We recently stumbled across a Dechert article, "Recent Developments Affecting Money Market Funds," written by Jack Murphy, David Harris, Stephen Bier, Colin Dean, and Eric Simanek, which discusses, "Recent regulatory action by the federal government affecting money market funds." The article, published in The Banking Law Journal, says, "There have been three recent regulatory developments affecting money market funds: the Securities and Exchange Commission's rule allowing money market funds participating in the U.S. Department of the Treasury Temporary Money Market Fund Guarantee Program to suspend redemptions for longer than seven days upon liquidation, the procedures setting forth how money market funds can participate in the Money Market Investor Funding Facility, and revisions to the MMIFF."

The Dechert attorneys write, "On November 26, 2008, the SEC adopted interim final temporary Rule 22e-3T under the Investment Company Act of 1940. The Interim Rule exempts liquidating money market funds participating in the Treasury Guarantee Program from Section 22(e) of the Act. Specifically, the Interim Rule allows participating money market funds liquidating pursuant to the terms of the agreement with Treasury to suspend redemptions and postpone payment of redemption proceeds for longer than the seven-day limit set forth in Section 22(e). The Interim Rule is currently in effect until October 18, 2009, but may expire earlier, upon termination of the Guarantee Program."

They describe the background, saying, "On September 16, 2008, The Reserve Primary Fund became the first large money market fund open to the general public to break the buck when it announced that it would re-price its securities at $0.97 per share.... [T]he fund sought and obtained from the SEC an order permitting it to suspend redemptions and postpone the payment of redemption proceeds. To bolster investor confidence in money market funds and protect the stability of the global financial system, on September 19, 2008, Treasury announced the establishment of the Guarantee Program. Under the Guarantee Program, Treasury guarantees for certain shareholders the share price of participating money market funds that seek to maintain a stable net asset value of $1.00 per share ... subject to certain conditions and limitations. Most of the nation's money market funds elected to participate in the Guarantee Program."

The piece continues, "Section 22(e) of the Act prohibits funds, including money market funds, from suspending the right of redemption, or postponing the date of payment or satisfaction upon redemption of any redeemable security for more than seven days, except for certain periods specified in that Section. Although Section 22(e) permits funds to postpone the date of payment or satisfaction upon redemption for up to seven days, it does not permit funds to suspend the right of redemption, absent certain specified circumstances or an SEC order. In the adopting release, the SEC noted that in order for the Guarantee Program to operate as intended, a participating money market fund that experiences a Guarantee Event and must liquidate pursuant to the Guarantee Agreement may need to suspend redemptions and postpone the payment of proceeds beyond the seven-day limit."

"The SEC stated that the Interim Rule provides the necessary exemption to permit participating money market funds to take full advantage of the Guarantee Program and initiate the steps necessary to protect the interests of all shareholders during liquidations, including those shareholders not covered by the Guarantee Program. Specifically, the SEC stated that the Interim Rule is designed to facilitate orderly liquidations and help prevent the sale of fund assets at 'fire sale' prices. The SEC noted that such a result could lead to substantial losses for the liquidating fund and further depress prices for short-term securities that may be held in the portfolios of other money market funds," writes Dechert.

The article also briefly mentions details about participation in the yet-to-be-used Money Market Investor Funding Facility and Federal Reserve Board changes to the MMIFF.

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