John Hancock Investments has announcedthat it is using a stress-testing tool to help assess the liquidityof securities held in its mutual fund portfolios.

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The technology of the tool, LiquidityMetrics from MSCI, willallow the firm to stress test the liquidity of its funds, measurethe potential impact of various market scenarios and evaluatepotential transaction costs, liquidation time horizons, amountsavailable for liquidation, and other critical information.

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In the wake of the financial crisis, the need for mutual fundsto hold sufficient cash on hand in case of high redemptions becamea priority.

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Requirements for stress testing for fund companies, and thepotential for some of them to have been classed as systemically important financialinstitutions (SIFIs), were under consideration by the SEC andother agencies.

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Among agency concerns were whether mutual fund companies shouldbe more highly regulated, particularly those that use leverage andderivatives to increase returns.

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The LiquidityMetrics platform was introduced in 2013, whenincreasing regulatory controls were reducing the number offixed-income market makers, leaving corporate bonds and othersecurities more vulnerable to liquidity shocks.

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“The 2008 financial crisis and subsequent regulatory changes puta premium on identifying liquidity-related risks before they becomea problem,” Andrew G. Arnott, president and CEO of John HancockInvestments, said in a statement. “However, until recently thetechnology available in our industry for analyzing those risks wasimperfect and often limited to equities.”

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Arnott added, “By adopting MSCI’s platform, our goal is to bebest in class in terms of liquidity risk management and monitoring,with an even deeper understanding of the liquidity profile of ourfunds. We’re pleased to be an early adopter of this technology inthe asset management industry. We think it’s the right thing to dofor our shareholders.”

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