Regulatory Updates
Money market funds are a type of mutual fund registered under the Investment Company Act of 1940 (the Act) and regulated under Rule 2a-7 under the Act.
On June 5, 2013, the SEC proposed substantial amendments to Rule 2a-7. Because money market funds are significant investors in asset-backed securities (ABS), including asset-backed commercial paper, the proposed amendments that are designed to make money market funds more resilient by increasing the diversification of their portfolios will impact the securitization market.
If adopted as proposed, the amendments would affect ABS in five significant ways:
- Special purpose entities that are affiliated by equity ownership would be treated as a single issuer for purposes of Rule 2a-7's 5% issuer diversification requirement. This proposed amendment is referred to as the "proposed affiliate rule."
- A sponsor of an ABS would be treated as a guarantor of the ABS unless the board of directors of the investing money market fund made a determination that the fund did not rely on the sponsor's financial strength for credit or liquidity purposes. This proposed amendment is referred to as the "proposed sponsor rule."
- Sponsors treated as guarantors under these new provisions would no longer be "non-controlled persons" for purposes of Rule 2a-7's guarantor diversification requirements.
- The proposed sponsor rule would presumably apply in determining what entities are guarantors of 10% obligors for purposes of Rule 2a-7.
- The proposed affiliate rule would presumably apply in determining what entities are 10% obligors of ABS (and, therefore, issuers for purposes of the 5% issuer diversification requirement.
Comments to the proposed amendments to Rule 2a-7 were due on September 17, 2013. Final amendments have not yet been adopted.
REGULATORY MATERIALS
- Final Rule: Money Market Fund Reform; Amendments to Form PF - August 14, 2014
- SEC Proposed Rule: Money Market Fund Reform; Amendments to Form PF - June 19, 2013
- Public Comments to Proposed Rule
