It sounds like what you're suggesting is basically Basel III for asset managers. Which, on its surface, makes some sense. But I want to address a couple of small points here. First, beyond the stress-testing itself, how would you restrict the illiquidity in any given fund or group of funds? At what level? And could you really require anything more than, say, the SEC would, in terms of the emphasis on reporting and transparency over actual limits on what can be held in a fund's portfolio?

What I'm driving at is, it is likely to be extremely difficult to implement regulations enforcing specific liquidity ratios to be held by all funds at all times. What would these look like? Specific position limits in particular security types? I don't think that would be likely to fly. If you cap, for example, a fund's or group of funds' position in corporate bonds, that would have the effect of essentially destroying the market for those bonds as oversupply drives prices underground, which would have the further unpleasant effect of severely limiting corporate debt financing.

The risk has to flow somewhere. And there are only two places it can go. Investors or those trying to raise capital.

There is no such thing as a risk-free investment. While I totally agree with the idea of stress-testing, and of improved transparency and reporting, I don't think position limits or trading caps or strict adherence to preset liquidity ratios are workable solutions.