Corrected to conform to Federal Register version

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 239, 270, 274 and 279

Release No. 33-9616, IA-3879; IC-31166; FR-84; File No. S7-03-13

RIN 3235-AK61

Money Market Fund Reform; Amendments to Form PF

AGENCY: Securities and Exchange Commission.

ACTION: Final rule. 

SUMMARY: The Securities and Exchange Commission (“Commission” or “SEC”) is adopting

amendments to the rules that govern money market mutual funds (or “money market funds”) 

under the Investment Company Act of 1940 (“Investment Company Act” or “Act”). The 

amendments are designed to address money market funds’ susceptibility to heavy redemptions in 

times of stress, improve their ability to manage and mitigate potential contagion from such 

redemptions, and increase the transparency of their risks, while preserving, as much as possible, 

their benefits. The SEC is removing the valuation exemption that permitted institutional nongovernment money market funds (whose investors historically have made the heaviest

redemptions in times of stress) to maintain a stable net asset value per share (“NAV”), and is 

requiring those funds to sell and redeem shares based on the current market-based value of the 

securities in their underlying portfolios rounded to the fourth decimal place (e.g., $1.0000), i.e., 

transact at a “floating” NAV. The SEC also is adopting amendments that will give the boards of 

directors of money market funds new tools to stem heavy redemptions by giving them discretion 

to impose a liquidity fee if a fund’s weekly liquidity level falls below the required regulatory 

threshold, and giving them discretion to suspend redemptions temporarily, i.e., to “gate” funds,
2

under the same circumstances. These amendments will require all non-government money 

market funds to impose a liquidity fee if the fund’s weekly liquidity level falls below a 

designated threshold, unless the fund’s board determines that imposing such a fee is not in the 

best interests of the fund. In addition, the SEC is adopting amendments designed to make money 

market funds more resilient by increasing the diversification of their portfolios, enhancing their 

stress testing, and improving transparency by requiring money market funds to report additional 

information to the SEC and to investors. Finally, the amendments require investment advisers to 

certain large unregistered liquidity funds, which can have many of the same economic features as

money market funds, to provide additional information about those funds to the SEC.

DATES: Effective Date: October 14, 2014

Compliance Dates: The applicable compliance dates are discussed in section 

III.N. of the Release titled “Compliance Dates.”

FOR FURTHER INFORMATION CONTACT: Adam Bolter, Senior Counsel; Amanda 

Hollander Wagner, Senior Counsel; Andrea Ottomanelli Magovern, Senior Counsel; Erin C. 

Loomis, Senior Counsel; Kay-Mario Vobis, Senior Counsel; Thoreau A. Bartmann, Branch 

Chief; Sara Cortes, Senior Special Counsel; or Sarah G. ten Siethoff, Assistant Director, 

Investment Company Rulemaking Office, at (202) 551-6792, Division of Investment 

Management, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 

20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to rules 

419 [17 CFR 230.419] and 482 [17 CFR 230.482] under the Securities Act of 1933 [15 U.S.C. 

77a – z-3] (“Securities Act”), rules 2a-7 [17 CFR 270.2a-7], 12d3-1 [17 CFR 270.12d3-1], 18f-3 
3

[17 CFR 270.18f-3], 22e-3 [17 CFR 270.22e-3], 30b1-7 [17 CFR 270.30b1-7], 31a-1 [17 CFR 

270.31a-1], and new rule 30b1-8 [17 CFR 270.30b1-8] under the Investment Company Act of 

1940 [15 U.S.C. 80a], Form N-1A under the Investment Company Act and the Securities Act, 

Form N-MFP under the Investment Company Act, and section 3 of Form PF under the 

Investment Advisers Act [15 U.S.C. 80b], and new Form N-CR under the Investment Company 

Act.1

TABLE OF CONTENTS

I. INTRODUCTION .................................................................................................................... 6

II. BACKGROUND.................................................................................................................... 15

A. Role of Money Market Funds................................................................................15

B. Certain Economic Features of Money Market Funds............................................16

1. Money Market Fund Investors’ Desire to Avoid Loss.............................. 17

2. Liquidity Risks........................................................................................... 18

3. Valuation and Pricing Methods................................................................ 19

4. Investors’ Misunderstanding about the Actual Risk of Investing in Money 

Market Funds............................................................................................ 22

C. Effects on Other Money Market Funds, Investors, and the ShortTerm Financing Markets........................................................................................25

D. The Financial Crisis...............................................................................................29

E. Examination of Money Market Fund Regulation since the 

Financial Crisis ......................................................................................................33

1. The 2010 Amendments.............................................................................. 33

2. The Eurozone Debt Crisis and U.S. Debt Ceiling Impasses of 2011 and 

2013........................................................................................................... 35

3. Continuing Consideration of the Need for Additional Reforms................ 37

III. DISCUSSION ....................................................................................................................... 39

A. Liquidity Fees and Redemption Gates...................................................................39

1. Analysis of Certain Effects of Fees and Gates.......................................... 41

2. Terms of Fees and Gates........................................................................... 77

3. Exemptions to Permit Fees and Gates.................................................... 112

4. Amendments to Rule 22e-3...................................................................... 114

 1 Unless otherwise noted, all references to statutory sections are to the Investment Company Act, and all 

references to rules under the Investment Company Act, including rule 2a-7, will be to Title 17, Part 270 of 

the Code of Federal Regulations, 17 CFR Part 270. 
4

5. Operational Considerations Relating to Fees and Gates....................... 116

6. Tax Implications of Liquidity Fees ......................................................... 129

7. Accounting Implications ......................................................................... 133

B. Floating Net Asset Value .....................................................................................135

1. Introduction............................................................................................. 135

2. Summary of the Floating NAV Reform ................................................... 142

3. Certain Considerations Relating to the Floating NAV Reform .............. 144

4. Money Market Fund Pricing................................................................... 157

5. Amortized Cost and Penny Rounding for Stable NAV Funds................. 168

6. Tax and Accounting Implications of Floating NAV Money Market Funds

................................................................................................................. 171

7. Rule 10b-10 Confirmations..................................................................... 179

8. Operational Implications of Floating NAV Money Market Funds......... 182

9. Transition................................................................................................ 199

C. Effect on Certain Types of Money Market Funds and Other 

Entities.................................................................................................................202

1. Government Money Market Funds ......................................................... 202

2. Retail Money Market Funds.................................................................... 213

3. Municipal Money Market Funds............................................................. 243

4. Implications for Local Government Investment Pools............................ 258

5. Unregistered Money Market Funds Operating Under Rule 12d1-1....... 261

6. Master/Feeder Funds – Fees and Gates Requirements.......................... 267

7. Application of Fees and Gates to Other Types of Funds and Certain 

Redemptions............................................................................................ 268

D. Guidance on the Amortized Cost Method of Valuation and Other 

Valuation Concerns..............................................................................................277

1. Use of Amortized Cost Valuation............................................................ 278

2. Other Valuation Matters......................................................................... 281

E. Amendments to Disclosure Requirements..........................................................288

1. Required Disclosure Statement............................................................... 288

2. Disclosure of Tax Consequences and Effect on Fund Operations—

Floating NAV .......................................................................................... 300

3. Disclosure of Transition to Floating NAV.............................................. 302

4. Disclosure of the Effects of Fees and Gates on Redemptions................. 302

5. Historical Disclosure of Liquidity Fees and Gates................................. 306

6. Prospectus Fee Table.............................................................................. 314

7. Historical Disclosure of Affiliate Financial Support.............................. 315

8. Economic Analysis.................................................................................. 325

9. Website Disclosure.................................................................................. 335

F. Form N-CR ..........................................................................................................374

1. Introduction............................................................................................. 374

2. Part B: Defaults and Events of Insolvency ............................................. 376

3. Part C: Financial Support ...................................................................... 379

4. Part D: Declines in Shadow Price.......................................................... 393
5

5. Parts E, F, and G: Imposition and Lifting of Liquidity Fees and Gates. 398

6. Part H: Optional Disclosure................................................................... 407

7. Timing of Form N-CR............................................................................. 408

8. Economic Analysis.................................................................................. 413

G. Amendments to Form N-MFP Reporting Requirements.....................................435

1. Amendments Related to Rule 2a-7 Reforms............................................ 437

2. New Reporting Requirements ................................................................. 443

3. Clarifying Amendments........................................................................... 458

4. Public Availability of Information .......................................................... 462

5. Operational Implications of the N-MFP Amendments........................... 464

H. Amendments to Form PF Reporting Requirements.............................................466

1. Overview of Proposed Amendments to Form PF ................................... 469

2. Utility of New Information, Including Benefits, Costs, and Economic 

Implications............................................................................................. 475

I. Diversification......................................................................................................486

1. Treatment of Certain Affiliates for Purposes of Rule 2a-7’s Five Percent 

Issuer Diversification Requirement ........................................................ 488

2. ABS – Sponsors Treated as Guarantors................................................. 506

3. The Twenty-Five Percent Basket ............................................................ 517

J. Amendments to Stress Testing Requirements .....................................................552

1. Overview of Current Stress Testing Requirements and Proposed 

Amendments............................................................................................ 553

2. Stress Testing Metrics............................................................................. 556

3. Hypothetical Events Used in Stress Testing............................................ 566

4. Board Reporting Requirements............................................................... 583

5. Dodd-Frank Mandated Stress Testing................................................... 587

6. Economic Analysis.................................................................................. 588

K. Certain Macroeconomic Consequences of the New Amendments......................593

1. Effect on Current Investors in Money Market Funds............................. 596

2. Efficiency, Competition and Capital Formation Effects on the Money 

Market Fund Industry ............................................................................. 616

3. Effect of Reforms on Investment Alternatives, and the Short-Term 

Financing Markets.................................................................................. 622

L. Certain Alternatives Considered..........................................................................643

1. Liquidity Fees, Gates, and Floating NAV Alternatives........................... 644

2. Alternatives in the FSOC Proposed Recommendations.......................... 665

3. Alternatives in the PWG Report.............................................................. 687

M. Clarifying Amendments.......................................................................................701

1. Definitions of Daily Liquid Assets and Weekly Liquid Assets................ 703

2. Definition of Demand Feature................................................................ 707

3. Short-Term Floating Rate Securities...................................................... 709

4. Second Tier Securities............................................................................. 712

N. Compliance Dates................................................................................................713

1. Compliance Date for Amendments Related to Liquidity Fees and Gates713
6

2. Compliance Date for Amendments Related to Floating NAV................. 715

3. Compliance Date for Rule 30b1-8 and Form N-CR............................... 716

4. Compliance Date for Diversification, Stress Testing, Disclosure, Form 

PF, Form N-MFP, and Clarifying Amendments..................................... 718

IV. PAPERWORK REDUCTION ACT ......................................................................................... 720

A. Rule 2a-7..............................................................................................................722

1. Asset-Backed Securities.......................................................................... 723

2. Retail and Government Funds................................................................ 727

3. Board Determinations – Fees and Gates................................................ 730

4. Notice to the Commission ....................................................................... 733

5. Stress Testing .......................................................................................... 734

6. Website Disclosure.................................................................................. 740

7. Total Burden for Rule 2a-7..................................................................... 754

B. Rule 22e-3............................................................................................................755

C. Rule 30b1-7 and Form N-MFP............................................................................757

1. Discussion of Final Amendments............................................................ 757

2. Current Burden ....................................................................................... 759

3. Change in Burden ................................................................................... 759

D. Rule 30b1-8 and Form N-CR...............................................................................763

1. Discussion of New Reporting Requirements........................................... 763

2. Estimated Burden.................................................................................... 765

E. Rule 34b-1(a) .......................................................................................................779

F. Rule 482...............................................................................................................780

G. Form N-1A...........................................................................................................782

H. Advisers Act Rule 204(b)-1 and Form PF ...........................................................791

1. Discussion of Amendments ..................................................................... 792

2. Current Burden ....................................................................................... 793

3. Change in Burden ................................................................................... 794

V. REGULATORY FLEXIBILITY ACT CERTIFICATION ............................................................ 797

VI. UPDATE TO CODIFICATION OF FINANCIAL REPORTING POLICIES ..................................... 800

VII. STATUTORY AUTHORITY ................................................................................................. 801

TEXT OF RULES AND FORMS ............................................................................................... 802

I. INTRODUCTION

Money market funds are a type of mutual fund registered under the Investment Company 

Act and regulated pursuant to rule 2a-7 under the Act.2 Money market funds generally pay 

dividends that reflect prevailing short-term interest rates, are redeemable on demand, and, unlike 

 2 Money market funds are also sometimes called “money market mutual funds” or “money funds.”
7

other investment companies, seek to maintain a stable NAV, typically $1.00.3 This combination 

of principal stability, liquidity, and payment of short-term yields has made money market funds 

popular cash management vehicles for both retail and institutional investors. As of February 28, 

2014, there were approximately 559 money market funds registered with the Commission, and 

these funds collectively held over $3.0 trillion of assets.4 

Absent an exemption, as required by the Investment Company Act, all registered mutual 

funds must price and transact in their shares at the current NAV, calculated by valuing portfolio 

instruments at market value or, if market quotations are not readily available, at fair value as 

determined in good faith by the fund’s board of directors (i.e., use a floating NAV).5

 In 1983, 

the Commission codified an exemption to this requirement allowing money market funds to 

value their portfolio securities using the “amortized cost” method of valuation and to use the 

“penny-rounding” method of pricing.6

 Under the amortized cost method, a money market fund’s 

 3 See generally Valuation of Debt Instruments and Computation of Current Price Per Share by Certain 

Open-End Investment Companies (Money Market Funds), Investment Company Act Release No. 13380 

(July 11, 1983) [48 FR 32555 (July 18, 1983)] (“1983 Adopting Release”). Most money market funds seek 

to maintain a stable NAV of $1.00, but a few seek to maintain a stable NAV of a different amount, e.g., 

$10.00. For convenience, throughout this Release, the discussion will simply refer to the stable NAV of 

$1.00 per share.

4 Based on Form N-MFP data. SEC regulations require that money market funds report certain portfolio 

information on a monthly basis to the SEC on Form N-MFP. See rule 30b1-7.

5 See section 2(a)(41)(B) of the Act and rules 2a-4 and 22c-1. The Commission, however, has stated that it 

would not object if a mutual fund board of directors determines, in good faith, that the value of debt 

securities with remaining maturities of 60 days or less is their amortized cost, unless the particular 

circumstances warrant otherwise. See Accounting Series Release No. 219, Valuation of Debt Instruments 

by Money Market Funds and Certain Other Open- End Investment Companies, Financial Reporting 

Codification (CCH) section 404.05.a and .b (May 31, 1977) (“ASR 219”). We further discuss the use of 

amortized cost valuation by mutual funds in section III.B.5 below. 

6 See 1983 Adopting Release, supra note 3. Section 6(c) of the Investment Company Act provides the 

Commission with broad authority to exempt persons, securities or transactions from any provision of the 

Investment Company Act, or the regulations thereunder, if, and to the extent that such exemption is in the 

public interest and consistent with the protection of investors and the purposes fairly intended by the policy 

and provisions of the Investment Company Act. See Commission Policy and Guidelines for Filing of 
8

portfolio securities generally are valued at cost plus any amortization of premium or 

accumulation of discount, rather than at their value based on current market factors.7 The penny 

rounding method of pricing permits a money market fund when pricing its shares to round the 

fund’s NAV to the nearest one percent (i.e., the nearest penny).8 Together, these valuation and 

pricing techniques create a “rounding convention” that permits a money market fund to sell and 

redeem shares at a stable share price without regard to small variations in the value of the 

securities in its portfolio.9 Other types of mutual funds not regulated by rule 2a-7 generally must 

calculate their daily NAVs using market-based factors and cannot use penny rounding. 

When the Commission initially established the regulatory framework allowing money 

market funds to maintain a stable share price through use of the amortized cost method of 

valuation and/or the penny rounding method of pricing (so long as they abided by certain risklimiting conditions), it did so understanding the benefits that stable value money market funds 

provided as a cash management vehicle, particularly for smaller investors, and focused on 

minimizing dilution of assets and returns for shareholders.10 At that time, the Commission was 

 Applications for Exemption, SEC Release No. IC-14492 (Apr. 30, 1985).

7 See current rule 2a-7(a)(2). See also supra note 5. Throughout this Release when we refer to a rule as it 

exists prior to any amendments we are making today it is described as a “current rule” while references to a 

rule as amended (or one that is not being amended today) are to “rule.”

8 See current rule 2a-7(a)(20). 

9 Today, money market funds use a combination of the two methods so that, under normal circumstances, 

they can use the penny rounding method to maintain a price of $1.00 per share without pricing to the third 

decimal place like other mutual funds, and use the amortized cost method so that they need not strike a 

daily market-based NAV to facilitate intra-day transactions. See infra section III.A.1.a.

10 See Proceedings before the Securities and Exchange Commission in the Matter of InterCapital Liquid Asset 

Fund, Inc. et al., 3-5431, Dec. 28, 1978, at 1533 (Statement of Martin Lybecker, Division of Investment 

Management at the Securities and Exchange Commission) (stating that Commission staff had learned over 

the course of the hearings the strong preference of money market fund investors to have a stable share price 

and that with the right risk-limiting conditions, the Commission could limit the likelihood of a deviation 
9

persuaded that deviations of a magnitude that would cause material dilution generally would not 

occur given the risk-limiting conditions of the exemptive rule.11 As discussed throughout this 

Release, our historical experience with these funds, and the events of the 2007-2009 financial 

crisis12, has led us to re-evaluate the exemptive relief provided under rule 2a-7, including the 

exemption from the statutory floating NAV for some money market funds. 

Under rule 2a-7, money market funds seek to maintain a stable share price by limiting 

their investments to short-term, high-quality debt securities that fluctuate very little in value 

under normal market conditions. In exchange for the ability to rely on the exemptions provided 

by rule 2a-7, money market funds are subject to conditions designed to limit deviations between 

the fund’s $1.00 stable share price and the market-based NAV of the fund’s portfolio.13 Rule 2a7 requires that money market funds maintain a significant amount of liquid assets and invest in 

securities that meet the rule’s credit quality, maturity, and diversification requirements.14 For 

example, a money market fund’s portfolio securities must meet certain credit quality standards, 

 from that stable value, addressing Commission concerns about dilution); 1983 Adopting Release, supra 

note 3, at nn.42-43 and accompanying text (“[T]he provisions of the rule impose obligations on the board 

of directors to assess the fairness of the valuation or pricing method and take appropriate steps to ensure 

that shareholders always receive their proportionate interest in the money market fund.”). 

11 See id., at nn.41-42 and accompanying text (noting that witnesses from the original money market fund 

exemptive order hearings testified that the risk-limiting conditions, short of extraordinarily adverse 

conditions in the market, should ensure that a properly managed money market fund should be able to 

maintain a stable price per share and that rule 2a-7 is based on that representation).

12 Throughout this release, unless indicated otherwise, when we use the term “financial crisis” we are 

referring to the financial crisis that took place between 2007 and 2009. 

13 Throughout this Release, we generally use the term “stable share price” to refer to the stable share price 

that money market funds seek to maintain and compute for purposes of distribution, redemption, and 

repurchases of fund shares. 

14 See current rule 2a-7(c)(2), (3), (4), and (5).
10

such as posing minimal credit risks.15 The rule also places restrictions on the remaining maturity 

of securities in the fund’s portfolio to limit the interest rate and credit spread risk to which a 

money market fund may be exposed. A money market fund generally may not acquire any 

security with a remaining maturity greater than 397 days, the dollar-weighted average maturity 

of the securities owned by the fund may not exceed 60 days, and the fund’s dollar-weighted 

average life to maturity may not exceed 120 days.16 Money market funds also must maintain 

sufficient liquidity to meet reasonably foreseeable redemptions, generally must invest at least 

10% of their portfolios in assets that can provide daily liquidity, and invest at least 30% of their 

portfolios in assets that can provide weekly liquidity, as defined under the rule.

17 Finally, rule 

2a-7 also requires money market funds to diversify their portfolios by generally limiting the 

funds to investing no more than 5% of their portfolios in any one issuer and no more than 10% of 

their portfolios in securities issued by, or subject to guarantees or demand features (i.e., puts) 

from, any one institution.18

Rule 2a-7 also includes certain procedural standards overseen by the fund’s board of 

directors. These include the requirement that the fund periodically calculate the market-based 

value of the portfolio (“shadow price”)19 and compare it to the fund’s stable share price; if the 

 15 See current rule 2a-7(a)(12), (c)(3)(i).

16 Current Rule 2a-7(c)(2).

17 See current rule 2a-7(c)(5). As we discussed when we amended rule 2a-7 in 2010, the 10% daily liquid 

asset requirement does not apply to tax-exempt funds. See Money Market Fund Reform, Investment 

Company Act Release No. 29132 (Feb. 23, 2010) [75 FR 10060 (Mar. 4, 2010)] (“2010 Adopting 

Release”). See infra section III.E.3. 

18 See current rule 2a-7(c)(4). Because of limited availability of the securities in which they invest, 

tax-exempt funds have different diversification requirements under rule 2a-7 than other money market 

funds. 

19 See current rule 2a-7(c)(8)(ii)(A).
11

deviation between these two values exceeds 1⁄2 of 1 percent (50 basis points), the fund’s board of 

directors must consider what action, if any, should be taken by the board, including whether to 

re-price the fund’s securities above or below the fund’s $1.00 share price (an event colloquially 

known as “breaking the buck”).20

Different types of money market funds have been introduced to meet the different needs 

of money market fund investors. Historically, most investors have invested in “prime money 

market funds,” which generally hold a variety of taxable short-term obligations issued by 

corporations and banks, as well as repurchase agreements and asset-backed commercial paper.21 

“Government money market funds” principally hold obligations of the U.S. government, 

including obligations of the U.S. Treasury and federal agencies and instrumentalities, as well as 

repurchase agreements collateralized by government securities. Some government money 

market funds limit their holdings to only U.S. Treasury obligations or repurchase agreements 

collateralized by U.S. Treasury securities and are called “Treasury money market funds.” 

Compared to prime funds, government and Treasury money market funds generally offer greater 

safety of principal but historically have paid lower yields. “Tax-exempt money market funds” 

primarily hold obligations of state and local governments and their instrumentalities, and pay 

 20 See current rule 2a-7(c)(8)(ii)(A) and (B). Regardless of the extent of the deviation, rule 2a-7 imposes on 

the board of a money market fund a duty to take appropriate action whenever the board believes the extent 

of any deviation may result in material dilution or other unfair results to investors or current shareholders. 

Current rule 2a-7(c)(8)(ii)(C). In addition, the money market fund can use the amortized cost or pennyrounding methods only as long as the board of directors believes that they fairly reflect the market-based 

NAV. See rule 2a-7(c)(1).

21 See INVESTMENT COMPANY INSTITUTE, 2014 INVESTMENT COMPANY FACT BOOK, at 196, Table 37 (2014), 

available at http://www.ici.org/pdf/2014_factbook.pdf. 
12

interest that is generally exempt from federal income tax.

22

We first begin by reviewing the role of money market funds and the benefits they provide 

investors. We then review the economics of money market funds. This includes a discussion of 

several features of money market funds that, when combined, can create incentives for fund 

shareholders to redeem shares during periods of stress, as well as the potential impact that such 

redemptions can have on the fund and the markets that provide short-term financing.23 We then 

discuss money market funds’ experience during the financial crisis against this backdrop. We 

next analyze our 2010 reforms and their impact on the heightened redemption activity during the

2011 Eurozone sovereign debt crisis and 2011 and 2013 U.S. debt ceiling impasses. 

We used the analyses available to us, including the critically important analyses

contained in the report responding to certain questions posed by Commissioners Aguilar, 

Paredes, and Gallagher (“DERA Study”)24, in designing the reform proposals that we issued in 

2013 for additional regulation of money market funds. 25 The 2013 proposal sought to address 

certain features in money market funds that can make them susceptible to heavy redemptions, by 

providing money market funds with better tools to manage and mitigate potential contagion from 

 22 Unless the context indicates otherwise, references to “prime funds” throughout this Release include funds 

that are often referred to as “tax-exempt” or “municipal” funds. We discuss the particular features of such 

tax-exempt funds and why they are included in our reforms in detail in section III.C.3.

23 Throughout this Release, we generally refer to “short-term financing markets” to describe the markets for 

short-term financing of corporations, banks, and governments.

24 See Response to Questions Posed by Commissioners Aguilar, Paredes, and Gallagher, a report by staff of 

the Division of Risk, Strategy, and Financial Innovation (Nov. 30, 2012), available at

http://www.sec.gov/news/studies/2012/money-market-funds-memo-2012.pdf. The Division of Risk, 

Strategy, and Financial Innovation (“RSFI”) is now known as the Division of Economic and Risk Analysis 

(“DERA”), and accordingly we are no longer referring to this study as the “RSFI Study” as we did in the 

Proposing Release, but instead as the “DERA Study.” 

25 See Money Market Fund Reform; Amendments to Form PF, Release Nos. 33-9408; IA-3616; IC-30551 

(June 5, 2013) [78 FR 36834, (June 19, 2013)] (“Proposing Release”). 
13

high levels of redemptions, increasing the transparency of their risks, and improving risk sharing 

among investors, and also to preserve the ability of money market funds to function as an 

effective and efficient cash management tool for investors,.

26

We received over 1,400 comments27 on the proposal from a variety of interested parties 

including money market funds, investors, banks, investment advisers, government 

representatives, academics, and others.28 As discussed in greater detail in each section of this 

Release below, these commenters expressed a diversity of views. Many commenters expressed 

concern about the consequences of requiring a floating NAV for certain money market funds, 

suggesting, among other reasons, that it was a significant reform that would remove one of the 

most desirable features of these funds, and would impose numerous costs and operational 

burdens. However, others expressed support, noting that it was a targeted solution aimed at 

curbing the risks associated with the money market funds most susceptible to destabilizing runs. 

Most commenters supported requiring the imposition of liquidity fees and redemption gates in 

certain circumstances, suggesting that they would prevent runs at a minimal cost. However,

commenters also noted that fees and gates alone would not resolve certain of the features of 

money market funds that can incentivize heavy redemptions. Many commenters opposed 

combining the two alternatives into a single package, arguing that requiring money market funds 

to implement both reforms could decrease the utility of money market funds to investors. 

 26 The 2013 proposal also included amendments that would apply under each alternative, with additional 

changes to money market fund disclosure, diversification limits, and stress testing, among other reforms. 

See Proposing Release, supra note 25. We discuss these amendments below. 

27 Of these, more than 230 were individualized letters, and the rest were one of several types of form letters. 

28 Unless otherwise stated, all references to comment letters in this Release are to letters submitted on the 

Proposing Release in File No. S7-03-13 and are available at http://www.sec.gov/comments/s7-03-

13/s70313.shtml.
14

Commenters generally supported many of the other reforms we proposed, such as enhanced 

disclosure, new portfolio reporting requirements for large unregistered liquidity funds, and 

amendments to fund diversification requirements. 

 Today, after consideration of the comments received, we are removing the valuation 

exemption that permits institutional non-government money market funds (whose investors have 

historically made the heaviest redemptions in times of market stress) to maintain a stable NAV, 

and are requiring those funds to sell and redeem their shares based on the current market-based 

value of the securities in their underlying portfolios rounded to the fourth decimal place (e.g., 

$1.0000), i.e., transact at a “floating” NAV. We also are adopting amendments that will give the 

boards of directors of money market funds new tools to stem heavy redemptions by giving them

discretion to impose a liquidity fee of no more than 2% if a fund’s weekly liquidity level falls 

below the required regulatory amount, and are giving them discretion to suspend redemptions 

temporarily, i.e., to “gate” funds, under the same circumstances. These amendments will require 

all non-government money market funds to impose a liquidity fee of 1% if the fund’s weekly 

liquidity level falls below 10% of total assets, unless the fund’s board determines that imposing 

such a fee is not in the best interests of the fund (or that a higher fee up to 2% or a lower fee is in 

the best interests of the fund). In addition, we are adopting amendments designed to make 

money market funds more resilient by increasing the diversification of their portfolios, 

enhancing their stress testing, and increasing transparency by requiring them to report additional 

information to us and to investors. Finally, the amendments require investment advisers to 

certain large unregistered liquidity funds, which can have similar economic features as money 
15

market funds, to provide additional information about those funds to us.

29 

II. BACKGROUND

A. Role of Money Market Funds

As we discussed in the Proposing Release, the combination of principal stability, 

liquidity, and short-term yields offered by money market funds, which is unlike that offered by 

other types of mutual funds, has made money market funds popular cash management vehicles 

for both retail and institutional investors.30 Money market funds’ ability to maintain a stable 

share price contributes to their popularity. The funds’ stable share price facilitates their role as a 

cash management vehicle, provides tax and administrative convenience to both money market 

funds and their shareholders, and enhances money market funds’ attractiveness as an investment 

option.31 Due to their popularity with investors, money market fund assets have grown over 

time, providing them with substantial amounts of cash to invest. As a result, money market 

funds have become an important source of financing in certain segments of the short-term 

financing markets. As a result, rule 2a-7, in addition to facilitating money market funds’ 

maintenance of stable share prices, also benefits investors by making available an investment 

 29 We note that we have consulted and coordinated with the Consumer Financial Protection Bureau regarding 

this final rulemaking in accordance with section 1027(i)(2) of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act.

30 See Proposing Release supra note 25, at section II.A. Retail investors use money market funds for a variety 

of reasons, including, for example, to hold cash for short or long periods of time or to take a temporary 

“defensive position” in anticipation of declining equity markets. Institutional investors commonly use 

money market funds for cash management in part because, as discussed later in this Release, money market 

funds provide efficient diversified cash management due both to the scale of their operations and money 

market fund managers’ expertise. See infra notes 63-64 and accompanying text.

31 See, e.g., Comment Letter of UBS Global Asset Management (Sept. 16, 2013) (“UBS Comment Letter”) 

(“Historically, money funds have offered both retail and institutional investors a means of achieving a 

market rate of return on short-term investment without having to sacrifice stability of principal. The stable 

NAV per share also allows investors the convenience of not having to track immaterial gains and losses, 

and helps facilitate investment processes, such as sweep account arrangements...”). 
16

option that provides an efficient and diversified means for investors to participate in the shortterm financing markets through a portfolio of short-term, high-quality debt securities.

32 

In order for money market funds to use techniques to value and price their shares 

generally not permitted to other mutual funds, rule 2a-7 imposes additional protective conditions 

on money market funds.33 As discussed in the Proposing Release, these additional conditions are 

designed to make money market funds’ use of the valuation and pricing techniques permitted by 

rule 2a-7 consistent with the protection of investors, and more generally, to make available an 

investment option for investors that seek an efficient way to obtain short-term yields. 

We understand, and considered when developing the final amendments we are adopting

today, that money market funds are a popular investment product and that they provide many 

benefits to investors and to the short-term financing markets. Indeed, it is for these reasons that 

we designed these amendments to make the funds more resilient, as discussed throughout this 

Release, while preserving, to the extent possible, the benefits of money market funds. But as 

discussed in section III.K.1 below, we recognize that these reforms may make certain money 

market funds less attractive to some investors.

B. Certain Economic Features of Money Market Funds 

As discussed in detail in the Proposing Release, the combination of several features of 

money market funds can create an incentive for their shareholders to redeem shares heavily in 

 32 See, e.g., Comment Letter of the Investment Company Institute (Sept. 17, 2013) (“ICI Comment Letter”) 

(“Today over 61 million retail investors, as well as corporations, municipalities, and institutional investors 

rely on the $2.6 trillion money market fund industry as a low cost, efficient cash management tool that 

provides a high degree of liquidity, stability of principal value, and a market based yield.”). 

33 See, e.g., ICI Comment Letter (“Money market funds owe their success, in large part to the stringent 

regulatory requirements to which they are subject under federal securities laws, including most notably 

Rule 2a-7 under the Investment Company Act.”). 
17

periods of market stress. We discuss these factors below, as well as the harm that can result from 

such heavy redemptions in money market funds. 

1. Money Market Fund Investors’ Desire to Avoid Loss

Investors in money market funds have varying investment goals and tolerances for risk. 

Many investors use money market funds for principal preservation and as a cash management 

tool, and, consequently, these funds can attract investors who are less tolerant of incurring even 

small losses, even at the cost of forgoing higher expected returns.34 Such investors may be loss 

averse for many reasons, including general risk tolerance, legal or investment restrictions, or 

short-term cash needs. These overarching considerations may create incentives for money 

market fund investors to redeem and would be expected to persist, even if the other incentives 

discussed below, such as those created by money market fund valuation and pricing, are

addressed. 

The desire to avoid loss may cause investors to redeem from money market funds in 

times of stress in a “flight to quality.” For example, as discussed in the DERA Study, one 

explanation for the heavy redemptions from prime money market funds and purchases in 

government money market fund shares during the financial crisis may be a flight to quality, 

given that most of the assets held by government money market funds have a lower default risk 

than the assets of prime money market funds.35

 34 See, e.g., PWG Comment Letter of Investment Company Institute (Apr. 19, 2012) (available in File No. 

4-619) (“ICI Apr. 2012 PWG Comment Letter”) (enclosing a survey commissioned by the Investment 

Company Institute and conducted by Treasury Strategies, Inc. finding, among other things, that 94% of 

respondents rated safety of principal as an “extremely important” factor in their money market fund 

investment decisions and 64% ranked safety of principal as the “primary driver” of their money market 

fund investment). 

35 One study documented that investors redirected assets from prime money market funds into government 
18

2. Liquidity Risks

When investors begin to redeem a substantial amount of shares, a fund can experience a 

loss of liquidity. Money market funds, which offer investors the ability to redeem shares upon 

demand, often will first use internal liquidity to satisfy substantial redemptions. A money market 

fund has three sources of internal liquidity to meet redemption requests: cash on hand, cash from 

investors purchasing shares, and cash from maturing securities. If these internal sources of 

liquidity are insufficient to satisfy redemption requests on any particular day, money market 

funds may be forced to sell portfolio securities to raise additional cash.36 And because the 

secondary market for many portfolio securities is not deeply liquid, funds may have to sell 

securities at a discount from their amortized cost value, or even at fire-sale prices,37 thereby 

incurring additional losses that may have been avoided if the funds had sufficient internal 

 money market funds during September 2008. See Russ Wermers, et al., Runs on Money Market Funds

(Jan. 2, 2013), available at 

http://www.rhsmith.umd.edu/files/Documents/Centers/CFP/WermersMoneyFundRuns.pdf (“Wermers 

Study”). Another study found that redemption activity in money market funds during the financial crisis 

was higher for riskier money market funds. See Patrick E. McCabe, The Cross Section of Money Market 

Fund Risks and Financial Crises, Federal Reserve Board Finance and Economic Discussion Series Paper 

No. 2010-51 (2010) (“Cross Section”).

36 See, e.g., Comment Letter of Goldman Sachs Asset Management L.P. (Sept. 17, 2013) (“Goldman Sachs 

Comment Letter”) (“A money fund faced with heavy redemptions could suffer a loss of liquidity that 

would force the untimely sale of portfolio securities at losses.”). We note that, although the Investment 

Company Act permits a money market fund to borrow money from a bank, see section 18(f) of the 

Investment Company Act, such loans, assuming the proceeds of which are paid out to meet redemptions, 

create liabilities that must be reflected in the fund’s shadow price, and thus will contribute to the stresses 

that may force the fund to “break the buck.” 

37 Money market funds normally meet redemptions by disposing of their more liquid assets, rather than 

selling a pro rata slice of all their holdings. See, e.g., Jonathan Witmer, Does the Buck Stop Here? A 

Comparison of Withdrawals from Money Market Mutual Funds with Floating and Constant Share Prices, 

Bank of Canada Working Paper 2012-25 (Aug. 2012) (“Witmer”), available at

http://www.bankofcanada.ca/wp-content/uploads/2012/08/wp2012-25.pdf. “Fire sales” refer to situations 

when securities deviate from their information-efficient values typically as a result of sale price pressure. 

For an overview of the theoretical and empirical research on asset “fire sales,” see Andrei Shleifer & 

Robert Vishny, Fire Sales in Finance and Macroeconomics, 25 JOURNAL OF ECONOMIC PERSPECTIVES,

Winter 2011, at 29-48 (“Fire Sales”).
19

liquidity.38 This alone can cause a fund’s portfolio to lose value. In addition, redemptions that 

deplete a fund’s most liquid assets can have incremental adverse effects because the fund is left 

with fewer liquid assets, necessitating the sale of less liquid assets, potentially at a discount, to 

meet further redemption requests.39 Knowing that such liquidity costs may occur, money market 

fund investors may have an incentive to redeem quickly in times of stress to avoid realizing these 

potential liquidity costs, leaving remaining shareholders to bear these costs.

3. Valuation and Pricing Methods

Money market funds are unique among mutual funds in that rule 2a-7 permits them to use 

the amortized cost method of valuation and the penny-rounding method of pricing for their entire 

portfolios. As discussed above, these valuation and pricing techniques allow a money market 

fund to sell and redeem shares at a stable share price without regard to small variations in the 

value of the securities in its portfolio, and thus to maintain a stable $1.00 share price under most 

market conditions. 

Although the stable $1.00 share price calculated using these methods provides a close 

approximation to market value under normal market conditions, differences may exist when 

market conditions shift due to changes in interest rates, credit risk, and liquidity.40 The market 

 38 The DERA Study examined whether money market funds are more resilient to redemptions following the 

2010 reforms and notes that, “As expected, the results show that funds with a 30 percent [weekly liquid 

asset requirement] are more resilient to both portfolio losses and investor redemptions” than those funds 

without a 30 percent weekly liquid asset requirement. DERA Study, supra note 24, at 37.

39 See, e.g., Comment Letter of MSCI Inc. (Sept. 17, 2013) (“MSCI Comment Letter”) (“The need to provide 

liquidity provides another set of incentives, as early redeemers may exhaust the fund’s internal sources of 

liquidity (cash on hand, cash from maturing securities, etc.), leaving possibly distressed security sales as the 

only source of liquidity for late redeemers.”). 

40 We note that the vast majority of money market fund portfolio securities are not valued based on market 

prices obtained through secondary market trading because most portfolio securities such as commercial 

paper, repos, and certificates of deposit are not actively traded in a secondary market. Accordingly, most 
20

value of a money market fund’s portfolio securities also may experience relatively large changes 

if a portfolio asset defaults or its credit profile deteriorates.41 Today, unless the fund “breaks the 

buck,” market value differences are reflected only in a fund’s shadow price, and not the share 

price at which the fund satisfies purchase and redemption transactions. 

Deviations that arise from changes in interest rates and credit risk are temporary as long 

as securities are held to maturity, because amortized cost values and market-based values 

converge at maturity. But if a portfolio asset defaults or an asset sale results in a realized capital 

gain or loss, deviations between the stable $1.00 share price and the shadow price become 

permanent. For example, if a portfolio experiences a 25 basis point loss because an issuer 

defaults, the fund’s shadow price falls from $1.0000 to $0.9975. Even though the fund has not 

broken the buck, this reduction is permanent and can only be reversed internally in the event that 

the fund realizes a capital gain elsewhere in the portfolio, which generally is unlikely given the 

types of securities in which money market funds typically invest and the tax requirements for 

these funds.

42

If a money market fund’s shadow price deviates far enough from its stable $1.00 share 

price, investors may have an economic incentive to redeem their shares. For example, investors 

 

money market fund portfolio securities are valued largely through “mark-to-model” or “matrix pricing” 

estimates, which often use market inputs, as well as other factors in their pricing models. See Proposing 

Release, supra note 25, at n.27. See also infra section III.D.2. 

41 The credit quality standards in rule 2a-7 are designed to minimize the likelihood of such a default or credit 

deterioration.

42 In practice, a money market fund cannot use future portfolio earnings to restore its shadow price because 

Subchapter M of the Internal Revenue Code requires money market funds to distribute virtually all of their 

earnings to investors. These tax requirements can cause permanent reductions in shadow prices to persist 

over time, even if a fund’s other portfolio securities are otherwise unimpaired. 
21

may have an incentive to redeem shares when a fund’s shadow price is less than $1.00.43 If 

investors redeem shares when the shadow price is less than $1.00, the fund’s shadow price will 

decline even further because portfolio losses are spread across the remaining, smaller asset base. 

If enough shares are redeemed, a fund can “break the buck” due, in part, to heavy investor 

redemptions and the concentration of losses across a shrinking asset base.44 In times of stress, 

this alone provides an incentive for investors to redeem shares ahead of other investors: early 

redeemers get $1.00 per share, whereas later redeemers may get less than $1.00 per share even if 

the fund experiences no further losses.45

We note that although defaults in assets held by money market funds are low probability 

events, the resulting losses can lead to a fund breaking the buck if the default occurs in a position 

that is greater than 0.5% of the fund’s assets, as was the case in the Reserve Primary Fund’s 

investment in Lehman Brothers commercial paper in September 2008.46 And as discussed 

further in section III.C.2.a of this Release, money market funds hold significant numbers of such 

larger positions.47 

 43 See, e.g., Comment Letter of the Systemic Risk Council (Sept. 16, 2013) (“Systemic Risk Council 

Comment Letter”) (“If the fund’s assets are worth less than a $1.00- and you can redeem at $1.00- the 

remaining shareholders are effectively paying first movers to run. This embeds permanent losses in the 

fund for the remaining holders.”).

44 See, e.g., MSCI Comment Letter (“[W]hen a fund’s market-based NAV falls significantly below its stable 

NAV, an early redeemer not only benefits from this price discrepancy, but also puts downward pressure on 

the market-based NAV for the remaining investors (as the realized losses on the fund’s assets must be 

shared across a smaller investor base).”). 

45 For an example illustrating this incentive, see Proposing Release, supra note 25, at text following n.31.

46 For a detailed discussion of the financial crises, see generally DERA Study, supra note 24, at section 4.A.

47 The Financial Stability Oversight Council (“FSOC”), in formulating possible money market reform 

recommendations, solicited and received comments from the public (FSOC Comment File, File No. FSOC2012-0003, available at http://www.regulations.gov/#!docketDetail;D=FSOC-2012-0003), some of which 

have made similar observations about the concentration and size of money market fund holdings. See, e.g., 
22

4. Investors’ Misunderstanding about the Actual Risk of Investing in Money 

Market Funds

Lack of investor understanding and lack of complete transparency concerning the risks 

posed by particular money market funds can contribute to heavy redemptions during periods of 

stress. This lack of investor understanding and complete transparency can come from several 

different sources.

First, if investors do not know a fund’s shadow price and/or its underlying portfolio 

holdings (or if previous disclosures of this information are no longer accurate), investors may not 

be able to fully understand the degree of risk in the underlying portfolio.48 In such an 

environment, a default of a large-scale commercial paper issuer, such as a bank holding 

company, could accelerate redemption activity across many funds because investors may not 

know which funds (if any) hold defaulted securities. Investors may respond by initiating

redemptions to avoid potential rather than actual losses in a “flight to transparency.”49 Because

 

Comment Letter of Harvard Business School Professors Samuel Hanson, David Scharfstein, & Adi 

Sunderam (Jan. 8, 2013) (“Harvard Business School FSOC Comment Letter”) (noting that “prime MMFs 

mainly invest in money-market instruments issued by large, global banks” and providing information about 

the size of the holdings of “the 50 largest non-government issuers of money market instruments held by 

prime MMFs as of May 2012”). 

48 See, e.g., DERA Study, supra note 24, at 31 (stating that although disclosures on Form N-MFP have 

improved fund transparency, “it must be remembered that funds file the form on a monthly basis with no 

interim updates,” and that “[t]he Commission also makes the information public with a 60-day lag, which 

may cause it to be stale”). As discussed in section III.E.9.c, a number of money market funds have begun 

voluntarily disclosing information about their portfolio assets, liquidity, and shadow NAV on a more 

frequent basis than required, in part to address investor concerns regarding the staleness of information 

about fund holdings. The final amendments we are adopting today include a number of regulatory 

requirements designed to enhance transparency of money market risks, including daily disclosure of liquid 

assets, shareholder flows, current NAV and shadow NAV on fund websites, and elimination of the 60 day 

lag on public disclosure of Form N-MFP data. See infra section III.G.1. 

49 See Nicola Gennaioli, Andrei Shleifer & Robert Vishny, Neglected Risks, Financial Innovation, and 

Financial Fragility, 104 J. FIN. ECON. 453 (2012) (“A small piece of news that brings to investors’ minds 

the previously unattended risks catches them by surprise and causes them to drastically revise their 

valuations of new securities and to sell them....When investors realize that the new securities are false 
23

many money market funds hold securities from the same issuer, investors may respond to a lack 

of transparency about specific fund holdings by redeeming assets from funds that are believed to 

be holding the same or highly correlated positions.50 

Second, money market funds’ sponsors on a number of occasions have voluntarily 

chosen to provide financial support for their money market funds. 51 The reasons that sponsors 

have done so include keeping a fund from re-pricing below its stable value, protecting the 

sponsors’ reputations or brands, and increasing a fund’s shadow price if its sponsor believes 

investors avoid funds that have low shadow prices. Prior to the changes that we are adopting 

today, funds were not required to disclose instances of sponsor support outside of financial 

statements; as a result, sponsor support has not been fully transparent to investors and this, in 

turn, may have lessened some investors’ understanding of the risk in money market funds.52

 

substitutes for the traditional ones, they fly to safety, dumping these securities on the market and buying the 

truly safe ones.”). 

50 See Comment Letter of Federal Reserve of Boston (Sept. 12, 2013) (“Boston Federal Reserve Comment 

Letter”) (“Investors in other MMMFs may in turn run if they perceive that their funds are similar (e.g.

similar portfolio composition, similar maturity profile, similar investor concentration) to the fund that 

experienced the initial run.”); see infra notes 58-59 and accompanying text. Based on Form N-MFP data as 

of February 28, 2014, there were 27 different issuers whose securities were held by more than 100 prime 

money market funds.

51 In the Proposing Release we requested comment on amending rule 17a-9 (which allows for discretionary 

support of money market funds by their sponsors and other affiliates) to potentially restrict the practice of 

sponsor support, but did not propose any specific changes. Most commenters who addressed our request 

for comment on amending rule 17a-9 opposed making any changes to rule 17a-9, arguing that the 

transactions facilitated by the rule are in the best interests of the shareholders. See Comment Letter of the 

Investment Company Institute (Sept. 17, 2013) (“ICI Comment Letter”); Comment Letter of the Dreyfus 

Corporation (Sept. 17, 2013) (“Dreyfus Comment Letter”); Comment Letter of American Bar Association 

Business Law Section (Sept. 30, 2013) (“ABA Business Law Comment Letter”). One commenter 

supported amending rule 17a-9, arguing that these transactions can result in shareholders having unjustified 

expectations of future support being provided by sponsors. Comment Letter of HSBC Global Asset 

Management (Sept. 17, 2013) (“HSBC Comment Letter”). In light of these comments, we are not 

amending rule 17a-9 at this time. See also infra section III.E.7.a.

52 See, e.g., HSBC Comment Letter (“[A] level of ambiguity about who owns the risk when investing in a 

MMF has developed amongst some investors. Some investors have been encouraged to expect sponsors to 
24

Instances of discretionary sponsor support were relatively common during the financial 

crisis. For example, during the period from September 16, 2008 to October 1, 2008, a number of 

money market fund sponsors purchased large amounts of portfolio securities from their money 

market funds or provided capital support to the funds (or received staff no-action assurances in 

order to provide support).53 But the financial crisis is not the only instance in which some money 

market funds have come under strain, although it is unique in the number of money market funds 

that requested or received sponsor support.54 As noted in the Proposing Release, since 1989, 11 

other financial events have been sufficiently adverse that certain fund sponsors chose to provide 

support or to seek staff no-action assurances in order to provide support, potentially affecting 

158 different money market funds.

55

Finally, the government assistance provided to money market funds during the financial 

 support their MMFs. Such expectations cannot be enforced, since managers are under no obligation to 

support their funds, and consequently leads some investors to misunderstand and misprice the risks they are 

subject to.”) (emphasis in original). 

53 Our staff estimated that during the period from August 2007 to December 31, 2008, almost 20% of all 

money market funds received some support (or staff no-action assurances concerning support) from their 

money managers or their affiliates. We note that not all such support required no-action assurances from 

Commission staff (for example, fund affiliates were able to purchase defaulted Lehman Brothers securities 

from fund portfolios under rule 17a-9 under the Investment Company Act without the need for any noaction assurances). See, e.g., http://www.sec.gov/divisions/investment/im-noaction.shtml#money. 

Commission staff provided no-action assurances to 100 money market funds in 18 different fund groups so 

that the fund groups could enter into such arrangements. Although a number of advisers to money market 

funds obtained staff no-action assurances in order to provide sponsor support, several did not subsequently 

provide the support because it was not necessary. See, e.g., Comment Letter of the Dreyfus Corporation 

(Aug. 7, 2012) (available in File No. 4 619) (“Dreyfus III Comment Letter”) (stating that no-action relief to 

provide sponsor support “was sought by many money funds as a precautionary measure”). 

54 See Moody’s Investors Service Special Comment, Sponsor Support Key to Money Market Funds (Aug. 9, 

2010) (“Moody’s Sponsor Support Report”). Interest rate changes, issuer defaults, and credit rating 

downgrades can lead to significant valuation losses for individual funds. 

55 See Proposing Release, supra note 25, at section II.B.3. We note, as discussed more fully in the Proposing 

Release, that although these events affected money market funds and their sponsors, there is no evidence 

that these events caused systemic problems, most likely because the events were isolated either to a single 

entity or class of security and because sponsor support prevented any funds from breaking the buck. 
25

crisis may have contributed to investors’ perceptions that the risk of loss in money market funds 

is low. 56 If investors perceive that money market funds have an implicit government guarantee, 

they may believe that money market funds are safer investments than they in fact are and may 

underestimate the potential risk of loss.57

C. Effects on Other Money Market Funds, Investors, and the Short-Term 

Financing Markets

In this section, we discuss how stress at one money market fund can be positively 

correlated across money market funds in at least two ways. Some market observers have noted 

that if a money market fund suffers a loss on one of its portfolio securities—whether because of 

a deterioration in credit quality, for example, or because the fund sold the security at a discount 

to its amortized-cost value—other money market funds holding the same security may have to 

reflect the resultant discounts in their shadow prices.58 Any resulting decline in the shadow 

prices of other funds could, in turn, lead to a contagion effect that could spread even further as 

investors run from money market funds in general. For example, some commenters have 

observed that many money market fund holdings tend to be highly correlated, making it more 

likely that multiple money market funds will experience contemporaneous decreases in shadow

prices.59

 56 For a further discussion of issues related to money market fund sponsor support and its effect on investors’ 

perception, see Proposing Release, supra note 25, at nn.60-61 and accompanying text.

57 See, e.g., HSBC Comment Letter. 

58 See generally Douglas W. Diamond & Raghuram G. Rajan, Fear of Fire Sales, Illiquidity Seeking, and 

Credit Freezes, 126 Q. J. ECON. 557 (May 2011); Fire Sales, supra note 37; Markus Brunnermeier, et al., 

The Fundamental Principles of Financial Regulation, in GENEVA REPORTS ON THE WORLD ECONOMY 11 

(2009). 

59 See, e.g., Boston Federal Reserve Comment Letter (discussing the relative homogeneity of money market 

funds holdings, and noting that as of the end of June 2013, the 20 largest corporate issuers accounted for 
26

As discussed above, in times of stress, if investors do not wish to be exposed to a 

distressed issuer (or correlated issuers) but do not know which money market funds own these 

distressed securities at any given time, investors may redeem from any money market fund that 

could own the security (e.g., redeeming from all prime funds).60 A fund that did not own the 

security and was not otherwise under stress could nonetheless experience heavy redemptions 

which, as discussed above, could themselves ultimately cause the fund to experience losses if it 

does not have adequate liquidity. 

As was experienced by money market funds during the financial crisis, liquidity-induced 

contagion may have negative effects on investors and the markets for short-term financing of 

corporations, banks, and governments. This is in large part because of the significance of money 

market funds’ role in the short-term financing markets.61 Indeed, money market funds had 

experienced steady growth before the financial crisis, driven in part by growth in the size of 

institutional cash pools, which grew from under $100 billion in 1990 to almost $4 trillion just 

before the financial crisis.62 Money market funds’ suitability for cash management operations 

 

approximately 44 percent of prime money market funds’ assets); Comment Letter of Americans for 

Financial Reform (Sept. 17, 2013) (“Americans for Fin. Reform Comment Letter”) (discussing a study 

estimating that 97 percent of non-governmental assets of prime money market funds consists of financial 

sector commercial paper); Comment Letter of Better Markets, Inc. (Feb. 15, 2013) (available in File No. 

FSOC-2012-0003) (“Better Markets FSOC Comment Letter”) (agreeing with FSOC’s analysis and stating 

that “MMFs tend to have similar exposures due to limits on the nature of permitted investments. As a 

result, losses creating instability and a crisis of confidence in one MMF are likely to affect other MMFs at 

the same time.”). 

60 See, e.g., Wermers Study, supra note 35 (based on an empirical analysis of data from the 2008 run on 

money market funds, finding that, during 2008, “[f]unds that cater to institutional investors, which are the 

most sophisticated and informed investors, were hardest hit,” and that “investor flows from money market 

funds seem to have been driven both by strategic externalities...and information.”).

61 See infra section III.K.3 for statistics on the types and percentages of outstanding short-term debt 

obligations held by money market funds.

62 See Proposing Release supra note 25, at nn.70-71. 
27

also has made them popular among corporate treasurers, municipalities, and other institutional 

investors, some of which rely on money market funds for their cash management operations 

because the funds provide diversified cash management more efficiently due both to the scale of 

their operations and the expertise of money market fund managers.

63 For example, according to 

one survey, approximately 16% of organizations’ short-term investments were allocated to 

money market funds (and, according to this survey, this figure is down from almost 40% in 2008 

due in part to the reallocation of cash investments to bank deposits following temporary 

unlimited Federal Deposit Insurance Corporation deposit insurance for non-interest bearing bank 

transaction accounts, which expired at the end of 2012).64

Money market funds’ size and significance in the short-term markets, together with their 

features that can create an incentive to redeem as discussed above, have led to concerns that 

 63 See, e.g., U.S. Securities and Exchange Commission, Roundtable on Money Market Funds and Systemic 

Risk, unofficial transcript (May 10, 2011), available at http://www.sec.gov/spotlight/mmf-risk/mmf-risktranscript-051011.htm (“Roundtable Transcript”) (Kathryn L. Hewitt, Government Finance Officers 

Association) (“Most of us don’t have the time, the energy, or the resources at our fingertips to analyze the 

credit quality of every security ourselves. So we’re in essence, by going into a pooled fund, hiring that 

expertise for us...it gives us diversification, it gives us immediate cash management needs where we can 

move money into and out of it, and it satisfies much of our operating cash investment opportunities.”); see 

also Proposing Release supra note 25, at n.72. 

64 See 2013 Association for Financial Professionals Liquidity Survey, at 15, available at

http://www.afponline.org/liquidity (subscription required) (“2013 AFP Liquidity Survey”). The size of this 

allocation to money market funds is down substantially from prior years. For example, prior AFP Liquidity 

Surveys show higher allocations of organizations’ short-term investments to money market funds: almost 

40% in the 2008 survey, approximately 25% in the 2009 and 2010 surveys, almost 30% in the 2011 survey, 

and 16% in the 2012 survey. This shift has largely reflected a re-allocation of cash investments to bank 

deposits, which rose from representing 25% of organizations’ short-term investment allocations in the 2008 

Association for Financial Professionals Liquidity Survey, available at 

http://www.afponline.org/pub/pdf/2008_Liquidity_Survey.pdf (“2008 AFP Liquidity Survey”), to 50% of 

organizations’ short-term investment allocations in the 2013 survey. The 2012 survey noted that some of 

this shift has been driven by the temporary unlimited FDIC deposit insurance coverage for non-interest 

bearing bank transaction accounts (which expired at the end of 2012) and in which assets have remained 

despite the expiration of the insurance. See 2013 AFP Liquidity Survey. As of February 28, 2014, 

approximately 67% of money market fund assets were held in money market funds or share classes 

intended to be sold to institutional investors according to iMoneyNet data. All of the AFP Liquidity 

Surveys are available at http://www.afponline.org.
28

money market funds may contribute to systemic risk. Heavy redemptions from money market 

funds during periods of financial stress can remove liquidity from the financial system, 

potentially disrupting other markets. Issuers may have difficulty obtaining capital in the shortterm markets during these periods because money market funds are focused on meeting 

redemption requests through internal liquidity generated either from maturing securities or cash 

from subscriptions, and thus may be purchasing fewer short-term debt obligations.65 To the 

extent that multiple money market funds experience heavy redemptions, the negative effects on 

the short-term markets can be magnified. Money market funds’ experience during the financial 

crisis illustrates the impact of heavy redemptions, as we discuss in more detail below.

Heavy redemptions in money market funds may disproportionately affect slow-moving 

shareholders because, as discussed further below, redemption data from the financial crisis show 

that some institutional investors are likely to redeem from distressed money market funds far 

more quickly than other investors and to redeem a greater percentage of their prime fund 

holdings.66 This likely is because some institutional investors generally have more capital at 

stake, along with sophisticated tools and professional staffs to monitor risk. Because of their 

proportionally larger investments, just a few institutional investors submitting redemption 

requests may have a significant effect on a money market fund’s liquidity, while it may take 

many more retail investors, with their typically smaller investments sizes, to cause similar 

 65 See supra text preceding and accompanying note 36. Although money market funds also can build 

liquidity internally by retaining (rather than investing) cash from investors purchasing shares, this is not 

likely to be a material source of liquidity for a distressed money market fund experiencing heavy 

redemptions as a stressed fund may be unlikely to be receiving significant investor purchases during such a 

time.

66 See Money Market Fund Reform, Investment Company Act Release No. 28807 (June 30, 2009) [74 FR 

32688 (July 8, 2009)] (“2009 Proposing Release”), at nn.46-48 and 178 and accompanying text. 
29

negative consequences. Slower-to-redeem shareholders may be harmed because, as discussed 

above, redemptions at a money market fund can concentrate existing losses in the fund or create 

new losses if the fund must sell assets at a discount to obtain liquidity to satisfy redemption 

requests. In both cases, redemptions leave the fund’s portfolio more likely to lose value, to the 

detriment of slower-to-redeem investors.67 Retail investors—who tend to be slower moving—

also could be harmed if market stress begins at an institutional money market fund and spreads to 

other funds, including funds composed solely or primarily of retail investors.68

D. The Financial Crisis 

The financial crisis in many respects demonstrates the various considerations discussed 

above in sections B and C, including the potential implications and harm associated with heavy

redemption from money market funds.69 On September 16, 2008, the day after Lehman Brothers 

Holdings Inc. announced its bankruptcy, The Reserve Fund announced that its Primary Fund—

which held a $785 million (or 1.2% of the fund’s assets) position in Lehman Brothers 

commercial paper—would “break the buck” and price its securities at $0.97 per share.70 At the 

 67 See, e.g., DERA Study, supra note 24, at 10 (“Investor redemptions during the financial crisis, particularly 

after Lehman’s failure, were heaviest in institutional share classes of prime money market funds, which 

typically hold securities that are illiquid relative to government funds. It is possible that sophisticated 

investors took advantage of the opportunity to redeem shares to avoid losses, leaving less sophisticated 

investors (if co-mingled) to bear the losses.”).

68 As discussed further below, retail money market funds experienced a lower level of redemptions in 2008 

than institutional money market funds, although the full predictive power of this empirical evidence is 

tempered by the introduction of the Department of Treasury’s (“Treasury Department”) temporary 

guarantee program for money market funds, which may have prevented heavier shareholder redemptions 

among generally slower-to-redeem retail investors. See infra note 80. 

69 See generally DERA Study, supra note 24, at section 3. See also 2009 Proposing Release supra note 66, at 

section I.D. 

70 See also 2009 Proposing Release, supra note 66, at n.44 and accompanying text. We note that the Reserve 

Primary Fund’s assets have been returned to shareholders in several distributions made over a number of 

years. We understand that assets returned constitute approximately 99% of the fund’s assets as of the close 
30

same time, there was turbulence in the market for financial sector securities as a result of other 

financial company stresses, including, for example, the near failure of American International 

Group (“AIG”), whose commercial paper was held by many prime money market funds. 71 

Heavy redemptions in the Reserve Primary Fund were followed by heavy redemptions 

from other Reserve money market funds,

72 and soon other institutional prime money market 

funds also began to experience heavy redemptions.73 During the week of September 15, 2008 

(the week that Lehman Brothers announced it was filing for bankruptcy), investors withdrew 

approximately $300 billion from prime money market funds or 14% of the assets in those 

funds.74 During that time, fearing further redemptions, money market fund managers began to 

retain cash rather than invest in commercial paper, certificates of deposit, or other short-term 

instruments.75 Short-term financing markets froze, impairing access to credit, and those who 

 

of business on September 15, 2008, including the income earned during the liquidation period. See, e.g.,

Consolidated Class Action Complaint, In Re The Reserve Primary Fund Sec. & Derivative Class Action 

Litig., No. 08-CV-8060-PGG (S.D.N.Y. Jan. 5, 2010). A class action suit brought on behalf of the Reserve 

Fund shareholders was settled in 2013. See Nate Raymond, Settlement Reached in Reserve Primary Fund 

Lawsuit, REUTERS (Sept. 7, 2013) available at http://www.reuters.com/article/2013/09/07/usreserveprimary-lawsuit-idUSBRE98604Q20130907. 

71 In addition to Lehman Brothers and AIG, there were other stresses in the market as well, as discussed in 

greater detail in the DERA Study. See generally DERA Study, supra note 24, at section 3.

72 See 2009 Proposing Release, supra note 66, at section I.D.

73 See DERA Study, supra note 24, at section 3. 

74 See INVESTMENT COMPANY INSTITUTE, REPORT OF THE MONEY MARKET WORKING 

GROUP, at 62 (Mar. 17, 2009), available at http://www.ici.org/pdf/ppr_09_mmwg.pdf (“ICI REPORT”) 

(analyzing data from iMoneyNet). The latter figure describes aggregate redemptions from all prime money 

market funds. Some money market funds had redemptions well in excess of 14% of their assets. Based on 

iMoneyNet data (and excluding the Reserve Primary Fund), the maximum weekly redemptions from a 

money market fund during the financial crisis was over 64% of the fund’s assets. 

75 See Philip Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, at 31 

(Spring 2009) (conference draft), available at 

http://www.brookings.edu/~/media/projects/bpea/spring%202009/2009a_bpea_swagel.pdf; Christopher 

Condon & Bryan Keogh, Funds’ Flight from Commercial Paper Forced Fed Move, BLOOMBERG, Oct. 

7, 2008, available at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5hvnKFCC_pQ. 
31

were still able to access short-term credit often did so only at overnight maturities.76 

Figure 1, below, provides context for the redemptions that occurred during the financial 

crisis. Specifically, it shows daily total net assets over time, where the vertical line indicates the 

date that Lehman Brothers filed for bankruptcy, September 15, 2008. Investor redemptions 

during the financial crisis, particularly after Lehman’s failure, were heaviest in institutional share 

classes of prime money market funds, which typically hold securities that are less liquid and of 

lower credit quality than those typically held by government money market funds. The figure 

shows that institutional share classes of government money market funds, which include 

Treasury and government funds, experienced heavy inflows.77 The aggregate level of retail 

investor redemption activity, in contrast, was not particularly high during September and October 

2008, as shown in Figure 1.78

 76 See 2009 Proposing Release, supra note 66, at nn.51-53 & 65-68 and accompanying text (citing to minutes 

of the Federal Open Market Committee, news articles, Federal Reserve Board data on commercial paper 

spreads over Treasury bills, and books and academic articles on the financial crisis). Commenters have 

stated that money market funds were not the only investors in the short-term financing markets that reduced 

or halted investment in commercial paper and other riskier short-term debt securities during the financial 

crisis. See, e.g., Comment Letter of Investment Company Institute (Jan. 24, 2013) (available in File No. 

FSOC-2012-0003) (“ICI Jan. 24 FSOC Comment Letter”).

77 As discussed in section III.C.1 government money market funds historically have faced different 

redemption pressures in times of stress and have different risk characteristics than other money market 

funds because of their unique portfolio composition, which typically have lower credit default risk and 

greater liquidity than non-government portfolio securities typically held by money market funds.

78 We understand that iMoneyNet differentiates retail and institutional money market funds based on factors 

such as minimum initial investment amount and how the fund provider self-categorizes the fund, which 

does not necessarily correlate with how we define retail funds in this Release.
32

Figure 1

On September 19, 2008, the U.S. Department of the Treasury (“Treasury Department”) 

announced a temporary guarantee program (“Temporary Guarantee Program”), which would use 

the $50 billion Exchange Stabilization Fund to support more than $3 trillion in shares of money 

market funds, and the Board of Governors of the Federal Reserve System authorized the 

temporary extension of credit to banks to finance their purchase of high-quality asset-backed 

commercial paper from money market funds.79 These programs successfully slowed 

redemptions in prime money market funds and provided additional liquidity to money market 

funds. As discussed in the Proposing Release, the disruptions to the short-term markets detailed 

above could have continued for a longer period of time but for these programs.80

 79 See 2009 Proposing Release, supra note 66, at nn.55-59 and accompanying text for a fuller description of 

the various forms of governmental assistance provided to money market funds during this time.

80 See Proposing Release supra note 25 at n.91. 
33

E. Examination of Money Market Fund Regulation since the Financial Crisis

1. The 2010 Amendments

After the events of the financial crisis, in March 2010, we adopted a number of 

amendments to rule 2a-7.81 These amendments were designed to make money market funds 

more resilient by reducing the interest rate, credit, and liquidity risks of fund asset portfolios.82 

More specifically, the amendments decreased money market funds’ credit risk exposure by 

further restricting the amount of lower quality securities that funds can hold.83 The amendments, 

for the first time, also required that money market funds maintain liquidity buffers in the form of 

specified levels of daily and weekly liquid assets.84 These liquidity buffers provide a source of 

internal liquidity and are intended to help funds withstand high levels of redemptions during 

times of market illiquidity. The amendments also reduce money market funds’ exposure to 

 81 2010 Adopting Release, supra note 17.

82 Commenters have noted the importance of the 2010 reforms in enhancing the resiliency of money market 

funds. See, e.g., Comment Letter of Invesco Ltd. (Sept. 17, 2013) (“Invesco Comment Letter”) (“In 

evaluating the reforms contained in the Proposed Rule it is also important to take into account the 

significant impact of the reforms implemented by the Commission in 2010, which amounted to a 

comprehensive overhaul of the regulatory framework governing MMFs.”). 

83 Specifically, the amendments placed tighter limits on a money market fund’s ability to acquire “second 

tier” securities by (1) restricting a money market fund from investing more than 3% of its assets in second 

tier securities (rather than the previous limit of 5%), (2) restricting a money market fund from investing 

more than 1⁄2 of 1% of its assets in second tier securities issued by any single issuer (rather than the previous 

limit of the greater of 1% or $1 million), and (3) restricting a money market fund from buying second tier 

securities that mature in more than 45 days (rather than the previous limit of 397 days). See rule 

2a-7(c)(3)(ii) and (c)(4)(i)(C). Second tier securities are eligible securities that, if rated, have received 

other than the highest short-term term debt rating from the requisite NRSROs or, if unrated, have been 

determined by the fund’s board of directors to be of comparable quality. See current rule 2a-7(a)(24) 

(defining “second tier security”); current rule 2a-7(a)(12) (defining “eligible security”); current rule 2a7(a)(23) (defining “requisite NRSROs”). Today, in a companion release, we are also re-proposing to 

remove NRSRO rating references from rule 2a-7 and Form N-MFP. 

84 The requirements are that, for all taxable money market funds, at least 10% of assets must be in cash, U.S. 

Treasury securities, or securities that convert into cash (e.g., mature) within one day and, for all money 

market funds, at least 30% of assets must be in cash, U.S. Treasury securities, certain other Government 

securities with remaining maturities of 60 days or less, or securities that convert into cash within one week. 

See current rule 2a-7(c)(5)(ii) and (iii).
34

interest rate risk by decreasing the maximum weighted average maturities of fund portfolios 

from 90 to 60 days.85 

In addition to reducing the risk profile of the underlying money market fund portfolios, 

the reforms increased the amount of information that money market funds are required to report 

to the Commission and the public. Money market funds are now required to submit to the 

Commission monthly information on their portfolio holdings using Form N-MFP.86 This 

information allows the Commission, investors, and third parties to monitor compliance with rule 

2a-7 and to better understand and monitor the underlying risks of money market fund portfolios. 

Money market funds also are now required to post portfolio information on their websites each 

month, providing investors with important information to help them make better-informed 

investment decisions.87 

Finally, the 2010 amendments require money market funds to undergo stress tests under 

the direction of the board of directors on a periodic basis.88 Under this stress testing requirement, 

each fund must periodically test its ability to maintain a stable NAV per share based upon certain 

hypothetical events, including an increase in short-term interest rates, an increase in shareholder 

redemptions, a downgrade of or default on portfolio securities, and widening or narrowing of 

spreads between yields on an appropriate benchmark selected by the fund for overnight interest 

rates and commercial paper and other types of securities held by the fund. This reform was 

 85 The 2010 amendments also introduced a weighted average life requirement of 120 days, which limits the 

money market fund’s ability to invest in longer-term floating rate securities. See current rule 2a-7(c)(2)(ii) 

and (iii).

86 See current rule 30b1-7.

87 See current rule 2a-7(c)(12).

88 See current rule 2a-7(c)(10)(v).
35

intended to provide money market fund boards and the Commission a better understanding of the 

risks to which the fund is exposed and give fund managers a tool to better manage those risks.89

2. The Eurozone Debt Crisis and U.S. Debt Ceiling Impasses of 2011 and 

2013

Several significant market events since our 2010 reforms have permitted us to evaluate 

the efficacy of those reforms. Specifically, in the summer of 2011, the Eurozone sovereign debt 

crisis and an impasse over the U.S. Government’s debt ceiling unfolded, and during the fall of 

2013 another U.S. Government debt ceiling impasse occurred. 

While it is difficult to isolate the effects of the 2010 amendments, these events highlight 

the potential increased resilience of money market funds after the reforms were adopted. Most 

significantly, no money market fund needed to re-price below its stable $1.00 share price. As 

discussed in greater detail in the Proposing Release, as a result of concerns about exposure to 

European financial institutions, in the summer of 2011, prime money market funds began 

experiencing substantial redemptions.90 But unlike September 2008, money market funds did not 

experience meaningful capital losses in the summer of 2011 (or as discussed below, in the fall of

2013), and the funds’ shadow prices did not deviate significantly from the funds’ stable share 

prices. Also unlike in 2008, money market funds had sufficient liquidity to satisfy investors’ 

 89 See 2009 Proposing Release, supra note 66, at section II.C.3.

90 See Proposing Release supra note 25, at section II.D.2; DERA Study, supra note 24, at 32. Assets held by 

prime money market funds declined by approximately $100 billion (or 6%) during a three-week period 

beginning June 14, 2011. Some prime money market funds had redemptions of almost 20% of their assets 

in each of June, July, and August 2011, and one fund had redemptions of 23% of its assets during that 

period after articles began to appear in the financial press that warned of indirect exposure of money 

market funds to Greece. Investors purchased shares of government money market funds in late June and 

early July in response to these concerns, but then began redeeming government money market fund shares 

in late July and early August, likely as a result of concerns about the U.S. debt ceiling impasse and possible 

ratings downgrades of government securities. See Proposing Release supra note 25, at section II.D.2. 
36

redemption requests, which were submitted at a lower rate and over a longer period than in 2008, 

suggesting that the 2010 amendments acted as intended to enhance the resiliency of money 

market funds.91 

In 2013, another debt ceiling impasse took place,92 although over a longer time period 

and without the Eurozone crisis as a backdrop. During the worst two-week period of the 2013 

crisis, October 3rd through October 16th, government and treasury money market funds 

experienced combined outflows of $54.4 billion, which was 6.1% of total assets, with

approximately 1.5% of assets flowing out of these funds on October 11th, the single worst day 

for outflows of the 2013 impasse. Importantly, despite these outflows, fund shadow prices were 

largely unaffected during this time period. Once the impasse was resolved, assets flowed back 

into these funds, returning government and treasury money market funds to a pre-crisis asset 

level before the end of the year, indicating their resiliency.

93

Although money market funds’ experiences differed in 2008 and in the Eurozone crisis,

the heavy redemptions money market funds experienced in both periods appear to have 

negatively affected the markets for short-term financing in similar ways. Academics researching 

these issues have found, as detailed in the DERA Study, that “creditworthy issuers may 

encounter financing difficulties because of risk taking by the funds from which they raise 

 91 DERA Study, supra note 24, at 33-34. We note that the redemptions in the summer of 2011 also did not 

take place against the backdrop of a broader financial crisis, and therefore may have reflected more targeted 

concerns by investors (concern about exposure to the Eurozone and U.S. government securities as the debt 

ceiling impasse unfolded). Money market funds’ experience in 2008, in contrast, may have reflected a 

broader range of concerns as reflected in the DERA Study, which discusses a number of possible 

explanations for redemptions during the financial crisis. Id. at 7-13.

92 See, e.g., MONEY-MARKET FUNDS SHINE DURING DEBT LIMIT CRISIS (10/25/2013), available at 

http://www.imoneynet.com/news/280.aspx. 

93 These statistics are based on an analysis of information from Crane Data. See also infra section III.C.1. 
37

financing”; “local branches of foreign banks reduced lending to U.S. entities in 2011”; and that 

“European banks that were more reliant on money funds experienced bigger declines in dollar 

lending.”94 Thus, while such redemptions often exemplify rational risk management by money 

market fund investors, they can also have certain contagion effects on the short-term financing 

markets. Again, despite these similar effects, the 2010 reforms demonstrated that money market 

funds are potentially more resilient today than in 2008.

3. Continuing Consideration of the Need for Additional Reforms

As discussed in greater detail in the Proposing Release, when we adopted the 2010 

amendments, we acknowledged that money market funds’ experience during the financial crisis 

raised questions of whether more fundamental changes to money market funds might be 

warranted.95 The DERA Study, discussed throughout this Release, has informed our 

consideration of the risks that may be posed by money market funds and our formulation of 

today’s final rules and rule amendments. The DERA Study contains, among other things, a 

detailed analysis of our 2010 amendments to rule 2a-7 and some of the amendments’ effects to 

date, including changes in some of the characteristics of money market funds, the likelihood that 

 94 DERA Study, supra note 24, at 34-35 (“It is important to note, however, investor redemptions has a direct 

effect on short-term funding liquidity in the U.S. commercial paper market. Chernenko and Sunderam 

(2012) report that ‘creditworthy issuers may encounter financing difficulties because of risk taking by the 

funds from which they raise financing.’ Similarly, Correa, Sapriza, and Zlate (2012) finds U.S. branches of 

foreign banks reduced lending to U.S. entities in 2011, while Ivashina, Scharfstein, and Stein (2012) 

document European banks that were more reliant on money funds experienced bigger declines in dollar 

lending.”) (internal citations omitted); Sergey Chernenko & Adi Sunderam, Frictions in Shadow Banking: 

Evidence from the Lending Behavior of Money Market Funds, Fisher College of Business Working Paper 

No. 2012-4 (Sept. 2012); Ricardo Correa, et al., Liquidity Shocks, Dollar Funding Costs, and the Bank 

Lending Channel During the European Sovereign Crisis, Federal Reserve Board International Finance 

Discussion Paper No. 2012-1059 (Nov. 2012); Victoria Ivashina et al., Dollar Funding and the Lending 

Behavior of Global Banks, National Bureau of Economic Research Working Paper No. 18528 (Nov. 2012).

95 See 2009 Proposing Release, supra note 66, at section III; 2010 Adopting Release, supra note 17, at section 

I. 
38

a fund with the maximum permitted weighted average maturity (“WAM”) would “break the 

buck” before and after the 2010 reforms, money market funds’ experience during the 2011 

Eurozone sovereign debt crisis and the 2011 U.S. debt-ceiling impasse, and how money market 

funds would have performed during September 2008 had the 2010 reforms been in place at that 

time. 96

In particular, the DERA Study found that under certain assumptions the expected 

probability of a money market fund breaking the buck was lower with the additional liquidity 

required by the 2010 reforms. 97 For example, funds in 2011 had sufficient liquidity to withstand 

investors’ redemptions during the summer of 2011.98 The fact that no fund experienced a credit 

event during that time also contributed to the evidence that funds were able to withstand 

relatively heavy redemptions while maintaining a stable $1.00 share price. Finally, using actual 

portfolio holdings from September 2008, the DERA Study analyzed how funds would have 

performed during the financial crisis had the 2010 reforms been in place at that time. While 

funds holding 30% weekly liquid assets are more resilient to portfolio losses, funds will “break 

the buck” with near certainty if capital losses of the fund's non-weekly liquid assets exceed 

1%.99 The DERA Study concludes that the 2010 reforms would have been unlikely to prevent a 

fund from breaking the buck when faced with large credit losses like the ones experienced in 

 96 See generally DERA Study, supra note 24, at section 4.

97 Id. at 30.

98 Id. at 34.

99 Id. at 38, Table 5. In fact, even at capital losses of only 0.75% of the fund's non-weekly liquid assets and 

no investor redemptions, funds are already more likely than not (64.6%) to “break the buck.” Id.
39

2008.100 Based on the DERA Study, we believe that, although the 2010 reforms were an 

important step in making money market funds better able to withstand heavy redemptions when 

there are no portfolio losses (as was the case in the summer of 2011 and the fall of 2013), these 

reforms do not sufficiently address the potential future situations when credit losses may cause a 

fund’s portfolio to lose value or when the short-term financing markets more generally come 

under stress. 

After consideration of this data, as well as the comments we received on the proposal, we 

believe that the reforms we are adopting today should further help lessen money market funds’ 

susceptibility to heavy redemptions, improve their ability to manage and mitigate potential 

contagion from high levels of redemptions, and increase the transparency of their risks, while 

preserving, as much as possible, the benefits of money market funds.

III. DISCUSSION

A. Liquidity Fees and Redemption Gates

Today, we are adopting amendments to rule 2a-7 that will authorize new tools for money 

market funds to use in times of stress to stem heavy redemptions and avoid the type of contagion 

that occurred during the financial crisis. These amendments provide money market funds with 

the ability to impose liquidity fees and redemption gates (generally referred to herein as “fees 

and gates”) in certain circumstances.101 Today’s amendments will allow a money market fund to 

impose a liquidity fee of up to 2%, or temporarily suspend redemptions (also known as “gate”) 

 100 To further illustrate the point, the DERA Study noted that the Reserve Primary Fund “would have broken 

the buck even in the presence of the 2010 liquidity requirements.” Id. at 37.

101 Under the amendments we are adopting today, government funds are permitted, but not required, to impose 

fees and gates, as discussed below. See infra section III.C.1 of this Release.
40

for up to 10 business days in a 90-day period, if the fund’s weekly liquid assets fall below 30% 

of its total assets and the fund’s board of directors (including a majority of its independent 

directors) determines that imposing a fee or gate is in the fund’s best interests.

102 Additionally, 

under today’s amendments, a money market fund will be required to impose a liquidity fee of 

1% on all redemptions if its weekly liquid assets fall below 10% of its total assets, unless the 

board of directors of the fund (including a majority of its independent directors) determines that 

imposing such a fee would not be in the best interests of the fund.103 

These amendments differ in some respects from the fees and gates that we proposed, 

which would have required funds to impose a 2% liquidity fee on all redemptions, and would 

have permitted the imposition of redemption gates for up to 30 days in a 90-day period, after a 

fund’s weekly liquid assets fell below 15% of its total assets. In addition, under our proposal, a 

fund’s board (including a majority of independent directors) could have determined not to 

impose the liquidity fee or to impose a lower fee. A large number of commenters supported, to 

varying degrees and with varying caveats, our fees and gates proposal.104 Many other 

commenters, on the other hand, expressed their opposition to fees and gates.105 Comments on the 

 102 If, at the end of a business day, a fund has invested 30% or more of its total assets in weekly liquid assets, 

the fund must cease charging the liquidity fee or imposing the redemption gate, effective as of the 

beginning of the next business day. See rule 2a-7(c)(2)(i)(A) and (B), and (ii)(B).

103 The board also may determine that a lower or higher fee would be in the best interests of the fund. See rule 

2a-7(c)(2)(ii)(A); see also infra section III.A.2.c. 

104 See, e.g., Form Letter Type A; Comment Letter of Fidelity Investments (Sept. 16, 2013) (“Fidelity 

Comment Letter”); Comment Letter of Federated Investors, Inc. (Re: Alternative 2) (Sept. 16, 2013) 

(“Federated V Comment Letter”); Comment Letter of Northern Trust Corporation (Sept. 16, 2013) 

(“Northern Trust Comment Letter”).

105 See, e.g., Comment Letter of Capital Advisors Group (Sept. 3, 2013) (“Capital Advisors Comment Letter”); 

Comment Letter of Americans for Financial Reform (Sept. 17, 2013) (“Americans for Fin. Reform 

Comment Letter”); Comment Letter of Edward D. Jones and Co., L.P. (Sept. 20, 2013) (“Edward Jones 

Comment Letter”).
41

proposal are discussed in more detail below.

1. Analysis of Certain Effects of Fees and Gates106

a. Background

As discussed previously, shareholders redeem money market fund shares for a number of 

reasons.107 Shareholders may redeem shares because the current rounding convention in money 

market fund valuation and pricing can create incentives for shareholders to redeem shares ahead 

of other investors when the market-based NAV per share of a fund is lower than $1.00 per 

share.108 Shareholders also may flee to quality, liquidity, or transparency (or combinations 

thereof) during adverse economic events or financial market conditions.109 Furthermore, in times 

of stress, shareholders may simply need or want to withdraw funds for unrelated reasons. In any 

case, money market funds may have to absorb quickly high levels of redemptions that exceed 

internal sources of liquidity. In these instances, funds will need to sell portfolio securities, 

perhaps at a loss either because they incur transitory liquidity costs or they must sell assets at 

“fire sale” prices.110 If fund managers deplete their funds’ most liquid assets first, this may 

impose future liquidity costs (that are not reflected in a $1.00 share price based on current 

amortized cost valuation) on the non-redeeming shareholders because later redemption requests 

must be met by selling less liquid assets. These effects may be heightened if many funds sell 

assets at the same time, lowering asset prices. During the financial crisis, for example, securities 

 106 See infra section III.K (discussing further the economic effects of the fees and gates amendments).

107 See Proposing Release, supra note 25, at 156-172; DERA Study, supra note 24, at 2-4.

108 As discussed in section III.B, the floating NAV amendments help mitigate this incentive for institutional 

prime funds by causing redeeming shareholders to receive the market value of redeemed shares. 

109 See Proposing Release, supra note 25, at n.340.

110 See Proposing Release, supra note 25, at n.341.
42

sales to meet heavy redemptions in money market funds and sales of assets by other investors 

created downward price pressure in the market.111

Liquidity fees and redemption gates have been used successfully in the past by certain 

non-money market fund cash management pools to stem redemptions during times of stress.112

Liquidity fees provide investors continued access to their liquidity (albeit at a cost) while also 

reducing the incentives for shareholders to redeem shares. Liquidity fees, however, will not 

outright stop redemptions. In contrast to fees, redemption gates stop redemptions altogether, but 

do not offer the flexibility of fees.113 Because redemption gates prevent investors from accessing 

their investments for a period of time, a fund may choose to first impose a liquidity fee and then, 

if needed, impose a redemption gate. 

The fees and gates amendments we are adopting today are designed to address certain 

 111 See supra section II.D herein (discussing the financial crisis); see also Proposing Release, supra note 25 at 

32-33; DERA Memorandum Regarding Liquidity Cost During Crisis Periods, dated March 17, 2014 

(“DERA Liquidity Fee Memo”), available at http://www.sec.gov/comments/s7-03-13/s70313-321.pdf.

112 A Florida local government investment pool experienced heavy redemptions in 2007 due to its holdings in 

SIV securities. The pool suspended redemptions and ultimately reopened but only after the pool (and each 

shareholder’s interest) had been split into two separate pools: one holding the more illiquid securities 

previously held by the pool (“Fund B”) and one holding the remaining securities of the pool (“Fund A”). 

Fund A reopened, but limited redemptions to up to 15% of an investor’s holdings or $2 million without 

penalty, and imposed a 2% redemption fee on any additional redemptions. Fund B remained closed. When 

Fund A reopened, it experienced withdrawals, but according to state officials, the withdrawals were 

manageable. See Dealbook, NY TIMES, Florida Fund Reopens, and $1.1 Billion is Withdrawn; David 

Evans and Darrell Preston, Florida Investment Chief Quits; Fund Rescue Approved, BLOOMBERG (Dec. 4, 

2007); Helen Huntley, State Wants Fund Audit, TAMPA BAY TIMES (Dec. 11, 2007); see also infra note 114

(discussing the successful use by some European enhanced cash funds of fees or gates during the financial 

crisis).

113 See Institutional Money Market Funds Association, IMMFA Recommendations for Redemption Gates and 

Liquidity Fees, available at http://www.immfa.org/publications/policy-positions.html (“Redemption gates 

and/or a liquidity fee are methods by which a fund manager, if experiencing difficulty due to extreme 

market circumstances, can control redemptions in order to ensure that all investors are treated fairly and 

that no ‘first-mover’ advantage exists.”); cf. G.W. Schwert & P. J. Seguin, Securities Transaction Taxes: 

An Overview of Costs, Benefits and Unresolved Questions, 49 FINANCIAL ANALYSTS JOURNAL 27 (1993); 

K.A. Froot & J. Campbell, International Experiences with Securities Transaction Taxes, in THE 

INTERNATIONALIZATION OF EQUITY MARKETS (J. Frankel, ed., 1994), at 277–308. 
43

issues highlighted by the financial crisis. In particular, the amendments should allow funds to 

moderate redemption requests by allocating liquidity costs to those shareholders who impose 

such costs on funds through their redemptions and, in certain cases, stop heavy redemptions in 

times of market stress by providing fund boards with additional tools to manage heavy 

redemptions and improve risk transparency. We understand that based on the level of 

redemption activity that occurred during the financial crisis, many money market funds would 

have faced liquidity pressures sufficient to cross the liquidity thresholds we are adopting today 

that would allow the use of fees and gates. Although no one can predict with certainty what 

would have happened if money market funds had operated with fees and gates during the 

financial crisis, we believe that money market funds would have been better able to manage the 

heavy redemptions that occurred and limit contagion, regardless of the reason for the 

redemptions.114

Fees and gates are just one aspect of the overall package of reforms we are adopting 

today. We recognize that fees and gates do not address all of the factors that may lead to heavy 

redemptions in money market funds. For example, fees and gates do not fully eliminate the 

 114 See, e.g., Comment Letter of Mutual Fund Directors Forum (Sept. 16, 2013) (“MFDF Comment Letter”) 

(stating, with respect to the proposed fee and gates amendments, “we concur that this approach has the 

potential to reduce runs during times of stress or crisis”); UBS Comment Letter (“We agree that liquidity 

fees and gates would help money funds address heavy redemptions in an effective manner and limit the 

spread of contagion ....”); Form Letter Type D. We also note that some European enhanced cash funds 

successfully used fees or gates during the financial crisis to stem redemptions. See Elias Bengtsson, 

Shadow Banking and Financial Stability: European Money Market Funds in the Global Financial Crisis

(2011) (“Bengtsson”), available at

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1772746&download=yes; Julie Ansidei, et al., Money 

Market Funds in Europe and Financial Stability, European Systemic Risk Board Occasional Paper No. 1, 

at 36 (June 2012), available at

http://www.esrb.europa.eu/pub/pdf/occasional/20120622_occasional_paper_1.pdf?465916d4816580065dfa

fb92059615b6.
44

incentive to redeem ahead of other investors in times of stress115 or fully prevent investors from 

redeeming shares (except during the duration of a temporary gate) to invest in securities with 

higher quality, better liquidity, or increased transparency.116 Fees and gates also do not address 

the shareholder dilution that results when a shareholder is able to redeem at a stable NAV that is 

higher than the market value of the fund’s underlying portfolio securities.

