Law firm Troutman Pepper recently published its latest "Investment Management Update," which includes a piece entitled, "SEC Proposes Money Market Fund Reforms." They tell us, "On December 15, 2021, the SEC issued proposed amendments to certain rules governing money market funds under the Investment Company Act of 1940. These proposed amendments arise out of the aftermath of the COVID-19 pandemic and attempt to address shortcomings that the current rules exhibited during the market instability. The SEC proposed a number of amendments to Rule 2a-7 of the Investment Company Act, which regulates money market funds. Many of these proposals seek to weaken investors' incentives to redeem from certain funds during times of market illiquidity, providing funds with a 'cooling off' period to temper short-term investor panic. Additionally, the proposals attempt to better equip a fund's ability to manage significant and rapid investor redemption."
The article explains, "One such proposal was to remove the ability of a money market fund to impose redemption gates.... Another proposal would remove from Rule 2a-7 the provisions allowing/requiring money market funds to impose liquidity fees once the fund crosses certain liquidity thresholds.... While the proposal would remove the liquidity fee provision in Rule 2a-7, a money market fund's board of directors may nonetheless approve the fund's use of redemption fees (up to but not exceeding 2% of the value of shares redeemed) to eliminate or reduce, as practicable, dilution of the value of the fund's outstanding securities under Rule 22c-2 of the Investment Company Act. Therefore, to the extent a fund's board determines that the ability to impose fees may be necessary to protect investors, the board could establish a redemption fee approach to meet the needs of the fund, provided the fund complies with Rule 22c-2 and discloses information about the redemption fee in its prospectus."
It continues, "To replace the removal of the fees and gate provisions, the SEC is proposing swing pricing requirements, specifically for institutional prime and institutional tax-exempt money market funds, that would apply when the fund experiences net redemptions. This proposed rule would specify how an institutional fund would determine its swing factor, which would differ based on the amount of net redemptions. Swing pricing policies and procedures must be implemented by a board-designated administrator, segregated from portfolio management, and may not include portfolio managers."
Troutman Pepper states, "The swing pricing proposal attaches board oversight of swing pricing, requiring board approval of (1) policies and procedures, (2) approving the swing pricing administrator, and (3) annual reviews of reports produced by the swing pricing administrator (which report the fund must maintain for six years)."
They comment, "The swing pricing proposal seeks to ensure the costs from net redemptions are fairly allocated and do not give rise to a first-mover advantage or dilution under either normal or stressed market conditions. Under the proposal, an institutional fund would be required to adjust its current net asset value (NAV) per share by a swing factor reflecting spread and transaction costs, as applicable, if the fund has net redemptions for the pricing period. If an institutional fund has net redemptions for a pricing period that exceed the 'market impact threshold,' which would be defined as 4% of the fund's NAV divided by the number of pricing periods the fund has in a business day, or such smaller amount of net redemptions as the swing pricing administrator determines, the swing factor also would include market impact."
The piece adds, "Furthermore, the SEC proposes to increase the minimum liquidity requirements to 25% daily liquid assets and 50% weekly liquid assets. The SEC believes this will provide a substantial buffer that would better equip money market funds to manage significant and rapid investor redemptions, while maintaining funds' flexibility to invest in diverse assets during normal market conditions."
Finally, they write, "The SEC also proposes certain changes to reporting requirements.... The SEC further proposes that there be a transition period for compliance with the amendments if adopted: A 12-month compliance date for: Any money market fund to comply with the proposed swing pricing requirement and the applicable swing pricing disclosures; and Government and retail funds to determine if financial intermediaries have the capacity to redeem and sell at a price based on the current net asset value per share pursuant to Rule 22c-1 or prohibit the financial intermediary from purchasing in nominee name on behalf of other persons, securities issued by the fund. A six-month compliance date for: The proposed increased daily minimum asset and weekly minimum asset requirements; and, the amendments to Form N-CR and N-MFP, except the swing pricing-related disclosures on Form N-MFP."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Feb. 18) includes Holdings information from 73 money funds (up from 62 a week ago), which represent $2.594 trillion (up from $2.124 trillion) of the $4.946 trillion (52.4%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our Feb. 16 News, "Weekly MF Portfolio Holdings Still Half Repo; ICI Holdings Summary," for more.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.270 trillion (up from $1.042 trillion a week ago), or 49.0%; Treasuries totaling $999.4 billion (up from $802.5 billion a week ago), or 38.5%, and Government Agency securities totaling $141.5 billion (up from $110.5 billion), or 5.5%. Commercial Paper (CP) totaled $63.8 billion (up from a week ago at $60.3 billion), or 2.5%. Certificates of Deposit (CDs) totaled $40.7 billion (up from $38.3 billion a week ago), or 1.6%. The Other category accounted for $53.9 billion or 2.1%, while VRDNs accounted for $24.7 billion, or 1.0%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $999.4 billion (38.5% of total holdings), the Federal Reserve Bank of New York with $810.0B (31.2%), Fixed Income Clearing Corp with $69.5B (2.7%), Federal Home Loan Bank with $61.8B (2.4%), BNP Paribas with $60.3B (2.3%), Federal Farm Credit Bank with $46.9B (1.8%), RBC with $42.7B (1.6%), Societe Generale with $27.8B (1.1%), Barclays PLC with $26.8B (1.0%) and Federal National Mortgage Association with $20.9B (0.8%).
The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($232.9B), Goldman Sachs FS Govt ($211.4B), BlackRock Lq FedFund ($170.1B), Morgan Stanley Inst Liq Govt ($145.9B), Allspring Govt MM ($128.6B), Fidelity Inv MM: Govt Port ($125.5B), Goldman Sachs FS Treas Instruments ($120.2B), BlackRock Lq Treas Tr ($119.8B), Dreyfus Govt Cash Mgmt ($119.7B) and BlackRock Lq T-Fund ($117.7B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
