November 16, 2022 - This week, the LSTA, joined by six other trade associations, submitted a comment letter to the SEC seeking extension of the comment periods for two significant, potentially transformative, proposed rulemakings. On November 2, 2022, the SEC released a 444-page proposal, “Open-End Fund Liquidity Risk Management Programs and Swing Pricing, Form N-PORT” (“Liquidity Proposal”). The Liquidity Proposal closely on the heels of the Commission’s release, on October 26, 2022, of a 232-page proposal, “Outsourcing by Investment Advisers” (“Outsourcing Proposal”). We have covered the Liquidity Proposal extensively (here, here, and here), and the Outsourcing Proposal here.
The Liquidity Proposal includes an assortment of technical, complicated, and significant changes to the liquidity risk management program rule and its related reporting and disclosure requirements. Just understanding the multi-part proposal and its potential implications will take significant effort. The scope of the information sought by the Commission is immense: the Commission poses 261 separately enumerated questions (the majority of which embed multiple questions) for commenters to address. Despite the breadth and complexity of the proposal, the Commission set a comment deadline of only 60 days after Federal Register publication.
The Outsourcing Proposal is also complicated and consequential. It would affect the entire ecosystem supporting the investment management industry, including existing contractual arrangements. Under the proposed rule, the Commission would impose expansive new regulations on an approximately $100 trillion industry, forbidding investment advisers from outsourcing certain services or functions without satisfying prescriptive and burdensome requirements. The Outsourcing Proposal would be particularly onerous for smaller advisers, especially when added to the cumulative burdens of other open rulemakings. The Outsourcing Proposal also poses 101 specifically enumerated questions (often with multiple subparts). Despite the enormity of the information requested, the Commission requests comments by December 27, 2022, only 60 days from its approval. This is not the first time that we have been compelled to request an extension to comment on major Commission rulemakings; we submitted a joint trades letter in March. And bipartisan members of Congress and others have expressed increasing alarm at the Commission’s persistent, and needless, failure to afford sufficient time for stakeholders to comment on major proposals.
For these reasons, we urged the Commission to extend the comment period for each of the proposals by 90 days. Anything short of that risks irreparably compromising the process underlying these rulemakings at the outset and risks a result that would not be in the best interests of all involved.