provide supporting 

data. Should we permit a fund to classify certain types of investments that are fair 

valued using unobservable inputs that are significant to the overall measurement as 

highly liquid or moderately liquid and, if so, which types? Should we instead treat 

investments that are fair valued using unobservable inputs that are significant to the 

overall measurement as presumptively illiquid, but permit funds to rebut this 

presumption? If so, what process should we require for rebutting the presumption? 

For example, should we require funds to maintain records describing why they did 

not classify such an investment as illiquid? Should we require funds to disclose on 

Form N-PORT any circumstances in which they did not classify such an investment 

as illiquid?

23. Are there other types or characteristics of investments that we should include in the 

definition of illiquid investment? If so, which ones?

24. Should we amend the definition of moderately liquid investment, as proposed? 

Alternatively, should we retain the details in the current definition that specify the 

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number of days in which a fund must reasonably expect an investment to be 

convertible to U.S. dollars in order to classify it as moderately liquid?

25. Would the proposed changes to the liquidity classifications affect investment options 

available to investors? For example, would bank loan funds only be available in non-

open-end investment vehicles? What effect would these proposed changes have on 

those asset classes that are less available for investment by open-end funds for 

liquidity reasons, the availability of credit to borrowers, and more generally, on 

capital formation? 

26. Should we amend the definition of convertible to cash and other references to cash in 

rule 22e-4 to refer to U.S. dollars, as proposed? Would these amendments raise issues

for specific types of funds? If so, which ones and how? Would these amendments 

affect funds’ investment strategies, including their allocation to foreign investments 

and U.S. dollars, or their performance?

27. Are there circumstances in which a fund would pay redemptions in a different 

currency than U.S. dollars? If so, would it be appropriate for that fund to be able to 

assess the time in which an investment could convert to that other currency for 

purposes of the rule?

28. In addition to sale and disposition, are there other ways an investment may be 

converted to U.S. dollars that should be included in the definition of convertible to 

U.S. dollars? If so, what are they?

29. Would the amendment to refer to U.S. dollars instead of cash in the definitions of 

highly liquid investment and convertible to cash materially change how funds classify

highly liquid investments currently? If so, how? 

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30. Should we require funds to include the day of classification when counting the 

number of days to convert to U.S. dollars as proposed, or should we require funds to 

begin to count the number of days to convert to U.S. dollars on the following day? 

What are the advantages and disadvantages of this alternative? Would this alternative 

result in less conservative liquidity classifications for some funds or investments (i.e.,

by causing some investments that otherwise would have been classified as moderately

liquid to be classified as highly liquid) or impair a fund’s ability to meet redemptions?

31. Instead of using the days an investment would be convertible to U.S. dollars in the 

liquidity classifications as proposed, should we separately set the number of days to: 

(1) make the trade; and (2) settle the trade or otherwise dispose of an investment, in 

determining liquidity classifications? Why or why not? Is there a different way the 

rule should measure the period that an investment is convertible to U.S. dollars? 

c. Frequency of Classifications

Rule 22e-4 currently requires that funds review their liquidity classifications at least 

monthly in connection with reporting on Form N-PORT, and more frequently if changes in 

relevant market, trading, and investment-specific considerations are reasonably expected to 

materially affect one or more of their investments’ classifications.124 The current rule also 

requires a fund to monitor and take timely actions related to the liquidity of its investments, 

including changes to its liquidity profile. Specifically, the rule prohibits a fund from acquiring 

any illiquid investment if, immediately after the acquisition, the fund would have invested more 

than 15% of its net assets in illiquid investments that are assets.125 In addition, the rule requires a 

fund to provide timely notice to its board, and to the Commission on Form N-RN, if the fund 

124  See rule 22e-4(b)(1)(ii).
125  See rule 22e-4(b)(1)(iv).

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exceeds the 15% limit on illiquid investments, or if there is a shortfall of the fund’s highly liquid 

investments below its highly liquid investment minimum for seven consecutive calendar days.126 

We propose amendments to require a fund to classify all of its portfolio investments each 

business day instead of at least monthly.127 Daily classification would reflect current market 

conditions more accurately and would provide funds with more data for analysis to prepare for 

future stressed conditions. We believe that daily classifications would assist liquidity risk 

program administrators in better monitoring of a fund’s liquidity and enhance a fund’s ability to 

more rapidly respond to changes that affect the liquidity of the fund’s portfolio, reflecting more 

effective practices we have observed. In addition, daily classifications would help ensure that 

funds timely report shortfalls below the highly liquid investment minimum or breaches of the 

15% limit on illiquid investments to the fund’s board and to the Commission, which would better

achieve the goals of the current provisions to provide board and Commission oversight of the 

fund’s liquidity risk management program and its effectiveness.

Most funds did not report reclassifications of their portfolio investments despite 

extraordinary liquidity constraints in March 2020.128 Based on the liquidity classification 

126  See rule 22e-4(b)(1)(iv)(A) and rule 22e-4(b)(1)(iii)(A)(3); Form N-RN Parts B through D.
127  See proposed rule 22e-4(b)(1)(ii). Although rule 22e-4 currently requires funds to classify each 

of the fund’s portfolio investments (including each of the fund's derivatives transactions), we 
have observed that some funds are not classifying all investments in their portfolios, such as 
positions in to-be-announced (TBA) contracts to trade mortgage-backed securities or the 
reinvestment of cash collateral received in securities lending arrangements.

128  Despite the liquidity constraints in Mar. 2020, we observed through Form N-PORT filings that 
roughly 75% of funds did not reclassify any investment held in both Feb. and Mar. 2020. 
Specifically, roughly 80% of U.S. equity funds did not reclassify any holding that was held in 
both Feb. and Mar. 2020, while roughly 10% reclassified at least one investment into a more 
liquid category and roughly 13% reclassified at least one investment into a less liquid category. 
Roughly 55% of taxable bond funds reclassified on average 4% of their portfolios, with the 
median fund reclassifying 1% of its portfolio. Of the funds that reclassified, roughly 30% 
reclassified at least one investment into a more liquid category and roughly 44% reclassified at 
least one investment into a less liquid category. More funds did, however, reclassify in Mar. 2020
period than for either Feb. or Apr. 2020.

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practices we observed in March 2020 and on filings covering this period, we are concerned that 

some funds effectively are equipped to classify their investments primarily on a monthly basis to 

meet reporting requirements and are not prepared to review classifications intra-month. Because 

intra-month analyses for these funds would be out of the ordinary and only occur when a fund 

determines that changes in relevant market, trading, and investment-specific considerations are 

reasonably expected to materially affect one or more of their investments’ classifications, it may 

be especially challenging during stressed conditions for these funds to reclassify their 

investments intra-month. Requiring daily classification, while involving costs, may ultimately 

lead to a more efficient classification process for funds than monitoring trading conditions to 

determine if and when intra-month classifications are required. For example, a daily 

classification requirement, in combination with the minimum standards we propose for trade size

and value impact, may lead funds to modify their liquidity classification processes, which would 

make the process more standardized, timely, and efficient. 

We request comment on the proposed amendments to require funds to classify the 

liquidity of their investments on a daily basis. 

32. Should we require funds to classify all portfolio investments on a daily basis, as 

proposed? Would this proposed amendment result in a material change to how funds 

are currently classifying? To what extent do funds already classify the liquidity of 

their investments on a daily basis or collect the information they would need to 

classify daily? Would this proposed amendment better integrate liquidity risk 

management and portfolio management systems?

33. We also are proposing that funds use a stressed trade size and a defined value impact 

standard in determining liquidity classifications. Would those changes affect the 

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burdens of classifying on a daily basis? Would those effects be different for different 

types of funds? For example, would it be easier to determine on a daily basis whether 

the sale of a stressed trade size of shares listed on an exchange would exceed 20% of 

the average daily trading volume for those shares than to determine whether the sale 

of a stressed trade size of other investments would result in a price decline of more 

than 1%?

34. Instead of classifying on a daily basis, should we require funds to classify the 

liquidity of their investments at some other frequency (e.g., weekly, biweekly, or 

monthly)? If so, should we maintain the requirement for a fund to classify more 

frequently if changes in relevant market, trading, and investment-specific 

considerations are reasonably expected to materially affect one or more of its 

investments’ classifications? Is there a different approach we should use effectively to

require a fund to classify its investments in response to changing conditions? Are 

there certain types of funds that should be excluded from daily classifications? If so, 

which funds?

35. If we require funds to classify on a non-daily frequency, how would they monitor for 

compliance with the 15% limit on illiquid investments and the highly liquid 

investment minimum? How are those limits monitored for compliance now? 

2. Highly Liquid Investment Minimums

a. Proposed Scope of the Requirement and Determination of the 
Minimum

Rule 22e-4 currently requires a fund to determine a highly liquid investment minimum if 

it does not primarily hold assets that are highly liquid investments. Funds that are subject to the 

highly liquid investment minimum requirements must determine a highly liquid investment 

76



minimum considering several factors, review the minimum at least annually, and adopt policies 

and procedures to respond to a shortfall of the fund’s highly liquid investments below the 

minimum required.129 We propose to require all funds to determine and maintain a highly liquid 

investment minimum of at least 10% of the fund’s net assets, which is equivalent to the stressed 

trade size. In connection with this proposed requirement, we would remove the exclusion for 

funds that primarily invest in highly liquid investments (the “primarily exclusion”). The 

proposed amendments are designed to ensure that funds have sufficient liquid investments for 

managing stressed conditions and heightened levels of redemptions. 

We assessed liquidity-related data reported on Forms N-PORT, as well as the 

development of liquidity risk management programs, through staff outreach to funds and 

advisers. Based on Form N-PORT filings, most funds do not determine a highly liquid 

investment minimum and instead rely on the primarily exclusion.130 For those funds that have 

highly liquid investment minimums, the rule currently requires that they consider various 

liquidity factors, such as their investment strategy and cash-flow projections, in both normal and 

reasonably foreseeable stressed conditions.131 We understand that those funds additionally 

consider factors such as asset class, market volatility, and shareholder concentration in their 

determinations. 

As discussed above, by requiring fund liquidity classifications to assume the sale or 

disposition of a set stressed trade size, the proposal is intended to better prepare all funds for 

129  See rule 22e-4(b)(1)(iii). 
130  Approximately 83% of funds holding 85% of net assets do not report setting a highly liquid 

investment minimum on Form N-PORT. 
131  For these purposes, funds are required to consider certain factors during stressed conditions only 

to the extent they are reasonably foreseeable during the period until the next review of the highly 
liquid investment minimum. See rule 22e-4(b)(1)(iii)(A)(1).

77



future stressed conditions.132 To help further prepare a fund for heightened levels of redemptions 

in stressed conditions, we are proposing to require the highly liquid investment minimum to be 

equal to or higher than the assumed stressed trade size. In setting the highly liquid investment 

minimum to be at least the stressed trade size, we considered data on fund flows for setting the 

stressed trade size as well as data reported on Form N-PORT on funds’ current highly liquid 

investment minimums. As of March 2020, for funds that had determined a highly liquid 

investment minimum, the majority of those funds reported setting a highly liquid investment 

minimum of less than 10% of the fund’s net assets. In contrast, approximately 8% of those funds 

reported setting a highly liquid investment minimum of more than 50% of the fund’s net assets. 

Thus, while there is a wide divergence in highly liquid investment minimums, most of these 

funds have a minimum that is lower than the proposed 10% level. Given the level of weekly 

outflows some funds have experienced and the difficulty in predicting future stress events, we 

believe that a regulatory minimum of 10% for the highly liquid investment minimum would 

benefit investors by improving the ability of funds to meet shareholder redemptions in stressed 

scenarios.

In addition, the proposal’s requirement for funds to both assume a stressed trade size to 

determine liquidity classifications and also maintain an equal or higher minimum of highly liquid

investments is intended to work together to better prepare them for future stressed conditions and

to reduce the risk of dilution. Not only would funds have highly liquid investments in an amount 

needed to meet the stressed trade size, they would also have more highly liquid assets to meet 

redemptions without having to sell less liquid investments at discounted prices. Funds would 

132 See supra section II.A.1.a.i for discussion of the stressed trade size and of fund flow data.

78



continue to be required to periodically review the highly liquid investment minimum and have 

policies and procedures to address any shortfall in highly liquid investments below the minimum.

While the proposed minimum of 10% of a fund’s net assets may be a suitable highly 

liquid investment minimum for most funds, certain funds may find a higher amount appropriate 

depending on a fund’s liquidity risk factors and investment objectives. Consistent with the 

current rule, a fund would be required to consider a specified set of liquidity risk factors to 

determine whether its highly liquid investment minimum should be above 10%.133 We continue 

to believe that the liquidity risk factors funds must consider in determining a highly liquid 

investment minimum under the current rule and the associated guidance the Commission 

provided in the Liquidity Rule Adopting Release regarding these factors are appropriate for a 

fund to take into account for these purposes.134 

A broad variety of investments, as well as cash, may qualify towards the highly liquid 

investment minimum.135 Since approximately 83% of funds currently rely on the primarily 

exclusion, we would not expect this proposal to affect their strategies. We recognize, however, 

that imposing a highly liquid investment minimum of at least 10% would require some other 

funds to hold a larger amount of highly liquid assets than they currently do, and thus may affect 

these funds’ performance or strategies.136 For funds with strategies focused on investments that 

would not be considered highly liquid, they would have to determine how to constitute a 

133  See Liquidity Rule Adopting Release, supra note 8, at paragraph following n.669.
134  See id., at section III.B.2.
135  See id., at n.663 and accompanying text. 
136  As recognized above, being unprepared for higher than normal redemptions also can affect a 

fund’s performance when such redemptions occur. See supra note 81. For instance, although less 
liquid assets generally offer a higher return, the trading costs associated with selling these assets 
during periods of increased redemptions may offset this risk premium, potentially resulting in a 
lower overall return for fund investors. See infra note 351 and accompanying text.

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portfolio of investments that would allow the fund to meet its strategy and investing parameters 

while maintaining a highly liquid investment minimum of at least 10%. All funds would be 

subject to the same highly liquid investment minimum of at least 10%, which would minimize 

any competitive advantage for similar funds associated with the proposed highly liquid 

investment minimum requirements. We believe it is important that all funds be prepared to meet 

redemptions in future stressed scenarios, and that funds would be better able to do so with the 

proposed highly liquid investment minimum requirements. 

In establishing a uniform floor for the highly liquid investment minimum, we are also 

proposing to remove the exclusion for funds that invest primarily in highly liquid investments. 

The Commission adopted the primarily exclusion because it believed the benefits associated with

requiring such funds to determine and review a highly liquid investment minimum, or to adopt 

shortfall procedures, would not justify the associated burdens.137 Since that time, however, we 

have observed that a fund relying on the primarily exclusion may experience significant declines 

in its liquidity that result in the fund holding less than 50% of its portfolio in highly liquid 

investments for a period of time. For example, a fund that invests significantly in a given foreign 

market and that generally classifies those investments as highly liquid can experience substantial 

declines in the amount of its highly liquid investments if, for example, there is political or 

economic turmoil in or an extended holiday closure of that foreign market. Funds that currently 

use the primarily exclusion instead of determining and maintaining a highly liquid investment 

minimum do not have the benefit of shortfall procedures, including board oversight, to respond 

to events or market conditions that may cause the fund to fall under its previously determined 

level of primarily held highly liquid investments. By requiring a highly liquid investment 

137  Liquidity Rule Adopting Release, supra note 8, at paragraph accompanying n.724. 

80minimum for all funds, investors would enjoy the benefit of policies and procedures that are 

designed to ensure not only oversight by the liquidity risk program administrator but also the 

fund’s board. 

Moreover, the burdens of complying with highly liquid investment minimum 

requirements for funds that currently use the primarily exclusion may be reduced because many 

fund complexes already have experience developing highly liquid investment minimum shortfall 

policies and procedures. It may be possible for funds in the same complex to leverage this 

experience to reduce the burdens of developing these policies and procedures for funds that 

previously qualified for the primarily exclusion. As liquidity risk management programs have 

matured, and continue to mature, many fund complexes continue to gain experience with highly 

liquid investment minimum shortfall policies and procedures, which may also reduce burdens. 

By requiring all funds to adopt a highly liquid investment minimum, we are seeking to help 

ensure that funds would be better prepared to handle future stressed conditions, which may occur

suddenly and unexpectedly, as they would have sufficient liquid investments for managing 

heightened levels of redemptions.

We request comment on the proposed amendments to highly liquid investment minimum 

requirements.

36. Should we require all funds to determine and maintain a highly liquid investment 

minimum, as proposed? What effect would this proposal have on funds? For example,

would some funds have to change their strategies or expect effects on performance?

37. Should some types of funds be excluded from the requirement to have a highly liquid 

investment minimum? If yes, which ones and why? For example, should we preserve 

the exclusion for funds that primarily hold highly liquid assets? Alternatively, should 

81



funds currently using the primarily exclusion have a higher highly liquid investment 

minimum requirement? Would funds using the primarily exclusion be as prepared to 

meet redemptions in stressed scenarios without a highly liquid investment minimum 

and its corresponding policies and procedures? 

38. If the primarily exclusion is kept, should we define the amount of highly liquid assets 

a fund must maintain under this standard (e.g., investing at least 51% of the fund’s net

assets in highly liquid assets, or a higher or lower amount)?

39. Should we establish a regulatory minimum for the amount of highly liquid 

investments of 10%, as proposed, or should it be set at 15% or 5% (or some other 

higher or lower amount)? Would establishing a regulatory minimum reduce the 

burdens associated with determining and periodically reviewing the fund’s highly 

liquid investment minimum?

40. Rather than propose a regulatory minimum with factors that a fund must consider to 

determine whether its own highly liquid investment minimum should be higher, 

should we require all funds to use the same highly liquid investment minimum? 

Would this set a level playing field for all funds and diminish any competitive 

advantage for a fund with a lower highly liquid investment minimum? If so, what 

amount would be appropriate for a uniform highly liquid investment minimum for all 

funds (e.g., 5%, 10%, 15%, or a higher or lower amount)?

41. Would providing more detail or guidance on the liquidity risk factors be helpful? If 

so, which factors? 

42. Would funds that do not currently have a highly liquid investment minimum be able 

to leverage policies and procedures already developed for highly liquid investment 

82



minimums, for example by other funds in the same complex, to reduce the burdens of

developing these policies and procedures? If not, what costs would funds incur to 

adopt and implement highly liquid investment minimum policies and procedures?

b. Calculation of the Highly Liquid Investment Minimum 

We are proposing amendments to rule 22e-4 that are designed to help ensure that the 

highly liquid investments a fund holds to meet its highly liquid investment minimum are 

available to support the fund’s ability to meet redemptions. A key aim of the highly liquid 

investment minimum requirement is to decrease the likelihood that funds would be unable to 

meet their redemption obligations.138 Building on existing aspects of rule 22e-4, the proposed 

amendments would require that, when determining the amount of assets a fund has classified as 

highly liquid that count toward the highly liquid investment minimum, the fund account for 

limitations in its ability to use some of those assets to meet redemptions.139 Specifically, in 

assessing compliance with the fund’s highly liquid investment minimum, the fund would be 

required to: (1) subtract the value of any highly liquid assets that are posted as margin or 

collateral in connection with any derivatives transaction that is classified as moderately liquid or 

illiquid; and (2) subtract any fund liabilities.140  
138  See Liquidity Rule Adopting Release, supra note 8, at text following n.117.
139  As the Commission explained at the time it adopted rule 22e-4, this is not meant to suggest that a

fund should only, or primarily, use highly liquid investments to meet shareholder redemptions. 
Instead, we believe that a fund holding sufficient highly liquid assets will support the fund in 
meeting redemption requests in a non-dilutive manner, and assist it in readjusting its portfolio in 
times of market stress, heightened volatility, and managing its obligations to derivatives 
counterparties. See Liquidity Rule Adopting Release, supra note 8, at n.680 and accompanying 
text.

140  Proposed rule 22e-4(b)(1)(iii)(B)(1); 22e-4(b)(1)(iii)(B)(2). Rule 22e-4 currently refers to a 
“pledge” of margin or collateral, rather than “posting.” We are proposing to use the term “post” 
because we believe this term is more commonly used within the industry and by other regulators 
to refer to instances where a party provides margin or collateral to its counterparty to meet the 
performance of its obligation under one or more derivatives transactions as a result of a change in
the value of such obligations since the trade was executed or the last time such collateral was 
provided (commonly referred to as variation margin) or is provided to secure potential future 

83



i. Margin or collateral of moderately liquid and illiquid   
derivatives

The requirement for a fund to reduce the value of its highly liquid assets by the amount 

posted as margin or collateral in connection with a non-highly liquid derivatives transaction 

reflects that this amount of highly liquid assets is not available for the fund to use to meet 

redemptions.141 This is because, where a fund enters into a moderately liquid or illiquid 

derivative and posts highly liquid assets as margin or collateral, the posted collateral is highly 

liquid, but the fund cannot access the value of posted assets unless the fund exits the derivatives 

transaction. Since the fund has classified the derivative as moderately liquid or illiquid, it does 

not reasonably expect to be able to exit the derivatives transaction within three business days. 

We recognize that the fund may be able to access the specific assets posted as margin or 

collateral by replacing them with other assets acceptable to the fund’s counterparty. But 

regardless of the specific assets posted, the value of collateral posted in connection with a 

moderately liquid or illiquid derivative would not be convertible to U.S. dollars within three 

business days or less.

Under the current rule, a fund is required to identify the percentage of the fund’s highly 

liquid investments that it has posted as margin or collateral in connection with derivatives 

transactions that the fund has classified as less than highly liquid.142 The Commission believed 

exposure following default of a counterparty (commonly referred to as initial margin). See, e.g., 
Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 86 
FR 6850 (Jan. 25, 2021). 

141  See Liquidity Rule Adopting Release, supra note 8, at nn.727-730 and accompanying text. This 
aspect of the proposed rule would only require an adjustment to the amount of a fund’s highly 
liquid investments that are assets, since investments that are in a liability position are unable to be
used to meet redemption requests. See proposed rule 22e-4(b)(1)(iii)(B)(1).

142  Rule 22e-4(b)(1)(ii)(C). In addition, funds currently also are required to exclude highly liquid 
assets that are posted as margin or collateral in connection with non-highly liquid derivatives 
transactions when determining whether the fund primarily holds highly liquid assets. Rule 22e-
4(b)(1)(iii)(B). 

84



that this approach struck an appropriate balance between providing transparency and reducing 

burdens on funds.143 The Commission observed that a fund generally would not need to 

specifically identify particular assets that are posted as margin or collateral to cover particular 

derivatives transactions, but instead would calculate the percentage of highly liquid investments 

posted as margin or collateral for derivatives transactions classified in each of the other 

classification categories.144 Under the rule, a fund that has posted both highly liquid investments 

and non-highly liquid investments as margin or collateral in connection with a non-highly liquid 

derivatives transaction should reduce its highly liquid investments, rather than assume that 

posted non-highly liquid investments would first cover the derivatives transaction, unless the 

fund specifically identifies non-highly liquid investments as margin or collateral in connection 

with a derivatives transaction.145 Finally, the Commission observed that the current approach 

responds to commenters’ concerns that linking the liquidity of specific assets posted as margin or

collateral to the liquidity of a fund’s derivatives transactions could understate the liquidity of 

those assets, since a fund may be able to readily substitute another liquid asset for the asset 

posted as margin or collateral.146

143  See Liquidity Rule Adopting Release, supra note 8, at n.476 and accompanying text. 
144  Id. at n.489 and accompanying text.
145  Note 1 to proposed rule 22e-4(b)(1)(iii)(B)(1). Cf. Note 1 to rule 22e-4(b)(1)(ii)(C). See also 

Liquidity Rule Adopting Release, supra note 8, at nn.489-490 and accompanying text (explaining
that in the absence of such an instruction, some funds might instead take the opposite approach, 
and assume that posted non-highly liquid investments first cover these less liquid derivatives 
transactions, creating inconsistencies between funds). 

146  We recognize that margin or collateral may be determined and paid by funds on the basis of a 
group of derivatives transactions, with the fund posting or receiving a net amount of margin or 
collateral. When a fund pays margin or collateral in connection with a group that includes 
derivatives transactions that are highly liquid and non-highly liquid, funds already must 
determine the amount of margin or collateral attributable to the non-highly liquid derivatives 
under the current rule. For example, a fund must perform this attribution in order to identify the 
percentage of the fund’s highly liquid investments that it has posted as margin or collateral in 
connection with derivatives transactions that are not themselves highly liquid.

85



The proposed approach is intended to enhance investor protection while continuing to 

strike an appropriate balance with the potential increased burdens on funds. The proposed 

approach would not require funds to identify and reclassify specific assets posted as margin or 

collateral, but rather to reduce the value of the fund’s highly liquid assets available to meet the 

fund’s highly liquid investment minimum by the value of the assets posted as margin or 

collateral. We also propose to maintain, with conforming changes, the explanatory note 

discussed above guiding the allocation of amounts posted as margin or collateral.147 By reducing 

the fund’s highly liquid investments by the value of amounts posted as margin or collateral, the 

proposed approach would avoid burdens associated with tracking specific securities posted as 

margin or collateral and reclassifying investments as they are posted as margin or collateral and 

recalled. It also would not understate the liquidity of specific securities that are posted as margin 

or collateral because each security would continue to be classified based on its own 

characteristics, and instead the adjustments would only be made at the aggregate level.148 

Moreover, many of the operational concerns commenters raised when rule 22e-4 was proposed, 

which led the Commission to adopt the current approach, related to the treatment of assets 

segregated under the Commission’s Investment Company Act Release 10666, which the 

Commission has since rescinded, effective August 19, 2022.149 We therefore believe the 

proposed amendments would enhance investor protections by helping to ensure a fund’s highly 

147  See supra note 145. In connection with the proposed amendments to the rule’s highly liquid 
investment minimum provisions, we propose to re-number certain existing paragraphs and to add 
paragraphs to the rule. As a result, we propose to update cross-references to the highly liquid 
investment minimum provisions within the rule. See proposed rule 22e-4(b)(1)(iii)(C) through (E)
and proposed rule 22e-4(b)(3)(iii).

148  See Liquidity Rule Adopting Release, supra note 8, at n.491 and accompanying text.
149  See Liquidity Rule Adopting Release, supra note 8, at nn.468-472 and accompanying text 

(operational concerns); Derivatives Adopting Release, supra note 21, at section II.L (withdrawal 
of Investment Company Act Release 10666).

86



liquid assets are in fact available to meet redemptions, while continuing to balance the value of 

the provision against the operational burdens to implement it.  

ii. Fund liabilities  

Under the proposal, a fund would also be required to reduce the amount of highly liquid 

assets that count toward the fund’s highly liquid investment minimum by the amount of the 

fund’s liabilities. This proposed change is intended to result in a more accurate calculation of the 

highly liquid investment minimum.150 The proposed approach would include any liabilities, as 

defined in 17 CFR 210.6-04 (rule 6.04 of Regulation S-X). For example, this would include 

investment liabilities and amounts payable for investment advisory, management, and service 

fees. Reducing the amount of highly liquid assets by fund liabilities reflects that fund liabilities 

are generally paid in cash, meaning that highly liquid assets may need to be liquidated in order to

satisfy those liabilities rather than to meet redemptions. 

Based on staff outreach, it is our understanding that the proposal reflects many funds’ 

existing practices. For example, when a fund has significant liabilities, they generally will be 

incurred in connection with derivatives transactions or other investments that give rise to a fund 

liability. Because funds are required to classify all investments, including liabilities, investments 

such as highly liquid derivatives in a liability position will reduce the value of the fund’s highly 

liquid investments that are assets. To enhance investor protection by preventing assets that a fund

may in the future use to pay liabilities from also being counted toward the fund’s highly liquid 

investment minimum, and to promote consistency in how funds calculate their highly liquid 

150  The highly liquid investment minimum is the percentage of a fund’s net assets that it invests in 
highly liquid assets that are eligible to count toward the minimum under the rule. See rule 22e-
4(a)(7) (defining highly liquid investment minimum). Because this calculation uses net assets as 
the denominator (which reflects the amount of assets less any liabilities), we believe the 
numerator of eligible highly liquid assets similarly should be net of liabilities. 

87



investment minimum, we are proposing to require that all funds reduce their highly liquid assets 

used to satisfy their highly liquid investment minimum by the amount of the fund’s liabilities.151 

We request comment on these aspects of the proposal, including:

43. Should we, as proposed, require a fund to reduce the amount of its highly liquid 

investments computed for the purposes of determining compliance with its highly 

liquid investment minimum by the value of any highly liquid assets that are posted as 

margin or collateral in connection with any derivatives transaction that is classified as

moderately liquid or illiquid? Why or why not? Should we also require that amounts 

posted as margin or collateral in connection with derivatives transactions that are 

classified as highly liquid be treated in this way? Alternatively, should we exempt 

amounts posted as margin or collateral in connection with certain types or categories 

of derivatives transactions from this requirement? 

44. How frequently do funds calculate the percentage of their highly liquid assets posted 

as margin or collateral in connection with non-highly liquid derivatives transactions 

today? Would the proposed requirement to calculate this value on a daily basis 

present new challenges? 

45. Should we, as proposed, require a fund to reduce the amount of its highly liquid 

assets computed for the purpose of determining compliance with its highly liquid 

investment minimum by the value of any liabilities? Do funds already make this 

reduction when determining compliance with highly liquid investment minimums? 

151  Depending on the rules of any applicable exchange and local law, a variation margin payment 
with respect to a derivatives transaction may be deemed to settle the fund’s liability for the daily 
mark-to-market loss on the transaction. In that case or any other case where a fund does not have 
a liability in connection with a given transaction, the fund would not be required to reduce its 
highly liquid investments in connection with that transaction under the proposal. 

88



Should we instead require a fund to reduce the amount of its highly liquid assets by a 

different amount, such as the percentage of the fund’s total assets that its liabilities 

represent? Are there certain classes or types of fund liabilities that should not be 

counted? For example, should we provide an exception for liabilities associated with 

fund borrowings that are used to meet redemptions in order to avoid a disincentive for

funds to borrow for this purpose under appropriate circumstances?

46. We propose that, for these purposes, the amount of a fund’s liabilities would be 

computed in the same manner as a fund computes its liabilities for purposes of rule 6-

04 of Regulation S-X. If we use this standard, as proposed, would the amount by 

which funds should reduce their highly liquid assets be clear? Are there any issues 

that may arise from using the standard funds use to prepare their balance sheets? 

Would a different definition of “liabilities” be more appropriate? 

3. Limit on Illiquid Investments 

Rule 22e-4 currently limits a fund’s ability to acquire illiquid investments. Specifically, 

the rule prohibits a fund from acquiring any illiquid investment if, immediately after the 

acquisition, the fund would have invested more than 15% of its net assets in illiquid investments 

that are assets.152 We are proposing to amend the rule’s limitation on illiquid investments to 

provide that the value of margin or collateral that a fund could only receive upon exiting an 

illiquid derivatives transaction would itself be treated as illiquid for these purposes.153 As the 

Commission stated in 2016, the potential effects of a fund’s use of derivatives are relevant to 

assessing, managing, and periodically reviewing a fund’s liquidity risk.154 The potential effects 
152  See rule 22e-4(b)(1)(iv). A fund also must notify its board, and report confidentially to the 

Commission on Form N-RN, if its illiquid investments that are assets exceed 15% of net assets.
153  See proposed rule 22e-4(b)(1)(iv).
154  See Liquidity Rule Adopting Release, supra note 8, at text accompanying nn.218-223. 

89



may be heightened when the derivatives transaction is itself illiquid, and thus may be difficult for

a fund to exit quickly enough to use the associated margin or collateral to meet redemption 

requests, or at all. Funds’ use of illiquid derivatives is subject to several limitations but, for open-

end funds, the risks associated with illiquid derivatives may be heightened as a result of the 

funds’ redeemability.155

Under the proposal, for purposes of determining whether the fund is in compliance with 

the limitation on illiquid investments, the fund would treat as illiquid the amount of margin or 

collateral it has posted in connection with a derivatives transaction that is classified as an illiquid 

investment and that the fund would receive if it exited the derivatives transaction (“excess 

collateral”).156 This proposed requirement recognizes that, because a fund does not reasonably 

expect to be able to convert an illiquid derivatives investment to U.S. dollars within seven days, 

the fund likewise would not be able to convert to U.S. dollars the value of excess collateral 

posted as margin or collateral in connection with the derivatives transaction within seven days. 

Therefore, the proposal would require a fund to include the value of the excess collateral or 

margin when it determines the amount of illiquid assets it holds for purposes of the 15% limit on 

illiquid investments.

155  The limitations on funds’ issuance of senior securities, which include derivatives creating certain
payment or delivery obligations, in section 18 of the Act and 17 CFR 270.18f-4 (rule 18f-4) 
provide certain protections to investors, and the proposed amendments are designed to 
complement those protections. See Derivatives Adopting Release, supra note 21 (stating that a 
fund’s derivatives risk management program would be part of an adviser’s overall management 
of portfolio risk and would complement—but would not replace—a fund’s other risk 
management activities, such as a fund’s liquidity risk management program adopted under rule 
22e-4).

156  This does not mean that the investment acting as margin or collateral would need to be classified 
as an illiquid investment under the rule. A fund would classify the relevant investment according 
to the rule’s classification framework. In order to aid understanding of the reported data, we 
propose to require a fund to report the value of investments treated as illiquid as a result of this 
provision. See section II.E.1.d, infra and Item B.8.b of proposed Form N-PORT. 

90



As with the proposed amendments related to the amounts posted as margin or collateral 

for non-highly liquid derivatives, a fund would not be required to specifically identify particular 

assets that it posted as margin or collateral to cover specific derivatives transactions. Instead, a 

fund would calculate the value of its assets posted as margin or collateral in connection with 

illiquid derivatives transactions and treat that value of assets as illiquid.157 

We request comment on this aspect of the proposal, including:

47. Should we, as proposed, require funds to treat as illiquid investments the value of 

excess collateral the fund has posted in connection with a derivatives transaction that 

is classified as an illiquid investment? Are there circumstances where a fund would 

have ready access to the value of such collateral even though the associated 

derivatives transaction is illiquid? 

48. Are there challenges to identifying and monitoring the amount of excess collateral a 

fund has posted in connection with a derivatives transaction that is classified as an 

illiquid investment? If so, are there ways to address those challenges? 

49. Are there other instances where we should treat an investment as illiquid for purposes

of the rule’s limit on illiquid investments that the current rule and the proposal do not 

contemplate?

50. Should we amend any other aspects of the illiquid investment limitations in the rule? 

For example, should we change the amount of the limit on illiquid investments from 

15% to a lower amount, such as 10% or 5%, or a higher amount, such as 20% or 

25%?

157  See Item B.8.b of proposed Form N-PORT. 

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B. Swing Pricing 

We are proposing amendments to rule 22c-1 that would require all registered open-end 

management investment companies to engage in swing pricing under certain conditions, except 

for money market funds and ETFs (the latter, “excluded funds”).158 Swing pricing is a process of 

adjusting a fund’s current NAV when certain conditions are met, such that the transaction price 

effectively passes on costs stemming from shareholder inflows or outflows to the shareholders 

engaged in that activity. Trading activity and other changes in portfolio holdings associated with 

purchases and redemptions may impose costs, including trading costs and costs of depleting a 

fund’s liquidity. These costs, which currently are borne by the non-transacting shareholders in 

the fund, can dilute the interests of these shareholders. In addition, this can create incentives for 

shareholders to redeem quickly to avoid losses, particularly in times of market stress. If 

shareholder redemptions are motivated by this first-mover advantage, they can lead to increasing 

outflows, and as the level of outflows from a fund increases, the incentive for remaining 

shareholders to redeem may also increase.159 By imposing the costs associated with net purchases

158  See proposed rule 22c-1(b). We refer to registered open-end management investment companies 
other than excluded funds as “funds” or “open-end funds” when discussing the swing pricing 
requirement. We continue to believe it is appropriate to limit swing pricing to these funds and to 
not include other fund types, such as unit investment trusts or closed-end funds. See Swing 
Pricing Adopting Release, supra note 8, at nn.62-72 and accompanying text. With respect to 
excluded funds, the Commission recently proposed to require certain money market funds to 
engage in swing pricing under rule 2a-7, but those money market funds would not be subject to 
the proposed swing pricing requirement under rule 22c-1(b). See Money Market Fund Reforms, 
Investment Company Act Release No. 34441 (Dec. 15, 2021) [87 FR 7248 (Feb. 8, 2022)] 
(“Money Market Fund Proposing Release”). ETFs, including an ETF share class of any fund that 
issues multiple classes of shares representing interests in the same portfolio, would not be subject 
to the swing pricing requirement, as discussed below. See definition of “Exchange-traded fund” 
in proposed rule 22c-1(d).

159  Some research suggests that a first-mover advantage in open-end funds may lead to cascading 
anticipatory redemptions akin to traditional bank runs. This research generally models an 
exogenous response to negative fund returns and not trading costs. However, these results may 
extend to trading costs to the degree that cost based dilution may reduce subsequent fund returns, 
which would trigger runs in these models. See, e.g., Chen, Qi, Itay Goldstein, and Wei Jiang. 
2010. “Payoff Complementarities and Financial Fragility: Evidence from Mutual Fund 

92



or net redemptions on the shareholders who are purchasing or redeeming from the fund at that 

time, swing pricing can more fairly allocate costs, reduce the potential for dilution of investors 

who are not currently transacting in the fund’s shares, and reduce any potential first-mover 

advantages.

1. Proposed Swing Pricing Requirement

Under the proposal, every open-end fund other than an excluded fund would be required 

to establish and implement swing pricing policies and procedures that adjust the fund’s current 

NAV per share by a swing factor either if the fund has net redemptions or if it has net purchases 

that exceed an identified threshold.160 We are proposing to require these funds to use swing 

pricing as an anti-dilution tool, in contrast to the optional framework that currently exists in rule 

22c-1. Based on our observations from the events in March 2020, including in other jurisdictions

where swing pricing is a common tool, requiring funds to use swing pricing could result in 

benefits for investors, as discussed below.161 However, at present no U.S. funds have 

implemented swing pricing. One reason funds have not implemented swing pricing is that they 

Outflows.” Journal of Financial Economics 97(2): 239-262. See also Goldstein, Itay, Hao Jiang, 
and David Ng. 2017. “Investor Flows and Fragility in Corporate Bond Funds.” Journal of 
Financial Economics 126(3):592-613. See also Morris, Stephen, Ilhyock Shim, and Hyun Song 
Shin. 2017. “Redemption Risk and Cash Hoarding by Asset Managers.” Journal of Monetary 
Economics 89: 71-87. See also Zeng, Yao. 2017. “A Dynamic Theory of Mutual Fund Runs and 
Liquidity Management.” Working Paper. See also Ma, Yiming, Kairong Xiao, and Yao Zeng. 
2021. “Mutual Fund Liquidity Transformation and Reverse Flight to Liquidity.” Working Paper. 
See also Ma, Yiming, Kairong Xiao, and Yao Zeng. 2021. “Bank Debt versus Mutual Fund 
Equity in Liquidity Provision.” Working Paper. See also Christof W. Stahel. 2022. “Strategic 
Complementarity Among Investors with Overlapping Portfolios”, available at 
https://ssrn.com/abstract=3952125 (positing that investors behave similarly regardless of whether 
they hold assets indirectly through a fund or directly through a separately managed account and 
the general explanation for investor decisions to sell assets is that all market participants compete 
for finite market liquidity).

160  See proposed rule 22c-1(b)(1) and definition of “Inflow swing threshold” in proposed rule 22c-
1(d). 

161  See supra notes 59 to 63 and accompanying text (stating that some fund managers with both U.S.
and European operations indicated to the staff that swing pricing would have been a useful tool 
for U.S. funds to have had to combat dilution in Mar. 2020).

93



lack timely flow information to operationalize this anti-dilution tool. However, even if all funds 

had access to sufficient flow information in order to implement swing pricing, some may 

nonetheless choose not to implement it due to implementation costs or because investors in U.S. 

funds are unfamiliar with swing pricing. Therefore, funds may not be incentivized to be the first 

to adopt swing pricing. We believe that a regulatory requirement, rather than a permissive 

framework, would accrue benefits to investors that justify the implementation costs and would 

overcome these collective action problems that may have prevented swing pricing 

implementation. In addition, we continue to believe the information a fund that uses swing 

pricing must disclose in its prospectus will improve public understanding regarding a fund’s use 

of swing pricing.162

Some academics and market participants have suggested that swing pricing has provided 

significant benefits to long-term investors in funds in other jurisdictions, reducing dilution 

attributable to the transaction costs associated with shareholder activity.163 As an example, one 

foreign fund industry group has suggested that funds using swing pricing exhibit superior 

performance returns over time compared to funds with identical investment strategies and trading

162  See Swing Pricing Adopting Release, supra note 11, at n.360 and accompanying text. In 2016, 
when the Commission adopted the optional swing pricing rule for open-end funds that are not 
excluded funds, it also adopted certain amendments to Form N-1A to enhance disclosure related 
to a fund’s use of swing pricing, if applicable. Among other things, these amendments required 
that a fund that uses swing pricing explain the fund’s use of swing pricing, including its meaning, 
the circumstances under which the fund will use it, the effects of swing pricing on the fund and 
investors, and the upper limit it has set on the swing factor. See Item 6(d) of Form N-1A. 
Although no funds currently use swing pricing, and therefore do not provide swing pricing 
disclosures to their investors, under the proposed rule all funds other than excluded funds would 
be required to provide these disclosures, other than the swing factor upper limit disclosure, to 
their investors.

163  See, e.g., Dunhong Jin, Marcin Kacperczyk, Bige Kahraman, and Felix Suntheim, Swing Pricing 
and Fragility in Open-end Mutual Funds, The Review of Financial Studies, 35(1) (2022), 
available at https://academic.oup.com/rfs/article/35/1/1/6162183 (“Jin, et al.”); BlackRock, 
Swing Pricing - Raising the Bar (Sept. 2021), available at 
https://www.blackrock.com/corporate/literature/whitepaper/spotlight-swing-pricing-raising-the-
bar-september-2021.pdf (“BlackRock Swing Pricing Paper”).

94

https://www.blackrock.com/corporate/literature/whitepaper/spotlight-swing-pricing-raising-the-bar-september-2021.pdf
https://www.blackrock.com/corporate/literature/whitepaper/spotlight-swing-pricing-raising-the-bar-september-2021.pdf


patterns that do not employ anti-dilution measures.164 In terms of performance benefits, one study

found that, for a 10% rise in monthly outflows, the associated decline in monthly returns relative 

to a fund’s benchmark was double the amount for a fund that does not use swing pricing in 

comparison to a fund that uses swing pricing (a 6 basis point decline versus a 3 basis point 

decline, respectively).165 And one investment manager reviewed the effects of swing pricing for 

twenty of its European funds in 2019 and found that the anti-dilution effect of swing pricing 

improved annual performance for these funds by around 10 to more than 60 basis points.166 

In addition, in March 2020, many European funds that used swing pricing lowered their 

swing thresholds and increased the size of their swing factors, suggesting there was a need to 

make more frequent and significant adjustments to the funds’ NAVs at that time to avoid 

substantial dilution that otherwise would have occurred.167 One study found that surveyed funds 

using swing pricing during a three week period of elevated redemptions in March 2020 recouped

roughly 6 basis points of total net assets on average from redeeming investors.168 The swing 

pricing policies that the proposed rule would require, which are similar to those used by some 

foreign funds, are designed to mitigate dilution arising from shareholders’ purchase and 

redemption activity, particularly during times of stress when those dilution costs may increase. In

addition to reducing dilution, some studies also suggest that swing pricing dampens redemption 

164  See Association of the Luxembourg Fund Industry, Swing Pricing Brochure (July 2022), 
available at https://www.alfi.lu/getattachment/3154f4f7-f150-4594-a9e3-fd7baaa31361/
app_data-import-alfi-alfi-swing-pricing-brochure-2022.pdf.

165  See CSSF Paper, supra note 61.
166  See BlackRock Swing Pricing Paper, supra note 163.
167  See notes 59 to 63 and accompanying text.
168  See Claessens and Lewrick, supra note 61.

95



pressure, although some have found this effect to be minimal or nonexistent during certain 

periods of market stress.169

Consistent with our current optional swing pricing framework, the proposed swing 

pricing requirement for open-end funds would apply to both net purchases and net redemptions. 

Although liquidity and transaction costs associated with meeting net redemptions can present 

heightened risks of dilution, particularly in stress periods, we continue to believe that net 

purchases also may cause shareholder dilution.170 However, when a fund has net purchases, we 

propose to require swing pricing only if the amount of net purchases exceeds a specified 

threshold. 

While the proposed swing pricing requirement generally would apply to all registered 

open-end funds other than excluded funds, we propose to retain the current provision that does 

not permit feeder funds in a master-feeder fund structure to use swing pricing.171 The use of 

swing pricing would generally be inappropriate for feeder funds, because that level of a fund 

structure does not actually transact in underlying portfolio assets as a result of net purchase or net

redemption activity. A master fund, however, generally would be subject to the swing pricing 

requirement. The master fund may purchase portfolio assets to invest purchasing shareholders’ 

cash (as transferred through the feeder fund) or sell portfolio assets to pay redemption proceeds 

(reducing the feeder fund’s interest in the master fund). Thus, to the extent that net purchases 

into or redemptions from the master fund by one or more feeder funds, or any other investors in 

169  See CSSF Paper, supra note 61 (stating that funds applying swing pricing are less exposed to 
redemption pressure during episodes of elevated market volatility, but this dampening effect 
appears to vanish during episodes of severe market volatility, such as in Mar. 2020); see also 
infra notes 354 to 355 and accompanying text.

170  See Swing Pricing Adopting Release, supra note 13, at paragraph accompanying n.166.
171  See proposed rule 22c-1(b)(5) and current rule 22c-1(a)(3)(iv).

96



the master fund, would trigger the application of swing pricing under the proposed rule, the 

swing factor would be applied at the level of the master fund.

Consistent with current rule 22c-1, we propose to exclude ETFs from the swing pricing 

requirement because ETFs often impose fees in connection with the purchase or redemption of 

creation units that are intended to defray operational processing and brokerage costs to prevent 

possible shareholder dilution.172 We also are not including ETFs within the scope of the proposed

requirement because we believe that swing pricing could impede the effective functioning of an 

ETF’s arbitrage mechanism. Additionally, notwithstanding section 18(f)(1) of the Act, a fund 

with a share class that is an exchange-traded fund is subject to the swing pricing requirement 

only with respect to any share classes that are not exchange-traded funds.173 The proposed rule 

provides this exemption to allow funds with both mutual fund and ETF share classes to apply 

swing pricing to only their mutual fund share classes. Absent an exemption, differences between 

the ETF and mutual fund share classes created by swing pricing could result in a fund being 

deemed to issue a senior security, which would otherwise be prohibited under the Act.174 Thus, a 

fund with an ETF share class would exclude the ETF share class’s flow information when 

determining whether and how to apply swing pricing, and would not adjust the NAV of the ETF 

share class by the swing factor in computing the share price of that class. 

We request comment on our proposal to require any fund that is not an excluded fund to 

implement swing pricing. 

172  See Swing Pricing Adopting Release, supra note 13, at paragraph accompanying n.68.
173  See proposed rule 22c-1(b)(6). 
174  Section 18(f)(1) of the Act generally makes it unlawful for any registered open-end company to 

issue any class of senior security. Section 18(g) defines senior security to include any stock of a 
class having a priority over any other class as to distribution of assets or payment of dividends. 

97



51. As proposed, should we require any fund that is not an excluded fund to implement 

swing pricing? Should we provide any additional exclusions from the swing pricing 

requirement? For example, should funds that invest solely or primarily in highly 

liquid investments be permitted, but not required, to use swing pricing? If we provide 

an exclusion for funds that primarily invest in highly liquid investments, how should 

we define primarily for these purposes (e.g., more than 50%, 66%, or 75%)? Should 

we use the same definition of highly liquid investment as the liquidity rule for these 

purposes? If not, how should we define highly liquid investments for purposes of an 

exclusion from the swing pricing requirement? If a fund primarily invested in highly 

liquid investments were to no longer qualify for this exclusion, when should it be 

required to adopt swing pricing (e.g., immediately or within a certain grace period)? 

Alternatively, should we limit the exclusion from swing pricing to funds that do not 

invest more than a certain percentage of assets in illiquid investments? What 

maximum level of illiquid investments would be appropriate to qualify for the 

exclusion (e.g., 1%, 2%, 5%, or 10%)? When should a fund be required to adopt 

swing pricing if it no longer complies with this exclusion (e.g., immediately or within

a certain grace period)? Should we use the same definition of illiquid investments as 

the liquidity rule for these purposes?

52. Should we limit the swing pricing requirement to only certain types of mutual funds 

and retain an optional framework for other mutual funds? If so, how should we 

identify by rule the types of mutual funds that would most benefit from a swing 

pricing requirement? As an example, would it be appropriate to require swing pricing 

for fixed-income mutual funds only, and to retain an optional approach for other 

98



funds? If so, how would a fixed-income fund be defined for this purpose (e.g., a 

mutual fund that invests at least a certain percentage in fixed-income investments, 

such as 50%, 75%, or 80%)? How would fixed-income investments, or any other type

of portfolio investment, be defined for this purpose?

53. Should we adopt swing pricing as a default tool, with a requirement that an open-end 

fund, other than an excluded fund, implement swing pricing unless certain conditions 

are met? For example, should a fund be required to implement swing pricing unless 

its board of directors makes certain determinations (e.g., that the fund and its 

shareholders are unlikely to experience significant dilution in connection with 

investor purchases and redemptions) and the fund maintains records of such 

determinations? Should a fund be required to report information about the reasons for

such a determination publicly?

54. Should swing pricing remain an optional tool for all mutual funds, other than 

excluded funds? If so, how likely are funds to use the tool if we adopt the proposed 

hard close requirement or take other steps to facilitate a fund’s ability to determine its

daily flows before the NAV is finalized? Are certain types of funds more likely to use

swing pricing if it remained an optional tool? If so, why are these funds more likely to

use swing pricing than others? Are the funds that would use swing pricing if it 

remained optional the same funds that would benefit most from addressing dilution 

associated with shareholder transactions?

55. As proposed, should we retain the current provision in the rule that does not allow 

feeder funds in a master-feeder structure to engage in swing pricing?

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56. Under the proposal, ETFs, the shares of which are listed and traded on a national 

securities exchange, and that are formed and operate under an exemptive order under 

the Investment Company Act or in reliance on rule 6c-11, would not be subject to 

swing pricing. Is the proposed definition of ETF appropriate? If we adopt the swing 

pricing requirement, would mutual funds seek to convert to an ETF structure? Are 

there any actions or exemptive relief that the Commission should take or grant to 

facilitate the conversion of mutual funds to ETFs? If ETFs were to become the 

predominant form of open-end fund under the Investment Company Act, would that 

affect the need to impose swing pricing? And likewise, if ETFs were to become the 

predominant form of open-end fund, would that benefit or harm investors, and if so, 

how and to what extent?

57. Should we provide that funds with an ETF share class must exclude the ETF share 

class from the application of swing pricing, as proposed? What, if any, operational 

challenges would exist for such funds under this approach? Should we instead require

that ETF share classes be subject to the swing pricing requirement, which would 

result in authorized participant purchases and redemptions being effected at an 

adjusted NAV? 

58. Should we require swing pricing for both net redemptions and net purchases, as 

proposed, or only for net redemptions? Do dilution and liquidity concerns exist for 

open-end funds in both scenarios?

59. What would be the operational challenges and costs for funds to adopt and implement

swing pricing, as proposed? If funds operationalized swing pricing in March 2020, 

would it have been an effective tool to address dilution during that period? To what 

100extent were funds selling portfolio assets and incurring transaction costs to meet 

redemptions, or in anticipation of future redemptions, during that period?

60. Will the existing swing pricing disclosures required in Form N-1A be sufficient to 

help investors understand swing pricing? How familiar are U.S. investors with swing 

pricing? Are there any amendments we should make to the swing pricing disclosure 

requirements in Form N-1A that would help investors better understand the concept 

of swing pricing? For example, should funds be required to disclose in their 

registration statements the frequency they have applied, or would have applied, a 

swing factor over a specified period of time (e.g., 1, 3, or 5 years) based on historical 

flow information? Should we require a fund to provide additional disclosure about 

swing pricing to investors outside of the registration statement? For example, should 

we require funds to disclose the effects of swing pricing in shareholder reports (e.g., 

in management’s discussion of fund performance)?

61. Is the experience with swing pricing in certain foreign jurisdictions relevant to an 

analysis of whether swing pricing would be an effective tool for U.S. funds? Beyond 

the operational differences identified in this release, are there differences in 

regulatory frameworks, markets, fund investors, or other factors between the U.S. and

these other jurisdictions that might cause U.S. funds’ experiences with swing pricing 

to differ?175  

62. Rule 2a-4 under the Act requires a fund, when determining its current NAV, to reflect

changes in holdings of portfolio securities and changes in the number of outstanding 

175  See infra note 225 (discussing that European jurisdictions in which funds use swing pricing 
generally already have a hard close, which results in European funds receiving order flow much 
earlier than U.S. funds).

101



shares resulting from distributions, redemptions, and repurchases no later than the 

first business day following the trade date. Are there any changes we should make to 

rule 2a-4 to address dilution? For example, should we amend that rule to require that 

funds reflect these changes on trade date? 

2. Amendments to Swing Threshold Framework

The current rule permits a fund to determine its own swing threshold for net purchases 

and net redemptions, based on a consideration of certain factors the rule identifies.176 We are 

proposing to specify when a fund must use swing pricing to adjust its current NAV, which would

differ depending on whether the fund has any net redemptions or has net purchases above a 

specified threshold on a given day. 

When the Commission adopted the swing pricing provisions in 2016, it determined to 

require a swing threshold and not to prescribe a swing threshold floor applicable to all funds 

because it believed that different levels of net purchases and net redemptions would create 

different risks of dilution for funds with different strategies, shareholder bases, and other 

liquidity-related characteristics.177 At that time, the Commission believed consideration of the 

swing threshold factors—which took into account these different liquidity-related characteristics

—would lead a fund to set a threshold at a level that would trigger the fund’s investment adviser 

to trade portfolio assets in the near term to a degree or of a type that may generate material 

liquidity or transaction costs for the fund. We further believed that after considering these 

176  The factors a fund currently must consider in determining the size of its swing threshold are: (1) 
the size, frequency, and volatility of historical net purchases or net redemptions of fund shares 
during normal and stressed periods; (2) the fund’s investment strategy and the liquidity of the 
fund’s portfolio investments; (3) the fund’s holdings of cash and cash equivalents, and borrowing 
arrangements and other funding sources; and (4) the costs associated with transactions in the 
markets in which the fund invests. See rule 22c-1(a)(3)(i)(B).

177  For considerations relating to the swing threshold in the current rule, see generally Swing Pricing
Adopting Release, supra note 11, at nn.150-155 and accompanying text.

102



factors, a fund would be unable to set the swing threshold at zero. Thus the current rule does not 

contemplate full swing pricing, but assessment of the swing threshold factors could lead certain 

funds to set low swing thresholds approximating full swing pricing. 

In the intervening period, however, we have observed that the size of funds’ swing 

thresholds in certain other jurisdictions has depended more on uniform decisions by the manager 

of a fund complex than on an individual fund’s liquidity-related circumstances.178 In addition, we

considered our experience with the liquidity rule discussed above, where currently allowed 

discretion has led to favorable liquidity assessments that tend to over-estimate funds’ liquidity 

during stressed market conditions and that fail to change dynamically during stressed market 

conditions. A similar experience translated to swing pricing could cause high swing thresholds 

set during calm market conditions that do not adjust downward as may be appropriate in some 

cases during stressed market conditions. As a result of these experiences, we are concerned that 

retaining the principles-based framework for setting swing thresholds under the current rule 

would not result in the level of fund-specific tailoring the Commission contemplated and, 

instead, would simply result in undue variation among similarly situated funds and, in some 

cases, swing thresholds high enough that swing pricing does not adequately address dilution. 

In the case of net redemptions, the proposed rule would require a fund to apply swing 

pricing always (i.e., without a swing threshold).179 Because every net redemption can potentially 

involve trading or borrowing costs that dilute the value of the fund, as well as depletion of a 

fund’s liquidity for remaining shareholders that increases the likelihood of future dilution, the 

178  See Bank of England Survey, supra note 60 (“In most cases we observed that funds with 
different primary strategies and assets, but managed by the same fund manager, used both the 
same thresholds for applying swing pricing, and the same calculation of the standardised swing 
factor. This appears to indicate that managers may not be fully considering specific factors such 
as in the investor base or asset-specific factors for individual funds.”).

179  See proposed rule 22c-1(b)(1)(i).

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proposal, in setting a uniform approach to triggering swing pricing in all circumstances, would 

require a fund to apply a swing factor regardless of the size of its net redemptions, which is 

intended to fairly allocate costs and reduce dilution. Applying swing pricing regardless of the 

size of net redemptions may help reduce any potential first-mover advantage associating with 

redeeming before other investors. However, the types of costs the swing factor must take into 

account would depend on the size of net redemptions. Specifically, the proposed rule would 

require a fund to include market impacts in its swing factor only if net redemptions exceed 1% of

the fund’s net assets (the “market impact threshold”).180 Market impact costs are the costs 

incurred when the price of a security changes as a result of the effort to purchase or sell the 

security.181

We understand that there may be operational challenges and complexities to estimating 

market impact costs. Recognizing these difficulties, and that market impacts are likely to be 

minimal or even negligible when redemptions are not significant, the proposal sets a market 

impact threshold below which estimates of market impact would not be necessary. Based on our 

analysis of historical daily flow data over a period of more than 10 years for equity and fixed-

income mutual funds, a given fund had daily outflows of more than 1% on slightly more than 1%

of trading days.182 We propose a 1% market impact threshold to balance the operational 

challenges of frequently estimating market impacts with the goal of reducing dilution, 

particularly in times of stress (i.e., when a fund is more likely to experience redemptions of more

180  See proposed rule 22c-1(b)(2)(i)(C) and definition of “Market impact threshold” in proposed rule
22c-1(d). 

181  Market impact costs reflect price concessions (amounts added to the purchase price or subtracted
from the selling price) that are required to find the opposite side of the trade and complete the 
transaction.

182  Based on Morningstar data for the period of Jan. 2009 through Dec. 2021.

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than 1% of net assets and market impacts are likely to be larger). We recognize that smaller 

funds may be less likely than larger ones to have market impacts at a 1% threshold, because they 

generally would be selling smaller investment sizes than larger funds would at that threshold. 

However, there are circumstances in which smaller funds may also experience market impact 

costs at the 1% threshold; for example, if the fund holds substantial illiquid investments or 

during periods of market stress. Therefore, the proposal requires all funds to assess whether 

market impact costs would occur when net redemptions exceed a 1% threshold and, if they do 

occur, to include such costs in the swing factor. A uniform market impact threshold for all funds 

would provide a consistent and objective threshold for all funds to consider market impacts. 

When a fund has net purchases, we propose to only require swing pricing—including 

market impact—if the amount of net purchases exceeds 2% of the fund’s net assets (the “inflow 

swing threshold”).183 We recognize that smaller levels of net purchases are less likely to result in 

dilution than net redemptions. This is because funds, while required to pay redemptions within 

seven days, are not required to invest cash inflows within a specified period. Therefore, if bid-

ask spreads have widened on a day that the fund receives the cash inflows, the fund manager 

generally can wait to invest the cash to reduce transaction costs.184 In addition, while investing 

the cash inflows could decrease the liquidity of the fund, particularly if the cash is used to 

purchase illiquid investments, the liquidity rule curbs this possibility by limiting the amount of 

illiquid investments a fund can acquire. 

183  See definition of “Inflow swing threshold” in proposed rule 22c-1(d).
184  Regardless of bid-ask spreads, a fund manager also may choose to use cash inflows to invest in 

derivatives to obtain market exposure quickly while strategizing where to invest that cash on a 
longer-term basis. Funds may be incentivized to invest promptly in an effort to avoid reduced 
returns and tracking error.  

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For these reasons, the proposal sets a swing threshold for net purchases but not one for 

net redemptions. We also recognize that low levels of net purchases are less likely to result in 

dilution, but that higher levels of net purchases are more likely to result in dilution absent 

appropriate tools for mitigating it. Based on our analysis of historical daily flow data over a 

period of more than 10 years for equity and fixed-income mutual funds, a given fund had daily 

inflows of approximately 2% on about 1% of trading days.185 Therefore, similar to the proposed 

market impact threshold, we propose an inflow swing threshold of 2% to balance the operational 

challenges of frequently implementing swing factors for net purchases with the goal of reducing 

dilution, particularly when a fund has significant inflows.

Although the proposed rule would identify a market impact threshold that would apply to 

net redemptions and an inflow swing threshold for net purchases, the rule would permit the 

fund’s swing pricing administrator to use smaller thresholds than the rule identifies in either of 

these instances as the administrator determines is appropriate to mitigate dilution.186 Flexibility to

use a smaller threshold is designed to recognize that there may be circumstances in which a 

smaller threshold than the rule requires would help reduce dilution, such as when the fund holds 

a larger amount of investments that are less liquid, in times of market stress, or in the case of a 

large fund (i.e., because a large fund is selling or purchasing a larger amount of instruments than 

a small fund at a 1% market impact threshold for net redemptions or a 2% inflow swing 

185  Based on Morningstar data for the period of Jan. 2009 through Dec. 2021. 
186  See definitions of “Inflow swing threshold” and “Market impact threshold” in proposed rule 22c-

1(d). Under the proposed rule, the term “swing pricing administrator” has the same meaning as 
the term “person(s) responsible for administering swing pricing” under the current rule. See 
proposed rule 22c-1(d); current rule 22c-1(a)(3)(ii)(C). The swing pricing administrator is the 
fund’s investment adviser, officer, or officers responsible for administering the fund’s swing 
pricing policies and procedures. The proposed rule specifies that the swing pricing administrator 
may consist of a group of persons. As with the current rule, the fund’s board of directors must 
designate this person or group of persons. 

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threshold for net purchases). For example, a fund might elect to implement swing pricing if the 

fund experiences net purchases of any amount. 

We understand that in having the option to set a lower market impact threshold for net 

redemptions and inflow swing threshold for net purchases, the swing pricing administrator would

have discretion that it potentially could use to enhance fund performance in a misleading manner

by adjusting the fund’s NAV more frequently or more substantially than is needed to address 

dilution. To help address this risk, under the proposal the administrator would be required to 

include in its written reports to the board the information and data supporting its determination to

use lower thresholds.187 Additionally, consistent with the current rule, a fund’s portfolio manager 

could not be designated as the swing pricing administrator.188

We request comment on our proposed amendments to the swing pricing threshold. 

63. Should we adopt a framework that, in the case of net redemptions, requires a fund to 

adjust its NAV by a swing factor only when those net redemptions exceed an 

identified threshold (i.e., as we propose for net purchases)? If so, should that 

threshold be the same size as the 1% market impact threshold, or a lower or higher 

amount (e.g., 0.5%, 1.5%, or 2%)? 

64. Should we require the application of the swing factor regardless of the size of net 

purchases or net redemptions, or only when they exceed a certain percentage of a 

fund’s net assets? Should funds have discretion to set their own thresholds? If so, 

187  See proposed rule 22c-1(b)(3)(iii)(C). Consistent with the current rule, a fund would be required 
to maintain a written copy of the report provided to the board for six years, the first two years in 
an easily accessible place. See rule 22c-1(a)(3)(iii); proposed rule 22c-1(b)(4).

188  See rule 22c-1(a)(3)(ii)(C) and proposed rule 22c-1(b)(3)(ii). See also Swing Pricing Adopting 
Release, supra note 11, at n.269 and accompanying text.

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should that discretion be based on the swing threshold factors currently in the rule or 

should we adjust those factors?

65. Should we include a market impact threshold for net redemptions, as proposed? Is 1%

an appropriate level for the market impact threshold? Should it be a lower or higher 

amount (e.g., 0.5%, 1.5%, or 2%)? Is there different data or analysis that we should 

take into account to determine the market impact threshold?

66. Should we include an inflow swing threshold for net purchases, as proposed? Is 2% 

an appropriate level for the inflow swing threshold? Should it be a lower or higher 

amount (e.g., 0.5%, 1%, 1.5%, or 3%)? Is there different data or analysis that we 

should take into account to determine the inflow swing threshold? 

67. Would the proposed inflow swing threshold, or a requirement to use swing pricing in 

the case of net purchases more generally, cause a fund to limit the total amount an 

investor can invest in the fund? If so, what effects would this have on investors?

68. Should we permit the swing pricing administrator to use discretion to establish a 

smaller market impact threshold for net redemptions or a smaller inflow swing 

threshold for net purchases if the administrator determines a smaller threshold is 

appropriate to mitigate dilution, as proposed? Should we prescribe the circumstances 

in which a smaller threshold would be permitted, the timing of such a determination 

by the swing pricing administrator (e.g., if a swing pricing administrator must 

formally establish a smaller threshold that will remain in place for a period of time), 

disclosure of such a determination to the fund’s investors, and recordkeeping 

requirements in support of the determination? Should we require the fund’s board, 

instead of the swing pricing administrator, to approve use of a smaller threshold? 

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Should we permit the swing pricing administrator to exclude certain types of costs 

from the swing factor if it uses a lower-than-required threshold? For example, should 

a swing pricing administrator be permitted to exclude market impact estimates from 

the swing factor if it uses an inflow swing threshold that is lower than 2%, and 

instead only include market impact estimates when inflows also exceed 2%?

69. Should the swing pricing administrator or the board have flexibility to establish larger

thresholds than proposed (i.e., to apply a swing factor only when net redemptions 

exceed a specified percentage, to include market impacts in the swing factor when net

redemptions are an identified amount that is greater than 1%, or to apply a swing 

factor only when net purchases exceed an identified amount that is greater than 2%)? 

If so, what are the circumstances in which a fund board or the swing pricing 

administrator should have flexibility to use larger thresholds that the proposed rule 

identifies? 

70. Should we allow certain types of funds to use different thresholds than those the 

proposed rule identifies? For example, should we permit or require smaller funds to 

use larger thresholds? If so, how should we identify smaller funds for these purposes?

Should the rule identify larger thresholds for smaller funds, or should smaller funds 

have flexibility to determine their own thresholds? As another example, should we 

permit or require funds that hold significant amounts of highly liquid investments to 

use larger thresholds? If so, how should we identify funds that hold significant 

amounts of highly liquid investments for these purposes? Should the rule identify 

larger thresholds for these funds, or should they have flexibility to determine their 

own thresholds? 

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3. Determining Flows

Consistent with the current rule, the swing pricing administrator must review investor 

flow information to determine if the fund has net purchases or net redemptions and the amount of

net purchases or net redemptions.189 For these purposes, investor flow information means 

information about the fund investors’ daily purchase and redemption activity. Investor flow 

information may consist of individual, aggregated, or netted eligible orders, and excludes any 

purchases or redemptions that are made in kind and not in cash.190 Currently it would be difficult 

to determine investor flow information on a given day because some intermediaries do not 

provide order flow until after the fund has finalized its NAV. In recognition of these challenges, 

the current rule permits a swing pricing administrator to make swing pricing determinations 

based on receipt of sufficient investor flow information to allow the fund to estimate reasonably 

whether it has crossed a swing threshold with high confidence.191 While the hard close provision 

in the proposed rule is intended to result in funds generally having flow information in a timely 

manner, and therefore greatly reduce the need for estimation, we recognize some estimation may 

still be required. The proposed rule would, therefore, continue to permit the swing pricing 

administrator to make swing pricing determinations based on reasonable, high confidence 

estimates of investor flows.192 

189  See rule 22c-1(a)(3)(i)(A) and proposed rule 22c-1(b)(1)(i).
190  See definition of “Investor flow information” in proposed rule 22c-1(d). See also infra section 

II.C.2 (discussing the proposed definition of “eligible order” for purposes of the hard close 
requirement).

191  See rule 22c-1(a)(3)(i)(A).
192  Under the current rule, the swing pricing administrator is permitted to make swing threshold 

determinations based on receipt of sufficient flow information “to allow the fund to reasonably 
estimate whether it has crossed the swing threshold(s) with high confidence.” See rule 22c-1(a)(3)
(i)(A).

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Under our proposal, the swing pricing administrator would be required to review investor

flow information on a daily basis to determine: (1) if the fund experiences net purchases or net 

redemptions; and (2) the amount of net purchases or net redemptions. We propose to permit the 

swing pricing administrator to make these determinations based on “reasonable, high confidence 

estimates.” While there would be less of a need to estimate flows under the proposed hard close 

requirement, we understand that a swing pricing administrator still would need to use estimates 

in some cases. For instance, if an investor submits an exchange order to redeem its shares from 

Fund A and simultaneously invest the proceeds in Fund B, the swing pricing administrator for 

Fund B may need to estimate the incoming cash by multiplying the number of shares redeemed 

from Fund A by an estimate of Fund A’s NAV, which may be the prior day’s transaction price. 

In this situation, we recognize it will not be possible for the swing pricing administrator to 

determine the exact size of the related flow information until a later time. Therefore, we propose 

to permit the use of reasonable, high confidence estimates to make swing pricing determinations.

Furthermore, some funds groups with both U.S. and European operations may already have 

experience with this type of estimation, because European funds that have adopted swing pricing

generally use the prior day’s price to estimate today’s flows.

We request comment on our proposal requirements related to shareholder flow 

information. 

71. Should we permit a swing pricing administrator to make reasonable, high confidence 

estimates of investor flows, as proposed? Are there operational complexities to this 

approach? Is the rule’s reference to reasonable, high confidence estimates of investor 

flows sufficiently clear? If not, how should we revise the rule to provide greater 

clarity about permitted estimates? 

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72. As proposed, should we remove references to receipt of sufficient investor flow 

information in the rule in light of the proposed hard close requirement?

73. Is the proposed definition of “investor flow information” clear and understandable? 

Should the rule continue to exclude any purchases or redemptions that are made in 

kind and not in cash, as proposed?

74. Should we provide additional guidance about circumstances in which a swing pricing 

administrator may need to use estimates in connection with arriving at a reasonable, 

high confidence estimate of the fund’s investor flow information and how the 

administrator should arrive at those estimates? Are there other types of investor 

orders, beyond orders that identify the number of shares to be purchased or sold and 

exchanges, that would still require estimation under a hard close approach? Should 

funds be able to use the prior day’s transaction price for purposes of estimating flows 

where the amount of such flows are dependent on having a transaction price? Should 

funds be permitted to make adjustments to the prior day’s price for these purposes 

(e.g., to reflect market movements relative to fund benchmarks that occurred after the 

prior day’s NAV was struck)? If so, under what circumstances should we permit such

adjustments?

75. If we adopt the proposed hard close requirement, would there be scenarios in which a 

swing pricing administrator would be unable to arrive at a reasonable, high 

confidence estimate of investor flows? If so, when would this occur? How should a 

fund comply with the swing pricing requirement if the administrator is unable to 

arrive at a reasonable, high confidence estimate of investor flows on a given day?

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76. Would the use of reasonable, high confidence estimates of investor flows subject 

swing pricing determinations to abuse? Should the use of estimates be limited to 

specific circumstances? Are there other ways for the swing pricing administrator to 

make swing pricing determinations without the use of reasonable, high confidence 

estimates of investor flows?

77. Do fund groups with both U.S. and European operations already have experience with

investor flow estimation? If so, would experience with European operations help 

these fund groups use estimates in their U.S. funds? What changes to the proposed 

rule, if any, would help fund groups without prior experience with investor flow 

estimation?

