The New Rules of SEC and its Effects on the Money Market Funds

Apr 2, 2014 by

The New Rules of SEC and its Effects on the Money Market Funds

Recently some new rules have been declared regarding the money market by the Securities and Exchange Commission, which administer institutional money market funds. According to a report of SEC, these new rules are likely to deal with threats of liquidity that carries on institutional money market funds through fund contributors.

A significant modification to the rules directing the money market funds is a new necessity for floating net asset rates. Previously, an advantage to putting money into a money market fund was the steady net asset price of one dollar. Exclusive asset valuation systems and fund pricing rules were allowed in the money market funds formerly but will not be acceptable when the latest regulations are in place.

View of Chairwoman of SEC-
In the opinion of Mary Jo White, the Chairwoman of SEC, these new policies can present essential new tools, which will assist further to defend investors and the economic system. Moreover, it may make the present markets more elastic and improve transparency and equality of the goods for American investors.

The results for the implication of these new rules-

Upon execution of the new regulations from the SEC, the money market funds will appreciate all the investments holding the money market funds and bring out a daily market value that will float according to the market value of the fundamental assets.

The new SEC policy will permit institutional as well as non-government MMF managers to apply a number of different controls to handle fund liquidity at the time of market strain. Such controls will comprise charges on fund participants willing to put down the MMFs and liquidity gates to permit the managers to manipulate the amount of money moving out and into the MMFs.

By letting the share price to fall, it takes away the incentive for the depositors to run for the exit. Certainly investors suffer losses but the risk of entire loss is removed. By permitting penalties, it puts off withdrawals, but depositors who want their money, in fact, will take it out in any case. SEC, by letting these MMFs to setback paying, stops runs, which might happen with a floating share price.

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