LEGAL & COMPLIANCE: SEC Adopts Reforms to Prime Money Market Funds

The U.S. Securities and Exchange Commission approved a measure today to require prime money market funds to move from a stable $1 per share net asset value, to a floating NAV. The adopted rules (summarized in an attached document) will also allow fund boards to lower redemption “gates” and fees in times of market stress. Regulators say the new rules, adopted in a 3-2 vote, with Republican SEC Commissioner Michael Piwowar and Democrat Kara Stein dissenting, are designed to curb the risk of investor runs on money market funds. A run on one fund during the 2008 financial crisis nearly toppled the $2.6 trillion industry before the Treasury Department stepped in to backstop it.

Industry opponents argue that the changes will destroy the appeal of money funds for corporate and large institutional investors, who have come to rely on money market funds to manage cash. Additionally, opponents argue that the floating share price will result in complex tax reporting requirements for investors, unless tax rules regarding the recognition of gains and losses are changed or waived with respect to money market fund redemptions.

The SEC, in response to that criticism, said the Treasury Department and the Internal Revenue Service will release two types of tax guidance that will simplify the process for tracking gains and losses under the new floating share system. The new rules, which were just issued and are attached below, would allow floating net asset value (NAV) money market fund investors “to use a simplified tax accounting method to track gains and losses that could be used beginning today,” according to the SEC release.

“The proposed regulation will eliminate the need to track individual purchase and sale transactions for tax reporting purposes.” The second item to be issued, according to the SEC, is a revenue procedure providing “relief from the ‘wash sale' rules for any losses on shares of a floating NAV money market fund,” the commission said. 

FACT SHEET - Money Market Fund Reform

Treasury MMF Guidance