US SEC’s Proposal to Amend Rules Governing Money Market Funds: Implications for Boards

September 27, 2013

The U.S. Securities and Exchange Commission (“SEC”) has proposed sweeping amendments to Rule 2a-7 under the Investment Company Act of 1940 (“1940 Act”) and other rules relating to money market funds (“money funds”).1 The Proposal included two main alternatives, to be adopted separately or in combination: (1) requiring “institutional money funds” to operate with a floating net asset value (“NAV”), rounded to the fourth decimal place (e.g., $1.0000) (“Alternative 1”), and/or (2) requiring money funds (other than government money funds) to impose a two percent liquidity fee during times of stress and allowing them temporarily to suspend redemptions using “redemption gates” during such times (“Alternative 2”). The SEC also proposed additional reforms to be adopted under either Alternative, including more stringent disclosure, diversification, reporting and stress testing requirements.

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