117 Nonetheless, for the 

reasons discussed in this Release, fees and gates provide funds and their boards with additional 

tools to stem heavy redemptions and avoid the type of contagion that occurred during the 

financial crisis by allocating liquidity costs to those shareholders who impose such costs on 

funds and by stopping runs. 

i. Liquidity Fees

During the financial crisis, some funds experienced heavy redemptions. Shareholders 

who redeemed shares early bore none of the economic consequences of their redemptions. 

Shareholders who remained in the funds, however, faced a declining NAV and an increased 

probability that their funds would “break the buck.” As discussed in the Proposing Release and 

suggested by commenters, investors may have re-assessed their redemption decisions during the 

crisis if money market funds had imposed liquidity fees because they would have been required 

 115 However, as discussed in section III.B herein, under today’s amendments, institutional prime funds will be 

required to float their NAV. This reform is designed, in part, to address the incentive to redeem ahead of 

other investors in certain money market funds because of current money market fund valuation and pricing 

methods.

116 Fees and gates lessen but do not fully eliminate the incentive for investors to redeem quickly in times of 

stress because redeeming shareholders will retain an economic advantage over shareholders who remain in 

a fund when liquidity costs are high, but before the fund has imposed fees or gates.

117 In contrast, the floating NAV requirement for institutional prime funds will address this issue. See infra

section III.B.1.
45

to pay at least some of the costs of their redemptions.118 It is possible that some investors would 

have made the economic decision not to redeem because the liquidity fees imposed by the fund 

and incurred by an investor would have been certain, whereas potential future losses would have 

been uncertain.119

In addition, liquidity fees would have helped offset the costs of the liquidity provided to 

redeeming shareholders and potentially protected the funds’ NAVs because the cash raised from 

liquidity fees would create new liquidity for the funds.120 Additionally, to the extent that 

liquidity fees imposed during the crisis could have reduced redemption requests at the margin, 

they would have allowed funds to generate liquidity internally as assets matured. By imposing 

liquidity costs on redeeming shareholders, liquidity fees, as noted by commenters, also treat 

holding and redeeming shareholders more equitably.121 

 118 See, e.g., Comment Letter of U.S. Chamber of Commerce, Center for Capital Markets Competitiveness 

(Sept. 17, 2013) (“Chamber II Comment Letter”) (“[I]f shareholders were to be charged a fee when a 

MMF’s liquidity costs are at a premium, they may be discouraged from redeeming their shares at that time, 

which would have the effect of slowing redemptions in the MMF.”); Comment Letter of Charles Schwab 

Investment Management, Inc. (Sept. 12, 2013) (“Schwab Comment Letter”) (“[W]e agree that the proposed 

liquidity fee of 2% would be a strong disincentive to redeem during a crisis ....”).

119 See HSBC Comment Letter; see also infra note 152-153 and accompanying text. We acknowledge (as we 

did in the Proposing Release) that liquidity fees may not always effectively stave off high levels of 

redemptions in a crisis; however, liquidity fees, once imposed, should help reduce the incentive to redeem 

shares because investors will pay a fee in connection with their redemptions. See Proposing Release, supra

note 25, at 161.

120 Fees paid by investors that redeem shares should help prevent a fund’s NAV from becoming impaired 

based on liquidity costs, as long as the liquidity fee imposed reflects the liquidity cost of redeeming shares. 

Fees should also generate additional liquidity to help funds meet redemption requests.

121 See, e.g., Invesco Comment Letter (“Liquidity fees would provide an appropriate and effective means to 

ensure that the extra costs associated with raising liquidity to meet fund redemptions during times of 

market stress are borne by those responsible for them.”); Comment Letter of J.P. Morgan Asset 

Management (Sept. 17, 2013) (“J.P. Morgan Comment Letter”); UBS Comment Letter; but see, e.g.,

Comment Letter of U.S. Bancorp Asset Management, Inc. (Sept. 16, 2013) (“U.S. Bancorp Comment 

Letter”) (suggesting that liquidity fees harm those that redeem after the fees are imposed and that gates 

harm those that remain in the fund after the gate is in place).
46

Liquidity fees, which we believe would rarely be imposed under normal market 

conditions, are designed to preserve the current benefits of principal stability, liquidity, and a 

market yield, but reduce the likelihood that, in times of market stress, costs that ought to be 

attributed to a redeeming shareholder are externalized on remaining shareholders and on the 

wider market.122 Even if a liquidity fee is imposed, fund investors continue to have the flexibility 

to access liquidity (albeit at a cost). The Commission believes, and commenters suggested, that 

if funds could have imposed liquidity fees during the crisis, they would likely have been better 

able to manage redemptions, thereby ameliorating their impact and reducing contagion effects.123

ii. Redemption Gates

We believe that funds also could have benefitted from the ability to impose redemption 

gates during the crisis.124 Like liquidity fees, gates are designed to preserve the current benefits 

 122 See Proposing Release, supra note 25, at n.343.

123 See Proposing Release, supra note 25, at 155; see also, e.g., Comment Letter of Wells Fargo Funds 

Management, LLC (Sept. 16, 2013) (“Wells Fargo Comment Letter”) (“Prime money market fund 

investors, the short-term markets and businesses that rely on funds for financing would each benefit from 

the ability of [f]ees and [g]ates, during distressed market conditions, to reduce the susceptibility of subject 

funds to runs and blunt the spread of deleterious contagion effects.”); but see, e.g., U.S. Bancorp Comment 

Letter (suggesting that liquidity fees would not deter redemptions in times of market stress or prevent 

contagion because “investors will choose to pay the [fee] now rather than wait for the wind-down of a fund 

to be completed.”).

124 See Comment Letter of Arnold & Porter LLP on behalf of Federated Investors [Overview] (Sept. 11, 2013) 

(“Federated II Comment Letter”) (noting that gates have “been demonstrated to address runs in a crisis 

....”); Comment Letter of BlackRock, Inc. (Sept. 12, 2013) (“BlackRock II Comment Letter”) (“Standby 

liquidity fees and gates would “stop the run” in crisis scenarios.”); see also supra note 114 (noting that 

European enhanced cash funds successfully used fees or gates during the financial crisis to stem 

redemptions); The Need to Focus a Light on Shadow Banking is Nigh, Mark Carney, Financial Times (June 

15, 2014), available at http://www.ft.com/intl/cms/s/0/3a1c5cbc-f088-11e3-8f3d00144feabdc0.html?siteedition=intl#axzz35rCMZLTy (“Money market funds are being made less 

susceptible to runs...by establishing an ability for funds to use, for example, temporary suspensions of 

withdrawals....”); The Age of Asset Management?, Andrew Haldane (Apr. 4, 2014), available at

http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech723.pdf (suggesting gates 

may be a “suitable” tool to “tackle market failures”); but see, e.g., Comment Letter of Deutsche Investment 

Management Americas (Sept. 17, 2013) (“Deutsche Comment Letter”) (suggesting that gates can 

exacerbate a run).
47

of money market funds under most market conditions; however, if approved and monitored by 

their boards, funds can use gates to respond to a run by directly halting redemptions. If funds

had been able to impose redemption gates during the crisis, they would have had available to 

them a tool to stop temporarily mounting redemptions,125 which if used could have generated 

additional internal liquidity while gates were in place.126 In addition, gates may have allowed 

funds to invest the proceeds of maturing assets in short-term securities for the duration of the 

gate, protecting the short-term financing market, and supporting capital formation for issuers. 

Gates also would have allowed funds to directly and fully control redemptions during the crisis, 

providing time for funds to better communicate the nature of any stresses to shareholders and 

thereby possibly mitigating incentives to redeem shares.127 

b. Benefits of Fees and Gates

i. Fees and Gates Address Concerns Related to Heavy 

Redemptions 

As noted above, a large number of commenters supported our fees and gates proposal.128

The primary benefit cited by commenters in favor of fees and/or gates is that they would address 

 125 See, e.g., U.S. Bancorp Comment Letter (suggesting that redemption gates would be the “most effective 

option in addressing run risk”); Chamber II Comment Letter (stating that “a redemption gate would stop a 

‘run’ in [its] tracks”).

126 See, e.g., Chamber II Comment Letter (“[A] redemption gate also gives [a money market fund] time for 

issues in the market to subside and for securities in the portfolio to mature, which would increase the 

[money market fund’s] liquidity levels.”); Form Letter Type D (suggesting that redemption gates “would 

give funds time to stabilize”). Internal liquidity generated while a gate is in place could prevent funds from 

having to immediately sell assets at fire sale prices. 

127 See, e.g., Invesco Comment Letter (“Redemption gates have been proven to be an effective means of 

preventing runs and providing a ‘cooling off’ period to mitigate the effects of short-term investor panic.”)

128 We note that many participants in the money market fund industry have previously expressed support for 

imposing some form of a liquidity fee or redemption gate when a fund comes under stress as a way of 

reducing, in a targeted fashion, the fund’s susceptibility to heavy redemptions. See Proposing Release, 

supra note 25, at n.358.
48

run risk and/or systemic contagion risk.129 Commenters also argued that fees and gates would 

protect the interests of all fund shareholders, particularly non- or late-redeeming shareholders, 

treating them more equitably.130 Commenters supported our view that redemption restrictions 

could provide a “cooling off” period to temper the effects of short-term investor panic,131 and that 

fees or gates could preserve and help restore the liquidity levels of a money market fund that has 

come under stress.132 Commenters also echoed our view that fees and/or gates could reduce or 

eliminate the likelihood that funds would be forced to sell otherwise desirable assets and engage 

in “fire sales.”133 Additionally, commenters noted that gates would provide boards and advisers 

 129 See, e.g., Form Letter Type A; U.S. Bancorp Comment Letter; Comment Letter of Davenport & Company 

LLC (Sept. 13, 2013) (“Davenport Comment Letter”); MFDF Comment Letter; Comment Letter of 

Treasury Strategies, Inc. (Mar. 31, 2014) (“Treasury Strategies III Comment Letter”) (“We found that 

[f]ees and [g]ates can stop and prevent runs.... We find that highly effective run prevention is attainable 

within the approaches contemplated by the [Proposing] Release, while requiring that fund boards be given 

discretion to take protective action. This is the mechanism by which [f]ees/[g]ates cause [money market 

funds] to internalize the cost of investor protection, while preserving the utility of current CNAV 

vehicles.”); see also The Need to Focus a Light on Shadow Banking is Nigh, Mark Carney, Financial Times 

(June 15, 2014), available at http://www.ft.com/intl/cms/s/0/3a1c5cbc-f088-11e3-8f3d00144feabdc0.html?siteedition=intl#axzz35rCMZLTy (“By establishing common policy standards and 

arrangements for co-operation, the reforms [including temporary gates] will help to avoid a fragmentation 

of the global financial system.”); but see, e.g., Boston Federal Reserve Comment Letter (suggesting fees or 

gates do not address run risk); Systemic Risk Council Comment Letter; Comment Letter of American 

Bankers Association (Sept. 17, 2013) (“American Bankers Ass’n Comment Letter”).

130 See, e.g., Form Letter Type D (noting that gates would “give funds time to stabilize or, in the event a fund 

cannot resume redemptions without breaking the buck, ensure that the funds [sic] shareholders are treated 

equally in a distribution of the funds [sic] assets upon dissolution”); Invesco Comment Letter (“Liquidity 

fees would provide an appropriate and effective means to ensure that the extra costs associated with raising 

liquidity to meet fund redemptions during times of market stress are borne by those responsible for them.”); 

Comment Letter of Independent Directors Council (Sept. 17, 2013) (“IDC Comment Letter”); J.P. Morgan 

Comment Letter. We recognize, however, that our fees and gates reform does not address other 

shareholder equity concerns, including shareholder dilution, that arise as a result of the structural features in 

current rule 2a-7 that promote a first-mover advantage. Our floating NAV reform is designed to address 

this concern for institutional prime money market funds. See infra section III.B.

131 See, e.g., Form Letter Type D; Invesco Comment Letter; Comment Letter of Reich & Tang Asset 

Management, LLC (Sept. 17, 2013) (“Reich & Tang Comment Letter”).

132 See, e.g., HSBC Comment Letter; Deutsche Comment Letter; ICI Comment Letter.

133 See, e.g., MSCI Comment Letter; Federated V Comment Letter; Comment Letter of Treasury Strategies, 

Inc. (Sept. 12, 2013) (“Treasury Strategies Comment Letter”). We also believe that reducing or eliminating 
49

with crucial additional time to find the best solution in a crisis, instead of being forced to make 

decisions in haste.134

We are adopting reforms that will give a fund the ability to impose either a liquidity fee 

or a redemption gate because we believe, and some commenters suggested, that fees and gates, 

while both aimed at helping funds to better and more systematically manage high levels of 

redemptions, do so in different ways and thus with somewhat different tradeoffs.135 

Accordingly, we believe that both fees and gates should be available to funds and their boards to 

provide maximum flexibility for funds to manage heavy redemptions.136 Liquidity fees are 

designed to reduce shareholders’ incentives to redeem shares when it is abnormally costly for 

funds to provide liquidity by requiring redeeming shareholders to bear at least some of the 

liquidity costs associated with their redemption (rather than transferring all of those costs to 

remaining shareholders).137 Liquidity fees increase the cost of redeeming shares, which may 

 

the likelihood of fire sales would in turn help protect other market participants that need to sell assets in the 

market or perhaps mark asset values to market.

134 See, e.g., ICI Comment Letter; UBS Comment Letter; IDC Comment Letter; Federated V Comment Letter.

135 See, e.g., Invesco Comment Letter (suggesting that gates provide “the most direct, simple and effective 

method” to prevent runs and contagion as well as “a ‘cooling off’ period to mitigate the effects of shortterm investor panic,” while fees “mitigate the ‘first-mover advantage’” and “provide an appropriate and 

effective means to ensure that the extra costs associated with raising liquidity to meet fund redemptions 

during times of market stress are borne by those responsible for them.”)

136 See Treasury Strategies III Comment Letter (“Fees enable investors to access their liquidity, but at a 

price..., but that is the cost of being able to assure that a stable NAV product will not cause contagion or 

fire sales during such periods. Gates do not impose an extra [f]ee on shareholders, which is appealing to 

many shareholders, but have the undesirable effect of restricting access to liquidity during critical periods. 

Together, [f]ees and [g]ates provide fund boards with powerful tools to prevent a run from materializing, to 

stop a run in progress, and to assure that a stress event does not cause contagion or fire sales.”).

137 See, e.g., Dreyfus Comment Letter (“We also agree that liquidity fees can deter net redemption activity 

while also providing an appropriate “cost of liquidity” for investors choosing to exercise the option to 

redeem over the option to hold....); see also Comment Letter of Wells Fargo Funds Management, LLC 

(Jan. 17, 2013) (available in File No. FSOC–2012–0003) (“Wells Fargo FSOC Comment Letter”) (stating 

that a liquidity fee would “provide an affirmative reason for investors to avoid redeeming from a distressed 
50

reduce investors’ incentives to sell them. Likewise, fees help reduce investors’ incentives to 

redeem shares ahead of other investors, especially if fund managers deplete their funds’ most 

liquid assets first to meet redemptions, leaving later redemption requests to be met by selling less 

liquid assets. 

Several commenters noted that liquidity fees could “re-mutualize” risk-taking among 

investors and provide a way to recover costs of liquidity in times of stress.138 This is because 

liquidity fees allocate at least some of the costs of providing liquidity to redeeming rather than 

non-redeeming shareholders and protect fund liquidity by requiring redeeming shareholders to 

repay funds for liquidity costs incurred.139 To the extent liquidity fees exceed such costs, they 

also can help increase the fund’s net asset value for remaining shareholders which would have a 

restorative effect if the fund has suffered a loss. As one commenter has said, a liquidity fee can 

“provide a strong disincentive for investors to make further redemptions by causing them to 

choose between paying a premium for current liquidity or delaying liquidity and benefitting from 

the fees paid by redeeming investors.”140 This explicit pricing of liquidity costs in money market 

funds should offer significant benefits to funds and the broader short-term financing market in 

times of potential stress because it should lessen both the frequency and effect of shareholder 

 

fund” and “those who choose to redeem in spite of the liquidity fee will help to support the fund’s marketbased NAV and thus reduce or eliminate the potential harm associated with the timing of their redemptions 

to other remaining investors”). 

138 See, e.g., HSBC Comment Letter; Invesco Comment Letter; IDC Comment Letter.

139 We note that investors owning securities directly – as opposed to through a money market fund – naturally 

bear liquidity costs. They bear these costs both because they bear any losses if they have to sell a security 

at a discount to obtain their needed liquidity and because they directly bear the risk of a less liquid 

investment portfolio if they sell their most liquid holdings first to obtain needed liquidity.

140 See Proposing Release, supra note 25, at 160 n.352 (citing ICI Jan. 24 FSOC Comment Letter).
51

redemptions, which might otherwise result in the sale of fund securities at “fire sale” prices.141

In contrast, redemption gates will provide fund boards with a direct and immediate tool 

for stopping heavy redemptions in times of stress.142 Unlike liquidity fees, gates are designed to 

directly stop a run by delaying redemptions long enough to allow (1) fund managers time to 

assess the condition of the fund and determine the appropriate strategy to meet redemptions, (2) 

liquidity buffers to grow organically as securities in the portfolio (many of which are very shortterm) mature and produce cash, and (3) shareholders to assess the liquidity and value of portfolio 

holdings in the fund and for any shareholder or market panic to subside. 143 As contemplated by 

today’s amendments, gates definitively stop runs for funds that impose them by blocking all 

redemptions for their duration. 

We recognize that redemption gates, if they are ever imposed, will inhibit the full, 

unfettered redeemability of money market fund shares, a principle embodied in section 22(e) of 

the Investment Company Act.144 However, as discussed in section III.A.3 below, section 22(e) of 

the Investment Company Act is aimed at preventing funds and their advisers from interfering 

with shareholders’ redemption rights for improper purposes, such as preservation of management 

fees. Consistent with that aim, redemption gates under today’s amendments are designed to 

benefit the fund and its shareholders and may be imposed only when a fund’s board determines 

 141 See Chamber II Comment Letter (“[I]f shareholders were to be charged a fee when an MMF’s liquidity 

costs are at a premium, they may be discouraged from redeeming their shares at that time, which would 

have the effect of slowing redemptions in the MMF.”).

142 See, e.g., Chamber II Comment Letter (“[A] redemption gate would stop a ‘run’ in [its] tracks, because 

shareholders would be prohibited from redeeming their shares while the gate is in place.”)

143 See Proposing Release, supra note 25, at n.348.

144 See section 22(e). 
52

that doing so is in the best interests of the fund.145 We also note that, in response to commenter 

concerns regarding investor access to their investments and the proposed duration of redemption 

gates, under today’s amendments, gates will be limited to up to 10 business days in any 90-day 

period (rather than 30 days in a 90-day period as proposed).146 As such, the extent to which 

today’s amendments inhibit the redeemability of money market fund shares is limited. 

In fact, we note that money market funds are currently permitted to delay payments on 

redemptions for up to seven days.147 In addition, money market funds currently may suspend 

redemptions after obtaining an exemptive order from the Commission,148 or in accordance with 

rule 22e-3, which requires a fund’s board of directors to determine that the fund is about to 

“break the buck” (specifically, that the extent of deviation between the fund’s amortized cost 

price per share and its current market-based NAV per share may result in material dilution or 

other unfair results to investors).149 Under today’s amendments, money market fund boards will 

be able to temporarily suspend redemptions after a fund falls below the same threshold that funds 

 145 See rule 2a-7(c)(2)(i). 

146 See rule 2a-7(c)(2)(i)(B); see also, infra section III.A.2.d (discussing the duration of redemption gates).

147 See section 22(e).

148 There are limited exceptions specified in section 22(e) of the Act in which a money market fund (and any 

other mutual fund) may suspend redemptions or delay payment on redemptions for more than seven days, 

such as (i) for any period (A) during which the New York Stock Exchange is closed other than customary 

week-end and holiday closings or (B) during which trading on the New York Stock Exchange is restricted, 

or (ii) during any period in which an emergency exists (as the Commission determines by rule or 

regulation) as a result of which (A) disposal by the fund of securities owned by it is not reasonably practical 

or (B) it is not reasonably practical for the fund to determine the value of its net assets. The Commission 

also has granted orders in the past allowing funds to suspend redemptions. See, e.g., In the Matter of The 

Reserve Fund, Investment Company Act Release No. 28386 (Sept. 22, 2008) [73 FR 55572 (Sept. 25, 

2008)] (order); Reserve Municipal Money-Market Trust, et al., Investment Company Act Release No. 

28466 (Oct. 24, 2008) [73 FR 64993 (Oct. 31, 2008)] (order).

149 Rule 22e-3(a)(1). Unlike under today’s amendments, a fund that imposes redemptions gates pursuant to 

rule 22e-3 must do so permanently and in anticipation of liquidation. 
53

must cross for boards to impose liquidity fees.150 Accordingly, we believe that the gating allowed 

by today’s amendments extends and formalizes the existing gating framework, clarifying for 

investors when a money market fund potentially may use a gate as a tool to manage heavy 

redemptions and thus prevents any investor confusion on when gating may apply.

Fees and gates also may have different levels of effectiveness under different stress 

scenarios.151 For example, we expect that the imposition of liquidity fees when a fund faces 

heavy redemptions should be able to reduce the harm to non-redeeming shareholders and thus 

the likelihood of additional redemptions that might have been made in response to that harm. To 

the extent that a fund does not need to engage in fire sales and depress prices because of the 

imposition of fees, the possibility of broader market contagion is reduced. We also note that

research in behavioral economics suggests that liquidity fees may be particularly effective in 

dampening a run because, when faced with two negative options, investors tend to prefer the 

option that involves only possible losses rather than the option that involves certain losses, even 

when the amount of possible loss is significantly higher than the certain loss.152 Unlike gates, 

which temporarily prevent shareholders from redeeming shares altogether, once imposed, 

liquidity fees will present investors with an economic decision as to whether to redeem or remain 

 150 See rule 2a-7(c)(2)(i). 

151 We note that under today’s amendments, a fund’s board may determine that it is in the best interests of a 

fund to impose a fee and then later determine to lift the fee and impose a gate, or vice versa, subject to the 

limitations on the duration of fees and gates. See rule 2a-7(c)(2)(i) and (ii).

152 See, e.g., Proposing Release, supra note 25, at n.355 (citing DANIEL KAHNEMAN, THINKING, FAST AND 

SLOW (2011), at 278-288); see also HSBC Comment Letter; Schwab Comment Letter (“A liquidity fee 

would force early redeemers to pay for the costs of their redemption, without knowing whether the fund 

was actually going to experience losses or not. This is a powerful disincentive.”); but see Comment Letter 

of Melanie L. Fein Law Offices (Sept. 10, 2013) (“Fein Comment Letter”) (suggesting liquidity fees are 

unlikely to “prevent institutional [money market fund] investors from reallocating their assets in a crisis”).
54

in a fund. Investors fearing that a money market fund may suffer losses may prefer to stay in the 

fund and avoid paying a liquidity fee (despite the possibility that the fund might suffer a future 

loss) rather than redeem and lock in payment of the liquidity fee.153

It is possible, however, that liquidity fees might not be fully effective during a 

market-wide crisis because, for example, shareholders might redeem shares irrespective of the 

level of their fund’s true liquidity costs and the imposition of a liquidity fee.154 In those cases, 

gates will be able to function as circuit breakers, creating time for funds to rebuild their own 

internal liquidity and shareholders to reconsider whether redemptions are still desired or 

warranted. 155

ii. Management-Related Advantages

We are also mindful that permitting fund boards to impose fees and/or gates after a fund 

has fallen below a particular threshold, and requiring funds to impose liquidity fees at a lower 

designated threshold (absent a board finding that the fee is not in the best interests of the fund), 

may offer certain benefits to funds with respect to management of liquidity and redemption 

activity. Some commenters suggested that, even during non-stress periods, fees and gates could 

provide fund managers with an incentive to carefully monitor shareholder concentration and 

shareholder flow to lessen the chance that the fund might have to impose fees or gates (because 

 153 See, e.g., Proposing Release, supra note 25, at n.355 (citing DANIEL KAHNEMAN, THINKING, FAST AND 

SLOW (2011), at 278-288); see also HSBC Comment Letter; Schwab Comment Letter.

154 See DERA Study, supra note 24, at 7-14 (discussing different possible explanations for why shareholders 

may redeem from money market funds in times of stress).

155 See, e.g., Comment Letter of Department of the Treasury, Commonwealth of Virginia (Sept. 17, 2013) 

(“Va. Treasury Comment Letter”); Chamber II Comment Letter; Dreyfus Comment Letter.
55

larger redemptions are more likely to cause the fund to breach the threshold).156 The fees and 

gates amendments also may have the additional effect of encouraging portfolio managers to 

more closely monitor fund liquidity and hold more liquid securities to increase the level of daily 

and weekly liquid assets in the fund, as it would tend to lessen the likelihood of a fee or gate 

being imposed.157 Such an approach could also lead to greater investor participation in money 

market funds to the extent investors seek to invest in a product with low liquidity risk, thereby 

increasing the supply of capital available to invest in commercial paper. We recognize, however, 

that such an approach could perhaps shrink the market for riskier or longer-term commercial 

paper, or have a negative effect on yield.158 

We also note that funds may take alternate approaches to managing liquidity and 

imposing fees and gates, which may differentially affect the short-term funding markets. For 

example, a fund that imposes a fee or gate may decide to immediately build liquidity by 

investing all maturing securities in highly liquid assets, particularly if the fund wants to remove

 156 See, e.g., Comment Letter of Securities Industry and Financial Markets Association (Sept. 17, 2013) 

(“SIFMA Comment Letter”) (stating that some members “believe the existence of the liquidity trigger for 

the fee and gate will motivate fund managers to maintain fund liquidity well in excess of the trigger level, 

to avoid triggering the fee or gate. That is to say, the mere existence of the potential for the fee or gate will 

result in enhanced liquidity in money market funds.”); BlackRock II Comment Letter; Comment Letter of 

Hester Peirce and Robert Greene (Sept. 17, 2013) (“Peirce & Greene Comment Letter”); see also HSBC 

Global Asset Management, Liquidity Fees; a proposal to reform money market funds (Nov. 3, 2011)

(“HSBC 2011 Liquidity Fees Letter”) (a liquidity fee “will result in more effective pricing of risk (in this 

case, liquidity risk)...[and] act as a market-based mechanism for improving the robustness and fairness” of 

money market funds); Comment Letter of BlackRock, Inc. (Dec. 13, 2012) (available in File No. FSOC–

2012–0003) (“BlackRock FSOC Comment Letter”) (“A fund manager will focus on managing both assets 

and liabilities to avoid triggering a gate. On the liability side, a fund manager will be incented to know the 

underlying clients and model their behavior to anticipate cash flow needs under various scenarios. In the 

event a fund manager sees increased redemption behavior or sees reduced liquidity in the markets, the fund 

manager will be incented to address potential problems as early as possible.”). 

157 See, e.g., Proposing Release, supra note 25, at n.365. 

158 See infra section III.K.
56

the fee or gate as soon as possible. Another fund may plan to impose a fee or gate for a set 

period of time, in which case, there would be no reason to stop investing in less liquid short-term 

commercial paper provided it matured while the fee or gate was in place. The first strategy 

would likely have the capital formation effect of lowering participation in short-term funding 

markets, whereas the second strategy may defer the impact until a later time, possibly after 

market conditions have improved. 

iii. Transparency

We recognize, and certain commenters noted, 159 that the prospect of fees and gates being 

implemented when a fund is under stress should help make the risk of investing in money market 

funds more salient and transparent to investors, which may help sensitize them to the risks of 

investing in money market funds. On the other hand, we note that other commenters argued that 

fees and gates would not improve transparency of risk for investors.160 Having considered these 

comments, however, we believe that there will be an appreciable increase in transparency as a 

result of our fees and gates amendments. The disclosure amendments we are adopting today will 

require funds to provide disclosure to investors regarding the possibility of fees and gates being 

imposed if a fund’s liquidity is impaired. We believe such disclosure will benefit investors by 

 159 See, e.g., ICI Comment Letter; Comment Letter of Myra Page (July 19, 2013) (“Page Comment Letter”).

160 See, e.g., Comment Letter of Thrivent Financial for Lutherans (Sept. 17, 2013) (“Thrivent Comment Letter) 

(“The imposition of a liquidity fee or gate will always be a surprise to the investors that do not redeem 

quickly enough to avoid it. The need to impose such a fee or gate will not be transparent to the investor 

unless redemption activity is disclosed in a timely manner providing sufficient time for investors to 

react.”); Capital Advisors Comment Letter. Two commenters also expressed concern that the ability to 

impose fees and gates would perpetuate shareholder reliance on sponsor support. See Capital Advisors 

Comment Letter; Thrivent Comment Letter. As discussed herein, we believe fees and gates and the 

disclosure associated with fees and gates will provide investors certain benefits, including informing 

investors further of the risks associated with money market funds. We further believe that the disclosure 

requirements adopted today regarding sponsor support should help ameliorate concerns regarding 

shareholder reliance on sponsor support. See infra sections III.E.7, III.E.9.g and III.F.3.
57

informing them further of the risks associated with money market funds, particularly that money 

market funds’ liquidity may, at times, be impaired.

161 In addition, as noted above, fees and gates 

also could encourage shareholders to monitor funds’ liquidity levels and exert market discipline 

over the fund to reduce the likelihood that the imposition of fees or gates will become necessary 

in that fund.162 

c. Concerns Regarding Fees and Gates

i. Pre-Emptive Runs and Broader Market Concerns

We acknowledge the possibility that, in market stress scenarios, shareholders might 

pre-emptively redeem shares if they fear the imminent imposition of fees or gates (either because 

of the fund’s situation or because other money market funds have imposed redemption 

restrictions).163 A number of commenters suggested investors would do so.164 Some commenters 

 161 We recognize that the level of board discretion in the fees and gates amendments may make it more

difficult for investors to predict when fees and/or gates will imposed; however, we are adopting certain 

thresholds and maximums that we believe will provide investors with notice as to the possible imposition 

of fees and gates. Additionally, today we are adopting a requirement that funds disclose their percentage of 

weekly liquid assets on a daily basis on their websites and, thus, shareholders should be aware when a fund 

is approaching these thresholds. See rule 2a-7(h)(10)(ii)(B).

162 See Proposing Release, supra note 25, at n.366. The disclosure of fees and gates also could advantage 

larger funds and fund groups if the ability to provide financial support reduces or eliminates the need to 

impose fees and/or gates (whose imposition may be perceived to be a competitive detriment).

163 See, e.g., Proposing Release, supra note 25, at 163-167, n.361.

164 See, e.g., Comment Letter of Novelis (July, 16, 2013) (“Novelis Comment Letter”); Comment Letter of 

State Investment Commission, Commonwealth of Kentucky (Sept. 9, 2013) (“Ky. Inv. Comm’n Comment 

Letter”); Boston Federal Reserve Comment Letter; Comment Letter of Hester Peirce and Robert Greene, 

Working Paper: Opening the Gate to Money Market Fund Reform (Apr. 8, 2014) (“Peirce & Greene II 

Comment Letter”). Some commenters were concerned that news of one money market fund imposing a 

redemption restriction could trigger a system-wide run by investors in other money market funds. See, e.g.,

Samuel Hanson, David Scharfstein, and Adi Sunderam (Sept. 16, 2013) (“Hanson et al. Comment Letter”); 

Deutsche Comment Letter; Boston Federal Reserve Comment Letter (suggesting further that “because of 

the relative homogeneity in many [money market funds’ holdings], the imposition of a liquidity fee or 

redemption gate on one fund may incite runs on other funds which are not subject to such measures”) 

(citation omitted). In addition, one commenter, drawing an analogy to banks prior to the adoption of 

federally insured deposits, noted that although withdrawal suspensions were commonly used by banks in 
58

also suggested that sophisticated investors in particular might be able to predict that fees and 

gates may be imposed and may redeem shares before this occurs.

165 

While we recognize that there is risk of pre-emptive redemptions, the benefits of having 

effective tools in place to address runs and contagion risk leads us to adopt the proposed fees and 

gates reforms, with some modifications. We believe several of the changes we are making in our 

final reforms will mitigate this risk and dampen the effects on other money market funds and the 

broader markets if pre-emptive redemptions do occur. 

As discussed below, the shorter maximum time period for the imposition of gates and the 

smaller size of the default liquidity fee that we are adopting in these final amendments, as 

compared to what we proposed, are expected to lessen further the risk of pre-emptive runs.166 

We understand that the potential for a longer gate or higher liquidity fee before a restriction is in 

place may increase the incentive for investors to redeem at the first sign of any potential stress at 

a fund or in the markets.167 We believe that by limiting the maximum time period that gates may 

be imposed to 10 business days in any 90-day period (down from the proposed 30 days), investor 

concerns regarding an extended loss of access to cash from their investment should be mitigated. 

Indeed, some money market funds today retain the right to delay payment on redemption 

 response to fleeing depositors, the specter of suspensions themselves were often the cause of such investor 

flight. See, e.g., Comment Letter of Committee on Capital Markets Regulation (Sept. 17, 2013) (“Comm. 

Cap. Mkt. Reg. Comment Letter”). 

165 See, e.g., MFDF Comment Letter; Va. Treasury Comment Letter; Goldman Sachs Comment Letter.

166 See Comment Letter of Federated Investors, Inc. (Apr. 25. 2014) (“Federated XI Comment Letter”).

167 See J.P. Morgan Comment Letter (“The potential of total loss of access to liquidity for up to thirty (30) 

days will be a concern for investors, and could exacerbate a pre-emptive run.”); Federated V Comment 

Letter (“Shareholders will find it increasingly difficult to compensate for their loss of liquidity the longer 

the suspension of redemptions continues. It is therefore important for Alternative 2 to limit the suspension 

of redemptions to a period in which the potential benefits to shareholders of delaying redemptions outweigh 

the potential disruptions caused by the delay.”).
59

requests for up to seven days, as all registered investment companies are permitted to do under 

the Investment Company Act, and we are not aware that this possibility has led to any preemptive runs historically.168 In addition, we note that under section 22(e), the Commission also 

has the authority to, by order, suspend the right of redemption or allow the postponement of 

payment of redemption requests for more than seven days. The Commission used this authority, 

for example, with respect to the Reserve Primary Fund. To our knowledge, this authority also 

has not historically led to pre-emptive redemptions. We believe that the gating allowed by 

today’s amendments extends and formalizes this existing gating framework, clarifying for 

investors when a money market fund potentially may use a gate as a tool to manage heavy 

redemptions and thus prevents any investor confusion on when gating may apply.

We believe that the maximum 10 business day gating period we are adopting today is a 

similarly short enough period of time (as compared to the seven days a fund may delay payment 

on redemption requests) that many investors may not be unduly burdened by such a temporary

loss of liquidity.169 Thus, these investors may have less incentive to redeem their investments 

pre-emptively before the imposition of a gate. For similar reasons, the reduction in the default 

liquidity fee to 1% (down from the proposed 2%), discussed further below, may also lessen 

shareholders’ incentives to redeem pre-emptively as fewer investors may consider it likely that a 

 168 See section 22(e). 

169 See, e.g., Federated V Comment Letter (stating that 10 calendar days “would be a significantly shorter 

period than proposed by the Commission, while still allowing prime [money market funds] more than a 

week to address whatever problem led to the suspension of redemptions. This would also be consistent 

with the comments of some of the investors who indicated to Federated that they probably could not go 

more than two weeks without access to the cash held in their [money market fund].”); see also infra section 

III.A.2.d (discussing the maximum duration of temporary redemption gates under today’s amendments).
60

liquidity fee will result in an unacceptable loss on their investment.170 

In addition, we expect that the additional discretion we are granting fund boards to 

impose a fee or gate at any time after a fund’s weekly liquid assets have fallen below the 30% 

required minimum, a much higher level of remaining weekly liquid assets than proposed, should 

mitigate the risk of pre-emptive redemptions. This board discretion should reduce the incentive 

of shareholders from trying to pre-emptively redeem because they will be able to less accurately 

predict specifically when, and under what circumstances, fees and gates will be imposed.171 

Board discretion also should allow boards to act decisively if they become concerned liquidity 

may become impaired and to react to expected, as well as actual, declines in liquidity levels, 

given their funds’ investor base and other characteristics.

Likewise, increased board discretion should lessen the likelihood that sophisticated 

investors can preferentially predict when a fee or gate is going to be imposed because 

sophisticated investors, like any other investor, will not know what specific circumstances a fund 

board will deem appropriate for the imposition of fees or gates. 172 We recognize that 

 170 We note that under our final amendments, the 1% default liquidity may be raised by a fund’s board (up to 

2%) if it is in the best interests of the fund. See rule 2a-7(c)(2)(ii)(A). However, given the empirical 

information regarding liquidity costs in money market fund eligible securities in the financial crisis, as 

discussed in the DERA Liquidity Fee Memo, which supported the reduction in the size of the default 

liquidity fee to 1%, money market fund shareholders may estimate that a fee as high as 2% will be unlikely 

and that depending on the circumstances, a fee of less than 1% could be appropriately determined by the 

board of directors. See DERA Liquidity Fee Memo, supra note 111.

171 See Wells Fargo Comment Letter (“The ability for fund investors to frequently and aggressively ‘game’ 

and avoid the potential imposition of Fees or Gates is undermined by the element of uncertainty inherent in 

a fund board’s discretion to impose a Fee or a Gate.”); see also Proposing Release, supra note 25, at n.362. 

Additionally, we believe that requiring investors in institutional prime funds to redeem their shares at 

floating NAV should lower the incentive to run pre-emptively when investors anticipate that a gate will be 

imposed as a result of a credit event. See infra section III.B for a discussion of the floating NAV 

requirement.

172 Although funds’ website disclosure will indicate when a fund is approaching the weekly liquid asset 
61

sophisticated investors may monitor the weekly liquid assets of funds and seek to redeem before 

a fund drops below the 30% weekly liquid asset threshold. We believe, however, that a 

sophisticated investor may be dissuaded from redeeming in these circumstances because the fund 

still has a substantial amount of internal liquidity. In addition, redemptions when the fund still 

has this much internal liquidity would not lead to fire sales or other such adverse effects.

We also believe that increased board flexibility will reduce the occurrence of pre-emptive 

redemptions by shareholders who seek to redeem because another money market fund has 

imposed a fee or gate. Increased board flexibility will likely result in different funds imposing 

different redemption restrictions at different times, particularly considering that after crossing the 

30% threshold each fund’s board will be required to make a best interests determination with 

respect to the imposition of a fee or gate.173 As such, it will be less likely that investors can 

predict whether any particular fund will impose a fee or gate, even if another fund has done so, 

and thus perhaps less likely they will redeem assuming that one fund imposing such a restriction 

means other funds may soon do so.

Moreover, we believe that funds’ ability to impose fees and gates once weekly liquid 

assets drop below 30% will substantially mitigate the broader effects of pre-emptive runs, should 

they occur. A money market fund that imposes a fee or gate with substantial remaining internal 

liquidity is in a better position to bear those redemptions without a broader market impact 

because it can satisfy those redemption requests through existing or internally generated cash and 

 thresholds for imposing a fee or gate, investors will not know the circumstances under which a board will 

deem such a restriction to be in the best interests of the fund. See rule 2a-7(h)(10)(ii)(B). 

173 Boards will also be required to make a best interests determination if they determine to change the level of 

the default liquidity fee or to not impose the default fee. See rule 2a-7(c)(2)(ii). 
62

not through asset sales (other than perhaps sales of government securities that tend to increase in 

value and liquidity in times of stress). Thus, pre-emptive runs, if they were to occur, under these 

circumstances are less likely to generate adverse contagion effects on other money market funds 

or the short-term financing markets.

We note some commenters suggested that concerns about pre-emptive run risks from fees 

and gates are likely overstated.174 One commenter noted that the “element of uncertainty 

inherent in a board’s discretion to impose a fee or gate” would diminish any possible gaming by 

investors.175 Another commenter further noted that “appropriate portfolio construction and daily 

transparency” would reduce the likelihood of anticipatory redemptions.176 For example, as 

discussed below, our amendments require that each money market fund disclose daily on its 

website its level of weekly liquid assets. This means that if one money market fund imposes a 

fee or gate, investors in other money market funds will have the benefit of full transparency on 

whether the money market fund in which they are invested is similarly experiencing liquidity 

stress and thus is likely to impose a fee or gate. Pre-emptive redemptions and contagion effects

due to a lack of transparency (which may have occurred in the crisis) may therefore be reduced. 

Some commenters also have previously indicated that a liquidity fee or gate should not 

accelerate a run, stating that such redemptions would likely trigger the fee or gate and that, once 

 174 See, e.g., SIFMA Comment Letter; Wells Fargo Comment Letter; Dreyfus Comment Letter; see also

Chamber II Comment Letter (stating that “unlike with the current conditions of [r]ule 22e-3 under the 

[Investment Company Act], a redemption gate would allow the MMF to remain in operation after the gate 

is lifted. This, in turn, will provide MMF investors with comfort regarding the ultimate redemption of their 

investment and make any large-scale redemptions less likely.”); Comment Letter of Artie Green (Aug. 29, 

2013) (“Green Comment Letter”) (“Fund shareholders would be less likely to panic if they know they will 

have access to their assets when the fund reopens after a short suspension of redemptions.”). 

175 See Wells Fargo Comment Letter.

176 See Dreyfus Comment Letter.
63

triggered, the fee or gate would then lessen or halt redemptions.177 

Additionally, we note that while many European money market funds are able to suspend 

redemptions and/or impose fees on redemptions, we are not aware that their ability to do so has 

historically led to pre-emptive runs. Most European money market funds are subject to 

legislation governing Undertakings for Collective Investment in Transferable Securities 

(“UCITS”), which also covers other collective investments, and which permits them to suspend 

temporarily redemptions of units.178 For example, in Ireland, UCITS are permitted to 

temporarily suspend redemptions “in exceptional cases where circumstances so require and 

suspension is justified having regard to the interest of the unit-holders.”179 Similarly, many 

money market funds in Europe are also permitted to impose fees on redemptions.180 

We also note that a commenter discussed a paper by the staff of the Federal Reserve 

Bank of New York (“FRBNY”) entitled “Gates, Fees, and Preemptive Runs.”181 The FRBNY 

staff paper constructs a theoretical model of fees or gates used by a financial intermediary and 

finds “that rather than being part of the solution, redemption fees and gates can be part of the 

 177 See, e.g., Proposing Release, supra note 25, at n.364.

178 See, e.g., UCITS IV Directive, Article 84 (permitting a UCITS to, in accordance with applicable national 

law and its instruments of incorporation, temporarily suspend redemption of its units); Articles L. 214-19 

and L. 214-30 of the French Monetary and Financial Code (providing that under exceptional circumstances 

and if the interests of the UCITS units holders so demand, UCITs may temporarily suspend redemptions); 

see also Coll. 7.2R United Kingdom Financial Conduct Authority Handbook (allowing the temporary 

suspension of redemptions “where due to exceptional circumstances it is in the interest of all the 

unitholders in the authorized fund”).

179 See Regulation 104(2)(a) of S.I. No. 352 of 2011. 

180 See, e.g., HSBC Comment Letter (“We are in the process of rolling out the ability for the Board of 

Directors to impose trigger based liquidity fees in our [money market funds] where current regulation 

allows. At this time we are working on implementation in our flagship “Global Liquidity Fund” range 

domiciled in Dublin.”).

181 See Federated XI Comment Letter.
64

problem.”182 This commenter argued that this paper fails to consider numerous restrictions in 

bank products similar to fees and gates that do not appear to have triggered pre-emptive runs on 

banks.183 In particular, the commenter noted that all banks are required “to retain contractual 

authority as to most deposits to postpone withdrawals (gating) or impose early redemption fees 

and to reserve the right to impose restrictions – either gates or fees or both – on redemptions of 

all bank deposits other than demand deposit accounts....”184 

We note that the model of fees or gates in the FRBNY staff paper has a number of 

features and assumptions different than the reforms we are adopting today. For example, the 

paper’s model assumes the fees or gates are imposed only when liquid assets are fully depleted. 

In contrast, under our reforms fees or gates may be imposed while the fund still has substantial 

liquid assets and, as discussed above, we believe investors may be dissuaded from pre-emptively

redeeming from funds with substantial internal liquidity because the fund is more likely to be 

able to readily satisfy redemptions without adversely impacting the fund’s pricing.185 Moreover, 

under our reforms (unlike the model), a fund board has discretion in the decision of when to 

impose fees or gates, which as discussed above should reduce the incentive for investors to run, 

because they will be able to less accurately predict specifically when, and under what 

 182 See Gates, Fees and Preemptive Runs, Federal Reserve Bank of New York Staff Report No. 670 (Apr. 

2014), available at http://www.newyorkfed.org/research/staff_reports/sr670.pdf.

183 See Federated XI Comment Letter.

184 See id. (citations omitted). The commenter states that, other than with respect to demand deposit accounts, 

“banks (1) are required ... to reserve the right to require seven days’ advance notice of a withdrawal from 

[money market deposit accounts], NOW accounts and other savings accounts; (2) are not required to allow 

early withdrawal from [certificates of deposit] and other time deposits; and (3) are allowed to impose early 

withdrawal fees on time deposits if they choose to permit an early withdrawal from a time deposit.” 

185 See supra at text following note 172.
65

circumstances, fees or gates will be imposed.186 Another significant difference is that our 

reforms include a floating NAV for institutional prime money market funds, which constitute a 

sizeable portion of all money market funds, but the model assumes a stable NAV. As discussed 

below, we believe the floating NAV requirement may encourage those investors who are least 

able to bear risk of loss to redirect their investments to other investment opportunities (e.g., 

government money market funds), and this may have the secondary effect of removing from the 

funds those investors most prone to redeem should a liquidity event occur for which fees or gates 

could be imposed. Furthermore, the paper also assumes that no investor could foresee the 

possibility of a shock to a money market fund that reduces the fund’s value or liquidity despite 

the events of 2008 that should have informed investors that fund NAVs can change over time 

and that liquidity levels may fluctuate. In addition, under our floating NAV reforms, price levels 

of institutional prime money market funds likely will fluctuate, and today’s reforms will also 

require additional disclosures that will convey important information to investors about the 

fund’s value which in turn may help prevent run behavior to the extent it is based on uninformed 

decision-making. 

These differences in our reforms as compared to the model in the FRBNY staff paper, 

along with the additional disclosures that we are adopting today that will convey important 

information to investors about the fund’s value, should in our view significantly mitigate any 

potential for substantial investor runs before fees and gates are imposed. Accordingly, the 

FRBNY staff paper’s findings regarding the risks of pre-emptive redemptions, because they rely 

 186 See supra notes 171-173 and accompanying text.
66

on different facts and assumptions than are being implemented in today’s reforms, are not likely 

to apply to money market funds following today’s reforms.

As noted above, the new daily transparency to shareholders on funds’ levels of weekly 

liquid assets should provide additional benefits, including helping shareholders to understand if 

their fund’s liquidity is at risk and thus a fee or gate more likely and, therefore, should lessen the 

chance of contagion from shareholders redeeming indiscriminately in response to another fund 

imposing a fee or gate. Investors will be able to benefit from this disclosure when assessing each 

fund’s circumstances, rather than having to infer information from, or react to, the problems 

observed at other funds. Nevertheless, investors might mimic other investors’ redemption 

strategies even when those other investors’ decisions are not necessarily based on superior 

information.187 General stress in the short-term markets or fear of stress at a particular fund 

could trigger redemptions as shareholders try to avoid a fee or gate. As noted above, however, 

even if investors redeem, their redemptions eventually could cause a fee or gate to come down, 

thereby lessening or halting redemptions and mitigating contagion risk. 188 In sum, we are 

persuaded that fees and gates are important tools that can be used to halt redemptions and 

prevent contagion during periods of market stress.

 187 See Proposing Release, supra note 25, at n.363; see also Hanson et al. Comment Letter (“news that one 

[money market fund] has initiated redemption restrictions could set off a system-wide run by investors who 

are anxious to redeem their shares before other funds also initiate such fees or restrictions”); Boston 

Federal Reserve Comment Letter (“[B]ecause of the relative homogeneity in many [money market funds’] 

holdings, the imposition of a liquidity fee or redemption gate on one fund may incite runs on other funds 

which are not subject to such measures” (citation omitted)).

188 See SIFMA Comment Letter (“[Some] members point out that if a fund’s liquidity breaches the trigger 

level, the gate and fee, themselves, will stem any exodus and damper its effect.”).
67

ii. Impact on a Fund after Imposing a Fee or Gate

Commenters have suggested that once fees and gates are imposed, they may not be easily 

lifted without triggering a run.189 Similarly, other commenters warned that imposing a fee or gate 

would not help a fund recover from a crisis but rather force it into liquidation because investors 

would lose trust in the fund and seek to invest in a money market fund that has not imposed a fee 

or gate.190 We acknowledge that there is a risk that investors may redeem from a fund after a fee 

or gate is lifted. We believe this is less likely following the imposition of a fee, however, 

because investors will continue to have the ability to redeem while a fee is in place and, 

therefore, may experience less disruption and potentially less loss in trust. In any event, we 

believe that it is important that money market funds have these tools to give funds the ability to 

obtain additional liquidity in an orderly fashion if a liquidity crisis occurs, notwithstanding the 

risk that the imposition of a fee or gate may cause some subsequent loss in trust in a fund or may 

lead to a resumption in heavy redemptions once a fee or gate is lifted. Further, we think it is 

important to observe that whenever a fee or gate is imposed, the fund may already be under 

stress from heavy redemptions that are draining liquidity, and the purpose of the fees and gates 

amendments is to give the fund’s board additional tools to address this external threat when the 

board determines that using one or both of the tools is in the fund’s best interests. 

Further, to the extent that commenters’ concerns about potential loss in trust or risk of a 

run when a fee or gate is lifted is tied to investor concerns about the sufficiency of the fund’s 

 189 See, e.g., Comment Letter of T. Rowe Price Associates, Inc. (Sept. 17, 2013) (“T. Rowe Price Comment 

Letter”).

190 See, e.g., Schwab Comment Letter (“[W]e have a hard time seeing how any fund that actually imposed fees 

and/or redemption gates would ever be able to recover and be a viable fund again. Investor trust in that 

fund would be lost.”); Goldman Sachs Comment Letter; J.P. Morgan Comment Letter.
68

liquidity levels, we note that, under today’s amendments, funds will be required to disclose 

information regarding their liquidity (e.g., daily and weekly liquid assets) on a daily basis. Such 

disclosure, assuming adequate liquidity, may help ameliorate concerns that investors will run or 

shift their investment elsewhere after a fund lifts its redemption restrictions because investors 

will be able to see that a fund is sufficiently liquid. To the extent heavy redemptions resume 

after a fund lifts a fee or gate, we also note that a fund board may again impose a fee, or gate if 

the fund has not yet exceeded the 10 business day maximum gating period, if it is in the best 

interests of the fund.191 Additionally, while we recognize that fees and gates may cause some 

investors to leave a fund once it has lifted a fee or gate (or, in the case of a fee, while the fee is in 

place), which may affect efficiency, competition, and capital formation, we believe it is possible 

that some investors, particularly those that were not seeking to redeem during the imposition of 

the fee or gate, may choose to stay in the fund. In this regard, we note that, as discussed above, a 

liquidity fee would benefit those investors who were not seeking to redeem while a fund’s 

liquidity was under stress by more equitably allocating liquidity costs among redeeming and 

non-redeeming shareholders.192 In addition, to the extent a fund’s drop in weekly liquid assets 

was the result of an external event, if such event resolves while a fee or gate is place, some 

investors may choose to stay in the fund after the fee or gate is lifted.

In addition, we recognize that a fund board may determine to close a fund and liquidate 

after the fund has imposed a fee or temporary gate (or instead of imposing a fee or temporary 

 191 See rule 2a-7(c)(2)(i)(B) (limiting the imposition of gates to 10 business days in any 90-day period).

192 See supra note 121 and accompanying text.
69

gate) pursuant to amended rule 22e-3.193 We note, however, that even if a fund ultimately 

liquidates, its disposition is likely to be more orderly and efficient if it previously imposed a fee 

or gate. In fact, imposing a fee or gate should give a fund more time to generate greater liquidity 

so that it will be able to liquidate with less harm to shareholders. Additionally, to the extent a 

fund’s board determines to close the fund and liquidate after the fund has imposed a fee or 

temporary gate, we anticipate that this would more commonly occur because the imposition of 

the fee or gate was the result of idiosyncratic stresses on the fund.194 In this regard, we note that 

at least one commenter who suggested that a money market fund would likely be forced to 

liquidate after imposing a fee or gate, also noted that “in a systemic crisis” where many funds 

may be faced with heavy redemptions and thus the possibility of imposing fees and gates, money 

market funds “may have a greater likelihood of avoiding liquidation after the systemic crisis 

[has] subsided.”195

iii. Investors’ Liquidity Needs

A number of commenters expressed concern that fees or gates could impair money 

market funds’ use as liquid investments, in particular because redemption restrictions (especially 

gates) would limit or deny shareholders ready access to their funds.196 Commenters noted such a 

lack of liquidity could have detrimental consequences for investors, including, for example, 

 193 See infra section III.A.4 herein discussing amendments to rule 22e-3 that will allow a board to close and 

liquidate a fund if the fund’s weekly liquid assets have dropped below 10%.

194 See infra note 195 and accompanying text. 

195 See J.P. Morgan Comment Letter.

196 See, e.g., Comment Letter of the Boeing Company (Sept. 9, 2013) (“Boeing Comment Letter”); Boston 

Federal Reserve Comment Letter; BlackRock II Comment Letter.
70

corporations and institutions using liquidity accounts for cash management,197 retail investors 

needing immediate access to cash such as in a medical emergency or when purchasing a home,198

and state and local governments that need to make payroll or service bond payments when due.199 

We recognize that liquidity fees and redemption gates could affect shareholders by 

potentially limiting, partially or fully (as applicable), the redeemability of money market fund 

shares under certain conditions, a principle embodied in the Investment Company Act.200 In our 

view, however, these reforms should not unreasonably impede the use of money market funds as 

liquid investments. First, under normal circumstances, when a fund’s liquidity is not under 

stress, the fees and gates amendments will not affect money market funds or their shareholders. 

Fees and gates are tools for funds to use in times of severe market or internal stress. Second, 

even when a fund experiences stress, the fees and gates amendments we are adopting today do 

not require money market funds to impose fees and gates when it is not in the best interests of 

the fund. Accordingly, we believe these tools can assist funds facing liquidity shortages during 

periods of unusual stress, while preserving the benefits of money market funds for investors and 

the short-term funding markets by not affecting the day-to-day operations of a fund in periods 

without stress. In fact, a number of commenters observed that fees and gates would be the most 

 197 See, e.g., Boeing Comment Letter; Capital Advisors Comment Letter.

198 See, e.g., Comment Letter of the SPARK Institute, Inc. (Sept. 16, 2013) (“SPARK Comment Letter”); 

Comment Letter of Vanguard (Sept. 17, 2013) (“Vanguard Comment Letter”).

199 See, e.g., Comment Letter of Chief Financial Officer, State of Florida (Sept. 12, 2013) (“Fla. CFO 

Comment Letter”); Comment Letter of Treasurer and Comptroller, St. Louis, Missouri (Sept. 17, 2013) 

(“St. Louis Treasurer Comment Letter”).

200 See infra Section III.A.3 (discussing the rationale for the exemptions from the Investment Company Act).
71

effective option of achieving the Commission’s reform goals,201 and would preserve as much as 

possible the current benefits of money market funds and/or be less onerous day-to-day on funds 

and investors.202

With respect to liquidity fees, we also note that investors will not be prohibited from 

redeeming their investments; rather, they may access their investments at any time, but their 

redemptions will be subject to a fee that is designed to make them bear at least some of the costs 

associated with their access to liquidity rather than externalizing those costs to the remaining 

fund shareholders. With respect to gates, we recognize that they will temporarily prevent 

investors from redeeming their investments when imposed. However, we believe gates (as well 

as fees) will rarely be imposed in normal market conditions. In our view, in those likely rare 

situations where a gate would be imposed, investors would (in the absence of the gating

mechanism) potentially be left in worse shape if the fund were, for example, forced to engage in 

the sale of assets and thus incur permanent losses; or worse, if the fund were forced to liquidate 

because of a severe liquidity crisis. Thus, we believe that allowing fund boards to impose gates 

should not be viewed as detrimental to funds, but rather should be viewed as an interim measure 

boards can employ in worse case scenarios where the alternative would likely be a result 

potentially more detrimental to investors’ overall interests. To the extent that some investors 

may be sufficiently concerned about their ability to access their investment to meet certain 

obligations, such as payroll or bills, we believe they may choose to manage their money market 

 201 See, e.g., Fidelity Comment Letter; Deutsche Comment Letter; Comment Letter of SunTrust Bank and 

SunTrust Investment Services (Sept. 16, 2013) (“SunTrust Comment Letter”).

202 See, e.g., Comment Letter of Plan Investment Fund, Inc. (Sept. 16, 2013) (“Plan Inv. Fund Comment 

Letter”); IDC Comment Letter; HSBC Comment Letter.
72

fund investments so as to be able to meet these obligations if a redemption gate should be 

imposed.203 

While we recognize these commenter concerns regarding liquidity, we believe that the 

overall benefits and protections that are provided by the fees and gates amendments to all 

investors in these money market funds outweigh these concerns. Furthermore, we note that the 

final amendments have been modified and tailored to mitigate some potentially disruptive 

consequences of fees and gates. For example, under the final amendments, gates cannot be 

imposed for more than 10 business days in any 90-day period, so, to the extent an investor’s 

access to his/her money is inhibited, it is for a limited period of time, which may allow an 

investor to better prepare for and withstand a possible gate. We also note, as discussed above, 

that funds are currently permitted to impose permanent redemption gates in certain 

circumstances.

204 Therefore, we believe that the gating allowed by today’s amendments extends

and formalizes the existing gating framework, clarifying for investors when a money market 

fund potentially may use a gate as a tool to manage heavy redemptions and thus prevents any 

investor confusion on when gating may apply. While we recognize that the permanent

redemption gates allowed under rule 22e-3 have not yet been used by money market funds, we 

note that investors have widely utilized money market funds as cash management vehicles even 

with the possibility of these permanent gates under an existing rule. Moreover, to the extent an 

investor wants to invest in a money market fund without the possibility of fees and/or gates, it 

 203 We recognize that some investors may choose to move their money out of affected money market funds 

due to concern that a fee or gate may be imposed in the future. For a discussion of investor movement out 

of money market funds, see infra section III.K.

204 See rule 22e-3.
73

may choose to invest in a government money market fund, which is not subject to the fees and 

gates requirements.205

iv. Investor Movement out of Money Market Funds

Some commenters expressed concern that the possibility of fees and gates being imposed 

could result in diminished investor appeal and/or utility of affected money market funds, and 

could cause investors to either abandon or severely restrict use of affected money market 

funds.206 For example, commenters suggested that fees and gates would drive sweep account 

money out of money market funds.207 Commenters warned that fees and gates may cause 

investors to shift investments into other assets, government money market funds, FDIC-insured 

accounts and other bank products, riskier and/or less regulated investments, or other alternative 

stable value products.208 Conversely, other commenters predicted only minor effects on investor 

demand and/or that investor demand would decrease less under the proposed fees and gates 

alternative than under the proposed floating NAV alternative.209 

 205 See infra section III.C.1.

206 See, e.g., Ky. Inv. Comm’n Comment Letter; Boeing Comment Letter; Schwab Comment Letter; American 

Bankers Ass’n, Comment Letter.

207 See Fin. Info. Forum Comment Letter (“Charging a liquidity fee and imposing gates effectively removes 

money market funds as a sweep vehicle since these accounts are designed to be a liquidity product and 

firms will no longer be able to guarantee liquidity.”); Comment Letter of M&T Banking Corporation (Oct. 

1, 2013) (“M&T Bank Comment Letter”) (suggesting fees and gates would “drive most commercial 

banking clients from prime money market fund sweep accounts”); SIFMA Comment Letter.

208 See, e.g., Northern Trust Comment Letter; M&T Bank Comment Letter; Schwab Comment Letter; but see

Invesco Comment Letter (suggesting that investor opposition to fees and gates could be addressed in part 

by greater education regarding the circumstances in which the gates would be imposed); Peirce and Greene 

Comment Letter (suggesting that to the extent gates in particular make money market funds less attractive 

to certain investors, this would be “a positive step toward helping them find appropriate investments for 

their needs.”); see also Comment Letter of Fidelity Investments (Apr. 22, 2014) (“Fidelity DERA 

Comment Letter”); Comment Letter of BlackRock, Inc. (Apr. 23, 2014) (“BlackRock DERA Comment 

Letter”).

209 See, e.g., Comment Letter of Cathy Santoro (Sept. 17, 2013) (“Santoro Comment Letter”); Comment Letter 
74

We recognize that, as suggested by certain commenters, our amendments could cause

some shareholders to redeem their prime money market fund shares and move their assets to 

alternative products that do not have the ability to impose fees or gates because the potential

imposition of a fee or gate could make investment in a money market fund less attractive due to 

less certain liquidity.210 As noted above, this could affect efficiency, competition, and capital 

formation. We agree with one commenter that suggested it is difficult to estimate the extent to 

which assets might shift from prime funds to government funds or other alternatives.211 As 

discussed above, some investors may determine they are comfortable investing in money market 

funds that may impose fees and gates, because fees and gates will likely be imposed only during 

times of stress and should not affect the daily operations of money market funds during normal 

 

of Arnold & Porter LLP on behalf of Federated Investors (Costs of Implementing the Proposals) (Sept. 17, 

2013) (“Federated X Comment Letter”).

210 See Comment Letter of SunGard Institutional Brokerage Inc. (Sept. 13, 2013) (“SunGard Comment 

Letter”) (finding in a survey of its corporate, government and pension plan customers that 76% of 

respondents would decrease their use of money market funds substantially or entirely, but that only 22% of 

respondents would stop using money market funds entirely); Comment Letter of Fidelity (Feb. 3, 2012) 

(available in File No. 4-619) (“Fidelity Feb. 3 Comment Letter”) (finding in a survey of their retail money 

market fund customers that 43% would stop using a money market fund with a 1% non-refundable 

redemption fee charged if the fund’s NAV per share fell below $0.9975 and 27% would decrease their use 

of such a fund); Comment Letter of Federated Investors, Inc. on the IOSCO Consultation Report on Money 

Market Fund Systemic Risk Analysis and Reform Options (May 25, 2012) available at

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD392.pdf (“Federated IOSCO Comment Letter”)

(stating that they anticipate “that many investors will choose not to invest in MMFs that are subject to 

liquidity fees, and will redeem existing investments in MMFs that impose a liquidity fee” but noting that 

“[s]hareholder attitudes to redemption fees on MMFs are untested”); but see Invesco Comment Letter 

(suggesting that investor opposition to fees and gates could be addressed in part by greater education 

regarding the circumstances in which the gates would be imposed).

211 See Comment Letter of Federated Investors, Inc. (Demand and Supply of Safe Assets) (Apr. 23, 2014) 

(“Federated DERA I Comment Letter”) (suggesting an “inability to predict how many assets might shift 

from prime and municipal MMFs to government MMFs in response to adoption [of] [a]lternative 1 or 2, or 

a combination thereof” and recommending that the Commission consider a “range of outcomes” when 

analyzing a possible shift out of prime money market funds and into government money market funds). 

The commenter also noted that it has “not found any basis for estimating the extent to which prime and 

municipal MMF shareholders would prefer bank instruments to government MMFs.” See id.
75

market conditions.

212 Other investors, however, may reallocate their assets to investment 

alternatives that are not subject to fees and gates, such as government money market funds.

213 

One potential issue related to market efficiency that several commenters raised was a 

potential shortage of eligible government securities if investors reallocate assets from funds that 

are subject to fees and gates into government funds.214 We anticipate that any increase in 

demand for eligible government securities because of the fees and gates requirement would 

likely be accompanied by an additional increase in demand arising from investors that reallocate

assets from institutional prime funds because of the floating NAV requirement. As such, we 

discuss the reforms’ joint impact on the demand for eligible government securities and possible 

repercussions on the economy and capital formation in section III.K below. 

In addition, a number of commenters noted that a possible shift out of affected money 

market funds could ultimately lead to a decrease in the funding of, or other adverse effects on, 

 212 See, e.g., Invesco Comment Letter (“[W]e believe that additional education about the purpose and 

operation of the proposed liquidity fees and redemptions gates and the circumstances in which they might 

be implemented would increase greatly MMF investors’ willingness to accept them.”); Goldman Sachs 

Comment Letter (“[S]ome of our investors have told us that they could accept the prospect of liquidity fees 

and gates ....”); Comment Letter of Tom Garst (Aug. 30, 2013) (“Garst Comment Letter”) (suggesting that 

gates would be the “most acceptable alternative” out of those proposed); Capital Advisors Comment Letter 

(“[W]e think shareholders may accept a cost of liquidity in a stressful situation ....”). We note that, under 

today’s amendments, institutional prime funds will be subject to the fees and gates requirements as well as 

a floating NAV requirement, and that investor acceptance of fees and gates for these funds may be 

different. See, e.g., ICI Comment Letter (suggesting a fund that is subject to fees and gates and a floating 

NAV will be “a fund which nobody will want”); see also infra section III.B for a discussion of the floating 

NAV requirement and any investor movement out of money market funds as result of such requirement. 

213 Government money market funds also will not be subject to the floating NAV requirement adopted today. 

See infra section III.C.1. In addition, as noted above, all money market funds today have the option to 

impose a permanent redemption gate and liquidate under rule 22e-3 under the Investment Company Act. 

While we recognize that these permanent redemption gates have not yet been used by money market funds, 

we note that they have not led to the migration of investors away from money market funds. 

214 See, e.g., Fidelity DERA Comment Letter.
76

the short-term financing markets.215 The Commission recognizes the expected benefits from 

today’s amendments may be accompanied by adverse effects on issuers that access the shortterm financing markets with consequent effects on competition and capital formation. As 

discussed in greater detail in section III.K below, the magnitude of these effects, including any 

effects on competition, efficiency, and capital formation, will depend on the extent to which 

investors reallocate their investments within or outside the money market fund industry and 

which alternatives investors choose. 

Some commenters also suggested that fees and gates could motivate money market funds 

to hold securities of even shorter-term duration, which could encourage issuers to fund 

themselves with shorter-term debt. 216 Shortening debt maturity would increase the frequency at 

which issuers would need to refinance, leaving both issuers and the broad financial system more 

vulnerable to refinancing risk.217 One such commenter further noted that basing the threshold for 

fees and gates on weekly liquid assets will “discourage[e] prime money market funds from 

drawing down on their buffers of liquid assets [due to fear of crossing below the fees and gates 

thresholds] precisely when they should do so from a system-wide perspective, i.e., in a systemwide liquidity and funding crisis.”218 In addition, some commenters were concerned about a loss 

of funding or other adverse impacts on state and local governments as a result of the fees and 

 215 See, e.g., MFDF Comment Letter; Comment Letter of Arizona Association of County Treasurers (Sept. 16, 

2013) (“Ariz. Ass’n of County Treasurers Comment Letter”); Northern Trust Comment Letter.

216 See Hanson et al. Comment Letter; Deutsche Comment Letter.

217 See generally Hanson et al. Comment Letter; Deutsche Comment Letter.

218 See, e.g., Hanson et al. Comment Letter.
77

gates amendments.219 We discuss these concerns in section III.K below.

2. Terms of Fees and Gates 

As discussed above, we are adopting provisions that, unlike the proposal, will allow a 

money market fund the flexibility to impose fees (up to 2%)220 and/or gates (up to 10 business

days in a 90-day period)221 after the fund’s weekly liquid assets have crossed below 30% of its 

total assets, if the fund’s board of directors (including a majority of its independent directors) 

determines that doing so is in the best interests of the fund.222 We are also adopting amendments 

that will require a money market fund, if its weekly liquid assets fall below 10% of its total 

assets, to impose a 1% liquidity fee on each shareholder’s redemption, unless the fund’s board of 

directors (including a majority of its independent directors) determines that such a fee would not 

be in the best interests of the fund, or determines that a lower or higher fee (not to exceed 2%) 

would be in the best interests of the fund.223 The proposal would have required funds (absent a 

board determination otherwise) to impose a 2% liquidity fee on all redemptions, and would have 

permitted the imposition of redemption gates for up to 30 days in a 90-day period, after a fund’s 

 219 See, e.g., Comment Letter of Governor, Commonwealth of Massachusetts (Deval L. Patrick) (Sept. 17, 

2013) (“Mass. Governor Comment Letter”); Comment Letter of Office of the Governor, State of New 

Hampshire (Oct. 4, 2013) (“NH Governor Letter”); Comment Letter of Treasurer, State of North Carolina 

(Sept. 19, 2013) (“NC Treasurer Comment Letter”); Comment Letter of 42 Members of U.S. Congress 

(Oct. 28, 2013) (“42 Members of U.S. Congress Comment Letter”). Some commenters cited the role of 

municipal money market funds as a funding mechanism for state and local governments, arguing such role 

might be endangered by the proposed reforms. See, e.g., Fidelity Comment Letter; J.P. Morgan Comment 

Letter.

220 See infra notes 300-302 and accompanying text.

221 Rule 2a-7(c)(2)(i)(B). 

222 Rule 2a-7(c)(2)(i). The fund must reject any redemption requests it receives while the fund is gated. See 

rule 2a-7(c)(2)(i)(B).

223 Rule 2a-7(c)(2)(ii). If a fund imposes a liquidity fee, a fund’s board can later vary the level of the liquidity 

fee (subject to the 2% limit) if the board determines that a different fee level is in the best interests of the 

fund. Rule 2a-7(c)(2)(i)(A) and (ii)(B). 
78

weekly liquid assets fell below 15% of its total assets. In addition, unlike in the proposal, 

today’s amendments will allow a fund to impose a fee or gate at any point throughout the day 

after a fund’s weekly liquid assets have dropped below 30%.224 

As in the proposal, any fee or gate imposed under today’s amendments must be lifted 

automatically after the money market fund’s level of weekly liquid assets rises to or above 30%, 

and it can be lifted at any time by the board of directors (including a majority of independent 

directors) if the board determines to impose a different redemption restriction (or, with respect to 

a liquidity fee, a different fee) or if it determines that imposing a redemption restriction is no 

longer in the best interests of the fund.225 As amended, rule 22e-3 also will permit the permanent 

suspension of redemptions and liquidation of a money market fund if the fund’s level of weekly 

liquid assets falls below 10% of its total assets.226 

a. Thresholds for Fees and Gates

i. Discretionary Versus Mandatory Thresholds 

As proposed, a fund would have been required (unless the board determined otherwise) to 

impose a default liquidity fee, and would have been permitted to impose a gate, after the fund’s 

weekly liquid assets dropped below 15% of its total assets. In addition, a fund would have had to 

wait to impose a fee or gate until the next business day after it crossed below the 15% threshold.

Commenters ranged widely over whether and to what extent the trigger for fees and gates 

 224 See rule 2a-7(c)(2)(i).

225 Rule 2a-7(c)(2)(i)(A)-(B) and (ii)(B).

226 See rule 22e-3(a)(1). To mirror the proposed fees and gates amendments to rule 2a-7, the proposed 

amendments to rule 22e-3 would have set a threshold of below 15% weekly liquid assets for a fund to 

permanently close and liquidate. For a discussion of amended rule 22e-3, see infra section III.A.4.
79

should be an objective test or left to the discretion of fund boards. On one hand, a group of 

commenters expressed concern about giving money market fund boards discretion to impose fees 

and gates.227 For example, some commenters noted that board discretion could create uncertainty 

among investors,228 and that boards might be reticent, due to the possible impact of the decision, 

to act in a time of crisis.229 

On the other hand, a large group of commenters generally argued in favor of giving 

boards more discretion over whether to impose a fee or gate.230 For example, a number of 

commenters expressly noted that fees should be at the discretion of fund boards instead of being 

automatically triggered at a particular liquidity threshold.231 A number of other commenters 

argued more generally that, when heavy redemptions are already underway or clearly 

foreseeable, boards should be able to impose fees and gates even before a set liquidity threshold 

or some other objective threshold has been crossed.232 

We continue to believe that a hybrid approach that at some point imposes a default fee 

 227 See, e.g., BlackRock II Comment Letter; Capital Advisors Comment Letter; Fidelity Comment Letter; 

HSBC Comment Letter; cf. Comment Letter of The Independent Trustees of the Fidelity Fixed-Income and 

Asset Allocation Funds (Sept. 10, 2013) (“Fidelity Trustees Comment Letter”) (suggesting that the 

Commission should have the ability to impose a fee on prime money market funds when a fund’s weekly 

liquid assets fall below 15%).

228 See, e.g., BlackRock II Comment Letter; Fidelity Comment Letter.

229 See, e.g., Capital Advisors Comment Letter; HSBC Comment Letter (“[S]ome commentators have 

suggested that a fund board may be too commercially conflicted to decide whether to impose a liquidity 

fee.”).

230 See, e.g., Chamber II Comment Letter; Dreyfus Comment Letter; Invesco Comment Letter.

231 See, e.g., Federated V Comment Letter; HSBC Comment Letter; T. Rowe Price Comment Letter; Peirce & 

Green Comment Letter; cf., BlackRock Comment Letter (advocating a mandatory gate after assets dropped 

below 15% weekly liquid assets, but also allowing money market fund boards “the ability to impose a gate 

before weekly liquid assets fell below 15% of total assets if the [b]oard believed this was in the best interest 

of the [money market fund]”).

232 See., e.g., BlackRock II Comment Letter; Chamber II Comment Letter; Federated V Comment Letter.
80

that boards can opt out of or change best ensures that fees and gates will be imposed when it is 

appropriate. Based on commenter feedback, however, we believe that such a hybrid approach 

could benefit from the default fee acting more as a floor for board consideration when liquidity 

has been significantly depleted and from additional board discretion to impose fees and gates in 

advance of that point.233 Thus, our final approach – while still a hybrid approach – is 

significantly more discretionary than under our proposal. As we indicated in the Proposing 

Release, we believe a hybrid approach offers the possibility of achieving many of the benefits of 

both a purely discretionary trigger and a fully automatic trigger. We recognize that a 

discretionary trigger allows a fund board the flexibility to determine when a restriction is 

necessary, and thus allows the board to trigger the fee or gate based on current market conditions 

and the specific circumstances of the fund. 

A purely discretionary trigger, however, creates the risk that a fund board may be 

reluctant to impose restrictions, even when they would benefit the fund and the short-term 

financing markets. As commenters indicated,234 a board may choose not to impose a fee or gate 

for commercial reasons – for example, out of fear that doing so would signal trouble for the 

individual fund or fund complex (and thus may incur significant negative business and 

reputational effects) or could incite redemptions in other money market funds in the fund 

complex in anticipation that fees may be imposed in those funds as well. We are also concerned 

that purely discretionary triggers could cause some funds to use fees and gates when they are not 

 233 See supra section III.A.1.c.i (discussing the impact of board discretion on possible pre-emptive runs); see 

also Wells Fargo Comment Letter.

234 See supra note 229.
81

under stress and in contravention of the principles underlying the Investment Company Act. If, 

for example, a fund’s NAV began to fall due to losses incurred in the portfolio, a board with full 

discretion to impose fees on fund redemptions could impose a fee solely to recover those losses 

and repair the fund’s NAV, even if that fund’s liquidity is not being stressed.

As discussed in the Proposing Release, we recognize that although an automatic trigger 

set by the Commission may mitigate some of the potential concerns associated with a fully 

discretionary trigger, it also may create the risk of imposing costs on shareholders, such as those 

related to board meetings or liquidity fees themselves, when funds are not truly distressed or 

when liquidity is not abnormally costly. As indicated by a number of commenters and discussed 

above, an automatic trigger also could result in shareholders pre-emptively redeeming their 

shares to avoid a fee or gate.235 In addition, commenters suggested that a fund’s liquidity could 

quickly evaporate once heavy redemptions begin and that a fund board should not have to wait 

until the fund’s weekly liquid assets breach the default liquidity fee threshold or until the next 

business day in order to act.236 

In light of these risks and in response to the comments discussed above, we have 

determined to increase the amount of board discretion under the fees and gates amendments so 

that funds may impose fees or gates before the default liquidity fee threshold is reached and so 

they can better tailor the redemption restrictions to their particular circumstances. Additionally, 

the amendments will allow fund boards to impose fees and gates the same day that a fund 

experiences or foresees heavy redemptions and, thus, funds will not have to wait until the next 

 235 See supra section III.A.1.c.i for a discussion regarding pre-emptive run risk and increased board discretion.

236 See, e.g., Federated II Comment Letter; Dreyfus Comment Letter.
82

day to act.237 This increased flexibility should better allow fund boards to prevent or stem heavy 

redemptions before they occur, or as soon as possible after they begin or are anticipated.238 

ii. Threshold Levels 

As discussed above, funds will be permitted to impose fees and gates after a fund’s 

weekly liquid assets have dropped below 30%, and will be required to impose a liquidity fee 

after a fund’s weekly liquid assets drop below 10%, unless the fund’s board determines such fee 

is not in the best interests of the fund. As proposed, the threshold for the imposition of fees and 

gates would have been a drop below 15% weekly liquid assets and a fund’s board could have 

determined that a fee would not be in the best interests of the fund. 

Various commenters proposed modifications or substitutes to the proposed 15% weekly 

liquid assets threshold. For example, one commenter, citing a survey of its members, suggested 

fund boards be given discretion to impose a liquidity fee when weekly liquid assets fall below a 

specified threshold, and that a default liquidity fee could be imposed at a specified lower level of 

weekly liquid assets (unless the board determines otherwise).239 Another commenter proposed a 

blended trigger for the imposition of gates at 30% weekly liquid assets or a drop in NAV below 

 237 Although funds will have to wait until a fund’s weekly liquid assets drop below 30% in order to impose a 

fee or gate, we believe the higher threshold of 30% for discretionary fees and gates should assuage 

concerns about having to wait to impose redemption restrictions until a fund’s weekly liquid assets breach 

the default liquidity fee threshold.

238 See, e.g., Treasury Strategies III Comment Letter (“We found that [f]ees and [g]ates can stop and prevent 

runs, provided that they are implemented effectively through policy and preemptive action by fund 

boards.”). For example, if a fund board believes that a fund’s weekly liquid assets are likely to fall below 

the 10% weekly liquid asset threshold for a default liquidity fee, it could choose to impose a liquidity fee 

prior to the fund breaching this threshold.

239 See SIFMA Comment Letter.
83

$0.995, whichever comes first.240

As discussed in this section, we have been persuaded by commenters that boards should 

be allowed some flexibility to impose a fee or gate when heavy redemptions are underway or 

clearly foreseeable. As was suggested by a commenter,241 we are adopting a tiered threshold for 

the imposition of fees and gates, with a higher threshold for discretionary fees and gates and a 

lower threshold for default liquidity fees. We believe this tiered approach will allow boards to 

determine with greater flexibility the best line of defense against heavy redemptions and to tailor 

that defense to the specific circumstances of the fund. We also believe this tiered approach will 

allow boards to act quickly to stem heavy redemptions. This approach also recognizes, however, 

that at a certain point (under the amended rule, a drop below 10% weekly liquid assets), boards 

should be required to consider what, if any, action should be taken to address a fund’s liquidity. 

We are adopting a threshold of less than 30% weekly liquid assets at which fund boards 

will be able to impose discretionary fees and gates, as was suggested by a commenter.242 As 30% 

weekly liquid assets is the minimum required under rule 2a-7, we believe it is an appropriate 

threshold at which fund boards should be able to consider fees and gates as measures to stop 

heavy redemption activity that may be building in a fund. 243 A drop in weekly liquid assets 

 240 See Capital Advisors Comment Letter. 

241 See SIFMA Comment Letter; but see, e.g., Peirce & Greene Comment Letter (suggesting the Commission 

should adopt entirely discretionary gates). 

242 See Capital Advisors Comment Letter. As discussed below, we have not included an NAV trigger along 

with the weekly liquid assets trigger (as suggested by the commenter) because we do not believe that a 

fund’s NAV is an appropriate trigger for liquidity fees and redemption gates. See infra note 253 and 

accompanying text.

243 As was discussed in the Proposing Release, we considered a threshold based on the level of daily liquid 

assets rather than weekly liquid assets. We noted in the Proposing Release that we expect that a money 

market fund would meet heightened shareholder redemptions first by depleting the fund’s daily liquid 
84

below the regulatory minimum could indicate current or future liquidity problems or forecast 

impending heavy redemptions, or it could be the result of idiosyncratic stresses that may be 

resolved without intervention – in either case, the money market fund’s board, in consultation 

with the fund’s investment adviser, is best suited to determine whether fees and gates can address 

the situation.244 

Some commenters recommended that the default liquidity fee threshold be lowered to 

10% weekly liquid assets.245 These commenters generally argued that a 10% threshold, rather 

than a 15% threshold, would produce fewer “false positives” – instances when a money market 

fund is, in fact, not experiencing stress on its liquidity but is nonetheless required (absent a board 

finding) to impose a liquidity fee – which should prevent unnecessary board meetings that would 

not be in the interest of shareholders or market stability.246 As was discussed in the Proposing 

Release, the threshold for a default liquidity fee should indicate distress in a fund and be a 

threshold few funds would cross in the ordinary course of business. Commission staff analysis 

shows that from March 2011 through October 2012, there was only one month that any funds 

reported weekly liquid assets below 15% and only one month that a fund reported weekly liquid 

 

assets and next by depleting its weekly liquid assets, as daily liquid assets tend to be the most liquid. Thus, 

we believe that basing the threshold on weekly liquid assets rather than daily liquid assets provides a better 

picture of the fund’s overall liquidity position. In addition, a fund’s levels of daily liquid assets may be 

more volatile because they are typically used first to satisfy day-to-day shareholder redemptions, and thus 

more difficult to use as a gauge of fund distress. Commenters did not specifically suggest a threshold based 

on daily liquid assets.

244 For a discussion of the factors a board may wish to consider in determining whether to impose fees and 

gates, see infra section III.A.2.b herein. For a discussion of the factors a board may wish to consider in 

determining the level of a liquidity fee, see infra section III.A.2.c herein.

245 See, e.g., Federated V Comment Letter; Comment Letter of Chairman, Federated Funds Board of Directors 

(on behalf of Independent Trustees of Federated Funds) (Sept. 16, 2013) (“Federated Funds Trustees 

Comment Letter”); HSBC Comment Letter. 

246 See Federated II Comment Letter; HSBC Comment Letter.
85

assets below 10%.247 

In light of commenters’ concerns and the Commission staff analysis, and in recognition 

of the increased board discretion to impose fees and gates that we are adopting in today’s 

amendments, we have determined that a threshold of 10% weekly liquid assets (down from the 

proposed 15%) is an appropriate threshold for the imposition of a default liquidity fee. We 

believe that the flexibility in today’s amendments justifies a decrease in the default liquidity fee 

threshold, particularly because fund boards will be allowed to impose discretionary fees and 

gates, if it is in the best interests of a fund, at any time after a fund’s weekly liquid assets drop 

below 30% – i.e., before the default liquidity fee threshold is reached.

248 Our proposal, which, as 

noted above, set a higher threshold for the default liquidity fee or the imposition of a gate, did 

not include board discretion to use these tools prior to reaching this threshold. Under today’s 

amendments, however, the 10% default liquidity fee threshold is designed effectively as a floor 

to require fund boards to focus on a fund’s liquidity and to consider what action to take, if any, 

before liquidity is further depleted. Additionally, Commission staff analysis shows that a 10% 

threshold for the default liquidity fee is also a threshold few funds would cross in the ordinary 

course of business.249 

 247 See Proposing Release supra note 25, at 177. Our staff conducted an analysis of Form N-MFP data that 

showed that if the default fee triggering threshold was between 25-30% weekly liquid assets, funds would 

have crossed this threshold every month except one during the period, and if it was set at between 20-25% 

weekly liquid assets, some funds would have crossed it nearly every other month. The analysis further 

showed that during the period, there was one month in which funds reported weekly liquid assets below 

15% (four funds in June 2011) and one month in which a fund reported weekly liquid assets below 10% 

(one fund in May 2011). Based on this data and industry comment, we proposed a default fee threshold of 

15% weekly liquid assets. 

248 See rule 2a-7(c)(2)(i); cf. Treasury Strategies III Comment Letter (suggesting that fees and gates will better 

prevent a run if they are imposed intraday).

249 See Proposing Release supra note 25, at 177 (setting forth a chart that show from March 2011 through 
86

Some commenters on the fees and gates threshold suggested moving away from weekly 

liquid asset levels as the triggering mechanism.250 One commenter noted that the most 

appropriate rules-based threshold would be if the shadow price fell to $0.9975 or below.251 

Another commenter also suggested that, to the extent the Commission moved forward with a 

rules-based threshold, “defaults, acts of insolvency, significant downgrades or determinations 

that a portfolio security no longer presents minimum credit risk” should be added to the 

situations in which a board could impose a fee or gate.252

We do not believe a drop in a fund’s NAV (or shadow price, to the extent the money 

market fund is a stable value fund), or a default, act of insolvency, significant downgrade or 

determination that a portfolio security no longer presents minimum credit risk, would be the 

appropriate threshold for the imposition of fees and gates. First, as we discussed in the 

Proposing Release, we are concerned that a money market fund being able to impose a fee only 

 

October 2012, there was only one month that any funds reported weekly liquid assets below 15% and only 

one month that a fund reported weekly liquid assets below 10%). Because liquidity data reported to the 

Commission is as of month end, it could be the case that more than one money market fund’s level of 

weekly liquid assets fell below 10% on other days of the month during our period of study. However, this 

number may overestimate the percentage of funds that are expected to impose a default liquidity fee 

because funds may increase their risk management around their level of weekly liquid assets in response to 

the default liquidity fee to avoid breaching the default liquidity fee threshold, or that many funds may 

impose fees and/or gates after they cross the 30% threshold, allowing them to repair their liquidity prior to 

reaching the 10% threshold.

