CFTC clarification on Reg 1.25
Katten Muchin Rosenman LLP via Lexology writes "CFTC provides clarification on Regulation 1.25 with respect to suspension of money-market mutual fund redemptions". It cites a recent CFTC letter on Guidance Regarding Commission Regulation 1.25 that says, "This letter provides guidance regarding new Securities and Exchange Commission (SEC) rule 22e-3 (Rule 22e-3) and its impact on the investment of customer funds under Commission Regulation 1.25 (Reg. 1.25). Rule 22e-3, adopted by the SEC February 23, 2010 and effective May 5, 2010, allows a money market mutual fund (MMMF or fund) to suspend redemptions and postpone payment of redemption proceeds to facilitate an orderly liquidation of the fund. Below, the Division provides an overview of the Reg. 1.25 treatment of MMMFs, outlines Rule 22e-3, and discusses the interplay of Reg. 1.25 and Rule 22e-3. The Division concludes that Rule 22e-3 falls within the parameters of Reg. 1.25(c)(5)(ii)(D) and therefore the status of an MMMF that otherwise qualifies as a Reg. 1.25 permitted investment will not change as a result of the new rule." It adds, "Reg. 1.25(a) provides a list of permitted investments for customer segregated funds, among them, interests in MMMFs. Reg. 1.25(c) sets forth certain requirements for MMMFs and, in particular, requires that '[a] fund shall be legally obligated to redeem an interest and to make payment in satisfaction thereof by the business day following a redemption request.' This 'next-day redemption' requirement is a significant feature of Reg. 1.25 and is meant to ensure adequate liquidity.... Reg. 1.25(c)(5)(ii)(D) provides, as an exception to the next-day redemption requirement, '[e]mergency conditions set forth in section 22(e)....' While the circumstances addressed by Rule 22e-3 are not specifically identified in Section 22(e)(i)-(iii), the Division considers Rule 22e-3 to be a 'rule or regulation' as contemplated by the final paragraph of Section 22(e)."