4. Swing Factors

In determining the swing factor, the proposed rule would require a fund’s swing pricing 

administrator to make good faith estimates, supported by data, of the costs the fund would incur 

if it purchased or sold a pro rata amount of each investment in its portfolio to satisfy the amount 

of net purchases or net redemptions (i.e., a vertical slice).193 The current swing pricing 

framework requires that the swing factor take into account only the near-term costs expected to 

be incurred by the fund as a result of net purchases or net redemptions that occur on the day the 

swing factor is used, as well as borrowing-related costs associated with satisfying redemptions.194

Under our proposal, a fund would be required to assume it would purchase or sell a pro rata 

amount of each investment in its portfolio, rather than consider the specific investments it would 

purchase to invest the proceeds from subscriptions or sell to meet redemptions.195 Because a fund
193  See proposed rule 22c-1(b)(2). 
194  These near-term costs include spread costs, transaction fees and charges arising from asset 

purchases or asset sales resulting from those purchases or redemptions. See rule 22c-1(a)(3)(i)(C).
195  See proposed rule 22c-1(b)(2).

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would need to calculate its costs based on the purchase or sale of a vertical slice of its portfolio, 

rather than selecting specific investments or borrowing to meet redemptions, we have proposed 

to remove borrowing costs from the swing factor calculation. We recognize that there are many 

ways a fund could pay redemptions or invest proceeds from investor purchases, and a fund may 

not necessarily sell or purchase a vertical slice of its portfolio holdings to do so. However, we 

believe analyzing costs based on an assumed purchase or sale of a vertical slice of the fund’s 

portfolio would more fairly reflect the costs imposed by redeeming or purchasing investors than 

an approach that focuses solely on the costs associated with the instruments that the fund expects

to buy or sell (or expected borrowing costs, in the case of redemptions). For example, under the 

current rule, if a fund sells only highly liquid investments to meet redemptions, the swing factor 

would typically reflect relatively low transaction costs of selling those investments and any near-

term rebalancing, and generally would not account for the effect of leaving remaining investors 

with a less liquid portfolio or potential longer-term rebalancing costs. In contrast, the proposed 

requirement that a fund calculate costs to purchase or sell a vertical slice of the portfolio is 

designed to recognize the potential longer-term costs of reducing the fund’s liquidity under these 

circumstances. 

In addition, using a vertical slice is more objective than the current approach, because the

swing factor administrator does not need to anticipate what actions the fund will take to pay 

redemptions or invest proceeds from investor purchases, which may vary from day to day. This 

should make the swing factor easier to administer. Further, under the proposed swing pricing 

framework and consistent with the current rule, a swing factor could generally be determined on 

a periodic basis, as long as developments that should affect the swing pricing administrator’s 

good faith estimates of spreads, market impact, and other transaction costs, such as significant 

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market developments, prompt a quicker reevaluation.196 A quicker reevaluation would be 

required to comply with the proposed amendments where developments would otherwise prevent

the prior swing factor from reflecting the cost the fund would incur if it purchased or sold a pro 

rata amount of each portfolio investment under current market conditions. Accordingly, we 

believe a fund would have the incentive to reevaluate promptly its swing factor in these 

circumstances because having an accurate and fair transaction price is crucially important to 

investors. We believe that funds would address the frequency of swing factor determinations 

when designing their policies and procedures relating to swing pricing.

Calculating the swing factor would differ depending on whether the fund is experiencing 

net purchases or net redemptions. In the case of net redemptions, the good faith estimates must 

include, for selling a pro rata amount of each investment in the fund’s portfolio to satisfy the 

amount of net redemptions: (1) spread costs; (2) brokerage commissions, custody fees, and any 

other charges, fees, and taxes associated with portfolio investment sales; and (3) if the amount of 

the fund’s net redemptions exceeds the market impact threshold, the market impact.197 In the case

of net purchases, swing pricing would only be applied if the amount of the fund’s net purchases 

exceeds 2%.198 In such cases the good faith estimates must include, for purchasing a pro rata 

amount of each investment in the fund’s portfolio to invest the proceeds from the net purchases: 

(1) spread costs; (2) brokerage commissions, custody fees, and any other charges, fees, and taxes

associated with portfolio investment purchases; and (3) the market impact.199 We believe these 

components of the swing factor for both net redemptions and net purchases, taken together, 

196  See Swing Pricing Adopting Release, supra note 11, at paragraph accompanying n.268.
197  See proposed rule 22c-1(b)(2)(i).
198  See proposed rule 22c-1(b)(2)(ii).
199  Id.

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approximate the aggregate costs associated with dilution. We also believe that providing a 

standard for calculating swing factors, including the vertical slice approach and the identification

of the categories of costs funds must include, would help avoid the variability in how funds 

calculate swing factors, as observed in some other jurisdictions where funds use swing pricing.200

We understand that in calculating the swing factor, fund managers may have incentives to

over-estimate costs in order to improve fund performance. However, doing so would be 

misleading. To help address this risk, under the proposal funds would be required to report their 

swing factor adjustments publicly on Form N-PORT. We believe this public transparency should

reduce a fund’s incentive to over-estimate costs. Additionally, a fund’s portfolio manager, who 

arguably might have the strongest incentives to over-estimate costs, could not be designated as 

the swing pricing administrator.201

The method for calculating a fund’s spread costs would differ depending on how the fund

values its portfolio holdings. We understand that funds may value portfolio holdings at the bid 

price or the mid-market price when striking their NAVs.202 If a fund values its portfolio holdings 

200  See Bank of England Survey, supra note 60. This report states that in calculating swing factors, 
some surveyed UK funds only considered bid-ask spreads, some other funds also considered 
explicit transaction costs such as commissions, and a few funds considered market impact as 
well. Moreover, in reviewing the size of swing factors applied in Mar. 2020, the report found that 
corporate bond funds with net outflows applied swing factors ranging between -5% and +0.5% 
from Mar. 10 to 23. The report states that the scale of variation suggests that fund-specific 
experiences are not the sole explanation for differences in swing factors and that different 
approaches fund managers took in applying swing pricing also contributed to these variations. 

201  See proposed rule 22c-1(b)(3)(ii).
202  See FASB ASC 820-10-35-36C (providing that if an asset measured at fair value has a bid price 

and an ask price, the price within the bid-ask spread that is most representative of fair value in the
circumstance shall be used to measure fair value, and that the use of bid prices for asset positions 
is permitted but not required for these purposes); FASB ASC 820-10-35-36D (stating that use of 
mid-market pricing as a practical expedient for fair value measurements within a bid-ask spread 
is not precluded). Since a seller generally asks for a higher price for a security than a buyer bids 
for that security, the mid-market price is incrementally higher than the bid price for a security, but
lower than its ask price.

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at the bid price, it would not need to include spread costs in its swing factor when the fund has 

net redemptions. In contrast, if the fund has net purchases exceeding 2%, the fund would need to 

include spread costs, which would reflect the full bid-ask spread. For a fund that uses mid-

market pricing, it would need to include spread costs in its swing factor any time it applies swing

pricing. When a fund using mid-market pricing has net redemptions, or net purchases exceeding 

2%, the spread cost component of its swing factor would reflect half of the bid-ask spread.

The proposal would require a fund to include market impact in its swing factor only if the

amount of net redemptions exceeds the market impact threshold, and in all cases where the 

amount of net purchases exceeds the inflow swing threshold. The market impact component of 

the swing factor would reflect good faith estimates of the market impact of selling (in the case of 

net redemptions) or purchasing (in the case of net purchases) a vertical slice of a fund’s portfolio 

to satisfy the amount of net redemptions or net purchases. The fund would estimate market 

impacts for each investment in its portfolio by first estimating the market impact factor. This 

factor is the percentage change in the value of the investment if it were purchased or sold, per 

dollar of the amount of the investment that would be purchased or sold. Then, the fund would 

multiply the market impact factor by the dollar amount of the investment that would be 

purchased or sold if the fund purchased or sold a pro rata amount of each investment in its 

portfolio to meet the net redemptions or net purchases.203 

We understand that it may be difficult to produce timely, good faith estimates of the 

market impact of purchasing or selling a pro rata portion of each instrument the fund holds. 

Recognizing these difficulties, and because some securities held by mutual funds may have 

similar characteristics and would likely incur similar costs if purchased or sold, the proposed rule

203  See proposed rule 22c-1(b)(2)(iii).

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would permit the swing pricing administrator to estimate costs and market impact factors for 

each type of investment with the same or substantially similar characteristics and apply those 

estimates to all investments of that type rather than analyze each investment separately.204 

The existing swing pricing framework currently in rule 22c-1 does not permit a fund to 

include market impact costs relating to transacting in the fund’s investments in the swing factor 

calculation. At the time of the rule’s adoption, the Commission stated that it may be difficult for 

many funds to estimate readily market impact costs, and that subjective estimates of market 

impact costs could grant excessive discretion in a fund’s determination of a swing factor.205 We 

understand that it may continue to be difficult to determine market impact costs with precision, 

while a fund would be able to determine other relevant factors more precisely.206 However, we 

believe the experiences of European funds that employed swing pricing through March 2020 

have highlighted the importance of considering market impact costs, given the stressed nature of 

markets at that time, the level of those funds’ redemptions, and the size of those funds’ swing 

factors. We understand that only some European funds consider market impact costs when 

determining their swing factors.207 A recent survey conducted by the Association of the 

Luxembourg Fund Industry (“ALFI”), however, observed an increase in asset managers 

204  See proposed rule 22(c)-1(b)(iv).
205  See Swing Pricing Adopting Release, supra note 11, at paragraph accompanying n.240.
206  Methodologies used to estimate market impact are often created by liquidity measurement 

vendors. These vendors typically create a model to gauge what size of trade will have a market 
impact on a security (using various factors such as bid-offer spreads, issue sizes, recent daily 
average volumes, and recent trade sizes), back-test the model to check its accuracy, and then 
adjust the weights of the various factors used in the model accordingly. 

207  See Bank of England Survey, supra note 60 (stating that most surveyed fund managers did not 
factor market impact explicitly into their swing factors, and few had models in place to estimate 
spreads when needed). 

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including market impact in their swing factors, with 35% of surveyed asset managers including 

this component in the factor calculation.208 

To address the concern that market impact estimation may be difficult, and that 

subjective estimates of market impact costs could grant excessive discretion in the determination 

of a swing factor, we are providing additional parameters for estimating market impact to make 

the calculation more objective as discussed above. These prescriptive requirements should help 

to limit subjectivity, and recordkeeping requirements would require funds to document their 

market impact factors, facilitating our staff’s review and oversight of mutual fund swing 

pricing.209 

The current swing pricing framework requires the establishment of an upper limit on the 

swing factor used.210 The Commission included a 2% upper limit in the current rule to make sure 

that swing pricing would not operate as a “de facto gate.”211 We are not including an upper limit 

on the swing factor under our proposed framework. We propose to remove the requirement for 

the board to review and approve the fund’s swing threshold and the upper limit on the swing 

factor(s) used, as well as any charges on these items, to conform to our proposed swing pricing 

208  See ALFI Swing Pricing Survey 2022 (July 2022), available at 
https://www.alfi.lu/getattachment/8417bf51-4871-41da-a892-f4670ed63265/app_data-import-
alfi-alfi-swing-pricing-survey-2022.pdf.

209 See rule 31a-2(a)(2) (requiring funds to preserve for a period of not less than six years all 
schedules evidencing and supporting each computation of an adjustment to the fund’s NAV based
on swing pricing policies and procedures). A fund’s records under the proposed amendments 
should generally include the fund’s unswung NAV, the level of net purchases or net redemptions 
that the fund encountered (and estimated) that triggered the application of swing pricing, the 
swing factor that was used to adjust the fund’s NAV, and relevant data supporting the calculation 
of the swing factor, including the components of the swing factor such as market impact.

210  See rule 22c-1(a)(3)(i)(C). Additionally, a fund’s board of directors, including a majority of 
directors who are not interested persons of the fund must approve the fund’s swing threshold(s) 
and the upper limit on the swing factor(s) used, and any changes to the swing threshold(s) or the 
upper limit on the swing factor(s) used. See rule 22c-1(a)(3)(ii).

211  See Swing Pricing Adopting Release, supra note 13, at text accompanying nn.253-254.

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framework.212 The more specific parameters in this proposal for determining a fund’s swing 

factor are intended to sufficiently mitigate the concerns that led to an upper limit in the existing 

swing pricing regime. In addition, although the current rule does not prescribe which investments

a fund would purchase or sell, the current upper limit may provide an incentive for funds to sell 

their most liquid assets first, which may increase the risk of dilution when the fund later 

rebalances its portfolio. Furthermore, we understand that in certain other jurisdictions, several 

funds experienced costs and dilution that led to swing factors above 2% in March 2020.213 Those 

cases suggest that the swing factors helped mitigate dilution and did not constitute a de facto 

gate, given that they reflected market conditions at that time. We recognize that liquidity costs 

could vary widely across funds and under different market conditions, and we do not wish to 

limit the extent to which swing pricing could mitigate dilution. Finally, the policies and 

procedures for determining the swing factor would be required to be approved by the fund’s 

board, which has an obligation to act in the best interests of the fund.

Additionally, Form N-1A currently requires funds that use swing pricing to disclose a 

fund’s swing factor upper limit.214 Because we propose to remove the swing factor upper limit in 

the rule, we also propose to remove the requirement to provide an upper limit on the swing factor

from Item 6(d) of Form N-1A.215

We request comment on our proposed calculation of a fund’s swing factor. 
212  See proposed rule 22c-1(b)(3). We also propose to modify the board’s review of a fund’s swing 

pricing policies and procedures to include “their effectiveness at mitigating dilution” rather than 
“the impact on mitigating dilution.” See proposed rule 22c-1(b)(3)(iii)(A).

213  See, e.g., Commission de Surveillance du Secteur Financier, Swing Pricing Mechanism – FAQ, 
available at https://www.cssf.lu/en/Document/cssf-faq-swing-pricing-mechanism/ (providing 
guidance for increasing the swing factor above the maximum level identified in a fund’s 
prospectus under certain circumstances, and noting that typical maximum swing factors observed 
in fund prospectuses are between 1% and 3%).

214  Item 6(d) of Form N-1A. 
215  See Item 6(d) of proposed Form N-1A.

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https://www.cssf.lu/en/Document/cssf-faq-swing-pricing-mechanism/78. Does our proposed requirement that a fund calculate the swing factor by assuming it 

would sell or purchase a pro rata amount of each investment in its portfolio properly 

account for liquidity costs? Are there other considerations related to liquidity costs 

that the swing pricing framework should take into account, such as shifts in the fund’s

liquidity management or other repositioning of the fund’s portfolio? 

79. Should funds calculate the swing factor by estimating the costs of purchasing or 

selling only the investments the fund plans to buy or sell to satisfy shareholder 

purchases or redemptions (consistent with the current rule), rather than calculating the

swing factor based on the costs the fund would incur if it sold a pro rata amount of 

each investment in its portfolio (as proposed)? Which approach would more fairly 

reflect the costs imposed by redeeming or purchasing investors?

80. Should we permit a fund not to use the vertical slice assumption when doing so would

require the fund to assume that it is purchasing or selling an amount of a given 

instrument that would not be permissible under other rules (e.g., if it would result in 

an assumption that a fund would purchase an amount of illiquid investments that 

exceeds 15%)? If so, how should we modify the assumption for these purposes? 

Should we require a vertical slice assumption in all cases for administrative ease and 

consistency in calculations?

81. As proposed, should the swing factor calculation take into account spread costs; 

brokerage commissions, custody fees, and any other charges, fees, and taxes 

associated with portfolio investment sales; and the market impact under certain 

circumstances? Should we remove any of these types of costs from the calculation? 

Are there other types of costs we should include?

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82. Should the swing factor calculation take into account borrowing costs like under the 

current rule? Should the proposed rule only include borrowing costs for certain assets,

such as illiquid assets? Should illiquid investments be defined for this purpose using 

the same definition as in rule 22e-4?

83. Should the way in which a fund calculates spread costs depend on whether it uses 

midpoint or bid pricing when valuing its holdings? Should we allow a fund that uses 

bid pricing not to apply a swing factor when it has net redemptions unless the amount 

of net redemptions exceeds a threshold (e.g., the market impact threshold)? Should 

we require all funds to use bid pricing, either instead of or in combination with a 

swing pricing requirement? Would use of bid pricing effectively address dilution, 

particularly when net redemptions are small? Instead of requiring swing pricing as 

proposed, should we require a fund to use bid pricing to compute its share price or 

otherwise adjust its price to reflect spread costs on days the fund estimates that it has 

net redemptions? If so, should the fund also use ask pricing on days the fund 

estimates that it has net purchases? Should we require a fund to use bid pricing to 

compute its share price on all days, regardless of whether the fund has net 

redemptions or purchases? 

84. Should we require the swing factor to include market impact under certain 

circumstances, as proposed? Do some or all funds already estimate market impact 

factors, or perform similar analyses, to inform trading decisions or liquidity rule 

classifications? If so, would these funds’ prior experience smooth the transition to 

making a good faith estimate of the market impact factor under the proposal? Would 

the proposed amendments to the liquidity rule further enhance funds’ ability to 

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estimate market impacts? What difficulties might funds experience in developing a 

framework to analyze market impact factors and in producing good faith estimates of 

market impact factors for purposes of the proposed swing pricing requirement? What 

are the specific operational challenges in estimating market impact? Are there ways 

we could reduce those difficulties, while still requiring redeeming investors to bear 

costs that reasonably represent the costs they would otherwise impose on the fund and

its remaining shareholders?

85. Should we permit funds to calculate swing factors on a periodic basis, as long as 

developments such as significant market developments prompt a quicker re-

evaluation, as proposed? Does this approach have any effect on the goals of reducing 

dilution, improving fairness, and addressing potential first-mover advantages? Are 

there other circumstances in which a fund should be required to re-evaluate its swing 

factors or certain swing factor components, such as changes in the fund’s investment 

strategy or liquidity? Should we instead require funds to calculate swing factors (or 

certain components of swing factors) on a daily basis or at some other defined 

minimum frequency (e.g., weekly or monthly) unless developments prompt a quicker 

re-evaluation?

86. Should the rule permit, rather than require, funds to follow the identified inflow 

swing threshold, market impact threshold, and swing factor calculations set forth in 

the rule? If so, what considerations or factors should the rule require a fund to 

consider when determining thresholds and swing factors if the fund determines not to 

follow the threshold or calculations set forth in the rule? For example, instead of 

removing the factors a fund must consider when setting swing threshold(s) under the 

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current rule, should we maintain those or similar factors for purposes of determining a

fund’s market impact threshold or the inflow swing threshold?216 

87. Should funds be subject to a numerical limit on the size of swing factors? If so, 

should we retain the current rule’s 2% swing factor upper limit and the disclosure of 

the limit in Form N-1A? Alternatively, should the limit be higher or lower (e.g., 1% 

or 3%)? 

88. Should we allow a fund to use a set swing factor, such as 2% or 3%, in times of 

market stress when estimating a swing factor with high confidence may not be 

possible? How would we define market stress for this purpose? Should a fund’s 

swing pricing administrator, adviser, or a majority of the fund’s independent 

directors, be permitted to determine market conditions were sufficiently stressed such 

that the fund would apply the set swing factor? Are there other circumstances in 

which we should permit or require a fund to use a default swing factor? For example, 

should the rule establish a default swing factor that would apply when a fund has 

illiquid investments that exceed 15% or when a fund drops below its highly liquid 

investment minimum under rule 22e-4?

89. Should the rule permit a fund to apply a market impact factor of zero for certain 

investments or under certain circumstances? For example, should a fund be able to 

use a market impact of zero for certain categories of investments, such as Treasuries 

or other investments that the fund classifies as highly liquid investments under rule 

22e-4? Are there particular circumstances in which it would not be reasonable for the 

216  See rule 22c-1(a)(3)(i)(B).

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rule to permit a fund to use a market impact factor of zero, such as in stressed market 

conditions?

90. Instead of specifying swing factor calculations and thresholds in the rule, should we 

require a fund to adopt policies and procedures that specify how the fund would 

determine swing pricing thresholds and swing factors based on principles set forth in 

the rule? If so, should the policies and procedures include the methodologies from the

market impact factor calculation we proposed? Should the policies and procedures be 

required to include the swing factor calculation? Should the policies and procedures 

be required to define the market impact threshold with reference to a metric other 

than net purchases or net redemptions? If we require policies and procedures, should 

we specify the market impacts and dilution costs that a fund’s swing pricing program 

must address, rather than specifying specific principles and calculation 

methodologies?

91. Are there circumstances in which it would not be possible to estimate the market 

impact factor with a high degree of accuracy? If so, what modifications should we 

make to the proposal? 

92. Would our proposed swing pricing requirement cause or incentivize investors to 

move their assets out of the funds that must implement swing pricing into other 

investment vehicles that do not use swing pricing, such as ETFs, collective 

investment trusts (“CITs”), or separately managed accounts? What are the potential 

effects associated with these decisions? For example, when would such movements 

occur (e.g., before the end of the compliance period for a swing pricing requirement, 

if adopted, or over a longer time horizon)? Would retirement plan sponsors or others 

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remove mutual funds as investment options if swing pricing is required? In the case 

of separately managed accounts, should the Commission take any action with respect 

to how the Investment Company Act may apply to investment advisory programs 

seeking to provide the same or similar professional management services on a 

discretionary basis to a large number of advisory clients having relatively small 

amounts to invest?217

93. Would a swing pricing requirement change the behavior of funds? For example, 

would it cause any changes to fund strategies or practices? 

94. How might swing pricing affect investor behavior in a period of liquidity stress? 

Would swing pricing increase fund resilience by reducing the first-mover advantage 

that some investors may seek during periods of market stress? Would swing pricing 

encourage investors to redeem smaller amounts over a longer period of time because 

investors will not know whether the fund’s flows during any given pricing period will

trigger swing pricing and, if so, the size of the swing factor for that period?

95. Based on historical data, how would our swing pricing framework affect funds’ 

transaction prices under normal market conditions?

96. Rather than requiring funds to adopt a swing pricing requirement, should we provide 

more than one approach to mitigate dilution and require each fund to implement an 

anti-dilution tool, but permit each fund to determine its own preferred approach? If 

so, which anti-dilution tool options should the rule provide? Should we, for example, 

allow a fund to adopt swing pricing, a liquidity fee (i.e., purchase and/or redemption 

fees), or dual pricing?218 Are there other options that would be appropriate under this 

217  See, e.g., 17 CFR 270.3a-4.
218  See infra section II.D for a discussion of potential liquidity fee or dual pricing frameworks.

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approach? Would funds’ use of different approaches benefit investors by increasing 

investor choice or, conversely, would these differences confuse investors or make it 

more difficult for them to compare funds with each other?

97. The current rule requires a fund’s board of directors to approve the fund’s swing 

pricing policies and procedures and to designate the persons responsible for swing 

pricing. Should we require board involvement in the day-to-day administration of a 

fund’s swing pricing program in addition to its compliance oversight role? How 

might funds maintain segregation between portfolio management and swing pricing 

administration? Should a fund’s chief compliance officer have a designated role in 

overseeing how the fund applies the proposed swing pricing requirement?

98. The current rule requires a fund’s board to review, no less frequently than annually, a 

report prepared by the swing pricing administrator on the fund’s use of swing pricing,

including the effectiveness of the fund’s policies and procedures and any material 

changes to them since the last report. Should we require board review of a swing 

pricing report more or less frequently than annually? Should we require less frequent 

board review over time (e.g., every quarter for the first year after implementation and 

then less frequently in following years as the fund gains experience implementing the 

swing pricing program under various market conditions)? Should we require the fund 

to disclose any material inaccuracies in the swing pricing calculation to the board 

(e.g., as they arise, no less frequently than quarterly, or at some other frequency)? 

Would this disclosure requirement be additive, or would fund boards already receive 

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information about material inaccuracies in the swing pricing calculation in the course 

of existing board oversight?219    

99. In addition to the proposed requirement that funds would publicly report their swing 

factor adjustments on Form N-PORT, should funds also be required to post that same 

information on their websites? If so, how promptly should website reporting be 

required (e.g., weekly, monthly, quarterly, annually)? Are there other ways to provide

this information to investors?

C. Hard Close 

Currently if an investor submits an order to an intermediary to purchase or redeem fund 

shares, that order will be executed at the current day’s price as long as the intermediary receives 

the order before the time the fund has established for determining the value of its holdings and 

calculating its NAV (typically 4 p.m. ET).220 The fund, however, might not receive information 

about that order until much later, sometimes as late as the next morning. We are proposing 

amendments to rule 22c-1 under the Act to require a hard close for those funds that are required 

to implement swing pricing.221 The proposed hard close requirement would provide that a 

direction to purchase or redeem a fund’s shares is eligible to receive the price established at the 

219  See, e.g., 17 CFR 270.38a-1 (requiring the fund’s chief compliance officer to provide a written 
report to the board addressing each material compliance matter occurring since the date of the 
chief compliance officer’s last report to the board); Compliance Programs of Investment 
Companies and Investment Advisers, Investment Company Act Release No. 26299 (Dec. 17, 
2003) [68 FR 74713 (Dec. 24, 2003)] (“Rule 38a-1 Adopting Release”), at n.84 (“Serious 
compliance issues must, of course, always be brought to the board’s attention promptly, and 
cannot be delayed until an annual report.”).

220  Although not all funds calculate their NAVs as of 4 p.m. ET, throughout this release we use 
4 p.m. ET as the time as of which a fund calculates its NAV unless otherwise noted. 

221  As discussed above in section II.B, swing pricing would be required for all registered open-end 
management investment companies other than money market funds and ETFs. The proposal 
would not affect the operation of current rule 22c-1 for money market funds or ETFs, as well as 
unit investment trusts (which are also subject to rule 22c-1). 

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current day’s price solely if the fund, its designated transfer agent, or a registered securities 

clearing agency (collectively, “designated parties”) receives an eligible order before the pricing 

time as of which the fund calculates its NAV.222 Orders received after the fund’s established 

pricing time would receive the next day’s price.223 In 2003, the Commission proposed a similar 

hard close requirement but did not adopt the proposed amendments.224 The proposed hard close 

amendments would serve multiple goals, such as facilitating mutual funds’ ability to 

operationalize swing pricing by ensuring that funds receive timely flow information, 

modernizing and improving order processing, as well as helping to prevent late trading. 

1. Purpose and Background

We are proposing to require all registered open-end funds (other than money market 

funds and ETFs) to implement swing pricing in order to combat dilution. Our hard close proposal

is designed to support the proposed swing pricing amendments by facilitating the more timely 

receipt of fund order flow information. To implement the proposed swing pricing requirement, 

mutual funds need sufficient net order flow information to determine whether to apply a swing 

factor, and the size of that swing factor, before they finalize that day’s price. Based on staff 

outreach with foreign regulators and asset managers that operate in Europe, we understand that a 

hard close is common in other jurisdictions in which funds currently implement swing pricing, 

and use of a hard close in those jurisdictions facilitates the receipt of timely flow information to 

222  See proposed rule 22c-1(a)(3).
223  Funds generally compute their NAVs once per day, although some funds compute their NAVs 

multiple times per day. For simplicity, this discussion assumes that a fund computes its NAV 
once per day.

224  See Amendments to Rules Governing Pricing of Mutual Fund Shares, Investment Company Act 
Release No. 26288 (Dec. 11, 2003) [68 FR 70388 (Dec. 17, 2003)] (“2003 Hard Close Proposing 
Release”).

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inform swing pricing decisions.225 The proposed hard close requirement would facilitate the more

timely receipt of order flow information by requiring that the fund, its transfer agent, or a 

clearing agency receive all orders that are eligible to receive that day’s price before the fund 

computes its NAV.

Beyond facilitating swing pricing, our proposed hard close amendments to rule 22c-1 

also would help prevent late trading of fund shares. Because a financial intermediary currently 

can submit an order that it received before 4 p.m. ET to a designated party after 4 p.m. ET for 

execution at that day’s NAV, there is a risk that an intermediary could unlawfully alter orders 

using after-hours information to benefit the intermediary or its clients. The Commission and 

others uncovered several instances of late trading in the early 2000s.226 While the Commission 

adopted rules to address concerns about late trading, we believe that the hard close proposal, 

when coupled with our current rules, would more effectively prevent late trading.227 For example,

some fund intermediaries are not subject to examination by the Commission and staff, and we 

are unable to examine whether those intermediaries permit or engage in unlawful late trading. By

proposing to require that all purchase and redemption orders be received by the fund, its transfer 
225  We understand that the hard close employed in these other jurisdictions is not necessarily the 

same as the hard close approach we are proposing. For example, we understand it is common in 
some other jurisdictions for the required time of receipt of orders by the fund to be several hours 
before the time as of which the fund values its holdings.

226  See, e.g., 2003 Hard Close Proposing Release, supra note 224 (discussing investigations by 
Commission staff of suspected late trading, which suggested that, at the time, late trading of fund 
shares was not an isolated event). See, also, e.g., In the Matter of Steven B. Markovitz, 
Investment Company Act Release No. 26201 (Oct. 2, 2003); In the Matter of Theodore Charles 
Sihpol, III, Investment Company Act Release No. 27113 (Oct. 12, 2005); In the Matter of Legg 
Mason Wood Walker, Inc., Investment Company Act Release No. 27071 (Sept. 21, 2005); In the 
Matter of Canadian Imperial Holdings, Inc. and CIBC World Markets Corp., Investment 
Company Act Release No. 26994 (July 20, 2005); In the Matter of Brean Murray & Co., Inc., 
Investment Company Act Release No. 26761 (Feb. 17, 2005).

227  See, e.g., Rule 38a-1 Adopting Release, supra note 219 (adopting rule 38a-1 under the Act, 
which requires written policies and procedures reasonably designed to prevent violation of the 
securities laws, oversight of compliance by the fund’s service providers, and designation of a 
chief compliance officer).

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agent, or a registered clearing agency by 4 p.m. ET, the proposal would prevent intermediaries 

from altering orders after 4 p.m. ET or unlawfully misrepresenting that an order was received 

before 4 p.m. ET and entitled to that day’s price. We believe that the proposed amendments 

would aid in the elimination of late trading through intermediaries by requiring certain SEC-

regulated parties to receive orders before the NAV is computed to receive that day’s price. The 

proposed hard close requirement would also modernize and improve order processing and reduce

operational risks, as discussed below. 

2. Pricing Requirements

Under the proposed rule, an eligible order to purchase or redeem would receive the price 

for the next pricing time after a designated party receives the order.228 We propose to define the 

terms “pricing time” and “eligible order” for purposes of the rule.229 Eligible orders would 

receive a price based on the current NAV as of the next pricing time, which would include an 

adjustment to the NAV to include the swing factor, as applicable. Consistent with the current 

rule, the fund’s board of directors would be required to establish a “pricing time,” which would 

be defined as the time or times of day as of which the fund calculates the current NAV of its 

redeemable shares pursuant to the rule (typically 4 p.m. ET). The price of a fund’s shares would 

typically be finalized several hours after the pricing time, giving funds time to calculate the 

current NAV, apply any swing factor, and finalize and publish the fund share price. 

For purposes of the proposed hard close requirement, an eligible order to purchase or 

redeem fund shares would have to supply certain information about the size of an investor’s 

intended trade. This approach is intended to facilitate swing pricing by providing mutual funds 

with information they can use to calculate investor flows. In addition, this approach requires that 

228  See proposed rule 22c-1(a)(3). 
229  See definitions of “Eligible order” and “Pricing time” in proposed rule 22c-1(d).

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trading intentions are clear before 4 p.m., which would further help prevent late trading. 

Specifically, we propose to define the term “eligible order” to mean a direction to purchase or 

redeem a specific number or value of fund shares. For example, an eligible order would include 

the direction to purchase or sell either (1) a specific number of shares of a fund (e.g., 100 shares, 

or all the shares held in the account), or (2) an indeterminate number of shares of a specific value

(e.g., $10,000 of shares of the fund).  

The proposed definition of eligible order also would include exchange orders. An 

exchange refers to the process in which an investor initiates an order to purchase shares of a fund

using the proceeds from a contemporaneous order to redeem shares of another fund. When an 

exchange is initiated, two transactions are created—a redemption of securities and a purchase. 

We understand that exchanges are often between funds in the same fund complex, however, 

exchanges can occur between funds in different complexes. In either case, exchanges often are 

processed as a single transaction so that both the redemption and purchase components of the 

exchange receive same-day pricing. For exchanges involving a fixed number of shares on the 

redemption leg, the amount and number of shares of the second fund to be purchased will not be 

known until the NAV of the first fund is determined, which will be after the NAV is struck after 

4 p.m. ET. For example, if an investor submits an order to redeem 100 shares of Fund A and 

invest the redemption proceeds in Fund B, the amount of the redemption proceeds from Fund A 

is not known until Fund A determines its price for that day and, likewise, the purchase amount 

for Fund B is not known until that time.230 Under our proposed rules, this exchange transaction 

230  See supra section II.B.3 (discussing how a fund whose shares are purchased in an exchange 
transaction can estimate the size of the inflow for purposes of the proposed swing pricing 
requirement). 

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would qualify as an eligible order so that these contemporaneous transactions may continue to 

occur. 

To receive that day’s price, a designated party must receive the eligible order before the 

pricing time.231 The fund’s designated transfer agent is a registered transfer agent that is 

designated in the fund’s registration statement filed with the Commission.232 Currently, NSCC is 

the only registered clearing agency for fund shares, which operates its Fund/SERV service for 

processing fund transactions. The proposed rule would specify that eligible orders are 

irrevocable as of the next pricing time after a designated party receives the order. The proposed 

requirement of irrevocability of an eligible order is designed to prevent the cancellation or 

modification of orders by investors or intermediaries after the pricing time applicable to the 

order.233 Preventing the cancellation or modifications of orders after the pricing time would help 

avoid continuing adjustments to the investor flow information that a fund uses to make swing 

pricing decisions. In addition, the alteration or cancellation of fund orders after the pricing time 

may be used as a means to facilitate late trading as fund investors may become aware of new 

market information after the order has been submitted and after the pricing time. We request 

comment on the proposed approach to implementing the hard close requirement, including:

100. Should we make any changes to the definitions included in the proposed rule? Is 

the definition of “eligible order” clear and understandable? Is the definition of 

231  Although orders would have to be received by Fund/SERV or the designated transfer agent by 4 
p.m. ET to ensure same-day pricing, the clearing agency and designated transfer agent each may 
complete its processing after the pricing time.

232  See proposed rule 22c-1(d). The term “transfer agent” has the same meaning as in section 3(a)
(25) of the Exchange Act [15 U.S.C. 78c(a)(25)] and does not include underlying or sub-transfer 
agents. A fund may designate more than one transfer agent in its registration statement.

233  The irrevocability of an order does not prevent a fund from rejecting an order and does not affect
the ability of a fund to maintain policies and procedures for correcting bona fide errors. 

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“designated transfer agent” clear and understandable? Is the definition of “pricing 

time” clear and understandable”? Are there other terms we should define?

101. Should the proposed hard close requirement permit exchanges, as proposed? If 

not, what goals of the proposed hard close requirement would be supported by no 

longer permitting exchanges?

102. Should the definition of “eligible order” require orders to be irrevocable as of the 

pricing time, as proposed? Should funds be permitted to correct bona fide errors 

under a hard close, as proposed? If not, how should errors be resolved? Are there 

other reasons why an eligible order should not be considered irrevocable as of the 

pricing time? 

103. Should the definition of “eligible order” include directions to purchase or redeem 

a specific percentage of fund shares in an account or a specific percentage of an 

account’s value? 

104. To what extent do designated parties already time stamp orders based on the time 

of receipt? Should we include new requirements for each designated party to time 

stamp order information for purposes of the hard close requirement? 

105. Should we include funds, designated transfer agents, and registered clearing 

agencies as designated parties, as proposed? Would allowing registered clearing 

agencies to receive eligible orders for purposes of the hard close delay the ability of 

the fund’s swing pricing administrator to assess investor flow information to make 

swing pricing decisions? If so, how long would this delay be?

106. Beyond the proposed designated parties, are there other parties involved in 

processing order information that should be eligible to receive eligible orders before 

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the pricing time so that orders may receive that day’s NAV? For example, should a 

fund’s principal underwriter qualify as a designated party and, if so, why? To what 

extent do direct investors or intermediaries today place orders with a fund’s principal 

underwriter or directly with the fund’s transfer agent? 

107. Should we limit the proposed hard close requirement to funds that must 

implement swing pricing under the amendments to rule 22c-1, as proposed? 

108. The proposed amendments to rule 22c-1 would establish different requirements 

for money market funds, transactions by authorized participants with ETFs, and unit 

investment trusts than for all other open-end funds, which would be required to 

implement a hard close. Would investors, funds, or intermediaries be confused by the 

different pricing requirements that would be created by the proposed amendments to 

rule 22c-1? If so, what confusion would be created? What party to a transaction 

would bear that confusion? Would additional burdens be created by having different 

pricing requirements under proposed rule 22c-1 for these different types of registered 

investment companies? 

3. Effects on Order Processing, Intermediaries and Investors, and 
Certain Transaction Types

The proposed hard close would require changes to current order processing practices. 

Although modernizing these practices is intended to reduce operational risk and enhance 

resilience, in addition to the benefits related to swing pricing and helping deter late trading, we 

recognize these changes would also involve costs.234 

234  See infra section III.C.3 discussing the estimated costs of the hard close proposal on funds, 
designated parties, intermediaries, and investors.  

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a. Order Processing Improvements

The system updates that would support the implementation of a hard close may provide 

additional benefits by requiring modernization of how orders are processed. Today, some 

intermediaries net their customers’ purchase and redemption orders in a given fund against each 

other, meaning that an intermediary combines and offsets the value of purchase and redemption 

activity across multiple customer accounts. Instead of netting purchases and redemptions 

together, some other intermediaries maintain separation between purchase orders and redemption

orders. After aggregating customers’ orders, intermediaries then submit orders in one or more 

batches, with most orders submitted to the designated party after 4 p.m. ET. As a result of the 

proposed hard close requirement, some intermediaries may opt to discontinue infrequent or even 

once-a-day batch processes for submitting orders and instead adopt more frequent batch 

processing approaches that result in more frequent order submission throughout the business day.

Some intermediaries may even elect to utilize message-based communications for order flow, in 

which orders are submitted on a near-real-time basis.235 We understand based on industry 

outreach that some intermediaries currently do not submit orders throughout the day to facilitate 

customers’ ability to cancel or correct orders intra-day, before the orders are submitted to a 

designated party. If intermediaries continue to provide this capability to customers under a hard 

close, they would likely either: (1) need to develop a process with designated parties for 

cancelling and correcting orders submitted to a designated party before the pricing time (as 

eligible orders are irrevocable under the proposal as of the pricing time, but not before); or (2) 

235  Intermediaries that take advantage of netting likely would be unable to eliminate batch 
processing altogether since netting necessitates definition of a period over which trades are netted
and a process that collects eligible customer orders and nets them together into a single order for 
submission to a fund. Message-based communication is less likely to be implemented when 
netting is utilized.

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submit orders to a designated party relatively close in time to the pricing time, instead of 

throughout the day. 

If an intermediary submits orders more often or earlier in the day, it would be less 

vulnerable to an intra-day disruption within its own operational environment. Orders that have 

been submitted prior to a disruption are able to be accepted and acknowledged by a fund, even if 

the intermediary experiences delays in its own processing. This improves the intermediary’s 

operational resilience, since some operational activities on which the intermediary is dependent 

will be able to continue. Similarly, earlier order submission should also result in earlier 

confirmations from the fund.236 As such, the chances increase for an intermediary to submit an 

order and receive a confirmation even if the fund’s transfer agent has a disruption later in the 

day. This reduces an intermediary’s vulnerability to disruptions in others’ operational processing,

further improving the intermediary’s operational resilience. Collectively, as all intermediaries, 

funds, and fund transfer agents process orders more frequently, operational resilience across all 

market participants improves.237

The proposed hard close would also eliminate cancellations and corrections that are 

submitted after the pricing time. As a result, an investor or intermediary would bear the cost, if 

any, of the errors leading to a cancel or correct order. We believe it would be unfair for a fund’s 

shareholders to bear the cost of an error in this case, as the investor or intermediary was the 

cause of that error. For errors that were the intermediary’s responsibility, the intermediary should

236  The term “confirmation,” for the purposes of this release, unless otherwise indicated, refers to 
the process by which a fund accepts a purchase or redemption order. The confirmation process 
discussed in this section is different from the confirmations required by 17 CFR 240.10b-10 
(Exchange Act rule 10b-10). Confirmations under rule 10b-10 require broker-dealers to provide 
specific disclosures in writing to customers at or before the completion of a transaction. See rule 
10b-10 under the Exchange Act.

237  See infra section II.C.3.b for additional complexity and possible points of failure in current order 
processing practices. 

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be solely accountable for correcting the error and, if necessary, compensating the investor. We 

understand that currently some intermediaries and funds have complex processes for posting 

cancellations and corrections, including processes for funds to bill intermediaries for errors. 

In addition, the proposed hard close requirement would improve the confirmation process

for funds. The confirmation process helps ensure the accuracy of the trade that will be settled. 

Until the fund provides a confirmation, an intermediary does not know whether the order will be 

accepted or rejected. Under current practice, we understand that because of the delay in 

intermediaries submitting orders, funds likewise issue order confirmations on a delayed basis. 

When an intermediary must submit all orders by a certain time under the hard close proposal, 

funds would be able to issue confirmations to intermediaries earlier. We believe that timelier 

confirmations by funds would support the reduction of operational risks and improve market 

resiliency by providing certainty to intermediaries and investors about whether orders are 

accepted or rejected at an earlier point in the process, meaning they have more time to work 

toward settlement of the trade or determine how to manage a rejected order.238 Further, 

intermediaries similarly may be able to issue trade confirmations required by rule 10b-10 of the 

Exchange Act to their customers on a timelier basis, although an intermediary will need to wait 

until the price is published before it can calculate the net money or number of shares to issue the 

trade confirmation to its customer. Requiring a hard close may also facilitate settlement 

modernization. Many funds settle purchases and redemptions on a T+1 basis, and the proposed 

hard close could help improve the settlement process by providing complete information about 

eligible orders on the trade date. 

238  An order may be rejected for a variety of reasons including, among others, the intermediary is 
not set up to transact with a particular fund, an order to sell is for more than the number of shares 
held, or an order to purchase is less than the fund’s investment minimum. 

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In addition, providing funds with more timely and accurate information about the fund’s 

daily flows under the proposed hard close would allow funds to make portfolio and risk 

management decisions based on more complete and accurate flow information than is available 

under current practices. Currently, some funds may rely on projected flows when making 

investment decisions, though these projections may be unreliable because of orders that the fund 

does not receive until the next day, including cancellations and corrections. Other funds may 

instead rely on flow information posted at the custodian because of its accuracy, but this 

information is delayed. For example, for a fund that settles on T+1, the custodian often will post 

the flow at the end of the day on T+1, which may not be visible to the portfolio manager until the

morning of T+2. With a hard close, however, flow information should be available from the 

transfer agent on the night of the trade date. In addition, by eliminating the possibility that the 

fund could receive additional orders after the pricing time, including cancellations and 

corrections, the data available that night would be more reliable. Similarly, a fund managing its 

risk would be able to do so more effectively by having access to accurate flow data more 

quickly. Ultimately, the proposed hard close requirement is designed to further the 

Commission’s mission to protect investors and reduce risk by improving the timeliness of order 

flow information communicated to the fund.  

b. Effects on Intermediaries

The proposed amendments would require changes in the ways funds and intermediaries 

process fund purchase and redemption orders. As discussed above, intermediaries generally 

submit aggregated and, in some cases netted, orders in one or more batches, often after 4 p.m. 

ET. Some intermediaries submit orders directly to the fund’s transfer agent or to Fund/SERV, 

while some intermediaries rely on other intermediaries, such as clearing brokers or retirement 

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platforms, to submit orders to the transfer agent or Fund/SERV. In addition, some 

intermediaries’ systems do not initiate batch processing until a fund’s final NAV is received or 

until final NAVs are received for all funds offered on their platforms. 

In response to the proposed hard close requirement, funds and intermediaries would need 

to make significant changes to their business practices, including updating their computer 

systems, altering their batch processes, or integrating new technologies that facilitate faster order

submission. Intermediaries would need to reengineer their systems to ensure disseminated order 

information reaches the transfer agent or Fund/SERV before 4 p.m., unless they determine to 

process fund orders at the next day’s price as a matter of practice.239 For intermediaries with 

reliance on “downstream” intermediaries, coordination in the timing of order communication 

will be essential to ensure orders reach the fund, transfer agent, or registered clearing agency 

prior to the deadline. In addition, Fund/SERV may need to run more batch cycles in the period 

leading up to 4 p.m. than it does today, as currently batch cycles run into the evening and 

overnight to receive and process orders from intermediaries. 

We understand that retirement plan recordkeepers may face particular challenges with 

adhering to the proposed hard close requirement.240 Retirement plan recordkeepers may employ a

method of order processing that relies on receiving the current day’s NAV before submitting 

orders. Funds do not typically receive the order flow information for transactions from retirement

239  While the proposed hard close requirement would require intermediaries to transmit eligible 
orders before 4 p.m. ET, intermediaries would still be able to process orders after 4 p.m. for 
purposes of execution and settlement, as they currently do today. For example, after receiving the
NAV the intermediary would then be able to determine the net money to be paid to the investor 
or to be collected.  

240  See Comment Letter of The Principal Financial Group on 2003 Hard Close Proposing Release, 
File No. S7-27-03 and Comment Letter of ASPA on 2003 Hard Close Proposing Release, File 
No. S7-27-03. The comment file for the 2003 Hard Close Proposing Release, where these 
comment letters can be accessed, is available at 
https://www.sec.gov/rules/proposed/s72703.shtml.

140plan recordkeepers until well after the day’s NAV has been calculated. These order flows are 

delayed, we understand, due to the calculations that the retirement plan recordkeepers complete 

under plan rules as well as to legacy systems that require the final NAV before finalizing the 

order. For retirement plan recordkeepers, we understand that current recordkeeping systems 

require that day’s NAV before the participant’s plan instructions may be applied to the 

participant’s order. Once the order has been processed through the investment instructions 

specific to the participant’s plan, it can be placed for execution. In addition, retirement plan 

recordkeepers may perform compliance and other checks on orders before finalizing the orders 

for submission post-NAV strike. 

We understand that the time it currently takes between when some retirement plan 

recordkeepers begin to process their orders and when the order is finally submitted to the fund 

can take upward of six hours due to the limitations of their current processing systems and 

hardware. We believe that retirement plan recordkeepers would need to substantially update or 

alter their processes and systems to accommodate the proposed hard close requirement to submit 

orders more quickly. In the event compliance and other checks are required, plans may need to 

utilize the prior day’s NAV to estimate the share or dollar size of an order for those orders to 

receive same day pricing. 

c. Intermediary Cut-Off Times

To help ensure that order flow information is provided to a designated party before the 

established pricing time, the proposed rule would likely cause some intermediaries to set their 

own internal cut-off time for receiving orders to purchase or redeem fund shares that is earlier 

than the pricing time established by the fund. Intermediaries may use earlier cut-off times to 

provide time to transmit order flow information to a designated party so those orders receive that 

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day’s price. Investors, therefore, depending on the entity through which an investor is transacting

(e.g., a broker-dealer, retirement plan recordkeeper, or the fund’s transfer agent), may have 

different deadlines for the same fund for submission of orders to receive that day’s price. For 

example, an investor submitting an order to a fund’s transfer agent might have until 3:59 p.m. ET

to submit its order, while an investor submitting an order to an introducing broker would likely 

have to submit its order earlier to provide enough time for the introducing broker to send the 

order to the clearing broker and for the clearing broker to send it to the transfer agent or to 

Fund/SERV. 

Investors transacting through intermediaries may lose some flexibility in when they may 

submit orders through an intermediary to receive that day’s price as intermediaries may institute 

earlier cut-off times. Because technology has advanced since the Commission last considered a 

hard close in 2003, we generally do not believe, however, that intermediaries would need to 

establish cut-off times significantly earlier than the pricing time set by the fund. We recognize, 

however, that layered cut-off times may occur when an intermediary uses one or more tiers of 

other intermediaries to submit orders, and that cut-off times generally would be earlier for 

investors submitting orders to lower-tier intermediaries. We also recognize that intermediaries 

that net order activity or rely on batch processing may require additional time to support such 

netting or batch activities, while those intermediaries that submit orders individually through 

message-based communications may have a higher volume of orders submitted, but a shorter 

time between order submission by an investor and order receipt by a fund, transfer agent, or 

registered clearing agency. While the proposed hard close requirement generally would cause 

intermediaries to establish earlier cut-off times, the proposed rule would not prevent an 

intermediary from transmitting orders it received after its internal deadline but before 4 p.m. ET 

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on an individual basis to the fund’s transfer agent or to Fund/SERV in order to receive that day’s 

price.

d. Effects on Certain Transaction Types

We recognize that the proposed hard close requirement could extend completion times 

for certain types of transactions, where the specific number or value of fund shares to be 

purchased or redeemed is unknown until that day’s price is available. For example, under certain 

retirement plan rules, certain transactions, such as plan loans or withdrawals, currently remain 

incomplete until all fund positions in the investor’s accounts are valued using that day’s prices. 

Specifically, some plan provisions specify a hierarchy for drawing from different investments to 

accommodate participant loan or withdrawal requests. As an example, the plan may require the 

sale of shares in Fund A to pay the loan or withdrawal before the sale of shares in Fund B. In this

case, until that day’s final price for Fund A shares is available, the retirement plan recordkeeper 

may not know if the value of the participant’s investment in Fund A is sufficient to pay the loan 

or withdrawal amount on its own, or if satisfying the loan or withdrawal request in full will also 

require redemptions from Fund B. 

Under the hard close proposal, although plans would not be required to change their rules

governing these kinds of transactions, transaction requests that are subject to hierarchy rules may

take one or more additional days to complete than they would currently. This is because the 

retirement plan recordkeeper would no longer be able to wait until final prices are available 

before calculating and submitting one or more redemption orders to satisfy the requested plan 

transaction. In the above example, this would mean that the recordkeeper would likely submit an 

order to redeem shares of Fund A on the first day and may submit an order to redeem shares of 

Fund B on a subsequent day if the loan or withdrawal is not fully funded. We understand that 

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these transactions typically are a small percentage of overall retirement plan flows and that plan 

participants generally do not receive immediate execution of loan or withdrawal requests 

today.241 Thus, we believe the aggregate effect of the proposed hard close requirement on such 

transactions would not be significant. 

As another example, the proposed hard close requirement could extend the period of time

for executing an investor’s request to rebalance its holdings to a target asset allocation or model 

portfolio. We understand that currently these requests may be facilitated by first valuing the 

investor’s existing positions, based on final prices for that day, and then submitting orders that 

would result in the desired allocation. The proposed rule would not permit these orders to receive

same-day pricing if they are submitted after the pricing time, and therefore may require the 

intermediary to achieve the desired rebalancing through a series of orders over more than one 

day or to rebalance using prices from the prior day. In addition, the proposed hard close might 

affect current order processing for funds of funds. We understand that a lower-tier fund in a fund 

of funds structure may not receive purchase or redemption orders from upper-tier funds until 

well after 4 p.m. Under the proposed rule, the lower-tier fund (or another designated party) 

would have to receive an upper-tier fund’s orders to purchase or redeem the lower-tier fund’s 

shares before the lower-tier fund’s pricing time to receive that day’s price for the orders. 

e. Effects on Investors

The extent to which the hard close proposal would affect investors largely depends on the

value investors place on their ability to obtain same-day pricing for orders initiated in the period 

241  For example, according to one source, in 2021, 4.1% of defined contribution plan participants 
took withdrawals, and at the end of Dec. 2021, 12.5% of participants of plan participants had 
loans outstanding. See ICI Research Report, Defined Contribution Plan Participants’ Activities, 
2021 (Apr. 2022), available at https://www.ici.org/system/files/2022-04/21_rpt_recsurveyq4.pdf.

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immediately before 4 p.m. ET or on the complex transaction types discussed above.242 Most fund

shareholders are long-term investors, and thus we believe that most fund orders are not time 

sensitive. In addition, because of advances in technology, it seems likely that intermediaries 

would set cut-off times that are only incrementally earlier than current cut-off times. As a result, 

it seems likely that many investors would experience a significant change in when they must 

submit their orders to intermediaries. For those investors who place a premium on being able to 

place orders up until 3:59 p.m. ET, they generally could place orders with the fund’s transfer 

agent to retain this option.243 While we understand that investors may experience a change in 

how late they may transact through intermediaries that set earlier cut-off times as a result of our 

proposed rule, overall the proposal is intended to better protect shareholders’ interests by 

operationalizing swing pricing to combat shareholder dilution and enhancing fund resiliency. We

request comment on the effects of the proposed hard close on order processing, intermediaries 

and investors, and on different transaction types:

109. Should we require funds to implement the proposed hard close requirement? Are 

there alternatives to the proposed hard close requirement that we should implement? 

Would the proposed hard close requirement help funds operationalize swing pricing? 

Would the proposed hard close requirement help prevent late trading? Are the 

Commission’s efforts to modernize fund order processing supported by the proposed 

hard close requirement? 

242  Rule 22c-1 already affects investors differently based on the time zone in which the investor 
lives. Investors located in time zones other than the eastern time zone are subject to different cut-
off times today. For example, 4 p.m. ET is 10 a.m. Hawaii time, meaning that an investor in 
Hawaii has to submit its order before 10 a.m. to receive that day’s NAV if the fund’s pricing time
is 4 p.m. ET.

243  See infra section III.C.3 discussing that some investors may be affected by the proposed hard 
close requirement if they desire to transact later in the day in response to market events and are 
limited in their ability to change intermediaries or place orders with the fund’s transfer agent. 

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110. What steps would intermediaries be required to take to operationalize the 

proposed hard close requirement? Are there operational impediments to funds 

implementing the proposed hard close requirement? Are there operational 

impediments for intermediaries, transfer agents, and/or registered clearing agencies in

implementing the proposed hard close requirement? Are there other operational 

changes that would be helpful to operationalize swing pricing?

111. Would retirement plan providers need to make changes to plan rules in order to 

accommodate compliance with a hard close? Are plan rules able to be altered for 

plans that are currently owned, or would alterations only be feasible on a going 

forward basis? If a change in plan rules would be necessary, how would plan rules 

need to be altered? How would plan participants be affected by changes to plan rules?

112. Would the proposed rule affect intermediaries’ ability to net order flow? Would 

intermediaries move to message-based communications, where orders are transmitted 

to the transfer agent or registered clearing agency as they are received, in response to 

the proposed hard close requirement?

113. Would elimination of cancellations and corrections that designated parties 

currently may receive after the pricing time streamline processing and reduce costs 

for funds and/or designated parties and, if so, by how much? Would costs for 

investors be affected by the elimination of these cancellations and corrections?  

114. Should there be any exceptions from the proposed hard close requirement for 

exigencies or types of parties? For example, should there be exceptions for certain 

scenarios (e.g., emergencies), fund types (e.g., funds of funds), or intermediaries (e.g.,

retirement plan recordkeepers)? If so, what should be the parameters of such 

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exceptions? For example, should we permit investor orders to receive same-day 

pricing treatment as the result of an emergency, if the intermediary is unable to send 

orders or a designated transfer agent or clearing agency is unable to receive orders? 

Should an emergency exception be conditioned on the board or the chief executive 

officer of the intermediary, transfer agent, or clearing agency certifying to the nature 

and duration of the emergency and, in the case of an intermediary, that the 

intermediary received the orders before the applicable pricing time? Should we 

permit conduit funds, which invest all their assets in another fund and must calculate 

their NAV on the basis of the other fund’s NAV, and which include master-feeder 

funds and insurance company separate accounts, to receive same-day pricing? Should

we provide an exception to permit certain intermediaries, such as retirement plan 

recordkeepers, to receive same-day pricing for the orders they submit, even if not 

received by a designated party before the pricing time, as long as the relevant 

intermediary received the orders before the pricing time? Should there be other 

conditions associated with such an exception, such as a requirement to provide 

advance notice of certain flow information to the fund or another designated party?

115. Should we provide an exception from the proposed hard close requirement for 

certain transaction types (e.g., retirement plan loans or withdrawals or certain 

rebalancing transactions)? Should we amend the definition of eligible order to include

these or other transaction types? If so, what information should we require the 

intermediary to supply to a designated party before the pricing time to qualify for 

same-day pricing? Should retirement plan recordkeepers or other intermediaries be 

permitted to estimate order flow information for specific transaction types, like loans 

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or withdrawals? Would the estimates be prepared using the prior day’s price, or 

through some other method? 

116. If exceptions to the hard close were permitted, how would that affect the proposed

swing pricing requirement?

117. Would the proposed hard close requirement help retirement plan recordkeepers to 

reduce their batch processing cycles and, if so, how?

118. Should the rule permit a fund or other designated party to impose a cut-off for 

orders received before that day’s NAV computation? For example, if the time for an 

order to receive that day’s NAV is 4 p.m. ET, should the fund be permitted to impose 

an earlier time of day, say 2 p.m. ET, as an earlier cut-off time to receive orders? 

Would the ability to disconnect the cut-off time for receiving orders from the pricing 

time help facilitate swing pricing by providing additional time to calculate the swing 

factor? 

119. If different funds adopted different cut-off times for receipt of orders pursuant to 

rule 22c-1, would intermediaries and transaction processing systems be able to 

accommodate such differences on a fund specific basis? How would different cut-off 

times affect investors? Would it be confusing or challenging for investors if there 

were variation among funds’ cut-off times?

120. If most funds continue to calculate their NAVs as of 4 p.m. ET and, as proposed, 

funds are required to implement swing pricing and are subject to a hard close, would 

funds have sufficient time between 4 p.m. ET and when they publish their prices to 

assess their flow information and apply the proposed swing pricing requirement, 

including determination of a swing factor, as applicable? If not, how might funds 

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adjust their practices to provide more time to make swing pricing determinations? For

example, would funds publish their prices later than they typically do, which is 

currently several hours after the pricing time?244 Are there any changes we could 

make to facilitate later publication of prices, if needed? As another example, would 

funds begin to calculate their NAVs as of an earlier time than 4 p.m. ET? What affect,

if any, would such a change have on transaction processing and the valuation of the 

fund’s investments?

121. How would the proposed hard close requirement affect investors? For example, 

what percentage of investors place orders shortly before 4 p.m., and how important is 

it for those investors to receive that day’s price as opposed to the next day’s price? 

When intermediaries establish their own cut-off times by which customers must place

orders to receive that day’s price, would these cut-off times be close to 4 p.m. ET as a

result of competition among intermediaries and customer demand? Are intermediaries

able to accelerate the time between receiving an order and relaying that order to a 

designated party compared to current practice? Would it be confusing or challenging 

for investors if there were variation among intermediaries’ cut-off times? Are there 

circumstances in which intermediaries would transmit orders received after their 

internal cut-off times and before 4 p.m. ET to a fund’s transfer agent or to 

Fund/SERV individually to receive same-day pricing? Would this increase the risk of 

errors or otherwise be burdensome on funds or intermediaries? 

122. Should the rule initially require that funds receive order flow information by a 

time that is after the pricing time in order to “phase in” the proposed hard close 

244  See infra section III.C.2.a (discussing the potential effects on intermediaries and other market 
participants if funds were to publish their prices later than they currently do).

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requirement? For example, instead of requiring a designated party to receive all of a 

fund’s order flow information by 4 p.m. ET each day, should we initially require 

receipt of order flow information by the designated party one to two hours after the 

pricing time with the goal of eventually moving the time of receipt to before the 

pricing time? Would a delayed phase in of the proposed hard close requirement be 

compatible with the proposed swing pricing requirement? If so, how would a fund 

determine whether to swing its NAV if it does not have all of its order flow 

information until after the pricing time? 

123. We understand that intermediaries currently may adjust trade amounts to account 

for commissions or other fees. Would the proposed hard close requirement affect how

these adjustments are made? If so, should we make any changes to the proposed 

approach to better accommodate such adjustments?

124. Would earlier confirmations from a fund to an intermediary reduce an 

intermediary’s vulnerability to disruptions? Would intermediaries process orders 

more frequently under a hard close? If so, would more frequent order processing 

increase the resiliency of funds and transfer agents? If not, why not? 

125. Would intermediaries need to set earlier cut-off times than is the current practice 

for investors in order to get orders to a designated party before the pricing time? If so,

how early? How much time do intermediaries need to process order flow 

information?

126. Should the rule require that funds set a uniform cut-off time for orders to be 

received by intermediaries? If the rule requires a uniform cut-off time, should we also

require that a fund disclose the cut-off time, such as in the fund’s prospectus? Would 

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funds, collectively, establish consistent cut-off times for these purposes, or would 

intermediaries need to manage different fund-specific cut-off times? 

127. Some intermediaries may establish earlier cut-off times in order to accommodate 

a hard close. Would investors that want to make an order up until 3:59 p.m. place 

orders with a fund’s transfer agent instead of with an intermediary to preserve this 

flexibility? Are there limitations on certain investors’ abilities to place orders with the

transfer agent instead of through an intermediary?

128. Would some intermediaries choose to no longer distribute open-end funds that 

would be subject to the hard close requirement in order to avoid compliance costs? In 

addition, would retirement plan providers be more likely to replace mutual funds as 

plan investment options with ETFs or CITs? If so, how would this affect investors?

4. Other Proposed Amendments to Rule 22c-1

The proposed amendments would retain the requirements of the current rule concerning 

the frequency and time of determining the NAV, but would reorganize and reword those 

provisions.245 The proposed amendment would use the phrase “based on the current net asset 

value of such security established for the next pricing time,” as opposed to “based on the current 

net asset value of such security which is next computed” in the current rule. While its substance 

is already required, this amendment would codify in the rule text that orders received after the 

pricing time, but before calculation of the NAV is complete, do not receive same-day pricing.246 

We also propose to reorganize certain other provisions of rule 22c-1, including the existing 

245  See rule 22c-1(a), (b)(1), and (d); proposed rule 22c-1(a).
246  See 2003 Hard Close Proposing Release, supra note 224, at n.26.

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exceptions to the rule’s forward pricing requirement.247 In addition, we propose to revise certain 

terminology in the rule.248

We are also proposing to remove the provision from rule 22c-1 that would allow funds 

not to calculate their current NAV on days in which changes in the value of the fund’s securities 

will not materially affect the current NAV. We believe this provision is no longer necessary 

because a fund generally would need to determine its current NAV in the first instance before it 

could conclude with certainty that changes in the value of the fund’s securities would not 

materially affect the fund’s current NAV.  

We request comment on the other proposed amendments to rule 22c-1, including:

129. Are our proposed amendments to provide that orders received after the pricing 

time, but before calculation of the NAV is complete, do not receive same-day pricing 

sufficiently clear?

130. Should we retain the current provision in rule 22c-1 that allows a fund not to 

calculate its NAV on days when the changes in the value of the fund’s portfolio 

securities do not materially affect the current NAV? If so, how would this affect the 

ability of a fund to implement swing pricing? Do any funds rely on this provision 

today? If so, what are the scenarios in which a fund relies on this provision? How are 

changes in the value of the fund’s securities determined if the fund is not valuing the 

underlying securities and computing the NAV on a daily basis?  

247  See rule 22c-1(a)(1), (a)(2), and (c); proposed rule 22c-1. 
248  For example, we propose to replace references to “orders” in the current rule with references to 

“directions” to purchase or redeem, which is intended to distinguish between the concept of 
eligible orders that we propose to add for purposes of the proposed hard close requirement and 
directions to purchase or redeem shares of other registered open-end investment companies that 
are not subject to the proposed hard close requirement. As another example, we propose to 
incorporate the term “pricing time” into provisions of the rule that are not specific to the hard 
close requirement for cohesion of the rule.

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5. Amendments to Form N-1A

Open-end funds use Form N-1A to register under the Investment Company Act and to 

register offerings of their securities under the Securities Act. Item 11 of Form N-1A requires a 

fund to describe how it prices its shares. Item 11(a) specifically requires that funds state when 

they calculate the NAV and that the price at which a purchase or redemption is effected is based 

on the next NAV calculation after the order is placed. We are proposing to amend this disclosure 

to also require, if applicable, that funds disclose that if an investor places an order with a 

financial intermediary, the financial intermediary may require the investor to submit its order 

earlier than the fund’s pricing time to receive the next calculated NAV. As discussed above, 

intermediaries may set different times by which investors must have their purchase or 

redemption orders in place to receive that day’s price. We believe that this proposed disclosure is

important so that investors may understand the potential variability in the time by which 

intermediaries may require an order to be placed to receive a particular day’s price. 

We request comment on the proposed amendments to Form N-1A, including: 

131. Would the proposed requirement for funds to disclose in their prospectuses that 

orders placed with intermediaries may need to be submitted earlier to receive that 

day’s price be helpful to investors? 

132. In addition to the proposed disclosure requirements, are there additional 

disclosures relating to the proposed hard close requirement that we should require? 

Should funds be required to disclose the cut-off times of their intermediaries in their 

distribution network? If so, where should this disclosure be located (e.g., in the fund’s

registration statement or on its website)? What potential challenges, if any, would a 

fund encounter in providing an up-to-date list of intermediary cut-off times?

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D. Alternatives to Swing Pricing and a Hard Close Requirement

1. Alternatives to Swing Pricing 

In lieu of the proposed swing pricing requirement, we have also considered whether there

are alternative methods by which we could require funds to pass on costs stemming from 

shareholder purchase or redemption activity to the shareholders engaged in that activity. These 

alternatives could be used independently or in combination with each other. Some of these 

alternatives would be dependent on investor flow information, similar to the proposed swing 

pricing requirement. In those cases, an alternative could be paired with either a hard close 

requirement or one of the alternatives to the hard close that we discuss below. 

a. Liquidity Fees

One alternative we considered is a framework that would apply a charge in the form of a 

liquidity fee rather than an adjustment to the fund’s price.249 A liquidity fee would apply as a 

separate charge to a transacting investor and would not change the fund’s price. A liquidity fee 

could be used to impose liquidity costs on purchasing or redeeming investors and address 

dilution, much like a swing pricing-related price adjustment. We recognize that a liquidity fee 

framework could have certain advantages over a swing pricing requirement. For example, 

liquidity fees provide greater transparency for redeeming or purchasing investors of the liquidity 

costs they are incurring. Liquidity fees also provide a mechanism for imposing liquidity costs 

directly on purchasing or redeeming investors, without adjusting the transaction price for 

249  Although certain U.S. funds may use liquidity fees for redemptions, they are rarely used to 
address dilution, other than in the case of short-term trading of fund shares. See rule 22c-2 under 
the Act. The use of redemption fees and anti-dilution levies in Europe varies to some extent by 
jurisdiction. For example, Irish-domiciled funds are more likely to have adopted anti-dilution 
levies than Luxembourg-domiciled funds. Overall, however, we understand that swing pricing 
was more widely used by European fund complexes in Mar. 2020 than redemption fees or anti-
dilution levies. See ICI, Experiences of European Markets, UCITS, and European ETFs During 
the COVID-19 Crisis (Dec. 2020), available at https://www.ici.org/doc-server/pdf
%3A20_rpt_covid4.pdf.

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investors who are trading in the other direction.250 In addition, some funds and their 

intermediaries are currently equipped to apply certain purchase and/or redemption fees.251 

However, the proposed swing pricing requirement may have several advantages over 

liquidity fees for relevant open-end funds. With swing pricing, a fund can pass liquidity costs on 

to redeeming or purchasing investors in a fair and equal manner, without any reliance on 

intermediaries to achieve fair and equal application of costs. Liquidity fees may require more 

coordination with a fund’s intermediaries than swing pricing because fees need to be imposed on

a transaction-by-transaction basis by each intermediary involved—which may be difficult with 

respect to omnibus accounts that intermediaries may create to aggregate all customer activity and

holdings in a fund.252 Funds and their transfer agents may contract with intermediaries to have 

them impose liquidity fees under these circumstances, which may include a review of contractual

arrangements with fund intermediaries and service providers to determine whether any 

contractual modifications are necessary or advisable to ensure that liquidity fees are 

appropriately applied to beneficial owners of fund shares. While we could require intermediaries 

to submit purchase and redemption orders separately to transact in a fund’s shares, which could 

250  For instance, on a day the fund has net redemptions, swing pricing adjusts a fund’s NAV 
downward, and investors who purchase the fund’s shares that day buy at a discount. On a day 
when a fund has net purchases, swing pricing adjusts a fund’s NAV upward, and investors who 
sell the fund’s shares that day sell at a premium. Swing pricing must account for these discounts 
or premiums that other investors are receiving to fully address dilution.

251  For example, some funds impose redemption fees under rule 22c-2 under the Investment 
Company Act. See supra note 67 for a discussion of how many funds we estimate apply 
redemption fees. 

252  See infra section III.E.2 (noting certain omnibus accounting practices that may make a liquidity 
fee operationally difficult). Swing pricing, on the other hand, would require some funds and 
intermediaries to create new systems and operational procedures, but once those are in place, 
swing pricing would be incorporated in the process by which a fund strikes its NAV and sets the 
transaction price (including any swing of the NAV). Intermediaries would then effect customer 
transactions at the transaction price, as they do today, without further operational changes or 
coordination with the fund. 

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allow funds and their transfer agents to apply fees directly, this type of requirement would also 

involve some operational costs. Requiring intermediaries to submit purchase and redemption 

orders separately would require operational changes for some intermediaries because they would 

no longer be able to net otherwise offsetting customer purchases and redemptions.253 In addition, 

the volume of transactions that transfer agents and Fund/SERV process would increase if netting 

were not permitted. Further, unlike swing pricing, the amount collected from a liquidity fee is not

available to the fund for a period of time until the intermediary remits to the fund the amount 

charged.254 If the fund is under stress, the unavailability of the amount collected from fees might 

cause the fund to incur other costs it might not have otherwise incurred, such as costs associated 

with selling investments to pay redemptions when the fee amount, if remitted, would have helped

the fund pay those redemptions. 

There are many potential variations of a liquidity fee framework. The trigger for applying

fees could be based on net flows, similar to swing pricing, or other indicators that a fund’s 

trading costs are increasing (e.g., widening spreads or reduced liquidity of the fund’s portfolio 

investments). Alternatively, a fee could apply to all trades of a given type (for example, all 

redemption orders). When a fee applies, the determination of the size of the liquidity fee could be

either dynamic to reflect changing costs or simplified to remain relatively static. As for how the 

fee is processed, it could be applied to the purchase or sale or could be processed separately from

the trade. 

253  See supra section II.C.3.a (discussing that some intermediaries currently net orders, while others 
separately submit purchase and redemption orders). 

254  While money collected from the fee would not be available to the fund until the intermediary 
remits payment, we understand that a fund would reflect the fee amount it is owed as an accrual 
until the fund receives the fee payment. The accrual would help prevent declines in the fund’s 
NAV that would otherwise result from any delay in remittal. Proper booking of the accrual 
would, however, require the intermediary to inform the fund of the fee amount on an accurate and
timely basis.

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As an example, similar to the proposed swing pricing requirement, a dynamic liquidity 

fee could be calculated to reflect certain costs (e.g., spread, other transaction costs, and market 

impact) a fund is likely to incur to meet redemptions or invest the proceeds from subscriptions 

based on the direction and magnitude of that day’s flows. Dynamic liquidity fees that may 

change in size from one day to the next may involve greater operational complexity and cost than

swing pricing, as intermediaries would have to identify and apply different fee amounts for each 

fund in which their clients transact each day. This approach also generally would necessitate 

timely flow information if the fee were processed as part of a transaction, similar to the proposed

swing pricing requirement. If the fee were processed separately from the transaction and applied 

to an investor’s account on a delayed basis, a fund would likely have more time to receive flow 

information than under the proposed swing pricing requirement, which could avoid the need for 

a hard close or related alternatives. Delayed application of the fee, however, may raise 

complications related to collecting fee amounts from investors, particularly when an investor has 

otherwise redeemed the full amount of its holdings. Follow-on fees also significantly increase the

number of transactions to process, and may complicate reporting for custodians and advisers in 

situations where a transaction may occur in one reporting period but the fee related to the 

transaction is not applied until the next reporting period. In addition, an intermediary may face 

difficulties projecting upcoming cash balances in its client accounts if there are upcoming fees to

be charged, but the amounts of those fees are unknown. The fund itself may also have challenges

with projecting its own cash balance if it cannot predict when accrued fees will be received from 

each intermediary.

