Many of the financial institutions across the United States have been going against the United States Securities Exchange Commission. They have asked the commission to revise the loan rates that could be used by the financial institutions to loan out to clients. The 870 billion dollar loan market is positioned in an ominous manner especially towards the mutual fund market in the United States. The industry has asked the United States Securities Exchange Commission to moderate and revise the plan to not hurt the non-investment financial institutions too.
The liquidity norms
Financial institutions such as Credit Suisse, Black Rock Oppenheimer Funds and The Loan Syndications and Trade Associations have asked the SEC to order mutual funds and exchange traded funds. The loan requirements and settlements have come in the recent change in the interest rate hike by the United States Federal Reserve. The central bank has used its monetary policy instrument in order to stimulate and maintain the economy using the regulators. The Federal Reserve met in the month of December and decided towards the move. This move has created a bit of turmoil in the loan market, considering the increase in interest rates.
According to the SEC’s proposal, the financial institutions have to classify the investments into six categories depending on the number of days it takes to convert the assets into cash. The various companies have gone forth and asked for a revision in figures for this phenomenon. According to the SEC liquid assets are those that may not be sold or disposed by a company within seven business calendar days. The SEC has mandated the companies to possess at least 15 percent of liquid assets.
The SEC conceded to the inconvenience factor of the loans but is quite certain that the current set of categories and characterization would suffice. The SEC argument is that the system has been slightly disturbed by the interest rate change, and would need some getting used to. However, once the system settles back, it would be a normalized situation allowing a more convenient exchange trading format.
On the other hand, the LSTA is recommending that the categories are not based upon what the SEC is prescribing, but to instead base the liquidity needs upon factors like the redemption of characteristics of investors, the availability of liquidity by the investor, and the alternative availability of resources.