Yesterday, the SEC voted 5-0 to release for public comment proposed rules that would further regulate money market mutual funds by making money market funds more resilient to economic stresses by imposing new maturity and credit rating requirements on the investments made by these funds and also by requiring that these entities maintain a higher portion of their assets in cash. The proposals are intended to help prevent against the instability experienced by these securities last fall where the net asset value of the Reserve Primary Fund fell below $1.00 (known as “breaking the buck”). The proposals also seek to promote the orderly and efficient liquidation of a money market fund that has broken the buck. The proposal also seeks comment on several contentious issues such as disclosing additional pricing for the net asset value of funds or moving to a floating rate. These issues were not formalized into proposed rules at this juncture due to the significant disagreement that currently exists regarding what is the best course of action in these areas.
The proposed rules will be subject to a 60-day comment period, beginning with their publication in the Federal Register, which should occur in the next several weeks. On account of the issues that were raised for comment, we believe this topic shall be the subject for significant discussions within the industry, especially upon the release of the proposed rules.