SEC Abolishes Institutional Stable Value Prime Funds
The SEC has adopted new money market fund rules that require a floating net asset value for institutional prime money market funds, allow liquidity fees and redemption gates, enhance diversification responsibilities, and add responsibilities to Boards. The new rules require all institutional money market funds to abandon the amortized cost method of accounting that maintains a stable $1.00 NAV and replace it with a floating rate NAV. The staff has excluded government funds (invests 99.5% of assets in government securities) and retail funds (limits owners to natural persons), which are still permitted to use amortized cost. In addition, the Board can impose liquidity fees and redemption gates if a fund’s liquid assets (cash, Treasuries, short-duration government bonds, and 7-day securities) fall below 30% of total assets. The new rules also increase diversification by eliminating the 25% basket and require Boards to determine credit quality.
OUR TAKE: The SEC has in effect eliminated the prime money market fund in favor of a short duration bond fund. Boards will need to consider the viability of their products in light of the new requirements.