SEC Revises MMF Reform FAQs
The SEC recently released an updated and revised "2014 Money Market Fund Reform Frequently Asked Questions" document. The updated FAQs, with technical questions that only fund lawyers will probably appreciate, include 2 new questions on Form N-CR (4. and 5.), 2 new questions on Website Disclosure (11. and 12.), 1 new question on Money Market Fund Advertisements (13.), and one new question on Government Money Market Funds (44.). The Government MMF question asks, "Q. Does rule 35d-1 (the "Names Rule") apply to a money market fund that includes the term "government" in its name? A. Yes. If a money market fund includes the term "government" in its name, the requirements of both rule 2a 7(a)(16) and the Names Rule apply. Rule 2a 7(a)(16) defines a "government money market fund" to mean a money market fund that invests 99.5% or more of its total assets in cash, government securities, and/or repurchase agreements that are fully collateralized by cash or government securities. The Commission stated in the Adopting Release that a fund may not call itself or include in its name "government money market fund" or similar names unless the fund meets this definition. In addition, the Names Rule generally requires a fund to adopt a policy to invest (under normal circumstances) at least 80% of the value of its net assets in the particular type of investments suggested by the fund's name (e.g., for a money market fund that includes the term "government" in its name, the 80% test would include government securities and repurchase agreements that are collateralized by government securities). Although the 99.5% test under rule 2a 7 is more stringent in some respects than the 80% test under the Names Rule, the 99.5% test permits a broader range of investments than just "government securities" (for example, it includes cash).... To avoid potentially misleading investors, the staff believes that a money market fund that includes the term "government" in its name should disclose that it invests at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are collateralized by cash or government securities, and that it has a policy to invest (under normal circumstances) at least 80% of its net assets in government securities and/or repurchase agreements that are collateralized by government securities. Similarly, the staff believes that a government money market fund that includes an additional descriptor in its name (e.g., "XYZ U.S. Treasury Government Money Market Fund") should adopt a policy to invest at least 80% of its net assets in the type of instruments suggested by its name (e.g., U.S. Treasury securities and/or repurchase agreements collateralized by U.S. Treasury securities) and also meet the 99.5% test." (See the "Redlined PDF showing changes to previous August 8, 2015, version of these MMF Reform FAQs" to see the new questions.)
