In an open meeting held on June 5th by the Securities and Exchange Commission (SEC), the SEC’s Chair, Mary Jo White, proposed a series of rules aiming to provide meaningful reform to the functional operations of money market funds. In a public statement during the meeting, White stated that the SEC desires to put forth reform that will “decrease the susceptibility of money market funds to runs,” thereby helping to curtail situations where mass redemptions take place in institutional money market funds. This circumstance was the case in 2008, when the money market shares of the Reserve Primary Fund were re-priced below their $1.00 stable share price value – in financial parlance, “breaking the buck” – which led to approximately $300 billion in redemptions from the fund. While the SEC adopted amendments to money market fund regulations in 2010 in an attempt to make these types of funds “more resilient,” these new rules, according to the Commission, address more of the fundamental issues with the internal operations of money market funds.
The two primary “alternative” pricing options proposed include: (1) the adoption by prime institution money market funds of a Floating Net Asset Value share price (Floating NAV), in place of the $1.00 stable share price, or (2) maintaining the $1.00 stable share price, but allowing the use of liquidity fees and redemptions gates “in times of stress.” The SEC is also considering combining these two options into one “reform” package. The fund industry has been particularly opposed to the first alternative, with the CEO of Federated Investors arguing that a Floating NAV would “seriously injure the funds so affected,” while others argue that only two funds have ever actually “broken the buck.”
The proposed rules also include a number of additional procedures that will require implementation by money market funds, including more stringent diversification and holdings reporting requirements, as well as enhancements to disclosures and current stress testing processes. Additionally, large private equity funds (i.e., funds with $1 billion or more in combined assets) will be required to report similar information to that which is reported by registered money market funds.
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