250 But see Fidelity Comment Letter (“We also favor using the weekly liquid asset level as the measure 

because it is the best indicator of liquidity and is less susceptible to extraneous factors. In addition, the 

weekly liquidity structure reflects daily liquidity within its calculation.”). As noted in section III.A.2.a.i, a 

number of commenters argued for giving boards the discretion to impose redemption restrictions. See 

supra note 230.

251 See HSBC Comment Letter; see also Comment Letter of HSBC Global Asset Management Ltd (Feb. 15, 

2013) (available in File No. FSOC–2012–0003) (“HSBC FSOC Comment Letter”) (suggesting setting the 

market-based NAV trigger at $0.9975). This commenter asserted that such a trigger would ensure that 

shareholders only pay a fee when redemptions would actually cause the fund to suffer a loss and thus 

redemptions clearly disadvantage remaining shareholders. 

252 See Federated II Comment Letter.
87

when the fund’s NAV or shadow price has fallen by some amount may in certain cases come too 

late to mitigate the potential consequences of heavy redemptions on a fund’s liquidity and to 

fully protect investors.253 Heavy redemptions can impose adverse economic consequences on a 

money market fund even before the fund actually suffers a loss. They can deplete the fund’s 

most liquid assets so that the fund is in a substantially weaker position to absorb further 

redemptions or losses. Second, the thresholds we are adopting today are just that – thresholds. If 

it is not in the best interests of a fund, a board is not required to impose a liquidity fee or 

redemption gate when the fund’s weekly liquid assets have fallen below 30% or 10%, 

respectively. Moreover, once a fund has crossed below a weekly liquid asset threshold, a board 

is not prevented from taking into account whether the fund’s NAV or shadow price has 

deteriorated in considering whether to impose fees or gates. Finally, the fees and gates 

amendments are intended to address the liquidity of the fund and its ability to meet redemptions, 

not to address every possible circumstance that may adversely affect a money market fund and 

its holdings. However, if a particular circumstance, such as a default, act of insolvency, 

significant downgrade, or increased credit risk, affects the liquidity of a fund such that its weekly 

liquid assets drop below the 30% threshold for imposition of fees and gates, a fund could then 

impose a fee or gate.

Another commenter suggested basing the threshold for redemption gates on the level at 

 253 As we also discussed in the Proposing Release, a threshold based on shadow price raises questions about 

whether and to what extent shareholders differentiate between realized (such as those from security 

defaults) and market-based losses (such as those from market interest rate changes) when considering a 

money market fund’s shadow price. If shareholders do not redeem in response to market-based losses (as 

opposed to realized losses), it may be inappropriate to base a fee on a fall in the fund’s shadow price if such 

a fall is only temporary. On the other hand, a temporary decline in the shadow price using market-based 

factors can lead to realized losses from a shareholder’s perspective if redemptions cause a fund with an 

impaired NAV to “break the buck.” See Proposing Release supra note 25, at 179-180.
88

which a money market fund’s liquidity would force it to sell assets.254 This particular commenter 

was concerned that a threshold based on 15% weekly liquid assets might otherwise cause funds 

close to the threshold to start selling assets to avoid crossing the threshold, which could have a 

larger destabilizing effect on the markets.255 We appreciate the commenter’s concerns and 

believe that the higher weekly liquid asset threshold for the imposition of fees and gates and the 

increased board flexibility included in today’s amendments should lessen such a risk. In 

particular, as discussed above in section III.A.1.c.i, we believe that the 30% weekly liquid assets 

threshold will allow a money market fund to impose a fee or gate while it still has substantial 

remaining internal liquidity, thus putting it in better position to bear redemptions without a 

broader market impact because it can satisfy redemption requests through internally generated 

cash and not through asset sales (other than perhaps sales of government securities that tend to 

increase in value and liquidity in times of stress). In addition, the board flexibility in today’s 

amendments could result in funds imposing gates at different times and, thus, to the extent funds 

determine to dispose of their assets to raise liquidity, it could also result in funds disposing assets 

at different times, lessening any potential strain on the markets. 

b. Board Determinations

In the Proposing Release, we discussed a number of factors that a fund’s board of 

directors may want to consider in determining whether to impose a liquidity fee or redemption 

gate.256 We received a variety of comments related to these factors and, more generally, about 

 254 Comment Letter of James Angel (Georgetown/Wharton) (Sept. 17, 2013) (“Angel Comment Letter”).

255 Angel Comment Letter.

256 See Proposing Release, supra note 25, at 178-179.
89

board determinations regarding fees and gates. Some commenters suggested that the 

Commission provide additional guidance on the nature and scope of the findings that boards can 

make.

257 A commenter asked the Commission to provide an expanded list of examples and a 

non-exclusive list of factors to be considered by boards with respect to imposing a fee or gate.258 

The commenter added that the Commission should clarify that boards need to consider only 

those factors they reasonably believe to be relevant, not all factors or examples that the 

Commission might generally suggest.259 

In contrast, another commenter, an industry group representing fund directors, supported

the Commission providing only minimal guidance on what factors boards might consider. 260 

This commenter argued that “providing any guidance on what factors boards should consider 

(beyond the very general and non-exclusive examples in the Proposing Release) is likely to be 

counter-productive.”261 The commenter also suggested that the Commission clarify that a “best 

interests of the fund” standard would not demand that boards place significant emphasis on the 

broader systemic effects of their decision.262

The “best interests” standard in today’s amendments recognizes that each fund is 

different and that, once a fund’s weekly liquid assets have dropped below the minimum required 

 257 See, e.g., ABA Business Law Section Comment Letter; Comment Letter of New York City Bar Committee 

on Investment Management Regulation (Sept. 26, 2013) (“NYC Bar Committee Comment Letter”); 

Federated X Comment Letter; but see, e.g., MFDF Comment Letter.

258 See NYC Bar Committee Comment Letter.

259 Id.

260 See MFDF Comment Letter.

261 Id.

262 See id.
90

by rule 2a-7, a fund’s board is best suited, in consultation with the fund’s adviser, to determine 

when and if a fee or gate is in the best interests of the fund.263 The factors we set forth in the

Proposing Release were intended only as possible factors a board may consider when making a 

best interests determination. They were not meant to be a one-size-fits-all or exhaustive list of 

factors. We agree with the commenter who suggested an exclusive list of factors could be 

counter-productive. We recognize that there are differences among funds and that the markets 

are dynamic, particularly in a crisis situation. Accordingly, an exhaustive list of factors may not 

address each fund’s particular circumstances and could quickly become outdated. Instead, we 

believe a fund board should consider any factors it deems appropriate when determining whether 

fees and/or gates are in the best interests of a fund. We note that these factors may include the 

broader systemic effects of a board’s decision, but point out that the applicable standard for a 

board’s determination under the amended rule is whether a fee or gate is in the fund’s best 

interests. 

Nonetheless, we believe it is appropriate to provide certain guideposts that boards may 

want to keep in mind, as applicable and appropriate, when determining whether a fund should 

impose fees or gates and are providing such guidance in this Release. As recognized in the 

Proposing Release, there are a number of factors a board may want to consider. These may 

include, but are not limited to: relevant indicators of liquidity stress in the markets and why the 

fund’s weekly liquid assets have fallen (e.g., Have weekly liquid assets fallen because the fund is 

experiencing mounting redemptions during a time of market stress or because a few large 

 263 For a discussion of why the Commission is adopting a hybrid approach to the imposition of fees and gates, 

see supra section III.A.2.a.i.
91

shareholders unexpectedly redeemed shares for idiosyncratic reasons unrelated to current market 

conditions or the fund?); the liquidity profile of the fund and expectations as to how the profile 

might change in the immediate future, including any expectations as to how quickly a fund’s 

liquidity may decline and whether the drop in weekly liquid assets is likely to be very short-term 

(e.g., Will the decline in weekly liquid assets be cured in the next day or two when securities 

currently held in the fund’s portfolio qualify as weekly liquid assets?);264 for retail and 

government money market funds, whether the fall in weekly liquid assets has been accompanied 

by a decline in the fund’s shadow price;265 the make-up of the fund’s shareholder base and 

previous shareholder redemption patterns; and/or the fund’s experience, if any, with the 

imposition of fees and/or gates in the past. 

Some commenters urged the Commission to affirm that a board’s deliberations would be 

protected by the business judgment rule.266 One commenter was particularly concerned about the 

threat of litigation if boards were not protected by the rule, as it could “chill the board’s ability to 

act in a manner that would be highly counterproductive in times of market stress.” 267 While 

sensitive to this commenter’s concerns, we do not believe it would be appropriate for us to 

address the application of the business judgment rule because the business judgment rule is a 

construct of state law and not the federal securities laws. 

 264 As discussed in the Proposing Release, many money market funds “ladder” the maturities of their portfolio 

securities, and thus it could be the case that a fall in weekly liquid assets will be rapidly cured by the 

portfolio’s maturity structure. See Proposing Release, supra note 25, at 179.

265 Likewise, a floating NAV fund’s board may wish to consider any drops in the fund’s NAV.

266 See, e.g., Dreyfus Comment Letter; Chamber II Comment Letter; MFDF Comment Letter; IDC Comment 

Letter. 

267 See MFDF Comment Letter.
92

Other commenters proposed that boards should be permitted to reasonably determine and 

commit themselves in advance to a policy to not allow a fee or gate to ever be imposed on a 

fund.268 We disagree. A blanket decision on the part of a fund board to not impose fees or gates, 

without any knowledge or consideration of the particular circumstances of a fund at a given time, 

would be flatly inconsistent with the fees and gates amendments we are adopting today, which, 

at a minimum, require a fund to impose a liquidity fee when its weekly liquid assets have 

dropped below 10%, unless the fund’s board affirmatively finds that such fee is not in the best 

interests of the fund. As discussed above, we believe that when a fund falls below 10% weekly 

liquid assets, its liquidity is sufficiently stressed that its board should be required to consider,

based on the facts and circumstances at that time, what, if any, action should be taken to address 

a fund’s liquidity. We regard fees and gates as additional tools for boards to employ when 

necessary and appropriate to protect the fund and its shareholders. We note, however, that our 

amendments do not require funds to impose fees and gates when it is not in a fund’s best 

interests.

Certain commenters cited operational challenges with respect to fees and gates and board 

quorum requirements, given that in a crisis a board’s independent board members may not be 

readily available on short notice.269 Commenters thus proposed that the quorum requirement be 

relaxed to require only the approval of a majority of independent directors available rather than 

 268 See Goldman Sachs Comment Letter; ABA Business Law Section Comment Letter. These commenters 

were concerned that uncertainties over a fee or gate could lead to pre-emptive runs. We discuss preemptive runs in section III.A.1.c.i of this Release.

269 See Comment Letter of PFM Asset Management, LLC (Sept. 17, 2013) (“PFM Asset Mgmt. Comment 

Letter”); ABA Business Law Section Comment Letter; Comment Letter of Ropes & Gray LLP (Sept. 17, 

2013) (“Ropes & Gray Comment Letter”).
93

of all independent directors.270 

We have not made the requested change. The requirement that a majority of independent 

directors make a determination with respect to a fund matter is not unique to today’s 

amendments. This requirement is widely used in the Investment Company Act and its rules, 

including a number of other exemptive rules.271 As we have emphasized, independent directors 

are the “independent watchdogs” of a fund, and the Investment Company Act and its rules rely 

on them to protect investor interests.272 A determination with respect to fees and gates by less 

than a majority of independent directors would not provide the level of independent oversight we 

are seeking in today’s amendments, or in carrying out the purposes of the Investment Company 

Act. The decision to impose redemption restrictions on a fund’s investors has significant 

ramifications for shareholders, and it is one that we believe should be entrusted only to a fund’s 

board, including its independent directors. We note, however, that today’s amendments do not 

require a best interests determination to be made at an in-person meeting and, thus, fund boards, 

including their independent directors, could hold meetings telephonically or through any other 

technological means by which all directors could be heard.273 

Some commenters asserted that a fund’s adviser or sponsor should have greater input 

 270 See id.

271 See, e.g., rule 12b-1 and rule 15a-4.

272 See Role of Independent Directors of Investment Companies, Investment Company Act Release No. 24082 

(Oct. 15, 1999).

273 The Commission has previously recognized that fund boards can hold meetings telephonically or through 

other technological means by which all directors can be heard simultaneously. See, e.g., rule 15a-4 

(permitting the approval of an interim advisory contract by a fund board at a meeting in which directors 

may participate by any means of communication that allows all directors participating to hear each other 

simultaneously during the meeting).
94

regarding the imposition of a fee or gate.274 For example, one commenter urged the Commission 

to recognize that “the primary role of the board is oversight” and acknowledge “both the ability 

and practical necessity of delegating day-to-day decision-making functions to a fund’s officers 

and investment adviser/administrator pursuant to procedures approved by the board.”275 A few 

other commenters suggested that the Commission provide guidance that an adviser must provide 

the board certain information, guidance or a recommendation on whether to impose a fee or 

gate.276 

We believe that a fund’s board, and not its adviser, is the appropriate entity to determine 

(within the constructs of the rule) when and how a fund will impose liquidity fees and/or 

redemption gates. As discussed above, given the role of independent directors, a fund’s board is 

in the best position to determine whether a fee or gate is in the best interests of the fund.277 The 

Investment Company Act and its rules require many other fund fees and important matters to be 

approved by a fund’s board, including a majority of independent directors, and we do not believe 

that liquidity fees and redemption gates should be treated differently.278 

We note that although the final rule amendments contemplate that information from a 

 274 See, e.g., NYC Bar Committee Comment Letter; Ropes & Gray Comment Letter; PFM Asset Mgmt. 

Comment Letter.

275 See Ropes & Gray Comment Letter.

276 See NYC Bar Committee Comment Letter; Comment Letter of the Independent Trustees of the Wilmington 

Funds (Sept. 17, 2013) (“Wilmington Trustees Comment Letter”); ABA Business Law Section Comment 

Letter.

277 If a fund’s adviser was charged with determining when to impose fees and gates, it could choose, 

irrespective of its fiduciary duty, to act in its own interests rather than the interests of fund shareholders by, 

for example, not imposing a fee or gate for fear that it would negatively impact the adviser’s reputation. 

We note that the role of independent directors on a fund board should counteract any similar concerns on 

the part of interested directors. 

278 See, e.g., section 15(a)-(c); rule 12b-1 and rule 22c-2.
95

fund’s adviser will inform the board’s determination involving a fee or gate,279 we are not 

charging a fund’s adviser with specific duties under today’s amendments. As the board is the 

entity charged with overseeing the fund and determining whether a fee or gate is in the fund’s 

best interests, we believe the board should dictate the information and analysis it needs from the 

adviser in order to inform its decision. Nonetheless, as a matter of course and in light of its 

fiduciary duty to the fund, an adviser should provide the board with necessary and relevant 

information to enable the board to make the determinations under the rule. 

c. Size of Liquidity Fee

Today’s amendments will permit a money market fund to impose a discretionary liquidity 

fee of up to 2% after its weekly liquid assets drop below 30% of its total assets. We are also 

adopting a default liquidity fee of 1% that must be imposed if a fund drops below 10% weekly 

liquid assets, unless a fund’s board determines not to impose such a fee, or to impose a lower or 

higher fee (not to exceed 2%) because it is in the best interests of the fund.280 As proposed, the 

amendments would have required funds to impose a default liquidity fee of 2% after a fund’s 

weekly liquid assets dropped below 15% of its total assets, although (as under our final 

amendments) fund boards could have determined not to impose the fee or to lower the fee.

We received a wide range of comments on the size and structure of the proposed liquidity 

fee.281 A few commenters expressly supported a default fee of 2%.282 One commenter expressed 

 279 Because a fund’s adviser is responsible for managing the portfolio, it is the entity that will have direct 

access to information on the fund’s liquidity. As noted below, a fund’s adviser should provide the board 

with all necessary and relevant information to make the determinations under the rule.

280 See rule 2a-7(c)(2)(ii)(A).

281 We note that prior to issuing the proposal, commenters had suggested liquidity fee levels ranging from 1% 

to 3% could be effective. See, e.g., Comment Letter of Vanguard (Jan. 15, 2013) (available in File No. 
96

concern that a maximum 2% fee may be insufficient in times of crisis and urged the Commission 

to permit greater flexibility in setting an even higher fee if necessary.283 

Other commenters explicitly argued against a default fee of 2%.284 One commenter noted 

that 2% would be excessive “since it is far higher than the actual cost of liquidity paid by money 

market funds even at the height of the financial crisis.”285 Other commenters described a 2% fee 

as punitive286 and arbitrary.287 A number of commenters favored instead a default fee of 1% 

while also allowing boards discretion to set a higher or lower fee.288 

As suggested by commenters, the amendments we are adopting today will impose a 

default liquidity fee of 1%, that may be raised or lowered (or not imposed at all) by a fund’s 

board. As discussed below, we are persuaded by commenters that 2% may be higher than most 

liquidity costs experienced when selling money market securities in a crisis, and may thus result 

in a penalty for redeeming shareholders over and above paying for the costs of their liquidity.289 

 

FSOC–2012–0003) (“Vanguard FSOC Comment Letter”) (recommending a fee of between 1 and 3%); 

BlackRock FSOC Comment Letter (recommending a standby liquidity fee of 1%); ICI Jan. 24 FSOC 

Comment Letter (recommending a 1% fee).

282 See J.P. Morgan Comment Letter; Ropes & Gray Comment Letter; Schwab Comment Letter; Wells Fargo 

Comment Letter.

283 See Ropes & Gray Comment Letter.

284 See, e.g., Fidelity Trustees Comment Letter; Fidelity Comment Letter; Invesco Comment Letter; Comment 

Letter of Financial Services Roundtable (Sept. 17, 2013) (“Fin. Svcs. Roundtable Comment Letter”).

285 See Invesco Comment Letter.

286 See, e.g., Fidelity Trustees Comment Letter; Fidelity Comment Letter.

287 See, e.g., Fin. Svcs. Roundtable Comment Letter.

288 See Dreyfus Comment Letter; SIFMA Comment Letter; Northern Trust Comment Letter; BlackRock II 

Comment Letter; Fidelity Comment Letter.

289 See, e.g., SIFMA Comment Letter (“Our members’ consensus is that a redemption fee of 100 basis points 

will adequately compensate a money market fund for the costs of liquidating assets to honor redemptions in 

times of market stress, and avoid imposing a punitive charge on shareholders.”); Fidelity Comment Letter 

(“We have examined the liquidation costs for our money market funds that sold securities during the period 
97

We are also persuaded by commenters that fund boards may be reluctant to impose a fee that is 

lower than the default liquidity fee for fear of being second-guessed – by the market, the 

Commission, or otherwise.290 Accordingly, commenters supporting the 1% default fee have 

persuaded us that 1% is the correct default fee level. 

Furthermore, analysis by Commission staff of liquidity costs of certain corporate bonds 

during the financial crisis further confirms that a reduced default fee of 1% is appropriate.

291 

DERA staff estimated increases in transaction spreads for certain corporate bonds that occurred 

during the financial crisis.292 Relative to transaction spreads observed during the pre-crisis 

period from January 2, 2008 to September 11, 2008, average transaction spreads increased by 

54.1 bps for Tier 1 eligible securities and by 104.4 bps for Tier 2 eligible securities during the 

period from September 12, 2008 to October 20, 2008. These estimates indicate that market 

stress increases the average cost of obtaining liquidity by an amount closer to 1% than 2%.293 

 

immediately following the bankruptcy of Lehman Brothers and determined that the highest liquidation cost 

was less than 50 basis points of face value. Recognizing that liquidation costs in a future market stress 

scenario may be greater, we think it is reasonable to set a liquidation fee at 100 basis points or one 

percent.”).

290 See SIFMA Comment Letter.

291 See DERA Liquidity Fee Memo, supra note 111. 

292 See id. 

293 DERA obtained information on trades in Tier 1 and Tier 2 eligible securities, as defined in rule 2a-7 from 

TRACE (Trade Reporting and Compliance Engine) between January 2, 2008 through December 31, 2009, 

and formed a Tier 1 and a Tier 2 sample. TRACE provides transaction records for TRACE eligible 

securities that have a maturity of more than a year at issuance. Money market instruments, sovereign debt, 

and debt securities that have a maturity of less than a year at issuance are not reported in TRACE and hence 

DERA’s sample differs from what money market funds hold. Nevertheless, the samples constructed from 

TRACE provide estimates for costs of liquidity during market stress since the selected securities have 

similar time-to-maturity and credit risk characteristics as those permitted under rule 2a-7. DERA included 

in the samples only trades of bonds with fewer than 120 days to maturity and with a trade size of at least 

$100,000. DERA classified bonds with credit ratings equal to AAA, AA+, AA, or AA- as Tier 1 eligible 

securities. The average days to maturity for Tier 1 securities in the sample is 67 days, which roughly 

reflects the 60-day weighted average maturity limit specified in rule 2a-7. Bonds with credit ratings equal 
98

We received a number of comments on DERA’s analysis of liquidity costs.294 Some 

commenters agreed that DERA’s analysis supports a default liquidity fee of 1% and that 1% is 

the appropriate level for the fee.295 Other commenters, however, took issue with DERA’s 

methodology in examining liquidity costs and, one commenter suggested a default fee “as low 

as” 0.50% may be appropriate.296

As discussed in the Proposing Release, we have attempted to set the default liquidity fee 

high enough to deter shareholder redemptions so that funds can recoup costs of providing 

liquidity to redeeming shareholders in a crisis and so that the fund’s liquidity is not depleted, but 

low enough to permit investors who wish to redeem despite the cost to receive their proceeds 

 to A+, A, or A- represent Tier 2 eligible securities. The average days to maturity for Tier 2 securities in the 

sample is 28 days, which is somewhat lower than the 45-day weighted average maturity limit required by 

rule 2a-7.

294 See, e.g., Comment Letter of SIFMA (Apr. 23, 2014) (“SIFMA II Comment Letter”); Comment Letter of 

Dreyfus Corporation (Apr. 23, 2014) (“Dreyfus DERA Comment Letter”); Comment Letter of Invesco 

(Apr. 23, 2014) (“Invesco DERA Comment Letter”).

295 See SIFMA II Comment Letter (“Data in the [DERA] Liquidity [Fee Memo] support that a lower default 

level [from the level proposed] will effectively compensate money market funds for the cost of liquidity 

during market turmoil.... A 100 basis point (1%) default level for the liquidity fee will more closely 

approximate the fund’s cost of providing liquidity during a crisis period for a portfolio comprised largely of 

Tier 1 securities.”); Dreyfus DERA Comment Letter (“We read [DERA’s analysis] and interpret the 

average spread calculations contained [in the DERA Liquidity Fee Memo] to support a [default liquidity 

fee] of 1% and not 2%, as proposed.”); Fidelity DERA Comment Letter (supporting a 1% liquidity fee and 

suggesting the empirical market data examined by DERA in its Liquidity Fee Memo is “critical in order for 

the SEC to determine the size of a liquidity fee,” but noting that the methodology in DERA’s analysis 

“overstates the estimates of absolute spreads.”)

296 See Invesco DERA Comment Letter (suggesting concerns with the data and methodology used in DERA’s 

analysis); BlackRock DERA Comment Letter (suggesting the methodology used in DERA’s analysis was 

not “the appropriate methodology to measure the true cost of liquidity in MMFs,” particularly the use of 

TRACE data); Comment Letter of Federated Investors Inc. (Liquidity Fee) (Apr. 23, 2014) (“Federated 

DERA II Comment Letter”) (suggesting it generally agrees with DERA’s methodology, but believes that a 

more appropriate default liquidity fee may be “as low as” 0.50% because “use of [TRACE] bond data as 

the basis for spread analysis led DERA to find significantly larger spreads than it would have found had it 

based its analysis on the short-term instruments in which MMFs actually invest”); see also Fidelity DERA 

Comment Letter (supporting a 1% default liquidity fee, but suggesting that the spreads cited in DERA’s 

analysis are higher than those it has seen it its experience and that its independent analysis reflects average 

spreads between 0.12% and 0.57% during the week immediately following the Lehman Brothers 

bankruptcy).
99

without bearing disproportionate costs.297 Based on the comments we received on the proposal, 

we believe that a default fee of 1% strikes this balance. Although we have looked to the DERA 

study as confirming our decision based on comments we received supporting the 1% fee, we 

recognize commenters’ critiques of the methodology used in the DERA analysis. We also note, 

however, that DERA acknowledged in its memorandum that its samples were not perfectly 

analogous to money market fund holdings, but that the samples nevertheless “provide estimates 

for costs of liquidity during market stress since the selected securities have similar time-tomaturity and credit risk characteristics as those permitted under Rule 2a-7.”298 Moreover, at least 

one commenter who took issue with DERA’s samples agreed, based on its own independent 

analysis, that a default liquidity fee of 1% is appropriate.299 Furthermore, because we recognize 

that establishing any fixed fee level may not precisely address the circumstances of a particular 

fund in a crisis, we are permitting (as in the proposal) fund boards to alter the level of the default 

liquidity fee and to tailor it to the specific circumstances of a fund. As amended, rule 2a-7 will 

permit fund boards to increase (up to 2%), decrease (to, for example, 0.50% as suggested by a 

commenter), or not impose the default 1% liquidity fee if it is in the best interests of the fund. 

 297 See, e.g., SIFMA Comment Letter; Fidelity Trustees Comment Letter; Fidelity Comment Letter (suggesting 

a 2% fee would be punitive); see also supra note 281. 

298 See DERA Liquidity Fee Memo, supra note 111. Some commenters suggested we should analyze liquidity 

spreads in actual money market fund portfolios. See Federated DERA II Comment Letter; BlackRock 

DERA Comment Letter; Fidelity DERA Comment Letter. However, as one commenter acknowledged, this 

information is not publicly available, and we note that only one commenter on the DERA Liquidity Fee 

Memo provided specific information in this area. See BlackRock DERA Comment Letter; Fidelity DERA 

Comment Letter (providing specific information on spreads during the financial crisis and stating that a 1% 

default liquidity fee is appropriate). We believe one data point is not adequate for us to draw conclusions 

on liquidity costs in money market funds during the crisis. 

299 See Fidelity DERA Comment Letter.
100

As proposed and supported by commenters,300 we are limiting the maximum liquidity fee 

that may be imposed by a fund to 2%. As with the default fee, we seek to balance the need for 

liquidity costs to be allocated to redemptions with shareholders’ need to redeem absent 

disproportionate costs. We also believe setting a limit on the level of a liquidity fee provides 

notice to investors about the extent to which a liquidity fee could impact their investment. In 

addition, as recognized by at least one commenter,301 the staff has noted in the past that fees 

greater than 2% raise questions regarding whether a fund’s securities remain “redeemable.”302 

We note that if a fund continues to be under stress even with a 2% liquidity fee, the fund board 

may consider imposing a temporary redemption gate under amended rule 2a-7 or liquidating the 

fund pursuant to amended rule 22e-3.

As recognized in the Proposing Release, there are a number of factors a board may want 

to consider in determining the level of a liquidity fee. These may include, but are not limited to: 

changes in spreads for portfolio securities (whether based on actual sales, dealer quotes, pricing 

vendor mark-to-model or matrix pricing, or otherwise); the maturity of the fund’s portfolio 

securities; changes in the liquidity profile of the fund in response to redemptions and 

expectations regarding that profile in the immediate future; whether the fund and its 

 300 See, e.g., SIFMA Comment Letter. 

301 See NYC Bar Assoc. Comment Letter.

302 Section 2(a)(32) defines the term “redeemable security” as a security that entitles the holder to receive 

approximately his proportionate share of the fund's net asset value. The Division of Investment 

Management informally took the position that a fund may impose a redemption fee of up to 2% to cover the 

administrative costs associated with redemption, “but if that charge should exceed 2 percent, its shares may 

not be considered redeemable and it may not be able to hold itself out as a mutual fund.” See John P. 

Reilly & Associates, SEC Staff No-Action Letter (July 12, 1979). This position is currently reflected in 

rule 23c-3(b)(1), which permits a maximum 2% repurchase fee for interval funds and rule 22c2(a)(1)(i),which similarly permits a maximum 2% redemption fee to deter frequent trading in mutual funds.
101

intermediaries are capable of rapidly putting in place a fee of a different amount from a 

previously set liquidity fee or the default liquidity fee; if the fund is a floating NAV fund, the 

extent to which liquidity costs are already built into the NAV of the fund; and the fund’s 

experience, if any, with the imposition of fees in the past. We note that fund boards should not 

consider our 1% default liquidity fee as creating the presumption that a liquidity fee should be 

1%. If a fund board believes based on market liquidity costs at the time or otherwise that a 

liquidity fee is more appropriately set at a lower or higher (up to 2%) level, it should consider 

doing so. Once a liquidity fee has been imposed, the fund’s board would likely need to monitor 

the imposition of such fee, including the size of the fee, and whether it continues to be in the best 

interests of the fund.303 

Other commenters argued for even more flexible approaches and/or entirely different 

standards for setting a fee.304 For example, a commenter argued against having any default fee 

and instead supported allowing the board to tailor the fee to encompass the cost of liquidity to 

the fund.305 Different commenters similarly argued that liquidity fees should be carefully 

calibrated in relation to a fund’s actual cost of liquidity.306 A commenter noted this calibration 

could be achieved by, rather than setting a fixed fee in advance, delaying redemptions for up to 

seven days to allow the fund to determine the size of the fee based on actual transaction costs 

 303 A board may change the level of a liquidity fee at any time if it determines it is in the best interests of the 

fund to do so. Similarly, once a gate is imposed, the fund’s board would likely monitor the imposition of 

the gate and whether it remains in the best interests of the fund to continue imposing the gate. 

304 See, e.g., Fin. Svcs. Roundtable Comment Letter; Schwab Comment Letter; Santoro Comment Letter; 

Invesco Comment Letter.

305 See Fin. Svcs. Roundtable Comment Letter.

306 See Invesco Comment Letter; Ropes & Gray Comment Letter.
102

incurred on each day’s redemptions.307 Finally, a commenter proposed a flexible redemption fee 

whereby redemptions would occur at basis point NAV (i.e., NAV to the fourth decimal place) 

plus 1%.308 

As discussed above, the amendments we are adopting today incorporate substantial

flexibility for a fund board to determine when and how it imposes liquidity fees. We believe that 

including in the amended rule a 1% default fee that may be modified by the board is the best 

means of directing fund boards to a liquidity fee that may be appropriate in stressed market 

conditions, while at the same time providing flexibility to boards to lower or raise the liquidity 

fee if a board determines that a different fee would better and more fairly allocate liquidity costs 

to redeeming shareholders. We would encourage a fund board, if practicable given any timing 

concerns, to consider the actual cost of providing liquidity when determining if the default 

liquidity fee is in the fund’s best interests. In addition, we note that under today’s amendments, a 

fund board also could, as suggested by a commenter, determine that the default fee is not in the 

best interests of the fund and instead gate the fund for a period of time, possibly later imposing a 

liquidity fee. 

Furthermore, we have determined not to explicitly tie the default liquidity fee to market 

indicators. As discussed in the Proposing Release, we believe there are certain drawbacks to 

such a “market-sized” liquidity fee.309 First, it may be difficult for money market funds to 

 307 See Ropes & Gray Comment Letter.

308 See Capital Advisors Comment Letter.

309 See Proposing Release, supra note 25, at 183; see also HSBC FSOC Comment Letter (suggesting that the 

amount of the liquidity fee charged could be based on the anticipated change in the market-based NAV of 

the fund’s portfolio from the redemption, assuming a horizontal slice of the fund’s portfolio was sold to

meet the redemption request).
103

rapidly determine precise liquidity costs in times of stress when the short-term financing markets 

may generally be illiquid.310 Similarly, the additional burdens associated with computing a 

market-sized liquidity fee could make it more difficult for funds and their boards to act quickly 

and proactively to stem heavy redemptions. Second, a market-sized liquidity fee does not signal 

in advance the size of the liquidity fee shareholders may have to pay if the fund’s liquidity is 

significantly stressed.

311 This lack of transparency may hinder shareholders’ ability to make 

well-informed investment decisions because investors may invest funds without realizing the 

extent of the costs they could incur on their redemptions. 

Finally, commenters proposed various potential exemptions from the default liquidity fee. 

For example, a commenter suggested an exemption for all shareholders to redeem up to $1 

million for incidental expenditures without a fee.312 Other commenters argued that a fee should 

not be imposed on newly purchased shares.313 For several independent reasons, we do not 

currently believe that there should be exemptions to the default liquidity fee. First, because the 

circumstances under which liquidity becomes expensive historically have been infrequent, we 

 310 Our staff gave no-action assurances to money market funds relating to valuation during the financial crisis 

because determining pricing in the then-illiquid markets was so difficult. See Investment Company 

Institute, SEC Staff No-Action Letter (Oct. 10, 2008) (not recommending enforcement action through 

January 12, 2009, if money market funds used amortized cost to shadow price portfolio securities with 

maturities of 60 days or less in accordance with Commission interpretive guidance and noting: “You state 

that under current market conditions, the shadow pricing provisions of rule 2a-7 are not working as 

intended. You believe that the markets for short-term securities, including commercial paper, may not 

necessarily result in discovery of prices that reflect the fair value of securities the issuers of which are 

reasonably likely to be in a position to pay upon maturity. You further assert that pricing vendors 

customarily used by money market funds are at times not able to provide meaningful prices because inputs 

used to derive those prices have become less reliable indicators of price.”).

311 A liquidity fee based on market indicators would not provide notice to shareholders of the potential level of 

a liquidity fee like our maximum 2% fee and default fee level of 1% provide.

312 See Capital Advisors Comment Letter.

313 See ABA Business Law Section Comment Letter; Wilmington Trustees Comment Letter; Federated V 

Comment Letter.
104

believe the imposition of fees and gates will also be infrequent. As long as funds’ weekly liquid 

assets are above the regulatory threshold (i.e. 30%), fund shareholders should continue to enjoy 

unfettered liquidity for money market fund shares.314 The likely limited and infrequent use of 

liquidity fees leads us to believe exemptions are generally unnecessary. Second, liquidity fees 

are meant to impose at least some of the cost of liquidity on those investors who are seeking 

liquidity by redeeming their shares. Allowing exemptions to the default liquidity fee would run 

counter to this purpose and permit some investors to avoid bearing at least some of their own

costs of obtaining liquidity and could serve to further harm the liquidity of the fund, potentially 

requiring the imposition of a liquidity fee for longer than would otherwise be necessary. Third, 

as suggested by commenters and discussed in section III.C.7.a below, exemptions to the default 

liquidity fee would increase the cost and complexity of the amendments for funds and 

intermediaries because funds would have to develop the systems and policies to track, for 

example, the amount of each shareholder’s redemption, and could facilitate gaming on the part of 

investors because investors could attempt to fit their redemptions within the scope of an 

exemption. 315

 314 See Proposing Release, supra note 25, at n.342.

315 See, e.g., Federated V Comment Letter (“Any attempt to create exceptions, such as allowing redemptions 

free of any liquidity fee up to a set dollar amount or percentage of the shareholder’s account balance, would 

add significant operational hurdles to the proposed reform. In order to be applied equitably, prime [money 

market funds] would have to take steps to assure that intermediaries were implementing the exceptions on a 

consistent basis.”); Fidelity Comment Letter (urging the Commission not to adopt partial gates, which like 

an exception to a liquidity fee, would, for example, except a certain amount of redemptions (e.g., up to 

$250,000 per shareholder) from a gate that has been imposed). The commenter stated “that the challenges 

and costs associated with [partial gates] outweigh the benefits. The systems enhancements necessary to 

track holdings for purposes of determining each shareholder’s redemption limit would be more 

complicated, cumbersome, and costly than the changes required to implement the full gate, [and] that this 

complicated structure lends itself to arbitrary or inconsistent application across the industry and potential 

inequitable treatment among shareholders.” Id.
105

d. Duration of Fees and Gates

We are adopting, as proposed, a requirement that any fee or gate be lifted automatically 

once the fund’s weekly liquid assets have risen to or above 30% of the fund’s total assets. We 

are also adopting, with certain modifications from the proposal as discussed below, a 

requirement that a money market fund must lift any gate it imposes within 10 business days and 

that a fund cannot impose a gate for more than 10 business days in any 90-day period. As 

proposed, the amendments would have allowed funds to impose a gate for up to 30 days in any 

90-day period.

Several commenters noted positive aspects of the Commission’s proposed duration for 

fees and gates.316 Some commenters, however, suggested that the duration of liquidity fees, like 

the duration of redemption gates, should be limited to a number of days.317 We continue to 

believe that the appropriate duration limit on a liquidity fee is the point at which a fund’s assets 

rise to or above 30% weekly liquid assets. Thirty percent weekly liquid assets is the minimum 

required under rule 2a-7 and thus a fee (or gate) would appear to no longer be justified once a 

fund’s level of weekly liquid assets has risen to this level. If we were to limit the imposition of 

liquidity fees to a number of days, a fund might have to remove a liquidity fee while it is still 

under stress and thus it would not gain the full benefits of imposing the fee.318 Additionally, if a 

 316 See, e.g., HSBC Comment Letter; Dreyfus Comment Letter; SIFMA Comment Letter; UBS Comment 

Letter.

317 See BlackRock II Comment Letter (“We would also recommend that a MMF not be open with a liquidity 

fee for more than 30 days.”); Federated V Comment Letter (suggesting that liquidity fees should be subject 

to the same duration limits as redemption gates and proposing a limit of 10 calendar days); J.P. Morgan 

Comment Letter; see also UBS Comment Letter (noting that “there should be a maximum time period 

during which the liquidity fee ... could be imposed”).

318 We note that, unlike a redemption gate, a liquidity fee does not prohibit a shareholder from accessing its 
106

fund was required to remove the fee while it was still under stress, it may have to re-impose the 

fee shortly thereafter, which could cause investor confusion.319 We note that a fund’s board can 

always determine that it is in the best interests of the fund to lift a fee before the fund’s level of 

weekly liquid assets is restored to 30% of its total assets.

We also received a number of comments on the duration of redemption gates.320 For 

example, some commenters described the maximum 30-day term for gating as reasonable, 321

including a commenter that noted it would not be in favor of a shorter time period. 322 Another 

commenter stated its support for the Commission’s proposed 30-day time limit for redemption 

gates.323 In addition, an industry group commented that although its members had varying views, 

some stressed the importance of the maximum 30-day period to allow the fund adequate time to 

replenish its liquidity as securities mature.324 

On the other hand, in response to our request for comment on the appropriate duration of 

redemption gates, including our request for comment on a 10-day maximum gating period, some 

 

investment; this distinction, in our view, justifies imposing a limited duration on the imposition of a gate 

while not doing so for the imposition of fees. We also note that, once a fund’s weekly liquid assets drop 

below the regulatory minimum (30%), it is limited to purchasing only weekly liquid assets, which should 

increase the fund’s liquidity and potentially bring it back above the weekly liquid asset threshold. See rule 

2a-7(d)(4)(iii).

319 As discussed in the Proposing Release, we considered whether a fee or gate should be lifted automatically 

before a fund’s weekly liquid assets were completely restored to their required minimum – for example, 

after they had risen to 25%. However, we believe that such a requirement would be inappropriate for the 

same reasons we are not limiting the length of time the fee is imposed.

320 See, e.g., UBS Comment Letter (supporting a maximum time period that would require a gated fund to 

reopen or liquidate thereafter). 

321 See, e.g., Dreyfus Comment Letter; Page Comment Letter.

322 See Dreyfus Comment Letter (noting that shortening the maximum gating period might not be enough time 

for a fund’s liquidity levels to adequately recover).

323 See HSBC Comment Letter. 

324 See SIFMA Comment Letter.
107

commenters raised concerns with the proposed 30-day maximum gating period.325 For example, 

one commenter noted that “denying investors access to their cash for more than a brief period” 

would “create serious hardships.”326 This commenter expressed doubt that it would take boards 

“much more than a week to resolve what course of action would best serve the interest of their 

shareholders” and suggested an alternate maximum gating period of up to 10 calendar days.327 A 

second commenter added that the potential total loss of liquidity for up to 30 days could further

exacerbate pre-emptive runs and even be destabilizing to the short-term liquidity markets, and 

suggested an alternative maximum gating period of up to 10 calendar days.328 Additionally, 

some members of an industry group suggested that gating for a shorter period of time would be 

more consistent with investors’ liquidity needs and the requirements of the Investment Company

Act.329 

We have carefully considered the comments we received, both on the duration of gates 

and on the possibility of pre-emptive runs as a result of potential gates, and have been persuaded 

that gates should be limited to a shorter time period of up to 10 business days.330 As discussed in 

 325 See, e.g., SIFMA Comment Letter; J.P. Morgan Comment Letter; Fla. CFO Comment Letter; Federated V 

Comment Letter.

326 See Federated II Comment Letter; Federated V Comment Letter.

327 See Federated II Comment Letter (“Federated had previously proposed limiting any suspension of 

redemptions to five or ten business days. Alternative 2, on the other hand, would set the limit in terms of 

calendar days. Federated therefore recommends limiting a temporary suspension of redemptions to not 

more than ten calendar days.”); Federated V Comment Letter; Federated X Comment Letter; see also

Federated Funds Trustees Comment Letter; J.P. Morgan Comment Letter (suggesting a 10-day gating 

period).

328 See J.P. Morgan Comment Letter. 

329 See SIFMA Comment Letter.

330 In a change from the proposal, the maximum gating period in the final amendments uses business days 

rather than calendar days to better reflect typical fund operations and to mitigate potential gaming of the 

application of gates during weekends or periods during which a fund might not already typically accept 
108

the Proposing Release and reiterated by commenters,331 we recognize the strong preference 

embodied in the Investment Company Act for the redeemability of open-end investment 

company shares.332 Additionally, as was echoed by a number of commenters,333 we understand 

that investors use money market funds for cash management and a lack of access to their 

investment for a long period of time can impose substantial costs and hardships. Indeed, many 

shareholders in the Reserve Primary Fund informed us about these costs and hardships during 

that fund’s lengthy liquidation.334 As discussed above, it remains one of our goals to preserve the 

benefits of money market funds for investors. Accordingly, upon consideration of the comments 

received, we have modified the final rules to limit the redeemability of money market fund 

 

redemption requests. If a fund imposes a gate, it is not required to impose the gate for 10 business days. 

Rather, a fund can lift a gate before 10 business days have passed and we would expect a board would 

promptly do so if it determines that it is in the best interests of the fund. We note that a money market fund 

board would likely meet regularly during any period in which a redemption gate is in place. See supra note 

303. Additionally, a fund’s board may also consider permanently suspending redemptions in preparation 

for fund liquidation under rule 22e-3 if the fund approaches the 10 business day gating limit. 

331 See, e.g., SIFMA Comment Letter.

332 See Investment Trusts and Investment Companies: Hearings on S. 3580 Before a Subcomm. of the Senate 

Comm. on Banking and Currency, 76th Cong., 3d Sess. 291-292 (1940) (statement of David Schenker, 

Chief Counsel, Investment Trust Study, SEC); see also section 22(e) (limiting delays in payments on 

redemptions to up to seven days).

333 See, e.g., Federated II Comment Letter; Federated V Comment Letter; SIFMA Comment Letter.

334 See Kevin McCoy, Primary Fund Shareholders Put in a Bind, USA Today, Nov. 11, 2008, available at

http://usatoday30.usatoday.com/money/perfi/funds/2008-11-11-market-fund-side_N.htm (discussing 

hardships faced by Reserve Primary Fund shareholders due to having their shareholdings frozen, including 

a small business owner who almost was unable to launch a new business, and noting that “Ameriprise has 

used ‘hundreds of millions of dollars’ of its own liquidity for temporary loans to clients who face financial 

hardships while they await final repayments from the Primary Fund”); John G. Taft, STEWARDSHIP:

LESSONS LEARNED FROM THE LOST CULTURE OF WALL STREET (2012), at 2 (“Now that the Reserve 

Primary Fund had suspended redemptions of Fund shares for cash, our clients had no access to their cash. 

This meant, in many cases, that they had no way to settle pending securities purchases and therefore no 

way to trade their portfolios at a time of historic market volatility. No way to make minimum required 

distributions from retirement plans. No way to pay property taxes. No way to pay college tuition. It meant 

bounced checks and, for retirees, interruption of the cash flow distributions they were counting on to pay 

their day-to-day living expenses.”).
109

shares for a shorter period of time.335 

Some commenters suggested that the longer a potential redemption gate may be imposed, 

the greater the possibility that investors may try to pre-emptively redeem from a fund before the 

gate is in place.

336 We recognize this concern and believe that if gates are limited to 10 business

days, investors may be less inclined to try to redeem before a gate is imposed because 10 

business days is a relatively short period of time and after that time investors will have access to 

their investment.337 

We also believe that by limiting gates to 10 business days, investors may be better able to 

account for the possibility of redemption gates when determining their investment allocations 

and cash management policies. For example, an employer may determine that money market 

funds continue to be a viable cash management tool because even if a fund imposes a gate, the 

employer could potentially still meet its payroll obligations, depending on its payroll cycle. 

Similarly, a retail investor may determine to invest in a money market fund for cash management 

purposes because a money market fund’s potential for yield as compared to the interest on a 

savings or checking account outweighs the possibility of a money market fund imposing a gate 

and delaying payment of the investor’s bills for up to 10 business days. 

While we believe temporary gates should be limited to a short period of time, we also 

 335 We recognize that rule 22e-3 does not limit gates to a short period of time, but under that rule, a gate is 

permanent and a fund must liquidate thereafter. See rule 22e-3.

336 See, e.g., J.P. Morgan Comment Letter; Federated XI Comment Letter.

337 See, e.g., Federated V Comment Letter (“[A 10-day maximum gating period] would also be consistent with 

the comments of some of the investors who indicated to Federated that they probably could not go more 

than two weeks without access to the cash held in their [money market fund].”) In addition, we note that 

10 business days is not significantly longer than funds are statutorily permitted to delay payment on 

redemptions. See section 22(e). 
110

recognize that gates may be the most effective, and probably only, way for a fund to stop a run

for the duration of the gating period. As one commenter stated, “[s]uspending redemptions 

would allow a [b]oard to deal with large-scale redemptions directly, by effectively calling a ‘time 

out’ until the [b]oard can decide how to deal with the circumstances prompting the 

redemptions.”338 Accordingly, we believe gates, even those that are limited to up to 10 business 

days, will be a valuable tool for funds to limit heavy redemptions in times of stressed liquidity. 339

We also recognize, as suggested by some commenters,340 that temporary gates should 

provide a period of time for funds to gain internal liquidity. In this regard, we note that weekly 

liquid assets generally consist of government securities, cash, and assets that will mature in five 

business days,341 and that once a fund has dropped below 30% weekly liquid assets (the required 

regulatory minimum, and the threshold for the imposition of gates), the fund can purchase only 

weekly liquid assets.342 Accordingly, because the securities a fund may purchase once it has 

imposed a gate will mature, in large part, in five business days, we believe a limit of 10 business

days for the imposition of a gate should provide a fund with an adequate period of time in which 

to generate internal liquidity.343 

 338 See Federated V Comment Letter.

339 As discussed in supra note 148, as necessary, the Commission also has previously granted orders allowing 

funds to suspend redemptions to address exigent circumstances. See, e.g., In the Matter of: Centurion 

Growth Fund, Inc., Investment Company Act Release Nos. 20204 (Apr. 7, 1994) (notice) and 20210 (Apr. 

11, 1994) (order); In the Matter of Suspension of Redemption of Open-End Investment Company Shares 

Because of the Current Weather Emergency, Investment Company Act Release No. 10113 (Feb. 7, 1978). 

340 See, e.g., SIFMA Comment Letter; Dreyfus Comment Letter.

341 See rule 2a-7(a)(34).

342 See rule 2a-7(d)(4)(iii).

343 See J.P. Morgan Comment Letter (“Ten (10) calendar days should provide [money market funds] an 

opportunity to rebuild significant amounts of liquidity since the 2010 amendments to Rule 2a-7 require 

[money market funds] to invest at least 30% of their portfolios in assets that can provide weekly 
111

We further recognize that 10 business days is not significantly longer than the seven days 

funds are already permitted to delay payment of redemption proceeds under section 22(e) of the 

Investment Company Act. We note, however, that while section 22(e) allows funds to delay 

payment on redemption requests, it does not prevent shareholders from redeeming shares. Even 

if a fund delays payment on redemptions pursuant to section 22(e), redemptions can continue to 

mount at the fund.

344 Unlike payment delays under section 22(e), the temporary gates we are 

adopting today will allow a fund a cooling off period during which redemption pressures do not 

continue to mount while the fund builds additional liquidity, and the fund’s board can continue to 

evaluate the best path forward. Additionally, temporary gates may also provide a cooling off 

period for shareholders during which they may gather more information about a fund, allowing 

them to make more well-informed investment decisions after a gate is lifted. 

Finally, one commenter asked the Commission to clarify that the time limit for 

redemption gates may “occur in multiple separate periods within any ninety-day period (as well 

as consecutively), and if so, whether the ninety-day period is a rolling period which is 

recalculated on a daily basis.”345 As indicated in the Proposing Release, the intent of the 90-day 

limit on redemption gates is to ensure that funds do not circumvent the time limit on redemption 

 

liquidity.”). 

344 For example, if on day one, fifty shareholders place redemptions requests with a fund, there is nothing to 

stop another fifty shareholders from placing redemption requests on day two. The fund’s liquidity may 

continue to be strained because it is required to pay out redemption proceeds to all fifty shareholders from 

day one within seven days (and the next day, to all fifty shareholders from day two) and it must do so at 

day one’s NAV (and the next day, at day two’s NAV).

345 See Comment Letter of Stradley Ronon Stevens & Young, LLP (Sept. 17, 2013) (“Stradley Ronon 

Comment Letter”).
112

gates346 – for example, by reopening on the 9th business day for one business day before reimposing a gate for potentially another 10 business day period. Accordingly, when determining 

whether a fund has been gated for more than 10 business days in a 90-day period, the fund 

should account for any multiple separate gating periods and assess compliance with the 90-day 

limit on rolling basis, calculated daily. 

3. Exemptions to Permit Fees and Gates 

The Commission is adopting, as proposed, exemptions from various provisions of the 

Investment Company Act to permit a fund to institute liquidity fees and redemption gates.347 In 

the absence of an exemption, imposing gates could violate section 22(e) of the Act, which 

generally prohibits a mutual fund from suspending the right of redemption or postponing the 

payment of redemption proceeds for more than seven days, and imposing liquidity fees could 

violate rule 22c-1, which (together with section 22(c) and other provisions of the Act) requires 

that each redeeming shareholder receive his or her pro rata portion of the fund’s net assets. The 

Commission is exercising its authority under section 6(c) of the Act to provide exemptions from 

these and related provisions of the Act to permit a money market fund to institute liquidity fees 

and redemption gates notwithstanding these restrictions.348 As discussed in the Proposing 

 346 See Proposing Release, supra note 25, at 189.

347 See rule 2a-7(c)(2). 

348 Section 6(c). To clarify the application of liquidity fees and redemption gates to variable contracts, we are 

also amending rule 2a-7 to provide that, notwithstanding section 27(i) of the Act, a variable insurance 

contract issued by a registered separate account funding variable insurance contracts or the sponsoring 

insurance company of such separate account may apply a liquidity fee or redemption gate to contract 

owners who allocate all or a portion of their contract value to a subaccount of the separate account that is 

either a money market fund or that invests all of its assets in shares of a money market fund. See rule 2a7(c)(2)(iv). Section 27(i)(2)(A) makes it unlawful for any registered separate account funding variable 

insurance contracts or the sponsoring insurance company of such account to sell a variable contract that is 

not a “redeemable security.”
113

Release and in more detail below, we believe that such exemptions do not implicate the concerns 

that Congress intended to address in enacting these provisions, and thus they are necessary and 

appropriate in the public interest and consistent with the protection of investors and the purposes 

fairly intended by the Act. 

We do not believe that the temporary gates we are allowing in today’s amendments will 

conflict with the purposes underlying section 22(e), which was designed to prevent funds and 

their investment advisers from interfering with the redemption rights of shareholders for 

improper purposes, such as the preservation of management fees.349 Rather, under today’s 

amendments, the board of a money market fund can impose gates to benefit the fund and its 

shareholders by making the fund better able to protect against redemption activity that would 

harm remaining shareholders, and to allow time for any market distress to subside and liquidity 

to build organically. 

In addition, gates will be limited in that they can be imposed only for limited periods of 

time and only when a fund’s weekly liquid assets are stressed. This aspect of gates, therefore, is 

akin to rule 22e-3, which also provides an exemption from section 22(e) to permit money market 

fund boards to suspend redemptions of fund shares to protect the fund and its shareholders from 

the harmful effects of a run on the fund, and to minimize the potential for disruption to the 

securities markets.350 

We are also providing exemptions from rule 22c-1 to permit a money market fund to 

impose liquidity fees because such fees can benefit the fund and its shareholders by providing a 

 349 See 2009 Proposing Release, supra note 66, at n.281 and accompanying text. 

350 See 2010 Adopting Release, supra note 17, at text following n.379.
114

more systematic and equitable allocation of liquidity costs.351 In addition, based on the level of 

the liquidity fee imposed, a fee may secondarily benefit a fund by helping to repair its marketbased NAV. 

We are permitting money market funds to impose fees and gates in limited situations 

because they may provide substantial benefits to money market funds, the short-term financing 

markets for issuers, and the financial system, as discussed above. However, we are adopting 

limitations on when and for how long money market funds can impose these restrictions because 

we recognize that fees and gates may impose hardships on investors who rely on their ability to 

freely redeem shares (or to redeem shares without paying a fee).352 We did not receive comments 

suggesting changes to the proposed exemptions and, thus, we are adopting them as proposed.353 

4. Amendments to Rule 22e-3 

Currently, rule 22e-3 allows a money market fund to permanently suspend redemptions 

and liquidate if the fund’s board determines that the deviation between the fund’s amortized cost 

price per share and its market-based NAV per share may result in material dilution or unfair 

results to investors or existing shareholders.354 Today, we are amending rule 22e-3 to also permit

(but not require) the permanent suspension of redemptions and liquidation of a money market 

 351 See rule 2a-7(c)(2) (providing that, notwithstanding rule 22c-1, among other provisions, a money market 

fund may impose a liquidity fee under the circumstances specified in the rule). 

352 See rule 2a-7(c)(2)(i) and (ii); cf. 2010 Adopting Release, supra note 17, at text following n.379 (“Because 

the suspension of redemptions may impose hardships on investors who rely on their ability to redeem 

shares, the conditions of [rule 22e-3] limit the fund’s ability to suspend redemptions to circumstances that 

present a significant risk of a run on the fund and potential harm to shareholders.”) 

353 But see NYC Bar Committee Comment Letter (discussing section 22(e) and the Commission’s authority to 

allow gates under that section). As discussed above, we are adopting the proposed amendments to rule 

22e-3 pursuant to section 6(c).

354 See rule 22e-3(a)(1).
115

fund if the fund’s level of weekly liquid assets falls below 10% of its total assets.355 As 

proposed, the amendments would have allowed for permanent suspension of redemptions and 

liquidation after a money market fund’s level of weekly liquid assets fell below 15%.356

Commenters generally supported our proposed retention of rule 22e-3357 and did not 

suggest changes to our proposed amendments. We are making a conforming change in the 

proposed weekly liquid asset threshold below which a fund may permanently gate and liquidate, 

however, in order to correspond to other changes in the proposal related to weekly liquid asset 

thresholds for fees and gates. For the reasons discussed above, we have determined to raise the 

initial threshold below which a fund board may impose fees and gates, but lower the threshold 

for imposition of a default liquidity fee. Due to the absolute and significant nature of a 

permanent suspension of redemptions and liquidation, we believe the lower default fee threshold 

would also be the appropriate threshold for board action under rule 22e-3.358 A permanent 

suspension of redemptions could be considered more draconian because there is no prospect that 

the fund will re-open – instead the fund will simply liquidate and return money to shareholders. 

Therefore, we do not believe that the 30% weekly liquid asset threshold for discretionary fees 

and gates, which is designed to provide boards with significant flexibility to restore a fund’s 

 355 See id. 

356 The proposed weekly liquid asset threshold corresponded with the proposed threshold for the imposition of 

a default fee and/or redemption gates. 

357 See, e.g., ICI Comment Letter (supporting the retention of rule 22e-3); Stradley Ronon Comment Letter, 

(discussing rule 22e-3 and master/feeder funds); Dreyfus Comment Letter; but see Peirce & Green 

Comment Letter (suggesting that the requirement in rule 22e-3 that “a fund’s board have made an 

irrevocable decision to liquidate the fund ... unnecessarily dissuades boards from using redemption 

suspensions”).

358 Cf. Proposing Release supra note 25, at 195-196.
116

liquidity in times of stress, would be an appropriate threshold under which fund boards could 

permanently close a fund. 

Amended rule 22e-3 will allow all money market funds, not just those that maintain a 

stable NAV as currently contemplated by rule 22e-3, to rely on the rule when the fund’s liquidity 

is significantly stressed. A money market fund whose weekly liquid assets have fallen below 

10% of its total assets (whether that fund has previously imposed a fee or gate, or not) may rely 

on the rule to permanently suspend redemptions and liquidate.359 Under amended rule 22e-3, 

stable value funds also will continue to be able to suspend redemptions and liquidate if the board 

determines that the deviation between its amortized cost price per share and its market-based 

NAV per share may result in material dilution or other unfair results to investors or existing 

shareholders.360 Thus, a stable value money market fund that suffers a default will still be able to 

suspend redemptions and liquidate before a credit loss leads to redemptions and a fall in its 

weekly liquid assets. 

5. Operational Considerations Relating to Fees and Gates 

a. Operational Costs

As discussed in the Proposing Release, we recognize that money market funds and others 

in the distribution chain (depending on the structure) will incur some operational costs in 

establishing or modifying systems to administer a liquidity fee or temporary gate.361 These costs 

 359 We note that a money market fund would not have to impose a fee or a gate before relying on rule 22e-3. 

For example, if the fund drops below the 10% weekly liquid asset threshold, its board may determine that a 

liquidity fee is not in the best interests of the fund and instead decide to suspend redemptions and liquidate.

360 See rule 22e-3(a)(1).

361 Some commenters also suggested that affected money market funds may have to examine whether 

shareholder approval is required to amend organizational documents, investment objectives or policies. 
117

may relate to the development of procedures and controls for the imposition of liquidity fees or 

updating systems for confirmations and account statements to reflect the deduction of a liquidity 

fee from redemption proceeds.362 Additionally, these costs may relate to the establishment of 

new or modified systems or procedures that will allow funds to administer temporary gates.363 

We also recognize that money market funds may incur costs in connection with board meetings 

held to determine if fees and/or gates are in the best interests of a fund. 

In addition, operational costs may be incurred by, or spread among, a fund’s transfer 

agents, sub-transfer agents, recordkeepers, accountants, portfolio accounting departments, and 

custodian.364 Funds also may seek to modify contracts with financial intermediaries or seek 

certifications from intermediaries that they will apply a liquidity fee on underlying investors’ 

redemptions. Money market fund shareholders also may be required to modify their own 

systems to prepare for possible future liquidity fees, or to manage gates, although we expect that 

only some shareholders will be required to make these changes.365 

A number of commenters suggested that the operational costs and burdens of 

 

See, e.g., Ropes & Gray Comment Letter; Fidelity Comment Letter. 

362 See, e.g., ICI Comment Letter (“[T]he nature of the liquidity fee would entail changes to support a separate 

fee type, appropriate tax treatment, and investor reporting, including transaction confirmation statements 

that reference fees charged and applicable tax information for customers.”).

363 See ICI Comment Letter (“Temporary gating also would require fund transfer agent and intermediary 

system providers to ensure that their systems can suppress redemption activity while supporting all other 

transaction types.”).

364 See ICI Comment Letter; see also Comment Letter of State Street Corporation (Sept. 17, 2013) (“State 

Street Comment Letter”) (suggesting that transfer agents and intermediaries will need to modify their 

systems to accommodate fees and gates).

365 Many shareholders use common third party-created systems and thus would not each need to modify their 

systems. 
118

implementing and administrating fees and gates would be manageable.366 Some commenters 

noted that liquidity fees and redemption gates would be more practicable, and less costly and 

burdensome to implement and maintain than the other proposed reform alternative (floating 

NAV).367 Another commenter added that the systems modifications for fees and gates, especially 

absent a requirement to net each shareholder’s redemptions each day, would be “far less costly 

and onerous” than the operational challenges posed by the floating NAV reform alternative.368 

One commenter estimated that implementing fees and gates would require only “minimal 

enhancements” to its core custody/fund accounting systems at “minimal costs.”369 This 

commenter further noted that most systems enhancements would likely be required with respect 

to the systems of transfer agents and intermediaries, although their systems would likely already 

include “basic functionality to accommodate liquidity fees and gates.”370 Similarly, another 

commenter noted that the operational issues of fees and gates could be solved if the industry and 

all its stakeholders were given sufficient implementation time.371 This commenter cited its 

ongoing efforts to implement liquidity fees at its Dublin-domiciled money market fund complex 

 366 See, e.g., ICI Comment Letter; HSBC Comment Letter, Federated X Comment Letter; Invesco Comment 

Letter. 

367 See, e.g., SunTrust Comment Letter; Federated X Comment Letter; Angel Comment Letter. One 

commenter argued that for investors, intermediaries and fund complexes alike, the estimated costs of fees 

and gates “are dramatically lower” than under the proposed floating NAV alternative. See Federated X 

Comment Letter.

368 See, e.g., ICI Comment Letter (“System modifications for liquidity fees and gates, especially absent the net 

redemption requirement, are far less onerous and costly, however, than the extensive programming and 

other system changes necessary to implement a floating NAV as contemplated by the SEC’s proposal.”)

369 See State Street Comment Letter.

370 See id.

371 See HSBC Comment Letter. The commenter also noted that a variable liquidity fee, if available in a timely 

manner, should not create any operational impediments.
119

as an example that the operational challenges and costs would not be prohibitive.372

Conversely, a number of commenters expressed concern over the operational burdens and 

related administrative costs with the fees and gates requirements.373 Some commenters argued 

that the implementation and administration of fees and gates would present significant 

operational challenges, in particular with respect to omnibus accounts, sweep accounts, 

intermediaries and the investors that use them.374 One commenter argued that, to reduce

operational burdens, a liquidity fee should be applied to each redemption separately – rather than 

net redemptions – in an affected money market fund.375 This commenter also expressed concern 

that intermediaries would not know whether their sweeps would be subject to a liquidity fee or 

temporary gate until after the daily investment is made.376 For example, the possibility of a 

liquidity fee would require intermediaries to develop trading systems to ensure that for each 

transaction “the investor has sufficient funds to cover the trade itself plus the possibility of a 

liquidity fee.”377 Commenters also suggested that a fee or gate could not be uniformly applied 

within omnibus accounts, 378 and certain commenters expressed concern over transparency with 

 372 See id.

373 See, e.g., Comment Letter of TIAA-CREF (Sept. 17, 2013) (“TIAA-CREF Comment Letter”); J.P. Morgan 

Comment Letter; Fin. Svcs. Roundtable Comment Letter; Goldman Sachs Comment Letter. 

374 See, e.g., SunTrust Comment Letter; Comment Letter of Coalition of Mutual Fund Investors (Sept. 17, 

2013) (“Coal. of Mutual Fund Invs. Comment Letter”); Schwab Comment Letter. 

375 See ICI Comment Letter (expressing concern that funds, record keepers and intermediaries would have to 

develop complex operational systems that could apply a fee with respect to a shareholder’s net redemptions 

for a particular day and tracking the “shareholder of record” to whom such a fee would apply).

376 See id. 

377 See Fin. Svcs. Roundtable Comment Letter; see also Fin. Info. Forum Comment Letter (suggesting 

liquidity fees could cause investors [to] over-trade their account by settling an amount greater than their 

balance due to a liquidity fee not known at the time of order entry). 

378 See Coal. of Mutual Fund Invs. Comment Letter; SunTrust Comment Letter.
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respect to fees and gates for shareholders investing through omnibus accounts.379 

We understand that the implementation of fees and gates (as with any new regulatory 

requirement) is not without its operational challenges; however, we have sought to minimize 

those challenges in the amendments we are adopting today. Based on the comments discussed 

above, we now recognize that a liquidity fee could either be applied to each redemption 

separately or on a net basis. As indicated by the relevant commenter, our proposal contemplated 

net redemptions as an investor-friendly manner of applying a liquidity fee.380 However, in light 

of the comments, we are persuaded that such an approach may be too operationally difficult and 

costly for funds to apply and, thus, we are not requiring funds to apply a liquidity fee on a net 

basis.381 

We also recognize commenters’ concerns regarding the application of fees and gates in 

the context of sweep accounts. We note that during normal market conditions, fees and gates 

should not impact sweep accounts’ (or any other investor’s) investment in a money market 

fund.382 We also note that, unlike our proposal, the amendments we are adopting today will 

 379 See Coal. of Mutual Fund Invs. Comment Letter; Goldman Sachs Comment Letter.

380 See Proposing Release, supra note 25, at n.373 (discussing the application of a liquidity fee and stating that 

“[i]f the shareholder of record making the redemption was a direct shareholder (and not a financial 

intermediary), we would expect the fee to apply to that shareholder’s net redemption for the day.”); see also

ICI Comment Letter (“Currently, systems used to process money market fund transactions do not have the 

ability to assess a fee by netting one or more purchases against one or more redemptions. This process 

would be highly complex and require a significant and costly redesign of the processing functionality used 

by funds and intermediaries today.” (footnote omitted)).

381 See ICI Comment Letter (noting that “[a]bsent further definition, it would be challenging for funds (and 

intermediaries assessing the fee) to determine how a shareholder of record requirement applies to multiple 

accounts of a given beneficial owner....”).

382 As discussed herein, however, we recognize that sweep accounts may be unwilling to invest in a money 

market fund that could impose a gate. See supra section III.A.1.c.iv and infra note 641.
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allow fund boards to institute a fee or gate at any time during the day.383 To the extent a sweep 

account’s daily investment is made at the end of the day, we believe this change should reduce 

concerns that the sweep account holder will find out about a redemption restriction only after it 

has made its daily investment and may lessen the difficulty and costs related to developing a 

trading system that can ensure an account has sufficient funds to cover the trade itself plus the 

possibility of a liquidity fee. 

With respect to omnibus accounts, we continue to believe that liquidity fees should be 

handled in a manner similar to redemption fees, which currently may be imposed to deter market 

timing of mutual fund shares.384 As discussed in the Proposing Release, we understand that 

financial intermediaries themselves generally impose redemption fees to record or beneficial 

owners holding through that intermediary.385 We recognize commenters’ concerns regarding the 

uniform application of liquidity fees through omnibus accounts. We believe, however, that the 

benefits and protections afforded to funds and their investors by the fees and gates amendments 

justify the application of these amendments in the context of omnibus accounts. In this regard, 

we note, as we did in the Proposing Release, that funds or their transfer agents may contract with 

intermediaries to have them impose liquidity fees. As we also noted in the Proposing Release, 

we understand that some money market fund sponsors may want to review their contractual 

arrangements with their funds’ financial intermediaries and service providers to determine 

whether any contractual modifications are necessary or advisable to ensure that liquidity fees are 

 383 See rule 2a-7(c)(2)(i).

384 See rule 22c-2. Our understanding of how financial intermediaries handle redemption fees in mutual funds 

is based on Commission staff discussions with industry participants and service providers.

385 See Proposing Release, supra note 25, at 191.
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appropriately applied to beneficial owners of money market fund shares. We further understand 

that some money market fund sponsors may seek certifications or other assurances that these 

intermediaries and service providers will apply any liquidity fees to the beneficial owners of 

money market fund shares. We also recognize that money market funds and their transfer agents 

and intermediaries may need to engage in certain communications regarding a liquidity fee. 

With respect to those commenters who expressed concern over the transparency of fees 

and gates for omnibus investors, we note that fees and gates will be equally transparent for all 

investors. Investors, both those that invest directly and those that invest through omnibus 

accounts, should have access to information about a fund’s weekly liquid assets, which will be 

posted on the fund’s website. All money market fund investors also should receive copies of a 

fund’s prospectus, which will include disclosure on fees and gates. 

We note that some commenters expressed concern about the costs and burdens associated 

with the combination of fees and gates and a floating NAV requirement for institutional prime 

funds.386 As we stated in the Proposing Release, we do not expect that there will be any 

significant additional costs from combining the two approaches that are not otherwise discussed 

separately with respect to each of the fees and gates and floating NAV reforms.387 As we 

discussed in the Proposing Release, it is likely that implementing a combined approach will save 

 386 See, e.g., Dreyfus Comment Letter (suggesting the combination of both proposed reform options would be 

“excessive and unduly harmful to the utility of [money market funds] without offering any additional 

benefit”); Northern Trust Comment Letter (suggesting the combination of both proposed reform options 

would “be very costly to implement”). For a discussion of the possible movement out of money market 

funds as result of today’s reforms, see infra section III.K. But see State Street Comment Letter (“State 

Street does not believe there would be any new costs other than those listed by the staff from a fund 

accounting, custody or fund administrator point of view by combining the two alternatives.”). 

387 See Proposing Release, supra note 25, at 249; see also infra section III.B.8 for a discussion of the costs 

associated with the floating NAV requirement. 
123

some percentage over the costs of implementing each alterative separately as a result of 

synergies and the ability to make a variety of changes to systems at a single time. We do not 

expect that combining the approaches will create any new costs as a result of the combination 

itself.388 Accordingly, we estimate, as we did in the proposal, that the costs of implementing a 

combined approach would at most be the sum of the costs of each alternative, but may likely be 

less. 

b. Cost Estimates

As we indicated in the Proposing Release, the costs associated with the fees and gates 

amendments will vary depending on how a fee or gate is structured, including its triggering event 

and the level of a fee, as well as on the capabilities, functions and sophistication of the systems 

and operations of the funds and others involved in the distribution chain, including transfer 

agents, accountants, custodians and intermediaries. These costs relate to the development of 

procedures and controls, systems’ modifications, training programs and shareholder 

communications and may vary among funds, shareholders and their service providers. 

In the Proposing Release, we estimated a range of hours and costs that may be required to 

perform activities typically involved in making systems modifications, such as those described 

above. We estimated that a money market fund (or others in the distribution chain) would incur 

one-time systems modification costs that range from $1,100,000 to $2,200,000. 389 We further 

 388 See State Street Comment Letter. 

389 We estimated that these costs would be attributable to the following activities: (i) project planning and 

systems design; (ii) systems modification, integration, testing, installation, and deployment; (iii) drafting, 

integrating, implementing procedures and controls; and (iv) preparation of training materials. See also 

Proposing Release, supra note 25, at n.245 (discussing the bases of our estimates of operational and related 

costs in Proposing Release). 
124

estimated that the one-time costs for entities to communicate with shareholders about the 

liquidity fee or gate would range from $200,500 to $340,000.390 In addition, we estimated that 

the costs for a shareholder mailing would range between $1.00 and $3.00 per shareholder.391 

We also recognized in our proposal that depending on how a liquidity fee or gate is 

structured, mutual fund groups and other affected entities already may have systems that can be 

adapted to administer a fee or gate at minimal cost, in which case the costs may be less than the 

range we estimated above. For example, some money market funds may be part of mutual fund 

groups in which one or more funds impose deferred sales loads under rule 6c-10 or redemption 

fees under rule 22c-2, both of which require the capacity to administer a fee upon redemptions 

and may involve systems that could be adapted to administer a liquidity fee. We estimated that a 

money market fund shareholder whose systems required modifications to account for a liquidity 

fee or gate would incur one-time costs ranging from $220,000 to $450,000.392 

Some of the comments we received regarding the costs of fees and gates included 

alternate estimates of implementation costs.393 For example, one commenter indicated that its 

 390 We estimated that these costs would be attributable to the following activities: (i) modifying the website to 

provide online account information and (ii) written and telephone communications with investors. See also 

Proposing Release, supra note 25, at n.245 (discussing the bases of our estimates of operational and related 

costs in Proposing Release).

391 Total costs of the mailing for individual funds would vary significantly depending on the number of 

shareholders who receive information from the fund by mail (as opposed to electronically). 

392 We estimated that these costs would be attributable to the following activities: (i) project planning and 

systems design; (ii) systems modification, integration, testing, installation; and (iii) drafting, integrating, 

implementing procedures and controls. See also Proposing Release, supra note 25, at n.245 (discussing the 

bases of our estimates of operational and related costs in Proposing Release).

393 We note that some commenters provided industry-wide estimates of approximately $800 million to $1.75 

billion for initial implementation of fees and gates, and estimates of approximately $80 to $350 million for 

annual ongoing costs. See ICI Comment Letter; Invesco Comment Letter. As discussed herein, we have 

analyzed a variety of commenter estimates and provided cost estimates on a per-fund basis (including a 

fund’s distribution chain). We are unable, however, to verify the accuracy or make a relevant comparison 
125

costs for implementing fees and gates would likely be in the range of $400,000 to $500,000.394 

This commenter further explained that cost of the fees and gates alternative “reflects the ability 

of the affected entity to custom-design its own approach to implementation, as well as the fact 

that the necessary changes would not be for use in day-to-day operations, but only for rare 

occasions.”395 

A number of other commenters, however, expressed concern that the fees and gates 

amendments would impose significant costs and burdens, higher than those estimated in the 

Proposing Release.396 For example, one commenter estimated that it would cost it a total of 

approximately $11 million in largely one-time costs, reflecting costs of $9 million to implement 

fees and gates as well as $2 million for the related modifications in disclosure.397 Another 

commenter indicated that the implementation costs of fees and gates would be an estimated 

$1,697,000.398 Similarly, an industry group conducting a survey of its members found that the 

implementation costs relating to liquidity fees would likely be $2 million or more, according to 

 

between our per-fund cost estimates and the broad range of costs provided by these commenters that apply 

to all U.S. prime money market fund investors and/or the entire industry because we are unable to estimate 

how many intermediaries will be affected by the fees and gates amendments.

394 See Federated X Comment Letter. 

395 See id. As discussed above, another commenter indicated that implementing fees and gates would only 

require “minimal enhancements” to its core custody/fund accounting systems at “minimal costs,” and that 

most transfer agency and intermediary systems would likely already include “basic functionality to 

accommodate liquidity fees and gates.” See State Street Comment Letter. Also as discussed above, an 

additional commenter noted that, with respect to its Dublin-domiciled money market fund complex that is 

currently implementing the ability to impose liquidity fees, the implementation process has created costs 

but that these costs have not been prohibitive. See HSBC Comment Letter.

396 See, e.g., IDC Comment Letter; Comment Letter of Dechert LLP (Sept. 17, 2013) (“Dechert Comment 

Letter”); SPARK Comment Letter.

397 See Fidelity Comment Letter.

398 See Comment Letter of Financial Information Forum (Sept. 17, 2013) (“Fin. Info. Forum Comment 

Letter”) (“Based on the available information, one back office processing service provider estimates the 

implementation cost of ... Alternative 2 at $1,697,000.”)
126

36% of survey respondents.399 The group also noted that initial costs would be particularly 

significant for distributors and intermediaries, with 60% of respondents estimating initial costs at 

$2 million or more.400 In addition, the survey found initial costs associated with gates to range 

from $1 million to $10 million.401

Based on the information provided by commenters, as well as the operational changes in 

the final rule, we are increasing our estimates for implementation costs for fees and gates. Three 

of the four commenters who provided estimates suggested that the implementation costs would 

be around $2,000,000 or more.402 In addition, we estimate that a fund’s ability to impose a fee or 

gate intra-day (as opposed to the end of the day, as contemplated by the proposal) may result in 

increased operational costs related to the implementation of fees and gates. Accordingly, we 

have increased our original estimate of $1,100,000 to $2,200,000403 for one-time systems 

modification costs to a higher estimate of $1,750,000 to $3,000,000.404 We continue to estimate 

that the one-time costs for entities to communicate with shareholders (including systems costs 

 399 SIFMA Comment Letter. The survey also included the following results for implementation costs: 24% in 

the $2 million to $5 million range, 8% in the $5 million to $10 million range, and 4% in the $10 million to 

$15 million range.

400 Id. The commenter’s survey indicated that 40% of asset managers would incur $2 to $5 million in initial 

costs. 

401 Id. The survey indicated costs of $1 million to $2 million according to 17% of respondents, $2 million to 

$5 million according to another 17% of respondents, and $5 million to $10 million according to 8% of 

respondents. 

402 See supra notes 394 - 401 and accompanying text. 

403 We note that, in the Proposing Release, our estimate was based on a money market fund that determined it 

would only impose a flat liquidity fee of a fixed percentage known in advance and have the ability to 

impose a gate. This estimate was based on our proposal, which included less flexibility than today’s 

amendments. Accordingly, our revised estimates account for a money market fund that has the ability to 

vary the level of a fee at imposition or thereafter, or impose a gate. 

404 As with our estimate in the Proposing Release, these amounts reflect the costs of one-time systems 

modifications for a money market fund and/or others in its distribution chain.
127

related to communications) about fees and gates would range from $200,500 to $340,000. In 

addition, we are increasing the estimated cost for a shareholder mailing from between $1.00 and 

$3.00 per shareholder to between $2.00 and $3.00 per shareholder, recognizing that it is unlikely 

such a mailing would cost $1.00. We continue to estimate one-time costs of $220,000 to 

$450,000 for a money market fund shareholder whose systems (including related procedures and 

controls) required modifications to account for a liquidity fee or redemption gate. 

We recognized in our proposal that adding new capabilities or capacity to a system will 

entail ongoing annual maintenance costs and understand these costs generally are estimated as a 

percentage of initial costs of building or expanding a system. We also recognized that ongoing 

costs related to fees and gates may include training costs. In the proposal, we estimated that the 

costs to maintain and modify the systems required to administer a fee or gate (to accommodate 

future programming changes), to provide ongoing training, and to administer the fee or gate on 

an ongoing basis would range from 5% to 15% of the one-time costs. We understand that funds 

may impose varying liquidity fees and that the cost of varying liquidity fees could exceed this 

range, but because such costs depend on to what extent the fees might vary, we do not have the 

information necessary to provide a reasonable estimate of how much more (if any) varying fees 

might cost to implement. 

One commenter indicated a lower estimate of approximately $164,000 for annual 

ongoing costs.405 Another commenter, an industry group that surveyed its members, indicated 

that ongoing annual costs of implementing a liquidity fee are likely to range from 10% to 20% of 

 405 See Federated X Comment Letter.
128

initial costs.406 The same commenter indicated that ongoing annual costs related to redemption 

gates were estimated as 10% to 20% of initial cost by 33% of survey respondents.407 Based on 

these estimates, which are largely similar to our estimates of 5-15% in the Proposing Release, we 

continue to believe our estimates in the Proposing Release are appropriate. 

We also recognize that funds may incur costs in connection with board meetings held to 

determine if fees and/or gates are in the best interests of the fund. In the Proposing Release, we 

estimated an average annual time cost of approximately $9,895 per fund in connection with each 

such board meeting.

408 We did not receive comments on this estimate. As discussed in section 

IV.A.3 herein, we are revising our estimate from $9,895 per fund to $10,700 as result of updated 

industry data.409

Although we have estimated the costs that a single affected entity would incur, we 

anticipate that many money market funds, transfer agents, and other affected entities may not 

bear the estimated costs on an individual basis. Instead, the costs of systems modifications likely 

would be allocated among the multiple users of the systems, such as money market fund 

 406 See SIFMA Comment Letter. The survey indicated 10% to 15% of initial costs for 17% of respondents, 

15% to 20% of initial costs for 12% of respondents, and 20+% of initial costs for 8% of respondents. With 

respect to distributor/intermediary respondents, the commenter indicated that ongoing annual costs for a 

liquidity fee are estimated as 10% to 20% of initial costs by 29% of distributor/intermediary respondents 

(evenly split between those who estimate 10% to 15% of initial cost and those who estimate 15% to 20%). 

For asset managers, the commenter indicated that ongoing annual costs for a liquidity fee are estimated to 

be 10% to 15% of initial costs by 20% of respondents, 15% to 20% of initial costs by 10% of respondents 

and 20+% of initial costs by 20% of respondents. 

407 See SIFMA Comment Letter. The commenter note that the 33% of survey respondents were evenly split 

between those who estimated 10% to 15% of initial cost and those who estimated 15% to 20% of initial 

cost.

408 See Proposing Release, supra note 25, at 549.

409 See infra section IV.A.3 (discussing the PRA estimates for board determinations under the fees and gates 

amendments and noting that certain estimates have increased from those in the proposal as a result of the 

increased number of funds that may cross the higher weekly liquid assets threshold of 30% (as compared to 

15%) for the imposition of fees and gates).
129

members of a fund group, money market funds that use the same transfer agent or custodian, and 

intermediaries that use systems purchased from the same third party. Accordingly, we expect 

that the cost for many individual entities may be less than the estimated costs due to economies 

of scale in allocating costs among this group of users. 

6. Tax Implications of Liquidity Fees 

As discussed in the Proposing Release, we understand that liquidity fees may have certain 

tax implications for money market funds and their shareholders.410 We understand that for 

federal income tax purposes, shareholders of mutual funds that impose a redemption fee pursuant 

to rule 22c-2 under the Investment Company Act generally treat the redemption fee as offsetting 

the shareholder’s amount realized on the redemption (decreasing the shareholder’s gain, or 

increasing the shareholder’s loss, on redemption).411 Consistent with this characterization, funds 

generally treat the redemption fee as having no associated tax effect for the fund.412 We 

understand that a liquidity fee will be treated for federal income tax purposes consistently with 

the way that funds and shareholders treat redemption fees under rule 22c-2. 

If, as described above, a liquidity fee has no direct federal income tax consequences for 

the money market fund, that tax treatment will allow the fund to use 100% of the fee to help

 410 As discussed above, the liquidity fee we are adopting today is analogous to a redemption fee under rule 

22c-2, which allows mutual funds to recover costs associated with frequent mutual fund share trading by 

imposing a redemption fee on shareholders who redeem shares within seven days of purchase. 

411 Cf. 26 CFR 1.263(a)–2(e) (commissions paid in sales of securities by persons who are not dealers are 

treated as offsets against the selling price); see also Investment Income and Expenses (Including Capital 

Gains and Losses), IRS Publication 550, at 44 (fees and charges you pay to acquire or redeem shares of a 

mutual fund are not deductible. You can usually add acquisition fees and charges to your cost of the shares 

and thereby increase your basis. A fee paid to redeem the shares is usually a reduction in the redemption 

price (sales price).), available at http://www.irs.gov/pub/irs-pdf/p550.pdf.

412 See ICI Comment Letter (“Pursuant to section 311(a)(2) of the Internal Revenue Code, corporations 

(including investment companies) do not recognize gain or loss upon a redemption of their shares.”). 
130

repair a market-based NAV per share that was below $1.00. If redemptions involving liquidity 

fees cause a stable value money market fund’s shadow price to reach $1.0050, however, the fund 

may need to distribute to the remaining shareholders sufficient value to prevent the fund from 

breaking the buck on the upside (i.e., by rounding up to $1.01 in pricing its shares).413 We 

understand that any such distribution would be treated as a dividend to the extent that the money 

market fund has sufficient earnings and profits. Both the fund and its shareholders would treat 

these additional dividends the same as they treat the fund’s routine dividend distributions. That 

is, the additional dividends would be taxable as ordinary income to shareholders and would be 

eligible for deduction by the funds.

In the absence of sufficient earnings and profits, however, some or all of these additional 

distributions would be treated as a return of capital. Receipt of a return of capital would reduce 

the recipient shareholders’ basis (and thus could decrease a loss, or create or increase a gain for 

the shareholder in the future when the shareholder redeems the affected shares). Thus, in the 

event of any return of capital distributions, as we noted in the Proposing Release, there is a 

possibility that the fund, other intermediaries, and the shareholders might become subject to 

tax-reporting or tax-payment obligations that do not affect stable value money market funds 

currently operating under rule 2a-7.414

 413 See rule 2a-7(g)(2).

414 See Proposing Release, supra note 25, at 207. Funds that strive to maintain a stable NAV per share 

currently are not subject to these transaction reporting requirements. We have been informed that, today, 

the Department of the Treasury and the IRS are proposing new regulations to exempt all money market 

funds from transaction reporting obligations. As we describe below, funds and brokers may rely on this 

exemption immediately. We note that at least one commenter indicated that funds and intermediaries may 

want to provide certain tax information to their investors even if it is not required. See ICI Comment 

Letter.
131

Commenters were concerned with this possibility – that investors may have to recognize 

capital gains or reduced losses if a fund makes a distribution to shareholders in order to avoid 

“breaking the buck” on the upside as a result of excessive fees.415 Commenters noted that such 

distributions and the resulting capital gains or losses upon disposition of investors’ shares would 

require funds and intermediaries to start tracking investors’ basis in shares of a fund.416 In order 

to avoid such basis tracking, commenters suggested that the Treasury Department and the 

Internal Revenue Service (“IRS”) issue guidance stating that when a money market fund is 

required to make a payment of excess fees in order to avoid breaking the buck, the fund should 

be deemed to have sufficient earnings and profits to treat the distribution as a taxable dividend.417 

Although these events are hypothetically possible, the scenario that would lead to a 

payment of excess fees to fund shareholders without sufficient earnings and profits is subject to 

many contingencies that make it unlikely to occur. First, as we discussed above, under normal 

market conditions, we believe funds will rarely impose liquidity fees. Second, we believe it is 

highly unlikely that shareholders would redeem with such speed and in such volume that the 

redemptions would create a danger of breaking the buck on the upside before a fund could 

remove a fee. Third, the distributions to avoid breaking the buck might not exceed the fund’s 

earnings and profits. For this purpose, we understand that the fund’s earnings and profits take 

into account the fund’s income through the end of the taxable year. Thus, unless the additional 

 415 See, e.g., Fidelity Comment Letter; BlackRock II Comment Letter; Wells Fargo Comment Letter.

416 See, e.g., ICI Comment Letter; Fidelity Comment Letter; BlackRock II Comment Letter; SIFMA Comment 

Letter; but see, e.g., State Street [Appendix 4] (suggesting that a liquidity fee causing the shadow price to 

exceed $1.0049 would not result in special distribution to shareholders but most likely be recorded as 

income to the fund and paid out to shareholders as an ordinary income distribution).

417 See, e.g., BlackRock II Comment Letter; ICI Comment Letter; Wells Fargo Comment Letter.
132

distribution occurs very close to the end of the taxable year, some of the money market fund’s 

subsequent income during the year will operate to qualify these distributions as dividends.418

Finally, as discussed in the Proposing Release, we understand that the tax treatment of a 

liquidity fee may impose certain operational costs on money market funds and their financial 

intermediaries and on shareholders. However, we have been informed that the Treasury 

Department and the IRS today will propose new regulations exempting all money market funds 

from certain transaction reporting requirements.

