The July 14, 2015 compliance date for certain new money market fund reporting and disclosure requirements adopted by the U.S. Securities and Exchange Commission (SEC) is quickly approaching. In particular, money market funds will be required to report information regarding the occurrence of certain material events on new Form N-CR and to make related website disclosures by that date. Money market funds and their advisers should consider updating their policies and procedures to address these new requirements in advance of the upcoming compliance date. Such changes may need to be approved or ratified by the money market fund’s board of directors/trustees (board).

This OnPoint provides an overview of these reporting and disclosure requirements.

Background

On July 23, 2014, the SEC approved sweeping amendments to Rule 2a-7 and other rules that govern money market funds under the Investment Company Act of 1940 (1940 Act) (Amendments).1 Among other requirements, the SEC adopted new Rule 30b1-8 under the 1940 Act, which will require a money market fund to report information to the SEC regarding certain material events (Material Events) on Form N-CR. Under this new reporting requirement, a money market fund must provide a brief summary of a Material Event within one business day of the occurrence of that Material Event and, for certain Material Events, the fund also must provide a follow-up report that includes more complete information within four business days. Any filings made on Form N-CR will become immediately public on the SEC’s EDGAR website.2

Money market funds will be required to file Form N-CR with the SEC for any Material Events occurring on or after July 14, 2015.3 In addition, money market funds will be required to make certain related website disclosures beginning as of that date. Although certain Material Events also will require disclosure to be made in a money market fund’s Statement of Additional Information (SAI), the compliance date for including this corresponding SAI disclosure is April 14, 2016.4

Form N-CR Reporting Requirements

Default or Event of Insolvency, Provision of Financial Support and Material Deviation

Pursuant to Rule 30b1-8, a money market fund will be required to make a filing on Form N-CR following the occurrence of any of the following Material Events that occur on or after July 14, 2015.

Default or Event of Insolvency of a Portfolio Security Issuer or Issuer of a Demand Feature or Guarantee

In the event of a default by, or the insolvency of, an issuer of one or more of a money market fund’s portfolio securities (or the issuer of a demand feature or guarantee to which a portfolio security or securities is subject), the value of which accounted for at least one-half of one percent of the fund’s total assets, the fund will be required to submit an initial report to the SEC on Form N-CR within one business day of the default or insolvency. In addition, the money market fund will be required to submit an amended report to the SEC on Form N-CR within four business days after the occurrence of the Material Event. The amended Form N-CR must include a brief description of any actions the fund plans to take, or has taken, in response to the Material Event.

Provision of Financial Support

The provision of “financial support” by an affiliated person, promoter or principal underwriter of a money market fund, or by an affiliated person of such a person, will require the fund to make a filing on Form N-CR. Financial support is defined to include any:

  • capital contribution;
  • purchase of a security from the fund in reliance on Rule 17a-9 under the 1940 Act;
  • purchase of any defaulted or devalued security at par;
  • execution of a letter of credit or letter of indemnity;
  • capital support agreement (whether or not the fund ultimately receives support);
  • performance guarantee; or
  • any other similar action reasonably intended to increase or stabilize the value or liquidity of the fund’s portfolio.  

The definition excludes, however, any:

  • routine waiver of fees or reimbursement of fund expenses;
  • routine inter-fund lending;
  • routine inter-fund purchases of fund shares; or
  • action that would qualify as financial support as defined above, if the fund’s board determines that such action was not reasonably intended to increase or stabilize the value or liquidity of the fund’s portfolio.  

If any form of financial support is provided to the fund by one of the persons described above, the fund will be required to file an initial report with the SEC on Form N-CR within one business day and, within four business days of providing the support, the fund will be required to submit an amended report to the SEC on Form N-CR. The amended Form N-CR must include a brief description of the reason for the financial support.

Money market funds and their advisers that are considering: (i) making a capital contribution to increase the market-based net asset value (NAV) of a fund; or (ii) providing any other form of financial support to a fund, may wish to do so prior to the July 14, 2015 compliance date. After that date, any instance of financial support will be required to be reported on Form N-CR, which will become publicly available immediately upon filing.

Deviation Between Current NAV per Share and Intended Stable Price per Share

If a stable value money market fund’s current market-based NAV per share (rounded to the fourth decimal place in the case of a fund with a $1.00 share price, or an equivalent level of accuracy for a fund with a different share price) deviates downward from its intended stable price per share by more than one-quarter of one percent, the fund will be required to submit an initial report to the SEC on Form N-CR within one business day.5 In addition, the money market fund will be required to submit an amended report to the SEC on Form N-CR within four business days after the occurrence of the Material Event. The amended Form N-CR must describe the principal reason or reasons for the deviation.

Imposition of Liquidity Fees and Redemption Gates

Pursuant to Rule 30b1-8, a money market fund will be required to make a filing on Form N-CR following the occurrence of any of the following Material Events that occur after October 14, 2016 (or such earlier date as the money market fund voluntarily begins complying with the liquidity fee and/or the redemption gate requirements, as applicable).

