WASHINGTON, Oct 13 (Reuters) - The top U.S. securities regulator lightened some requirements in its final draft of a rule intended to ensure mutual funds have enough liquidity to cover a wave of redemptions, which it is set to approve later on Thursday.
The three members of the Securities and Exchange Commission will vote on a final version that exempts "in kind" exchange-traded funds, those that honor redemptions in securities instead of cash, from some of its requirements.
The new version also keeps in place a requirement that funds keep on hand a certain level of assets that can be converted into cash in three days, but leaves it to the funds' boards to decide how to rectify any dip below that threshold. In the same vein, boards can decide how to respond when a fund holds more than 15 percent in illiquid assets within 30 days, according to materials presented by the commission ahead of its vote.
Under the rules funds have to classify investments into the categories of highly liquid, moderately liquid, less liquid, and illiquid, and also would be permitted to classify investments by asset class. The first draft released more than a year ago had proposed stricter definitions of categorizing investments.
The commission will consider allowing funds to use "swing pricing," where trading costs are passed on to shareholders through a calculation of net asset value in a separate vote.
Reporting by Lisa Lambert; Editing by Meredith Mazzilli