419 This exemption is to be formally applicable 

for calendar years beginning on or after the date of publication in the Federal Register of a 

Treasury Decision adopting those proposed regulations as final regulations. The Treasury 

Department and the IRS have informed us, however, that the text of the proposed regulations 

will state that persons subject to transaction reporting may rely on the proposed exemption for all 

calendar years prior to the final regulations’ formal date of applicability. Therefore, the Treasury 

Department and IRS relief described above is available immediately.

Thus, even in the unlikely event that some shareholders’ bases in their shares change due 

to non-dividend distributions, neither fund groups nor their intermediaries will need to track the 

tax bases of money market fund shares. On the other hand, if there are any non-dividend 

distributions by money market funds, the affected shareholders will need to report in their annual 

tax filings any resulting gains420 or reduced losses upon the sale of affected money market fund 

 418 A portion of this subsequent income may also have to be distributed to avoid breaking the buck on the 

upside. However, if the fund attracts new shareholders, we understand that some of the subsequent income 

can be retained, with its associated earnings and profits qualifying the earlier distributions as dividends.

419 See infra section III.B.6.a. 

420 Redemptions subject to a liquidity fee would almost always result in losses, but gains are possible in the 

unlikely event that a shareholder received a return of capital distribution with respect to some shares. 
133

shares. We are unable to quantify with any specificity the tax and operational costs discussed in 

this section because we are unable to predict how often liquidity fees will be imposed by money 

market funds and how often redemptions subject to liquidity fees would cause the funds to make 

returns of capital distributions to the remaining shareholders (although, as noted above, we 

believe such returns of capital distributions are unlikely). Commenters did not provide any such 

estimates. 

7. Accounting Implications 

A number of commenters questioned whether an investment in a money market fund 

subject to a possible fee or gate, or in a money market fund that in fact imposes a fee or gate, 

would continue to qualify as a “cash equivalent” for purposes of U.S. Generally Accepted 

Accounting Principles (“U.S. GAAP”).

421 We understand that classifying money market fund 

investments as cash equivalents is important because, among other things, investors may have 

debt covenants that mandate certain levels of cash and cash equivalents.

422 To remove any 

uncertainty, several commenters requested that the Commission, the Financial Accounting 

Standards Board (“FASB”) and/or Government Accounting Standards Board (“GASB”) issue 

 Because a later redemption of the shares by the shareholder would be for $1.00 each, there would be small 

gains with respect to those redemptions. If the money market fund making such a non-dividend 

distribution is a floating NAV money market fund and if a shareholder uses the simplified aggregate 

method discussed below in section III.B.6.a, then the shareholder would be able to report the gain or loss 

without having to track the basis of individual shares.

421 See, e.g., Invesco Comment Letter; BlackRock II Comment Letter; Wells Fargo Comment Letter; see also

Proposing Release, supra note 25, at 246 (stated that “we expect the value of floating NAV funds with 

liquidity fees and gates would be substantially stable and should continue to be treated as a cash equivalent 

under GAAP.”); ICI Comment Letter (suggesting that any such Commission guidance should also “discuss 

whether a money market fund that imposes a liquidity fee and/or gate would continue to be considered a 

cash equivalent investment and whether the amount of the fee or the length of the gate would affect the 

analysis.”)

422 In addition, some corporate investors may perceive cash and cash equivalents on a company’s balance 

sheet as a measure of financial strength.
134

guidance to clarify whether investments in money market funds will continue to qualify as cash 

equivalents under U.S. GAAP.423 Various commenters on our proposal, including the American 

Institute of Certified Public Accountants (“AICPA”) and each of the “Big Four” accounting 

firms, stated that a money market fund’s ability to impose fees and gates should not preclude an 

investment in the fund from being classified as a “cash equivalent” under U.S. GAAP.424

Current U.S. GAAP defines cash equivalents as “short-term, highly liquid investments 

that are readily convertible to known amounts of cash and that are so near their maturity that they 

present insignificant risk of changes in value because of changes in interest rates.”425 U.S. 

GAAP includes an investment in a money market fund as an example of a cash equivalent.426 

The Commission’s position continues to be that, under normal circumstances, an investment in a 

money market fund that has the ability to impose a fee or gate under rule 2a-7(c)(2) qualifies as a 

“cash equivalent” for purposes of U.S. GAAP.427 However, as is currently the case, events may 

occur that give rise to credit and liquidity issues for money market funds. If such events occur, 

including the imposition of a fee or gate by a money market fund under rule 2a-7(c)(2), 

shareholders would need to reassess if their investments in that money market fund continue to 

 423 See, e.g., ICI Comment Letter; Fidelity Comment Letter; Fin. Svcs. Roundtable Comment Letter; see also

Proposing Release, supra note 25, at 246 (suggesting that funds with the ability to impose fees and gates 

should still be considered cash equivalents). As discussed in section III.C.4 herein, we do not have 

authority over the actions that GASB may or may not take with respect to LGIPs.

424 See Comment Letter of American Institute of Certified Public Accountants, Financial Reporting Executive 

Committee (Sept. 16, 2013) (“AICPA Comment Letter); Comment Letter of Ernst & Young LLP (Sept. 12, 

2013) (“Ernst & Young Comment Letter”); Comment Letter of Deloitte & Touche LLP (Sept. 17, 2013) 

(“Deloitte Comment Letter”); Comment Letter of KPMG LLP (Sept. 17, 2013) (“KPMG Comment 

Letter”); Comment Letter of PricewaterhouseCoopers LLP (Sept. 16, 2013) (“PWC Comment Letter”). 

425 See FASB Accounting Standards Codification (“FASB ASC”) paragraph 305-10-20.

426 Id.

427 We are also amending the Codification of Financial Reporting Policies to reflect our interpretation under 

U.S. GAAP, as discussed below. See infra section VI.
135

meet the definition of a cash equivalent. A more formal pronouncement (as requested by some 

commenters) to confirm this position is not required because the federal securities laws provide 

the Commission with plenary authority to set accounting standards, and we are doing so here.428

If events occur that cause shareholders to determine that their money market fund shares 

are not cash equivalents, the shares would need to be classified as investments, and shareholders 

would have to treat them either as trading securities or available-for-sale securities.429 For 

example, during the financial crisis, certain money market funds experienced unexpected 

declines in the fair value of their investments due to deterioration in the creditworthiness of their 

assets and, as a result, portfolios of money market funds became less liquid. Investors in these 

money market funds would have needed to determine whether their investments continued to 

meet the definition of a cash equivalent. 

B. Floating Net Asset Value

1. Introduction

As discussed earlier in this Release, absent an exemption specifically provided by the 

Commission from various provisions of the Investment Company Act, all registered mutual 

funds must price and transact in their shares at the current NAV, calculated by valuing portfolio 

instruments at market value, in the case of securities for which market quotations are readily 

available, or, at fair value, as determined in good faith by the fund’s board of directors, in the 

 428 The federal securities laws provide the Commission with authority to set accounting and reporting 

standards for public companies and other entities that file financial statements with the Commission. See, 

e.g., 15 U.S.C. 77g, 77s, 77aa(25) and (26); 15 U.S.C. 78c(b), 78l(b) and 78m(b); section 8, section 30(e), 

section 31, and section 38(a) of the Investment Company Act.

429 See FASB ASC paragraph 320-10-25-1. This accounting treatment would not apply to entities to which the 

guidance in FASB ASC Topic 320 does not apply. See FASB ASC paragraph 320-10-15-3. 
136

case of other securities and assets (i.e., use a floating NAV).430 Under rule 2a-7, the Commission 

has exempted money market funds from this floating NAV requirement, allowing them to price 

and transact at a stable NAV per share (using the amortized cost and penny rounding methods), 

provided that they follow certain risk-limiting conditions.431 In doing so, the Commission was 

statutorily required to find that such an exemption was in the public interest and consistent with 

the protection of investors and the purposes fairly intended by the policy and provisions of the 

Investment Company Act.432 Accordingly, when providing this exemption in 1983, the 

Commission considered the benefits of a stable value product as a cash management vehicle for 

investors, but also imposed a number of conditions designed to minimize the risk inherent in a 

stable value fund that some shareholders may redeem and receive more than their shares are

actually worth, thus diluting the holdings of remaining shareholders.433 At the time, the 

Commission was persuaded that deviations in value that could cause material dilution to 

investors generally would not occur, given the risk-limiting conditions of the rule.434 Experience, 

however, has shown that deviations in value do occur, and at times, can be significant. 

As discussed above, money market funds’ sponsors on a number of occasions have 

 430 See supra section I. 

431 Id. 

432 Section 6(c) of the Investment Company Act provides the Commission with broad authority to exempt 

persons, securities or transactions from any provision of the Investment Company Act, or the regulations 

thereunder, if and to the extent that such exemption is in the public interest and consistent with the 

protection of investors and the purposes fairly intended by the policy and provisions of the Investment 

Company Act. See Commission Policy and Guidelines for Filing of Applications for Exemption, SEC 

Release No. IC-14492 (Apr. 30, 1985).

433 See Proposing Release, supra note 25, at n.9. The Commission was similarly concerned with the risk that 

redeeming shareholders may receive less than their shares were worth and that purchasing shareholders 

may pay too little for their shares, diluting remaining shareholders. 

434 Id.
137

voluntarily chosen to provide financial support for their money market funds for various reasons, 

including to keep a fund from re-pricing below its stable value, suggesting that material 

deviations in the value in money market funds have not been a rare occurrence.435 This historical 

experience, combined with the events of the financial crisis, has caused us to reconsider the 

exemption from the statutory floating NAV requirement for money market funds in light of our 

responsibilities under the Act in providing this exemption. In doing so, we again took into 

account the benefits of money market funds as a stable value cash management product for 

investors, but also considered all of the historical and empirical information discussed in section 

I above, the Investment Company Act’s general obligation for funds to price and transact in their 

shares at the current NAV, and developments since 1983. 

We considered the many reasons shareholders may engage in heavy redemptions from 

money market funds—potentially resulting in the dilution of share value that the Investment 

Company Act’s provisions are designed to avoid—and have tailored today’s final rules

accordingly. In particular, while many investors may redeem because of concerns about 

liquidity, quality, or lack of transparency—and our fees and gates, disclosure, and reporting 

reforms are primarily intended to address those incentives—an incremental incentive to redeem 

is created by money market funds’ current valuation and pricing methods. As discussed below, 

this incremental incentive to redeem exacerbates shareholder dilution in a stable NAV product 

because non-redeeming shareholders are forced to absorb losses equal to the difference between 

the market-based value of the fund’s shares and the price at which redeeming shareholders 

 435 See supra section II.B.4 
138

transact. For the reasons discussed below, we believe that this incentive exists largely in prime 

money market funds because these funds exhibit higher credit risk that make declines in value 

more likely (compared to government money market funds).436 We further believe history shows 

that, to date, institutional investors have been significantly more likely than retail investors to act 

on this incentive.437 Thus, given the tradeoffs involved in requiring that any money market fund 

transact at a floating NAV, we are limiting this reform (and thus the repeal of the special 

exemptive relief allowing these funds to price other than as required under the Investment 

Company Act) to institutional prime funds. 

As discussed previously, the first investors to redeem from a stable value money market 

fund that is experiencing a decline in its NAV benefit from a “first mover advantage” as a result 

of rule 2a-7’s current valuation and pricing methods, which allows them to receive the full stable 

value of their shares even if the fund’s portfolio value is less.438 One possible reason that 

institutional prime funds may be more susceptible to rapid heavy redemptions than retail funds is 

that their investors are often more sophisticated, have more significant money at stake, and may 

have a lower risk tolerance due to legal or other restrictions on their investment practices.439 

Institutional investors may also have more resources to carefully monitor their investments in 

money market funds. Accordingly, when they become aware of potential problems with a fund, 

 436 See infra section III.C.1; see also, e.g., Fidelity Comment Letter; ICI Comment Letter; Comm. Cap. Mkt. 

Reg. Comment Letter.

437 See infra section III.C.2 and DERA Study, supra note 24; see also, e.g., Schwab Comment Letter; Fin. 

Svcs. Roundtable Comment Letter; Vanguard Comment Letter. 

438 See supra section II.B.3. This first mover advantage does not have the same degree of value in other 

mutual funds that do not have a stable value because investors receive the market value of their shares 

when redeeming from a floating NAV fund. 

439 See, e.g., Systemic Risk Council Comment Letter.
139

institutional investors may quickly redeem their shares among other reasons, to benefit from the 

first mover advantage.440 When many investors try to redeem quickly, whether to benefit from 

the first mover advantage or otherwise, money market funds may experience significant stress. 

As discussed above, even a few high-dollar redemptions by institutional investors (because of 

their greater capital at stake) may have a significant adverse effect on a fund as compared with 

retail investors whose investments are typically smaller and would therefore require a greater 

number of redemptions to have a similar effect.441 This can lead to the very dilution of fund 

shares that we were concerned about when we first provided the exemptions in rule 2a-7 

permitting funds to use different valuation and pricing methods than other mutual funds to 

facilitate maintaining a stable value.442 

As discussed in the previous section, our fee and gate reform is designed to address some 

of the risks associated with money market funds that we have identified in this Release, but does 

not address them all. In particular, fees and gates are intended to enhance money market funds’ 

ability to manage and mitigate potential contagion from high levels of redemptions and make 

redeeming investors pay their share of the costs of the liquidity that they receive. But those 

reforms do not address the incremental incentive to redeem from a fund with a shadow price 

below $1.00 that is at risk of breaking the buck. As a result of their sophistication, risk tolerance, 

and large investments, institutional investors are more likely to redeem at least in part due to this 

 440 Id.; see, e.g. TIAA-CREF Comment Letter; Systemic Risk Council Comment Letter.

441 See supra text following note 66.

442 See infra section III.B.3.b; see, e.g., Schwab Comment Letter. 
140

first mover advantage.443 

This has led to us re-evaluate our decision to provide an exemption allowing amortized 

cost valuation and penny rounding pricing for money market funds with these specific kinds of 

investors.

444 As discussed above, this exemption was originally premised on our expectation that 

funds that followed the requirements of rule 2a-7 would be unlikely to experience material 

deviations from their stable value. With respect to prime funds in particular, this expectation has 

proven inaccurate with enough regularity to cause concern, especially given the potentially 

serious consequences to investors and the markets that can and has resulted at times. 

Accordingly, for the reasons discussed above and in other sections of this Release,445 we no 

longer believe that exempting institutional prime money market funds under section 6(c) of the 

Act is appropriate—i.e., we find that such an exemption is no longer in the public interest and 

consistent with the protection of investors and the purposes fairly intended by the policy and 

provisions of the Investment Company Act .

446 As discussed in detail in the sections that follow, 

we are now rescinding the exemption that allows institutional prime funds to maintain a stable 

NAV and are requiring them to price and transact in their shares at market-based value, like all 

 443 See, e.g. Comment Letter of United Services Automobile Association (Feb. 15. 2013) (available in File No. 

FSOC–2012 0003) (‘‘USAA FSOC Comment Letter’’); see, e.g., Systemic Risk Council Comment Letter; 

but see, e.g., HSBC Comment Letter (arguing that first mover advantage that results from the valuation and 

pricing methods in rule 2a-7 is overstated in light of the real world issues with information and time to act, 

and that other motivations are the primary driver of redemptions); Dreyfus Comment Letter. 

444 A number of commenters agreed with our proposed approach of only targeting the funds most susceptible 

to runs (institutional prime) with the floating NAV requirement. See, e.g., Fin. Svcs. Roundtable Comment 

Letter (“... a floating NAV confined to institutional prime funds represents a reasonable targeting of reform 

efforts at the segment of the market that has shown the most proclivity to runs.”); Vanguard Comment 

Letter. 

445 See supra section II; infra sections III.B.3.a and III.B.3.b.

446 See supra note 432.
141

other mutual funds.447 

This reform is intended to work in concert with the liquidity fees and gates reforms 

discussed above (as well as other reforms discussed in section III.K.3). The floating NAV 

requirement, applicable only to institutional prime funds, balances concerns about the risks of 

heavy redemptions from these funds in times of stress and the resulting negative impacts on 

short-term funding markets and potential dilution of investor shares, with the desire to preserve, 

as much as possible, the benefits of money market funds for investors.448 Consistent with a core 

objective of the Investment Company Act, the floating NAV reform may also lessen the risk of 

unfairness and potential wealth transfers between holding and redeeming shareholders by 

mutualizing any potential losses among all investors, including redeeming shareholders. We do 

not intend, and the floating NAV reform does not seek, to deter redemptions that constitute 

rational risk management by shareholders or that reflect a general incentive to avoid loss.449 

Instead, as discussed below, the requirement is designed to achieve two independent objectives: 

(1) to reduce the first mover advantage inherent in a stable NAV fund due to rule 2a-7’s current 

valuation and pricing methods by dis-incentivizing redemption activity that can result from 

investors attempting to exploit the possibility of redeeming shares at the stable share price even 

if the portfolio has suffered a loss; and (2) to reduce the chance of unfair investor dilution, which 

would be inconsistent with a core principle of the Investment Company Act. An additional 

 447 See, e.g., Systemic Risk Council Comment Letter (“A floating NAV (for all funds) is the same simple 

regulatory framework that applies to all other mutual funds...”). 

448 See infra section III.B.3 (discussing the benefits of a floating NAV requirement).

449 A number of commenters agreed with this goal. See, e.g., Schwab Comment Letter; Systemic Risk Council 

Comment Letter. 
142

motivation for this reform is that the floating NAV may make it more transparent to certain of 

the impacted investors that they, not the fund sponsors or the federal government, bear the risk of 

loss. Many commenters suggested that, among the reform alternatives proposed, the floating 

NAV reform is the most meaningful.

450 

2. Summary of the Floating NAV Reform

The liquidity fees and gates amendments apply to all money market funds (with the 

exception of government money market funds). Today we are also adopting a targeted reform 

designed to address the specific risks associated with institutional prime money market funds.451

We are doing so by amending rule 2a-7 to rescind certain exemptions that have permitted these 

funds to maintain a stable price by use of amortized cost valuation and/or penny-rounding 

pricing—as a result, institutional prime money market funds will transact at a floating NAV.452 

Under our reform, institutional prime money market funds will value their portfolio 

securities using market-based factors and will sell and redeem shares based on a floating NAV.453 

 450 See, e.g., Boston Federal Reserve Comment Letter; Systemic Risk Council Comment Letter; Thrivent 

Comment Letter.

451 The floating NAV reform will not apply to government and retail money market funds. See rule 2a7(a)(16) (defining “government money market fund”); rule 2a-7(a)(25) (defining “retail money market 

fund”). Government and retail money market funds are discussed infra in sections III.C.1 and III.C.2. 

452 Rule 2a-7(c)(1) (Share price calculation). As discussed below, an institutional prime money market fund 

may continue to call itself a “money market fund” provided that it follows the other conditions in rule 2a-7. 

But it may not use the amortized cost and penny rounding methods to maintain a stable NAV. See rule 2a7(b); infra note 629 and accompanying text (discussing rule 35d-1, the “names rule”).

453 See rule 2a-7(c)(1). We discuss floating NAV money market fund share pricing in section III.B.4. A 

money market fund that currently chooses to use amortized cost valuation typically also uses a pennyrounding convention to price fund shares. See 1983 Adopting Release, supra note 3. Although not 

generally used, a money market fund may also currently choose to maintain a stable NAV solely by using 

penny-rounding pricing. As discussed below, these money market funds would be able to use amortized 

cost valuation only to the same extent other mutual funds are able to do so—where the fund’s board of 

directors determines, in good faith, that the fair value of debt securities with remaining maturities of 60 

days or less is their amortized cost, unless the particular circumstances warrant otherwise. See ASR 219, 

supra note 5; we discuss the use of amortized cost below. See infra section III.B.5. 
143

Under the final rules, and as we proposed, institutional prime funds will round prices and 

transact in fund shares to four decimal places in the case of a fund with a $1.00 target share price 

(i.e., $1.0000) or an equivalent or more precise level of accuracy for money market funds with a 

different share price (e.g., a money market fund with a $10 target share price could price its 

shares at $10.000). Institutional prime money market funds will still be subject to the risklimiting conditions of rule 2a-7.454 Accordingly, they will continue to be limited to investing in 

short-term, high-quality, dollar-denominated instruments, but will not be able to use the 

amortized cost or penny rounding methods to maintain a stable value. Finally, funds subject to 

the floating NAV reform will be subject to the other reforms discussed in this Release. 

As discussed in section III.B.9 below, institutional prime money market funds will have 

two years to comply with the floating NAV reform. Although some commenters, including 

some sponsors of money market funds, expressed general support for the floating NAV reform 

as it was proposed,455 the majority of commenters generally opposed requiring institutional prime 

money market funds to implement a floating NAV.456 Below, we address the principal 

considerations and requirements of the floating NAV reform, discuss comments received, and 

how if applicable, the amendments have been revised to address commenter concerns.

 454 See rule 2a-7(d) (risk-limiting conditions). 

455 See, e.g., Goldman Sachs Comment Letter; Schwab Comment Letter; T. Rowe Price Comment Letter; 

Vanguard Comment Letter; Comment Letter of CFA Institute (Sept. 19, 2013) (“CFA Institute Comment 

Letter”).

456 See, e.g., Federated II Comment Letter; Comment Letter of Arnold & Porter LLP on behalf of Federated 

Investors (Floating NAV) (Sept. 13, 2013) (“Federated IV Comment Letter”); Federated X Comment 

Letter; J.P. Morgan Comment Letter; Comment Letter of U.S. Chamber of Commerce, Center for Capital 

Markets Competitiveness (Aug. 1, 2013) (“Chamber I Comment Letter”); Chamber II Comment Letter.
144

3. Certain Considerations Relating to the Floating NAV Reform

a. A Reduction in the Incentive to Redeem Shares

When a money market fund’s shadow price is less than the fund’s $1.00 share price, 

shareholders have an economic incentive to redeem shares ahead of other investors. In the 

Proposing Release, we noted that the size of institutional investors’ holdings and their resources 

for monitoring funds provide the motivation and means to act on this incentive, and observed

that institutional investors redeemed shares at a much higher rate than retail investors from prime 

money market funds in both September 2008 and June 2011.457 We also noted, as some market 

observers had suggested, that the valuation and pricing techniques currently permitted by rule 

2a-7 may underlie this incentive to redeem ahead of other shareholders and to obtain $1.00 per 

share when investors become aware (or expect) that the actual value of the fund’s shares is below 

(or will fall below) $1.00.458 As discussed below, to address this incentive, the floating NAV 

reform mandates that institutional prime funds transact at share prices that reflect current marketbased factors (not amortized cost or penny rounding, as currently permitted) and therefore 

remove investors’ incentives to redeem early to take advantage of transacting at a stable value. 

Some commenters agreed that a floating NAV mitigates the first mover incentive to 

redeem ahead of other shareholders that results from current rule 2a-7’s valuation and pricing 

methods.459 Two commenters also noted that requiring institutional prime funds to adopt a 

floating NAV would force investors who cannot tolerate any share price movement into other 

 457 But see supra note 68.

458 See Proposing Release, supra note 25, at n.139.

459 See, e.g., Thrivent Comment Letter; TIAA-CREF Comment Letter; Fin. Svcs. Roundtable Comment Letter; 

SIFMA Comment Letter; Systemic Risk Council Comment Letter. 
145

products that better match their risk tolerances.460 According to these commenters, investors who 

remain in floating NAV funds may have a greater tolerance for loss and may be less likely to 

redeem quickly in times of market stress.461

Several commenters generally objected to our reasoning that our floating NAV reform 

(by addressing the economic incentive inherent in rule 2a-7) would reduce the incentive for 

shareholders to redeem ahead of other investors in times of market stress, observing that a 

floating NAV may not eliminate investors’ incentive to redeem to the extent that it results from 

the desire to move to investments of higher quality or greater liquidity.462 Both the DERA Study 

and Proposing Release discussed this concern.463 As the DERA Study noted, the incentive for 

investors to redeem ahead of other investors may be heightened by liquidity concerns–when cash 

levels are insufficient to meet redemption requests, funds may be forced to sell portfolio 

securities into illiquid secondary markets at discounted or even fire-sale prices.464 The floating 

NAV reform may not fully address the incentive to redeem because market-based pricing may

not capture the likely increasing illiquidity of a fund’s portfolio as it sells its more liquid assets 

first during a period of market stress to defer liquidity pressures as long as possible.465 

We acknowledge that a floating NAV does not eliminate the incentive to redeem in 

 460 See Thrivent Comment Letter; Vanguard Comment Letter; see infra section III.B.3.c.

461 See Vanguard Comment Letter. 

462 See, e.g., Dreyfus Comment Letter; Federated IV Comment Letter; Chamber II Comment Letter; Comment 

Letter of The Squam Lake Group (Sept. 17, 2013) (“Squam Lake Comment Letter”); Ropes & Gray 

Comment Letter. 

463 See Proposing Release, supra note 25, at section III.A.1.c.

464 See DERA Study, supra note 24, at 4 (noting that most money market fund portfolio securities are held to 

maturity, and secondary markets in these securities are not deeply liquid).

465 Id.
146

pursuit of higher quality or greater liquidity—indeed, we intend to address the risks associated 

with these incentives primarily through our fees and gates reform. However, we continue to 

believe that a floating NAV should mitigate the incentive to redeem due to the mismatch 

between the stable NAV price and the actual value of fund shares because shareholders will 

receive a market value for their shares rather than a fixed price when they redeem. Importantly, 

the complementary liquidity fees and gates aspect of our money market reforms would also 

apply to institutional prime funds that are subject to a floating NAV. As discussed previously, 

while not intended to stem investors’ desire to move to more liquid or higher quality 

investments, liquidity fees are specifically designed to ensure that redeeming investors pay the 

costs of the liquidity they receive, and redemption gates are designed as a tool to allow funds to 

manage heavy redemptions in times of stress and thus reduce the chance of harm to the fund and 

investors. In this way, we believe that the totality of our money market fund reforms addresses 

comprehensively many features of money market funds, including the characteristics of their 

investor base that can make them susceptible to heavy redemptions, and gives fund boards new 

tools for addressing a loss of liquidity that may develop in funds.466 

One commenter submitted a white paper concluding that (i) liquidity fees and gates, if 

implemented effectively, could stop and prevent runs; and (ii) although a variable NAV would 

not stop a run, it could mitigate the first mover advantage associated with the motivation to run 

 466 Some commenters agreed that a floating NAV alone is not enough to address these incentives. See, e.g., 

Americans for Fin. Reform Comment Letter (“[w]hile the floating NAV has clear benefits in making clear 

that investor assets are at risk of loss, we are concerned that a floating NAV alone will not create a 

sufficient disincentive for investors to engage in ‘runs’ on MMFs.”). 
147

that results from small shadow price departures from $1.00.467 The authors of the paper 

concluded further that the ability of a variable NAV to mitigate this first mover advantage is 

overstated when viewed in light of the real-world costs of moving between investments that 

investors will face and, in a significant stress event, such effect is a minor determinant of 

behavior.468 We acknowledge this view and agree, as discussed above, that a floating NAV 

cannot stop redemptions when (as assumed in the paper) investors are redeeming in a flight to 

quality due to a continuing deterioration of the credit risk in a fund’s portfolio. However, the 

floating NAV reform reduces the benefit from redeeming ahead of others to at most one half of a 

hundredth of a cent per share469–100 times less than it is currently–which investors would weigh 

against the cost of switching to an alternative investment.

470 As we discuss above, the floating 

NAV reform is designed to supplement the fees and gates reform only for those funds that are 

more vulnerable to credit events (compared to government funds) and that have an investor base 

more likely to engage in heavy redemptions (compared to retail investors) because of, among 

other reasons, the first mover advantage created by the funds’ current valuation and pricing 

practices. Specifically, compared to the current stable NAV environment, a variable NAV will 

significantly limit the value of the first mover advantage. Although this first mover advantage 

 467 See Treasury Strategies III Comment Letter (submitting a white paper: Carfang, et al., Proposed Money 

Market Mutual Fund Regulations: A Game Theory Assessment (using “game theory” analysis to evaluate 

whether a variable NAV and/or a constant NAV, with or without the ability to impose a liquidity fee or 

gate, can prevent or stop a run on money market fund assets). 

468 Id.

469 For example, the floating NAV at 4 decimals will adjust from $1.0000 to $0.9999 as soon as the value 

reaches $0.99995. Hence, the most an investor can benefit from redeeming ahead of others and switching 

to an alternative investment is $1.0000 – $0.99995 = $0.00005.

470 We discuss the costs associated with institutional investors transferring between investment alternatives in 

section III.K.3.
148

may not be the main driver of investor decisions to redeem, it strengthens the incentive to 

redeem for those investors with the most at stake from a decline in a fund’s value, which 

increases the chance of unfair investor dilution in contravention of a core principle of the 

Investment Company Act. We continue to believe that a floating NAV will, for institutional 

prime funds, reduce the impact of the first mover advantage associated with money market 

funds’ current valuation and pricing practices and thus is consistent with our obligation to seek to 

prevent investor dilution of fund shares (as discussed in more detail in the section below).

A few commenters also suggested that shareholders in a floating NAV fund would have 

the same incentive to redeem if a floating NAV fund deviates far enough from the typical 

historical range for market-based pricing, particularly if they believe the fund may continue to 

drop in value.471 We note, however, that the floating NAV reform, one part of our broader 

reforms to money market funds, is designed to address a particular structural incentive that exists 

as a result of existing valuation and pricing methodologies under rule 2a-7. As we stated in our 

proposal and in this Release, the floating NAV reform is not intended to deter redemptions that 

constitute rational risk management by shareholders or that reflect a general incentive to avoid 

loss. 

Several commenters argued that shareholders may choose not to redeem from a stable 

NAV money market fund during times of stress to avoid contributing to the likelihood that their 

fund breaks the buck.472 Although this may be the case for some shareholders, as shown during 

 471 See, e.g., Federated IV Comment Letter (arguing that, unlike a stable NAV fund, shareholders may have a 

greater incentive to redeem from a declining floating NAV fund because shareholders would “realize” the 

small declines in value); Chamber II Comment Letter.

472 See, e.g., Wells Fargo Comment Letter; Ropes & Gray Comment Letter; ICI Comment Letter.
149

the financial crisis, other shareholders do redeem from stable value money market funds, 

regardless of the impact on the fund.473 It is the actions of those shareholders that have led to our 

re-evaluation of the appropriateness of exempting all money market funds from the valuation and 

pricing provisions that apply to all other mutual funds. 

One commenter also argued that rule 2a-7 already places a number of detailed remedial 

obligations on the board of a money market fund, in the event a credit event occurs, that are 

designed to prevent any first mover advantage related to money market funds’ current valuation 

and pricing methods.474 This commenter discussed, for example, the existing requirement that 

fund boards periodically calculate the fund’s shadow price and take action in the event it deviates 

from the market-based NAV per share by more than 50 basis points. We note, however, that the 

floating NAV reform is designed to proactively address a structural feature of money market 

funds that may incentivize heavy redemptions in times of market stress (and the resulting 

shareholder inequities) before a significant credit event occurs or the fund re-prices its shares 

using market-based values (i.e., breaks the buck). Under current rule 2a-7, there remains a first 

mover advantage until the fund breaks the buck and re-prices its shares using market-based 

valuations. One commenter also noted that any reduction in the incentive to redeem early from 

the fund’s stable pricing would be marginal and contingent upon the type of stress 

experienced.475 We note that the floating NAV reform is targeted towards the funds that have 

been most susceptible to heavy redemptions in the past. We believe that the risks associated 

 473 See supra section II.

474 See Federated IV Comment Letter.

475 See ABA Business Law Section Comment Letter. 
150

with these funds have shown that the first mover advantage that results from current rule 2a-7’s 

valuation and pricing methods needs to be addressed. This is particularly true in light of the 

Investment Company Act mandate to ensure that investors are treated fairly and the impact that 

the first mover advantage has on investor dilution. 

Finally, a number of commenters suggested that the evidence of heavy redemptions in 

European floating NAV money market funds and U.S. ultra-short bond funds during 2008, taken 

together, may be the best means available to predict whether a floating NAV will reduce 

shareholder incentives to redeem shares in times of stress.476 These commenters suggest, 

therefore, that a floating NAV alone likely would not stop investors from redeeming shares.477 

We recognize that many European floating NAV money market funds and U.S. ultra short bond 

funds experienced heavy redemptions during the financial crisis.478 We note that, as discussed 

above, the floating NAV reform is not intended to wholly prevent heightened redemptions or 

deter redemptions that constitute rational risk management by shareholders or that reflect a 

general incentive to avoid loss. Instead, our floating NAV reform is intended to address the 

incremental incentive to redeem created by money market funds’ current valuation and pricing 

 476 See, e.g., Federated IV Comment Letter; HSBC Comment Letter.

477 See supra note 475 and accompanying text.

478 As we discussed in the Proposing Release, we understand that many European floating NAV money market 

funds are priced and managed differently than floating NAV funds (as we proposed, and as adopted today). 

We also noted that Europe has several different types of money market funds, all of which can take on 

more risk than U.S. money market funds as they are not currently subject to regulatory restrictions on their 

credit quality, liquidity, maturity, and diversification as stringent as those imposed under rule 2a-7. Finally, 

we noted in the Proposing Release that empirical analysis yields different opinions on whether floating 

NAV funds, as compared with stable NAV funds, are less susceptible to run-like behavior. See Proposing 

Release, supra note 25, at section III.A.1.d. Accordingly, we note that the fact that some ultra-short bond 

funds and European floating NAV funds experienced heavy redemptions during the financial crisis does 

not necessarily suggest that investors in floating NAV money market funds (as adopted today) also would 

redeem heavily in a financial crisis.
151

methods (and not incentives to redeem that relate to flights to quality and liquidity) and that 

exacerbates shareholder dilution. 

b. Risks of Investor Dilution

As discussed earlier, one of the Commission’s most significant concerns when originally 

providing the exemption permitting the use of amortized cost valuation and penny rounding 

pricing for money market funds was to minimize the risks of investor dilution.479 A primary 

principle underlying the Investment Company Act is that sales and redemptions of redeemable 

securities should be effected at prices that are fair and do not result in dilution of shareholder 

interests or other harm to shareholders.480 Absent an exemption, a mutual fund must sell and 

redeem its redeemable securities only at a price based on its current net asset value, which equals 

the value of the fund’s total assets minus the amount of the fund’s total liabilities.481 A mutual 

fund generally must value its assets at their market value, in the case of securities for which 

market quotations are readily available, or at fair value, as determined in good faith by the fund’s 

board of directors, in the case of other securities and assets.482 

 479 See Proposing Release, supra note 25. 

480 See Investment Trusts and Investment Companies: Hearings on S.3580 before a Subcommittee of the 

Senate Committee on Banking and Currency, 76th Cong., 3d Sess. 136-38 (1940) (hearings that preceded 

the enactment of the Company Act). In addition, all funds must accurately calculate their net asset values 

to ensure the accuracy of their payment of asset-based fees, such as investment advisory fees, as well as the 

accuracy of their reported performance. Statement Regarding “Restricted Securities,” Investment 

Company Act Release No. 5847 (Oct. 21, 1969). 

481 Rule 22c-1. When calculating its net asset value for purposes of rule 22c-1: (i) an open-end fund adds up 

the current values of all of its assets (using their market values or fair values, as appropriate), which reflect 

any unrealized gains; and (ii) subtracts all of its liabilities, which include any federal income tax liability on 

any unrealized gains. If the open-end fund understates a liability, among other consequences, the price at 

which the fund’s redeemable securities are redeemed will be higher, so that redeeming shareholders will 

receive too much for their shares while the net asset value of shares held by the remaining shareholders 

may be reduced correspondingly when the full amount of the liability must be paid. 

482 Rule 2a-4; see also section 2(a)(41) defining the term “value.” 
152

A fund that prices and transacts in fund shares valued at amortized cost value and 

rounded to the nearest penny poses a risk of dilution of investor shares because investors may 

redeem for the stable value of their shares even where the underlying market value of the fund’s 

portfolio may be less. If such a redemption occurs, the value of the remaining shareholders’

shares can be diluted, as remaining shareholders effectively end up paying redeeming 

shareholders the difference between the stable value and the underlying market value of the 

fund’s assets.483 This result is illustrated in the example provided in the Proposing Release, 

where we discussed how redeeming shareholders can concentrate losses in a money market 

fund.484 

This risk of dilution is magnified by the “cliff effect” that can occur if a stable value fund 

is required to re-price its shares. If, due to heavy redemptions, losses embedded in a fund’s 

portfolio cause it to re-price its shares from its stable value, remaining money market fund 

investors will receive at most 99 cents for every share remaining, while redeeming investors 

received the full $1.00, even if the market value of the fund’s portfolio had not changed. In a 

mutual fund that transacts using a floating NAV, this cliff effect is minimized because (assuming 

pricing to four decimal places) the “cliff” is a 1/100th the size compared to when a money 

market fund is priced using penny rounding. In other words, in a floating NAV fund the risk of 

investor dilution is far less, in part, because the cliff occurs earlier and is significantly smaller (at 

$0.9999 cents, or one hundred times sooner and smaller than a stable value fund that drops from 

 483 See TIAA-CREF Comment Letter (“Allowing investors to transact at daily using amortized pricing in 

times of stress could lead to dilution of the remaining investors’ shares as the first redeemers in a run on a 

money market fund would get a higher valuation for their shares based on amortized cost than would 

subsequent redeemers.”). 

484 See Proposing Release, supra note 25, at section II.B.1. 
153

$1.00 to 99 cents). Thus, the “cliff effect” is significantly mitigated in a floating NAV fund that 

prices and rounds share prices to four decimal places. 

As we discuss in more detail below, applying a floating NAV only to institutional 

investors investing in prime funds and allowing retail investors to continue to invest in a stable 

value product recognizes the historical differences between these types of investors, and cordons 

off some of the risks, reducing the chance that heavy redemptions by institutions will result in 

disruption or material dilution of retail investors’ shares.485 We also recognize that institutional 

investors are not always similarly situated, with some institutions having more or less investment 

at risk, resources to monitor their investments, tolerance for losses, or proclivity to redeem, 

which makes certain institutional investors less likely to be among the first movers.

486 A floating 

NAV should also help reduce the risks of material dilution to this subset of institutional

investors, as it will reduce the first mover advantage associated with current rule 2a-7’s valuation 

and pricing methods, which can prompt heavy redemptions and can have the effect of diluting 

the shares of slower-to-redeem institutional investors.487 

A floating NAV might also prompt investors who are the least tolerant of losses, and thus 

the most likely to redeem early to avoid a decline in a fund’s NAV per share, to shift into other 

investment products, such as government money market funds or other stable value products that 

 485 See infra section III.C.2; see also Schwab Comment Letter (agreeing that segregating institutional investors 

from retail investors would “reduce the chance that retail investors, who tend to be slower to react to 

market events, will absorb a disproportionate share of the losses if a fund breaks the buck.”). 

486 See, e.g., ABA Business Law Comment Letter (“It is more likely, however, that larger institutions have 

greater analytical resources than other institutional investors, such as small pension plans and companies.”). 

487 Several commenters supported our belief that a floating NAV treats shareholders more equitably than under 

current rule 2a-7. See, e.g., Deutsche Comment Letter; TIAA-CREF Comment Letter; Systemic Risk 

Council Comment Letter.
154

may more appropriately match their risk profile. Such a shift would further reduce the risks of 

dilution for the remaining investors, mitigating the chances that rapid heavy redemptions will 

result in negative outcomes for these funds and their investors. 

We recognize that our liquidity fees and gates reforms also address the risks of dilution to 

some extent. However, fees and gates may not address the incentives that cause rapid heavy 

redemptions to occur in certain money market funds in the first place (although they should help 

manage the results). They also are not primarily designed to address the risks associated with 

deviations in a fund’s NAV caused by portfolio losses or other credit events; rather, they are 

designed to ensure that investors pay the costs of their liquidity and allow funds time to manage 

heavy redemptions. A floating NAV requires redeeming investors to receive only their fair share 

of the fund when there are embedded losses in the portfolio (avoiding dilution of remaining 

shareholders), even in cases where the fund has sufficient liquidity such that fees or gates would 

not be permitted. We believe that the risks associated with institutional prime money market 

funds–including the incentives associated with the first mover advantage that results from current 

rule 2a-7’s valuation and pricing methods, and associated heavy redemptions that can worsen a 

decline in a fund’s stable NAV–are significant enough that they need to be addressed through the 

targeted reform of a floating NAV. 

c. Enhanced Allocation of Principal Volatility Risk

Today, the risks associated with the principal volatility of a money market fund’s 

portfolio securities can be obscured by the pricing and valuation methods that allow these funds 

to maintain a stable NAV. In non-money market funds, investors may look to historical 

principal volatility as an indicator of fund risk because changes in the principal may be the 
155

dominant source of the total return.488 Historical principal volatility in money market funds may 

not have been as fully appreciated by investors, because they do not experience any principal 

volatility unless the fund breaks the buck (even if such volatility has in fact occurred).489

Some commenters suggested, and we agree, that transacting at prices based on current 

market values means that institutional investors who invest in floating NAV funds will be more 

aware of, and willing to tolerate, occasional fluctuations in fund share prices (largely resulting 

from volatility in principal that had been previously obscured).490 This may result in more 

efficient allocation of risk through a “sorting effect” whereby institutional investors in prime 

funds either remain in a floating NAV money market fund and accept the risks of regular 

principal volatility491 or move their assets into alternative investment products better suited to 

their actual risk tolerance.492 Accordingly, the shareholders who remain in institutional prime 

 488 Mutual funds earn money through dividend payments, capital gains distributions (increases in the price of 

the fund’s portfolio securities), and increased NAV. See SEC Office of Investor Education and Advocacy, 

Mutual Funds, A Guide for Investors (Aug. 2007), available at http://www.sec.gov/investor/pubs/sec-guideto-mutual-funds.pdf. Money market fund investors may be more likely to focus on the other components 

of total return in a fund, such as interest or dividends. 

489 Such principal volatility may be even less apparent if the fund’s sponsor provides support for the fund. See 

supra section II.B.4. 

490 See, e.g. Vanguard Comment Letter. 

491 We acknowledge, however, that although we expect money market fund shares priced to four decimal 

places likely will fluctuate on a somewhat regular basis, they are not likely to fluctuate daily primarily due 

to the high quality and short duration of the fund’s underlying portfolio securities. A few commenters 

argued that a floating NAV will not necessarily inform investors because NAVs may not fluctuate much. 

See, e.g., Federated IV Comment Letter; HSBC Comment Letter; ICI Comment Letter. Our staff estimates, 

based on a historical analysis of money market fund shadow prices, that money market funds would have 

floated just over 50% of the time if priced to four decimal places. See infra note 502 and accompanying 

text. 

492 See, e.g. Vanguard Comment Letter (“The reason the floating NAV would mitigate the risk of disruptive 

shareholder redemptions in institutional prime MMFs is that the process of moving from a stable NAV to a 

floating NAV will force the shareholders of those funds, which tend to be concentrated with professional 

investors who cannot withstand any share price movement, into different investment vehicles. The 

shareholders who remain will have a greater tolerance for loss, making them less likely to flee at the first 

sign of stress.”). 
156

money market funds must be prepared to experience gains and losses in principal on a regular 

basis, which may result in those remaining investors being less likely to redeem at the first sign 

that a money market fund may experience such principal volatility.

Some commenters recognized that making principal gains and losses more apparent to 

investors could recalibrate investors’ perceptions of the risks inherent in money market funds.493 

A number of commenters argued, however, that institutional investors who invest in money 

market funds that will be subject to a floating NAV are well aware of the risks of money market 

funds and that money market fund shares may fluctuate in value.494 But contrary to institutional 

investors’ purported existing knowledge of those risks, when the reality of potential principal 

losses became more apparent during the financial crisis, many of them redeemed heavily from 

money market funds.495 Our floating NAV reform, by requiring that investors experience any 

gains or losses in principal when they transact in money market fund shares, will more fully 

reveal the risk from changes in the fund’s principal value to shareholders.

Finally, some commenters also suggested that enhanced disclosure (including daily 

website reporting of shadow NAVs), rather than a floating NAV, would be a more efficient and 

 493 See, e.g., Schwab Comment Letter; Fin. Svcs. Roundtable Comment Letter; Boston Federal Reserve 

Comment Letter. 

494 See, e.g., Federated IV Comment Letter (citing to comments submitted on the FSOC Proposed 

Recommendations); Hanson et al. Comment Letter. Commenters also noted that investors already 

understand that money market funds can “break the buck.” See, e.g., Comment Letter of OFI Global Asset 

Management, Inc. (Sept. 17, 2013) (“Oppenheimer Comment Letter”); Dreyfus Comment Letter; UBS 

Comment Letter; Wells Fargo Comment Letter; Comment Letter of Key Bank, NA (Sept. 16, 2013) (“Key 

Bank Comment Letter”).

495 Some commenters agreed with this view. See, e.g., American Bankers Ass’n Comment Letter; Angel 

Comment Letter.
157

less costly way to achieve the same goal.496 We agree that daily disclosure of funds’ shadow 

NAVs does improve visibility of risk to some degree, by making the information about NAV 

fluctuations available to investors should they choose to seek it out. But the mere availability of 

this information cannot provide the same effect that is provided by institutions experiencing 

actual fluctuations in the value of their investments (or acknowledging, through their investment 

in a fully disclosed floating NAV investment product, their willingness to accept daily 

fluctuations in share price value), which will be provided by a floating NAV.

4. Money Market Fund Pricing

Having determined to adopt the floating NAV reform for institutional prime funds, there 

is a separate (albeit related) issue of how to price the shares for transactions. Today, for the 

reasons discussed previously in this section, we are amending rule 2a-7 to eliminate the 

exemption that currently permits institutional prime funds to maintain a stable NAV through 

amortized cost valuation and/or penny rounding pricing.497 We are also adopting, as proposed, 

an additional requirement that these money market funds value their portfolio assets and price 

fund shares by rounding the fund’s current NAV to four decimal places in the case of a fund with 

a $1.0000 share price or an equivalent or more precise level of accuracy for money market funds 

with a different share price (e.g., a money market fund with a $10 target share price could price 

 496 See, e.g., Federated IV Comment Letter; ICI Comment Letter; J.P. Morgan Comment Letter; SIFMA 

Comment Letter; Chamber II Comment Letter. A few commenters suggested that money market funds be 

required to transact in fund shares to the same level of precision as disclosed on fund websites, which is the 

approach that we are adopting today. See, e.g., Fidelity Comment Letter (stating that money market funds 

should disclose (on fund websites) the NAV to the same precision as it prices its shares for transactions in 

order to avoid arbitrage opportunities based on asymmetry of information). 

497 As discussed further below, under our final rule amendments, government and retail money market funds 

will be permitted to use the amortized cost method and/or penny-rounding method to maintain a stable 

price per share as they do today. 
158

its shares at $10.000).498 Accordingly, the final amendments change the rounding convention for 

money market funds that are required to adopt a floating NAV—from penny rounding (i.e., to 

the nearest one percent) to “basis point” rounding (i.e., to the nearest 1/100th of one percent), 

which is a more precise standard than other mutual funds use today.

We proposed to require that institutional prime funds use basis point rounding and we 

noted that basis point rounding appeared to be the level of sensitivity that would be required if 

gains and losses were to be regularly reflected in the share price of money market funds in all 

market environments, including relatively stable market conditions. We also noted that this level 

of precision may help more effectively inform investor expectations regarding the floating nature 

of their shares.499 In money market funds today, there is no principal volatility unless the fund 

breaks the buck, and thus this indicator of risk may not have always been readily apparent.500

As discussed in the Proposing Release, we considered, as an alternative to the basis point 

rounding requirement that we are adopting today (which is a condition for relying on rule 2a-7 

for institutional prime money market funds), requiring institutional prime funds to price and 

transact in fund shares at a precision of 1/10th of one percent (which is typically the equivalent of 

three decimal places at $10.00 share price) (“10 basis point rounding”), like other mutual funds. 

But in the Proposing Release, we noted our concern that 10 basis point rounding may not be 

sufficient to ensure that investors can regularly observe the investment risks that are present in 

 498 See rule 2a-7(c)(1)(ii). Mutual funds that are not relying on the exemptions provided by rule 2a-7 today are 

required to price and transact in fund shares rounded to a minimum of 1/10th of 1 percent, or three decimal 

places. See ASR 219, supra note 5. 

499 See Proposing Release, supra note 25, at section III.A.2. 

500 Some commenters recognized that making gains and losses more apparent to investors could help 

recalibrate investors’ perceptions of the risks inherent in money market funds. See, e.g., Schwab Comment 

Letter; Fin Svcs. Roundtable Comment Letter; Boston Federal Reserve Comment Letter.
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money market funds, particularly if funds manage themselves in such a way that their NAVs 

remain constant or nearly constant.501

In considering whether to require basis point rounding or, instead, to allow 10 basis point 

rounding, we have looked to the potential for price fluctuations under the two approaches. Based 

on our staff analysis of Form N-MFP data between November 2010 and November 2013, 53% of 

money market funds have fluctuated in price over a twelve-month period with a NAV priced 

using basis point rounding, compared with less than 5% of money market funds that would have 

fluctuated in price using 10 basis point rounding.502 We recognize that, either way, this limited 

fluctuation in prices is the result of the nature of money market fund portfolios, whose short 

duration and/or high quality generally results in fluctuations in value primarily when there is a 

credit deterioration or other significant market event.503 Because of the nature of money market 

fund portfolios, pricing with the accuracy of basis point rounding should better reflect the nature 

of money market funds as an investment product by regularly showing market gains and losses 

in an institutional prime money market fund’s portfolio.

504 

After considering the results of the staff’s analysis, we are persuaded to require basis 

point rounding. We believe that some of the institutional investors in these funds may not 

 501 See supra note 491.

502 Our staff has updated its analysis from the discussion in the Proposing Release. See Proposing Release, 

supra note 25, at section III.A.2 and n.164.

503 See, e.g., Comment Letter of Arnold & Porter LLP on behalf of Federated Investors (Elimination of the Use 

of Amortized Cost Method of Valuation by Stable Value Money Market Funds) (Sept. 16, 2013) 

(“Federated VI Comment Letter”).

504 See HSBC Comment Letter. 
160

appreciate the risk associated with money market funds.505 As for this subset of institutional 

investors, we believe that the basis point rounding requirement may accentuate the visibility of 

the risks in money market funds by causing these shareholders to experience gains and losses 

when the funds’ value fluctuates by 1 basis point or more.506 We further believe this may, in 

turn, have two potential effects that are consistent with our overall goal of addressing features in 

money market funds that can make them susceptible to heavy redemption. First, to the extent 

that some of these investors become more aware of the risks, they may develop an increased risk 

tolerance that could help make them less prone to run.507 Second, by helping make the risk more 

apparent through periodic price fluctuations, basis point rounding may help signal to those 

investors who cannot tolerate the risk associated with the fluctuating NAV that they should 

 505 To be sure, this may not generally include the more sophisticated institutional investors who have 

professional financial experts advising them and carefully monitoring their investments. See, e.g., 

Federated IV Comment Letter (citing to comments submitted on the FSOC Proposed Recommendations; 

Hanson et al. Comment Letters). But within the class of institutional investors, we understand that there 

are many less sophisticated investors—e.g., smaller, closely held corporations—who rely on money market 

funds to manage their cash flow but who are not fully aware of the risks and the potential for loss.

506 See, e.g., Report of the President’s Working Group on Financial Markets, Money Market Fund Reform 

Options (Oct. 2010) (“PWG Report”), available at http://www.treasury.gov/press-center/pressreleases/Documents/10.21%20PWG%20Report%20Final.pdf, at 22 (“Investors’ perceptions that MMFs are 

virtually riskless may change slowly and unpredictably if NAV fluctuations remain small and rare. MMFs 

with floating NAVs, at least temporarily, might even be more prone to runs if investors who continue to see 

shares as essentially risk-free react to small or temporary changes in the value of their shares.”); Comment 

Letter of Federated Investors, Inc. (May 19, 2011) (available in File No. 4-619) (“Federated May 2011 

Comment Letter”) (stating that “managers would employ all manners of techniques to minimize the 

fluctuations in their funds’ NAVs” and, therefore, “[i]nvestors would then expect the funds to exhibit very 

low volatility, and would redeem their shares if the volatility exceeded their expectations”). As discussed 

above, we believe that our floating NAV reform improves the allocation of risk and should result in betterinformed investors that, by choosing to invest in a floating NAV, appreciate and are willing to tolerate the 

risks of principal volatility, even if those fluctuations do not occur on a daily basis. See supra section 

III.B.3.c.

507 Several commenters agreed with this position. See, e.g., Comment Letter of Eric S. Rosengren, President, 

Federal Reserve Bank of Boston, et al. (Sept. 12, 2013) (“Fed Bank President Comment Letter”) (“We 

agree with the SEC’s position that a floating NAV requirement, if properly implemented, could recalibrate 

investors’ perception of the risks inherent in a fund by ‘making gains and losses a more regularly 

observable occurrence’.”); HSBC Comment Letter. 
161

migrate to other investment options, such as government funds.508 Because basis point rounding 

is, as the staff’s study demonstrated, more likely to produce price fluctuations than 10 basis point 

rounding, we believe it is more likely to have these desired effects.509 

a. Other Considerations

We recognize that 10 basis point rounding would provide certain benefits. For example, 

it could provide consistency in pricing among all floating NAV mutual funds and this could 

reduce investors’ incentives to reallocate assets into other potentially riskier floating NAV 

mutual funds (e.g., ultra-short bond funds) that some commenters suggested may appear to 

present less volatility. A number of commenters argued for this alternative, suggesting that 

money market funds should not be required to use a more precise rounding convention than what 

is required of other mutual funds.510

Notwithstanding these potential benefits, as discussed above we believe there are 

sufficient countervailing considerations that make it appropriate to require basis point rounding 

for institutional prime money market funds. Further, we are requiring this additional level of 

precision because institutional prime money market funds are distinct from other mutual funds in 

 508 See, e.g., Fed Bank President Comment Letter (“Because a constant NAV MMMF generally draws riskaverse investors, it is likely that given an appropriate transition period, the investor base would either 

change or become more tolerant of NAV fluctuations, lowering the chance of destabilizing runs.”). 

509 We are concerned that, were we to adopt 10 basis point rounding, institutional prime money market funds 

would not regularly float during normal market times, in which case certain institutional investors may not 

fully appreciate that the investment has risks and they might thus invest in the product despite their lower 

risk tolerance. See, e.g., PWG Report, supra note 506, at 10 (“Investors have come to view MMF shares as 

extremely safe, in part because of the funds’ stable NAVs and sponsors’ record of supporting funds that 

might otherwise lose value. MMFs’ history of maintaining stable value has attracted highly risk-averse 

investors who are prone to withdraw assets rapidly when losses appear possible.”)

510 See, e.g., BlackRock II Comment Letter; Legg Mason & Western Asset Comment Letter; Fidelity 

Comment Letter.
162

their regulatory structure, purpose, and investor risk tolerance, as well as the risks they pose of 

investor dilution and to well-functioning markets. Accordingly, we believe on balance that it is 

appropriate to require these money market funds to use a more precise pricing and rounding 

convention than used by other mutual funds. 

Some commenters also argued that enhanced disclosure (including daily website 

reporting of shadow NAVs), would be a more efficient and less costly way to achieve the same 

goal.511 We agree that daily disclosure of funds’ shadow NAVs does improve visibility of risk to 

some degree, by making the information about NAV fluctuations available to investors should 

they choose to seek it out. But we are skeptical that, as to the subset of institutional investors 

who are less aware of the risks, the mere availability of this information can provide the same 

level of impact than is provided by actually experiencing fluctuations in the investment value (or 

acknowledging, through these investors’ investment in a fully disclosed floating NAV 

investment product, their willingness to accept daily fluctuations in share price value), which 

will be provided by a floating NAV priced using basis rounding. In a similar vein, one 

commenter suggested that, as an alternative to a floating NAV, we consider a modified pennyrounding pricing method whereby a money market fund would be permitted to calculate an 

unrounded NAV once each day and therefore, absent a significant market event, use the previous 

day’s portfolio valuation for any intraday NAV calculations.512 Under this approach, money 

 511 See, e.g., Federated IV Comment Letter; ICI Comment Letter; J.P. Morgan Comment Letter; SIFMA 

Comment Letter; Chamber II Comment Letter. 

512 See Comment Letter of Federated Investors, Inc. (Nov. 6, 2013); see also Comment Letter of Arnold & 

Porter LLP on behalf of Federated Investors (July 16, 2014). We note that this alternative, if combined 

with fees and gates, is very similar to the fees and gates alternative we proposed (which included a 

requirement for penny-rounded pricing). We discuss why we have chosen not to adopt that alternative in 
163

market funds would disclose their basis-point rounded price, but only transact at the pennyrounded price.513 Although we recognize that such an approach would likely retain the 

efficiencies associated with amortized cost valuation, this alternative is not without other risks, 

including the use of potentially stale valuation data. More significantly, unlike our floating NAV 

reform, this alternative does not address the first-mover advantage or risks of investor dilution 

discussed above.514 

Several commenters argued that basis point rounding is an artificial means to increase the 

volatility of floating NAV funds and would mislead investors by exaggerating the risks of 

investing in money market funds compared to ultra-short bond funds, and suggested that instead 

we should adopt 10 basis point rounding.515 For example, one commenter noted that basis point 

rounding is so sensitive that it might produce price distinctions among funds that result merely 

from the valuation model used by a pricing service, rather than from a difference in the intrinsic 

value of the securities (“model noise”).516 We do not believe that basis point rounding will 

mislead investors, nor do we believe that price changes at the fourth decimal place will generally 

be a result of “model noise” rather than reflecting changes in the market value of the fund’s 

portfolio.517 We note that today many money market funds are voluntarily disclosing their 

 

section III.L.1.

513 Id.

514 See supra section III.B.3.

515 See, e.g., Schwab Comment Letter; Stradley Ronon Comment Letter; SIFMA Comment Letter; Legg 

Mason & Western Asset Comment Letter; Fidelity Comment Letter.

516 See Goldman Sachs Comment Letter.

517 See, e.g., HSBC Comment Letter (noting that basis point rounding would “better reflect gains and losses” 

than 3 decimal place rounding).
164

shadow price with basis point rounding, and they are prohibited from doing so if the shadow 

price was misleading to investors. Funds have also been required to report their shadow NAVs 

to us on Form N-MFP priced to the fourth decimal place since the inception of the form, and we 

have found the shadow NAVs priced at this level useful and relevant in our risk monitoring 

efforts. For example, reporting of shadow prices to four decimal places provides a level of 

precision (as compared with three decimal place rounding) needed for our staff to fully evaluate 

and monitor the impact of credit events on money market fund share prices.518

Some commenters also stated that ultra-short bond funds priced using 10 basis point 

rounding might appear less volatile than money market funds priced using basis point 

rounding.519 As a result, these commenters noted what they viewed as the undesirable effect that 

investors might be incentivized to move their assets into ultra-short bond funds that have similar 

investment parameters to money market funds but are not required to adhere to the risk-limiting 

conditions of rule 2a-7.520 Based on our staff analysis of Morningstar data between November 

2010 and November 2013, 100% of ultra-short bond funds have fluctuated in price over a 

twelve-month period with a NAV priced using 10 basis point rounding, compared with 53% of 

money market funds that would have fluctuated in price using basis point rounding.521 

 518 Basis point precision will also enable our staff to monitor the effect of shifts in interest rates on money 

market fund share prices (particularly in more regular market conditions).

519 See, e.g., BlackRock II Comment Letter; Stradley Ronon Comment Letter; SIFMA Comment Letter; 

Fidelity Comment Letter.

520 We note that other features of ultra-short bond funds may counter this incentive, including that they are 

generally not a cash equivalent for accounting purposes and their less favorable tax treatment than what the 

Treasury Department and IRS have proposed and issued today. See infra section III.B.6.

521 Using Morningstar data, our staff analyzed the monthly NAV fluctuations of 54 active ultra-short bond 

fund share classes during November 2010 and November 2013. The money market fund data was obtained 

using Form N-MFP data. See supra note 502 and accompanying text.
165

Accordingly, we do not believe that it is likely investors will view ultra-short bond funds as less 

volatile than money market funds priced using basis point rounding. We also note, however, that 

because floating NAV money market funds and ultra-short bond funds invest in different 

securities and are subject to different regulatory requirements (including risk-limiting 

conditions), investors may consider these factors when evaluating the risk profile of these 

different investment products.522 Existing disclosure requirements, along with the amendments 

to money market fund disclosure requirements we are adopting today, are designed to help 

investors understand these differences and the associated risks. 

b. Implementation of Basis Point Rounding

One commenter noted that basis point rounding “should be relatively straightforward for 

the industry to accommodate.”523 A number of commenters, however, objected to our proposed 

amendment to require that floating NAV money market funds price and transact their shares at 

the fourth decimal place. Commenters stated that pricing and transacting at four decimal places 

(as opposed to reporting only their shadow price at four decimal places) would be operationally 

expensive and overly burdensome because money market fund systems are typically designed for 

processing all mutual funds,524 which generally process and record transactions rounded to the 

nearest penny (which is typically the equivalent of three decimal places at a $10.00 share 

 522 As discussed in infra section III.B.6, the Treasury Department and the IRS will issue today a revenue 

procedure that exempts from the wash sale rule dispositions of shares in any floating NAV money market 

fund. This exemption does not apply to ultra-short bond funds.

523 Comment Letter of Interactive Data Corporation (Sept. 17, 2013) (“Interactive Data Comment Letter”).

524 See supra note 500. 
166

price).525 We acknowledge that money market funds, intermediaries, and shareholders will likely

incur significant costs in order to modify their systems to accommodate pricing and transacting 

in fund shares rounded to four decimals. We discuss these costs in section III.B.8.a below. We 

understand, however, that because virtually all mutual funds (including money market funds), 

regardless of price, round their NAV to the nearest penny, these system change costs will be 

incurred if we require money market funds to float their NAV, regardless of whether we require 

the use of basis point rounding (unless funds were to re-price to $10.00 per share).

526 

A few commenters also noted that although basis point rounding may convey the risk of a 

floating NAV to investors more clearly by reflecting very small fluctuations in value, it does so 

at a significant cost—increasing the tax and accounting burdens associated with the realized 

gains and losses that would result from more frequent changes in a money market fund’s NAV

per share.

527 As discussed in section III.B.6.a below, however, the Treasury Department and IRS 

are today proposing a new regulation that would permit investors to elect to use a “simplified 

 525 See, e.g., BlackRock II Comment Letter; Invesco Comment Letter; Schwab Comment Letter; Legg Mason 

& Western Asset Comment Letter; ICI Comment Letter. 

526 We understand that virtually all systems round to the nearest penny when processing fund share 

transactions. See ICI Comment Letter. Accordingly, if a money market fund continued to be priced at a 

dollar, even if rounded to the third decimal place, we understand that similar significant systems changes 

would be necessary to transact and report in fund shares priced at $1.000. We note that money market 

funds would be able to avoid these costs and move floating NAV money market funds to existing mutual 

fund systems by re-pricing fund shares to $100.00 per share, under a basis point rounding requirement. See 

id. We recognize that such a transition might create other costs, such as proxy solicitation if the fund’s 

charter prohibits such a re-pricing and potential investor resistance to using a cash management product 

that prices based on a $100.00 initial share price. See id. (noting that basis point rounding would be 

workable (without significant costs) if money market funds moved to a $100.00 price per share, but 

suggesting that investors would be unlikely to use a cash management product priced at this level). We 

agree with this commenter that it is unlikely that investors would invest in a money market fund that 

implements an initial $100.00 share price in a floating NAV money market fund. If a money market fund 

chose to do so, we estimate that each fund would incur one-time proxy solicitation costs of $100,000. See 

infra note 735 and accompanying text. 

527 See, e.g., BlackRock II Comment Letter; UBS Comment Letter.
167

aggregate mark-to-market method” to determine annual realized gains or losses and therefore 

eliminate the need to track purchase and sale transactions. Therefore, it is unlikely that there will 

be increased operational burdens that result from tax or accounting costs associated with more 

frequent realized gains or losses.528 

c. Economic Analysis

Under our final amendments, and as we proposed, institutional prime funds will round 

prices and transact in fund shares to four decimal places in the case of a fund with a $1.00 target 

share price (i.e., $1.0000) or an equivalent or more precise level of accuracy for money market 

funds with a different share price. During normal market conditions, rounding prices and 

transacting in fund shares at four decimal places will provide investors an opportunity to better 

understand the risks of institutional prime funds as an investment option and will provide 

investors with improved transparency in pricing. This should positively affect competition. 

During times of stress, it will reduce much of the economic incentive for shareholders to redeem 

shares ahead of other investors at a stable net asset value when the market value of portfolio 

holdings fall and will reduce shareholder dilution. As such, the risk of heavy share redemptions 

should decrease, and shareholders will be treated more equitably as they absorb their 

proportionate share of gains, losses, and costs. In addition, rounding prices and transacting in 

fund shares at four decimal places may help to further reduce the incentive for shareholders to 

redeem shares ahead of other investors by helping less informed investors better understand the 

inherent risks in money market funds. As such, the risk of heavy share redemptions may 

 528 As discussed in section III.B.6.a.i, however, investors are likely to incur additional, although small, realized 

gains and/or losses as a result of more frequent fluctuations in the share price under a floating NAV priced 

to four decimal places.
168

decrease as investors experience greater information efficiency and allocative efficiency by 

better understanding the risks more closely and directing their investments accordingly. 

Reducing the risk of heavy share redemptions by removing the first-mover advantage should 

promote capital formation by making money market funds a more stable source of financing for 

issuers of short-term credit instruments. We recognize, however, that as discussed below in 

section II.K, to the extent that money flows out of institutional prime floating NAV funds and 

into alternative investment vehicles, capital formation may be adversely affected. 

5. Amortized Cost and Penny Rounding for Stable NAV Funds

As discussed above, all money market funds that are not subject to our targeted floating 

NAV reform may continue to price fund shares as they do today and use the amortized cost 

method to value portfolio securities.

529 This approach differs from our 2013 proposal, in which 

we proposed to eliminate the use of the amortized cost method of valuation for all money market 

funds. At that time, we stated that amortized cost valuation or penny rounding pricing alone 

effectively provides the same 50 basis points of deviation from a fund’s shadow price before the 

fund must “break the buck” and re-price its shares. Accordingly, and in light of the fact that, 

under our proposal, all money market funds (including stable NAV funds) would be required to 

disclose on a daily basis their fund share prices with their portfolios valued using market-based 

factors (rather than amortized cost), we proposed to eliminate the use of amortized cost for stable 

NAV funds (but to continue to permit penny rounding pricing).530 

 529 Stable NAV money market funds may also choose to use the penny rounding method of pricing fund 

shares. Under our amendments, government and retail money market funds will be permitted to maintain a 

stable NAV. See infra sections III.C.1 and III.C.2.

530 See Proposing Release, supra note 25, at section III.A.3.
169

A number of commenters objected to eliminating amortized cost valuation for stable 

NAV funds.531 Most significantly, commenters argued that prohibiting the use of amortized cost 

valuation would hinder money market funds’ ability to provide for intraday purchases and 

redemptions and same-day settlement because of the increased time required to strike a marketbased price.532 One commenter noted, for example, that if a money market fund prices at the 

close of the New York Stock Exchange, the fund may not be able to complete the penny 

rounding process, wire redemption proceeds, and settle fund trades before the close of the 

Fedwire.533 Commenters also argued that substituting penny rounding pricing for amortized cost 

valuation would increase costs and operational complexity without providing corresponding 

benefits.534 A few commenters also suggested that, in assessing whether to eliminate amortized 

cost valuation for securities that mature in more than 60 days, we should consider the broader 

 531 See generally BlackRock II Comment Letter; Dreyfus Comment Letter; Federated VI Comment Letter; 

Wells Fargo Comment Letter; SIFMA Comment Letter. A number of commenters suggested that 

amortized cost is an appropriate valuation method for money market funds because the characteristics of 

typical portfolio holdings (i.e., high quality, short duration, and typically held-to-maturity) result in 

minimal differences between a money market fund’s NAV calculated using amortized cost and a fund’s 

market-based NAV. See, e.g., Legg Mason & Western Asset Comment Letter; UBS Comment Letter; 

Chamber II Comment Letter. Commenters also suggested that amortized cost valuation may increase 

objectivity and consistency across the fund industry because money market instruments do not often trade 

in the secondary markets and therefore the market-based prices may be less reliable. See, e.g., Federated 

VI Comment Letter; Goldman Sachs Comment Letter; Legg Mason & Western Asset Comment Letter. 

532 See, e.g., Federated VI Comment Letter (suggesting that it would take a minimum of three to four hours to 

strike a market-based NAV (assuming there are no technology problems), compared with as little as one 

hour for a fund using penny-rounded pricing and amortized cost valuation). See also, e.g., Legg Mason & 

Western Asset Comment Letter; SunGard Comment Letter; UBS Comment Letter; ICI Comment Letter; 

BlackRock II Comment Letter.

533 See Federated VI Comment Letter.

534 See, e.g., Federated VI Comment Letter (noting that June 2012 survey data from Form N-MFP filings 

shows that approximately 72% of prime money market fund assets had maturities of less than 60 days). As 

a result, this commenter suggests that substituting penny rounding for amortized cost imposes 

disproportionately high costs without incremental benefits because a large portion of fund portfolios will 

continue to use amortized cost under current Commission guidance. See also, e.g., Legg Mason & Western 

Asset Comment Letter; SunGard Comment Letter; UBS Comment Letter; ICI Comment Letter. 
170

systemic implications of a potential shift in money market fund portfolio holdings towards 

securities that mature within 60 days (in order to avoid the need to use market-based values).535

We no longer believe that, as we stated in the Proposing Release, there would be little 

additional cost to funds if we eliminated amortized cost valuation (and permitted only penny

rounding) for all money market funds (including stable NAV money market funds). Our belief 

was, in part, based on the fact that, as proposed (and as we are adopting today), all money market 

funds would be required to post on their websites daily shadow prices (determined using marketbased values) rounded to four decimal places. Because, under our proposal money market funds 

would be required to obtain daily market-based valuations in order to post daily shadow prices to 

fund websites, we believed that funds would have this information readily available (and 

therefore not require the use of amortized cost). Notwithstanding this, commenters noted, 

however, the ability to use amortized cost valuation provides a significant benefit to money 

market funds when compared to penny rounding pricing—the ability to provide intraday 

liquidity to shareholders in a cost-effective and efficient manner. We agree with commenters 

that eliminating amortized cost valuation would likely hinder the ability of funds to provide 

frequent intraday liquidity to shareholders and may impose unnecessary costs and operational 

burdens on stable NAV money market funds. This is particularly true in light of the fact that 

under existing regulatory restrictions and guidance, a material intraday fluctuation would still 

have to be recognized in fair valuing the security. We therefore believe that eliminating 

amortized cost valuation in the context of stable NAV funds would be contrary to a primary goal 

 535 See, e.g., Stradley Ronon Comment Letter; SIFMA Comment Letter. As discussed in this section, we are 

not eliminating, as proposed, the use of amortized cost valuation for stable NAV money market funds 

under our final amendments. 
171

of our rulemaking—to preserve to the extent feasible, while protecting investors and the markets, 

the benefits of money market funds for investors and the short-term funding markets by retaining 

a stable NAV alternative.

Accordingly, we are not adopting the proposed amendments that would prohibit stable 

NAV money market funds from using amortized cost to value portfolio securities. Rather, under 

the final amendments, stable NAV funds may continue to price fund shares as they do today, 

using the amortized cost method to value portfolio securities and/or the penny rounding method 

of pricing. Given the continued importance of amortized cost valuation under our final rules, we 

are providing expanded valuation guidance related to the use of amortized cost and other related 

valuation matters in section III.D. 

6. Tax and Accounting Implications of Floating NAV Money Market Funds

a. Tax Implications

In the Proposing Release, we discussed two principal tax consequences of requiring 

certain money market funds to implement a floating NAV, potentially causing shareholders to 

experience taxable gains or losses. First, under tax rules applicable at the time of the Proposing 

Release, floating NAV money market funds (or their shareholders) would be required to track 

the timing and price of purchase and sale transactions in order to determine and report capital 

gains or losses. Second, floating NAV funds would be subject to the “wash sale” rule, which

postpones the tax benefit of losses when shareholders sell securities at a loss and, within 30 days 

before or after the sale, buy substantially identical securities. These tax consequences generally 

do not exist today, because purchases and sales of money market fund shares at a stable $1.00 

share price do not generate gains or losses. Because we are today adopting the floating NAV 
172

requirement for certain money market funds as part of our reforms, we have continued to analyze 

the related tax effects. As discussed below, the Treasury Department and IRS will address these 

tax concerns to remove almost all tax-related burdens associated with our floating NAV 

requirement.

i. Accounting for Net Gains and Losses

As we discussed in the Proposing Release, we expected taxable investors in floating 

NAV money market funds, like taxable investors in other types of mutual funds, to experience 

gains and losses. Accordingly, we expected shareholders in floating NAV money market funds 

to owe tax on any realized gains, to receive tax benefits from any realized losses, and to be 

required to determine those amounts. However, because it is not possible to predict the timing of 

shareholders’ future transactions and the amount of NAV fluctuations, we were not able to 

estimate with any specificity the amount of any increase or decrease in shareholders’ tax 

burdens. Because we expect that investors in floating NAV money market funds will experience 

relatively small fluctuations in value, and because many money market funds may qualify as

retail and government money market funds, any changes in tax burdens likely would be minimal.

In the Proposing Release, we also noted that tax rules generally require mutual funds or 

intermediaries to report to the IRS and shareholders certain information about sales of shares, 

including sale dates and gross proceeds. If the shares sold were acquired after January 1, 2012, 

the fund or intermediary would also have to report basis and whether any gain or loss is long or 

short term.536 At the time of the Proposing Release, Treasury regulations excluded sales of stable 

 536 The new reporting requirements (often referred to as “basis reporting”) were instituted by section 403 of 

the Energy Improvement and Extension Act of 2008 (Division B of Pub. L. No. 110–343) (26 U.S.C. 
173

value money market funds from this transaction reporting obligation.537 We noted that mutual 

funds and intermediaries (and, we anticipated, floating NAV money market funds) are not 

required to make reports to certain shareholders, including most institutional investors. The 

regulations call these shareholders “exempt recipients.”538 

We have been informed that the Treasury Department and the IRS today will propose 

new regulations to make all money market funds exempt from this transaction reporting 

requirement, and the exemption is to be formally applicable for calendar years beginning on or 

after the date of publication in the Federal Register of a Treasury Decision adopting those 

proposed regulations as final regulations. Importantly, the Treasury Department and the IRS 

have informed us that the text of the proposed regulations will state that persons subject to

transaction reporting may rely on the proposed exemption for all calendar years prior to the final 

regulations’ formal date of applicability. Therefore, the Treasury and IRS relief described above 

is available immediately.

We noted in the Proposing Release our understanding that the Treasury Department and 

the IRS were considering alternatives for modifying forms and guidance: (1) to include net 

transaction reporting by the funds of realized gains and losses for sales of all mutual fund shares; 

and (2) to allow summary income tax reporting by shareholders. Many commenters argued that 

this potential relief does not go far enough and noted that, because institutions are exempt 

 

6045(g), 6045A, and 6045B); see also 26 CFR 1.6045–1; Internal Revenue Service Form 1099-B. These 

new basis reporting requirements and the pre-2012 reporting requirements are collectively referred to as 

“transaction reporting.” 

537 See 26 CFR 1.6045–1(c)(3)(vi). 

538 See 26 CFR 1.6045–1(c)(3)(i).
174

recipients, these investors would still incur costs to build systems to track and report their own 

basis information and calculate gains and losses.539 We recognized in the Proposing Release the 

limitations of this potential tax relief. 

We have been informed that the Treasury Department and the IRS today will propose 

new regulations that will provide more comprehensive and effective relief than the approaches 

described in the Proposing Release. These regulations will, as suggested by one commenter,540

make a simplified aggregate method of accounting available to investors in floating NAV money 

market funds and are proposed to be formally applicable for taxable years ending after the 

publication in the Federal Register of a Treasury Decision adopting the proposed regulations as 

final regulations. Importantly, the Treasury Department and the IRS have informed us that the 

text of the proposed regulations will state that taxpayers may rely on the proposed rules for 

taxable years ending on or after the date that the proposed regulations are published in the 

Federal Register. That is, because investors may use this method of accounting before final 

regulations are published, the Treasury Department and IRS relief is available as needed before 

then.

The simplified aggregate method will allow money market fund investors to compute net 

capital gain or loss for a year by netting their annual redemptions and purchases with their annual 

starting and ending balances. Importantly, for shares in floating NAV money market funds, the 

simplified aggregate method will enable investors to determine their annual net taxable gains or 

 539 See, e.g., BlackRock II Comment Letter; Schwab Comment Letter; ICI Comment Letter. 

540 See Comment Letter of George C. Howell, III, Hunton & Williams LLP, on behalf of Federated Investors 

(Tax Compliance Issues Created by Floating NAV) (May 1, 2014) (“Federated XII Comment Letter”) 

(suggesting that a “mark to market” tax accounting method would meaningfully resolve the more 

significant tax issue (as compared with “wash sale” provisions) resulting from the floating NAV reform).
175

losses using information that is currently provided on shareholder account statements and—most 

important—will eliminate any requirement to track individually each share purchase, each 

redemption, and the basis of each share redeemed. We expect that the simplified aggregate 

method will significantly reduce the burdens associated with tax consequences of the floating 

NAV requirement because funds will not have to build new tracking and reporting systems and 

shareholders will be able to calculate their tax liability using their existing shareholder account 

statements, rather than tracking the basis for each share. We have also considered the effect of 

this relief on the tax-related burdens associated with accounting for net gains and losses in our 

discussion of operational implications below.541

The Treasury Department and IRS have informed us of their intention to proceed as 

expeditiously as possible with the process of considering comments and issuing final regulations 

regarding the simplified aggregate method of accounting for floating NAV money market funds. 

We note that money market funds and their shareholders may begin using the simplified method 

of accounting as needed before the regulations are finalized. Were the Treasury Department and 

IRS to withdraw or materially limit the relief in the proposed regulations, the Commission would 

expect to consider whether any modifications to the reforms we are adopting today may be 

appropriate. 

ii. Wash Sales

As discussed in the Proposing Release, the “wash sale” rule applies when shareholders 

sell securities at a loss and, within 30 days before or after the sale, buy substantially identical 

 541 See infra section III.B.8.
176

securities.542 Generally, if a shareholder incurs a loss from a wash sale, the loss cannot be 

recognized currently and instead must be added to the basis of the new, substantially identical 

securities, which postpones the loss recognition until the shareholder recognizes gain or loss on 

the new securities.543 Because many money market fund investors automatically reinvest their 

dividends (which are often paid monthly), virtually all redemptions by these investors would be 

within 30 days of a dividend reinvestment (i.e., purchase) and subject to the wash sale rule.

Subsequent to our proposal, the Treasury Department issued for comment a proposed 

revenue procedure under which redemptions of floating NAV money market fund shares that 

generate losses below 0.5% of the taxpayer’s basis in those shares would not be subject to the 

wash sale rule (de minimis exception).544 Many commenters noted, however, that the de minimis

exception to the wash sale rule does not mitigate the tax compliance burdens and operational 

costs that would be required to establish systems capable of identifying wash sale transactions, 

determining if they meet the de minimis criterion, and adjusting shareholder basis when they do 

not.545 

We understand that these concerns will not be applicable to floating NAV money market 

funds. First, under the simplified aggregate method of accounting described above, taxpayers 

will compute aggregate gain or loss for a period, and gain or loss will not be associated with any 

particular disposition of shares. Thus, the wash sale rule will not affect any shareholder that 

 542 See 26 U.S.C. 1091.

543 Id.

544 See IRS Notice 2013-48, Application of Wash Sale Rules to Money Market Fund Shares (proposed July 3, 

2013), available at http://www.irs.gov/pub/irs-drop/n-13-48.pdf.

545 See, e.g., ICI Comment Letter; BlackRock II Comment Letter; Schwab Comment Letter. 
177

chooses to use the simplified aggregate method. Second, for any shareholder that does not use 

the simplified aggregate method, the Treasury Department and the IRS today will release a 

revenue procedure that exempts from the wash sale rule dispositions of shares in any floating 

NAV money market fund. This wash-sale tax relief will be available beginning on the effective 

date of our floating NAV reforms (60 days after publication in the Federal Register). We have 

also considered the effect of this relief from the tax-related burdens associated with the wash sale 

rule in our discussion of operational implications below.546 

b. Accounting Implications

In the Proposing Release, we noted that some money market fund shareholders may 

question whether they can treat investments in floating NAV money market funds as “cash 

equivalents” on their balance sheets. As we stated in the Proposing Release, and as we discuss 

below, it is the Commission’s position that, under normal circumstances, an investment in a 

money market fund with a floating NAV under our final rules meets the definition of a “cash 

equivalent.”547

Many commenters agreed with our position regarding the treatment of investments in 

floating NAV money market funds as cash equivalents.548 Most of these commenters, however, 

suggested that the Commission issue a more formal pronouncement and/or requested that FASB 

 546 See infra section III.B.8.

547 See supra section III.A.7 for a discussion of accounting implications related to the liquidity fees and gates 

aspect of our final rules. 

548 See, e.g., BlackRock II Comment Letter; Fidelity Comment Letter; Deloitte Comment Letter; Ernst & 

Young Comment Letter.
178

and GASB codify our position.549 A few commenters suggested that our floating NAV 

requirement raises uncertainty about whether floating NAV money market fund shares could 

continue to be classified as cash equivalents,

550 and one commenter disagreed and suggested that 

it is likely that under present accounting standards investors would have to classify investments 

in shares of floating NAV money market funds as trading securities or available-for-sale 

securities (rather than as a cash equivalent).551 We have carefully considered commenters’ views 

and, for the reasons discussed below, our position continues to be that an investment in a floating 

NAV money market fund under our final rules, under normal circumstances, meets the definition 

of a “cash equivalent.” A more formal pronouncement (as requested by some commenters) is 

not required because the federal securities laws provide the Commission with plenary authority 

to set accounting standards, and we are doing so here.

552 We reiterate our position below.553

The adoption of a floating NAV alone for certain rule 2a-7 funds will not preclude 

shareholders from classifying their investments in money market funds as cash equivalents, 

under normal circumstances, because fluctuations in the amount of cash received upon 

redemption would likely be small and would be consistent with the concept of a ‘known’ amount 

 549 See, e.g., ICI Comment Letter; BlackRock II Comment Letter; Fidelity Comment Letter. We do not have 

authority over the actions that GASB may or may not take with respect to local government investment 

pools (“LGIPs”). See infra section III.C.4. 

550 See, e.g., J.P. Morgan Comment Letter; Northern Trust Comment Letter; Boeing Comment Letter.

551 See, Federated X Comment Letter (citing to Statement on Financial Accounting Standards No. 115); see 

also infra note 429 and accompanying text. 

552 The federal securities laws provide the Commission with authority to set accounting and reporting 

standards for public companies and other entities that file financial statements with the Commission. See, 

e.g., 15 U.S.C. 77g, 77s, 77aa(25) and (26); 15 U.S.C. 78c(b), 78l(b) and 78m(b); section 8, section 29(e), 

section 30, and section 37(a) of the Investment Company Act. 

553 We are also amending the Codification of Financial Reporting Policies to reflect our interpretation under 

U.S. GAAP, as discussed below. See infra section VI.
179

of cash. As already exists today with stable share price money market funds, events may occur 

that give rise to credit and liquidity issues for money market funds so that shareholders would

need to reassess if their investments continue to meet the definition of a cash equivalent. 

7. Rule 10b-10 Confirmations

Rule 10b-10 under the Securities Exchange Act of 1934 (“Exchange Act”) addresses 

broker-dealers’ obligations to confirm their customers’ securities transactions.554 Under Rule 

10b-10(a), a broker-dealer generally must provide customers with information relating to their 

investment decisions at or before the completion of a securities transaction.555 Rule 10b-10(b), 

however, provides an exception for certain transactions in money market funds that attempt to 

maintain a stable NAV and where no sales load or redemption fee is charged. The exception 

permits broker-dealers to provide transaction information to money market fund shareholders on 

a monthly basis (subject to certain conditions) in lieu of immediate confirmations for all 

purchases and redemptions of shares of such funds.556 

Because share prices of institutional prime money market funds likely will fluctuate, 

absent exemptive relief, broker-dealers will not be able to continue to rely on the current 

exception under Rule 10b-10(b) for transactions in floating NAV money market funds.557 

Instead, broker-dealers will be required to provide immediate confirmations for all such 

 554 17 CFR 240.10b-10.

555 17 CFR 240.10b-10(a).

556 17 CFR 240.10b-10(b).

557 See generally Money Market Fund Reform; Amendments to Form PF, Securities Act Release No. 9408, 

Investment Advisers Act Release No. 3616, Investment Company Act Release No. 30551 (June 5, 2013), 

78 FR 36834, 36934 (June 19, 2013); see also Exchange Act rule 10b-10(b)(1), (limiting alternative 

monthly reporting to money market funds that attempt[] to maintain a stable net asset value) (emphasis 

added).
180

transactions. We note, however, that contemporaneous with this Release, the Commission is 

providing notice and requesting comment on a proposed order that, subject to certain conditions, 

would grant exemptive relief from the immediate confirmation delivery requirements of Rule 

10b-10 for transactions effected in shares of any open-end management investment company 

registered under the Investment Company Act that holds itself out as a money market fund 

operating in accordance with rule 2a-7(c)(1)(ii).558 

In the Proposing Release, we requested comment on whether, if the Commission adopted 

the floating NAV requirement, broker-dealers should be required to provide immediate 

confirmations to all institutional prime money market fund investors. Commenters generally 

urged the Commission not to impose such a requirement, arguing that there would be significant 

costs associated with broker-dealers providing immediate confirmations.559 Commenters noted 

that there would be costs of implementing new systems to generate confirmations and ongoing 

costs related to creating and sending trade-by-trade confirmations.560 We estimate below the 

costs to broker-dealers associated with providing securities transaction confirmations for floating 

NAV money market funds.561 

We believe that the initial one-time cost to implement, modify, or reprogram existing 

systems to generate immediate confirmations (rather than monthly statements) will be 

 558 See Notice of Proposed Exemptive Order Granting Permanent Exemptions Under the Securities Exchange 

Act of 1934 from the Confirmation Requirements of Exchange Act Rule 10b-10 for Certain Money Market 

Funds, Exchange Act Release No. 34-72658 (July 23, 2014) (“Notice of Proposed Exemptive Order”). 

559 See ICI Comment Letter; SIFMA Comment Letter at Appendices 1 and 2; Dreyfus Comment Letter; 

Federated X Comment Letter.

