SEC approves new rules for money-market funds

The SEC on Wednesday adopted amendments to certain rules that govern money-market funds under the Investment Company Act of 1940 and proposed amendments to the Customer Protection Rule.

The amendments to the Investment Company Act are designed to improve the resilience and transparency of money-market funds by:

• Increasing minimum liquidity requirements to provide a more substantial buffer in the event of rapid redemptions;

• Removing provisions from the current rule that permit a money-market fund to temporarily suspend redemptions and removing the regulatory tie between the imposition of liquidity fees and a fund’s liquidity level;

• Requiring certain money-market funds to implement a liquidity fee framework that will better allocate the costs of providing liquidity to redeeming investors; and

• Enhancing certain reporting requirements to improve the SEC’s ability to monitor and assess money-market-fund data.

SEC Chair Gary Gensler said the adoption “will enhance these funds’ resiliency and ability to protect against dilution. Taken together, the rules will make money-market funds more resilient, liquid, and transparent, including in times of stress.”

The amendments will also modify certain reporting forms that are applicable to money-market funds and large private liquidity funds advisers.

The rule amendments will become effective 60 days after publication in the Federal Register with a tiered transition period for funds to comply with the amendments. The reporting form amendments will become effective June 11, 2024.

Customer Protection Rule

The SEC proposed enhancements to Rule 15c3-3 — the rule that protects a customer’s cash and securities held at a broker-dealer — to require certain broker-dealers to increase the frequency of the computations of the net cash they owe to customers and other broker-dealers from weekly to daily.

Net cash owed to customers and to the proprietary accounts of broker-dealers must be held in a special reserve bank account.

Gensler said the proposal would “help protect customers in the event that a broker-dealer fails. A key tenet of our securities laws is the segregation of customers’ cash and securities from a broker-dealer’s own account. Given the speed, scale, and volume of today’s market activity, I believe customers would benefit if broker-dealers carrying large credit balances made daily reserve account calculations and deposits. This frequency would better align with the inflows, swings, and balances that broker-dealers experience in today’s markets.”

The proposal is open for public comment for 60 days following publication on the SEC website or 30 days following publication in the Federal Register, whichever period is longer.

To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com