The Securities and Exchange Commission today adopted amendments to rules governing money market funds, removing from the final version provisions that were opposed by the American Bankers Association, including a swing pricing mandate and a prohibition on fixed-net asset value MMFs’ use of a reverse distribution mechanism when market conditions produce negative fund yields.
According to the SEC, the amendments will increase the minimum liquidity requirements for MMFs to at least 25% of a fund’s total assets in daily liquid assets and at least 50% of a fund’s total assets in weekly liquid assets. In an ABA-supported move, the amended rule removes MMFs’ ability to impose liquidity fees and redemption gates. In place of the swing pricing requirement, the final rule will require institutional prime and institutional tax-exempt MMFs to impose mandatory liquidity fees when the fund experiences daily net redemptions that exceed 5% of net assets, unless the fund’s liquidity costs are de minimis. In addition, retail and government MMFs may handle a negative interest rate environment either by converting from a stable share price to a floating share price, or by reducing the number of shares outstanding to maintain a stable net asset value per share (for example, use of an RDM), subject to certain board determinations and disclosures to investors.
The changes take effect 60 days after publication in the Federal Register, with reporting form amendments going into effect on June 11, 2024. MMFs will have 12 months after the effective date to comply with the amended rule’s mandatory liquidity fee provision. A six-month transition period will apply for certain other amendments, including the minimum portfolio liquidity requirements and discretionary liquidity fee provision.