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SEC Money Market Reform FAQ

Frequently asked questions answered

Liquidity and cash management 17 Jul 2023 2 min read

Cash and Liquidity Management team

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What is SEC money market reform?

As stated by the U.S. Securities and Exchange Commission (SEC), these amendments are “designed to improve the resilience and transparency of money market funds”. These new rules impact all three categories of money market funds; retail, government, and institutional.

On Wednesday, July 12, 2023 the SEC voted 3-2 to amend rules governing how money market mutual funds are structured and may operate. The rules were last amended in 2016 to mitigate fund risk, enhance fund regulation and provide transparency for investors.

What caused the SEC to reform again since 2016?

The SEC originally proposed its reforms in December 2021 in response to the stresses experienced by money market funds in March 2020, when the onset of the COVID-19 coronavirus pandemic led to substantial redemptions, primarily from institutional prime money market funds. Adopting money market fund reform became a more significant policy priority for financial regulators both within and outside of the SEC following the stresses in the banking sector in early 2023.

When will the changes take place?

These reforms are not effective immediately. These changes will be subject to a lengthy implementation process, up to a year for some provisions, following the publication of the final rules in the Federal Register. We will keep you informed as we move through the phases of implementation.

What are the key changes to the SEC rules?

The key changes include; the minimum daily liquid asset requirement will be increased from 10% to 25% of a fund’s total assets. This provision does not apply to tax exempt funds. The minimum weekly liquid asset requirement will be increased from 30% to 50% of a fund’s total assets. The requirement to impose fees and/or gates on redemptions when a fund falls below these percentages is being removed.
Elimination of the language related to the temporary suspensions of redemptions. Money market funds will no longer be subject to what is commonly referred to as “gating” based on the fund’s level of weekly liquid assets. Institutional (FNAV) Prime and Tax-Free money market funds are required to charge a mandatory liquidity fee in certain circumstances. This liquidity fee will only be charged if the fund has total net redemptions that day which exceed 5% of the fund’s net assets and the estimate of the fund’s liquidity costs are not considered de minimis (.01% or greater). Only redeeming investors will be charged the liquidity fee which will be paid to the fund.
Retail (CNAV) Prime and Tax-Free money market funds are now required to impose a discretionary liquidity fee only if the board of the fund determines it’s in the best interest of the fund.
A new amendment addresses a potential negative interest rate environment. This allows a CNAV money market fund to reduce the number of its shares outstanding to maintain a stable share price, in addition to its existing ability to convert to a FNAV.

What is the difference between a “floating” NAV and a “constant” NAV?

A constant NAV (CNAV) refers to a money market fund’s ability to use the “amortized cost” and/or “penny rounding” method of pricing. In short, this enables money market funds to maintain a constant share price of $1.00 per share. With a floating NAV (FNAV), the share price fluctuates to reflect the daily market value of the underlying investments the fund owns. The fund’s NAV is expressed in a four decimal format (for example $1.0001). Institutional Prime and Tax Free money funds are mandated to have a FNAV.

How will these changes affect my �۶��Ƶ money market funds?

We continue to evaluate our existing liquidity management offerings and will provide updates over the next several months.

What funds are affected and why?

All money market funds are affected by some portion of the reform. The mandatory liquidity fees only impact institutional prime and tax-free funds.

Where can I learn more?

Please visit our on our website to keep up to date with the current situation. We will continue to provide updates as more information becomes available over the coming weeks and months.

What do I need to do?

No immediate action is required. Further decisions and clarifications are expected from the SEC, the IRS, and relevant accounting bodies, and we expect to provide additional updates as more information becomes available over the coming weeks and months.

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