Money-market funds are set for their biggest rules overhaul in years as Wall Street’s top regulator wraps up rules aimed at stemming rapid outflows during times of financial stress.
The US Securities and Exchange Commission plans to impose fees that will affect parts of the $5.5 trillion industry. Notably, under a revamped plan released on Wednesday, the regulator won’t require “swing pricing” for the funds after fierce pushback from industry.
The regulator’s rules are meant to discourage runs like the one in March 2020 and shield remaining shareholders from costs tied to the high level of redemptions. After the pandemic’s onset roiled markets, the Federal Reserve was forced to step in to rescue money-market funds for the second time in 12 years, leading to calls for the SEC to impose tougher regulations.
If a majority of the agency’s five commissioners approve the SEC’s plan on Wednesday, some funds will face a mandatory liquidity fee. That would kick in for institutional prime and institutional tax-exempt funds when daily redemptions surpass 5% of net assets.
The reprieve on a swing-pricing requirement would mark a significant victory for the likes of JPMorgan Chase & Co.’s asset management unit, State Street Corp. and Federated Hermes Inc., which have opposed the measure. Among the complaints were that swing pricing would drive up investor costs and lead to a significant decrease in institutional money-market funds’ assets.
Swing pricing is essentially a fee imposed on investors redeeming shares in money-market funds by adjusting a fund’s net asset value. Mass redemptions can increase costs to a fund and dilute remaining shareholders’ assets.
The mechanism is widely used in Europe. The SEC proposal in December 2021 would have made the measure mandatory, specifically for institutional prime and institutional tax-exempt money-market funds.
This article was provided by Bloomberg News.