Instead of a dynamic liquidity fee, we could require a simplified liquidity fee. A 

simplified liquidity fee, for example, could be a set percentage of the transaction amount, such as

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1%. Or it could be a default fee, such as 1%, that a fund could adjust up (possibly up to a cap) or 

down as it determines is in the best interest of the fund. A simplified liquidity fee could apply to 

both purchases and redemptions, given that both purchases and redemptions can contribute to 

dilution. Under this type of approach, fees could be equivalent for both transactions, or fees 

could be higher on one side and lower on the other (for example, a purchase fee of 0.25% and a 

redemption fee of 1%). Alternatively, we could require a one-sided simplified fee that applies to 

redemptions only or to purchases only, with the premise that a fee charged on redemptions could 

also help to offset dilution that may result from purchases (or vice versa). Because all 

shareholders purchase and redeem the fund’s shares during the life of an investment, a one-sided 

fee would apply to all shareholders at some point and could help mitigate dilution that fund 

investors collectively contribute to through their purchase and redemption activity. A simplified 

liquidity fee would not necessarily require flow information. For instance, if a simplified fee 

applied only to redemptions, a set fee could apply to all redemptions or only to redemptions 

when the fund’s trading costs are significantly increasing, such as in times of stress.255 If the 

dependency on flow information is removed, a simplified liquidity fee likely could be processed 

as part of a transaction, avoiding the need to process a fee as a separate follow-on transaction. 

The size of a simplified liquidity fee likely would be more predictable for investors and 

intermediaries than a dynamic fee or swing pricing. This would enhance transparency and would 

likely be easier to implement. While the size of the fee generally would be known in advance, it 

may or may not be easy to predict when a fee would apply. For example, if a fee applied to all 

redemptions, then investors and intermediaries would have certainty on when fees would apply. 

However, if fees applied only in certain circumstances, such as when trading costs are materially 

255  We discuss an alternative in which a liquidity fee would apply when a fund’s trading costs are 
significantly increasing in more detail in section II.D.3.b. 

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increasing or the fund has experienced net redemptions over multiple consecutive days, then 

application of a fee may be more difficult to predict, particularly if a fund’s threshold for 

applying a fee is non-public or based on factors that are difficult for other market participants to 

observe or predict. An approach where it is difficult to predict when a fee would apply could 

help avoid preemptive redemptions in anticipation of fees applying in the near future, but it 

would also be less transparent. In addition, if liquidity fees are applied rarely, then application of 

a fee might be viewed as a sign that a fund is under stress, which could incentivize further 

redemptions, particularly if the fee amount is viewed as minimal.  

Between dynamic and simplified fees, a dynamic fee would better reflect the costs 

associated with fund purchases or redemptions on a given day. A simplified fee, however, would 

be less costly to implement because, among other things, it would not necessarily require a hard 

close or any alternatives to the hard close to provide actual or estimated flow information. While 

a simplified fee would be less sensitive to the fluctuating costs associated with fund purchases or 

redemptions, this fee would aid in the offset of costs stemming from purchase and redemption 

activity and could assist with the mitigation of investor dilution. 

On balance, we are proposing a swing pricing requirement because it may have 

operational advantages or be better tailored to mitigate dilution relative to liquidity fee options, 

but we request comment on using a liquidity fee framework to impose liquidity costs and 

whether a liquidity fee alternative may have fewer operational or other burdens than the 

proposed swing pricing requirement while still achieving the same overall goals of reducing 

shareholder dilution.

133. How do the operational implications of swing pricing, as proposed, differ from 

the operational implications of a dynamic liquidity fee framework (e.g., one where 

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liquidity fees vary in size and increase during periods of stress)? What are the 

operational implications of a requirement for mutual funds to impose a liquidity fee 

that can change in size and that may need to be applied with some frequency (up to 

daily)? Are fund intermediaries equipped to apply dynamic fees on a regular basis? 

Would funds have insight into whether and how intermediaries apply these fees to 

redeeming investors?

134. If we adopt a liquidity fee framework instead of a swing pricing framework, 

should a fund be required to apply a liquidity fee under the same circumstances in 

which a fund would be required to adjust its net asset value under the proposed swing 

pricing requirement? Should a fund be required to use the same approach to 

calculating a liquidity fee as the proposed approach to calculating a swing factor? 

Should the same board oversight framework apply under this approach as the 

proposed swing pricing requirement (e.g., with the board approving the fund’s 

liquidity fee policies and procedures and designating a liquidity fee administrator, and

such administrator would report periodically to the board)?

135. Should funds be required to apply liquidity fees to all redemption or purchase 

orders, or should liquidity fees apply only upon a trigger event? If so, under what 

circumstances should a fee apply? For example, should liquidity fees apply when 

trading costs are materially increasing?256 Should liquidity fees apply when a fund has

had net outflows over multiple consecutive days? If so, should net outflows be of a 

certain size (e.g., 2%, 5%, or 10%) and over what period of time should net outflows 

trigger a fee (e.g., 2, 3, or 4 consecutive days)? Would this approach help mitigate 

256  See infra section II.D.3.b. for additional discussion and requests for comment about such an 
approach.

160dilution, or would it contribute to first-mover advantages and potentially result in 

unfair application of fees?  

136. Should a liquidity fee apply to both purchasing and redeeming investors? 

Alternatively, should a liquidity fee apply to redeeming investors only or to 

purchasing investors only? 

137. Should funds be required to maintain records related to the application of liquidity

fees? For example, should funds be required to maintain records of the dates on 

which the fund applied liquidity fees and in what amount? If application of liquidity 

fees is subject to fund or board discretion, should a fund be required to maintain 

records documenting why the fund did or did not apply liquidity fees under certain 

circumstances?

138. Should liquidity fees apply to purchase or redemption orders of a specific size 

only? If so, what size? How operationally feasible would such an approach be? 

Would it create incentives for investors to modify their order amounts in an effort to 

avoid a fee, such as by holding smaller amounts of a fund’s shares at multiple 

intermediaries or splitting up a purchase or sale order over multiple days? How 

should such an approach treat separate accounts managed by the same adviser, such 

as separate accounts managed through a wrap program? 

139. Should a liquidity fee framework have an exclusion for purchase or redemption 

orders of a de minimis amount? How should we identify an order for a de minimis 

amount? Should it be a set dollar figure (e.g., $2,500 or less), a set percentage of the 

fund’s net assets, or a set amount that would be collected from application of a fee 

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(e.g., $50 or less)? Should the amount of a de minimis exclusion be adjusted for 

inflation over time?

140. How should the amount of the liquidity fee be determined? Should the liquidity 

fee be dynamic but based only on that day’s spreads? Should it include other 

transaction costs, including market impact? Instead of a dynamic fee amount that 

could change daily, should the fee amount be based on a fund’s historical trading 

costs and evaluated periodically, such as annually, quarterly, or monthly? Should the 

fee be a flat percentage established by rule (such as 0.5%, 1%, or 2%), or should the 

fee increase as net redemptions or net purchases, illiquidity, or other variables 

increase? Should the fee amount be based on reasonably expected transaction costs 

but, if a fund cannot reasonably estimate those costs, it can use a default fee amount 

set by rule? If so, what should that default fee amount be (e.g., 0.5%, 1%, 2%, or 

3%)? Should the rule include a default fee amount that funds can always choose to 

use, with the option to use a higher or lower amount if such amount is determined to 

be in the best interest of the fund? Should there be a minimum or maximum fee 

amount, such as a 0.25% minimum or a 2% maximum?

141. If we adopt a liquidity fee framework instead of a swing pricing framework, are 

there any ways to simplify the application of fees to investors that invest through an 

intermediary, such as investors in an omnibus account, to facilitate funds or fund 

transfer agents applying fees directly to investor purchases or redemptions occurring 

through an omnibus account? For example, should fund intermediaries be required to 

separately submit purchase and redemption orders, rather than net them, in order to 

transact in a fund’s shares? What would the operational consequences of such a 

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requirement be for fund intermediaries and for investors? To what extent do 

intermediaries already submit purchase and redemption orders separately, and does 

this practice vary by type of intermediary (for example, are broker-dealers more 

likely to submit separate purchase and redemption orders than retirement plan 

recordkeepers)? Would there be consequences for fund transfer agents, Fund/SERV, 

or others associated with increased order volume or other changes that would result 

from a requirement to submit purchase and redemption orders separately? What 

changes, if any, would funds or fund transfer agents need to make to be equipped to 

apply liquidity fees directly? If submission of purchase and redemption orders 

separately is necessary to implement a liquidity fee framework, is it necessary for the 

Commission to mandate receipt of orders in this way to ensure compliance by all 

market participants? If purchase and redemption orders may be submitted on a net 

basis, as some intermediaries do currently, how would a fund accrue for liquidity fees

in a timely manner? Should the Commission require fund transfer agents to apply 

liquidity fees directly and, if so, why or why not?

142. If we adopt a dynamic liquidity fee framework, would it be as reliant on timely 

flow information as the proposed swing pricing requirement? For example, could 

funds and intermediaries apply a dynamic fee to a transacting investor after an order 

begins to be processed at that day’s NAV but before the trade settles? Could dynamic 

fees be applied after settlement, or would that create challenges in collecting a fee 

from investors who redeemed the full amount of their holdings? If a fee applies on a 

delayed basis, how should investors be notified of the application of a fee? Would it 

be preferable to apply a simplified fee that may less accurately reflect the costs of 

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investor transactions and may mitigate dilution with less precision, but that could be 

applied at the same time an order is processed? Are there any other factors to consider

when deciding between dynamic and simplified liquidity fees?

143. If we adopt a liquidity fee framework, should we require that the same liquidity 

fee amount apply to all share classes (for example, if a liquidity fee is 1% on a given 

day, the 1% fee must apply to all share classes)? Alternatively, should we permit the 

fee amount to differ among classes (for example, a 1% fee for one class and a 0.5% 

fee for another class) and, if so, why?

144. Should a liquidity fee apply differently based on the type of fund or the type of 

intermediary through which an investor trades? If so, what would be the basis for the 

differences in how a liquidity fee applies?

145. What investor flow information, if any, would be required to implement a 

liquidity fee alternative? To the extent that a liquidity fee alternative requires timely 

investor flow information, should the alternative be paired with the proposed hard 

close requirement? Are there different considerations or effects related to the 

proposed hard close requirement if we were to require funds to use a liquidity fee? 

Would it be effective to implement the liquidity fee alternative with an alternative to 

the hard close requirement discussed below, such as indicative flows, estimated 

flows, or delayed cut-off times for intermediaries?

146. Should a liquidity fee requirement be implemented through amendments to rule 

22c-2 or through a new rule? To what extent would information that financial 

intermediaries agree to provide under a shareholder information agreement be 

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important for funds to receive under a liquidity fee framework?257 Is there other 

information funds would need to receive from financial intermediaries to determine 

that liquidity fees are appropriately applied? Should we amend the definition of 

shareholder information agreement to require that information, or are there other 

mechanisms for funds to receive that information (e.g., distribution agreements)? Are 

there other rules we should amend if we adopt a liquidity fee requirement, such as 

rule 11a-3 under the Act, which permits application of certain fees in connection with

an exchange offer notwithstanding section 11(a) of the Investment Company Act? If 

we amend rule 11a-3, should the rule treat a liquidity fee in the same way as a 

redemption fee, as defined in that rule?258

147. How should funds be required to disclose liquidity fees to investors? Should 

liquidity fees be reflected in the prospectus fee table, as mutual fund (other than 

money market fund) redemption fees currently are?259 Or, similar to money market 

fund liquidity fees, should liquidity fees be excluded from the prospectus fee table?260 

Should funds be required to disclose the circumstances in which they would impose 

liquidity fees in the prospectus? If a liquidity fee only applies on some days, should 

the fund be required to disclose on its website that it is applying a liquidity fee that 

257  See rule 22c-2(c)(5) (defining a shareholder information agreement as a written agreement under 
which a financial intermediary agrees, among other things, to provide certain information to a 
fund promptly upon request, including taxpayer identification number of all shareholders who 
have purchased, redeemed, transferred, or exchanged fund shares held through an account with 
the financial intermediary, and the amount and dates of such activity).

258  Under rule 11a-3, an offering company may cause a security holder to be charged a redemption 
fee in connection with an exchange offer, subject to certain conditions. See rule 11a-3(b)(2); rule 
11a-3(a)(7) (defining a redemption fee as a fee that a fund imposes pursuant to rule 22c-2).

259  See Item 3 of Form N-1A.
260  See Instruction 2(b) to Item 3 of Form N-1A (excluding money market fund liquidity fees 

imposed in accordance with rule 2a-7 from the definition of “redemption fee”).

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day and the size of the fee? Should funds be required to report information about 

liquidity fees that are imposed? For example, should a fund be required to report on 

Form N-PORT the dates the fund imposed liquidity fees (or the number of days on 

which fees were applied) and the amount of the fee applied on each occurrence? If a 

fund or its board has discretion on when to apply liquidity fees, should a fund be 

required to disclose why a liquidity fee was or was not imposed under certain 

circumstances? Should funds be required to report other information about liquidity 

fees or report information in other locations, such as in shareholder reports, on fund 

websites, or in Forms N-CEN or N-RN? Would any existing items on Form N-PORT,

Form N-CEN, Form N-1A, Form N-RN, or other forms need to be modified if we 

were to adopt a liquidity fee framework instead of swing pricing?

148. How quickly do intermediaries currently remit to funds the amounts collected 

from purchase or redemption fees applied to customer accounts? If remittal currently 

is delayed, what are the causes of delay? If we adopted a liquidity fee, would funds 

reflect any delayed liquidity fee payment as an accrual? Under a liquidity fee 

approach, should intermediaries be required to remit payments to funds within a 

certain amount of time after a purchase or redemption? If so, what is an appropriate 

amount of time for remittal (e.g., on the day of settlement or within one or two days 

after settlement)? For example, should we adopt a rule that would provide that a fund 

must prohibit an intermediary from purchasing the fund’s shares in nominee name on 

behalf of others if the intermediary does not remit payment on a timely basis? Are 

there other appropriate consequences for an intermediary that has a pattern or practice

of late payments, such as a requirement that orders from such an intermediary may 

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not receive today’s price and will be executed on a subsequent day at that day’s price 

in order to otherwise limit the dilutive effects of purchase and sale orders received 

through that intermediary since fees are not paid in a timely manner? Should we 

require a fund to charge an additional surcharge to an intermediary that does not remit

payment on a timely basis? Should funds be required to report the names of 

intermediaries who are delayed in remitting payment and the amount due? If so, 

where should funds provide this information (for example, Form N-PORT, Form N-

CEN, fund websites, or registration statements)?

149. Would a liquidity fee requirement have different effects on investor behavior than

a swing pricing requirement? For example, because application of liquidity fees is 

more observable than application of swing pricing, would liquidity fees be more 

likely to affect investors’ decisions of whether to purchase or redeem fund shares? 

b. Dual Pricing

We also considered the use of dual pricing as an anti-dilution measure. A fund that uses 

dual pricing would quote two prices—one for incoming shareholders (reflecting the cost of 

buying portfolio securities in the market), and one for outgoing shareholders (reflecting the 

proceeds the fund would receive from selling portfolio securities in the market).261 Dual pricing 

is permitted and used by some funds in certain foreign jurisdictions.262 In comparison to swing 

pricing and liquidity fees, we believe that dual pricing may impose additional operational 

burdens and complexity on fund intermediaries, service providers, and other third parties as they 

261  See Swing Pricing Adopting Release, supra note 11, at n.40. Swing pricing would permit a fund 
to continue to transact using one price, as they do today (instead of transacting using separate 
prices for purchasing and redeeming shareholders).

262  For example, jurisdictions that permit dual pricing include the UK, Ireland, Australia, and Hong 
Kong. See Jin, et al, supra note 163, at n.6 and accompanying text.

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would need to handle two share prices on each trade date. We understand that mutual fund order 

processing systems currently are designed to accommodate only one price, which is applied both 

to trades and valuation, and a fund’s share price feeds into many analyses that intermediaries, 

funds, or others would need to update if there were two share prices, such as rebalancing activity.

In addition, as recognized above, there would be operational costs associated with intermediaries

needing to submit purchase and redemption orders separately, rather than netting purchase and 

redemption orders.

In addition, with a dual pricing framework, we would also address effects on a fund’s 

financial statements and performance reporting, as the Commission has already done for swing 

pricing.263 If we were to adopt a dual pricing framework, we could use the same general 

framework as in swing pricing. Under this approach, a fund would use its “GAAP” NAV (i.e., 

the amount of net assets attributable to each share of capital stock outstanding at the close of the 

period) in its statement of assets and liabilities and in performance reporting, while it would use 

its two transaction prices in reporting the dollar amounts received for shares sold and paid for 

shares redeemed in its statement of changes in net assets and reflect the impact of dual pricing in 

the fund’s financial highlights.

Similar to liquidity fees, dual pricing could be either dynamic (e.g., calculated to reflect 

spread, other transaction costs, and market impact a fund is likely to incur to meet redemptions 

or invest the proceeds from subscriptions and based on the magnitude of those flows) or 

simplified (e.g., a constant spread around a fund’s NAV). Dynamic dual pricing generally would 

necessitate timely flow information, similar to the proposed swing pricing requirement. 

However, simplified dual pricing may not necessitate timely flow information. Between these 

263  See Swing Pricing Adopting Release, supra note 11, at section II.A.3.g.

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two types of dual pricing, a dynamic approach would better reflect the costs associated with the 

magnitude of fund purchases or redemptions on a given day. Under a simplified dual pricing 

framework, there also is the potential for either redeeming or subscribing investors to be over-

charged for transaction costs that their investing activity does not trigger, because the fund would

adjust its NAV for both subscribing and redeeming investors daily without regard to whether the 

fund has net inflows or net outflows on a given day. A simplified approach, however, would be 

less costly to implement because, among other things, it would not require a hard close or any 

alternatives to the hard close to provide actual or estimated flow information.

On balance, we are proposing a swing pricing requirement because it may have 

operational advantages over dual pricing. We request comment on using a dual pricing 

framework to impose liquidity costs on transacting shareholders and whether a dual pricing 

alternative may have fewer operational or other burdens than the proposed swing pricing 

requirement or a liquidity fee alternative while still achieving the same overall goals of reducing 

shareholder dilution.

150. How do the operational implications of swing pricing, as proposed, differ from 

the operational implications of dual pricing? As dual pricing involves calculating and 

applying two prices on each trade date, would that approach involve operational 

burdens and complexity for fund intermediaries, service providers, and other third 

parties that would not exist with a single price under our proposed swing pricing 

framework?

151. If we adopt a dual pricing framework instead of a swing pricing framework, how 

should the spread around the NAV be determined? For example, should the spread 

around the NAV be constant or calculated daily or at some other frequency to reflect 

169



transaction costs? If the latter, which transaction costs (e.g., spread, other transaction 

costs, and market impact)? Under a dual pricing framework, would funds need the 

same investor flow information that is needed for swing pricing, or would 

implementation of dual pricing be less dependent on investor flow information? 

152. Should a dual pricing requirement apply differently based on the type of fund or 

the type of intermediary through which an investor trades? If so, what would be the 

basis for the differences in how dual pricing applies?

153. If we adopt a dual pricing framework, should we address the effects of two 

transaction prices on a fund’s financial statements and performance reporting in a 

manner similar to how the Commission has addressed the effects of swing pricing 

(i.e., by clarifying that the GAAP NAV must be used in some cases, while transaction

prices are used in others)? Are there additional implications of two transaction prices 

that we would need to address and that would lead to a different result than our 

current swing pricing approach?

154. Under a dual pricing framework, which value of the fund’s shares would market 

participants use for analyses that currently are based on a fund’s NAV, such as 

rebalancing a client’s holdings of different funds to achieve a desired asset allocation 

or reflecting the value of an investor’s holdings on an account statement? If we adopt 

dual pricing, should we provide guidance on which value to use for these or other 

purposes?

155. Are there differences between liquidity fees and dual pricing that make one a 

better framework than the other to address dilution? If so, what are the differences 

and why is one better than the other (e.g., differences in tax treatment, if any)?

170



156. What investor flow information, if any, would be required to implement a dual 

pricing alternative? To the extent that a dual pricing alternative requires timely 

investor flow information, should the alternative be paired with the proposed hard 

close requirement? Are there different considerations or effects related to the 

proposed hard close requirement if we were to require funds to use dual pricing? 

Would it be effective to implement the dual pricing alternative with an alternative to 

the hard close requirement discussed below, such as indicative flows, estimated 

flows, or delayed cut-off times for intermediaries?

157. If we adopt a dual pricing framework, what other changes should be made to the 

proposal as a result? For example, what reporting should be required on Form N-

PORT, Form N-CEN, Form N-1A, Form N-RN, or other forms used by funds that 

would be subject to the framework? Would any existing reporting items on these or 

other forms need to be modified if we were to adopt a dual pricing framework instead

of swing pricing? Are there other rules (e.g., rule 11a-3 under the Act) that would 

require changes if we adopt an alternative framework?

158. Would a dual pricing framework affect investor behavior differently than a swing 

pricing framework or a liquidity fee framework?    

2. Alternatives to a Hard Close

We are proposing to require a hard close for open-end funds that are subject to the 

proposed swing pricing requirement. Under this proposal an eligible order to purchase or redeem

any redeemable security of such a fund would be executed at the current day’s price only if the 

fund, its designated transfer agent, or a registered clearing agency receives the order before the 

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fund calculates its NAV. This proposal is designed to facilitate the operation of swing pricing as 

well as to help prevent late trading and to modernize order processing. 

In connection with the swing pricing proposal, we have also considered whether there are

alternative methods by which a fund would be able to generate sufficient investor flow 

information to determine whether to apply swing pricing on a given day. As discussed above, 

swing pricing requires that funds have significant information about their order flows to 

determine with accuracy if the fund should impose a swing factor and to determine what that 

swing factor should be. Instead of requiring that funds operationalize swing pricing based on 

actual order flow information received before the pricing time, we have also considered whether 

reasonable estimates, calculated by either the fund or the intermediary, would provide 

sufficiently accurate information for a swing pricing determination. We have also considered 

whether later cut-off times for flow information and the publication of the day’s NAV would 

facilitate swing pricing. We discuss each alternative below. We also considered how these 

alternatives would work if, rather than require swing pricing, we were to require funds to adopt 

liquidity fees or dual pricing.264 Although the below discussion focuses on swing pricing, we 

believe similar considerations would apply in the case of liquidity fees or dual pricing (to the 

extent a liquidity fee or dual pricing regime, like swing pricing, was based on the amount of net 

flows), and these alternatives therefore also could be used in combination with a liquidity fee or 

dual pricing approach.265 

264  See supra section II.D.1.
265  We provide additional illustrative examples of potential alternatives and pairings in section 

II.D.3.

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a. Indicative Flows 

We considered whether, instead of requiring a hard close, we should require that funds 

receive indicative flow information from intermediaries by an established time. This approach 

would require that intermediaries (e.g., broker-dealers, banks, and retirement plan recordkeepers)

calculate an estimate for what they anticipate the given flows for a particular day to be either 

before the fund’s pricing time or a set time thereafter (e.g., by 4:30 p.m. ET or 5 p.m. ET). 

Consistent with current practices, intermediaries could submit final order flow information after 

the pricing time once the intermediary has received and calculated the final flows for the day. 

For example, we could consider orders to be eligible to receive that day’s price if, in the case of 

orders submitted through an intermediary: (1) the intermediary receives the orders from investors

before 4 p.m. ET; (2) the intermediary provides estimated order flow to the fund by the identified

time; and (3) the intermediary provides final order information by the next morning. Under this 

approach, a fund would be permitted to use the indicative flow information provided by 

intermediaries to determine whether a swing factor should be applied to that day’s NAV. 

In order to calculate the indicative flow information, intermediaries would need to 

generate an estimated flow based on, among other things, the actual flows that they have 

received before the pricing time and the prior day’s price, as well as any indicative historical 

information that is available if the indicative flow information is provided to the fund before the 

pricing time. Alternatively, the intermediary could provide summary net flow information (for 

example, estimated net purchases of $3 million, estimated net redemptions of 250,000 shares, 

and the purchase of an unknown quantity of fund shares with proceeds from redeeming 100 

shares from a different identified fund), and the fund could apply the prior day’s NAV to arrive 

at an estimated net flow. Intermediaries would need to update their systems and processes to 

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calculate indicative flow information by or shortly after the pricing time while continuing to 

provide actual final flow information as it is available. We understand that different 

intermediaries may, based on their different characteristics, use different methods to calculate or 

provide their indicative flows. A broker-dealer and a retirement plan recordkeeper would not 

necessarily use the same method due to the differences in how they are able to generate and 

communicate flow information to funds. Retirement plan recordkeepers, for example, would 

need to generate indicative flow information that accounts for not only purchase and redemption 

activity that is a known number of shares or dollars as of the pricing time, but also estimated loan

and withdrawal activity that is subject to hierarchy provisions under their specific plans. If an 

intermediary is unable to provide indicative flow information by the identified time, the orders 

would receive the next day’s price. 

Unlike the proposed hard close requirement, the alternative of permitting funds to rely on

indicative flows provided by intermediaries would provide intermediaries with more flexibility 

in providing final flow information. Thus, the broader changes that may be needed for 

intermediaries to comply with the proposed hard close requirement that are discussed above may 

not be needed under this alternative. This approach would not ultimately provide funds with the 

most accurate information about anticipated flows. If intermediaries are required to provide 

indicative flows before a fund’s pricing time, the flow information may be less reliable, 

particularly during times of stress since intermediaries may not be able to account for or 

anticipate the effects of a stress event on order flow information. This limitation of indicative 

flow information may create down-stream effects on the accuracy and efficacy of swing pricing, 

particularly in times of stress. For swing pricing to serve the goal of mitigating dilution of 

shareholders’ interests, funds need accurate order flow information, particularly in times of 

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stress. In addition, an approach based on indicative flows would be less effective at preventing 

late trading and at reducing operational risk through improvements to order processing.  

We request comment on the indicative flow alternative, including:

159. Should we allow funds to use indicative flow information to determine whether or

not to apply swing pricing?

160. If intermediaries are required to provide indicative flows to funds, should the rule 

establish this requirement by considering an order as eligible to receive a given day’s 

price only if the intermediary provides indicative or final order flow information by 

an identified time and provides final order information by a later identified time? 

Should we instead provide that a fund must prohibit an intermediary from purchasing 

the fund’s shares in nominee name on behalf of others if the intermediary does not 

provide timely indicative flow information? Should the rule require that funds enter 

into a contractual agreement with intermediaries to require the indicative flow 

information? If so, should this contract be required to specify how indicative flows 

are calculated by the intermediary? In either case, should we prohibit or restrict an 

intermediary from charging fees to funds for the costs associated with providing 

indicative flow information?

161. Would intermediaries have sufficient incentives to provide timely and accurate 

indicative flow information? Are there other consequences we should impose for late 

or materially inaccurate indicative flow information? For example, if an intermediary 

has a pattern of providing late or inaccurate information, should we require a fund to 

prohibit the intermediary from purchasing the fund’s shares in nominee name on 

behalf of others? As another alternative, should we prohibit orders received from that 

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intermediary from receiving that day’s price and instead require that the orders be 

executed and settled on a delayed basis at a future day’s price, in order to limit the 

dilutive effects of orders that intermediary submits?

162. When should intermediaries be required to provide indicative flows under this 

alternative? Are indicative flows needed before the pricing time, or could funds still 

make timely swing pricing decisions if intermediaries provided indicative flows after 

the pricing time? How long after the pricing time could funds receive the indicative 

flow information and still make timely swing pricing decisions? In connection with 

this approach, would funds publish their prices later than they do today to provide 

additional time to make swing pricing decisions? 

163. Should the intermediary or the fund apply the prior day’s price to arrive at an 

indicative flow estimate? Is there value in the fund performing this calculation 

because it would have better information about potential changes to the prior day’s 

price that it could take into account (e.g., the size of any swing factor adjustment 

made on the prior day, as well as potential changes to the value of its portfolio 

holdings)?

164. Should intermediaries that have minimal holdings with the fund be permitted not 

to provide indicative flows under this approach? If so, how should we define 

intermediaries that have minimal holdings of fund shares? How would this approach 

work if an intermediary’s customers began to transact in higher volumes of the fund’s

shares? 

165. Should we provide fund managers a safe harbor from liability under certain 

circumstances (e.g., absent knowing or reckless behavior) if the fund relies on 

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indicative flows to determine whether to swing the fund’s NAV and the size of the 

swing factor and those indicative flows do not align with the actual flows the fund 

ultimately receives? From what statutory provisions or rules should any safe harbor 

provide relief (for example, section 34(b) under the Investment Company Act, rule 

22c-1, or other provisions and rules)?

166. If we adopt an indicative flows approach, are there any changes we should make 

to the proposed swing pricing requirement? For example, instead of requiring use of 

“reasonable, high confidence” estimates of investor flow information, should we use 

a different standard (e.g., reasonable estimates based on available information)?

167. Do commenters agree with the discussion of the potential benefits, costs, or 

drawbacks of this alternative? During times of stress, would intermediaries be able to 

generate accurate indicative flow information?

168. Does this alternative raise different considerations if we were to require funds to 

use a liquidity fee framework or dual pricing, rather than swing pricing? Should an 

indicative flows approach operate or be structured differently if paired with a liquidity

fee or dual pricing requirement and, if so, how? 

169. Is there information about the indicative flows alternative, if adopted, that would 

be important for investors to understand and that funds should be required to disclose 

in their registration statements or elsewhere? 

b. Estimated Flows

We also considered an approach that would allow funds to estimate their flows for the 

day for the purposes of determining whether to apply a swing factor to the day’s NAV and the 

amount of the swing factor (e.g., whether the amount of net redemptions exceeds the market 

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impact threshold). In order to estimate flows for a given day, funds could generate models that 

incorporate the information available to them. For example, funds could use the flow information

that they have already received by a pre-established time as well as historical order flow 

information in order to estimate expected flows for the day. 

The ability of a fund to estimate flow information may differ based on the types and 

number of intermediaries from which the fund is ultimately receiving flow information. In order 

to estimate flows, funds may rely on factors that include the historical pattern of flows for a 

particular intermediary while accounting for any observed changes in the flows for a given fund. 

This estimate could be based on all of the information received by the fund by a set time, with 

additional adjustments to account for flows from intermediaries that do not submit orders by that 

time. For example the fund could base its estimate on all information that it has received by 5 

p.m. ET. For some intermediaries, however, like retirement plan recordkeepers, funds would 

likely need to create models that are able to project estimated flow information based on 

historical order flow information as retirement plan recordkeepers may not have sufficient 

information available by the time established by the fund. In addition, to the extent funds do not 

already receive large trade notifications, funds may determine to negotiate arrangements with 

intermediaries for receipt of advance notice of certain large transactions that are known in 

advance by intermediaries, such as replacing a fund as an investment option in a retirement plan. 

The considerations for whether estimates generated by the fund provide sufficiently 

reliable information to implement swing pricing are similar to those discussed above for the 

alternative for indicative flows from intermediaries. Funds have a narrower view of anticipated 

flow activity than intermediaries, however, as intermediaries are closer to investor activity and 

likely have a more accurate estimate of their customers’ flows for a particular fund. This benefit 

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of indicative flows over estimated flows may be mitigated to the extent that intermediaries lack 

incentives or are otherwise unable to provide reasonably accurate indicative flows. During times 

of stress, funds may have a limited view of anticipated order flow information, which may 

impact their ability to effectively implement swing pricing. In addition, an approach based on 

estimated flows would be less effective at preventing late trading and at reducing operational risk

through improvements to order processing than the proposed hard close requirement. On the 

other hand, estimated flows would be less costly than either a hard close or indicative flows.  

We request comment on the estimated flow alternative, including:

170. How accurately can funds estimate flows from different intermediaries? For 

example, are retirement plan flows relatively stable and predictable, or do they vary 

over different periods? To what extent do retirement plans inform funds in advance of

material flows that deviate from historical patterns, such as changes in funds the plan 

offers? Would funds receiving flows from specific intermediaries be better able to 

estimate their flows? For example, would it be easier for funds to estimate flows from

broker-dealers because broker-dealers tend to be able to provide order flow earlier 

than some other intermediaries? Would it be easier for funds to estimate flows from 

retirement plan recordkeepers because those flows are more predictable? To the 

extent that certain events make flows less predictable, such as changes in the funds a 

retirement plan offers to its participants, could funds better estimate their flows if 

intermediaries were required to provide advance notice or other information about 

these events?

171. Should we provide fund managers a safe harbor from liability under certain 

circumstances (e.g., absent knowing or reckless behavior) if the fund relies on 

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estimated flows to determine whether to swing the fund’s NAV and the size of the 

swing factor and those estimated flows do not align with the actual flows the fund 

ultimately receives? From what statutory provisions or rules should any safe harbor 

provide relief (for example, section 34(b) under the Investment Company Act, rule 

22c-1, or other provisions and rules)?

172. Should we require funds to conduct back-testing of estimated flows using final 

data to refine their estimation process over time and help ensure that estimates used 

for swing pricing are reasonable?

173. Would funds be able to implement swing pricing based on estimated flow 

information? If we adopt an estimated flows approach, are there any changes we 

should make to the proposed swing pricing requirement? For example, instead of 

requiring use of “reasonable, high confidence” estimates of investor flow information,

should we use a different standard (e.g., reasonable estimates based on available 

information)?

174. Does this alternative raise different considerations if we were to require funds to 

use a liquidity fee framework or dual pricing, rather than swing pricing? Should an 

estimated flows approach operate or be structured differently if paired with a liquidity

fee or dual pricing requirement and, if so, how?

175. Is there information about the estimated flows alternative, if adopted, that would 

be important for investors to understand and that funds should be required to disclose 

in their registration statements or elsewhere?

176. To what extent would the estimated flows alternative reduce costs on funds and 

intermediaries relative to the proposed hard close? 

180c. Later Cut-Off Times for Intermediaries

We have considered whether establishing later cut-off times for intermediaries to submit 

order flow information would lessen the burden on intermediaries to comply with the proposed 

hard close requirement while continuing to give funds the necessary order flow information to 

implement swing pricing. Under this alternative, investors would continue to need to submit 

orders before the fund’s pricing time to be eligible to receive that day’s price, but intermediaries 

would have additional time to provide those orders to a designated party after the pricing time, 

such as by 6 or 7 p.m. ET for a fund with a 4 p.m. ET pricing time. To provide time to assess the 

flows and determine whether to apply swing pricing, a fund might push the time of publication 

of its price to a later time, such as 8 to 10 p.m. ET. Much like the proposed hard close, this 

alternative may have additional benefits beyond facilitating swing pricing. Ensuring that all order

flow information is provided to a designated party earlier than it is currently may improve order 

processing. This alternative would be less effective, however, at preventing late trading. 

Allowing intermediaries more time to provide order flow information and delaying 

publication of the NAV would involve many of the systems costs discussed in connection with 

the hard close. For example, intermediaries would still need to transmit orders before the NAV is

available. However, providing intermediaries and funds more time to compile order flow 

information and to calculate the price may lessen the overall burden of the proposed changes, 

and may reduce the need for intermediaries to establish cut-off times prior to the fund’s pricing 

time for receipt of investor orders. 

We request comment on the alternative of later cut-off times for intermediaries, 

including:

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177. What would an appropriate delayed cut-off time be (e.g., two or three hours after 

the fund’s pricing time)? Would a delayed cut-off time, in combination with a 

delayed price publication, provide funds with sufficient time to make swing pricing 

decisions?

178. If funds were to delay the publication of their price, what steps would funds need 

to take? Would they need to amend agreements with intermediaries? What effects 

would a delayed publication time have on intermediaries or other parties?

179. Would a delayed cut-off time for intermediaries to submit orders to a designated 

party be less burdensome than the proposed hard close? Would a delayed price 

publication time be less burdensome than the proposed hard close? 

180. Would funds be able to implement swing pricing if we require later cut-off times 

for intermediaries instead of the proposed hard close? If we adopt a later cut-off time 

approach, are there any changes we should make to the proposed swing pricing 

requirement? For example, instead of requiring use of “reasonable, high confidence” 

estimates of investor flow information, should we use a different standard (e.g., 

reasonable estimates based on available information)?

181. Does this alternative raise different considerations if we were to require funds to 

use a liquidity fee framework or dual pricing, rather than swing pricing? Should a 

later cut-off time approach operate or be structured differently if paired with a 

liquidity fee or dual pricing requirement and, if so, how?

182. Is there information about the later cut-off times alternative, if adopted, that 

would be important for investors to understand and that funds should be required to 

disclose in their registration statements or elsewhere?

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3. Additional Illustrative Examples

While there are many potential combinations of swing pricing and hard close alternatives,

several of which we have already discussed in this release, this section provides additional 

illustrative examples of alternatives to the proposed swing pricing and hard close requirements 

that are designed to reduce shareholder dilution. The alternatives discussed in this section are 

intended to have lower operational costs than the proposed requirements, although the reduction 

in costs involves other trade-offs, as discussed below.

a. Spread Cost Adjustment on Days with Estimated Net Outflows

Spread costs can be a major component of a fund’s swing factor. Instead of the proposed 

swing pricing and hard close requirements, we could require a simplified version of swing 

pricing in which funds adjust their current NAVs to reflect good faith estimates of spread costs 

on days the fund reasonably expects to have net redemptions based on estimated flows. Under 

this approach, if a fund determined its NAV based on the midpoint of each investment’s bid-ask 

spread, on days of estimated net redemptions the fund would swing its transaction price down by

an amount designed to reflect spread costs in the portfolio. The adjustment would be based on 

good faith estimates of spread costs, consistent with the proposed swing pricing requirement. As 

with the swing factor under the proposal, the estimated spread costs could be determined 

periodically, as long as significant market developments or other developments that affect the 

good faith estimate of spread costs prompt a quicker reevaluation.266 If the fund already uses bid 

266  This approach would not require a fund to use bid prices to value each of its investments when 
determining its NAV. Instead, as appropriate, a fund could continue to value its investments using
the midpoint to determine its NAV and, on days of estimated net outflows, the fund would be 
required to reduce the fund’s transaction price based on good faith estimates of spread costs.

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prices for valuation purposes, it would not be required to adjust its current NAV to reflect spread 

costs.267 

This approach would be designed to mitigate dilution from spread costs associated with 

selling investments to meet redemptions. The reflection of costs would be dynamic when a fund 

expects net outflows, with the adjustment to reduce a fund’s transaction price increasing in size 

as spreads widen during times of stress. A fund would need to estimate the direction of flows 

(i.e., net redemptions or net purchases) based on available information before the fund publishes 

its price, but the fund would not need to estimate the size of net flows. A fund’s reasonable 

expectation of the direction of fund flows may be based on different types of information, 

depending on the fund. For example, a fund could consider indicative flow information from 

intermediaries, trends in orders submitted that day, general market intelligence, or historical 

trends in flows.

This approach would impose lower operational burdens and costs relative to the proposal,

including by not necessitating a hard close and by simplifying the analysis of a swing factor. At 

the same time, the approach would address dilution less fully than the proposal. Unlike the 

proposed swing pricing requirement, this approach would not capture market impact or other 

costs of selling investments to meet redemptions. For one, a fund could not assess market impact 

without an estimate of the size of net flows and, without a hard close, estimating the size of net 

flows with accuracy would be subject to a greater risk of error than estimating only the direction 

of flows. In addition, as previously discussed, there may be operational challenges and 

complexities to estimating market impact costs more generally. Another difference from the 

267  See supra note 202 (discussing accounting standards that state that the price within the bid-ask 
spread that is most representative of fair value in the circumstances shall be used to measure fair 
value and that provide that use of bid prices is permitted for these purposes, as well as use of mid-
market pricing as a practical expedient).

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proposed swing pricing requirement is that this approach would not address dilution from 

sizeable net purchases. Because smaller levels of net purchases are less likely to result in dilution

than net redemptions (as funds have more time to invest the proceeds from net purchases than to 

sell investments to meet redemptions), it may not be appropriate to require a fund to adjust its 

current NAV to reflect spread costs on any day it estimates net purchases. For this reason, we 

have a net inflow swing threshold of 2% in the proposal and, as with the potential inclusion of 

market impact in this framework, estimating the size of net flows involves a greater risk of error 

than estimating only the direction of net flows. 

In addition to other requests for comment related to variations of swing pricing and 

estimation of flows, we request comment on requiring a fund to adjust its current NAV to reflect 

good faith estimates of spread costs on days the fund reasonably expects to have net 

redemptions, instead of requiring the proposed version of swing pricing and a hard close.

183. Would this approach reduce operational burdens and costs relative to the 

proposed swing pricing and hard close requirements? Would this approach reduce 

operational burdens and costs relative to the liquidity fee alternative? Would this 

approach reduce operational burdens and costs relative to the dual pricing alternative?

How effective would this approach be in addressing dilution? To what extent would 

this approach protect non-transacting investors from dilution due to the bid-ask 

spread costs and ameliorate any first-mover advantage? Would the effectiveness of 

the tool vary between normal and stressed market conditions? Should this approach 

also reflect transaction costs in addition to spreads, for example, commissions, 

markups, and/or markdowns?  

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184. How accurately can funds estimate the direction of daily net flows? Should the 

requirement apply on days the fund reasonably expects to have net redemptions (such

that the fund uses this approach only if it affirmatively expects net redemptions) or on

days the fund does not reasonably expect to have net purchases (such that the fund 

defaults to this approach unless it affirmatively expects net purchases)?

185. To what extent do funds already value their portfolio investments using bid 

prices? What consequences, if any, would a requirement to reflect good faith 

estimates of spread costs when a fund reasonably expects to have net redemptions 

have on these funds?

186. Would this approach incentivize funds to value their portfolio investments using 

bid prices without properly evaluating whether the bid price is most representative of 

fair value in the circumstances, in order to avoid the need to determine whether the 

fund reasonably expects net redemptions each day? 

187. If we adopt this approach, how should we amend disclosure and reporting 

requirements? For example, if we required funds to use this simplified version of 

swing pricing, should current prospectus and financial statement reporting 

requirements for swing pricing apply? Should we require funds to report the 

frequency and amount of adjustments made to their current NAVs under this 

approach? Should a fund be required to report both its current NAV and its adjusted 

price? Should a fund be required to report information about the accuracy of its 

estimates of flow information? Where should any such information be located (e.g., 

Form N-PORT, fund websites, annual and semi-annual reports)?

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b. Liquidity Fee When Trading Costs Are Significant

Another alternative we considered is a liquidity fee that would apply only on days when a

fund anticipates significant trading costs. A rule could either define the trigger or require funds to

establish policies and procedures that identify their own fund-specific triggers. In terms of 

establishing the trigger, one alternative would be a trading cost trigger that the fund sets in 

advance or that the Commission establishes by rule (for example, with a set size, a set increase, 

or a set standard deviation in trading costs based on criteria such as spreads or transaction 

volumes for the fund’s portfolio, either in terms of dollars or as a percentage of the fund’s 

portfolio). As another alternative, the trigger for applying a liquidity fee could include other 

factors that indicate an increase in trading costs, such as increasing net flows (e.g., based on the 

fund’s flow history or estimated flows) or decreasing liquidity (e.g., based on declines in the 

percentage of the fund’s investments classified as highly liquid, or increases in the percentage of 

investments classified as illiquid). A fund’s trigger for applying liquidity fees could be required 

to be made public or kept non-public. 

As one example of a policies and procedures based approach, a fund could be required to 

establish written policies and procedures that would define the trigger event(s) that would cause 

a fund to apply a fee. The fund’s policies and procedures would be required to be designed to 

mitigate dilution and recoup the costs the fund reasonably expects to incur as a result of 

shareholder redemptions on days when trading costs are higher. Funds would have discretion to 

define their own trigger events, but all funds would be required to consider certain identified 

factors, such as trading costs, liquidity of the fund’s portfolio, market conditions, and reasonably 

estimated investor flows, in determining their trigger events.268 

268  Consideration of expected investor flows would not require a fund to estimate the size of 
expected flows with accuracy. Rather, this consideration would be intended to recognize the 

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There are several alternatives for setting a fee amount. For instance, the fund could either 

base the fee amount on reasonable estimates of expected transaction costs, including market 

impact, or if the fund determined this estimation is not feasible, the fund could establish a set fee 

amount, or graduated fee levels, it would apply when a trigger event occurs. The rule could 

either allow a fund to determine that estimating transaction cost amounts is not feasible in 

advance, or the rule could require a fund to consider its ability to estimate transaction costs each 

time a liquidity fee applies. Under another possible approach, the rule could establish a default 

fee amount, such as 1%, that a fund could opt out of or adjust if determined to be in the best 

interest of the fund. 

With respect to board oversight, if fee triggers or amounts were determined based on 

written policies and procedures, we could require board approval of the policies and procedures 

defining a fund’s trigger event or identifying how to determine a fee amount, as well as any 

material changes to those policies and procedures. As for determining when a trigger event 

occurs and the amount of the fee, similar to the proposed swing pricing requirement, we could 

allow a liquidity fee administrator approved by the board to make some or all of these 

determinations. 

If designed incorrectly, a fee that only applies when trading costs are significant could 

incentivize investors to redeem if investors can observe in advance that a fee is likely to apply in 

the near future. There are various mechanisms we could use to reduce these incentives. For one, 

if the rule identified specific trigger events that all funds would use, in that case, the potential for 

preemptive redemptions would be reduced if investors or other market participants could not 

potential relevance of flows, to the extent a fund has sufficient information to reasonably estimate
them. Moreover, if a fund anticipates a significant increase in costs of selling its investments but 
does not expect to need to sell investments due to an anticipation of net inflows, this approach 
would not require a fund to impose a fee.

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observe with certainty if a fund is nearing a trigger event. Another approach would be to identify 

specific thresholds for triggering a fee in the rule and allow a fund to choose to use one or more 

of those thresholds to determine when to apply a fee. If funds determined their own fee triggers, 

the rule could provide that a fund’s trigger event would be either public or nonpublic. Public 

disclosure of a fund’s trigger for applying liquidity fees would increase transparency. The rule 

could require, however, that the fund’s trigger event be kept nonpublic in order to reduce the 

potential for preemptive redemptions. Under this approach, a fund would not disclose its defined 

trigger event, and instead would be required to disclose in its prospectus that it applies a liquidity

fee on days its trading costs increase, as well as how it determines the amount of the fee. A fund 

could be required to report information about how frequently it applied a liquidity fee and the 

amount of each fee on Form N-PORT.

Unlike the proposed swing pricing requirement, this approach would not address smaller 

levels of dilution that may occur in the normal course. Instead, it would be designed to focus on 

periods where funds have heightened dilution risk, such as in stress events. In addition, this 

approach would not address dilution that may occur from net purchases. 

In addition to other requests for comment related to liquidity fee alternatives, we request 

comment on whether we should require a fund to apply liquidity fees only on days when a fund 

anticipates significant trading costs, instead of requiring swing pricing and a hard close.

188. Should a fund be required to apply a liquidity fee only when trading costs are 

significantly increasing, such as a period of stress? If so, should the rule identify a 

trigger when fees apply, or should funds establish their own trigger events?

189. If the rule establishes a trigger, what should that trigger be based on? For 

example, should the rule require a fund to apply a liquidity fee when spreads are 

189



widening or transaction volumes for the portfolio increase? For instance, should fees 

be required when spreads widen beyond a 95% confidence level for key components 

of the fund’s portfolio, where the mean and standard deviation of these key markets 

are measured for the trailing 252 business days (the average number of trading days 

in a year), and the trigger occurs if the current spread is greater than 1.65 standard 

deviations (i.e., the equivalent of a 95% confidence in a normal distribution) above 

the mean for that period? Should different confidence levels, standard deviations, or 

measurement periods be used? Should a liquidity fee trigger be based on an increase 

in the transaction volume of the fund’s portfolio, such as a trigger when the dollar- or 

percentage-based transaction volume for that day exceeds the 95% confidence level 

compared to the average daily transaction volume for the trailing 252 business days? 

Should different confidence levels or measurement periods be used? Do funds already

track information that would allow them to identify readily when a trigger based on 

widening spreads or increased dollar transaction volume is crossed, or would they 

need to collect or monitor additional information about spreads or transaction 

volumes? Should the rule use other or additional triggers? For example, should a 

trigger be based on or consider large net outflows or a reasonable expectation of large

net outflows above a certain percentage, such as net redemptions above 1% or 2% of 

net assets or net redemptions that are higher than typical for the individual fund based

on historical flows? If the rule included a numerical threshold for net redemptions, 

would funds have concerns about their ability to accurately estimate net flow amounts

and therefore be less likely to apply fees? If so, would a safe harbor address these 

concerns? Should a trigger be based on or consider an identified change in the fund’s 

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liquidity classifications, such as an identified decrease in the percentage of highly 

liquid investments the fund holds or an identified increase in the percentage of 

illiquid investments the fund holds? Should identification of a trigger event account 

for indicators of market stress in the financial markets overall or in the specific 

markets in which the fund invests? If so, what indicators of market stress should the 

rule include? Should the rule identify multiple potential triggers and allow funds to 

choose whether to use one or more of those triggers to determine when to apply a fee?

190. Instead of identifying specific trigger points by rule, should we require funds to 

establish and implement policies and procedures that describe when the fund will 

impose a fee? Would a policies and procedures approach allow funds to tailor the 

application of a fee to scenarios in which transacting investors are likely to cause 

dilution? Under a policies and procedures approach, should we identify the factors a 

fund must consider in defining its trigger events? If so, what factors should we 

require a fund to consider (e.g., trading costs, liquidity of the fund’s portfolio, market 

conditions, and reasonably estimated investor flows)? Rather than require funds to 

consider these factors, should we require funds to define their trigger events with 

respect to these or other specific factors?

191. Should we permit a fund not to apply a fee upon the occurrence of a defined 

trigger event? For example, should a fund be required to apply a fee when a trigger 

event occurs, unless the board determines that it is not in the interest of the fund to 

apply a fee in the specific circumstance? 

192. What risks are associated with requiring a fund to define its own trigger event, 

and how could we reduce these risks? Would funds define a trigger event such that a 

191



fund would be delayed in determining that a fee should apply relative to potentially 

fast-moving changes in market conditions? If so, would this delay increase the 

potential for preemptive redemptions and contribute to a first-mover advantage? 

Would funds define a trigger event in a way that makes it unlikely that a fund would 

ever apply a fee? Are there ways to ensure that funds’ policies and procedures are 

sufficiently robust, such as requirements to report the policies and procedures to the 

Commission or to report when a fund applied a fee? For example, should funds be 

required to confidentially report their trigger events to the Commission and to report 

how frequently fees applied and in what amounts on Form N-PORT?

193. Should liquidity fees apply only to redemptions if a trigger event occurs? Or 

should liquidity fees apply to both redemptions and purchases under this approach? 

Should a single trigger event result in fees applying to both redemptions and 

purchases, or should funds establish trigger events that differ between redemptions 

and purchases?

194. How should the amount of a liquidity fee be determined under this approach? 

Should the rule set a specified fee amount that would occur upon any fund’s trigger 

event, such as 0.5%, 1%, or 2%? Should any fee amount set by rule be a default 

amount, such that a fund could use a higher or lower fee amount if determined to be 

in the best interest of the fund? Should funds be required to calculate the amount of 

the fee based on reasonable estimates of expected transaction costs, including market 

impact? Should fund policies and procedures, or a rule, establish a set fee amount that

would apply if a fund is unable to reasonably estimate expected transaction costs? 

Should funds be required to consider their ability to reasonably estimate transaction 

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costs each time a trigger event applies, or should funds be able to determine in 

advance that estimation is not feasible and opt to use a set or graduated fee for all 

trigger events? Should fund policies and procedures, or a rule, establish graduated fee

levels that would apply for different trigger events? Should we establish a limit on the

size of a liquidity fee under this approach (e.g., 2%, 3%, or 5%)?

195. After a fee is triggered, how should the rule permit or require a fund to determine 

when it should no longer apply a fee? For instance, should a fund reassess daily 

whether trading costs have decreased, or should a liquidity fee remain in place for a 

set number of days (e.g., 2 to 5 days) and then no longer apply unless the fund 

determines a fee continues to be in the best interest of the fund?

196. What information should funds be required to disclose in their prospectuses under

this approach? How much detail should funds be required to provide about when they

will impose a liquidity fee? Should the prospectus state only that a fund will impose a

fee when trading costs increase, or should the prospectus also discuss the factors a 

fund considers to make this determination? Should a fund be required to disclose its 

trigger events in its prospectus? Would that disclosure contribute to potential 

preemptive redemptions, or would trigger events be difficult to observe publicly in 

advance? Should funds be required to disclose fee amounts in their prospectuses, or 

their methods for calculating fee amounts? 

197. Should the fund’s board be required to approve the fund’s written policies and 

procedures defining the trigger event(s) and how the fund will determine the amount 

of the fee? Should the board be required to approve any material changes to the 

policies and procedures? Should other board oversight be required? Should the board 

193



have to determine that a fee is appropriate every time a trigger event occurs before the

fund can impose a fee? Or should the board be required to designate a liquidity fee 

administrator that would be responsible for determining when liquidity fees apply and

the size of the fee? Should the definition of a liquidity fee administrator mirror the 

proposed definition of a swing pricing administrator? If not, what changes should be 

made? Similar to the proposed swing pricing requirement, should a liquidity fee 

administrator be required to provide periodic reports to the board (at least annually) 

that describe: (1) the administrator’s review of the adequacy of the policies and 

procedures identifying the fund’s trigger event and the effectiveness of their 

implementation, including the effectiveness in mitigating dilution; (2) any material 

changes to the liquidity fee policies and procedures since the date of the last report (if 

such material changes are not subject to board approval); and (3) the administrator’s 

review and assessment of the fund’s method for determining the size of the liquidity 

fee?

198. What are the operational implications of this approach for funds and 

intermediaries? Would intermediaries be able to apply a liquidity fee on the same day 

the fund announces its imposition? What effects would this approach have on 

investors?  

199. If liquidity fees are only applied rarely under this approach, how would that affect

fund and intermediary preparedness for imposing fees? Would it increase investor 

sensitivity to fees and increase the likelihood of preemptive redemptions?

200. Should we pair a requirement to adjust a fund’s current NAV to reflect spread 

costs on days the fund estimates it will have net redemptions with a requirement to 

194



apply a liquidity fee when trading costs increase? Would this combined framework 

address dilution from net redemptions in a manner similar to the proposed swing 

pricing requirement without the costs of a hard close?

E. Reporting Requirements

1. Amendments to Form N-PORT 

Registered management investment companies and ETFs organized as unit investment 

trusts are required to file periodic reports on Form N-PORT about their portfolios and each of 

their portfolio holdings as of month-end.269 While the reports provide monthly information to the 

Commission, funds file these reports on a quarterly basis with a 60-day delay, and the public 

only has access to information for the third month of each quarter. We are proposing to require 

reports on Form N-PORT to be filed within 30 days of month-end, which would be followed by 

public availability of much of the reported information 60 days after month-end. We are also 

proposing to require an open-end fund that is subject to classification requirements in the 

liquidity rule to provide information regarding the aggregate percentage of its portfolio 

represented in each of the three proposed liquidity categories, which would be publicly available.

The reported aggregate percentages would include adjustments to give effect to other aspects of 

the proposal. Finally, we are proposing amendments relating to funds’ use of swing pricing, 

conforming amendments to reflect the proposed amendments to rule 22e-4, and amendments to 

certain entity identifiers. 

269  For purposes of this section, the term “fund” refers to registrants that currently are required to 
report on Form N-PORT, including open-end funds, registered closed-end funds, and ETFs 
registered as unit investment trusts, and excluding money market funds and small business 
investment companies.

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a. Filing Frequency

We are proposing to amend rule 30b1-9 and Form N-PORT to require funds to file 

reports on Form N-PORT on a more timely basis, with changes to both the frequency with which

a fund would file reports on Form N-PORT and when the reports are due.270 Specifically, rather 

than filing monthly reports with the Commission 60 days after the end of each fiscal quarter, we 

are proposing to require that funds file reports on a monthly basis.271 These monthly filings 

would be due within 30 days after the end of the month to which they relate and would be made 

public 60 days after the end of the month to which they relate.272 As an example, currently a fund

files Form N-PORT reports for the first, second, and third months of each fiscal quarter with the 

Commission 60 days after the end of the third month of the quarter. Under the proposal, funds 

would separately file reports for the first, second, and third months of the quarter, with each 

month’s report due within 30 days of month-end. 

These changes are intended to provide more timely information regarding the fund’s 

portfolio, including its liquidity profile. Both the current quarterly reporting cadence and the 60-

day delay after the end of the quarter before reports are due make it difficult to use reported data 

to assess events that are developing quickly, or to identify early warning signs of potential 

distress. By the time the information is filed, it is at least two, and could be as many as four, 

months out of date.273 

270  The proposal would also make a conforming edit to the filing instructions for Form N-PORT. 
See proposed 17 CFR 274.150(a). 

271  We would also make conforming changes to General Instruction A of Form N-PORT and rule 
30b1-9 to remove references to the requirement for a fund to maintain in its records the 
information that is required to be included on Form N-PORT no later than 30 days after the end 
of each month; this would no longer be necessary because the information would be filed with the
Commission. See Proposed General Instruction A of Form N-PORT; proposed rule 30b1-9. 

272  Id; proposed General Instruction F of Form N-PORT. As is the case currently, if the due date 
falls on a weekend or holiday, the filing deadline would be the next business day. 

273  Because reports are due 60 days after the end of a fund’s fiscal quarter, deadlines vary based on 

196



As proposed in 2015 and adopted in 2016, Form N-PORT would have provided for 

monthly filings with the Commission, within 30 days after the end of each month.274 Only reports

for every third month would have been available to the public.275 The Commission originally 

required monthly portfolio reporting because it would be useful for fund monitoring, particularly 

in times of market stress.276 The Commission originally required funds to file each monthly 

report within 30 days of month end because more delayed data would reduce the utility of the 

information to the Commission and lag times of more than 30 days would make monthly 

reporting impractical, as reports would overlap with preparation time.277 

Before the date funds would have been required to comply with this requirement, the 

Commission experienced a cybersecurity incident that resulted in unauthorized access to certain 

nonpublic information on the EDGAR system.278 As part of the Commission’s ongoing 

assessment of its internal cybersecurity risk profile, the Commission re-evaluated and modified 

the filing frequency for reports on Form N-PORT. The Commission required funds to file a 

the fund’s fiscal year. As an example, depending on a given fund’s fiscal year, reports on Form 
N-PORT that included information for Mar. 2020 were due between June 1, 2020, and July 30, 
2020. For instance, for funds with fiscal years ending Dec. 31, Sept. 30, June 30, or Mar. 30—
which is just under half of all funds—the due date of the filing was May 30, 2020. Because this 
was a Saturday, the filing deadline was extended until the next business day on Monday, June 1. 
See General Instruction A to Form N-PORT. 

274  See Investment Company Reporting Modernization, Investment Company Act Release No. 
32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (“Reporting Modernization Adopting 
Release”), at section II.A; Investment Company Reporting Modernization, Investment Company 
Act Release No. 31610 (May 20, 2015) [80 FR 33589 (June 12, 2015)] (“Reporting 
Modernization Proposing Release”).

275  See Reporting Modernization Adopting Release, supra note 274, at section II.A.
276  See id., at paragraph following n.453.
277  See id., at nn.461-462 and accompanying text.
278  See Statement on Cybersecurity (Sept. 20, 2017), available at https://www.sec.gov/news/public-

statement/statement-clayton-2017-09-20; see also Testimony before the Financial Services and 
General Government Subcommittee of the Senate Committee on Appropriations (June 5, 2018), 
available at https://www.sec.gov/news/testimony/testimony-financial-services-and-general-
government-subcommittee-senate-committee.

197

https://www.sec.gov/news/public-statement/statement-clayton-2017-09-20
https://www.sec.gov/news/public-statement/statement-clayton-2017-09-20


report with the Commission for each month in the fund’s fiscal quarter no later than 60 days after

the end of each fiscal quarter and to maintain in their records the information that is required to 

be included on Form N-PORT not later than 30 days after the end of each month. In making this 

change, the Commission stated that it significantly reduced the sensitivity of the non-public data,

but that the staff would continue to monitor and solicit feedback on the data received and the use 

made (or expected to be made) of such data in furtherance of the Commission's statutory 

mission, as well as cybersecurity considerations and other matters deemed relevant by the 

staff.279

The Commission applies controls and systems for the use and handling of filing systems 

for confidential information and associated confidential data in a manner that reflects the 

sensitivity of the data and is consistent with the maintenance of its confidentiality. The 

Commission also has gained additional experience in receiving and maintaining sensitive 

portfolio data on the EDGAR system. This experience includes, for example, the existing non-

public portions of Form N-PORT, which are subject to controls and systems designed to protect 

their confidentiality, as well as confidential treatment requests for reports on Form 13F.280 

Market events have reinforced the need for timely data regarding funds’ portfolios and 

the liquidity of those portfolios. For example, disruptions in the markets for Treasury securities 

and corporate bonds began near the end of the first quarter of 2020, but many funds’ reports on 

Form N-PORT reflecting these events were not due until June 1, 2020, or as late as the end of 

279  See Amendments to the Timing Requirements for Filing Reports on Form N-PORT, Investment 
Company Act Release No. 33384 (Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)] at nn.36-39 and 
accompanying text.

280  See Electronic Submission of Applications for Orders under the Advisers Act and the Investment
Company Act, Confidential Treatment Requests for Filings on Form 13F, and Form ADV-NR; 
Amendments to Form 13F, Investment Company Act Release No. 34635 (June 23, 2022) [87 FR 
38943 (June 30, 2022)], at section II.C.

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July 2020. This meant that Commission staff were not able to review monthly filings, for 

example, to assess and analyze how the events were affecting funds or identify issues for further 

inquiry. Similarly, the Russian invasion of Ukraine began in late February 2022, when many 

funds were just filing their reports for the final quarter of 2021. This meant that when 

Commission staff were reviewing data to assess funds’ exposures to securities that could be 

affected by the invasion, the data was several months out of date.281 As a result, during major 

market events, the staleness of Form N-PORT data limits the Commission staff’s ability to 

develop a comprehensive understanding of the market. The stale data also can impede our ability

to contribute fully to interagency discussions of and responses to market events. 

Although funds are required to maintain the monthly data and produce it to Commission 

staff upon request, any such production would be done on an individual basis. In addition, 

making individual requests requires Commission staff to determine the appropriate funds from 

which to collect data, which can be particularly challenging when Commission staff is 

responding to market events but may not have the market data necessary to determine quickly 

which funds to prioritize in responding to the event. 

Requiring funds to file monthly reports on Form N-PORT within 30 days of the end of 

each month, consistent with the filing frequency the Commission initially adopted for Form N-

PORT, would enhance our ability to effectively oversee and monitor the activities of investment 

companies in order to better carry out our regulatory functions, consistent with the goals of Form

N-PORT reporting.282

281  As evidence mounted that an invasion was likely to occur, funds may have adjusted their 
exposure to securities that could be affected, but Commission staff were unable to review this on 
a market-wide basis until months after the invasion due to the delay in receiving information. 

282  See, e.g., Reporting Modernization Proposing Release, supra note 274, at section IV.A. See also 
2015 Proposing Release, supra note 31, at text accompanying n.562.

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We request comment on the proposed changes to the timing and frequency with which 

fund would be required to file reports on Form N-PORT, including:

201. As proposed, should we require that funds file reports on Form N-PORT on a 

monthly, rather than quarterly, frequency? Because funds are currently required to 

maintain the information required to prepare their reports on Form N-PORT on a 

monthly basis, within 30 days after the end of the reporting period, would they have 

any increased burden due to filing such information monthly, within 30 days after the 

end of the reporting period, as proposed?

202. As proposed, should we shorten the deadline for filing reports on Form N-PORT 

to 30 days after the end of the reporting period? Should we instead use a different 

deadline, such as 15, 45, or 60 days after the end of the reporting period? 

203. Should we, as proposed, revise General Instruction A of Form N-PORT and rule 

30b1-9 to remove the requirement for a fund to maintain in its records the information

that is required to be included on Form N-PORT no later than 30 days after the end of

each month because this information would be filed with the Commission under the 

proposal? 

b. Publication Frequency

We are proposing to make funds’ monthly reports on Form N-PORT public 60 days after 

the end of each monthly reporting period.283 Currently, only the report for the third month of 

every quarter is made public, meaning the proposal would triple the amount of data made 

available to investors on Form N-PORT in a given year. Thus, the proposal would enhance the 

ability of investors to review and monitor information about their funds’ portfolios.284

283  See proposed General Instruction F of Form N-PORT.
284  We also propose to include additional information about the aggregate liquidity profiles of fund 

200We continue to believe that publication of information collected on Form N-PORT can 

benefit investors by assisting them in making more informed investment decisions.285 The public 

availability of monthly information, rather than information only for the third month of each 

quarter, may enhance these benefits. For example, institutional investors could directly use the 

monthly information reported on Form N-PORT to evaluate fund portfolios and assess the 

potential for returns and risks of a particular fund, and other investors may benefit from third-

party analysis of the monthly data. 

When the Commission first adopted Form N-PORT, it recognized potential negative 

effects from frequent publication of Form N-PORT data. For example, the Commission 

acknowledged the risk that frequent public disclosure could allow market participants to use 

funds’ reports on Form N-PORT to engage in predatory trading such as front-running.286 The 

Commission also recognized that more frequent public disclosure could permit free riding on a 

fund’s research or trading expenditures by allowing other market participants to copy the fund’s 

trades.287 In determining to maintain the status quo of quarterly public reporting based on the 

fund’s fiscal quarters, the Commission stated that it was important to assess the impact of the 

data reported on Form N-PORT on the mix of information available to the public, and the extent 

to which these changes might affect the potential for predatory trading, before determining 

portfolios. See infra section II.E.1.c.
285  See Reporting Modernization Adopting Release, supra note 274, at section II.A.4. 
286  See Reporting Modernization Adopting Release, supra note 274, at text accompanying n.488. 

See also Investment Company Reporting Modernization, Investment Company Act Release No. 
32936 (Dec. 8, 2017) [82 FR 58731 (Dec. 14, 2017)] (noting same concerns).  

287  Id. But see Morningstar Comment Letter on Reporting Modernization Proposing Release, File 
No. S7-08-15, available at https://www.sec.gov/comments/s7-08-15/s70815-355.pdf (discussing 
data that funds providing more frequent disclosure do not appear to exhibit lower returns as a 
result of predatory behavior).

201

https://www.sec.gov/comments/s7-08-15/s70815-355.pdf


whether more frequent or more timely public disclosure would be beneficial to investors in 

funds.288 

Since the adoption of Form N-PORT, funds’ practices with respect to disclosure of 

information about their portfolios have continued to evolve. For example, many funds, including 

actively managed funds, voluntarily provide their complete portfolio holdings on their websites 

on a monthly basis, typically lagged 30 days. Further, ETFs, including actively managed ETFs, 

generally are required to provide transparency into their portfolio holdings on a daily basis.289 

Many funds also provide monthly information about their portfolio holdings to third party data 

aggregators, generally with a lag of 30 to 90 days, which in turn make them available to 

investors for a fee. We believe this demonstrates that investor demand for monthly portfolio 

holdings already exists and that funds providing the information have determined the potential 

for predatory trading is justified by the benefit to investors. The proposal would simply allow all 

investors to receive similar data without paying a fee.290 Thus, we believe that many funds 

already provide public transparency of their portfolio holdings more frequently than the proposal

would require, and that our proposal would level the playing field by standardizing the reporting 

288  Reporting Modernization Adopting Release, supra note 274, at text accompanying nn.494-499 
and accompanying text. 

289  See 17 CFR 270.6c-11(c)(1)(i); Exchange-Traded Funds, Investment Company Act Release No. 
33646 (Sep. 25, 2019) [84 FR 57162 (Oct. 24, 2019)] (“ETF Release”), at section II.C.4 (stating 
that, although a few commenters raised concerns about front running or free riding if certain 
ETFs were required to provide full daily portfolio transparency, the Commission believed it was 
likely that all current ETFs that may rely on the rule already provide full portfolio transparency as
a matter of market practice). In addition, a small number of “nontransparent” ETFs have received 
an exemptive order from the Commission permitting them not to disclose their portfolio holdings 
on a daily basis. As of Mar. 31, 2022, there were 45 nontransparent ETFs. Several of these 
nontransparent ETFs voluntarily disclose their complete portfolios on a monthly basis with a one-
month lag. 

290  For example, we understand that a majority of funds provide monthly information regarding their
portfolios to a third-party data aggregator. Individual investors are able to review the holdings 
reported by funds providing data to the aggregator using an analysis tool for which the aggregator
charges a fee. 

202



timelines for all funds, putting the data in a single location that all investors can access without 

charge, and using a standardized format that enables investor analysis of reported data.291 In 

addition, under the proposal, the public information for each fund’s monthly report on Form N-

PORT would not be publicly available until 60 days after the end of the month, which is the 

same delay that currently exists for funds’ reports for the third month of every quarter. This is 

designed to balance the benefits to investors of more frequent portfolio disclosure, while also 

retaining the existing 60-day delay, which we believe is appropriate in order to make the 

disclosed positions less timely and thus less likely to facilitate predatory trading practices.292 As a

result, and given that the proposal would provide data for additional monthly periods but would 

not change the current 60-day delay in making funds’ reports on Form N-PORT public, the 

proposal is intended to mitigate opportunities for predatory trading or free riding of funds’ 

trading strategies.293

Furthermore, the proposal is intended to benefit investors through increased transparency 

of Form N-PORT information, especially because it is provided in structured format and made in

291  In addition, because we propose to make funds’ reports on Form N-PORT available for every 
month, investors could use Form N-PORT to monitor how their funds respond to events 
regardless of when they occur. For example, investors in some funds have access to Form N-
PORT filings for Mar. 2020, while investors in other funds do not. This is because Form N-PORT
data is publicly available for the third month of each fund’s fiscal quarter, but fiscal quarters vary 
among funds. 

292  Section 45(a) of the Investment Company Act requires information in reports filed with the 
Commission pursuant to the Act be made public unless we find that public disclosure is neither 
necessary nor appropriate in the public interest or for the protection of investors. For the reasons 
discussed above, we preliminarily believe that keeping the data for the first and second months of
a fund’s calendar quarter confidential until the expiration of the 60-day period provided by the 
proposal is necessary or appropriate in the public interest for the protection of investors.

293  Form 13F is due 45 days after the end of each calendar quarter, meaning that every third month, 
a fund’s disclosure on Form N-PORT would not be the first mandatory disclosure of its portfolio. 
Funds currently have the ability to designate certain holdings for the third month in every quarter 
as “miscellaneous securities,” which are not disclosed publicly on Form N-PORT. Because we 
propose that all filings would eventually become public, we are extending this to filings for each 
month. See text accompanying infra note 319.

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a single, centralized database. Giving investors access to this information in monthly reports on 

Form N-PORT may result in investors being better able to monitor the portfolios of their funds in

a systematic fashion, and assist investors in choosing the investment products that most closely 

align with their desired levels of risk, asset exposures, and liquidity profiles. 

The proposed reporting requirement also takes into account the cybersecurity risk profile 

of the information we are collecting. Under the proposal, we would receive the monthly 

information 30 days after the end of each month. Because the monthly information reported on 

Form N-PORT would be made public 30 days after it is filed with the Commission, the 

Commission would retain less confidential information than under the final rules the 

Commission adopted in 2016. This is because, under the proposal, information for each month 

would become public shortly after filing instead of information in only the third month of each 

quarter being publicly disclosed.

