Institutional prime money market funds will have several new tools for preventing runs, under new rules approved Wednesday by the Securities and Exchange Commission.
The rules, which were approved by a 3-2 vote, would require the funds to have a floating net asset value and allow them to impose liquidity fees and redemption gates. The rules, which do not apply to retail money market funds, have a compliance date two years after publication in the Federal Register.
The floating NAV rule will require institutional prime money market funds, including institutional municipal money market funds, to value their portfolio securities by market-based factors for selling and redeeming shares, instead of the current $1 share price.
The liquidity fees and redemption gates can be imposed by money market fund boards during periods of stress.
In a separate vote, the SEC unanimously approved rules that call for enhanced diversification, disclosure and stress testing by money market funds and private funds that operate like money market funds, with compliance due 18 months after the rules are published.
The reforms “fundamentally change the way that money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system,” SEC Chairwoman Mary Jo White said before the vote.
The changes will help investors who use money market funds for cash management, and other institutional investors that use them as a source of short-term funding, said Norm Champ, director of the SEC's investment management division.
“We believe that money market funds will continue to prove a valuable cash investment strategy,” said Tara McDonnell spokeswoman for BlackRock, the fourth-largest U.S. provider of money market funds, with $184 billion under management, according to research firm Crane Data.
“We anticipate that institutional investors will more aggressively seek out cash management vehicles which can provide safety, liquidity and yield, and now stability. We are seeing a definite increase of interest,” said Eric Lansky, president of StoneCastle Cash Management.