From 2018, the Securities and Exchange Commission’s (SEC’s) Rule 22e-4 will require mutual funds and exchange-traded funds to classify the exact level of liquidity across their portfolios.
Manager will need to categorise funds into ‘highly liquid’, ‘moderately liquid’, ‘less liquid’ or ‘illiquid’.
Only 15 percent of a fund’s assets will be permitted to be classified as illiquid, which IHS Markit and MSCI highlight as being a potential challenge in fixed income markets where only a small minority of securities trade regularly.
The multi-asset class solution will integrate fixed income market and liquidity data from IHS Markit with MSCI LiquiditMetrics analytics.
“In line with SEC requirements, the service will classify the liquidity of each asset in a portfolio and calculate other complex liquidity indicators, such as cost to liquidate, liquidation amount and time-to-liquidation while factoring in market impact, market depth and market activity,” IHS Markit and MSCI in a joint statement.
Kiet Tran, managing director and head of pricing and reference data at IHS Markit, said: “IHS Markit has unparalleled access to fixed income market data and we are pleased to collaborate with MSCI on a robust solution for liquidity management.”
Giulio Panzano, global head of analytics product management at MSCI, commented: “High-quality data and reliable analytics are necessary ingredients in establishing an effective liquidity risk management programme.”
“In integrating IHS Markit data we are able to offer our clients a scalable solution designed to help them manage liquidity risk and meet regulatory requirements in a cost-efficient manner.”