Currently, certain information reported on Form N-PORT is nonpublic, even in the report

for the third month of the quarter that is otherwise publicly available. This aspect of the form is 

unchanged in this proposal, and that information—which includes liquidity classifications for 

individual portfolio investments—would remain nonpublic in individual reports. However, 

Commission staff may publish aggregate or other anonymized information about the nonpublic 

elements of reports on Form N-PORT.294  

We request comment on the proposed changes to the frequency with which funds’ reports

on Form N-PORT would be made public, including:

204. Should we, as proposed, make funds’ reports on Form N-PORT public on a 

monthly basis, 60 days after the end of the month to which they relate? How would 

294  See General Instruction F of Form N-PORT.

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investors use the additional information? Are there other potential users of public 

portfolio disclosures, including third-party users that provide services to investors, 

who find the additional information useful, and through whom investors could benefit

indirectly? 

205. Many funds already provide monthly information about their portfolio holdings 

on their websites. Would investors benefit from having centralized information on 

Form N-PORT that includes all funds, rather than having to look at each fund’s 

website? Would investors benefit from having the information in a structured format 

rather than the format the fund uses on its website? Would the proposed requirement 

reduce costs for investors who currently use data aggregators to obtain holdings 

information regarding the funds in which they invest? 

206. Should the lag between filing and publication be extended, for example to 45 days

after filing, or shortened, for example to 15 days after filing? Should reports be made 

public immediately upon filing?  

207. Previously, some have suggested that more frequent public disclosure could raise 

costs for investors due to predatory trading or copy-catting of fund strategies. Given 

that the proposal would provide data for additional monthly periods but would not 

change the current 60-day delay in making funds’ reports on Form N-PORT public, 

would the proposal raise costs for investors due to predatory trading or copy-catting? 

What empirical data exists that supports these assertions? 

208. Would actively managed nontransparent ETFs, which generally do not disclose 

their complete portfolios on a daily basis, be affected by the proposed requirement to 

disclose their portfolio on a 60-day delay differently than other actively managed 

205



funds, and should we permit these funds to disclose their portfolios less frequently as 

a result? 

209. Do funds voluntarily publish data about their portfolios to compete for investors, 

notwithstanding potential effects on their performance? 

210. Are there certain items on Form N-PORT that we propose to make public on a 

monthly basis that should only be public on a quarterly basis? If so, why is monthly 

disclosure of the relevant item neither necessary nor appropriate in the public interest 

or for the protection of investors?

c. Public Reporting of Aggregate Liquidity Classifications

We are proposing to require that funds’ monthly reports on Form N-PORT would include

the percentage of a fund’s assets that fall into each of the three liquidity categories.295 To give 

effect to the proposed adjustments to a fund’s calculations of its level of highly liquid 

investments and illiquid investments in the liquidity rule, a fund would be required to make the 

same adjustments to its reported amount of highly liquid investments and illiquid investments, 

rather than simply report the percent of assets the fund has classified in each category. 

Specifically, a fund would reduce its reported amount of highly liquid assets by the amount of 

highly liquid assets that it posts as margin or collateral for derivatives transactions that are not 

highly liquid and by the amount of the fund’s liabilities. A fund also would increase its reported 

amount of illiquid assets by the amount of collateral available upon exit of illiquid derivatives 

transactions.296 The fund’s adjustments are intended to more accurately reflect the availability of 

295  See proposed Item B.12.a of Form N-PORT.
296  See proposed Items B.8 and B.12.b of Form N-PORT. In certain situations, the adjustments 

could result in the amounts of a fund’s investments in all three categories not summing to 100% 
of assets. For example, the reduction in the reportable amount of highly liquid assets may be 
greater than the increase in the reportable amount of illiquid assets, resulting in the percentages of
the fund’s assets in each category summing to an amount below 100%. Funds would be required 

206



assets to meet redemptions. We propose to require that a fund’s reported aggregate liquidity 

classifications include these adjustments, rather than report the adjustments separately, to make it

easier for investors to understand the information a fund reports about its liquidity.  

The public disclosure framework we are proposing is similar to the framework the 

Commission adopted in 2016.297 At that time, the Commission determined to require a fund to 

publicly disclose the aggregate percentage of its portfolio assets representing each of the 

classification categories to balance some commenters’ concerns about potential adverse effects 

that could arise from public reporting of detailed portfolio liquidity information with investors’ 

need for improved information about funds’ liquidity risk profiles.298 

As funds began to implement the liquidity rule’s classification requirements, and before 

funds were required to provide public disclosure of aggregate liquidity classifications, the 

Commission received additional information about the potential challenges and concerns of 

publicly disclosing a fund’s aggregate liquidity profile at that time, namely the risk that the data 

would be subjective, that it was presented in isolation, and that it lacked the context of other 

disclosures about the fund.299 In response, the Commission replaced this disclosure with narrative

liquidity disclosure in 2018.300 In removing the requirement to report aggregate liquidity 

classifications, the Commission stated that the subjectivity involved in the classification process 

to increase their reported amounts of moderately liquid investments if necessary to make the 
amounts the fund reports sum to 100%. See proposed Item B.12.b of Form N-PORT.

297 See Liquidity Rule Adopting Release, supra note 8, at section III.C.6.c.
298  See id., at text accompanying n.621.
299  See Investment Company Liquidity Disclosure, Investment Company Act Release No. 33046 

(Mar. 14, 2018) [83 FR 11905 (Mar. 19, 2018)] (“2018 Liquidity Disclosure Proposing Release”)
at nn.9-13 and accompanying text.  

300  See 2018 Liquidity Disclosure Adopting Release, supra note 22. For discussion generally of the 
Commission’s stated rationale for making this change, see generally id. and 2018 Liquidity 
Disclosure Proposing Release, supra note 299.

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raises concerns when applied to public disclosure. Specifically, the Commission expressed 

concern that the quantitative presentation of the aggregate liquidity information may imply 

precision and uniformity in a way that obscures its subjectivity, and that funds may face 

incentives to classify their investments as more liquid in order to make their funds appear more 

attractive to investors, while also potentially increasing the risk of herding if funds adjusted their 

portfolios in response to the disclosure requirement. In addition, the Commission believed that it 

would not be appropriate to adapt Form N-PORT to provide narrative context to help investors 

appreciate the fund’s liquidity risk profile and the subjective nature of classification. 

The Commission judged at that time that effective disclosure of liquidity risks and their 

management would be better achieved through prospectus and shareholder report disclosure 

rather than Form N-PORT, and adopted a requirement to disclose in a narrative format a brief 

discussion of the operation and effectiveness of its liquidity risk management program in the 

fund’s shareholder reports. The intent of the narrative framework was to provide investors with a

holistic view of the liquidity risks of the fund and how effectively the fund’s liquidity risk 

management program managed those risks on an ongoing basis over the reporting period.301 

In practice, though, the narrative disclosure did not meaningfully augment other 

disclosure requirements.302 Instead, based on staff experience with several years of shareholder 

reports covering a range of market conditions, including a market crisis in March 2020 that 

included substantial liquidity concerns for certain securities, we found that the narrative 

disclosure often appeared as a lengthy, boilerplate recitation of the requirements of rule 22e-4 

that was not tailored to a particular fund and did not change as conditions in the market changed. 

301  See, e.g., supra section II.A.1. To the extent a fund would be incentivized to manage its portfolio
so as to report higher amounts of highly liquid investments, we believe this would be consistent 
with the focus in section 22 of the Act on preserving the redeemability of open-end funds. 

302  Tailored Shareholder Reports Adopting Release, supra note 26, at text accompanying n.463.

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For example, many funds’ liquidity disclosures did not change after the events of March 2020, 

even for funds that invested in assets that had experienced severe liquidity issues. This meant 

that investors had limited information about the liquidity of fund investments or how the fund 

managed that liquidity risk through these stressful events. We believe that this prevented 

investors from fully evaluating the liquidity risks associated with a particular fund for purposes 

of making more informed investment decisions. 

Investors and funds have made similar observations. In 2020, when the Commission 

proposed amendments designed to streamline fund shareholder reports, some commenters 

requested that we require funds to disclose their aggregate liquidity buckets.303 Other commenters

stated that the narrative disclosure is not particularly relevant to investment decision making.304 

Several other commenters also stated that they believed the narrative disclosure should be moved

from shareholder reports.305 We recently adopted amendments that remove the requirement to 

disclose the narrative disclosure in the shareholder reports.306 

303  See, e.g., Comment Letter of Consumer Federation of America on 2020 Tailored Shareholder 
Reports Proposing Release, File No. S7-09-20 (“[S]trongly encourag[ing] the Commission to 
reconsider its decision” to remove aggregate liquidity disclosure and characterizing narrative 
disclosure as “boilerplate.”); see also Comment Letter of Tom and Mary on 2020 Tailored 
Shareholder Reports Proposing Release, File No. S7-09-20 (“We think funds should be required 
to disclose their aggregate liquidity bucketing in their annual report. We believe this information 
is important to investors and will help them appreciate any liquidity risk.”). The comment file for 
the 2020 Tailored Shareholder Reports Proposing Release, where these comment letters are 
available, is at https://www.sec.gov/comments/s7-09-20/s70920.htm.

304  See, e.g., Comment Letter of Ubiquity on 2020 Tailored Shareholder Reports Proposing Release,
File No. S7-09-20 (“Disclosure [of liquidity information in narrative format] is currently 
worthless and even with” the proposed changes which were designed to retain the narrative 
format, it “will continue to be worthless.”); see also Comment Letter of Tom Williams on 2020 
Tailored Shareholder Reports Proposing Release; Feedback Flier of Olivia Brightly on 2020 
Tailored Shareholder Reports Proposing Release. 

305 See, e.g., Comment Letters of Morningstar Trustees, ICI, SIFMA. Fidelity, Dechert, James 
Angel, Lisa Barker, and T. Rowe Price on 2020 Tailored Shareholder Reports Proposing Release.

306  See Tailored Shareholder Reports Adopting Release, supra note 26. 

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Our proposed amendments to the liquidity rule, along with the years of experience that 

funds have gained in complying with the current rule, also have made the concerns the 

Commission identified in 2018 less relevant. Since 2018, the staff has conducted outreach with 

numerous market participants, including fund complexes, liquidity classification vendors, and 

others, and we are proposing several changes to rule 22e-4 that would prescribe additional 

parameters for many aspects of the classification process. These changes include introducing the 

concept of a 10% stressed trade size, establishing a minimum value impact standard, and 

removing asset class classifications, which would reduce subjectivity in classifications and 

reduce variation in funds’ classification practices, even if incentives for a fund to mis-classify its 

investments remain.307 These changes are intended to reduce the risk of subjectivity impeding an 

investor’s understanding. 

To the extent that subjectivity remains, investors reviewing this information on Form N-

PORT also will have access to additional information in fund prospectuses and shareholder 

reports, which are delivered directly to investors. Prospectuses and shareholder reports would 

provide additional information about the fund and context for the liquidity disclosure in Form N-

PORT, such as information about the factors affecting a fund’s risks, returns, and performance.308

In addition, the fact that the aggregate liquidity information would be required to change as 

liquidity conditions in the market change, and that investors would be able to review these 

changes on a monthly basis and compare them against the fund’s prior reports would provide 

additional context for investors who desire this information. Investors could also compare the 

fund’s reports to reports of similar funds, which could aid their understanding by allowing them 

307  See, e.g., supra section II.A.1 and note 301. 
308  See Reporting Modernization Adopting Release, supra note 274, at text following n.486 (“Form 

N–PORT is not primarily designed for disclosing information to individual investors . . .”).

210



to focus on the differences. Finally, the proposed aggregate liquidity disclosure could improve 

the mix of information available to investors. Though reports on Form N-PORT do not provide 

information regarding a fund’s investment strategy and risk factors, the information reported on 

Form N-PORT may complement the other information already available to investors in order to 

allow them to develop a fuller understanding of the fund and its risks. 

We request comment on the proposed public availability of the aggregate liquidity 

classifications funds would report on Form N-PORT, including:

211. Should we, as proposed, require funds to report publicly information regarding 

the aggregate percentage of their portfolio in each of the three proposed liquidity 

classification categories? Should we, as proposed, require that this information be 

reported publicly on a monthly basis and, if not, what factors are unique to liquidity 

information that should result in it being publicized on a different frequency than 

other information on Form N-PORT? Instead of, or in addition to, the percentages of 

a fund’s investments in each of the three proposed liquidity categories, should we 

require additional information to be reported? Is there any additional context, such as 

narrative disclosure, that would also be useful to investors? Should that narrative 

disclosure be located in Form N-PORT or somewhere else (e.g., a fund prospectus, 

shareholder report, or website)?

212. Instead of, or in addition to, aggregate liquidity information, should we require 

position-level liquidity classifications to be reported publicly on Form N-PORT? 

Should we instead require position-level liquidity classifications to be reported 

publicly on a different form, such in a fund’s annual and semi-annual reports? How 

frequently should this information be reported? Would position-level liquidity 

211



reporting improve funds’ liquidity classifications by allowing the public to review 

and scrutinize liquidity classifications? Would position-level liquidity reporting 

improve consistency in classification practices across funds by allowing funds to see 

how other similarly situated funds had classified the same or similar investments? 

Would position-level liquidity reporting improve investor access to or understanding 

of liquidity information, or would this information be difficult for investors to 

synthesize or understand? Would position-level liquidity reporting simplify the 

reporting framework for funds if this disclosure were in lieu of separate aggregate 

presentations? Would changes to the proposal, such as changes to how funds report 

the effect of the collateral they hold against derivatives that are not highly liquid, or 

the effect of liabilities, be necessary if we were to require position-level liquidity 

reporting? Would there be potential negative effects of position-level liquidity 

reporting? For example, would position-level liquidity reporting result in investors 

being able to infer information about a fund or company, such as being able to 

determine that a fund has material nonpublic information about an issuer because the 

fund categorizes the issuer’s securities as illiquid? Would position-level liquidity 

reporting result in funds’ counterparties engaging in predatory trading practices with 

funds, for example by adjusting the prices they bid for certain assets of a fund due to 

granular knowledge of how the fund categorizes the liquidity of its portfolio? 

213. Should we, as proposed, require adjustments to the percentages of funds’ assets in

the proposed liquidity categories to account for certain derivatives transactions? 

Should we instead require information about derivatives transactions to be reported 

separately? Should certain derivatives transactions be treated differently for these 

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purposes, for example by making differing adjustments based on whether a derivative

is exchange-traded, centrally cleared, made with certain categories of counterparty, or

otherwise? Should we require differing adjustments for derivatives transactions 

depending on the purpose, for example whether they are intended to hedge currency 

or interest rate risks associated with one or more specific equity or fixed-income 

investments held by the fund as described in rule 18f-4(c)(4)(i)(B)? Are there any 

changes we should make to aid investor understanding of how funds’ use of 

derivatives affects their liquidity? 

214. We propose to require that if the reported sum of a fund’s investments in each of 

the three categories does not equal 100%, the fund must adjust the percentage of 

assets attributed to the moderately liquid investment category so that the sum of the 

fund’s investments in each category equals 100%. Should we take a different 

approach, such as making the adjustment optional, or permitting a fund to report 

aggregate percentages that do not sum to 100%? Should we permit or require funds to

provide additional information, such as an explanatory note that the totals have been 

adjusted and the amount of the adjustment? Are there other metrics for which we 

should permit or require funds to modify the reported amounts? 

215. Would fund prospectuses and shareholder reports delivered directly to investors 

provide sufficient context for the fund’s aggregate liquidity information that would be

disclosed on Form N-PORT under the proposal? Because Form N-PORT is not 

delivered to investors, would investors who have sought out Form N-PORT 

disclosure in the first instance be more likely to consider the information in the 

context of other publicly available information about the fund? If investors would not 

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have sufficient context when reviewing Form N-PORT, should we address this by 

requiring that funds send their most recent report on Form N-PORT to investors when

they send other communications, such as their periodic reports or prospectus updates?

216. Instead of, or in addition to, including information regarding funds’ aggregate 

liquidity profiles in Form N-PORT, as proposed, should we require that it be included

in other documents, such as funds’ annual and semi-annual shareholder reports? If so,

should the disclosure included in funds’ annual and semi-annual shareholder reports, 

or other documents, differ from what we propose to include in Form N-PORT? For 

example, should any disclosure in funds’ annual and semi-annual shareholder reports,

or other documents be in a different format, such as a pie chart, or also include 

narrative disclosure to allow funds to provide additional context? 

d. Other Proposed Amendments to Form N-PORT

In addition to our proposed amendments to require more timely reporting of information 

and to enhance public transparency of funds’ portfolio holdings and liquidity classifications, we 

are proposing a few additional amendments to Form N-PORT. These additional amendments 

include a new reporting item related to swing pricing, amendments to certain existing items to 

account for the proposal to make monthly Form N-PORT information available to the public, 

other conforming amendments to reflect the proposed amendments to rule 22e-4, and 

amendments to certain entity identifiers. 

In connection with our proposed amendments to swing pricing, we are proposing to 

require enhanced transparency into the frequency and amount of a fund’s swing pricing 

adjustments. Currently, if a fund were to engage in swing pricing, it would only be required to 

report on Form N-CEN if the fund engaged in swing pricing during a given year and, if so, the 

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swing factor upper limit established by the fund.309 We are proposing to remove that reporting 

requirement on Form N-CEN and replace it with a new reporting requirement on Form N-PORT 

that would require information about the number of times the fund applied a swing factor during 

the month and the amount of each swing factor applied.310 To recognize that a swing factor 

adjustment could be positive (when the fund has net purchases) or negative (when the fund has 

net redemptions), we propose to specify that a fund must use a plus sign before a positive swing 

factor and a minus sign before a negative swing factor.311 More frequent and detailed information

about a fund’s use of swing pricing is intended to help the Commission assess the size of the 

price adjustments funds are making during normal and stressed market conditions, as well as 

how often funds apply swing factor adjustments. The public may also benefit from this 

information to help facilitate an understanding of the frequency and size of swing factor 

adjustments.

In addition, we are proposing to amend items that currently require funds to report certain

return and flow information for each of the preceding three months.312 Rather than require 

information for the preceding three months, we are proposing to instead require a fund to report 

that information only for the month that the Form N-PORT report covers.313 The Commission 

currently requires return and flow information for the preceding three months in a single report 

to provide investors access to monthly data for a given quarter, given that investors currently 

309  See Item C.21 of current Form N-CEN.
310  See proposed Item B.11 of Form N-PORT. Funds would be instructed to respond with “N/A” 

when appropriate. 
311  We also propose to add a definition of “swing factor” to Form N-PORT, which would cross 

reference the definition of this term in proposed rule 22c-1(d). See General Instruction E of 
proposed Form N-PORT.

312  See Item B.5 and Item B.6 of current Form N-PORT.
313  See Item B.5 and Item B.6 of proposed Form N-PORT.

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only have access to Form N-PORT reports for the third month of each quarter.314 Monthly data 

for the preceding three months was also intended to avoid a potential investor misperception that 

one month’s returns or flows represented returns or flows for the full quarter.315 Because, under 

our proposal, investors would have access to monthly Form N-PORT reports, we propose to 

amend the period for which a fund must report return and flow information to align with monthly

public reporting.

For similar reasons, we are proposing to amend Part F of Form N-PORT, which currently

requires a fund to attach its complete portfolio holdings for the end of the first and third quarters 

of the fund’s fiscal year, presented in accordance with Regulation S-X, within 60 days after the 

end of the reporting period. We are proposing to require funds to file this disclosure within 60 

days of the end of the reporting period for each month, with the exception of the last month of 

the fund’s second and fourth fiscal quarters, because the latter portfolio holdings information is 

already available in funds’ annual and semi-annual reports.316 That is, we propose that funds 

would be required to file the portfolio disclosure on Part F of Form N-PORT ten times per year, 

instead of the current requirement to file twice per year. When the Commission adopted Part F of

Form N-PORT, it recognized that not all investors may prefer to receive portfolio holdings 

information in a structured XML format, and instead might prefer portfolio holdings schedules 

presented using the form and content specified by Regulation S-X.317 The Commission stated that

314  See Reporting Modernization Adopting Release, supra note 274, at paragraphs accompanying 
nn.225, 232, and 250.

315  See id., at paragraphs accompanying nn.225 and 250.
316  See Part F of proposed Form N-PORT. Currently, Part F of Form N-PORT does not require 

information for the second and fourth quarters of the fund’s fiscal year for the same reason. See 
Item 6 of Form N-CSR and Reporting Modernization Adopting Release, supra note 274, at 
section II.J.

317 Id. at section II.A.2.j.

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requiring funds to attach these portfolio holdings schedules to reports on Form N-PORT would 

provide the Commission, investors, and other potential users with access to funds’ current and 

historical portfolio holdings for those funds’ first and third fiscal quarters, as well as consolidate 

these disclosures in a central location, together with other fund portfolio holdings disclosures in 

reports on Form N-CSR for funds’ second and fourth fiscal quarters.318 In conformance with the 

proposed requirement for funds to file their structured portfolio schedules on a monthly basis, 

and to make the monthly disclosure more useable for investors, we propose to amend Part F of 

Form N-PORT so that investors would be able to access unstructured portfolio schedules 

presented in accordance with Regulation S-X on the same frequency. 

Similarly, we are proposing to amend Part D of Form N-PORT regarding miscellaneous 

securities to align with the proposal to make monthly Form N-PORT reports publicly available. 

Form N-PORT currently contemplates that detailed information about miscellaneous securities, 

which would remain nonpublic, would only be included in reports filed for the last month of 

each fiscal quarter.319 This is because today all information reported on Form N-PORT for the 

first and second months of each quarter is nonpublic, which means there is no need for funds to 

designate any of their investments for those reporting periods as miscellaneous securities.320 

Although our proposed shift from quarterly to monthly public reporting is intended to improve 

public transparency of funds’ portfolio holdings, we continue to believe that treating information 

318  Id. 
319  See Part D of current Form N-PORT. The form permits funds to report as “miscellaneous 

securities” an aggregate amount of portfolio investments that does not exceed 5% of the total 
value of the fund’s portfolio investments, provided that the securities included in this category are
not restricted, have been held for not more than one year prior to the date of the related balance 
sheet, and have not previously been reported by name to the shareholders, or set forth in any 
registration statement, application, or report to shareholders or otherwise made available to the 
public.

320  See Reporting Modernization Adopting Release, supra note 274, at text following n.424.

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related to miscellaneous securities as nonpublic may serve to guard against the premature release

of those securities positions and thus deter front-running and other predatory trading practices, 

and that for this reason public disclosure of miscellaneous securities continues to be neither 

necessary nor appropriate in the public interest or for the protection of investors.321 At the same 

time, it is important for the Commission to receive more detailed information about 

miscellaneous securities holdings so the Commission has a complete record of the portfolio for 

monitoring, analysis, and checking for compliance with Regulation S-X.322 As a result, we are 

proposing to amend Part D of Form N-PORT to remove the language that limits reporting of 

nonpublic information about individual miscellaneous securities holdings to reports filed for the 

last month of each fiscal quarter. The proposed amendment would allow funds in their monthly 

Form N-PORT reports to report publicly the aggregate amount of miscellaneous securities held 

in Part C, while requiring funds to provide more detailed information in Part D about the 

individual holdings in the miscellaneous securities category to the Commission on a nonpublic 

basis.

We are also proposing amendments to Form N-PORT to reflect the proposed 

amendments to rule 22e-4. For example, because we are proposing to remove the concept of a 

reasonably anticipated trade size from rule 22e-4, we are proposing to replace references to this 

concept in an instruction related to classifying portions of a single holding in multiple liquidity 

categories with references to the stressed trade size concept.323 We are also proposing to revise 

the liquidity classifications a fund will report to reflect the revisions to the liquidity categories in 

321  See id. at n.421 and accompanying text. 
322  See Reporting Modernization Adopting Release, supra note 274, at section II.A.2.h (requiring 

that information about miscellaneous securities be reported to the Commission on a nonpublic 
basis).  

323  See Instructions to Item C.7 in proposed Form N-PORT.

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rule 22e-4.324 Because we are proposing improvements to the way that a fund treats collateral for 

certain derivatives transactions when calculating whether it holds sufficient assets to meet its 

highly liquid investment minimum or holds an amount of illiquid assets that exceeds the 15% 

limit, we also are proposing to revise the information open-end funds must report about the 

collateral posted as margin or collateral in connection with certain derivatives transactions.325 We

are similarly proposing to revise the information a fund would report about the fund’s highly 

liquid investments to reflect that not all highly liquid investments will count toward the fund’s 

highly liquid investment minimum.326 In addition to reflecting changes to rule 22e-4, these 

changes are also designed to provide additional information to Commission staff regarding a 

fund’s level of highly liquid assets and illiquid assets and the effect of derivatives transactions on

that amount. 

In addition, we propose to amend certain items and definitions related to entity identifiers

in the form. Specifically, we propose to amend the definition of LEI in the form to remove 

language providing that, in the case of a financial institution that does not have an assigned LEI, 

a fund should instead disclose the RSSD ID assigned by the National Information Center of the 

Board of Governors of the Federal Reserve System, if any.327 Instead of classifying an RSSD ID 

as an LEI for these purposes, we propose to provide separate line items where a fund would 

324  See Item B.8 in proposed Form N-PORT; General Instruction E (Definitions) in proposed Form 
N-PORT.

325  See Item B.8 in proposed Form N-PORT. The proposed revisions would require a fund to report 
the value of its highly liquid investments that are assets that are posted as margin or collateral in 
connection with moderately liquid or illiquid investments, and would require a fund to report the 
value of any margin or collateral posted in connection with an illiquid derivatives transaction, 
where the fund would receive the value of the margin or collateral if it exited the derivatives 
transaction. 

326  See Item B.7.b in proposed Form N-PORT. 
327  See General Instruction E of proposed Form N-PORT.

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report an RSSD ID, if available, in the event that an LEI is not available for an entity.328 This 

change is designed to improve consistency and comparability of information funds report about 

the instruments they hold, including issuers of those instruments and counterparties to certain 

transactions. 

217. Should we require funds to report the number of times the fund applied a swing 

factor and each swing factor applied, as proposed? Should we require the median, 

highest, and lowest (non-zero) swing factor applied for each reporting period on Form

N-PORT, rather than require disclosure of each swing factor applied? 

218. Should we require funds to provide additional information about swing pricing in 

Form N-PORT reports, such as the swing pricing administrator’s determination to use

a lower market impact threshold or lower inflow swing threshold, if applicable? 

Should we separately require funds to disclose information about market impact 

factors, such as how many times a market impact factor was included in the swing 

factor each month and the size of those market impact factors (e.g., either the size of 

any market impact factor applied, or the median, highest, and lowest (non-zero) 

amount)? Should we require funds to provide information about their imposition of 

redemption fees under rule 22c-2, which funds can use to recoup some of the direct 

and indirect costs incurred as a result of short-term trading strategies, such as market 

timing? If so, should we require funds to disclose in reports on Form N-PORT the 

number of times they imposed redemption fees during the period and the amount of 

the fees? Should funds be required to itemize each fee charged, disclose the total 

328  See Items B.4, C.1, C.10, and C.11 of proposed Form N-PORT.

220amount charged during the period and the average fee charged, or some other 

presentation? 

219. Instead of, or in addition to, requiring information about swing pricing on Form 

N-PORT, should we require funds to provide information about their use of swing 

pricing in other locations? For example, would investors find this information more 

accessible if it were on fund websites, in registration statements, or in shareholder 

reports?

220. Should we require funds to provide return and flow information only for a single 

month, as proposed, or should we continue to require funds to provide return and flow

information for the preceding three months? Even though investors would have 

access to monthly reports on Form N-PORT, is it helpful to have return or flow 

information for previous months in a single report to have a readily available point of 

comparison?

221. Should we amend Form N-PORT to continue to maintain the confidentiality of 

information about a fund’s miscellaneous securities for each reporting period, as 

proposed? Are there other conforming amendments we should make to align Form N-

PORT reporting requirements with the proposed changes to the frequency funds must 

file these reports and the timeline for filing and public availability?

222. Should we amend Form N-PORT to require a fund to attach its complete portfolio

holdings presented in accordance with Regulation S-X within 60 days after the end of

each month except for the last month of the fund’s second and fourth fiscal quarters, 

as proposed? Should we instead require a fund to file this information on a different 

frequency, such as every month, without exception? Should we maintain the current 

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filing schedule? Should we require funds to attach this information within a different 

timeframe, such as no later than 45 days or 75 days after the end of the reporting 

period? If we make changes to other aspects of the proposal, such as changes to the 

frequency funds file reports on Form N-PORT, the delay between the end of the 

reporting period and filing, or the time at which filings are made public, should we 

also make conforming changes to Part F? 

223. Are our proposed amendments to remove references to the concept of a 

reasonably anticipated trade size in Form N-PORT and replace them with references 

to the stressed trade size effective? Are there other conforming amendments we 

should make to align Form N-PORT with the liquidity rule amendments?

224. Should we, as proposed, amend Form N-PORT to require funds to identify the 

value of margin or collateral the fund has posted as margin or collateral in connection

with an illiquid derivatives transaction in order to provide a complete picture of the 

amount of illiquid investments for purposes of the liquidity rule’s 15% limit?

225. As proposed, should we amend the definition of LEI in the form and provide a 

separate item for providing an RSSD ID as an identifier, as applicable?

2. Amendments to Form N-CEN

We are proposing amendments to Form N-CEN to identify and provide certain 

information about service providers a fund uses to fulfill the requirements of rule 22e-4. The 

amendments would require a fund to: (1) name each liquidity service provider; (2) provide 

identifying information, including the legal entity identifier and location, for each liquidity 

service provider; (3) identify if the liquidity service provider is affiliated with the fund or its 

investment adviser; (4) identify the asset classes for which that liquidity service provider 

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provided classifications; and (5) indicate whether the service provider was hired or terminated 

during the reporting period. This information would allow the Commission and other participants

to track certain liquidity risk management practices.329 As liquidity classification services have 

become more widely used, the proposal would require information about whether and which 

liquidity service providers are used, for what purpose, and for what period. Among other things, 

this information would help us better understand potential trends or outliers in funds’ liquidity 

classifications reported on Form N-PORT; for example, by analyzing classifications trends of 

specific vendors, we might distinguish patterns in how classifications might differ due to vendor 

models or data.

As described above, we also propose to remove the current disclosure in Item C.21 of 

Form N-CEN and replace it with a new reporting requirement on Form N-PORT to provide 

enhanced transparency into the frequency and amount of a fund’s swing pricing adjustments.330 

In addition, consistent with our proposed amendments to the definition of LEI in Form N-PORT,

we are proposing to make the same changes in Form N-CEN to separate the concepts of LEIs 

and RSSD IDs.331 

We request comment on the proposed amendments to Form N-CEN:

226. Would the proposed reporting on liquidity classification service providers assist 

investors and funds in better understanding how liquidity risk is managed at a fund? 

Should any other information be provided about the liquidity classification service 

provider?

329  See Liquidity Rule Adopting Release, supra note 8, at n.973.
330  Item C.21 of Form N-CEN is proposed to be revised to require disclosure on liquidity 

classification services, as described above.
331  See Items B.16, B.17, C.5, C.6, C.9, C.10, C.11, C.12, C.13, C.14, C.15, C.16, C.17, D.12, D.13, 

D.14, E.2, F.1, F.2, F.4, and Instructions to Item G.1 of proposed Form N-CEN.

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227. Should we require any information about a fund’s use of swing pricing on Form 

N-CEN? How would this information relate to the information we propose to require 

on Form N-PORT?

228. As proposed, should we amend Form N-CEN to separate the concepts of LEI and 

RSSD ID? As proposed, should funds be required to provide an RSSD ID, if 

available, when an LEI is not available?

F. Technical and Conforming Amendments 

In September 2019, the Commission adopted new rule 6c-11 to allow ETFs that satisfy 

certain conditions to operate without obtaining an exemptive order from the Commission.332 We 

are proposing to make a technical amendment to the definition of ETF in rules 22e-4 and 22c-1, 

as well as in Forms N-CEN and N-PORT, as a result of this rulemaking. Specifically, the 

proposed amendments would replace language in each definition that refers to “an exemptive 

rule adopted by the Commission” with a direct reference to rule 6c-11.333

We are also proposing to make a conforming amendment to rule 31a-2. Specifically, this 

proposed amendment to the recordkeeping rule would replace the reference to the current swing 

pricing provisions in rule 22c-1(a)(3) with a reference to the proposed swing pricing provisions 

in rule 22c-1(b).334

G. Exemptive Order Rescission and Withdrawal of Commission Staff 
Statements

In light of the scope of our proposed amendments to the liquidity rule, and pursuant to 

our authority under the Act to amend or rescind our orders when necessary or appropriate to the 

332  See ETF Release, supra note 289.
333  See proposed rule 22e-4(a) and proposed rule 22c-1(d); General Instruction E of proposed Form 

N-CEN and General Instruction E of proposed Form N-PORT.
334  See proposed rule 31a-2(a)(2).

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exercise of the powers conferred elsewhere in the Investment Company Act, we are proposing to 

rescind an exemptive order that relates to rule 22e-4.335 As this order’s representations and 

conditions, and the relief provided, are predicated on rule 22e-4 in its current form, the proposed 

amendments, if adopted, would render the order moot, superseded, and inconsistent with the 

final rule amendments. In addition, staff in the Division of Investment Management is reviewing 

its no-action letters and other statements addressing compliance with rules 22e-4 and 22c-1 to 

determine which letters and other staff statements, or portions thereof, should be withdrawn in 

connection with any adoption of this proposal. Upon the adoption of any final rule amendments, 

some of these letters and other staff statements, or portions thereof, would be moot, superseded, 

or otherwise inconsistent with the final rule amendments and, therefore, would be withdrawn. 

The staff review would include, but would not necessarily be limited to, the staff no-action 

letters and other staff statements listed below: 

 Investment Company Liquidity Risk Management Programs Frequently Asked 

Questions (April 10, 2019);

 Reflow, SEC Staff No-Action Letter (July 15, 2002);

 Charles Schwab & Co., Inc., SEC Staff No-Action Letter (July 7, 1997);

 Investment Company Institute, SEC Staff No-Action Letter (Feb. 9, 1973);

 United Benefit, SEC Staff No-Action Letter (July 13, 1971);

 Investment Company Institute, SEC Staff No-Action Letter (Mar. 24, 1970); and

 Investment Companies: Share Pricing: SEC Staff Views, Investment Company Act 

Release No. 5569 [34 FR 383 (Dec. 27, 1968)].

335  See J.P. Morgan Investment Management Inc., et al., Investment Company Act Release No. 
34180 (Jan. 21, 2021). See also section 38(a) of the Act, 15 U.S.C. 80a-37(a)

225



Additionally, the staff statements, or portions thereof, may be withdrawn following the 

relevant underlying transition period discussed in section II.H below, if adopted, as determined 

appropriate in connection with the staff’s review of those staff statements.

We request comment on the proposed rescission or withdraw of past Commission or staff

statements, and specifically on the following items:

229. Are there additional letters or other statements, or portions thereof, that should be 

withdrawn or rescinded? If so, commenters should identify the letter or statements, 

state why it is relevant to the proposed rule, how it or any specific portion thereof 

should be treated, and the reason.

230. If the amendments to the liquidity rule are adopted, are there any questions and 

responses in the staff FAQs that would still be relevant and helpful to retain?336

H. Transition Periods 

We propose to provide a transition period after the effective date of the proposed 

amendments to give affected funds sufficient time to comply with any of the proposed changes 

and associated disclosure and reporting requirements, if adopted, as described below. Based on 

our experience, we believe the proposed compliance dates would provide an appropriate amount 

of time for funds to comply with the proposed rules, if adopted.

 Twenty-Four-Month Compliance Date. We propose that 24 months after the effective 

date of the amendments, all registered open-end management investment companies, 

except for money market funds and exchange-traded funds, must comply with the 

proposed swing pricing requirement in rule 22c-1, as well as the swing pricing 

disclosures applicable to these funds in the proposed amendments to Forms N-PORT and 

336  See Liquidity FAQs, supra note 79.

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N-1A.337 We also propose that 24 months after the effective date of the amendments, 

funds, transfer agents, registered clearing agencies, and intermediaries must comply with 

the proposed “hard close” requirement in rule 22c-1, and funds must comply with related 

disclosure requirements we propose to require in Form N-1A.338

 Twelve-Month Compliance Date. The proposed compliance period for all other aspects of

the proposal is 12 months after the effective date of the amendments, if adopted, and 

includes the following:

o The proposed amendments to rule 22e-4, which include: (1) amending the rule’s 

liquidity categories, including reducing the number of liquidity categories from 

four to three; (2) providing specific and consistent standards that funds would use 

to classify investments, including by setting a stressed trade size and defining 

when a sale or disposition would significantly change the market value of an 

investment; and (3) requiring daily classifications;339 and

o The proposed amendments to Forms N-PORT and N-CEN, except the swing 

pricing-related disclosure on Form N-PORT.

We request comment on the proposed transition dates, and specifically on the following 

items:

231. Are the proposed compliance dates appropriate? If not, why not? Is a longer or 

shorter period necessary to allow affected funds to comply with one or more of these 

particular amendments, if adopted? If so, what would be a recommended compliance 

337  See proposed rule 22c-1(b); Item B.11 of proposed Form N-PORT; and Item 6(d) of proposed 
Form N-1A.

338  See proposed rule 22c-1(a); Item 11(a) of proposed Form N-1A.
339  See proposed rule 22e-4.

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date? Should we provide a longer compliance date for smaller funds, and if so what 

should this be (for example, 36 months for compliance with the swing pricing 

requirements, and 18 months for the other aspects of the proposal)? How should we 

define a “smaller fund” for this purpose? For example, should a smaller fund be a 

fund that, together with other investment companies in the same group of related 

investment companies, has net assets of less than $1 billion as of the end of its most 

recent fiscal year?

232. In particular, is a longer period necessary for funds to comply with the proposed 

removal of the less liquid investment category and the amendment to the scope of 

illiquid investments? How long might it take for funds and other parties to reduce the 

settlement times for bank loans and other investments that funds currently classify as 

less liquid investments? Is a longer period necessary for retirement plan 

recordkeepers or other intermediaries to make necessary changes to their systems?

233. Should the compliance dates be staggered for certain provisions? For example, 

should the compliance date for the hard close occur prior to the compliance date for 

swing pricing?

III. ECONOMIC ANALYSIS 

A. Introduction 

The Commission is mindful of the economic effects, including the benefits and costs, of 

the proposed amendments. Section 2(c) of the Act, Section 202(c) of the Advisers Act, and 

Section 3(f) of the Exchange Act direct the Commission, when engaging in rulemaking where it 

is required to consider or determine whether an action is necessary or appropriate in the public 

interest, to consider, in addition to the protection of investors, whether the action will promote 

228



efficiency, competition, and capital formation. In addition, Section 23(a)(2) of the Exchange Act,

requires the Commission, when making rules under the Exchange Act, to consider among other 

matters the impact that the rules would have on competition, and prohibits the Commission from 

adopting any rule that would impose a burden on competition not necessary or appropriate in 

furtherance of the purposes of the Exchange Act. The analysis below addresses the likely 

economic effects of the proposed amendments, including the anticipated benefits and costs of the

amendments and their likely effects on efficiency, competition, and capital formation. The 

Commission also discusses the potential economic effects of certain alternatives to the 

approaches taken in this proposal. 

Open-end funds serve as intermediaries between investors seeking to allocate capital and 

issuers seeking to raise capital by pooling a portfolio of investments and selling the shares of this

portfolio to investors. A prominent feature of open-end funds is the mismatch between the 

immediate liquidity funds provide to their shareholders340 and the potential illiquidity of fund 

portfolio investments (“liquidity mismatch”). In order to pay net redemptions or invest proceeds 

from net subscriptions, a fund generally incurs trading costs, which can, among other things, take

the form of bid-ask spreads, commissions, markups, markdowns, or market impact (the tendency

of large trades to shift prices in the market). Therefore, the liquidity mismatch can lead to non-

negligible trading costs associated with selling the fund’s less liquid portfolio investments in 

order to meet investor redemptions or buying portfolio investments in order to accommodate 

investor subscriptions.341 

340  Section 22(e) of the Act establishes a shareholder right of prompt redemption in open-end funds 
by requiring such funds to make payments on shareholder redemption requests within seven days 
of receiving the request.

341  Unless otherwise specified, we use the term “less liquid” in this section to refer to investments 
that are on the lower end of the liquidity spectrum, and not solely investments that are classified 
as “less liquid investments” under the current rule 22e-4.

229



As such, the liquidity mismatch and associated trading costs in the open-end fund sector 

present several potential problems, including: (1) funds may not be able to meet the statutory 

obligation to satisfy investor redemptions within seven days without incurring significant trading

costs; (2) fund investors are subject to the risk of dilution; (3) fund investors’ anticipation that 

they may be diluted may create a first-mover advantage that incentivizes them to redeem their 

shares before other investors do; and (4) fire sales that can be provoked by an increased pressure 

to meet redemptions could further disrupt already stressed markets.342 

Market stress events, such as the one that occurred during March 2020, may exacerbate 

these issues.343 For example, during stress events investors may rebalance away from some 

investments into others for many reasons, including but not limited to, their general risk 

tolerance, legal or investment policy restrictions, or short-term cash needs. To the extent that 

such rebalancing activity is correlated across investors of the same fund or is correlated with 

deterioration in the liquidity of the fund’s underlying assets, trading costs for the funds’ 

underlying investments may increase and non-transacting fund shareholders may become 

exposed to increased dilution risk, which may lower future fund returns. In addition, the risk of 

investor dilution associated with the illiquidity of funds’ underlying investments may create a 

first-mover advantage that could lead to increased mutual fund redemptions.344

Fund managers may not fully incorporate potential future fund shareholder dilution into 

their investment decisions for several reasons. First, potentially misaligned incentives between 

fund shareholders and fund managers may cause some fund managers to hold portfolios with 

liquidity levels that could be insufficient to meet redemptions without imposing significant 

342  See infra section III.B.3 for additional discussion of these issues.
343  See supra section I.B for a detailed discussion of the Mar. 2020 market events.
344  See infra section III.B.3 for additional discussion.

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dilution costs on non-transacting fund investors, especially during periods of market stress. 

Second, fund investors may not have granular and timely enough information to adequately 

assess the extent of the liquidity risk they are taking on and, therefore, cannot discipline the 

extent to which a fund manager exposes the fund’s shareholders to dilution risk. Finally, to the 

extent that first-mover advantage can lead to anticipatory mutual fund redemptions that could 

impose costs on other market participants,345 fund managers do not necessarily have an incentive 

to factor such costs into their investment decisions.

In light of these issues and our associated regulatory experience,346 the proposal seeks to 

further address liquidity externalities in the open-end fund sector. In particular, we expect the 

proposal to: (1) enhance open-end funds’ liquidity; (2) improve funds’ anti-dilution and 

resilience mechanisms for any given level of liquidity; and (3) increase the transparency of open-

end funds’ liquidity management practices. Together, the proposed amendments may mitigate 

liquidity externalities in the open-end fund sector by improving the ability of funds to meet 

redemptions without imposing significant trading costs on investors. This, in turn, may reduce 

the first-mover advantage associated with the dilution from trading costs and curtail run risk in 

open-end funds,347 which is consistent with recent analyses discussing how more robust liquidity 

345  See e.g., Bing Zhu & René-Ojas Woltering, Is Fund Performance Driven by Flows into 
Connected Funds? Spillover Effects in the Mutual Fund Industry, 45 J. ECON. & FIN. 544, no. 9 
(2021). See infra section III.B.3 for additional discussion.

346  See supra sections I and II for the discussion of regulatory experience.
347  We recognize that factors other than dilution related to trading costs – such as dilution from 

falling asset prices (market risk) and from potential differences between prices of underlying 
investments used for a fund’s net asset value calculation and execution prices for these 
investments – may also contribute to the first-mover advantage in redemptions and potential runs 
in open-end funds. These and other considerations are discussed in greater detail in section III.B.3
below.

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management may mitigate this risk.348 The proposed amendments may also reduce the likelihood 

or the extent of future government interventions.349

The proposed amendments to the liquidity risk management (“LRM”) program350 are 

designed to support funds’ ability to meet redemptions without significant trading costs, such as 

larger haircuts associated with less liquid investments that open-end funds may hold in their 

portfolios. Although less liquid investments generally offer a higher return, the trading costs 

associated with selling these assets during periods of increased redemptions may offset this risk 

premium, potentially resulting in a lower overall return for fund investors.351 Therefore, a more 

robust liquidity management program that requires funds to hold more highly liquid investments 

may benefit fund investors in the longer term. In addition, requiring funds to hold a greater share 

of highly liquid investments may help limit the price impact that funds impose on underlying 

markets when they sell less liquid assets to meet investor redemptions, especially during periods 

of market stress.352 

348  See Nicolas Valderrama, Can the Liquidity Rule Keep Mutual Funds Afloat? Contextualizing the
Collapse of Third Avenue Management Focused Credit Fund, 70 CATH. U. L. REV. 317 (2021). 
See also Landon Thomas Jr., A New Focus on Liquidity After a Fund's Collapse, N.Y. TIMES, Jan.
11, 2016, available at https://www.nytimes.com/2016/01/12/business/dealbook/a-new-
focus-on-liquidity-after-a-funds-collapse.html.

349  See e.g., Antonio Falato et. al., Financial Fragility in the COVID-19 Crisis: The Case of 
Investment Funds in Corporate Bond Markets, 123 J. MONETARY ECON. 35 (2021). The authors 
discuss how the Federal Reserve bond purchase program helped to reverse mutual funds’ 
outflows during the Mar. 2020 period.

350  See supra section II.A.
351  See e.g., Mikhail Simutin, Cash Holdings and Mutual Fund Performance, 18 REV. FIN. 1425, no.

4 (2014), See also Aleksandra Rźeznik, Skilled Active Liquidity Management: Evidence from 
Shocks to Fund Flows, (Jul. 29, 2021), available at SSRN: https://ssrn.com/abstract=4106412 
(retrieved from SSRN Elsevier database).

352  See e.g., Sergey Chernenko & Adi Sunderam, Liquidity Transformation in Asset Management: 
Evidence From the Cash Holdings of Mutual Funds (National Bureau of Economic Research 
(NBER) working paper no. w22391, Jul. 11, 2016), available at 
https://ssrn.com/abstract=2807702.  

232

https://ssrn.com/abstract=2807702
https://ssrn.com/abstract=4106412
https://www.nytimes.com/2016/01/12/business/dealbook/a-new-focus-on-liquidity-after-a-funds-collapse.html
https://www.nytimes.com/2016/01/12/business/dealbook/a-new-focus-on-liquidity-after-a-funds-collapse.html


The goal of the proposed swing pricing and hard close requirements is to reduce the 

dilution of non-transacting fund shareholders by charging redeeming and subscribing investors 

the trading costs they impose on a fund,353 which may mitigate the first-mover advantage 

associated with the dilution from trading costs. Although swing pricing has not yet been 

implemented by any fund in the U.S., usage of swing pricing in other jurisdictions has been 

shown in certain cases to mitigate redemption pressure during periods of elevated market 

volatility.354 We recognize that swing pricing may not always fully reduce the potential first-

mover advantage associated with increasing trading costs and discourage associated investor 

redemptions.355 However, even in these cases, we believe that investors would nevertheless 

benefit from the proposed requirement because it would reduce the dilution of non-transacting 

fund shareholders, regardless of the amount of trading activity by redeeming or subscribing 

investors. 

Coupled with the proposed amendments to the LRM program and the proposed swing 

pricing and hard close requirements, the proposed reporting and public disclosure requirements 

are aimed at promoting transparency and facilitating investors’ understanding of liquidity risk in 

the open-end fund sector, as well as promoting transparency regarding funds’ application of 

353  See supra sections II.B and II.C.
354  See e.g., CSSF Paper, supra note 61; Dunghong Jin et. al., Swing Pricing and Fragility in Open-

End Mutual Funds 35 REV. FIN. STUD. (2022); Benjamin King & James Semark, Reducing 
Liquidity Mismatch in Open-Ended Funds: A Cost-Benefit Analysis (Bank of England working 
paper no. 975, Apr. 22, 2022), available at https://ssrn.com/abstract=4106646.    

355  See CSSF Paper, supra note 61; Claessens & Lewrick, supra note 61; ESMA, Recommendation 
of the European Systemic Risk Board (ESRB) on Liquidity Risk in Investment Funds (Nov. 12, 
2020), available at https://www.esma.europa.eu/document/recommendation-european-systemic-
risk-board-esrb-liquidity-risk-in-investment-funds.

233

https://ssrn.com/abstract=4106646


liquidity management tools.356 As a result, the proposed public disclosure requirements may aid 

investors in making more efficient portfolio allocation decisions.

Many of the benefits and costs discussed below are difficult to quantify. For example, we

lack data that would help us predict how funds may adjust the liquidity of their portfolios in 

response to the proposed liquidity rule amendments; the extent to which investors may reduce 

their holdings in open-end funds as a result of the proposed swing pricing requirement and other 

amendments; the extent to which investors may move capital from mutual funds to other 

investment vehicles, such as closed-end funds, ETFs, or CITs; and the reduction in dilution costs 

to investors in open-end funds as a result of the proposed amendments (which would depend on 

investor subscription and redemption activity and the liquidity risk of underlying fund 

investments). Form N-PORT data is not sufficiently granular to allow such quantification, and 

many of these effects will depend on how affected funds and investors would react to the 

proposed amendments. While we have attempted to quantify economic effects where possible, 

much of the discussion of economic effects is qualitative in nature. We seek comment on all 

aspects of the economic analysis, especially any data or information that would enable a 

quantification of the proposal’s economic effects.

B. Baseline

1. Regulatory Baseline

a. Liquidity Risk Management Program

Under the current rule,357 open-end funds classify each portfolio investment into one of 

the four defined liquidity categories, based on the number of days within which a fund 

reasonably expects the investment to be convertible to cash or sold or disposed of, without 

356  See supra section II.E.
357  See Liquidity Rule Adopting Release, supra note 8.

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significantly changing the investment’s market value. The four categories are: (1) “highly liquid 

investments,” which are cash and investments convertible into cash in current market conditions 

in three business days or less; (2) “moderately liquid investments,” which are convertible into 

cash in current market conditions in more than three calendar days but in seven calendar days or 

less; (3) “less liquid investments,” which are those the fund reasonably expects to be able to sell 

or dispose of in current market conditions in seven calendar days or less, but where the sale or 

disposition is reasonably expected to settle in more than seven calendar days; and (4) “illiquid 

investments,” which cannot be sold or disposed of in current market conditions in seven calendar

days or less. 

A fund may generally classify and review its investments by asset class unless the fund or

adviser has information about any market, trading, and investment-specific considerations that it 

reasonably expects to affect significantly the liquidity characteristics of an investment compared 

to the fund’s other portfolio holdings within that asset class.358 Among other requirements, open-

end funds generally are required to determine a minimum amount of highly liquid investments 

they should maintain. In addition, all open-end funds are prohibited from acquiring any illiquid 

investment if, immediately after the acquisition, the funds would have invested more than 15% 

of their net assets in illiquid assets; however, an investment in a liability position, such as a 

derivative, is not subject to this limitation. Under the current rule, a fund is required to identify 

the percentage of the fund’s highly liquid investments that it has posted as margin or collateral in

connection with derivatives transactions that the fund has classified as less than highly liquid.359

358  See rule 22e-4(b)(1)(ii)(A).
359  See rule 22e-4(b)(1)(ii)(C). In addition, funds currently are also required to exclude highly liquid 

assets that are posted as margin or collateral in connection with non-highly liquid derivatives 
transactions when determining whether the fund primarily holds highly liquid assets. See rule 
22e-4(b)(1)(iii)(B). 

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In classifying its investments under the current rule, a fund analyzes how quickly it can 

sell an investment without the sale “significantly” changing the investment’s market value. 

Funds are required to determine two key inputs for this analysis. The first is the fund’s 

reasonably anticipated trade size.360 Reasonably anticipated trade size interacts with a fund’s 

assessment of future redemption/subscription activity: for example, if the fund would anticipate 

selling a large position relative to trading volume, the sale may depress the price. The second is 

the determination of what constitutes a “significant” change in value. In both cases, the rule 

allows funds to make their own reasonable assumptions.

Rule 22e-4 currently requires that funds review their liquidity classifications at least 

monthly in connection with reporting on Form N-PORT, and more frequently if changes in 

relevant market, trading, and investment-specific considerations are reasonably expected to 

materially affect one or more of their investments’ classifications.361 The current rule also 

requires a fund to monitor and take timely actions related to the liquidity of its investments, 

including changes to its liquidity profile. Specifically, the rule prohibits a fund from acquiring 

any illiquid investment, if immediately after the acquisition, the fund would have invested more 

than 15% of its net assets in illiquid investments that are assets.362 In addition, the rule requires a 

fund to provide timely notice to its board, and to the Commission on Form N-RN, if the fund 

exceeds the 15% limit on illiquid investments, or if there is a shortfall of the fund’s highly liquid 

investments below its highly liquid investment minimum for seven consecutive calendar days.363

360  Funds’ current practices in classifying the liquidity of their investments and otherwise complying
with rule 22e-4 may take consideration of the staff’s Liquidity FAQs. See, e.g., supra note 79.

361  See rule 22e-4(b)(1)(ii).
362  See rule 22e-4(b)(1)(iv).
363  See rule 22e-4(b)(1)(iv)(A) and rule 22e-4(b)(1)(iii)(A)(3); Form N-RN Parts B through D.

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Rule 22e-4 currently requires a fund to determine a highly liquid investment minimum if 

it does not primarily hold investments that are highly liquid. Funds that are subject to the highly 

liquid investment minimum requirement must determine a highly liquid investment minimum 

considering several factors, review this minimum at least annually, and adopt policies and 

procedures to respond to a shortfall of the fund’s highly liquid investments below the 

minimum.364 The current exclusion for funds that invest primarily in highly liquid investments 

provides some discretion to determine the level of highly liquid investments that constitutes 

primarily.

b. Swing Pricing

Currently, the rule allows open-end funds that are not excluded funds to use swing 

pricing. The required swing pricing policies and procedures provide that funds must adjust their 

NAV per share by a single swing factor or multiple factors that may vary based on the swing 

threshold(s) crossed once the level of net purchases into or net redemptions from such fund has 

exceeded the applicable swing threshold for the fund. The current rule permits a fund to 

determine its own swing threshold for net purchases and net redemptions, based on a 

consideration of certain factors the rule identifies.365 The fund’s swing factor is permitted to take 

into account only the near-term costs expected to be incurred by the fund as a result of net 

purchases or net redemptions on that day and may not exceed an upper limit of 2% of the day’s 

NAV per share. 

The determination of whether the fund’s level of net purchases or net redemptions has 

exceeded the applicable swing threshold is permitted to be made based on receipt of sufficient 

364  See rule 22e-4(b)(1)(iii). 
365  See supra note 176.

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information about the fund investors’ daily purchase and redemption activity to allow the fund to

reasonably estimate whether it has crossed the swing threshold with high confidence. This 

investor flow information may consist of individual, aggregated, or netted orders, and may 

include reasonable estimates where necessary. 

In addition, rule 2a-4 requires, when determining the NAV, that funds reflect changes in 

holdings of portfolio securities and changes in the number of outstanding shares resulting from 

distributions, redemptions, and repurchases no later than the first business day following the 

trade date. This calculation method provides funds with additional time and flexibility to 

incorporate last-minute portfolio transactions into their NAV calculations on the business day 

following the trade date, rather than on the trade date.366 

c. Reporting Requirements

Registered management investment companies and ETFs organized as unit investment 

trusts are required to file periodic reports on Form N-PORT about their portfolios and each of 

their portfolio holdings as of month-end.367 Funds file these reports on a quarterly basis, with 

each report due 60 days after the end of a fund’s fiscal quarter. Only information about the 

fund’s holdings for the third month of each fiscal quarter is available to the public. In addition to 

the publicly available information on Form N-PORT, investors also have access to information 

about the holdings of ETFs, including actively managed ETFs, which generally are required to 

366  See Adoption of rule 2a-4 Defining the Term “Current Net Asset Value” in Reference to 
Redeemable Securities Issued by a Registered Investment Company, Investment Company Act 
Release No. 4105 (Dec. 22, 1964) [29 FR 19100 (Dec. 30, 1964)].

367  For purposes of discussions of filing requirements on Form N-PORT, the term “fund” refers to 
registrants that currently are required to report on Form N-PORT, including open-end funds, 
registered closed-end funds, and ETFs registered as unit investment trusts, and excluding money 
market funds and small business investment companies.

238



provide transparency into their portfolio holdings on a daily basis.368 Many funds also provide 

monthly information about their portfolio holdings to third party data aggregators, generally with

a lag of 30 to 90 days, which in turn make them available to the public for a fee. 

Registered investment companies other than face amount certificate companies also 

report census-type information to the Commission annually on Form N-CEN, including 

information related to fund service providers and whether a fund engaged in swing pricing 

during the fiscal year and if so, what was the upper limit for the swing factor. The current 

definition of LEI in Forms N-PORT and N-CEN provides that, in the case where a financial 

institution does not have an assigned LEI, a fund should instead disclose the RSSD ID assigned 

by the National Information Center of the Board of Governors of the Federal Reserve System, if 

any.369

Item 6 of Form N-1A also requires disclosure of a fund’s use of swing pricing if the fund 

chooses to use swing pricing. Specifically, these provisions require that a fund that uses swing 

pricing explains the fund’s use of swing pricing, including its meaning, the circumstances under 

which the fund will use it, and the effects of swing pricing on the fund and investors, as well as 

the upper limit the fund has set on the swing factor. Open-end funds are also required to file 

Form N-RN with the Commission if more than 15% of the registrant’s net assets are, or become, 

illiquid investments as defined in rule 22e-4 and if a registrant’s holdings in assets that are highly

liquid investments fall below its highly liquid investment minimum for more than 7 consecutive 

calendar days. The form is required to be filed within one business day of the occurrence of these

events.

368  See supra note 289. 
369  See General Instruction E of proposed Form N-PORT and Instructions to Item G.1 of the Form 

N-CEN.

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2. Overview of Certain Industry Order Management Practices

Mutual fund orders can be submitted to funds directly or via an intermediary. An order 

will be executed at a given day’s NAV if an intermediary—rather than solely the fund, its 

designated transfer agent, or a registered securities clearing agency—receives the order by the 

fund’s pricing time, typically 4 p.m. ET, unless an intermediary specifically established an 

earlier cut-off time for investor orders. In particular, a financial intermediary currently can 

submit an order that it received before 4 p.m. ET to a designated party after 4 p.m. ET for 

execution at that day’s NAV.370 A fund discloses in its prospectus its pricing time and that a 

purchase or redemption is effected at a price that is based on the next NAV calculation after the 

order is placed.371 After a fund finalizes its NAV calculation for a day, it disseminates the NAV 

to pricing vendors, media, and intermediaries, typically between 6 p.m. ET and 8 p.m. ET. We 

understand that certain intermediaries use order-processing systems that require knowledge of a 

fund’s NAV. In addition, certain investor orders may also require knowledge of a fund’s NAV 

before the order is sent to the fund.372 As a result, a fund does not receive certain orders until 

after the fund distributed its NAV. For example, most retirement plan recordkeepers currently do

not process orders from investors until they receive a fund’s NAV and funds typically receive 

orders from these intermediaries the next morning.

We understand that for orders submitted to funds by an intermediary, an intermediary 

may net orders to varying degrees before their submission to a fund, a practice known as 

omnibus accounting. In addition, intermediaries may submit one or more netted orders at a single

time, or may submit netted orders in batches at different times. For example, if an intermediary 

370  We note that this practice differs from other jurisdictions. See supra note 225.
371  See Item 11(a) of Form N-1A.
372  See supra section II.C.3.d.

240does not submit orders until after it has received the fund’s final price, it may submit a single 

order to the fund that reflects the net dollar amount or the number of fund shares to be purchased 

or redeemed across all investors that submitted orders through that intermediary. If an 

intermediary does not wait until the fund’s final price is received, it may submit two orders: one 

order expressed in the net number of shares purchased or sold and one order expressed in the net 

amount of dollars purchased or sold. Other intermediaries may aggregate orders at finer levels, 

providing aggregate purchase and sale figures separately. While netting practices vary, they may 

generally save intermediaries money, to the extent that intermediaries incur per transaction costs 

when submitting orders to a fund. 

Intermediaries may track investor orders to various degrees before they send the finalized

orders to funds. As such, the processing time of investor order may vary depending on the 

tracking and netting process of an intermediary. For example, retirement accounts track holdings 

and trades at the level of individual participants. Each participant account typically has multiple 

sub accounts that are organized by contribution type or source (pretax, after-tax, employer 

match, profit sharing, and other). We understand that, at least according to some plan rules, 

compliance restrictions require plans to track an account according to contribution type or 

source. For example, we understand that in at least some 401(k) plans, the third party 

administrator or retirement plan recordkeeper receives participant trades at the participant 

account level, after which, trades must be pro-rated (usually done based on today’s market value)

and posted to each contribution type or source. The administrator or recordkeeper then 

aggregates all participant trades for a particular plan and sends them to the trustee/custodian. The

trustee then posts the aggregated plan trades on a trust/custody system (i.e., for mandatory plan 

241



reporting purposes). Most trust companies then aggregate all of their client trades at the asset 

level, generally to minimize trading or NSCC costs.

A significant portion of mutual fund orders is processed through NSCC’s Fund/SERV 

platform. Within this platform, there exists a separate system that processes orders from defined 

contribution plans called Defined Contribution Clearance & Settlement (“DCC&S”). 

Fund/SERV for non-retirement clients allows firms to submit orders in currency, shares, or 

exchanges before knowing the NAV.373 DCC&S, on the other hand, as a matter of practice does 

not initiate order processing until the recordkeeper/third party administrator receives NAVs, as 

well as daily and periodic distribution (dividend and capital gain) rates.374 

We recognize that the current industry practices related to intermediaries’ order 

submissions prevent funds from knowing their final net flows until later hours, which may be 

one reason why no funds in the U.S. have implemented the optional swing pricing. We also 

recognize that swing pricing has been employed in Europe, including by U.S.-based fund 

managers that also operate funds in Europe.375 There can be various reasons why swing pricing 

has been successfully implemented in certain jurisdictions. For example, we understand that 

intermediary order submission practices in Europe differ from those in the U.S.,376 allowing 

funds to have more complete flow information before funds’ pricing time. Another factor that 

may contribute to successful implementation of swing pricing in Europe is that the European 

mutual fund sector does not depend as much as the U.S. mutual fund sector on defined 

contribution retirement plans. According to ECB’s investment fund statistics, as of Q2 2022, 

373  See https://www.dtcc.com/wealth-management-services/mutual-fund-services/fund-serv.
374  Id.
375  See supra section I.B for a more detailed discussion about use of swing pricing in Europe.
376  See supra note 225.

242



pension funds held approximately EUR 1.4 trillion (10%) in investment fund shares377 out of 

14.8 trillion in aggregate value of European investment fund shares issued.378 This is in contrast 

to U.S. where 54% of all mutual fund assets were held in retirement accounts as of Q1 2022.379 

Further, according to one estimate, defined contribution retirement plans which, at least in the 

U.S., have certain transactions that require knowledge of NAV in order to be processed by an 

intermediary represent only 17% of Europe’s total pension assets.380

3. Liquidity Externalities in the Mutual Fund Sector

As discussed above, the liquidity mismatch can lead to non-negligible trading costs (e.g., 

spread or market impact costs) associated with selling the fund’s less liquid portfolio investments

in order to meet investor redemptions or buying portfolio investments in order to accommodate 

investor subscriptions. The magnitude of these costs can vary depending on market conditions, 

the liquidity of the underlying investments held in a fund’s portfolio, and the size of funds’ 

transactions in the market. Consequently, if investors transact at a NAV that does not account for

ex-post trading costs, investors remaining in the fund have to bear these trading costs because 

they are ultimately reflected in the fund’s future NAV.381 Therefore, the value of shares held by 

377  See Aggregated Balance Sheet of the Euro Area Pension Fund Sector, Section 1.1.1, European 
Central Bank Statistical Data Warehouse, available at https://sdw.ecb.europa.eu/reports.do?
node=1000006465.

378  See Aggregated Balance Sheet of Euro Area Investment Funds, Section 1.1.2, European Central 
Bank, Statistical Data Warehouse, available at https://sdw.ecb.europa.eu/reports.do?
node=1000003516.

379  See infra section III.B.4.ii.
380  See Press Release, Cerulli Associates, Europe’s Defined Contribution Market Is Set to Keep 

Growing, (Mar. 3, 2022), available at https://www.cerulli.com/press-releases/europes-defined-
contribution-market-is-set-to-keep-growing.

381  For example, suppose a fund is fully invested in an underlying asset which can be bought at 
$1.01 and sold at $0.99. If the NAV is struck at the “mid,” the fund’s share price is $1, and that is
what redeeming investors receive for each fund share redeemed. However, after paying the 
spread costs, the fund receives only $0.99 for each unit of the underlying asset that is sold to meet
redemptions. The fund therefore needs to sell more of its underlying asset position relative to the 
size of the redemptions it experiences, reducing the assets held by non-transacting shareholders 

243



non-transacting investors can be diluted due to the trading costs associated with the past trading 

activity of transacting fund investors, lowering the future returns of non-transacting fund 

shareholders. 

We recognize that factors other than trading costs may contribute to dilution. For 

example, some funds may hold investments that do not have an active and robust secondary 

market (e.g., high-yield bonds or municipal securities), making them opaque and difficult to 

accurately price in a timely manner, especially during times of market stress when some of these 

assets may stop trading. In such events, the last reported prices for these assets may be prices 

realized during pre-stress market conditions. As a result, the risk that the fund’s NAV may be 

based on “stale” information if contemporaneous information about an asset’s current value is 

unavailable or less reliable may increase. If a fund’s NAV on a given date is based on such stale 

information, net redemptions at that NAV can dilute non-transacting fund shareholders when 

assets are eventually sold at prices that reflect their true, lower value.382 Prior to the compliance 

date with the recent rule 2a-5,383 which aims to improve fund valuation practices, the stale pricing

phenomenon has been documented in fixed income funds, and has been found to contribute to 

and the fund’s subsequent NAV. For example, if 10% of the fund’s investors redeem their shares 
at the NAV of $1, the fund needs to sell 10% / $0.99 = 10.1% of its underlying asset position to 
meet redemptions and pay the spread costs. This leaves the remaining 90% of fund shares held by
non-transacting fund investors with 100% – 10.1% = 89.9% of the fund’s prior asset position. 
Valued at the mid-price of $1, this reduces the fund’s NAV to 89.9% / 90% = $0.999. 

382  We recognize that fund investors can also be diluted due to factors other than trading costs or 
stale pricing, such as market risk. Market risk can also result in accretion for non-transacting fund
investors. For example, if a fund redeems shareholders at an NAV of $100 based on market 
prices at the time NAV is struck, but is then able to liquidate assets at a higher valuation on 
subsequent days due to changes in market prices, the value of shares held by non-transacting 
shareholders will increase beyond the increase due solely to the change in the value of the 
underlying investments held by the fund. While the value of the fund’s holdings can go both up 
and down, such market risk amplifies the risk fund shareholders would otherwise experience. 
However, since market prices may be very difficult to forecast, the degree to which such dilution 
contributes to the first-mover advantage is unclear.

383 The Commission adopted rule 2a-5 in Dec. 2020, and the compliance date for funds was Sept. 8, 
2022. See Valuation Adopting Release, supra note 110.

244



strategic redemptions.384 However, we recognize that while trading costs are strictly dilutive, 

pricing based on stale information can also result in accretion for non-transacting fund investors 

if realized sale prices are higher than prices that were based on stale information and used for the

NAV calculation. 

The stylized example illustrated in Figure 4 below shows how trading costs can dilute a 

fund that experiences net redemptions under two scenarios.385 Under the first scenario (the dotted

line), the fund is able to sell investments to accommodate redemptions prior to striking its NAV 

for the day and to reflect these trades as well as trading costs in the calculated NAV for that 

day.386 This scenario is a theoretical benchmark that shows the minimum amount of dilution that 

must occur in order to accommodate redemptions. Under the second scenario (the solid line), the 

fund trades to accommodate redemptions after striking its NAV for the day. This scenario is 

generally the way U.S. funds currently accommodate investor redemptions, possibly because 

funds do not have complete order flow information before the end of the trading day.387 

Figure 4: Dilution Effects of Different Trading Timelines over 1 Day.

384 See, e.g., Jaewon Choi et. al., Sitting Bucks: Stale Pricing in Fixed Income Funds, 145 J. FIN. 
ECON. 296, no. 2, Part A, (Aug. 2022).

385  The examples in the figure assume that a fund holds a portfolio of assets whose value is constant 
and that liquidating any portion of the portfolio to meet redemptions incurs a haircut of 10%. By 
assuming that the value of the asset does not change, the examples isolate the effect of trading 
costs on dilution from the effects of other sources of dilution such as market risk or stale NAVs. 
See supra note 384. The haircut assumption in these stylized examples is used purely for 
illustrative purposes; haircuts on most assets held by open-end funds generally tend to be smaller.

386  We recognize that under the current rule 2a-4 under the Investment Company Act, funds are 
permitted to reflect changes in their portfolio holdings in the first NAV calculation following the 
trade date and, thus, are not required to include today’s trades in the calculation of today’s NAV.

387  We recognize that there may be other operational considerations that result in this common 
practice. Therefore, even if a fund has complete order flow information before the trading day is 
over, it may choose to trade at a later date to accommodate today’s redemptions. 

245



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0

Net Fund Flow (%)

Po
st

-F
lo

w
 V

al
ue

 o
f $

1 
In

it
ia

l F
un

d 
In

ve
st

m
en

t (
$)

Trading after NAV
Trading before NAV

While these two scenarios result in similar dilution for lower levels of redemptions, larger

levels of redemptions can contribute nonlinearly to higher fund dilution under the second 

scenario.388 This occurs because increasing redemptions result in increasing trading costs for the 

fund. These trading costs are borne solely by shareholders remaining in the fund, the number of 

which decreases as more investors redeem. Under this hypothetical scenario, the fund eventually 

runs out of assets to sell and is unable to meet further redemptions. In contrast, under the 

theoretical benchmark, the trading costs are borne by both redeeming investors and investors 

remaining in the fund; therefore, the shareholder base absorbing the trading costs remains 

constant regardless of the extent of redemptions. Accordingly, dilution increases proportionally 

to the amount of redemptions and the corresponding increase in trading costs. 

388  To the degree that funds determine their NAV using holdings as of the prior trading day, such 
practices may also contribute to dilution. 

246



Figure 5 removes the theoretical benchmark scenario illustrated in Figure 4 and focuses 

on how dilution affects both redemptions and subscriptions when trading to accommodate 

investor transactions occurs after the fund’s NAV has been struck.389 

Figure 5: The Dilutive Effects of Redemptions and Subscriptions.

-100 -50 0 50 100

0.
0

0.
2

0.
4

0.
6

0.
8

1.
0

Net Fund Flow (%)

Po
st

-F
lo

w
 V

al
ue

 o
f $

1 
In

it
ia

l F
un

d 
In

ve
st

m
en

t (
$)

The theoretical example in Figure 5 illustrates that the dilutive effect of trading costs is 

asymmetric for redemptions and subscriptions: while redemptions and subscriptions are similarly

dilutive for small levels of net flows, their effects are different for more extreme levels of net 

flows. This occurs because a fund is not able to redeem 100% of its shares due to the non-linear 

impact of trading costs related to meeting redemptions being absorbed solely by investors 

remaining in the fund, as described above. In contrast, the trading costs related to subscriptions 

389  To model the effect of net subscriptions, the example assumes that any new cash received by the 
fund is invested in the same underlying portfolio of investments, and that doing so incurs the 
same 10% spread cost. Redemptions are represented as negative net flows to the left of 0 on the 
x-axis and subscriptions are represented as positive net flows to the right of 0 on the x-axis. We 
recognize that dilution due to subscriptions does not occur until a fund incurs costs investing the 
subscription proceeds. Therefore, a fund that holds its subscription proceeds in cash indefinitely 
will not experience dilution.

247



are shared by both new subscribers and existing fund shareholders, which limits the maximum 

amount of dilution that can occur due to subscriptions.

