Overview of the SEC’s Proposal to Amend Rules Governing Money Market Funds and Possible Impact on Compliance Professionals

The Securities and Exchange Commission (“SEC”) recently proposed amendments to Rule 2a-7 under the Investment Company Act of 1940 (the “1940 Act”) and other rules relating to money market funds (“money funds”). The Proposal included two alternatives that could be adopted separately or in combination. The first alternative would require “institutional” money funds to operate with a floating net asset value (“NAV”) (“Alternative 1”), and the second would require money funds (other than “government” money funds) to impose a 2% liquidity fee during times of stress and allow money funds to temporarily suspend redemptions during such times (“Alternative 2”). The SEC also proposed additional reforms to be adopted under either Alternative, including more stringent disclosure, diversification and stress testing requirements.

If adopted, the Proposal would not only have a tremendous impact on the money fund industry, but also on chief compliance offcers (“CCOs”) and other compliance professionals of money funds and their investment advisers and distributors. This article will (i) review the Proposal and (ii) discuss potential issues for CCOs and compliance professionals.