The National Law Review published a recap of the SEC's money market reforms. It's a nice summation of the rules, written by Vedder Price. "On July 23, 2014, on a 3-2 vote, the SEC adopted amendments to certain rules under the 1940 Act, including Rule 2a-7, that govern money market funds. According to the SEC, the rule amendments seek to: (1) limit money market funds' susceptibility to heavy redemptions during periods of market stress, (2) improve money market funds' ability to deal with potential contagion from heavy redemptions, (3) increase risk transparency in money market funds, and (4) preserve, to the extent possible, the benefits of money market funds for investors. The primary rule changes include the requirement for certain money market funds to operate using a floating NAV rather than a stable NAV, and the ability of money market funds to impose liquidity fees and redemption gates in certain circumstances to stem redemptions. In addition, the SEC adopted other rule and form amendments applicable to money market funds, including enhanced diversification and disclosure requirements.... The new rule amendments become effective on October 14, 2014. The compliance date for the floating NAV, liquidity fees and redemption gates amendments is October 14, 2016. The compliance date for the diversification, disclosure and stress testing amendments is April 14, 2016. The compliance date for reports on new Form N-CR is July 14, 2015." The National Law Review also posted a companion article, "SEC Re-Proposes Amendments to Remove References to Credit Ratings from Money Market Fund Rule," which was also penned by Vedder Price. "On July 23, 2014, the SEC re-proposed, with changes, amendments to Rule 2a-7 under the 1940 Act and Form N-MFP that were initially proposed in March 2011 and intended to comply with the requirements of the Dodd-Frank Act that any references to credit ratings in the SEC's regulations be removed and replaced with other standards of creditworthiness.... The re-proposed amendments to remove credit ratings would affect the following elements of Rule 2a-7: (1) determination of whether a security is an eligible security and the distinction between first and second tier securities, (2) credit quality standards for securities with a conditional demand feature, (3) requirements for monitoring securities for ratings downgrades and other credit events and (4) stress testing. As re-proposed, the definition of "eligible security" would be amended to remove references to credit ratings provided by nationally recognized statistical rating organizations (NRSROs). Under the proposed rule amendments, an eligible security would be a security with a remaining maturity of 397 calendar days or less that a money market fund's board of directors (or its delegate) determines presents minimal credit risks, which determination includes a finding that the security's issuer has an exceptionally strong capacity to meet its short-term obligations. This single standard would eliminate the current distinction between first and second tier securities under Rule 2a-7 and therefore the SEC also is proposing to remove the current prohibition on money market funds from investing more than 3% of their assets in second tier securities."