Imposition of Liquidity Fees

If a money market fund: (i) imposes a liquidity fee; or (ii) has less than 10 percent of its total assets invested in weekly liquid assets, regardless of whether it imposes a liquidity fee, the fund will be required to submit an initial report to the SEC on Form N-CR within one business day and, within four business days of the Material Event, the fund will be required to submit an amended report to the SEC on Form N-CR. The amended Form N-CR must include a brief discussion of the primary considerations or factors taken into account by the board regarding its decision to impose (or not impose) the liquidity fee.

Suspension of Fund Redemptions

If a money market fund suspends redemptions, the fund will be required to submit an initial report to the SEC on Form N-CR within one business day of that suspension. In addition, the money market fund will be required to submit an amended report on Form N-CR within four business days after the suspension. The amended Form N-CR must include a brief discussion of the primary considerations or factors taken into account by the board regarding its decision to suspend fund redemptions.

Removal of Liquidity Fees and/or Resumption of Fund Redemptions

If a money market fund that has imposed a liquidity fee and/or suspended fund redemptions determines to remove the fee and/or resume redemptions, the fund will be required to report on Form N-CR within one business day of such removal or resumption that the fund removed the liquidity fee and/or resumed redemptions.

Other Information Included in Form N-CR

In addition to the information required to be disclosed in connection with the Material Events described above, a money market fund is permitted, but not required to: (i) disclose any other additional events or information; and (ii) supplement or clarify any of the disclosures required by the Form.

Website Posting Requirements

Under the Amendments, Rule 2a-7 will require that a money market fund post on its website information about certain Material Events. A money market fund will be required to prominently disclose on its website for a period of at least one year, beginning no later than the same business day on which the fund files an initial report on Form N-CR, information that the fund is required to report on Form N-CR in connection with the following events:

  • the provision of any financial support by an affiliated person, promoter or principal underwriter of the fund, or an affiliated person of such a person; and
  • a decline in weekly liquid assets below 10 percent of total fund assets or the imposition or removal of a liquidity fee or a redemption gate.6  

The money market fund’s website also must include the following statement:

The Fund was required to disclose additional information about this event [or “these events,” as appropriate] on Form N-CR and to file this form with the Securities and Exchange Commission. Any Form N-CR filing submitted by the Fund is available on the EDGAR Database on the Securities and Exchange Commission’s Internet site at http://www.sec.gov.

Possible Changes to Policies and Procedures

In light of the rapidly-approaching July 14, 2015 compliance date, a money market fund and its investment adviser should consider updating existing policies and procedures (or developing new policies and procedures) to ensure that, upon the occurrence of a Material Event, the fund will be in a position to make timely and accurate filings on Form N-CR and related disclosures on the fund’s website. Among other things, updated policies and procedures could describe the role of a money market fund’s adviser or other service provider in assisting the fund in complying with the filing and posting requirements. For example, the policies and procedures could require that the investment adviser or other service provider prepare the Form N-CR filings and that, prior to submitting any report on Form N-CR, the investment adviser will promptly notify the board of the Material Event and of any actions that the adviser has taken or recommends taking, in response to such Material Event.

Because of the potential sensitivity of information that will be included on Form N-CR, which will become public immediately upon filing, the policies and procedures also could discuss the role of outside counsel and/or counsel to the independent directors/trustees in preparing or reviewing the disclosures required on Form N-CR, particularly the more detailed information that is required to be reported within four business days of the occurrence of certain Material Events.

In addition to the Form N-CR and website disclosure requirements, a money market fund and its investment adviser may wish to consider whether updated policies and procedures should address other communications that may be necessary or appropriate under the circumstances, such as supplements to the fund’s registration statement or other communications to shareholders. Specifically, in the Staff FAQ, the staff of the Division of Investment Management stated its expectation that “a fund imposing a fee or gate would generally find it appropriate to file a prospectus supplement pursuant to rule 497 of the Securities Act disclosing that a fee or gate is currently in place (or that a fee or gate has been removed), reflecting the need for immediacy in disseminating information concerning the event at issue.”7

Finally, a money market fund and its investment adviser may wish to consider including in any relevant policies and procedures a statement that information regarding a Material Event or an intended filing should not be disseminated beyond those persons at the adviser, the board, outside counsel and other service providers who have a need to know based on their involvement with the process, unless and until the information has been made available to all shareholders or the general public. Although such a policy may be covered under existing policies and procedures relating to the disclosure of material non-public information,8 it may be appropriate to consider specifically noting the importance of keeping information about Material Events confidential until disclosed to the public.

Changes to existing policies and procedures (or new policies and procedures) may need to be approved or ratified by the money market fund’s board of directors/trustees. Therefore, it is important to plan for the upcoming July 14, 2015 compliance date.