The SEC has proposed its long awaited rule on money market funds. The rule was instigated as a result of the run on MMFs after the 2008 crisis, when many funds broke the buck. But rather than propose one type of MMF, the SEC’s proposed rule allows for two types of MMFs depending on their underlying investments.
The first, called an “institutional fund” because it’s expected to be used by corporate CFOs and invests primarily in corporate debt, would be allowed to have floating share prices like other mutual funds.
The second, known as “gate funds,” which invest primarily in government debt and are considered to be less risky, would allow a fund to charge a 2% redemption fee if liquid assets drop below 15% of total assets and to suspend redemptions for 30 days. There was no mention of requiring funds to raise more capital.
The full text of the proposed rule is here; a concise analysis by the American Benefits Council can be found here.