560 See, e.g., Federated X Comment Letter.

561 Broker-dealers may not incur all of these costs if the exemptive relief we propose today is adopted.
181

approximately $96,650 on average per affected broker-dealer, based on the costs that the 

Commission has estimated in a similar context of developing internal order and trade 

management systems so that a registered security-based swap entity could electronically process 

transactions and send trade acknowledgments.562 In addition, we estimate that 320 brokerdealers that are clearing customer transactions or carrying customer funds and securities would

be affected by this requirement because they would likely be the broker-dealers responsible for 

providing trade confirmations.563 As a result, the Commission estimates initial costs of 

$30,928,000 for providing immediate confirmations for shareholders in institutional prime 

money market funds.564

To estimate ongoing costs of providing immediate confirmations, one commenter stated 

that, based on the data it had gathered, the median estimated ongoing annual cost associated with 

 562 This estimate is based on the following: [(Sr. Programmer (160 hours) at $285 per hour) + (Sr. Systems 

Analyst (160 hours) at $251 per hour) + (Compliance Manager (10 hours) at $294 per hour) + (Director of 

Compliance (5 hours) at $426 per hour) + (Compliance Attorney (20 hours) at $291 per hour)] = $96,650 

per broker-dealer. See Trade Acknowledgement and Verification of Security-Based Swap Transactions, 

Exchange Act Release No. 63727, 76 FR 3859, 3871 n.81 (Jan. 21, 2011). (We note that the original 

estimate in the Trade Acknowledgment release contained a technical error in the calculation stating a cost 

of $66,650 instead of $96,650 for a security-based swap entity.) A SIFMA survey also indicates that the 

costs are likely to be below $500,000 per firm. See SIFMA Comment Letter, at Appendices 1 and 2. 

According to this commenter, after surveying its members, it found that the vast majority of respondents 

estimated that initial costs associated with providing confirmation statements would fall below $500,000. 

However, based on the data provided, it was unclear at what level below $500,000 its members considered 

to be the actual cost and whether the firms were a representative sample (e.g., in terms of size and 

sophistication) of the type of firms that would be affected.

563 Based on FOCUS Report data as of December 31, 2013, the Commission estimates that there are 

approximately 320 broker-dealers that are clearing or carrying broker-dealers that do not claim exemptions 

pursuant to paragraph (k) of Exchange Act rule 15c3-3. Because not all of these clearing or carrying 

broker-dealers would necessarily provide rule 10b-10 confirmations to customers of institutional prime 

money market funds, the Commission anticipates that this is a conservative estimate of the number of 

clearing or carrying broker-dealers that would provide trade confirmations to customers in money market 

funds subject to the floating NAV requirement.

564 This estimate is based on the following: $96,650 x 320 firms = $30,928,000.
182

confirmation statements would constitute between 10% and 15% of the initial costs.565 To be 

conservative, we have estimated that the ongoing annual costs would constitute 15% of the initial 

costs. Applying that figure to the initial costs, the Commission estimates ongoing annual costs 

of $4,639,200 for providing immediate confirmations for shareholders in institutional prime 

money market funds.566 

The Commission notes that benefits related to the immediate trade confirmation 

requirements under Rule 10b-10 with respect to institutional prime money market funds are 

difficult to quantify as they relate to the additional value to investors provided by having more 

timely confirmations with respect to funds that we expect will experience relatively small 

fluctuations in value. While the Commission did not receive any comments regarding these 

potential benefits, given that institutional prime money market funds likely will fluctuate in 

price, some investors may find value in receiving information relating to their investment 

decisions at or before the completion of a securities transaction.567

8. Operational Implications of Floating NAV Money Market Funds

a. Operational Implications to Money Market Funds and Others in 

the Distribution Chain

In the Proposing Release, we stated that we expect that money market funds and transfer 

 565 See SIFMA Comment Letter, at Appendices 1 and 2.

566 This estimate is based on the following: $30,928,000 x 15% = $4,639,200.

567 The Commission acknowledges that shareholders that invest in institutional prime money market funds will 

continue to have extensive investor protections separate and apart from the protections provided under rule 

10b-10, including that (1) funds subject to the floating NAV requirement will continue to be subject to the 

“risk-limiting” conditions of rule 2a-7, and (2) information on prices will be available through other means 

(for example, under the new fund disclosure requirements of Investment Company Act Rule 2a-7(h)(10), 

investors will be able to access a fund’s daily market-based NAV per share on a money market fund’s 

website). See Notice of Proposed Exemptive Order, at 6-7. 
183

agents already have laid the foundation required to use floating NAVs because they are required 

under rule 2a-7 to have the capacity to redeem and sell fund shares at prices based on the funds’ 

current NAV pursuant to rule 22c-1 rather than $1.00, i.e., to transact at the fund’s floating 

NAV.568 Intermediaries, although not subject to rule 2a-7, typically have separate obligations to 

investors with regard to the distribution of proceeds received in connection with investments 

made or assets held on behalf of investors.569 We also noted that before the Commission adopted

the 2010 amendments to rule 2a-7, the ICI submitted a comment letter detailing the 

modifications that would be required to permit funds to transact at the fund’s floating NAV.570 

Commenters noted, as we recognized in the Proposing Release, however, that some 

funds, transfer agents, intermediaries, and others in the distribution chain may not currently have 

the capacity to process constantly transactions at floating NAVs, as would be required under our 

proposal.571 Accordingly, consistent with our views reflected in the Proposing Release and as 

 568 See current rule 2a-7(c)(13). See also 2010 Adopting Release, supra note 17, at nn.362-363. 

569 See, e.g., 2010 Adopting Release, supra note 17, at nn.362-363. Examples of intermediaries that offer 

money market funds to their customers include broker-dealers, portals, bank trust departments, insurance 

companies, and retirement plan administrators. See INVESTMENT COMPANY INSTITUTE, OPERATIONAL 

IMPACTS OF PROPOSED REDEMPTION RESTRICTIONS ON MONEY MARKET FUNDS , at 13 (2012), available at 

http://www.ici.org/pdf/ppr_12_operational_mmf.pdf (“ICI Operational Impacts Study”). 

570 See, e.g., Comment Letter of the Investment Company Institute (Sept. 8, 2009) (available in File No. S7-

11-09) (“ICI 2009 Comment Letter”) (describing the modifications that would be necessary if the 

Commission adopted the requirement, currently reflected in rule 2a-7(c)(13), that money market funds (or 

their transfer agents) have the capacity to transact at a floating NAV, to: (i) fund transfer agent 

recordkeeping systems (e.g., special same-day settlement processes and systems, customized transmissions, 

and reporting mechanisms associated with same-day settlement systems and proprietary systems used for 

next day settlement); (ii) a number of essential ancillary systems and related processes (e.g., systems 

changes for reconciliation and control functions, transactions accepted via the Internet and by phone, 

modifying related shareholder disclosures and phone scripts, education and training for transfer agent 

employees and changes to the systems used by fund accountants that transmit net asset value data to fund 

transfer agents); and (iii) sub-transfer agent/recordkeeping arrangements (explaining that similar 

modifications likely would be needed at various intermediaries). 

571 See, e.g., ICI Comment Letter; Comment Letter of Chapin Davis, Inc. (Aug. 28, 2013) (“Chapin Davis 

Comment Letter”); Federated IV Comment Letter. 
184

discussed below, we continue to expect that sub-transfer agents, fund accounting departments, 

custodians, intermediaries, and others in the distribution chain would need to develop and 

overlay additional controls and procedures on top of existing systems in order to implement a 

floating NAV on a continual basis.572 In each case, the procedures and controls that support the 

accounting systems at these entities would have to be modified to permit those systems to 

calculate a money market fund’s floating NAV periodically each business day and to 

communicate that value to others in the distribution chain on a permanent basis. 

Some commenters noted that our floating NAV requirement would adversely affect cash 

sweep programs, in which customer cash balances are automatically “swept” into investments in 

shares of money market funds (usually through a broker-dealer or other intermediary). For 

example, one commenter suggested that sweep programs cannot accommodate a floating NAV 

because such programs are predicated on the return of principal.573 Another commenter 

suggested that the substantial cost and complexity associated with intraday pricing makes it 

likely that many intermediaries will discontinue offering floating NAV institutional prime money 

market funds as sweep options, and instead turn to alternative investment products, including 

 572 Even though a fund complex’s transfer agent system is the primary recordkeeping system, there are a 

number of additional subsystems and ancillary systems that overlay, integrate with, or feed to or from a 

fund’s primary transfer agent system, incorporate custom development, and may be proprietary or vendor 

dependent (e.g., print vendors to produce trade confirmations). See ICI Operational Impacts Study, supra

note 569, at 20. The systems of sub-transfer agents and other parties may also require modifications related 

to the floating NAV requirement. We have included these anticipated modifications in our cost estimates 

below.

573 See, e.g., ICI Comment Letter. Another commenter noted that the sweep investment product is only 

feasible in the current stable-NAV environment because the client knows at the time of submitting the 

purchase order how many shares it has purchased, and how many shares it will receive the next day upon 

redemption, absent a break-the-buck event. See State Street Comment Letter.
185

stable NAV government funds.574 Although we do not know to what extent, if at all, 

intermediaries will continue to offer sweep accounts for floating NAV money market funds, we 

acknowledge that there are significant operational costs involved in order to modify sweep 

platforms to accommodate a floating NAV product. Accordingly, we anticipate that sweep 

account assets currently invested in institutional prime money market funds will likely shift into 

government funds that will maintain a stable NAV under our final rules. We discuss in the 

Macroeconomic Effects section below potential costs related to a migration of assets away from 

floating NAV funds into alternative investments, including stable NAV money market funds 

such as government funds. Because the amount of sweep account assets currently invested in 

institutional prime money market funds is not reported to us, nor are we aware of such 

information in the public domain, we are not able to provide a reasonable estimate of the amount 

of sweep account assets that may shift into alternative investment products. 

In the Proposing Release, we also estimated additional costs under our floating NAV 

reform that would be imposed on money market funds and other recordkeepers to track portfolio 

security gains and losses, provide “basis reporting,” and monitor for potential wash-sale 

transactions. As discussed above, we have been informed that, today, the Treasury Department

and the IRS will propose new regulations that will eliminate the need for money market funds 

and others to track portfolio gains and losses and basis information, as well as issue today a 

 574 See, e.g., Wells Fargo Comment Letter (acknowledging that, as we stated in the Proposing Release, sweep 

products may continue to be viable for floating NAV money market funds because fund sponsors and other 

intermediaries will make modifications to price fund shares periodically during the day, but suggesting that 

the costs for broker-dealers to reprogram their systems would be significant and the operational complexity 

could be made worse to the extent that fund sponsors do not standardize the times of day at which they 

price shares).
186

revenue procedure that exempts money market funds from the wash-sale rules. Accordingly, our 

cost estimates for the floating NAV reform have been revised from our proposal to reflect this 

fact.575 

We understand that the costs to modify a particular entity’s existing controls and 

procedures will vary depending on the capacity, function and level of automation of the 

accounting systems to which the controls and procedures relate and the complexity of those 

systems’ operating environments.576 Procedures and controls that support systems that operate in 

highly automated operating environments will likely be less costly to modify while those that 

support complex operations with multiple fund types or limited automation or both will likely be 

more costly to change. Because each system’s capabilities and functions are different, an entity 

will likely have to perform an in-depth analysis of the new rules to calculate the costs of 

modifications required for its own system. While we do not have the information necessary to 

provide a point estimate577 of the potential costs of modifying procedures and controls, we expect 

that each entity will bear one-time costs to modify existing procedures and controls in the 

functional areas that are likely to be impacted by the floating NAV reform. 

In the Proposing Release, we estimated that the one-time costs of implementation for an 

affected entity would range from $1.2 million (for entities requiring less extensive modifications) 

to $2.3 million (for entities requiring more extensive modifications) and that the annual costs to 

keep procedures and controls current and to provide continuing training would range from 5% to 

 575 See supra section III.B.8.a.

576 See, e.g., Chamber I Comment Letter.

577 We are using the term “point estimate” to indicate a specific single estimate as opposed to a range of 

estimates. 
187

15% of the one-time costs.578 In addition, we noted that we expect money market funds (and 

their intermediaries) would incur additional costs associated with programs and systems 

modifications necessary to provide shareholders with access to information about the floating 

NAV per share online, through automated phone systems, and on shareholder statements and to 

explain to shareholders that the value of their money market funds shares will fluctuate.579 We 

estimated that the costs for a fund (or its transfer agent) or intermediary that may be required to 

perform these activities would range from $230,000 to $490,000 and that the ongoing costs to 

maintain automated phone systems and systems for processing shareholder statements would 

range from 5% to 15% of the one-time costs.580 In sum, we estimated that the total range of onetime implementation costs to money market funds and others in the distribution chain would be 

approximately $1,430,000 to $2,790,000 per entity, with ongoing costs that range between 5% to 

15% of these one-time costs.581

Commenters did not generally disagree with the type and nature of costs that we 

estimated will be imposed by our floating NAV reform. One commenter noted that the costs 

 578 See Proposing Release, supra note 25, nn.285-86 and accompanying text. We estimated that these costs 

would be attributable to the following activities: (i) drafting, integrating, and implementing procedures and 

controls; (ii) preparation of training materials; and (iii) training. As noted throughout this Release, we 

recognize that adding new capabilities or capacity to a system (including modifications to related 

procedures and controls) will entail ongoing annual maintenance costs and understand that those costs 

generally are estimated as a percentage of initial costs of building or expanding a system.

579 See id. at n.287 and accompanying text. We expect these costs would include software programming 

modifications, as well as personnel costs that would include training and scripts for telephone 

representatives to enable them to respond to investor inquiries.

580 See id. at n.288 and accompanying text. We estimate that these costs would be attributable to the following 

activities: (i) project assessment and development; (ii) project implementation and testing; and (iii) written 

and telephone communication. See also supra note 578. 

581 This estimate is calculated as follows: less extensive modifications ($1,200,000 + $230,000 = $1,430,000); 

more extensive modifications ($2,300,000 + $490,000 = $2,790,000).
188

required to make the necessary systems changes would not be prohibitive and could be 

completed within two to three years.582 A number of commenters, however, provided a wide 

range of estimated operational costs to money market funds, intermediaries, and others in the 

distribution chain. These commenters suggested that estimated one-time implementation costs 

would be between $350,000 to $3,000,000, depending on the affected entity.583 One commenter 

estimated that it could cost up to $2,300,000 per fund, transfer agent, or intermediary, to modify 

systems procedures and controls to implement a floating NAV.584 Another commenter estimated 

that it would cost each back office processing service provider $1,725,000 in one-time costs to 

implement a floating NAV.585 We also received from commenters some cost estimates provided 

on a fund complex level. Two fund complexes estimated their total one-time costs to implement 

a floating NAV to be between $10,000,000 to $11,000,000, and one of the largest money market 

fund sponsors approximated its one-time costs to be $28,000,000. Averaged across the number 

of money market funds offered, these one-time implementation costs range from $306,000 to 

$718,000.586 Another commenter provided survey data stating that 40% of respondents (asset 

 582 See HSBC Comment Letter.

583 See Chamber II Comment Letter (citing Treasury Strategies, Operational Implications of a Floating NAV 

across Money Market Fund Industry Key Stakeholders (Summer 2013) (“TSI Report”)). This commenter 

estimated costs for various intermediaries in order to implement a floating NAV: Corporate treasury 

management system vendors ($350,000 - $400,000); fund accounting service providers ($400,000 -

$425,000); broker-dealers and portals ($500,000 - $600,000); transfer agent systems ($2,000,000 -

$2,500,000); and sweep account software providers ($2,000,000 - $3,000,000). Another commenter 

estimated that it would cost approximately $2,000,000 in one-time costs for a large trust group to 

implement a floating NAV. See Treasury Strategies Comment Letter. 

584 See Federated II Comment Letter.

585 See Fin. Info. Forum Comment Letter.

586 See Federated X Comment Letter (estimating its one-time costs to implement a floating NAV to be 

$11,200,000); Schwab Comment Letter (estimating its one-time costs to implement a floating NAV to be 

$10,000,000); Fidelity Comment Letter (estimating its one-time costs of implement a floating NAV to be 
189

managers and intermediaries) estimated that it would cost $2,000,000 to $5,000,000 in one-time 

costs to implement a floating NAV.587 Finally, a few commenters estimated the one-time costs to 

the entire fund industry related to implementing our floating NAV reform.588 

We estimated in the Proposing Release that it would cost each money market fund, 

intermediary, and other participant in the distribution chain approximately $1,430,000 (for less 

extensive modifications) to $2,790,000 (for more extensive modifications) in one-time costs to 

implement a floating NAV.589 Based on staff analysis and experience, we are revising the 

estimated operational costs for our floating NAV reform downward by 15% to reflect the tax 

relief discussed above.590 In addition, as discussed above (and, in a change from our proposal), 

our final rules will permit retail and government money market funds to continue to maintain a 

stable NAV as they do today and to use amortized cost valuation and/or penny-rounding pricing. 

A number of commenters noted that eliminating the ability of stable NAV funds to use amortized 

 

$28,000,000). Based on Form N-MFP data as of February 28, 2014, the per fund costs are: Federated 

$311,000 ($11,200,000 ÷ 36 money market funds); Schwab $588,000 ($10,000,000 ÷ 17 money market 

funds); and Fidelity $718,000 ($28,000,000 ÷ 39 money market funds).

587 See SIFMA Comment Letter (stating that another 20% of survey respondents estimated that one-time 

implementation costs for a floating NAV would be between $5,000,000 to $15,000,000). Because we do 

not have access to the names of the survey respondents or their specific cost estimates, we are unable to 

approximate these costs on a per fund basis.

588 See, e.g., TSI Report (estimating $1.8 to $2.0 billion in total upfront costs for U.S. institutional money 

market fund investors to modify operations in order to comply with a floating NAV requirement); Angel 

Comment Letter (estimating $13.7 to $91.5 billion in initial upfront costs related to implementing a floating 

NAV reform). As discussed above, we have analyzed a variety of commenter estimates and provided cost 

estimates on a per-fund basis. We are unable, however, to verify the accuracy or make a relevant 

comparison between our per-fund cost estimates and the broad range of costs provided by these 

commenters that apply to all U.S. institutional money market fund investors and/or the entire fund industry. 

589 See supra note 581.

590 See supra section III.B.6.a. We note that many commenters suggested that a primary drawback (and cost) 

of our floating NAV reform is the substantial operational costs associated with complying with tax tracking 

requirements in a floating NAV fund. See, e.g., Fin. Svcs. Roundtable Comment Letter; Federated IV 

Comment Letter; Fidelity Comment Letter. Although we attribute a 15% reduction in estimated 

operational costs to tax-related costs, the cost savings could be higher or lower than our estimate.
190

cost valuation, as we proposed, would impose significant operational costs on these funds.591 

Accordingly, based on staff analysis and experience, we are also revising the estimated 

operational costs downward by 5% to reflect the ability of stable NAV funds to continue to use 

amortized cost valuation as they do today. We therefore estimate that it will cost each money 

market fund, intermediary, and other participant in the distribution chain approximately 

$1,144,000 (for less extensive modifications) to $2,232,000 (for more extensive modifications) 

in one-time costs to implement the floating NAV reform.592

We believe that this range of estimated costs generally fits within the range of costs 

suggested by commenters as described above (after accounting for estimated costs savings 

related to tax relief and the increased availability of amortized cost valuation, not contemplated 

by commenters in their estimates). We note, however, that many money market funds, transfer 

agents, custodians, and intermediaries in the distribution chain may not bear the estimated costs 

on an individual basis and therefore will likely experience economies of scale. Accordingly, we 

expect that the cost for many individual entities that would have to process transactions at a 

floating NAV will likely be less than these estimated costs.593 

 591 See supra note 534.

592 This estimate is calculated as follows: $1,430,000 x 80% = $1,144,000 (less extensive modifications); 

$2,790,000 x 80% = $2,232,000 (more extensive modifications). A few commenters also noted that our 

floating NAV requirement would also result in significant lost management fees. See, e.g., Federated X 

Comment Letter (suggesting that a shift of one-third of assets away from institutional prime funds would 

result in annual lost management fees of approximately $578 million for money market fund advisers 

nationwide). We acknowledge that, to the extent there is a significant outflow of assets from the 

institutional prime funds into non-money market funds as a result of the floating NAV requirement, money 

market fund managers may experience declines in management fee income. We discuss the possibility of 

such shifts in money market fund assets in our discussion of macroeconomic effects below.

593 For example, the costs will likely be allocated among the multiple users of affected systems, such as money 

market funds that are members of a fund group, money market funds that use the same transfer agent or 

custodian, and intermediaries that use systems purchased from the same third party.
191

In addition to the estimated one-time implementation costs, we estimate that funds, 

intermediaries, and others in the distribution chain will incur annual operating costs of 

approximately 5% to 15% of initial costs. Accordingly, we estimate that funds and other 

intermediaries will incur annual operating costs as a result of the floating NAV reform that range 

from $57,200 to $334,800.594 Most commenters that addressed this issue directly did not 

disagree with our estimate of ongoing costs, although we note that a few commenters estimated 

the new annual operating costs to the entire fund industry related to implementing our floating 

NAV reform.595 One commenter provided survey data showing that 66% of respondents (asset 

managers and intermediaries) estimated that annual costs would approximate 10% to 15% of 

initial costs.596 Another commenter, however, disagreed with our estimate of annual operating 

costs of approximately 5% to 15% of initial costs and suggested that the annual costs to fund 

sponsors will actually be close to the costs of initial implementation. We disagree. This 

commenter noted that most of the ongoing cost would result from the elimination of amortized 

cost accounting (generally) and more frequent price calculations using market-based factors.597 

Because stable NAV money market funds may continue to use amortized cost valuation under 

 594 This estimate is calculated as follows: less extensive modifications = $57,200 ($1,144,000 x 5%); more 

extensive modifications = $334,800 ($2,232,000 x 15%).

595 See, e.g., Chamber II Comment Letter (estimating $2.0 to $2.5 billion in new annual operating costs 

relating to the FNAV reform). As discussed above, most commenters did not specifically object to our 

estimated range of ongoing costs on a per-fund basis. We do not, however, have information available to 

us to evaluate the accuracy of cost estimates to the entire fund industry or make a meaningful comparison 

of such estimates with our per-fund cost ongoing cost estimates.

596 See SIFMA Comment Letter.

597 See Federated X Comment Letter (noting, however, that it estimates annual operating costs of 

approximately $231,000 per fund ($5.7 million for pricing services + $1.5 million for transfer agent 

services + $2.5 million for technology, training, and other monitoring costs = $9.7 million ÷ 42 money 

market funds managed by Federated = approximately $231,000 per fund). This estimate is consistent with 

our estimated range of ongoing costs. See supra note 594.
192

our final rules (unlike our proposal), we believe this commenter has overstated the ongoing costs 

under our final rules.598 Therefore, we believe consistent with the comments received, that it is 

more appropriate to continue to estimate the ongoing operational costs as approximately 5% to 

15% of the initial implementation costs and are not revising the ongoing cost estimates from our 

proposal.

b. Operational Implications to Money Market Fund Shareholders

In addition to money market funds and other entities in the distribution chain, each 

money market fund shareholder will also likely be required to analyze our floating NAV 

proposal and its own existing systems, procedures, and controls to estimate the systems 

modifications it would be required to undertake. Because of this, and the variation in systems 

currently used by institutional money market fund shareholders, we do not have the information 

necessary to provide a point estimate of the potential costs of systems modifications. We 

describe below the types of activities typically involved in making systems modifications and 

estimate a range of hours and costs that we anticipate will be required to perform these activities. 

We sought comment in the Proposing Release regarding the potential costs of system 

modifications for money market fund shareholders, and the comments we received, along with 

the differences between our proposal and the final rules, have informed our estimates. 

In the Proposing Release, we prepared ranges of estimated costs, taking into account 

variations in the functionality, sophistication, and level of automation of money market fund 

 598 We recognize, however, that under our final rules, floating NAV money market funds will incur increased 

costs as a result of the elimination of amortized cost valuation. These costs, discussed above, are 

significantly lower than those that funds would incur under our proposal (that would have eliminated 

amortized cost valuation for all money market funds, including those funds not subject to our floating NAV 

reform).
193

shareholders’ existing systems and related procedures and controls, and the complexity of the 

operating environment in which these systems operate. In deriving our estimates, we considered 

the need to modify systems and related procedures and controls related to recordkeeping, 

accounting, trading, and cash management, and to provide training concerning these 

modifications. We estimated that a shareholder whose systems (including related procedures and 

controls) would require less extensive modifications would incur one-time costs ranging from 

$123,000 to $253,000, while a shareholder whose systems (including related procedures and 

controls) would require more extensive modifications would incur one-time costs ranging from 

$1.4 million to $2.9 million.599 

Most commenters did not disagree with our cost estimates. One commenter stated that it 

expects at least 50% of institutional investors in money market funds will require some systems 

development to be able to invest in a floating NAV money market fund. This commenter also 

noted that having sufficient time to implement the changes is a more important factor than cost in 

determining the extent to which corporate treasurers, for example, would use a floating NAV 

fund product.600 Another commenter acknowledged our range of estimated costs and suggested 

that while these estimates may not appear substantial at first glance, when viewed in the context 

of current money market fund returns, such costs represent a significant disincentive to continued 

investment in institutional prime funds.601 Although we acknowledge that the costs to money 

 599 We estimate that these costs would be attributable to the following activities: (i) planning, coding, testing, 

and installing system modifications; (ii) drafting, integrating, implementing procedures and controls; 

(iii) preparation of training materials; and (iv) training. 

600 See HSBC Comment Letter.

601 See Wells Fargo Comment Letter.
194

market fund shareholders may make investing in floating NAV money market funds 

uneconomical given the current rates of return, we note that we are adopting a two-year 

compliance period that may, to the extent that interest rates return to more typical levels, counter 

any disincentive that may exist currently.602 

The TSI Report603 provided ranges of costs that it expects would be imposed on floating 

NAV money market fund shareholders. These costs ranged from $250,000 for a U.S. business 

that invests in floating NAV money market funds and makes the fewest changes possible, to 

$550,000 for a government-sponsored entity money market fund shareholder.604 We have 

carefully considered this range of costs to shareholders provided by the commenter and the 

changes from the proposal to the rule that we are adopting today, and we now believe that it is 

appropriate to decrease our cost estimates from the proposal. Accordingly, we estimate that a 

shareholder whose systems (including related procedures and controls) would require less 

extensive modifications would incur one-time costs ranging from $212,500 to $340,000, while a 

shareholder whose systems (including related procedures and controls) would require more 

extensive modifications would incur one-time costs ranging from $467,500 to $850,000. We 

believe that these estimates better reflect the changes in our final rules from those that we 

proposed.

605 We also recognize that these estimates are more consistent with the range of cost 

 602 See infra section III.N.2. for a discussion of the floating NAV compliance date.

603 See supra note 583.

604 See id., TSI Report (estimating that the one-time implementation costs would range from $350,000 to 

$370,000 for a corporate investor; $275,000 to $300,000 for a public university investor; $325,000 to 

$350,000 for a municipality investor; and $400,000 to $425,000 for a fiduciary investor).

605 Consistent with our cost estimates discussed above for funds, intermediaries, and others in the distribution 

chain, we have considered in these estimates cost savings related to the tax relief discussed above. See 

supra section III.B.8.a. 
195

estimates provided by this commenter. We estimate that the annual maintenance costs to these 

systems and procedures and controls, and the costs to provide continuing training, will range 

from 5% to 15% of the one-time implementation costs.606

c. Intraday Liquidity and Same-Day Settlement

As discussed below, we believe that floating NAV money market funds should be able to 

continue to provide shareholders with intraday liquidity and same-day settlement by pricing fund 

shares periodically during the day (e.g., at 11 a.m. and 4 p.m.). In the Proposing Release, we 

noted that money market funds’ ability to maintain a stable value also facilitates the funds’ role 

as a cash management vehicle and provides other operational efficiencies for their shareholders. 

Shareholders generally are able to transact in fund shares at a stable value known in advance, 

which permits money market fund transactions to settle on the same day that an investor places a 

purchase or sell order and determine the exact value of his or her money market fund shares 

(absent a liquidation event) at any time. These features have made money market funds an 

important component of systems for processing and settling various types of transactions. 

Some commenters have expressed concern that intraday liquidity and/or same-day 

settlement would not be available to investors in floating NAV money market funds. These 

commenters point to, for example, operational challenges such as striking the NAV multiple 

times during the day while needing to value each portfolio security using market-based values.607 

A few commenters also noted that pricing services may not be able to provide periodic pricing 

 606 See supra note 578. Commenters did not address specifically our estimate of ongoing costs to money 

market fund shareholders in floating NAV funds. Accordingly, we are not amending our estimate from the 

proposal.

607 See, e.g., BlackRock II Comment Letter; ICI Comment Letter; Chamber II Comment Letter.
196

throughout the day.608 Some commenters also raised concerns about the additional costs 

involved with striking the NAV multiple times per day, including, for example, costs for pricing 

services to provide multiple quotes per day and for accounting agents to calculate multiple 

NAVs.609 On the other hand, one commenter who provides pricing services noted that, while 

providing intraday liquidity and same-day settlement for floating NAV funds would require 

some investment, they believe that calculating NAVs multiple times per day is feasible within 

our proposed two-year compliance period.610 A few commenters further noted that transfer 

agents will need to enhance their systems to account for floating NAV money market funds and 

condense their reconciliation and audit processes (which may, for example, increase the risk of 

errors).611

A few commenters also asserted that if floating NAV funds are unable to provide sameday settlement, this could affect features that are particularly appealing to retail investors, such as 

ATM access, check writing, and electronic check payment processing services and products.612 

First, as discussed below, we believe that many floating NAV money market funds will continue 

to be able to provide same-day settlement. Second, we note that under the revised retail money 

 608 See, e.g., Federated IV Comment Letter; Interactive Data Comment Letter; Chamber II Comment Letter.

609 See, e.g., BlackRock II Comment Letter; Dreyfus Comment Letter; State Street Comment Letter.

610 See Interactive Data Comment Letter. Another commenter noted that money market funds would still be 

able to provide same-day settlement in floating NAV funds. See State Street Comment Letter.

611 See J.P. Morgan Comment Letter; Dreyfus Comment Letter; Comment Letter of DST Systems, Inc. (Sept. 

18, 2013) (“DST Systems Comment Letter”).

612 See, e.g., Fidelity Comment Letter (“[B]roker-dealers offer clients a variety of features that are available 

generally only to accounts with a stable NAV, including ATM access, check writing, and ACH and 

Fedwire transfers. A floating NAV would force MMFs that offer same-day settlement on shares redeemed 

through wire transfers to shift to next day settlement or require fund advisers to modify their systems to 

accommodate floating NAV MMFs.”). 
197

market fund definition adopted today, retail investors should have ample opportunity to invest in 

a fund that qualifies as a retail money market fund and thus is able to maintain a stable NAV. As 

a result, this should significantly alleviate concerns about the costs of altering these features and 

permit a number of funds to continue to provide these features as they do today. Nonetheless, 

we recognize that not all funds with these features may choose to qualify as retail money market 

funds, and therefore, some funds may need to make additional modifications to continue offering 

these features. We have included estimates of the costs to make such modifications below.

We understand that many money market funds currently permit same-day trading up until 

5 p.m. Eastern Time. These funds do so because amortized cost valuation allows funds to 

calculate their NAVs before they receive market-based prices (typically provided at the end of 

the day after the close of the Federal Reserve Cash Wire). We recognize that, under the floating 

NAV reform, closing times for same-day settlement will likely need to be moved earlier in the 

day to allow sufficient time to calculate the NAV prior to the close of the Federal Reserve Cash 

Wire. One commenter suggested that it will take a minimum of three to four hours to strike a 

market-based NAV price.613 As a result, investors in floating NAV money market funds may not 

have the ability to redeem shares late in the day, as they can today. We also recognize that 

floating NAV money market funds may price only once a day, at least until such time as pricing 

vendors are able to provide continuous pricing throughout the day.614 We considered these 

 613 See Federated II Comment Letter.

614 See SIFMA Comment Letter (noting that in its survey of members, 60% of asset managers expect to price 

their floating NAV money market funds only once per day, which is less frequent than currently offered by 

most money market funds). See also Institutional Cash Distributors, ICD Commentary: Operational and 

Accounting Issues with the Floating NAV and the Impact on Money Market Funds (July 2013), available at 

http://www.sec.gov/comments/s7-03-13/s70313-40.pdf. One commenter noted that they are already 
198

potential costs as well as the benefits of our floating NAV reform and believe that, as discussed 

above, it is appropriate to address, through the floating NAV reform, the incremental incentive 

that exists for shareholders to redeem in times of stress from institutional prime money market 

funds. We note, however, that because stable NAV money market funds may continue to use 

amortized cost as they do today (as revised from our proposal), these same-day settlement 

concerns raised by commenters here would be limited to institutional prime funds—the only 

money market funds subject to the floating NAV reform.615

We sought comment in the Proposing Release on the costs associated with providing 

same-day settlement and for pricing services to provide prices multiple times each day. One 

commenter provided survey data that estimated the range of costs for floating NAV funds to 

offer same-day settlement. Seventy-five percent of respondents estimated the one-time costs to 

be approximately $500,000 to $1 million, and 25% of respondents estimated the one times costs 

to be approximately $1 million to $2 million.616 Sixty-six percent of respondents approximated 

ongoing costs that would range between 10-15% of initial costs.617 We did not receive other 

quantitative estimates specifically on the costs associated with modifying systems to allow for 

 

investing in new technology that includes real-time debt security evaluations. See Comment Letter of 

Interactive Data.

615 See SIFMA Comment Letter (noting that, under our proposal, the impediment to same-day settlement 

exists for stable NAV money market funds as well as floating NAV money market funds because both 

types of funds would be prohibited from using amortized cost for securities with remaining maturities over 

60 days). As noted above, we are no longer prohibiting stable NAV funds from using amortized cost. 

616 As discussed supra in note 587, we do not have access to the names of the survey respondents or their 

specific cost estimates and are therefore unable to approximate these costs on a per fund basis. 

Accordingly, the costs on a per fund basis will likely be significantly lower than the figures provided here. 

617 See SIFMA Comment Letter.
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same-day settlement by floating NAV funds.618 We have carefully considered this survey data 

with respect to same-day settlement issues in arriving at our aggregate operational cost estimates 

discussed above in section III.B.8.a.619 

9. Transition

We are providing a two-year compliance date (as proposed) for money market funds to 

implement the floating NAV reform. A long compliance period will give more time for funds to 

implement any needed changes to their investment policies and train staff, and also will provide 

more time for investors to analyze their cash management strategies. This compliance period 

will also give time for retail money market funds to reorganize their operations and establish new 

funds. Importantly, this compliance period will allow additional time for the Treasury 

Department and IRS to consider finalizing rules addressing certain tax issues relating to a 

floating NAV described above and for the Commission to consider final rules removing NRSRO 

ratings from rule 2a-7,620 so that funds could make several compliance-related changes at one 

time.

We acknowledge, as discussed in the Proposing Release and as noted by some 

 618 We note that some commenters may have included costs associated with enabling floating NAV funds to 

provide same-day settlement in their cost estimates of operational implications generally. These costs are 

discussed above.

619 We have based our cost estimates for same-day settlement principally on staff experience and expertise. In 

assessing the reasonableness of our estimates, we considered as an outer bound the survey data provided by 

SIFMA (although as noted above, the survey respondents likely represent fund complexes and thus we are 

not able to determine these costs on a per fund basis). We estimate that money market funds will likely 

establish twice per day pricing as the appropriate balance between current money market fund practice to 

provide multiple settlements per business day and the additional costs and complexities involved in pricing 

money market fund shares using market-based values. 

620 See Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification 

Requirement in the Money Market Fund Rule, Investment Company Act Release No. IC-31184 (July 23, 

2014). 
200

commenters, that a transition to a new regulatory regime could itself cause the type of heavy 

redemptions that the amendments, including the floating NAV reform, are designed to prevent.621 

In the proposal, we noted that our proposed two-year compliance period would benefit money 

market funds and their shareholders by allowing money market funds to make the transition to a 

floating NAV at the optimal time and potentially not at the same time as all other money market 

funds. In addition, we stated our belief that money market fund sponsors would use the 

relatively long compliance period to select an appropriate conversion date that would minimize 

the risk that shareholders may pre-emptively redeem shares at or near the time of conversion if 

they believe that the market value of their shares will be less than $1.00. Several commenters 

reiterated this concern, with one commenter noting that shareholders in floating NAV money 

market funds may be incentivized to redeem in order to avoid losses or realize gains, depending 

on the expected NAV at the time of conversion.622 A few commenters suggested that money 

market funds will likely be unwilling or unable to stagger their transitions over our proposed 

two-year transition period, but did not provide any survey data or other support for their 

beliefs.623 

We continue to believe that an extended compliance period (as adopted, two years) 

should help mitigate potential pre-emptive redemptions by providing money market fund 

shareholders with sufficient time to consider the reforms and decide, if they determine that a 

 621 See, e.g., Dreyfus Comment Letter; Goldman Sachs Comment Letter. The PWG Report suggests that a 

transition to a floating NAV could itself result in significant redemptions. See PWG Report, supra note 

506, at 22.

622 See Stradley Ronon Comment Letter.

623 See, e.g., Stradley Ronon Comment Letter; SIFMA Comment Letter.
201

floating NAV investment product is not appropriate or desirable, to invest a stable NAV retail or 

government money market fund or an alternative investment product. We recognize that, 

although money market funds may comply with the rule amendments at any time between the 

effective date and the compliance date, in practice, money market funds may implement 

amendments relating to floating NAV near the end of the transition period, which may further 

cause the potential for widespread redemptions prior to the transition. Although a few 

commenters suggested as much,624 we did not receive any survey data and we are not able to 

reasonably estimate the extent to which money market funds may or may not stagger their 

transition to a floating NAV. 

We note, however, that in order to mitigate this risk, money market fund managers could

take steps to ensure that the fund’s market-based NAV is $1.00 or higher at the time of 

conversion and communicate to shareholders the steps that the fund plans to take ahead of time 

in order to mitigate the risk of heavy pre-emptive redemptions, though funds would be under no 

obligation to do so. Even if funds took such steps, investors may pre-emptively withdraw their 

assets from money market funds that will transact at a floating NAV to avoid this risk. We note, 

however, that while a two-year compliance period does not eliminate such concerns, we expect, 

as discussed above, that providing a two-year compliance period will allow money market funds 

time to prepare and address investor concerns relating to the transition to a floating NAV, and 

therefore possibly mitigate the risk that the transition to a floating NAV, itself, could prompt 

significant redemptions. In addition, the liquidity fees and gates reforms will be effective and 

 624 Id.
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therefore available to fund boards as a tool to address any heightened redemptions that may 

result from the transition to a floating NAV.625 

C. Effect on Certain Types of Money Market Funds and Other Entities

1. Government Money Market Funds

The fees and gates and floating NAV reforms included in today’s Release will not apply 

to government money market funds, which are defined as a money market fund that invests at 

least 99.5% of its total assets in cash, government securities,626 and/or repurchase agreements that 

are “collateralized fully” (i.e., collateralized by cash or government securities).

627 In addition, 

under today’s amendments, government money market funds may invest a de minimis amount 

(up to 0.5%) in non-government assets,

628 unlike our proposal and under current rule 2a-7, which 

permits government money market funds to invest up to 20% of total assets in non-government 

assets.629 

 625 We will monitor fund redemption activity during the transition period and consider appropriate action if it 

appears necessary. For example, such action could include SEC Staff contacting fund groups to determine 

the nature of any stress from redemption activity and the potential need for any exemptive or other relief.

626 A “government security” is backed by the full faith and credit of the U.S. government. See rule 2a7(a)(17); section 2(a)(16). 

627 See rule 2a-7(a)(5) (defining “collateralized fully” by reference to rule 5b-3(c)(1), which requires that 

collateral be comprised of cash or government securities). 

628 Non-government assets would include all “eligible securities” permitted under rule 2a-7 other than cash, 

government securities (as defined in section 2(a)(16), or repurchase agreements that are “collateralized 

fully” (as defined in rule 5b-3).

629 Under current rule 2a-7 (and as proposed), a government money market fund is defined based on the 

portfolio holdings test used today for determining the accuracy of a fund’s name (“names rule”). See

Proposing Release, supra note 25, n.169 and accompanying text (rule 35d-1states that a materially 

deceptive and misleading name of a fund (for purposes of section 35(d) of the Investment Company Act 

(Unlawful representations and names)) includes a name suggesting that the fund focuses its investments in 

a particular type of investment or in investments in a particular industry or group of industries, unless, 

among other requirements, the fund has adopted a policy to invest, under normal circumstances, at least 

80% of the value of its assets in the particular type of investments or industry suggested by the fund’s 

name). While in the Proposing Release we discussed the definition of government money market fund in 

the context of the proposed floating NAV reform, this definition also was applicable to the proposed fees 
203

Additionally, as proposed, a government money market fund will not be required to, but 

may, impose a fee or gate if the ability to do so is disclosed in a fund’s prospectus and the fund 

complies with the fees and gates requirements in the amended rule.630 

With respect to the floating NAV reform, most commenters supported a reform that does 

not apply to government money market funds.631 Commenters noted that government funds pose 

significantly less risk of heavy investor redemptions than prime funds, have low default risk and 

are highly liquid even during market stress, and experienced net inflows during the financial 

crisis.632 Also, few commenters explicitly supported or opposed excluding government funds 

from the fees and gates reforms. Of these commenters, a few supported a narrowly tailored fees 

and gates reform that does not apply to government money market funds,633 and a few 

 and gates reform. We understand that government money market funds today invest in other government 

money market funds (“fund of funds”) and look through those funds to the underlying securities when 

determining compliance with rule 35d-1, or the “names rule.” Accordingly, we expect that money market 

funds will continue to evaluate compliance with what investments qualify under our definition of 

government money market fund in the same way, and therefore categorize, as appropriate, investments in 

other government money market funds as within the 99.5% government-asset basket.

630 See rule 2a-7(c)(2)(iii). Any government money market fund that chooses not to rely on rule 2a-7(c)(2)(iii) 

may wish to consider providing notice to shareholders. We believe at least sixty days written notice of the 

fund’s ability to impose fees and gates would be appropriate. 

631 See, e.g., J.P. Morgan Comment Letter; T. Rowe Price Comment Letter; Vanguard Comment Letter; ICI 

Comment Letter; IDC Comment Letter. But see Comment Letter of J. Huston McCulloch (Sept. 13, 2013) 

(“McCulloch Comment Letter”) (suggesting that the floating NAV reform also apply to government money 

market funds and noting that even short-term treasury bills fluctuate in present value). As discussed below, 

we continue to believe that our floating NAV reform should not apply to government funds. Our belief is 

based, in part, on the strong commenter support in favor of a more targeted floating NAV reform that 

addresses the incremental incentive for institutional investors to redeem from prime funds, and our stated 

goal of preserving as much as possible the benefits of money market funds for most investors, while 

appropriately balancing concerns about the risks of heavy redemptions in prime funds during times of stress 

and the harm this can cause to short-term funding markets. 

632 See, e.g., J.P Morgan Comment Letter; ICI Comment Letter; IDC Comment Letter; T. Rowe Price 

Comment Letter.

633 See, e.g., BlackRock II Comment Letter, (“Government MMFs ... should not be required to implement 

liquidity fees and gates.”); J.P. Morgan Comment Letter.
204

commenters argued that all types of money market funds – including government money market 

funds – should have the ability to apply a fee or gate.634 

We continue to believe that government money market funds should not be subject to the

fees and gates and floating NAV reforms. As discussed in the Proposing Release, government 

money market funds face different redemption pressures and have different risk characteristics 

than other money market funds because of their unique portfolio composition.635 The securities 

primarily held by government money market funds typically have a lower credit default risk than 

commercial paper and other securities held by prime money market funds and are highly liquid 

in even the most stressful market conditions.

636 As noted in our proposal, government funds’ 

primary risk is interest rate risk; that is, the risk that changes in the interest rates result in a 

change in the market value of portfolio securities.637 Even the interest rate risk of government 

money market funds, however, is generally mitigated because these funds typically hold assets 

that have short maturities and hold those assets to maturity.638 

As discussed in the DERA Study and below, government money market funds 

historically have experienced inflows, rather than outflows, in times of stress.639 In addition, the 

assets of government money market funds tend to appreciate in value in times of stress rather 

 634 See, e.g., U.S. Bancorp Comment Letter, (“If ultimately adopted, gating should be available to all classes of 

funds ....”); HSBC Comment Letter, (“[W]e believe all MMFs should be required to have the power to 

apply a liquidity fee or gate so that the MMF provider can manage a low probability but high impact 

event.”).

635 Proposing Release, supra note 25, at section III.A.3. See also DERA Study, supra note 24, at 8-9. 

636 Proposing Release, supra note 25, at section III.A.3.; see also J.P. Morgan Comment Letter; Vanguard 

FSOC Comment Letter.

637 See Proposing Release, supra note 25, at 66.

638 See Proposing Release, supra note 25, n.173.

639 See DERA Study, supra note 24, at 6-13.
205

than depreciate.640 Most government money market funds always have at least 30% weekly 

liquid assets because of the nature of their portfolio (i.e., the securities they generally hold, by 

definition, are weekly liquid assets). Accordingly, with respect to fees and gates, the portfolio 

composition of government money market funds means that these funds are less likely to need to 

use these tools. 

We have also determined not to impose the fees and gates and floating NAV reforms on 

government money market funds in an effort to facilitate investor choice by providing a money 

market fund investment option that maintains a stable NAV and that does not require investors to 

consider the imposition of fees and gates. As noted above, we expect that some money market 

fund investors may be unwilling or unable to invest in a money market fund that floats its NAV 

and/or can impose a fee or gate.641 By not subjecting government money market funds to the 

fees and gates and floating NAV reforms, fund sponsors will have the ability to offer money 

market fund investment products that meet investors’ differing investment and liquidity needs.642 

We also believe that this approach preserves some of the current benefits of money market funds 

for investors. Based on our evaluation of these considerations and tradeoffs, and the more 

limited risk of heavy redemptions in government money market funds, we believe it is preferable

to tailor today’s reforms and not apply the floating NAV requirement to government funds, but 

 640 See Proposing Release, supra note 25, n.412.

641 For example, there could be some types of investors, such as sweep accounts, that may be unwilling to 

invest in a money market fund that could impose a gate because such an investor generally requires the 

ability to immediately redeem at any point in time, regardless of whether the fund or the markets are 

distressed. 

642 To the extent a number of government funds opt in to the fees and gates requirements, and there exists 

investor demand to invest in government funds that are not subject to the fees and gates reforms, we believe 

market forces and competitive pressures may lead to the creation of new government funds that do not 

implement fees and gates.
206

to permit them to implement the fees and gates reforms if they choose.643

We also sought comment on the appropriate size of the non-government basket. 

Notwithstanding the relative safety and stability of government money market funds, we noted 

our concern that a credit event in this 20% basket or a shift in interest rates could trigger a 

decline in a fund’s shadow price and therefore create an incentive for shareholders to redeem 

shares ahead of other investors (similar to that described for institutional prime funds subject to 

the floating NAV reform). We stated in the Proposing Release our preliminary belief that the 

benefits of retaining a stable share price money market fund option and the relative safety in a 

government money market fund’s 80% basket appropriately counterbalances the risks associated 

with the 20% portion of a government money market fund’s portfolio that may be invested in 

non-government securities.644 

A number of commenters, however, raised concerns that the proposed definition of 

government money market fund would permit these funds to invest up to 20% of their portfolio 

in non-government assets, and, contrary to the goals of our money market fund reforms, 

potentially increase risk as stable NAV government funds may use this 20% basket to reach for 

yield.645 One commenter noted that, notwithstanding the current 20% non-government security 

 643 Although government money market funds may opt-in to fees and gates, we expect these funds will rarely 

impose fees and gates because their portfolio assets present little credit risk.

644 The Proposing Release also would have required unaffected stable NAV funds, including government 

money market funds, to maintain a stable NAV through penny-rounding pricing (and generally eliminate 

amortized cost valuation except for securities with remaining maturities of 60 days or less). As discussed 

in section III.B.5, however, we have revised our approach and will permit stable NAV funds to continue to 

value portfolio securities using amortized cost and price fund shares using penny-rounding, as they do 

today. We are also providing expanded guidance on the use of amortized cost. See infra section III.D. 

645 See, e.g., Goldman Sachs Comment Letter (suggesting that a new class of money market funds could 

emerge that would invest 19.9% of its assets in higher yield commercial paper and other privately issued 

debt while maintaining a stable NAV, and under Commission rules, holding itself out as a government 
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basket, its government money market funds invest 100% of fund assets in government securities 

because doing so meets the expectations of government money market fund investors.646 

We agree with commenters who suggested that permitting government funds to invest 

potentially up to 20% of fund assets in riskier non-government securities may promote a type of 

hybrid money market fund that presents new risks that are not consistent with the purposes of the 

money market reforms adopted today.647 One commenter suggested that without a 20% basket, 

there may be an oversupply of commercial paper that disrupts corporate funding (presumably a 

result of a shift of assets out of institutional prime funds required to adopt our floating NAV 

 money market fund); HSBC Comment Letter; CFA Institute Comment Letter; Systemic Risk Council 

Comment Letter; Invesco DERA Comment Letter. One commenter suggested reducing further the 

percentage of portfolio assets required to be invested in government securities and potentially including 

state and local government securities in the permissible investment basket. See Comment Letter of The 

Independent Trustees of the North Carolina Capital Management Trust (“Sept. 17, 2013) (“NC Cap. Mgmt. 

Trust Comment Letter”). We believe that the definition of a government money market fund should not 

include state and local government securities as suggested by this commenter. We discuss the risks present 

in these types of securities and municipal money market funds in general, infra section III.C.3. See also 

infra note 773 and accompanying text. In addition, as discussed above, reducing further the percentage of 

assets that must be invested in government securities undercuts the goals of this rulemaking. A few 

commenters also raised concerns about the economic effects of not applying our floating NAV reform to 

government funds, including promoting the ability of the federal government to borrow at the expense of 

state and local governments and private issuers. See, e.g., Comment Letter of Arnold & Porter LLP on 

behalf of Federated Investors [Alternative 1] (Sept. 13, 2013) (“Federated III Comment Letter”); Mass. 

Governor Comment Letter; Systemic Risk Council Comment Letter. We address the macroeconomic 

effects of the floating NAV requirement and related exemptions in section III.K. One commenter also 

noted that because stable NAV funds (including government money market funds) would no longer be 

permitted to value securities using amortized cost, these funds would still incur many of the same 

operational burdens as floating NAV funds. See Federated II Comment Letter; Federated III Comment 

Letter. As discussed in section III.B.5, however, we have revised our approach from the Proposing Release 

and will permit both retail and government money market funds to continue to value portfolio securities 

using amortized cost and use the penny-rounding method of pricing.

646 See Fidelity DERA Comment Letter.

647 See, e.g., Comment Letter of BlackRock, Inc. (June 6, 2013) (“Blackrock I Comment Letter”); CFA 

Institute Comment Letter (noting that “the 80 percent requirement [. . .] would undermine the implied NAV 

stability of a [g]overnment fund[’]s structure. Allowing fund managers to invest as much as 20 percent of 

their assets in securities and instruments with greater volatility in value than government securities, while 

continuing to operate as stable NAV funds creates potential problems.”). 
208

reform).648 As a result, this commenter suggested that the Commission wait until after final rules 

are adopted to evaluate the use of the 20% basket, including the effects on commercial paper 

supply, and then consider phasing the 20% basket out over time, if appropriate. We disagree. 

As stated above, the reason for not applying our fees and gates and floating NAV reforms to 

government money market funds is, in part, a recognition of the relative stability of this type of 

money market fund, through its lack of credit risk. It would limit the effectiveness of our 

floating NAV reform, for example, to allow a hybrid government fund to develop and potentially 

present credit risk to institutional investors seeking greater yield, while keeping the benefit of a 

stable NAV. 

As noted above, many commenters suggested completely eliminating the 20% basket.649 

One commenter suggested a smaller de minimis basket, for example 5%.650 Our approach 

includes a 0.5% de minimis basket in which government funds may invest in non-government 

securities. In order to evaluate an appropriate de minimis amount of non-government securities, 

Commission staff, using Form N-MFP data, analyzed the exposure of government money market 

funds to non-government securities between November 2010 and November 2013.651 

 648 See Blackrock DERA Comment Letter. We discuss in section III.K below the macroeconomic effects of a 

potential shift in assets out of institutional prime money market funds and into alternative investment 

products.

649 See, e.g., Goldman Sachs Comment Letter; HSBC Comment Letter; see Fidelity DERA Comment Letter.

650 See CFA Institute Comment Letter.

651 See DERA Memorandum regarding Government Money Market Fund Exposure to Non-Government 

Securities, dated March 17, 2014 (DERA Government MMF Exposure Memo”) available at 

http://www.sec.gov/comments/s7-03-13/s70313-322.pdf. This analysis categorized securities into two 

types: “government securities” and “other securities.” “Government securities” includes Treasury Debt, 

Treasury Repurchase Agreements, Government Agency Debt, and Government Agency Repurchase 

Agreements. “Other securities” includes all remaining non-government securities (as referred to above), 

such as non-government tri-party repurchase agreements, financial company commercial paper, and 

variable rate demand notes without a demand feature or guarantee. Although this analysis sought, where 
209

This analysis showed, among other things, that as of November 2013, approximately 

17% of all money market funds were government funds and that average total net assets of 

government funds remained fairly constant at near $500 billion since March of 2012.652 An 

analysis of the data also showed that, between November 2010 and November 2013, government 

money market funds generally invested between 0.5% and 2.5% of their total amortized cost 

dollar holdings in non-government securities and, more recently closer to 0.5% in nongovernment securities from November 2012 to November 2013.653 For example, the 90th 

percentile of reporting government money market funds demonstrates that investments in nongovernment securities declined from 12.7% (representing 11 funds) in November 2010 to nearly 

zero in November 2013.654

A few commenters suggested that this analysis is flawed because it inappropriately 

focuses on the historical use of the non-government securities basket to predict future use of the 

20% basket, when we cannot accurately predict how investors will react following the adoption 

of proposed regulatory changes, such as a floating NAV.655 One commenter further suggested 

 possible, to identify “other securities” that may actually qualify as “government securities,” it is possible 

that some assets classified as other securities may still qualify as government securities. Accordingly, the 

results of this analysis should be viewed as upper bounds on the extent to which government money market 

funds invest in “other securities” (i.e. non-government securities). 

652 See id. (reporting based on Form N-MFP data, as of November 2013, 97 government money market funds 

out of 565 total money market funds).

653 Id. 

654 Id. 

655 See, e.g., Comment Letter of the Dreyfus Corporation (Apr. 23, 2014, DERA Study) (“Dreyfus DERA 

Comment Letter”) (expecting that the staff’s analysis would not show significant industry investment by 

government funds in non-government securities, but suggesting that this is a result of investor preference 

that must be viewed in the context of stable NAV money market funds and noting that investor interest in 

hybrid government money market funds may increase in a floating NAV context); Comment Letter of 

Wells Fargo Fund Management, LLC (Apr. 23, 2014, DERA Study) (“Wells Fargo DERA Comment 
210

that the analysis instead should address the potential systemic risk posed by a hybrid fund.656 As 

other commenters noted, however, we recognize the potential for increased investor interest in 

hybrid government money market funds, and as discussed above, we are concerned that 

continuing to permit government money market funds to invest potentially up to 20% of fund 

assets in non-government securities presents risks that are contrary to goals of this rulemaking. 

In fact, the concern raised by these commenters, suggesting that the historical use of the 20% 

basket is irrelevant in the context of a future regulatory regime that includes a floating NAV 

reform, further supports our concern that retaining the 20% non-government securities basket is 

likely to result in increased risk taking by institutional prime fund investors who move to 

government money market funds in search of greater yield (but with the continued benefit of a 

stable NAV). We also note that our staff’s analysis of the historical use of the 20% basket 

establishes the baseline (i.e., the extent to which government money market funds have used the 

20% basket) for our economic analysis discussed below. 

One commenter stated its belief that allowing government money market funds to invest 

up to 20% in non-government securities will not materially increase the risks of these funds to 

investors or the financial system and that such a fund would have adequate liquidity to satisfy 

 

Letter”) (suggesting that without the ability for government money market funds to diversify into prime and 

municipal securities, a significant inflow into government funds could force already low yields on shortterm government securities to turn negative). Although we recognize the potentially adverse effects of 

negative yields (e.g., some funds might close to further investment, affecting capital formation), we believe 

that the potential risks associated with a government fund investing up to 20% of its total assets in nongovernment assets outweighs speculative concerns about future interest rates that may or may not remain at 

historic lows two years after the rules regarding our floating NAV reform become final. 

656 See Dreyfus DERA Comment Letter.
211

any increased redemption pressure that results from a credit event in the 20% basket.657 This 

commenter cites to our statement in the Proposing Release, where we characterized as “minimal” 

the risk of government money market funds that maintain at least 80% of their total assets in 

cash, government securities, or repurchase agreements that are collateralized by cash or 

government securities.658 We continue to believe, however, as we also stated in the Proposing 

Release, that “a credit event in [the] 20% portion of the portfolio or a shift in interest rates could 

trigger a drop in the shadow price, thereby creating incentives for shareholders to redeem shares 

ahead of other investors.”659 Even if we assume that a government fund had sufficient liquidity 

from its 80% basket of government securities to cover adequately increased redemptions that 

result from a credit event in the 20% basket, we note that the structural incentives that exist in 

stable NAV money market funds, and the associated first mover advantage and potential 

shareholder dilution concerns, still exist.660 And, indeed, after our floating NAV reform takes 

effect, the incentives could be even more pronounced in government funds if those institutional 

investors who are the most sensitive to risk move to government funds. 

Based on the staff’s analysis, we expect that the 0.5% non-conforming basket is 

consistent with current industry practices and strikes an appropriate balance between providing 

government money market fund managers with adequate flexibility to manage such funds while 

preventing them from taking on potentially high levels of risk associated with non-government 

assets. We therefore are revising the definition of a government fund to require that such a fund 

 657 See Wells Fargo DERA Comment Letter.

658 See Proposing Release, supra note 25, at text accompanying n.176.

659 See id. at text following n.173.

660 See supra section III.B.3. 
212

invest at least 99.5% (up from 80% in the proposal) of its assets in cash, government securities, 

and/or repurchase agreements that are collateralized by cash or government securities. A money 

market fund may not call itself or include in its name “government money market fund” or 

similar names unless the fund complies with this requirement.

661 

Because we believe that the de minimis basket we are adopting is consistent with current 

industry practice, we do not believe that government funds will experience any material 

reduction in yield, based on current interest rates, as a result of our amendments. In addition, we 

do not believe that government funds will be required to make any systems modifications as a 

result of changing to a 0.5% de minimis basket because funds are already required to monitor 

compliance with the existing 20% non-government basket requirement. As discussed below, 

however, we do expect that money market funds may need to amend their policies and 

procedures to reflect the changes we are adopting today, including the new 0.5% de minimis

basket.662 We estimate that it will cost each money market fund complex approximately $2,580

in one-time costs to amend their policies and procedures.663 

Because staff analysis shows that our 0.5% non-conforming basket is consistent with 

industry practice, we believe that any effect on efficiency, competition, or capital formation 

should be minimal. In addition, any government money market funds that do currently use the 

20% basket could roll out of any excess exposure to non-government assets by the time that 

 661 Rule 2a-7(a)(16) defines a government money market fund and requires that such funds invest at least 

99.5% of fund assets in cash, government securities, and repurchase agreements that are collateralized 

fully. 

662 These costs are included as part of the Paperwork Reduction Act analysis. See infra section IV.A.

663 Id.
213

funds are required to comply with the amended rule, given rule 2a-7’s maturity limits on 

portfolio securities. Nevertheless, reducing the size of the basket could affect efficiency, 

competition, or capital formation in the future because decreasing the size of the basket reduces a 

government fund’s flexibility to invest in non-government assets in the future. For example, 

decreasing the size of the basket could lead to a loss of efficiency if government funds are unable 

to invest in securities that government funds are currently permitted to purchase. Reducing the 

basket size could also restrict competition among money market funds because government

funds would not be able to invest more than 0.5% in non-government assets and thus will have a 

reduced ability to compete with other money market funds based on yield. Finally, capital 

formation in the commercial paper market could be hindered by reducing the 20% basket and 

reducing these funds’ ability to invest in commercial paper. We do not expect any such effect to 

be substantial, however, given the very small extent to which government funds have recently 

used the non-government basket. 

We also recognize the potential for a significant inflow of money market fund assets into 

government money market funds from institutional prime investors (seeking a stable NAV 

alternative) and investors that are unable or unwilling to invest in a product that may restrict 

liquidity (through our liquidity fees and gates reform). As we discuss in section III.K below, we 

do not anticipate that the impact from the final rule amendments, including those related to our 

floating NAV reform, will be large enough to constrain government funds and their potential 

investors. 

2. Retail Money Market Funds

As was proposed, our fees and gates reform will apply to retail money market funds, but 
214

our floating NAV reform will not. However, as discussed more below, we are revising the 

definition of a retail money market fund from our proposal to address concerns raised by 

commenters. As amended, a retail money market fund means a money market fund that has 

policies and procedures reasonably designed to limit all beneficial owners of the fund to natural 

persons.664 

As discussed in the Proposing Release and the DERA Study, retail investors historically 

have behaved differently from institutional investors in a crisis, being less likely to make large 

redemptions quickly in response to the first sign of market stress. During the financial crisis, 

institutional prime money market funds had substantially larger redemptions than prime money 

market funds that self-identify as retail.665 As noted in the Proposing Release, for example, 

approximately 4-5% of retail prime money market funds had outflows of greater than 5% on 

each of September 17, 18, and 19, 2008, compared to 22-30% of institutional prime money 

market funds.666 Similarly, in late June 2011, institutional prime money market funds 

experienced heightened redemptions in response to concerns about their potential exposure to the 

Eurozone debt crisis, whereas retail prime money market funds generally did not experience a 

similar increase.667 Studies of money market fund redemption patterns in times of market stress 

 664 See infra note 679 and accompanying text.

665 See Proposing Release, supra note 25, at n.185 and accompanying text.

666 See id. 

667 See Proposing Release, supra note 25, at n.187 and accompanying text. We noted that, based on 

iMoneyNet data, retail money market funds experienced net redemptions of less than 1% between June 14, 

2011 and July 5, 2011, and only 27 retail money market funds had redemptions in excess of 5% during that 

period (and of these funds only 7 had redemptions in excess of 10% during this period), far fewer 

redemptions than those incurred by institutional funds. We have also reviewed the redemption activity for 

institutional prime funds during this same time period and note that institutional prime funds experienced 

net redemptions of approximately 9% between June 14, 2011 and July 5, 2011, and 46 institutional prime 
215

also have observed this difference.668 As we noted in the Proposing Release and discussed 

above, we believe that institutional shareholders tend to respond more quickly than retail 

shareholders to potential market stresses because generally they have greater capital at risk and 

may be better informed about the fund through more sophisticated tools to monitor and analyze 

the portfolio holdings of the funds in which they invest.669 We discuss below our fees and gates 

and floating NAV reforms and their application to retail money market funds, as defined by our 

amendments adopted today. 

a. Fees and Gates

Largely for the reasons discussed above, several commenters argued that our fees and 

gates reforms should not apply to retail money market funds, in the same way that our floating 

NAV reform would not apply to retail funds.670 More specifically, commenters argued that retail 

investors behave differently than institutional investors and, therefore, retail money market funds 

are insulated from runs and sudden losses of liquidity.671 

 

money market funds had redemptions in excess of 5% during that period (and of these funds 35 had 

redemptions in excess of 10% during this period), far greater redemptions than those incurred by retail 

funds.

668 See, e.g., DERA Study, supra note 24, at 8; Cross Section, supra note 35, at 9 (noting that institutional 

prime money market funds experienced net redemptions of $410 billion (or 30% of assets under 

management) in the four weeks beginning September 10, 2008, based on iMoneyNet data, while retail 

prime money market funds experienced net redemptions of $40 billion (or 5% of assets under management) 

during this same time period); Marcin Kacperczyk & Philipp Schnabl, How Safe are Money Market 

Funds?, 128 Q. J. ECON. 1017 (April 5, 2013) (“Kacperczyk & Schnabl”); Wermers Study, supra note 35. 

669 We also understand that retail money market funds’ shareholder base tends to be less concentrated and, 

thus, less likely to move large amounts of money at once. We believe this may be, in part, why retail 

money market funds experienced fewer redemptions during the financial crisis.

670 See, e.g., Fin. Svcs. Roundtable Comment Letter; Comment Letter of United Services Automobile 

Association (Sept. 17, 2013) (“USAA Comment Letter”); MFDF Comment Letter; see also Fidelity 

Comment Letter (arguing that the fees and gates requirements should be limited to institutional prime 

funds).

671 See, e.g., USAA Comment Letter; MFDF Comment Letter (“Because retail investors are demonstrably 
216

Although, as discussed above, the evidence suggests that retail investors historically have 

exhibited much lower levels of redemptions or a slower pace of redemptions in times of stress,672

we cannot predict future investor behavior with certainty and, thus, we cannot rule out the 

potential for heavy redemptions in retail funds in the future. Empirical analyses of retail money 

market fund redemptions during the financial crisis show that at least some retail investors 

eventually began redeeming shares.673 Similarly, we note that when the Reserve Primary Fund, 

which was a mixed retail and institutional money market fund, “broke the buck” as a result of the 

Lehman Brothers bankruptcy, almost all of its investors ran—retail and institutional alike. 

Additionally, we note that it is possible that the introduction of the Treasury Temporary 

Guarantee Program on September 19, 2008 (a few days after institutional prime money market 

funds experienced heavy redemptions) lessened the incentive for shareholders to redeem from 

retail money market funds. Moreover, as we recognized in the Proposing Release, retail prime

money market funds, unlike government money market funds, generally are subject to the same 

credit and liquidity risks as institutional prime money market funds.674 As such, absent fees and 

gates, there would be nothing to help manage or prevent a run on retail prime money market 

funds in the future. 

 

slower to redeem their shares, the fund’s adviser will have greater ability to manage the fund’s liquidity in a 

way necessary to meet redemptions, even in times of market stress, without necessitating the cost of that 

liquidity being imposed on redeeming retail shareholders.”); Comment Letter of Financial Services Institute 

(Sept. 17, 2013) (“Fin. Svcs. Inst. Comment Letter”) (“Retail investors pose a substantially lower risk of 

high redemption activities during periods of market stress ....”).

672 See Proposing Release, supra note 25, at n.199 and accompanying text.

673 See Proposing Release, supra note 25, at n.197 and accompanying text; see also Wermers Study, supra 

note 35.

674 See Proposing Release, supra note 25, at 199.
217

As noted in the Proposing Release, we also believe there is a difference in the anticipated 

shareholder behaviors we are trying to address by the fees and gates requirements and floating 

NAV requirement as applied to retail funds.675 The floating NAV requirement is specifically 

designed to address shareholders’ incentive to redeem to take advantage of pricing discrepancies 

between a money market fund’s market-based NAV per share and its stable share price. As 

discussed above, we believe this incentive likely is greatest among institutional investors because 

they are more likely to have significant sized investments at stake and the sophistication and 

resources to monitor actively such discrepancies.676 While retail investors are unlikely to be 

motivated to a substantial degree by the first-mover advantage created by money market funds’ 

stable pricing convention, they may be motivated to redeem heavily in flights to quality, 

liquidity, and transparency (even if they may do so somewhat slower than institutional 

investors). Fees and gates are designed to address these types of redemptions.677 We also note 

that retail money market funds today operate with the potential for gates under rule 22e-3, which 

allows a fund board to permanently gate and liquidate a money market fund under certain 

circumstances. Today’s amendments include a number of disclosure reforms that are designed to 

ensure that retail investors will understand this new additional fee and gate regime for money 

market funds.678

In addition, the floating NAV requirement will affect a shareholder’s experience with an 

 675 See Proposing Release, supra note 25, at 200. 

676 See generally supra note 669 and accompanying text. 

677 See supra section III.B.1; see also Invesco Comment Letter (suggesting that liquidity fees would mitigate 

the “first-mover” advantage); UBS Comment Letter. 

678 See infra section III.E.
218

institutional prime money market fund on a daily basis. It thus is a significant reform that is 

targeted only at those investors that we consider most likely to be motivated to redeem at least in 

part on the basis of pricing discrepancies in the fund. In contrast, and as discussed above, the 

fees and gates requirements will not affect a money market fund on a day-to-day basis; its effect 

will be felt only if the fund’s weekly liquid assets fall below 30% of its total assets–i.e., unless it 

comes under potential stress–and even then, only if the board determines that a fee and/or gate is 

in the best interests of the fund. Further, while we recognize that a retail money market fund 

may be less likely to experience strained liquidity (and thus less likely to need to impose a fee or 

gate), we believe there is still a sufficient risk of this occurring that we should allow such funds

to impose a fee or gate to manage any related heavy redemptions when the weekly liquid assets 

fall below 30% and doing so is in the fund’s best interests. For the same reasons, we believe 

requiring a fund to impose a liquidity fee when weekly liquid assets fall below 10% is also 

appropriate, unless the board determines otherwise based on the fund’s best interests. 

Accordingly, retail money market funds will be subject to the fees and gates reform. 

b. Floating NAV

i. Definition of Retail Money Market Fund

As we proposed, however, we are not imposing the floating NAV reform on retail money 

market funds. For purposes of the floating NAV reform, we are defining a retail money market 

fund to mean a money market fund that has policies and procedures reasonably designed to limit 

all beneficial owners of the fund to natural persons (“retail funds”).679 

 679 See rule 2a-7(a)(25). “Beneficial ownership” typically means having voting and/or investment power. See, 

e.g., Securities Exchange Act rules 13d-3 and 16a-1(a)(2); Metropolitan Life Insurance Company, SEC 
219

Many commenters generally supported not applying a floating NAV requirement to retail 

money market funds, noting, for example, retail investors’ moderate redemption activity during 

the financial crisis as compared with institutional prime funds and the importance of retaining a 

stable NAV investment product for retail investors that facilitates cash management, particularly 

where there are few alternatives offering diversification, stability, liquidity, and a market-based 

rate of return for these investors.680 Some commenters, however, objected to, or expressed 

concerns about not applying a floating NAV to retail funds. These commenters noted, for 

example, that (i) retail investors in the future may not behave the way we observed in 2008; (ii) 

increases in sophistication of retail investors (for example, through technological advancements) 

may lead retail investors to act more like institutional investors over time; and (iii) any 

differentiation between retail and institutional funds provides opportunities for gaming behavior 

by institutional investors.681 

We recognize, as discussed above, that we cannot be certain how retail investors would 

have reacted during the financial crisis had the Treasury Temporary Guarantee Program not been 

implemented. Similarly, we cannot predict whether retail investors, in light of new tools to 

 

Staff No-Action Letter (Nov. 23, 1999) (“Met Life No-Action Letter”) at n.9 and accompanying text. We 

note that our definition of retail money market fund is consistent with the way in which Congress defined a 

“retail customer” in section 913(a) of the Dodd-Frank Act (defining “retail customer,” among other things, 

as a natural person). 15 U.S.C. 80b-11(g)(2). A retail fund may disclose in its prospectus that it limits 

investments to accounts beneficially owned by natural persons and describe in its policies and procedures 

how the fund complies with the retail fund limitation when a shareholder of record is an omnibus account 

holder that does not provide transparency down to the beneficial ownership level. We discuss omnibus 

account issues below. See infra section III.C.2.b.iii. 

680 See, e.g., Blackrock I Comment Letter; Blackrock II Comment Letter; Vanguard Comment Letter; T. Rowe 

Price Comment Letter; ICI Comment Letter.

681 See, e.g., Goldman Comment Letter; J.P. Morgan Comment Letter; HSBC Comment Letter; Hanson et al.

Comment Letter.
220

manage liquidity (e.g., fees and gates) and enhanced disclosure and transparency, will behave 

more like institutional investors in the future. But the evidence to date suggests that retail 

investors do not present the same risks associated with high levels of redemptions posed by 

institutional investors.682 We continue to believe that the significant benefits of providing an 

alternative stable NAV fund option justify the risks associated with the potential for a shift in 

retail investors’ behavior in the future, particularly given that retail money market funds will be 

able to use fees and gates as tools to stem heavy redemptions should they occur. We also note 

that, as discussed below, our revised approach to defining a retail fund based on shareholder 

characteristics should minimize the potential for gaming behavior by institutional investors.

As of February 28, 2014, funds that self-report as retail money market funds held nearly 

$998 billion in assets, which is approximately one-third of all assets held in money market 

funds.683 Unlike under our proposal, which would have required retail funds generally to value 

portfolio securities using market-based factors rather than amortized cost, money market funds 

that qualify as retail funds may continue to offer a stable value as they do today—and facilitate 

their stable price by use of amortized cost valuation and/or penny-rounding pricing of their 

portfolios. As discussed below, our definition of a retail fund reflects several modifications from 

our proposal (in which a retail fund was defined as a fund that limits redemptions to $1 million in 

 682 See supra notes 666 and 667 and accompanying text. 

683 Staff estimates were derived by using self-reported data from iMoneyNet as of February 28, 2014 to 

estimate percentages for retail and institutional segments by money market fund type. Staff then applied 

these percentages to the total market size segments based on Form N-MFP data as of February 28, 2014. 

Of these assets, approximately $593 billion are held by prime money market funds and another $209 billion 

are in government funds. Because the final rules do not subject government funds to the floating NAV 

requirement, funds that qualify as retail money market funds would be potentially relevant only to the 

investors holding the $593 billion in retail prime funds. 
221

a single business day) and reflects an approach suggested by a number of commenters.684

We proposed to define a fund as retail, and thus not subject to the floating NAV reform, 

if it is a fund that restricts a shareholder of record from redeeming more than $1 million in any 

one business day. We explained our belief that this approach should be relatively simple to 

implement because it would only require a fund to establish a one-time, across-the-board 

redemption policy, unlike other approaches based on shareholder characteristics that would 

require ongoing monitoring by the fund. We also stated our belief that our proposed approach 

would reduce the risk that a retail fund would experience heavier redemption requests than it 

could effectively manage in a crisis because it would limit the total amount of redemptions a 

fund can experience in a single day and therefore provide the fund time to better predict and 

manage its liquidity. 

In the Proposing Release, we selected a $1 million redemption limit because we expected 

this amount would be high enough to make money market funds a viable cash management tool 

for retail investors, but low enough that institutional investors would likely self-select out of 

these funds because it would not satisfy their operational needs.685 Under the proposed retail 

fund definition, a fund would be able to permit an “omnibus account holder” to redeem more 

 684 The definition of retail money market fund we are adopting is informed by a joint comment letter submitted 

by eight fund complexes that manage approximately $1.2 trillion of U.S. money market funds (representing 

approximately 45% of the total U.S. money market fund industry assets) as of September 30, 2013. See

Comment Letter dated October 31, 2013 (submitted by BlackRock, Fidelity, Invesco, Legg Mason & 

Western Asset, Northern Trust, T. Rowe, Vanguard, and Wells Fargo) (“Retail Fund Joint Comment 

Letter”).

685 The Proposing Release also noted that a money market fund that sought to qualify as a retail fund would 

need to effectively describe that it is intended for retail investors and include in the fund’s prospectus and 

advertising materials information about the fund’s daily redemption limitations. See Proposing Release, 

supra note 25, at section III.A.4.b.i.
222

than $1 million in a single business day provided the fund has policies and procedures 

reasonably designed to allow the conclusion that the omnibus account holder does not permit any 

beneficial owner to directly or indirectly redeem more than $1 million in a single day.686 The 

Proposing Release also considered and sought comment on other ways to distinguish a retail 

fund from an institutional fund, including applying limitations based on maximum account 

balance, shareholder concentration, or shareholder characteristics (e.g., a social security number 

that would identify the shareholder as an individual person and not an institution).687 We discuss 

below comments received on these alternative means for distinguishing retail funds from 

institutional funds. 

A number of commenters supported (some with suggested scope modifications) our 

proposed approach to define a retail investor by means of a daily redemption limit.688 Many 

commenters, however, raised concerns with defining a retail fund as a fund that imposes a daily 

redemption limit on its investors, stating, for example, that the $1 million daily redemption limit 

would (i) unduly limit liquidity by prohibiting transactions by shareholders whose behavior does 

not present run risk; (ii) restrict full liquidity not only in times of market stress, but also when the 

markets are operating effectively; and (iii) be costly and difficult to implement, monitor, and 

 686 We proposed to define an “omnibus account holder” as “a broker, dealer, bank, or other person that holds 

securities issued by the fund in nominee name.” See proposed (FNAV) rule 2a-7(c)(3)(ii). 

687 See infra note 701 and accompany text for a discussion of social security numbers as a means for 

distinguishing retail from institutional funds in the Proposing Release. 

688 See, e.g., CFA Institute Comment Letter; Northern Trust Comment Letter; Schwab Comment Letter; 

USAA Comment Letter; Vanguard Comment Letter. These commenters also offered suggested scope 

modifications, including increasing or decreasing the daily redemption limit, creating an advance notice 

provision (pre-approved redemptions over $1 million in a single business day), applying the daily 

redemption limit on a per-account basis rather than a per-shareholder basis, and exempting certain 

transactions from the daily redemption limit.
223

enforce.689 As noted above, however, a number of commenters have suggested defining a retail 

money market fund as a fund that seeks to limit beneficial ownership interest to natural 

persons.690 After analyzing the comments received, we agree that defining a retail fund as a fund 

that has policies and procedures reasonably designed to limit beneficial ownership to natural 

persons (“natural person test”) provides a simpler and more cost-effective way to accomplish our 

goal of targeting the floating NAV reform to the type of money market fund that has exhibited 

greater tendencies to redeem first in times of market stress and has the investors most likely to 

seek to take advantage of any pricing discrepancies and therefore dilute the interests of 

remaining shareholders.691 We discuss below the operation of the natural person test and its 

economic effects. 

ii. Operation of the Natural Person Test

As discussed in the Proposing Release, it currently is difficult to distinguish precisely 

between retail and institutional money market funds, given that funds generally self-report this 

 689 See, e.g., Comment Letter of John D. Hawke, Jr., Arnold and Porter, LLP on behalf of Federated Investors, 

Inc., Washington, District of Columbia (Nov. 21, 2013) (“Federated XIII Comment Letter”); Federated II 

Comment Letter; Fidelity Comment Letter; ICI Comment Letter; SIFMA Comment Letter.

690 See supra note 684 and accompanying text. In addition to the eight commenters who submitted a joint 

comment letter in support of defining a retail fund by limiting beneficial ownership to natural persons, a 

number of other commenters also supported this definition. See, e.g., SunTrust Comment Letter; ICI 

Comment Letter; SIFMA Comment Letter.

691 A number of commenters supported alternate means of defining a retail investor. See, e.g., Schwab 

Comment Letter (supporting defining retail investors based on concentration risk); Deutsche Comment 

Letter (supporting defining retail investors based on a maximum account balance limit); SIFMA Comment 

Letter (supporting defining retail investors based on a minimum initial investment, but also supporting the 

“natural person” approach we are adopting today); Dreyfus Comment Letter (supporting defining retail 

investors based on settlement times); Fin. Svcs. Roundtable Comment Letter (supporting defining 

institutional investors, rather than retail investors, by, for example, reference to assets under management). 

We have carefully considered these alternative means of defining a retail investor, but we believe, as 

discussed below, that the “natural person” approach suggested by a number of other commenters is a 

simpler and more cost effective way to distinguish between institutional and retail investors.
224

designation, there are no clear or consistent criteria for classifying funds, and there is no 

common regulatory or industry definition of a retail investor or a retail money market fund. We 

noted that the operational challenges of defining a retail fund are numerous and complex. In 

addition, as discussed below, drawing a distinction between retail and institutional investors is 

complicated by the extent to which shares of money market funds are held by investors through 

omnibus accounts and other financial intermediaries. We also recognize that any distinction 

between retail and institutional funds could result in “gaming behavior” whereby investors 

having the general attributes of an institution might attempt to fit within the confines of whatever 

retail fund definition we craft. We believe, however, that defining a retail fund using the natural 

person test will, as a practical matter, significantly reduce opportunities for gaming behavior 

because we believe that most funds will use social security numbers as part of their compliance 

process to limit beneficial ownership to natural persons, and institutional investors are not issued 

social security numbers. 

A money market fund that has policies and procedures reasonably designed to limit 

beneficial owners to natural persons will not be subject to the floating NAV reform. We expect 

that a fund that intends to qualify as a retail money market fund would disclose in its prospectus 

that it limits investments to accounts beneficially owned by natural persons.692 Funds will have 

flexibility in how they choose to comply with the natural person test. As noted by commenters, 

we expect that many funds will rely on social security numbers to confirm beneficial ownership 

by a natural person. The social security number is one well-established method of identification, 

 692 For example, a fund could disclose that it is a retail-only money market fund not subject to the floating 

NAV requirement, consistent with the requirements of Form N-1A. See, e.g., Item 6 and Item 11 of Form 

N-1A; see also infra note 940 and accompanying text.
225

issued to natural persons who qualify under the Social Security Administration’s requirements. 

Because social security numbers are in nearly all cases obtained as part of the account-opening 

process (for natural persons) and are populated in transfer agent and intermediary recordkeeping 

systems, this approach should reduce significantly the required enhancements to systems, 

processes, and procedures that would be required under alternative approaches, including our 

proposed daily redemption limit.693 In addition, for intermediaries using omnibus account 

registrations where the beneficial owners are natural persons (e.g., retail brokerage accounts, 

certain trust accounts, and defined contribution plan accounts), a social security number is a key 

component of customer account-opening procedures and compliance and therefore should allow 

intermediaries to distinguish retail from institutional investors (and therefore assist retail funds in 

satisfying the retail fund definition).694 In many cases, funds and intermediaries already collect 

this data to comply with “know your customer” practices and anti-money laundering laws and 

should easily be able to identify if a beneficial owner is a natural person.695 

As commenters noted, defining a retail fund in this way encompasses a large majority of 

individual investors who use retail accounts today.696 For example, we understand that many taxadvantaged savings accounts and ordinary trusts are beneficially owned by natural persons, and 

therefore would likely qualify under the natural person test.697 We understand that, often, in 

 693 See, e.g., ICI Comment Letter.

694 Id.

695 Id.

696 See Retail Fund Joint Comment Letter.

697 Natural persons often invest in money market funds through a variety of tax-advantaged accounts and 

trusts, including, for example: (i) participant-directed defined contribution plans (section 3(34) of the 

Employee Retirement Income Security Act (“ERISA”)); (ii) individual retirement accounts (section 408 or 
226

these types of accounts, natural persons are responsible for making the decision to redeem from a 

fund during a time of crisis (rather than an institutional decision maker). We acknowledge, 

however, that a fund may still qualify as a retail money market fund notwithstanding having an 

institutional decision maker (e.g., a plan sponsor in certain retirement arrangements, or an 

investment adviser managing discretionary investment accounts) that could eliminate or change 

an investment option, such as offering or investing in a money market fund. We also recognize 

that there is a potential risk that an institutional decision maker may react differently in times of 

market stress than the individuals that we expect will invest in retail money market funds as 

defined under our amended rule. We believe that in many instances, however, this risk can be 

mitigated. A number of commenters noted, for example, that under section 3(34) of ERISA, the 

plan sponsor of a defined contribution plan can eliminate or change an investment option without 

providing notice of the change, but stated that the plan sponsor would likely provide 30 days’ 

notice of any change in order to obtain the benefit of the fiduciary safe harbor in section 404(c) 

of ERISA.698 To the extent that there remains a risk that an institutional decision maker 

associated with a qualifying retail fund makes decisions inconsistent with how we understand 

retail funds generally behave, we believe that our approach appropriately balances this potential 

 

408A of the Internal Revenue Code (“IRC”)); (iii) simplified employee pension arrangements (section 

408(k) of the IRC); (iv) simple retirement accounts (section 408(p) of the IRC); (v) custodial accounts 

(section 403(b)(7) of the IRC); (vi) deferred compensation plans for government or tax-exempt 

organization employees (section 457 of the IRC); (vii) Keogh plans (section 401(a) of the IRC); (viii) 

Archer medical savings accounts (section 220(d) of the IRC); (ix) college savings plans (section 529 of the 

IRC); (x) health savings account plans (section 223 of the IRC); and (xi) ordinary trusts (section 7701 of 

the IRC). Accounts that are not beneficially owned by natural persons (for example, accounts not 

associated with social security numbers), such as those opened by businesses, including small businesses, 

defined benefit plans, or endowments, would not qualify as retail money market funds. 

698 See Retail Fund Joint Comment Letter.
227

risk against the substantial benefits of providing a simple and cost-effective way to distinguish 

retail funds and provide a targeted floating NAV requirement. 

As noted above, funds that intend to satisfy the retail fund definition will be required to 

adopt and implement policies and procedures reasonably designed to restrict beneficial 

ownership to natural persons.699 For example, funds could have policies and procedures that will 

help enable the fund to “look through” these types of accounts and reasonably conclude that the 

beneficial owners are natural persons. A fund’s policies and procedures could, for example,

require that the fund reasonably conclude that ownership is limited to natural persons and do so 

(i) directly, such as when the investor provides a social security number to the fund adviser, 

when opening a taxable or tax-deferred account through the adviser’s transfer agent or brokerage 

division; or (ii) indirectly, such as when a social security number is provided to the fund adviser 

in connection with recordkeeping for a retirement plan, or a trust account is opened with 

information regarding the individual beneficiaries. We note that our definition of a retail money 

market fund provides a fund with the flexibility to develop policies and procedures that best suit 

its investor base and does not require that the fund use social security numbers to reasonably 

conclude that investors are natural persons. For example, a money market fund or the 

appropriate intermediary could determine the beneficial ownership of a non-U.S. natural person 

by obtaining other government-issued identification, for example, a passport.700 

In the Proposing Release, we discussed as an alternative to the daily redemption limit 

 699 See rule 2a-7(a)(25).

700 See, e.g., 31 CFR 1023.220(a)(2)(i)(A)(4)(ii) (requiring a broker-dealer to obtain for non-U.S. persons [a] 

taxpayer identification number, a passport number and country of issuance, an alien identification card 

number, or the number and country of issuance of any other government-issued document evidencing 

nationality or residence and bearing a photograph or similar safeguard).
228

approach requiring that funds consider shareholder characteristics, such as whether the investor 

has a social security number or a taxpayer identification number. We noted our concern, 

however, that social security numbers do not necessarily correlate to an individual, and taxpayer 

identification numbers do not necessarily correlate to a business (for example, businesses 

operated as pass-through entities).701 One commenter reiterated this concern.702 We note, 

however, that the definition of a retail fund does not rely solely on each investor having a social 

security number. Rather, our approach recognizes that in most cases, a fund or intermediary may 

often satisfy the natural person test by implementing policies and procedures that require 

verifying a social security number at the time of account opening. But, the fund or intermediary 

may, for example, determine that a non-U.S. investor who does not have a social security 

number is a natural person (e.g., using a passport).

