Introduction -

On November 13, 2012, the U.S. Financial Stability Oversight Council (FSOC) voted to issue proposed recommendations (Proposed Recommendations) to the U.S. Securities and Exchange Commission (SEC) regarding additional reforms to Rule 2a-7 and other rules under the Investment Company Act of 1940 (Act) that govern money market funds (money funds). The vote to issue the Proposed Recommendations is the next step in a long and, at times, contentious debate regarding whether and to what extent money funds exacerbated the 2008 financial crisis. Proponents of the Proposed Recommendations (or other similar recommendations) contend that, in addition to the reforms adopted by the SEC in 2010, money funds should be subject to reforms that address a money fund’s perceived susceptibility to “runs” or the “first-mover advantage.” Although SEC Chairman Mary Schapiro was not able to reach a consensus with other SEC Commissioners as to a package of proposed reforms put together by the SEC Staff, the Proposed Recommendations will no doubt stimulate additional debate and could lead, ultimately, to a compromise.

This update provides a brief background on the events leading up to the Proposed Recommendations. It also describes the Proposed Recommendations and provides commentary on the substance of these recommendations. Comments on the Proposed Recommendations are due by January 18, 2013.