SEC Proposes Money Market Fund Reforms
The SEC has proposed new money market fund rules. The SEC has proposed two alternative regulatory regimes, which it says could ultimately work together: (1) floating NAV for prime institutional funds (i.e. non-government securities funds that allow daily redemptions in excess of $1 Million per day) and (2) requiring funds to restrict redemptions and impose redemption fees if liquid assets fall below 15% of total assets. The floating rate proposal would require basis point rounding instead of penny rounding for calculating NAV. The other proposal would allow the board of directors some discretion in lifting redemption gates and fees. The SEC has also proposed additional holdings disclosure for both money market funds and private liquidity funds and heightened diversification requirements that eliminate currently permissible concentrations.
OUR TAKE: We still think the cry for money market reform is more political than economic as only one fund broke the buck and that was almost 5 years ago. Given the choice, we prefer the floating rate NAV over the alternative regime which may scare investors away.