The simplified examples above illustrate that non-transacting fund investors are exposed 

to the dilution risk that arises from accommodating redemptions and subscriptions of transacting 

fund investors. Incentives of mutual fund managers may not be sufficient to alleviate this risk for

various reasons. For example, it is possible that investors do not have enough information to 

fully understand the nature of the risk they are exposed to by investing in funds that hold less 

liquid investments. In addition, investors in a fund may have varying preferences for risk and 

return, with some investors preferring investments with higher expected returns. Although 

investments that face increased liquidity risk may deliver such higher returns, the returns of 

funds that hold these investments may also be subject to greater amounts of volatility.390 A fund 

manager may choose to hold investments that are less liquid because of their potentially higher 

returns, or because they offer exposure to a different set of risks (e.g., some investments may be 

less correlated with the market) than other investments in the fund’s portfolio. Because higher 

returns tend to be associated with future inflows, it is possible that a fund manager’s incentives 

are tilted towards earning higher returns relative to the risk they are taking on (though the 

opposite is also possible).391 In particular, to the extent that holding less liquid investments may 

increase a fund’s return (e.g., during normal market conditions) and consequently its AUM, 

390  See, e.g., Kuan-Hui Lee, The World Price of Liquidity Risk, 99 J. FIN. ECON. 136 (2011). See 
also Viral V. Acharya & Lasse H. Pedersen, Asset Pricing with Liquidity Risk, 77 J. FIN. ECON. 
375 (2005). See also Lubos Pastor & Robert Stambaugh, Liquidity Risk and Expected Stock 
Returns, 111 J. POL. ECON. 642 (2003).

391  In an open-end fund context, fund inflows are sensitive to fund returns, which can incentivize 
fund managers to take on more risk. See, e.g., Jaewon Choi & Mathias Kronlund, Reaching for 
Yield in Corporate Bond Mutual Funds, 31 REV. FIN. STUD. 1930 (2018); Jon A. Fulkerson et. 
al., Return Chasing in Bond Funds, 22 J. FIXED INCOME, 90 (2013); Ferreira, Miguel A., et al., 
The Flow-Performance Relationship around the World, 36 J. BANKING & FIN. 1759, no. 6 
(2012). 

248



which determine the amount of management fees a fund manager collects, the fund manager may

choose to over-invest in such assets,392 not accounting for potential future trading costs these 

investments may impose on a fund if the market conditions change, which would result in a 

higher dilution risk for the fund’s investors. Investors may currently lack sufficiently granular 

information to monitor for this possibility and to discipline the extent to which a fund manager 

exposes the fund’s shareholders to dilution risk.

Investor dilution associated with illiquidity of funds’ underlying investments may create 

a first-mover advantage that may lead to increased mutual fund redemptions similar to bank 

runs.393 Such redemptions have been observed prior to the adoption of the current liquidity 

rule.394 More specifically, fund investors may have an incentive to redeem their shares quickly if 

they believe that other investors will also redeem their shares and, by doing so, these other 

investors will dilute the fund’s non-transacting shareholders. This first-mover advantage effect in

mutual funds has been documented395 and studied as a mechanism for runs on mutual funds in 

392  See, e.g., Linlin Ma et. al., Portfolio Manager Compensation in the U.S. Mutual Fund Industry, 
74(2) J. Fin. 587 (2019). See also Abhishek Bhardwaj et. al., Incentives of Fund Managers and 
Precautionary Fire Sales (Oct. 29, 2021), available at https://ssrn.com/abstract=3952358. 

393  Liquidity mismatch between assets and liabilities is a mechanism that creates bank run dynamics 
that is well-accepted in the academic literature. See, e.g., Douglas Diamond & Philip Dybvig, 
Bank Runs, Deposit Insurance, and Liquidity, 91 J. POL. ECON., 401 (1983).

394  See Third Avenue Trust and Third Avenue Management LLC; Notice of Application and 
Temporary Order, Investment Company Act Release No. 31943 (Dec. 16, 2015). See also note
348. 

395  See Qi Chen et. al., Payoff Complementarities and Financial Frailty: Evidence From Mutual 
Fund Outflows, 97 J. FIN. ECON. 239 (2010). See also Itay Goldstein et. al., Investor Flows and 
Fragility in Corporate Bond Funds, 126 J. FIN. ECON. 592 (2017); Yiming Ma et. al., Bank Debt 
Versus Mutual Fund Equity in Liquidity Provision (working paper, May 29, 2020), available at 
https://ssrn.com/abstract=3489673; Luis Molestina et. al., Burned by Leverage? Flows and 
Fragility in Bond Mutual Funds (European Central Bank (ECB) working paper no. 20202413, 
May 19, 2020) available at https://ssrn.com/abstract=3605159 (retrieved from SSRN Elsevier 
database); Michael Feroli et. al., Market Tantrums and Monetary Policy (Chicago Booth 
Research Paper no. 14-09, Mar. 15, 2014), available at https://ssrn.com/abstract=2409092 
(retrieved from SSRN Elsevier database). 

249

https://ssrn.com/abstract=2409092
https://ssrn.com/abstract=3605159
https://ssrn.com/abstract=3489673
https://ssrn.com/abstract=3952358


the academic literature.396 In addition, it has been shown that the effect of the first-mover 

advantage may be larger for funds that hold less liquid investments.397 While the academic 

literature on mutual fund runs generally relies on an exogenous mechanism to generate initial 

redemptions from a fund or relies on frictions such as an inability of a fund to raise capital and 

exogenous shocks such as negative fund returns, the results may extend to trading costs to the 

degree that dilution due to trading costs may reduce subsequent fund returns, which would 

trigger runs in these models. At the same time, we recognize that while dilution risk arising from 

trading costs can create incentives for early redemptions, redemptions may also occur for reasons

unconnected to the pooled vehicle nature of the fund. For example, a recent working paper398 

concludes that the behavior of mutual fund investors is similar to that of direct investors with 

overlapping holdings, and suggests that systemic implications of mutual fund investors’ activities

are not necessarily due to the liquidity transformation feature of the mutual fund structure, but 

396  See e.g., Yao Zeng, A Dynamic Theory of Mutual Fund Runs and Liquidity (working paper no. 
42, Apr. 2017), available at https://ssrn.com/abstract=2907718 (retrieved from SSRN Elsevier 
database). See also Stephen Morris et. al., Redemption Risk and Cash Hoarding by Asset 
Managers, 89 J. MONETARY ECON. 71 (2017); Yiming Ma et. al., Mutual Fund Liquidity 
Management, Transformation and Reverse Flight to Liquidity (working paper, Jul. 29, 2020), 
available at https://ssrn.com/abstract=3640861(retrieved from SSRN Elsevier database); 
and Philipp König & David Pothier, Safe but Fragile: Information Acquisition, Liquidity Support 
and Redemption Runs, J. FIN. INTERMEDIATION (in press, corrected proof Dec. 15, 2020). 

397  For example, one paper argues that fund investors’ behavior is affected by the expected behavior 
of other investors in the fund and finds that funds with less liquid assets (where this investor 
effect is stronger) exhibit stronger sensitivity of outflows to bad past performance than funds with
more liquid assets. See Qi Chen et. al., Payoff Complementarities and Financial Frailty: 
Evidence From Mutual Fund Outflows, 97 J. FIN. ECON. 239 (2010). Also see Meijun Qian and 
Başak Tanyeri, Litigation and Mutual-Fund Runs, 31 J FIN. STABILITY 119, (2017); and Sirio 
Aramonte et. al., Measuring the Liquidity Profile of Mutual Funds (FEDS working paper no. 
2019-55, Oct. 22, 2019), available at https://ssrn.com/abstract=3473039 (retrieved from SSRN 
Elsevier database). 

398  See Christof W. Stahel, Strategic Complementarity Among Investors with Overlapping 
Portfolios (working paper, May 1, 2022), available at https://ssrn.com/abstract=3952125 
(retrieved from SSRN Elsevier database).

250

https://ssrn.com/abstract=3952125
https://ssrn.com/abstract=3473039
https://ssrn.com/abstract=3640861(retrieved%20from%20SSRN%20Elsevier%20database);
https://ssrn.com/abstract=2907718


rather to the fact that mutual funds’ investors compete for finite asset market liquidity when they 

decide to sell assets.

Mutual fund shareholders’ transactions may also affect markets for funds’ underlying 

portfolio holdings. Academic research suggests that redemption-induced sales of securities by 

mutual funds can create price pressure in underlying markets which may result in a fire-sale for 

these securities.399 Two studies have constructed measures of mutual fund outflow-induced price 

pressure on various securities that are widely-used in the academic literature.400 Subsequent 

studies use these price impact measures and claim that fire sales induced by investor redemptions

hurt peer funds’ performance and flows, leading to further asset sales that have a negative price 

impact.401 Another paper suggests that redemptions from mutual fund that hold less liquid 

investments may contribute further to already existing poor market conditions by putting further 

downward pressure on prices of illiquid stocks.402 In addition, one paper suggests that the 

399  See e.g., Shiyang Huang et. al., Does Liquidity Management Induce Fragility in Treasury Prices:
Evidence From Bond Mutual Funds (Dec. 30, 2021), available at 
https://ssrn.com/abstract=3689674 (retrieved from SSRN Elsevier database). See also Hao Jiang 
et. al., Does Mutual Fund Illiquidity Introduce Fragility Into Asset Prices? Evidence From the 
Corporate Bond Market, 143 J. FIN. ECON. 277 (2021); Joshua D. Coval & Erik Stafford, Asset 
Fire Sales (and Purchases) in Equity Markets, 86 J. FIN. ECON. 479, no. 2 (2007); Donald J. 
Berndt et. al., Using Agent-Based Modeling to Assess Liquidity Mismatch in Open-End Bond 
Funds, SUMMER SIM ’17: PROCEEDINGS OF THE SUMMER SIMULATION MULTI-CONFERENCE 
(Society for Computer Simulation International, San Diego, CA) (Jul. 2017); Valentin Haddad et.
al., When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the 
Fed’s Response, 34 REV. FIN. STUD. 5309, no.11 (2021).   

400  See Coval & Stafford, supra. Also see Alex Edmans et. al., The Real Effects of Financial 
Markets: The Impact of Prices on Takeovers, 67 J. FIN. 933 (2012).The constructed measures 
exploit the idea that large investor redemptions place pressure on mutual funds to sell portfolio 
holdings, and if these sales are sufficiently large, the funds’ liquidity needs may put downward 
pressure on prices that is unrelated to the fundamental value of the underlying stocks.

401  See e.g., Pekka Honkanen & Daniel Schmidt, Learning From Noise? Price and Liquidity 
Spillovers Around Mutual Fund Fire Sales, 12(2) REV. ASSET PRICING STUD. 593 (Jun. 2022); 
Antonio Falato et. al., Fire-Sale Spillovers in Debt Markets, 76 J FIN. 3055 no. 6 (2021). 

402  See Azi Ben-Rephael, Flight-to-Liquidity, Market Uncertainty, and the Actions of Mutual Fund 
Investors, 31 J. FIN. INTERMEDIATION 30 (2017). 

251

https://ssrn.com/abstract=3689674


exposure of stocks to fire-sale risk is bigger when mutual funds represent a larger share of the 

stock’s owners.403 Moreover, academic research also documents the potential effect of mutual 

fund flows on market-wide return volatility,404 on a wide array of corporate decisions,405 on the 

choices of ETF security baskets,406 and on sell-side analysts’ recommendations on stocks subject 

to mutual-fund flow-driven stock mispricings.407 However, several recent studies argue that the 

aforementioned price impact measures are biased and that with the removal of this bias many 

established in the prior literature results above no longer hold.408 Notwithstanding, while we 

recognize that there is an ongoing debate in the academic literature as to the size of these effects, 

the literature does point to a potential link between mutual fund flows and prices in the 

underlying markets. 

403  See George O. Aragon & Min S. Kim, Fire Sale Risk and Expected Stock Returns (Mar. 11, 
2022), available at https://ssrn.com/abstract=3663567 (retrieved from SSRN Elsevier database).

404  See e.g., Charles Cao et. al., An Empirical Analysis of the Dynamic Relationship Between Mutual
Fund Flow and Market Return Volatility, 32 J. BANKING & FIN. 2111, no. 10 (2008). 

405  See e.g., Alex Edmans, supra. The authors find that mutual fund investor flows lead to pressure 
on the price of underlying securities, which may in turn affect the probability of takeover of the 
firm issuing the security. Also see Derrien, François et. al., Investor Horizons and Corporate 
Policies, 48 J. FIN. & QUANTITATIVE ANALYSIS 1755 no. 6 (2013). Also see Norli, Øyvind et. al., 
Liquidity and Shareholder Activism, 28 REV. FIN. STUD. 486 (2015). Also see B. Espen Eckbo et. 
al., Are Stock-Financed Takeovers Opportunistic? 128 J. FIN. ECON. 443 (2018).

406  See Han Xiao, The Economics of ETF Redemptions (Apr. 10, 2022), available at 
https://ssrn.com/abstract=4096222 (retrieved from SSRN Elsevier database).

407  See Johan Sulaeman & Kelsey D. Wei, Sell-Side Analysts and Stock Mispricing: Evidence From 
Mutual Fund Flow-Driven Trading Pressure, 65 MGMT. SCI. 5427 no. 11 (2019).

408  See Elizabeth Berger, Selection Bias in Mutual Fund Fire Sales (Apr. 18, 2021), available at 
https://ssrn.com/abstract=3011027 (retrieved from SSRN Elsevier database). See also Malcolm 
Wardlaw, Measuring Mutual Fund Flow Pressure as Shock to Stock Returns, 75(6) J. FIN. 3221 
(2020). See also Aleksandra and Rüdiger Weber, Money in the Right Hands: The Price Effects of
Specialized Demand (Jan. 27, 2022), available at https://ssrn.com/abstract=4022634 (retrieved 
from SSRN Elsevier database). Also see Simon Schmickler, Identifying the Price Impact of Fire 
Sales Using High-Frequency Surprise Mutual Fund Flows (Jul. 8, 2020) available at 
https://ssrn.com/abstract=3488791 (retrieved from SSRN Elsevier database). 

252

https://ssrn.com/abstract=4022634
https://ssrn.com/abstract=3011027
https://ssrn.com/abstract=4096222
https://ssrn.com/abstract=3663567


We recognize that the proposed rules may not address all of the mechanisms that amplify 

dilution in the mutual fund sector, such as system-wide market stress, misaligned incentives of 

fund managers and investors, or stale information used for pricing of funds’ portfolio holdings. 

However, even if these dilution-amplification mechanisms were not present, several factors may 

inhibit mutual fund managers’ ability to allocate trading costs to transacting investors by using 

currently available swing pricing. First, as discussed above, funds generally do not have 

complete information regarding their order flows at the time the NAV is struck, which may 

restrict the ability to operationalize swing pricing. These U.S.-market specific operational 

impediments cannot be mitigated by any single fund, which presents a collective action problem.

Second, even if funds were currently able to obtain complete flow data prior to striking their 

NAVs, funds may be hesitant to implement swing pricing to the extent that some investors are 

averse to bearing the full costs of their transactions via swing pricing, even if it is in the best 

interest of fund shareholders overall, or because investors in U.S. funds are unfamiliar with 

swing pricing.409 In addition, there may be a stigma attached to being the first fund to implement 

swing pricing. To the extent that such a stigma effect is present in relation to swing pricing, it 

may deter investors from choosing funds that could implement swing pricing under the optional 

approach, and that could be a reason why no fund currently chooses to implement swing pricing. 

Finally, even where fund managers are willing and able to employ liquidity risk management 

tools, they may not be able to forecast accurately the extent to which episodes of market stress 

can create challenges for mitigating dilution and meeting shareholder redemptions.410

409  We recognize, however, that open-end funds in other jurisdictions have successfully 
implemented swing pricing, as discussed in section I.B and accompanying notes 59-63.  

410  See supra section I.B for a discussion of how market stress events in Mar. 2020 caused some 
funds to explore the potential of various emergency relief actions due to the combination of 
abnormally large redemptions and deteriorating liquidity in markets for underlying fund 
investments.

253



4. Affected Entities

a. Registered Investment Companies

The proposed amendments would mainly affect open-end funds registered with the 

Commission that are ETFs and mutual funds, excluding money-market funds (hereafter “mutual 

funds”). Based on Form N-CEN filing data as of December 2021, we estimate that there are 

11,488 of such funds that hold approximately $26 trillion in net assets.411 Among these, there are 

9,043 mutual funds that hold approximately $21 trillion in net assets and 2,445 ETFs that hold 

approximately $5.1 trillion in net assets.412 In addition, there are 1,650 mutual funds of funds that

hold approximately $3.1 trillion in net assets,413 as well as 150 feeder funds structured as ETFs 

that hold $0.6 trillion in net assets.414

411  We use information reported on Form N-CEN to the Commission for each fund as of Dec. 2021, 
incorporating filings and amendments to filings received through May 15, 2022. Net assets are 
monthly average net assets during the reporting period identified on part C.19.a of Form N-CEN, 
and validated with Bloomberg (for ETFs). Current values are based on the most recent filings and
amendments, which are based on fiscal years and are therefore not synchronous. We exclude 
money market funds identified in Item C.3.g of the Form N-CEN from the count of the affected 
open-end funds. These exclusions were also applied to the estimates that follow. 

We note that the submission on the Form N-CEN is required on a yearly basis. Therefore, these 
estimates do not include newly established funds that have not completed their first fiscal year 
and ,therefore, have not filed the Form N-CEN yet, as well as they do not account for the funds 
that have been terminated since the last Form N-CEN was filed. Therefore, the estimates for the 
number of funds and their net assets may be over- or under-estimated. 

412  See id. ETFs are identified on Form N-CEN, Item C.3.a.i and include 781 in-kind ETFs with 
average total net assets of $1.2 trillion. UIT ETFs and exchange-traded managed funds are 
excluded from ETF totals. Mutual funds are identified as those funds that are not identified as 
ETFs or money market funds.

413  Funds of funds are identified in Item C.3.e. A fund of funds means a fund that acquires securities
issued by any other investment company in excess of the amounts permitted under paragraph (A) 
of section 12(d)(1) of the Act (15 U.S.C. 80a-12(d)(1)(A)), but does not include a fund that 
acquires securities issued by another investment company solely in reliance on rule 12d1-1 under 
the Act (CFR 270.12d1-1). We note that at most 29 closed-end funds of funds with net assets of 
$10 billion may be affected by the proposal indirectly, to the extent that they hold shares of open-
end funds. 

414  See note 411. Master-feeder fund means a two-tiered arrangement in which one or more funds 
(each a feeder fund) holds shares of a single fund (the master fund) in accordance with section 
12(d)(1)(E) of the Act (15 U.S.C. 80a-12(d)(1)(E)) or pursuant to exemptive relief granted by the 
Commission. See Instruction 4 to Item C.3 of Form N-CEN. Feeder funds are identified on Form 

254



Different parts of the proposal would affect these two subsets of open-end funds 

differently. In particular, the proposed amendments to the liquidity management program and 

certain reporting requirements would affect both mutual funds and ETFs and the proposed hard 

close and swing pricing requirements and related reporting requirements would affect only 

mutual funds that are not feeder funds. 

We estimate that there are 12,153 funds currently required to file reports on Form N-

PORT415 and there are 2,754 registrants required to file reports on Form N-CEN that would be 

affected by the proposed reporting requirements.416 Among these, we estimate that the proposed 

changes to the reporting requirements on Form N-PORT would also affect 660 closed-end funds 

and 5 ETFs registered as unit investment trusts with assets of $0.4 trillion and $0.7 trillion, 

respectively.417 

i. Open-End Fund Characteristics  

Table 2 below shows the number and total assets of open-end funds by fund type.418 The 

largest share (by assets) of funds (approximately 63.5% of assets held by all open-end funds) that

would be affected by the proposal are equity funds, including U.S. and international equity 

N-CEN, Item C.3.f.ii. 
415  See infra note 540 and accompanying text.
416  See infra note 547 and accompanying text. 
417  Closed-end investment companies are identified on Form N-CEN, Item B.6.b. Unit investment 

trust (UIT) ETFs are funds of Form N-8B-2 registrants identified in Item B.6.g. which are also 
reported in Item E.

418  We note that these statistics are estimated with the Morningstar data; therefore, there is a 
discrepancy in the number of funds estimated based on the Form N-CEN and the number of funds
estimated based on the Morningstar data. This discrepancy exists for two reasons. First, 
Morningstar data may not include all open-end funds due to its voluntary submission nature; as 
such, the number of funds based on the Morningstar data may be under-estimated. Second, funds 
may submit their data to Morningstar on a monthly data, while the submission on the Form N-
CEN is required on a yearly basis. Therefore, the number of funds estimated based on the Form 
N-CEN may be under-estimated because it may not include new funds that haven’t filed the Form
yet. 

255



funds. The second largest type of funds affected by the proposal is taxable bond funds, which on 

aggregate holds approximately 19.6% of all open-end fund assets. 

Table 2. Number of Affected Funds by Fund Type, as of December 2021.419

CATEGORY

ETFs1 Other Open-End (not
including MMFs)

Total

# of
Funds

Assets
, $ trln

% of Total
Assets

# of
Funds

Assets,
$ trln

% of
Total
Assets

# of
Funds

Assets, $
trln

% of
Total
Assets

Allocation  90 $0.03 0.37%  377 $1.58 7.59%  467 $1.61 5.72%
Alternative  193 $0.01 0.21%  167 $0.13 0.64%  360 $0.15 0.53%
Bank Loan  7 $0.02 0.26%  53 $0.10 0.47%  60 $0.12 0.42%
Commodities  116 $0.14 1.88%  28 $0.03 0.16%  144 $0.17 0.60%
Intern. Equity  507 $1.10 15.20%  1,108 $3.18 15.30%  1,615 $4.29 15.27%
Miscellaneous  246 $0.14 1.86%  90 $0.01 0.03%  336 $0.14 0.51%
Municipal Bond  68 $0.08 1.13%  546 $0.98 4.71%  614 $1.06 3.79%
Nontrad. Equity  33 $0.02 0.23%  92 $0.03 0.13%  125 $0.04 0.15%
Sector Equity  481 $0.84 11.62%  398 $0.63 3.02%  879 $1.47 5.24%
Taxable Bond2  426 $1.17 16.06%  1,268 $4.32 20.77%  1,694 $5.49 19.55%
US Equity  684 $3.72 51.18%  1,952 $9.82 47.18%  2,636 $13.54 48.22%
TOTAL  2,851 $7.26 100%  6,079 $20.82 100%  8,930 $28.08 100%

419 Morningstar data, excluding funds of funds, feeder funds, and money market funds. 5 UIT ETFs, 
with assets of approximately $0.7 trillion are included in the Morningstar ETF totals.

256



1. Includes ETFs that are UITs.
2. Excludes bank loan funds. 

The proposal would disproportionally affect open-end funds that hold less liquid 

investments. Among the investments classified by open-end funds in December 2021, $27.3 

trillion of all investments were reported as highly liquid, $441 billion of all investments were 

reported as moderately liquid, $276 billion of all investments were reported as less liquid, and 

$198 billion of all investments were reported as illiquid. Among the investments reported as less 

liquid, 71% ($194 billion) are bank loan interests, 10% ($26 billion) are debt securities, 9% ($25 

billion) are equities, and 6% ($17 billion) are mortgage-backed securities.420 Therefore, we 

believe that the proposal to remove the less liquid category would primarily affect open-end 

funds that hold bank loan interests. As of December 2021, there are 746 open-end funds that 

classified approximately $204 billion in bank loan interests, which represents approximately 

0.7% of all open-end fund investments classified,421 and makes up approximately 15% of the 

bank loan market.422 Among these bank loan interests, 95% were reported as less liquid. We 

recognize that some open-end funds have large concentrations in bank loan interests and are 

typically referred to as “bank loan” funds. As shown in Table 2 above, as of December 2021, 

there are 53 bank loan funds that hold approximately 0.5% of total open-end fund assets. 

The proposal would also disproportionally affect open-end funds that hold investments 

whose fair value is measured using an unobservable input that is significant to the overall 

420  In addition to these, a smaller number of other categories are classified as less liquid 
investments. 

421  Source: Form N-PORT. Loan investments are identified via Form N-PORT, Item C.4.a and 
liquidity classifications are from Form N-PORT, Item C.7.

422  See Leveraged Loan Primer, supra note 99 (stating that the S&P/LSTA Loan Index, which is 
used as a proxy for market size in the U.S., totaled approximately $1.375 trillion as of Feb. 2022).

257



measurement.423 We estimate that, as of December 2021, 2,006 open-end funds reported $76.5 

billion in investments that were valued using unobservable inputs that are significant to the 

overall measurement, which is approximately 0.27% of all open-end fund assets.424 Among these,

$16.9 billion were classified as highly liquid investments and $2.1 billion as moderately liquid 

investments by 541 funds.425 In addition, $7.8 billion were classified into less liquid category and

$49.8 billion were classified into the illiquid category. 

ii. Open-End Fund Flows  

To inform our understanding of historical redemption and subscription patterns, we 

analyzed daily fund flow data during the period between January 2009 and December 2021.426 

Table 3 below shows net fund flow percentiles pooled across time and funds. Figure 6 below 

shows the time series of daily fund flow percentiles for equity and fixed income funds, showing 

1st, 5th, 50th, 95th, and 99th percentiles of fund flows for each day. Similarly, Figure 7 shows the 

423  See supra note 111.
424  Source: Form N-PORT. The fair value hierarchy for an investment are identified on Form N-

PORT, Item C.8., and liquidity classifications are identified on Form N-PORT, Item C.7. We 
observed that the investments classified as highly liquid that were Level 3 investments primarily 
were mortgage-backed securities.

425  Id.
426  Data source: Morningstar Fund Flow Data. We restrict our analysis to funds that have a “Global 

Broad Category Group” of Equity or Fixed Income because we believe the data for other types of 
funds (e.g., Alternative and Commodity funds) contain more extreme values that may be 
spurious. We restrict our analysis to include fund flow data starting 2009. While some 
Morningstar data is available for 2008, we have not included that data in our historical flow 
analyses because of gaps in the 2008 data (e.g., the 2008 dataset covers a more limited set of 
funds). We trim outliers from the dataset by restricting outflows from a fund to be no more than 
100% of AUM and inflows to be no more than 300% of AUM on a given day or 1000% of AUM 
for a given week when analyzing weekly flows. For daily flows, we determine the flow 
percentage by dividing dollar flows on date T by total net assets on date T. This assume that total 
net assets on a given day do not account for that day’s flows. Similarly, for weekly flows, we 
aggregate by business week, summing dollar flows over the course of the week and dividing by 
the first available day’s net assets in that week. Making the opposite assumption, that total net 
assets on a given day do incorporate that day’s flows, does not significantly alter our results.

258



time series of weekly fund flow percentiles for equity and fixed income funds, showing the 1st, 

5th, 50th, and 95th, and 99th percentiles of fund flows for each week.

Table 3 shows, for example, that weekly outflows exceed roughly 7% in one out of one 

hundred fund-week observations and that weekly outflows exceed 1.3% in five out of one 

hundred observations.427 To help put these figures in context statistically, we see that the fund 

flow distribution exhibits heavy left (and right) tails relative to the normal distribution. That is, 

events such as outflows of 6.6% should occur far fewer than one out of one hundred times if 

fund flows were normally distributed. Similarly, events such as inflows of 8.3% should occur far 

fewer than one out of one hundred times if fund flows are normally distributed. 

Whereas Table 3 looks at percentages across all funds and days or weeks, Figure 6 shows

the cross-section of daily fund flows at each point in time and breaks up the fund universe into 

fixed income and equity funds. Figure 6 shows that the dispersion of flows exhibits significant 

variation; there are times when percentiles widen out considerably, even during non-stressed 

market conditions.428 Times of substantial flows into bond funds do not necessarily correspond to

flows into equity funds. What this implies is that looking at the distributions separately may 

reveal greater dispersion, as flows across the sectors diversify each other. For equities, a number 

of time periods exhibit cross-sections in which the lowest percentile of funds have daily outflows

in excess of 10%. For bond funds, flows of this magnitude are rarer. However, such episodes do 

427  See supra note 426 for a description of how the data set was constructed.
428  See id. Daily flows for equity funds have notable seasonal spikes that tend to occur during the 

month of Dec., independent of market stress events. These flow spikes may be attributable to any 
year-end rebalancing of investors from, e.g., underperforming funds into outperforming funds; to 
year-end distributions that are characterized as flows by Morningstar and subsequently re-
invested; or to spurious or errant data points. We believe that latter is less likely because these 
seasonal spikes are still evident when the data is aggregated to the weekly level in Figure 7. To 
the extent seasonal fund flow spikes are driven by predictable events such as, e.g., capital gains 
distributions, fund managers are more likely to be able to plan for any impacts of such events on a
fund, include funds that hold investments with lower liquidity. 

259



occur for bond funds and correspond with times of broader stress in fixed income markets. 

Similarly, Figure 7, which shows weekly flows, also shows that outflows in the lowest percentile

of funds of below 10% are not uncommon, both in bonds and in equities.429 For fixed income 

funds, both the daily and weekly flow plots in Figures 6 and 7 show that during March 2020, 

some funds experienced significant outflows, consistent with the aggregate monthly outflows 

discussed in section I.B.

Table 3. Pooled Fund Flows, as a % of Net Assets.

  Percentile
  1st 5th 50th 95th 99th
Daily fund flows -1.60% -0.30% 0% 0.40% 2%
Weekly fund flows -6.60% -1.30% 0% 1.80% 8.30%

429  See id.

260Figure 6. Daily Equity and Fixed Income Fund Flows over Time, % of Net Assets.

Fixed Income

Equity

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-20

-10

0

10

20

-20

-10

0

10

20

Date

D
ai

ly
 F

un
d 

Fl
ow

 (
%

)

Flow Percentile: 1st and 99th 5th and 95th 50th (median)

261



Figure 7. Weekly Equity and Fixed Income Fund Flows over Time, % of Net Assets.

Fixed Income

Equity

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-20

-10

0

10

20

-20

-10

0

10

20

Date

W
ee

kl
y 

Fu
nd

 F
lo

w
 (

%
)

Flow Percentile: 1st and 99th 5th and 95th 50th (median)

262



b. Fund Intermediaries

As discussed above, the proposed hard close requirement would affect a large group of 

intermediaries. Specifically, under the hard close requirement, intermediaries generally would 

need to submit orders for fund shares earlier than they currently do for those orders to receive 

that day’s price. As discussed in greater detail below, this may affect all market participants 

sending orders to relevant funds, including broker-dealers, registered investment advisers, 

retirement plan recordkeepers and administrators, banks, insurance companies, and other 

registered investment companies. 

i. Broker-Dealers  

Based on an analysis of Financial and Operational Combined Uniform Single (FOCUS) 

Reports filings as of December 2021, there were approximately 3,508 registered broker-dealers 

with over 240 million customer accounts.430 In total, these broker-dealers have over $5 trillion in 

total assets as reported on Form X-17A-5.431
 More than two-thirds of all broker-dealer assets and 

just under one-third of all customer accounts are held by the 21 largest broker-dealers, as shown 

in Table 4.432
 Of the broker-dealers registered with the Commission as of December 2021, 434 

broker-dealers were dually registered as investment advisers.433

430  The data is obtained from FOCUS filings as of Dec. 2021. There may be a double-counting of 
customer accounts among, in particular, the larger broker-dealers as they may report introducing 
broker-dealer accounts as well in their role as clearing broker-dealers. Customer Accounts 
includes both broker-dealer and investment adviser accounts for dual-registrants.

431 Assets are estimated by Total Assets (allowable and non-allowable) from Part II of the FOCUS 
filings (Form X-17A-5 Part II and Part IIA, available at https://www.sec.gov/files/formx-17a-
5_2.pdf) and correspond to balance sheet total assets for the broker-dealer. The Commission does
not have an estimate of the total amount of customer assets for broker-dealers because that 
information is not included in FOCUS filings. The Commission estimates broker-dealer size from
the total balance sheet assets as described above.  

432  Approximately $4.97 trillion of total assets of broker-dealers (98.7%) are at broker-dealers with 
total assets in excess of $1 billion. 

433  This estimate includes the number of broker-dealers who are also registered with either the 
Commission or a state as an investment adviser.

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Table 4. Number of Broker-Dealers by Total Assets, as of December 2021.

Size of Broker-Dealer
 (Total Assets) 

Total Num. 
of BDs

Cumulative
Total Assets

 ($ bln)

Cumulative Num. 
of Customer 

Accounts

>$50 billion 21 3,682 75,808,084
$1 billion to $50 billion 124 1,581 153,243,391
$500 million to $1 billion 30 22 518,545
$100 million to $500 million 147 31 9,559,082
$10 million to $100 million 532 19 128,669
$1 million to $10 million 1,065 4 885,269

<$1 million 1,589 0.5 10,854

Total 3,508 5,338 240,153,894

ii. Retirement Plans  

Retirement plans and accounts are major holders of mutual funds. We estimate that, as of 

2022Q1, approximately 54% of non-MMF mutual fund assets were held in retirement accounts, 

which include employer-sponsored defined contribution (“DC”) plans and individual retirement 

accounts (“IRAs”).434 At year-end 2021, mutual funds accounted for 58% ($6.4 trillion) of DC 

plan assets and 45% ($6.2 trillion) of IRA assets.435 Among DC plans, 401(k) plans held $5 

trillion of assets in mutual funds, 403(b) plans held $670 billion, other private-sector DC plans 

held $539 billion, and 457 plans held $177 billion.436 Combined, the mutual fund assets held in 

DC plans and IRAs at the end of 2021 accounted for 32% of the $39.4 trillion U.S. retirement 

market.437 

434  See Inv. Co. Inst. (ICI), The U.S. Retirement Market, First Quarter 2022 (June), Table 28, 
available at https://www.ici.org/system/files/2022-06/ret_22_q1_data.xls.

435  See ICI, 2022 Investment Company Factbook, Chapter 8, available at 
https://www.icifactbook.org/pdf/2022_factbook.pdf. 

436  Id.
437  Id.

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According to a recent study, DC plans vary in size by both number of participants and 

plan assets.438 For example, as shown in the Table 5 below, among 401(k) plans, 94.1% of plans 

had less than $10 million of plan assets. While the number of plans with plan assets over $1 

billion is relatively small, these largest plans manage approximately 47.8% of all assets held in 

401(k) plans.

Table 5. Distribution of 401(k) Plans by Plan Assets, 2018.

Plan assets Plans Participants Assets
Number Percent Thousands Percent Billions

of dollars
Percent

Less than $1M 343,108 58.5% 6,007.5 8.4% $107.1 2.1%

$1M to $10M 208,789 35.6 13,660.6 19.1 620.7 12.2

>$10M to $50M 26,458 4.5 9,894.5 13.9 532.4 10.4

>$50M to $100M 3,564 0.6 4,808.0 6.7 247.1 4.8

>$100M to $250M 2,407 0.4 6,744.8 9.5 374.7 7.3

>$250M to $500M 1,034 0.2 5,395.1 7.6 362.1 7.1

>$500M to $1B 603 0.1 4,763.9 6.7 424.1 8.3

More than $1B 659 0.1 20,073.4 28.1 2,439.7 47.8

All plans 586,622 100.0 71,347.7 100.0 5,108.0 100.0

The same study shows that mutual funds held 43% of private-sector 401(k) plan assets in 

the sample in 2018. CITs held 33% of assets, guaranteed investment contracts (GICs) held 7%, 

separate accounts held 3%, and the remaining 14% were invested in individual stocks (including 

company stock), individual bonds, brokerage, and other investments.439 While mutual funds 

438  See BrightScope & Investment Company Institute, 2021, The BrightScope/ICI Defined 
Contribution Plan Profile: A Close Look at 401(k) Plans, 2018 (“BrightScope/ICI Report”), at 7, 
Ex. 1.2, available at www.ici.org/files/2021/21_ppr_dcplan_profile_401k.pdf. These data is 
limited to 401(k) plans covered in the Department of Labor Form 5500 research file, as we do not
have data on the size distribution for other types of DC plans. We note, however, that 401(k) 
plans represent approximately 70.4% of all DC plan assets. Investment Company Institute, “The 
US Retirement Market, First Quarter 2022” (June), Table 6, available at 
https://www.ici.org/system/files/2022-06/ret_22_q1_data.xls. 

439  Id.

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accounted for at least 55% of assets in plans with less than $1 billion of plan assets, they 

accounted for only 23% of assets in plans with more than $1 billion of plan assets (dominated by 

CITs that accounted for 49% of plan assets).440

iii. Retirement Plan Recordkeepers  

According to one source, as of September 2021, the total DC recordkeeping assets were 

approximately $9.7 trillion, as shown in Table 6 below.441 The largest recordkeeper managed 

approximately 33% of all recordkeeping assets, and the 10 largest recordkeepers managed 

approximately 83% of all recordkeeping assets.

Table 6. Largest Retirement Plan Recordkeepers, as of September 30, 2021.

Recordkeeper
Recordkeeping
Assets, $ billion

Fidelity Investments $3,169
Empower $1,048
TIAA-CREF $710
Vanguard Group $702
Alight Solutions $545
Voya Financial $499
Principal Financial Group $449
Bank of America $346
Prudential Financial $283
T. Rowe Price Group $268
All others $1,676
TOTAL $9,695

440  Id.  
441  Larry Rothman, Large Record Keepers Keep Dominating Market, PENSIONS & INVESTMENTS, 

(Apr. 11, 2022), available at https://www.pionline.com/interactive/large-record-keepers-keep-
dominating-market.

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c. Other Affected Entities

A significant portion of mutual fund orders are processed through NSCC’s Fund/SERV 

platform: in 2021 Fund/SERV processed 261 million mutual fund transactions with the aggregate

value of $8.5 trillion,442 which we estimate to be at least 36.8% of the value of all mutual fund 

transactions.443 A part of the platform, referred to as Defined Contribution Clearance & 

Settlement, focuses on purchase, redemption, and exchange transactions in defined contribution 

and other retirement plans. This service handled a volume of nearly 154 million transactions in 

2021.444 

Mutual funds may employ the services of third-party or affiliate transfer agents. We 

estimate that, as of March 2022, there are 99 mutual fund transfer agents that serve both open- 

and closed-end funds for the 2021 reporting year.445

442  See Depository Trust and Clearing Corporation (DTCC), 2021 Annual Report, pg. 57, available 
at https://www.dtcc.com/~/media/files/downloads/about/annual-reports/DTCC-2021-Annual-
Report. 

443  We do not have data to calculate the value of all mutual fund transactions directly. Therefore, we
use ICI data on long-term mutual funds’ portfolio purchases and sales as a proxy for the total 
value of transactions in mutual fund shares, assuming that a significant portion of portfolio 
purchases reflects investor subscriptions and a significant portion of portfolio sales reflects 
investor redemptions. We estimate this value to be $27.07 trillion by adding the total value of 
purchases and the total value of sales for long-term mutual funds. See ICI, 2022 Investment 
Company Factbook, Table 31, available at https://www.icifactbook.org/22-fb-data-tables.html.

We estimate the share of the value of mutual fund transactions processed by Fund/SERV as the 
aggregate value reported by Fund/SERV divided by the long-term mutual funds’ portfolio 
purchases and sales. We recognize that mutual funds may effect portfolio purchases and sales for 
purposes other than investing new cash from subscribing investors and meeting investor 
redemptions, such as portfolio rebalancing. Therefore, the total value of transactions in long-term 
mutual fund shares may be overestimated. Accordingly, the share of mutual fund transaction 
value processed by Fund/SERV may be underestimated. We also recognize that the aggregate 
value reported by Fund/SERV may or may not include the value of mutual fund transactions via 
DCC&S. To the extent that the reported value excludes such transactions, the share of mutual 
fund transaction value processed by Fund/SERV may be further underestimated. We solicit 
comments on these statistics. 

444  See id.
445  Mutual fund transfer agents are those transfer agents that answered with a positive value for any 

of Items 5(d)(iii-iv), 6(a-c)(iii-iv), or 10(a) on a Form TA-2. We note that the identified mutual 
fund transfer agents may serve both open-end and closed-end funds. To the extent that some of 

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We expect that a range of other entities would be affected by the proposal:

 Mutual fund order processing entities (besides Fund/SERV);

 Mutual fund liquidity service providers;

 Other third-party service providers.

We do not currently have data on the number and size of these entities. We solicit 

comments on these statistics. In addition, we solicit comment on what other entities would be 

affected by the proposed amendments.

C. Benefits and Costs of the Proposed Amendments

1. Liquidity Risk Management Program

The proposed rule would make several changes to the liquidity risk management 

framework adopted in 2016. In particular, it makes changes to (1) the manner and frequency in 

which funds must classify each of their portfolio holdings into one of several liquidity buckets; 

(2) the minimum amount a fund must hold in the highly liquid investment category; (3) the 

treatment of margin and collateral for certain derivatives transactions, for purposes of the highly 

liquid investment minimum and 15% limit on illiquid investments, as well as the treatment of a 

fund’s liabilities for purposes of the highly liquid investment minimum; and (4) the definition of 

the liquidity buckets, including illiquid investments. Whereas the existing rule provides funds 

with a considerable level of discretion regarding how fund investments are classified, as well as 

regarding the determination of a highly liquid investment minimum, the proposed rule would 

reduce that discretion and is intended to prepare funds for future stressed conditions by 

improving the quality of liquidity classifications by preventing funds from over- or under-

estimating the liquidity of their investments, including in times of stress. The proposed rule is 

the identified transfer agents only serve closed-end funds, the number of affected transfer agents 
may be over-estimated.

268



also intended to provide classification standards that are consistent with more effective practices 

the staff has observed across funds. As a result, we expect enhanced liquidity across open-end 

funds and lower risk of a fund not being able to meet shareholder redemptions without 

significant investor dilution, which could reduce the risk of runs arising from the first-mover 

advantage. Thus, the proposed amendments may improve overall market resiliency. 

The proposed amendments to the liquidity risk management program would impose costs

on open-end funds. We estimate, for Paperwork Reduction Act purposes, that the modification of

existing collection of information requirements of rule 22e-4 will result in an annual cost 

increase of $7,101 per fund.446 In addition, funds may experience other costs related to changing 

business practices, computer systems, integrating new technologies, etc. We are not able to 

quantify many of these costs for several reasons. First, we do not have granular data on the 

current systems, business practices, and operating costs of all affected parties, which would 

allow us to estimate how their systems and practices would change along with any associated 

costs. Second, we cannot predict how many funds would respond to the proposed changes to the 

liquidity risk management program by changing their portfolio allocation in order to be 

compliant with the proposed highly liquid investment minimum and the 15% limit on the illiquid

investments and how many funds may choose to convert to the closed-end form or cease to exist.

Finally, we cannot predict how many investors would decide to exit open-end funds in a 

response to the portfolio allocation changes that funds may implement as a result of the proposed

amendments to the liquidity risk management. We request comment on these and other potential 

costs of the proposed changes to the liquidity risk management program, particularly any dollar 

estimates of the costs that funds and other affected parties will incur as a result of the rule.

446  See infra section IV.B.

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a. Methodology for Liquidity Classifications

The proposed rule would substitute the fund’s reasonably anticipated trade size 

determination with a stressed trade size (“STS”) determination, with an STS being a set 

percentage of the fund’s net assets. The proposed rule would also prescribe specific methods to 

determine when a price change should be considered “significant” and remove the funds’ ability 

to perform liquidity classification at the asset-class level.

Generally, the three proposed amendments to the liquidity classification methodology 

may help funds to prepare better for future stress events or periods of high levels of redemptions 

by improving the quality of liquidity classifications via the requirement for more frequent 

classification and making the methodology more disciplined, objective, and consistent across 

funds. This, in turn, may help funds meet investor redemptions without significant trading costs, 

potentially decreasing dilution risk. We recognize, however, that the proposed liquidity 

classification methodology would still be dependent on the size of an investment position within 

a fund’s portfolio relative to the size of the market for the investment. Therefore, although funds 

would follow a more standardized methodology for liquidity classifications, the same investment

could be classified differently by different funds, depending on how much of this investment a 

fund holds, thereby reducing comparability of liquidity classifications between different funds. 

The specific economic effects for each of three proposed amendments are discussed below. 

i. Replacing Reasonably Anticipated Trade Size with   
Stressed Trade Size

Funds may currently use their subjective judgment when determining the meaning and 

calculation of reasonably anticipated trade size. The proposed requirement to replace the 

reasonably anticipated trade size with the STS as a set percentage of a fund’s net assets would 

decrease such subjectivity because funds would no longer have discretion in determining the 

270



amount of each investment they should assume will be sold or disposed of in determining the 

liquidity classifications. A stricter methodology for liquidity classifications of funds’ investments

may be more objective and consistent, which would benefit investors by improving funds’ ability

to meet investor redemptions without significant levels of dilution in both normal and stressed 

market conditions. In particular, requiring a fund’s classification model to assume the sale of the 

proposed stressed position size would better emulate the potential effects of stress on the fund’s 

portfolio and help better prepare a fund for future stress or other periods where the fund faces 

higher than typical redemptions. In addition, to the extent that the proposed STS would be 

simpler and more objective than the determination of a reasonably anticipated trade size, all else 

equal, the operational burden or costs that funds currently experience in making liquidity 

classifications may be reduced.

We also propose to set the STS minimum of 10%. Based on an analysis of historical 

weekly fund flows for equity and fixed income funds, we estimate that a random fund in a 

random week has approximately a 0.5% chance of experiencing redemptions in excess of the 

10% STS, and there were 3.4% of weeks where more than 1% of funds experienced net 

redemptions exceeding 10%.447 Although this data analysis implies that funds infrequently 

experience redemptions of 10% or more, we believe that the 10% STS has the advantage of 

simulating a stress event and would better prepare funds to accommodate redemptions during 

such events. Although funds could consider events larger than 10% for their STS calculation 

voluntarily, we believe that the proposed requirement would achieve a more consistent 

447  An analysis of historical Morningstar weekly fund flow data for equity and fixed income funds 
from 2009 through 2021 shows that the 1st percentile flow is approximately -6.6% while the 5th 
percentile flow is approximately -1.3%. The same analysis shows that the 10% STS corresponds 
to approximately the 0.5th percentile of pooled weekly fund flows. The same analysis shows that 
if the 5th percentile fund flow is computed for each week, it never exceeds the 10% STS. If the 
1st percentile fund flow is computed for each week, it exceeds the 10% STS for approximately 
3.4% of the weeks in the sample.

271



methodology for liquidity measurement across funds. However, we recognize that specific funds 

may experience varying costs and benefits associated with the 10% STS. For example, two funds

with comparable levels of AUM but with underlying investments that have different liquidity 

characteristics may experience stress at different levels of redemptions. For example, a large-cap 

equity fund may not experience stress at the 10% level of redemptions, whereas a fixed income 

fund with comparable AUM might. As such, the extent to which investors of a given fund benefit

from the 10% STS will vary based on the liquidity of its underlying investments.448

Funds and their investors may incur costs as a result of replacing reasonably anticipated 

trade size with the STS. To the extent that funds would assign a higher liquidity category under 

the current reasonably anticipated trade size approach compared to the liquidity category that 

would be assigned using the proposed STS, the proposed amendment may result in funds 

rebalancing their portfolios in order to meet the highly liquid investment minimum and to 

comply with the limit on the illiquid investments. As such, a fund either may have to increase its 

holdings of highly liquid investments or decrease its holdings of moderately liquid and illiquid 

investments. As a result, the risk-return profile of the fund’s portfolio would change towards 

more liquid and less risky investments that may have lower returns. To the extent that such 

reallocation would result in deviations from a benchmark return (if any), funds may experience 

higher tracking error.449 In addition, to the extent that investors seek particular risk exposures and

returns that would be difficult for the affected funds to provide under the proposed amendments, 

the proposed amendments may drive them towards other investment vehicles that do not face 

daily redemptions, such as closed-end funds, or to other vehicles or means of investing that are 

448  See also section III.B.4.a.ii for discussion of fund flows based on fund type.
449  Tracking error is the difference between the fund’s return and that of the benchmark which 

measures how closely a fund replicates the returns of the identified benchmark.

272



not subject to the liquidity rule, such as separately managed accounts or CITs. However, to the 

extent that these other vehicles or means of investing do not offer the same investment strategies 

or do not provide the same benefits and protections as the open-end funds to investors, investors 

may find such investment avenues less favorable compared to open-end funds. As a result, the 

set of investment options available to investors with particular risk-return preferences may 

decrease. 

ii. Determining a Significant Change to Market Value  

Under the current rule, a fund may determine value impact (a “significant price change”) 

in a variety of ways, including methods that depend on the type of asset, or vendor, model, or 

system used. The proposed amendments would establish a uniform standard of how funds should

determine what constitutes a significant price change, which would improve consistency and 

objectivity of liquidity classification methodologies across mutual funds. To the extent that some

funds may currently use definitions of a significant price change that result in under-estimation 

of the price impact and classification of investments in more liquid categories, the proposal 

would limit the extent to which funds are able to do so. This, in turn, would help funds to prepare

better for potential stress events and potentially reduce the risk of not being able to meet 

investors’ redemptions without incurring significant trading costs, thereby decreasing dilution 

risk. The proposed amendment may also decrease ongoing costs related to the liquidity 

classification process, all else equal, by reducing the number of determinations a fund must 

perform during the liquidity classification process.

For shares listed on a national securities exchange or a foreign exchange, the proposed 

rule would require funds to use an average daily trading volume threshold of 20% to determine 

273



whether a trade will cause a significant price change.450 Funds will have less discretion in this 

circumstance than under the existing rule. This should result in a more robust and consistent 

liquidity classification process that would help ensure that the liquidity classifications for all 

holdings of a certain investment of particular size are classified in the same manner across funds 

which, in turn, may help all funds to prepare better for periods of high investor redemptions.  

For any investments other than shares listed on a national securities exchange or a foreign

exchange, the proposed rule would define a significant change in market value as any sale or 

disposition that a fund reasonably expects would result in a decrease in sale price of more than 

1%, which is the measure used in several commonly employed liquidity models.451 This 

alternative measure is proposed because we recognize that average daily trading volume in, for 

example, a single bond issue would not be representative because it does not represent the full 

pool of liquidity available for a debt security, since bonds are split into many different issues and

differ from common shares, where volume is concentrated because there generally is only one 

class of shares for each issuer.

Although not all liquidity classification models currently specify a price decrease 

explicitly as the determination for a significant change in market value, we believe it would 

improve the quality of classifications to require a more objective principle. However, the 

proposed rule may still result in some heterogeneity in how funds classify otherwise similar 

holdings because funds and liquidity classification vendors would still be able to choose which 

price impact model to use for their classifications,452 depending on the assumptions of the fund or

450  See supra section II.A.1.a.ii.
451  Id.
452  There are various estimation techniques for price impact (market impact), such as those that use 

linear models, power law models, log models, I-STAR model, and other. See, e.g., Albert S. 
Kyle, Continuous Auctions and Insider Trading, 53 ECONOMETRICA, 1315 (1985), Robert 
Almgren et. al., Direct Estimation of Equity Market Impact, 18 RISK 58 (2005); Elia Zarinelli et. 

274



a liquidity classification provider. As a result, liquidity classifications for the same investment of 

the same size may vary across funds, to the extent that funds or liquidity classification vendors 

have different theoretical assumptions about the same investment. For example, it may be 

difficult to choose a price impact model for assets that do not have readily available recent price 

information, and funds may have to use subjective judgment in determining the sale amount that 

constitutes a significant change in market value. To the extent that such subjectivity could still 

result in over-estimation of liquidity of funds’ investments, the potential increase in the ability of

funds to meet investors’ redemptions without significant dilution under the proposed rule may be

lower than anticipated. In addition, to the extent that the reference price against which the price 

impact is calculated is stale for some investments (i.e., investments that are traded infrequently), 

the estimated trading volume that would not cause a significant price change may be less 

accurate for such investments. 

iii. Removing Asset Class Classification   

The proposal to remove funds’ ability to perform liquidity classifications at the asset-

class level may improve the quality of liquidity classifications by reducing the potential of funds 

over- or under-estimating the liquidity of their investments. Currently, because the definitions of 

asset classes are not consistent across funds in terms of their scope and granularity, an 

investment (of the same size) could be classified as belonging to different asset classes by 

al., Beyond the Square Root: Evidence for Logarithmic Dependence of Market Impact on Size 
and Participation Rate, MARKET MICROSTRUCTURE AND LIQUIDITY no. 2 (Dec. 5, 2014) 
available at https://arxiv.org/pdf/1412.2152.pdf; Bence Toth, et.al, Anomalous Price Impact and 
the Critical Nature of Liquidity in Financial Markets (working paper, Nov. 1, 2011), available at 
https://arxiv.org/abs/1105.1694; Robert Kissell et. al., OPTIMAL TRADING STRATEGIES: 
QUANTITATIVE APPROACHES FOR MANAGING MARKET IMPACT AND TRADING RISK, (AMACON 
2003); Saerom Park et. al., Predicting Market Impact Costs Using Nonparametric Machine 
Learning Models (research article Feb. 29, 2016), available at 
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0150243. 

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https://arxiv.org/abs/1105.1694


different funds. Moreover, if a classification is performed on an asset-class basis, changes in 

liquidity profiles of individual investments may not be accounted for in the way these 

investments are classified, which may lead to an over- or under-estimation of funds’ 

investments’ liquidity. In contrast, under the proposal, funds would more specifically gauge the 

liquidity of each investment, which could strengthen their liquidity management, potentially 

decreasing the risk of not being able to meet investors’ redemptions without significant costs that

could arise from an over-estimation of fund’s investments’ liquidity. To the extent that the 

liquidity classifications of investments within the same asset class would not differ between 

asset-level and investment-level classifications, the proposal to remove funds’ ability to perform 

liquidity classifications on the asset-class level may increase ongoing operational burden for 

funds that rely on this classification method without any commensurate benefits. However, the 

asset-class level classification is not expected to be compatible with other proposed changes to 

the liquidity risk management program, such as the value impact standard. Specifically, a fund 

would not be able meaningfully to apply a standard based on average daily trading volume or a 

price decline in a given investment at the asset class level because the average trading volume, or

market depth generally, can vary from investment to investment even within the same asset class.

b. Removal of the Less Liquid Category

We propose to eliminate the less liquid investment category. Currently, investments are 

defined as less liquid if it is reasonably expected that they could be sold within seven calendar 

days but the sale is reasonably expected to settle in more than seven days. Under the proposal, 

investments that do not sell and settle within seven calendar days without significant price 

change would be classified as illiquid. We believe that the proposal to remove the less liquid 

276



category would primarily affect open-end funds that hold bank loan interests, as the most 

common type of investment in this category is bank loan interests.453 

On the one hand, recent research suggests that during the period between March 1 and 23

of 2020, bank loan mutual funds experienced outflows of approximately 11% of their AUM; 

substantially higher than high-yield bond funds (which investors may consider close substitutes 

to bank loan funds) and all other types of funds.454 Moreover, these outflows had longer duration,

which suggests greater risk of investor runs in these funds. On the other hand, other research455 

examines the resilience of bank loan funds to liquidity shocks and does not find substantial 

evidence of lower liquidity among bank loan funds compared to corporate bond funds generally. 

However, the risk of not being able to meet investor redemptions within seven days without 

significant costs may be higher for bank loan funds compared with other types of funds, as the 

trading costs related to bank loan fund outflows (including costs associated with obtaining 

financing to bridge the settlement gap) may be larger than those of other types of funds. 

Specifically, as noted by LSTA, over the course of the first three weeks of March of 2020, bid-

ask spreads for bank loans widened by 288 basis points to a record 422 basis points.456 In 

contrast, recent research shows that, between February 3 and March 20 of 2020, high-yield 

453  See supra section III.B.4.a.
454 Nicola Cetorelli et. al., Outflows From Bank-Loan Funds During COVID-19, Federal Reserve 

Bank of New York, LIBERTY STREET ECONOMICS (June 16, 2020), available at 
https://libertystreeteconomics.newyorkfed.org/2020/06/outflows-from-bank-loan-funds-during-
covid-19/. See also Ayelen Banegas & Jessica Goldenring, Leveraged Bank Loan Versus High 
Yield Bond Mutual Funds, FIN. & ECON. DISCUSSION SERIES 2019-047 (Board of Governors of 
the Federal Reserve System, Washington, D.C.), Jun. 2019, (“Banegas/Goldenring paper”) 
available at https://www.federalreserve.gov/econres/feds/leveraged-bank-loan-versus-
high-yield-bond-mutual-funds.htm. This paper finds that, as of end of 2018, flows as a share 
of assets have been larger and more volatile for bank loan funds than for high-yield bond funds.

455  Mustafa Emin et. al., How Fragile Are Loan Mutual Funds? (working paper, Nov. 18, 2021) 
available at https://ssrn.com/abstract=4024592 (retrieved from SSRN Elsevier database). 

456  See Loan Syndication & Trading Association (LSTA), March Loan Returns (April 2, 2020), 
available at https://www.lsta.org/news-resources/march-loan-returns-total-12-37.

277

https://www.lsta.org/news-resources/march-loan-returns-total-12-37
https://sharepoint/sites/IM/Rulemaking/LiquidityAntiDilution/Proposal/March%20Loan%20Returns%20(April%202,%202020),
https://sharepoint/sites/IM/Rulemaking/LiquidityAntiDilution/Proposal/March%20Loan%20Returns%20(April%202,%202020),
https://ssrn.com/abstract=4024592%20
https://www.federalreserve.gov/econres/feds/leveraged-bank-loan-versus-high-yield-bond-mutual-funds.htm
https://www.federalreserve.gov/econres/feds/leveraged-bank-loan-versus-high-yield-bond-mutual-funds.htm
https://libertystreeteconomics.newyorkfed.org/2020/06/outflows-from-bank-loan-funds-during-covid-19/
https://libertystreeteconomics.newyorkfed.org/2020/06/outflows-from-bank-loan-funds-during-covid-19/


corporate bonds’ bid-ask spreads widened by an estimated range between 79457 and 166458 basis 

points to 102 and 223 basis points respectively. 

Moreover, bank loan funds, unlike other funds, experience specific trading costs related 

to bridging the settlement gap, i.e., the costs related to using financing during the time it takes for

a loan trade to settle. Although other types of open-end funds may use bank credit lines, most 

instruments held by open-end funds do not come with the same level of settlement uncertainty. 

Because the process of trade settlement for bank loans is not standardized and involves many 

parties, the settlement process can take longer. Therefore, when an open-end fund sells a bank 

loan interest, it is possible that the trade will not be settled for an extended amount of time. As 

shown in Table 7 below, bank loan funds on average use higher amounts of financing via credit 

lines and use them for longer/shorter period of time on average.

Table 7: Open-End Funds’ Use of Credit Lines by Fund Type, as of December 2021.459 

 
Number
of Funds

Has Line
of Credit

Used Line
of Credit

Avg. Credit
Line Use

Avg. Number
of Days Used

Bank Loan 56 48 9 $29,411,240 114
Other Categories 8,979 5,462 969 $8,431,142 24
Total 9,035 5,510 978 $8,624,210 24

In contrast, high yield bonds primarily have T+2 settlement. Although high yield bonds 

may have the same or lower liquidity compared to bank loans,460 from the perspective of funding 

457  See Nina Boyarchenko, et. al., It's What You Say and What You Buy: A Holistic Evaluation of the
Corporate Credit Facilities (working paper no. 8679, Nov. 11, 2020), available at 
https://ssrn.com/abstract=3728422 (retrieved from SSRN Elsevier database).   

458  See Simon Gilchrist, et. al., The Fed Takes On Corporate Credit Risk: An Analysis of the 
Efficacy of the SMCCF (working paper no. 2020-18, Apr. 20, 2021), available at 
https://ssrn.com/abstract=3829900 (retrieved from SSRN Elsevier database).

459  N-1A RIC credit line usage is from Form N-CEN, and excludes ETFs and MMFs. Data is as of 
Dec. 2021, incorporating filings received through June 3, 2022.

460  See supra, note 455. Authors show that, controlling for the fund size and rating, bank loan 

278

https://ssrn.com/abstract=3829900
https://ssrn.com/abstract=3728422


investor redemptions, bank loans are less certain to be converted to U.S. dollars within a specific 

timeframe. As a result, when engaging in financing to bridge the settlement gap, a fund that sells 

a high-yield bond would likely use the credit line only for two days while a fund that sells a bank

loan will have to use it for a longer period. This, in turn, may increase the risk of bank loan funds

not being able to meet investor redemptions within seven days without imposing additional 

financing costs on fund investors, which may increase dilution. Therefore, we believe that a limit

on the amount of time a trade is reasonably expected to settle and convert to U.S. dollars to 

qualify as a non-illiquid investment is intended to promote liquidity in open-end funds and 

reduce investor dilution from trading costs, including wide bid-ask spreads and the costs related 

to bridging the gap between the maximum time allowed to meet investor redemptions and 

prolonged settlement of certain investments.461

The removal of the less liquid category may also reduce the risk of runs in the open-end 

fund sector. As discussed above, bank loan funds may be more prone to sector-wide outflows 

compared to other types of funds due to the low dispersion of returns across bank loan funds 

(i.e., the correlation of bank loan fund returns is higher relative to the correlation of returns for 

other types of funds), which may lead to further redemptions and higher investor dilution, and 

may consequently be amplified by a fund’s usage of financing for a prolonged period of time. To

the extent that bank loan funds rebalance their portfolios to hold bank loans with shorter 

settlement times, investor dilution and the risk of runs on bank loan funds may be reduced.

liquidity is similar to or greater than liquidity of similarly rated public bonds. The authors 
construct two indirect measures of liquidity: the first measure is based on the difference between 
the transaction prices and net asset values (NAVs) of shares of loan and high yield bond ETFs; 
the second measure is the perceived liquidity of corporate bonds based on the relationship among 
cash holdings, flow volatility, and fund holdings. See also Sergey Chernenko & Adi Sunderam, 
Measuring the Perceived Liquidity of the Corporate Bond Market (working paper no. 27092, 
May 2020), available at https://www.nber.org/papers/w27092.

461  See also section II.A.1.b.iii.

279

https://www.nber.org/papers/w27092


Open-end funds may experience costs as a result of this amendment.462 First, open-end 

funds would experience a one-time switching cost to adapt the classification and reporting 

systems for the removal of the less liquid category, which would be passed on to funds’ 

investors. To the extent that the settlement time for bank loan interests cannot be reduced, these 

loan interests would have to be reclassified as illiquid. As a result, funds that hold these 

investments may be required to rebalance their portfolio by divesting from bank loans interests in

order to comply with the maximum allowed allocation towards illiquid investments, which may 

result in both aggregate holdings and individual portfolio concentrations of bank loan interests 

among open-end funds to be reduced. Such portfolio reallocation may result in one-time 

switching costs that would be passed on to investors. In addition, to the extent that portfolio 

concentration of bank loan interests decreases significantly for some bank loan funds as a result 

of the proposal, these funds’ investment strategy would have to be redefined. Moreover, to the 

extent that some funds would not be able to successfully rebalance their portfolios away from 

bank loan interests with longer settlement times without losing investors, these funds may cease 

to exist or may seek shareholder approval to convert to a closed-end form.

Furthermore, to the extent that such portfolio reallocation results in lower fund returns, 

this may drive investors of these funds to either substitute their investments in open-end bank 

loan funds to other types of open-end funds or choose other types of funds or investment vehicles

that are able to hold higher amounts of bank loan interests. To the extent that these other vehicles

or means of investing do not offer the same investment strategies or do not provide the same 

benefits and protections as the open-end bank loan funds to investors, investors may find such 

462  We recognize that those funds that primarily hold bank loan interests with shorter settlement 
times may be less affected by this proposed amendment. For example, loans that are larger in 
size, more standardized, and more frequently traded, such as those that are a part of S&P/LSTA 
U.S. Leveraged Loan 100 Index, may have shorter settlement times.

280investment avenues less favorable compared to open-end bank loan funds. As a result, the set of 

investment options available to investors with this particular strategy preference may decrease. 

This effect may be more pronounced for retail investors who generally have limited access to the

bank loan market and to private funds that may hold bank loan interests.

To the extent that investor demand for holding bank loans in a fund structure is high, 

some funds may choose to restructure as closed-end funds, in order to be able to keep their 

current holdings of bank loan interests. The funds that choose to do so may experience one-time 

switching costs related to shareholder votes for the fund conversion, such as costs of preparing 

and distributing proxy materials and costs associated with the solicitation process.463 In addition, 

some investors may rush to redeem their shares before the conversion which may increase 

dilution of the remaining investors. 

However, we recognize that while operational constraints may play a role in why 

settlement times for bank loan interests are prolonged, misaligned incentives of trading parties 

(such as delayed settlement compensation) and a collective action problem may also be 

important factors in determining settlement time for bank loan interests.464 Therefore, to the 

extent that it is currently operationally possible to have a shorter settlement time for bank loan 

interests, and to the extent that non-fund transaction parties would be able to speed up the 

settlement process at a relatively low cost, open-end bank loan funds may not have to rebalance 

their portfolios or restructure to a closed-end form under the proposal. 

463  We recognize that there may be other costs funds could incur to convert to a closed-end fund, 
such as potential exchange listing costs or costs of conducting periodic repurchase offers.

464  See supra section II.A.1.b.i and note 106.

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c. Definition of Illiquid Investments

We propose to amend the definition of illiquid investments to include investments whose 

fair value is measured using an unobservable input that is significant to the overall 

measurement.465 We recognize that, in light of the proposed removal of the less liquid category, 

only a small fraction of these investments that are classified as highly liquid or moderately liquid

would be affected by this proposed amendment. We estimate that approximately 0.07% of all 

open-end fund assets would be affected by this amendment.466 Therefore, we do not anticipate 

that this amendment would significantly impact open-end fund sector.

This amendment may improve the quality of investments’ liquidity classifications. To the

extent that valuation using unobservable inputs that are significant to the overall measurement 

may have an increased risk that the fund cannot sell the investment in time to meet redemptions 

without dilution, classifying such investments as illiquid may reduce this risk. To the extent that 

this risk results in investor dilution, and to the extent that the overall open-end funds’ holdings of

these investments would decrease as a result of this amendment, investor dilution may be 

reduced and overall liquidity of funds that hold such investments may increase as a result. 

Although we understand that some funds already have a practice of classifying these 

investments as illiquid, this amendment may result in a one-time switching cost for funds that do 

not currently follow this practice. In addition, to the extent that some funds hold a significant 

share of their portfolio in such investments and these investments are not currently classified as 

illiquid, these funds would have to rebalance their portfolios and potentially change their 

investment strategy.

465  See supra note 112.
466  See supra section III.B.4.a.

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d. Proposed Minimum for Highly Liquid Investments

Rule 22e-4 currently requires a fund to determine a highly liquid investment minimum if 

it does not primarily hold investments that are highly liquid investments. We propose for open-

end funds to have a highly liquid investment minimum of at least 10% of the fund’s net assets, 

which is the assumed stressed trade size.467 In addition, we propose to remove the provision 

allowing funds not to establish a highly liquid investment minimum if they “primarily” hold 

highly liquid assets. 

Requiring a highly liquid investment minimum that is equal to or above the assumed 

stressed trade size of 10% of net assets may benefit funds and their investors by creating more 

standardized liquidity risk management among funds, thereby increasing their liquidity and 

helping all mutual funds to be better prepared to meet investor redemptions without incurring 

significant trading costs. A higher amount of liquid assets may help fund managers to avoid 

transacting at fire-sale prices during market stress and, therefore, control trading costs better over

time. This, in turn, may decrease dilution risk for fund shareholders.468 By requiring a minimum 

of 10% of highly liquid assets, we set a minimum baseline level of liquidity that would help 

reduce dilution risk. 

Funds may experience costs as a result of the proposed requirement. We recognize that 

funds that currently have an established highly liquid investment minimum already have the 

procedures in place for ongoing monitoring for meeting the minimum. As such, we do not expect

the direct compliance costs related to meeting the highly liquid investment minimum, such as 

467  See supra note 69 (recognizing that in-kind ETFs would not be subject to the proposed highly 
liquid investment minimum amendments).

468  Section III.B.3.b analyzes the frequency of large percentage redemptions from funds. We 
recognize that if a fund were to experience a 10% redemption, it could sell primarily its highly 
liquid assets (which would then be significantly more than 10% of each of these holdings), or it 
could sell a vertical slice of its portfolio, in which case it would sell 10% of all assets. 

283



monitoring costs and costs related to shortfall policies and procedures, to increase for these 

funds. However, those funds that have an established minimum of less than 10% may have to 

rebalance their portfolios in order to meet the proposed requirement if they do not hold more 

highly liquid investments than the proposed requirement. In addition, funds may need to shift 

their portfolios away from less liquid holdings, potentially leading to higher tracking error 

relative to their benchmarks (if any)469 and lower returns. However, a higher amount of liquid 

investments may help fund managers to control trading costs better over time, which may result 

in a higher long-term returns for investors. Therefore, the return loss of holding more liquid 

investments (relative to less liquid investments) may be fully or partially offset by the savings on

funds’ trading costs.470 

To the extent that some open-end funds’ portfolio allocations change significantly as a 

result of this proposal, these funds may experience additional costs related to disclosure of 

changes to the fund’s allocations and/or strategy and costs related to a potential change of the 

fund’s name. These costs would be passed on to fund investors.

Funds that do not currently have an established highly liquid investment minimum may 

experience a one-time switching cost related to establishing shortfall policies and procedures and

to reviewing the highly liquid investment minimum at least annually as a result of the proposed 

amendment. Funds may also experience one-time switching costs related to establishing 

monitoring procedures related to the highly liquid investment minimum. To the extent that some 

funds that do not currently have an established highly liquid investment minimum are able to 

leverage the experience of the funds in the same complex that do have an established highly 

liquid investment minimum, these one-time switching costs may be reduced for these funds. 

469  See supra note 449.
470  See supra note 351 and accompanying text.

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The proposal to remove the provision allowing funds to not establish a highly liquid 

investment minimum if they “primarily” hold highly liquid assets may eliminate compliance 

costs related to monitoring whether a fund primarily holds highly liquid assets. Because funds 

that hold a substantial amount of highly liquid investments would generally hold an amount of 

highly liquid investments that is above the proposed 10% highly liquid investment minimum, a 

separate compliance system that would identify whether a fund “primarily” holds highly liquid 

assets may be operationally inefficient. We believe that the “primarily” determination would 

become unnecessary in light of the proposed highly liquid investment minimum that would be 

applicable to all funds. We recognize that cost savings from the removal of the “primarily” 

provision would be partially or fully offset by the cost increase stemming from the proposed 

highly liquid investment minimum because funds currently relying on the “primarily” provision 

would have to build a compliance and monitoring systems around the highly liquid investment 

minimum. 

e. Amendments to Calculation of the Amount of Assets that 

Count Toward the Highly Liquid Investment Minimum or the Limit 

on Illiquid Investments

We also propose to amend how the highly liquid investment minimum calculation and 

the calculation of the 15% limit on illiquid investments account for the value of assets that are 

posted as margin or collateral for certain derivatives transactions, as well as the value of fund 

liabilities in the case of the highly liquid investment minimum. Specifically, in assessing 

compliance with the fund’s highly liquid investment minimum, the proposal would require a 

fund to: (1) subtract the value of any highly liquid assets that are posted as margin or collateral in

connection with any derivatives transaction that is not classified as highly liquid; and (2) subtract

285



any fund liabilities. In addition, the proposal would amend the rule’s limitation on illiquid 

investments to provide that the value of margin or collateral that a fund could only receive upon 

exiting an illiquid derivatives transaction would itself be treated as illiquid for purposes of that 

limit.

The amendments to the highly liquid investment minimum calculation and the calculation

of the 15% illiquid investment limit may benefit funds and investors. Particularly, these 

amendments would require funds to calculate the amount of highly liquid investments and 

illiquid investments in a way that more accurately reflects the amount of assets a fund could sell 

quickly to meet redemptions without significant dilution and the amount of assets that could not 

be sold within seven days without significant trading costs respectively. This, in turn, would 

better prepare funds for periods of increased investor redemptions and thereby enhance investor-

protection benefits of funds’ liquidity risk management programs.