Finally, we note that, currently, it is not uncommon for a money market fund to be owned 

by both retail and institutional investors, typically through a retail and institutional share class, 

respectively.703 In order to qualify as a retail money market fund, funds with separate share 

classes for different types of investors (as well as single-class funds for both types of investors) 

 701 See Proposing Release, supra note 25, at section III.A.4.c.iii.

702 See Schwab Comment Letter (suggesting that any final rule identify accounts that are inherently retail and 

include them as part of the definition of a retail fund so that, for example, estates and trusts would qualify 

to invest in a retail money market fund (despite having a tax identification number, rather than a social 

security number). We note that an estate or trust would be able to qualify for investment in a retail fund 

under our definition, provided the fund reasonably concludes that the beneficial owner(s) is a natural 

person. 

703 Rule 18f-3 under the Investment Company Act enables a money market fund to offer retail and institutional 

share classes by providing an exemption from sections 18(f)(1) and 18(i) of the Investment Company Act. 

We are amending, as proposed, rule 18f-3 (the multiple class rule) to replace the phrase “that determines 

net asset value using the amortized cost method permitted by § 270.2a-7” with “that operates in compliance 

with § 270.2a-7” because the money market funds that are subject the floating NAV requirement would not 

use the amortized cost method to a greater extent than mutual funds generally.
229

will need to reorganize into separate money market funds for retail and institutional investors, 

which may be separate series of the fund.704 In the case of a money market fund with retail and 

institutional share classes, two commenters suggested that the Commission provide relief from 

section 18(f)(1) of the Act (designed, in part, to prohibit material differences among the rights of 

shareholders in a fund)705 to allow the fund to reorganize the classes into separate money market 

funds.706 

We recognize that a reorganization of a share class of a money market fund into a new 

series may implicate section 18 of the Investment Company Act, as well as section 17(a) of the 

Investment Company Act (section 17(a) prohibits, among other things, certain transactions 

between a fund and an affiliated person of the fund to prevent unfairness to the fund or 

overreaching by the affiliated person).707 Notwithstanding the prohibitions in sections 17(a) and 

 704 Each series of a series investment company is a separate investment company under the Investment 

Company Act. See, e.g., Fair and Equitable Treatment of Series Type Investment Company Shareholders, 

Rel. No. IC-7276 (Aug. 8, 1972). See also J.R. Fleming, Regulation of Series Investment Companies under 

the Investment Company Act of 1940, 44 Bus. Law. 1179 (Aug. 1989).

705 See Exemption for Open-End Management Investment Companies Issuing Multiple Classes of Shares; 

Disclosure by Multiple Class and Master-Feeder Funds, Investment Company Act Release No. 19955 (Dec. 

15, 1993), at n.19 and accompanying text.

706 See Dechert Comment Letter; NYC Bar Committee Comment Letter. Section 18(f)(1) of the Act generally 

prohibits a fund from issuing any “senior security” and section 18(i) of the Act generally requires that every 

share of stock issued by a fund “shall be a voting stock and have equal voting rights with every other 

outstanding voting stock.” Rule 18f-3 under the Act provides a conditional exemption from sections 

18(f)(1) and 18(i) of the Act, but Rule 18f-3 does not provide an exemption to permit a fund with multiple 

classes of shares to separate a class from the other class(es) and reorganize it into a separate fund, and such 

a reorganization may implicate the concerns underlying sections 18(f)(1) and 18(i) of the Act. 

707 See section 17(b) (setting forth, among other things, the standards for exempting a transaction from the 

prohibition). Section 17(a) of the Act, among other things, generally prohibits any affiliated person of a 

fund, acting as principal, from knowingly selling to or buying from the fund, any security or other property, 

with certain limited exceptions. A fund whose class of shares is being reorganized into a new fund may be 

an affiliated person of the new fund, due to, among other possibilities, sharing an investment adviser or 

board of directors. Similarly, the new fund may be an affiliated person of the fund. Accordingly, the sale 

of the assets of the fund to the new fund, and the new fund's purchase of those assets from the fund, in a 

reorganization of a class of the fund may be prohibited under sections 17(a)(1) and (2) of the Act. Rule 
230

18(f)(1) and 18(i) of the Act, in the context of distinguishing between retail and institutional 

money market funds when implementing the reforms we are adopting today, the Commission is 

of the view that a reorganization of a class of a fund into a new fund may take place without 

separate exemptive relief, provided that the fund’s board of directors, including a majority of the 

directors who are not interested persons of the fund, determines that the reorganization results in 

a fair and approximately pro rata allocation of the fund's assets between the class being 

reorganized and the class remaining in the fund.708 As is the case with any board determination, 

the basis for the fund board’s determination should be documented fully in the fund’s corporate 

minutes.709 We believe that a reorganization accomplished in this manner would be consistent 

with the investor protection concerns in sections 17(a) and 18 of the Act in this context. More 

specifically, we believe that this board determination, in the context of a one-time reorganization 

related specifically to effectuating a split of separate share classes in order to qualify as a retail 

money market fund, addresses the primary concerns that sections 17 and 18 of the Act are 

intended, in part, to address—to ensure that shareholders in a fund are treated fairly and prohibit 

overreaching by affiliates. 

 

17a-8 under the Act provides an exemption from sections 17(a)(1) and 17(a)(2) of the Act for a transaction 

that is a “merger, consolidation, or purchase or sale of substantially all of the assets” of a fund that meets 

the rule’s conditions. A reorganization of a class of a fund into a new fund may not be covered by rule 17a8. 

708 A pro rata allocation ensures, for example, that portfolio securities with different liquidity and/or quality 

characteristics are distributed equally among each fund class. The board’s determination requires a finding 

that the reorganization results in a fair and approximately pro rata allocation of the fund’s assets in order to 

acknowledge that there may be limited situations in which a 100% pro rata allocation may not be practical 

(e.g., an odd-lot portfolio security).

709 All registered investment companies, including money market funds, must maintain as part of their records 

minute books for board of directors’ meetings and preserve such records permanently, the first two years in 

an easily accessible place. See rules 31a-1(b)(4) and 31a-2(a)(1).
231

The Commission’s position is that, as part of implementing a reorganization in response

to the amendments we are adopting today, a money market fund may involuntarily redeem 

certain investors that will no longer be eligible to invest in the newly established or existing 

money market fund. We recognize that such an involuntary redemption (or cancellation) of fund 

shares may implicate section 22(e) of the Act, which, among other things, generally prohibits a 

fund from suspending (or postponing) the right of redemption for any redeemable security for 

more than seven days after tender of such shares.710 Our staff has, in the past, however, provided 

no-action relief under section 22(e) of the Act in similar situations (e.g., where an investor’s 

account balance falls below a certain value, provided shareholders are notified in advance).711 

Notwithstanding the prohibitions in section 22(e) of the Act, in the context of a one-time 

reorganization to distinguish between retail and institutional money market funds (either in 

separating classes into new funds or in ensuring that an existing fund only has retail or 

institutional investors), the Commission’s position is that a fund may involuntarily redeem 

investors who no longer meet the eligibility requirements in a fund’s retail and/or institutional 

money market funds without separate exemptive relief, provided that the fund notifies in writing 

such investors who become ineligible to invest in a particular fund at least 60 days before the 

 710 For example, if a shareholder may not redeem a portion of his shares without causing an involuntary 

redemption of his or her entire account balance, the shareholder may be deprived of the right to redeem that 

portion of his account balance, in contravention of section 22(e).

711 See, e.g., Scudder Group of Funds (pub. avail. Sept. 15, 1992) (no-action relief granted to a fund that 

proposed to, upon providing 30 days’ notice, involuntarily redeem accounts whose shareholders failed to 

provide taxpayer identification numbers); DFA U.S. Large Cap Portfolio Inc. (pub. avail. Sept. 7, 1990) 

(no-action relief provided to a fund that may, upon providing 30 days’ notice, involuntarily redeem 

investors who failed to maintain at least $15 million in a private advisory account with the investment 

adviser that produced annual advisory fees of at least $100,000; Axe-Houghton Income Fund, Inc. (pub. 

avail. Mar. 19, 1981) (no-action relief provided to a fund that may, upon providing a number of notice and 

delayed effectiveness provisions, involuntarily redeem investors whose account balances fall below a 

prescribed threshold). 
232

redemption occurs. 

Accordingly, the Commission is exercising its authority under section 6(c) of the Act to 

provide exemptions from these provisions of the Act to permit a money market fund to 

reorganize a class of a fund into a new fund in order to qualify as a retail money market fund and 

make certain involuntary redemptions as discussed above.712 As discussed above, we believe that 

such exemptions do not implicate the concerns that Congress intended to address in enacting 

these provisions, and thus they are necessary and appropriate in the public interest and consistent 

with the protection of investors and the purposes fairly intended by the Act. We discuss the 

potential costs of reorganizing funds below.713

iii. Omnibus Account Issues

As we discussed in the Proposing Release, most money market funds do not have the 

ability to look through omnibus accounts to determine the characteristics of their underlying 

investors. An omnibus account may consist of holdings of thousands of small investors in 

retirement plans or brokerage accounts, just one or a few institutional accounts, or a mix of the 

two. Omnibus accounts typically aggregate all the customer orders they receive each day, net 

purchases, net redemptions, and they often present a single buy and single sell order to the fund. 

Accordingly, omnibus accountholders may make it more difficult for a money market fund to 

 712 See section 6(c). 

713 We expect that money market funds that choose to rely on our exemptive relief above and make this 

determination in order to separate an existing retail share class into a new fund would do so only where the 

fund’s adviser believes it would result in cost savings as compared with the costs of establishing entirely 

new funds (these costs are estimated below). We do not estimate any additional costs for funds to 

document the board’s determination that the reorganization results in a fair and approximately pro rata 

allocation of the fund's assets. See supra note 709. 
233

assure itself that it is able to operate as a retail fund.714

A money market fund that seeks to qualify as a retail fund must have policies and 

procedures that are reasonably designed to limit the fund’s beneficial owners to natural persons. 

Because an omnibus accountholder is the shareholder of record (and not the beneficial owner), 

retail funds will need to determine that the underlying beneficial owners of the omnibus account 

are natural persons. We are not prescribing the ways in which a fund may seek to satisfy the 

retail fund definition, including how the fund will reasonably conclude that underlying beneficial 

owners of an omnibus account are natural persons.715 There are many ways for a fund to 

effectively manage their relationships with their intermediaries, including contractual 

arrangements or periodic certifications. Funds may manage these relations in the manner that 

best suits their circumstances. We note that a fund’s policies and procedures could include, for 

example, relying on periodic representations of a third-party intermediary or other verification 

methods to confirm the individual’s ownership interest, such as when a fund is providing 

investment only services to a retirement plan or an omnibus provider is unable or unwilling to 

share information that would identify the individual. Regardless of the specific policies and 

procedures followed by a fund in reasonably concluding that the underlying beneficial owners of 

 714 As we noted in the Proposing Release, the challenges of managing implementation of fund policies through 

omnibus accounts are not unique to distinguishing between retail and institutional funds. For example, 

funds frequently rely on intermediaries to assess, collect, and remit redemption fees charged pursuant to 

rule 22c-2 on beneficial owners that invest through omnibus accounts. Funds and intermediaries face 

similar issues when managing compliance with other fund policies, such as account size limits, breakpoints, 

rights of accumulation, and contingent deferred sales charges. Service providers also offer services 

designed to facilitate compliance and evaluation of intermediary activities.

715 We note that although it is a fund’s obligation to satisfy the retail fund definition, an intermediary could 

nonetheless be held liable for violations of other federal securities laws, including the antifraud provisions, 

where institutional investors are improperly funneled into retail funds. 
234

an omnibus account are natural persons, we expect that a fund will periodically review the 

adequacy of such policies and procedures and the effectiveness of their implementation.716 

Accordingly, such periodic reviews would likely assist funds in detecting and correcting any 

gaps in funds’ policies and procedures, including a fund’s ability to reasonably conclude that the 

underlying beneficial owners of an omnibus account are natural persons. As discussed below in 

the economic analysis, we have included in our aggregate cost estimate costs for funds to 

establish policies and procedures with respect to omnibus accounts, but we expect that funds 

generally will rely on financial intermediaries to implement such policies (rather than, for 

example, entering into contractual arrangements). 

iv. Economic Analysis

In addition to the costs and benefits discussed above, implementing any reform that 

distinguishes between retail and institutional money market funds will likely have similar effects 

on efficiency, competition, and capital formation, regardless of how we define a retail money 

market fund (or retail investor). We discussed these effects in the Proposing Release and they 

are described below.717 To the extent that retail investors prefer a stable NAV money market 

fund, our floating NAV reform (that does not apply to retail funds) helps to maintain the utility 

of such a money market fund investment product. However, to the extent that funds seek to 

maintain a stable NAV by qualifying as a retail fund, there may be an adverse effect on capital 

 716 See rule 38a-1(a)(3).

717 Commenters did not specifically address our discussion in the Proposing Release of the effects on 

efficiency, competition, and capital formation. A few commenters raised concerns about the costs 

associated with reorganizing money market funds into separate retail and institutional funds (or series), but 

did not quantify those costs or object specifically to the costs we estimated in the Proposing Release. See, 

e.g., Goldman Sachs Comment Letter; UBS Comment Letter.
235

formation if the associated costs incurred by funds are passed on to shareholders. Funds that 

choose to qualify as retail money market funds will incur some operational costs (discussed 

below) and, depending on their magnitude, these costs might affect capital formation and 

competition (depending on the varied ability of funds to absorb these costs). 

To the extent that retail investors prefer a stable NAV product and funds seek to qualify 

as retail money market funds under the amended rules, there may be negative effects on 

competition by benefitting fund groups with large percentages of retail investors relative to other 

funds. The Commission estimates that, as of February 28, 2014, 39 fund complexes (or 46% of 

all fund complexes) have 75% or more of their total assets self-reported as “retail.”718 There also 

could be a negative effect on competition to the extent that certain fund groups already offer 

separate retail and institutional money market funds and thus might not need to reorganize an 

existing money market fund into two separate funds (retail and institutional). The Commission 

estimates that, as of February 28, 2014, there are approximately 76 fund complexes that currently 

offer separately designated retail and institutional money market funds (or series).719 On the 

other hand, as discussed above, we believe that the majority of money market funds currently are 

owned by both retail and institutional investors (although many funds are separated into retail 

and institutional classes), and therefore relatively few funds would benefit from an existing 

structure that includes separate retail and institutional funds. 

Two commenters also suggested that a bifurcation of existing assets in money market 

funds into retail and institutional funds might lead to a significant reduction in scale and 

 718 Based on iMoneyNet data (39 fund complexes ÷ 84 total fund complexes reported = 46%).

719 Based on data from iMoneyNet.
236

therefore some funds may become uneconomical to operate, leading to further consolidation in 

the industry and a reduction in competition.720 As noted above, many fund complexes already 

operate under structures that separate retail and institutional investors, either by established 

funds, series, or classes, and therefore demonstrate that doing so is not uneconomical. We 

recognize, however, that to the extent there are money market funds or fund groups that 

determine that it would not be economical to operate separate retail and institutional individual 

money market funds, there may be a reduction in competition. We believe that such effects 

would be relatively small, as discussed in section III.K below. Finally, we note that there may be 

an adverse effect on competition to the extent that large money market funds are able, based on 

information from broker-dealers and other intermediaries, to receive full transparency into 

beneficial owners. In this way, larger money market funds may find it easier to comply with 

their policies and procedures (and, in particular, with regard to omnibus account holders) to 

qualify as retail money market funds. 

To the extent that money market funds are not able to distinguish effectively institutional 

from retail shareholders, it may have negative effects on efficiency by permitting “gaming 

behavior” by shareholders with institutional behavior patterns who nonetheless invest in retail 

funds. As discussed above, however, we believe the natural person test we are adopting reduces 

significantly the opportunity for “gaming behavior” when compared with our proposal. We also 

recognize that establishing qualifying retail money market funds may also negatively affect fund 

efficiency to the extent that a fund that currently separates institutional and retail investors 

 720 See HSBC Comment Letter; M&T Bank Comment Letter.
237

through different classes instead would need to create separate and distinct funds, which may be 

less efficient.721 The costs of such a re-organization are discussed below. 

The costs and benefits of the natural person test are discussed above. In the Proposing 

Release, we also quantified the operational costs that money market funds, intermediaries, and 

money market fund service providers might incur in implementing and administering a $1 

million daily redemption limit.722 As commenters noted, however, we expect that the approach 

we are adopting today, based on limiting beneficial ownership to natural persons, is a simpler 

and more cost-effective way to achieve our goals. Commenters noted that the natural person 

approach provides a front-end qualifying test that effectively requires intermediaries and/or fund 

advisers to verify the nature of each investor only once. As a result, the natural person test 

reduces operational complexity and eliminates some of the need for costly programming and 

ongoing monitoring.723 These commenters also noted that, although this approach will require 

some refinements to existing systems, these modifications will be significantly less costly than 

building a new system for tracking and aggregating daily shareholder redemption activity (as 

would be required under our proposal). Below, we quantify the estimated operational costs 

associated with implementing the natural person test.724 

 721 We provide exemptive relief from certain provisions of the Act to facilitate the ability of money market 

funds to convert an existing retail fund share class into a separate retail fund series. See supra notes 706-

709 and accompanying text.

722 We estimated that the initial costs would range from $1,000,000 to $1,500,000 for each fund that chooses 

to qualify as a retail money market fund and that money market funds and intermediaries implementing 

policies and procedures to qualify as retail money market funds likely would incur ongoing costs of 20%-

30% of the one-time costs, or between $200,000 and $450,000 per year. See Proposing Release, supra note 

25, at nn.245 and 246 and accompanying text.

723 See Retail Fund Joint Comment Letter. 

724 Our cost estimates are informed by the analysis in the Proposing Release, comments received, and adjusted 
238

The Commission estimates that based on those money market funds that self-report as 

“retail,” approximately 195 money market funds are likely to seek to qualify as a retail money 

market fund under our amended rules.725 We have estimated the ranges of hours and costs 

associated with the natural person test that may be required to perform activities typically 

involved in making systems modifications, implementing fund policies and procedures, and 

performing related activities.726 Although we do not have the information necessary to provide a 

point estimate of the potential costs associated with the natural person test, these estimates 

include one-time and ongoing costs to establish separate funds (or series) if necessary, modify 

systems and related procedures and controls, update disclosure in a fund’s prospectus, as well as 

ongoing operational costs. All estimates are based on the staff’s experience, commenter 

estimates, and discussions with industry representatives. We expect that only funds that 

determine that the benefits of qualifying as a retail money market fund justify the costs would 

seek to qualify and thus bear these costs. Otherwise, they would incur the costs of implementing 

a floating NAV generally or decide to liquidate the fund. 

As discussed above, many money market funds currently are owned by both retail and 

 

to reflect the definition of a retail money market fund we are adopting today. See Proposing Release, supra

note 25, at section III.A.4.d.

725 Based on iMoneyNet, as of February 28, 2014.

726 The costs estimated in this section would be spread among money market funds, intermediaries, and money 

market fund service providers (e.g., transfer agents and custodians). For ease of reference, we refer only to 

money market funds and intermediaries in our discussion of these costs. As with other costs we estimate in 

this Release, we have estimated the costs that a single affected entity would incur. We anticipate, however, 

that many money market funds and intermediaries may not bear the estimated costs on an individual basis. 

The costs of systems modifications, for example, likely would be allocated among the multiple users of the 

systems, such as money market fund members of a fund group, money market funds that use the same 

transfer agent, and intermediaries that use systems purchased from the same third party. Accordingly, we 

expect that the cost for many individual entities may be less than the estimated costs. 
239

institutional investors, although they often are separated into retail and institutional share classes. 

A fund that seeks to qualify as a retail money market fund under our amended rules will need to 

be structured to limit beneficial ownership to only natural persons, and thus any money market 

fund that currently has both retail and institutional shareholders would need to be reorganized 

into separate retail and institutional money market funds. One-time costs associated with this 

reorganization would include costs incurred by the fund’s counsel to draft appropriate 

organizational documents and costs incurred by the fund’s board of directors to approve such 

documents. One-time costs also would include the costs to update the fund’s registration 

statement and any relevant contracts or agreements to reflect the reorganization, as well as costs 

to update prospectuses and to inform shareholders of the reorganization. In addition, funds may 

have one-time costs to obtain shareholder approval to the extent that a money market fund’s 

charter documents and/or applicable state law require shareholder approval to effect a 

reorganization into separate retail and institutional money market funds.727 Funds and 

intermediaries also may incur one-time costs in training staff to understand the operation of the 

fund and effectively implement the natural person test. 

In order to qualify as a retail money market fund, a fund will be required to adopt and 

implement policies and procedures reasonably designed to restrict beneficial owners to natural 

persons. Adopting such policies and procedures and modifying systems to identify an investor 

as a natural person who is eligible for investment in the fund also would involve one-time costs 

 727 One commenter provided survey data suggesting that the one-time range of costs of a shareholder vote to 

segregate retail from institutional investors could range from $2 million - $5 million (57% of respondents) 

or $1 million - $2 million (14% of respondents). See SIFMA Comment Letter. No other commenters 

provided cost estimates regarding shareholder votes. 
240

for funds and intermediaries. Regarding omnibus accounts, the rule does not prescribe the way 

in which funds should determine that underlying beneficial owners of an omnibus account are 

natural persons. We note that a fund may require (as a matter of doing business) that its 

intermediaries implement its policies, including those related to qualification as a retail fund. 

However, there are also other ways for a fund to manage their relationships with their 

intermediaries, such as entering into a contractual arrangement or obtaining certifications from 

the omnibus account holder. In preparing the following cost estimates, we assumed that funds 

will generally rely on financial intermediaries to implement their policies without undergoing the 

costs of entering into a contractual arrangement with the financial intermediaries because funds 

and intermediaries would typically take the approach that is the least expensive. However, some 

funds may choose to undertake voluntarily the costs of obtaining an explicit contractual 

arrangement despite the expense.728 

In our proposal, we estimated that the initial costs would range from $1,000,000 to 

$1,500,000 for each fund that seeks to satisfy the retail money market fund definition (as 

proposed, using a daily redemption limit).729 One commenter provided specific cost estimates 

related to our proposal to define a retail money market fund based on a $1,000,000 daily 

redemption limit, estimating that it would cost the fund complex $11,200,000, or $311,000 per 

fund.730 

 728 A fund might, as a general business practice, prefer to enter into a formal contractual arrangement.

729 See supra note 722.

730 See Federated X Comment Letter (“Federated would have to create new funds and fund classes in order to 

implement retail vs. institutional fund structures. This would cost approximately $1.7 million. In order to 

accomplish client outreach, effect shareholder votes, print new regulatory documents, create new sales 

literature and engage with investors as to the new nature of their shares and alternatives, we estimate that 
241

Based on staff experience and review of the comments received, as well as the changes to 

the retail definition in the final amendments, we estimate that the one-time costs necessary to 

implement policies and procedures and/or for a fund to qualify as a retail money market fund 

under our amended rules, including the various organizational, operational, training, and other 

costs discussed above, will range from $830,000 to $1,300,000 per entity.731 Our estimates 

represent a decrease of $170,000 on the low end, and a decrease of $200,000 on the high end 

from our proposed range of estimated operational costs.732 Our revised cost estimates reflect, as 

noted by commenters, a more cost-effective way to define a retail money market fund. 

 Federated will expend another $4 million. Revisiting and revising contractual relationships with brokerdealers and other intermediaries to provide for enforcement of the $1 million redemption limit would cost a 

further $1.3 million. Charges from independent pricing services, custodians, record-keepers, and transfer 

agents are expected at nearly $3 million. Upgrades to Federated’s internal systems and systems that 

interface with customers and transfer agents would cost another $1.2 million.”). These costs total 

$11,200,000. Averaged across the number of money market funds offered, this commenter estimates the 

one-time implementation costs to be $311,000 per fund ($11,200,000 ÷ 36 money market funds). See 

supra note 586 (using Form N-MFP data, Federated manages 36 money market funds).

731 Estimates also include costs to intermediaries to implement systems and procedures to satisfy money 

market fund requirements regarding omnibus accounts. We estimate that the costs would be attributable to 

the following activities: (i) planning, coding, testing, and installing system modifications; (ii) drafting, 

integrating, and implementing related procedures and controls and documents necessary to reorganize fund 

structures into retail and institutional funds; and (iii) preparing training materials and administering training 

sessions for staff in affected areas. Our estimates of these operational and related costs, and those 

discussed throughout this Release, are based on, among other things, staff experience implementing, or 

overseeing the implementation of, systems modifications and related work at mutual fund complexes, and 

included analyses of wage information from SIFMA’s Management & Professional Earnings in the 

Securities Industry 2013 at infra note 2214. See infra note 2228 for the various types of professionals we 

estimate would be involved in performing the activities associated with our proposals. The actual costs 

associated with each of these activities would depend on a number of factors, including variations in the 

functionality, sophistication, and level of automation of existing systems and related procedures and 

controls, and the complexity of the operating environment in which these systems operate. Our estimates 

generally are based on our assumption that funds would use internal resources because we believe that a 

money market fund (or other affected entity) would engage third-party service providers only if the external 

costs were comparable, or less than, the estimated internal costs. The total operational costs discussed here 

include the costs that are “collections of information” that are discussed in section IV.A.2 of this Release.

732 These amounts are calculated as follows: $1,000,000 (proposed) - $830,000 = $170,000 (low end); 

$1,500,000 (proposed) - $1,300,000 = $200,000 (high end). See Proposing Release, supra note 25, at n.245 

and accompanying text.
242

Accordingly, our cost estimates take into account the fact that most money market funds will 

largely be able to satisfy the natural person test using information that funds already collect and 

have readily available, and reduce the estimated amount of resources necessary, for example, to 

program systems capable of tracking and aggregating daily shareholder redemption activity (that 

would have been required under our proposal).733 

In addition to these one-time costs, as discussed above, funds may have one-time costs to 

obtain shareholder approval to the extent that a money market fund’s charter documents and/or 

applicable state law require shareholder approval to effect a reorganization into separate retail 

and institutional money market funds. One commenter provided survey data that estimated the 

one-time costs would be between $1,000,000 to $5,000,000.734 We note, however, that the 

survey respondents are asset managers, many of whom may be responsible for fund complexes, 

and it is not clear whether these cost estimates represent costs to a fund complex or to a single 

fund. Although the Commission does not have the information necessary to estimate the number 

of funds that may seek shareholder approval to effect a reorganization, we estimate that it will 

cost, on average, approximately $100,000 per fund in connection with a shareholder vote.735 

Finally, money market funds that seek to qualify as retail funds will be required to adopt policies 

and procedures that are reasonably designed to limit beneficial owners of the fund to natural 

persons. As discussed in section IV.A.2 (Retail Funds) below, we estimate that the initial time 

 733 See supra notes 722-724 and accompanying text.

734 See supra note 727.

735 Our estimate is based on the most recently approved Paperwork Reduction Act renewal for rule 17a-8 

under the Act (Mergers of Affiliated Companies), OMB Control No. 3235-0235, available at 

http://reginfo.gov/public/do/PRAViewICR?ref_nbr=201304-3235-015. Our estimate includes legal, 

mailing, printing, solicitation, and tabulation costs in connection with a shareholder vote.
243

costs associated with adopting policies and procedures will be $492,800 for all fund complexes. 

Funds that intend to qualify as retail money market funds will also incur ongoing costs. 

These ongoing costs would include the costs of operating two separate funds (retail and 

institutional) instead of separate classes of a single fund, such as additional transfer agent, 

accounting, and other similar costs. Other ongoing costs may include systems maintenance, 

periodic review and updates of policies and procedures, and additional staff training. Finally, 

our estimates include ongoing costs for funds to manage and monitor intermediaries’ compliance 

with fund policies regarding omnibus accounts. Accordingly, we continue to estimate, as we did 

in the proposal, that money market funds and intermediaries likely will incur ongoing costs 

related to implementation of a retail money market fund definition of 20%-30% of the one-time 

costs, or between $166,000 and $390,000 per year.736 We received no comments on this aspect 

of our proposal.

3. Municipal Money Market Funds

Both the fees and gates reform and floating NAV reform will apply to municipal money 

market funds (or tax-exempt funds737). We discuss below the key characteristics of tax-exempt 

funds, commenter concerns regarding our proposal (and final amendments) to apply the fees and 

gates and floating NAV reforms to tax-exempt funds, and an analysis of potential economic 

effects. We note, as addressed below, that the majority of the comments received relating to tax-

 736 We recognize that adding new capabilities or capacity to a system (including modifications to related 

procedures and controls and related training) will entail ongoing annual maintenance costs and understand 

that those costs generally are estimated as a percentage of the initial costs of building or modifying a 

system.

737 “Municipal money market fund” and “tax-exempt fund” are used interchangeably throughout this Release. 

A municipal money market fund that qualifies as a retail money market fund would not be subject to the 

floating NAV reform. See supra section III.C.2. 
244

exempt funds were given in the context of our floating NAV reform.738 

a. Background

Tax-exempt funds primarily hold obligations of state and local governments and their 

instrumentalities, which pay interest that generally is exempt from federal income taxes.739 Thus, 

the majority of investors in tax-exempt money market funds are those investors who are subject 

to federal income tax and therefore can benefit from the funds’ tax-exempt interest. As 

discussed below, state and local governments rely in part on tax-exempt funds to fund public 

projects.740 As of February 28, 2014, tax-exempt funds held approximately $279 billion of 

assets, out of approximately $3.0 trillion in total money market fund assets.

741 

Industry data suggests institutional investors hold approximately 29% ($82 billion) of 

municipal money market fund assets.742 This estimate is likely high, as omnibus accounts (which 

often represent retail investors) are often categorized as institutional by third-party researchers. 

One commenter, for example, surveyed its institutional tax-exempt money market funds, and 

found that approximately 50% of the assets in these “institutional” funds were beneficially 

owned by institutions.743

On average, over 70% of tax-exempt funds’ assets (valued based upon amortized cost) 

 738 Section III.C.7 below discusses more general reasons for not excluding specific types of money market 

funds from the fees and gates amendments. These reasons apply equally to our analysis of municipal 

money market funds and the fees and gates amendments.

739 See 2009 Proposing Release, supra note 66. 

740 See infra section III.C.3.c; see also INVESTMENT COMPANY INSTITUTE, REPORT OF THE MONEY MARKET 

WORKING GROUP, at 18 (Mar. 17, 2009), available at http://www.ici.org/pdf/ppr_09_mmwg.pdf (“ICI 

REPORT”).

741 Based on data from Form N-MFP.

742 Based on data from iMoneyNet and Form N-MFP as of February 28, 2014. See supra note 683.

743 See Comment Letter of the Dreyfus Corporation (Mar. 5, 2014) (“Dreyfus II Comment Letter”).
245

are comprised of municipal securities issued as variable-rate demand notes (“VRDNs”).744 The 

interest rates on VRDNs are typically reset either daily or every seven days.745 VRDNs include a 

demand feature that provides the investor with the option to put the issue back to the trustee at a 

price of par value plus accrued interest.746 This demand feature is supported by a liquidity 

facility such as letters of credit, lines of credit, or standby purchase agreements provided by 

financial institutions.747 The interest-rate reset and demand features shorten the duration of the 

security and allow it to qualify as an eligible security under rule 2a-7. Tax-exempt funds also 

invest in tender option bonds (“TOBs”), which typically are floating rate securities that provide 

the holder with a put option at par, supported by a liquidity facility provided by a commercial 

bank.748 

b. Discussion

In the Proposing Release, we noted that because most municipal money market funds 

tend to be owned by retail investors, who are among the greatest beneficiaries of the funds’ tax 

advantages, most tax-exempt funds would qualify under our proposed definition of retail money 

market fund and therefore would continue to offer a stable share price.749 We stated that, 

 744 Based on Form N-MFP data as of February 28, 2014 (the remaining holdings are “other municipal debt”).

745 See Frank J. Fabozzi & Steven V. Mann eds, HANDBOOK OF FIXED INCOME SECURITIES 237 (8th ed. 2012).

746 Id. 

747 See Neil O’Hara, THE FUNDAMENTALS OF MUNICIPAL BONDS 40-41 (6th ed. 2012).

748 See id. at 43-44. 

749 A few commenters noted that, in addition to individuals, corporations, partnerships, and other business 

entities may enjoy the tax benefits of investments in tax-exempt funds. See, e.g., Comment Letter of 

Federated Investors (Regulation of Tax-Exempt Money Market Funds) (Sept. 16, 2013) (“Federated VII 

Comment Letter”). One commenter noted that, while corporations may not enjoy the tax advantages 

afforded under the Internal Revenue Code to exempt dividends to the full degree that individuals can enjoy 

them, eligible corporations can benefit from a tax exemption under certain conditions (such as meeting a 

minimum holding period). See Dreyfus II Comment Letter.
246

although there are some tax-exempt money market funds that self-classify as institutional funds, 

we believed these funds’ shareholder base typically is comprised of omnibus accounts with 

underlying individual investors. As noted by commenters and discussed below, we now 

understand that only some (and not all) of these funds’ shareholder base is comprised of omnibus 

accounts with underlying individual investors. We also stated our belief that, like many 

securities in prime funds, municipal securities present greater credit and liquidity risk than U.S. 

government securities and could come under pressure in times of stress. 

Many commenters suggested that we not apply our floating NAV reform750 or our fees 

and gates reform751 to municipal money market funds. Commenters raised specific concerns 

about the ability and extent to which tax-exempt funds would qualify as retail money market 

funds as proposed (and therefore be permitted to maintain a stable NAV). Several commenters 

noted that high-net-worth individuals, who often invest in tax-exempt funds because of the tax 

benefits, engage in periodic transactions that exceed the proposed $1 million daily redemption 

limit, which would effectively disqualify them from investing in a retail municipal fund, as 

proposed.752 We are addressing these concerns by adopting a definition of retail money market 

fund that will allow many of these individuals to invest in tax-exempt funds that offer a stable 

NAV. Funds that wish to qualify as retail money market funds will be required to limit 

beneficial ownership interests to “natural persons” (e.g., individual accounts registered with 

 750 See, e.g., BlackRock II Comment Letter; Fidelity Comment Letter; ICI Comment Letter. 

751 See, e.g., ICI Comment Letter; J.P. Morgan Comment Letter; Vanguard Comment Letter; see also Dreyfus 

II Comment Letter, (suggesting the fees and gates requirements should be limited to taxable prime funds); 

Legg Mason & Western Asset Comment Letter.

752 See, e.g., Fidelity Comment Letter; Dechert Comment Letter; Fin. Svcs. Roundtable Comment Letter.
247

social security numbers). Because the retail money market fund definition is not conditioned on 

a daily redemption limitation, but instead requires that retail money market funds restrict 

beneficial ownership to natural persons, high-net-worth individuals will not be subject to a 

redemption limit and thus should be able to continue investing in tax-exempt funds much like 

they do today.753 

Several commenters expressed concern that a number of municipal money market funds 

would not qualify as retail money market funds, as proposed, because institutional investors hold 

them. Commenters noted that approximately 30% (and historically between 25% and 40%754) of 

tax-exempt funds currently self-report as institutional funds.755 We understand that some but not 

all of these funds’ shareholder base is comprised of omnibus accounts with underlying individual 

investors. A number of commenters supported the view that most investors in tax-exempt funds 

are individuals.756 One commenter stated its belief, however, that institutions rather than 

individuals or natural persons beneficially own a significant, if not majority, portion of the assets 

invested in these self-reported institutional tax-exempt funds.757 Although we understand that 

some omnibus accounts may be comprised of institutions without underlying individual 

 753 Tax-exempt funds would, however, be potentially subject to our fees and gates reform. 

754 Our staff’s analysis, based on iMoneyNet data, shows that the amount of municipal money market fund 

assets held by institutional investors varied between 25% to 43% between 2001 to 2013.

755 See, e.g., BlackRock II Comment Letter; Federated VII Comment Letter; J.P. Morgan Comment Letter; 

Dreyfus II Comment Letter.

756 See, e.g., T. Rowe Price Comment Letter (“[t]he tax-exempt money market is retail-dominated”); Schwab 

Comment Letter; SIFMA Comment Letter.

757 See Dreyfus II Comment Letter, supra note 743 and accompanying text. This commenter provided data 

suggesting that approximately 50% of the assets of its self-reported “institutional” tax-exempt funds are 

beneficially owned by institutional investors. We acknowledge that certain tax-exempt funds may be 

beneficially owned by a large number of institutional investors. However, this data, which reflects only an 

analysis of this commenter’s money market funds (rather than industry-wide data), does not necessarily 

support a finding that a majority of such assets is “institutional” in nature.
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beneficial owners, the lack of a statutory or regulatory definition of institutional and retail funds, 

along with a lack of information regarding investor attributes in omnibus accounts, prevents us 

from estimating with precision the portion of investors and assets in tax-exempt funds that selfreport as institutional that are beneficially owned by institutions. As discussed above, however, 

industry data suggests that approximately 30% of municipal money market fund assets are held 

by institutional investors–investors that may not qualify to invest in a retail municipal money 

market fund.

758

Several commenters argued that tax-exempt funds should not be subject to the fees and 

gates and floating NAV reforms because the municipal money market fund industry is not 

systemically risky. In support, commenters pointed to the relatively small amount of assets 

managed by municipal money market funds, the stability of tax-exempt funds during recent 

periods of market stress, and the diversity of the municipal issuer market.759 As discussed above, 

we acknowledge that the current institutional municipal money market fund industry is small 

relative to the overall money market fund industry. Despite its relatively small size, however, we 

are concerned that institutional investors that currently hold prime funds might be incentivized to 

shift assets from prime funds to municipal money market funds as an alternative stable NAV 

investment. This could undermine the goals of reform with respect to the floating NAV 

requirement by providing an easy way for institutional investors to keep stable value pricing 

while continuing to invest in funds with assets that, relatively speaking, have a risk character that 

 758 See supra note 742.

759 See, e.g., Fidelity Comment Letter; Schwab Comment Letter; Deutsche Comment Letter; T. Rowe Price 

Comment Letter; Dreyfus Comment Letter. 
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is significantly closer to prime funds than government funds.760

Commenters argued that historical shareholder flows in municipal money market funds, 

as well as their past resiliency, demonstrate that they are not prone to runs or especially risky.761 

They pointed out that shareholder flows from tax-exempt funds were moderate during times of 

recent market stress compared to significant outflows from institutional prime money market 

funds.762 A review of money market fund industry asset flows during the market stress in 2008 

and 2011 shows that tax-exempt funds remained relatively flat and tracked investor flows in 

other retail prime funds.763 We believe that some of this stability may be attributable to 

municipal money market funds’ significant retail investor base rather than low portfolio risk.764 

In this regard, we note that although investors did not flee municipal funds in times of market 

stress, they also did not move assets into municipal funds as they did into government funds.765 

Accordingly, it appears that those investors did not perceive the risk characteristics of municipal 

 760 In addition, as discussed below, municipal money market funds may be subject to heavy redemptions, even 

if they have not been in the past. The fees and gates amendments are intended to give funds and their 

boards tools to stem such heavy redemptions.

761 See, e.g., Fidelity Comment Letter (noting that, more recently, the largest municipal bankruptcy (City of 

Detroit) had no discernible effects on money market funds); ICI Comment Letter; J.P. Morgan Comment 

Letter. A number of commenters also noted that during these periods of market stress, tax-exempt funds 

did not experience contagion from heavy redemptions like those experienced by institutional prime funds. 

See, e.g., ICI Comment Letter (noting that a tax-exempt fund sponsored by Lehman Brothers (the 

Neuberger Berman Tax-Free Fund) had two-thirds of its total net assets redeemed, but had no ripple effect 

on other tax-exempt funds or the broader municipal market); Dechert Comment Letter; BlackRock II

Comment Letter.

762 Id.

763 See iMoneyNet (analyzing money market fund industry flows from September 12 – December 19, 2008 

and June 1 – November 16, 2011). See also DERA Study, supra note 24, at 11, Figure 3.

764 See ICI Comment Letter (stating that “[t]he calm response of tax-exempt money market fund investors to 

events in Detroit is characteristic of how retail [emphasis added] investors are generally perceived to 

respond to market stresses.”).

765 See DERA Study, supra note 24, at 7-8.
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funds to be similar to those of government funds. Consistent with this observation, our analysis 

indicates that the shadow price of tax-exempt funds is distributed more similarly to that of prime 

funds than government funds.766 Specifically, the volatility of the distribution of municipal 

money market fund shadow prices is significantly larger than the volatility of government 

funds.767 In addition, our staff’s analysis of historical shadow prices shows that tax-exempt funds 

are more likely than government funds to experience large losses.

768 Thus, we believe municipal 

funds are more similar in nature to prime funds than government funds for purposes of the 

floating NAV reform. 

Several commenters noted that the diversity of the municipal issuer market reduces the 

risks associated with municipal money market funds.769 We note that although there is some 

diversity among the direct issuers of municipal securities, the providers of most of the demand 

features for the VRDNs, most of which are financial services firms, are highly concentrated.770 

This is a significant countervailing consideration because VRDNs comprise the majority of taxexempt funds’ portfolios.771 This level of concentration increases municipal funds’ exposure to 

 766 Using data collected from Form N-MFP and iMoneyNet, the standard deviation of shadow prices (which is 

a measure used to assess the overall riskiness of a fund) estimated over the time period from November 

2010 to February 2014 are 0.00023, 0.00039, and 0.00052 for government, prime, and tax-exempt funds, 

respectively. This data shows that the standard deviation of tax-exempt funds is statistically significantly 

larger than the other two types of funds with a 99% confidence level. Furthermore, the frequency at which 

the shadow prices for tax-exempt funds is less than 1.000 is greater than for government funds and is 

increasing at lower shadow price values. Accordingly, this means that the likelihood for large negative 

returns and hence large losses is greater for tax-exempt funds than for government funds.

767 Id.

768 Id.

769 See supra note 759 and accompanying text.

770 See DERA memo “Municipal Money Market Funds Exposure to Parents of Guarantors” 

http://www.sec.gov/comments/s7-03-13/s70313-323.pdf. 

771 See supra note 744 and accompanying text.
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financial sector risk relative to, for example, government funds.772 And, in this regard, we are 

mindful of the potential for increased sector risk to the financial services firms that provide the 

demand features if investors reallocate assets to tax-exempt funds that are not subject to the fees 

and gates and floating NAV reforms.

A number of commenters cited the resilient portfolio construction of municipal money 

market funds and argued that the liquidity risk, interest rate risk, issuer risk, and credit/default 

risk of tax-exempt funds are more similar to government funds than prime funds.773 As discussed 

above, however, staff analysis shows that the distribution of fluctuations in the shadow NAV of 

tax-exempt funds is more similar to that of prime funds than government funds.774 Municipal 

securities typically present greater credit and liquidity risk than government securities.775 We 

believe that recent municipal bankruptcies have highlighted liquidity concerns related to 

municipal money market funds and note that, although municipal money market funds have 

previously weathered these events, there is no guarantee that they will be able to do so in the 

 772 Based on a review of Form N-MFP data as of February 28, 2014, over 10% of the amortized cost value of 

VRDNs are guaranteed by a single bank, and approximately 54% of the amortized cost value is guaranteed 

by 10 banks.

773 See, e.g., Fidelity Comment Letter (weekly liquid assets of tax-exempt funds is typically more than double 

the current 30% requirement under rule 2a-7). See also, e.g., ICI Comment Letter; SIFMA Comment 

Letter; Invesco Comment Letter; Legg Mason & Western Asset Comment Letter. Interest rate risk, as 

measured by weighted average maturity, is consistently lower for tax-exempt funds (averaging 35 days, 

well below the 60-day requirement in rule 2a-7) than prime and government funds. See Fidelity Comment 

Letter (citing iMoneyNet). Commenters also argued that the credit risk of tax-exempt funds is more similar 

to government funds than prime funds. See, e.g., ICI Comment Letter (tax-exempt securities have low 

credit risk because municipalities are not generally interconnected and deterioration occurs over a 

protracted time); Dreyfus Comment Letter (many distressed issues (e.g., City of Detroit) become ineligible 

under rule 2a-7s risk-limiting conditions and therefore bankruptcy does not affect direct holdings of taxexempt funds). 

774 See supra note 766.

775 See, e.g., Notice of the City of Detroit, Michigan’s bankruptcy filing with the United States Bankruptcy 

Court, Eastern District of Michigan, available at 

http://www.mieb.uscourts.gov/sites/default/files/detroit/Chp%209%20Detroit.pdf. 
252

future. 

Further, although we recognize that the structural features of VRDNs may provide taxexempt funds with higher levels of weekly liquid assets and reduced interest rate risk as 

compared with prime funds, we do not find that on balance that warrants treating municipal 

funds more like government funds than prime funds. This is so because, among other things, the 

liquidity risk, interest rate risk, and credit risk characteristics result from concentrated exposure 

to VRDNs, and not because the municipal debt securities underlying the VRDNs or the related 

structural support are inherently liquid, free from interest rate risk, or immune from credit risks 

in the way that government securities generally are.776 Indeed, long-term municipal debt 

securities underlie most VRDNs, and these securities infrequently trade.777 Instead, the liquidity 

is provided through the demand feature to a concentrated number of financial institutions, and 

money market funds have experienced problems in the past when a large number of puts on 

securities were exercised at the same time.778 

In fact, when we adopted the 2010 amendments to rule 2a-7, we cited to commenter 

concerns regarding the market structure of VRDNs and heavy reliance of tax-exempt funds on 

these security investments in determining not to require that municipal money market funds meet 

the 10% daily liquid asset requirement that other money market funds must satisfy.779 

 776 See supra note 744 and accompanying text. 

777 See supra notes 744-748 and accompanying text.

778 See DERA Study, supra note 24, at Table 1(discussing how money market funds were adversely affected 

because of credit events that resulted in large numbers of securities being “put” back to demand feature 

providers, which resulted in bankruptcy, including Mutual Benefit Life Insurance Company and General 

American Life Insurance Co.).

779 See 2010 Adopting Release, supra note 17, at nn.240-243 and accompanying text.
253

Commenters did not generally support adding such a requirement, but the lack of a mandated 

supply of daily liquid assets leaves these funds more exposed to potential increases in 

redemptions in times of fund and market stress.780 As a result, the portfolio composition of some 

tax-exempt funds may change and present different risks in the future. In addition, because of 

the daily liquidity issues associated with VRDNs and the fact that tax-exempt money market 

funds are not required to maintain 10% daily liquid assets,781 these funds in particular may 

experience stress on their liquidity necessitating the use of fees and gates to manage redemptions 

(even with respect to the lower level of redemptions expected in a tax-exempt retail money 

market fund as compared to an institutional prime fund).

Several commenters also argued that certain structural features of tax-exempt funds make 

them more stable than prime money market funds and therefore these commenters believe that 

the floating NAV reform should not apply to tax-exempt funds. For example, these commenters 

observed that a tax-exempt fund’s investments, primarily VRDNs, and, to a lesser extent, 

TOBs,782 have structural features (e.g., contractual credit enhancements or liquidity support 

provided by highly rated banks and one-to-seven day interest rate resets) that facilitate trading at 

 780 See Fidelity Comment Letter; but see Wells Fargo Comment Letter. We note also that new regulations also 

may affect the issuance of the dominant types of securities that now provide the stability of tax-exempt 

funds. For example, because TOB programs are not exempt from the Volcker rule, banks and their 

affiliates will no longer be able to sponsor or provide support to a TOB program. See Volcker Rule, infra

note 782. As a result, the portfolio composition of some tax-exempt funds may change and present 

different risks in the future. 

781 See rule 2a-7(d)(4)(ii).

782 Participation by banks and their affiliates in TOB programs are subject to the prohibitions and restrictions 

applicable to covered funds under the recently adopted Volcker Rule (implemented by Title VI of the 

Dodd-Frank Act, named for former Federal Reserve Chairman Paul Volcker, Section 619 of the DoddFrank Wall Street Reform and Consumer Protection Act (12 U.S.C. 1851) (“Volcker Rule”)). 
254

par in the secondary market.783 We agree that these features lower the risk of portfolio holdings 

as compared to prime money market funds, but also recognize that holding municipal money 

market funds presents higher risks than those associated with government or Treasury funds. 

Not all VRDNs have credit support,784 and tax-exempt funds present credit risk.785 Accordingly, 

we do not agree with commenters that, as noted above, suggest that the credit risk of tax-exempt 

funds is more similar to government funds than prime funds. 

For all of the above reasons, we believe that tax-exempt funds should be subject to the 

fees and gates and floating NAV reforms. As discussed, the risk profile of institutional 

municipal money market funds more closely approximates that of prime funds than government 

 783 See, e.g., Fidelity Comment Letter; ICI Comment Letter; SIFMA Comment Letter. 

784 Based on Form N-MFP data as of February 28, 2014, only 57% of VRDNs, which make up a majority of 

the assets in municipal money market funds, have a guarantee that protects a fund in case of default. In 

comparison, the federal government guarantees all government securities held by government funds. 

785 Credit risk may result from the financial health of the issuer itself, such as when the city of Detroit recently 

filed for bankruptcy, becoming the largest municipal issuer default in U.S. history, leading to significant 

outflows from municipal bond funds. See Jeff Benjamin, Detroit bankruptcy has surprising long-term 

implications for muni bond market, CRAIN’S DETROIT BUSINESS (Dec. 3, 2013) 

http://www.crainsdetroit.com/article/20131203/NEWS/131209950/detroit-bankruptcy-has-surprising-longterm-implications-for-muni#. Although Detroit’s credit deteriorated over a long period of time and thus the 

bankruptcy did not cause tax-exempt money market funds, which had largely anticipated the event, to 

experience significant losses, in the past there have not have not been significant lead times before a 

municipality evidenced a credit deterioration. See, e.g., ICI Comment Letter. For example, Orange 

County, California, had high-quality bond credit ratings just before filing one of the largest municipal 

bankruptcies in U.S. history on December 6, 1994. See HANDBOOK OF FIXED INCOME SECURITIES, supra

note 745, at 239. Orange County caused one money market fund to break the buck and several sponsors to 

inject millions of dollars of additional cash to rescue their funds. See, e.g., Viral V. Acharya et al,

REGULATING WALL STREET: THE DODD-FRANK ACT AND THE NEW ARCHITECTURE OF GLOBAL FINANCE 

308 (2011); see also Suzanne Barlyn, Investing Strategy What the Orange County Fiasco Means to the 

Muni Bond Market, FORTUNE (Jan. 16, 1995), 

http://archive.fortune.com/magazines/fortune/fortune_archive/1995/01/16/201819/index.htm. Another type 

of credit risk arises when financial institutions provide credit enhancement to municipal securities. For 

example, in 1992, Mutual Benefit Life Insurance Company (“Mutual Benefit”) went into conservatorship 

with the New Jersey Insurance Commissioner. The company had guaranteed forty-three municipal bond 

issues totaling $600 million, which financed money-losing real estate projects. Mutual Benefit’s 

insolvency resulted in the termination of its guarantee on the bonds and halted interest payments resulting 

in losses for investors. See C. Richard Lehmann, Municipal Bond Defaults, in THE HANDBOOK OF 

MUNICIPAL BONDS 509 (Susan C. Heide et al. eds., 1994). 
255

funds. Tax-exempt funds present credit risk, typically rely on a concentrated number of financial 

sector put or guarantee providers, and have portfolios comprised largely of a single type of 

structured investment product—all of which may present future risks that may be exacerbated by 

a potential migration of investors from prime funds that are unable or unwilling to invest in a 

floating NAV money market fund or money market fund that may impose fees and gates. 

Accordingly, we believe that tax-exempt funds should be subject to the fees and gates and 

floating NAV reforms adopted today.786 

c. Economic Analysis of FNAV

Although we expect that many tax-exempt funds will qualify as retail money market 

funds and therefore be able to maintain a stable NAV (as they do today), there are, as we 

discussed above, some institutional investors in municipal money market funds that may be 

unable or unwilling to invest in a floating NAV fund.787 To the extent that institutional investors 

continue to invest in a floating NAV municipal money market fund, the benefits of a floating 

NAV discussed in section III.B extend to these types of funds. Because a floating NAV 

requirement may reduce investment in those funds, however, we recognize that there will likely 

be costs for the sponsors of tax-exempt funds, the institutions that invest in these types of funds, 

and tax-exempt issuers. These costs are the same as those described in section III.B for 

institutional prime funds and the costs described in section III.I for corporate issuers. 

 786 Our rationale is consistent with our finding, discussed above, that we no longer believe that exempting 

institutional prime money market funds under section 6(c) of the Act is appropriate. See supra note 446

and accompanying text .

787 We believe that the economic analysis that follows would apply equally in the context of the fees and gates 

reform. For a discussion of the economic implications that may arise for investors, including retail 

investors who may be unable or unwilling to invest in a fund that can impose fees and gates, including 

potential implications on state and local funding, see infra section III.K.
256

To the extent that institutions currently invest in tax-exempt funds and are unwilling to 

invest in a floating NAV tax-exempt fund, the demand for municipal securities, for example, 

may fall and the costs of financing for municipalities may rise.

788 We anticipate the impact, 

however, will likely be relatively small. As of the last quarter of 2012, tax-exempt funds held 

approximately 7% of the municipal debt outstanding.789 Of that 7%, institutional investors, who 

might divest their municipal fund assets if they do not want to invest in a floating NAV fund, 

held approximately 30% of municipal money market fund assets.790 Accordingly, we estimate 

institutional tax-exempt funds hold approximately 2% of the total municipal debt outstanding 

and thus 2% is at risk of leaving the municipal debt market.791 Although this could impact 

capital formation for municipalities, there are several reasons to believe that the impact would 

likely be small (including minimal impact on efficiency and competition, if any). First, 

institutional investors that currently invest in municipal funds likely value the tax benefits of 

these funds and many may choose to remain invested in them to take advantage of the tax 

benefits even though they might otherwise prefer stable to floating NAV funds. Second, to the 

 788 A number of commenters argued that applying our floating NAV reform to tax-exempt funds would reduce 

demand for municipal securities and raise the costs of financing. See, e.g., Fidelity Comment Letter (noting 

that tax-exempt funds purchase approximately 65% of short-term municipal securities and that fewer 

institutional investors in tax-exempt funds will lead to less purchasing of short-term municipal securities by 

tax-exempt funds and a corresponding higher yield paid by municipal issuers to attract new investors); 

BlackRock II Comment Letter; Federated VII Comment Letter; ICI Comment Letter; Comment Letter of 

Mayors, City of Irving, TX, et al (Sept. 12, 2013) (“U.S. Mayors Comment Letter”).

789 Other published data is consistent with this estimate. See, for example, the Federal Reserve Board “Flow 

of Funds Accounts of the United States” (Z.1), which details the flows and levels of municipal securities 

and loans, to estimate outstanding municipal debt (March 6, 2014), available at 

http://www.federalreserve.gov/releases/z1/current/. These estimates are consistent with previous estimates 

presented in U.S. Securities and Exchange Commission. 2012 Report on the Municipal Securities Market. 

The estimates in the 2012 report were based on data from Mergent’s Municipal Bond Securities Database.

790 See supra note 742 and accompanying text.

791 This estimate is calculated as follows: tax-exempt funds hold 7% of municipal debt outstanding x 30% of 

tax-exempt assets held by institutional investors = 2.1% of total tax-exempt debt held by institutions.
257

extent that institutional investors divesting municipal funds lead to a decreased demand for 

municipal debt instruments, other investors may fill the gap. As discussed in the Proposing 

Release, “Between the end of 2008 and the end of 2012, money market funds decreased their 

holdings of municipal debt by 34% or $172.8 billion.792 Despite this reduction in holdings by 

money market funds, municipal issuers increased aggregate borrowings by over 4% between the 

end of 2008 and the end of 2012. Municipalities were able to fill the gap by attracting other 

investor types. Other types of mutual funds, for example, increased their municipal securities 

holdings by 61% or $238.6 billion.”793

Although institutional municipal funds represent a relatively small portion of the 

municipal debt market, we recognize that these funds represent a significant portion of the shortterm municipal debt market.794 According to Form N-MFP data, municipal money market funds 

held $256 billion in VRDNs and short-term municipal debt as of the last quarter of 2013.795 

Effectively, municipal money market funds absorbed nearly 100% of the outstanding VRDNs 

and short-term municipal debt. Considering that institutional tax-exempt funds represented 

approximately 30% of the municipal money market fund market, it follows that institutional taxexempt funds likely held about $77 billion in VRDNs and short-term municipal debt. Any 

reduction in municipal funds therefore could have an appreciable impact on the ability of 

municipalities to obtain short-term lending. That said, this impact could be substantially 

mitigated because, as discussed above, other market participants may buy these securities or 

 792 The statistics in this paragraph are based on the Federal Reserve Board’s Flow of Funds data.

793 See Proposing Release, supra note 25, at 309.

794 See, e.g., BlackRock II Comment Letter; Dreyfus Comment Letter. 

795 Based on data from N-MFP and iMoneyNet.
258

municipalities will adapt to a changing market by, for example, altering their debt structure. As 

discussed in the Proposing Release, “[t]o make their issues attractive to alternative lenders, 

municipalities lengthened the terms of some of their debt securities,”796 in the face of changing 

market conditions in recent years. To the extent that other market participants step in and fill the 

potential gap in demand, competition may increase. To the extent other market participants do 

not step in and fill the gap, capital formation may be adversely affected. Finally, if 

municipalities are required to alter their debt structure to foster demand for their securities (e.g.,

because demand declined as a result of our amendments), there may be an adverse effect on 

efficiency. Although we discuss above ways in which the short-term municipal debt market may 

adapt to continue to raise capital as it does today, we acknowledge that our floating NAV reform 

will impact institutional investors in tax-exempt funds and therefore likely impact the short-term 

municipal markets. On balance, however, we believe that realizing the goals of this rulemaking, 

including recognizing the concerns discussed above with respect to the risks presented by taxexempt funds, justifies the potential adverse effects on efficiency, competition, and capital 

formation. 

4. Implications for Local Government Investment Pools

As we discussed in the Proposing Release, we recognize that many states have 

established local government investment pools (“LGIPs”), money market fund-like investment 

pools that invest in short-term securities,797 which are required by law or investment policies to 

 796 See Proposing Release, supra note 25, at 309.

797 LGIPs tend to emulate typical money market funds by maintaining a stable NAV per share through 

investments in short-term securities. See infra III.K.1, Table 1, note N.
259

maintain a stable NAV per share.798 Accordingly, as we discussed in the Proposing Release, the 

floating NAV reform may have implications for LGIPs, including the possibility that state 

statutes and policies may need to be amended to permit the operation of investment pools that 

adhere to amended rule 2a-7.799 In addition, some commenters suggested that our floating NAV 

reform, as well as the liquidity fees and gates requirement, may result in outflows of LGIP assets 

into alternative investments that provide a stable NAV and/or do not restrict liquidity.800 

A few commenters noted that it is the GASB reference to “2a-7 like” funds that links 

LGIPs to rule 2a-7, and not state statutes.801 Some commenters noted that our money market 

fund reforms do not directly affect LGIPs because the decision as to whether LGIPs follow our 

changes to rule 2a-7 is determined by GASB and the states, not the Commission.802 Some 

commenters suggested that, in response to our floating NAV reform, GASB and the states might 

 798 See, e.g., Comment Letter of U.S. Chamber of Commerce to the Hon. Elisse Walter (Feb. 13, 2013) 

(“Chamber III Comment Letter”), available at http://www.centerforcapitalmarkets.com/wpcontent/uploads/2010/04/2013-2.13-Floating-NAV-Qs-Letter.pdf. See also, e.g., Virginia’s Local 

Government Investment Pool Act, which sets certain prudential investment standards but leaves it to the 

state treasury board to formulate specific investment policies for Virginia’s LGIP. See Va. Code Ann. § 

2.2-4605(A)(3). Accordingly, the treasury board instituted a policy of managing Virginia’s LGIP in 

accordance with “certain risk-limiting provisions to maintain a stable net asset value at $1.00 per share” 

and “GASB ‘2a-7 like’ requirements.” Virginia LGIP’s Investment Circular, June 30, 2012, available at

http://www.trs.virginia.gov/cash/lgip.aspx. Not all LGIPs are currently managed to maintain a stable NAV, 

however, see infra section III.K.1, Table 1, note N. 

799 GASB states that LGIPs that are operated in a manner consistent with rule 2a-7 (i.e., a “2a-7-like pool”) 

may use amortized cost to value securities (and presumably, facilitate maintaining a stable NAV per share). 

See GASB, Statement No. 31, Accounting and Financial Reporting for Certain Investments and for 

External Investment Pools (Mar. 1997).

800 See, e.g., Comment Letter of TRACS Financial/Institute of Public Investment Management (Sept. 17, 

2013) (“TRACS Financial Comment Letter”); Comment Letter of Treasurer, State of Georgia (Sept. 16, 

2013) (“Ga. Treasurer Comment Letter”); Comment Letter of County of San Diego Treasurer-Tax 

Collector (Sept. 17, 2013) (“San Diego Treasurer Comment Letter”). Because we are unable to predict 

how GASB will respond to our final amendments to rule 2a-7, we cannot quantify the extent to which 

LGIP assets may migrate into alternative investments.

801 See, e.g., TRACS Financial Comment Letter; Federated IX Comment Letter.

802 See, e.g., Federated II Comment Letter; Ga. Treasurer Comment Letter; Va. Treasury Comment Letter. 
260

decouple LGIP regulation from rule 2a-7 and continue to operate at a stable value.803 A few 

commenters suggested that we make clear that the changes we are adopting to rule 2a-7 are not 

intended to apply to LGIPs,804 and also reiterated concerns similar to those raised by other 

commenters on our floating NAV reform more generally (e.g., concerns about using marketbased valuation, rather than amortized cost).805 

We acknowledge, as noted by commenters, that there may be effects and costs imposed 

on LGIPs as a result of the reforms we are adopting today. We expect it is likely that GASB will 

reevaluate its accounting standards in light of the final amendments to rule 2a-7 that we are 

adopting today and take action as it determines appropriate.806 We do not, however, have 

authority over the actions that GASB may or may not take, nor do we regulate LGIPs under rule 

2a-7 or otherwise. In order for certain investors to continue to invest in LGIPs as they do today, 

state legislatures may determine that they need to amend state statutes and policies to permit 

investment in investment pools that adhere to rule 2a-7 as amended (unless GASB were to decouple LGIP accounting standards from rule 2a-7). GASB and state legislatures may address 

these issues during the two-year compliance period for the fees and gates and floating NAV 

 803 See, e.g., Federated II, Comment Letter; Federated IV Comment Letter; TRACS Financial Comment Letter.

804 See, e.g., Ga. Treasurer Comment Letter; Va. Treasury Comment Letter.

805 See Ga. Comment Letter; Comment Letter of West Virginia Board of Treasury Investments (Sept. 17, 

2013) (“WV Bd. of Treas. Invs. Comment Letter”).

806 GASB has currently included as a potential project in 2014 an agenda item to identify potential alternative 

pool structures that could be suitable in the event that the Commission amends the way in which money 

market funds operate under rule 2a-7, including a move to a floating NAV. See Government Accounting 

Standards Board, Technical Plan for the First Third of 2014: Technical Projects (2a7-Like External 

Investment Pools), available at 

http://gasb.org/cs/ContentServer?c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocume

ntPage&cid=1176163713461.
261

reforms.

807 As noted above, a few commenters suggested that state statutes and investment 

policies may need to be amended, but did not provide us with information regarding how various 

state legislatures and other market participants might react. Accordingly, we remain unable to 

predict how various state legislatures and other market participants will react to our reforms, nor 

do we have the information necessary to provide a reasonable estimate of the impact on LGIPs or 

the potential effects on efficiency, competition, and capital formation.808

5. Unregistered Money Market Funds Operating Under Rule 12d1-1

Several commenters expressed concern regarding amended rule 2a-7’s effect on 

unregistered money market funds that choose to operate under certain provisions of rule 12d1-1

under the Investment Company Act.

809 Rule 12d1-1 permits investment companies (“acquiring 

investment companies”) to acquire shares of registered money market funds in the same or in a 

different fund group in excess of the limitations set forth in section 12(d)(1) of the Investment 

Company Act.810 In addition to providing an exemption from section 12(d)(1) of the Investment 

Company Act, rule 12d1-1 also provides exemptions from section 17(a) and rule 17d-1, which 

 807 See infra section III.N.

808 As noted above, we do not have authority over the actions of GASB and/or its decision to facilitate the 

operation of LGIPs as stable value investment vehicles through linkage to rule 2a-7 (including, as amended 

today).

809 Dechert Comment Letter; Comment Letter of Russell Investments (Sept. 17, 2013) (“Russell Comment 

Letter”); Oppenheimer Comment Letter; UBS Comment Letter. See also Wells Fargo Comment Letter 

(arguing that proposed amendments to Form PF should not apply to unregistered liquidity vehicles owned 

exclusively by registered funds and complying with rule 12d1-1 under the Investment Company Act). We 

address the Form PF requirements for unregistered money market funds below. See infra section III.H.

810 Under section 12(d)(1)(A), an investment company (and companies or funds it controls) is generally 

prohibited from acquiring more than three percent of another investment company’s outstanding voting 

securities, investing more than five percent of its total assets in any given investment company, and 

investing more than 10 percent of its total assets in investment companies in the aggregate. See also 

section 12(d)(1)(B) (limiting the sale of registered open-end fund shares to other funds).
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restrict a fund’s ability to enter into transactions and joint arrangements with affiliated persons.811 

A fund’s investments in unregistered money market funds is not restricted by section 12(d)(1).812 

Nonetheless, these investments are subject to the affiliate transaction restrictions in section 17(a) 

and rule 17d-1 and therefore require exemptive relief from such restrictions.813 Rule 12d1-1 thus 

permits a fund to invest in an unregistered money market fund without having to comply with the 

affiliate transaction restrictions in section 17(a) and rule 17d-1, provided that the unregistered 

money market fund satisfies certain conditions in rule 12d1-1. 

Unregistered money market funds typically are organized by a fund adviser for the 

purpose of managing the cash of other investment companies in a fund complex and operate in 

almost all respects as a registered money market fund, except that their securities are privately 

 811 Section 17(a) generally prohibits affiliated persons of a registered fund (“first-tier affiliates”) or affiliated 

persons of the fund’s affiliated persons (“second-tier affiliates”) from selling securities or other property to 

the fund (or any company the fund controls). Section 17(d) of the Investment Company Act makes it 

unlawful for first- and second-tier affiliates, the fund’s principal underwriters, and affiliated persons of the 

fund’s principal underwriters, acting as principal, to effect any transaction in which the fund, or a company 

it controls, is a joint or a joint and several participant in contravention of Commission rules. Rule 17d-1(a) 

prohibits first- and second-tier affiliates of a registered fund, the fund’s principal underwriters, and 

affiliated persons of the fund’s principal underwriter, acting as principal, from participating in or effecting 

any transaction in connection with any joint enterprise or other joint arrangement or profit-sharing plan in 

which the fund (or any company it controls) is a participant unless an application regarding the enterprise, 

arrangement or plan has been filed with the Commission and has been granted.

812 Private funds are generally excluded from the definition of an “investment company” for purposes of the 

Investment Company Act. However, private funds that fall under section 3(c)(1) or 3(c)(7) are deemed to 

be an investment company for purposes of the limitations set forth in section 12(d)(1)(A)(i) and 

12(d)(1)(B)(i) governing the purchase or other acquisition by such private fund of any security issued by 

any registered investment company and the sale of any securities issued by any registered investment 

company to any such private fund. Although a private fund is subject to the limitations set forth in section 

12(d) with respect to its investment in a registered investment company, a registered investment company 

is not subject to the limitations set forth in section 12(d) with respect to its investment in any such private 

fund.

813 See Funds of Funds Investments, Investment Company Act Release No. 27399 (June 20, 2006) [71 FR 

36640 (June 27, 2006)].
263

offered and thus not registered under the Securities Act.814 For purposes of investments in an 

unregistered money market fund, the rule 12d1-1 exemption from the affiliate transaction 

restrictions is available only for investments in an unregistered money market fund that operates 

like a money market fund registered under the Investment Company Act. To be eligible, an 

unregistered money market fund is required to (i) limit its investments to those in which a money 

market fund may invest under rule 2a-7, and (ii) undertake to comply with all other provisions of 

rule 2a-7.815 Therefore, unless otherwise exempted, unregistered money market funds choosing 

to operate under rule 12d1-1 would need to comply with the amendments to rule 2a-7 we are 

adopting today.

Several commenters argued that unregistered money market funds that currently conform 

their operations to the requirements of rule 12d1-1 should not be required to comply with certain 

provisions of our amendments to rule 2a-7, particularly our floating NAV and liquidity fees and 

gates amendments,816 and no commenters argued otherwise. Some of these commenters argued 

that the ability to invest in unregistered money market funds is a valuable tool for investment 

companies, because such unregistered money market funds are designed to accommodate the 

daily inflows and outflows of cash of the acquiring investment company, and can be operated at 

 814 Id.

815 Rule 12d1-1(d)(2)(ii). In addition, the unregistered money market fund’s adviser must be registered as an 

investment adviser with the Commission. See rule 12d1-1(b)(2)(ii). In order for a registered fund to invest 

in reliance on rule 12d1-1 in an unregistered money market fund that does not have a board of directors, the 

unregistered money market fund’s investment adviser must perform the duties required of a money market 

fund’s board of directors under rule 2a-7. See rule 12d1-1(d)(2)(ii)(B). Lastly, the investment company is 

also required to reasonably believe that the unregistered money market fund operates like a registered 

money market fund and that it complies with certain provisions of the Investment Company Act. See rule 

12d1-1(b)(2)(i). 

816 Dechert Comment Letter; Russell Comment Letter; Oppenheimer Comment Letter; UBS Comment Letter. 
264

a lower cost than registered investment companies.817 Some of these commenters also argued 

that requiring unregistered money market funds to adopt a floating NAV would reduce the 

attractiveness of unregistered money market funds and possibly eliminate the unregistered fund 

as a cash management tool for an acquiring investment company.818 

Although we recognize the benefits of using unregistered money market funds for these 

purposes, we do not believe that these types of funds are immune from the risks posed by money 

market funds generally. Several commenters argued that unregistered money market funds 

relying on rule 12d1-1 do not present the type of risk that our amendments are designed to 

reduce.819 These commenters also argued that, given that unregistered money market funds often 

are created solely for investment by acquiring investment companies and typically have the same

sponsor, there is little concern of unforeseeable large-scale redemptions or runs on these funds.820 

We disagree, and we believe that if registered funds invest in unregistered money market 

funds in a different fund complex, these unregistered funds are equally susceptible to the 

concerns that our amendments are designed to address, including concerns about the risks of 

investors’ incentives to redeem ahead of other investors in times of market stress and the 

resulting potential dilution of investor shares. For example, if multiple registered funds are 

investing in an unregistered money market fund in a different fund complex, a registered fund in 

one fund complex may have an incentive to redeem shares in times of market stress prior to the 

redemption of shares by funds in other fund complexes. This redemption could have a 

 817 See, e.g., Dechert Comment Letter; Russell Comment Letter; UBS Comment Letter.

818 See, e.g., Dechert Comment Letter; Russell Comment Letter.

819 Id.

820 Id.
265

potentially negative impact on the remaining registered funds that are investing in the 

unregistered money market and could increase the risk of dilution of shares for the remaining 

registered funds.

We also believe that unregistered money market funds that are being used solely as 

investments by investment companies in the same fund complex remain susceptible to 

redemptions in times of fund and market stress. For example, if multiple registered funds are 

invested in an unregistered money market fund in the same fund complex, a portfolio manager of 

one registered fund may have an incentive to redeem shares in times of market stress, which 

could have a potentially negative impact on the other registered funds that may also be invested 

in the unregistered fund. After further consideration regarding the comparability of risk in these 

funds, we believe that it is appropriate that our floating NAV amendments apply to unregistered 

money market funds that conform their operations to the requirements of rule 12d1-1.821 

Some commenters also argued that our liquidity fees and gates amendments are ill-suited 

for unregistered money market funds.822 Specifically, these commenters noted that under rule

12d1-1, the adviser typically performs the function of the unregistered fund’s board for purposes 

of compliance with rule 2a-7.823 Therefore, these commenters argued, if fees and gates are 

implemented, the adviser would be called upon to make decisions about liquidity fees and gates, 

which could present a potential conflict of interest in situations when an affiliated investment 

 821 We note that unregistered money market funds that otherwise meet the definition of a government money 

market fund as defined in rule 2a-7(c)(2)(iii) would not be subject to the floating NAV requirement. See 

rule 2a-7(a)(16).

822 See Dechert Comment Letter; Russell Comment Letter; UBS Comment Letter.

823 Id.
266

company advised by the same adviser would be the redeeming shareholder.824

We recognize that in many cases the adviser to an unregistered money market fund 

typically performs the function of the fund’s board,825 and that this may create conflicts of 

interest. We continue to believe that, as discussed above in section III.A.2.b and given the role 

of independent directors, a fund’s board is in the best position to determine whether a fee or gate 

is in the best interests of the fund. However, when there is no board of directors, we believe that 

it is appropriate for the adviser to the fund to determine when and how a fund will impose 

liquidity fees and/or redemption gates. We have previously stated that, in order for a registered 

fund to invest in reliance on rule 12d1-1 in an unregistered money market fund that does not 

have a board of directors (because, for example, it is organized as a limited partnership), the 

unregistered money market fund’s investment adviser must perform the duties required of a 

money market fund’s board of directors under rule 2a-7.826 In addition, we note that investment 

advisers are subject to a fiduciary duty, which requires them, when faced with conflicts of 

interest, to fully disclose to clients all material information, a duty that is intended “to eliminate, 

or at least expose, all conflicts of interest which might include an investment adviser –

consciously or unconsciously – to render advice which was not disinterested.”827 While we 

cannot determine whether a conflict of interest exists in every case of an adviser advising both a 

registered fund and unregistered money market fund under rule 12d1-1, we note that the adviser 

is subject to the requirement to adopt and implement written policies and procedures reasonably 

 824 Id.

825 See supra note 815.

826 See Funds of Funds Release, supra note 813, at n.42. See also supra note 815. 

827 SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 194 (1963).
267

designed to prevent violation of the Advisers Act and the rules thereunder, as required by rule 

206(4)-7 under the Advisers Act.828

6. Master/Feeder Funds – Fees and Gates Requirements

We are adopting, as suggested by a commenter, a provision specifying the treatment of 

feeder funds in a master/feeder fund structure under the fees and gates requirements.829 This 

provision will not allow a feeder fund to independently impose a fee or gate in reliance on 

today’s amendments.830 However, under the amended rule, a feeder fund will be required to pass 

through to its investors a fee or gate imposed by the master fund in which it invests.831 In 

response to our request for comment on whether particular funds or redemptions should not be 

subject to fees and gates, a commenter recommended that we permit a master fund and its board, 

but not a feeder fund and its board, to impose and set the terms of a fee or gate.832 The feeder 

fund would then have to “institute” the fee or gate on its redemptions “at the times and in the 

amounts instituted by the master fund.”833 Another commenter suggested, however, that fund 

boards should be given discretion to impose fees and/or gates on either or both a master or feeder 

fund(s).834 

 828 See rule 206(4)-7 of the Advisers Act (making it unlawful for an investment adviser registered with the 

Commission to provide investment advice unless the adviser has adopted and implemented written policies 

and procedures reasonably designed to prevent violation of the Advisers Act by the adviser or any of its 

supervised persons).

829 See rule 2a-7(c)(2)(v) (defining “feeder fund” as any money market fund that owns, pursuant to section 

12(d)(1)(E), shares of another money market fund).

830 See id.

831 Id.

832 See Stradley Ronon Comment Letter.

833 Id.

834 See UBS Comment Letter.
268

We have considered the comments received and have been persuaded that a feeder fund 

in a master/feeder structure should only be permitted to pass through the fees and gates imposed 

by the master fund.835 The master/feeder structure is unique in that the feeder fund serves as a 

conduit to the master fund – the master fund being the fund that actually invests in money market 

securities. As a commenter pointed out, “the master feeder structure comprises one pool of 

assets, managed by the master fund’s investment adviser, under the oversight of the master 

fund’s board of directors.”836 Because the feeder fund’s investments consist of the master fund’s 

securities, its liquidity is determined by the master fund’s liquidity. Accordingly, because a 

feeder fund’s liquidity is dictated by the liquidity of the master fund, we believe the master fund 

and its board are best suited, in consultation with the master fund’s adviser, to determine whether

liquidity is under stress and a fee or gate should be imposed. We note that we took a similar 

approach with respect to master/feeder funds in rule 22e-3.837

7. Application of Fees and Gates to Other Types of Funds and Certain 

Redemptions 

We have determined that all money market funds, other than government money market 

funds and feeder funds in a master/feeder fund structure, should be subject to the fees and gates 

requirements. We received a number of comments suggesting types of funds that should not be

 835 For example, if a master fund’s board determines that the master fund should impose a liquidity fee, a 

feeder fund must pass through that liquidity fee to its investors and we would expect it would subsequently 

remit such fee to the master fund. 

836 See Stradley Ronon Comment Letter. We note that only the master fund has an investment adviser because 

a master fund’s shares are the only investment securities that may be held by the feeder fund. See section 

12(d)(1)(E).

837 See rule 22e-3(b).
269

subject to the fees and gates requirements.838 In addition to the comments we received regarding 

the application of fees and gates to the types of funds discussed above, commenters also 

proposed other specific types of funds or entities that should not be subject to the fees and gates 

requirements, including, for example, money market funds with assets of less than $25 billion 

under management,839 or securities lending cash collateral reinvestment pools.840 

Because of the board flexibility and discretion included in the fees and gates amendments 

we are adopting today, as well as for the reasons discussed below, 841 we are requiring all funds,

other than government money market funds and feeder funds in a master/feeder structure (for the 

reasons discussed above),842 to comply with the fees and gates requirements. As noted above, the 

fees and gates amendments do not require a fund to impose fees and gates if it is not in the fund’s 

best interests. Thus, even if a particular type of fund is subject to the fees and gates provisions, it 

does not have to impose fees and gates. Rather, a fund’s board may use fees and gates as tools to 

limit heavy redemptions and must act in the best interests of the fund in determining whether 

fees and gates should be imposed. 

 838 See, e.g., supra sections III.C.2 and III.C.3 (discussing commenter support for excluding retail and 

municipal money market funds); but see, HSBC Comment Letter (“[W]e believe all MMFs should be 

required to have the power to apply a liquidity fee or gate so that the MMF provider can manage a low 

probability but high impact event.”); U.S. Bancorp Comment Letter.

839 See PFM Asset Mgmt. Comment Letter.

840 See State Street Comment Letter.

841 See also supra sections III.C.2-III.C.5 for a discussion of reasons specific to certain types of funds.

842 See supra sections III.C.1 and III.C.6. As discussed above with respect to feeder funds, we believe feeder 

funds in a master/feeder structure are distinguishable from other funds in that their liquidity is dictated by 

the liquidity of the master fund. Thus, we believe the flexibility and discretion afforded to boards in 

today’s amendments should be limited to a master fund’s board. We note that although feeder funds may 

not individually impose fees and gates in reliance on today’s amendments, master funds are subject to 

today’s amendments and their imposition of fees and gates will be passed through to feeder funds’ 

investors. 
270

In addition, we note that the fees and gates amendments will not affect a money market 

fund’s investors unless the fund’s weekly liquid assets fall below 30% of its total assets – i.e., the 

fund shows possible signs of heavy redemption pressure – and even then, it is up to the board to 

determine whether or not such measures are in the best interests of the fund. Allowing specific 

types of money market funds (other than government funds and feeder funds for the reasons 

discussed above) to not be subject to the fees and gates requirements could leave funds and their 

boards without adequate tools to protect shareholders in times of stress. Also, allowing funds not 

to comply with the fees and gates requirements would merely relieve a fund during normal 

market conditions of the costs and burdens created by the prospect that the fund could impose a 

fee or gate if someday it was subject to heavy redemptions.843 In considering these risks, costs, 

and burdens, as well as the possibility of unprotected shareholders and broader contagion to the 

short-term funding markets, we believe it is appropriate to subject all money market funds (other 

than government funds and feeder funds for the reasons discussed above) to the fees and gates 

requirements. 

In addition to the reasons discussed above, we describe more fully below our rationale for 

subjecting particular types of funds and redemptions to the fees and gates amendments. 

a. Small Redemptions and Irrevocable Redemptions

Some commenters suggested that small redemptions should not be subject to fees and 

 843 We noted in the Proposing Release that retail money market funds experienced fewer redemptions than 

institutional money market funds during the financial crisis and thus may be less likely to suffer heavy 

redemptions in the future. Nonetheless, we cannot predict if this will be the case if there is a future 

financial crisis. 
271

gates because they are less likely to materially impact the liquidity position of a fund.844 As 

discussed in the Proposing Release, we also have considered whether irrevocable redemption 

requests (i.e. requests that cannot be rescinded) that are submitted at least a certain period in 

advance should not be subject to fees and gates as the fund should be able to plan for such 

liquidity demands and hold sufficient liquid assets.845 We are concerned, however, that 

shareholders could try to “game” the fees and gates requirements if we took such an approach 

with respect to these redemptions, for example, by redeeming small amounts every day to fit 

under a redemption size limit or by redeeming a certain irrevocable amount every week and then 

reinvesting the redemption proceeds immediately if the cash is not needed.846 We also remain 

concerned that allowing certain redemptions to not be subject to fees and gates could add cost 

and complexity to the fees and gates requirements both as an operational matter (e.g., fund 

groups would need to be able to separately track which shares are subject to a fee or gate and 

which are not, and create the system and policies to do so) and in terms of ease of shareholder 

understanding without providing substantial benefits.847 

b. ERISA and Other Tax-Exempt Plans

Many commenters raised concerns regarding the application of fees and gates to funds 

offered in Employee Retirement Income Security Act (“ERISA”) and/or other tax-exempt 

 844 See, e.g., Fin. Info. Forum Comment Letter.

845 See Proposing Release, supra note 25, at 200-201.

846 See supra note 315 and accompanying text. Commenters suggested that concerns over gaming could be 

addressed by putting additional policies in place, such as placing limits on the number of redemptions in 

any given period. See, e.g., Fin. Info. Forum Comment Letter. We believe that such a solution to gaming, 

much like an exception to the fees and gates requirements, would create additional cost and complexity to 

the amendments without substantial benefit. 

847 See supra note 315 and accompanying text. 
272

plans.848 Some commenters expressed concern that fees and gates would create issues for these 

plans.849 For example, commenters were worried about potential violations of certain minimum 

required distribution rules that could be impeded by the imposition of a gate,850 potential taxation 

as a result of an inability to process certain mandatory refunds on a timely basis,851 problems 

arising in plan conversions or rollovers in the event of a fee or gate,852 possible conflicts with the 

Department of Labor’s (“DOL”) qualified default investment (“QDIA”) rules,853 and certain 

general fiduciary requirements on plan fiduciaries with respect to adequate liquidity in their 

plan.854

As an initial point, we note that money market funds are currently permitted to use a 

redemption gate and liquidate under rule 22e-3, and they still continue to be offered as 

investment options under tax-qualified plans. However, in light of the commenters’ concerns, 

we have consulted the DOL’s Employee Benefits Security Administration (“EBSA”) regarding 

potential issues under ERISA. With respect to general fiduciary requirements on plan fiduciaries 

obligating them to prudently manage the anticipated liquidity needs of their plan, EBSA staff 

 848 See, e.g., Schwab Comment Letter; Fin. Svcs. Inst. Comment Letter; Oppenheimer Comment Letter; 

TIAA-CREF Comment Letter.

849 See, e.g., Fin. Svcs. Roundtable Comment Letter; Schwab Comment Letter; Comment Letter of American 

Benefits Council (Sept. 16, 2013) (“American Benefits Council Comment Letter”).

850 See, e.g., Schwab Comment Letter; American Benefits Council Comment Letter; SPARK Comment Letter.

851 See, e.g., id.

852 See, e.g., American Benefits Council Comment Letter (“In some circumstances, retirement assets must be 

moved because of mandatory rollover requirements or because a plan has been abandoned. Certain safe 

harbor regulations and prohibited transaction class exemptions effectively require that funds be placed in an 

investment that seeks to maintain the dollar value that is equal to the amount invested, generally is liquid 

and does not impose ‘substantial restrictions’ on redemptions.”) (citations omitted); Schwab Comment 

Letter.

853 See, e.g., Schwab Comment Letter; American Benefits Council Comment Letter.

854 See, e.g., American Bankers Ass’n Comment Letter; American Benefits Council Comment Letter.
273

advised our staff that a money market fund’s liquidity and its potential for redemption 

restrictions is just one of many factors a plan fiduciary would consider in evaluating the role that 

a money market fund would play in assuring adequate liquidity in a plan’s investment portfolio.

Additionally, we believe that certain other potential concerns presented by commenters, 

such as concerns regarding QDIAs and the imposition of a fee or gate within 90 days of a 

participant’s first investment, are unlikely to materialize. We understand that the imposition of a 

liquidity fee or gate would have to relate to a liquidation or transfer request within this 90-day 

period in order to create an issue with QDIA fiduciary relief. Even if this occurred with respect 

to a specific participant, steps may be taken to avoid concerns with the QDIA. We understand, 

for instance, that a liquidity fee otherwise assessed to the account of a plan participant or 

beneficiary could be paid by the plan sponsor or a service provider, and not by the participant, 

beneficiary or plan.855 In addition, a plan sponsor or other party in interest could loan funds to 

the plan for the payment of ordinary operating expenses of the plan or for a purpose incidental to 

the ordinary operation of the plan to avoid the effects of a gate.

856 We understand that if 

necessary, other steps may also exist. 

DOL staff has also advised the SEC that the “substantial restrictions” requirement, 

contained in Prohibited Transaction Exemptions 2004-16857 and 2006-06858, does not apply to 

 855 See Department of Labor, Employee Benefits Security Administration Field Assistance Bulletin 2008-03, 

Q11 (Apr. 29, 2008).

856 See Prohibited Transaction Exemption 80-26, [45 FR 28545 (Apr. 29, 1980)], as amended at, [65 FR 17540 

(Apr. 3, 2000)], [67 FR 9485 (Mar. 1, 2002)] and [71 FR 17917 (Apr. 7, 2006)].

857 [69 FR 57964 (Sept. 28, 2004)].

