In an effort to avoid the problems experienced by money market funds during the financial crisis of 2008, the SEC has proposed rule amendments to enhance the regulatory regime for these types of funds. Money market funds are investment funds which aim to provide safe, low-risk investment for individuals while maintaining a net asset value of $1.00 per share. Although an important objective of money market funds is to maintain a stable net asset value, they are securities and are therefore subject to a potential loss of principal.
A press release by the SEC summarized the proposed amendments as having the following affects:
(a) Requiring 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;
(b) Shortening the weighted average maturity limits for money market fund portfolios;
(c) Limiting money market funds to investing in only the highest quality securities;
(d) Requiring funds to stress test fund portfolios periodically to determine whether the fund can withstand market turbulence;
(e) Requiring money market funds to report their portfolio holdings monthly to the SEC and post them on their websites;
(f) Requiring funds to be able to process purchases and redemptions at a price other than $1.00; and
(g) Permitting a money market fund that has “broken the buck” (net asset value fallen below $1.00 per share) and decided to liquidate to suspend redemptions while the fund undertakes an orderly liquidation of assets.
In her statement at the SEC open meeting on June 24, 2009, SEC Chairman Mary L. Schapiro noted that the proposed rules are consistent with President Obama's support to strengthen the money market fund regulatory regime, as explained in his recently-released white paper. In addition, Ms. Schapiro opined that the rule amendments will “go a long way toward better protecting investors and making money market funds more resilient to short-term market risks.”
The rule amendments above are merely proposals. As such, they are subject to public comments for 60 days after their publication in the Federal Registrar.