Loading ...
Sorry, an error occurred while loading the content.
 

SEC Adopts New Money Fund Reporting Rule as Guaranee Expires

Expand Messages
  • Baker, John
    The Department of the Treasury has announced that its Temporary Guarantee Program for Money Market Funds will expire today as scheduled. The expiration was
    Message 1 of 1 , Sep 18, 2009
      The Department of the Treasury has announced that its Temporary Guarantee Program for Money Market Funds will expire today as scheduled. The expiration was expected, since today was the last day that the program could be extended and Section 131 of the Emergency Economic Stabilization Act of 2008 provides that the Secretary of the Treasury is prohibited from using the Exchange Stabilization Fund (which funded the Temporary Guarantee Program) for the establishment of any future guaranty programs for the United States money market mutual fund industry. The program was a marked success for Treasury, incurring no losses and earning Treasury approximately $1.2 billion in participation fees.

      The Securities and Exchange Commission announced today that it has adopted interim final temporary rule 30b1-6T, which requires any money market fund with a market-based net asset value per share that is less than 99.75% of its stable NAV or price per share to provide the SEC with portfolio schedules immediately and thereafter on a weekly basis. Release No. IC-28903 (Sept. 18, 2009). This essentially is a continuation of a similar requirement that applied to funds that participated in the Temporary Guarantee Program and whose market-based NAVs fell below that threshold. Based on its experience with the Temporary Guarantee Program, the SEC expects that at any given time about ten money market funds will be required to provide weekly reports.

      Some money market funds have capital support agreements in place, under which the investment adviser or an affiliate commits to provide capital support (essentially, a guaranty) to the extent necessary for the fund to maintain its market-based NAV at 99.50% or 99.75%. Under the rule's wording, it seems that funds with a 99.50% capital support agreement will have to file these portfolio schedules, while funds with a 99.75% capital support agreement will not. For funds that do file, the new rule requires funds to report the market-based price of each portfolio security, with and without the value of any capital support agreement.

      Information provided in the reports will be nonpublic to the extent permitted by law. However, according to unconfirmed reports, several money market funds have received calls from the SEC staff warning that their NAVs were below 99.75%, presumably based on their reports made pursuant to the Temporary Guarantee Program. The staff reportedly has advised that the funds must either increase their market-based NAVs or make appropriate disclosure. It is not immediately clear what the basis for the staff position would be.

      The new rule is immediately effective today, September 18, and expires on September 17, 2010. Comments are solicited and should be received on or before October 26, 2009. The SEC also indicates that it may at some point adopt new Form N-MFP, which was proposed as part of the SEC's money market fund reform package in June. Form N-MFP would require all money market funds to report much more detailed information about their portfolio holdings.

      The Treasury press release is at

      http://treas.gov/press/releases/tg293.htm

      The SEC release is at

      http://www.sec.gov/rules/final/2009/ic-28903.pdf

      For my most recent post on the Temporary Guarantee Program, see

      http://groups.yahoo.com/group/FundLaw/message/1231

      For a detailed analysis of the money market reform proposals, by Stradley Ronon lawyer Joan Swirsky, see

      http://www.stradley.com/newsletters.php?action=view&id=480


      John M. Baker <JMB@...>
      Stradley Ronon Stevens & Young, LLP http://www.stradley.com
      1250 Connecticut Avenue, NW, Suite 500
      Washington, DC 20036
      202.419.8413
      202.822.0140 fax
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw
    Your message has been successfully submitted and would be delivered to recipients shortly.