SEC Removes References to Credit Ratings in Money Market Fund Rule and Form

The Securities and Exchange Commission adopted amendments to remove credit rating references in the principal rule that governs money market funds and the form that money market funds use to report information to the Commission each month about their portfolio holdings.  The Commission also adopted amendments that would subject additional securities to issuer diversification provisions in the money market fund rule.

“Reducing reliance on credit ratings to determine which securities money market funds can hold is an important part of our efforts related to these funds,” said SEC Chair Mary Jo White.  “These amendments also remove credit ratings from one of the last areas of the Commission’s rules where they are referenced.”

The money market fund rule 2a-7 currently requires money market funds to invest only in securities that have received one of the two highest short-term credit ratings or, if they are not rated, securities that are of comparable quality.  The rule also requires a money market fund to invest at least 97 percent of its assets in securities that have received the highest short-term credit rating. 

The amendments will eliminate these requirements.  Instead, a money market fund is limited to investing in a security only if the fund determines that the security presents minimal credit risks after analyzing certain prescribed factors. 

The amendments will implement section 939A of the Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010 which requires the Commission to review its rules that use credit ratings as an assessment of credit-worthiness and replace those credit-rating references with other appropriate standards.  With today’s action, the Commission has removed references to credit ratings from 32 rules and forms. 

The rules adopted today will be effective 30 days after their publication in the Federal Register and the compliance date will be October 14, 2016.