SEC adopts reforms to money market funds

Money market funds should hold a larger portion of their holdings in securities that can be liquidated within one to five business days, providing a buffer in case of rapid redemptions.

The measures come after investors bailed out of some money market funds that surged in the early stages of the Covid-19 pandemic, stressing short-term funding markets that required intervention in government. A similar trend occurred during the 2008 financial crisis.

Money market funds now have nearly US$6 trillion in assets, the regulator said.

SEC chair Gary Gensler said in a statement Wednesday that the gates may have encouraged a run in March 2020, and that banning the practice “could remove incentives for preemptive redemptions.”

The rules will also require funds that serve institutional investors (institutional prime and institutional tax-exempt money market funds) to impose liquidity fees when such investors redeem during times of market stress. Generally, a redemption fee applies if a fund experiences daily net redemptions of more than 5% of net assets.

“Such fees help ensure that in times of stress, redeeming investors rather than remaining investors bear the cost of redemptions,” Gensler said.

Liquidity fees replace the originally proposed “swing pricing,” which was opposed by the fund industry.

The changes will take effect 60 days after publication in the federal register with a phased transition to follow the funds.

In Canada, the Office of the Superintendent of Financial Institutions is reviewing banks’ liquidity adequacy requirements to consider whether new categories of wholesale funds are needed to address risks from products such as ETFs. have high interest in savings account.