On August 19, 2010, the SEC staff issued a no-action letter to the ICI providing that the Division of Investment Management would not recommend enforcement action against any money market fund that does not comply with the requirements concerning the designation of nationally recognized statistical rating organizations (“NRSROs”) in amended Rule 2a-7 under the 1940 Act before the SEC has completed its review of Rule 2a-7 as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and made any modifications to the Rule. Rule 2a-7 amendments adopted earlier this year would require that, by December 31, 2010, a fund’s board designate at least four NRSROs whose ratings would be use to determine portfolio security eligibility under the Rule and the fund disclose such NRSROs in its SAI. The Dodd-Frank Act requires the SEC to review and modify regulations referring to or requiring reliance on credit ratings and to substitute a standard of creditworthiness as determined appropriate by the SEC, which industry participants pointed out would render the NRSRO designations irrelevant. The letter provides that money market funds relying on the no-action letter must continue to comply with the obligations for determining and monitoring eligible securities set forth in Rule 2a-7 as in effect before May 5, 2010 (with the exception of the limitation on holding unrated asset-backed securities rescinded by the 2010 amendments to Rule 2a-7).
In addition, earlier in August 2010, in response to an ICI request for interpretation, the SEC staff agreed that, for purposes of calculating a money market fund’s weighted average portfolio maturity under Rule 2a-7, a fund may treat short-term floating rate securities subject to a demand feature as having a maturity equal to the period remaining until the principal can be recovered through demand, which thereby treats these securities the same as short-term variable rate securities subject to a demand feature.