If adopted, the proposed amendments would:
On December 15, 2021, the Securities and Exchange Commission
(the “SEC”) voted 3-2 to propose amendments to Rule 2a-7
(the rule governing money market funds) and other rules under the
Investment Company Act of 1940 (the “1940 Act”), as well
as related reporting and disclosure requirements.1 The
proposed amendments are the latest chapter in the SEC’s history
of money market fund reform and are intended by the SEC, in part,
to address concerns about prime and tax-exempt money market funds
that were highlighted by market events that occurred in March 2020
at the beginning of the COVID-19 pandemic.2 Comments on
the proposed amendments may be submitted until 60 days following
the publication of the Proposing Release in the Federal
Eliminate the liquidity fee and redemption gate provisions of
Require institutional prime and institutional tax-exempt money
market funds to implement swing pricing policies and procedures to
adjust a fund’s current net asset value (“NAV”) per
share by a swing factor when the fund has net redemptions;
Increase the minimum daily liquid asset and weekly liquid asset
requirements from 10% and 30% to 25% and 50%, respectively;
Expand government and retail money market funds’
obligations to confirm that they can fulfill shareholder
transactions if they convert to a “floating” share price
(e.g., in the event of a negative interest rate environment);
Specify how money market funds calculate weighted average
maturity and weighted average life; and
Amend certain disclosure requirements on Forms N-CR, N-MFP and
In March 2020, institutional prime and tax-exempt money market
funds experienced large outflows, which contributed to stress on
short-term funding markets.8 The outflows significantly
slowed following intervention by the Federal Reserve and the U.S.
Treasury, which established the Money Market Mutual Fund Liquidity
Facility and other programs to support short-term funding
markets.9 The President’s Working Group on Financial
Markets issued a report discussing these events and several
potential money market fund reform options in December 2020 (the
“PWG Report”).10 The SEC subsequently issued a
request for comment on the various reforms discussed in the PWG
Report,11 and has now proposed rule amendments based on
those comments and potential reform options.
The SEC adopted Rule 2a-7 in 1983 and has amended the rule
several times over the years, including after the events of the
2008 financial crisis.3 In 2010, the SEC adopted
amendments to Rule 2a-7 that, among other things, required money
market funds to maintain liquidity buffers in the form of specified
minimum levels of daily liquid assets and weekly liquid assets and
further limited the average maturity of a fund’s
portfolio.4 In 2014, the SEC amended Rule 2a-7 to
provide boards of non-government money market funds (i.e., prime
and tax-exempt money market funds)5 with the ability to
impose liquidity fees and/or redemption gates in the event a
fund’s weekly liquid assets fall below 30%.6 The
2014 amendments also required institutional prime and institutional
tax-exempt money market funds to “float” their NAVs
(i.e., not fix the NAVs at $1.00 per share).7
1 See Money Market Fund Reforms, 1940 Act Release No. 34441
(Dec. 15, 2021), here (“Proposing Release”).
2 See SEC Proposes Amendments to Money Market Fund Rules, SEC
Press Release No. 2021-258 (Dec. 15, 2021), here. 3 See Proposing Release, at 9-12; Valuation of Debt Instruments
and Computation of Current Price Per Share by Certain Open-End
Investment Companies (Money Market Funds), 1940 Act Release No.
13380 (July 18, 1983), here.
4 See Money Market Fund Reform, 1940 Act Release No. 29132 (Mar.
4, 2010), here. 5 Prime money market funds hold a variety of taxable short-term
obligations issued by corporations and banks, as well as repurchase
agreements and asset-backed commercial paper. Tax-exempt money
market funds primarily hold obligations of state and local
governments and their instrumentalities, and pay interest that is
generally exempt from federal income tax for individual taxpayers.
Government money market funds hold obligations of the U.S.
Government, including obligations of the U.S. Treasury and Federal
agencies and instrumentalities, as well as repurchase agreements
collateralized by government securities. See Proposing Release, at
6 See Money Market Fund Reform; Amendments to Form PF, 1940 Act
Release No. 31166 (Aug. 14, 2014), here. 7 Within the prime and tax-exempt money market fund categories,
some funds are “retail” funds and others are
“institutional” funds. Retail money market funds are held
only by natural persons, and institutional funds can be held by a
wider range of investors, such as corporations, small businesses,
and retirement plans. See Proposing Release, at 8.
10 See Report of the President’s Working Group on Financial
Markets, Overview of Recent Events and Potential Reform Options for
Money Market Funds (Dec. 2020), https://home.treasury.gov/system/files/136/PWG-MMF-report-final-Dec-2020.pdf. 11 See Request for Comment on Potential Money Market Fund Reform
Measures in President’s Working Group Report, 1940 Act Release
No. 34188 (Feb. 10, 2021), here.
9 See Federal Reserve and U.S. Treasury Seek to Bolster Money
Market Funds (Mar. 23, 2020), here. 8 See id. at 14-26.
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