Brenden P. Carroll
Washington, D.C. +1 202 261 3458
Money market funds are subject to comprehensive regulation under the federal securities laws, primarily Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The Securities and Exchange Commission (SEC) has, over a period of more than thirty-five years, developed and refined a complex regulatory scheme designed to limit a money market fund’s underlying portfolio risk and impose strict operational and procedural requirements. Money market funds are also subject to specific disclosure, advertising and reporting rules that differ from those that apply to other registered investment companies.
Events during the 2008 financial crisis called into question whether money market funds should continue to be allowed to sell and redeem their shares at a stable $1.00 share price. In response to these events, the SEC adopted two rounds of sweeping amendments to Rule 2a-7 and the other rules that govern money market funds. These amendments—adopted in February 2010 (the “2010 Amendments”) and July 2014 (the “2014 Amendments”)—were generally intended to: (i) enhance the ability of money market funds to maintain a $1 share price in the face of severe market events, such as the market illiquidity in the fall of 2008 that threatened the ability of many money market funds to meet redemptions, and (ii) limit the systemic risk that money market funds are alleged to pose to the financial system because of certain features that may incentivize investors to redeem their shares during periods of market stress.
This chapter describes the laws and regulations governing money market funds in the wake of the 2010 and 2014 Amendments. However, as of the date of this publication, money market funds are not yet required to comply with the 2014 Amendments, including the requirement that institutional non-government money market funds sell and redeem their shares at a floating net asset value (NAV). The compliance dates for various components of the 2014 Amendments vary, ranging from July 14, 2015 to October 14, 2016. We have referenced these compliance dates below.
For more information, please visit the Practising Law Institute's website.