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The rules build upon the reforms adopted by the SEC in March 2010 that were designed to reduce the interest rate, credit and liquidity risks of money market fund portfolios. When the Commission adopted the 2010 amendments, it recognised that the 2008 financial crisis raised questions of whether more fundamental changes to money market funds might be warranted.
The new rules require a floating net asset value (NAV) for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets and provide non-government money market fund boards new tools – liquidity fees and redemption gates – to address runs. “Today’s reforms fundamentally change the way that money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system,” said SEC Chair Mary Jo White. “Together, this strong reform package will make our markets more resilient and enhance transparency and fairness of these products for America’s investors.”
With a floating NAV, institutional prime money market funds (including institutional municipal money market funds) are required to value their portfolio securities using market-based factors and sell and redeem shares based on a floating NAV. These funds no longer will be allowed to use the special pricing and valuation conventions that currently permit them to maintain a constant share price of $1.00. With liquidity fees and redemption gates, money market fund boards have the ability to impose fees and gates during periods of stress. The final rules also include enhanced diversification, disclosure and stress testing requirements, as well as updated reporting by money market funds and private funds that operate like money market funds.
The final rules provide a two-year transition period to enable both funds and investors time to fully adjust their systems, operations and investing practices.