858 [71 FR 20856 (Apr. 21, 2006)], as amended, [73 FR 58629 (Oct. 7, 2008)].
274

money market funds.859 DOL staff further indicated to us, however, that a liquidity fee could 

raise issues under the conditions of these prohibited transaction exemptions that require that the 

IRA owner be able to transfer funds to another investment or another IRA “within a reasonable 

period of time after his or her request and without penalty to the principal amount of the 

investment.”860 We understand that while a gate of no longer than 10 business days would not 

amount to an unreasonable period of time under the conditions, DOL staff has advised us that, in 

order for a fiduciary to continue to rely on the exemptions for the prohibited transactions arising 

from the initial decision to roll over amounts to a money market fund that is sponsored by or 

affiliated with the fiduciary, additional steps would need to be taken to protect the principal 

amount rolled over in the event that a liquidity fee is imposed. We understand that examples of 

such additional steps would include a contractual commitment by the fiduciary or its affiliate to 

pay any liquidity fee otherwise assessed to the IRA, to the extent such fee would be deducted 

from the principal amount rolled over. Additionally, to the extent plan fiduciaries do not wish to 

take such steps, they can instead select government money market funds, which are not subject 

to the fees and gates amendments, or other funds that do not create prohibited transactions issues. 

Staff at EBSA have communicated that they will work with staff at the SEC to provide 

additional guidance as needed. 

With respect to the minimum distribution requirement and the ability to process certain 

mandatory distributions or refunds on a timely basis, we understand that although gates can 

hypothetically prevent required distributions or refunds, in practice it will be unlikely to occur as 

 859 See section IV(e) of PTE 2004-16 and section V(c) of PTE 2006-06.

860 See section II(i) of PTE 2004-16 and section III(h) of PTE 2006-06. 
275

participants are unlikely to have their entire account invested in prime money market funds or, 

more precisely, one or more prime money market funds that determine to impose a gate at the 

same time.

861 In addition, to the extent a gate does prevent a timely minimum distribution or 

refund, we understand that there are potential steps an individual or plan/IRA can take to avoid 

the negative consequences that may result from failure to meet the minimum distribution or

refund requirements. For example, with respect to the minimum distribution requirement, an 

individual who fails to meet this requirement as a result of a gate is entitled to request a waiver 

with respect to potential excise taxes by filing a form with the IRS that explains the rationale for 

the waiver.862 In addition, with respect to plan qualification issues that may arise in the event a 

plan does not make timely minimum required distributions or refunds as a result of a gate, we 

understand that a plan sponsor may obtain relief pursuant to the Employee Plans Compliance 

Resolution System (“EPCRS”).

863

c. Insurance Funds

A few commenters requested special treatment for money market funds underlying 

variable annuity contracts or other insurance products, citing contractual and state law 

restrictions affecting insurance and annuity products that would conflict with the ability of a 

 861 In addition, with respect to the minimum distribution requirement, we note that participants could be 

encouraged to take required distributions before the deadline to avoid the possibility that a gate could 

prevent them from meeting the requirements.

862 See section 4974(d) of the Tax Code. We understand that to request a waiver, a taxpayer would file Form 

5329 with the IRS. Whether to grant a waiver request is within the IRS’s discretion.

863 See Rev. Proc. 2013-12. We understand that, pursuant to the EPCRS, if a minimum required distribution or 

refund timing failure is insignificant or is corrected within a limited time period, and certain other 

requirements are satisfied, then the failure can be voluntarily corrected without filing with the IRS. 

Otherwise, we understand that a filing is required to correct qualification failures.
276

money market fund’s board to impose a fee or gate.864 Some commenters further noted that 

money market funds underlying variable contract separate accounts are not prone to runs.865 

Another commenter noted that most insurance products have “free-look” provisions, allowing an 

owner to return his/her contract for full value if he/she is not satisfied with its terms.866 During 

such initial periods, insurance companies typically keep client funds in money market funds, 

which might be incompatible with fees and gates.867 

We have determined not to provide special treatment for money market funds underlying 

variable annuity contracts or other insurance products for the fees and gates requirements. We 

recognize money market funds underlying variable annuity contracts or other insurance products 

may be indirectly subject to certain restrictions or requirements that do not apply to other money 

market funds. We note, however, that these same funds currently are permitted to suspend 

redemptions pursuant to rule 22e-3 and their ability to do so has not prevented them from being 

offered in connection with variable annuity and other insurance products. In addition, to the 

extent today’s fees and gates amendments are incompatible with contractual or state law, or with 

free look provisions, we note that an insurance company can instead offer a government money 

market fund as an investment option under its contract(s).868 Moreover, fees and gates will not 

 864 See, .e.g., Dechert Comment Letter; Comment Letter of American Council of Life Insurers (Sept. 17, 2013) 

(“ACLI Comment Letter”); TIAA-CREF Comment Letter.

865 See ACLI Comment Letter; Comment Letter of Committee of Annuity Insurers (Sept. 17, 2013) (“CAI 

Comment Letter”).

866 See Comment Letter of John Sklar (July 9, 2013) (“Sklar Comment Letter”).

867 See id. 

868 To the extent an insurance company determines to offer a government money market fund as a new 

investment option under a contract, we recognize that there may be costs associated with this process, 

including costs associated with disclosing a new investment option to contract-holders, negotiating 

arrangements with new government money market funds, and filing with the Commission a substitution 
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affect the everyday activities of money market funds. They are instead designed to be used 

during times of potential stress.869 If the market or a money market fund is experiencing stress, an 

insurance company could choose not to place contract holders’ investments into a money market 

fund during free look periods, subject to contractual provisions and prospectus disclosures.

D. Guidance on the Amortized Cost Method of Valuation and Other Valuation 

Concerns

After further consideration, and as suggested by a number of commenters, our final rules 

will permit stable NAV money market funds (i.e., government and retail money market funds) to 

maintain a stable NAV by using amortized cost valuation and/or the penny rounding method of 

pricing.870 In addition, all other registered investment companies and business development 

companies (including floating NAV money market funds under our amendments) may, in 

accordance with Commission guidance, continue to use amortized cost to value debt securities 

with remaining maturities of 60 days or less if fund directors, in good faith, determine that the 

fair value of the debt securities is their amortized cost value, unless the particular circumstances 

warrant otherwise.871 Accordingly, even for floating NAV money market funds, amortized cost 

 

application under section 26(c). 

869 We note that if, as suggested by commenters, money market funds underlying variable annuity or other 

insurance contracts are less prone to runs, then under the terms of our final rule amendments, such funds 

may be less likely to reach the liquidity thresholds that would trigger board consideration of fees or gates 

and, thus, may be less likely to be affected by today’s amendments. See supra text accompanying note 

865.

870 See supra section III.B.5. 

871 See ASR 219, Financial Reporting Codification (CCH) section 404.05.a and .b (May 31, 1977), supra note 

5. In this regard, the Commission has stated that the “fair value of securities with remaining maturities of 

60 days or less may not always be accurately reflected through the use of amortized cost valuation, due to 

an impairment of the creditworthiness of an issuer, or other factors. In such situations, it would appear to 

be incumbent on the directors of a fund to recognize such factors and take them into account in determining 

‘fair value.’” 
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will continue to be an important part of the valuation of money market fund portfolio 

securities.

872 

We believe the expanded valuation guidance, discussed below, will help advance the 

goals of our money market fund reform rulemaking, because, among other things, stronger 

valuation practices may lessen a money market fund’s susceptibility to heavy redemptions by 

decreasing the likelihood of sudden portfolio write-downs that may encourage financially 

sophisticated investors to redeem early. We provide below expanded guidance on the use of 

amortized cost valuation as well as other related valuation issues.873 

1. Use of Amortized Cost Valuation

We consider it important, for a number of reasons, that funds and their investment 

advisers and boards of directors have clear guidance regarding amortized cost valuation. 

Typically, money market funds hold a significant portion of portfolio securities with remaining 

 872 For a mutual fund not regulated under rule 2a-7, the Investment Company Act and applicable rules 

generally require that it price its shares at the current NAV by valuing portfolio securities for which market 

quotations are readily available at market value, or if market quotations are not readily available, at fair 

value as determined in good faith by the fund’s board of directors. See section 2(a)(41)(B) and rules 2a-4 

and 22c-1. Notwithstanding these provisions, rule 2a-7 currently permits money market funds to use the 

amortized cost method of valuation and/or the penny rounding method of pricing. See current rule 2a-7(c).

873 Although discussed here primarily in the context of money market funds, except as noted below, this 

guidance is applicable to all registered investment companies and business development companies. For 

ease of reference, throughout this section we refer to all of these entities as “funds.” We note that stable 

NAV money market funds that qualify as retail or government money market funds may use the amortized 

cost method of valuation to compute the current share price provided, among other things, the board of 

directors believes that the amortized cost method of valuation fairly reflects the market-based NAV and 

does not believe that such valuation may result in material dilution or other unfair results to investors or 

existing shareholders. See generally rule 2a-7(c)(1)(i) and rule 2a-7(g)(1)(i)(A)-(C). We also note that 

stable NAV money market funds that qualify as retail or government money market funds may not rely on 

this guidance to use amortized cost valuation in shadow pricing because rule 2a-7 specifically requires 

shadow prices to reflect “the current net asset value per share calculated using available market quotations 

(or an appropriate substitute that reflects current market conditions),” and we would not consider amortized 

cost valuation to be an appropriate substitute that reflects current market conditions. See also 1983 

Adopting Release, supra note 3, at n.44 and accompanying text (“In determining the market-based value of 

the portfolio for purposes of computing the amount of deviation, all portfolio instruments, regardless of the 

time to maturity, should be valued based upon market factors and not their amortized cost value.”).
279

maturities of 60 days or less,874 and therefore, a floating NAV money market fund may use the 

amortized cost method to value these portfolio securities if the fund’s board determines that the 

amortized cost value of the security is fair value. In addition, managers of floating NAV money 

market funds may have an incentive to use amortized cost valuation whenever possible in order 

to help stabilize the funds’ NAV per share. 

As noted above, under existing Commission guidance, funds would not be able to use 

amortized cost valuation to value certain debt securities when circumstances dictate that the 

amortized cost value of the security is not fair value.

875 The Commission’s guidance in the 

Proposing Release construed the statute to effectively limit the use of amortized cost valuation to 

circumstances where it is the same as valuation using market-based factors.876 Some commenters 

objected to this interpretation and suggested that the Commission more generally clarify this 

guidance.877 

 874 For example, we estimate that approximately 56% of prime money market funds’ portfolio securities had 

remaining maturities of 60 days or less (not including interest-rate resets) as of February 28, 2014. This 

estimate is based on Form N-MFP data. 

875 See ASR 219, Financial Reporting Codification (CCH) section 404.05.a and .b (May 31, 1977), supra note 

5 (“Although debt securities with remaining maturities in excess of 60 days should not be valued at 

amortized cost, the Commission will not object if the board of directors of a money market fund, in good 

faith, determines that the fair value of debt securities originally purchased with remaining maturities of 60 

days or less shall be their amortized cost value, unless the particular circumstances dictate otherwise. Nor 

will the Commission object if, under similar circumstances, the fair value of debt securities originally 

purchased with maturities of in excess of 60 days, but which currently have maturities of 60 days or less, is 

determined by using amortized cost valuation for the 60 days prior to maturity, such amortization being 

based upon the market or fair value of the securities on the 61st day prior to maturity” (footnotes omitted)).

876 See Proposing Release, supra note 25, n.136.

877 See, e.g., Invesco Comment Letter (“one of the footnotes to the Proposed Rule...refers to amortized cost 

pricing being available when it is the same as valuation based on market factors, implying that MMF could 

be barred from using amortized cost pricing if it differs even minutely from the market value of the 

securities. While we believe this implication to have been unintentional, we nevertheless request the 

Commission to reaffirm clearly that MMFs, as all other mutual funds, can continue to use amortized cost 

pricing for securities with maturities of 60 days and less.” (internal citations omitted)); ICI Comment Letter 

(also referring to this footnote and stating “It is unclear whether this means that amortized cost must at all 
280

We recognize that existing valuation guidance may not be clear on how frequently funds 

should compare a debt security’s amortized cost value to its fair value determined using marketbased factors and what extent of deviation between the two values is permissible. We generally 

believe that a fund may only use the amortized cost method to value a portfolio security with a 

remaining maturity of 60 days or less when it can reasonably conclude, at each time it makes a 

valuation determination,878 that the amortized cost value of the portfolio security is 

approximately the same as the fair value of the security as determined without the use of 

amortized cost valuation. Existing credit, liquidity, or interest rate conditions in the relevant 

markets and issuer specific circumstances at each such time should be taken into account in 

making such an evaluation. 

Accordingly, it would not be appropriate for a fund to use amortized cost to value a debt 

security with a remaining maturity of 60 days or less and thereafter not continue to review 

whether amortized cost continues to be approximately fair value until, for example, there is a 

significant change in interest rates or credit deterioration. We generally believe that a fund 

should, at each time it makes a valuation determination, evaluate the use of amortized cost for 

portfolio securities, not only quarterly or each time the fund produces financial statements. We 

note that, under the final rules, each money market fund will be required to value, on a daily 

basis, the fund’s portfolio securities using market-based factors and disclose the fund’s share 

price (or shadow price) rounded to four decimal places on the fund’s website. As a result, we 

 

times be identical to market-based price, or whether it is just another way of saying funds must use marketbased pricing and not amortized cost. We urge the SEC to clarify that ASR 219 and its interpretations 

remain unchanged.”).

878 As discussed below, we believe that, in some circumstances (e.g., intraday), a fund may rely on the last 

obtained market-based data to assist it when valuing its portfolio securities using amortized cost.
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believe that each money market fund should have readily available market-based data to assist it 

in monitoring any potential deviation between a security’s amortized cost and fair value 

determined using market-based factors. We believe that, in certain circumstances, such as 

intraday, a fund may rely on the last obtained market-based data to assist it when valuing its 

portfolio securities using amortized cost. To address this, a fund’s policies and procedures could 

be designed to ensure that the fund’s adviser is actively monitoring both market and issuerspecific developments that may indicate that the market-based fair value of a portfolio security 

has changed during the day, and therefore indicate that the use of amortized cost valuation for 

that security may no longer be appropriate. 

2. Other Valuation Matters

Rule 2a-4 under the Investment Company Act provides that “[p]ortfolio securities with 

respect to which market quotations are readily available shall be valued at current market value, 

and other securities and assets shall be valued at fair value as determined in good faith by the 

board of directors of the registered company.” As we discussed in the Proposing Release, the 

vast majority of money market fund portfolio securities do not have readily available market 

quotations because most portfolio securities such as commercial paper, repos, and certificates of 

deposit are not actively traded in the secondary markets.879 Accordingly, most money market 

fund portfolio securities are valued largely based upon “mark-to-model” or “matrix pricing” 

estimates.880 In matrix pricing, portfolio asset values are derived from a range of different 

 879 See Proposing Release, supra note 25, at section II.B.1.

880 See, e.g., Harvard Business School FSOC Comment Letter (“secondary markets for commercial paper and 

other private money market assets such as CDs are highly illiquid. Therefore, the asset prices used to 

calculate the floating NAV would largely be accounting or model-based estimates, rather than prices based 
282

inputs, with varying weights attached to each input, such as pricing of new issues, yield curve 

information, spread information, and yields or prices of securities of comparable quality, coupon, 

maturity, and type.881 Money market funds also may consider evaluated prices from third-party 

pricing services, which may take into account these inputs as well as prices quoted from dealers 

that make markets in these instruments and financial models.882 

We received a number of comments regarding the utility of market-based valuation for 

money market securities and other securities that do not frequently trade in secondary markets. 

We also received comments discussing certain other valuation matters more generally, such as 

the use of pricing services in valuing such securities. Together, these comments indicated to us 

the need for further guidance in this area, which we provide below. 

a. Fair Value for Thinly Traded Securities

First, some commenters suggested that market-based valuations of money market fund 

portfolio securities are not particularly meaningful, given the infrequent trading in money market 

fund portfolio securities and the use of matrix or model-based pricing or evaluated prices from 

third-party pricing services.883 One commenter stated that “it does not follow that the normal 

arguments for using actual market prices for calculating mutual fund NAVs apply to using noisy 

 on secondary market transactions with sizable volumes.”); Institutional Money Market Funds Association, 

The Use of Amortised Cost Accounting by Money Market Funds, available at 

http://www.immfa.org/assets/files/IMMFA%20The%20use%20of%20amortised%20cost%20accounting%

20by%20MMF.pdf (noting that investors typically hold money market instruments to maturity and 

therefore there are relatively few prices from the secondary market or broker quotes).

881 See, e.g., Federated VI Comment Letter; Hai Jin, et al., Liquidity Risk and Expected Corporate Bond 

Returns, 99 J. OF FIN. ECON. 628, at n.4 (2011) (“Matrix prices are set according to some algorithm based 

on prices of bonds with similar characteristics”).

882 See, e.g., Federated VI Comment Letter; Angel Comment Letter.

883 See, e.g., Federated IV Comment Letter; Legg Mason & Western Asset Comment Letter; Chamber II 

Comment Letter.
283

guesstimates of true value of non-traded assets.”884 Another commenter stated that, with regard 

to matrix-priced money market fund portfolio securities, “[m]arket-based valuations are not more

accurate valuations than amortized cost.”885 

We acknowledge that matrix pricing and similar pricing methods involve estimates and 

judgments—and thus may introduce some “noise” into portfolio security prices, and therefore 

into the fund’s NAV per share when rounded to one basis point. However, we do not agree that 

market-based prices of portfolio securities do not provide meaningful information or that 

amortized cost generally provides better or more accurate values of securities that do not 

frequently trade or that may or may not be held to maturity given the fund’s statutory obligation 

to investors to satisfy redemptions within seven days (and a fund’s disclosure commitment to 

generally satisfy redemptions much sooner).886 Indeed, many debt securities held by other types 

of funds do not frequently trade, but our long-standing guidance on the use of amortized cost 

valuation is limited to debt securities with remaining maturities of 60 days or less and even then 

only if the amortized cost value of these securities is fair value.

887 This guidance was based on 

 884 See Angel Comment Letter.

885 See Federated VI Comment Letter (“Pricing experts have confirmed to us that only a small percentage of 

money market instruments actually trade daily in secondary markets. While the amortized cost method of 

valuing MMF portfolios is a simple and accurate means of valuing these types of high-quality, short-term 

instruments that generally are held to maturity, the effort to arrive at market-based valuations for these 

types of instruments is time-consuming, complicated and less exact.”).

886 Many money market funds promise in fund disclosures to satisfy redemption requests on the same day as 

the request, except in extraordinary conditions. In addition, funds that are sold through broker-dealers seek 

to satisfy redemption requests within three business days because broker-dealers are subject to Securities 

Exchange Act rule 15c6-1, which establishes three business days as the standard settlement period for 

securities trades effected by a broker or a dealer.

887 See ASR 219, Financial Reporting Codification (CCH) section 404.05.a and .b (May 31, 1977), supra note 

5. We have said that it is inconsistent with rule 2a-4 to use the amortized cost method of valuation to 

determine the fair value of debt securities that mature at a date more than 60 days after the valuation date. 
284

our concern that “the use of the amortized cost method i[n] valuing portfolio securities of 

registered investment companies may result in overvaluation or undervaluation of the portfolios 

of such companies, relative to the value of the portfolios determined with reference to current 

market-based factors.”888 Such guidance is based on a preference embodied in the Investment 

Company Act that funds value portfolio securities taking into account current market 

information.889 

Because most money market fund portfolio securities are not frequently traded and thus 

are not securities for which market quotations are readily available, we understand that they are 

typically fair valued in good faith by the fund’s board.890 As a general principle, the fair value of 

a security is the amount that a fund might reasonably expect to receive for the security upon its 

current sale.891 Determining fair value requires taking into account market conditions existing at 

that time. Accordingly, funds holding debt securities generally should not fair value these 

 888 Id.

889 Section 22(c) and rules 2a-4 and 22c-1(a). 

890 As discussed further below, although a fund’s directors cannot delegate their statutory duty to determine 

the fair value of fund portfolio securities, the board may appoint others, such as the fund’s investment 

adviser or a valuation committee, to assist them in determining fair value. See infra note 898 and 

accompanying text.

891 See Securities and Exchange Commission Codification of Financial Reporting Policies, Statement 

Regarding “Restricted Securities,” Investment Company Act Release No. 5847 (Oct. 21, 1969) [35 FR 

19989 (Dec. 31, 1970)] (“ASR 113”); Investment Companies, Investment Company Act Release No. 6295 

(Dec. 23, 1970) [35 FR 19986 (Dec. 31, 1970)], Financial Reporting Codification (CCH) section 404.03 

(Apr. 15, 1982) (“ASR 118”). We generally believe that the current sale standard appropriately reflects the 

fair value of securities and other assets for which market quotations are not readily available within the 

meaning of section 2(a)(41)(B). The price that an unrelated willing buyer would pay for a security or other 

asset under current market conditions is indicative of the value of the security or asset. See also FASB 

ASC paragraph 820-10-35-3 and FASB ASC paragraph 820-10-20 (“A fair value measurement assumes 

that the asset or liability is exchanged in an orderly transaction between market participants to sell the asset 

or transfer the liability at the measurement date under current market conditions.”; Fair Value means “the 

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between 

market participants at the measurement date”).
285

securities at par or amortized cost based on the expectation that the funds will hold those 

securities until maturity, if the funds could not reasonably expect to receive approximately that 

value upon the current sale of those securities under current market conditions.892 We recognize 

that valuing thinly traded debt securities can be more complicated and time-consuming than 

valuing liquid equity securities based on readily available market quotations or than valuing debt 

securities using the amortized cost method. However, given the redeemable nature of mutual 

fund shares and the mandates of the Investment Company Act to sell and redeem fund shares at 

prices based on the current net asset values of those shares, we believe it is important for funds to 

take steps to ensure that they are properly valuing fund shares and treating all shareholders fairly.

b. Use of Pricing Services

As noted above, many funds, including many money market funds, use evaluated prices 

provided by third-party pricing services to assist them in determining the fair values of their 

portfolio securities. Some commenters have raised concerns that money market funds will place 

undue reliance on a small market of third-party pricing vendors, even though they acknowledge 

that they provide only “good faith” opinions on valuation.893 A few commenters argued that 

eliminating amortized cost valuation for money market funds and requiring market-based pricing 

could provide third-party pricing services with a much greater degree of influence on fund’s 

 892 As we have previously stated: “Fair value cannot be based on what a buyer might pay at some later time, 

such as when the market ultimately recognizes the security’s true value as currently perceived by the 

portfolio manager. Funds also may not fair value portfolio securities at prices not achievable on a current 

basis on the belief that the fund would not currently need to sell those securities.” See, e.g., In the Matter 

of Jon D. Hammes, et al., Investment Company Act Release No. 26290 (Dec. 11, 2003) at n.5 (settlement). 

See also FASB ASC 820, at paragraph 820-10-35-54H (“A reporting entity’s intention to hold the asset or 

to settle or otherwise fulfill the liability is not relevant when measuring fair value because fair value is a 

market-based measurement, not an entity-specific measurement.”). 

893 See, e.g., Federated VI Comment Letter; SIFMA Comment Letter; Angel Comment Letter.
286

portfolio valuation, which could increase operational complexity and risks.894 

We recognize that pricing services employ a wide variety of pricing methodologies in 

arriving at the evaluated prices they provide, and the quality of those prices may vary widely. 

We note that the evaluated prices provided by pricing services are not, by themselves, “readily 

available” market quotations or fair values “as determined in good faith by the board of 

directors” as required under the Investment Company Act.895 To the extent that certain money 

market funds are no longer permitted to use the amortized cost method to value all of their 

portfolio securities and all money market funds will be required to perform daily market-based 

valuations, funds may decide to rely more heavily on third parties, such as pricing services, to 

provide market-based valuation data. Accordingly, we believe it is important to provide 

guidance to funds and their boards regarding reliance on pricing services. 

We note that a fund’s board of directors has a non-delegable responsibility to determine 

whether an evaluated price provided by a pricing service, or some other price, constitutes a fair 

value for a fund’s portfolio security.896 In addition, we have stated that “it is incumbent upon the 

[fund’s] Board of Directors to satisfy themselves that all appropriate factors relevant to the value

of securities for which market quotations are not readily available have been considered,” and 

 894 See, e.g., Federated VI Comment Letter; Chamber II Comment Letter.

895 See section 2(a)(41)(B) and rule 2a-4.

896 See ASR 118, supra note 891 (“[i]t is incumbent upon the Board of Directors to satisfy themselves that all 

appropriate factors relevant to the fair value of securities for which market quotations are not readily 

available have been considered and to determine the method of arriving at the fair value of each such 

security.” A fund’s directors cannot delegate this responsibility to anyone else). See, e.g., In the Matter of 

Seaboard Associates, Inc. (Report of Investigation Pursuant to Section 21(a) of the Exchange Act), 

Investment Company Act Release No. 13890 (Apr. 16, 1984) (“The Commission wishes to emphasize that 

the directors of a registered investment company may not delegate to others the ultimate responsibility of 

determining the fair value of any asset not having a readily ascertainable market value . . . .”).
287

that fund directors “must . . . continuously review the appropriateness of the method used in 

valuing each issue of security in the [fund’s] portfolio.”897 Although a fund’s directors cannot 

delegate their statutory duty to determine the fair value of fund portfolio securities for which 

market quotations are not readily available, the board may appoint others, such as the fund’s 

investment adviser or a valuation committee, to assist them in determining fair value, and to 

make the actual calculations pursuant to the fair valuation methodologies previously approved by 

the directors.898 

Before deciding to use evaluated prices from a pricing service to assist it in determining 

the fair values of a fund’s portfolio securities, the fund’s board of directors may want to consider 

the inputs, methods, models, and assumptions used by the pricing service to determine its 

evaluated prices, and how those inputs, methods, models, and assumptions are affected (if at all) 

as market conditions change. In choosing a particular pricing service, a fund’s board may want 

to assess, among other things, the quality of the evaluated prices provided by the service and the 

extent to which the service determines its evaluated prices as close as possible to the time as of 

which the fund calculates its net asset value. In addition, the fund’s board should generally

consider the appropriateness of using evaluated prices provided by pricing services as the fair 

values of the fund’s portfolio securities where, for example, the fund’s board of directors does 

not have a good faith basis for believing that the pricing service’s pricing methodologies produce 

evaluated prices that reflect what the fund could reasonably expect to obtain for the securities in 

 897 See ASR 118, supra note 891.

898 See id. 
288

a current sale under current market conditions.899

E. Amendments to Disclosure Requirements

We are amending a number of disclosure requirements related to the liquidity fees and 

gates and floating NAV requirements adopted today, as well as other disclosure enhancements 

discussed in the proposal. These disclosure amendments improve transparency related to money 

market funds’ operations, as well as their overall risk profile and any use of affiliate financial 

support. In the sections that follow, we first discuss amendments to rule and form provisions 

applicable to various disclosure documents, including disclosures in money market funds’ 

advertisements, the summary section of the prospectus, and the statement of additional 

information (“SAI”).900 Next, we discuss amendments to the disclosure requirements applicable 

to money market fund websites, including information about money market funds’ liquidity 

levels, shareholder flows, market-based NAV per share (rounded to four decimal places), 

imposition of liquidity fees and gates, and any use of affiliate sponsor support.

1. Required Disclosure Statement

a. Overview of Disclosure Statement Requirements

As discussed in the Proposing Release, and as modified to reflect commenters’ concerns, 

 899 See ASR 113 and ASR 118, supra note 891; see also 1983 Adopting Release supra note 3 (“If the [money 

market] fund uses an outside service to provide this type of pricing for its portfolio instruments, it may not 

delegate to the provider of the service the ultimate responsibility to check the accuracy of the system.”).

900 In keeping with the enhanced disclosure framework we adopted in 2009, the amendments are intended to 

provide a layered approach to disclosure in which key information about the new features of money market 

funds would be provided in the summary section of the statutory prospectus (and, accordingly, in any 

summary prospectus, if used) with more detailed information provided elsewhere in the statutory 

prospectus and in the SAI. See Enhanced Disclosure and New Prospectus Delivery Option for Registered 

Open-End Management Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 

2009) [74 FR 4546 (Jan. 26, 2009)] (“Summary Prospectus Adopting Release”) at paragraph preceding 

section III (adopting rules permitting the use of a summary prospectus, which is designed to provide key 

information that is important to an informed investment decision).
289

we are adopting amendments to rule 482 under the Securities Act and Item 4 of Form N-1A to 

revise the disclosure statement requirements concerning the risks of investing in a money market 

fund in its advertisements or other sales materials that it disseminates (including on the fund 

website) and in the summary section of its prospectus (and, accordingly, in any summary 

prospectus, if used). 

Money market funds are currently required to include a specific statement concerning the 

risks of investing in their advertisements or other sales materials and in the summary section of 

the fund’s prospectus (and, accordingly, in any summary prospectus, if used).901 In the 

Proposing Release, we proposed to modify the format and content of this required disclosure. 

Specifically, we proposed to require money market funds to present certain disclosure statements 

in a bulleted format. The content of the proposed disclosure statements would have differed 

under each of the proposed reform alternatives. Under each reform alternative, the proposed 

statement would have included identical wording changes designed to clarify, and inform 

investors about, the primary risks of investing in money market funds generally, including new 

disclosure emphasizing that money market fund sponsors are not obligated to provide financial 

support. Additionally, the proposed statement under the fees and gates alternative would have 

included disclosure that would call attention to the risks of investing in a money market fund that 

could impose liquidity fees or gates, and the proposed statement under the floating NAV 

alternative would have included disclosure to emphasize the particular risks of investing in a 

 901 Rule 482(b)(4); Item 4(b)(1)(ii) of Form N-1A. Money market funds are currently required to include the 

following statement: An investment in the Fund is not insured or guaranteed by the Federal Deposit 

Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of 

your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
290

floating NAV money market fund. 

Comments regarding the amended disclosure statement were mixed. Two commenters 

generally supported the proposed amendments to the disclosure statement under both 

alternatives, and one commenter expressed general support for the proposed disclosure under the 

fees and gates alternative.902 Two commenters generally opposed the proposed disclosure 

statement, arguing that it would overstate the risks relative to other mutual funds and overwhelm 

investors with standardized mandated legends, which investors might ignore as “boilerplate.”903 

Some commenters expressed concerns with particular aspects of the proposed disclosure, such as 

the required disclosure regarding sponsor support.904 These comments are discussed in more 

detail below.

Today we are adopting amendments to the requirements for disclosure statements that 

must appear in money market funds’ advertisements or other sales materials, and in the summary 

section of money market funds’ statutory prospectus. As discussed in more detail below, these 

amendments are being adopted largely as proposed, but with some modifications to the proposed 

format and content. These modifications respond to comments we received and also reflect that 

we are adopting a liquidity fees and gates requirement for all non-government money market 

funds, including municipal money market funds, as well as a floating NAV requirement for 

 902 See CFA Institute Comment Letter (noting that the proposed disclosures would put investors on notice that 

money market funds are not riskless and would provide the information in a clear and succinct manner); 

HSBC Comment Letter (generally supporting both statements but suggesting additions to cross-reference 

the prospectus’s risk warnings and to make clear fees and gates would be used to protect investors); 

Federated II Comment Letter; Comment Letter of Federated Investors (Disclosure Requirements for Money 

Market Funds and Current Requirements of Rule 2a-7) (Sept. 17, 2013) (“Federated VIII Comment 

Letter”) (concurring with the risk disclosure under the fees and gates alternative).

903 See ABA Business Law Section Comment Letter; NYC Bar Committee Comment Letter.

904 See, e.g., Dreyfus Comment Letter; NYC Bar Committee Comment Letter.
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institutional prime funds. As we stated in the Proposing Release, we are modifying the current 

disclosure requirements because we believe that enhancing the disclosure required to be included 

in fund advertisements and other sales materials, and in the summary section of the prospectus, 

will help change the investment expectations of money market fund investors, including any 

erroneous expectation that a money market fund is a riskless investment.905 In addition, without 

such modifications, we believe that investors may not be fully aware of potential restrictions on 

fund redemptions or, for floating NAV funds, the fact that the value of their money market fund 

shares will, as a result of these reforms, increase and decrease as a result of the changes in the 

value of the underlying securities.906 

Specifically, we are requiring money market funds that maintain a stable NAV to include 

the following disclosure statement in their advertisements or other sales materials and in the 

summary section of the statutory prospectus: 

You could lose money by investing in the Fund. Although the Fund seeks to 

preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. 

The Fund may impose a fee upon the sale of your shares or may temporarily suspend 

your ability to sell shares if the Fund’s liquidity falls below required minimums because 

of market conditions or other factors.907 An investment in the Fund is not insured or 

guaranteed by the Federal Deposit Insurance Corporation or any other government 

agency. The Fund’s sponsor has no legal obligation to provide financial support to the 

Fund, and you should not expect that the sponsor will provide financial support to the 

 905 See Proposing Release, supra note 25, at sections III.A.8 and III.B.8. 

906 Id.

907 Government funds that are not subject to the fees and gates requirements pursuant to rule 2a-7(c)(2)(iii) 

may omit the following sentence: “The Fund may impose a fee upon the sale of your shares or may 

temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums 

because of market conditions or other factors.” See rule 482(b)(4)(iii); Form N-1A Item 4(b)(1)(ii)(C). 
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Fund at any time.908

Funds with a floating NAV will also be required to include a similar disclosure statement 

in their advertisements or other sales materials and in the summary section of the statutory 

prospectus, modified to account for the characteristics of a floating NAV, as follows:

You could lose money by investing in the Fund. Because the share price of the 

Fund will fluctuate, when you sell your shares they may be worth more or less than what 

you originally paid for them. The Fund may impose a fee upon the sale of your shares or 

may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below 

required minimums because of market conditions or other factors. An investment in the 

Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any 

other government agency. The Fund’s sponsor has no legal obligation to provide 

financial support to the Fund, and you should not expect that the sponsor will provide 

 908 See Rule 482(b)(4)(ii); Form N-1A Item 4(b)(1)(ii)(B). Besides the amendments to the disclosure 

statement requirements set forth in Rule 482(b)(4)(ii) and Form N-1A Item 4(b)(1)(ii)(B), we also are 

adopting non-substantive changes to the text of these rule and form provisions. If an affiliated person, 

promoter, or principal underwriter of the fund, or an affiliated person of such person, has contractually 

committed to provide financial support to the fund, the fund would be permitted to omit the last sentence 

from the disclosure statement in advertisements and sales materials for the term of the agreement. See Note 

to paragraph (b)(4), rule 482(b)(4). Likewise, if an affiliated person, promoter, or principal underwriter of 

the fund, or an affiliated person of such person, has contractually committed to provide financial support to 

the fund, and the term of the agreement will extend for at least one year following the effective date of the 

fund’s registration statement, the fund would be permitted to omit the last sentence from the disclosure 

statement that appears in the fund’s registration statement. See Instruction to Item 4(b)(1)(ii) of Form 

N-1A. 

The proposal likewise would have permitted a similar omission from the proposed disclosure statement. 

See Proposing Release, supra note 25, at nn.429 and 431. As proposed, such omission would have been 

permitted if “an affiliated person, promoter, or principal underwriter of the fund, or an affiliated person of 

such person, has entered into an agreement to provide financial support to the fund.” We have modified the 

language of the Note to paragraph (b)(4), rule 482(b)(4) and the Instruction to Item 4(b)(1)(ii) of Form 

N-1A to clarify that the omission would be permitted only in the case of contractual commitments to 

provide financial support, and not in the case of informal agreements that may not be enforceable. 

As discussed in more detail below, we are adopting amendments that would require money market funds to 

disclose current and historical instances of affiliate financial support on Form N-CR and Form N-1A, 

respectively. See infra sections III.F.3, III.E.7.
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financial support to the Fund at any time.909

Below we describe in detail the ways in which the format and content of the required disclosure 

statement that we are adopting today differ from that which we proposed, as well as the reasons 

for these differences.

b. Format of the statement

We have decided not to adopt the proposed requirement that funds provide the statement 

in a bulleted format. One commenter argued that prescribing a specific graphical format is not 

necessary and might be difficult to execute in certain forms of advertising, such as social 

media.910 We agree. We also believe that refraining from requiring funds to provide the 

disclosure statement in a bulleted format, in combination with other modifications discussed 

below that shorten the disclosure statement, addresses concerns raised by commenters that the 

length of the proposed disclosure statement could draw attention away from other important 

information in an advertisement or sales materials.911

 909 See Rule 482(b)(4)(i); Form N-1A Item 4(b)(1)(ii)(A). Besides the amendments to the disclosure statement 

requirements set forth in Rule 482(b)(4)(i) and Form N-1A Item 4(b)(1)(ii)(A), we also are adopting 

non-substantive changes to the text of these rule and form provisions. Funds may omit the last sentence 

regarding sponsor support under certain circumstances, such as when a fund’s sponsor has contractually 

committed to provide support to the fund. See supra note 908; Instructions to Item 4(b)(1)(ii) of Form 

N-1A; Note to paragraph (b)(4), rule 482(b)(4). The proposal likewise would have permitted this omission 

from the proposed disclosure statement. See Proposing Release, supra note 25, at nn.307 and 313. As 

discussed in more detail below, we are adopting amendments that would require money market funds to 

disclose current and historical instances of affiliate financial support on Form N-CR and Form N-1A, 

respectively. See infra sections III.F.3, III.E.7.

910 See ABA Business Law Section Comment Letter.

911 See NYC Bar Committee Comment Letter (noting that, particularly in inherently brief formats like 

advertisements, there is a risk that mandated legends may crowd out material informational content); ABA 

Business Law Section Comment Letter (arguing that the proposed disclosure statement could take up so 

much of the space available in an advertisement that it will discourage investors from viewing other 

important information in the communication).
294

c. Disclosure concerning general risk of investment loss 

As proposed, the required disclosure statement would have included a bulleted statement 

providing: “You could lose money by investing in the Fund.” We are adopting identical content 

in the required disclosure statement. As discussed in the proposal, we have taken into 

consideration investor preferences for clear, concise, and understandable language in adopting 

the required disclosure and also have considered whether strongly-worded disclaimer language 

would more effectively convey the particular risks associated with money market funds than 

more moderately-worded language would.

912 We received one comment on this language 

arguing that it is duplicative with other language in the required disclosure statement.913 We 

have responded to this comment by shortening and modifying the required disclosure 

statement.914 

d. Disclosure concerning fees and gates

As proposed, the required disclosure statement would have included bulleted statements 

providing: “The Fund may impose a fee upon sale of your shares when the Fund is under 

considerable stress” and “The Fund may temporarily suspend your ability to sell shares of the 

Fund when the Fund is under considerable stress.” Instead of including these bullet points in the 

required disclosure, we are adopting similar content in the required disclosure statement 

providing: “The Fund may impose a fee upon the sale of your shares or may temporarily suspend 

 912 See Proposing Release, supra note 25, at nn.316-317.

913 See Federated VIII Comment Letter.

914 As proposed, the required disclosure statement included the statements “You could lose money by 

investing in the Fund” and “Your investment in the Fund therefore may experience losses.” As adopted, 

the required disclosure statement no longer includes the second statement, which could be construed to be 

repetitive with the first.
295

your ability to sell shares if the Fund’s liquidity falls below required minimums because of 

market conditions or other factors.” One commenter, while generally supporting the proposed 

statement, suggested that the statement be amended to say that the fund could impose a fee or a 

gate “in order to protect shareholders of the Fund.”915 One commenter expressed concerns about 

requiring the inclusion of statements about fees and gates in advertisements or other sales 

materials, arguing that the description of circumstances and conditions under which fees and 

gates might be imposed is difficult to reduce to a brief statement.916 No commenters explicitly 

supported the inclusion of the term “considerable stress,” and several commenters argued that 

this term was not clear, and may cause investors to believe that funds could impose fees and 

gates arbitrarily or, conversely, only during extreme market events.917 To address this concern, 

one commenter suggested requiring a different term than “considerable stress,” arguing that this 

term overstates the prospect for imposing fees or gates.918 Other commenters suggested that the 

disclosure state explicitly that a fee or gate could be imposed as a result of a reduction in the 

fund’s liquidity.919 Commenters also suggested that any disclosure regarding fees and gates 

could be combined into a single statement.

After considering the comments, we continue to believe that disclosure about fees or 

gates should be included in advertisements, sales materials, and the summary section of the 

prospectus. Even some commenters that expressed concerns about including the disclosure in 

 915 See HSBC Comment Letter.

916 See NYC Bar Committee Comment Letter.

917 See NYC Bar Committee Comment Letter; ABA Business Law Section Comment Letter; Dreyfus 

Comment Letter.

918 See Dreyfus Comment Letter.

919 See NYC Bar Committee Comment Letter; ABA Business Law Section Comment Letter.
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advertisements acknowledged that the possible imposition of fees and gates is information that is 

likely to be important to investors.920 As we stated in the Proposing Release, we are concerned 

that investors will not be fully aware of potential restrictions on fund redemptions. To address 

commenters’ concerns regarding the ambiguity of the term “considerable stress,” we have 

revised the statement, as suggested by commenters, to make clear that funds could impose a fee 

or gate in response to a reduction in the fund’s liquidity. The statement does not include a 

reference that a fee or gate could be imposed “to protect investors of the fund,” as suggested by 

one commenter. We believe that including the additional suggested language could detract from 

the statement’s emphasis that a fee or gate could be imposed, which could in turn diminish 

shareholders’ awareness of potential restrictions on fund redemptions. The language we have 

adopted reflects commenter suggestions that any disclosure regarding fees or gates be combined 

into a single statement. We believe that the adopted language also responds to commenter 

concerns about the difficulty of briefly describing the conditions under which fees and gates 

might be imposed by providing that fees and gates could be imposed if “the Fund’s liquidity falls 

below required minimums because of market conditions or other factors.”

e. Disclosure concerning sponsor support

As proposed, the required disclosure statement would have included a bulleted statement 

providing: “The Fund’s sponsor has no legal obligation to provide financial support to the Fund, 

and you should not expect that the sponsor will provide financial support to the Fund at any 

time.” We are adopting identical content in the required disclosure statement. Several 

 920 See ABA Business Law Section Comment Letter; NYC Bar Committee Comment Letter.
297

commenters opposed the inclusion of a reference to sponsor support in the required disclosure 

statement.921 Some commenters argued that the disclosure would raise sponsor support to an 

unwarranted level of prominence, noting that there have not been any studies to determine 

whether investors actually rely on the potential for sponsor support as a factor when determining 

whether to invest in a money market fund.922 Commenters also were concerned that investors 

will not understand the disclosure in fund advertisements, since advertisements will not afford 

space or opportunity to explain to investors who the fund’s “sponsor” is and what “financial 

support” means.923

We continue to believe that the disclosure statement should include a statement that the 

fund’s sponsor has no obligation to provide financial support. In the Proposing Release, we 

recognized that particular instances of sponsor support were not particularly transparent to 

investors in past years because sponsor support generally was not immediately disclosed, and 

was not required to be disclosed by the Commission.924 But although investors might not have 

known of particular instances of sponsor support, we believe that many investors, particularly 

institutional investors, have historically understood that there was a possibility of financial 

support from the money market fund’s sponsor and that this possibility has affected investors’ 

perceptions about the level of risk in investing in money market funds.925 We therefore disagree 

 921 See Dreyfus Comment Letter; NYC Bar Committee Comment Letter; ABA Business Law Section 

Comment Letter. But see CFA Institute Comment Letter; HSBC Comment Letter (both generally 

supporting the proposed disclosure statement, including the language discussing sponsor support).

922 See, e.g., ABA Business Law Section Comment Letter; NYC Bar Committee Comment Letter.

923 Id.

924 Proposing Release, supra note 25, at section II.B.3.

925 See, e.g., Roundtable Transcript, supra note 63 (Lance Pan, Capital Advisors Group) (“over the last 30 or 
298

with the commenter who suggested that investors were generally unaware of this practice 

preceding and during the financial crisis.926 For this reason, we believe that it is important to 

emphasize to investors that they should not expect a fund sponsor to provide financial support to 

the fund.

For similar reasons, we disagree with one commenter who argued that requiring this 

disclosure is at odds with the requirement that funds publicly disclose instances of sponsor 

support.927 As discussed below, we are requiring funds to disclose current and historical 

instances of sponsor support because we believe that such disclosure will help investors better 

understand the risks of investing in the funds.928 This reporting, which should help investors 

understand instances when the fund has come under stress, provides historical information about 

the fund. The required disclosure statement, on the other hand, is a forward-looking risk 

statement that reminds current and prospective investors that sponsors do not have an obligation 

to provide sponsor support and that investors should not expect that sponsors will provide 

support in the future. 

Finally, we are not persuaded that the disclosure regarding sponsor support should not 

appear in advertisements because this disclosure will not be understood by investors. We 

recognize that upon reading the disclosure statement, investors might have questions regarding 

 

40 years, [investors] have relied on the perception that even though there is risk in money market funds, 

that risk is owned somehow implicitly by fund sponsors. So once they perceive that they are not able to get 

that additional assurance, I believe that was one probably cause of the run.”).

926 See NYC Bar Committee Comment Letter (arguing that the Commission’s discussion of the lack of 

transparency regarding instances of sponsor support shows that the proposed risk statement addresses a 

practice that investors were not aware of during the financial crisis).

927 See Dreyfus Comment Letter.

928 See infra notes 1007-1010, 1132 and accompanying text.
299

financial support from sponsors, as commenters indicated, including questions regarding who the 

fund’s “sponsor” is, or what constitutes “financial support.”929 We believe, however, that funds 

can address this issue through more complete disclosure elsewhere in the fund prospectus if they 

believe it is necessary.

f. Disclosure for floating NAV funds

As proposed, the required disclosure statement for floating NAV funds would have 

included bulleted statements providing: “You should not invest in the Fund if you require your 

investment to maintain a stable value” and “The value of the Fund will increase and decrease as 

a result of changes in the value of the securities in which the Fund invests. The value of the 

securities in which the Fund invests may in turn be affected by many factors, including interest 

rate changes and defaults or changes in the credit quality of a security’s issuer.” Instead of 

including these bullet points in the required disclosure, we are adopting similar content in the 

required disclosure statement providing: “Because the share price of the Fund will fluctuate, 

when you sell your shares they may be worth more or less than what you originally paid for 

them.” While one commenter questioned whether the proposed disclosure was necessary for 

investors in institutional prime funds,930 we believe it is important to emphasize to investors the 

potential impact of a floating NAV.931 In response to suggestions by commenters,932 we have 

 929 See ABA Business Law Section Comment Letter; NYC Bar Committee Comment Letter.

930 See Dreyfus Comment Letter (“[W]e also question the Commission's concern that investors will fail to 

understand that the value of the [floating NAV] MMF will fluctuate. We question at what point investors 

will be given the benefit of the doubt for understanding the product in which they are invested and when 

such concerns will cease to drive additional regulatory action.”)

931 Cf. ABA Business Law Section Comment Letter (suggesting that “floating NAV money market funds 

include in their advertisements a statement that their principal value will fluctuate so that an investor’s 

shares, when redeemed may be worth more or less than their original cost”); CFA Institute Comment Letter 
300

decided not to require that the disclosure statement include the proposed statement that investors 

that require a stable value not invest in the fund. We were persuaded by commenters that the 

term “stable value” is often used by financial advisers when referring to certain investment 

products, at least some of which do have a variable NAV.933 We are also not including in the 

disclosure requirements the proposed statements about the relationship between the fund share 

price and the value of the fund’s underlying securities and the risk factors that can affect the 

value of the fund’s underlying securities. We were persuaded by one commenter who noted that 

discussion of specific risk factors will be addressed in other areas of the prospectus, including the 

summary prospectus.934 We also believe that not including these statements addresses more 

general concerns expressed by commenters regarding the length and efficacy of the proposed 

disclosure statement.935 

2. Disclosure of Tax Consequences and Effect on Fund Operations—

Floating NAV

As discussed in the Proposing Release, the requirement that institutional prime money 

market funds transition to a floating NAV will entail certain additional tax- and 

 (stating that “[d]isclosures are needed to alert investors to the potential for loss of principal and interest”).

932 See NYC Bar Committee Comment Letter; ABA Business Law Section Comment Letter.

933 See NYC Bar Committee Comment Letter (noting that “stable value” commonly refers to a “retirement 

product that will use a combination of government bonds, guaranteed return insurance wrappers and 

potentially other synthetic instruments to deliver a minimum rate of return”). 

934 See Dreyfus Comment Letter.

935 See ABA Business Law Section Comment Letter; NYC Bar Committee Comment Letter. The required 

disclosure statement that we are adopting today (see supra text accompanying note 909) is about 30% 

shorter than the proposed bulleted disclosure statement. (We have modified the proposed bulleted 

disclosure statement to encompass the proposed language referencing fluctuating share price as well as the 

ability of a fund to impose fees or gates. The Proposing Release conceived of two separate reform 

approaches, each with its own disclosure statement, while this Release combines the approaches into a 

single reform package, and the disclosure statement we are adopting therefore references both reform 

elements, as appropriate.)
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operations-related disclosure, but these disclosure requirements do not necessitate rule and form 

amendments.936 As noted above, taxable investors in institutional prime money market funds, 

like taxable investors in other types of mutual funds, may now experience taxable gains and 

losses.937 Currently, funds are required to describe in their prospectuses the tax consequences to 

shareholders of buying, holding, exchanging, and selling the fund’s shares.938 Accordingly, we 

expect that, pursuant to current disclosure requirements, floating NAV money market funds 

would include disclosure in their prospectuses about the tax consequences to shareholders of 

buying, holding, exchanging, and selling the shares of the floating NAV fund. In addition, we 

expect that a floating NAV money market fund would update its prospectus and SAI disclosure 

regarding the purchase, redemption, and pricing of fund shares, to reflect any changes resulting 

from the fund’s use of a floating NAV.939 We also expect that a fund that intends to qualify as a 

retail money market fund would disclose in its prospectus that it limits investment to accounts 

beneficially owned by natural persons.940 The Proposing Release requested comment on the 

disclosure that we expect floating NAV money market funds would include in their prospectuses 

about the tax consequences to shareholders of buying, holding, exchanging, and selling shares of 

the fund, as well as the effects (if any) on fund operations resulting from the transition to a 

floating NAV. We received no comments directly discussing this disclosure.

 936 Prospectus disclosure regarding the tax consequences of these activities is currently required by Form 

N-1A. See Item 11(f) of Form N-1A. 

937 See supra section III.B.6.

938 See Item 11(f) of Form N-1A. 

939 We expect that a floating NAV money market fund would include this disclosure (as appropriate) in 

response to, for example, Item 11 (“Shareholder Information”) and Item 23 (“Purchase, Redemption, and 

Pricing of Shares”) of Form N-1A.

940 See supra note 692 and accompanying text.
302

3. Disclosure of Transition to Floating NAV

Currently, a fund must update its registration statement to reflect any material changes by 

means of a post-effective amendment or a prospectus supplement (or “sticker”) pursuant to rule 

497 under the Securities Act.941 As discussed in the Proposing Release, we would expect that, to 

meet this existing requirement, at the time that a stable NAV money market fund transitions to a 

floating NAV (or adopts a floating NAV in the course of a merger or other reorganization), it 

would update its registration statement to include relevant related disclosure, as discussed in 

sections III.E.1 and III.E.2 of this Release, by means of a post-effective amendment or a 

prospectus supplement. Two commenters explicitly supported that such disclosures be made 

when transitioning to a floating NAV.942 We continue to believe that a money market fund must 

update its registration statement by means of a post-effective amendment or “sticker” to reflect 

relevant disclosure related to a transition to a floating NAV.

4. Disclosure of the Effects of Fees and Gates on Redemptions

As we discussed in the proposal, pursuant to the existing requirements in Form N-1A, 

funds must disclose any restrictions on fund redemptions in their registration statements.943 As 

discussed in more detail below, we expect that, to comply with these existing requirements, 

money market funds (other than government money market funds that are not subject to the fees 

and gates requirements pursuant to rule 2a-7(c)(2)(iii) and that have not chosen to rely on the 

ability to impose liquidity fees and suspend redemptions) will disclose in the registration 

 941 See 17 CFR 230.497.

942 See HSBC Comment Letter; PWC Comment Letter.

943 See Items 11(c)(1) and 23 of Form N-1A.
303

statement the effects that the potential imposition of fees and/or gates, including a board’s 

discretionary powers regarding the imposition of fees and gates, may have on a shareholder’s 

ability to redeem shares of the fund. This disclosure should help investors evaluate the costs 

they could incur in redeeming fund shares—one of the goals of this rulemaking. 

Commenters generally agreed that this disclosure would help investors understand the 

effects of fees and gates on redemptions.944 One commenter specifically agreed that Items 

11(c)(1) and 23 of Form N-1A would require money market funds to fully describe the 

circumstances under which liquidity fees could be charged or redemptions could be suspended or 

reinstated.945 In addition, two commenters noted that the prospectus should include disclosure of 

a board’s discretionary powers regarding the imposition of fees and gates, which would serve to 

emphasize further the nature of money market funds as investments subject to risk.946 The 

Proposing Release requested comment on the utility of including additional disclosure about the 

operations and effects of fees and redemption gates, including (i) requiring information about the 

basic operations of fees and gates to be disclosed in the summary section of the statutory 

prospectus (and any summary prospectus, if used) and (ii) requiring details about the fund’s 

liquidation process. One commenter argued against the utility of such additional disclosure in 

helping investors to understand the effects of fees and gates on redemptions.947 We agree and 

 944 See, e.g., UBS Comment Letter; Chamber II Comment Letter; Federated VIII Comment Letter. 

945 See Federated VIII Comment Letter (suggesting that Form N-1A also would require money market funds to 

describe how shareholders would be notified thereof, as well as other implications for shareholders, such as 

the tax consequences associated with the money market fund’s receipt of liquidity fees). 

946 See UBS Comment Letter; Chamber II Comment Letter.

947 See Federated VIII Comment Letter (arguing that: (i) requiring disclosure in the summary prospectus about 

“an exigent circumstance (i.e., charging liquidity fees or suspending redemptions) which is highly 

unlike[ly] to ever occur” would be “highly inconsistent with the Commission’s goal of ‘providing 
304

decided against making any changes to the rule text in this regard. 

As discussed in the Proposing Release, we expect money market funds to explain in the 

prospectus the various situations in which the fund may impose a liquidity fee or gate.948 For 

example, money market funds would briefly explain in the prospectus that if the fund’s weekly 

liquid assets fall below 30% of its total assets and the fund’s board determines it is in the best 

interests of the fund, the fund board may impose a liquidity fee of no more than 2% and/or 

temporarily suspend redemptions for a limited period of time.949 We also expect money market 

funds to briefly explain in the prospectus that if the fund’s weekly liquid assets fall below 10% 

of its total assets, the fund will impose a liquidity fee of 1% on all redemptions, unless the board 

of directors of the fund (including a majority of its independent directors) determines that 

imposing such a fee would not be in the best interests of the fund or determines that a lower or 

higher fee (not to exceed 2%) would be in the best interests of the fund.950 

As discussed in the Proposing Release, we expect money market funds to incorporate 

additional disclosure in the prospectus or SAI, as the fund determines appropriate, discussing the 

operations of fees and gates in more detail. Prospectus disclosure regarding any restrictions on 

redemptions is currently required by Item 11(c)(1) of Form N-1A. In addition to the disclosure 

required by Item 11(c)(1), we believe that funds could determine that more detailed disclosure 

about the operations of fees and gates, as further discussed in this section, would appropriately 

 

prospectuses that are simpler, clearer, and more useful to investors’”; and (ii) no money market funds have 

relied on rule 22e-3 to suspend the redemption of shares and liquidate the fund since the rule’s adoption, 

and thus suggesting that disclosure about a fund’s liquidation process would not be useful to investors). 

948 Proposing Release, supra note 25, at section III.B.8. 

949 See Items 11(c)(1) and 23 of Form N-1A.

950 See Items 11(c)(1) and 23 of Form N-1A.
305

appear in a fund’s SAI, and that this more detailed disclosure is responsive to Item 23 of Form 

N-1A (“Purchase, Redemption, and Pricing of Shares”). In determining whether and/or to what 

extent to include this disclosure in the prospectus or SAI, money market funds should rely on the 

principle that funds should limit disclosure in prospectuses generally to information that “would 

be most useful to typical or average investors in making an investment decision.”951 Detailed or 

highly technical discussions, as well as information that may be helpful to more sophisticated 

investors, dilute the effect of necessary prospectus disclosure and should be placed in the SAI.952 

Based on this principle, we anticipate that funds generally would consider the following 

disclosure to be appropriate for the prospectus, as disclosure regarding redemption restrictions 

provided in response to Item 11(c)(1) of Form N-1A: (i) means of notifying shareholders about 

the imposition and lifting of fees and/or gates (e.g., press release, website announcement); 

(ii) timing of the imposition and lifting of fees and gates, including (a) an explanation that if a 

fund’s weekly liquid assets fall below 10% of its total assets at the end of any business day, the 

next business day it must impose a 1% liquidity fee on shareholder redemptions unless the fund’s 

board of directors determines that doing otherwise is in the best interests of the fund, (b) an 

explanation that if a fund’s weekly liquid assets fall below 30% of its total assets, it may impose 

fees or gates as early as the same day, and (c) an explanation of the 10 business day limit for 

imposing gates; (iii) use of fee proceeds by the fund, including any possible return to 

shareholders in the form of a distribution; (iv) the tax consequences to the fund and its 

 951 See Registration Form Used by Open-End Management Investment Companies, Investment Company Act 

Release No. 23064 (Mar. 13, 1998) [63 FR 13916 (Mar. 23, 1998)], at section I. 

952 Id. 
306

shareholders of the fund’s receipt of liquidity fees; and (v) general description of the process of 

fund liquidation953 if the fund’s weekly liquid assets fall below 10%, and the fund’s board of 

directors determines that it would not be in the best interests of the fund to continue operating.954 

In addition, we expect that a government money market fund that is not subject to the 

fees and gates requirements pursuant to rule 2a-7(c)(2)(iii), but that later decides to rely on the 

ability to impose liquidity fees and suspend redemptions, would update its registration statement 

to reflect the changes by means of a post-effective amendment or a prospectus supplement 

pursuant to rule 497 under the Securities Act. In addition, a government fund that later opts to 

rely on the ability to impose fees and gates provided in rule 2a-7(c)(2)(iii) should consider 

whether to provide any additional notice to its shareholders of that election.955

5. Historical Disclosure of Liquidity Fees and Gates

We are amending Form N-1A, generally as proposed, but with certain modifications as 

discussed below, to require that money market funds provide disclosure in their SAIs about 

historical occasions in which the fund has considered or imposed liquidity fees or gates.956 As 

proposed, we would have required funds to disclose: (i) the length of time for which the fund’s 

weekly liquid assets remained below 15%: (ii) the dates and length of time for which the fund’s 

 953 See supra section III.A.4.

954 One commenter argued that it was unnecessary to describe the process of fund liquidation in either the 

prospectus or SAI. See Federated VIII Comment Letter. We note that we are not mandating particular 

disclosures, but rather providing examples of the types of disclosures we believe that money market funds 

could provide in the prospectus or SAI. We further note that it is important for funds to ensure that 

investors are fully aware of the ability of the fund to permanently suspend redemptions and liquidate.

955 We note that 60-day notice is required by our rules for other significant changes by funds, for example, 

when a fund changes its name. See rules 35d-1(a)(2)(ii) and (a)(3)(iii).

956 As we proposed, this historical disclosure would only apply to such events that occurred after the 

compliance date of the amendments. See Proposing Release, supra note 25, at n.983. 
307

board of directors determined to impose a liquidity fee and/or temporarily suspend the fund’s 

redemptions; and (iii) a short discussion of the board’s analysis supporting its decision to impose 

a liquidity fee (or not to impose a liquidity fee) and/or temporarily suspend the fund’s 

redemptions.957 As discussed below, we are adopting modified thresholds for imposing fees and 

gates from what was proposed; consequently, the amendments we are adopting to Form N-1A to 

require historical disclosure of liquidity fees and gates have been modified from the proposed 

amendments to conform to these amended threshold levels. In addition, in a change from the 

proposed historical disclosure requirements, the Form N-1A amendments we are adopting 

require a fund to disclose the size of any liquidity fee imposed during the specified look-back 

period. We have also determined not to adopt the proposed requirement to disclose “a short 

discussion of the board’s analysis supporting its decision to impose a liquidity fee (or not to 

impose a liquidity fee) and/or temporarily suspend the fund’s redemptions” for the reasons 

detailed below.

Specifically, we are amending Form N-1A to require that money market funds (other than 

government money market funds that are not subject to the fees and gates requirements pursuant 

to rule 2a-7(c)(2)(iii))958 provide disclosure in their SAIs regarding any occasion during the last 

10 years (but not for occasions that occurred before the compliance date of these amended 

rules)959 on which (i) the fund’s weekly liquid assets have fallen below 10%, and with respect to 

each such occasion, whether the fund’s board of directors determined to impose a liquidity fee 

 957 See Proposing Release, supra note 25, at section III.B.8.d.

958 Rule 2a-7(c)(2)(iii). 

959 See infra section III.N.
308

and/or suspend the fund’s redemptions, or (ii) the fund’s weekly liquid assets have fallen below 

30% (but not less than 10%) and the fund’s board of directors determined to impose a liquidity 

fee and/or suspend the fund’s redemptions.960 With respect to each occasion, we are requiring 

funds to disclose: (i) the length of time for which the fund’s weekly liquid assets remained 

below 10% (or 30%, as applicable); (ii) the dates and length of time for which the fund’s board 

of directors determined to impose a liquidity fee and/or temporarily suspend the fund’s 

redemptions; and (iii) the size of any liquidity fee imposed.

961 

We proposed to require a fund to provide disclosure in its SAI regarding any occasion 

during the last 10 years (but not before the compliance date) in which the fund’s weekly liquid 

assets had fallen below 15%, and with respect to each such occasion, whether the fund’s board of 

directors determined to impose a liquidity fee and/or suspend the fund’s redemptions.962 As 

discussed previously, the final amendments contain modified thresholds for imposing fees and 

gates from what was proposed,963 and we are therefore modifying the disclosure requirements to 

conform to these amended threshold levels. 

As proposed, the SAI disclosure requirements would not have directly required a fund to 

 960 See amended Item 16(g)(1) of Form N-1A. The disclosure required by Item 16(g)(1) should incorporate, as 

appropriate, any information that the fund is required to report to the Commission on Items E.1, E.2, E.3, 

E.4, F.1, F.2, and G.1 of Form N-CR. See Instruction 2 to Item 16(g)(1). This represents a slight change 

from the proposal, in that the required disclosure is now the same as what would be disclosed in the initial 

filings of Form N-CR. We have made this change to reduce the burdens associated with such disclosure so 

that funds need only prepare this information once in a single manner. For the reasons discussed in section 

III.F of this Release, Form N-CR includes a new requirement that funds report their level of weekly liquid 

assets at the time of the imposition of fees or gates, and accordingly, we are also requiring similar 

disclosure here. See Form N-CR Items E.3 and F.1. 

961 See Instructions to amended Item 16(g)(1) of Form N-1A.

962 See Proposing Release, supra note 25, at section III.B.8.d.

963 See supra section III.A.2.
309

disclose the size of any liquidity fee imposed. We are modifying the SAI disclosure 

requirements to require a fund to disclose the size of any liquidity fee it has imposed during the 

specified look-back period. As discussed below in the context of the Form N-CR disclosure 

requirements we are adopting, because we are revising the default liquidity fee from the 

proposed 2% to 1%, and thus we expect that there may be instances where liquidity fees are 

above or below the default fee (rather than just lower as permitted under the proposal), we are 

requiring that funds disclose the size of the liquidity fee, if one is imposed.964

One commenter specifically supported the proposed 10-year “look-back” period for the 

historical disclosure, noting that a 10-year period should capture a number of different market 

stresses delivering a meaningful sample.965 Another commenter suggested limiting SAI 

disclosure to a five-year period prior to the effective date of the registration statement 

incorporating the SAI disclosure, although this commenter did not provide specific reasons why 

this shortened look-back period would be appropriate.966 After further consideration, and given 

that commenters did not provide any specific reasons for implementing a shortened look-back 

period, we continue to believe that a 10-year look-back period provides shareholders and the 

Commission with a historical perspective that would be long enough to provide a useful 

understanding of past events. We believe that this period would provide a meaningful sample of 

stresses faced by individual funds and in the market as a whole, and to analyze patterns with 

respect to fees and gates, but would not be so long as to include circumstances that may no 

 964 See infra note 1316 and accompanying text.

965 See HSBC Comment Letter.

966 See Federated VIII Comment Letter.
310

longer be a relevant reflection of the fund’s management or operations. 

As discussed in the Proposing Release, we continue to believe that money market funds’ 

current and prospective shareholders should be informed of historical occasions in which the 

fund’s weekly liquid assets have fallen below 10% and/or the fund has imposed liquidity fees or 

redemption gates. While we recognize that historical occurrences are not necessarily indicative 

of future events, we anticipate that current and prospective fund investors could use this 

information as one factor to compare the risks and potential costs of investing in different money

market funds. The DERA Study analyzed the distribution of weekly liquid assets and found that 

83 prime funds per year, corresponding to 2.7% of the prime funds’ weekly liquid asset 

observations, saw the percentage of their total assets that were invested in weekly liquid assets 

fall below 30%. The DERA Study further showed that less than one (0.6) fund per year, 

corresponding to 0.01% of the prime funds’ weekly liquid asset observations, experienced a 

decline of total assets that were invested in weekly liquid assets to below 10%.967 We believe 

that funds will, in general, try to avoid the need to disclose decreasing percentages of weekly 

liquid assets and/or the imposition of a liquidity fee or gate, as required under the new 

amendments to Form N-1A,968 by keeping the percentage of their total assets invested in weekly 

liquid assets at or above 30%. Of those 83 funds that reported a percentage of total assets 

invested in weekly liquid assets below 30%, it is unclear how many, if any, would have 

attempted to keep the percentage of their total assets invested in weekly liquid assets at or above 

30% to avoid having to report this information on their SAI (assuming they were to impose, at 

 967 See DERA Study, supra note 24, at 27.

968 See supra notes 960 and 961 and accompanying text. 
311

their board’s discretion, a liquidity fee or gate). 

The required disclosure will permit current and prospective shareholders to assess, among 

other things, patterns of stress experienced by the fund, as well as whether the fund’s board has 

previously imposed fees and/or redemption gates in light of declines in portfolio liquidity. This 

disclosure also provides investors with historical information about the board’s past analytical 

process in determining how to handle liquidity issues when the fund experiences stress, which 

could influence an investor’s decision to purchase shares of, or remain invested in, the fund. In 

addition, the required disclosure may impose market discipline on portfolio managers to monitor 

and manage portfolio liquidity in a manner that lessens the likelihood that the fund would need to 

implement a liquidity fee or gate.969 One commenter explicitly supported the utility of these 

disclosure requirements in providing investors with useful information regarding the frequency 

of the money market fund’s breaching of certain liquidity thresholds, whether a fee or gate was 

applied, and the level of fee imposed, stating that “[t]his will allow investors to make informed 

decisions when determining whether to invest in [money market funds] and when comparing 

different [money market funds].”970 No commenter argued that disclosure about the historical 

fact of occurrence of fees and gates would not be useful to investors. However, some 

commenters raised concerns about the potential redundancy of the proposed registration 

statement, website, and Form N-CR disclosure requirements.971

As discussed above, we also have determined not to adopt the proposed requirement for a 

 969 See supra notes 157 and 162 and accompanying text.

970 HSBC Comment Letter.

971 See, e.g., Dreyfus Comment Letter; SIFMA Comment Letter.
312

fund to disclose “a short discussion of the board’s analysis supporting its decision to impose a 

liquidity fee (or not to impose a liquidity fee) and/or temporarily suspend the fund’s 

redemptions” in its SAI (or as discussed below, on its website).

972 We note that Form N-CR, as 

proposed, also would have required a fund imposing a fee or gate to disclose a “discussion of the 

board’s analysis” supporting its decision, and a number of commenters objected to this proposed 

requirement.973 In particular, commenters raised concerns that the disclosures proposed to be 

required in Form N-CR and Form N-1A would not be material to investors, would be 

burdensome to disclose, would chill deliberations among board members and hinder board 

confidentiality, and would encourage opportunistic litigation.974 Commenters also argued that 

disclosure of the board’s analysis is not necessary to disclose patterns of stress in a fund and that 

this disclosure is not likely to be a meaningful indication of the board’s analytical process going 

forward.975 

 972 However, as discussed below in section III.F.5, Form N-CR will require a fund to disclose the primary 

considerations or factors taken into account by the fund’s board in its decision to impose a liquidity fee or 

gate.

973 See infra section III.F.5.

974 See infra notes 1289-1293 and accompanying text. Most commenters made these arguments in reference to 

the proposed Form N-CR disclosure requirement; however, several commenters also specifically 

referenced the proposed identical Form N-1A disclosure requirement. See SIFMA Comment Letter; 

Stradley Ronon Comment Letter. 

975 See SIFMA Comment Letter; Stradley Ronon Comment Letter (both stating that requiring disclosure of the 

board’s analysis is not necessary to disclose patterns of stress in a fund, and that patterns of stress will be 

apparent via the proposed disclosures of historical sponsor support and liquidity shortfalls). We note that 

the Proposing Release does not specifically state that disclosure of the board’s analysis supporting its 

decision to impose a liquidity fee or temporarily suspend the fund’s redemptions would permit shareholders 

to assess patterns of stress. Rather, the Proposing Release states that the proposed historical disclosure of 

liquidity fees and gates (which disclosure would include a discussion of the board’s analysis supporting its 

decision to impose a liquidity fee or gate) generally would assist shareholders in assessing patterns of 

stress. See Proposing Release, supra note 25, at section III.B.8.d. We continue to believe that historical 

disclosure of fees and gates, which would include disclosures of historical liquidity shortfalls, would assist 

shareholders in understanding patterns of stress faced by the fund. See supra notes 969-970 and 

accompanying text. We believe that this historical disclosure complements the disclosure of historical 
313

We discuss these commenters’ concerns in detail in section III.F below and also provide 

our analysis supporting our attempt to balance these concerns with our interest in permitting the 

Commission and shareholders to understand why a board imposed (or did not impose) a liquidity 

fee or gate. As a result of these considerations and the analysis discussed in section III.F below, 

we have adopted a Form N-CR requirement to require disclosure of the primary considerations 

or factors taken into account by the fund’s board in its decision to impose a liquidity fee or gate. 

However, in order to avoid unnecessary duplication in the disclosure that will appear in a fund’s 

SAI and on Form N-CR, we have determined not to require parallel disclosure of these 

considerations or factors in the fund’s SAI. Instead, a fund will only be required to present 

certain summary information about the imposition of fees and/or gates in its SAI (as well as on 

the fund’s website976), and will be required to present more detailed discussion solely on Form 

N-CR.977 To inform investors about the inclusion of this more detailed information on Form 

N-CR, funds will be instructed to include the following statement as part of their SAI disclosure 

about the historical occasions in which the fund has considered or imposed liquidity fees or 

gates: “The Fund was required to disclose additional information about this event [or “these 

events,” as appropriate] on Form N-CR and to file this form with the Securities and Exchange 

Commission. Any Form N-CR filing submitted by the Fund is available on the EDGAR 

Database on the Securities and Exchange Commission’s Internet site at http://www.sec.gov.”978 

In adopting these modified SAI disclosure requirements, we have attempted to balance concerns 

 

instances of sponsor support in understanding patterns of stress.

976 See infra section III.E.9.f.

977 See infra section III.F.5.

978 See instructions to amended Item 16(g)(1) of Form N-1A.
314

about potentially duplicative disclosure979 with our interest in presenting the primary information 

about the fund’s historical imposition of fees or gates that we believe shareholders may find 

useful in assessing fund risks.

6. Prospectus Fee Table

As proposed, we are clarifying in the instructions to Item 3 of Form N-1A (“Risk/Return 

Summary: Fee Table”) that the term “redemption fee,” for purposes of the prospectus fee table, 

does not include a liquidity fee that may be imposed in accordance with rule 2a-7.980 

Commenters on this aspect of our proposal agreed that the liquidity fee should not be included in 

the prospectus fee table.981 For example, one commenter stated that the fees and expenses table 

is intended to show a typical investor the range of anticipated costs that will be borne by the 

investor directly or indirectly as a shareholder, but is not an ideal presentation for the kind of 

highly contingent cost that would be represented by a liquidity fee.982

As discussed in the Proposing Release and as adopted today, a liquidity fee will only be 

imposed when a fund experiences stress, and because we anticipate that a particular fund would 

impose this fee rarely, if at all,983 we continue to believe that the prospectus fee table, which is 

intended to help shareholders compare the costs of investing in different mutual funds, should 

 979 See supra note 971 and accompanying text. As discussed in more detail in section III.F.5 below, while 

similar information is required to be included on Form N-CR and on Form N-1A, we believe each of these 

different disclosures to be appropriate because they serve distinct purposes. See infra notes 1308-1309 and 

accompanying text.

980 See Instruction 2(b) to amended Item 3 of Form N-1A. 

981 See, e.g., HSBC Comment Letter; NYC Bar Committee Comment Letter; Dreyfus Comment Letter.

982 See NYC Bar Committee Comment Letter.

983 See supra note 247 and accompanying text.
315

not include the liquidity fee.984 We also note, as discussed above, that shareholders will be 

adequately informed about liquidity fees through other disclosures in funds’ SAI and summary 

section of the statutory prospectus (and, accordingly, in any summary prospectus, if used).985 If a 

fund imposes a liquidity fee, shareholders will also be informed about the imposition of this fee 

on the fund’s website986 and possibly by means of a prospectus supplement.987 A fund could also 

provide complementary shareholder communications, such as a press release or social media 

update.988 Accordingly, we are adopting the clarifying instruction to Item 3 as proposed. 

7. Historical Disclosure of Affiliate Financial Support

As discussed above in section II.B.4, voluntary support provided by money market fund 

sponsors and affiliates has played a role in helping some money market funds maintain a stable 

share price, and, as a result, may have lessened investors’ perception of the level of risk in 

money market funds. Such discretionary sponsor support was, in fact, not unusual during the 

financial crisis.989 Today we are adopting, with certain modifications from the proposal to 

address commenter concerns, amendments that require that money market funds disclose current 

and historical instances of affiliate “financial support.” The final amendments define “financial 

support” in the same way it is defined in Form N-CR,990 and specify that funds should 

 984 Instruction 2(b) to Item 3 of Form N-1A currently defines “redemption fee” to include any fee charged for 

any redemption of the Fund’s shares, but does not include a deferred sales charge (load) imposed upon 

redemption.

985 See supra section III.E.4. 

986 See infra section III.E.9.f.

987 See infra text accompanying notes 1126 and 1127.

988 See infra text following note 1123.

989 See, e.g., DERA Study, supra note 24, at nn.23-24 and accompanying text.

990 See Instruction 1 to Item 16(g)(2) of Form N-1A; Form N-CR Part C (defining financial support as 
316

incorporate certain information that the fund is required to report on Form N-CR in their SAI 

disclosure.991 We discuss this definition in detail, including the modifications we have made to 

address commenter concerns, in section III.F.

992 This represents a slight change from the 

proposal, in that the required disclosure is now identical to what would be disclosed in the initial 

filings of Form N-CR. We have made this change to reduce the burdens associated with such 

disclosure so that funds need only prepare this information once in a single manner.993

In the Proposing Release, we requested comment on amending rule 17a-9 (which allows 

for the discretionary support of money market funds by their sponsors and other affiliates) to 

potentially restrict the practice of sponsor support, but did not propose any specific changes to 

the rule. While a few commenters suggested, in response to this request for comment, that we 

prohibit affiliates from providing discretionary support to maintain a money market fund’s share 

value,994 other commenters opposed making any changes to rule 17a-9, arguing that transactions 

 

“including any (i) capital contribution, (ii) purchase of a security from the Fund in reliance on § 270.17a-9, 

(iii) purchase of any defaulted or devalued security at par, (iv) execution of letter of credit or letter of 

indemnity, (v) capital support agreement (whether or not the Fund ultimately received support), (vi) 

performance guarantee, or (vii) any other similar action reasonably intended to increase or stabilize the 

value or liquidity of the Fund’s portfolio; excluding, however, any (i) routine waiver of fees or 

reimbursement of Fund expenses, (ii) routine inter-fund lending (iii) routine inter-fund purchases of Fund 

shares, or (iv) any action that would qualify as financial support as defined above, that the board of 

directors has otherwise determined not to be reasonably intended to increase or stabilize the value or 

liquidity of the Fund’s portfolio.”). 

991 See Instruction 3 to Item 16(g)(2) of Form N-1A.

992 See infra section III.F.3.

993 See Item 16(g)(2) of Form N-1A. The disclosure required by Item 16(g)(2) should incorporate, as 

appropriate, any information that the fund is required to report to the Commission on Items C.1, C.2, C.3, 

C.4, C.5, C.6, and C.7 of Form N-CR. See Instruction 2 to Item 16(g)(2). 

994 See, e.g., Systemic Risk Council Comment Letter; Capital Advisors Comment Letter; see also HSBC 

Comment Letter (supporting amending rule 17a-9, arguing that transactions facilitated by the rule can result 

in shareholders having unjustified expectations of future support being provided by sponsors). 
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facilitated by the rule are in the best interests of shareholders.995 We continue to believe, as 

discussed in the Proposing Release, that permitting financial support (with adequate disclosure) 

will provide fund affiliates with the flexibility to protect shareholder interests, and we are not 

amending rule 17a-9 at this time.996 Many commenters supported the various financial support 

disclosures we are adopting today.997 We believe that these disclosure requirements will provide 

transparency to shareholders and the Commission about the frequency, nature, and amount of 

affiliate financial support. 

a. General requirements

We are adopting, with some changes from the proposal, amendments to Form N-1A to 

require a money market fund to disclose in its SAI historical instances in which the fund has 

received financial support from a sponsor or fund affiliate.998 Specifically, each money market 

fund will be required to disclose any occasion during the last 10 years (but not for occasions that 

occurred before the compliance date of these amended rules) on which an affiliated person, 

promoter, or principal underwriter of the fund, or an affiliated person of such person,999 provided 

 995 See ICI Comment Letter; Dreyfus Comment Letter; ABA Business Law Comment Letter.

996 See Proposing Release, supra note 25, at text accompanying n.607.

997 See, e.g., Oppenheimer Comment Letter (“We support the SEC’s proposal to require money market funds 

to disclose current and historical instances of sponsor support for stable NAV funds [...].”). See also, e.g., 

Angel Comment Letter; American Bankers Ass’n Comment Letter; Federated VIII Comment Letter; 

Comment Letter of Occupy the SEC (Sept. 16, 2013) (“Occupy the SEC Comment Letter”); Thrivent 

Comment Letter.

998 See Item 16(g)(2) of Form N-1A. 

999 Rule 2a-7 currently requires a money market fund to notify the Commission by electronic mail, directed to 

the Director of Investment Management or the Director’s designee, of any purchase of money market fund 

portfolio securities by an affiliated person, promoter, or principal underwriter of the fund, or an affiliated 

person of such person, pursuant to rule 17a-9. See current rule 2a-7(c)(7)(iii)(B). As proposed, we are 

eliminating this requirement today, as it would be duplicative with the proposed Form N-CR reporting 

requirements discussed below. See rule 2a-7(f)(3); see also infra note 1254. However, because the 
318

any form of financial support to the fund. For the reasons discussed in the Proposing Release, we 

believe that the disclosure of historical instances of sponsor support will allow investors, 

regulators, academics, market observers and market participants, and other interested members 

of the public to understand better whether a particular fund has required financial support in the 

past and the extent of sponsor support across the fund industry.1000 As proposed, with respect to 

each such occasion, funds would have been required to describe the nature of support, the person 

providing support, the relationship between the person providing support and the fund, the date 

the support provided, the amount of support,1001 the security supported and its value on the date 

support was initiated (if applicable), the reason for support, the term of support, and any 

contractual restrictions relating to support.1002 We are adopting the proposed disclosure 

requirements, with the exception of the requirements for a fund to describe the reason for 

support, the term of support, and any contractual restrictions relating to support. 

While multiple commenters supported the proposed requirement for money market funds 

to disclose historical instances of financial support in the fund’s SAI,1003 other commenters 

expressed a number of concerns about this proposed requirement.1004 For example, one 

 

definition of “financial support” as adopted today includes the purchase of a security pursuant to rule 17a-9 

(as well as similar actions), we believe that the scope of the persons covered by the definition should reflect 

the scope of persons covered by current rule 2a-7(c)(7)(iii)(B). The term “affiliated person” is defined in 

section 2(a)(3) and, in the context of an investment company, includes, among other persons, the 

investment adviser of the investment company.

1000 See Proposing Release, supra note 25, at text following n.607.

1001 See infra section III.F.3 for Commission guidance on the amount of support to be disclosed.

1002 See proposed Item 16(g)(2) of Form N-1A. See infra notes 1226-1243 and accompanying text for a 

discussion of actions that would be deemed to constitute “financial support” and additional discussion of 

what is required to be reported. 

1003 See supra note 997.

1004 See, e.g., U.S. Bancorp Comment Letter; Dreyfus Comment Letter.
319

commenter opposed this disclosure, stating that “many investors would extrapolate such 

disclosure as an implied guarantee of future support by the sponsor of the fund.”1005 Another 

commenter rejected the notion that past sponsor support is indicative of a sponsor’s management 

style and further observed that disclosure of historical support contradicts the proposed 

disclosure that a fund’s sponsor has no legal obligation to provide support.1006 While we 

acknowledge these concerns, we believe it is important for investors to understand the nature and 

extent that a fund’s sponsor has discretionarily supported the fund in order to allow them to fully 

appreciate the risks of investing in the fund.1007 Although we recognize that historical 

occurrences are not necessarily indicative of future events and that support does not equate to 

poor fund management, we continue to expect that these disclosures will permit investors to 

assess the sponsor’s past ability and willingness to provide financial support to the fund. This 

disclosure also should help investors gain a better context for, and understanding of, the fund’s 

risks, historical performance, and principal volatility. 

A number of commenters stated that any disclosure of financial support, including the 

historical disclosures, should only apply to stable NAV funds.1008 We disagree. Transparency of 

financial support is important for stable NAV funds, given the potential for a “breaking the 

buck” event absent the receipt of affiliate financial support. It is equally important, for both 

floating and stable NAV money market funds, that investors have transparency about the extent 

 1005 See U.S. Bancorp Comment Letter. 

1006 See Dreyfus Comment Letter.

1007 See supra notes 51-55 and accompanying discussion; see also, e.g., Proposing Release, supra note 25, at 

n.607 and accompanying text. 

1008 See, e.g., ICI Comment Letter; IDC Comment Letter; Oppenheimer Comment Letter; Comment Letter of 

State Street Global Advisors (Sept. 17, 2013) (“SSGA Comment Letter”). 
320

to which the fund’s principal stability or liquidity profile is achieved through financial support as 

opposed to portfolio management. This is particularly the case when financial support for a 

floating NAV fund could obviate the need for it to impose a liquidity fee or redemption gate.1009 

We therefore believe that transparency of such support will help investors better evaluate the 

risks with respect to both stable and floating NAV funds.1010 

Some commenters also suggested we shorten the look-back period. For example, one 

commenter proposed a look-back period of 3 to 5 years (rather than 10 years, as proposed).1011 

We believe, however, that a look-back period of less than 10 years would be too short to achieve 

our goals. As we noted in the Proposing Release,1012 the 10-year look-back period will provide 

shareholders and the Commission with a historical perspective that is long enough to provide a 

useful understanding of past events, and to analyze patterns with respect to financial support 

received by the fund, but not so long as to include circumstances that may no longer be a 

relevant reflection of the fund’s management or operations. We also note that, historically,

 1009 See generally, ABA Business Law Section (with respect to retaining rule 17a-9, stating that “the possibility 

of economic support from an affiliated person would remain important to money market funds that have a 

floating NAV because [...] liquidity concerns [remain] significant to money market funds (and other funds 

holding the same investments). [....] In addition, retaining [rule 17a-9] would not undercut the 

Commission’s goal of providing transparency of money market fund risks, particularly in light of the 

Commission's companion proposals calling for disclosure of historical instances of economic support from 

sponsors of money market funds.”). 

1010 See Proposing Release, supra note 25, at section III.F.1.a (discussing reasons why funds should disclose 

historical sponsor support). 

1011 See, e.g., Dreyfus Comment Letter (stating that “[s]imilar kinds of information (e.g., management fees and 

12b-1 fees paid, officers and directors biographies, financial highlights) generally [are] required in the 

registration statement only for a 3-5 year period.”); Federated VIII Comment Letter (recommending five 

years). But see Occupy the SEC Comment Letter (explicitly supporting the proposed 10-year look-back 

period for disclosing events of financial support).

1012 See Proposing Release, supra note 25, at discussion following n.614.
321

episodes of financial support have occurred on average every 5 to 10 years.1013 Accordingly, a 

shorter look-back period would result in disclosure that not does reflect the typical historical 

frequency of instances of financial support. 

We proposed to limit historical disclosure of events of affiliate financial support to 

instances that occur after the compliance date of the amendments to Form N-1A.1014 Several 

commenters generally supported this approach, suggesting that this disclosure requirement

should only apply to events that occur after the compliance date of the disclosure reforms.1015 

We continue to believe that these disclosures should only apply to affiliate financial support 

events that occur after the compliance date of the disclosure reforms, in large part because to do 

otherwise would require funds and their affiliates to incur significant costs as they reexamine a 

variety of past transactions to determine whether such events fit our new definition of affiliate 

financial support. 

Finally, a few commenters suggested disclosing historical financial support in Form 

N-MFP, N-CR, or N-CSR, rather than in the SAI (as proposed).1016 One commenter noted that to 

the extent this disclosure will serve as a reporting function for analysis by regulators, other forms 

such as Form N-MFP have been developed for that particular purpose.1017 Commenters also 

raised concerns about the potential redundancy of the proposed registration statement, website, 

 1013 See Proposing Release, supra note 25, at section II.B, Table 1. 

1014 As we proposed, this historical disclosure would only apply to such events that occurred after the 

compliance date of the amendments. See Proposing Release, supra note 25, at text accompanying n.983.

1015 See Federated VII Comment Letter; SIFMA Comment Letter. 

1016 See, e.g., Dreyfus Comment Letter; U.S. Bancorp Comment Letter. 

1017 See Dreyfus Comment Letter.
322

and Form N-CR disclosure requirements.1018 Because these historical sponsor support 

disclosures are intended to benefit investors, as well as regulators, we believe that the SAI is the 

most accessible and efficient format for such disclosure. As discussed in section III.F.3, we note 

that the contemplated SAI disclosure would consolidate historical instances of sponsor support 

that have occurred in the past 10 years, which would permit investors to view this information in 

a user-friendly manner, without the need to review prior form filings to piece together a fund’s 

history of sponsor support. We also believe that, to the extent investors may not be familiar with 

researching filings on EDGAR, including this disclosure in a fund’s SAI, which investors may 

receive in hard copy through the U.S. Postal Service or may access on a fund’s website, as well 

as on EDGAR, may make this information more readily available to these investors than 

disclosure on other SEC forms that are solely accessible on EDGAR. 

