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FSOC 2015 report highlights ETF liquidity and redemption risks

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The Financial Stability Oversight Council (FSOC)’s 2015 annual report has focused on concerns regarding the expansion of ETFs and bond mutual funds. The report says: “Mutual funds and ETFs provide investors with daily liquidity for an underlying portfolio that may include illiquid assets.”
 

The FSOC is exploring how these funds, “based on their structure or the nature of their redemption management practices, may raise distinct liquidity and redemption risks, particularly during periods of market stress.  The Council is also examining, among other things, how incentives to redeem funds may increase the risk of fire sales or pose
other risks to financial stability.”
 
The FSOC fulfills the Congressional mandate to report on the activities of the Council, describe significant financial market and regulatory developments, analyse potential emerging threats, and make certain recommendations.
 

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