TSCPA News

SEC Adopts Money Market Fund Reforms

July 12, 2023

The Securities and Exchange Commission (SEC) recently adopted amendments to certain rules that govern money market funds under the Investment Company Act of 1940.

The amendments will increase minimum liquidity requirements for money market funds to provide a more substantial liquidity buffer in the event of rapid redemptions. The amendments will also remove provisions in the current rule that permit a money market fund to suspend redemptions temporarily through a gate and allow money market funds to impose liquidity fees if their weekly liquid assets fall below a certain threshold. These changes are designed to reduce the risk of investor runs on money market funds during periods of market stress.

To address concerns about redemption costs and liquidity, the amendments will require institutional prime and institutional tax-exempt money market funds to impose liquidity fees when a fund experiences daily net redemptions that exceed 5% of net assets unless the fund’s liquidity costs are de minimis. In addition, the amendments will require any non-government money market fund to impose a discretionary liquidity fee if the board determines that a fee is in the best interest of the fund. In a press release, the SEC stated that these amendments are designed to protect remaining shareholders from dilution and to more fairly allocate costs so that redeeming shareholders bear the costs of redeeming from the fund when liquidity in underlying short-term funding markets is costly.

Separately, the amendments will also modify certain reporting forms that are applicable to money market funds and large private liquidity funds advisers.

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