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Vedder Thinking | Articles SEC Adopts Significant Money Market Fund Reforms and Amended Form PF Reporting Requirements for Private Liquidity Fund Advisers


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On July 12, 2023, in a 3-2 vote, the SEC adopted amendments to Rule 2a-7 under the Investment Company Act of 1940, representing the SEC’s latest reforms of the rules governing money market funds in its effort to improve their resiliency and ability to manage significant investor redemptions during market stress events.      

Key elements of the final rule include: 

  • Increased Minimum Daily and Weekly Liquidity Requirements; Board Reporting of Liquidity Threshold Events.  The amendments increase the minimum daily and weekly liquid asset requirements to 25% (up from 10%) and 50% (up from 30%), respectively, of total assets.  The amendments also require a fund to notify its board of directors when the fund’s liquidity falls to less than half of the required levels—i.e., when the fund has invested less than 12.5% of its total assets in daily liquid assets or less than 15% of its total assets in weekly liquid assets—a circumstance referred to as a “liquidity threshold event.”  A fund will now be required to notify the board within one business day of a liquidity threshold event and to provide the board with a brief description of the facts and circumstances that led to the liquidity threshold event within four business days after its occurrence.  Similar to these board notification requirements, the SEC adopted a requirement that funds file reports on Form N-CR upon a liquidity threshold event.   
  • Removal of Redemption Gates from Rule 2a-7.  The amendments remove money market funds’ ability to temporarily suspend investor redemptions (i.e., impose a “gate”) under Rule 2a-7.  Money market funds will continue to be able to impose permanent gates to facilitate an orderly liquidation of a fund pursuant to Rule 22e-3. 
  • Mandatory Liquidity Fees for Institutional Prime and Institutional Tax-Exempt Money Market Funds.  The SEC adopted a mandatory liquidity fee framework for institutional prime and institutional tax-exempt money market funds—a notable change from the SEC’s proposed swing pricing requirement.  This approach effectively imposes the cost of depleting a fund’s liquidity on redeeming investors in stressed market conditions and when net redemptions are sizeable.  Specifically, institutional prime and institutional tax-exempt money market funds will be subject to a mandatory liquidity fee when net redemptions exceed 5% of net assets.  The amount of the mandatory liquidity fee must represent a good faith estimate, supported by data, of the costs the fund would incur if it sold a pro rata amount of each security in its portfolio (i.e., “vertical slice”) to satisfy the amount of net redemptions.  However, funds will not be required to impose a fee when liquidity costs are less than one basis point.  The final rule permits funds to use a lower net redemption threshold for imposing a fee as the board (or its delegate, as addressed further below) determines.   
  • Discretionary Liquidity Fees for Non-Government Money Market Funds.  The amendments allow any non-government money market fund to impose a discretionary liquidity fee if the fund’s board determines a fee is in the fund’s best interest. 
  • Removal of Linkage between Weekly Liquid Assets and Liquidity Fees; Reporting Amendments.  Under the SEC’s new liquidity fee framework, the amendments remove the tie between a money market fund’s weekly liquid asset levels and liquidity fees, for both mandatory and discretionary liquidity fees.  This change seeks “to avoid predictable triggers that may incentivize investors to preemptively redeem to avoid incurring fees.”  In connection with the new liquidity fee framework, the SEC is amending Form N-MFP to require that money market funds report whether they applied a liquidity fee during the reporting period and, if so, information about each liquidity fee applied, including the date, the type of fee, and the amount. 
  • Board Delegation of Liquidity Fee Administration.  Importantly, the amendments allow a money market fund’s board to delegate responsibility for administering a liquidity fee to the fund’s investment adviser or officers, subject to written guidelines established and reviewed by the board and ongoing board oversight.  The current rule does not permit a board to delegate its responsibility for liquidity fee determinations.  The SEC’s adopting release states that the written guidelines generally should specify the manner in which the delegate is to act with respect to any discretionary aspect of the liquidity fee mechanism (e.g., whether the fund will apply a fee to a shareholder based on the shareholder’s gross or net redemption activity for the relevant day).  The board will also need to periodically review the delegate’s liquidity fee determinations.
  • Option to Use RDM in Negative Interest Rate Environment.  If negative interest rates result in a negative gross yield, a retail or government money market fund that seeks to maintain a stable net asset value may convert to a floating share price, as the current rule already permits.  The amendments will also permit a stable NAV fund to reduce the number of its shares outstanding to maintain a stable NAV per share in the event of negative interest rates, subject to certain board determinations and disclosures to investors.  This new option is referred to as “share cancellation,” “reverse distribution mechanism,” or “RDM.” 
  • Amendments to Form PF.  The SEC is also amending Section 3 of Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds, to require additional information regarding the liquidity funds they advise.  These private funds seek to maintain a stable NAV (or minimize fluctuations in their NAVs) and thus are similar in certain respects to money market funds.  The amendments will require certain information regarding asset turnover, liquidity management and secondary market activities, subscriptions and redemptions, and ownership type and concentration.  


Compliance Dates

The rule amendments will be effective October 2, 2023, and compliance with the reformed requirements is staggered over a 12-month period, as indicated below.  

  • October 2, 2023:  removal of redemption gate provisions.
  • April 2, 2024:  increased minimum liquidity requirements, discretionary liquidity fee.
  • June 11, 2024: amendments to Forms N-MFP, N-CR, and PF.
  • October 2, 2024:  mandatory liquidity fee.

The SEC’s adopting release is available here, and the SEC’s corresponding fact sheet is available here.  


Nathaniel Segal


Jacob C. Tiedt


Mark A. Quade