Staff Statement on the President’s Working Group Report on Money Market Funds
Dec. 23, 2020
In March, the short-term funding markets came under sharp stress from the economic concerns related to the COVID-19 pandemic and an overall flight to liquidity and quality among investors. The President’s Working Group on Financial Markets (“PWG”) has studied the effects of the COVID-19 pandemic on the short-term funding markets and, in particular, on money market funds. The results of this study are included in a report issued on December 22, 2020 and attached to this statement as an Appendix (the “Report”).
As detailed in the Report, while government money market funds saw significant inflows during that time, the prime and tax-exempt money market fund sectors faced significant outflows and increasingly illiquid markets for the funds’ assets. As a result, prime and tax-exempt money market funds experienced, and, given the dynamic nature of markets, began to contribute to, general stress in the short-term private debt markets and short-term municipal debt markets. The general market stress and related pressure on money market funds subsided fairly quickly after the Federal Reserve, with approval from the Department of the Treasury, announced programs and other actions to support the short-term funding markets, including direct support for money market funds.
The Report provides an overview of prior money market fund reforms in 2010 and 2014, as well as how different types of money market funds have evolved since the 2008 financial crisis. The Report then discusses how prime and tax-exempt money market funds came under pressure in March and how these funds experienced, and began to contribute to, general stress in short-term funding markets. The Report observes that these events occurred despite prior reform efforts to make money market funds more resilient to credit and liquidity stresses and, as a result, less susceptible to redemption-driven runs. Accordingly, the Report concludes that the events of March 2020 show that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt money market funds will exacerbate or lead to stresses in short-term funding markets. The Report discusses various reform measures that policy makers could consider to improve the resilience of prime and tax-exempt money market funds and broader short-term funding markets. As noted in the Report, many of the measures discussed could be implemented by the Commission under its existing statutory authority, while others may require longer-term structural changes and coordinated action by multiple agencies. The Report does not endorse specific recommendations for future reforms. Instead, it is meant to provide context and facilitate discussion by outlining potential reform options.
II. Request for Feedback
Feedback backed by data where feasible would be helpful to the Division in evaluating what, if any, recommendations the Division might make to the Commission in this area. Specifically, the Division believes that feedback on the expected effectiveness of the measures identified in the Report (both individually and in combination) in: (1) addressing money market funds’ structural vulnerabilities that can both cause them to come under stress and contribute to stress in short-term funding markets; (2) improving the resilience and functioning of short-term funding markets; and (3) reducing the likelihood that official sector interventions will be needed to prevent or halt future money market fund runs, and/or to address stresses in short-term funding markets more generally would be particularly helpful. The Division is also interested in feedback on other topics stakeholders believe are relevant to further money market fund reform, including other approaches for improving the resilience of money market funds and short-term funding markets generally.
If you would like to let the Division know your views, we are providing an email box as a convenient method for you to communicate with the Division. We encourage you to communicate through the following address: IM_MMFPWG@sec.gov and insert “PWG MMF” in the subject line. The Division anticipates making submissions public.
 This statement represents the views of the Director of the Division of Investment Management. It is not a rule, regulation or statement of the Securities and Exchange Commission (SEC or the Commission). The Commission has neither approved nor disapproved its content. This statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.
 For a more detailed discussion of the structure and significance of short-term funding markets and the effects of the COVID-19 shock, as well as the effects of monetary and fiscal measures, see SEC staff report, “U.S. Credit Markets Interconnectedness and the Effects of COVID-19 Economic Shock,” (October 2020) (“SEC Staff Interconnectedness Report”), available at https://www.sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf.
 The PWG is chaired by the Secretary of the Treasury and includes the Chair of the Board of Governors of the Federal Reserve System, the Chair of the SEC, and the Chair of the Commodity Futures Trading Commission.
 Report of the President’s Working Group on Financial Markets: Overview of Recent Events and Potential Reform Options for Money Market Funds (December 2020), available at https://home.treasury.gov/system/files/136/PWG-MMF-report-final-Dec-2020.pdf.
 See Money Market Fund Reform, Investment Company Act Release No. 29132 (Feb. 23, 2010) [75 FR 10060 (Mar. 4, 2010)] (amending rule 2a-7 under the Investment Company Act of 1940 that governs money market funds, focusing on, among other things, enhancing transparency and further limiting credit, liquidity, and interest rate risks of money market fund portfolios); Money Market Fund Reform; Amendments to Form PF, Investment Company Act Release No. 31166 (July 23, 2014) [79 FR 47736 (Aug. 14, 2014)] (amending rule 2a-7 to address risks stemming from heavy redemptions, including a floating NAV requirement for all prime and tax-exempt money market funds sold to institutional investors and the provision of new gate and fee tools for all prime and tax-exempt money market funds, including retail funds).