The rules are intended to safeguard funds from a “run by investors” and protect the market from the drama that unfolded in 2008, when the large money market fund the
In the days that followed, nearly
The SEC’s plan calls for two alternative proposals that the
The first alternative would require institutional prime money market funds to float their net asset value (NAV) but certain kinds of institutional investors are subject to guidelines or restrictions that would discourage or prevent them from using floating NAV products for managing their short-term cash holdings.
The second alternative would permit money market funds to continue transacting at a stable
Typically, MMFs strive to keep their share prices stable at
Under the second alternative, a fund’s board would also be permitted to suspend redemptions temporarily — that is, to “gate” the fund — if the 15% liquidity threshold is crossed.
Each alternative calls for several significant disclosure enhancements, such as requiring a fund to disclose any sponsor support it receives, to disclose its liquidity in more detail, and to disclose additional information about its portfolio holdings.
Other disclosures would explicitly warn that investors can lose money when investing in a money market fund. Under the fees and gates alternative, although a fund’s NAV would not float, a fund would have to disclose its market-based “shadow” NAV on a daily basis, a practice that many funds have already begun.
“As we have long maintained, any proposal to make money market funds even more resilient must be judged against two principles,” said
A spokesperson at the ICI said that it was still too early to determine what impact the new rules could have on ABCP investments.
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