SEC Adopts New Rules for Money Market Funds

January 27, 2010 (PLANSPONSOR.com) - The Securities and Exchange Commission (SEC) has adopted new rules to better protect money market fund investors.

According to an SEC announcement, the financial crisis and the weaknesses revealed by the Reserve Primary Fund's "breaking the buck" in September 2008 precipitated a full-scale review of the money market fund regulatory regime by the SEC.       

A money market fund "breaks the buck" when its net asset value (NAV) falls below $1.00 per share, meaning investors in that fund will lose money.       

The SEC's new rules are intended to “increase the resilience of money market funds to economic stresses and reduce the risks of runs on the funds by tightening the maturity and credit quality standards and imposing new liquidity requirements,” according to an update on the agency’s web site.     

"These new rules will have substantial benefits for investors and are an important first step in our efforts to strengthen the money market regime," said SEC Chairman Mary L. Schapiro. "These rules will help reduce risks associated with money market funds, so that investor assets are better protected and money market funds can better withstand market crises. The rules also will create a substantial new disclosure regime so that everyone from investors to the SEC itself can better monitor a money market fund's investments and risk characteristics."