Wednesday, June 24, 2009
The SEC today voted unanimously to propose rule amendments designed to significantly strengthen the regulatory framework for money market funds to increase their resilience to economic stresses and reduce the risks of runs on the funds. The SEC is seeking public comment on the proposals, which would require money market funds to maintain a portion of their portfolios in highly liquid investments, reduce their exposure to long-term debt, and limit their investments to only the highest quality portfolio securities. The proposals also would require the monthly reporting of portfolio holdings, and allow the suspension of redemptions if a fund "breaks the buck" to allow for the orderly liquidation of fund assets.
The proposed amendments would, among other things:
- Require that money market funds have certain minimum percentages of their assets in cash or securities that can be readily converted to cash, to pay redeeming investors.
- Shorten the weighted average maturity limits for money market fund portfolios (from 90 days to 60 days).
- Limit money market funds to investing in only the highest quality securities (i.e., eliminate their ability to invest in so-called "Second Tier" securities).
- Require funds to stress test fund portfolios periodically to determine whether the fund can withstand market turbulence.
The proposals also would:
- Require money market funds to report their portfolio holdings monthly to the Commission and post them on their Web sites.
- Require funds to be able to process purchases and redemptions at a price other than $1.
- Permit a money market fund that has "broken the buck" and decided to liquidate to suspend redemptions while the fund undertakes an orderly liquidation of assets.
In addition, the SEC is seeking comment on other issues related to the regulation of money market funds, including whether money market funds should, like other types of mutual funds, effect shareholder transactions at the market-based net asset value (i.e., whether they should have "floating" rather than stabilized net asset values), and whether to require that funds satisfy redemption requests in excess of a certain size through in-kind redemptions. The Commission may propose further amendments after it considers the comments it receives on these matters.
The SEC also is seeking comment on other issues, including alternatives with respect to the role of credit rating agencies in money market fund regulation.
Here is Chairman Schapiro's statement on the proposal.