K&L Gates Reviews SEC Reforms
The National Law Review published an update, written by law firm K&L Gates, entitled, "SEC Proposes Another Round of Money Market Fund Reforms." It tells us, "On 15 December 2021, the Securities and Exchange Commission (the SEC) proposed amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended (the 1940 Act) (the Proposed Rule), which governs the structure and operation of money market funds (MMFs). The Proposed Rule would impact all MMFs with tax-exempt and prime MMFs being most affected. The amendments reflect the SEC's concern over market stresses experienced in response to the COVID-19 Pandemic in March 2020 and are intended to improve the resiliency and transparency of MMFs." The summary explains, "Significantly, if adopted as proposed, the Proposed Rule would: Increase the minimum daily and weekly liquidity requirements to provide a larger buffer in the event of rapid redemptions; Remove the ability of, or requirements on, MMFs to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds; Require certain MMFs to implement swing pricing so that redeeming investors bear the liquidity costs of their redemptions; Require stable net asset value (NAV) MMFs to convert to a floating share price if future market conditions result in negative fund yields; Prohibit MMFs from operating a reverse distribution mechanism, routine reverse stock split, or other device that would periodically reduce the number of the fund's outstanding shares to maintain a stable share price; Require that MMFs calculate weighted average maturity (WAM) and weighted average life (WAL) based on the percentage of each security's market value in the portfolio; Amend stress testing and board reporting requirements; and Amend Forms N-CR and N-MFP to improve the availability of information about MMFs, as well as make certain conforming changes to Form N-1A to reflect the proposed changes to the regulatory framework." K&L Gates update adds, "For additional details regarding the Proposed Rule, including a comparison of certain of the requirements currently in place under Rule 2a-7 with those contained in the Proposed Rule, please see the 'Comparison Chart' at the end of this alert. If adopted as proposed, the SEC proposes to remove the fees and gates provisions of Rule 2a-7 as well associated disclosure requirements in Form N-1A and N-CR, effective immediately as of the effective date of the Proposed Rule. The SEC proposes that as of six months following the effective date of the Proposed Rule, funds must meet all other aspects of the Proposed Rule, including but not limited to the proposed increased daily minimum asset and weekly minimum asset requirements and the amendments to Forms N-CR and N-MFP, with the exception of the proposed swing pricing provisions, which would be required to be implemented within 12 months from the effective date of the amendment, if adopted.... The Proposed Rule will be published on SEC.gov and in the Federal Register. The comment period will remain open for 60 days after publication in the Federal Register. Additional details regarding the specifically requested comments will be covered in a future series of alerts."
