SEC Approves Money Market Fund Reforms to Better Protect Investors
The Securities and Exchange Commission today adopted new rules designed to significantly strengthen the regulatory requirements governing money market funds and better protect investors.
The financial crisis and the weaknesses revealed by the Reserve Primary Fund's "breaking the buck" in September 2008 precipitated a full-scale review of the money market fund regulatory regime by the SEC. A money market fund "breaks the buck" when its net asset value falls below $1.00 per share, meaning investors in that fund will lose money. The SEC's new rules are intended to increase the resilience of money market funds to economic stresses and reduce the risks of runs on the funds by tightening the maturity and credit quality standards and imposing new liquidity requirements.
The new rules also would enhance disclosures to investors by, among other things, requiring the posting on a delayed basis of a fund's "shadow" net asset value (NAV) rather than the stable $1.00 NAV at which shareholder transactions occur. This information enables the SEC and money market fund investors to better assess the risk profile of a fund and acclimates investors to the idea that funds may not always maintain a stable $1.00 share value.
"These new rules will have substantial benefits for investors and are an important first step in our efforts to strengthen the money market regime," said SEC Chairman Mary L. Schapiro. "These rules will help reduce risks associated with money market funds, so that investor assets are better protected and money market funds can better withstand market crises. The rules also will create a substantial new disclosure regime so that everyone from investors to the SEC itself can better monitor a money market fund's investments and risk characteristics."
Further Restricting Risks by Money Market Funds
Improved Liquidity: The new rules require money market funds to have a minimum percentage of their assets in highly liquid securities so that those assets can be readily converted to cash to pay redeeming shareholders. Currently, there are no minimum liquidity mandates.
The rules would further restrict the ability of money market funds to purchase illiquid securities by:
Higher Credit Quality: The new rules place new limits on a money market fund's ability to acquire lower quality (Second Tier) securities. They do this by:
Shorter Maturity Limits: The new rules shorten the average maturity limits for money market funds, which helps to limit the exposure of funds to certain risks such as sudden interest rate movements. They do this by:
"Know Your Investor" Procedures: The new rules require funds to hold sufficiently liquid securities to meet foreseeable redemptions. Currently, there are no such requirements. In order to meet this new requirement, funds would need to develop procedures to identify investors whose redemption requests may pose risks for funds. As part of these procedures, funds would need to anticipate the likelihood of large redemptions.
Periodic Stress Tests: The new rules require fund managers to examine the fund's ability to maintain a stable net asset value per share in the event of shocks - such as interest rate changes, higher redemptions, and changes in credit quality of the portfolio. Previously, there were no stress test requirements.
Nationally Recognized Statistical Rating Organizations (NRSROs): The new rules continue to limit a money market fund's investment in rated securities to those securities rated in the top two rating categories (or unrated securities of comparable quality). At the same time, the new rules also continue to require money market funds to perform an independent credit analysis of every security purchased. As such, the credit rating serves as a screen on credit quality, but can never be the sole factor in determining whether a security is appropriate for a money market fund.
In addition, the new rules improve the way that funds evaluate securities ratings provided by NRSROs:
Repurchase Agreements: The new rules strengthen the requirements for allowing a money market fund to "look through" the repurchase issuer to the underlying collateral securities for diversification purposes:
Enhancing Disclosure of Portfolio Securities
Monthly Web Site Posting: The new rules require money market funds each month to post on their Web sites their portfolio holdings. Currently, there is no Web site posting requirement. Portfolio information must be maintained on the fund's Web site for no less than six months after posting.
Monthly Reporting: The new rules also require money market funds each month to report to the Commission detailed portfolio schedules in a format that can be used to create an interactive database through which the Commission can better oversee the activities of money market funds. The information reported to the Commission would be available to the public 60 days later. This information would include a money market fund's "shadow" NAV, or the mark-to-market value of the fund's net assets, rather than the stable $1.00 NAV at which shareholder transactions occur. Currently a money market fund's "shadow" NAV is reported twice a year.
Improving Money Market Fund Operations
Processing of Transactions: The new rules require money market funds and their administrators to be able to process purchases and redemptions electronically at a price other than $1.00 per share. This requirement facilitates share redemptions if a fund were to break the buck.
Suspension of Redemptions: The new rules permit a money market fund's board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule.
Purchases by Affiliates: The new rules expand the ability of affiliates of money market funds to purchase distressed assets from funds in order to protect a fund from losses. Currently, an affiliate cannot purchase securities from the fund before a ratings downgrade or a default of the securities - unless it receives individual approval. The rule change permits such purchases without the need for approval under conditions that protect the fund from transactions that disadvantage the fund. The fund must notify the Commission when it relies on this rule. (Press Rel. 2010-14)
SEC Issues Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change
The Securities and Exchange Commission today voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.
Federal securities laws and SEC regulations require certain disclosures by public companies for the benefit of investors. Occasionally, to assist those who provide such disclosures, the Commission provides guidance on how to interpret the disclosure rules on topics of interest to the business and investment communities. The Commission's interpretive releases do not create new legal requirements nor modify existing ones, but are intended to provide clarity and enhance consistency for public companies and their investors.
The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis.
"We are not opining on whether the world's climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics," said SEC Chairman Mary Schapiro. "Today's guidance will help to ensure that our disclosure rules are consistently applied."
Specifically, the SEC's interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:
Closed Meeting - Wednesday, February 3, 2010 - 2:30 p.m.
The subject matter of the Closed Meeting scheduled for Wednesday, Feb. 3, 2010, will be: institution and settlement of injunctive actions; institution and settlement of administrative proceedings; and other matters relating to enforcement proceedings.
