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Business and Policy Areas
Business and Policy Areas

SEC Seeking Comments on Proposed Rules for Money Market Funds

June 12, 2013

Update: NACUBO submits comment letter to the SEC on Money Market Mutual Funds.

UPDATE: The comment deadline is September 17, 2013.

The Securities and Exchange Commission on June 5 proposed rules that would reform the way money market funds (MMF) operate. According to the Wall Street Journal, the money market mutual fund industry has $2.6 trillion under management. The long-awaited proposals are the result of intensely debated alternatives within the SEC and the federal government, and lobbying by the MMF industry.

The proposals distinguish between institutional prime funds and retail funds. The new proposals look at two alternatives that can be adopted in combination or individually. The first proposal is to transition to a floating net asset value (NAV) from a stable $1 per share for prime institutional money market funds. During the fiscal crisis in 2008, NAVs could not sustain the $1 per share price referred to as "breaking the buck". This dynamic led to a run on MMF holdings. Under the proposal, government and retail MMFs would be allowed to maintain a stable share price. The second proposal involves "liquidity fees and redemption gates" to limit run risk in a time of financial stress. Under this alternative, MMFs would continue to trade at a stable share price, but the liquidity fees and redemption gates would mitigate run risk.

Institutions are urged to weigh in on the proposed rule changes as college and university financial leaders have significant holdings in MMFs. Additionally, tax and accounting professionals are concerned that these changes could add to individual and institutional investors' administrative burden. The SEC Commissioners voted unanimously to open the plan for public comment for 90 days. After public comments are considered, commissioners will vote again to implement the proposed changes.

The comment deadline is September 17, 2013.


Bob Shea
Senior Fellow, Finance and Campus Management