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Rekenthaler Report

The New Rules for Money Market Funds

Yes, they do affect retail funds.

Suddenly, Six Years Later...
The SEC this week ratified new rules for money market funds (869 pages!). Since September 2008, when Reserve Primary Fund sparked a panic by "breaking the buck" when its Lehman notes plunged in value, the SEC has sought changes that would prevent such a calamity from occurring in the future. The delivery was a laborious, politically charged process. The mutual fund industry liked money market funds just fine the way they were, banks wanted them gutted, and SEC staffers and politicians were caught in the middle. It took many iterations to arrive at yesterday's barely acceptable compromise, which passed by the minimum margin of 3 to 2.

As the SEC did not publish the new rules until after they were ratified, media coverage has been somewhat muddy. Several reports seem to suggest, as does the SEC's press release, that the rules apply only to institutional funds. Not so--the most notable modification, requiring some money funds to float their net asset values rather than fix the price at a constant $1.00, is indeed for institutional funds only. But provisions for liquidity fees and redemption gates apply to all funds, both institutional and retail.

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