Swing Pricing Calibration : Using ETFs to Infer Swing Factors for Mutual Funds

Policy makers are assessing potential options to reduce the financial stability risks posed by open-end mutual funds. One such option is swing pricing or the process of adjusting a fund’s net asset value per share in response to its level of net investor activity. Calibrating a key component of swing pricing, the swing factor, can be difficult, particularly for funds that invest in certain types of debt instruments. We use the pricing dynamics of Exchange-Traded Funds that invest primarily in short-term debt to infer a range of swing-factor-proxies for mutual funds that invest in similar assets. These proxies could be useful to inform swing factors (or costs for other economically equivalent mechanisms, such as liquidity fees) for certain bond funds, during periods of stress