As we reported yesterday, the Securities & Exchange Commission approved its long-awaited Money Market Fund Reforms, the latest changes to Rule 2a-7, the regulations governing money market mutual funds. The SEC voted 4-1 in favor of the new rules, which tighten maturity and quality rules, and add new liquidity mandates. (See our story from yesterday for the full summary, "SEC Approves Money Market Fund Reform Proposals, Hosts Webcast," and click here for the full Open Meeting Webcast.) The new regulations will be "effective 60 days after their publication in the Federal Register." The SEC says, "Mandatory compliance with some of the rules will be phased in during the year." The final rules, including compliance dates, will be posted on the SEC Web site as soon as possible." (Watch the SEC's Final Rules page.)
In her prepared remarks (see them here), SEC Chairman Mary Shapiro said, "The Commission [adopted] significant revisions to our oversight of money market funds -- revisions that include increasing credit quality, improving liquidity, shortening maturity limits, and requiring the disclosure of a fund's actual 'mark-to-market' net asset value, known as a 'shadow NAV,' on a delayed basis. Today's action grows out of the financial crisis of 2008 and the weaknesses revealed by the 'breaking of the buck' of the Reserve Primary Fund in September 2008. Those events precipitated a full-scale review of the money market fund regulatory regime by the SEC. And the adoption of today's rules is an important step -- but just a first step -- in our efforts to strengthen that regime."
She says, "The rules will tighten the maturity and credit quality standards for money market funds, and impose new liquidity requirements.... [Our] new rules will impose a 60-day [WAM] standard, rather than the current 90-day standard.... [and] will impose a weighted average life restriction [of] 120 days. With respect to 'second tier' securities ... we are limiting such securities to 3 percent of a money market fund's total portfolio.... Under the new liquidity standards, money market funds would have to meet both daily liquidity requirements of 10 percent of assets in cash and cash equivalents, and weekly liquidity requirements of 30 percent.... [T]he rules will create a substantial new disclosure regime so that everyone from investors to the SEC itself can better monitor a money market fund's investments and risk characteristics."
ICI President and CEO Paul Schott Stevens commented, "The mutual fund industry supports the SEC's action today to make money market funds more resilient in the face of extraordinary market conditions, such as we saw in the fall of 2008.... ICI will remain in close dialogue with the SEC and other regulators while they consider further changes to money market fund regulation. We will urge them, however, not to take steps that would undermine money market funds' value to investors or the significant role that these funds play in the U.S. economy.... In particular, we will continue to oppose strongly any move that would directly or indirectly require money market funds to abandon the $1.00 fixed net asset value that has been a defining feature of these funds. Investors and issuers in the money market have filed extensive comments with the Commission, and they have been almost unanimous in pointing out the serious damage that floating these funds' NAV could inflict on investors, markets, and the economy."
Debbie Cunningham said in "Market Memo" entitled "Federated welcomes SEC money market changes", "We at Federated welcome the changes to money market fund industry oversight approved today by the Securities & Exchange Commission, not so much for what was done but for what wasn't done. Most significantly, we were pleased that the SEC opted to retain the stable $1 Net Asset Value (NAV) pricing for funds instead of replacing it with a floating rate as had been considered. As a more than $3.2 trillion business, the money market industry is a critical source of short-term funding for U.S. businesses and industry that is built around the concept of $1 NAV, which is easy to use for record-keeping, accounting and valuation purposes. The SEC will require money funds to regularly disclose the underlying value of their assets per share on a delayed basis -- so-called shadow pricing -- but we don't believe that will undermine the way funds currently operate using NAV."
Look for additional responses to be posted later today and tomorrow. Watch for more coverage as the full final rules are posted, and look for in-depth analysis in the February issue of Money Fund Intelligence. Finally, please let us know your thoughts and opinions!
