US SEC finalises money market fund reforms aimed at preventing rapid outflows

investmentweek.co.uk:

The SEC revealed it would not be pursuing a controversial 'swing pricing' rule, which was opposed by many asset managers.

Reforms to the sector came in response to the $800bn in redemptions prime money market funds saw at the start of the coronavirus pandemic in March 2020, when the Federal Reserve was forced to intervene.

In a statement yesterday (12 July), the SEC revealed it would not be pursuing a controversial «swing pricing» rule, which was opposed by many asset managers.

This pricing mechanism would have required funds to adjust the net asset value of withdrawals to reflect the costs of exit, preventing remaining investors from suffering as a result.

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«The SEC has realised that swing pricing is no panacea for money market funds,» said Alastair Sewell, liquidity investment strategist at Aviva Investors.

«With swing pricing ruled out, MMFs can continue to offer the basic utility function of daily liquidity to investors.»

The new rules increase minimum liquidity requirements for money market funds and remove existing provisions that permit funds to suspend redemptions temporarily through a gate and impose liquidity fees if their weekly liquid assets fall below a certain threshold.

Instead, institutional prime and institutional tax-exempt money market funds will be required to impose liquidity fees when a fund experiences daily net redemptions exceeding 5% of net assets, unless the fund's liquidity costs are too small.

Furthermore, any non-government money market funds will now be required to impose a discretionary liquidity fee if the board determines that a fee is in the best interest of the fund.

SEC chair Gary Gensler warned that money market funds