On June 5, 2013, the Securities and Exchange Commission (the “SEC”) proposed amendments to rules under the Investment Company Act of 1940 (the “Investment Company Act”) and related requirements that govern money market funds (“MMFs”). The SEC’s proposal is the latest action taken by U.S. regulators as part of the ongoing debate about systemic risks posed by MMFs and the extent to which previous reform efforts have addressed these concerns.
As discussed in detail in the June 11, 2013 Davis Polk Client Memorandum, SEC Proposes Amendments to Money Market Fund Rules, the proposal sets out two alternative reforms to Rule 2a-7 under the Investment Company Act. Under the first of the two alternative reforms, prime institutional MMFs would no longer be permitted to rely on the provisions in Rule 2a-7 that allow them to maintain a stable $1 per share net asset value (“NAV”). Under the second alternative, all MMFs could maintain a stable NAV but could, subject to action by the fund’s board of directors, impose liquidity fees and gates against investor redemptions if the fund’s weekly liquid assets fell below 15% of its total assets. The proposal also would modify other requirements for all MMFs, including the Rule 22e-3 provisions relating to suspension of redemptions, and would impose new disclosure and reporting requirements on MMFs.