On February 4, 2021, the SEC published a request for public comment on potential reform measures to improve the resilience of money market funds, including reforms highlighted in the December 22, 2020 report of the President’s Working Group on Financial Markets (the Report). The Report observed that, despite prior reforms in 2010 and 2014 intended to make money market funds more resilient to credit and liquidity stresses, money market funds experienced, and began to contribute to, general stress in short-term funding markets in March 2020 amid economic concerns related to the onset of the COVID-19 pandemic. The Report concluded that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt money market funds will lead to or exacerbate stresses in short-term funding markets. The Report discussed the following potential reform measures to improve the resilience of prime and tax-exempt money market funds and broader short-term funding markets, but did not endorse any specific measure:

•  Removing the tie between money market fund liquidity and fee and gate thresholds;
• Reforming rules regarding redemption gates;
• Instituting a “minimum balance at risk” to internalize the liquidity costs of investors’ redemptions, thereby reducing the first-mover advantage for redeeming investors;
• Changing the liquidity management requirements, such as by creating new liquidity tiers;
• Creating countercyclical weekly liquid asset requirements;
• Requiring floating NAVs for all prime and tax-exempt money market funds;
• Requiring swing pricing;
•  Requiring capital buffers;
• Creating and requiring membership in a “Liquidity Exchange Bank”; and
• Requiring explicit fund sponsor support.

The SEC is requesting public comment on the Report, including the effectiveness of the previously-enacted money market fund reforms and of implementing the potential reform measures described in the Report.

The SEC’s request for comment is available here.