May 15, 2021

Volume XI, Number 135

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May 13, 2021

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SEC Requests Comments on Potential Money Market Fund Reform Options

On February 4, 2021, the SEC published a request for public comment on potential reform measures to improve the resilience of money market funds, including reforms highlighted in the December 22, 2020 report of the President’s Working Group on Financial Markets (the Report). The Report observed that, despite prior reforms in 2010 and 2014 intended to make money market funds more resilient to credit and liquidity stresses, money market funds experienced, and began to contribute to, general stress in short-term funding markets in March 2020 amid economic concerns related to the onset of the COVID-19 pandemic. The Report concluded that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt money market funds will lead to or exacerbate stresses in short-term funding markets. The Report discussed the following potential reform measures to improve the resilience of prime and tax-exempt money market funds and broader short-term funding markets, but did not endorse any specific measure:

  •  Removing the tie between money market fund liquidity and fee and gate thresholds;

  • Reforming rules regarding redemption gates;

  • Instituting a “minimum balance at risk” to internalize the liquidity costs of investors’ redemptions, thereby reducing the first-mover advantage for redeeming investors;

  • Changing the liquidity management requirements, such as by creating new liquidity tiers;

  • Creating countercyclical weekly liquid asset requirements;

  • Requiring floating NAVs for all prime and tax-exempt money market funds;

  • Requiring swing pricing;

  •  Requiring capital buffers;

  • Creating and requiring membership in a “Liquidity Exchange Bank”; and

  • Requiring explicit fund sponsor support.

The SEC is requesting public comment on the Report, including the effectiveness of the previously-enacted money market fund reforms and of implementing the potential reform measures described in the Report.

The SEC’s request for comment is available here.

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© 2021 Vedder PriceNational Law Review, Volume XI, Number 110
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About this Author

John Marten Investment Attorney Vedder Price Law FIrm
Shareholder

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal Investment Attorney Vedder Price Law Firm
Counsel

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
Jacob Tiedt,Vedder Price law firm investment services attorney
Shareholder

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

312-609-7697
Mark Quade Investment Attorney Vedder Price Chicago
Associate

Mark Quade is an associate in Vedder Price’s Chicago office and a member of the firm’s Investment Services practice group.

Prior to joining Vedder Price, Mr. Quade served as a 1940 Act attorney and assistant vice president at a mutual fund service provider in Milwaukee, Wisconsin. There, he provided legal support to a registered open-end multiple series trust and its board of trustees, and he also supported proprietary mutual funds. Among other matters, Mr. Quade facilitated investment advisory agreement approval and renewal processes, prepared and reviewed board meeting materials...

312 609 7515
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