IHS Markit has partnered with MSCI to help asset managers implement liquidity risk management programs and comply with SEC Rule 22e-4. Available next 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,” says Kiet Tran (pictured), managing director and head of Pricing and Reference Data at IHS Markit. “IHS Markit has unparalleled access to fixed income market data and we are pleased to collaborate with MSCI on a robust solution for liquidity management.”
 
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, securitised products, syndicated loans and credit default swaps.
 
“High-quality data and reliable analytics are necessary ingredients in establishing an effective liquidity risk management program,” says 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.” 
 
Since 2010, IHS Markit has provided daily liquidity scoring and liquidity metrics on more than two million fixed income securities. The new service will draw upon these and new liquidity measures produced by IHS Markit.
 
“We’ve been providing liquidity assessment tools to asset managers for nearly 10 years,” Tran says. “Sophisticated funds understand that liquidity risk is something they need to manage alongside market risk and credit risk and that the SEC rules codify several aspects of what’s already a best practice for many firms.”