Open-end: All equity funds to maintain at least 5% of net assets in cash

SECP wants compliance with this requirement by February 15

Our Correspondent January 13, 2017

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) on Friday proposed certain measures to improve liquidity risk management in the open end equity oriented funds after consultation with the Mutual Funds Association of Pakistan (MUFAP).

As per the requirements, all equity funds and funds of funds shall have to maintain at least 5% of net assets in cash and cash equivalents, to meet immediate liquidity needs, according to a press release.

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All asset management companies (AMCs) shall ensure compliance with this requirement by February 15, 2017.

Furthermore, all AMCs on behalf of funds will be required to make arrangements with banks/development finance institutions (DFI), in advance for borrowing to deal with unexpected redemptions.

However, the borrowing should not exceed 15% of net assets of the funds. All AMCs will ensure compliance with this requirement by March 1, 2017.

The requirements also included that in case where redemption requests exceed 10% of the total number of units in issue of the fund on any one dealing day, the redemption requests of AMCs and its sponsors will have the last priority in redemption on that day.

The SECP further advised MUFAP to review illiquid securities in lieu of best international practices regarding codification of such securities in the context of open end funds. In this regard, MUFAP was advised to develop criteria for illiquid securities and maximum limit for holding illiquid securities in open end funds, the release added.

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This direction has been issued to meet the changing industry dynamics, implementing best international practices and safeguarding investors’ interest by deterring loss of investor confidence and thus halting erosion of assets under management.

The direction will reduce the risk that funds will be unable to meet their redemption obligations and simultaneously mitigate dilution of remaining investors’ interests.


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