The Securities and Exchange Commission has submitted a plan to require mutual funds and exchange-traded funds to develop programs to better manage their liquidity, now that many invest in less-liquid securities such as high‑yield bonds, emerging market equity, and debt funds.

The SEC proposal, released Tuesday, is designed to ensure that funds can meet demands for redemptions from investors in times of market stress. The proposal would require each open-end fund to establish a liquidity risk management program tailored to its specific portfolio and risks, and to enhance disclosures about the liquidity of a fund’s holdings and its liquidity risk management practices.

The proposal would also permit a fund to use “swing pricing” under certain circumstances. Swing pricing is designed to reduce the negative impact of redemptions and other transactions on the “non-trading” investors in a fund.

“A fund must manage the liquidity of its portfolio to ensure that redemption requests can be fulfilled in a timely manner while also minimizing the impact of those redemptions on the fund’s remaining shareholders,” SEC Chair Mary Jo White wrote in a statement.

“Poor liquidity management can dilute existing shareholders’ interests, negatively impact the value of the fund’s assets or the fund’s risk profile, or cause an ETF’s share price to diverge from the value of its underlying securities. Changes in the modern asset management industry call on us to now look anew at liquidity management in funds and propose reforms that will better protect investors and maintain market integrity.”

SEC Democratic Commissioner Kara Stein told Reuters that requiring these risk management plans is “sensible and long overdue.” At the same time, however, she questioned whether the plan goes far enough toward addressing some of the more complex ETFs and mutual funds that have risen in popularity.

Republicans on the commission supported the plan, but raised some concerns about whether swing pricing is the right solution for allocating the costs of purchases and redemptions, according to Reuters.

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