The Securities and Exchange Commission on Wednesday adopted a host of rule amendments aimed at shoring up the money market fund industry.
The amendments, adopted in a 3-2 vote with the SEC's two Republican commissioners dissenting, will increase money market funds' minimum daily and weekly liquid asset requirements to 25% and 50%, respectively, from 10% and 30%.
The amendments, first proposed in December 2021, are designed to provide a more substantial buffer to better equip money market funds to manage significant and rapid investor redemptions in stressed market conditions while maintaining funds' flexibility to invest in diverse assets during normal market conditions, SEC staff said during Wednesday's meeting.
Moreover, the amendments also include the removal of money market funds' ability to impose temporary gates to suspend redemptions, and a requirement for institutional prime and institutional tax-exempt money market funds to impose mandatory liquidity fees when a fund experiences daily net redemptions that exceed 5% of net assets, unless the fund's liquidity costs are de minimis, meaning that if the fee were applied, the amount of the fee would be less than 0.01% of the value of the shares redeemed.
"I support this adoption because it will enhance these funds' resiliency and ability to protect against dilution," SEC Chairman Gary Gensler said. "Taken together, the rules will make money market funds more resilient, liquid and transparent, including in times of stress. That benefits investors."
Investment Company Institute President and CEO Eric J. Pan said in a statement that the SEC "missed the mark by forcing money market funds to adopt an expensive and complex mandatory fee on investors. There is no precedent for such a fee framework. Money market fund resiliency is an important issue that deserves full consideration. However, today's decision does not seem to be a logical outworking from the proposal. The introduction of this mandatory fee sidelines a fund's fiduciary board of directors in favor of a one-size-fits-all solution."
The amendments will become effective 60 days after publication in the Federal Register. The SEC noted in a fact sheet that it's considering providing for a six-month transition period for funds to comply with certain amendments, including the minimum portfolio liquidity requirements and the discretionary liquidity fee provision. Funds would have 12 months after the effective date to comply with the amended rule's mandatory liquidity fee provision.
Of note, the SEC did not move forward with its proposal to require money market funds to use swing pricing. Swing pricing adjusts a fund's value based on trading activity, so redeeming shareholders bear the costs of transactions, rather than diluting other shareholders.
Kenneth E. Bentsen Jr., president and CEO at Securities Industry and Financial Markets Association, said his organization was pleased that the SEC opted against imposing swing pricing on money market funds. However, "While we support the goals of enhancing resilience of money market funds, we remain concerned that imposing additional fees and operational costs on shareholders could adversely impact money market funds," Mr. Bentsen said in a statement.
Separately, the SEC on Wednesday in a unanimous vote proposed a rule to require broker-dealers carrying average total credits equal to or greater than $250 million to increase the frequency of the computations of the net cash they owe to customers and other broker-dealers to daily from weekly.
The proposal's public comment period will remain open for 60 days following publication on the SEC's website or 30 days following publication in the Federal Register, whichever period is longer.
