Money Market Fund Resource Center

In response to the constraints posed by escalating inflation and regulations imposing interest rate limits on depository institutions, money market funds emerged as an alternative to conventional bank deposits in the late 1970s. Money market funds, registered under the Investment Company Act of 1940 and subject to regulation under Rule 2a-7 (the “Money Market Fund Rule”), provided a new avenue for investors seeking options beyond traditional banking channels. 

Since then, money market funds have played a critical financing role in the US economy and provide a preferred vehicle for cash management for individuals, businesses, nonprofit organizations, and government agencies. 

Historically, money market funds maintained a stable $1.00 share price, but concerns during the 2007-2008 financial crisis led to regulatory changes. The SEC implemented amendments in 2010 to seek to mitigate risks, followed by additional reforms in 2014. In 2015, further amendments related to the removal of credit rating references in Rule 2a–7 and Form N–MFP, the form that money market funds use to report information to the Commission each month about their portfolio holdings, were adopted. 

In December 2021, the SEC proposed amendments to the rules that govern money market funds and on July 12, 2023, the Commission adopted money market fund reforms that differed in several ways from the proposed amendments. 

The Institute created this Resource Center to provide members with easy access to regulatory materials, ICI and IDC comments related to the Money Market Fund Rule.[1] Analysis, research, and resources from ICI and others on the key developments concerning money market funds may be found at the links below.

In summary, the July 2023 amendments made the following changes to the Money Market Fund Rule[2]:

• Increase of the Minimum Daily and Weekly Liquidity Requirements: Increase the minimum liquidity requirements for money market funds to at least 25% of a fund’s total assets in daily liquid assets and at least 50% of a fund’s total assets in weekly liquid assets.
• Removal of Temporary Redemption Gates and the Tie Between the Weekly Liquid Asset Threshold and Liquidity Fees: Remove money market funds’ ability to impose temporary gates to suspend redemptions and removes the regulatory tie that permits money market funds to impose liquidity fees if their weekly liquid assets fall below a certain threshold.
• Mandatory Liquidity Fee: Require institutional prime and institutional tax-exempt money market funds to impose mandatory liquidity fees when a fund experiences daily net redemptions that exceed 5% of net assets, unless the fund’s liquidity costs are de minimis. An institutional fund’s Board is responsible for administering the mandatory liquidity fee, but the amendments permit the board to delegate this responsibility to the fund’s investment adviser or officers, subject to written guidelines established and reviewed by the board and ongoing board oversight.
• Discretionary Liquidity Fee: Non-government money market funds, including those that are not publicly offered, must impose a discretionary liquidity fee if the fund’s board (or its delegate) determines that a fee is in the best interest of the fund.
• Potential Negative Interest Rates: Retail and government money market funds may handle a negative interest rate environment either by converting from a stable share price to a floating share price or by reducing the number of shares outstanding to maintain a stable net asset value per share, subject to certain board determinations and disclosures to investors.
• Form N-CR: Under the final amendments, a fund experiencing a liquidity threshold event is required to report: (1) the initial date on which the fund fell below either the 25% weekly liquid assets or the 12.5% daily liquid assets threshold; (2) the percentage of the fund’s total assets invested in both weekly liquid assets and daily liquid assets on the initial date of a liquidity threshold event; and (3) a brief description of the facts and circumstances leading to the liquidity threshold event. The reporting timeframe remains consistent, with a one-business-day requirement after the occurrence of a liquidity threshold event; however, a fund may file an amended report providing the required brief description of the facts and circumstances leading to the liquidity threshold event up to four business days after such event. Money market funds must use a custom XML-based language for Form N-CR reports.
• Form N-MFP: The final rule removes the requirement for money market funds to disclose individual owners of 5% or more shares, instead mandating reporting the type of owner. It sets a 5% ownership threshold for shareholder concentration reporting. Funds must report beneficial owner information known to them, and non-government or non-retail funds must disclose shareholder composition by type. Prime funds must reveal the aggregate amount sold per investment category. Amendments to Form N-MFP include reporting liquidity fee details, stable NAV fund's share cancellation use, and standardized reporting for repurchase agreement transactions. The form simplifies reporting categories for government funds, introduces disclosure for affiliated fund status, and distinguishes U.S. Government agency debt types. Additionally, it requires reporting fee waivers, introduces daily data points, and specifies the identification of the fund and series.
• Form N-1A: Amendments to Item 27A(i) of Form N-1A and the corresponding instructions to correct an error resulting from the Commission’s 2022 rulemaking on enhanced reporting of proxy votes by registered management investment companies.
• Form N-CSR: Amendment to Form N-CSR to retain an exception addressing money market funds’ financial statements that was inadvertently omitted as a result of amendments adopted in the Tailored Shareholder Reports Adopting Release.

[1] Contact Josh Weinberg (joshua.weinberg@ici.org) for legal issues and Jeff Naylor (jeff.naylor@ici.org) for operational questions.

[2] ICI’s summary of the Money Market Fund Reforms can be found at: https://www.ici.org/memo35375.