Originally published by Law360.
The U.S. Securities and Exchange Commission has now codified a new mechanism to deal with the risk of dilution in the value of mutual fund shares caused by ordinary purchase and redemption activities. The mechanism is referred to as "swing pricing" and it can be found in a new subparagraph (a)(3) of Rule 22c-1 under the Investment Company Act of 1940.
Swing pricing will permit funds to adjust their net asset value (NAV) under specified circumstances to cause the costs stemming from shareholder purchase and redemption activity to be shared with the purchasing or redeeming shareholders. Swing pricing will be optional for eligible funds, but will not be available for any funds until October 2018.
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