Money market funds are a staple investment choice for many, prized for their stability and liquidity. However, recent amendments to Rule 2a-7 have brought significant changes to the landscape.

Key Updates and What They Mean for Registered Investment Advisers

Here’s a breakdown of the key updates and what they mean for RIA’s.

Increased Liquidity Standards

One of the most notable changes is the elevation of liquidity standards. Now, money market funds must maintain higher levels of liquidity, with at least 25% of total assets in daily liquid assets and a minimum of 50% in weekly liquid assets. This is a substantial increase from the previous requirements of 10% and 30%, respectively.

Removal of Redemption Restrictions and Tie to Liquidity Fees

The new regulation eliminates temporary redemption restrictions previously imposed on money market funds. Additionally, funds can no longer charge liquidity fees when their weekly liquid assets fall below a specified level. This change aims to enhance flexibility for investors while maintaining liquidity.

Mandatory Liquidity Fees for Significant Redemptions

Prime and tax-exempt money market funds now face mandatory liquidity fees when net redemptions exceed 5% of net assets, unless liquidity costs are minimal. This measure adds a layer of protection to ensure stability during periods of heightened redemption activity.

Introduction of Reverse Distribution Mechanisms

Certain funds, particularly retail funds, now have the option to utilize reverse distribution mechanisms. These mechanisms can help stabilize share prices by reducing outstanding shares, offering potential benefits in volatile market conditions.

Enhanced Reporting Requirements

Amendments to reporting forms, such as Form N-CR, demand more detailed information, including Legal Entity Identifiers. These enhancements aim to improve transparency and regulatory oversight within the industry.

Revisions to Form PF

Private fund advisers face additional reporting requirements regarding liquidity funds, including separate reporting of cash holdings within asset information. This revision enhances visibility into the liquidity profile of private funds, contributing to overall market resilience.

 In conclusion, the amendments to Rule 2a-7 signify a concerted effort to bolster the resilience and transparency of money market funds. While these changes may present initial adjustments for investors and fund managers alike, they ultimately aim to foster a safer and more robust investment environment. As always, staying informed and consulting with financial experts is crucial in navigating these evolving regulatory landscapes.