On July 23, 2014, the Securities and Exchange Commission (SEC) approved amendments upon reforms adopted in March 2010, to govern money market mutual funds and make structural and operational reforms to minimize possible liquidation risks of investor runs in money market funds and yet preserve the true benefits of these money market funds. When the SEC originally adopted the amendments in 2010, it recognized that the 2008 financial crisis raised questions of whether more fundamental changes to money market funds might be warranted.
SEC Chair Mary Jo White stated, “Today’s reforms fundamentally change the way that money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system.”
This amendment now requires, for institutional prime money market funds, a floating net asset value (NAV), which provides for the daily valuation of these funds to fluctuate based upon the changes in the market value of fund assets. With a floating NAV, the funds are required to value their portfolio securities using market factors and sell/redeem shares based on a floating NAV. These funds no longer will are permitted to use the special pricing and valuation conventions that were currently permitted and allowed them to maintain a constant value of $1.00 per share.
The amendment also provides non-government money market fund boards new tools – liquidity fees and redemption gates – to address investor runs. With these liquidity fees and redemption gates, the boards now have the ability to impose fees and gates during periods of liquidity stress.
These rules also include the permission of an enhanced diversification, additional required disclosures and stress testing requirements, as well as updated reporting by private investment funds, which operate like money market funds.
“Together, this strong reform package will make our markets more resilient and enhance transparency and fairness of these products for America’s investors.” White further stated.
There is a two-year transition period for these to give both the funds and investors time to adjust their systems, operations and investing policies.
For more information, please contact Charles A. Oshurak, Audit Advisory Senior Manager, within the Schneider Downs Audit and Assurance practice. To learn more about the services we provide to public companies and the PCAOB, visit our webpage!
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