IHS Markit, a critical information, analytics and solutions provider, recently formed an alliance with MSCI to help asset managers implement liquidity risk management programs and comply with SEC Rule 22e-4. Available this month, the multi-asset class solution integrates fixed income market and liquidity data from IHS Markit with MSCI LiquidityMetrics analytics.
Slated to take effect in 2018, SEC Rule 22e-4 requires mutual funds and exchange-traded funds (ETFs) to classify their portfolios as highly liquid, moderately liquid, less liquid or illiquid. Only 15 percent of a fund’s assets will be permitted to be classified as illiquid—a potential challenge in fixed income markets where only a small minority of securities trade regularly.
“Fund managers face major hurdles in obtaining the data they need to comply with the SEC’s liquidity rule. This challenge is most acute in fixed income where assessing liquidity is not dependent on trade data alone,” said Kiet Tran, managing director and head of Pricing and Reference Data at IHS Markit.
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. The service covers equities and all fixed income instruments, including government, supranational, agency, corporate sovereign and municipal bonds, securitized products, syndicated loans and credit default swaps.
“High-quality data and reliable analytics are necessary ingredients in establishing an effective liquidity risk management program,” said Giulio Panzano, global head of Analytics product management at MSCI. “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.”