Panic Sales Rekindle Debate Over ETF Liquidity in Next Crisis

A couple of prominent investment funds are currently living through a portfolio manager’s worst nightmare: So many customers are demanding their money back that withdrawals need to be frozen.

Amit Deshpande, a former longtime risk manager, sees it as a wake-up call. In particular, he’s watching the growing ranks of asset managers who rely on ETFs to act as cash equivalents. He wonders whether the funds can be sold off to pay fleeing clients in times of stress as seamlessly as the stewards of the $4 trillion market would like.

In other words, are exchange-traded funds the ATMs many managers ...