The SEC Amends Money Market Rules

On Wednesday, July 23, 2014, the Securities and Exchange Commission (the “SEC”) adopted amendments to the rules governing money market mutual funds (or “money market funds”) pursuant to Rule 2a-7 under the Investment Company Act of 1940 (“Investment Company Act” or “Act”).  The amendments are designed to address money market funds’ susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, their benefits.

The amendments remove the valuation exemption that permitted institutional non-government money market funds to maintain a stable net asset value per share, and require those funds to sell and redeem shares based on the current market-based value of the securities in their underlying portfolios rounded to the fourth decimal place.  The amendments also give the boards of directors of money market funds the discretion to impose a liquidity fee if a fund’s weekly liquidity level falls below a designated threshold or suspend redemptions temporarily.  The amendments also require (unless the fund’s board determines that imposing such a fee is not in the best interests of the fund) all non-government money market funds to impose a liquidity fee if the fund’s weekly liquidity level falls below a designated threshold.  Finally, the amendments require money market funds and investment advisers to certain large unregistered liquidity funds to report additional information to the SEC and to investors.

Read the SEC press release