SEC adopts reforms for money-market funds

The rules also give fund boards new tools, such as liquidity fees and redemption gates, that can be imposed during periods of stress to prevent runs. The commission notes that the final rules also include enhanced diversification, disclosure and stress testing requirements.

“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.”

The SEC notes that the rules build upon the reforms adopted back in 2010 in the wake of the financial crisis that aimed to reduce the interest rate, credit, and liquidity risks of money market fund portfolios. There will be a two-year transition period for these latest changes to enable both funds and investors time to adjust.

“Today’s adoption of final money market fund reforms represents a significant additional step to address a key area of systemic risk identified during the financial crisis,” said Norm Champ, director of the SEC’s Division of Investment Management. “These reforms are important both to investors who use money market funds as a cash management vehicle and to the corporations, financial institutions, municipalities and others that use them as a source of short-term funding.”

The rules adopted today will be effective 60 days after their official publication.

The financial industry indicates that it’s generally supportive of the SEC’s efforts to craft new rules aimed at enhancing the resilience of money market funds in times of stress, although there are aspects of the amendments that various factions don’t support, and areas where the industry wants greater clarity.

“The commission in recent months has proceeded thoughtfully to craft a robust and meaningful final rule that will impose significant structural changes across the industry, particularly on money market funds used by institutional investors,” noted Paul Schott Stevens, president and CEO of the U.S. fund industry trade group, the Investment Company Institute (ICI) in a statement Wednesday.

“While we may question some aspects of the rule as adopted, we strongly believe that the SEC has the long
regulatory experience and deep technical expertise required to strike the proper balance, making money market funds more resilient in times of financial stress while preserving the utility and value of these funds for investors,” he added.

The Securities Industry and Financial Markets Association (SIFMA) notes that it is pleased that the SEC has limited the new floating net asset value (NAV) requirement to institutional prime funds; and that it is leaving the use of liquidity fees and/or redemption gates up to fund boards, rather than mandating them.

SIFMA also notes that it will be reviewing the final rule in more detail. “While we may not agree with every provision of the final rule, we are committed to helping our members implement the new requirements,” said SIFMA president and CEO, Kenneth Bentsen, Jr.

Finally, industry group, the Financial Services Roundtable also released a statement on the new rules, indicating, “The clarification of tax provisions remains a concern to investors and we hope these issues are resolved quickly either via the IRS, legislation, or during SEC’s rule implementation process.”