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Photo of Rebecca Plowman, Director, Compliance and Implementation

Rebecca Plowman
Director, Compliance and Implementation

The U.S. Securities and Exchange Commission’s proposal to address stock market volatility and mutual fund liquidity would harm millions of retirement savers and vastly disrupt rather than calm markets.

Interestingly, the SEC sought to impose a similar rule 20 years ago but ended up dropping it based on nearly universal opposition from Congress, industry, and consumer groups.

Swing Pricing & Hard Close Proposal

The recently proposed rule is referred to as Swing Pricing and Hard Close. Swing pricing requirements are meant to address possible future market volatility and liquidity issues, like those experienced in March 2020 during the very early stages of the pandemic.

While the SEC recognizes such volatility-inducing events are difficult to predict, it still proposes changes that will completely upend current industry practices. Government regulation should protect consumers and ensure reliable, efficient commercial activity, but this proposal does the opposite.

Shortening the Trading Day

The hard close, however, is the real problem. It would require intermediaries (e.g., insurance companies, retirement plan providers, and recordkeepers) to submit trade requests to fund companies by 4 p.m. ET when stock markets close.

In practice, trade orders are received from investors throughout the day and up until markets close. Then, after business hours, intermediaries send the requests to the fund company. The hard close would shorten the trading day because trade requests sent to the fund company would now need to be completed before 4 p.m. ET and during business hours

It also shortens the window for accepting trades. Investors further West would see the most significant impact as deadlines for requesting trades would be earlier, perhaps before the market even opens. 

Logistical Nightmare

It gets worse. Fund values are calculated after 4 p.m. ET. – and those values are crucial to the entire process. Companies will need to use a proxy fund value if intermediaries are forced to stop accepting trade orders well before 4 p.m. ET. This would cause a logistical nightmare.

Investors would see a never-ending cycle of trades and corrections (e.g., canceled trades, corrected statements and benefit checks, explanation letters, and EFTs to investor bank accounts) that will inevitably cause confusion, frustration, and diminished confidence.

This experience could discourage investors from even considering products like variable annuities that might be in their best interest and suit their financial needs.

Last but certainly not least, the costs of implementing this proposal would inevitably be passed on to consumers directly or indirectly through higher fees and expenses. 

 Consumer Group Opposition

Virtually every major financial industry organization vehemently opposes this proposal. So does the Consumer Federation of America (CFA), an influential advocacy group in Washington, D.C., because it will harm retirement savers.

Industry groups and CFA do not often agree, so when they do, regulators should take notice. The “swing pricing/hard close” proposed rule is more like a swing and a miss for the SEC and hard luck for consumers. It should be withdrawn.

Additional Resources:

IRI comments 

IRI press release



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