Thursday, February 4, 2010


On January 27, 2010, the SEC adopted revisions to its regulatory requirements for money market funds. The revisions include increasing credit quality, improving liquidity, shortening maturity limits and requiring the disclosure of a fund’s actual “mark-to-market” net asset value (“NAV”) on a delayed basis.

The ultimate purpose of the new rules is threefold: (1) to help reduce risks associated with money market funds so that investor assets are better protected and money market funds can better withstand market crises; (2) to create a substantial new disclosure regime so that both investors and the SEC can better monitor a money market fund’s investments and risk characteristics; and (3) to make money market funds less vulnerable to “runs.”

The SEC hopes the new rules will have substantial benefits for investors. As Chairman Mary Schapiro noted, the SEC’s recent revisions will help ensure that “money market fund investors…have a better sense of the holdings, value and risk profile of their money market funds.”

Chairman Schapiro also indicated that SEC’s adoption of new regulatory requirements for money market funds is only the first step in the SEC’s reformation of the money market fund industry. The SEC is also actively considering more fundamental changes to the structure of money market funds, including:

• A floating NAV, rather than the stable $1.00 NAV prevalent today;

• Mandatory redemptions-in-kind for large redemptions (such as by institutional investors);

• “Real-time” disclosure of shadow NAV;

• A private liquidity facility to provide liquidity to money market funds in times of stress;

• A possible “two-tiered” system of money market funds, with a stable NAV only for money market funds subject to greater risk-limiting conditions and possible liquidity facility requirements; and

• Several other options being discussed with the President’s Working Group.

We will keep you apprised of any further changes by the SEC to the money market fund industry in the coming months.

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