SEC Issues Final Money Market Fund Reform Rules (Fed. Reg.)

The SEC adopted amendments to the rules that govern money market mutual funds under the Investment Company Act. According to the SEC, the amendments are designed to address money market funds’ susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks while preserving their benefits. 

Specifically, the SEC adopted amendments that are intended to:

  • remove the valuation exemption that permitted institutional non-government money market funds to maintain net asset value (“NAV”) per share, and require those funds to sell and redeem shares based on the current market-based value of the securities in their underlying portfolios rounded to the fourth decimal place; i.e., transact a “floating” NAV;
  • provide Boards of Directors of money market funds with new tools to stem heavy redemptions, as well as afford them the discretion to suspend redemptions temporarily;
  • require all nongovernment money market funds to impose a liquidity fee if the fund’s weekly liquidity level falls below a designated threshold;
  • increase the diversification of the portfolios of money market funds, enhance their stress testing, and improve transparency by requiring money market funds to report additional information to the SEC and investors; and
  • require the investment advisers to certain large unregistered liquidity funds to provide additional information about those funds to the SEC.

The effective date of these amendments is October 14, 2014. Other specific compliance dates will occur within the rule release.

Lofchie Comment: It will be interesting to see whether the new money market rules are satisfactory to the banking regulators, acting either through their bank regulatory caps or in the name of FSOC. Notably, in a recent speech, the President and CEO of the Federal Reserve Bank of Boston said this: “While I would have preferred even more protection against financial runs on money market mutual funds, this element of the recent rulemaking does represent a meaningful improvement. Still, I am certainly on record as questioning whether the imposition of withdrawal restrictions (‘gates’) and fees will help to stabilize money market mutual funds in crisis situations” [footnotes omitted].

See: 79 FR 47736.