Mr Hollands agreed that a suspension of daily dealing may be the right thing to do in the event of a liquidity crunch, but he was unsure who would be willing to make the first move.
“I very much doubt any asset manager would want to be the first to put their head over that parapet, as such a move would be very unpopular with investors, even though it would lower systemic risks and ultimately protect investors’ interests,” he said.
But Mr Haynes said he “totally disagreed” with changing the practice of daily dealing.
“I think it is imperative that bond funds should have daily dealing,” he said. “Removal of this would significantly reduce their appeal and cause significant concerns for investors regarding accessing their money in the asset class.”
These comments follow the conclusion of a six-month study into redemptions by the Bank of England’s Financial Policy Committee last week. It revealed that the current system “reduces incentives for [fund] investors to redeem if they suspect others will do the same”.
But the committee added that further work is necessary “on the potential impact of correlated investment behaviour by investment funds and of the measures those funds could deploy under stress”. It will report on these findings in December.
SEC’s liquidity proposals
The rules voted for by the SEC last week will require US mutual funds and exchange-traded funds to have a four-point “liquidity risk management programme”, involving:
■ A classification of asset liquidity, divided into six categories, based on the number of days for a fund’s position to be converted into cash;
■ An assessment, regular review, and management of a fund’s liquidity risk;
■ The creation of a three-day liquid asset minimum, detailing what proportion of a fund could be liquidated in this time frame – without unduly affecting prices;
■ Board approval and review of the programme, conducted by a fund’s independent directors.
