SEC amends Investment Company Act money market governance

The Securities and Exchange Commission (SEC) last week adopted amendments to certain rules governing money market funds under the Investment Company Act of 1940.

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“Money market funds – nearly $6 trillion in size today – provide millions of Americans with a deposit alternative to traditional bank accounts,” SEC Chair Gary Gensler said. “Money market funds, though, have a potential structural liquidity mismatch. As a result, when markets enter times of stress, some investors – fearing dilution or illiquidity – may try to escape the bear. This can lead to large amounts of rapid redemptions. Left unchecked, such stress can undermine these critical funds.”

Gensler said he supports the adoption because it will enhance the funds’ resiliency and ability to protect against dilution.

“Taken together, the rules will make money market funds more resilient, liquid, and transparent, including in times of stress,” he said. “That benefits investors.”

The rule amendments will become effective 60 days after publication in the Federal Register – with a tiered transition period for funds to comply with the amendments.

The reporting form amendments will become effective June 11, 2024.

According to the SEC, the amendments will increase minimum liquidity requirements for money market funds to provide a more substantial liquidity buffer in the event of rapid redemptions while removing provisions in the current rule permitting a money market fund to suspend redemptions temporarily through a gate and allow money market funds to impose liquidity fees if their weekly liquid assets fall below a certain threshold.