More specifically, we recognize that, although investments used for collateral are 

generally classified as highly liquid, the value of those highly liquid investments cannot be 

accessed unless the derivative is exited, which takes a longer time for derivatives classified as 

moderately liquid or illiquid. In addition, an unrealized loss on a derivative or other liability may 

result in a margin call, for which highly liquid investments may be used. Moreover, if a fund 

may use highly liquid investments to service its liabilities (e.g., paying interest on a loan), this 

fraction of highly liquid investments would also be unavailable to meet investors’ redemptions. 

While we recognize that funds generally already subtract investment liabilities when calculating 

highly liquid investment minimum,471 subtracting all of the fund’s liabilities may further reduce 

the amount of highly liquid investments available to satisfy the fund’s highly liquid investment 

471  See supra section II.A.2.b.ii.

286



minimum. Therefore, the amendments to the highly liquid investment minimum calculation 

would help to ensure that highly liquid investments used to satisfy the fund’s highly liquid 

investment minimum actually are available to meet shareholder redemptions. 

Similarly, the proposed amendment to add the value of excess collateral of illiquid 

derivatives investments to the amount of illiquid investments for the purposes of determining 

compliance with the 15% limit on illiquid investments would limit the extent to which the fund’s

assets would be unavailable to meet redemptions because of the fund’s associated illiquid 

derivatives investments. This amendment would effectively increase the amount of illiquid 

investments a fund holds, potentially pushing these holdings over the 15% limit and triggering 

the compliance procedures for going over the limit, which may impose additional costs on the 

fund. 

The proposed amendments may result in funds rebalancing their portfolios in order to 

meet the highly liquid investment minimum and comply with the limit on illiquid investments. 

Depending on the value of highly liquid assets a fund has that are posted as collateral or margin 

for non-highly liquid derivatives and the value of the fund’s liabilities relative to the fund’s total 

amount of highly liquid investments, under the proposed amendment, a fund may have to either 

increase its holdings of highly liquid assets or decrease its holdings of moderately liquid and 

illiquid derivatives in order to meet the highly liquid investment minimum. A fund similarly may

have to decrease its holdings of illiquid investments or increase its holdings of highly liquid or 

moderately liquid investments as a result of the proposed amendment to the calculation of the 

limit on illiquid investments. To the extent that such portfolio reallocation would significantly 

change a fund’s strategy, funds may experience additional costs related to disclosure of changes 

to the strategy. In addition, the risk-return profile of the fund’s portfolio may change towards 

287



more liquid and less risky investments that may have lower returns. To the extent that some 

investors demand higher returns, they may choose to invest in other investment vehicles that 

could offer higher returns. 

f. Other Amendments Related to Liquidity Categories 

We also propose other amendments related to the liquidity classification categories. First,

we propose to amend the term “convertible to cash” and its definition to instead refer to 

conversion to U.S. dollars, codifying prior Commission statements. Second, we propose to 

specify that funds must count the day of classification when determining the period in which an 

investment is reasonably expected to be convertible to cash. Third, we propose to simplify the 

definition of moderately liquid investments as those that are neither a highly liquid investment 

nor an illiquid investment.

To the extent that, at present, open-end funds use differing definitions of convertible to 

cash and may inconsistently include or exclude the day of liquidity classification when 

performing the classifications, the two related proposed amendments would benefit funds and 

investors, as these amendments may improve the quality of liquidity classifications by reducing 

over- or under-estimation of investments’ liquidity, thereby potentially reducing trading costs 

related to investors’ redemptions. On the other hand, open-end funds that do not currently define 

“convertible to cash” as convertible to U.S. dollars, which may include some funds that invest in 

foreign securities, and open-end funds that do not currently count the day of classification during

the classification process may experience a one-time switching cost. In addition, these funds may

have to rebalance their portfolios, to the extent that their current approach results in an over-

estimation of investments’ liquidity. 

288



g. Frequency of Liquidity Classifications

Currently, rule 22e-4 requires that funds review their liquidity classifications at least 

monthly and more frequently if changes in relevant market, trading, and investment-specific 

considerations are reasonably expected to materially affect one or more of their investments’ 

classifications. We propose to require that funds classify all of their portfolio investments each 

business day.

To the extent that funds already monitor their classifications on a daily basis in order to 

be in compliance with the current highly liquid investment minimum and 15% limit on illiquid 

investments requirements, we believe that this amendment likely will not produce significant 

additional benefits or costs. However, to the extent that funds do not monitor their classifications

daily, or to the extent that monitoring classifications is a less stringent procedure relative to 

performing classifications for the funds that do monitor classifications daily, this amendment 

may produce benefits and costs.

On the one hand, requiring daily liquidity classification could help ensure efficient 

implementation of funds’ liquidity management programs and enhance their investor protection 

benefits. Specifically, daily liquidity classifications may help funds identify changes in liquidity 

profiles of their investments in a timelier manner and monitor potential increases in trading costs 

for specific investments, thereby preparing funds for more efficient trading during times of 

increased redemptions and increasing their ability to respond more quickly to rapid changes in 

liquidity of portfolio investments, which may decrease investor dilution. In addition, the daily 

classification requirement, in combination with the proposed standards for trade size and value 

impact, may make the liquidity classification process more standardized, timely, and efficient. 

289



On the other hand, funds may experience a one-time set-up cost and increased ongoing 

costs as a result of this amendment. First, those funds that generally do not evaluate their 

classifications more frequently than monthly would have to change their systems for performing 

classifications on a daily basis. In addition, these funds would experience increased ongoing 

costs due to increased frequency of classifications.472 Second, those funds that already monitor 

their classifications on a daily basis would have to change their systems, to the extent that 

monitoring classifications on a daily basis is a different procedure compared to the proposed 

requirement to perform classifications. 

In addition, in times of market stress some highly liquid investments may become less 

liquid due to unusual selling pressure (e.g., Treasuries during March 2020), and more frequent 

classification may move these investments to less liquid buckets. In such instances where funds 

do not typically expect highly liquid investments to decrease in liquidity, more frequent 

reclassification of these investments may not help funds better accommodate increased 

redemptions compared to the baseline.473 However, to the extent funds would prefer to avoid 

triggering events that would cause additional compliance requirements such as Form N-RN 

filings, the potential for some investments to become less liquid in times of market stress could 

incentivize funds to be more conservative, ex-ante, in how they classify holdings and manage 

472  Under the proposed amendments, a more frequent classification may not necessarily result in 
more frequent portfolio rebalancing. For example, if a fund exceeds the 15% illiquid threshold, it 
would not have to sell its illiquid investments, rather it would not be able to acquire more. In 
addition, if a fund falls below the highly liquid investment minimum, it would still be able to 
purchase and sell highly liquid investments. However, both of these events would trigger filing of
Form N-RN.

473  For example, during Mar. 2020 the liquidity of U.S. government securities unexpectedly 
decreased. Under the proposal, this event would trigger more rapid re-classification into a lower 
liquidity category. However, because of the unexpected nature of this event, a fund would still 
not be prepared to immediately meet an increased level of redemptions.

290



liquidity risk. This, in turn, may result in funds investing in more liquid assets, thereby 

decreasing the dilution risk in the mutual fund sector.

2. Swing Pricing

The proposed amendments would make several changes to the swing pricing framework 

adopted by the Commission in 2016. In particular, the proposed amendments would (1) require 

funds to implement swing pricing for each pricing period when a fund has any amount of net 

redemptions or when net subscriptions exceed 2% of the fund’s NAV; (2) establish specific 

thresholds that determine when a fund is required to adjust its NAV and the factors a fund needs 

to incorporate into its swing factor; (3) require that swing factors are calculated assuming a 

vertical slice of the fund’s portfolio; and (4) remove the upper limit on the swing factor of 2%. 

By requiring all funds to implement swing pricing, the proposed amendments would impose the 

estimated trading costs associated with redemptions and subscriptions onto investors whose 

transactions generate these costs, reducing the dilution of non-transacting fund shareholders. As 

such, the proposed amendments are also intended to reduce the first-mover advantage that stems 

from the dilution of non-transacting shareholders, particularly during stressed market conditions. 

The proposed swing pricing framework would impose costs on mutual funds that would 

be passed on to their investors. We estimate, for Paperwork Reduction Act purposes, that the 

modification of existing collection of information requirements of rule 22c-1 associated with 

establishing and implementing swing pricing policies and procedures, board reporting, and 

recordkeeping will result in an annual cost increase of $7,775 per fund.474 Funds would also incur

additional operational costs associated with establishing and implementing swing pricing policies

and procedures, including the periodic calculation of swing factors associated with the swing 

474  See infra section IV.C.

291



pricing framework’s thresholds.475 In addition, the economic benefits of swing pricing would be 

offset by the costs associated with the proposed hard close requirement.476 Finally, to the extent 

that the proposed swing pricing framework would make mutual funds less attractive to investors,

mutual funds may experience investor outflows and/or reduced inflows. 

We are not able to quantify many of the costs associated with the proposed swing pricing 

framework for several reasons. First, we do not have granular data on the current practices and 

operating costs for all funds, which might allow us to estimate how their systems would change 

as a result of the proposed swing pricing requirement. Second, we cannot predict the number of 

investors that would choose to keep their investments in the mutual fund sector nor the number 

of investors that would exit mutual funds and instead invest in other fund structures such as 

ETFs, closed-end funds, or CITs. We also cannot estimate how many funds would choose to 

upgrade their systems and processes in order to comply with the proposed swing pricing 

requirement versus how many funds would instead convert to an ETF or a closed-end structure. 

We request comment on the full costs of the swing pricing requirement, particularly any dollar 

estimates of the costs that funds and other affected parties will incur as a result of the rule.

a. Mandatory Swing Pricing

At present, rule 22c-1 permits mutual funds to use swing pricing, and yet no U.S. open-

end fund has chosen to use it as an anti-dilution tool. We propose to require all affected mutual 

475  Note that the swing factor itself in theory does not impose a net cost across all types of 
shareholders. Instead, swing pricing affects a zero-sum distribution of estimated future trading 
costs among transacting and non-transacting shareholders. The dilution that different types of 
fund shareholders ultimately experience will reflect this distribution in addition to the actual 
trading costs incurred by the fund from transactions that accommodate investor subscriptions or 
redemptions. Beyond the economic effects of the swing factor itself, the processes for calculating 
and applying the factor as well as the hard close will impose additional costs on all shareholders 
and intermediaries, which are discussed below.

476  See infra section III.C.3 for a detailed discussion of benefits and costs of the proposed hard close
requirement.  

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funds to use swing pricing. In particular, we propose to require every fund to establish and 

implement swing pricing policies and procedures that would adjust the fund’s NAV per share by 

a swing factor either if the fund has net redemptions of any amount or if the fund has net 

subscriptions that exceed an identified threshold. 

We expect the proposed mandatory swing pricing requirement to benefit investors. First, 

swing pricing would protect non-transacting mutual fund investors because it would require 

transacting fund shareholders to bear the estimated trading costs that arise due to their trading 

activity. In contrast, currently, investors transacting in fund shares generally do not bear the costs

associated with their trading activity, imposing dilution on non-transacting shareholders.477 For 

example, an industry study on the use of swing pricing in other jurisdictions estimates that 

dilution effects can be significant, with effects on annual returns of selected funds in one 

complex ranging from 10 to 66 basis points in 2019.478 While these estimates from other 

jurisdictions may be based on fund transaction cost components that differ from the U.S., such as

those associated with government taxes and levies, to the extent that dilution effects are 

comparably significant in the U.S., the proposed mandatory swing pricing requirement would 

reduce the dilution of non-transacting fund shareholders.479 Second, mandatory swing pricing 

477  In this section when we discuss trading costs, we refer to both direct (e.g., spread costs) and 
indirect trading costs (e.g., market impact costs).

478  See BlackRock, Swing Pricing: The Dilution Effects of Investor Trading Activity on Mutual 
Funds (white paper, Oct. 2020), available at 
https://www.blackrock.com/corporate/literature/whitepaper/swing-pricing-dilution-effects-of-
trading-activity-on-mutual-funds-october-2020.pdf. To our knowledge, such data on fund dilution
are not available for the U.S. and we solicit data that could enable quantification of the benefits of
swing pricing. See also supra section I.B and supra notes 59, 60, 61, and 161 for additional 
discussion of swing pricing experience in other jurisdictions.

479  See supra section III.B.3 for a discussion of other sources that may contribute to dilution. We 
solicit comment on the relative impact of these sources on dilution. While the proposed swing 
pricing requirement is unlikely to reduce dilution associated with stale valuations directly, the 
proposed requirements would nevertheless help mitigate dilution resulting from trading costs 
associated with strategic trading behavior that may seek to take advantage of stale valuations. 

293

https://www.blackrock.com/corporate/literature/whitepaper/swing-pricing-dilution-effects-of-trading-activity-on-mutual-funds-october-2020.pdf
https://www.blackrock.com/corporate/literature/whitepaper/swing-pricing-dilution-effects-of-trading-activity-on-mutual-funds-october-2020.pdf


could benefit markets overall because it may reduce the first-mover advantage that arises from 

dilution associated with trading costs. As a result, the proposed amendment may mitigate the risk

of runs on mutual funds and may decrease the risk of fire-sales for the funds’ underlying 

investments. 

We believe that these benefits may be more pronounced in the case of net redemptions 

because dilution may be more severe when net redemptions occur. One reason for this 

asymmetry is that investor redemptions are required to be met within seven days, whereas the 

money a fund receives from new subscriptions is not required to be invested within a specific 

timeframe. Therefore, funds must incur the trading costs that exist during the seven days 

following investor redemptions, regardless of how large or small these costs are. On the other 

hand, while fund managers may generally accommodate new subscriptions by investing 

promptly to increase fund returns and reduce tracking error, they may also elect to wait to 

purchase investments at more advantageous prices or lower trading costs, resulting in lower 

dilution of non-transacting fund shareholders. Another reason for asymmetry in dilution from 

redemptions and subscriptions is that large redemptions can have a greater correlation across 

funds exposed to the same asset class in times of market stress, which in turn may induce more 

redemptions and further increase trading costs and associated dilution.480 Therefore, while swing 

pricing would reduce dilution from trading costs associated with both net subscriptions and 

redemptions, we believe that the magnitude of this anti-dilution benefit would be greater in the 

case of net redemptions.

480  See, e.g., Dunhong Jin et. al., Swing Pricing and Fragility in Open-End Mutual Funds (working 
paper, revised Jan. 7, 2021) available at https://ssrn.com/abstract=3280890 (retrieved from SSRN
Elsevier database). Also see section III.B.3 and note 395 for additional research references.

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Another potential benefit of the mandatory swing pricing approach is that it would help 

overcome the collective action problem that may exist under the current optional framework and 

may have prevented voluntary swing pricing implementation due to the stigma that could be 

attached to being the first fund to implement swing pricing. To the extent that such a stigma 

effect is present in relation to swing pricing, it may deter investors from choosing funds that 

could implement swing pricing under the optional approach, and that could be a reason why no 

U.S. fund currently chooses to implement swing pricing.481 We also recognize that U.S. mutual 

funds are currently also allowed to implement certain purchase and redemption fee approaches 

(which do not necessarily require substantial operational changes in contrast to swing pricing), 

yet these funds do not widely use redemption fees as an anti-dilution tool, possibly because of 

any stigma attached to anti-dilution tools generally.482

The mandatory swing pricing requirement would impose costs on mutual funds, 

investors, their intermediaries, and other market participants. In addition to the costs associated 

with the proposed hard close requirement discussed below, mutual funds would experience 

initial and ongoing operational costs associated with developing and administering swing pricing

policies and procedures, changing their systems to accommodate swing pricing, updating fund 

prospectuses, as well as any costs associated with educating investors about swing pricing 

procedures. These costs would ultimately be passed on to fund investors.

481  While we recognize that swing pricing has been successfully implemented in other jurisdictions, 
these other jurisdictions do not have the same regulatory frameworks and investor base, which 
may influence investors’ sentiment towards anti-dilution tools and the extent of the potential 
stigma effects. In addition, other jurisdictions do not have the same intermediary structures 
between funds and their investors as in the U.S. See supra section III.B.2. 

482  See supra note 67 (stating that, based on staff review of fund prospectuses, fewer than 5% of 
funds impose a redemption fee on at least one share class).

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To the extent that investors expect an increase in the costs of investing in mutual funds as

a result of the proposed mandatory swing pricing, they may choose to divest from the mutual 

fund sector. To the extent that such investor outflows would be substantial, funds may 

experience a reduction in their economies of scale, which may lead to a further increase in fund 

fees. In addition, the mandatory swing pricing approach would reduce the set of investment 

choices available to investors, relative to the optional approach, where investors can choose to 

invest in funds that use swing pricing or funds that do not use swing pricing. 

The determination and application of a fund’s swing factor could delay the publication 

and dissemination of the fund’s NAV relative to current practices. To the extent that 

intermediaries require NAVs for purposes such as updating and publishing client account 

statements, they would incur costs updating their operations and systems to adapt to later NAV 

publication times. In addition, any other market participants, such as financial data aggregators, 

that depend on fund NAV publication would also incur costs updating their operations and 

systems to adapt to later NAV publication times.

b. Swing Threshold Framework

The current rule permits a fund to determine its own swing threshold for net purchases 

and net redemptions, based on a consideration of certain factors the rule identifies.483 For a fund 

experiencing net redemptions, the proposal would require the fund to apply a swing factor for 

any level of net redemptions. In addition, the proposed rule would establish a threshold for 

inclusion of market impact costs in its swing factor when net redemptions exceed 1% of the 

483  The factors a fund currently must consider in determining the size of its swing threshold are: (1) 
the size, frequency, and volatility of historical net purchases or net redemptions of fund shares 
during normal and stressed periods; (2) the fund’s investment strategy and the liquidity of the 
fund’s portfolio investments; (3) the fund’s holdings of cash and cash equivalents, and borrowing 
arrangements and other funding sources; and (4) the costs associated with transactions in the 
markets in which the fund invests. See rule 22c-1(a)(3)(i)(B).

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fund’s net assets (the “market impact threshold”). For funds experiencing net subscriptions, the 

proposal would require funds to apply a swing factor that accounts for all trading costs (i.e., 

including market impact costs) when net purchases exceed the threshold of 2% (the “inflow 

swing threshold”). 

Under the current rule, funds are able to tailor their swing pricing thresholds to their size, 

the characteristics of their underlying portfolio holdings, and the characteristics of their investor 

base. While this principles-based approach may be less burdensome for funds, some funds may 

find it suboptimal to implement swing pricing routinely due to the operational costs of doing so 

frequently. As a result, they may choose thresholds that reduce the frequency and impact of 

swing pricing on transaction prices for fund shares. This, in turn, could reduce the benefits of the 

proposed swing pricing requirement, including protecting non-transacting investors from dilution

due to trading costs and reducing the first-mover advantage associated with such costs. 

Therefore, we believe that a uniform approach to swing thresholds would better protect non-

transacting investors in the mutual fund sector by ensuring that trading costs are passed on to 

transacting investors, regardless of which fund’s shares investors hold in their portfolios. 

Trading costs incurred by a fund can be dilutive when a fund experiences either 

redemptions or subscriptions. However, as discussed above, subscriptions are likely to be less 

dilutive than redemptions. To the extent that determining the swing factor is costly, as discussed 

below, only requiring funds to do so when net subscriptions exceed 2% would limit the 

frequency with which funds incur such costs. Based on the analysis of historical daily fund flows

in Table 3, a random fund on a random day has approximately a 1% chance of exceeding the 

inflow swing threshold. In addition, there were only 0.2% of days where more than 5% of funds 

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in the sample experienced net subscriptions exceeding the inflow swing threshold.484 Therefore, 

we do not expect most funds to experience the costs of applying a swing factor in the case of net 

subscriptions frequently. The anti-dilutive benefits of swing pricing in response to net 

redemptions are likely to be more than those associated with net subscriptions, as discussed 

above. Therefore, we believe that applying swing factor on any day with net redemptions may 

benefit non-transacting investors compared to applying swing factor only when a certain 

threshold is crossed. However, to the extent that applying the swing factor more frequently is 

costly, these benefits may be offset by such costs. 

The proposed market impact threshold of 1% may result in varying costs and benefits for 

funds and their investors. For example, two funds that invest in underlying assets with similar 

liquidity characteristics may experience market impact at significantly different levels of 

redemptions, as measured in percentage, if they are significantly different in size. A 1% 

redemption from a fund with low AUM may not result in sales of assets that result in market 

impact, whereas a 1% redemption from an otherwise similar fund with significantly larger AUM 

might. Similarly, two funds with comparable levels of AUM holding investments with different 

liquidity characteristics may experience market impact at different levels of redemptions. For 

example, a large cap equity fund may not experience market impact at the 1% threshold, whereas

a fixed income fund with comparable AUM might. As such, the extent to which a given fund and

its investors benefit from evaluating market impact at the 1% threshold will vary based on 

factors such as the fund’s size and the liquidity of its underlying investments. For funds that may 

experience market impact even when redemptions are below the 1% threshold, we note that 

funds can choose to incorporate market impact into their swing factor at a lower threshold than 

484  The analysis also shows that if the 99th percentile net fund flow is computed on each date, it 
exceeds the inflow swing threshold on approximately 34% of days. 

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1%. To the extent that calculating market impact may be costly, only requiring funds to do so 

when net redemptions exceed 1% would limit the frequency with which funds incur such costs. 

We estimate that a random fund on a random date has approximately a 1.6% chance of 

exceeding the market impact threshold, and there were 2.3% of dates where more than 5% of 

funds experienced net redemptions exceeding the market impact threshold.485

c. Calculation of the Swing Factor

The current swing pricing framework provides an upper limit of 2% for the swing factor 

and requires that the swing factor take into account only the near-term costs expected to be 

incurred by the fund as a result of net purchases or net redemptions that occur on the day the 

swing factor is used,486 as well as borrowing-related costs associated with satisfying redemptions;

however, it does not specify how a fund should select investments for the purposes of estimating 

the trading costs and it does not require a fund to include market impact costs in the swing 

factor.487 We propose removing the current upper limit of 2% for the swing factor and requiring a

fund’s swing pricing administrator to make good faith estimates, supported by data, of the 

overall costs, including market impact costs under certain conditions, that the fund would incur if

it purchased or sold a pro rata amount of each investment in its portfolio equal to the amount of 

net purchases or net redemptions (i.e., a vertical slice).488 Because a fund would need to calculate

its costs based on the purchase or sale of a vertical slice of its portfolio, rather than selecting 
485  An analysis of historical Morningstar daily fund flow data for equity and fixed income funds 

from 2009 through 2021 shows that the 1st percentile flow is approximately -1.6% while the 5th 
percentile flow is approximately -0.3%. The same analysis shows that the 1% market impact 
threshold corresponds to approximately the 0.016 percentile of pooled daily net fund flows. The 
same analysis shows that if the 1st percentile fund flow is computed on each date, it exceeds the 
market impact threshold on approximately 84.6% of dates.

486  These near-term costs include spread costs, transaction fees, and charges arising from asset 
purchases or asset sales resulting from those purchases or redemptions.

487  See rule 22c-1(a)(3)(i)(C). 
488  See proposed rule 22c-1(b)(2). 

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specific investments to be sold/purchased and estimating the cost of selling/purchasing those 

specific investments, we propose removing borrowing costs from the swing factor calculation. 

i. Vertical Slice Assumption  

The vertical slice assumption may benefit investors of the affected funds. Specifically, 

the vertical slice assumption is designed to recognize the potential longer-term costs of reducing 

a fund’s liquidity and would more fairly reflect the costs imposed by redeeming or purchasing 

investors than an approach that focuses solely on the costs associated with the instruments that a 

fund expects to buy or sell (or expected borrowing costs, in the case of redemptions). For 

example, if investor redemptions continue for multiple days, a fund that sells its most liquid 

investments on the first day could experience increased trading costs on subsequent days because

it has to sell a bigger fraction (relative to a vertical slice) of its less liquid assets. As a result, 

redeeming investors on subsequent days would be charged more than investors who redeemed on

the earlier date via a higher swing factor. In addition, the future costs associated with rebalancing

the fund portfolio to its pre-redemption level of highly liquid investments are not currently 

permitted to be incorporated into the swing factor because they are not near-term costs that may 

be considered under the current rule. Therefore, the proposed vertical slice assumption would 

help to ensure that redeeming investors bear not just the immediate trading costs they impose on 

the fund, but also, in cases where a fund sells its most liquid investments to meet redemptions 

first, the estimated transaction costs associated with rebalancing the fund’s portfolio to its pre-

redemption level of highly liquid investments, such that subsequent redeeming investors are not 

charged for the costs associated with past redemptions. 

We recognize that selling a vertical slice of a portfolio in order to meet investor 

redemptions may not be a practice used by all mutual funds during all times. For example, recent

300research documents that during tranquil market conditions, corporate bond funds tend to reduce 

liquid asset holdings to meet redemptions; however, when aggregate uncertainty rises these 

funds tend to scale down their liquid and illiquid assets proportionally to preserve portfolio 

liquidity.489 Another paper finds that some funds holding less liquid assets reacted to redemptions

in March 2020 by adding to their cash buffers even after meeting investor redemptions, rather 

than selling their most liquid assets first or selling a vertical slice of their portfolio.490 Therefore, 

we recognize that the vertical slice assumption could result in using estimates of transaction costs

in the calculation of the swing factor that differ from the estimated trading costs tailored to a 

different asset liquidation approach. As a consequence, to the extent that the trading costs 

estimated based on the vertical slice assumption are higher or lower than estimated trading costs 

of the fund’s portfolio liquidation strategy, redeeming investors may be over- or under-charged 

relative to the immediate trading costs of a fund’s actual liquidation strategy. 

ii. Market Impact Costs  

We propose requiring funds to include a good faith estimate of market impact costs in the

calculation of their swing factors when (1) net subscriptions are above the inflow swing 

threshold or (2) when net redemptions exceed the market impact threshold of 1%. To the extent 

that funds are able to forecast market impact costs accurately, this requirement would ensure that

transacting investors bear, in addition to direct transaction costs, the estimated impact of their 

transactions on the ultimate price a fund pays or receives for any investments it buys or sells. 

This may allow non-transacting shareholders to recapture more of the dilution imposed on the 

489  See Hao Jiang, et. al,. Dynamic Liquidity Management by Corporate Bond Mutual Funds, J. FIN. 
& QUANTITATIVE ANALYSIS 1622, no. 5 (Aug. 2021).

490  See Andreas Schrimpf, et. al., Liquidity Management and Asset Sales by Bond Funds in the Face
of Investor Redemptions in March 2020 (Mar. 17, 2021) available at 
https://ssrn.com/abstract=3799868 (retrieved from SSRN Elsevier database).

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fund by transacting fund investors. As a result, the proposed market impact inclusion may also 

help reduce first-mover advantage. 

Several factors may limit the anti-dilution benefits of including market impact costs in 

the swing factor. First, funds may incur costs in obtaining reasonable ex-ante estimates of market

impact costs, either because they need to pay vendors for such estimates or because they need to 

exert costly effort to develop such estimates internally. These costs may ultimately be passed on 

to investors. Second, it may be difficult and sometimes not feasible to develop objective 

estimates of market impact for some of the investments that mutual funds hold, such as those that

generally lack a robust and liquid secondary market (e.g., municipal securities and small-cap 

equities). In addition, market impact may be more difficult to estimate during periods of stress 

when trading in certain markets may be limited or stop. Therefore, funds may need to use 

subjective discretion to determine market impact estimates in certain circumstances, which may 

result in funds over- or under-estimating the true ultimate market impact costs associated with a 

given day’s orders. This, in turn, would result in over- or under-charging transacting investors, 

exposing them to additional risk regarding the price at which they will ultimately transact their 

shares.491 

Third, because funds would still have some discretion in determining their swing factors, 

such as discretion over which price impact model is used to estimate market impact, some funds 

may have an incentive to under- or overestimate their swing factors, depending on the 

circumstances. For example, a fund may choose to underestimate market impact, biasing the 

swing factor estimate downwards, in order to attract investors that prefer less volatile transaction 

491  Transacting investors already face market risk when submitting an order to buy or sell fund 
shares because these orders must be submitted prior to the time at which a fund determines its 
NAV.   

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prices for fund shares. On the other hand, funds may have an incentive to overestimate market 

impact and overcharge transacting investors relative to the trading costs they are expected to 

impose on the fund, because doing so may increase the performance of the fund.492 However, the 

proposed requirement that funds report each swing factor on Form N-PORT may mitigate any 

incentive funds have to under- or overestimate their swing factors, as it will provide public 

transparency regarding the size of these NAV adjustments.493 

iii. Removal of the Upper Limit on the Swing Factor  

The proposed removal of the upper limit on the swing factor may benefit fund investors 

by permitting swing pricing to address the dilution that transacting investors impose on a fund 

more fully. The magnitude of this benefit would depend on how often funds’ trading costs 

exceed the current 2% swing factor. To the extent that trading costs are more likely to exceed 

this threshold during stressed periods, we expect this amendment to benefit non-transacting fund 

investors during such periods when dilution may be increasing, which may further address the 

first-mover advantage related to dilution from trading costs. In addition, to the extent that trading

costs for certain types of funds are more likely to exceed the current 2% swing factor, the 

proposed amendment would ensure that investors in these funds are as protected from dilution as

investors in funds for which trading costs generally correspond to a swing factor lower than 2%. 

These benefits may be partially offset because the removal of the upper limit for the swing factor

may also have a destabilizing effect during periods of stress. For example, if investors expect 

that trading costs will continuously increase, and that the swing factor will increase accordingly, 

492  When a fund overcharges transacting investors, the fund increases its assets and hence the 
performance of the fund. 

493  See supra section III.B.4.

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they may be incentivized to redeem their shares at the onset of market stress, when the swing 

factor is lower. 

iv. Removal of Borrowing Costs from the Swing Factor  

We propose removing borrowing costs from the costs that should be included in the 

swing factor. To the extent that the vertical slice assumption would result in higher magnitude 

swing factors, any decrease in swing factor magnitude due to the proposed removal of borrowing

costs from the swing factor calculation may be fully or partially offset. Therefore, we do not 

expect this aspect of proposal to have substantial effects. Although affected funds would still be 

allowed to engage in bank or inter-fund borrowing in order to fund investor redemptions, the 

proposed swing factor calculation will not reflect potential borrowing costs for funds that do use 

borrowing to fund redemptions.494 To the extent that these costs are higher than the estimated 

costs of buying or selling a vertical slice of a fund’s portfolio, they would be borne by investors 

remaining in the fund, limiting the anti-dilution benefits of the proposal. 

3. Hard Close Requirement

With respect to putting swing pricing into practice, requiring a hard close would ensure 

that funds receive more timely flow information. Because swing pricing requires both fund flows

and estimates of trading costs, requiring a hard close should reduce any flow estimation error that

would otherwise occur if funds had to rely heavily on estimated fund flows in adjusting their 

NAV. In addition, by providing funds with more complete flow information, the hard close 

requirement could have auxiliary benefits unrelated to swing pricing, including settlement 

494  Fund borrowing may defer but not always eliminate the need for a fund to sell portfolio 
investments, as a fund will eventually have to re-pay the loan. As a result, a fund may incur 
borrowing costs in addition to trading costs, but only the latter would be captured by the 
adjustment of NAV by the swing factor under the proposal.

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modernization, and order processing improvements.495 Also, a fund that knows its flows sooner 

may be able to plan and implement trading strategies to meet those flows in a more cost effective

manner. 

The hard close requirement may change operational burdens for mutual funds and other 

parties related to mutual fund order processing. Currently, because mutual fund flows from 

different intermediaries and investors are received by funds at different times, fund transfer 

agents may have to process the orders in multiple batches that may span until the next day. On 

the one hand, if doing so is costly in terms of labor and/or strain on the processing systems and to

the extent that these costs are non-negligible, the hard close requirement may decrease 

operational burden by allowing all orders to be processed within a shorter time frame. On the 

other hand, to the extent that processing all orders in a short amount of time, as it would be 

implied under the proposal, requires more manpower and/or more processing capabilities, the 

hard close requirement may increase operational burden of open-end fund transfer agents. This 

effect may be more pronounced for smaller transfer agents that do not enjoy economies of scale.

In addition, the hard close requirement may allow funds to plan next-day and future 

activity related to today’s redemptions or subscriptions more efficiently. For example, the hard 

close would in some cases improve the reliability of the flow information fund portfolio 

managers use by eliminating cancellations and corrections. In addition, if a portfolio manager 

uses flow information posted at the custodian, the hard close generally would provide timelier 

flow information. To the extent that these effects are present, the hard close requirement would 

allow funds to have timelier information that would permit them to plan and execute their trades 

495  See supra section II.C.3.a for additional discussion.

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in a more efficient manner. This, in turn, may reduce funds’ tracking errors and may help prevent

any error corrections or trade cancellations after the pricing time. 

However, requiring a hard close may impose significant switching costs (e.g., changing 

business practices, computer systems, integrating new technologies, etc.) on funds, their 

intermediaries, and service providers that could ultimately be passed on to investors. We 

recognize that these switching costs could be larger for certain types of intermediaries. For 

example, some intermediaries may have more layers of intermediation than others, and, 

therefore, would have to update more systems and processes. As another example, some 

intermediaries may have more reporting and recordkeeping requirements than others, and would 

have to update more systems and processes to comply with the hard close requirement. In 

addition, some intermediaries have their processes and systems set up such that the daily price 

information is required before any orders can be processed. For example, retirement plan 

recordkeepers and any affiliated brokers and trust companies, as well as DCS&S, would have to 

modify their processes and systems substantially, as these processes currently require daily price 

information for all investments prior to processing of any investment instructions from the plan 

participants. In addition, retirement plans may have to modify their provisions, and employers 

sponsoring these plans may need to modify payroll systems, as well as change the information 

(e.g., websites, manuals, and training materials) they provide to employees regarding how to 

submit orders, as a result of the hard close requirement. 

A substantial number of affected retirement plans are small in size as shown in Table 5. 

Therefore, a large number of small plans may be disproportionally affected by the 

implementation costs related to the proposed hard close because they may not enjoy economies 

of scale. To the extent that these costs are too large relative to the size of assets under 

306



management, some of the plans may cease to exist or choose to offer other investment vehicles 

such as ETFs or CITs. For example, in 2003, one commenter stated that one cost related to a 

hard close that was substantially similar to what we are proposing would be requiring submission

of trades on sub-account levels rather than on an omnibus level, which would result in an 

incremental cost increase of $4.1 million per year for this commenter with 1.3 million of 

omnibus trades per year.496 To the extent that not all investors have a choice of intermediary, 

such as participants in employee-provided retirement plans, the costs stemming from the 

proposed hard close requirement may be borne by either investors (i.e., plan participants) or their

employers that sponsor the plan. 

In addition, to the extent that not all intermediaries may be able to comply with the hard 

close requirement, the investors that use these intermediaries may face a decreased ability to 

invest in mutual funds via certain intermediaries. To the extent that the strategies that open-end 

funds subjected to the proposed requirement cannot be replicated or to the extent that such 

replication would be more costly outside of the mutual fund sector (e.g., via a separately 

managed account), investors may end up with either less diversified portfolios, or experience 

higher costs of investing.

The hard close requirement may disadvantage certain investors that do not have a choice 

in their intermediary, if it precludes them from responding to market events after a specific cut-

off time that is earlier than 4 p.m. ET or lengthens the amount of time for completing certain 

types of transactions497 compared to investors that submit orders directly to funds. For example, 

if an intermediary sets up a cut-off time for transactions that is earlier than the fund cut-off time 

496  Comment Letter of Charles Schwab (Oct. 27, 2003) on 2003 Hard Close Proposing Release, File 
No. S7-27-03, available at https://www.sec.gov/rules/proposed/s72703/s72703-2.pdf.

497  See supra section II.C.3.d.

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(4 p.m.), investors in mutual funds that use these intermediaries will not be able to react to 

market events that take place between an intermediary cut-off and the fund cut-off time, thereby 

increasing a market risk for investors that trade via intermediaries with earlier cut-off times. 

However, investors that trade directly with a fund or use intermediaries with later cut-off times 

would have an advantage and still be able to respond to some or all market events during this 

time frame (depending on the applicable cut-off time), allowing them to decrease their market 

risk relative to investors that would be pushed to next-day pricing.

In addition, to the extent that investors designate their employers to make retirement 

contributions to intermediaries via payroll procedures, and to the extent that payroll procedures 

have to be performed during a specific time frame in order for transaction to receive that day’s 

price, the employers may experience a cost of switching the system to accommodate an earlier 

cut-off time for orders. These effects may be more pronounced for employers and investors in 

the western regions of the U.S. who may not have a sufficient time window to process 

contributions and/or (re)allocate their portfolios. In addition, to the extent that some 

intermediaries already impose an earlier cut-off time for investors’ orders, the hard close may 

entail an even earlier cut-off time, which may further disadvantage investors. 

In addition, the proposed hard close might affect current order processing for funds of 

funds. We understand that an upper-tier fund in a fund of funds structure may not submit its 

purchase or redemption orders for lower-tier funds’ shares until after 4 p.m. Under the proposed 

rule, the upper-tier fund would have to submit purchase or redemption orders for lower-tier 

funds’ shares before the lower-tier funds’ designated pricing time in order to receive that day’s 

price for the orders.

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We are not able to quantify many of the costs of the hard close requirement for several 

reasons. First, we cannot predict how the costs would be allocated between funds and their 

intermediaries because we do not have detailed information about the number of intermediate 

steps required to be completed between the time an investor places an order and the time a fund 

receives this order for each type of an intermediary and which party currently bears the costs of 

each intermediate step. Second, we do not have granular data related to the current practices and 

operating costs for each intermediary type, both those that are regulated by the Commission and 

those that are not. Therefore, we cannot predict how their systems and practices would change in 

response to the hard close requirement and estimate the associated costs of these changes. Third, 

we cannot predict how many intermediaries will choose to upgrade their systems and processes 

in order to maintain their ability to offer mutual funds to the client, how many intermediaries will

choose to impose an earlier cut-off time for investor orders, and the number of intermediaries 

that will retain their existing systems and order cut-off times and offer products that would not be

subject to the proposed hard close requirement, such as CITs, ETFs, or closed-end funds in place

of mutual funds. Finally, we cannot predict how many investors will respond to changes that 

intermediaries may implement in response to the hard close requirement by divesting from the 

mutual fund sector. We request comment on these costs of the hard close requirement, 

particularly any dollar estimates of the costs that funds, intermediaries, and other affected parties 

will incur as a result of the rule.

4. Commission Reporting and Public Disclosure

The Commission is proposing to change reporting frequency of Form N-PORT, to change 

public availability of certain items on Form N-PORT, and to amend Forms N-PORT, N-CEN, 

and N-1A. The proposed amendments are intended to increase transparency around funds’ 

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activities related to liquidity management and anti-dilution tools and to make information more 

usable by filers, regulators, investors, and other potential data users. The proposed amendments 

would also provide more information about a fund’s portfolio and its liquidity risk profile to 

investors, thereby improving their portfolio allocation decisions. 

Open-end funds will experience costs as a result of the proposed changes to the three 

forms. In connection with the proposed information collection requirements under the Paperwork

Reduction Act, we estimate that the proposed changes to Form N-PORT would result in an 

internal cost increase of $2,472,356 and an external cost increase of $5,613,175, the proposed 

changes to Form N-1A would result in internal cost increase of $10,609,390; and the proposed 

changes to Form N-CEN would not on aggregate result in an increase of ongoing costs.498 

a. Commission Reporting Frequency

Currently funds file Form N-PORT reports for the first, second, and third months of each 

fiscal quarter with the Commission 60 days after the end of the third month of the quarter. We 

are proposing to require funds to file Form N-PORT reports with the Commission within 30 days

after the end of each month. We believe that this amendment would help the Commission to 

oversee funds’ activities on a timelier basis. We do not expect this part of proposal to have 

substantial economic effects on funds, as funds already are required to maintain records of the 

information that Form N-PORT requires no later than 30 days after the end of each month and 

many funds report monthly information about their portfolio holdings on a voluntary basis to 

third party data aggregators, generally with a lag of 30 to 90 days, which in turn make them 

available to investors and other data users for a fee.499 To the extent it is less efficient for fund 

498  See infra sections IV.D, IV.E, and IV.F. These annual direct costs include ongoing as well as 
initial costs, with the latter being amortized over three years.

499  See rule 30b1-9. Also see section II.E.1.b. and note 287.

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groups to submit on a more frequent monthly basis instead of in one batch after quarter-end, the 

costs borne by fund groups may marginally increase under the proposal.

The data the Commission would receive on Form N-PORT reports within 30 days of 

month-end would include portfolio information which, depending on the fund, may not currently

be public. To the extent this nonpublic information was subject to a data breach before its 

scheduled publication 60 days after month-end, unauthorized access could harm shareholders by 

expanding the opportunities for professional traders or others to exploit the information. 

However, the Commission has controls and systems for the use and handling of the proposed 

modified and new data in a manner that reflects the sensitivity of the data and is consistent with 

the maintenance of its confidentiality. In addition, as discussed below, many funds already 

publicize their monthly holdings, which reduces the sensitivity of the information the 

Commission would store confidentially, and Form N-PORT reports would become publicly 

available 60 days after month-end. 

b. Public Availability of Form N-PORT Data and Aggregate 

Liquidity Disclosure 

Currently, funds are required to make the report for the third month of every quarter 

available to the public. We are proposing to make funds’ monthly reports on Form N-PORT 

public 60 days after the end of each monthly reporting period. We are also proposing to require 

an open-end fund to provide information regarding the aggregate percentage of its portfolio in 

each of the three proposed liquidity classification categories, which would become public on the 

same time frame. 

Public disclosure of aggregate liquidity classifications would help investors to assess the 

liquidity profile of the funds in which they are investing, and may be more useful to investors 

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than the narrative liquidity disclosure the Commission adopted in 2018. The proposed disclosure 

may provide more information about a fund’s liquidity risk profile to investors, thereby 

improving their portfolio allocation decisions. In addition, observing other funds’ aggregate 

liquidity profiles might provide some information that is useful in a fund’s own liquidity 

classification process. These benefits may be offset to the extent that liquidity classifications are 

not directly comparable across mutual funds, although the proposal would establish minimum 

standards that reduce the amount of discretion funds currently have in classifying their 

investments. We expect that funds will incur one-time and ongoing costs associated with 

preparing the portion of Form N-PORT associated with the aggregate liquidity profile, as 

discussed in section IV.

The proposal would triple the amount of data made available to investors and other 

potential users on Form N-PORT in a given year. To the extent that investors currently are not 

able to obtain monthly portfolio data from other sources, such as fund websites or third-party 

data aggregators the proposed requirement would enhance the ability of investors to monitor 

funds’ portfolios, which in turn may help investors to make more efficient investment 

decisions.500 Many funds report their monthly portfolios to third party data aggregators. Because 

the data made available to data aggregators is inconsistent across funds and time, the proposed 

amendment would increase consistency of portfolio data available to investors and other data 

users. To the extent that 60 days is not a long enough delay in disclosure of portfolio data, funds 

may be subject to predatory trading or “copycatting activities” that could potentially affect 

500  See e.g., Ji-Woong Chung et. al., Intended Consequences of More Frequent Portfolio Disclosure 
(working paper, Apr. 17, 2022), available at https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=4086186 (retrieved from SSRN Elsevier database).

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portfolio returns.501 This effect may be more pronounced for funds with more proprietary trading 

strategies. 

c. Other Amendments to Forms N-PORT, N-CEN, and N-1A 

We are proposing to remove the reporting requirement for swing pricing on Form N-CEN

and replace it with a new reporting requirement on Form N-PORT that would require 

information about the number of times the fund applied a swing factor during the month and the 

amount of each swing factor applied. We are also proposing amendments to Form N-CEN to 

identify and provide certain information about service providers a fund uses to fulfill the 

requirements of rule 22e-4. In addition, instead of classifying an RSSD ID as an LEI, we propose

to provide separate line items where a fund would report an RSSD ID, if available, in the event 

that an LEI is not available for an entity. We also propose to amend certain items and definitions 

on Form N-PORT to conform them to the proposed amendments. Finally, we propose to amend 

Item 11(a) of Form N-1A to require, if applicable, that funds disclose that if an investor places an

order with a financial intermediary, the financial intermediary may require the investor to submit

its order earlier to receive the next calculated NAV. In addition, as a result of the proposed swing

pricing requirement, funds would be required to disclose information about swing pricing in 

response to certain existing items in the form.502

The proposed amendments would increase transparency around funds’ activities in 

several ways. First, additional information about funds’ service providers would enable investors

and other data users to assess fund liquidity management practices and help the Commission 

501  A recent working paper examines the costs of Form 13F disclosure and finds that additional 
disclosure may harm portfolio returns over time. See David Kwon, The Differential Effects of the 
13f Disclosure Rule on Institutional Investors (working paper, May 5, 2022), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4095482 (retrieved from SSRN Elsevier 
database).

502  See Items 6(d), 4(b)(2)(ii), 4(b)(2)(iv)(E), and 13(a) of Form N-1A.

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oversee the industry better. Second, information about swing pricing application can help the 

Commission and investors understand swing factor adjustments a given fund makes and evaluate

how often a fund has any net redemptions or has net subscriptions of more than 2% and the 

amount of the swing factor adjustment.

The proposed amendments would impose PRA costs, as discussed in above. Some funds 

may already maintain some of the information they would be required to report under the 

proposal in the ordinary course of business. However, we recognize that funds would incur some

costs in reporting the information. We recognize that, due to economies of scale, such costs may 

be more easily borne by larger fund families, and that costs borne by funds would be passed 

along to investors in the form of higher fees and expenses. In addition, the proposed disclosures 

of each swing factor and the number of times a swing factor was applied may create incentives 

for funds to compete on this dimension. Specifically, investors who prefer lower variability in 

the value of their investments may move capital from funds that had high historical swing factors

to funds with lower swing factors. However, while NAV swings penalize redeemers or 

subscribers under certain circumstances, they benefit investors remaining in the fund, which may

make funds actively using swing pricing more attractive to longer term investors.

The proposed amendments related to entity identifying information would help the 

Commission and market participants to identify entities related to funds’ businesses more 

efficiently. 

D. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency

The proposed amendments may affect allocative efficiency in several ways. First, the 

proposed changes to the liquidity classification methodology, proposed public disclosure of 

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funds’ aggregate liquidity classifications, and swing pricing disclosures are expected to benefit 

investors by reducing information asymmetries between funds and investors. To the degree that 

some investors may currently be uninformed about liquidity risks of funds’ investments, the 

proposed disclosure requirements may increase transparency about liquidity costs transacting 

investors impose on remaining fund investors and liquidity risks in open-end funds. To the 

degree that greater transparency about liquidity risk of mutual funds may lead some risk averse 

investors to use other instruments, in lieu of mutual funds for long-term investment, allocative 

efficiency may increase.503 In addition, the increased transparency may result in greater allocative

efficiency as investors with low tolerance of liquidity risk and costs may choose to reallocate 

capital to funds that have lower liquidity risk and costs. Further, to the degree that uncertainty 

about the proposed swing pricing requirement may reduce the attractiveness of affected funds to 

investors, transparency about historical swing factors may reduce those adverse effects. 

Second, market efficiency for funds’ underlying investments may increase, to the extent 

that the proposed amendments mitigate the risk of runs on open-end funds and decrease fire-sales

for the funds’ underlying investments. In addition, a potential shift in demand from illiquid to 

liquid investments may encourage the development of market structures that increase the 

liquidity of investments that are currently less liquid. For example, currently, only a fraction of 

traded bank loan interests has a standardized settlement process and transparent prices and 

quotations. To the extent that the proposed amendments would lead market participants to 

standardize and shorten the settlement process for bank loan interests, the prices and spreads for 

bank loans may become more transparent at a sector level, increasing the efficiency in this 

503  See, e.g., Jennifer Huang et. al., Shifting and Mutual Fund Performance, 24 REV. FIN. STUD. 
2575, no. 8 (2011). The paper argues that if investors are not fully aware of risk-shifting behavior
or if the changing risk level hampers their ability to assess fund performance, then individual 
portfolios are less likely to be efficient.

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market. On the other hand, the proposed liquidity requirements may lead funds to allocate less to 

these investments. Absent other frictions, the difference in demand for these investments could 

be made up for by other investors or other the same investors through other structures (such as 

more direct investment). However, if this difference in demand is not fully absorbed by other 

market participants, the efficiency in this market may decrease.

Third, the hard close requirement may make portfolio allocation less efficient for 

investors, to the extent that intermediaries used by these investors would impose an earlier cut-

off time for orders and investors would not be able to reflect the entire day’s market information 

into their allocation decisions. In addition, to the extent that certain types of orders would no 

longer be executed at today’s prices and rather would be sent to funds the next day, investors 

may be exposed to additional market risk as well as potentially decreased portfolio returns 

because an intermediary may hold the cash from investors’ orders submitted after the cut-off 

time (but before 4p.m. ET) until it could submit these orders at the end of the next day. 

The proposed amendments may affect funds’ portfolio efficiency. For example, funds 

may start considering the liquidity of investments and their overall portfolios to a higher degree 

when making portfolio allocation decisions and considering other factors, such as an 

investment’s risk and expected return, to a relatively lower degree. This may reflect an optimal 

choice, to the extent that funds’ investors believe that illiquidity of a fund’s portfolio is more 

costly relative to the cost of foregoing less liquid portfolio investments that may offer higher 

returns. On the other hand, if liquidity considerations lead to deviations from the fund’s 

investment strategy or benchmark return, the proposed amendments may decrease the efficiency 

of funds’ portfolios.

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The proposed daily classifications may also affect funds’ portfolio efficiency. On the one 

hand, if daily fluctuations in market values of a fund’s portfolio investments are large (and 

therefore the daily changes in the dollar value of the stressed trade size is also large) but revert to

the mean within several days, liquidity classification for the same portfolio position may also 

fluctuate daily while eventually reverting to the mean. In this scenario, funds may start managing

the portfolio positions inefficiently in order to be in compliance with the highly liquid investment

minimum and the 15% limit on illiquid investments. On the other hand, daily classifications may

increase informational efficiency of the funds’ investments, to the extent that funds’ demand for 

daily information results in increased availability of such information offered by third-party 

providers. As a result, funds’ portfolio allocation decisions may become more efficient.

The proposed amendments may also affect operational efficiency of funds and 

intermediaries. First, to the extent that the proposed removal of the less liquid category results in 

an increased standardization of settlement practices and a reduction of settlements times for bank

loan interests and other investments that are currently classified as less liquid, a reduction in 

allowed settlement time for investments in order to qualify as moderately liquid investments may

facilitate operational efficiency of funds that trade these investments. Second, the proposed 

removal of the less liquid category may facilitate operationalizing funds’ swing pricing by 

reducing uncertainty related to trading costs for investments that are currently classified as less 

liquid. In particular, to the extent that open-end funds will become more certain about trades’ 

settlement dates, it may allow them to more accurately estimate trading costs and, therefore, 

more accurately estimate the swing factor. Third, intermediaries may improve their order-

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processing systems as a result of the proposed hard close requirement, improving ongoing 

operational efficiency for both intermediaries and funds.504

2. Competition

The proposed amendments may affect the competitive landscape for open-end funds. 

There are two main economic effects discussed above that may cause the change in the 

competitive landscape for open-end funds: (1) cost increases for funds, fund managers, and fund 

administrators stemming from proposed changes in the liquidity risk management program, 

proposed mandatory swing pricing, and the hard close; and (2) additional constraints on funds’ 

holdings of certain investments that could limit these funds’ investment strategies due to 

proposed changes to funds’ liquidity classifications, the proposed definition of illiquid 

investments, and proposed changes to the highly liquid investment minimum.

Competition within the open-end fund sector may evolve as a result of the two effects 

stated above in several ways. First, to the extent that certain funds substantially change their 

investment strategies towards more liquid investments, the number of open-end funds that hold 

more liquid investments may increase, and competition among those funds for investors may 

increase. Conversely, competition among funds that hold less liquid investments may decrease. 

These effects depend also upon how investor demand for funds with liquid and illiquid 

investments may change with the proposed amendments. Second, to the extent that smaller open-

end funds would experience a more substantial operational burden compared to larger fund 

complexes that exhibit economies of scale and may be able to set up their trading desks in a more

efficient manner,505 smaller funds may become less competitive than larger funds. As a result, 

504  See supra section II.C.3 for additional discussion.
505  See e.g., Gjergii Cici et. al., Trading Efficiency of Fund Families: Impact on Fund Performance 

and Investment Behavior, 88 J. BANKING & FIN.1 (Dec. 22, 2015, rev. Jan. 12, 2016), available 
at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2514203. The authors find that by 

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smaller funds may decide to liquidate or to convert to other fund structures, such as ETF or 

closed-end structures, to the extent such conversion would be less costly compared to remaining 

a mutual fund. Third, to the extent that some open-end funds may currently deliver higher returns

because they set a lower highly liquid investment minimum and reasonably anticipated trade size

compared to other funds with similar investment strategies but higher highly liquid investment 

minimums and reasonably anticipated trade sizes, the proposed amendments to apply uniform 

minimum for the stressed trade size and highly liquid investment minimum may minimize such a

competitive advantage in performance and level the field among open-end funds. Finally, to the 

extent that investors would prefer funds with less volatile transaction prices for fund shares under

the proposed swing pricing requirement, funds with larger trading costs may become less 

competitive relative to the funds with smaller trading costs.

Competition for investment flows between open-end funds and other collective 

investment vehicles within retail and institutional non-retirement space may also be affected. To 

the extent that the proposed amendments reduce investor dilution and the liquidity risk of open-

end funds, some investors may increase their holdings of open-end funds relative to other 

investment vehicles. That said, we also recognize that some investors may attach more 

importance to investing in less liquid investments through a pooled vehicle with the ability to 

redeem on a daily basis and may view potential costs of dilution as the price of shareholder 

liquidity. 

In addition, there are three reasons why investors may reduce their investment in open-

end funds, making open-end funds less competitive with other types of investment vehicles, such

as closed-end funds (e.g., interval funds), ETFs, or CITs. First, holding open-end funds may 

operating more efficient trading desks that help reduce trading costs, fund families improve the 
performance of their funds significantly relative to fund families with less efficient trading desks.

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become relatively more costly compared to these other collective investment vehicles. Second, 

some investors may prefer to have holdings of less liquid investments, such as bank loan 

interests or investments that are valued using unobservable inputs that are significant to the 

overall measurement, such as long-dated currency swaps and three-year options on exchange-

traded shares, within a collective investment vehicle structure. Third, some investors may be 

averse to the potential effects of the proposed swing pricing requirements, such as redeeming 

investors that may be charged for more than the dilutive costs they impose on the fund, as well as

any investor averse to the increased uncertainty regarding the price at which the investor’s fund 

transactions will ultimately execute. 

For these reasons, some open-end funds may decide to offer their existing strategies in 

alternative fund structures, such as ETF or closed-end fund structures instead of maintaining 

these strategies within open-end funds under the proposed rule.506 Funds may make such a 

determination if doing so would be more cost-efficient, if they anticipate that investors would 

prefer to invest in their strategies via these alternative structures, or if their existing strategies 

would no longer be viable under the proposed amendments that call for an increased share of 

more liquid investments in funds’ portfolios. This may give fund complexes or other financial 

institutions that have more experience in these alternative structures a competitive advantage 

over those that do not. In addition, some open-end fund strategies may be more amenable to 

being migrated to other structures than others. For example, a passive open-end fund that does 

not rely on specialized skills or knowledge of a fund manager may be relatively easy to offer as 

an ETF. On other hand, while some active investment strategies are available as ETFs, funds 

may consider the structure less attractive if they consider the daily revelation of their holdings 

506  To the extent existing mutual funds convert to ETFs, certain investors in these funds may incur 
long-term capital gains taxes as a result of such conversions.

320undesirable and they determine that obtaining the exemptive relief that would enable them to 

structure the fund as a non-transparent ETF would be too costly.507 Such funds may end up at a 

competitive disadvantage to those that can more easily offer their strategies in other structures 

under the proposal.

Competition between open-end funds and other collective investment vehicles, such as 

ETFs, and CITs,508 as well as separately managed accounts, within the retirement space may also 

be affected. As discussed in section III.B.2, processes and systems related to executing investors’

orders within their retirement plans require knowledge of NAVs prior to sending investors’ 

trades to funds, and it may be costly to change these processes. To the extent that retirement 

plans can offer collective investment vehicles or ETFs that are not open-end funds but have 

similar investment strategies to open-end funds at a lower cost, open-end funds would become 

less competitive within the retirement sector. One type of a vehicle that offers similar investment

strategies to open-end funds at a lower cost is CITs. CITs differ in certain respects, however. For 

instance, CIT fees are bespoke for each plan, meaning that fees are individually negotiated and a 

plan participant cannot roll a CIT investment to an IRA when leaving the plan. Recent analysis 

from ICI demonstrates that, as of 2018, among all assets held in 401(k) plans, mutual funds 

comprise 43% while CITs amount to 33%.509 To the extent that the proposed hard close 

507  See Precidian ETFs Trust, et al., Investment Company Act Release Nos. 33440 (Apr. 8, 2019) 
[84 FR 14690 (Apr. 11, 2019)] (notice) and 33477 (May 20, 2019) (order) and related application
(“2019 Precidian”) for an example of exemptive relief pertaining to non-transparent ETFs.

508  CITs are an alternative to mutual funds for defined contribution plans. Like mutual funds, CITs 
pool the assets of investors and invest those assets according to a particular strategy. Unlike 
mutual funds, which are regulated under the Investment Company Act of 1940, CITs are 
regulated under banking laws and are not marketed as widely as mutual funds; which reduces 
their operational and compliance costs compared with mutual funds.

509  See BrightScope/ICI working paper at 2. 

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requirement would make mutual funds more costly or difficult to trade relative to CITs, the share

of CITs among retirement assets may further grow making open-end funds less competitive.

The proposed hard close requirement may have effects on competition among 

intermediaries. First, to the extent that intermediaries that are affiliated with fund complexes 

have an advantage in processing fund orders more swiftly compared to intermediaries that are 

not affiliated with the funds they offer, the former may not have to impose earlier order deadlines

on investors, which would result in competitive advantage over intermediaries that are not 

affiliated with the funds they offer. Second, to the extent that larger intermediaries enjoy 

economies of scale and would be able to implement the hard close in a more cost-effective way 

relative to smaller intermediaries, smaller intermediaries may become less competitive as they 

may have to pass the implementation costs on to their investors. 

To the extent that daily classifications would require a more frequent use of liquidity 

classification providers, demand for liquidity classification providers may increase. To the extent

that funds would expand their outsourcing of liquidity classifications, competition among outside

liquidity classification providers may increase. However, to the extent that some liquidity 

classification providers currently used by funds have operational capacity only for less frequent 

than daily provision of services, they may become less competitive compared to those that can 

provide the service on a daily basis.

The proposed amendments may also affect competition in markets for funds’ underlying 

investments. To the extent that open-end funds would change their overall portfolio towards 

more liquid investments as a result of the proposed amendments, and to the degree that such 

reallocation would be correlated across funds, competition in the markets for more liquid 

investments may increase, while competition in market for less liquid investments may decrease,

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which may further decrease the liquidity of these investments. For example, the proposed 

removal of the less liquid category may affect competition in the secondary market for bank loan

interests. To the extent that open-end funds would demand bank loan interests that are more 

liquid and standardized in terms of the settlement process, competition in the bank loan market 

may be affected – both among the loan issuers and loan administrators. Specifically, increased 

demand for shorter settlement may drive bank loan market participants to compete with each 

other via offering shorter settlement for their trades, including among counterparties who are 

willing to contract for expedited settlement, to the extent that 15% of bank loan interests held by 

open-end funds510 is a substantial enough share of the bank loan market for funds to have 

bargaining power in this market. To the extent that settlement times do not improve as a result of

this amendment, bank loan interests with longer settlement times may become less competitive 

with loan interests that have shorter settlement times. Third, to the extent that open-end fund 

investors would substitute funds that hold bank loans for funds that hold close alternatives, such 

as high-yield bond funds, as a result of the proposal, demand for funds holding these instruments 

may increase. In addition, to the extent that open-end funds become more limited in how much 

of bank loan interests they can hold directly, open-end funds may increase their holdings of 

CLOs, which in turn could increase demand for CLOs and competition among CLOs. Finally, to 

the extent that the demand for bank loan interests decreases as a result of the proposal, these 

instruments would become less competitive overall.

3. Capital Formation

The proposed amendments may affect capital formation. First, to the extent that the 

above efficiency and competition effects result in investor outflows from the mutual fund sector, 

510  See note 422 and accompanying text.

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capital formation within the sector may be reduced, while capital formation via banks and trust 

companies, ETFs, or other vehicles may increase. Second, to the extent that open-end funds 

would demand more liquid investments, the capital formation for issuers of these investments 

may increase. On the other hand, to the extent that funds would become more limited in the 

amount of investments with lower liquidity profiles they are able to make (such as investments 

that are valued using unobservable inputs that are significant to the overall measurement and 

investments that are currently classified as less liquid and illiquid), the capital formation for 

issuers of investments that are currently classified in less liquid categories may decrease. 

For example, a recent paper511 shows that, although CLOs (the largest lender of leveraged

loans) increase their purchases of outstanding bank loan interests in the secondary market at 

times when bank loan funds face outflows, they reduce their lending in primary market at the 

same time; which highlights the externality imposed by bank loan fund redemptions on capital 

formation for non-investment grade firms. Therefore, to the extent that open-end funds would 

hold fewer bank loans in their portfolios as a result of this amendment, the externality discussed 

above may be reduced and capital formation for non-investment grade firms could improve. On 

the other hand, to the extent that market settlement processes do not change, and to the extent 

that open-end bank loan funds are not converted to closed-end funds, the demand for bank loan 

interests may decrease, reducing capital formation for non-investment grade firms. This effect 

may be more pronounced for smaller issuers, to the extent that their securities are classified into 

less liquid categories more frequently compared to larger issuers. 

Finally, the proposed amendments are expected to decrease the risk of fire sales of funds’

underlying investments that may occur as a result of an increased selling pressure experienced by

511  Thomas Mählmann, Negative Externalities of Mutual Fund Instability: Evidence from Leveraged
Loan Funds, 134 J. BANKING & FIN. (2022).

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open-end funds during periods of high redemptions. This, in turn may increase confidence in 

markets for investments held in open-end funds’ portfolios, thereby aiding capital formation for 

these investments.

E. Alternatives

1. Liquidity Risk Management

a. Stressed Trade Size and Significant Changes in Market Value

Although tightening of inputs would reduce fund discretion in the methodology for 

liquidity classification relative to the baseline, funds would still have discretion in the use of 

models to calculate price impact under the proposal. One alternative that could alleviate this 

concern would be to define a list of investments that qualify as highly liquid investments 

explicitly, as well as the list of illiquid investments or to define liquidity of each security, 

regardless of its amount held by a fund. For example, we could define highly liquid investments 

similarly to the way Federal banking agencies define high quality liquid assets (“HQLA”) for the

purposes of liquidity coverage ratio rules.512 This approach would simplify funds’ compliance 

and may eliminate the need to calculate reasonably anticipated trade size or stressed trade size. 

As a result, an investment would be more consistently classified across funds, regardless of the 

amounts of this investment held by each fund. However, this approach would put the 

512  See 12 CFR 50.20 (Office of the Comptroller of the Currency); 12 CFR 249.20 (Federal Reserve 
Board); 12 CFR 329.20 (Federal Deposit Insurance Corporation). HQLA are composed of Level 
1 and Level 2 assets. Level 1 assets generally include cash, central bank reserves, Treasuries, 
certain agency securities, and certain marketable securities backed by sovereigns and central 
banks, among others. Level 2 assets are composed of Level 2A and Level 2B assets. Level 2A 
assets include, for example, certain debt guaranteed by a government sponsored entity or by a 
sovereign entity. Level 2B assets include, for example, investment grade corporate bonds, and 
publicly traded common equities that meet certain conditions, and investment grade municipal 
obligations. See also Bank for International Settlements (BIS), Basel Committee on Banking 
Supervision, LCR30 High-Quality Liquid Assets (final report, Dec. 31, 2019), available at 
https://www.bis.org/basel_framework/chapter/LCR/30.htm?
tldate=20191231&inforce=20191215.

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Commission in the position of determining the liquidity of each investment or investment type in

the market, which may be difficult to maintain over time and may over- or under-include 

securities that may demonstrate equal liquidity characteristics, as this alternative regime only 

covers HQLA and not all investments that could be held by a fund.

As an alternative, we could have proposed a higher level of STS. For example, an STS 

that is equal to 100% would assume a full liquidation of a position. Under this alternative, the 

classification of an investment would depend on the absolute value of the whole position rather 

than a percentage of a position. This approach may more accurately reflect liquidity needs during

the times of increased redemptions, to the extent that funds sell their most liquid holdings first in 

order to meet redemptions.513 An STS that is higher than 10% but lower than 100% would have 

the effect that is similar but lower in magnitude. While a higher STS might better reflect that 

funds may need to sell a higher fraction of a particular investment than 10%, it nonetheless could

be the case that a 10% STS is a better measure for determining liquidity under the proposed 

requirement for vertical slice assumption.

As another alternative, we could have proposed a lower level of STS. To the extent that 

some funds currently set their reasonably anticipated trade size lower than 10%, these funds may 

experience less changes in the classifications of their investments, which may result in less 

portfolio adjustments in order to comply with the 15% limit on illiquid investments and the 

highly liquid investments minimum. However, we believe that the 10% STS has the advantage of

simulating a stress event and would better prepare funds to accommodate redemptions during 

513  For example, if a fund experiences net outflows equal to 10% of its net assets, and the fund’s 
highly liquid assets comprise 20% of its portfolio, the fund would be able to fund all outflows 
with the proceeds from highly liquid assets. On the other hand, a 10% STS would test whether 
10%x20%=2% of the fund’s holdings could be sold without significantly changing the price of 
these holdings in order to meet redemptions. In this scenario, the fund may need to sell additional 
holdings that may be more costly to trade due to their lower liquidity classification.    

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such events. We seek comment on whether a level of STS lower than 10% would be a more 

appropriate STS that would ensure funds classify their investments in a way that would 

safeguard the fund and its shareholders during stressed times. 

As another alternative, we could have proposed an STS that would depend on an 

individual fund’s flows. For example, each fund could be required to use an STS that is equal to 

a certain percentile (e.g., 99th percentile) of the fund’s highest week of absolute flows or net 

outflows over a specified period of time (e.g., 3, 5, or 10 years).514 Under this alternative, funds 

would have a liquidity classification approach that is more tailored to their strategy and investor 

base. This approach would be less discretionary compared to the baseline but more discretionary 

compared to the proposal. To the extent that some funds may never experience net outflows that 

amount to 10% of their net assets, this alternative could be more appropriate for such funds. 

However, this alternative may result in inconsistent classifications among funds that have similar

holdings. For example, if an established fund and a new fund have identical portfolios, the new 

fund would not have the same level of historical flows as the established fund, to the extent that 

the established fund existed during periods of stress and the new fund did not. This would result 

in two different STSs for identical funds. 

As another alternative, we could have proposed an STS that would differ for funds with 

different investment strategies. For example, because during times of stress certain investments 

generally remain relatively liquid, we could have proposed a lower STS for funds with strategies 

that generally invest in more liquid assets, such as certain equities or government securities. 

However, under certain circumstances, large concentrations of any asset type (including those 

assets that are generally very liquid) held by a fund may weaken the fund’s ability to dispose of 

514  Basing the calculation on absolute, rather than net, flows would be designed to reflect that large 
inflows have the possibility of translating to similarly large outflows.

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such assets without a significant cost imposed on the fund’s investors.515 Therefore, we believe 

that requiring funds with different types of strategies to have the same STS would appropriately 

prepare all funds for stress events. In addition, although this approach would be more tailored to 

net flows trends specific to particular types of funds, this alternative may result in inconsistent 

application of the STS because there is no single taxonomy of fund types and there would be 

limited utility in proposing a new taxonomy given the previously noted concerns about an 

approach that differs by fund type. 

For determining whether a sale or disposition would significantly change the market 

value of an investment, we could have proposed a higher or lower value impact standard. For 

example, we could have proposed that a sale or disposition of less than or more than 20% of a 

security listed on a national securities exchange or foreign exchange, or a decrease in sale price 

of less than or more than 1% for other investments, would result in a significant change in 

market value. Setting a stricter test for what would constitute a significant change in market 

value may lead funds to classify investments as less liquid than under the proposed rule, and 

correspondingly, setting a more lenient test would lead to more liquid classifications. Because 

funds currently use different value impact standards today, increasing or reducing the thresholds 

in the rule may align with some funds’ current practices, while the proposed rule may align with 

other funds’ current practices. Therefore, any approach to defining the value impact standard 

would require some funds to change their current methodologies.

515  For example, during Mar. 2020, the U.S. Treasury market became less liquid than usual.

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b. Amendments to Liquidity Classification Categories and 

Definitions

As an alternative, we could have proposed an approach that provides additional time, 

beyond seven calendar days, for a sale to settle and convert to U.S. dollars before a fund must 

classify the investment as illiquid. For example, we could have proposed to define moderately 

liquid investments as those that a fund reasonably expects to be able to sell within seven days 

without a significant change in market value and to be convertible to U.S. dollars within an 

additional seven days. Under this alternative, all the economic effects of removing the less liquid

investment category discussed above would still be present, however, their magnitude may be 

reduced. As a result, not as many bank loan funds would have to rebalance their portfolios 

towards shorter-settlement loans and other investments, contract for expedited settlement, or 

restructure as a different investment vehicle. At the same time, the potential need to arrange 

expedited settlement to meet redemptions in the midst of market stress, as well as the potential 

borrowing costs a fund incurs to meet redemptions and the resulting dilution of fund investors, 

would not be reduced by as much as it would under the proposal. Therefore, we believe that 

aligning the time it takes to receive proceeds from the trade with the statutory requirement to 

meet investor redemptions within seven days would be a more economically sound step towards 

helping to ensure funds can meet redemptions within seven days and reducing investor dilution.

We could have proposed that a fund start measuring the number of days in which it 

reasonably expects a stressed trade size would be convertible to U.S. dollars without 

significantly changing its market value after the date of classification, instead of on the date of 

classification as proposed. Under this alternative, funds’ liquidity classifications would be 

marginally less liquid. We understand some funds are using this method of counting the number 

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of days currently and would not have to make any changes to their methodology; however, those 

funds that begin counting on the date after classification would need to make changes and their 

classifications would be more liquid than they are currently. We believe that funds should 

measure days consistently in order to help funds meet redemptions within seven days without 

significant trading costs.

c. Frequency of Liquidity Classifications

As an alternative, we could have proposed to require classification on a less frequent 

basis, for example, weekly. Under this alternative, funds would have less operational burden 

relative to the proposed daily classification requirement. In addition, to the extent that portfolio 

allocations of funds are noisy on a daily basis due to, for example, trading related to tracking 

errors or inability to invest newly incoming cash from investors immediately, weekly 

classifications may be more appropriate from an operational perspective. However, weekly 

classifications could reduce the effectiveness of the rule by delaying the identification of 

significant liquidity issues, such as a rise in illiquid investments or a drop in highly liquid 

investments, particularly at the onset of market stress when a fund might begin to face increasing

levels of redemptions. Therefore, we believe daily classifications would promote better 

monitoring of a fund’s liquidity and ability to more rapidly understand and respond to changes 

that affect the liquidity of the fund’s portfolio.

d. Definition and Calculation of Highly Liquid Investment 

Minimum and Proposed Limit on Illiquid Investments 

As an alternative, we could have proposed different highly liquid investment minimums 

for different type of funds, with lower highly liquid investment minimums for funds with 

strategies that generally invest in more liquid assets, such as equities or government securities. 

