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SEC Adopts New Money Market Fund Rules

July 23, 2014

As anticipated, today the SEC adopted amendments to its money market mutual fund rules. Although the adopting release and text of the new rules has yet to be published, the SEC’s press release summarizing the new rules notes that the new rules will:

  • Require a floating net asset value (“NAV”) for institutional prime money market funds;
  • Provide non-government money market fund boards with the ability to impose fees and redemption gates to address possible investor runs;

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  • Include enhanced diversification, disclosure and stress testing requirements, as well as updated reporting by money market funds and private funds that operate like money market funds;
  • Provide a two-year transition period.

Concurrent with the adoption of the new rules, the SEC proposed exemptions from certain confirmation requirements for transactions effected in shares of floating NAV money market funds. Additionally, the SEC re-proposed amendments to the Commission’s money market fund rules and Form N-MFP to address provisions that reference credit ratings. The re-proposed amendments would implement section 939A of the Dodd-Frank Act, which requires the Commission to review its rules that use credit ratings as an assessment of credit-worthiness, and replace those credit-rating references with other appropriate standards.

The rule amendments will be effective 60 days after their publication in the Federal Register, and the re-proposal will have a 60-day public comment period following its publication in the Federal Register.

To address the tax reporting and compliance issues which may result from the SEC’s floating NAV requirement, the Treasury Department issued proposed new guidance that would allow money market fund investors to use a simplified tax accounting method for determining gains and losses, which will eliminate the need to track individual purchase and sale transactions for tax reporting purposes. It has also released a new revenue procedure that provides relief from the “wash sale” rules for any losses on shares of a floating NAV money market fund. Although the Treasury Department guidance is proposed and not final, shareholders in floating NAV money market funds can rely on these proposed regulations and may begin using the simplified method.  Read the Treasury Department Press Release.

 

 

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