Ten years ago, in July 2009, we wrote about the SEC's first Money Market Fund Reform Proposal following the Great Subprime Liquidity Crisis and Reserve Primary Fund "breaking the buck." Our July 1, 2009 News story, "SEC Releases 197-Page Text of Proposed Money Market Fund Reform," which eventually tightened maturity and quality guidelines and led to a second round of reforms 5 years later. (Watch for a Link mentioning the 5-year anniversary of the second round of reforms later this month.) We explained in 2009, "The SEC has released the full text of its proposed "Money Market Fund Reforms". The 197-page document's summary says, 'The Securities and Exchange Commission is proposing amendments to certain rules that govern money market funds under the Investment Company Act. The amendments would: (i) tighten the risk-limiting conditions of rule 2a-7 by, among other things, requiring funds to maintain a portion of their portfolios in instruments that can be readily converted to cash, reducing the weighted average maturity of portfolio holdings, and limiting funds to investing in the highest quality portfolio securities; (ii) require money market funds to report their portfolio holdings monthly to the Commission; and (iii) permit a money market fund that has 'broken the buck' (i.e., re-priced its securities below $1.00 per share) to suspend redemptions to allow for the orderly liquidation of fund assets. In addition, the Commission is seeking comment on other potential changes in our regulation of money market funds, including whether money market funds should, like other types of mutual funds, effect shareholder transactions at the market-based net asset value, i.e., whether they should have 'floating' rather than stabilized net asset values. The proposed amendments are designed to make money market funds more resilient to certain short-term market risks, and to provide greater protections for investors in a money market fund that is unable to maintain a stable net asset value per share.' The SEC says on Background, 'Money market funds are open-end management investment companies that are registered under the Investment Company Act and regulated under rule 2a-7 under the Act. They invest in high-quality, short-term debt instruments such as commercial paper, Treasury bills and repurchase agreements. Money market funds pay dividends that reflect prevailing short-term interest rates and, unlike other investment companies, seek to maintain a stable net asset value per share, typically $1.00 per share.... This combination of stability of principal and payment of short-term yields has made money market funds one of the most popular investment vehicles for many different types of investors.... Due in large part to the growth of institutional funds, money market funds have grown substantially over the last decade, from approximately $1.4 trillion in assets under management at the end of 1998 to approximately $3.8 trillion in assets under management at the end of 2008.... One implication of the growth of money market funds is the increased role they play in the capital markets.... As a consequence, the health of money market funds is important not only to their investors, but also to a large number of businesses and state and local governments that finance current operations through the issuance of short-term debt." After a comment period, the SEC went on to approve the 2a-7 amendments in January 2010. (See our Jan. 27, 2010 News, "SEC Approves Money Market Fund Reform Proposals, Hosts Webcast.")

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