The US Securities and Exchange Commission (SEC) has approved stricter regulations for the nation’s nearly $3 trillion money-market mutual fund industry in order to make them less susceptible to runs that could harm investors.
In a 5-0 vote, SEC commissioners adopted two proposals that could either be enacted individually or combined in a hybrid oversight package after investors comment.
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The first piece would require prime funds used by institutional investors to transition from a stable, $1 per share, to a floating net asset value (NAV).
The SEC said that retail and government funds, which are not considered to be at the same risk for runs, would not have to move to a floating NAV. Retail funds are defined as those that limit shareholder redemptions to $1 million per day.
The second proposal would set a new 2% fee for investor withdrawals from funds whose liquid assets fall to less than the required amount. Directors of such funds would also be able to impose a temporary ‘gate’ that blocks investor redemptions for up to 30 days in any 90-day period.
The SEC began evaluating the need for money market fund reform after the Reserve Primary Fund ‘broke the buck’ at the height of the financial crisis in September 2008.
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By GlobalData"Our goal is to implement effective reform that decreases the susceptibility of money market funds to runs and prevents events like what occurred in 2008 from repeating themselves," said Mary Jo White, Chair of the SEC.
The changes are now open for three months of public comment after which approval will require another vote.
