Will Swing Pricing Save Sedentary Shareholders?

80 Pages Posted: 22 May 2018 Last revised: 22 Nov 2018

See all articles by Anne M. Tucker

Anne M. Tucker

Georgia State University College of Law

Holly van den Toorn

Georgia State University, School of Law, Students

Date Written: May 4, 2018

Abstract

This Article explains and explores new Securities Exchange Commission rules authorizing optional swing pricing for mutual funds. Swing pricing is an anti-dilution tool intended to protect sedentary investors who enter, and stay, in a fund. Workers setting aside money for retirement are often sedentary investors. Mutual funds are the mainstay vehicle for retirement investors, yet as sedentary shareholders they can experience significant asset dilution over their savings lifetime. Swing pricing - a mutual fund pricing mechanism that allocates transaction costs to the triggering shareholders - could save sedentary shareholders, collectively, billions of dollars.

The mutual fund industry's operational complexities and competing regulatory obligations may prevent funds from immediately utilizing swing pricing once it becomes effective in November 2018. The biggest obstacle is a time conflict reminiscent of the chicken and egg problem. Under current industry operations, mutual funds will not receive the trading information necessary to adjust the daily price of the fund (swing the price) until after funds have to finalize the price adjustment. Blockchain technology - offering secure, automated, and verified ledgers - may present an operational path forward for the industry.

The SEC's swing pricing approach leaves unanswered how funds will overcome these, and other, hurdles. This Article explores the components of swing pricing, as well as the objections to and perceived benefits of swing pricing, and concludes with two unique perspectives on the SEC rules: one academic and one professional. This Article maintains that mutual funds should taken on the challenge of implementing swing pricing, and that market incentives will pave the way.

Keywords: SEC, swing pricing, mutual funds, investors, retirement investment, blockchain, asset dilution, sedentary investors

JEL Classification: D14, G12, G18, K22, K39

Suggested Citation

Tucker, Anne M. and van den Toorn, Holly, Will Swing Pricing Save Sedentary Shareholders? (May 4, 2018). Columbia Business Law Review, Vol. 2018, No. 1, pp. 130-208, 2018, Georgia State University College of Law, Legal Studies Research Paper No. 2018-28, Available at SSRN: https://ssrn.com/abstract=3173736

Anne M. Tucker (Contact Author)

Georgia State University College of Law ( email )

P.O. Box 4037
Atlanta, GA 30302-4037
United States
(404) 413- 9179 (Phone)

Holly Van den Toorn

Georgia State University, School of Law, Students ( email )

85 Park Place
Atlanta, GA 30303
United States

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