Mutual funds' liquidity: Credit lines requirement for AMCs reduced to 10 percent

The Securities and Exchange Commission of Pakistan (SECP) has reduced the requirement of committed credit lines for the Asset Management Companies (AMCs) from 15 percent to 10 percent of net assets in line with the new liquidity requirements for mutual funds. In this regard, the SECP has issued direction number 7 of 2017 to amend earlier direction number 2 of 2017 on the liquidity requirements for mutual funds.
The SECP has amended the liquidity requirements for mutual funds on the request of Mutual Funds Association of Pakistan. Under direction number 2 of 2017 of the SECP issued to the AMCs, an AMC shall arrange committed credit lines from banks/DFIs equivalent to 15 percent of net assets of each fund latest by March 1, 2017 for redemption purposes. In case, where redemption requests exceed 10 per cent of the total number of units in issue of fund on anyone dealing day, the redemption requests of AMCs and its sponsors, if any, shall have least priority for redemption on that day, the SECP added.
However, the new direction number 7 of 2017 of the SECP said that the requirements of committed credit lines are revised to 10 per cent of net assets and the deadline to comply with this requirement is extended up to March 15, 2017. Further, the AMCs shall review the committed credit lines at least on quarterly basis against the net assets of the fund.
The SECP's direction number 7 of 2017 said that it is in continuation to direction No 02 of 2017 dated January 13, 2017 on liquidity requirements for mutual funds. Considering the request of Mutual Funds Association of Pakistan, the SECP in exercise of the powers conferred under section 282D of the Companies Ordinance, 1984 hereby makes the following amendments to the condition No 1 and 2 of the above-referred direction (under direction number 2 of 2017):
The requirement of minimum cash and near cash instruments shall be 5 per cent of net assets of the fund on monthly average calculated on daily basis. Moreover, investment of fund of funds scheme in money market schemes shall be treated as equivalent to cash and near cash instrument, the SECP said. The requirements of committed credit lines are revised to 10 per cent of net assets and the deadline to comply with this requirement is extended up to March 15, 2017.