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.
Continue Reading Taking Another Swing at Swing Pricing

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.
Continue Reading Swing Pricing for Institutional Money Market Funds—What Is Proposed

In our previous post, we reviewed how the financial markets’ reaction to the COVID-19 pandemic requires mutual funds to review, and possibly reclassify, the liquidity of their investments. As liquidity and valuation are often two sides of the same coin, factors that may lead to reclassifying a security’s liquidity may also raise questions concerning how to value the security for purposes of calculating a mutual fund’s net asset value (“NAV”). This post discusses when this may be the case.
Continue Reading Navigating Mutual Funds in Rough Markets—Valuation


1. Inventory “relationship level” considerations in legal documentation that governs your derivatives trading relationships (ISDA Master Agreements, Futures Customer Agreements, Master Securities Forward Transaction Agreements, etc.)

a. Example: Decline in Net Asset Value Provisions (Common in ISDAs)

i. Identify the trigger decline levels and time frames at which transactions under the agreement can be terminated (25% over a 1-month period – is that measured on a rolling basis or by reference to the prior month’s end?)

ii. Confirm whether all or only some transactions can be terminated (typically, it is all transactions)

iii. Identify the notice requirements that apply when a threshold is crossed

iv. Identify whether the agreement includes a “fish or cut bait clause” that restricts the ability of the other party to designate the termination of the transactions under the trading agreement

Continue Reading Market Volatility Regulatory Outline for Asset Managers

On two separate days last week and again this morning, markets hit critical circuit breaker levels triggering U.S. exchanges to halt trading. Such large market declines remind us of the prospect of an early close if the S&P 500 falls more than 20% from the previous day’s close. If such an event occurs, open-end investment companies (“mutual funds”) will need to either (1) calculate their net asset values (“NAVs”) at the time of the early close or (2) find alternative pricing sources for calculating their NAVs as of 4:00 pm (ET). The options available will depend in part on the mutual fund’s prospectus disclosure.
Continue Reading Navigating Mutual Funds in Rough Markets—Preparing for an Early Close