At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400.
In the Matter of TD Ameritrade, Inc.
The Securities and Exchange Commission announced that it has granted to TD Ameritrade, Inc., a broker-dealer registered with the Commission, and its current or future affiliates, a waiver of the disqualification provisions of Section 27A(b)(1)(A)(ii) of the Securities Act of 1933 (Securities Act) and Section 21E(b)(1)(A)(ii) of the Securities Exchange Act of 1934 (Exchange Act). Those provisions disqualified TD Ameritrade from making use of the safe harbor for forward-looking statements provided by Section 27A of the Securities Act and Section 21E of the Exchange Act. The disqualifications arose by virtue of the Commission's findings, in an Order dated July 20, 2009, that TD Ameritrade violated Section 17(a)(2) of the Securities Act in connection with transactions in auction rate securities. Sections 27A(b) of the Securities Act and 21E(b) of the Exchange Act authorize the Commission to waive the disqualifications. TD Ameritrade requested the waiver and the Commission determined that the request for a waiver is appropriate and should be granted. (Rels. 33-9103; 34-61428; File No. 3-13557)
Karen T. Baker, CPA Reinstated to Appear and Practice Before the Commission as an Accountant Responsible for the Preparation or Review of Financial Statements Required to Be Filed With the Commission
Pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice, Karen T. Baker, CPA has applied for and been granted reinstatement of her privilege to appear and practice before the Commission as an accountant responsible for the preparation or review of financial statements required to be filed with the Commission. Ms. Baker's privilege of appearing or practicing before the Commission as an accountant was denied on April 26, 2005. Her reinstatement is effective immediately. (Rel. 34-61432; AAE Rel. 3110; File No. 3-11911)
INVESTMENT COMPANY ACT RELEASES
MetLife, Inc., et al.
An order has been issued on an application filed by MetLife, Inc. (MetLife) and MetLife Capital Trust V (Trust) for an exemption from all provisions of the Act. The order permits the Trust to sell debt securities and non-voting preferred stock and use the proceeds to finance the business operations of MetLife or a controlled company of MetLife. The order also applies to certain existing or future insurance companies, banks or their holding companies that are controlled by MetLife and that act as a parent company within the meaning of Rule 3a-5 under the Act and to their finance subsidiaries. (IC-29124 - January 26)
Assurant, Inc., Union Security Insurance Company and Union Security Life Insurance Company of New York
The Commission has issued a temporary order to Assurant, Inc. (Assurant), Union Security Insurance Company (USIC) and Union Security Life Insurance Company of New York (USLICNY) under Section 9(c) of the Investment Company Act with respect to an injunction issued against Assurant by the U.S. District Court for the Southern District of New York on January 26, 2010. The temporary order exempts Assurant, USIC and USLICNY, as well as companies of which Assurant is or becomes an affiliated person, from the provisions of Section 9(a) of the Act until the Commission takes final action on an application for a permanent order. The Commission also has issued a notice giving interested persons until February 22, 2010, to request a hearing on the application filed by applicants for a permanent order under Section 9(c) of the Act. (Rel. IC-29125 - January 26)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by NYSE Arca amending Rule 6.87 (SR-NYSEArca-2010-03) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61393)
A proposed rule change filed by NASDAQ OMX PHLX deleting obsolete provisions relating to the opening (SR-Phlx-2010-07) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61397)
A proposed rule change (SR-Phlx-2009-116), as modified by Amendment No. 1 thereto, filed by NASDAQ OMX PHLX relating to transaction fees and rebates for options overlying Standard and Poor's Depositary Receipts (SPDRs) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61398)
A proposed rule change (SR-NYSE-2010-02) filed by the New York Stock Exchange to amend certain of its initial listing requirements has become effective under Section 19(b)(3)(A) under the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61407)
A proposed rule change submitted by New York Stock Exchange (SR-NYSE-2010-04) to extend for 12 months the pilot program permitting the Exchange's ownership interest in BIDS Holdings L.P. (BIDS) and the affiliation of BIDS with the New York Block Exchange LLC has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61409)
A proposed rule change (SR-ISE-2010-05) filed by the International Securities Exchange regarding market maker trading licenses for foreign currency options has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61411)
National Securities Clearing Corporation filed a proposed rule change (SR-NSCC-2009-12) under Section 19(b)(1) of the Exchange Act, which became effective upon filing, to revise its Fee Schedule. Publication is expected in the Federal Register during the week of February 1. (Rel. 34-61413)
Approval of Proposed Rule Changes
The Commission approved a proposed rule change (SR-NYSEArca-2009-108) submitted under Rule 19b-4 of the Securities Exchange Act of 1934 by NYSE Arca, modifying the NYSE Arca Realtime Reference Prices service. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61404)
The Commission approved a proposed rule change (SR-Phlx-2009-101) submitted by NASDAQ OMX PHLX relating to collection of exchange fees. Publication is expected in the Federal Register during the week of January 25. (Rel. 34-61405)
The Commission approved a proposed rule change (SR-FINRA-2009-086) submitted by the Financial Industry Regulatory Authority to adopt FINRA Rule 5160 (Disclosure of Price and Concessions in Selling Agreements) in the consolidated FINRA rulebook. Publication is expected in the Federal Register during the week of February 1. (Rel. 34-61417)
Proposed Rule Change
The National Securities Clearing Corporation filed a proposed rule change (SR-NSCC-2010-01) under Section 19(b)(1) of the Exchange Act that would eliminate NSCC's guarantee of payment in connection with the Envelope Settlement Service. Publication is expected in the Federal Register during the week of February 1. (Rel. 34-61415)
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