SEC overhauls money-market fund rules to thwart rapid outflows
Money-market funds are getting their biggest rules overhaul in years after Wall Street’s top regulator finalized rules to stem rapid outflows during times of financial stress.
The Securities and Exchange Commission decided Wednesday to require fees that will significantly affect parts of the $5.5 trillion industry. However, the regulator won’t require “swing pricing” for the funds after fierce pushback from the industry.
The new rules are meant to discourage runs like the one in March 2020 and shield remaining shareholders from costs tied to the high level of redemptions. After the pandemic’s onset roiled markets, the Federal Reserve was forced to step in to rescue money-market funds for the second time in 12 years, leading to calls for the SEC to impose tougher regulations.
Under the finalized regulations, some funds will face mandatory liquidity fees after the final rule was approved by three of the commission’s five members. The fees would kick in after a one-year implementation period for institutional prime and institutional tax-exempt funds when daily redemptions surpass 5% of net assets.
“I believe that liquidity fees, compared with swing pricing, offer many of the same benefits and fewer of the operational burdens,” SEC Chair Gary Gensler said. Taken together, the new rules will make money-market funds more resilient, he added.
Swing pricing is essentially a fee imposed on investors redeeming shares in money-market funds by adjusting a fund’s net asset value. Mass redemptions can increase costs to a fund and dilute remaining shareholders’ assets.
The mechanism is widely used in Europe. The SEC proposal in December 2021 would have made the measure mandatory, specifically for institutional prime and
Read more on investmentnews.com
