After years of debate since the financial crisis, the U.S. Securities and Exchange Commission adopted reforms on Wednesday designed to protect the $2.6 trillion money market mutual fund industry from investor runs.
Below is a summary of the main reforms and some related measures in light of new structural changes for money funds.
FLOATING NET ASSET VALUE
*Prime funds, including institutional municipal funds, will be required to maintain a floating net asset value rounded to the fourth decimal place.
*Government and retail funds are exempt from this requirement; municipal tax-exempt funds are exempt if they meet the definition of "retail."
*Retail is defined as an account whose beneficial owner is an individual shareholder with a tax I.D. or social security number.
*Shareholders in funds with a floating NAV could measure net gains and losses for tax purposes without tracking transaction by transaction, under proposed guidance by the U.S. Treasury.
*Investors who do not use this simplified method will get full relief from "wash sale" tax rules.
*SEC's rules kick in after two years.
FEES & GATES
*Fund boards can charge liquidity fees up to two percent of all redemptions if weekly liquid assets fall below 30 percent, and would be required to charge one percent if it falls below 10 percent.
*Redemption gates could be lowered using the same threshold, and could only last for 10 business days.
*Money funds need to disclose quickly if weekly liquid assets fall below 10 percent.
*Government funds are exempt from fees and gates, but can opt in with proper disclosure.
*Rule takes effect in two years.
*Funds must disclose on their websites certain data including daily and weekly liquid assets.
*Funds must abide by new "material event" disclosures such as imposing fees and gates.
*They also must tell the public if they have received any fund sponsor support in last 10 years.
*The SEC will remove a 60-day delay in public reporting on portfolio holdings.
*Private large "liquidity" funds will be required to report more confidential data to the SEC, in an effort to monitor the market and make sure money from money funds does not migrate into less transparent funds.
*Money funds will face tougher diversification requirements in a number of areas.
*They will also face additional "stress testing" scenarios.
*Material disclosure rules will kick in after nine months; other reforms take effect after 18 months.
CREDIT RATING REFERENCES
*The SEC re-proposed an older measure required by the 2010 Dodd-Frank law to strip references to credit ratings out of money fund rules.
*Removal is designed to reduce investor reliance on ratings as a benchmark for credit quality.
*Instead of a rating, fund board would decide whether a security it invests in presents minimal credit risks.
(Compiled by Sarah N. Lynch in Washington; Editing by Grant McCool)