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However, under certain circumstances, large concentrations of any asset type (including those 

assets that are generally very liquid) held by a fund may weaken the fund’s ability to dispose of 

such assets without a significant cost imposed on the fund’s investors.516 Therefore, we believe 

that requiring funds with different types of strategies to have a highly liquid investment 

minimum of at least 10% would appropriately prepare all funds for stress events. In addition, 

although this approach would be more tailored to net flows trends specific to particular types of 

funds, this alternative may result in the inconsistent application of highly liquid investment 

minimums because there is no single taxonomy of fund types and there would be limited utility 

in proposing a new taxonomy given the previously noted concerns about an approach that differs

by fund type.

As another alternative, we could have proposed to require funds to maintain a highly 

liquid investment minimum that is lower or higher than the proposed 10% minimum, such as a 

minimum of at least 5% or 15%. A lower required threshold would require fewer changes to 

some funds’ portfolios and would be less likely to affect performance. However, a lower 

minimum would result in funds being less prepared to meet redemptions in stressed periods. A 

higher highly liquid investment minimum would better ensure that a fund can meet redemptions 

in stressed periods, but would require more significant changes to some funds’ portfolios and 

would likely have a larger effect on fund performance. Further, to the extent that certain funds 

would benefit from a highly liquid investment minimum that is greater than 10% because, for 

example, they have a concentrated shareholder base, such funds could establish a higher 

minimum under the proposal. Similarly, we considered a lower limit on a fund’s illiquid 

investments, such as a 5% or 10% limit. The alternatives would further limit a fund’s ability to 

516  See note 515.

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acquire illiquid investments, which would limit the mismatch between the time a fund must pay 

redemptions and the time it can sell its investments without significant dilution. However, 

lowering the limit on illiquid investments while also expanding the definition of illiquid 

investment would more significantly affect funds that currently invest in less liquid investments. 

As another alternative, we could have proposed to define investments used for collateral 

and margin purposes of moderately liquid and illiquid investments as moderately liquid and 

illiquid respectively. However, by reducing the fund’s highly liquid investments by the value of 

amounts posted as margin or collateral, the proposed approach would avoid burdens associated 

with tracking specific securities posted as margin or collateral and reclassifying investments as 

they are posted as margin or collateral and recalled. The proposed approach also would not 

understate the liquidity of securities that are posted as margin or collateral because each security 

would continue to be classified based on its own characteristics rather than based on the 

characteristics of the derivative it is tied to, and instead the adjustments would only be made at 

the aggregate level. 

2. Swing Pricing

This section discusses alternatives to the proposed swing pricing requirements. These 

alternatives include variations on the swing pricing requirements, variations on the thresholds 

used to determine the swing factor, and tools other than swing pricing that may achieve some of 

the same anti-dilutive goals of the proposed rule. These alternatives could be used independently 

or in combination with each other, and also could be paired with a hard close or the alternatives 

to the hard close we discuss in the next section, depending on the degree to which a given 

alternative does or does not require a fund to have complete order flow information at the time a 

fund strikes its NAV. 

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a. Alternative Approaches within the Swing Pricing Framework 

As an alternative, we could have proposed different thresholds for net redemptions, net 

subscriptions, and inclusion of market impact. For example, we could have required funds to 

adjust the NAV only when net redemptions exceed a specified swing threshold, allowing funds 

to not adjust the NAV at all when redemptions are low in magnitude, as the proposal does for net

subscriptions. To the extent that determining a swing factor is costly, only requiring funds to do 

so when net redemptions exceeded a threshold would limit the frequency with which funds incur 

such costs. However, because net redemptions are likely to dilute fund shareholders by a larger 

magnitude compared to net subscriptions, such an alternative may forego some of the benefits 

non-transacting fund shareholders would be expected to receive under the proposal. 

The proposal also could have used a different market impact threshold, or no threshold, 

requiring that funds always include market impact in their swing factor calculations. A higher 

(lower) market impact threshold would reduce (increase) the number of days for which affected 

funds must calculate market impact costs for their portfolio investments, reducing (increasing) 

any related costs and operational challenges. However, a higher (lower) market impact threshold 

would also reduce (increase) the amount of dilution from redemptions that is recaptured by funds

and accrued to non-transacting shareholders, assuming some funds do not opt to set lower market

impact thresholds, as permitted under the proposal.

Similarly, the proposal could have used a different swing threshold for net subscriptions, 

or no threshold, requiring that funds always adjust their NAV in response to net subscriptions. A 

higher (lower) threshold for net subscriptions would reduce (increase) the number of days for 

which affected funds must calculate swing factors, reducing (increasing) any related costs and 

operational challenges. However, a higher (lower) threshold for net subscriptions would also 

333



reduce (increase) the amount of dilution from subscriptions that is recaptured by open-end funds 

and accrue to non-transacting shareholders, assuming some funds do not opt to set lower 

threshold for net subscriptions, as permitted under the proposal.

As another alternative, we could have required that funds only apply a swing factor when 

they experience net redemptions rather than requiring that they also apply a swing factor when 

net subscriptions exceed 2%. Removing the requirement that funds apply a swing factor for net 

subscriptions would remove any operational costs funds may incur in implementing swing 

pricing for net subscriptions and may reduce the uncertainty that subscribing investors face 

regarding the share price at which their subscription orders will ultimately transact. However, 

while we recognize that subscriptions tend to be less dilutive than redemptions, the trading costs 

incurred by funds to accommodate subscriptions can still be dilutive. Therefore, non-transacting 

investors would be exposed to more dilution risk under this alternative. 

As an alternative, the proposal could have also permitted funds to use a default swing 

factor (e.g., 2% or 3%) when estimating trading costs accurately may be more difficult, such as 

in times of market stress. A fund’s swing pricing administrator, adviser, or a majority of the 

fund’s independent directors could be permitted to determine whether market conditions are 

sufficiently stressed to invoke this default swing factor. This alternative could benefit investors 

by mitigating shareholder dilution during periods of increased market uncertainty when standard 

analyses that funds use to estimate trading costs may fail to capture these costs accurately, to the 

extent that the standard analyses result in underestimation of trading costs. However, this 

alternative would provide funds with more discretion in determining when their swing factor 

applies in a way that is less transparent and consistent for fund shareholders, which increases the 

chance that funds may take advantage of such discretion in order to boost the performance of a 

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fund. In addition, a default swing factor may not be a good approximation of the actual trading 

costs a fund will incur during the periods it is applied, which could either overcharge transacting 

investors relative to the trading costs they impost on a fund or undercharge transacting investors, 

limiting the extent to which non-transacting shareholder dilution is mitigated.

As another alternative, the proposal could have defined the market impact threshold or 

inflow swing threshold on a fund-by-fund basis, with a reference to a fund’s historical flows. For

example, each fund could have been required to determine the trading days for which it had its 

highest outflows over a set time period, and set its market impact threshold based on the 1-5% of

trading days with the highest redemptions. Similarly, each fund could have been required to 

determine the trading days for which it had its highest inflows or outflows over a set time period,

and set its inflow or outflow swing threshold based on the 1-5% of trading days with the highest 

redemptions or subscriptions. While this alternative could allow funds to customize their swing 

thresholds to their historical flows, such an alternative may create strategic incentives for fund 

complexes to open and close funds depending on historical transaction activity. For example, to 

the degree that the estimation of market impact factors or other trading costs may be costly, or to 

the extent that investors prefer funds that do not apply swing factors as frequently, fund families 

may choose to close funds that experienced high redemptions to avoid the application of market 

impact factors. In addition, allowing funds to determine their own thresholds based on historical 

data may lead to less comparability across funds with respect to when investors expect funds to 

incorporate market impact or swing their NAV in response to net subscriptions or net 

redemptions.

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b. Alternatives to Swing Pricing

i. Liquidity Fees  517  

As an alternative to the proposed swing pricing requirement, we could have proposed to 

require funds to charge liquidity fees to transacting investors. There are various types of fees that

we considered, which are discussed below.

(a) Dynamic Liquidity Fee  

As an alternative, we could have proposed a dynamic liquidity fee that could, in 

principle, be equivalent to swing pricing from the point of view of the transacting investor. For 

example, this alternative could charge transacting investors the estimated trading, spread, and, in 

some cases, market impact costs associated with their subscription or redemption activity, 

allowing remaining shareholders to recoup these costs and mitigate dilution. Under this 

alternative, like under the proposed swing pricing framework, a fund would be required to 

determine a given day’s liquidity fee for subscribers or redeemers based on the fund’s net flows. 

Specifically, on a day with net redemptions (subscriptions), the fund would determine a liquidity 

fee that reflects the costs redeeming (subscribing) investors are expected to impose on the fund 

and would only charge redeeming (subscribing) investors the fee. 

From an economic (namely non-operational) perspective, the difference between a 

liquidity fee and swing pricing is the effect on subscribing (redeeming) investors when a fund 

experiences net redemptions (subscriptions) and how the anti-dilution benefit is shared among 

transacting and non-transacting fund investors. Specifically, under swing pricing, in the case of 

net redemptions, subscribing investors would purchase fund shares at a discount relative to the 

NAV because there will be only one transaction price for fund shares determined by swing 

517  See also section II.D.1.a for additional discussion of liquidity fee alternatives.

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pricing. Similarly, in the case of net subscriptions, redeeming investors would receive a premium

for their redeemed shares because the transaction price for fund shares would be adjusted above 

the NAV. As a result, some of the recouped dilution costs from net redemptions (subscriptions) 

are diverted to other transacting investors – subscribers (redeemers) – rather than to non-

transacting fund investors.518 If the fund charges a liquidity fee, on the other hand, subscribing 

(redeeming) investors would not be purchasing (selling) fund shares at a discount (premium) in 

the case of net redemptions (subscriptions). Instead, the fee would be borne by redeemers 

(subscribers) without the commensurate benefit to subscribers (redeemers) and would fully 

accrue to the fund instead.519 From this perspective, a liquidity fee may be fairer to redeeming 

(subscribing) fund investors in the case of net redemptions (subscriptions) compared to swing 

pricing. In addition, relative to swing pricing, liquidity fees would be more transparent regarding 

the liquidity costs transacting investors are charged and would not change day-to day fund 

returns that investors observe.520 

However, liquidity fees may be more operationally challenging to implement relative to 

the proposed swing pricing requirement. With swing pricing, a fund can pass liquidity costs on to

redeeming or purchasing investors via downward or upward adjustments in the NAV to 

determine the transaction price for fund shares, with intermediaries receiving this price at the end

518  Under the proposed swing pricing requirement, a fund would still recoup the full dilution costs 
associated with net redemptions by charging redeemers for both the dilution cost of redemptions 
as well as the cost of allowing subscribers to fund shares at a discount when the fund experiences 
net redemptions. Similarly, a fund would still recoup the full dilution costs associated with net 
subscriptions by charging subscribers for both the dilution cost of subscriptions as well as the cost
of allowing redeemers to sell shares at a premium when the fund experiences net subscriptions in 
excess of 2%.

519  See e.g., Eaton Vance Comment Letter at https://www.sec.gov/comments/s7-16-15/s71615-
151.pdf for a description of mechanics and an assertion that fees are economically superior.

520  We recognize that while swing pricing may change the returns that investors see on a daily basis,
it would not change monthly returns and returns reported on a fund’s statement relative to a fee.

337

https://www.sec.gov/comments/s7-16-15/s71615-151.pdf
https://www.sec.gov/comments/s7-16-15/s71615-151.pdf


of the trading day. With a liquidity fee, however, a fund would have to rely on intermediaries to 

pass the liquidity costs on to transacting investors, which may involve greater operational 

complexity for intermediaries compared to swing pricing. While we recognize that some funds 

and their intermediaries are currently able to apply redemption fees under rule 22c-2, applying 

dynamic liquidity fees that may change in size from day-to-day may involve greater operational 

complexity and costs. For instance, liquidity fees may require more coordination with a fund’s 

intermediaries because these fees need to be imposed on a transaction-by-transaction basis by 

each intermediary involved—which may be difficult with respect to omnibus accounts that 

intermediaries may create to aggregate all customer activity and holdings in a fund. We could 

instead require intermediaries to submit purchase and redemption orders separately to transact in 

a fund’s shares, as some intermediaries already do. This could allow funds or their transfer 

agents to apply fees directly, but this type of requirement would also require some intermediaries

to make operational changes because they would no longer be able to net otherwise offsetting 

customer purchases and redemptions.

As noted above, this type of dynamic fee would depend on fund flow information. A 

dynamic fee could be applied at the time of an investor transaction, in which case a hard close 

would still be required so that a fund has complete flow information by the time the NAV is 

struck, allowing the fund to determine the corresponding dynamic fee. Alternatively, the fee 

could be processed separately and applied to an investor’s account on a delayed basis, obviating 

the need for a hard close because funds would no longer need complete flow information at the 

time of the initial investor transaction.521 Delayed application of the fee, however, may raise 

complications related to collecting fee amounts from investors, particularly when an investor has 

521  See also section II.D.1.a for additional discussion of delayed fee application.

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otherwise redeemed the full amount of its holdings. Follow-on fees also significantly increase the

number of transactions to process, and may complicate reporting for custodians and advisers in 

situations where a transaction may occur in one reporting period but the fee related to the 

transaction is not applied until the next reporting period. In addition, an intermediary may face 

difficulties projecting upcoming cash balances in its client accounts if there are upcoming fees to

be charged, but the amounts of those fees are unknown. The fund itself may also have challenges

with projecting its own cash balance if it cannot predict when accrued fees will be received from 

each intermediary. 

(b) Set Fee   

Another alternative could be a simple fee framework that would require funds to charge a

set fee of a specified percentage of the transaction (e.g., 1%). This fee could be designed to either

apply for all investor transactions, apply if redemptions or subscriptions exceed certain 

thresholds, or apply only on the redemption side or only on the purchase side. Such an alternative

could reduce the operational burdens imposed on funds with respect to estimating trading costs 

and market impact and, in the case of a fee that is always charged, also would not require that a 

fund receive full order flow data before its NAV is struck. However, this alternative could also 

lead funds to over- or under-charge transacting investors because the trading costs a fund 

experiences for a given level of net redemptions or subscriptions may vary nonlinearly with the 

size of net redemptions or net subscriptions. For example, a fund trading to accommodate 

relatively small redemptions or subscriptions would most likely not result in market impact costs,

while accommodating substantial redemption or subscription activity might result in market 

impact costs. As a result, a fund might undercharge transacting investors relative to the trading 

costs their activity imposes on a fund in cases when the set fee is lower than the trading costs 

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implied by the fund’s aggregate investor activity. Therefore, in such instances this alternative 

may be less effective than swing pricing at mitigating dilution. Similarly, a fund might 

overcharge transacting investors relative to the trading costs their activity imposes on a fund in 

cases when the set fee is higher than the trading costs implied by the fund’s aggregate investor 

activity, non-transacting investors are enriched at the expense of transacting investors. If such a 

set fee could be calibrated correctly, the effects of under- or over-charging transacting investors 

might offset each other. However, perfectly calibrating a fee would require that a fund correctly 

forecast the likelihood and magnitude of net redemptions and net subscriptions, as well as the 

corresponding trading costs associated with such flows, which may not be feasible.

(c) Fee Adjusted for Bid-Ask Spreads or other   
Transaction Costs

Relatedly, another simpler liquidity fee alternative could still use fees that are dynamic in

the sense that they respond to market conditions such as bid-ask spreads or other known 

transaction costs associated with trading underlying investments, but are not tailored to the order 

flow a fund receives on a given day. For example, a fund could charge a liquidity fee on both 

subscriptions and redemptions on a given day that reflects the estimated costs of buying and 

selling the fund’s underlying assets, respectively, excluding factors that depend on order flow, 

such as market impact. Such an alternative would still require funds to estimate trading costs, but

would not require that a fund receive full order flow data before its NAV is struck. 

Economically, this alternative is equivalent to dual pricing, discussed below, which instead 

charges these costs by establishing separate transaction prices for subscriptions and redemptions.

340(d) Liquidity Fee When Trading Costs Significantly   
Increase  522  

As another alternative, we could have proposed a liquidity fee that would only apply 

under certain conditions, such as when trading costs are significantly above those typically 

experienced. Under this approach, either the Commission could define the circumstances that 

would trigger the fee or funds could define the conditions under which the fee would apply. In 

the latter case, a fund would establish written policies and procedures designed to mitigate 

dilution and recoup the costs the fund reasonably expects to incur as a result of shareholder 

redemptions. 

In both scenarios, this alternative may be less costly for funds relative to the above 

alternatives, to the extent that applying the fee less frequently is less operationally burdensome. 

Under this alternative, funds would be able to recoup trading costs when these costs significantly

increase (e.g., during periods of market stress), without increasing the costs of operation during 

other times. The benefits of this approach to investors would depend on the relative magnitude of

dilution realized during normal periods when trading costs are not significantly increasing versus

the cost of applying an anti-dilution tool on a daily basis. To the extent that dilution during 

normal times is negligible while the operational burden of applying the fee is not, a fee that 

applies only when trading costs increase significantly may benefit fund investors. However, to 

the extent that dilution during normal times can accumulate to a significant amount over time, 

fund investors would not be protected against it. The benefit of this alternative would also 

depend on whether the specified conditions that trigger the fee could be anticipated by investors 

prior to the fund imposing the fee. To the extent that investors would be able to forecast that a 

fund is moving closer to the fee trigger, they may decide to preemptively redeem their shares 

522  See also section II.D.3.b for additional discussion of this alternative.

341



before the fee is initiated, potentially exacerbating the first-mover advantage and contributing to 

further fund stress. 

The economic tradeoffs of this alternative would also depend on whether a fund defines 

the circumstances under which the fee would apply or the Commission would define such 

circumstances. Under the first scenario, funds would be able to tailor the triggers to their specific

circumstances, such as the fund size, the portfolio characteristics, and investor base composition,

as well as the historically observed dilution. As a result, funds may be better equipped to protect 

their investors during times of increased trading costs. However, under this scenario, fund 

discretion over the fee triggers may result in some funds defining triggers in a suboptimal way in

order to compete with similar funds for investors. Under the second scenario, funds would not 

have such discretion, which could better protect investors from dilution. However, because 

mutual funds vary significantly in their portfolios and sizes, it would be challenging to establish 

a trigger that is not dependent on timely flow information and would equally protect investors of 

all funds from dilution.

(e) Liquidity Fee for Funds That Are Not Primarily   
Highly Liquid When Trading Costs Increase Significantly

As another alternative, we could have proposed a liquidity fee only for certain types of 

funds. For example, we could have proposed a fee that funds that are not primarily highly liquid 

(e.g., funds that hold less than an identified percentage of their portfolio in highly liquid assets, 

such as less than 50%, 66%, or 75%) would be required to impose during periods of increased 

trading costs. Under this alternative, affected funds and their investors would experience similar 

benefits and costs as in the alternative above. However, the aggregate magnitude of these effects 

would be smaller because it would not affect all mutual funds. To the extent that funds that 

invest primarily in highly liquid investments do not experience trading cost increases that are as 

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substantial as all other funds during periods of market stress, this alternative may benefit 

investors in primarily highly liquid funds by not imposing additional costs related to establishing 

policies and procedures related to the liquidity fee. However, all funds would have to establish 

procedures for monitoring whether they hold primarily highly liquid investments or not. 

The cost savings of this alternative relative to the alternative that would require a fee for 

all funds during periods of increased trading costs would depend on how often highly liquid 

investments may become temporarily less liquid. To the extent that funds expect certain 

investments that are highly liquid during normal times to become less liquid during stress 

periods, these funds may have to preemptively establish compliance around the liquidity fee 

implementation. This effect would be more pronounced for funds that are near the 50% 

threshold. 

This alternative may also affect competition in the mutual fund sector, to the extent it 

could make investment in mutual funds that are not primarily highly liquid less attractive to 

investors. In addition, some funds may exit some of their moderately liquid and illiquid 

investments in order to fall under the definition of primarily highly liquid. This, in turn, may 

make markets for moderately liquid and illiquid investments more illiquid and negatively affect 

capital formation for these investments. 

ii. Dual Pricing  523  

As an alternative to the proposed swing pricing requirement, we could have required that 

funds implement dual pricing, which is used in some other jurisdictions. Dual pricing would 

effectively set two transaction prices for a fund: one price for purchases and another for 

redemptions. The price adjustments for the funds’ shares could either be constant or calculated to

523  See also section II.D.1.b for additional discussion of this alternative.

343



reflect the estimated costs of buying and selling the fund’s underlying investments, excluding 

factors that depend on order flow, such as market impact. The first approach would be similar to 

one of the set fee alternative discussed above, as it would be less reliant on fund flow 

information than the proposed swing pricing requirement, but the charge imposed on transacting 

investors would also less accurately reflect the specific liquidity features of the fund’s current 

investments in light of the size of the redemptions the fund is experiencing. As an example of the

second approach, a fund would set its purchase price to be the fund’s NAV on that day plus an 

amount that reflects the potential trading costs such as bid-ask spreads that subscriptions impose 

on a fund given current market conditions, and exclude factors such as market impact that may 

require knowledge of the fund’s order flow on that day. Similarly, the redemption price of a fund

share would be the fund’s NAV minus an amount that reflects the potential trading costs 

redemptions would impose on a fund given current market conditions. Operationally, dual 

pricing would not require that funds receive complete order flow data prior to determining their 

dual transaction prices, removing the need for a hard close. However, dual pricing would require 

intermediaries and other market participants to update their processes to handle two potential 

transaction prices rather than a single NAV, which would impose costs on such intermediaries. 

In addition, intermediaries that currently submit a single net order (e.g., using omnibus 

accounting) would need to separately submit aggregate purchases and aggregate redemptions to a

fund, which would impose costs on such intermediaries. 

iii. Spread Cost Adjustment on Days with Estimated Net   
Outflows  524  

Another alternative to the proposed swing pricing requirement would be to require that 

funds use estimated flows to determine whether they expect to have net redemptions on a given 

524  See also section II.D.3.a for additional discussion of this alternative.

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day and, if so, to require that the fund adjust its current NAV to reflect good faith estimates of 

spread costs.525 This alternative would not require funds to assess market impact, nor would it 

require that funds use swing pricing on days when a fund estimates that there will be net 

subscriptions. By setting the price for fund shares to reflect good faith estimates of spread costs 

on days when a fund estimates it will have net outflows, the fund would protect non-transacting 

investors from dilution due to the spread costs, to the extent that the fund correctly estimates the 

direction of the net flows. This approach could ameliorate first-mover advantage because 

redeeming shareholders would be required to pay at least the spread component of transaction 

costs imposed on the fund by their redemptions on days where the fund accurately predicts that it

will experience net redemptions. As a result, this alternative may help to mitigate run risk and 

potential fire sales of funds’ portfolio holdings. However, basing the decision to apply a spread 

cost adjustment on estimated flows may reduce the effectiveness of this alternative by possibly 

causing the fund to adjust its share price down on days where transacting investors ultimately do 

not dilute remaining fund shareholders. While applying a spread cost adjustment on days when a 

fund incorrectly predicts net redemptions could result in more shareholder dilution than if an 

adjustment had not been applied, this possibility would not impede the effectiveness of the 

alternative to mitigate first-mover advantage.

The alternative would impose lower costs on funds and intermediaries relative to the 

proposed swing pricing requirement because there would be no requirement for a hard close and 

525  U.S. GAAP states that if an asset measured at fair value has a bid price and an ask price (for 
example, an input from a dealer market), the price within the bid-ask spread that is most 
representative of fair value in the circumstances shall be used to measure fair value, and that the 
use of bid prices for asset positions is permitted but not required for these purposes. See FASB 
ASC 820-10-35-36C. Therefore, we recognize that requiring a fund’s share price to be 
determined using bid-side values for the underlying investments would introduce inconsistency in
instances where the fund does not use bid prices to value securities for purposes of U.S. GAAP. 
As a result, funds needing to apply different pricing for these different purposes could experience 
incremental effort and cost.

345



no requirement to estimate market impact factors or other transaction costs. By limiting the 

adjustment of the share price to a step function (i.e., share price is either adjusted to reflect 

spread costs or not at all), the alternative avoids any imprecision that may be introduced by 

having the size of the fund’s share price adjustment also depend on the size of predicted net 

outflows. To the extent that funds currently do not implement swing pricing because of existing 

operational challenges or any stigma that may be associated with the use of that tool, this 

alternative would likely overcome these challenges by prescribing an approach that is mandatory

and that could be implemented more easily under existing operational structures compared to the 

proposed swing pricing requirement that would rely on a hard close while still providing some 

anti-dilution benefits to mutual fund investors.

iv. A Choice of an Anti-Dilution Tool  

As another alternative to the proposed swing pricing requirement, we could have 

proposed to require all funds to implement an anti-dilution tool, while allowing them to choose 

among several tools, such as swing pricing, liquidity fees, or other alternative approaches 

discussed above. This alternative may benefit funds and their investors, to the extent that certain 

anti-dilution tools are better suited for certain types of funds in reducing investor dilution. For 

example, funds that have infrequent subscriptions or redemptions may find a liquidity fee less 

operationally costly to implement compared to other tools. Similarly, funds that have more 

volatile flows on a day-to-day basis may find that swing pricing would be a more effective 

approach to combat dilution because the trading costs would be recouped instantaneously with 

investors’ trading activity, compared to liquidity fees that would not be recouped by a fund until 

a later date. Further, funds that have de minimis transaction costs for prolonged periods of time 

may find a liquidity fee that would only apply during stressed conditions more appropriate from 

346



the operational prospective. This alternative may benefit mutual fund investors by increasing 

investor choice relative to the proposal. To the extent that different investors have varying 

preferences for anti-dilution tools, they would be able to invest in the mutual fund sector 

according to their preferences. As such, this alternative may increase competition in the mutual 

fund sector. However, this alternative could be more costly relative to the proposal and other 

alternatives discussed above because fund intermediaries and service providers would need to 

establish systems that accommodate all the anti-dilution options that would exist across mutual 

funds. 

3. Hard Close Requirement 

The proposal would require a hard close, meaning that an order may be executed at the 

current day’s price only if the fund or its designated parties receive the order before 4 p.m. ET. 

As discussed in section III.B.3, funds and intermediaries are likely to incur significant costs in 

order to comply with the hard close requirement. Therefore, we have considered alternative 

approaches to the hard close requirement.

a. Indicative Flows526

One alternative to the proposed hard close requirement would be to require that funds 

receive indicative flow information from intermediaries by an established time. This approach 

would be less likely to affect investors who place orders near the 4 p.m. ET pricing time, as 

intermediaries may not necessarily need to establish earlier cut-off times. While intermediaries 

would incur one-time costs to update their systems and processes to calculate indicative flow 

information, as well as ongoing costs related to the transmission of the indicative flow 

information to funds or their designated parties, these costs would be lower than the costs 

526  See also section II.D.2.a for additional discussion of this alternative.

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intermediaries would incur under the proposed hard close requirement. The proposed hard close 

requirement, however, would likely not result in the same ongoing costs for intermediaries that 

this alternative would require. For example, intermediaries may need to develop a process for 

estimating indicative flows and sending them to funds, separate from the process of submitting 

orders to fund transfer agents and Fund/SERV. Likewise, funds would need to develop processes

for receiving the indicative flow information and monitoring whether each intermediary has 

provided indicative flow information in a timely manner. Moreover, indicative flow information 

likely would be less accurate and complete than the flow information funds would receive under 

the proposed hard close requirement. As a result, funds’ swing pricing determinations may be 

less accurate than under the proposal (e.g., a fund may not adjust its NAV when it should have, 

or vice versa, due to incomplete flow information), which would limit a fund’s ability to mitigate

dilution through swing pricing. 

b. Estimated Flows527

Another alternative approach to a hard close would be to continue allowing funds to use 

reasonable estimates of their flows in determining transaction costs from investors’ trading 

activity and to provide them with a safe harbor in cases where the produced estimates of the 

funds’ net flows are different from realized net flows. This approach would have limited effect 

on intermediaries, as funds would base their estimates on models incorporating available 

information. However, because funds would base anti-dilution decisions on less precise flow 

data, this alternative could reduce the effectiveness of a fund’s swing pricing by possibly causing

it to adjust its NAV on days where transacting investors ultimately do not dilute remaining fund 

shareholders. On days where a fund estimates the direction of flows incorrectly, e.g., if a fund 

527  See also section II.D.2.b for additional discussion of this alternative.

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forecasts that it will experience net subscriptions but actually experiences net redemptions, 

applying a swing factor could result in more shareholder dilution than if a swing factor had not 

been applied. This may make mutual funds less attractive to investors. However, the success of 

this approach would depend on how well funds can predict the additional flows that they receive 

after their NAV has been determined. 

c. Later Cut-Off Times for Intermediaries528

Another alternative is to establish later cut-off times for intermediaries to submit order 

flow information, for example, two or three hours after the fund’s pricing time (e.g., 6 or 7 p.m. 

ET if the fund’s pricing time is 4 p.m. ET). Under this alternative, intermediaries would have 

more time to submit their orders to funds and may not need to impose a cut-off time for investor 

orders earlier than the pricing time. To the extent that investors would not be subjected to an 

earlier cut-off time under this alternative, investors that use affected intermediaries would not 

experience disadvantage over investors that trade with the fund directly in terms of different 

degree of market risk described above. However, although this alternative may be more 

beneficial to investors compared to the proposed hard close requirement, it would require similar

operational changes and impose similar costs. For example, retirement plan recordkeepers would

still need to submit orders before receiving funds’ prices. This alternative, however, may be less 

disruptive than the proposed hard close requirement for intermediaries that typically provide 

orders by around 6 or 7 p.m. ET, which we understand is the case for many broker-dealers. 

Under this approach, funds would likely need to publish their prices later than current practice to 

provide time to make swing pricing decisions. This could delay the distribution of pricing 

information to the public and to intermediaries. However, because intermediaries would no 

528  See also section II.D.2.c for additional discussion of this alternative.

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longer be revising orders contingent on the fund’s share price to the same extent, this may not be 

as disruptive as a later NAV publication would be under the status quo.

4. Commission Reporting and Public Disclosure

As an alternative, we could have proposed public disclosure of position-level liquidity 

classifications. This alternative may provide more information about a fund’s liquidity risk 

profile to investors, thereby improving their portfolio allocation decisions. While funds may have

gained some insight into how other funds manage liquidity risk via their narrative disclosures, to 

the extent those disclosures tended to be boilerplate, observing other funds’ liquidity profiles 

might provide some information that is useful in a fund’s own liquidity classification process. 

Although the process for funds’ liquidity classifications will be more uniform across funds under

the proposal, we recognize that the same investment may still be classified differently by 

different funds due to classifications being position-dependent (i.e., the more of a security is held

by a fund, the less liquid its classification would be). Therefore, even if position-level liquidity 

classifications are disclosed, the comparison of classifications across funds may still not be as 

meaningful for investors in all cases. Position-level disclosure also could potentially reveal 

additional information about a fund’s trading strategy if, for example, a security was classified as

illiquid solely because the fund had material non-public information about the security. In 

addition, investors also may find the proposed aggregate liquidity information more useful, to the

extent that they are focused on a fund’s overall liquidity profile rather than the liquidity of any 

particular investment. 

We also could have proposed filings would become public when they are filed as 

opposed to keeping the filings confidential until 30 days after they are filed (60 days after the 

end of the reporting period). This could take several forms. For example, we could maintain the 

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proposed filing deadline, which would mean that a fund’s filing would be due and become public

30 days after the end of the reporting period. Alternatively, we could pair a publication-upon-

filing framework with lengthening the delay between the end of the reporting period (for 

example, to 45 days after the end of the period). Making filings public immediately upon filing 

could improve investor understanding of fund portfolios because they would be able to review 

the information closer to real time (though still with a substantial delay), assuming that the filing 

deadline was 30 days after each month end as proposed. This would enhance the ability of 

investors to choose the right fund that suits their portfolio construction goals. Many funds 

already make portfolio information public with a 30-day delay on a voluntary basis, but this 

alternative would result in a consistent framework across the entire open-end fund industry. This 

approach would also reduce the amount of information the Commission would be required to 

keep confidential.529 On the other hand, to the extent funds are at risk of predatory trading or 

copy-catting when their portfolios become public sooner, this approach could serve to increase 

those risks.530

We could have taken the inverse approach as well. Instead of providing for publication at 

the same time information is filed, we could have provided for a longer period between the time 

information is filed and when it is made public, and also could have extended the deadline for 

filing. The benefits and costs of this alternative would likewise be the reverse of the publication-

upon-filing alternative. Namely, this alternative could reduce the risks of predatory trading or 

copy-catting because by the time the information became public, it would be more likely to be 

529  Certain data would remain confidential, such as the composition of the fund’s “miscellaneous 
securities.” See supra section II.E.1.d.

530  See supra note 287 (comment letter from major industry participant citing research showing that 
risk of predatory trading or copycatting as a result of increased publication frequency is 
overstated). 

351



stale. On the other hand, it would also be less useful to investors seeking to understand their 

funds and, if we paired a delay in publication with a delay in the deadline for filing with the 

Commission, it would be less useful to the Commission as well. 

F. Request for Comment

 We request comment on all aspects of the economic analysis of the proposed 

amendments. To the extent possible, we request that commenters provide supporting data and 

analysis with respect to the benefits, costs, and effects on competition, efficiency, and capital 

formation of adopting the proposed amendments or any reasonable alternatives. In particular, we 

ask commenters to consider the following questions:

234. What additional qualitative or quantitative information should be considered as 

part of the baseline for the economic analysis of these amendments? 

235. Are the benefits and costs of proposed amendments accurately characterized? If 

not, why not? Should any of the costs or benefits be modified? What, if any, other 

costs or benefits should be taken into account? If possible, please offer ways of 

estimating these benefits and costs. What additional considerations can be used to 

estimate the benefits and costs of the proposed amendments?

236. Are the benefits and costs of the proposed swing pricing amendments accurately 

characterized? If not, why not? What, if any, other costs or benefits should be taken 

into account? If possible, please offer ways of estimating these benefits and costs.

237. Are the effects on competition, efficiency, and capital formation arising from the 

proposed amendments accurately characterized? If not, why not? 

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238. Are the economic effects of the above alternatives accurately characterized? If 

not, why not? Should any of the costs or benefits be modified? What, if any, other 

costs or benefits should be taken into account?

239. Are the economic effects of the alternative approaches to implementing swing 

pricing adequately characterized? If not, why not? Should any of the costs or benefits 

be modified? What, if any, other costs or benefits should be taken into account?

240. Are there other reasonable alternatives to the proposed amendments that should 

be considered? What are the costs, benefits, and effects on competition, efficiency, 

and capital formation of any other alternatives?

241. What effects would the proposed changes have on (1) investment options 

available to investors if certain asset classes are not available or are less available in 

open-end vehicles (including UITs); and (2) the markets for those underlying assets, 

including, but not limited to, the market for bank loan interests.

242. How likely is it that open-end fund managers will choose to offer their products 

via different structures, such as ETFs, closed-end funds, or CITs, rather than comply 

with the proposed requirements? Relatedly, how likely is it that investors will move 

assets from open-end funds to other types of funds in response to the proposed 

requirements?

243. Are there data sources or data sets that can help refine the estimates of the 

benefits and costs associated with the proposed amendments? If so, please identify 

them. 

244. Are there data sources that can help us estimate the aggregate number and value 

of transactions in mutual fund shares with more accuracy? If so, please identify them.

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245. Which third-party service providers would be affected the most by the proposed 

amendments? Please explain why. If possible, please provide data on the number and 

size of such entities. 

246. Would these amendments cause a fund or any third-party service providers 

assessing liquidity to have new or unforeseen burdens? Would this increase the cost 

of third-party services?

247. Would certain types of funds have to substantially rebalance their portfolios as a 

result of the proposed changes to the liquidity risk management program? Provide a 

list of specific investments that funds would have to hold in limited amounts under 

the proposed amendments. Are there close alternatives to these investments that funds

would be able to hold? For example, can bank loan interests be substituted with 

CLOs? If no, please explain why.

248. Can the vertical slice assumption for the purposes of calculation of stressed trade 

size be implemented for all types of fund investments? For example, are there 

indivisible minimum trade units for any investments for which 10% of such an 

investment would not be possible to sell due to such indivisibility? How do funds 

currently operationalize the calculation of the reasonably anticipated trade size: via a 

vertical slice assumption or in any other way for indivisible investments?

249. What price impact models do funds currently use for liquidity classifications of 

their investments? Are there advantages of using one model over another? Are there 

price impact models available to use only through certain third-party service 

providers assessing liquidity? Do service providers assessing liquidity vary in costs 

for their services? 

354



250. What would be the costs of obtaining daily pricing and liquidity information for 

the purposes of daily liquidity classifications? What are the current costs related to 

obtaining such information? 

251. Do funds currently monitor their liquidity classifications on a daily basis? Are 

there specific types of funds that do not currently evaluate their classifications more 

frequently than monthly? 

252. To what extent would funds implement swing pricing if it were optional, rather 

than mandatory, as long as funds received complete order flow data prior to 

determining their NAVs on a given day?

253. How dilutive are fund purchases relative to fund sales? How do the benefits of 

swing pricing in response to purchases compare to the benefits of swing pricing in 

response to sales? 

254. Which components of trading costs contribute the most to fund dilution? How 

significant are market impact costs? If we adopted an alternative that excluded market

impact from swing factor calculations, would the rule’s effectiveness at mitigating 

dilution be significantly reduced?

255. Of the alternatives to swing pricing discussed above, which strikes the most 

appropriate balance of investor benefits and implementation costs? Is it more 

operationally complex and costly to charge fund investors a liquidity fee, or to use 

dual pricing? 

256. What are the benefits of processing trade information via omnibus accounts? How

costly would transmitting individual investor order information to funds be for 

intermediaries? Are per-trade costs the same for all intermediaries? Would there be 

355



other ancillary benefits associated with a move away from omnibus account and order

netting?

257. What other costs or impediments beyond system switching costs would the 

proposed hard close requirement impose? Will these costs be different for different 

types of intermediaries? If so, what is the differential? How do these costs compare to

the potential future benefits of the hard close, such as more efficient order 

processing?

258. Will certain intermediaries be unable to bear the costs of the proposed hard close 

requirement? If yes, please explain why. Would the costs differ, depending on 

whether an intermediary or a service provider is affiliated with a fund family or not?

259. What effect will a hard close requirement have on the availability of certain 

transaction types offered to investors? Please list the types of transactions that would 

become unavailable under the proposed hard close requirement? 

260. Would investors and other data users benefit significantly from the proposed 

monthly N-PORT disclosures? Would the quality and availability of mutual funds’ 

portfolio data available to investors and other users improve significantly under the 

proposed amendments?

261. Would the proposed aggregate liquidity disclosure benefit investors? What are the

benefits and costs of such disclosure relative to investment-by-investment liquidity 

classification disclosure? Are there any substantial burdens that funds would 

experience with the detailed liquidity classification disclosure beyond the costs 

associated with the disclosure process itself?

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IV. PAPERWORK REDUCTION ACT

A. Introduction

Certain provisions of the proposed amendments contain “collection of information” 

requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).531 We are 

submitting the proposed collections of information to the Office of Management and Budget 

(“OMB”) for review in accordance with the PRA.532 The proposed amendments would have an 

effect on the current collection of information burdens of rules 22e-4 and 22c-1 under the 

Investment Company Act, as well as Forms N-PORT and N-CEN under the Investment 

Company Act and Form N-1A under the Investment Company Act and the Securities Act. 

The titles for the existing collections of information we are amending are: (1) “Rule 22e-

4 (17 CFR 270.22e-4) under the Investment Company Act of 1940, Investment Company 

Liquidity Risk Management Programs” (OMB control number 3235-0737); (2) “Rule 22c-1 

Under the Investment Company Act of 1940, Pricing of redeemable securities for distribution, 

redemption and repurchase” (OMB control number 3235-0734); (3) “Rule 30b1-9 and Form N-

PORT” (OMB control number 3235-0730); (4) “Form N-1A under the Securities Act of 1933 

and under the Investment Company Act of 1940, Registration Statement of Open-End 

Management Investment Companies” (OMB control number 3235-0307); and (5) “Form N-

CEN” (OMB control number 3235-0729). 

An agency may not conduct or sponsor, and a person is not required to respond to, a 

collection of information unless it displays a currently valid OMB control number. Each 

requirement to disclose information, offer to provide information, or adopt policies and 

procedures constitutes a collection of information requirement under the PRA. These collections 

531  44 U.S.C. 3501 through 3521.
532  44 U.S.C. 3507(d); 5 CFR 1320.11.

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of information would help funds manage liquidity, mitigate dilution of shareholders’ interests, 

and provide information to the Commission and investors. The Commission staff would also use 

the collection of information in its examination and oversight program in identifying patterns and

trends across registrants. We discuss below the collection of information burdens associated with

the proposed rule and form amendments.  

B. Rule 22e-4 

Rule 22e-4 requires funds to establish a written liquidity risk management program that is

reasonably designed to assess and manage liquidity risk. Several of the proposed amendments to 

rule 22e-4 would modify existing collection of information requirements. These amendments 

include: 

 Changing the framework for classifying the liquidity of a fund’s portfolio 

investments, including requiring use of a stressed trade size, defining the value 

impact standard, and requiring daily reviews of the fund’s liquidity classifications.

We believe funds would update their policies and procedures that incorporate 

liquidity risk management program elements to reflect these proposed 

amendments.

 Expanding the scope of funds that must determine and maintain a highly liquid 

investment minimum. As a result of this proposed change, additional funds would

be required to comply with the current rule’s collection of information 

requirements related to highly liquid investment minimums. These collection of 

information requirements include:

o The fund’s investment adviser or officers designated to administer the 

liquidity risk management program must provide a written report to the 

358



fund’s board at least annually that describes a review of the adequacy and 

effectiveness of the fund’s liquidity risk management program, including 

the operation of the highly liquid investment minimum. 

o The fund must adopt and implement policies and procedures for 

responding to a shortfall of the fund’s assets that are highly liquid 

investments below its highly liquid investment minimum, which must 

include reporting to the fund’s board of directors with a brief explanation 

of the causes of the shortfall, the extent of the shortfall, and any actions 

taken in response, and, if the shortfall lasts more than 7 consecutive 

calendar days, an explanation of how the fund plans to come back into 

compliance with its minimum within a reasonable period of time.

o A fund must maintain a written record of how its highly liquid investment 

minimum and any adjustments to the minimum were determined, as well 

as any reports to the board regarding a shortfall in the fund’s highly liquid 

investment minimum, for five years, the first two years in an easily 

accessible place.

The respondents to rule 22e-4 are open-end management investment companies, 

including, under certain circumstances, in-kind ETFs and the principal underwriters or depositors

of unit investment trusts, but excluding money market funds. None of the proposed amendments 

would affect the rule’s collection of information requirements for unit investment trusts or in-

kind ETFs. Compliance with rule 22e-4 is mandatory for funds. Information provided to the 

Commission in connection with staff examinations or investigations is kept confidential subject 

to the provisions of applicable law. If information collected pursuant to rule 22e-4 is reviewed by

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the Commission’s examination staff, it is accorded the same level of confidentiality accorded to 

other responses provided to the Commission in the context of its examination and oversight 

program.

In our most recent Paperwork Reduction Act submission for rule 22e-4, we estimated a 

total aggregate annual hour burden of 28,150 hours, and a total aggregate annual external cost 

burden of $0.533 Based on filing data as of December 2021, we estimate that 11,488 funds would 

be subject to these proposed amendments.534 The proposed collections of information are 

designed to help increase the likelihood that funds are better prepared to manage liquidity during 

stressed conditions, and help protect investors from dilution. These collections would also help 

facilitate the Commission’s inspection and enforcement capabilities.

The table below summarizes our PRA initial and ongoing annual burden estimates 

associated with the proposed amendments to rule 22e-4. The following estimates of average 

burden hours and costs are made for purposes of the Paperwork Reduction Act. 

Table 8: Rule 22e-4 PRA Estimates

Internal
initial

burden hours
Internal annual
burden hours1 Wage rate2

Internal time
costs

Annual external
cost burden

RULE 22e-4 PRA ESTIMATES

Adopting and implementing
revised policies and

procedures

9 hours 4 hours3 $4634 $1,852 $1,0005

3 hours 1 hour $3,3136 $3,313 $0

533  The most recent rule 22e-4 PRA submission was approved in 2020 (OMB Control No. 3235-
0737). That PRA estimated that 846 fund complexes were subject to rule 22e-4. We continue to 
believe that funds within the same fund complex would experience certain efficiencies in 
responding to the collection of information requirements and, depending on the size of the fund 
complex, per fund costs may be higher or lower than our estimated averages; however, we are 
changing from a fund complex to a per fund estimate based on staff experience with per fund 
burdens and to improve the quality of this estimate.

534  As of Dec. 2021, we estimate 11,488 open-end funds, excluding money market funds. 

360Internal
initial

burden hours
Internal annual
burden hours1 Wage rate2

Internal time
costs

Annual external
cost burden

RULE 22e-4 PRA ESTIMATES

Board reporting 1 hour7 $3198 $319 $5319

Recordkeeping 1 hour $8610 $86 $0

Total new annual burden
per fund

7 hours $5,570 $1,531

Number of funds
× 11,488
funds11 × 11,488 funds × 11,488 funds

Total new aggregate annual
burden

80,416 hours $63,988,160 $17,588,128

TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS

Current aggregate annual
burden estimates

+ 28,150 hours + $0

Revised aggregate annual
burden estimates

108,566 hours $17,588,128

Notes:

. Includes initial burden estimates annualized over a 3-year period. 

2. The Commission’s estimates of the relevant wage rates are based on the salary information for the securities industry compiled by Securities 
Industry and Financial Markets Association’s Office Salaries in the Securities Industry 2013, as modified by Commission staff (“SIFMA Wage 
Report”). The estimated figures are modified by firm size, employee benefits, overhead, and adjusted to account for the effects of inflation.

3. Reflects 9 hours of initial internal burden hours of amending existing policies and procedures, annualized over a 3-year period, and 1 hour of 
ongoing annual internal burden to maintain the policies and procedures.

4. This blended rate is based on the following: $360 (hourly rate for a senior portfolio manager); $510 (hourly rate for an assistant general 
counsel); $580 (hourly rate for a chief compliance officer); and $400 (hourly rate for a compliance attorney). 

5. We estimate that the average cost of external services is $1,000 per fund. The Commission’s estimates of the relevant wage rates for external 
time costs, such as outside legal services, take into account staff experience, a variety of sources including general information websites, and 
adjustments for inflation. The cost of external services for rule 22e-4 has not been previously estimated. We estimate this cost for external 
services for the proposed amendments to rule 22e-4 taking into account staff experience and outreach on liquidity classification vendors.

6. This blended rate is based on the following estimates: 2 hours of time for a board of directors at an average cost per hour of $4,770 and 1 hour 
of time for a compliance attorney to prepare materials for the board’s review at an average cost per hour of $400. This estimated cost for a board 
of directors assumes an average of 9 board members and has been adjusted for inflation.

7. Although the average reporting burden per fund may be greater than 1 hour when a fund has to report a highly liquid investment minimum 
shortfall to its board, we estimate that not all funds would experience a highly liquid investment minimum shortfall each year.

8. This blended rate is based on the following: $360 (hourly rate for a senior portfolio manager); $339 (hourly rate for a compliance manager); 
$510 (hourly rate for an assistant general counsel); and $68 (hourly rate for a general clerk). 

9. This estimated burden is based on the estimated wage rate of $531/hour, for 1 hour, for outside legal services. The Commission’s estimates of 
the relevant wage rates for external time costs, such as outside legal services, take into account staff experience, a variety of sources including 
general information websites, and adjustments for inflation.

10. This blended rate is based on the following: $104 (hourly rate for a senior computer operator); and $68 (hourly rate for a general clerk). 

11. Includes open-end funds, excluding money market funds, as reported on Form N-CEN as of Dec. 2021. The internal and external burdens in 
the table represent per fund estimates. The most recent rule 22e-4 PRA submission approved in 2020 (OMB Control No. 3235-0737) used per 
fund complex estimates. We continue to believe that funds within the same fund complex would experience certain efficiencies in responding to 

361



the collection of information requirements and, depending on the size of the fund complex, per fund costs may be higher or lower than our 
estimated averages.

C. Rule 22c-1 

Rule 22c-1 enables funds to use swing pricing as a tool to mitigate shareholder dilution. 

Swing pricing is currently optional for certain open-end funds. The proposed amendments would

amend rule 22c-1 to make swing pricing for open-end funds (other than ETFs or money market 

funds) mandatory instead of optional. Funds that would be required to implement swing pricing 

under our amendments must establish and implement swing pricing policies and procedures.535 

The policies and procedures must: (1) provide that the fund will adjust its net asset value if the 

fund has net redemptions or if it has net purchases exceeding the inflow swing threshold; and (2) 

specify the process for determining the swing factor. The rule also would require a fund to retain 

a written copy of the periodic report provided to the board prepared by the swing pricing 

administrator that describes, among other things, the swing pricing administrator’s review of the 

adequacy of the fund’s swing pricing policies and procedures and the effectiveness of their 

implementation. The retention of these records is necessary to allow the staff during 

examinations of funds to determine whether a fund is in compliance with its swing pricing 

policies and procedures and with rule 22c-1.  

Compliance with rule 22c-1(b) would be mandatory for funds subject to the proposed 

swing pricing requirements. Based on filing data as of December 2021, we estimate that 9,043 

funds would be subject to these proposed amendments.536 Information provided to the 

Commission in connection with staff examinations or investigations is kept confidential subject 

to the provisions of applicable law. If information collected pursuant to rule 22c-1 is reviewed by

the Commission’s examination staff, it is accorded the same level of confidentiality accorded to 

535  See proposed rule 22c-1(b).
536  As of Dec. 2021, we estimate 9,043 open-end funds, excluding money market funds and ETFs. 

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other responses provided to the Commission in the context of its examination and oversight 

program.

The most recent PRA submission estimated that 5 fund complexes had funds that might 

adopt swing pricing policies and procedures under the optional rule.537 The current estimated 

hour burdens and time costs associated with rule 22c-1, including the burden associated with the 

requirements that funds adopt policies and procedures and obtain board approval of them, 

provide periodic written reports by the swing pricing administrator to the board, and retain 

certain records and written reports related to swing pricing, are an average aggregate annual 

burden of 113 hours and average aggregate time costs of $73,803.538    

The table below summarizes our PRA initial and ongoing annual burden estimates 

associated with the proposed amendments to rule 22c-1. The following estimates of average 

burden hours and costs are made solely for purposes of the Paperwork Reduction Act.

Table 9: Rule 22c-1 PRA Estimates

Initial internal
burden hours Internal annual

burden hours1 Wage rate2

Internal time
costs

Annual
external cost

burden

Swing Pricing Policies
and Procedures

12 hours 5 hours3 x $4094 $2,045 $1,0005

3 hours 1 hour $3,3136 $3,313 $0

537  The most recent rule 22c-1 PRA submission was approved in 2020 (OMB Control No. 3235-
0734). We continue to believe that funds within the same fund complex would experience certain 
efficiencies in responding to the collection of information requirements and, depending on the 
size of the fund complex, per fund costs may be higher or lower than our estimated averages; 
however, we are changing from a fund complex to a per fund estimate based on staff experience 
with per fund burdens and to improve the quality of this estimate.

538  The estimated burden hours include 280 total hours (or 56 hours per fund complex) to initially 
prepare and approve swing pricing policies and procedures, amortized over 3 years, and 20 total 
hours (or 4 hours per fund complex) to retain swing pricing records under rule 22c-1 each year.  

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Swing Pricing Board
Reporting

2 hours $4007 $800 $5318

Swing Pricing
Recordkeeping

1 hour x $869 $86 $0

Total new annual
burden per fund

9 hours $6,244 $1,531

Number of funds × 9,043 funds10 × 9,043 funds10 × 9,043 funds10

Total new annual
burden

81,387 hours $56,464,492 $13,844,833

TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS

Current burden
estimates

113 hours $73,803

Revised burden
estimates

81,387 hours $56,464,492 $13,844,833

Notes:
1. Includes initial burden estimates annualized over a 3-year period. 
2. See supra Table 8, at note 2.
3. We estimate that each fund would spend 1 hour each year, on average, to update its swing pricing policies and procedures. 
4. The $409 wage rate reflects current estimates of the blended hourly rate for a senior accountant ($237) and a chief compliance officer 
($580).
5. We estimate that the average cost of external services is $1,000 per fund. The Commission’s estimates of the relevant wage rates for 
external time costs, such as outside legal services, take into account staff experience, a variety of sources including general information 
websites, and adjustments for inflation.
6. This blended rate is based on the following estimates: 2 hours of time for a board of directors at an average cost per hour of $4,770 
and 1 hour of time for a compliance attorney to prepare materials for the board’s review at an average cost per hour of $400. This 
estimated cost for a board of directors assumes an average of 9 board members and has been adjusted for inflation.
7. Reflects an estimated wage rate of $400 per hour for a compliance attorney.
8. This estimated burden is based on the estimated wage rate of $531/hour, for 1 hour, for outside legal services. The Commission’s 
estimates of the relevant wage rates for external time costs, such as outside legal services, take into account staff experience, a variety of 
sources including general information websites, and adjustments for inflation.
9. The $86 wage rate reflects current estimates of the blended hourly rate for a senior computer operator ($104) and a general clerk 
($68).
10. Includes open-end funds, excluding money market funds and ETFs, as reported on Form N-CEN as of Dec. 2021. The internal and 
external burdens in the table represent per fund estimates. The most recent rule 22c-1 PRA submission approved in 2019 (OMB Control 
No. 3235-0734) used fund complex estimates. We continue to believe, however, that funds within the same fund complex would 
experience certain efficiencies in responding to the collection of information requirements and, depending on the size of the fund complex,
per fund costs may be higher or lower than our estimated averages.   

D. Form N-PORT 

Form N-PORT requires registered management investment companies (except for money

market funds and small business investment companies) and ETFs that are organized as unit 

investment trusts to report portfolio holdings information in a structured, XML format. The form 

is filed electronically using the Commission’s electronic filing system, EDGAR. We propose the 

following amendments to Form N-PORT:

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 The proposed amendments to Form N-PORT would require filing Form N-PORT on 

a monthly basis, within 30 days after the end of each month. Currently, a fund must 

maintain in its records the information that is required to be included on Form N-

PORT not later than 30 days after the end of each month, but is only required to file 

that information within 60 days after the end of every third month. We are not 

proposing to adjust the estimated collection of information burden in connection with 

this change, in part because we believe the reduced recordkeeping burden is 

commensurate with the increased burden associated with filing the information that 

previously would have been preserved as a record. The Commission similarly did not 

adjust the PRA burden estimate when it amended Form N-PORT to move from a 

requirement to file reports monthly to a requirement to prepare the information 

monthly but file it quarterly.539 

 We are proposing to require each open-end fund (other than money market funds and 

in-kind ETFs) to report the aggregate percentage of its portfolio represented in each 

of the three proposed liquidity categories, which would be publicly available. These 

funds would be required to adjust the reported amounts to account for the amounts of 

margin or collateral posted in connection with certain derivatives transactions as well 

as outstanding liabilities, and to report information about the value of these 

adjustments. Currently, these funds are required to report position-level liquidity 

information on a non-public section of Form N-PORT, meaning the amendments 

would require aggregating that information, making the required adjustments, and 

539  See 2018 Liquidity Disclosure Adopting Release, supra note 22, at section IV.B. 

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reporting the adjusted aggregate information as well as information about the 

adjustments that were made. 

 For open-end funds that would be subject to the swing pricing requirement under the 

proposal, we are proposing to provide enhanced transparency into the frequency and 

amount of each fund’s swing pricing adjustments. Specifically, the proposal would 

require these funds to report information about the number of days a fund applied a 

swing factor during the month and the amount of each swing factor applied.

 We also propose conforming amendments to certain existing items to account for 

other aspects of the proposal, including amendments to the filing frequency of 

unstructured portfolio information on Part F of Form N-PORT and miscellaneous 

holdings disclosure to account for the proposal to make monthly Form N-PORT 

information available to the public, amendments to reflect the proposed amendments 

to rule 22e-4, and amendments to certain entity identifiers.

The respondents to these collections of information will be management investment 

companies (other than money market funds and small business investment companies) and ETFs 

that are organized as unit investment trusts. We estimate that there are 12,153 such funds 

required to file on Form N-PORT, although certain of the proposed new collections of 

information would apply to subsets of these funds, as reflected in the below table.540 The 

proposed collections of information are mandatory for the identified types of funds. Certain 

information reported on the form is kept confidential, and we propose that this would continue to

be the case.541 We propose that all other responses to Form N-PORT reporting requirements 

540  The most recent Form N-PORT PRA submission was approved in 2022 (OMB Control No. 
3235-0730). That PRA submission estimated that 11,980 funds were required to file on Form N-
PORT. Our current estimate has increased due to changes in the numbers of funds. 

541  See General Instruction F of Form N-PORT; General Instruction F of proposed Form N-PORT. 

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would not be kept confidential, and instead would be made public 60 days after the end of the 

month to which they relate (30 days after they are filed); currently, only the report for every third

month is made public. The proposed amendments are designed to assist the Commission in its 

regulatory, disclosure review, inspection, and policymaking roles, and to help investors and other

market participants better assess different fund products.

In our most recent PRA submission for Form N-PORT, we estimated the annual 

aggregate compliance burden to comply with the current collection of information requirements 

in Form N-PORT is 1,839,903 burden hours with an internal cost burden of $654,658,288 and an

external cost burden estimate of $113,858,133. We estimate that funds prepare and file their 

reports on Form N-PORT either by (1) licensing a software solution and preparing and filing the 

reports in house, or (2) retaining a service provider to provide data aggregation, validation, 

and/or filing services as part of the preparation and filing of reports on behalf of the fund. We 

estimate that 35% of funds subject to the N-PORT filing requirements will license a software 

solution and file reports on Form N-PORT in house, and the remaining 65% will retain a service 

provider to file reports on behalf of the fund.

Table 10 below summarizes our initial and ongoing annual burden estimates associated 

with the proposed amendments to Form N-PORT. The following estimates of average burden 

hours and costs are made solely for purposes of the Paperwork Reduction Act.

Table 10: Form N-PORT PRA Estimates

Initial internal
burden hours

Internal annual
burden hours1 Wage rate2

Internal time
costs

Annual external
cost burden

PROPOSED AMENDMENTS TO FORM N-PORT

Aggregate Liquidity Classification Reporting

Funds that license a 
software solution to 
prepare Form N-PORT

3 hours 2 hours3 x $3814 $762 $2505

Number of funds × 4,021 funds6 × 4,021 funds6 × 4,021 funds6

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Funds that retain the 
services of a third-party 
vendor to prepare Form 
N-PORT

3 hours 2 hours3 $3815 $762 $2867

Number of funds × 7,467 funds6 × 7,467 funds6 × 7,467 funds6

Subtotal: 
Aggregate 
Liquidity 
Classification 

22,976 hours $8,753,856 $3,140,819

Swing Pricing Reporting

Funds that license a 
software solution to 
prepare Form N-PORT

9 hours 4 hours x $3815 $1,524 $2506

Number of funds × 3,165 funds8 × 3,165 funds8 × 3,165 funds8

Funds that retain the 
services of a third-party 
vendor to prepare Form 
N-PORT

9 hours 4 hours x $3815 $1,524 $2867

Number of funds × 5,878 funds8 × 5,878 funds8 × 5,878 funds8

Subtotal: 
Swing Pricing 
Reporting 

36,172 hours $13,781,532 $2,472,356

Other Proposed Amendments to Form N-PORT

Funds that license a 
software solution to 
prepare Form N-PORT

1 hours x $3815 $381

Number of funds × 4,254 funds9 × 4,254 funds9

Funds that retain the 
services of a third-party 
vendor to prepare Form 
N-PORT

1 hours x $3815 $381

Number of funds × 7,899 funds9 × 7,899 funds9

Subtotal: 
Other 
Proposed 
Amendments 

12,153 hours $4,630,293 

Total estimated burdens for proposed amendments

Total new annual burden 71,301 hours $27,165,681 $5,613,175

TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS

Current burden
estimates

1,848,326 hours $108,457,536

Revised burden
estimates

1,919,627 hours $114,070,711

Certain products and sums do not tie due to rounding.
Notes:
1. Includes initial burden estimates annualized over a 3-year period. 
2. See supra Table 8, at note 2. 
3. Reflects estimated initial internal burden of 3 hours, annualized over 3 years, as well as an estimated ongoing annual internal 
burden of 1 hour.
4. The $381 wage rate reflects current estimates of the blended hourly rate for a senior programmer ($362) and a compliance attorney
($400). 
5. Represents additional licensing fees that may be incurred as a result of required new functionality.

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6. Based on Commission filings, we estimate that there are 11,488 open-end funds that would be required to report aggregate liquidity 
classification information. We estimate that 35% of these funds (or 4,021) would license a software solution to prepare Form N-PORT 
while 65% (7,467) would rely on a third-party vendor.
7. Represents an assumed 2.5% increase in the current $11,440 external cost associated with the proposed collection of information 
(5% in aggregate for liquidity classification and swing pricing reporting).
8. Based on Commission filings, we estimate that there are 9,043 open-end funds that would be required to report swing pricing 
information. We estimate that 35% of these funds (or 3,165) would license a software solution to prepare Form N-PORT while 65% 
(5,878) would rely on a third-party vendor.
9. Based on Commission filings, we estimate that there are 12,153 funds that file reports on Form N-PORT. We estimate that 35% of 
these funds (or 4,254) would license a software solution to prepare Form N-PORT while 65% (7,899) would rely on a third-party vendor.

E. Form N-1A 

Form N-1A is used by registered open-end management investment companies (except 

insurance company separate accounts and small business investment companies licensed under 

the United States Small Business Administration), to register under the Investment Company Act

and to offer their shares under the Securities Act. Unlike many other Federal information 

collections, which are primarily for the use and benefit of the collecting agency, this information 

collection is primarily for the use and benefit of investors. The information filed with the 

Commission also permits the verification of compliance with securities law requirements and assures

the public availability and dissemination of the information. In our most recent Paperwork 

Reduction Act submission for Form N-1A, we estimated for Form N-1A a total annual aggregate

ongoing hour burden of 1,672,077 hours, and the total annual aggregate external cost burden is 

$132,940,008.542 Compliance with the disclosure requirements of Form N-1A is mandatory, and 

the responses to the disclosure requirements will not be kept confidential.

We propose to amend Item 11(a) of Form N-1A to require, if applicable, that funds 

disclose that if an investor places an order with a financial intermediary, the financial 

intermediary may require the investor to submit its order earlier to receive the next calculated 

NAV. In addition, as a result of the proposed amendments to rule 22c-1 to require that certain 

funds use swing pricing, we estimate that additional funds would be required to disclose 
542  The most recent Form N-1A PRA submission was approved in 2021 (OMB Control No. 3235-

0307). 

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information about swing pricing in response to certain existing items in the form.543 The 

Commission previously estimated that 474 funds would choose to use swing pricing under the 

optional framework.544 We now estimate that 9,043 funds would be required to use swing pricing

and to disclose relevant information on Form N-1A.545 We also propose to remove the 

requirement to provide an upper limit on the swing factor from Item 6(d). 

Table 11 below summarizes our initial and ongoing annual burden estimates associated 

with the proposed amendments to Form N-1A. The following estimates of average burden hours 

and costs are made solely for purposes of the Paperwork Reduction Act.

Table 11: Form N-1A PRA Estimates

Initial internal
burden hours

Internal annual
burden hours1 Wage rate2

Internal time
costs

Annual external
cost burden

Hard Close

Disclosure of Information
Related to Hard Close 3 hours 1.5 hours3 x $3814 $572

Number of funds × 9,043 funds × 9,043 funds × 9,043 funds

Subtotal: 
Hard Close 13,565 hours $5,168,075 $0

Swing Pricing Reporting

Swing Pricing Disclosure 2 hours 1.67 hours5 x $3814 $635

Number of funds × 8,569 funds6 × 8,569 funds6 × 8,569 funds6

Subtotal: 
Swing Pricing 

14,282 hours $5,441,315 $0

Total estimated burdens for proposed amendments

Total new annual burden 27,846 hours $10,609,390

TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS

Current burden
estimates

1,672,102 hours $132,940,008

Revised burden
estimates

1,699,948 hours $132,940,008

Certain products and sums do not tie due to rounding.
Notes:
1. Includes initial burden estimates annualized over a 3-year period.
2. See supra Table 8, at note 2. 

543  See Items 6(d), 4(b)(2)(ii), 4(b)(2)(iv)(E), and 13(a) of Form N-1A.
544  See Swing Pricing Adopting Release, supra note 11, at n.544 and accompanying text.
545  This estimate, which is as of Dec. 2021, is based on Form N-CEN filings received through May 

2022. 

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3. Reflects estimated initial internal burden of 3 hours, annualized over 3 years, as well as an estimated ongoing annual internal 
burden of 0.5 hours.
4. Reflects current estimates of the blended hourly rate of a compliance attorney and a senior programmer. 
5. Reflects estimated initial internal burden of 2 hours, annualized over 3 years, as well as an estimated ongoing annual internal 
burden of 1 hour.
6. Reflects the number of registered open-end funds (other than money market funds and ETFs) minus 474 funds. While all registered 
open-end funds (other than money market funds and ETFs) would be required to provide the swing pricing disclosure, the Commission 
previously estimated that 474 funds would opt to provide optional swing pricing disclosure on Form N-1A and has already accounted 
for the filing burden of such funds in its PRA estimates for Form N-1A. See Swing Pricing Adopting Release, supra note 9, at Section VI. 

F. Form N-CEN 

Form N-CEN requires registered investment companies, other than face-amount 

certificate companies to report annual, census-type information. Filers must submit this report 

electronically using the Commission’s EDGAR system in XML format. We propose the 

following amendments to Form N-CEN:

 Adding a requirement that an open-end fund that uses a liquidity service provider 

report: (a) the name each liquidity service provider; (b) identifying information, 

including the legal entity identifier and location, for each liquidity service provider; 

(c) if the liquidity service provider is affiliated with the fund or its investment adviser;

(d) the asset classes for which that liquidity service provider provided classifications; 

and (e) whether the service provider was hired or terminated during the reporting 

period; 

 Removing requirements that a filer report certain information regarding its use of 

swing pricing; and

 Revising the approach to certain entity identifiers.546

The respondents to these collections of information will be registered investment 

companies with the exception of face amount certificate companies. We estimate that there are 

546  We do not believe that the proposed amendments to separate the concepts of LEI and RSSD ID 
more clearly in the form would change the burdens of the current form, as the form already 
requires a fund to report the RSSD ID, if any, if a financial institution does not have an assigned 
LEI. 

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2,754 such registrants required to file on Form N-CEN.547 The proposed collections of 

information are mandatory. Responses are not kept confidential. The purpose of Form N-CEN is 

to satisfy the filing and disclosure requirements of section 30 of the Investment Company Act, 

and of rule 30a-1 thereunder. The proposed amendments are designed to facilitate the 

Commission’s oversight of registered funds and its ability to assess trends and risks.

In our most recent PRA submission for Form N-CEN, we estimated the annual aggregate 

compliance burden to comply with the current collection of information requirements in Form N-

CEN is 54,890 burden hours with an internal cost burden of $19,267,461 and an external cost 

burden estimate of $1,344,981.548

Table 12 below summarizes our initial and ongoing annual burden estimates associated 

with the proposed amendments to Form N-CEN. The following estimates of average burden 

hours and costs are made solely for purposes of the Paperwork Reduction Act.

Table 12: Form N-CEN PRA Estimates

Initial internal
burden hours Internal annual

burden hours1 Wage rate2

Internal time
costs

Annual
external cost

burden

Liquidity Service
Provider Reporting

1.5 hours 1 hour3 x $3814 $381

Number of registrants
x 2,754

registrants
x 2,754

registrants

Subtotal: Liquidity
Service Provider

Reporting
2,754 hours $1,049,274

Removal of Swing
Pricing Reporting

(0.5) hours5 x $3515 $(175.5)

Number of funds x 9,854 funds5 x 9,854 funds5

Subtotal: Removal of (4,927 hours) ($1,729,377)

547  This estimate, which is as of Dec. 2021, is based on Form N-CEN filings received through May 
2022.

548  The most recent Form N-CEN PRA submission was approved in 2021 (OMB Control No. 3235-
0729). The previous PRA submission estimated that 2,835 registrants were required to file on 
Form N-CEN. Our current estimate has decreased due to changes in the numbers of registrants.

372



Swing Pricing
Reporting

Total new annual
burden

(2,173 hours) ($680,103)

TOTAL ESTIMATED BURDENS, INCLUDING AMENDMENTS

Current burden
estimates

54,890 hours $1,344,981

Revised burden
estimates

52,718 hours $1,344,981

Notes:
1. Includes initial burden estimates annualized over a 3-year period. 
2. See supra Table 8, at note 2.
3. Reflects an initial burden of 1.5 hours, annualized over a 3-year period, with an estimated ongoing annual burden of 0.5 hours.
4. The $381 wage rate reflects current estimates of the blended hourly rate for 15 minutes each from a senior programmer ($362) and
a compliance attorney ($400).
5. In the most recent PRA submission for Form N-CEN, we estimated that 9,854 funds would incur an additional burden of 0.5 hours 
per fund at an internal cost of $351 per hour to report use of swing pricing. The estimated reduced burden on Form N-CEN differs from 
the increased burden we are estimating for Form N-PORT due to the differing requirements. In addition, because it is reversing a 
previously estimated increase, the estimated reduced burden on Form N-CEN uses the same estimated wage rate as the previous 
estimate, even though we estimate that wage rates have increased.

G. Request for Comment

We request comment on whether these estimates are reasonable. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission solicits comments in order to: (1) evaluate whether the proposed 

collection of information is necessary for the proper performance of the functions of the 

Commission, including whether the information will have practical utility; (2) evaluate the 

accuracy of the Commission’s estimate of the burden of the proposed collection of information; 

(3) determine whether there are ways to enhance the quality, utility, and clarity of the 

information to be collected; and (4) determine whether there are ways to minimize the burden of 

the collection of information on those who are to respond, including through the use of 

automated collection techniques or other forms of information technology.

Persons wishing to submit comments on the collection of information requirements of the

proposed amendments should direct them to the OMB Desk Officer for the Securities and 

Exchange Commission, [email protected], and should send a 

copy to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street 

373



NE, Washington, DC 20549-1090, with reference to File No. S7-26-22. OMB is required to 

make a decision concerning the collections of information between 30 and 60 days after 

publication of this release; therefore a comment to OMB is best assured of having its full effect if

OMB receives it within 30 days after publication of this release. Requests for materials 

submitted to OMB by the Commission with regard to these collections of information should be 

in writing, refer to File No. S7-26-22, and be submitted to the Securities and Exchange 

Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549-2736. 

V. INITIAL REGULATORY FLEXIBILITY ANALYSIS

The Commission has prepared the following Initial Regulatory Flexibility Analysis 

(“IRFA”) in accordance with section 3(a) of the Regulatory Flexibility Act (“RFA”).549 It relates 

to: (1) the proposed amendments concerning funds’ liquidity risk management programs under 

rule 22e-4; (2) the proposed swing pricing amendments under rule 22c-1(b); (3) the proposed 

hard close requirement under rule 22c-1(a); and (4) the proposed disclosure amendments to Form

N-1A, Form N-PORT, and Form N-CEN.

A. Reasons for and Objectives of the Proposed Actions

 The Commission is proposing amendments to its current rules for open-end funds 

regarding liquidity risk management programs and swing pricing. The proposed amendments 

would provide additional standards for making liquidity determinations, amend certain aspects of

the liquidity categories, and require more frequent liquidity classifications. The objectives of the 

proposed liquidity amendments are to improve liquidity risk management programs to better 

prepare these funds for stressed conditions and improve transparency in liquidity classifications. 

The proposed amendments also require any open-end fund, other than a money market fund or 

549  5 U.S.C. 603(a).

