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SEC Meeting Set to Consider Adoption of Money Market Fund Amendments, New Proposals

The Securities and Exchange Commission will hold an open meeting on July 23 to consider whether to adopt amendments to the rule governing money market funds. In addition, the SEC will consider two money market fund proposals addressing credit ratings and diversification rules.

According to Bloomberg, the SEC’s rule would require prime institutional funds to institute a floating NAV.  Further, funds would be required to impose a 1 percent redemption fee and have discretion to temporarily suspend withdrawals when liquidity drops below required levels.  Bloomberg cautions, however, that the details of the rules could change prior to next week’s vote.

Ahead of the meeting notice, several senators sent letters to Treasury Secretary Jack Lew addressing the tax issues that may arise should the SEC require a floating NAV for money market funds. Senator Crapo stressed that “tax, compliance, and accounting issues need to be resolved ahead of time, especially in light of the fact that investors hold over $2.5 trillion in [money market fund] assets.” Senators Menendez and Warner stated their belief that merely simplifying related tax reporting or providing safe harbor from the application of wash sale rules would not adequately address deterrents to money market fund investment created by a floating NAV. Senator Toomey similarly emphasized that it would be necessary to “completely eliminate the tax compliance burden associated with tracking the small gains and losses that would be produced by the floating NAV concept.”