Invesco Looks at MMF Reforms
Invesco published "US Money Fund Reform Proposals, A Quick Look" recently, which tells us, "The US Securities and Exchange Commission (SEC), on December 15, 2021, proposed amendments to certain rules that govern US money market funds (MMFs) under the Investment Company Act of 1940 (1940 Act). These proposed changes to SEC Rule 2a-7, if adopted, are designed to improve the resiliency and transparency of US money market funds and will impact the manner in which US money market funds operate. These proposed reforms are a consequence of market events in March 2020 when growing concerns about the impact of the COVID-19 pandemic led investors to reallocate their assets into cash and short-term government securities. Specifically, heavy outflows from US institutional prime and tax-exempt MMFs placed stress in the short-term funding markets, which became 'frozen,' making it difficult for these funds to sell investments." Invesco lists the "Proposed amendments: Remove the liquidity fee and redemption gate provisions from SEC Rule 2a-7; Increase the daily liquid asset and weekly liquid asset requirements for all MMFs to 25% and 50%, respectively; Implement swing pricing policies and procedures for US institutional prime and institutional tax-exempt MMFs; Address how money market funds should handle a negative interest rate environment; Specify how funds calculate weighted average maturity (WAM) and weighted average life (WAL); and, Amend certain reporting requirements on Forms N-MFP and N-CR." They add, "There will be a 60-day comment period following publication of the proposed amendments in the US Federal Register. The proposed amendments have not yet been posted in the Federal Register. When the amendments are finalized/adopted and published in the US Federal Register, the SEC has proposed implementation in stages to include (a) immediate changes, (b) 6-month changes, and (c) 12-month changes. Immediate changes will focus on the removal of liquidity fee and redemption gate provisions including related disclosures. At 6 months, funds must be in compliance with the increased daily liquid asset and weekly liquid asset requirements and all other aspects of proposal. In the final stage at 12 months, funds must be in compliance with swing pricing requirements and the requirements that address how money market funds should handle a negative interest rate environment."
