"Effective Date for Money Market Fund Reforms Arrives: Implications for Funds, their Boards and Advisers"

As of today, the long-anticipated and hotly-debated amendments to rules under the Investment Company Act of 1940 and related requirements that govern money market funds are effective.  Although these amendments are now effective, their compliance dates (i.e., the dates funds must begin complying with the new rules) vary, and range from nine months to two years from today.  It is imperative for sponsors and boards of money market funds to utilize this compliance period to develop an operational and oversight process to transition money market funds to the new regulatory regime. 

This Stroock Special Bulletin provides an overview of the amendments adopted by the SEC, including the requirements for institutional prime money market funds to "float" their net asset value per share and develop an infrastructure to impose liquidity fees or temporary gates in times of market and/or fund stress by October 14, 2016.  This Bulletin discusses those requirements in detail and also highlights potential implications, operational issues and compliance matters that likely will arise for those funds, their boards and advisers.  The operational and compliance implications of these rule amendments for money market funds seeking to qualify as "government money market funds" or "retail money market funds" under amended Rule 2a-7, as well for specialized money market funds, also are discussed, with certain issues being identified and possible solutions proposed.

In addition, the Bulletin focuses on the various adopted rules and rule amendments that, starting in July 2015, will expand reporting by all money market funds, including new Form N-CR and amendments to Form N-MFP and Form PF, and increase required disclosure on fund websites (e.g., real-time disclosure of net asset value, fund liquidity levels and sponsor support) and in fund offering materials (e.g., prospectuses and advertisements).  The Bulletin also discusses the amendments to Rule 2a-7 that further tighten the rule's diversification requirements and revise its stress testing requirements, and summarizes related SEC proposals, including re-proposed amendments concerning the use of credit ratings in Rule 2a-7.

Finally, the Bulletin addresses the SEC's recent guidance, which applies to all registered funds as well as business development companies, concerning the fair valuation of portfolio securities.  While on its face, this guidance does not appear to significantly alter the SEC's historical guidance, funds and their boards should review their valuation policies and also consider whether they need to change or enhance their oversight of third-party pricing services.