SEC Adopts Money Mkt Fund Reforms
As we said in a bulletin to Money Fund Intelligence subscribers earlier, the U.S. Securities & Exchange Commission (SEC) passed new Money Market Fund Reforms Wednesday morning, which abandoned their swing pricing proposal for Prime and Tax Exempt Institutional money market funds and replaced it with a mandatory liquidity fee regime. They also increased liquidity and disclosure requirements. The "Fact Sheet" says, "The Commission is considering adopting amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The amendments are designed to improve the resilience and transparency of money market funds by: Increasing minimum liquidity requirements to provide a more substantial buffer in the event of rapid redemptions; Removing provisions from the current rule that permit a money market fund to temporarily suspend redemptions and removing the regulatory tie between the imposition of liquidity fees and a fund's liquidity level; Requiring certain money market funds to implement a liquidity fee framework that will better allocate the costs of providing liquidity to redeeming investors; and Enhancing certain reporting requirements to improve the Commission’s ability to monitor and assess money market fund data." The full 424-page final rule and the Chair Gensler's and the Commissioner's statements are also now available. (The webcast should be posted for replay soon too.) The press release, "SEC Adopts Money Market Fund Reforms and Amendments to Form PF Reporting Requirements for Large Liquidity Fund Advisers," says, "The Securities and Exchange Commission today adopted amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The amendments will increase minimum liquidity requirements for money market funds to provide a more substantial liquidity buffer in the event of rapid redemptions. The amendments will also remove provisions in the current rule that permit a money market fund to suspend redemptions temporarily through a gate and allow money market funds to impose liquidity fees if their weekly liquid assets fall below a certain threshold. These changes are designed to reduce the risk of investor runs on money market funds during periods of market stress." It continues, "To address concerns about redemption costs and liquidity, the amendments will require institutional prime and institutional tax-exempt money market funds to impose liquidity fees when a fund experiences daily net redemptions that exceed 5 percent of net assets, unless the fund's liquidity costs are de minimis. In addition, the amendments will require any non-government money market fund to impose a discretionary liquidity fee if the board determines that a fee is in the best interest of the fund. These amendments are designed to protect remaining shareholders from dilution and to more fairly allocate costs so that redeeming shareholders bear the costs of redeeming from the fund when liquidity in underlying short-term funding markets is costly." SEC Chair Gary Gensler comments, "Money market funds -- nearly $6 trillion in size today -- provide millions of Americans with a deposit alternative to traditional bank accounts. Money market funds, though, have a potential structural liquidity mismatch. As a result, when markets enter times of stress, some investors -- fearing dilution or illiquidity -- may try to escape the bear. This can lead to large amounts of rapid redemptions. Left unchecked, such stress can undermine these critical funds. I support this adoption because it will enhance these funds' resiliency and ability to protect against dilution. Taken together, the rules will make money market funds more resilient, liquid, and transparent, including in times of stress. That benefits investors." The release adds, "Separately, the amendments will also modify certain reporting forms that are applicable to money market funds and large private liquidity funds advisers. The rule amendments will become effective 60 days after publication in the Federal Register [which should be in several weeks] with a tiered transition period for funds to comply with the amendments. The reporting form amendments will become effective June 11, 2024."
