You may have heard or read about a recent change in money market funds. As an individual, it’s not likely to have an impact on you. However, the changes are substantial for organizations and it helps to understand what’s happening.
On July 24, 2014, the Securities and Exchange Commission (SEC) put the following into effect:
- Institutional money market mutual funds will have floating share prices instead of the stable $1 share price that has been present. Retail funds (for individuals) and government funds will maintain the $1 share price.
- If the fund’s liquidity drops below 30% of total assets, a fee can be charged (up to 2%) to discourage shareholder redemptions. This fee, and the rules that follow, will only be assessed if it’s in the best interest of the fund.
- A gate will also be imposed on funds with liquidity below 30%. This gate suspends redemptions, but will lift within 10 business days. A gate will not be imposed for more than 10 business days in any 90-day period.
- If the fund’s liquidity drops below 10%, a 1% fee must be charged.
So I’m Not Affected?
Because retail funds for individuals and government funds remain stable, it’s not likely the average person will notice anything. Small businesses and larger corporations typically invest in these institutional funds, and they will be affected.
When Does This Go Into Affect?
It will take up to 2 years for all regulations to be in place.
Why is this happening?
To protect the funds. Mary Jo White, SEC chairwoman, said: “Today’s reforms fundamentally change the way that money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system. Together, this strong reform package will make our markets more resilient and enhance transparency and fairness of these products for America’s investors.”