On February 23, 2010, the Securities and Exchange Commission began what may become radical revisions to the regulation of money market funds when it adopted a number of significant changes to its rules governing money market funds. The changes were accompanied by a statement from the SEC chairman that indicated more regulatory change is on the way. SEC Release No. IC-29132 (Feb. 23, 2010) is online.
The new rules are generally intended to increase investor protections by increasing regulatory oversight of money market funds. For example, among other things, the new rules establish:
- liquidity requirements for money market funds (a daily cash or equivalent requirement of 10 per cent);
- a new restriction on the ability of funds to acquire illiquid securities;shorter maturity limits for securities held by money market funds;
- “know your investor” procedures requiring funds to hold liquid securities to meet foreseeable redemptions;
- a requirement for periodic stress testing to assess ability of a fund to maintain a stable net asset value upon the occurrence of events such as a sudden increase in interest rates;
- and new disclosure requirements including a monthly report of holdings to the Commission and a monthly posting of holdings online.
In many of these areas there previously was little or no regulation. The rules are effective May 5, 2010, but a number of the new requirements are phased in over two years, including a new requirement that funds be able, as a matter of processing capability, to process transactions at prices other than a stable net asset value.
SEC Chairman Mary Schapiro’s statement on the new rules is online.
Ms. Schapiro’s remarks indicate that the SEC is continuing to study the possibility of floating net asset value money market funds, among other changes. She indicated the market place should expect further changes when she characterized the current regulatory changes as “important initial steps toward making money market funds less vulnerable to ‘runs’.” (Italics supplied.) One further change under study is the establishment of a private liquidity facility for money market funds in times of stress.