Money Market Reform Resource Center - J.P. Morgan Asset Management

Money Market Reform

In July 2014, The Securities and Exchange Commission approved substantial changes to the rules governing money market funds (MMFs). As investors adapt to the new regulatory environment, they are re-evaluating their liquidity strategies and considering their investment options.

The new rules will not take effect in a vacuum—quite the contrary. Other global financial regulations, most notably Basel III, will impact the relative attractiveness of MMFs as compared with bank deposits. A new interest rate environment will likely change the yields of and the spreads between prime and government MMFs. In the government MMF sector especially, more difficult supply/demand dynamics for eligible securities could present new challenges.
As liquidity investors contemplate these sometimes countervailing forces, they should know that MMF reforms, beginning with those adopted in 2010 (amendments to Rule 2a-7 under the Investment Company Act of 1940), have made the industry stronger and more transparent. Two key changes approved in July 2014 will take effect in October 2016, following a two-year transition period:
  • Institutional prime and municipal MMFs must float their market-based net asset values by executing sales and redemptions based on the current market values of the securities in their portfolios, rounded to the fourth decimal place. (Institutional funds are defined as non-retail funds; retail funds must limit their beneficial owners to “natural persons.”)  
  • The board of trustees of an MMF may impose a liquidity fee or redemption gate if the fund’s weekly liquidity assets fall below 30% of total assets. Government MMFs are not required to be subject to the fee and gate.