On June 5, 2013, the Securities and Exchange Commission (“SEC”) voted to release its long-awaited proposals to make significant revisions to the rules governing money market mutual funds (“money funds”), as well as to adopt related new disclosure requirements. The SEC stated that the proposed amendments seek to reduce what the SEC perceives to be money funds’ vulnerability to heavy redemptions, attributing much of the redemption activity during periods of “financial stress” to “prime money market funds” (funds that invest mainly in taxable short-term obligations of corporations and banks, repurchase agreements, and asset-backed commercial paper) rather then government, U.S. Treasury, and tax-exempt/municipal money funds.
Summary of the SEC’s Proposals -
The SEC has proposed two alternative sets of proposals. One option would require money funds, with certain important exceptions, to sell and redeem shares using a “floating” NAV, that is, at a share price based on a model-based value of the funds’ portfolio securities (the “Floating NAV” proposal).  The other option would permit all money funds to continue to sell and redeem shares at a stable NAV, but would require funds to impose liquidity fees if the level of weekly liquid assets falls below a specified threshold, and would permit money fund boards to suspend redemptions under those circumstances, that is, to “gate” the funds (the “Fees & Gates” proposal). The SEC noted that it is considering adopting some combination of the Floating NAV and Fees & Gates proposals. The SEC is seeking comment on all aspects of the two proposals.
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