SEC Adopts Significant Money Market Fund Reforms; Enhances Private Liquidity Fund Reporting on Form PF

The Securities and Exchange Commission, by a vote of 3 to 2, approved significant changes to Rule 2a-7 and other rules that govern money market funds under the Investment Company Act of 1940 on July 12, 2023. Among other things, the SEC:

• adopted a new mandatory liquidity fee framework under Rule 2a-7 for institutional prime and institutional tax‑exempt money market funds in lieu of the proposed swing pricing framework;
• removed the redemption gate framework from Rule 2a-7, while preserving the discretion to impose liquidity fees for non-government money market funds (without regard to weekly liquid asset levels);
• substantially increased the required minimum levels of daily and weekly liquid assets for all money market funds;
• enabled stable net asset value money market funds to institute a reverse distribution mechanism or similar “share cancellation” mechanisms during a negative interest rate environment to maintain a stable $1.00 NAV per share; and
• enhanced the reporting requirements of registered money market funds on Form N-MFP as well as SEC‑registered investment advisers to private liquidity funds on Form PF.

These rule changes, which represent the most notable effort by the SEC to reform the money market fund industry since the series of reforms it adopted following the 2007-2008 financial crisis, will impact money market funds in several ways and raise potential issues for boards of directors, service providers, intermediaries and investors. In addition, these changes will likely have commercial implications for institutional money market funds that strike their NAVs at multiple times per day and/or offer same-day settlement.