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exchange-traded fund, to use swing pricing. The objectives of swing pricing are to more fairly 

allocate costs, reduce the potential for dilution of investors who are not currently transacting in 

the fund’s shares, and reduce any potential first-mover advantages. In addition, the Commission 

is proposing a “hard close” requirement for these funds. The proposed hard close amendments 

would serve multiple objectives, including facilitating funds’ ability to operationalize swing 

pricing by ensuring that funds receive timely flow information and to modernize order 

processing generally. Finally, the Commission is proposing amendments to reporting 

requirements that apply to certain registered investment companies, including registered open-

end funds (other than money market funds), registered closed-end funds, and unit investment 

trusts. These proposed amendments seek to improve fund disclosure by requiring more timely 

reporting of monthly portfolio holdings and related information to the Commission and the 

public, amend certain reported identifiers, and make other amendments to require additional 

information about open-end funds’ liquidity risk management and use of swing pricing. Each of 

these objectives is discussed in detail in section II above.

B. Legal Basis

The Commission is proposing the rule and form amendments contained in this document 

under the authority set forth in the Investment Company Act, particularly sections 6, 8, 22, 24, 

30, 31, 34, 38, and 45 thereof [15 U.S.C. 80a-1 et seq.], the Investment Advisers Act, particularly

section 206 thereof [15 U.S.C. 80b-1 et seq.], the Exchange Act, particularly sections 10, 13, 15, 

23, and 35A thereof [15 U.S.C. 78a et seq.], the Securities Act, particularly sections 7, 10, 17, 

and 19 thereof [15 U.S.C. 77a et seq.], and the Trust Indenture Act, particularly section 319 

thereof [15 U.S.C. 77aaa et seq.].

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C. Small Entities Subject to the Amendments

An investment company is a small entity if, together with other investment companies in 

the same group of related investment companies, it has net assets of $50 million or less as of the 

end of its most recent fiscal year.550 Commission staff estimates that, as of June 2022, there were 

46 open-end management investment companies that would be considered small entities; this 

number includes 2 money market funds and 11 open-end ETFs. Commission staff also estimates 

that, as of June 2022, there were 31 closed-end investment management companies and 5 unit 

investment trusts that would be considered small entities. 

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements

1. Liquidity Risk Management Programs

The proposed amendments to rule 22e-4 would provide additional standards for making 

liquidity determinations, amend certain aspects of the liquidity categories, and require more 

frequent liquidity classifications. Specifically, the proposal would provide objective minimum 

standards that funds would use to classify investments, including by: (1) requiring funds to 

assume the sale of a stressed trade size, rather than the rule’s current approach of assuming the 

sale of a reasonably anticipated trade size in current market conditions; (2) defining the value 

impact standard with more specificity on when a sale or disposition would significantly change 

the market value of an investment; and (3) removing classification by asset class. The proposed 

amendments would also remove the less liquid investment category, which would reduce the 

number of liquidity categories from four to three, and expand the scope of the illiquid investment

category. In addition, the proposed amendments would extend the requirement to maintain a 

highly liquid investment minimum to a broader scope of funds and would change how the highly

liquid investment minimum calculation and the calculation of the 15% limit on illiquid 
550  See 17 CFR 270.0-10(a).

376



investments take into account the amount of assets that are posted as margin or collateral for 

certain derivatives transactions. Finally, the proposal would require daily classifications. 

We estimate that approximately 44 funds are small entities that would be required to 

comply with the proposed amendments to the liquidity risk management program requirement.551

The proposed amendments would impose burdens on all open-end funds subjected to the rule, 

including those that are small entities. We discuss the specifics of these burdens in the Economic

Analysis and Paperwork Reduction Act sections above. These sections also discuss the 

professional skills that we believe compliance with this aspect of the proposal would require. 

While we would expect larger funds or funds that are part of a large fund complex to incur 

higher costs related to the proposed liquidity rule amendments in absolute terms relative to a 

smaller fund or a fund that is part of a smaller fund complex, we would expect a smaller fund to 

find it more costly, per dollar managed, to comply with the proposed requirements because it 

would not be able to benefit from a larger fund complex’s economies of scale. For example, 

larger fund complexes would have economies of scale in amending existing liquidity risk 

management policies and procedures and in revising their frameworks for classifying the 

liquidity of investments. 

2. Swing Pricing

Under the proposal, every open-end fund other than an excluded fund would be required 

to establish and implement swing pricing policies and procedures that adjust the fund’s current 

NAV per share by a swing factor either if the fund has net redemptions or if it has net purchases 

551  See text following supra note 550. Money market funds are excluded from the proposed liquidity
risk management program requirement. In addition, in-kind ETFs are not subject to the current 
rule’s classification requirements or highly liquid investment minimum requirements and, 
therefore, would not be subject to the proposed amendments to these provisions. Because in-kind 
ETFs are subject to certain of the proposed amendments, such as amendments to the calculation 
of the 15% limit on illiquid investments, we include all 11 of the small funds that are open-end 
ETFs in the estimated number of small entities affected.

377



of more than 2% of the fund’s net assets. The swing pricing administrator would be required to 

review investor flow information to determine: (1) if the fund experiences net purchases or net 

redemptions; and (2) the amount of net purchases or net redemptions. In determining the swing 

factor, the proposed rule would require a fund’s swing pricing administrator to make good faith 

estimates, supported by data, of the costs the fund would incur if it purchased or sold a pro rata 

amount of each investment in its portfolio to satisfy the amount of net purchases or net 

redemptions (i.e., a vertical slice). Additionally, under the proposed rule, the fund’s board of 

directors would be required to: (1) approve the fund’s swing pricing policies and procedures; (2) 

designate the fund’s swing pricing administrator; and (3) review, no less frequently than 

annually, a written report prepared by the swing pricing administrator. Finally, under the 

proposed rule the fund would be required to maintain the swing pricing policies and procedures 

and a copy of the written report in an easily accessible place.

We estimate that approximately 33 funds are small entities that would be required to 

comply with the proposed swing pricing requirement.552 The proposed requirement would 

impose burdens on all open-end funds (other than money market funds and ETFs), including 

those that are small entities. We discuss the specifics of these burdens in the Economic Analysis 

and Paperwork Reduction Act sections above. These sections also discuss the professional skills 

that we believe compliance with this aspect of the proposal would require. While we would 

expect larger funds or funds that are part of a large fund complex to incur higher costs related to 

the proposed swing pricing requirement in absolute terms relative to a smaller fund or a fund that

is part of a smaller fund complex, we would expect a smaller fund to find it more costly, per 

dollar managed, to comply with the proposed requirement because it would not be able to benefit

552  See text following supra note 550. ETFs and money market funds are excluded from the 
proposed swing pricing requirement.

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from a larger fund complex’s economies of scale. For example, a larger fund complex would 

have economies of scale in developing and adopting swing pricing policies and procedures. This 

is particularly true for larger fund complexes that currently employ swing pricing in their 

operations in a foreign jurisdiction, such as in Europe. 

3. Hard Close

We are proposing amendments to rule 22c-1 to require a hard close for funds that are 

subject to the proposed swing pricing requirement. The hard close would provide that a request 

to redeem or purchase a fund’s shares may be executed at the current day’s price only if the fund,

its designated transfer agent, or a registered securities clearing agency receives the eligible order 

before the pricing time as of which the fund calculates its NAV. Orders received after the fund’s 

established pricing time would receive the next day’s price.

We estimate that approximately 33 funds are small entities that would be required to 

comply with the proposed hard close requirement.553 The proposed amendments would impose 

burdens on all open-end funds (except for money market funds and ETFs), including those that 

are small entities. We discuss the specifics of these burdens in the Economic Analysis section 

above. The proposed hard close may involve costs to change business practices, operations, and 

computer systems, including integration of new technologies, for funds, including small entities, 

which may require specialized operational and technology skills. We would expect that the 

burdens of these changes would be greater for smaller entities relative to the size of their 

business than for larger entities, which would benefit from economies of scale.

553  See text following supra note 550. ETFs and money market funds are excluded from the 
proposed hard close requirement.

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We estimate that the proposed hard close would also affect 8 small transfer agents.554 

Intermediaries that are small entities would also be affected; however, we lack data for 

accurately estimating the number of these other intermediaries that are small entities that service 

open-end fund shareholders and would be affected by the proposed hard close amendments. 

Those other intermediaries may include a subset of: 471 small advisers,555 731 small broker-

dealers,556 1,280 small recordkeepers,557 3,529 small bank entities,558 and small insurance 

554  A “small transfer agent” is a transfer agent that: (1) received less than 500 items for transfer and 
less than 500 items for processing during the preceding six months (or in the time that it has been 
in business, if shorter); (2) transferred items only of issuers that would be deemed small 
businesses or small organizations; and (3) maintained master shareholder files that in the 
aggregate contained less than 1,000 shareholder accounts or was the named transfer agent for less
than 1,000 shareholder accounts at all times during the preceding fiscal year (or in the time that it 
has been in business, if shorter); and (4) is not affiliated with any person (other than a natural 
person) that is not a small business or small organization. See rule 0-10(h) under the Exchange 
Act. We estimate 8 affected small transfer agents, based on the number of small transfer agents 
reporting mutual fund activity in their filings on Form TA-2 as of Mar. 31, 2022.

555  A “small adviser” is a SEC-registered investment adviser that: (1) has assets under management 
having a total value of less than $25 million; (2) did not have total assets of $5 million or more on
the last day of the most recent fiscal year; and (3) does not control, is not controlled by, and is not
under common control with another investment adviser that has assets under management of $25 
million or more, or any person (other than a natural person) that had total assets of $5 million or 
more on the last day of its most recent fiscal year. We estimate 471 small advisers, based on 
filings on Form ADV as of Dec. 2021.

556  A “small broker-dealer” is a broker or dealer that: (1) had total capital (net worth plus 
subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its 
audited financial statements were prepared pursuant to rule 17a-5(d) under the Exchange Act or, 
if not required to file such statements, a broker or dealer that had total capital (net worth plus 
subordinated liabilities) of less than $500,000 on the last business day of the preceding fiscal year
(or in the time that it has been in business, if shorter); and (2) is not affiliated with any person 
(other than a natural person) that is not a small business or small organization. See rule 0-10(c) 
under the Exchange Act. We estimate 731 small broker-dealers, based on filings of FOCUS 
Reports as of Dec. 2021.

557  See Pension Benefit Statements—Lifetime Income Illustrations [85 FR 59132 (Sept. 18, 2020)], 
at n.71 and accompanying text. We estimate 1,280 small recordkeepers, based on filings of Form 
5500 as reported by the Department of Labor, in the 2017 plan year. According to that data, there 
were 1,725 recordkeepers servicing defined contribution plans. The 445 largest recordkeepers 
serviced plans holding approximately 99% of total plan assets, while the remaining 1,280 (small 
recordkeepers) serviced plans holding a mere 1%. The Department of Labor considered other 
thresholds for recordkeepers and selected the 99 percent threshold for recordkeepers to 
include more recordkeepers in cost estimates, and thus avoid underestimating costs. 

558  See Rules Regarding Availability of Information [85 FR 57616 (Sept. 15, 2020)], at n.7 and 

380companies.559 Furthermore, how much these proposed amendments would affect these 

intermediaries would be determined largely by the importance these intermediaries and their 

clients place on receiving the NAV calculated on the day a client places an order.

4. Reporting Requirements

a. Form N-1A

 Form N-1A is the form used by certain open-end management investment companies to 

register under the Investment Company Act and to register their securities under the Securities 

Act. We propose to amend Item 11(a) of Form N-1A to require, if applicable, that funds disclose 

that if an investor places an order with a financial intermediary, the financial intermediary may 

require the investor to submit its order earlier to receive the next calculated NAV. We also 

propose to remove the requirement to provide an upper limit on the swing factor from Item 6(d).

We estimate that approximately 33 funds are small entities that would be required to 

comply with our proposed amendments for Form N-1A.560 The proposed amendments would 

impose burdens on all open-end funds (other than money market funds and ETFs), including 

those that are small entities. We discuss the specifics of these burdens in the Economic Analysis 

and Paperwork Reduction Act sections above. These sections also discuss the professional skills 

that we believe compliance with this aspect of the proposal would require. We recognize that, 

due to economies of scale, the costs associated with the proposed amendments to Form N-1A 

accompanying text (stating that as of Mar. 2020, there were approximately 2,925 small bank 
holding companies, 132 small savings and loan holding companies, and 472 small State member 
banks). We estimate a total of 3,529 small banks supervised by the Federal Reserve as of Mar. 
2020.

559  We lack data for estimating the number of small insurance companies.
560  See text following supra note 550. ETFs and money market funds file reports on Form N-1A but 

would not be impacted by our proposed amendments.

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may be more easily borne by larger fund complexes than smaller ones, and that costs borne by 

funds would be passed along to investors in the form of higher fees and expenses.

b. Form N-PORT

Form N-PORT requires open-end and closed-end funds, as well as ETFs organized as 

UITs, to report monthly portfolio holdings information on a quarterly basis in a structured, XML 

format. We propose the following amendments to Form N-PORT: (1) require funds to file Form 

N-PORT on a monthly basis, within 30 days after the end of each month; (2) require open-end 

funds to report the aggregate percentage of a fund’s portfolio represented in each of the three 

proposed liquidity categories, which would be publicly available; (3) provide enhanced 

transparency into the frequency and amount of a fund’s swing pricing adjustments; and (4) 

changes to entity identifiers.

We estimate that approximately 75 open-end and closed-end funds are small entities that 

would be required to comply with our proposed amendments for Form N-PORT.561 The proposed

amendments would impose burdens on all Form N-PORT filers, including those that are small 

entities. We discuss the specifics of these burdens in the Economic Analysis and Paperwork 

Reduction Act sections above. These sections also discuss the professional skills that we believe 

compliance with this aspect of the proposal would require. We recognize that, due to economies 

of scale, the costs associated with the proposed amendments to Form N-PORT may be more 

easily borne by larger fund complexes than smaller ones, and that costs borne by funds would be 

passed along to investors in the form of higher fees and expenses.

561  See text following supra note 550. Money market funds do not file Form N-PORT. While 
exchange-traded funds organized as unit investment trusts file Form N-PORT, there are no such 
funds that would be considered small entities.

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c. Form N-CEN

Form N-CEN is used to collect annual, census-type information for all registered 

investment companies, other than face-amount certificate companies. Filers must submit this 

report electronically using the Commission’s EDGAR system in XML format. We propose 

amendments to Form N-CEN that would identify liquidity service providers and certain related 

information, as well as remove the requirements that a filer report information regarding its use 

of swing pricing, which is being moved to Form N-PORT. We also propose amendments related 

to entity identifiers.

We estimate that approximately 82 funds are small entities that would be required to 

comply with our proposed amendments for Form N-CEN.562 The proposed amendments would 

impose burdens on all Form N-CEN filers, including those that are small entities. We discuss the 

specifics of these burdens in the Economic Analysis and Paperwork Reduction Act sections 

above. These sections also discuss the professional skills that we believe compliance with this 

aspect of the proposal would require. We recognize that, due to economies of scale, the costs 

associated with the proposed amendments to Form N-CEN may be more easily borne by larger 

fund complexes than smaller ones, and that costs borne by funds would be passed along to 

investors in the form of higher fees and expenses.

E. Duplicative, Overlapping, or Conflicting Federal Rules

We do not believe that the proposed amendments would duplicate, overlap, or conflict 

with other existing Federal rules.

562  See text following supra note 550. In-kind ETFs would not be affected by the proposed 
amendments to report information about liquidity classification vendors but, to avoid under-
estimating the number of small entities, we assume that the 11 small entity ETFs are not in-kind 
ETFs and would be affected by the change. We similarly assume that all 44 funds that are small 
entities would use a liquidity classification vendor, although this may not be the case. If a fund 
does not use a liquidity classification vendor, it would not be required to report information about
a vendor on Form N-CEN. 

383



F. Significant Alternatives

The RFA directs the Commission to consider significant alternatives that would 

accomplish our stated objectives, while minimizing any significant economic impact on small 

entities. We considered the following alternatives for small entities in relation to the proposed 

amendments to rules 22e-4 and 22c-1, as well as the proposed disclosure and reporting 

requirements: (1) establishing different requirements that take into account the resources 

available to small entities; (2) exempting small entities from all or part of the requirements; (3) 

clarifying, consolidating, or simplifying requirements under the rules for small entities; and (4) 

using performance rather than design standards.

We do not believe that establishing different requirements for, or exempting, any subset 

of funds, including funds that are small entities, from the proposed amendments to rule 22e-4 

would permit us to achieve our stated objectives. As discussed above, we believe that the 

proposed liquidity amendments would improve liquidity risk management programs to better 

prepare funds for stressed conditions and improve transparency in liquidity classifications. Small

funds do not entail less liquidity risk than larger funds, and investors in small funds would 

benefit from improvements in the liquidity risk management programs and more transparent 

liquidity classifications just as investors in larger funds would. We therefore do not believe it 

would be appropriate to establish different requirements for, or exempt, funds that are small 

entities from the proposed liquidity risk management amendments to rule 22e-4. Similarly, our 

objectives would not be served by clarifying, consolidating, or simplifying the liquidity 

requirements for small entities. With respect to using performance rather than design standards, 

the proposed amendments primarily use design rather than performance standards to better 

384



prepare funds for stressed market conditions, prevent funds from over-estimating the liquidity of 

their investments, and improve transparency of fund liquidity.

Regarding the proposed changes to the liquidity classification framework, we 

acknowledge that to the extent that small funds would experience a more substantial operational 

burden compared to larger fund complexes that exhibit economies of scale, smaller funds may 

become less competitive than larger funds. However, we believe there are no significant 

alternatives for smaller funds other than exemption, and providing an exemption from the 

proposed liquidity classification changes could subject investors in small funds to greater 

liquidity risk and would create diverging liquidity frameworks among funds, as small funds are 

already subject to the current rule’s liquidity classification requirements.

Additionally, we are not establishing different requirements for, or exempting, funds that 

are small entities from the swing pricing requirement, because we believe that all funds should 

be required to use swing pricing as a tool to mitigate potential shareholder dilution. We do not 

believe that the potential dilution that proposed rule 22c-1(b) is meant to prevent would affect 

large funds and their shareholders more significantly than small funds and their shareholders. We

acknowledge that a fund that is a small entity would need to incur the costs of compliance with 

the proposed amendments to the rule, which may constitute a greater percentage of the small 

fund’s net assets than with a larger fund. We also acknowledge that certain larger fund groups 

with both U.S. and European operations may already have experience with swing pricing that 

smaller funds would not, which could result in greater costs, relative to a fund’s net assets, for 

smaller funds than larger ones. However, despite these considerations, we do not believe that 

investors in small funds should be afforded less protection against the risk of dilution than 

investors in large funds.

385



We therefore do not believe it would be appropriate to establish different requirements 

for, or to exempt, funds that are small entities from the proposed swing pricing requirement. For 

example, we are not allowing funds that are small entities to use a different inflow swing 

threshold or market impact threshold than those the proposed rule identifies. As discussed above,

we do not believe the potential dilution that the proposed swing pricing requirement is meant to 

prevent would affect large funds and their shareholders more significantly than small funds and 

their shareholders. Permitting funds that are small entities to use higher thresholds could subject 

small funds to greater dilution than larger funds, and we believe all investors should be afforded 

the same protection against the risk of dilution.563 Similarly, our objectives would not be served 

by clarifying, consolidating, or simplifying the swing pricing requirements for small entities. 

With respect to using performance rather than design standards, the proposed amendments 

primarily use design rather than performance standards to promote more consistent and uniform 

standards for all funds. We are also not establishing different requirements for, or exempting, 

funds that are small entities from the proposed hard close requirement because we believe the 

requirement is important to every fund’s ability to operationalize swing pricing. Our hard close 

proposal is designed to support the proposed swing pricing amendments by facilitating the more 

timely receipt of fund order flow information. We believe that requiring a hard close would 

reduce a fund’s reliance on estimates, providing more accurate swing factor determinations. We 

do not believe investors in smaller funds would benefit from a greater use of estimates than 

investors in larger funds. We therefore do not believe it would be appropriate to establish 

different requirements for, or exempt, funds that are small entities from the proposed hard close 

563  While we recognize that smaller funds may be less likely than larger funds to have market 
impact costs at the 1% threshold for net redemptions or the 2% threshold for net purchases, as 
discussed above, we believe uniform thresholds for all funds would provide a consistent and 
objective threshold for all funds to consider market impacts.

386



requirement in rule 22c-1. Similarly, our objectives would not be served by clarifying, 

consolidating, or simplifying the hard close requirement for small entities. With respect to using 

performance rather than design standards, the proposed amendments primarily use design rather 

than performance standards to promote more consistent and uniform standards for all funds.

Finally, we do not believe that the interest of investors would be served by establishing 

different requirements for, or exempting, funds that are small entities from the proposed 

disclosure and reporting amendments, or subjecting these funds to different disclosure and 

reporting requirements than larger funds. We believe that all fund investors, including investors 

in funds that are small entities, would benefit from disclosure and reporting requirements that 

would permit them to make investment choices that better match their risk tolerances. 

Furthermore, we note that the current disclosure requirements on Form N-1A, Form N-PORT, 

and Form N-CEN do not distinguish between small entities and other funds. Similarly, our 

objectives would not be served by clarifying, consolidating or simplifying the proposed 

disclosure and reporting requirements for small entities. With respect to using performance 

rather than design standards, the proposed amendments primarily use design rather than 

performance standards to promote more consistent and uniform standards for all funds.

We recognize that, due to economies of scale, the costs associated with the proposed 

amendments to these forms may be more easily borne by larger fund complexes than smaller 

ones, and that costs borne by funds would be passed along to investors in the form of higher fees 

and expenses. However, we believe there are no significant alternatives for smaller funds other 

than exemption, and providing exemptions for smaller funds from the proposed reporting and 

disclosure requirements would disadvantage investors in smaller funds by creating a lack of 

information about these funds’ use of swing pricing or aggregate liquidity classifications. 

387



G. General Request for Comment

The Commission requests comments regarding this IRFA. We request comments on the 

number of small entities that may be affected by our proposed amendments, including for the 

affected small intermediaries that we lack data to quantify with accuracy, and whether the 

proposed amendments would have any effects not considered in this analysis. We request that 

commenters describe the nature of any effects on small entities subject to the rules and forms, 

and provide empirical data to support the nature and extent of such effects. We also request 

comment on the proposed compliance burdens and the effect these burdens would have on 

smaller entities.

VI. CONSIDERATION OF IMPACT ON THE ECONOMY 

For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996, or 

“SBREFA,”564 we must advise OMB whether a proposed regulation constitutes a “major” rule. 

Under SBREFA, a rule is considered “major” where, if adopted, it results in or is likely to result 

in (1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or 

prices for consumers or individual industries; or (3) significant adverse effects on competition, 

investment or innovation.

We request comment on whether the proposal would be a “major rule” for purposes of 

SBREFA. We request comment on the potential impact of the proposed rule on the economy on 

an annual basis; any potential increase in costs or prices for consumers or individual industries; 

and any potential effect on competition, investment, or innovation. Commenters are requested to 

provide empirical data and other factual support for their views to the extent possible.

564  Public Law 104-121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C., 15 
U.S.C. and as a note to 5 U.S.C. 601).

388



STATUTORY AUTHORITY 

The Commission is proposing the rule and form amendments contained in this document 

under the authority set forth in the Investment Company Act, particularly sections 6, 8, 22, 24, 

30, 31, 34, 38, and 45 thereof [15 U.S.C. 80a-1 et seq.], the Investment Advisers Act, particularly

section 206 thereof [15 U.S.C. 80b-1 et seq.], the Exchange Act, particularly sections 10, 13, 15, 

23, and 35A thereof [15 U.S.C. 78a et seq.], the Securities Act, particularly sections 7, 10, 17, 

and 19 thereof [15 U.S.C. 77a et seq.], the Trust Indenture Act, particularly section 319 thereof 

[15 U.S.C. 77aaa et seq.], and 44 U.S.C. 3506-3507.

List of Subjects in 17 CFR Parts 270 and 274

Investment companies, Reporting and recordkeeping requirements, Securities.

Text of Proposed Rules and Rule and Form Amendments

For the reasons set forth in the preamble, the Commission is proposing to amend title 17, 

chapter II of the Code of Federal Regulations as follows:

PART 270 - RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

1. The authority citation for part 270 continues to read, in part, as follows: 

Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, and Pub. L. 111-203, sec.

939A, 124 Stat. 1376 (2010), unless otherwise noted.

*  *  *  *  *

Section 270.22c-1 also issued under secs. 6(c), 22(c), and 38(a) (15 U.S.C. 80a-6(c), 80a-

22(c), and 80a-37(a));

*  *  *  *  *

Section 270.31a-2 is also issued under 15 U.S.C. 80a-30.

2. Amend § 270.22c-1 by revising it to read as follows: 

389

https://www.govinfo.gov/link/uscode/15/77aaa


§ 270.22c-1 Pricing of redeemable securities for distribution, redemption and repurchase.

(a) Forward pricing required. No registered investment company issuing any redeemable

security, no person designated in such issuer’s prospectus as authorized to consummate 

transactions in any such security, no principal underwriter of, or dealer in, any such security shall

sell, redeem, or repurchase any such security except at a price based on the current net asset 

value of such security established for the next pricing time after receipt of a direction to purchase

or redeem such security.

(1) The investment company’s board of directors must initially set the pricing time(s), 

and must make and approve any changes to the pricing time(s).

(2) The investment company must calculate the current net asset value of any redeemable

security at least once daily, Monday through Friday, at the pricing time(s) its board of directors 

set, except on:

(i) Days during which the investment company receives no direction to purchase or 

redeem its redeemable securities; or

(ii) Customary national business holidays described or listed in the prospectus and local 

and regional business holidays listed in the prospectus.

(3) For an investment company that is required to implement swing pricing under 

paragraph (b) of this section:

(i) A direction to purchase or redeem the investment company’s redeemable securities is 

eligible to receive the price established for a pricing time solely if the investment company, its 

designated transfer agent, or a registered clearing agency receives an eligible order before that 

pricing time; and

390



(ii) The price an eligible order receives is based on the current net asset value as of the 

pricing time and includes any adjustment to the current net asset value required by paragraph (b) 

of this section.

(b) Swing pricing requirement. A registered open-end management investment company 

(but not a registered open-end management investment company that is regulated as a money 

market fund under § 270.2a-7 or an exchange-traded fund as defined in paragraph (d) of this 

section) (a “fund”) must establish and implement swing pricing policies and procedures as 

described in paragraphs (b)(1) through (5) of this section in order to adjust its current net asset 

value per share to mitigate dilution of the value of its outstanding redeemable securities as a 

result of shareholder purchase or redemption activity. 

(1) The fund’s swing pricing policies and procedures must: 

(i) Provide that the fund must adjust its net asset value per share by a swing factor if the 

fund has net redemptions or if the fund has net purchases exceeding its inflow swing threshold. 

The swing pricing administrator must review investor flow information to determine if the fund 

has net purchases or net redemptions and the amount of net purchases or net redemptions. The 

swing pricing administrator is permitted to make such determination based on reasonable, high 

confidence estimates; and 

(ii) Specify the process for determining the swing factor, in accordance with paragraph 

(b)(2) of this section. 

(2) In determining the swing factor, the swing pricing administrator must make good faith

estimates, supported by data, of the costs the fund would incur if it purchased or sold a pro rata 

amount of each investment in its portfolio equal to the amount of net purchases or net 

redemptions.  

391



(i) If the fund has net redemptions, the good faith estimates must include, for selling the 

pro rata amount of each investment in the fund’s portfolio:

(A) Spread costs;

(B) Brokerage commissions, custody fees, and any other charges, fees, and taxes 

associated with portfolio investment sales; and

(C) If the amount of the fund’s net redemptions exceeds the market impact threshold, the 

market impact, as described in paragraph (b)(2)(iii) of this section.

(ii) If the amount of the fund’s net purchases exceeds the inflow swing threshold, the 

good faith estimates must include, for purchasing the pro rata amount of each investment in the 

fund’s portfolio:

(A) Spread costs;

(B) Brokerage commissions, custody fees, and any other charges, fees, and taxes 

associated with portfolio investment purchases; and

(C) The market impact, as described in paragraph (b)(2)(iii) of this section.

(iii) A fund must determine market impact by: 

(A) Establishing a market impact factor for each investment, which is an estimate of the 

percentage change in the value of the investment if it were purchased or sold, per dollar of the 

amount of the investment that would be purchased or sold; and

(B) Multiplying the market impact factor for each investment by the dollar amount of the 

investment that would be purchased or sold if the fund purchased or sold a pro rata amount of 

each investment in its portfolio to invest the net purchases or meet the net redemptions. 

392



(iv) The swing pricing administrator may estimate costs and market impact factors for 

each type of investment with the same or substantially similar characteristics and apply those 

estimates to all investments of that type rather than analyze each investment separately. 

(3) The fund’s board of directors, including a majority of directors who are not interested 

persons of the fund, must: 

(i) Approve the fund’s swing pricing policies and procedures; 

(ii) Designate the fund’s swing pricing administrator. The administration of swing pricing

must be reasonably segregated from portfolio management of the fund and may not include 

portfolio managers; and 

(iii) Review, no less frequently than annually, a written report prepared by the swing 

pricing administrator that describes: 

(A) The swing pricing administrator’s review of the adequacy of the fund’s swing pricing

policies and procedures and the effectiveness of their implementation, including their 

effectiveness at mitigating dilution; 

(B) Any material changes to the fund’s swing pricing policies and procedures since the 

date of the last report; and 

(C) The swing pricing administrator’s review and assessment of the fund’s swing factors, 

considering the requirements of paragraph (b)(2) of this section, including the information and 

data supporting the determination of the swing factors and, if the swing pricing administrator 

implements either an inflow swing threshold lower than 2 percent of the fund’s net assets or a 

market impact threshold lower than 1 percent of the fund’s net assets, the information and data 

supporting the determination of such threshold. 

393



(4) The fund must maintain the policies and procedures adopted by the fund under this 

paragraph (b) that are in effect, or at any time within the past six years were in effect, in an easily

accessible place, and must maintain a written copy of the report provided to the board under 

paragraph (b)(3)(iii) of this section for six years, the first two in an easily accessible place. 

(5) Any fund (a “feeder fund”) that invests, pursuant to section 12(d)(1)(E) of the Act (15

U.S.C. 80a-12(d)(1)(E)), in another fund (a “master fund”) may not use swing pricing to adjust 

the feeder fund’s net asset value per share; however, a master fund must use swing pricing to 

adjust the master fund’s net asset value per share, pursuant to the requirements set forth in this 

paragraph (b). 

(6) Notwithstanding section 18(f)(1) of the Act (15 U.S.C. 80a-18(f)(1)), a fund with a 

share class that is an exchange-traded fund is subject to the swing pricing requirement only with 

respect to any share classes that are not exchange-traded funds.

(c) Exceptions permitted. Notwithstanding paragraph (a) of this section:

(1) Secondary market transactions. A sponsor of a unit investment trust (“trust”) engaged 

exclusively in the business of investing in eligible trust securities (as defined in § 270.14a-3(b)) 

may sell or repurchase trust units in a secondary market at a price based on the offering side 

evaluation of the eligible trust securities in the trust’s portfolio, determined at any time on the 

last business day of each week, effective for all sales made during the following week, if on the 

days that such sales or repurchases are made the sponsor receives a letter from a qualified 

evaluator stating, in its opinion, that:

(i) In the case of repurchases, the current bid price is not higher than the offering side 

evaluation, computed on the last business day of the previous week; and 

394



(ii) In the case of resales, the offering side evaluation, computed as of the last business 

day of the previous week, is not more than one-half of one percent ($5.00 on a unit representing 

$1,000 principal amount of eligible trust securities) greater than the current offering price. 

(2) Notwithstanding the provisions above, any registered separate account offering 

variable annuity contracts, any person designated in such account's prospectus as authorized to 

consummate transactions in such contracts, and any principal underwriter of or dealer in such 

contracts must be permitted to apply the initial purchase payment for any such contract at a price 

based on the current net asset value of such contract which is next computed: 

(i) Not later than two business days after receipt of the direction to purchase by the 

insurance company sponsoring the separate account (“insurer”), if the contract application and 

other information necessary for processing the direction to purchase (collectively, “application”) 

are complete upon receipt; or 

(ii) Not later than two business days after an application which is incomplete upon receipt

by the insurer is made complete, provided that, if an incomplete application is not made 

complete within five business days after receipt,

(A) The prospective purchaser is informed of the reasons for the delay; and 

(B) The initial purchase payment is returned immediately and in full, unless the 

prospective purchaser specifically consents to the insurer retaining the purchase payment until 

the application is made complete. 

(3) This paragraph does not prevent any registered investment company from adjusting 

the price of its redeemable securities sold pursuant to a merger, consolidation or purchase of 

substantially all of the assets of a company that meets the conditions specified in § 270.17a-8.

(d) Definitions. For the purposes of this section:

395



Designated transfer agent means a registered transfer agent (as defined in section 3(a)

(25) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(25))) that is designated in the 

fund’s registration statement filed with the Commission. 

Eligible order means a direction, which is irrevocable as of the next pricing time after 

receipt, to:

(i) Purchase or redeem a specific number of fund shares or an indeterminate number of 

fund shares of a specific value; or 

(ii) Purchase the fund’s shares using the proceeds of a contemporaneous order to redeem 

a specific number of shares of another registered investment company (an exchange).

Exchange-traded fund means an open-end management investment company (or series or

class thereof), the shares of which are listed and traded on a national securities exchange, and 

that has formed and operates under an exemptive order under the Act granted by the Commission

or in reliance on § 270.6c-11.  

Inflow swing threshold means an amount of net purchases equal to 2 percent of a fund’s 

net assets, or such smaller amount of net purchases as the swing pricing administrator determines

is appropriate to mitigate dilution.

Initial purchase payment means the first purchase payment submitted to the insurer by, or

on behalf of, a prospective purchaser. 

Investor flow information means information about the fund investors’ daily purchase and

redemption activity, which may consist of individual, aggregated, or netted eligible orders, and 

which excludes any purchases or redemptions that are made in kind and not in cash. 

396



Market impact threshold means an amount of net redemptions equal to 1 percent of a 

fund’s net assets, or such smaller amount of net redemptions as the swing pricing administrator 

determines is appropriate to mitigate dilution.

Pricing time means the time or times of day as of which the investment company 

calculates the current net asset value of its redeemable securities pursuant to paragraph (a) of this

section.

Prospective purchaser means either an individual contract owner or an individual 

participant in a group contract. 

Qualified evaluator means any evaluator that represents it is in a position to determine, 

on the basis of an informal evaluation of the eligible trust securities held in a unit investment 

trust’s portfolio, whether: 

(i) The current bid price is higher than the offering side evaluation, computed on the last 

business day of the previous week; and 

(ii) The offering side evaluation, computed as of the last business day of the previous 

week, is more than one-half of one percent ($5.00 on a unit representing $1,000 principal amount

of eligible trust securities) greater than the current offering price. 

Swing factor means the amount, expressed as a percentage of the fund’s net asset value 

and determined pursuant to the fund’s swing pricing policies and procedures, by which a fund 

adjusts its net asset value per share. 

Swing pricing means the process of adjusting a fund's current net asset value per share to 

mitigate dilution of the value of its outstanding redeemable securities as a result of shareholder 

purchase and redemption activity, pursuant to the requirements set forth in paragraph (b) of this 

section. 

397



Swing pricing administrator means the fund’s investment adviser, officer, or officers 

responsible for administering the swing pricing policies and procedures. The swing pricing 

administrator may consist of a group of persons.

3. Amend § 270.22e-4 by:

a. Removing paragraphs (a)(3) and (10);

b. Removing the designations for paragraphs (a)(1) and (2) and (a)(4) through (14) and 

placing in alphabetical order; 

c. Adding, in alphabetical order, a definition for “Convertible to U.S. dollars”;

d. Revising the definitions for “Exchange-traded fund”, “Highly liquid investment”, 

“Illiquid investment”, “In-Kind Exchange Traded Fund or In-Kind ETF”, “Liquidity risk”, 

“Moderately liquid investment”, and “Person(s) designated to administer the program”;

e. Adding, in alphabetical order, a definition for “Significantly changing the market value

of an investment”; and

f. Revising paragraphs (b)(1)(i)(C), (b)(1)(ii) and (iii), (b)(1)(iv) introductory text, and (b)

(3)(iii).

The revisions read as follows:

§ 270.22e-4 Liquidity risk management programs.

(a) * * *

Convertible to U.S. dollars means the ability to be sold or disposed of, with the sale or 

disposition settled in U.S. dollars.

Exchange-traded fund or ETF means an open-end management investment company (or 

series or class thereof), the shares of which are listed and traded on a national securities 

398



exchange, and that has formed and operates under an exemptive order under the Act granted by 

the Commission or in reliance on § 270.6c-11.

* * * * *

Highly liquid investment means any U.S. dollars held by a fund and any investment that 

the fund reasonably expects to be convertible to U.S. dollars in current market conditions in three

business days or less without significantly changing the market value of the investment, as 

determined pursuant to the provisions of paragraph (b)(1)(ii) of this section.

* * * * *

Illiquid investment means any investment that the fund reasonably expects not to be 

convertible to U.S. dollars in current market conditions in seven calendar days or less without 

significantly changing the market value of the investment, as determined pursuant to the 

provisions of paragraph (b)(1)(ii) of this section. Any investment whose fair value is measured 

using an unobservable input that is significant to the overall measurement is an illiquid 

investment.

In-Kind Exchange Traded Fund or In-Kind ETF means an ETF that meets redemptions 

through in-kind transfers of securities, positions, and assets other than a de minimis amount of 

U.S. dollars and that publishes its portfolio holdings daily.

Liquidity risk means the risk that the fund could not meet requests to redeem shares 

issued by the fund without significant dilution of remaining investors' interests in the fund.

Moderately liquid investment means any investment that is neither a highly liquid 

investment nor an illiquid investment.

Person(s) designated to administer the program means the fund or In-Kind ETF's 

investment adviser, officer, or officers (which may not be solely portfolio managers of the fund 

399



or In-Kind ETF) responsible for administering the program and its policies and procedures 

pursuant to paragraph (b)(2)(ii) of this section.

Significantly changing the market value of an investment means:

(i) For shares listed on a national securities exchange or a foreign exchange, any sale or 

disposition of more than 20% of the average daily trading volume of those shares, as measured 

over the preceding 20 business days. 

(ii) For any other investment, any sale or disposition that the fund reasonably expects 

would result in a decrease in sale price of more than 1%. 

* * * * * 

(b) * * * 

(1) * * * 

(i) * * *

(C) Holdings of U.S. dollars and cash equivalents, as well as borrowing arrangements and

other funding sources; and

* * * * *

(ii) Classification. Each fund must, using information obtained after reasonable inquiry 

and taking into account relevant market, trading, and investment-specific considerations, classify

daily each of the fund’s portfolio investments (including each of the fund’s derivatives 

transactions) as a highly liquid investment, moderately liquid investment, or illiquid investment. 

To determine the liquidity classification of each investment, the fund must:

(A) Measure the number of days in which the investment is reasonably expected to be 

convertible to U.S. dollars without significantly changing the market value of the investment, 

and include the day on which the liquidity classification is made in that measurement; and

400(B) Assume the sale of 10% of the fund’s net assets by reducing each investment by 10%.

(iii) Highly liquid investment minimum. A fund must determine and maintain a highly 

liquid investment minimum that is equal to or higher than 10% of the fund’s net assets. 

(A) When determining a highly liquid investment minimum, a fund must consider the 

factors specified in paragraphs (b)(1)(i)(A) through (D) of this section, as applicable (but 

considering those factors specified in paragraphs (b)(1)(i)(A) and (B) only as they apply during 

normal conditions, and during stressed conditions only to the extent they are reasonably 

foreseeable during the period until the next review of the highly liquid investment minimum). 

(B) For purposes of determining compliance with its highly liquid investment minimum, 

the fund must reduce the value of its highly liquid investments that are assets otherwise eligible 

to meet the fund’s highly liquid investment minimum by an amount equal to:

(1) The value of any highly liquid investments that are assets posted as margin or 

collateral in connection with any derivatives transaction that the fund has classified as a 

moderately liquid investment or illiquid investment; and 

Note 1 to paragraph (b)(1)(iii)(B)(1): A fund that has posted highly liquid investments 

and non-highly liquid investments as margin or collateral in connection with derivatives 

transactions classified as moderately liquid or illiquid investments first should apply posted 

assets that are highly liquid investments in connection with these transactions, unless it has 

specifically identified non-highly liquid investments as margin or collateral in connection with 

such derivatives transactions.

(2) Any fund liabilities.

(C) The highly liquid investment minimum determined pursuant to paragraph (b)(1)(iii) 

of this section may not be changed during any period of time that a fund's assets that are highly 

401



liquid investments are below the determined minimum without approval from the fund's board of

directors, including a majority of directors who are not interested persons of the fund;

(D) A fund must periodically review, no less frequently than annually, the highly liquid 

investment minimum; and

(E) A fund must adopt and implement policies and procedures for responding to a 

shortfall of the fund’s highly liquid investments below its highly liquid investment minimum, 

which must include requiring the person(s) designated to administer the program to report to the 

fund’s board of directors no later than its next regularly scheduled meeting with a brief 

explanation of the causes of the shortfall, the extent of the shortfall, and any actions taken in 

response, and if the shortfall lasts more than 7 consecutive calendar days, must include requiring 

the person(s) designated to administer the program to report to the board within one business day

thereafter with an explanation of how the fund plans to restore its minimum within a reasonable 

period of time.

(iv) Illiquid investments. No fund or In-Kind ETF may acquire any illiquid investment if, 

immediately after the acquisition, the fund or In-Kind ETF would have invested more than 15% 

of its net assets in illiquid investments that are assets. In determining its compliance with this 

paragraph, in addition to the value of a fund’s illiquid investments that are assets, where a fund 

has posted margin or collateral in connection with a derivatives transaction that is classified as an

illiquid investment, the fund also must include as illiquid investments that are assets the value of 

margin or collateral posted in connection with the derivatives transaction that the fund would 

receive if it exited the transaction. If a fund or In-Kind ETF holds more than 15% of its net assets

in illiquid investments that are assets: 

* * * * * 

402



(3) * * * 

(iii) If applicable, a written record of the policies and procedures related to how the 

highly liquid investment minimum, and any adjustments thereto, were determined, including 

assessment of the factors incorporated in paragraph (b)(1)(iii)(A) of this section and any 

materials provided to the board pursuant to paragraph (b)(1)(iii)(E) of this section, for a period of

not less than five years (the first two years in an easily accessible place) following the 

determination of, and each change to, the highly liquid investment minimum.

* * * * *

4. Amend § 270.30b1-9 by revising it to read as follows:

§ 270.30b1-9 Monthly report.

Each registered management investment company or exchange-traded fund organized as 

a unit investment trust, or series thereof, other than a registered open-end management 

investment company that is regulated as a money market fund under §270.2a-7 or a small 

business investment company registered on Form N-5 (§§239.24 and 274.5 of this chapter), must

file a monthly report of portfolio holdings on Form N-PORT (§274.150 of this chapter), current 

as of the last business day, or last calendar day, of the month. A registered investment company 

that has filed a registration statement with the Commission registering an offering of its 

securities for the first time under the Securities Act of 1933 is relieved of this reporting 

obligation with respect to any reporting period or portion thereof prior to the date on which that 

registration statement becomes effective or is withdrawn.  Reports on Form N-PORT must be 

filed with the Commission no later than 30 days after the end of each month.

5. Amend § 270.31a-2 by revising paragraph (a)(2) to read as follows: 

403



§ 270.31a-2 Records to be preserved by registered investment companies, certain majority-

owned subsidiaries thereof, and other persons having transactions with registered 

investment companies.

(a) * * *

(2) Preserve for a period not less than six years from the end of the fiscal year in which 

any transactions occurred, the first two years in an easily accessible place, all books and records 

required to be made pursuant to paragraphs (b)(5) through (12) of §270.31a-1 and all vouchers, 

memoranda, correspondence, checkbooks, bank statements, cancelled checks, cash 

reconciliations, cancelled stock certificates, and all schedules evidencing and supporting each 

computation of net asset value of the investment company shares, including schedules 

evidencing and supporting each computation of an adjustment to net asset value of the 

investment company shares based on swing pricing policies and procedures established and 

implemented pursuant to §270.22c-1(b), and other documents required to be maintained by 

§270.31a-1(a) and not enumerated in §270.31a-1(b).

* * * * *

PART 274 — FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF

1940 

6. The general authority citation for part 274 continues to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 80a-

24, 80a-26, 80a-29, and 80a-37, unless otherwise noted.

* * * * *

7. Amend Form N-1A (referenced in §§ 239.15A and 274.11A) by revising Item 6(d) and

Item 11(a)(2). The revisions read as follows: 

404



Note: The text of Form N-1A does not, and these amendments will not, appear in the Code 

of Federal Regulations.  

FORM N-1A

* * * * *

Item 6. Purchase and Sale of Fund Shares

* * * * *

(d) If the Fund uses swing pricing, explain the Fund’s use of swing pricing; including what 

swing pricing is, the circumstances under which the Fund will use it, and the effects of swing 

pricing on the Fund and investors. With respect to any portion of a Fund’s assets that is invested in 

one or more open-end management investment companies that are registered under the Investment 

Company Act, the Fund shall include a statement that the Fund’s net asset value is calculated based

upon the net asset values of the registered open-end management companies in which the Fund 

invests, and, if applicable, state that the prospectuses for those companies explain the 

circumstances under which they will use swing pricing and the effects of using swing pricing.

* * * * *

Item 11. Shareholder Information

(a) * * *

(2) A statement as to when calculations of net asset value are made and that the price at 

which a purchase or redemption is effected is based on the next calculation of net asset value after 

the order is placed. If applicable, explain that if an investor places an order with a financial 

intermediary, the financial intermediary may require the investor to submit its order earlier to 

receive the next calculated net asset value.

* * * * *

405



8. Amend § 274.150(a) by revising it to read as follows:

§ 274.150 Form N-PORT, Monthly portfolios holdings report.

(a) Except as provided in paragraph (b) of this section, this form shall be used by 

registered management investment companies or exchange-traded funds organized as unit 

investment trusts, or series thereof, to file reports pursuant to §270.30b1-9 of this chapter not 

later than 30 days after the end of each month.

* * * * * *

9. Amend Form N-PORT (referenced in § 274.150) by: 

a. Revising General Instructions A, E, and F and Items B.4, B.5, B.6, B.7, B.8, C.1, C.7, 

C.10, C.11, Part D, and Part F; and

b. Adding Items B.11 and B.12. 

The revisions and addition read as follows:

Note: The text of Form N-PORT does not, and these amendments will not, appear in the 

Code of Federal Regulations.  

FORM N-PORT

* * * * *

GENERAL INSTRUCTIONS

A. Rule as to Use of Form N-PORT 

Form N-PORT is the reporting form that is to be used for monthly reports of Funds other 

than money market funds and SBICs under section 30(b) of the Act, as required by rule 30b1-9 

under the Act (17 CFR 270.30b1-9). Funds must report information about their portfolios and 

each of their portfolio holdings as of the last business day, or last calendar day, of each month. A

registered investment company that has filed a registration statement with the Commission 

406



registering its securities for the first time under the Securities Act of 1933 is relieved of this 

reporting obligation with respect to any reporting period or portion thereof prior to the date on 

which that registration statement becomes effective or is withdrawn.

Reports on Form N-PORT must disclose portfolio information as calculated by the fund 

for the reporting period’s ending net asset value (commonly, and as permitted by rule 2a-4, the 

first business day following the trade date). Reports on Form N-PORT for each month must be 

filed with the Commission no later than 30 days after the end of such month. If the due date falls 

on a weekend or holiday, the filing deadline will be the next business day. 

A Fund may file an amendment to a previously filed report at any time, including an 

amendment to correct a mistake or error in a previously filed report. A Fund that files an 

amendment to a previously filed report must provide information in response to all items of 

Form N-PORT, regardless of why the amendment is filed.

* * * * *

E. Definitions

References to sections and rules in this Form N-PORT are to the Act, unless otherwise 

indicated. Terms used in this Form N-PORT have the same meanings as in the Act or related 

rules (including rule 18f-4 solely for Items B.9 and 10 of the Form), unless otherwise indicated. 

As used in this Form N-PORT, the terms set out below have the following meanings: 

“Absolute VaR Test” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].

“Class” means a class of shares issued by a Fund that has more than one class that represents 

interests in the same portfolio of securities under rule 18f-3 [17 CFR 270.18f-3] or under an 

order exempting the Fund from provisions of section 18 of the Act [15 U.S.C. 80a-18].

407



“Controlled Foreign Corporation” has the meaning provided in section 957 of the Internal 

Revenue Code [26 U.S.C. 957].

“Derivatives Exposure” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].

“Designated Index” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].

“Designated Reference Portfolio” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-

4(a)]

“Exchange-Traded Fund” means an open-end management investment company (or Series or

Class thereof) or unit investment trust (or series thereof), the shares of which are listed and 

traded on a national securities exchange at market prices, and that has formed and operates under

an exemptive order under the Act granted by the Commission or in reliance on rule 6c-11 [17 

CFR 270.6c-11]. 

“Fund” means the Registrant or a separate Series of the Registrant.  When an item of Form 

N-PORT specifically applies to a Registrant or a Series, those terms will be used. 

“Highly Liquid Investment Minimum” has the meaning defined in rule 22e-4 [17 CFR 

270.22e-4].

“Illiquid Investment” has the meaning defined in rule 22e-4 [17 CFR 270.22e-4]. 

“ISIN” means, with respect to any security, the “international securities identification 

number” assigned by a national numbering agency, partner, or substitute agency that is 

coordinated by the Association of National Numbering Agencies. 

“LEI” means, with respect to any company, the “legal entity identifier” as assigned by a 

utility endorsed by the Global LEI Regulatory Oversight Committee or accredited by the Global 

LEI Foundation.  

“Multiple Class Fund” means a Fund that has more than one Class.

408



“Registrant” means a management investment company, or an Exchange-Traded Fund 

organized as a unit investment trust, registered under the Act.

“Relative VaR Test” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].

“Restricted Security” has the meaning defined in rule 144(a)(3) under the Securities Act of 

1933 [17 CFR 230.144(a)(3)].

“RSSD ID” means the identifier assigned by the National Information Center of the Board of

Governors of the Federal Reserve System.

“Securities Portfolio” has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].

“Series” means shares offered by a Registrant that represent undivided interests in a portfolio

of investments and that are preferred over all other series of shares for assets specifically 

allocated to that series in accordance with rule 18f-2(a) [17 CFR 270.18f-2(a)]. 

“Swap” means either a “security-based swap” or a “swap” as defined in sections 3(a)(68) and

(69) of the Securities Exchange Act of 1934 [15 U.S.C. 78c(a)(68) and (69)] and any rules, 

regulations, or interpretations of the Commission with respect to such instruments. 

“Swing Factor” has the meaning defined in rule 22c-1 [17 CFR 270.22c-1].

“Value-at-Risk” or VaR has the meaning defined in rule 18f-4(a) [17 CFR 270.18f-4(a)].

“VaR Ratio” means the value of the Fund’s portfolio VaR divided by the VaR of the 

Designated Reference Portfolio.

F. Public Availability

Information reported on Form N-PORT will be made publicly available 60 days after the end

of the reporting period. 

The SEC does not intend to make public the information reported on Form N-PORT with 

respect to a Fund’s Highly Liquid Investment Minimum (Item B.7), derivatives transactions 

409



(Item B.8), Derivatives Exposure for limited derivatives users (Item B.9), median daily VaR 

(Item B.10.a), median VaR Ratio (Item B.10.b.iii), VaR backtesting results (Item B.10.c), 

country of risk and economic exposure (Item C.5.b), delta (Items C.9.f.v, C.11.c.vii, or 

C.11.g.iv), liquidity classification for individual portfolio investments (Item C.7), or 

miscellaneous securities (Part D), or explanatory notes related to any of those topics (Part E) that

is identifiable to any particular fund or adviser. However, the SEC may use information reported 

on this Form in its regulatory programs, including examinations, investigations, and enforcement

actions.

* * * * *

Item B.4. Securities Lending

a. * * * 

iii.  If the borrower does not have an LEI, provide the borrower’s RSSD ID, if any.

iv. Aggregate value of all securities on loan to the borrower.

* * * * * 

Item B.5. Return Information

a. Total return of the Fund during the reporting period.  If the Fund is a Multiple Class 

Fund, report the return for each Class.  Such return(s) shall be calculated in accordance 

with the methodologies outlined in Item 26(b)(1) of Form N-1A, Instruction 13 to sub-

Item 1 of Item 4 of Form N-2, or Item 26(b)(i) of Form N-3, as applicable.

* * * * *

c. Net realized gain (loss) and net change in unrealized appreciation (or depreciation) 

attributable to derivatives for each of the following asset categories during the reporting 

period:  commodity contracts, credit contracts, equity contracts, foreign exchange 

410



contracts, interest rate contracts, and other contracts.  Within each such asset category, 

further report the same information for each of the following types of derivatives 

instrument:  forward, future, option, swaption, swap, warrant, and other.  Report in U.S. 

dollars.  Losses and depreciation shall be reported as negative numbers. 

d. Net realized gain (loss) and net change in unrealized appreciation (or depreciation) 

attributable to investments other than derivatives during the reporting period.  Report in 

U.S. dollars.  Losses and depreciation shall be reported as negative numbers. 

Item B.6. Flow information.  Provide the aggregate dollar amounts for sales and 

redemptions/repurchases of Fund shares during the reporting period.  If shares of the Fund are 

held in omnibus accounts, for purposes of calculating the Fund’s sales, redemptions, and 

repurchases, use net sales or redemptions/repurchases from such omnibus accounts.  The 

amounts to be reported under this Item should be after any front-end sales load has been 

deducted and before any deferred or contingent deferred sales load or charge has been deducted. 

Shares sold shall include shares sold by the Fund to a registered unit investment trust.  For 

mergers and other acquisitions, include in the value of shares sold any transaction in which the 

Fund acquired the assets of another investment company or of a personal holding company in 

exchange for its own shares.  For liquidations, include in the value of shares redeemed any 

transaction in which the Fund liquidated all or part of its assets.  Exchanges are defined as the 

redemption or repurchase of shares of one Fund or series and the investment of all or part of the 

proceeds in shares of another Fund or series in the same family of investment companies.

* * * * * 

Item B.7. Highly Liquid Investment Minimum information.

* * * * *

411



b. If applicable, provide the number of days that the eligible value of the Fund’s holdings in 

highly liquid investments fell below the Fund’s Highly Liquid Investment Minimum 

during the reporting period.

* * * * *

Item B.8. Derivatives Transactions. For portfolio investments of open-end management 

investment companies, provide:

a. The value of the Fund’s highly liquid investments that are assets that it has posted as 

margin or collateral in connection with derivatives transactions that are classified as 

moderately liquid investments or illiquid investments under rule 22e-4 [17 CFR 270.22e-

4]. 

 b. The value of any margin or collateral posted in connection with any derivatives 

transaction that is classified as an illiquid investment under rule 22e-4 [17 CFR 270.22e-

4] where the fund would receive the value of the margin or collateral if it exited the 

derivatives transaction.

* * * * *

Item B.11. Swing Factor

a. Provide the number of times the Fund applied a Swing Factor during the reporting period.

b.  For each business day during the reporting period, provide the amount of any Swing 

Factor applied by the Fund. Indicate whether each Swing Factor applied is positive 

(reflecting net purchases) or negative (reflecting net redemptions) with the appropriate 

sign (+ or –). Report N/A for any business day on which the fund did not apply a Swing 

Factor.

412



Item B.12. Liquidity aggregate classification information. For portfolio investments of open-

end management investment companies:

a. Provide the aggregate percentage of investments that are assets (excluding any 

investments that are reflected as liabilities on the Fund’s balance sheet) compared to total 

investments that are assets of the Fund for each of the following categories as specified in

rule 22e-4:

1. Highly Liquid Investments.

2. Moderately Liquid Investments. 

3. Illiquid Investments.

b.   To calculate the aggregate percentages under Item B.12.a, reduce the amount of the 

Fund’s assets that are classified as highly liquid investments by the amount reported 

under Item B.8.a and by the amount of the fund’s liabilities. Increase the amount of the 

Fund’s assets that are classified as illiquid investments by the amount reported under 

Item B.8.b. To the extent these adjustments result in the sum of the Fund’s investments in

each category not equaling 100% of the Fund’s total investments that are assets, the Fund

may adjust the percentage of investments attributed to the moderately liquid investment 

category so that the sum of the Fund’s investments in each category equals 100% of the 

Fund’s total investments that are assets.

Item C.1. Identification of investment.

* * * * * 

c. If the issuer does not have an LEI, provide the issuer’s RSSD ID, if any.

d. Title of the issue or description of the investment.

e. CUSIP (if any).

413



f. At least one of the following other identifiers:

i. ISIN.

ii. Ticker (if ISIN is not available).

iii. Other unique identifier (if ticker and ISIN are not available).  Indicate the type of 

identifier used.

* * * * * 

Item C.7. Liquidity classification information.

a. For portfolio investments of open-end management investment companies, provide the 

liquidity classification(s) for each portfolio investment among the following categories as

specified in rule 22e-4 [17 CFR 270.22e-4]. For portfolio investments with multiple 

liquidity classifications, indicate the percentage amount attributable to each classification.

i. Highly Liquid Investments 

ii. Moderately Liquid Investments 

iii. Illiquid Investments

* * * * *

Instructions to Item C.7. Funds may choose to indicate the percentage amount of a 

holding attributable to multiple classification categories only in the following circumstances: (1) 

if portions of the position have differing liquidity features that justify treating the portions 

separately; (2) if a fund has multiple sub-advisers with differing liquidity views; or (3) if the fund

chooses to classify the position through evaluation of how long it would take to liquidate the 

entire position. In (1) and (2), a fund would classify by treating each portion of the position as a 

separate investment to arrive at an assumed sale size that is equal to 10% of the fund’s net assets 

by reducing each investment by 10%.

414



* * * * * 

Item C.10. For repurchase and reverse repurchase agreements, also provide:

* * * * *

b. * * * 

iii. If the counterparty does not have an LEI, provide the counterparty’s RSSD ID, if any.

* * * * *

Item C.11. For derivatives, also provide:

* * * * *

b. * * *

ii. If the counterparty does not have an LEI, provide the counterparty’s RSSD ID, if any.

* * * * *

Part D: Miscellaneous Securities

Report miscellaneous securities, if any, using the same Item numbers and reporting the same 

information that would be reported for each investment in Part C if it were not a miscellaneous 

security.  Information reported in this Item will be nonpublic.

* * * * *

Part F: Exhibits

Attach no later than 60 days after the end of the reporting period the Fund’s complete portfolio 

holdings as of the close of the period covered by the report, except for reports covering the last 

month of the Fund’s second and fourth fiscal quarters. These portfolio holdings must be 

presented in accordance with the schedules set forth in §§210.12-12 – 210.12-14 of Regulation 

S-X [17 CFR 210.12-12 – 210.12-14].

* * * * *

415



10. Amend Form N-CEN (referenced in § 274.101) by revising General Instruction E and

Items B.16, B.17, C.5, C.6, C.9, C.10, C.11, C.12, C.13, C.14, C.15, C.16, C.17, C.21, D.12, 

D.13, D.14, E.2, F.1, F.2, F.4, and Instructions to Item G.1 to read as follows:

Note: The text of Form N-CEN does not, and these amendments will not, appear in the 

Code of Federal Regulations.  

FORM N-CEN

* * * * *

GENERAL INSTRUCTIONS

* * * * *

E. Definitions

Except as defined below or where the context clearly indicates the contrary, terms used in

Form N-CEN have meanings as defined in the Act and the rules and regulations thereunder.  

Unless otherwise indicated, all references in the form or its instructions to statutory sections or to

rules are sections of the Act and the rules and regulations thereunder.

In addition, the following definitions apply: 

“Class” means a class of shares issued by a Fund that has more than one class that 

represents interest in the same portfolio of securities under rule 18f-3 under the Act (17 CFR 

270.18f-3) or under an order exempting the Fund from provisions of section 18 of the Act (15 

U.S.C. 80a-18).

“CRD number” means a central licensing and registration system number issued by the 

Financial Industry Regulatory Authority.

“Exchange-Traded Fund” means an open-end management investment company (or 

Series or Class thereof) or unit investment trust (or series thereof), the shares of which are listed 

416



and traded on a national securities exchange at market prices, and that has formed and operates 

under an exemptive order under the Act granted by the Commission or in reliance on rule 6c-11 

under the Act (17 CFR 270.6c-11).

“Exchange-Traded Managed Fund” means an open-end management investment 

company (or Series or Class thereof) or unit investment trust (or series thereof), the shares of 

which are listed and traded on a national securities exchange at net asset value-based prices, and 

that has formed and operates under an exemptive order under the Act granted by the Commission

or in reliance on an exemptive rule under the Act adopted by the Commission.

“Fund” means the Registrant or a separate Series of the Registrant.  When an item of 

Form N-CEN specifically applies to a Registrant or Series, those terms will be used.

“LEI” means, with respect to any company, the “legal entity identifier” as assigned by a 

utility endorsed by the Global LEI Regulatory Oversight Committee or accredited by the Global 

LEI Foundation.  

“Money Market Fund” means an open-end management investment company 

registered under the Act, or Series thereof, that is regulated as a money market fund pursuant to 

rule 2a-7 under the Act (17 CFR 270.2a-7).

 “PCAOB number” means the registration number issued to an independent public 

accountant registered with the Public Company Accounting Oversight Board.

“Registrant” means the investment company filing this report or on whose behalf the 

report is filed.

“RSSD ID” means the identifier assigned by the National Information Center of the 

Board of Governors of the Federal Reserve System.

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“SEC File number” means the number assigned to an entity by the Commission when 

that entity registered with the Commission in the capacity in which it is named in Form N-CEN.  

“Series” means shares offered by a Registrant that represent undivided interests in a 

portfolio of investments and that are preferred over all other Series of shares for assets 

specifically allocated to that Series in accordance with rule 18f-2(a) (17 CFR 270.18f-2(a)).

* * * * *

Item B.16. Principal underwriters.

a. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  ____ 

vii. Foreign country, if applicable:  ____

viii. Is the principal underwriter an affiliated person of the Registrant, or its investment 

adviser(s) or depositor?  [Y/N]

* * * * *

Item B.17. Independent public accountant.  Provide the following information about each 

independent public accountant:

* * * * *

d. If no LEI is provided, RSSD ID, if any: ___

e. State, if applicable:  ____ 

f. Foreign country, if applicable:  ____

g. Has the independent public accountant changed since the last filing?  [Y/N]

* * * * *

Item C.5. Investments in certain foreign corporations.

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* * * * *

b. * * *

iii. If no LEI is provided, RSSD ID, if any: ___ 

* * * * *

Item C.6. Securities lending. 

* * * * *

c. * * *

iii. If no LEI is provided, RSSD ID, if any: ___

iv. Is the securities lending agent an affiliated person, or an affiliated person of an affiliated 

person, of the Fund?  [Y/N]

v. Does the securities lending agent or any other entity indemnify the fund against borrower 

default on loans administered by this agent?  [Y/N]

vi. If the entity providing the indemnification is not the securities lending agent, provide the 

following information:

  1. Name of person providing indemnification:  ____

  2. LEI, if any, of person providing indemnification:  ____

  3. If no LEI is provided, RSSD ID, if any: ___

vii. Did the Fund exercise its indemnification rights during the reporting period?  [Y/N] 

d. * * *

iii. If no LEI is provided, RSSD ID, if any: ___

iv. Is the cash collateral manager an affiliated person, or an affiliated person of an affiliated 

person, of a securities lending agent retained by the Fund?  [Y/N]

419



v. Is the cash collateral manager an affiliated person, or an affiliated person of an affiliated 

person, of the Fund?  [Y/N]

* * * * *

Item C.9. Investment advisers.

a. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  ____ 

vii. Foreign country, if applicable:  ____  

viii. Was the investment adviser hired during the reporting period?  [Y/N]

1. If the investment adviser was hired during the reporting period, indicate the investment 

adviser’s start date:  ____

b. * * * 

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  ____ 

vii. Foreign country, if applicable:  ____

viii. Termination date:  ____

c. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  ____ 

vii. Foreign country, if applicable:  ____

viii. Is the sub-adviser an affiliated person of the Fund’s investment adviser(s)?  [Y/N] 

ix. Was the sub-adviser hired during the reporting period?  [Y/N]

4201. If the sub-adviser was hired during the reporting period, indicate the sub-adviser’s start 

date:  ____

d. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  ____

vii. Foreign country, if applicable:  ____

viii. Termination date:  ____

Item C.10. Transfer agents.

a. * * *

iv. If no LEI is provided, RSSD ID, if any: ___

v. State, if applicable:  ____

vi. Foreign country, if applicable:  ____

vii. Is the transfer agent an affiliated person of the Fund or its investment adviser(s)?  [Y/N]

viii. Is the transfer agent a sub-transfer agent?  [Y/N]

* * * * *

Item C.11. Pricing services

a. * * *

ii. LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  

____

* * * * *

Item C.12. Custodians

a. * * *

iii. If no LEI is provided, RSSD ID, if any: ___

421



iv. State, if applicable:  ____ 

v. Foreign country, if applicable:  ____

vi. Is the custodian an affiliated person of the Fund or its investment adviser(s)?  [Y/N]

vii. Is the custodian a sub-custodian?  [Y/N]

viii. With respect to the custodian, check below to indicate the type of custody:

1. Bank — section 17(f)(1) (15 U.S.C. 80a-17(f)(1)):  ____

2. Member national securities exchange — rule 17f-1 (17 CFR 270.17f-1):  ____

3. Self — rule 17f-2 (17 CFR 270.17f-2):  ____

4. Securities depository — rule 17f-4 (17 CFR 270.17f-4):  ____

5. Foreign custodian — rule 17f-5 (17 CFR 270.17f-5):  ____

6. Futures commission merchants and commodity clearing organizations — rule 17f-6 (17 

CFR 270.17f-6):  ____

7. Foreign securities depository — rule 17f-7 (17 CFR 270.17f-7):  ____

8. Insurance company sponsor — rule 26a-2 (17 CFR 270.26a-2):  ____

9. Other:  ____.  If other, describe:  ______.

* * * * *

Item C.13. Shareholder servicing agents.

a. * * *

ii. LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  

____

* * * * *

Item C.14. Administrators

a. * * *

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ii. LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  

____

* * * * *

Item C.15. Affiliated broker-dealers. Provide the following information about each affiliated 

broker-dealer:

* * * * *

e. If no LEI is provided, RSSD ID, if any: ___

f. State, if applicable:  _____

g. Foreign country, if applicable:  ____

h. Total commissions paid to the affiliated broker-dealer for the reporting period:  ____ 

Item C.16. Brokers.

a. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  _____

vii. Foreign country, if applicable:  ____

viii. Gross commissions paid by the Fund for the reporting period:  ____

* * * * *

Item C.17. Principal transactions.

a. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  _____

vii. Foreign country, if applicable:  ____

viii. Total value of purchases and sales (excluding maturing securities) with Fund:  ____

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* * * * * 

Item C.21. Liquidity classification services. For open-end management investment 

companies subject to rule 22e-4 (17 CFR 270.22e-4), respond to the following:

a. Provide the following information about each person that provided liquidity classification

services to the Fund during the reporting period:

i. Full name:  ____

ii. LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  

____

iii. State, if applicable:  _____

iv. Foreign country, if applicable:  ____

v. Is the liquidity classification service an affiliated person of the Fund or its investment 

adviser(s)?  [Y/N]

vi. Asset class(es) for which liquidity classification services were provided to the Fund: 

_____ 

b. Was a liquidity classification service hired or terminated during the reporting period?  

[Y/N]

* * * * *

Item D.12. Investment advisers (small business investment companies only).

a. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  _____

vii. Foreign country, if applicable:  ____

viii. Was the investment adviser hired during the reporting period?  [Y/N]

424



1. If the investment adviser was hired during the reporting period, indicate the 

investment adviser’s start date:  ____

b. * * *  

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  _____

vii. Foreign country, if applicable:  ____

viii. Termination date:  ____

c. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  _____

vii. Foreign country, if applicable:  ____

viii. Is the sub-adviser an affiliated person of the Fund’s investment adviser(s)?  [Y/N] 

ix. Was the sub-adviser hired during the reporting period?  [Y/N]

1. If the sub-adviser was hired during the reporting period, indicate the sub-adviser’s

start date:  ____

d. * * *

v. If no LEI is provided, RSSD ID, if any: ___

vi. State, if applicable:  _____

vii. Foreign country, if applicable:  ____

viii. Termination date:  ____

Item D.13. Transfer agents (small business investment companies only).

a. * * *

iv. If no LEI is provided, RSSD ID, if any: ___

425



v. State, if applicable:  ____

vi. Foreign country, if applicable:  ____

vii. Is the transfer agent an affiliated person of the Fund or its investment adviser(s)?  

[Y/N]

viii. Is the transfer agent a sub-transfer agent?  [Y/N]

* * * * *

Item D.14. Custodians (small business investment companies only).

a. * * *

iii. If no LEI is provided, RSSD ID, if any: ___

iv. State, if applicable:  ____ 

v. Foreign country, if applicable:  ____

vi. Is the custodian an affiliated person of the Fund or its investment adviser(s)?  [Y/N]

vii. Is the custodian a sub-custodian?  [Y/N]

viii. With respect to the custodian, check below to indicate the type of custody:

1. Bank — section 17(f)(1) (15 U.S.C. 80a-17(f)(1)):  ____

2. Member national securities exchange — rule 17f-1 (17 CFR 270.17f-1):  ____

3. Self — rule 17f-2 (17 CFR 270.17f-2):  ____

4. Securities depository — rule 17f-4 (17 CFR 270.17f-4):  ____

5. Foreign custodian — rule 17f-5 (17 CFR 270.17f-5):  ____

6. Futures commission merchants and commodity clearing organizations — rule 

17f-6 (17 CFR 270.17f-6):  ____

7. Foreign securities depository — rule 17f-7 (17 CFR 270.17f-7):  ____

8. Insurance company sponsor — rule 26a-2 (17 CFR 270.26a-2):  ____

426



9. Other:  ____.  If other, describe:  ______.

* * * * *

Item E.2. Authorized participants. For each authorized participant of the Fund, provide the 

following information:

* * * * *

b. SEC file number:  ____

c. CRD number:  ____

d. LEI, if any:  ____

e. If no LEI is provided, RSSD ID, if any: ___

f. The dollar value of the Fund shares the authorized participant purchased from the Fund 

during the reporting period:  ____

g. The dollar value of the Fund shares the authorized participant redeemed during the 

reporting period:  ____

h. Did the Fund require that an authorized participant post collateral to the Fund or any of 

its designated service providers in connection with the purchase or redemption of Fund 

shares during the reporting period?  [Y/N]

 Instruction. The term “authorized participant” means a member or participant of a clearing 

agency registered with the Commission, which has a written agreement with the Exchange-

Traded Fund or Exchange-Traded Managed Fund or one of its service providers that allows the 

authorized participant to place orders for the purchase and redemption of creation units.

* * * * *

Item F.1. Depositor. Provide the following information about each depositor:

* * * * *

427



d. If no LEI is provided, RSSD ID, if any: ___

e. State, if applicable:  ____

f. Foreign country, if applicable:  ____

g. Full name of ultimate parent of depositor:  ____

Item F.2. Administrators.

a. * * *

ii. LEI, if any, or RSSD ID, if any, or provide and describe other identifying number:  

____

* * * * *

Item F.4. Sponsor. Provide the following information about each sponsor:

* * * * *

d. If no LEI is provided, RSSD ID, if any: ___

e. State, if applicable:  ____

f. Foreign country, if applicable:  ____

* * * * *

Item G.1. Attachments.

* * * * *

Instructions.

* * * * *

2. * * *

428



(f) Security supported (if applicable). Disclose the full name of the issuer, the title of the issue 

(including coupon or yield, if applicable) and at least two identifiers, if available (e.g., CIK, 

CUSIP, ISIN, LEI, RSSD ID).

* * * * *

By the Commission.

Dated: November 2, 2022.

Vanessa A. Countryman, 

Secretary.

429