On March 17, 2009, the ICI’s Money Market Working Group, a group formed to develop recommendations to improve the functioning of the money market and the operation and regulation of money market funds, issued a report making recommendations that generally would:
- Impose daily and weekly minimum liquidity requirements (including a daily requirement for taxable money market funds of 5% of net assets in securities accessible within one day and a weekly requirement for all money market funds of 20% of net assets in securities accessible within seven days) and require regular stress testing of a money market fund’s portfolio.
- Tighten the portfolio maturity limit currently applicable to money market funds from 90 to 75 days and add a new portfolio maturity limit calculation methodology.
- Raise the credit quality standards under which money market funds operate by requiring money market funds to establish a “new products” or similar committee, maintaining ratings in Rule 2a-7 as a starting point for credit analysis and requiring that money market funds designate at least three rating agencies to monitor for credit analysis purposes.
- Address “client risk” by requiring money market fund advisers to adopt “know your client” procedures and requiring money market funds to disclose client concentrations by type of client and the potential risks, if any, posed by a fund with a client base that is strongly concentrated.
- Enhance risk disclosure for investors and the market and require monthly website disclosure of a money market fund’s portfolio holdings.
- Assure that when a money market fund proves unable to maintain a stable $1.00 NAV, all of its shareholders are treated fairly.
- Enhance government oversight of the money market by developing a non-public reporting regime for all institutional investors in the money market, including money market funds, and encouraging the SEC staff to monitor higher-than-peer performance of money market funds.
- Address market confusion about cash management investment vehicles that appear to be—but are not—money market funds.
- Permit money market fund boards to suspend redemptions under certain circumstances.
- No longer permit money market funds to invest in “second tier securities.” • Modernize money market fund regulation to reflect the appropriate oversight role for fund boards.
The Working Group’s recommendations seek to (1) respond directly to potential weaknesses in money market fund regulation; (2) identify potential areas for reform that are consistent with improving the safety and oversight of money market funds; and (3) provide the government detailed data to allow it to better discern trends and the role played by all institutional investors, including money market funds, in the overall money market, and invite greater surveillance of outlier performance of money market funds that may indicate riskier strategies.
The ICI’s Board has endorsed the Working Group’s recommendations and urges all money market fund members to voluntarily implement those recommendations that do not require prior regulatory action by September 18, 2009. According to the ICI, the fund families represented on the Working Group have acknowledged that they are ready to do so