SEC seeks money market reforms

In response to the market stress that arose when the pandemic first hit in early 2020, the U.S. Securities and Exchange Commission (SEC) proposes reforms designed to shore up the money market fund sector.

The SEC voted to propose a series of rule changes to address the liquidity issues that afflicted money market funds at the time.

“In March 2020, growing economic concerns about the impact of the Covid-19 pandemic led investors to reallocate their assets into cash and short-term government securities,” the SEC said in a release. “Prime and tax-exempt money market funds, particularly institutional funds, experienced large outflows, which contributed to stress on short-term funding markets.”

Among other things, the proposals would increase liquidity requirements for money market funds, remove provisions that allow funds to impose liquidity fees or to suspend redemptions when a fund’s liquidity drops below a certain threshold, and require certain funds to adopt policies that impose the liquidity cost of redemptions on investors.

The proposals would also increase regulatory reporting requirements to enhance the SEC’s ability to monitor money market funds.

“Together, these amendments are designed to reduce the likelihood of runs on money market funds during periods of stress,” said SEC chairman, Gary Gensler, in a release.

“They also would equip funds to better meet large redemptions, addressing concerns about redemption costs and liquidity,” he said.

The proposals will be published for a 60-day public comment period in the Federal Register.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.