The Securities and Exchange Commission is in the process of updating its regulatory rules on money market mutual funds. These funds invest in high-quality and short-term debt instruments, such as Treasury bills and commercial paper. Over the past 30 years, money market funds have become a very popular investment vehicle for both individual and institutional investors, offering yields that are higher than interest-bearing bank deposit accounts. Currently, money market funds hold more than $3 trillion in investor assets.
Shares of money market funds are priced at a fixed net asset value during each trading day, an amount that is typically $1 per share. During the recent financial crisis, several money market funds faced liquidity problems after the bankruptcy of the Lehman Brothers investment bank on September 15, 2008. One of these funds, The Reserve Primary Fund, experienced a run on its shares and could not meet its redemption requests from investors. On September 16, 2008, the Fund announced that it would "break the buck" by pricing its net asset value for the day at $0.97 a share. This action caused the SEC to issue an order permitting the Fund to suspend redemptions and begin an orderly process to liquidate the Fund.
To assist money market funds with similar liquidity problems, the Treasury Department established a temporary program in the fall of 2008 to guarantee deposits in individual fund accounts until the financial crisis was over. Many mutual funds enrolled in this voluntary program.
In June 2009, the SEC released for public comment several regulatory proposals to reform its money market rules. These proposals were finalized by the SEC in February 2010, and the agency announced that it would begin a second round of rulemaking on money market funds, to make further changes to its regulatory framework.
In the fall of 2010, the President's Working Group on Financial Markets issued a report proposing several wide-ranging regulatory reforms to reduce the susceptibility of money market funds to "liquidity runs." The SEC asked for public comments on this report and the regulatory options presented.
CMFI has submitted several comment letters on the proposals issued by the SEC and the President's Working Group to amend federal money market rules. It is expected that the SEC will propose additional rule changes for public comment before the end of 2011. Click on the tabs for Documents, Comments, and Blog Entries to track the latest developments.