This is my second attempt at the second in my series of posts analyzing the SEC’s recent proposal to require money market funds with floating share prices (“institutional money funds”) to implement “swing pricing” for pricing periods in which the fund has net redemptions. I removed some earlier posts because I am less sure how to interpret the proposed definition of a “swing factor.” This post explores the disparity between the proposed definition of a “swing factor” and the discussion of swing pricing in the proposing release.

On December 15, 2021, the SEC proposed amendments to the regulation (Rule 2a-7) governing money market funds.

The proposed amendments are intended to reduce run risk, mitigate the liquidity externalities transacting investors impose on non-transacting investors, and enhance the resilience of money market funds.”

The proposing release has not yet been published in the Federal Register, so we do not know when the sixty-day comment period will begin.

The most significant proposals would (1) eliminate the power of a money market fund’s board of directors or trustees (its “Board”) to temporarily suspend, or impose liquidity fees on, redemptions and (2) require money market funds with fluctuating net asset values per share (known as “institutional money funds”) to implement “swing pricing.” This post explains this swing pricing proposal.

This post continues my consideration of why certain “unfunded commitment agreements” should be carved out of the valuation at risk limitations of re-proposed Rule 18f-4. My previous post explained why two of the justifications offered for this carve out do not bear scrutiny. My current view is that the scope of the carve out depends on the third proposed justification: that some commitments may not have “leveraging effects.” This requires an understanding of the leveraging effects regulated by Section 18 of the Investment Company Act.

I will use the example of money market funds to explore “leveraging effects” because (a) it allows me to answer a question raised in the proposing release and (b) it illustrates another means of limiting leverage.

There are important changes to Rule 2a-7, Form N-MFP and Form N-CR that go into effect on April 14, 2016, and have nothing to do with fees, gates, retail shareholders or floating NAVs. At this point, every fund should be prepared to submit revised procedures to its board of directors for review. If you’re running

Yesterday, the SEC adopted what I hope will be the final amendments to Rule 2a-7 made during my career. For the first time in the history of Rule 2a-7, the SEC cut more than it added, reducing the length of the rule by over 12%. The amendments relate primarily to credit and diversification requirements, but also incorporate some of the staff’s FAQs on the 2014 reforms.