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Law Firms Examine SEC Proposals on Money Funds and Credit Rating Agencies

As we first reported on March 4, a recent Securities and Exchange Commission proposal would remove the use of credit ratings from the rules governing money market funds.  The SEC's proposed rule would remove the references to credit ratings, including with respect to the definition of eligible security; a determination of whether a security is a first tier security; requirements for monitoring securities with ratings downgrades and other credit events; and stress testing.   The SEC has asked for comments on its rule proposal to be submitted before April 25, 2011, and the Forum will be submitting a comment letter on behalf of its members.  

Law firms advising money market funds, their directors, and advisers have been busy looking at the rule proposal and have put together some client memos explaining the changes the SEC proposes to make, and providing some analysis of how the changes, if adopted, may affect the money market industry, advisers, and particularly money fund directors and trustees.  We have selected and linked below three such client memos to help fund directors and others understand the issues involved in the rule proposal, and assist them in understanding how these changes may affect selection of eligible securities for money fund portfolios. 

Stradley Ronon, Fund Alert, March 2011, SEC Proposes Amendments to Remove Ratings Standard From Rule 2a-7

Goodwin ProcterSEC Proposes Rules Removing Credit Rating References from Rule 2a­7 and Other Rules and Forms and Establishing Alternative Standards of Credit ­Worthiness

DechertSEC Proposes to Remove NRSRO Ratings from Rule 2a-7and Other Investment Company Rules and Forms