On Swing Pricing and Systemic Risk Mitigation

41 Pages Posted: 9 Aug 2017

See all articles by Sheheryar Malik

Sheheryar Malik

International Monetary Fund (IMF)

Peter Lindner

International Monetary Fund (IMF)

Date Written: July 2017

Abstract

Swing pricing allows a fund manager to transfer to redeeming or subscribing investors the costs associated with their trading activity, thus potentially discouraging large flows. This liquidity management tool, which is already used in major jurisdictions, may also help mitigate systemic risk. Here we develop and apply a methodology to investigate whether swing pricing does in fact help dampen flows out of funds, especially during periods of market stress. Drawing on evidence of first-mover advantage within a group of 'swinging' corporate bond funds, we provide policy considerations for enhancing the tool's effectiveness as a systemic risk mitigant.

Keywords: Financial crises, Liquidity management; Mutual funds; Redemptions; Systemic risk; Swing pricing, Liquidity management, Mutual funds, Redemptions, Systemic risk, Swing pricing, Model Construction and Estimation, Quantitative Policy Modeling

JEL Classification: C51, C54, G01, G23

Suggested Citation

Malik, Sheheryar and Lindner, Peter, On Swing Pricing and Systemic Risk Mitigation (July 2017). IMF Working Paper No. 17/159, Available at SSRN: https://ssrn.com/abstract=3014089

Sheheryar Malik (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Peter Lindner

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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