SEC Finalizes Money Market Fund Reforms

The Securities and Exchange Commission (SEC) has released a final rule that amends certain rules governing money market funds. A fact sheet highlights the following changes.

• Increase the minimum liquidity requirements for money market funds to at least 25 percent of a fund’s total daily liquid assets, and at least 50 percent of a fund’s total weekly liquid assets.
• Remove a fund’s ability to impose temporary gates to suspend redemptions and remove the regulatory tie that permits money market funds to impose liquidity fees if their weekly liquid assets fall below a certain threshold.
• Require institutional prime and tax-exempt money market funds to impose mandatory liquidity fees when a fund experiences daily net redemptions that exceed 5 percent of net assets unless the fund’s liquidity costs are de minimis. In addition, non-government money market funds must impose a discretionary liquidity fee if the fund’s board (or its delegate) determines that a fee is in the best interest of the fund.
• Retail and government money market funds may handle a negative interest rate environment either by converting from a stable share price to a floating share price or by reducing the number of shares outstanding to maintain a stable net asset value per share, subject to certain board determinations and disclosures to investors.
• Modify certain reporting forms to reflect the amendments to the regulatory framework for money market funds.

The final rule will become effective 60 days after publication in the Federal Register. The reporting form amendments are effective June 11, 2024. The SEC has provided 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 will have twelve months after the effective date to comply with the mandatory liquidity fee provision.