We could spend weeks excerpting pieces of the ICI's new "Report of the Money Market Working Group", the comprehensive 215-page blueprint for changes to money market mutual funds released yesterday. But first we'll focus on the recommended changes to money fund portfolios, which we expect funds to begin implementing almost immediately. ICI says of the recommendations, "[R]ecent market events, although painful, afford the money market fund industry the opportunity to assess the regulations that govern its operations, and the more stringent practices adopted by some money market funds that go beyond those regulations.... Our recommendations ... are numerous, but are primarily designed to address two themes: (1) that money market funds should be better positioned to sustain prolonged and extreme redemption pressures; and (2) that if a 'run' should strike a money market fund, it must be stopped immediately, and with all shareholders treated fairly."

The report says, "After much deliberation and many meetings with market participants, investors, and regulators, and taking into account the need to strengthen the safeguards of money market funds, the Working Group has made recommendations that generally would: - Impose for the first time daily and weekly minimum liquidity requirements and require regular stress testing of a money market fund's portfolio. - Tighten the portfolio maturity limit currently applicable to money market funds and add a new portfolio maturity limit. - Raise the credit quality standards under which money market funds operate. - This would be accomplished by requiring a 'new products' or similar committee; encouraging advisers to follow best practices for determining minimal credit risks; requiring advisers to designate the credit rating agencies their funds will follow to encourage competition among the rating agencies to achieve this designation; and prohibiting investments in 'Second Tier Securities.'

The recommendations also would: - Address 'client risk' by requiring money market fund advisers to adopt 'know your client' procedures and requiring them for the first time to disclose client concentrations by type of client and the potential risks, if any, posed by a fund with a client base that is strongly concentrated. - Enhance risk disclosure for investors and the market and require monthly website disclosure of a money market fund's portfolio holdings. - Assure that when a money market fund proves unable to maintain a stable $1.00 NAV, all of its shareholders are treated fairly. For this purpose, a money market fund's board of directors, or a committee of the board, would be authorized to suspend redemptions and purchases of fund shares temporarily under certain situations, and permanently for funds preparing to liquidate, in order to ensure that all shareholders are treated fairly. - Enhance government oversight of the money market by developing a nonpublic reporting regime for all institutional investors in the money market, including money market funds, and encouraging the SEC staff to monitor higher-than-peer performance of money market funds. - Address market confusion about money market institutional investors that appear to be -- but are not -- money market funds."

Finally, ICI says, "Our recommendations seek to (1) respond directly to potential weaknesses in money market fund regulation that were revealed by the recent abnormal market climate; (2) identify potential areas for reform that, while not related to recent market events, are consistent with improving the safety and oversight of money market funds; and (3) provide the government detailed data to allow it to better discern trends and the role played by all institutional investors, including money market funds, in the overall money market, and invite greater surveillance of outlier performance of money market funds that may indicate riskier strategies."

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