SEC Adopts Reforms for Money Market Funds and Amendments to Form PF Reporting by Large Liquidity Fund Advisers

July 17, 2023

What happened?

On July 12, 2023, the SEC adopted amendments to Investment Company Act rules regarding money market funds and large private liquidity fund advisers. The amendments will be effective 60 days after publication in the Federal Register.

While the adopted amendments abandoned the swing pricing requirements in the proposal, it includes other provisions that are “designed to reduce the risk of investor runs on money market funds during periods of market stress,” according to the SEC’s press release.

The new amendments include the following requirements, among others, applicable to money market funds and liquidity fund managers.

Money Market Funds. The adopted amendments will bring the following changes to money market funds, among others:

• Increase minimum liquidity requirements to at least a) 25% “of a fund’s total assets in daily liquid assets” and b) 50% “of a fund’s total assets in weekly liquid assets.” Funds must comply with these amendments within six months of effective date.
• Forbid funds from a) placing temporary gates to suspend redemptions, and b) imposing liquidity fees if their weekly assets fail to meet a certain threshold.
• Require institutional prime and institutional tax-exempt money market funds to maintain mandatory liquidity fees if the fund’s daily net redemptions exceed 5 percent of its net assets, “unless the fund’s liquidity costs are de minimis.” Funds must comply with this amendment within 12 months of the effective date.
• Requires non-government money market funds to implement a discretionary liquidity fee if its board or a delegate determines that such a fee is in the fund’s best interest. Funds must comply with this amendment within six months of the effective date.

Private Funds. For large liquidity fund advisers (typically “SEC-registered advisers that advise at least one liquidity fund and manage, collectively with their related persons, at least $1 billion in combined liquidity fund and money market fund assets”), the SEC adopted amendments to Form PF that require additional information on any liquidity funds that they advise. These amendments will become effective on June 11, 2024. The amended Form PF will include the following reporting requirements, among others, for these advisers:

• Whether the liquidity fund aims to maintain a stable price per share (and if so, the price it aims to maintain).
• When reporting fund assets and portfolio information regarding repo collateral, required reporting of cash separately from other categories.
• Additional investment categories and identifying information on each portfolio security.
• Clearing information for repos; advisers may still aggregate “certain information” if more than one security of an issuer is subject to a repo.
• Total gross subscriptions and redemptions for each month of the reporting period.
• Whether a creditor is a) based in the US, and b) whether it is a “US depository institution” or a “US financial institution.”
• For each investor that beneficially owns at least 5% of the reporting fund’s equity, reporting of a) the type of investor, and b) the percent of the fund’s equity they own.
• Whether the fund is established as a cash management vehicle.
• Information on portfolio securities that the fund sold or disposed of.
• Revised definitions of “WAM” and “WAL;” these must be calculated using the dollar-weighted average based on “the percentage of each security’s market value in the portfolio.”

What does this mean for me?

The industry will be pleased that swing pricing was dropped from the amended rule, though new mandatory fees and the de minimis threshold may still bring legal challenges. For Form PF, this is in keeping with the commission’s trend of wanting more information. We will continue to monitor this and other regulatory actions as the commission continues its record-breaking pace of new rulemaking.

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