The U.S. Securities and Exchange Commission (SEC) on Wednesday proposed long-awaited regulations -- including liquidity, redemption and pricing rule changes -- to improve the resilience and transparency of the roughly $5 trillion U.S. money market fund industry.
A critical source of short-term corporate and municipal funding, money market funds have been bailed out by the U.S. government twice in 12 years and are badly in need of reform, say industry critics.Money market funds invest in high-quality short-term debt instruments and offer daily redemptions. They are managed with the goal of ensuring price stability and immediate liquidity.
As the pandemic shut down the economy in March 2020, investors reallocated assets into cash and pulled more than $130 billion from some money market funds, contributing to stress in the short-term funding markets, the Treasury said. The panic was reminiscent of 2008 when a run on money market funds threatened to freeze up global markets and prompted the government to backstop the sector.
The agency has proposed changes to primarily address concerns about “prime” and tax-exempt money market funds, which are particularly susceptible to runs in times of stress.Currently, at least 10% of funds' total assets must be held in daily liquid assets, and at least 30% of total assets must be held in weekly liquid assets. The SEC is raising that to 25% and 50%, respectively.
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