The Securities and Exchange Commission on Wednesday unanimously agreed to propose reforms for money market funds to make them less susceptible to runs, such as those that occurred in 2008 when Reserve Primary Fund "broke the buck" and investors pulled $300 billion from other prime money market funds.
All told, money market funds currently hold nearly $3 trillion in assets, the majority of which are in institutional funds.
The proposed reforms consist of two alternatives:
• The first would require that all institutional prime money market funds operate with a floating net asset value (NAV), instead of the current stable NAV.
• The other would allow money market funds to use a stable NAV, but it would require them to impose a 2% liquidity fee if the fund's weekly liquid asset level fell below 15% of total assets, unless the fund's board determined this was not in the best interest of the fund. After falling below the 15% weekly liquid asset threshold, the fund's board also would be able to temporarily suspend redemptions in the fund for up to 30 days. In other words, they would "gate" the fund. Government money market funds would be exempt from this requirement.
A government money market fund would be defined as any money market fund that holds at least 80% of its assets in cash, government securities, or repurchase agreements collateralized with government securities.
Paul Schott Stevens, president and chief executive officer CEO of the Investment Company Institute, issued the following statement in response to today’s vote by the SEC: “We commend the Commission for the extensive research and discussion that the Chairman, Commissioners and staff have devoted to examining money market funds in recent months. We are particularly pleased that the Commission recognized the effectiveness of liquidity fees and gates in addressing risks that might arise in a widespread crisis. We also welcome the inclusion of fees and gates as a standalone option in the proposal.