Update: Money Market Reform

Michele Mirabella
Research Analyst

On June 5, 2013, the commissioners of the Securities and Exchange Commission (SEC) voted unanimously in favor of issuing a formal proposal for further regulation of money market mutual funds. A Notice of Proposed Rulemaking that details the proposed changes will be posted on the SEC website and published in the Federal Register, the daily journal of the U.S. Government. As expected, there will be a 90-day comment period so that industry participants, investors and other interested members of the public can provide their viewpoints on the proposed changes.

In summary, the proposal includes two principal alternative reforms1:

Alternative One: Floating Net Asset Value (NAV)—Prime institutional money market funds would be required to transact at a floating NAV, not at a $1.00 stable share price. Government money market funds and retail money market funds would be exempt.

Alternative Two: Liquidity Fees and Redemption Gates—Money market funds would continue to transact at a stable share price, but would be able to use liquidity fees and redemption gates in times of stress. A 2% liquidity fee would be imposed if the “weekly liquid assets” of a fund were to fall below half of the required 30% of its total assets. The board of directors could also impose a temporary suspension of redemptions. Government money market funds would be exempt. However, these funds could voluntarily opt into this requirement.

Additional Measures—Additional diversification and disclosure measures would apply under either alternative. Namely, enhanced disclosure requirements, elimination of the current 60-day delay on public availability of the information filed on Form N-MFP, improved private liquidity fund reporting, stronger diversification requirements and enhanced stress testing.

The SEC indicated that it will consider whether to combine the two principal alternatives of the floating NAV and the liquidity fees and gates proposal into a single reform package. If adopted in that form, prime institutional money market funds would be required to transact at a floating NAV, and all nongovernment money market funds would be able to impose liquidity fees or gates in certain circumstances.

It’s important to keep in mind that this is a just a proposal, just one step in the lengthy rulemaking process. The commissioners and SEC staff may spend many months after the close of the comment period evaluating the remarks received and refining any proposed regulation. To approve any final rulemaking, a majority of the commissioners must vote in favor of the rule at a public meeting announced in advance. Typically, any rule that requires changes in processes specifies an effective date, which may be gradually phased in over many months, if not years.

Western Asset continues to be interested in any regulatory proposals that could impact money market funds and will monitor the situation closely as it evolves.

  1. Fact Sheet Reforming Money Market Funds, SEC Open Meeting, June 5, 2013.
© Western Asset Management Company, LLC 2018. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.