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New measures for open-end equity funds proposed

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has proposed certain measures to improve liquidity risk management in open-end equity funds.

The measures were evolved after consultation with the Mutual Funds Association of Pakistan (MUFAP), the commission said in a statement on Friday.

As per the requirements, all equity funds and funds of funds shall have to maintain at least 5 per cent of net assets in cash and cash equivalents to meet immediate liquidity needs. All asset management companies (AMCs) shall ensure compliance with this requirement by Feb 15, 2017.

Furthermore, all AMCs on behalf of funds shall be required to make arrangements with banks or development finance institutions, in advance for borrowing to deal with unexpected redemptions. However, the borrowing should not exceed 15pc of net assets of the funds. All AMCs shall ensure compliance with this requirement by March 1, 2017.

The requirements also include that in case where redemption requests exceed 10pc of the total number of units in issuing fund on a dealing day, the redemption requests of AMCs and its sponsors shall have the last priority in redemption on that day.

The SECP further advised MUFAP to review illiquid securities in lieu of best international practices regarding codification of such securities in the context of open-end funds. In this regard, the MUFAP was advised to develop criteria for illiquid securities and maximum limit for holding illiquid securities in open end funds. This direction has been issued to meet the changing industry dynamics, implementing international best practices and safeguarding investors’ interest by deterring loss of investor confidence and thus stop erosion of assets under management.

The direction shall reduce the risk that funds will be unable to meet their redemption obligations and simultaneously mitigate dilution of remaining investors’ interests, the announcement added.

courtesy : dawn news

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