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(Article from Registered Funds Regulatory Update, January 2022)

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The SEC voted to propose amendments to certain rules governing money market funds. The proposed amendments are partly designed to address concerns about prime and tax-exempt money market funds that were brought to light in March 2020 when large outflows from money market funds contributed to the stress on the short-term funding markets. Specifically, the proposed amendments would:

• increase minimum liquidity requirements to provide a more substantial buffer in the event of rapid redemptions;
• remove provisions permitting or requiring money market funds to impose liquidity fees and redemption gates when a money market fund falls below certain liquidity thresholds, which would eliminate any incentives for preemptive redemptions;
• require institutional prime and institutional tax-exempt money market funds to implement swing pricing under certain circumstances, so that redeeming shareholders bear the liquidity costs of their redemptions; and
• enhance certain reporting requirements to improve the availability of money market fund information and the SEC’s ability to monitor and analyze money market fund data.

SEC Chair Gary Gensler noted that the proposed amendments “are designed to reduce the likelihood of runs on money market funds during periods of stress” and reduce incentives to redeem as liquidity levels decline.

The comment period will remain open for 60 days following publication in the Federal Register.

Money Market Fund Reforms, SEC Release No. IC-34441 (Dec. 15, 2021), available at https://www.sec.gov/rules/proposed/2021/ic-34441.pdf.