27 October 2014
The SEC, by a 3-2 vote, adopted amendments to Rule 2a-7 in July 2014. Rule 2a-7, the money market fund rule (the “Rule”), imposes quality, liquidity, and other requirements on any registered investment company that holds itself out to the public as a “money market fund” (“MMF”). The amendments are a continuation of the SEC’s efforts in reforming the Rule to better address liquidity and other related risks experienced by certain MMFs during times of stress, such as, for example, significant market events like the 2008 financial crisis, the subsequent 2011 Eurozone sovereign debt crisis, and the 2013 US government debt ceiling impasse. Although the SEC adopted amendments to the Rule in 2010, in which additional portfolio quality and liquidity restrictions were placed on MMFs, the Commission believed that further reform was needed, particularly when MMFs may face potential future periods of liquidity stress and/or high demand of redemptions.
In its Adopting Release, the SEC stated that the latest set of amendments are “designed to address [MMFs’] susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, their benefits.” Compliance with the various provisions of the amended Rule will be phased in during 2015 and 2016.