The Securities and Exchange Commission yesterday voted unanimously to propose rules to reform the money market fund industry. The overall goal is to make money market funds less susceptible to runs.
According to the SEC’s press release, “[t]he SEC’s proposal includes two principal alternative reforms that could be adopted alone or in combination. One alternative would require a floating net asset value (NAV) for prime institutional money market funds. The other alternative would allow the use of liquidity fees and redemption gates in times of stress. The proposal also includes additional diversification and disclosure measures that would apply under either alternative.” The SEC did not propose to adopt the minimum balance at risk proposal, endorsed here in an earlier blog post by Professor Jeffrey N. Gordon of Columbia Law School.
The need for money market fund reform arose after the Reserve Primary Fund “broke the buck” (i.e., violated the $1 NAV convention) at the height of the financial crisis in September 2008. Breaking the buck forces fixed NAV funds to liquidate.
The public comment period for the proposal will last for 90 days after its publication in the Federal Register.