One Year Ago: SEC's Reform Proposal
One year ago, we wrote "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing," which reviewed the SEC's latest MMF Reform Proposal. While we await the SEC's Final Money Fund Reform changes, which could come any day now, we thought it would be a good time to look back at the original proposals. Our Dec. 16, 2021 News, said, "The Securities & Exchange Commission proposed Money Market Fund Reforms Wednesday, which include higher liquidity levels, the removal of the emergency gates and fees regime, a new swing pricing mandate for Prime Inst MMFs and additional disclosure requirements. The press release, "SEC Proposes Amendments to Money Market Fund Rules," tells us, "The Securities and Exchange Commission today voted to propose amendments to certain rules that govern money market funds under the Investment Company Act of 1940. In March 2020, growing economic concerns about the impact of the COVID-19 pandemic led investors to reallocate their assets into cash and short-term government securities. Prime and tax-exempt money market funds, particularly institutional funds, experienced large outflows, which contributed to stress on short-term funding markets. The Commission's proposed amendments are designed, in part, to address concerns about prime and tax-exempt money market funds highlighted by these events." (See also their "Fact Sheet" and the full Proposal here.) SEC Chair Gary Gensler comments, "Together, these amendments are designed to reduce the likelihood of runs on money market funds during periods of stress. They also would equip funds to better meet large redemptions, addressing concerns about redemption costs and liquidity. Given the broad reach of short-term funding markets, these proposals speak to our remit to maintain fair, orderly, and efficient markets." The release explains, "The proposed amendments would increase liquidity requirements for money market funds to provide a more substantial liquidity buffer in the event of rapid redemptions. The proposed amendments also would remove provisions in the current rule permitting or requiring a money market fund to impose liquidity fees or to suspend redemptions through a gate when a fund's liquidity drops below an identified threshold. These provisions appeared to contribute to investors' incentives to redeem in March 2020 as some funds' reported liquidity levels declined." (See also our Dec 27, 2021 News, "More Reforms: SEC Commissioners Comment on Controversial Proposal," and our Dec. 29, 2021, News, "Kitchen Sink II: SEC Doubles Down on Disclosures in MF Reform Proposal.")
