Donohue Says that Money Market Fund Reform Should Emphasize Liquidity
In a recent speech, Andrew Donohue, Director of the SEC’s Division of Investment Management, called for a “review of the money market fund model and its regulatory regime.” He explained that money market funds have the twin goals of providing liquidity and preserving capital. However, he explained that Rule 2a-7’s focus on credit quality, maturity, and diversification are “geared more toward preserving capital” and maintaining a $1.00 NAV. He continued, “Liquidity, on the other hand, has not been a particular focus of our money market fund regulations.” He noted that during times of constrained liquidity, it is difficult to sell even the highest quality instruments at amortized cost.
OUR TAKE: Mr. Donohue seems to be laying the groundwork for a new or alternative money market fund regime with liquidity as its primary goal. Such a regime may move away from amortized cost valuations and a stable $1.00 NAV.