Swing pricing

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Swing pricing is the process of adjusting an open-end mutual fund’s net asset value (“NAV”) per share to pass on to purchasing or redeeming shareholders certain of the costs associated with their trading activity. It is designed to protect existing shareholders from dilution associated with shareholder purchases and redemptions, and is another tool to help funds manage liquidity risks. The Security and Exchange Commission (SEC) adopted the rule on October 16, 2016, but implementation of the rule was delayed until amendments (Form N-1A and Regulation S-X) were finalized on November 19, 2018.[1] Swing pricing is not applicable to closed-end funds or exchange-traded funds.

Example

Swing pricing is implemented if a fund’s net inflows or outflows exceed a preset level as determined by the fund provider. In all instances, the provider calculates the NAV as normal before adjusting it by the designated swing factor.

In executing swing pricing, a fund provider has two options: full swing pricing or partial swing pricing. Under full swing pricing, the NAV is adjusted every dealing date, regardless of the amount of shareholder activity.

Under partial swing pricing, the daily shareholder activity is compared to a predetermined swing threshold.[2]

Example: ABC Fund has a price of $30 per share and the fund’s provider sets a swing factor of 0.1% of the NAV for net flows above or below 5% of the prior day’s price. If the fund experiences a net inflow of 10% of NAV, the price of the fund would be adjusted upward to $30.03 ($30 + ($30 * 0.1%)). The same situation would occur with a 10% outflow except that the price would be adjusted downward to $29.97. If a net flow of less than 10% occurs, swing pricing is not implemented and the fund’s price remains at $30. [3]

References

  1. "Investment Company Swing Pricing". SEC. Retrieved 8 March 2019.
  2. "Swing Pricing". Franklin Templeton. Retrieved 8 March 2019.
  3. David Dierking (May 16, 2017). "What Is Swing Pricing for Mutual Funds?". MutualFunds.com. Retrieved 8 March 2019..

External links