Highly liquid, moderately liquid, less liquid, and illiquid.

Classifying securities in one of those four buckets for the first time under the US Securities and Exchange Commission’s new liquidity rule will force compliance and risk managers at US mutual funds and exchange-traded funds to implement new operational procedures by next year.

“Fund managers will have to clearly document the rationale for their classification choices,” says Samuel Won, managing director of Global Risk Management Advisors (GRMA), a New York-based risk management advisory firm. “While the SEC’s guidance leaves some room for interpretation, funds will still need to justify the reasonability of their approach.”

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