SEC Proposes Amendments to Money Market Fund Rules

The Securities and Exchange Commission (SEC) has proposed amendments to the rules governing money market funds in response to the economic uncertainty caused by the COVID-19 pandemic. In March 2020, investors withdrew large sums from prime and tax-exempt money market funds, creating stress in short-term funding markets. The proposed amendments aim to reduce the likelihood of runs on money market funds during times of stress and equip funds to better meet large redemptions.

Key Takeaways:

• The proposed amendments would increase liquidity requirements for money market funds to provide a more substantial liquidity buffer in the event of rapid redemptions.
• The proposals would remove provisions allowing money market funds to impose liquidity fees or suspend redemptions through a gate when a fund's liquidity drops below a certain threshold.
• Institutional prime and institutional tax-exempt money market funds would be required to implement swing pricing policies and procedures to address concerns about redemption costs and liquidity.
• The proposal would amend certain reporting requirements to improve the availability of information about money market funds and enhance the Commission's monitoring and analysis of these funds.
• The SEC will publish the proposal on SEC.gov and in the Federal Register, and the comment period will remain open for 60 days after publication in the Federal Register.

Statistics:

• 60 days: The comment period after publication in the Federal Register.
• March 2020: The time when investors withdrew large sums from prime and tax-exempt money market funds.
• 1940: The year the Investment Company Act was passed, which governs money market funds.
• $14.47 trillion: The total assets of the money market mutual fund industry as of 2020 (Source: Investment Company Institute).

Sources:

• Securities and Exchange Commission (SEC)
• Investment Company Institute (ICI)
• President's Working Group on Financial Markets (Dec 2020 report)