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SEC approves amendments to bolster money market industry

On Behalf of | Jul 18, 2023 | Securities and Compliance

The Securities and Exchange Commission has adopted amendments to certain rules governing the money market industry, according to InvestmentNews.

The changes are aimed at reducing the risk of investor runs on money market funds during times of market stress, the SEC said, such as those that occurred in March 2020 at the onset of the pandemic.

Under the revisions, approved by three of the SEC’s five members, minimum liquidity requirements will be increased for money market funds in order to provide more liquidity buffer in the event of rapid redemptions. In addition, the SEC will remove provisions in the current rule that permit a money market fund to suspend redemptions temporarily through a gate. Institutional prime and institutional tax-exempt money market funds will be required to impose liquidity fees when a fund experiences daily net redemptions of over 5 percent of net assets.

But the commission also decided not to adopt a new pricing structure known as “swing pricing, which had been opposed by some asset managers in the industry. It would impose a fee on investors redeeming shares in money market funds by adjusting a fund’s net asset value. Opponents asserted this would make funds more costly and less attractive while causing institutional money market funds’ assets to decline.

“Money market funds – nearly $6 trillion in size today – provide millions of Americans with a deposit alternative to traditional bank accounts,” said SEC Chair Gary Gensler. “Money market funds, though, have a potential structural liquidity mismatch. As a result, when markets enter times of stress, some investors – fearing dilution or illiquidity – may try to escape the bear. This can lead to large amounts of rapid redemptions. Left unchecked, such stress can undermine these critical funds. I support this adoption because it will enhance these funds’ resiliency and ability to protect against dilution.”

Gensler said the rules would have the effect of making money market funds more resilient, liquid and transparent.

The rule amendments will become effective 60 days after publication in the Federal Register with a tiered transition period for funds to comply. The reporting form amendments will become effective June 11, 2024.

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