As discussed above, we are not adopting the proposed requirements that a fund include 

the reason for support, the term of support, and any contractual restrictions relating to support in 

its required SAI disclosure.1019 Instead, a fund will only be required to present certain summary 

information about the receipt of financial support in its SAI (as well as on the fund’s website1020), 

and will be required to present more detailed discussion solely on Form N-CR.1021 To inform 

investors about the inclusion of this more detailed information on Form N-CR, funds will be 

instructed to include the following statement as part of the historical disclosure of affiliate 

financial support appearing in the fund’s SAI: “The Fund was required to disclose additional 

 1018 See, e.g., Dreyfus Comment Letter; SIFMA Comment Letter.

1019 See supra note 1002 and accompanying text.

1020 See infra section III.E.9.g. 

1021 See infra section III.F.3.
323

information about this event [or “these events,” as appropriate] on Form N-CR and to file this 

form with the Securities and Exchange Commission. Any Form N-CR filing submitted by the 

Fund is available on the EDGAR Database on the Securities and Exchange Commission’s 

Internet site at http://www.sec.gov.”1022 In adopting these modified SAI disclosure requirements, 

we have attempted to appropriately consider concerns about potentially duplicative disclosure1023

as well as our belief, as discussed above, that the SAI is the most accessible and efficient format 

for investors to receive historical disclosures about affiliate financial support, and our interest in 

presenting the primary information about such financial support that we believe shareholders 

may find useful in assessing fund risks. 

b. Historical support of predecessor funds

We also are amending, generally as we proposed, the instructions to Form N-1A to 

clarify that funds must disclose any financial support provided to a predecessor fund (in the case 

of a merger or other reorganization) within the 10-year look-back period. As discussed in the 

Proposing Release, this amendment will provide additional transparency by providing investors 

the full extent of historical support provided to a fund or its predecessor. Specifically, except as 

noted below, the amended instructions state that if the fund has participated in a merger or other 

reorganization with another investment company during the last 10 years, the fund must 

additionally provide the required disclosure with respect to the other investment company.1024 

 1022 See Instructions to amended Item 16(g)(2) of Form N-1A.

1023 See supra note 1018 and accompanying text. As discussed in more detail in section III.F.3 below, while 

similar information is required to be included on Form N-CR and Form N-1A, we believe each of these 

different disclosures to be appropriate because they serve distinct purposes. See discussion following infra

notes 1248 and 1249 and accompanying text.

1024 See Instruction 2 to Item 16(g)(2). Additionally, if a fund’s name has changed (but the corporate or trust 
324

Rather than require that funds disclose financial support provided to a predecessor fund 

in all cases (as proposed), we are revising the instruction to permit a fund to exclude such 

disclosure where the person or entity that previously provided financial support to the 

predecessor fund is not currently an affiliated person (including the adviser), promoter, or 

principal underwriter of the disclosing fund.1025 A few commenters expressed concern about 

historical disclosures with respect to third-party reorganizations, asserting that past financial 

support would be irrelevant to shareholders where the surviving fund had a new manager 

unaffiliated with the prior manager.1026 These commenters noted that this disclosure requirement 

could adversely affect potential merger transactions with funds that have received sponsor 

support.1027 

We agree with these commenters that historical sponsor support information about a 

predecessor fund may be less relevant when the fund is not advised by, or otherwise affiliated 

with, the entity that had previously provided financial support to the predecessor fund. 

Accordingly, we are adopting an exclusion to this disclosure requirement based on whether the 

current fund continues to have any affiliation with the predecessor fund’s affiliated persons

(including the predecessor fund’s adviser), promoter, or principal underwriter.1028 We expect this 

approach should mitigate commenter concerns of adverse effects on fund mergers.

 

entity remains the same), the fund may want to consider providing the required disclosure with respect to 

the entity or entities identified by the fund’s former name. See Proposing Release, supra note 25, at n.619. 

1025 Id. In the Proposing Release we had proposed to require disclosure of financial support provided to a 

predecessor fund in all cases. See Proposing Release, supra note 25, at n.618 and accompanying 

discussion. 

1026 See, e.g., Federated VIII Comment Letter; SIFMA Comment Letter.

1027 See id.

1028 See Instruction 2 to Item 16(g)(2). 
325

8. Economic Analysis

As discussed above, we are adopting a number of amendments to requirements for

disclosure documents that are related to both our fees and gates and floating NAV requirements, 

as well as other disclosure enhancements discussed in the proposal. We believe that these 

amendments improve transparency and will better inform shareholders about the risks of 

investing in money market funds, which should result in shareholders making investment 

decisions that better match their investment preferences. We believe that many of these 

amendments will have effects on efficiency, competition, and capital formation that are similar 

to those that are outlined in the Macroeconomic Consequences section below,

1029 but some of the 

amendments introduce additional effects. 

Many of the new disclosure requirements are designed to make investors aware of the 

more substantive amendments discussed earlier in the Release, i.e., the ability of certain funds to 

impose redemption fees and gates and the requirement that certain funds float their NAV. 

Increasing investor awareness via enhanced disclosure may lead to more efficient capital 

allocations because investors will possess greater knowledge of risks and thus will be able to 

make better informed investment decisions when deciding how to allocate their assets. Increased 

investor awareness also may promote capital formation if investors find a floating NAV and/or 

redemption fees and gates attractive and are more willing to invest in this market. For instance, 

investors may find fees and gates attractive insofar as imposing fees and gates during a time of 

market stress could help protect the interests of shareholders, or could permit a fund manager to 

invest the proceeds of maturing assets in short-term securities while the gate is down, thereby 

 1029 See infra section III.K.
326

helping to protect the short-term financing markets.1030 Moreover, enhanced investor awareness 

of fund risks may incentivize fund managers to hold less risky portfolio securities, which could 

also increase capital formation. Capital formation could be negatively impacted if investors find 

a floating NAV and/or redemption fees and gates unattractive or too complicated to understand. 

For instance, an investor could find it unattractive that imposing a fee or gate would prevent

them from moving their investment into other investment alternatives or using their assets to 

satisfy liquidity needs.1031 Additionally, disclosing a general risk of investment loss may 

negatively impact capital formation if this disclosure leads investors to decide that money market 

funds pose too great of an investment risk, and investors consequently decide not to invest in 

money market funds or to move their invested assets from money market funds. As such, capital 

formation could be negatively impacted if investors move their money from these types of funds 

to a different style of fund, for example, from an institutional prime fund to a government fund 

and thus affecting the short-term funding market. However, if investors move from a money 

market fund to a money market fund alternative that invests in similar types of assets, then there 

should not be an impact on capital formation with respect to the overall economy, but only 

within the money market fund industry. 

To the extent that the disclosure amendments increase investor awareness of the more 

substantive reforms, there may be an effect on competition because some of the disclosure 

requirements are specific to the structure of the funds. As such, these funds will be competing 

with each other based on, among other things, what is stated in their advertisements, sales 

 1030 See supra section III.A.1.b.ii.

1031 See supra section III.A.1.c.iii.
327

materials, and the summary section of their statutory prospectus. Disclosure providing that funds 

with a stable NAV seek to preserve the value of their investment at $1.00 per share, that share 

prices of floating NAV funds will fluctuate, that taxable investors in institutional prime money 

market funds may experience taxable gains or losses, or that non-government funds may impose 

a fee or gate may make investors more aware of different investment options, which could 

increase competition between funds. 

The amendments that require money market funds to disclose current and historical 

information about affiliate financial support and historical information about the implementation 

of redemption fees and gates may also affect efficiency, competition, and capital formation. As 

discussed in the Proposing Release, these amendments may increase informational efficiency by 

providing additional information to investors and the Commission about the frequency, nature, 

and amount of financial support provided by money market fund sponsors,1032 as well as the 

frequency and duration of redemption fees and gates. This in turn could assist investors in 

analyzing the risks associated with particular funds, which could increase allocative efficiency 

and could positively affect competition by permitting investors to choose whether to invest in 

certain funds based on this information. However, the disclosure of sponsor support could 

advantage larger funds and fund groups, if a fund sponsor’s ability to provide financial support to 

a fund is perceived to be a competitive benefit. The disclosure of fees and gates also could 

advantage larger funds and fund groups if the ability to provide financial support reduces or 

eliminates the need to impose fees and/or gates (the imposition of which presumably would be 

 1032 See Proposing Release, supra note 25, at text following n.629. 
328

perceived to be a competitive detriment). Additionally, if investors move their assets among 

money market funds or decide to invest in investment products other than money market funds 

as a result of the proposed disclosure requirements, the competitive stance of certain money 

market funds, or the money market fund industry generally, could be adversely affected. 

The disclosure of affiliate financial support could have additional effects on capital 

formation, depending on whether investors interpret financial support as a sign of money market 

fund strength or weakness. If sponsor support (or the lack of need for sponsor support) were 

understood to be a sign of fund strength, the requirements could enhance capital formation by 

promoting stability within the money market fund industry. On the other hand, the disclosure 

requirements could detract from capital formation if sponsor support were understood to indicate 

fund weakness and make money market funds more susceptible to heavy redemptions during 

times of stress, or if money market fund investors decide to move their money out of money 

market funds entirely and not put it into an alternative with similar types of assets as a result. 

We did not receive comments on this aspect of our economic analysis. Similarly, the 

requirement to disclose historical redemption fees and gates could either promote or hinder 

capital formation. Disclosing the prior imposition of fees or gates may negatively impact capital 

formation if investors view the imposition of fees and gates unfavorably. Conversely, the 

requirement to disclose will allow investors to differentiate funds based on the extent to which 

funds have imposed fees and gates in the past, which could increase capital formation if investors 

perceive the absence of past fees and gates as a sign of greater stability within the money market 

fund industry. Furthermore, these required disclosures could assist the Commission in 

overseeing money market funds and developing regulatory policy affecting the money market 
329

fund industry, which might affect capital formation positively if the resulting more efficient or 

more effective regulatory framework encouraged investors to invest in money market funds. The 

Commission cannot estimate the quantitative benefits of the amendments to the disclosure forms 

because of uncertainty about how increased transparency may affect different investors’ or 

groups of investors’ understanding of the risks associated with money market funds. Uncertainty 

regarding how the proposed disclosure may affect different investors’ behavior likewise makes it 

difficult for the Commission to measure the quantitative benefits of the proposed requirements.

As a possible alternative, we could have chosen to require disclosure, as suggested by 

commenters, of the historical information on Form N-MFP, Form N-CR, or Form N-CSR instead 

of through the SAI. Because the historical disclosures are intended to benefit both investors and 

regulators, we believe that the SAI is the most suitable format for such disclosure. As discussed 

above, we believe that including historical information about affiliate financial support and the 

imposition of fees and gates in the fund’s SAI may make this information more readily available 

to investors than disclosure on other SEC forms that are solely accessible on EDGAR. We 

therefore believe that requiring this disclosure to appear in a fund’s SAI could increase 

informational efficiency by facilitating the provision of this information to investors. 

We believe that all money market funds will incur one-time and ongoing annual costs to 

update their registration statements, as well as their advertising and sales materials. The proposal 

estimated the costs that would be incurred under the fees and gates alterative separately from 

those that would be incurred under the floating NAV alternative. Under the fees and gates 

alternative, the proposal estimated that the average one-time costs for a money market fund 

(except government money market funds that are not subject to the fees and gates requirements 
330

pursuant to rule 2a-7(c)(2)(iii)) to amend its registration statement and to update its advertising 

and sales materials would be $3,092,1033 and the average one-time costs for a government fund 

that is not subject to the fees and gates requirements pursuant to rule 2a-7(c)(2)(iii) would be 

$2,204.1034 The proposal also estimated that the average annual costs for a money market fund 

(except government money market funds that are not subject to the fees and gates requirements 

pursuant to rule 2a-7(c)(2)(iii)) to amend its registration statement would be $296,1035 and the 

average annual costs for a government fund that is not subject to the fees and gates requirements 

pursuant to rule 2a-7(c)(2)(iii) would be $148.1036 

 1033 This figure incorporates the costs estimated for each fund to comply with the proposed amendments to 

Form N-1A relating to the fees and gates proposal, as well as the Form N-1A requirements relating to the 

fees and gates proposal that would not necessitate form amendments ($1,480) + the costs estimated for each 

fund to comply with the proposed Form N-1A sponsor support disclosure requirements ($148) = $1,628. 

The estimated costs included in section III.B.8 of the Proposing Release inadvertently omitted the costs 

estimated for each fund to update the fund’s advertising and sales materials to include the required risk 

disclosure statement; however, these costs ($1,464) were discussed in the Paperwork Reduction Act 

Analysis section of the Proposing Release. Adding these costs ($1,464) to the costs of complying with the 

new requirements of Form N-1A ($1,628) results in total estimated costs of $3,092. See Proposing 

Release, supra note 25, at nn.461, 628, 1214 and accompanying text. 

1034 This figure incorporates the costs estimated for each fund to comply with the proposed amendments to 

Form N-1A relating to the fees and gates proposal, as well as the Form N-1A requirements relating to the 

fees and gates proposal that would not necessitate form amendments ($592) + the costs estimated for each 

fund to comply with the proposed Form N-1A sponsor support disclosure requirements ($148) = $740. The 

estimated costs included in section III.B.8 of the Proposing Release inadvertently omitted the costs 

estimated for each fund to update the fund’s advertising and sales materials to include the required risk 

disclosure statement; however, these costs ($1,464) were discussed in the Paperwork Reduction Act 

Analysis section of the Proposing Release. Adding these costs ($1,464) to the costs of complying with the 

proposed amendments to Form N-1A ($740) results in total estimated costs of $2,204. See Proposing 

Release, supra note 25, at nn.461, 628, 1214 and accompanying text. 

1035 This figure incorporates the costs estimated for a fund to: (i) review and update the disclosure in its 

registration statement regarding historical occasions on which the fund has considered or imposed liquidity 

fees or gates, and to inform investors of any fees or gates currently in place by means of a prospectus 

supplement ($148); and (ii) to review and update the disclosure in its registration statement regarding 

historical instances in which the fund has received financial support from a sponsor or fund affiliate ($148). 

See Proposing Release, supra note 25, at nn.463, 628 and accompanying text.

1036 This figure reflects the costs estimated for a fund to review and update the disclosure in its registration 

statement regarding historical instances in which the fund has received financial support from a sponsor or 

fund affiliate ($148). See Proposing Release, supra note 25, at n.628 and accompanying text.
331

Under the floating NAV alternative, the proposal estimated that the average one-time 

costs that would be incurred for a floating NAV money market fund to amend its registration 

statement and update its advertising and sales materials would be $3,092,1037 and the average 

one-time costs for a government or retail money market fund would be $2,204.1038 The proposal

also estimated that the average annual costs for a money market fund to amend its registration 

statement would be $148.1039 

We requested comment on the estimates of the operational costs associated with the 

amended disclosure requirements. Certain commenters generally noted that complying with all 

of the new disclosure requirements, including the disclosure requirements involving the fund’s 

advertisements and sales materials and its registration statement, would involve some additional 

 1037 This figure incorporates the costs estimated for each fund to comply with the proposed amendments to 

Form N-1A relating to the floating NAV proposal, as well as the Form N-1A requirements relating to the 

floating NAV proposal that would not necessitate form amendments ($1,480) + the costs estimated for each 

fund to comply with the proposed Form N-1A sponsor support disclosure requirements ($148) = $1,628. 

The estimated costs included in section III.A.8 of the Proposing Release inadvertently omitted the costs 

estimated for each fund to update the fund’s advertising and sales materials to include the required risk 

disclosure statement; however, these costs ($1,464) were discussed in the Paperwork Reduction Act 

Analysis section of the Proposing Release. Adding these costs ($1,464) to the costs of complying with the 

proposed amendments to Form N-1A ($1,628) results in total estimated costs of $3,092. See Proposing 

Release, supra note 25, at nn.330, 628, 1121-1125 and accompanying text. 

1038 This figure incorporates the costs estimated for each fund to comply with the proposed amendments to 

Form N-1A relating to the floating NAV proposal, as well as the Form N-1A requirements relating to the 

floating NAV proposal that would not necessitate form amendments ($592) + the costs estimated for each 

fund to comply with the proposed Form N-1A sponsor support disclosure requirements ($148) = $740. The 

estimated costs included in section III.A.8 of the Proposing Release inadvertently omitted the costs 

estimated for each fund to update the fund’s advertising and sales materials to include the required risk 

disclosure statement; however, these costs ($1,464) were discussed in the Paperwork Reduction Act 

Analysis section of the Proposing Release. Adding these costs ($1,464) to the costs of complying with the 

proposed amendments to Form N-1A ($1,628) results in total estimated costs of $2,204. See Proposing 

Release, supra note 25, at nn.330, 628, 1121-1125 and accompanying text. 

1039 This figure reflects the costs estimated for a fund to review and update the disclosure in its registration 

statement regarding historical instances in which the fund has received financial support from a sponsor or 

fund affiliate ($148). See Proposing Release, supra note 25, at n.628 and accompanying text.
332

costs.1040 Several commenters provided dollar estimates of the initial costs to implement a fees 

and gates or floating NAV regime and noted that these estimates would include the costs of 

related disclosure, but these commenters did not specifically break out the disclosure-related 

costs in their estimates.1041 One commenter stated that the costs to update a fund’s registration 

statement to reflect the new fees and gates and floating NAV requirements would be “minimal 

when compared to other costs.”1042 Another commenter stated that it did not consider the 

disclosure requirements burdensome and noted that it did not believe the disclosure requirements 

would impose unnecessary costs.1043 We have considered the comments we received on the new 

disclosure requirements, and we have determined not to change the assumptions we used in our 

cost estimates in response to these comments, as the comments provided no specific suggestions 

or critiques regarding our methods for estimating these costs. However, our current estimates 

reflect the fact that the amendments we are adopting today combine the floating NAV and fees 

and gates proposal alternatives into one unified approach, and also incorporate updated industry 

data. 

We anticipate that money market funds will incur costs to (i) amend the fund’s 

advertising and sales materials (including the fund’s website) to include the required risk 

 1040 See, e.g., Fin. Svcs. Roundtable Comment Letter (noting that the proposed disclosure requirements 

generally would produce “significant cost to the fund and ultimately to the fund’s investors”); SSGA 

Comment Letter (urging the Commission to consider the “substantial administrative, operational, and 

expense burdens” of the proposed disclosure-related amendments); Chapin Davis Comment Letter (noting 

that the disclosure- and reporting-related amendments will result in increased costs in the form of fund staff 

salaries, or consultant, accountant, and lawyer hourly rates, that will ultimately be borne in large part by 

investors and portfolio issuers). 

1041 See, e.g., Chamber I Comment Letter; Fidelity Comment Letter.

1042 See State Street Comment Letter, at Appendix A.

1043 See HSBC Comment Letter.
333

disclosure statement; (ii) amend the fund’s registration statement to include the required risk 

disclosure statement, disclosure of the tax consequences and effects on fund operations of a 

floating NAV (as applicable), and the effects of fees and gates on redemptions (as applicable); 

(iii) amend the fund’s registration statement to disclose post-compliance-period historical 

occasions on which the fund has considered or imposed liquidity fees or gates; and (iv) amend 

the fund’s registration statement to disclose post-compliance-period historical instances in which 

the fund has received financial support from a sponsor or fund affiliate. These costs will include 

initial, one-time costs, as well as ongoing costs. Each money market fund in a fund complex 

might not incur these costs individually. 

We estimate that the average one-time costs for a money market fund (except 

government money market funds that are not subject to the fees and gates requirements pursuant 

to rule 2a-7(c)(2)(iii), and floating NAV money market funds) to comply with these disclosure 

requirements would be $3,059 (plus printing costs).1044 We estimate that the average one-time 

costs for a government money market fund that is not subject to the fees and gates requirements 

pursuant to rule 2a-7(c)(2)(iii) to comply with these disclosure requirements would be $2,102 

(plus printing costs).1045 Finally, we estimate that the average one-time costs for floating NAV 

 1044 This figure incorporates the costs we estimated for each fund to update its registration statement to include 

the required disclosure statement, the required disclosure about the effects that fees and gates may have on 

shareholder redemptions, disclosure about historical occasions on which the fund has considered or 

imposed liquidity fees or gates, and disclosure about financial support received by the fund ($1,595) + the 

costs we estimated for each fund to update the fund’s advertising and sales materials to include the required 

risk disclosure statement ($1,464) = $3,059. The costs associated with these activities are all 

paperwork-related costs and are discussed in more detail infra at sections IV.F and IV.G. 

1045 This figure incorporates the costs we estimated for each fund to update its registration statement to include 

the required disclosure statement and disclosure about financial support received by the fund ($638) + the 

costs we estimated for each fund to update the fund’s advertising and sales materials to include the required 
334

money market funds to comply with these disclosure requirements would be $4,016 (plus 

printing costs).1046 

Ongoing compliance costs include the costs for money market funds periodically to: (i) 

review and update the fund’s registration statement disclosure regarding historical occasions on 

which the fund has considered or imposed liquidity fees or gates (as applicable); (ii) review and 

update the fund’s registration statement disclosure regarding historical instances in which the 

fund has received financial support from a sponsor or fund affiliate; and (iii) inform investors of 

any fees or gates currently in place (as applicable) or the transition to a floating NAV (as 

applicable) by means of a prospectus supplement. Because the required registration statement 

disclosure overlaps with the information that a fund must disclose on Parts C, E, F, and G of 

Form N-CR, we anticipate that the costs a fund will incur to draft and finalize the disclosure that 

will appear in its registration statement and on its website will largely be incurred when the fund 

files Form N-CR, as discussed below in section III.F. We estimate that a fund (besides a 

government money market fund that is not subject to the fees and gates requirements pursuant to 

rule 2a-7(c)(2)(iii)) will incur average annual costs of $319 to comply with these disclosure 

requirements.1047 We also estimate that a government money market fund that is not subject to 

 

risk disclosure statement ($1,464) = $2,102. The costs associated with these activities are all 

paperwork-related costs and are discussed in more detail infra at sections IV.F and IV.G.

1046 This figure incorporates the costs we estimated for each fund to update its registration statement to include 

the required disclosure statement, the required disclosure about the effects that fees and gates may have on 

shareholder redemptions, disclosure about historical occasions on which the fund has considered or 

imposed liquidity fees or gates, the required tax- and operations-related disclosure about a floating NAV, 

and disclosure about financial support received by the fund ($2,552) + the costs we estimated for each fund 

to update the fund’s advertising and sales materials to include the required risk disclosure statement 

($1,464) = $4,016. The costs associated with these activities are all paperwork-related costs and are 

discussed in more detail infra at sections IV.F and IV.G. 

1047 This figure incorporates the costs we estimated for each fund to review and update its registration statement 
335

the fees and gates requirements pursuant to rule 2a-7(c)(2)(iii) will incur average annual costs of 

$160 to comply with these disclosure requirements.1048

9. Website Disclosure 

a. Daily Disclosure of Daily and Weekly Liquid Assets 

We are adopting, as proposed, amendments to rule 2a-7 that require money market funds 

to disclose prominently on their websites the percentage of the fund’s total assets that are 

invested in daily and weekly liquid assets, as of the end of each business day during the 

preceding six months.1049 The amendments we are adopting would require, as proposed, a fund 

to maintain a schedule, chart, graph, or other depiction on its website showing historical 

information about its investments in daily liquid assets and weekly liquid assets for the previous 

six months,1050 and would require the fund to update this historical information each business 

day, as of the end of the preceding business day. Several commenters supported the disclosure 

 

disclosure regarding historical occasions on which the fund has considered or imposed liquidity fees or 

gates, and to inform investors of any fees or gates currently in place (as appropriate) or the transition to a 

floating NAV (as appropriate) by means of a prospectus supplement ($159.5) + the costs we estimated for 

each fund to review and update its registration statement disclosure regarding historical instances in which 

the fund has received financial support from a sponsor or fund affiliate ($159.5) = $319. The costs 

associated with these activities are all paperwork-related costs and are discussed in more detail infra at 

section IV.G. 

1048 This figure incorporates the costs we estimated for each fund to review and update its registration statement 

disclosure regarding historical instances in which the fund has received financial support from a sponsor or 

fund affiliate (approximately $160). The costs associated with these activities are all paperwork-related 

costs and are discussed in more detail infra at section IV.G. 

1049 See rule 2a-7(a)(4). As proposed, a “business day,” defined in rule 2a-7 as “any day, other than Saturday, 

Sunday, or any customary business holiday,” would end after 11:59 p.m. on that day. 

1050 For purposes of the required website disclosure of daily and weekly liquid assets, the six-month look-back 

period for disclosure would encompass fund data that occurs prior to the compliance date. Accordingly, if 

a fund were to update its website on the compliance date to include the required schedule, chart, graph, or 

other depiction showing historical data for the previous six months, the depiction would show data from six 

months prior to the compliance date. See infra note 2201.
336

on a fund’s website of the fund’s daily liquid assets and weekly liquid assets.1051 Commenters 

supporting such disclosure noted that daily disclosure of this information would promote 

transparency and help investors better understand money market fund risks.1052 A few 

commenters stated that providing this information could help investors evaluate whether a fund 

is positioned to meet redemptions or could approach a threshold where a fee or gate could be 

imposed.1053 A number of commenters suggested that daily disclosure likely would impose 

external market discipline on portfolio managers and encourage careful management of daily and 

weekly assets.1054 Finally, several commenters indicated that many money market funds are 

already disclosing such information on either a daily or a weekly basis, a fact we noted in the 

Proposing Release.1055 

Other commenters, however, opposed certain aspects of the proposed amendment. Two 

commenters opposed daily disclosure of this information and thought the information could be 

provided on a weekly basis.1056 We disagree. In times of market stress, money market funds 

may face rapid, heavy redemptions, which could quickly affect their liquidity.1057 Having daily 

information in times of market stress can reduce uncertainty, providing investors assurance that a 

money market fund has sufficient liquidity to withstand the potential for heavy redemptions. 

 1051 See, e.g., Boston Federal Reserve Comment Letter; Oppenheimer Comment Letter; Fidelity Comment 

Letter. 

1052 See, e.g., Oppenheimer Comment Letter; Blackrock II Comment Letter; Fidelity Comment Letter.

1053 See, e.g., U.S. Bancorp Comment Letter; Goldman Sachs Comment Letter.

1054 See, e.g., ICI Comment Letter; Dreyfus Comment Letter; American Bankers Ass’n Comment Letter.

1055 See, e.g., U.S. Bancorp Comment Letter; Blackrock II Comment Letter; J.P. Morgan Comment Letter. 

1056 See Schwab Comment Letter; Federated VIII Comment Letter.

1057 See generally DERA Study, supra note 24, at section 3.
337

One commenter opposed the six-month look-back because it would require a restructuring of 

fund websites that are already disclosing this data.1058 We recognize, as discussed below, that the 

amendments will impose costs on funds. We believe, however, that it is important for funds to 

provide historical information for the prior six months, and updating such information daily will 

help investors place current information in context and thus have a more complete picture of 

current events. 

One commenter argued that daily disclosure of this information would not be meaningful 

to investors,1059 while another commenter expressed concern that daily disclosure, in combination 

with discretionary fees and gates, could cause reactionary redemptions.1060 We recognize and 

have considered the risk that daily disclosure of weekly liquid assets and daily liquid assets could 

trigger heavy redemptions in some situations, particularly the risk of pre-emptive redemptions in 

anticipation of a potential fee or gate. However, as discussed in detail above, the board’s 

discretion to impose a fee or a gate, among other things, mitigates the concern that investors will 

be able to accurately predict such an event which in turn would lead them to pre-emptively 

withdraw their assets from the fund.1061 In addition, as discussed above, other aspects of today’s 

amendments further mitigate the risks of pre-emptive runs. We believe that daily disclosure of 

weekly liquid assets and daily liquid assets ultimately benefits investors and could both increase 

stability and decrease risk in the financial markets.1062 As mentioned above, while there is a 

 1058 See UBS Comment Letter.

1059 See Schwab Comment Letter.

1060 See Federated VIII Comment Letter; see also supra section III.A.1.c.i.

1061 See supra note 171 and accompanying text.

1062 Although not a principal basis for our decision, we note that certain literature suggests that suspensions of 
338

potential for heavy redemptions in response to a decrease in liquidity, the increased transparency 

could reduce run risk in cases where it shows investors that a fund has sufficient liquidity to 

withstand market stress events. We also agree with commenters and believe that daily disclosure 

will increase market discipline, which could ultimately deter situations that could lead to heavy 

redemptions.1063 Also, as noted elsewhere in this Release, we believe that the reforms we are 

adopting concerning fees and gates are a tool for handling heavy redemptions once they occur. 

Finally, we note that several funds have already voluntarily begun disclosing liquidity 

information on their websites.1064 

A few commenters also believed that the proposed disclosures should apply only to stable 

NAV funds.1065 We disagree with these commenters. We believe that the benefits we discuss 

throughout this section regarding disclosure apply regardless of whether a fund has a stable or 

floating NAV. As we have noted in several instances, a floating NAV may reduce but does not 

eliminate the risk of heavy redemptions if the fund comes under stress. Liquidity information 

can help investors understand a fund’s ability to withstand heavy redemptions. Additionally, this 

information is relevant to investors to understand the potential for either a floating NAV fund or 

a stable NAV fund to impose a fee or a gate. We also believe that it is important for all money 

market funds, both floating NAV funds and stable NAV funds, to disclose liquidity information 

so that investors will easily be able to compare this data point, which could be seen as a risk 

 

withdrawals can prevent bank runs. See, e.g., Diamond, Douglas W., Spring 2007, “Banks and Liquidity 

Creation: A Simple Exposition of the Diamond-Dybvig Model,” Economic Quarterly, Volume 93, Number 

2, 189-200.

1063 See supra note 1054.

1064 See, e.g., BlackRock II Comment Letter; Boston Federal Reserve Comment Letter. 

1065 See, e.g., Legg Mason & Western Asset Comment Letter; ICI Comment Letter; IDC Comment Letter.
339

metric, across funds when making investment decisions among types of money market funds 

(e.g., comparing an institutional prime money market fund to a government money market fund), 

as well as between money market funds of the same type (e.g., comparing two government 

money market funds). 

We continue to believe that daily website disclosure of a fund’s daily liquid assets and 

weekly liquid assets will increase transparency and enhance investors’ understanding of money 

market fund risks. This disclosure will help investors understand how funds are managed, as 

well as help them monitor, in near real-time, a fund’s ability to satisfy redemptions in various 

market conditions, including episodes of market turbulence. We also agree with commenters 

and believe that this disclosure will encourage market discipline on fund managers.1066 In 

particular, we believe that this disclosure will encourage fund managers to manage the fund’s 

liquidity in a manner that makes it less likely that the fund crosses a threshold where a fee or gate 

could be imposed, and also discourage month-end “window dressing” (in this context, the 

practice of periodically increasing the daily liquid assets and/or weekly liquid assets in a fund’s 

portfolio, such that the fund’s month-end reporting will reflect certain liquidity levels, and then 

decreasing the fund’s investment in such assets shortly after the fund’s month-end reporting 

calculations have been made). 

b. Daily Disclosure of Net Shareholder Flows

We are also adopting, as proposed, amendments to rule 2a-7 that require money market 

funds to disclose prominently on their websites the fund’s daily net inflows or outflows, as of the 

 1066 See supra note 1054.
340

end of the previous business day, during the preceding six months.1067 As proposed, the 

amendments we are adopting would require a fund to maintain a schedule, chart, graph, or other 

depiction on its website showing historical information about its net inflows or outflows for the 

previous six months,1068 and would require the fund to update this historical information each 

business day, as of the end of the preceding business day. One commenter expressed support for 

daily disclosure of a fund’s net inflows and outflows, though it opposed the requirement to report 

and continually update historical information.1069 Several commenters objected to website 

disclosure of net shareholder flows, noting that money market funds often have large inflows and 

outflows as a normal course of business, and these flows are often anticipated.1070 A number of 

commenters suggested that shareholders could misinterpret large inflows and outflows as a sign 

of stress even if the flows are anticipated and the fund’s liquidity is adequate to handle them.1071 

Two commenters also expressed concern that a large net inflow or outflow could signal to the 

market that the money market fund would need to buy or sell securities in the market, potentially 

facilitating front running.1072 

We continue to believe that daily disclosure of net inflows or outflows will provide 

beneficial information to shareholders, and thus we are adopting this requirement as proposed. 

 1067 See rule 2a-7(h)(10)(ii); see also supra note 1049.

1068 For purposes of the required website disclosure of net fund inflows or outflows, the six-month look-back 

period for disclosure would encompass fund data that occurs prior to the compliance date. See supra note 

1050. 

1069 See UBS Comment Letter. 

1070 See Federated VIII Comment Letter; Vanguard Comment Letter; U.S. Bancorp Comment Letter; Legg 

Mason & Western Asset Comment Letter; IDC Comment Letter.

1071 See U.S. Bancorp Comment Letter; Blackrock II Comment Letter; Dreyfus Comment Letter.

1072 See ICI Comment Letter; Legg Mason & Western Asset Comment Letter. 
341

In our view, information on shareholder redemptions can help provide important context to data 

regarding the funds’ liquidity, as a fund that is experiencing increased outflow volatility will 

require greater liquidity. We understand, as commenters pointed out, that many funds can 

experience periodic and expected large net inflows or outflows on a regular basis. We believe 

that disclosure of this information over a rolling six-month period, however, will mitigate the 

risk that investors will misinterpret this information. Information about the historical context of 

fund inflows and outflows, which funds can include on their websites, should help investors 

distinguish between periodic large outflows that can occur in the normal course from periods of 

increased volatility in shareholder flow. Finally, we are not persuaded by commenters who 

suggested that information regarding net shareholder flows will promote front-running because 

we believe that front-running concerns are not especially significant for money market funds on 

account of the specific characteristics of these funds and their holdings.1073

c. Daily Disclosure of Current NAV

We are adopting, as proposed, amendments to rule 2a-7 that would require each money 

market fund to disclose daily, prominently on its website, the fund’s current NAV per share 

(calculated based on current market factors), rounded to the fourth decimal place in the case of a 

fund with a $1.0000 share price or an equivalent level of accuracy for funds with a different 

 1073 See, e.g., INVESTMENT COMPANY INSTITUTE, REPORT OF THE MONEY MARKET WORKING GROUP, at 93 

(Mar. 17, 2009), available at http://www.ici.org/pdf/ppr_09_mmwg.pdf (“Because of the specific 

characteristics of money market funds and their holdings ... the frontrunning concerns are far less 

significant for this type of fund. For example, money market funds’ holdings are by definition very shortterm in nature and therefore would not lend themselves to frontrunning by those who may want to profit by 

trading in a money market fund’s particular holdings. Rule 2a-7 also restricts the universe of Eligible 

Securities to such an extent that front running, to the extent it exists at all, tends to be immaterial to money 

market fund performance.”).
342

share price1074 (the fund’s “current NAV”) as of the end of the previous business day during the 

preceding six months.1075 The amendments require a fund to maintain a schedule, chart, graph, or 

other depiction on its website showing historical information about its daily current NAV per 

share for the previous six months,1076 and would require the fund to update this historical 

information each business day as of the end of the preceding business day.1077 These 

amendments complement the current requirement for a money market fund to disclose its 

shadow price monthly on Form N-MFP (broken out weekly).1078 Disclosing the NAV per share 

to the fourth decimal would conform to the precision of NAV reporting that funds will be 

required to report on Form N-MFP and to what many funds are currently voluntarily 

disclosing.1079 

Several commenters supported the proposed disclosure requirement of funds’ current 

NAV per share. These commenters suggested that daily disclosure of the current NAV per share 

would increase transparency and investor understanding of money market funds.1080 One 

commenter noted that the disclosure could impose discipline on portfolio managers, preventing, 

for example, month-end “window dressing.”1081 Finally, as we noted in the Proposing Release, 

 1074 E.g., $10,000 or $100.00 per share.

1075 See rule 2a-7(h)(10)(iii).

1076 For purposes of the required website disclosure of the fund’s current NAV per share, the six-month 

look-back period for disclosure would encompass fund data that occurs prior to the compliance date. See

supra note 1050. 

1077 See supra note 1049.

1078 See infra section III.G.1.b.

1079 See infra note 1087 and accompanying text.

1080 See, e.g., MFDF Comment Letter; Blackrock II Comment Letter.

1081 See J.P. Morgan Comment Letter.
343

several commenters indicated that many money market funds are already disclosing such 

information on either a daily or a weekly basis.1082 

Some commenters opposed certain aspects or questioned the usefulness of the proposed 

disclosure requirement. One commenter believed that frequent publication of a fund’s current 

NAV per share would increase the risk of heavy redemptions for stable NAV funds during a 

period of market stress, noting the incentive for investors to redeem if they see the shadow price 

fall.1083 We recognize and have considered the risk that daily disclosure of the current NAV per 

share could encourage heavy redemptions when it declines. We believe, however, that daily 

disclosure will not lead to significant redemptions and could, as we describe below, both increase 

stability and decrease risk in the financial markets.1084 In particular, we believe that greater 

transparency regarding the current and historical NAV per share could help investors better 

assess the effects of market events on a fund’s NAV and understand the context of a fund’s 

principal stability during particular market stresses. For example, if an investor believes the 

values of one or more securities held by a fund are impaired, but does not see that impairment 

reflected in the NAV because it is only required to be disclosed once a month, they may sell their 

shares in the funds even though there is no actual impairment. Lack of transparency was one of 

the reasons cited in the DERA Study as a possible explanation for the large redemption activity 

 1082 See, e.g., U.S. Bancorp Comment Letter; Blackrock II Comment Letter; J.P. Morgan Comment Letter. But 

see Federated VIII Comment Letter (noting that it has not received many “hits” on its website after it began 

voluntarily posting information about the current market-based NAV per share of its funds, suggesting that 

allowing market forces to determine when such disclosure is valuable to investors is preferable to a “one 

size fits all” regulation). 

1083 See HSBC Comment Letter.

1084 For a discussion of how disclosure of a fund’s daily liquid assets and weekly liquid assets could similarly 

increase stability and decrease risk in the financial markets, see supra notes 1062-1064 and accompanying 

text.
344

during the financial crisis.1085 As one commenter noted, such disclosure could allay concerns 

about how a money market fund might be affected by the occurrence of negative market 

events.1086 We also believe that daily disclosure will increase market discipline, which could 

ultimately deter heavy redemptions. Also, as noted elsewhere in this Release, we believe that the 

reforms we are adopting concerning fees and gates are a tool for handling heavy redemptions 

when they occur. Finally, we note that many funds have voluntarily begun disclosing 

information about their current market-based NAV per share on their websites, and such 

disclosures have not led to significant redemptions.1087 

As with the proposed requirement regarding daily disclosure of liquidity levels, several 

commenters supported daily disclosure of a fund’s current NAV per share only for stable NAV 

funds.1088 We disagree with commenters who suggested that daily website disclosure of the 

current NAV per share would only be useful for shareholders of stable NAV funds. We believe 

that the benefits we discuss above regarding disclosure apply regardless of whether a fund has a 

stable or floating NAV. For example, we believe that it is important for all money market funds, 

both floating NAV funds and stable NAV funds, to disclose NAV information so that investors 

will easily be able to compare this data point, which could be seen as a risk metric, across funds 

when making investment decisions among types of money market funds (e.g., comparing an

 1085 See DERA Study, supra note 24. 

1086 See Goldman Sachs Comment Letter.

1087 A number of large fund complexes have begun (or plan) to disclose daily money market fund market 

valuations (i.e., shadow prices), including BlackRock, Charles Schwab, Federated Investors, Fidelity 

Investments, Goldman Sachs, J.P. Morgan, Reich & Tang, and State Street Global Advisors. See, e.g., 

Money Funds' New Openness Unlikely to Stop Regulation, WALL ST. J. (Jan. 30, 2013).

1088 See, e.g., Legg Mason & Western Asset Comment Letter; ICI Comment Letter; IDC Comment Letter.
345

institutional prime money market fund to a government money market fund), as well as between 

money market funds of the same type (e.g., comparing two institutional prime money market 

funds). The disclosure of the current NAV per share will enhance investors’ understanding of 

money market funds and their inherent risks and allow investors to invest according to their risk 

preferences. This information will make changes in a money market fund’s market-based NAV 

a regularly observable occurrence, which could promote investor confidence and generally 

provide investors with a greater understanding of the money market funds in which they 

invest.1089 We note that this disclosure could make floating NAV money market funds appear to 

be volatile compared to alternatives like ultra-short bond funds, which are registered mutual 

funds that transact at three decimal places (and disclosure of these alternative funds’ NAV per 

share, consequently, would likewise show three and not four decimal places).1090 It is possible 

that investors might be incentivized to move their money to these alternatives because they 

appear more stable than money market funds.1091 

The Commission continues to believe that requiring each fund to disclose daily its current 

NAV per share and also to provide six months of historical information about its current NAV 

per share will increase money market funds’ transparency and permit investors to better 

 1089 See J.P. Morgan Comment Letter; BlackRock II Comment Letter.

1090 But see supra note 521 and accompanying text (discussing staff analysis showing that, historically, over a 

twelve-month period, 100% of ultra-short bond funds have fluctuated in price (using 10 basis point 

rounding), compared with 53% of money market funds that have fluctuated in price (using basis point 

rounding)).

1091 See infra section III.K, for an in-depth discussion about the macroeconomic consequences of the 

amendments, including the extent to which the requirements for institutional prime funds to transact at 

prices rounded to the fourth decimal place (and also, like all money market funds, disclose their current 

NAV to the fourth decimal place each day) could cause investors to reallocate their investments to 

alternatives outside the money market fund industry.
346

understand money market funds’ risks. This information will permit shareholders to reference 

funds’ current NAV per share in near real time to assess the effect of market events on funds’ 

portfolios, and will also provide investors the ability to discern trends through the provision of 

the six months of historical data.1092 While some historical data regarding the current NAV per 

share will be available through monthly N-MFP filings,1093 we believe that requiring funds to 

place this data on the fund’s website will allow investors to consider this information in a more 

convenient and accessible format. In addition to increasing investors’ understanding of money 

market funds’ risks, we believe that this disclosure will encourage market discipline on fund 

managers, and particularly discourage month-end “window dressing.” 

d. Daily Calculation of Current NAV per Share for Stable Value 

Money Market Funds

We are adopting, generally as proposed, amendments to rule 2a-7 that would require 

stable value money market funds to calculate the fund’s current NAV per share (which the fund 

must calculate based on current market factors before applying the amortized cost or 

penny-rounding method, if used), rounded to the fourth decimal place in the case of funds with a 

$1.0000 share price or an equivalent level of accuracy for funds with a different share price (e.g., 

$10.000 per share) as of the end of each business day.1094 Rule 2a-7 currently requires money 

 1092 One commenter opposed the disclosure of six months of historical information about a fund’s current NAV 

per share because it would require a restructuring of fund websites that are already disclosing data. See

UBS Comment Letter. We estimate the costs of modifications to fund websites in the Economic Analysis 

section infra.

1093 See infra note 1179 and accompanying text (discussing our expectation that money market funds will be 

able generally to use the same software or service providers to calculate the fund’s current NAV per share 

daily that they presently use to prepare and file Form N-MFP).

1094 See rule 2a-7(h)(10)(iii); see also text accompanying supra note 1074 for definition of “current NAV.” 

Under rule 2a-7 as amended, a floating NAV money market fund is required, like any mutual fund not 

regulated under rule 2a-7, to price its securities at the current NAV by valuing its portfolio instruments at 
347

market funds to calculate the fund’s NAV per share, using available market quotations (or an 

appropriate substitute that reflects current market conditions), at such intervals as the board of 

directors determines appropriate and reasonable in light of current market conditions.1095 We 

believe that daily disclosure of money market funds’ current NAV per share would increase 

money market funds’ transparency and permit investors to better understand money market 

funds’ risks, and thus we are adopting amendments to rule 2a-7 that would require this 

disclosure.1096 Because we are requiring money market funds to disclose their current NAV daily 

on the fund website, we correspondingly are amending rule 2a-7 to require funds to make this 

calculation as of the end of each business day, rather than at the board’s discretion. We received 

no comments on this calculation requirement separate from comments on the related current 

NAV disclosure requirement. As discussed above, many money market funds already calculate 

 market value or, if market quotations are not readily available, at fair value as determined in good faith by 

the fund’s board of directors. See rule 2a-7(c)(1); section 2(a)(41)(B); rules 2a-4 and 22c-1; see also supra

note 5 and accompanying text. In addition, under rule 2a-7 as amended, a floating NAV money market 

fund is required to compute its price per share for purposes of distribution, redemption, and repurchase by 

rounding the fund’s current NAV per share to a minimum of the fourth decimal place in the case of a fund 

with a $1.0000 share price or an equivalent or more precise level of accuracy for money market funds with 

a different share price (e.g., $10.000 per share, or $100.00 per share). See rule 2a-7(c)(1)(ii). Therefore, 

we did not propose amendments to rule 2a-7 that would specifically require floating NAV money market 

funds to calculate their current NAV per share daily, because these funds already would be required to 

calculate their current NAV in order to price and sell their securities each day. As proposed, rule 2a-7 as 

amended would have permitted stable value funds to compute their current price per share, for purposes of 

distribution, redemption, and repurchase, by use of the penny-rounding method but not the amortized cost 

method. See Proposing Release, supra note 25, at n.170. Therefore, the proposed daily current NAV 

calculation requirement would have specified that stable value funds calculate their current NAV per share 

based on current market factors before applying the penny rounding method. As adopted, rule 2a-7 permits 

stable value funds to compute their current price per share, for purposes of distribution, redemption, and 

repurchase, by use of the amortized cost method and/or the penny rounding method. See rule 2a-7(c)(1)(i). 

Therefore, the daily calculation requirement we are adopting, as discussed in this section III.E.9.d, specifies 

that stable value funds calculate their current NAV per share based on current market factors before 

applying the amortized cost or penny-rounding method. See rule 2a-7(c)(1)(i).

1095 Current rule 2a-7(c)(1). As adopted today, Items A.20 and B.5 of Form N-MFP will require money market 

funds to provide NAV data as of the close of business on each Friday during the month reported.

1096 See supra section III.E.9.c.
348

and disclose their current NAV on a daily basis, and thus we do not expect that requiring all 

money market funds to perform a daily calculation should entail significant additional costs.1097

e. Harmonization of Rule 2a-7 and Form N-MFP Portfolio Holdings 

Disclosure Requirements

Money market funds are currently required to file information about the fund’s portfolio 

holdings on Form N-MFP within five business days after the end of each month, and to disclose 

much of the portfolio holdings information that Form N-MFP requires on the fund’s website 

each month with 60-day delay. We are adopting amendments to rule 2a-7 in order to harmonize 

the specific portfolio holdings information that rule 2a-7 currently requires funds to disclose on 

the fund’s website with the corresponding portfolio holdings information required to be reported 

on Form N-MFP pursuant to amendments to Form N-MFP, with changes to conform to 

modifications we are making to Form N-MFP from the proposal. We believe that these 

amendments will benefit money market fund investors by providing additional, and more 

precise, information about portfolio holdings, which should allow investors to better evaluate the 

current risks of the fund’s portfolio investments. 

Specifically, in a change from the proposal, we are adopting amendments to the 

categories of portfolio investments reported on Form N-MFP, and are therefore also adopting 

conforming amendments to the categories of portfolio investments currently required to be

reported on a money market fund’s website.1098 We are adopting, as proposed, an amendment to 

Form N-MFP that would require funds to report the maturity date for each portfolio security 

 1097 See supra note 1082 and accompanying text. The costs for those funds that do not already calculate and 

disclose their market-based NAV on a daily basis are discussed in detail below. See infra note 1179 and 

accompanying text.

1098 See rule 2a-7(h)(10)(i)(B); Form N-MFP, Item C.6.
349

using the maturity date used to calculate the dollar-weighted average life maturity, and therefore 

we are also adopting, as proposed, conforming amendments to the current website disclosure 

requirements regarding portfolio securities’ maturity dates.1099 Currently, we do not require 

funds to disclose the market-based value of portfolio securities on the fund’s website, because 

doing so would disclose this information prior to the time the information becomes public on 

Form N-MFP (because of the current 60-day delay before Form N-MFP information becomes 

publicly available). Because we are removing this 60-day delay, we are also requiring funds to 

make the market-based value of their portfolio securities available on the fund website at the 

same time that this information becomes public on Form N-MFP.1100 One commenter supported 

the proposed amendments to harmonize portfolio information on Form N-MFP and information 

that funds disclose on their websites.1101

The information that money market funds currently are required to disclose about the 

fund’s portfolio holdings on the fund’s website includes, with respect to each security held by the 

money market fund, the security’s amortized cost value.1102 As part of the reforms to rule 2a-7, 

we proposed to eliminate the use of the amortized cost valuation method for stable value money 

market funds, and to correspond with that elimination, we also proposed to remove references to 

amortized cost from Form N-MFP.1103 To harmonize the website disclosure of funds’ portfolio 

holdings with these changes to Form N-MFP, we additionally proposed amendments to the 

 1099 See rule 2a-7(h)(10)(i)(B); Form N-MFP, Item C.12.

1100 See rule 2a-7(h)(10)(i)(B).

1101 See ICI Comment Letter.

1102 See current rule 2a-7(c)(12)(ii)(H).

1103 See Proposing Release, supra note 25, at section III.H.
350

current requirement for funds to disclose the amortized cost value of each portfolio security; 

instead, funds would be required to disclose the “value” of each portfolio security.1104 As 

discussed previously in section III.B.5, the final amendments will permit the continued use of the 

amortized cost valuation method for stable value money market funds, and therefore to conform 

the changes to Form N-MFP to the final amendments to rule 2a-7, we are not adopting certain 

proposed Form N-MFP amendments that would have removed references to the amortized cost 

of securities in certain existing items.1105 However, as proposed, we are amending Items 13 and 

41 of Form N-MFP by replacing amortized cost with “value” as defined in section 2(a)(41) of the 

Act (generally the market-based value but can also be the amortized cost value, as 

appropriate),1106 and therefore we are also adopting, as proposed, the requirement for funds to 

disclose the “value” (and not specifically the amortized cost value) of each portfolio security on 

the fund’s website. Because the new information that a fund will be required to present on its 

website overlaps with the information that a fund will be required to disclose on Form N-MFP, 

we anticipate that the costs a fund will incur to draft and finalize the disclosure that will appear 

on its website will largely be incurred when the fund files Form N-MFP, as discussed below in 

section III.G.

1107 

 1104 See id.

1105 See infra section III.G.1.a.

1106 See infra note 1446 and accompanying text.

1107 This disclosure may largely duplicate the Form N-MFP filing, but merely providing a link to the EDGAR 

N-MFP filing of this data would not suffice to meet this requirement. We understand that investors have, 

in past years, become accustomed to obtaining money market fund information on funds’ websites (see 

infra note 1123 and accompanying text), and providing the disclosure directly on a fund’s website would 

permit these investors to view this information in conjunction with other required website disclosure about 

the fund’s liquidity and current net asset value (see rule 2a-7(h)(10)(ii) and (iii)) without the need to 

independently locate and consolidate the information provided by this disclosure.
351

f. Disclosure of the Imposition of Liquidity Fees and Gates

We are adopting, largely as proposed, an amendment to rule 2a-7 that requires a fund to 

post prominently on its website certain information that the fund is required to report to the 

Commission on Form N-CR1108 regarding the imposition of liquidity fees, temporary suspension 

of fund redemptions, and the removal of liquidity fees and/or resumption of fund redemptions.1109 

The amendment requires a fund to include this website disclosure on the same business day as 

the fund files an initial report with the Commission in response to any of the events specified in 

Parts E, F, and G of Form N-CR,1110 and, with respect to any such event, to maintain this 

disclosure on its website for a period of not less than one year following the date on which the 

fund filed Form N-CR concerning the event.1111 This amendment requires a fund only to present 

certain summary information about the imposition of fees and gates on its website,1112 whereas 

 1108 See infra section III.F.

1109 See rule 2a-7(h)(10)(v); Form N-CR Parts E, F, and G; see also infra section III.F (discussing Form N-CR 

requirements). With respect to the events specified in Part E of Form N-CR (imposition of a liquidity fee) 

and Part F of Form N-CR (suspension of fund redemptions), a fund is required to post on its website only 

the preliminary information required to be filed on Form N-CR on the first business day following the 

triggering event. See Instructions to Form N-CR Parts E and F. A link to the EDGAR N-CR filing would 

not suffice to meet this requirement. We understand that investors have, in past years, become accustomed 

to obtaining money market fund information on funds’ websites (see infra note 1123 and accompanying 

text), and providing the disclosure directly on a fund’s website would permit these investors to view this 

information in conjunction with other required website disclosure about the fund’s liquidity and current net 

asset value (see rule 2a-7(h)(10)(ii) and (iii)) without the need to independently locate and consolidate the 

information provided by this disclosure. 

1110 A fund must file an initial report on Form N-CR in response to any of the events specified in Parts E, F, or 

G (generally, the imposition or lifting of liquidity fees or gates) within one business day after the 

occurrence of any such event. A fund need not post on its website the additional information required in 

the follow-up Form N-CR filing 4 business days after the event, if such a filing is required. For additional 

discussion of the filing requirements provided in Parts E, F, and G of Form N-CR, see infra section III.F.5. 

1111 See rule 2a-7(h)(10)(v). 

1112 A fund also will be required to present summary information about the historical imposition of fees and/or 

gates in the fund’s SAI. See supra section III.E.5.
352

the fund will be required to present more detailed discussion solely on Form N-CR.1113 The 

website disclosure requirements we are adopting regarding the imposition of fees and gates are

similar to the proposed requirements in that they, like the proposed requirements, require a fund 

to post on its website only that information about the imposition of fees and gates that the fund is 

required to disclose in an initial report on Form N-CR.1114 In addition, the amendments to rule 

2a-7 that we are adopting also require a fund to include the following statement as part of its 

website disclosure: “The Fund was required to disclose additional information about this event 

[or “these events,” as appropriate] on Form N-CR and to file this form with the Securities and 

Exchange Commission. Any Form N-CR filing submitted by the Fund is available on the 

EDGAR Database on the Securities and Exchange Commission’s Internet site at 

http://www.sec.gov.”1115 

One commenter stated that it supported the proposed requirement that money market 

funds should post on their websites certain of the information required by Form N-CR, noting 

that although Form N-CR is publicly available upon filing with the SEC, investors will more 

readily find and make use of this information if posted on a particular funds’ website.1116 

Another commenter, however, argued that the proposed website disclosure (and proposed Form 

 1113 See infra section III.F.5.

1114 As discussed below, we have made changes to the proposed requirements of Form N-CR, and the 

information that a fund will be required to file on Parts E, F, and G of Form N-CR is therefore different 

than that which was proposed. See infra section III.F.5. The information a fund is required to post on its 

website mirrors certain of the information that the fund is required to disclose on Form N-CR. To the extent 

Form N-CR disclosure requirements that we are adopting have been modified from the proposed 

requirements, the website disclosure requirements have also been modified. 

1115 See rule 2a-7(h)(10)(v). 

1116 See CFA Institute Comment Letter.
353

N-CR) filings are redundant and that it would be challenging to comply with a one-day time 

frame, and also argued that the registration statement and website disclosure to investors should 

take priority over the Form N-CR filing.1117 One commenter also supported a requirement for a 

money market fund to notify shareholders individually in order to allow a money market fund to 

apply a fee or gate.1118

As discussed below, we continue to believe that certain information required to be 

disclosed on Form N-CR must be filed with the Commission within one business day and that 

this information should also be posted on the fund’s website within the same time-frame to help

ensure that the Commission, investors generally, shareholders in each particular fund, and other 

market observers are all provided with these critical alerts as quickly as possible.

1119 Because we 

believe that these different parties all have a significant interest in receiving this information very 

quickly, we do not agree with the commenter who argued that website and registration disclosure 

should take priority over the Form N-CR filing.1120 We believe that it is important for a money 

market fund that may impose fees and gates to inform existing and prospective shareholders on 

its website when: (i) the fund’s weekly liquid assets fall below 10% of its total assets; (ii) the 

fund’s weekly liquid assets fall below 30% of its total assets and the board of directors imposes a 

liquidity fee pursuant to rule 2a-7; (iii) the fund’s board of directors temporarily suspends the 

 1117 See Dreyfus Comment Letter; see also infra notes 1308 and 1309 and accompanying text. 

1118 See HSBC Comment Letter. We are not imposing such an individual shareholder notification requirement 

because we believe the costs of such notification may be extremely high, the notification process might 

take significant time, and shareholders should be able to get effective notice on a fund’s website. 

1119 See infra section III.F.7.

1120 See id.; see also text following this note 1120 (discussing website disclosure of fees and gates); infra notes 

1124–1127 (discussing prospectus supplements informing money market fund investors of the imposition 

of a fee or gate). 
354

fund’s redemptions pursuant to rule 2a-7; or (iv) a liquidity fee has been removed or fund 

redemptions have been resumed. This information is particularly meaningful for shareholders to 

receive, as it could influence prospective shareholders’ decision to purchase shares of the fund, 

as well as current shareholders’ decision or ability to sell fund shares. We also note, as discussed 

in more detail in the Paperwork Reduction Act analysis section below,1121 that we believe the 

burdens a fund would incur to draft and finalize the disclosure that would appear on its website 

would largely be incurred when the fund files Form N-CR, and therefore we do not believe that 

the one-day time-frame for updating the disclosure on the fund’s website should be overly 

burdensome. 

We maintain our belief that website disclosure provides important transparency to 

shareholders regarding occasions on which a particular fund’s weekly liquid assets have dropped 

below certain thresholds, or a fund has imposed or removed a liquidity fee or gate, because many 

investors currently obtain important fund information on the fund’s website.1122 We understand 

that investors have become accustomed to obtaining money market fund information on funds’ 

websites, and therefore we believe that website disclosure provides significant informational 

accessibility to shareholders and the format and timing of this disclosure serves a different 

purpose than the Form N-CR filing requirement.1123 While we believe that it is important to have 

 1121 See infra section IV.A.6.d.

1122 For example, fund investors may access the fund’s proxy voting guidelines, and proxy vote report, as well 

as the fund’s prospectus, SAI, and shareholder reports if the fund uses a summary prospectus, on the fund 

website.

1123 See, e.g., 2010 Adopting Release, supra note 16 (adopting amendments to rule 2a-7 requiring money 

market funds to disclose information about their portfolio holdings each month on their websites); 

Comment Letter of the Securities Industry and Financial Markets Association (Jan. 14, 2013) (available in 

File No. FSOC–2012–0003) (noting that some industry participants now post on their websites portfolio 
355

a uniform, central place for investors to access the required disclosure, we note that nothing in 

these amendments would prevent a fund from supplementing its Form N-CR filing and website 

posting with complementary shareholder communications, such as a press release or social 

media update disclosing a fee or gate imposed by the fund. 

We believe that the one-year minimum time frame for website disclosure is appropriate 

because this time frame would effectively oblige a fund to post the required information in the 

interim period until the fund files an annual post-effective amendment updating its registration 

statement, which would incorporate the same information.1124 Although a fund may inform 

prospective investors of any redemption fee or gate currently in place by means of a prospectus 

supplement,1125 the prospectus supplement would not inform prospective and current 

shareholders of any fees or gates that were imposed, and then were removed, during the previous 

12 months.

In addition, a fund currently must update its registration statement to reflect any material 

changes by means of a post-effective amendment or a prospectus supplement (or “sticker”) 

pursuant to rule 497 under the Securities Act. In order to meet this requirement, and as discussed 

in the Proposing Release,1126 a money market fund that imposes a redemption fee or gate should 

consider informing prospective investors of any fees or gates currently in place by means of a 

 holdings-related information beyond that which is required by the money market reforms adopted by the 

Commission in 2010, as well as daily disclosure of market value per share); see also infra note 1454

(discussing recent decisions by a number of money market fund firms to begin reporting funds’ daily 

shadow prices on the fund website). 

1124 See supra notes 960-961 and accompanying text.

1125 See infra notes 1126-1127 and accompanying text. 

1126 See Proposing Release, supra note 25, at section III.B.8.c.
356

prospectus supplement.1127

g. Disclosure of Sponsor Support

We are also amending rule 2a-7 to require that a fund post prominently on its website 

substantially the same information that the fund is required to report to the Commission on Form 

N-CR regarding the provision of financial support to the fund.1128 The amendments that we are 

adopting reflect certain modifications from the proposal to address commenter concerns. 

Specifically, the proposal would have required a fund to post on its website substantially the 

same information that the fund is required to report to the Commission on Form N-CR regarding 

the provision of financial support to the fund. As discussed in more detail below, we are 

adopting amendments to rule 2a-7 that would require a fund to post on its website only a subset 

of this information.1129 In addition, the amendments would require a fund to include the 

following statement as part of its website disclosure: “The Fund was required to disclose 

additional information about this event [or “these events,” as appropriate] on Form N-CR and to 

file this form with the Securities and Exchange Commission. Any Form N-CR filing submitted 

by the Fund is available on the EDGAR Database on the Securities and Exchange Commission’s 

Internet site at http://www.sec.gov.”1130 A fund would be required to maintain this disclosure on 

its website for a period of not less than one year following the date on which the fund filed Form 

 1127 We expect that this supplement would include revisions to the disclosure in the registration statement 

concerning restrictions on fund redemptions. See supra section III.E.4. The costs of filing such a 

supplement are discussed in section III.E.8, supra.

1128 See rule 2a-7(h)(10)(v); Form N-CR Part C; see also infra section III.F.3 (discussing the Form N-CR 

requirements).

1129 See rule 2a-7(h)(10)(v). 

1130 See id. 
357

N-CR.1131

For the reasons discussed in the Proposing Release and below, we believe it is important 

for money market funds to inform existing and prospective shareholders of any present occasion 

on which the fund receives financial support from a sponsor or other fund affiliate.1132 In 

particular, we believe this disclosure could influence prospective shareholders’ decision to 

purchase shares of the fund and could inform shareholders’ assessment of the ongoing risks 

associated with an investment in the fund. While commenters also raised concerns about the 

potential redundancy of the proposed registration statement, website, and Form N-CR disclosure 

requirements,1133 we believe that website disclosure provides significant informational 

accessibility to shareholders and that format and timing of this disclosure serves a different 

purpose than the Form N-CR filing requirement.1134

However, in response to commenter concerns about potentially duplicative disclosure 

requirements, we have modified the proposed disclosure requirements and are adopting 

amendments to rule 2a-7 that would require a fund to post on its website only a subset of the 

information that the fund is required to file on Form N-CR. A fund will only be required to 

present certain summary information about the receipt of financial support on its website (as well 

as in the fund’s SAI1135), and will be required to present more detailed discussion solely on Form 

 1131 See id.

1132 See Proposing Release, supra note 25, at text in paragraph prior to note 620; see also infra section III.F.3.

1133 See, e.g., Dreyfus Comment Letter; SIFMA Comment Letter.

1134 See supra notes 1122 and 1123.

1135 See supra section III.E.7.
358

N-CR.1136 Specifically, a fund will be required to disclose on its website only that information 

that the fund is required to file on Form N-CR within one business day after the occurrence of 

any one or more of the events specified in Part C of Form N-CR (“Provision of Financial 

Support to Fund”).1137 A fund thus will not be required, as proposed, to disclose the reason for 

support, term of support, and any contractual restrictions relating to support on its website, 

although a fund will be required to disclose this information on Form N-CR.

1138 We believe that 

the disclosure requirements we are adopting appropriately consider commenters’ concerns about 

duplicative disclosure as well as our interest in requiring funds to disclose the primary 

information about affiliate financial support that we believe shareholders may find useful in 

assessing fund risks and determining whether to purchase fund shares. We also address general 

commenter concerns1139 about the possible duplicative effects of the concurrent website and 

Form N-CR disclosures in section III.F.3 below, where we discuss how Form N-CR and website 

disclosure serve different purposes.1140 

As proposed, we are requiring the website disclosure to be posted for a period of not less 

than one year following the date on which the fund filed Form N-CR concerning the event.1141

As we stated in the Proposing Release, we believe that the one-year minimum time frame for 

website disclosure is appropriate because this time frame would effectively oblige a fund to post 

 1136 See infra section III.F.3 (Concerns of Potential Redundancy).

1137 See rule 2a-7(h)(10)(v). 

1138 See id.; Form N-CR Part C.

1139 See, e.g., Dreyfus Comment Letter.

1140 See infra section III.F.3 (Concerns over Potential Redundancy).

1141 See rule 2a-7(h)(10)(v). 
359

the required information in the interim period until the fund files an annual post-effective 

amendment updating its registration statement, which would incorporate the same 

information.1142 We received no comments on this requirement, and we are adopting it as 

proposed. 

h. Economic Analysis

As discussed above, and in our proposal, we are adopting a number of amendments to 

rule 2a-7 to amend a number of requirements that money market funds post certain information 

to funds’ websites. These amendments require disclosure of information about money market 

funds’ liquidity levels, shareholder flows, market-based NAV per share (rounded to four decimal 

places), and the use of affiliate financial support.1143 The qualitative benefits and costs of these 

requirements are discussed above. These amendments should improve transparency and better 

inform shareholders about the risks of investing in money market funds, which should result in 

shareholders making investment decisions that better match their investment preferences. We 

believe that this will have effects on efficiency, competition, and capital formation that are 

similar to those that are outlined in the Macroeconomic Consequences section below.

1144

We believe that the requirements could increase informational efficiency by providing 

 1142 See supra notes 1126-1127 and accompanying text. Of course, in the event that the fund files a 

post-effective amendment within one year following the provision of financial support to the fund, 

information about the financial support would appear both in the fund’s registration statement and on the 

fund’s website for the remainder of the year following the provision of support.

1143 We believe that the effects on efficiency, competition, and capital formation related to the amendments to 

conform the portfolio holdings website disclosure to our amendments to Form N-MFP will be the same as 

those described in the section discussing our amendments to Form N-MFP. See infra section III.G. We 

also note that the economic effects related to disclosure of information related to the imposition of fees 

and/or gates and sponsor support reported on Form N-CR will be similar to economic effects we discuss 

relating to new Form N-CR. See infra section III.F.8.

1144 See infra section III.K.2.
360

additional information about money market funds’ liquidity, shareholder flows, market-based 

NAV per share, imposition of fees and/or gates, and use of affiliate financial support, to investors 

and the Commission. This in turn could assist investors in analyzing the risks associated with 

certain funds. In particular, the daily disclosure of daily and weekly liquid assets, along with the 

daily disclosure of NAV to four decimal places, should better enable investors to understand the 

risks of a specific fund, which could increase allocative efficiency and could positively affect 

competition by permitting investors to choose whether to invest in certain funds based on this 

information. However, if investors were to move their assets among money market funds or 

decide to invest in investment products other than money market funds as a result of the 

disclosure requirements, this could adversely affect the competitive stance of certain money 

market funds, or the money market fund industry generally.

Certain parts of the disclosure amendments may have other specific effects on 

competition. To the extent some money market funds do not currently and voluntarily calculate 

and disclose daily market-based NAV per share data (rounded to the fourth decimal place), our 

amended disclosure requirements may promote competition by helping to level the associated 

costs incurred by all money market funds and neutralize any competitive advantage associated 

with determining not to calculate and disclose daily current per-share NAV. We also note that 

our amendment to require disclosure of affiliate sponsor support may adversely affect 

competition if investors move their assets to larger fund complexes on the theory that they may 

be more likely than smaller entities to provide financial support to their funds. 

The requirements to disclose certain information about money market funds’ liquidity, 

shareholder flows, market-based NAV per share, imposition of fees and/or gates, and use of 
361

affiliate financial support also could have effects on capital formation. The required disclosures 

may impose external market discipline on portfolio managers, which in turn could create market 

stability and enhance capital formation, if the resulting market stability encouraged more 

investors to invest in money market funds. However, the requirements could detract from capital 

formation by decreasing market stability if investors redeem more quickly during times of stress 

as a result of the disclosure requirements, and one commenter noted this increased risk as a 

potential cost to the fund.1145 The required disclosure could assist the Commission in overseeing 

money market funds and developing regulatory policy affecting the money market fund industry, 

which might affect capital formation positively if the resulting regulatory framework more 

efficiently or more effectively encouraged investors to invest in money market funds.

The requirement to disclose the fund’s current NAV to four decimal places should not 

have any effect on capital flows because funds will also transact at four decimal places. When 

compared to alternatives like ultra-short bond funds, which disclose and transact at three decimal 

places, money market prices may appear more volatile on a day-to-day basis if the greater 

precision in NAV disclosure leads to a greater frequency of fluctuations in NAV.1146 This could

incentivize investors to switch to these alternatives. However, over longer horizons like a month 

or a year these alternatives are likely to have more volatile NAVs than money market funds. The 

disclosure of daily and weekly liquid assets may increase the volatility of capital flows for 

 1145 See State Street Comment Letter, at Appendix A. The commenter did not provide a quantitative estimate of 

such risk.

1146 But see supra note 521 and accompanying text (discussing staff analysis showing that, historically, over a 

twelve-month period, 100% of ultra-short bond funds have fluctuated in price (using 10 basis point 

rounding), compared with 53% of money market funds that have fluctuated in price (using basis point 

rounding)).
362

money market funds, as it may create an incentive for investors to redeem shares when liquid 

assets fall or reach the threshold at which the board may impose a redemption fee or gate. 

Disclosing levels of liquid assets could lead to pre-emptive redemptions if daily or weekly liquid 

assets drop to a level at which investors anticipate that there is a greater likelihood of the fund 

imposing a redemption fee or gate. However, as discussed in detail above, the board’s discretion 

to impose a fee or a gate mitigates the concern that investors will be able to accurately forecast 

such an event, leading them to pre-emptively withdraw their assets from the fund. We discuss 

this concern in more detail in section III.A.

A possible alternative suggested by commenters was to only have website disclosure 

apply to stable NAV funds. 1147 Allowing floating NAV funds not to disclose information on 

their website would lower the costs for these funds. Nevertheless, we rejected this alternative 

because we believe that the benefits we discuss above regarding disclosure apply regardless of 

whether a fund has a stable or floating NAV. Both types of funds, for example, could impose a 

fee or a gate so this information is valuable to both types of investors and, if only offered to one, 

could affect competition. For example, if a stable NAV investor has more information than a 

floating NAV investor about a possible fee or gate, then it is reasonable to assume that a stable 

NAV investor would have more confidence in his or her investment. The added disclosure for 

stable NAV funds could also increase market discipline in these funds, leading to investors’

increased willingness to participate in this market and increase capital formation in these funds. 

Another alternative would have been to require weekly instead of daily website 

 1147 See, e.g., Legg Mason & Western Asset Comment Letter; ICI Comment Letter; IDC Comment Letter.
363

disclosure of the daily and weekly liquids assets and net shareholder flow. 1148 Being required to 

disclose this information weekly instead of daily would lower the costs on funds because they 

would not have to report daily. However, we rejected this alternative because, as discussed 

above, in times of market stress, money market funds may face rapid, heavy redemptions, which 

could quickly affect their liquidity. These stresses could happen over a period of a day. As such, 

if investors have confidence that they will have the necessary information to make an informed 

decision quickly in a time of stress, then this may lead to additional capital for funds. Likewise, 

we also believe that daily disclosure instead of weekly could lead to more market discipline 

among funds, resulting in investors’ increased willingness to participate in this market, which 

could also lead to additional capital for funds. 

i. Costs of disclosure of daily and weekly liquid assets and 

net shareholder flows

Costs associated with the requirement for a fund to disclose information about its daily 

liquid assets, weekly liquid assets, and net shareholder flows on the fund’s website include 

initial, one-time costs, as well as ongoing costs. Initial costs include the costs to design the 

schedule, chart, graph, or other depiction showing historical liquidity and flow information in a 

manner that clearly communicates the required information and to make the necessary software 

programming changes to the fund’s website to present the depiction in a manner that can be 

updated each business day. Funds also would incur ongoing costs to update the depiction of 

daily liquid assets and weekly liquid assets and net shareholder flows each business day.1149 The 

 1148 See Schwab Comment Letter; Federated VIII Comment Letter.

1149 See State Street Comment Letter
364

Proposing Release estimated that the average one-time costs for each money market fund to 

design and present the historical depiction of daily liquid assets and weekly liquid assets, as well 

as the fund’s net inflows or outflows, would be $20,150.1150 The Proposing Release also 

estimated that the average ongoing annual costs that each fund would incur to update the 

required disclosure would be $9,184.1151

In the Proposing Release, we stated that we believed funds should incur no additional 

costs in obtaining the percentage of daily liquid assets and weekly liquid assets, as funds are 

currently required to make such calculation under rule 2a-7. One commenter disagreed, noting 

that there would be costs because of additional controls associated with public disclosure, but did 

not provide a quantitative estimate of such costs.1152 Two commenters generally believed that 

weekly disclosure of the data, as opposed to daily disclosure, would substantially reduce costs to 

funds, but they did not provide a quantitative estimate of the difference between the cost of daily 

and weekly disclosure.1153 Additionally, one commenter objected to including historical 

information regarding weekly and daily liquid assets and net shareholder flows on a fund’s 

website because of the expense involved in restructuring fund websites and maintaining such 

information, but did not provide a quantitative estimate of such expenses.1154 One commenter 

also noted the potential cost of the risk of shareholders making redemption decisions in reliance 

 1150 See Proposing Release, supra note 25, at n.642.

1151 See Proposing Release, supra note 25, at n.643.

1152 See State Street Comment Letter, at Appendix A.

1153 See Federated VIII Comment Letter; Schwab Comment Letter.

1154 See UBS Comment Letter.
365

on the disclosed information.

1155 The commenter, however, did not provide a quantitative 

estimate for this risk.1156 

We agree that the costs for certain money market funds to upgrade internal systems and 

software, and/or engage third-party service providers if a money market fund does not have 

existing relevant systems, could be higher than those average one-time costs estimated in the 

Proposing Release. However, because the estimated one-time costs were based on the mid-point 

of a range of estimated costs, the higher costs that may be incurred by certain industry 

participants have already been factored into our estimates.1157 While requiring weekly disclosure 

instead of daily disclosure could reduce costs for funds, we continue to believe that daily 

disclosure would convey important information to shareholders that weekly disclosure may 

not.1158 We also believe that the benefits of increased transparency that would result from the 

disclosure requirements at hand outweigh the potential costs of reactionary redemptions resulting 

from the disclosure.1159 The Commission agrees that money market funds may incur additional 

costs associated with the enhanced controls required to publicly disseminate daily and weekly 

liquid asset data, which costs were not estimated in the Proposing Release. The Commission has 

incorporated these additional costs into its new estimates of ongoing annual costs.

Based on these considerations, as well as updated industry data, we now estimate that the 

average one-time costs for each money market fund to design and present the historical depiction 

 1155 Id.

1156 See supra section III.E.8 for a discussion of the reasons that the Commission cannot measure the 

quantitative benefits of these proposed requirements at this time.

1157 See Proposing Release, supra note 25, at n.1044.

1158 See supra notes 1056-1057 and accompanying text.

1159 See supra notes 1060-1063 and accompanying text.
366

of daily liquid assets and weekly liquid assets, as well as the fund’s net inflows or outflows, 

would be $20,280.1160 We also estimate that the average ongoing annual costs that each fund 

would incur to update the required disclosure would be $10,274.1161 Our estimate of average 

ongoing annual costs incorporates the costs associated with the enhanced controls required to 

publicly disseminate daily and weekly liquid asset data.1162

ii. Costs of disclosure of fund’s current NAV per share

Costs associated with the requirement for a fund to disclose information about its daily 

current NAV on the fund’s website include initial, one-time costs, as well as ongoing costs. 

Initial costs include the costs to design the schedule, chart, graph, or other depiction showing 

historical NAV information in a manner that clearly communicates the required information and 

to make the necessary software programming changes to the fund’s website to present the 

depiction in a manner that will be able to be updated each business day. Funds also would incur 

ongoing costs to update the depiction of the fund’s current NAV each business day. Because 

floating NAV money market funds will be required to calculate their sale and redemption price 

each day, these funds should incur no additional costs in obtaining this data for purposes of the 

disclosure requirements. Stable price money market funds, which will be required to calculate 

their current NAV per share daily pursuant to amendments to rule 2a-7, likewise should incur no 

additional costs in obtaining this data for purposes of the disclosure requirements. The 

 1160 We estimate that these costs would be attributable to project assessment (associated with designing and 

presenting the historical depiction of daily liquid assets and weekly liquid assets and net shareholder 

flows), as well as project development, implementation, and testing. The costs associated with these 

activities are all paperwork-related costs and are discussed in more detail below. See infra section 

IV.A.6.b. 

1161 See id. 

1162 See id.
367

Proposing Release estimated that the average one-time costs for each money market fund to 

design and present the fund’s current NAV each business day would be $20,150.1163 The 

Commission also estimated that the average ongoing annual costs that each fund would incur to 

update the required disclosure would be $9,184.1164

Certain commenters generally noted that complying with the new website disclosure 

requirements would add costs for funds, including costs to upgrade internal systems and software 

relevant to the website disclosure requirements, as well as costs to engage third-party service 

providers for those money market fund managers that do not have existing relevant systems.1165 

One commenter noted that these costs could potentially be “significant to [a money market fund] 

and higher than those estimated in the Proposal.”1166 However, another commenter stated that it 

agrees that those money market funds that presently publicize their current NAV per share daily 

 1163 See Proposing Release, supra note 25, at n.664.

1164 See id., at n.665.

1165 See, e.g., UBS Comment Letter (“The SEC also proposed additional information regarding the posting of: 

(i) the categories of a money fund’s portfolio securities; (ii) maturity date information for each of the fund’s 

portfolio securities; and (iii) market-based values of the fund’s portfolio securities at the same time as this 

information becomes publicly available on Form N-MFP. We believe this information is too detailed to be 

useful to most investors and would be cost prohibitive to provide. Complying with these new website 

disclosure requirements would add notable costs for each money fund that UBS Global AM advises.”); 

Chamber II Comment Letter (“With respect to the website disclosure requirements, internal systems and 

software would need to be upgraded or, for those MMF managers that do not have existing systems, 

third-party service providers would need to be engaged. The costs (which ultimately would be borne by 

investors through higher fees or lower yields) could potentially be significant to an MMF and higher than 

those estimated in the Proposal.”); Dreyfus Comment Letter (noting that “several of the new Form 

reporting and web site and registration statement disclosure requirements . . . come with . . . material cost 

to funds and their sponsors”); see also Fin. Svcs. Roundtable Comment Letter (noting that the disclosure 

requirements would produce “significant cost to the fund and ultimately to the fund’s investors”); SSGA 

Comment Letter (urging the Commission to consider the “substantial administrative, operational, and 

expense burdens” of the proposed disclosure-related amendments); Chapin Davis Comment Letter (noting 

that the disclosure- and reporting-related amendments will result in increased costs in the form of fund staff 

salaries, or consultant, accountant, and lawyer hourly rates, that will ultimately be borne in large part by 

investors and portfolio issuers). 

1166 See Chamber II Comment Letter.
368

on the fund’s website will incur few additional costs to comply with the proposed disclosure 

requirements, and also that it agrees with the Commission’s estimates for the ongoing costs of 

providing a depiction of the fund’s current NAV each business day.1167

We agree that the costs for certain money market funds to upgrade internal systems and 

software, and/or engage third-party service providers if a money market fund does not have 

existing relevant systems, could be higher than those average one-time costs estimated in the 

Proposing Release. However, because the estimated one-time costs were based on the mid-point 

of a range of estimated costs, the higher costs that may be incurred by certain industry 

participants have already been factored into our estimates.1168 Based on these considerations, as 

well as updated industry data, we now estimate that the average one-time costs for each money 

market fund to design and present the fund’s daily current NAV would be $20,280.

1169 We also 

estimate that the average ongoing annual costs that each fund would incur to update the required 

disclosure would be $9,024.1170 

iii. Costs of daily calculation of current NAV per share

The primary costs associated with the requirement for a fund to calculate its current NAV 

per share each day are the costs for funds to determine the current values of their portfolio 

 1167 See State Street Comment Letter, at Appendix A; see also HSBC Comment Letter (stating that the 

proposed disclosure requirements should not produce any “meaningful cost”).

1168 See Proposing Release, supra note 25, at n.1056.

1169 We estimate that these costs would be attributable to project assessment (associated with designing and 

presenting the historical depiction of the fund’s daily current NAV per share), as well as project 

development, implementation, and testing. The costs associated with these activities are all 

paperwork-related costs and are discussed in more detail below. See infra section IV.A.6.c. 

1170 See id. 
369

securities each day.1171 We estimate that 25% of active money market funds, or 140 funds, will 

incur new costs to comply with this requirement,

1172 because the requirement will result in no 

additional costs for those money market funds that presently determine their current NAV per 

share daily on a voluntary basis.1173 The Proposing Release estimated that the average additional 

annual costs that a fund would incur associated with calculating its current NAV daily would 

range from $6,111 to $24,444.1174 One commenter stated that it agrees with the Commission’s 

estimates for the ongoing costs of providing a depiction of the fund’s current NAV each business 

day.1175 However, most comments on the proposed current NAV disclosure requirement did not 

discuss the Commission’s estimates of the costs a fund would incur to calculate its current NAV 

per share daily, separate from their discussion of the general costs associated with the proposed 

NAV website disclosure requirement.1176 After considering these comments, our current methods 

of estimating the costs associated with the NAV calculation requirement, described in more 

detail below, are the same estimation methods we used in the Proposing Release. 

All money market funds are presently required to disclose their market-based NAV per 

 1171 Additionally, funds may incur some costs associated with adding the current values of the fund’s portfolio 

securities and dividing this sum by the number of fund shares outstanding; however, we expect these costs 

to be minimal.

1172 The Commission estimates that there are currently 559 active money market funds. This estimate is based 

on a staff review of reports on Form N-MFP filed with the Commission for the month ended February 28, 

2014. 559 money market funds x 25% = approximately 140 money market funds.

1173 Based on our understanding of money market fund valuation practices, we estimate that 75% of active 

money market funds presently determine their current NAV daily. 

1174 See Proposing Release, supra note 25, at n.692.

1175 See State Street Comment Letter, at Appendix A.

1176 See supra notes 1165-1167.
370

share monthly on Form N-MFP, and the frequency of this disclosure will increase to weekly.1177 

As discussed below, some money market funds license a software solution from a third party that 

is used to assist the funds to prepare and file the information that Form N-MFP requires, and 

some funds retain the services of a third party to provide data aggregation and validation services 

as part of preparing and filing of reports on Form N-MFP on behalf of the fund.1178 We expect, 

based on conversations with industry representatives, that money market funds that do not 

presently calculate the current values of their portfolio securities each day generally would use 

the same software or service providers to calculate the fund’s current NAV per share daily that 

they presently use to prepare and file Form N-MFP.1179 For these funds, the associated base 

costs of using this software or these service providers should not be considered new costs. 

However, the third-party software suppliers or service providers may charge more to funds to 

calculate a fund’s current NAV per share daily, which costs would be passed on to the fund. 

While we do not have the information necessary to provide a point estimate (as such estimate 

would depend on a variety of factors, including discounts relating to volume and economies of 

scale, which pricing services may provide to certain funds), we estimate that the average 

additional annual costs that a fund would incur associated with calculating its current NAV daily 

would range from $6,111 to $24,444.1180 Assuming, as discussed above, that 140 money market 

 1177 See Form N-MFP Item A.21 and B.5 (requiring money market funds to provide NAV data as of the close of 

business on each Friday during the month reported).

1178 See infra section IV.C.3.

1179 One commenter agreed with this expectation. See State Street Comment Letter, at Appendix A.

1180 We estimate, based on discussions with industry representatives that obtaining the price of a portfolio 

security would range from $0.25 - $1.00 per CUSIP number per quote. We estimate that each money 

market fund’s portfolio consists of, on average, securities representing 97 CUSIP numbers. Therefore, the 

additional daily costs to calculate a fund’s market-based NAV per share would range from $24.25 ($0.25 × 
371

funds do not presently determine and publish their current NAV per share daily, the average 

additional annual cost that these 140 funds will collectively incur would range from $855,540 to 

$3,422,160.1181 These costs could be less than our estimates if funds were to receive significant 

discounts based on economies of scale or the volume of securities being priced.

iv. Costs of harmonization of rule 2a-7 and Form N-MFP 

portfolio holdings disclosure requirements

Because the new portfolio holdings information that a fund is required to present on its 

website overlaps with the information that a fund would be required to disclose on Form N-MFP, 

we believe that the costs a fund will incur to draft and finalize the disclosure that will appear on 

its website will largely be incurred when the fund files Form N-MFP, as discussed below in 

section III.G. The Proposing Release estimated that, in addition, a fund would incur annual costs 

of $2,484 associated with updating its website to include the required monthly disclosure.1182

As discussed above, certain commenters generally noted that complying with the new 

website disclosure requirements would add costs for funds, including costs to upgrade internal 

systems and software relevant to the website disclosure requirements, as well as costs to engage 

third-party service providers for those money market fund managers that do not have existing 

 

97) to $97.00 ($1.00 × 97). The additional annual costs would therefore range from $6,111 (252 business 

days in a year × $24.25) to $24,444 (252 business days in a year × $97.00).

1181 This estimate is based on the following calculations: low range of $6,111 x 140 funds = $855,540; high 

range of $24,444 x 140 funds = $3,422,160. See supra note 1180. This figure likely overestimates the 

costs that stable price funds would incur if the floating NAV proposal were adopted. This is because fewer 

than 559 active money market funds would be stable price funds required to calculate their current NAV 

per share daily, and thus the estimate of 140 funds (25% x 559 active funds) that would be required to 

comply with this requirement is likely over-inclusive. 

1182 See Proposing Release, supra note 25, at n.672.
372

relevant systems.1183 One commenter, however, noted that the portfolio holdings disclosure 

requirements “should not cause a significant cost increase . . . as long as the information is made 

available from relevant accounting systems,”1184 and another commenter stated that the proposed 

disclosure requirements generally should not produce any meaningful costs.1185 Another 

commenter urged the Commission to harmonize new disclosure requirements so that funds 

would face lower administrative burdens, and investors would bear correspondingly fewer 

costs.1186 As described above, the portfolio holdings disclosure requirements we are adopting 

have changed slightly from those that we proposed, in order to conform to modifications we are 

making to the proposed Form N-MFP disclosure requirements. However, we believe that these 

revisions do not produce additional burdens for funds and thus do not affect previous cost 

estimates. Because the 2010 money market fund reforms already require money market funds to 

post monthly portfolio information on their websites,1187 funds should not need to upgrade their 

systems and software to comply with the new portfolio holdings information disclosure 

requirements. The Commission therefore does not believe that comments about the costs 

required to upgrade relevant systems and software should affect its estimates of the costs 

associated with the portfolio holdings disclosure requirements. Based on these considerations, as 

well as updated industry data, we now estimate that each fund would incur annual costs of 

 1183 See supra note 1165.

1184 See State Street Comment Letter, at Appendix A.

1185 See HSBC Comment Letter.

1186 See Fin. Svcs. Roundtable Comment Letter.

1187 See 2010 Adopting Release, supra note 17, at section II.E.1.
373

$2,724 in updating its website to include the required monthly disclosure.1188

v. Costs of disclosure regarding financial support received by 

the fund, the imposition and removal of liquidity fees, and 

the suspension and resumption of fund redemptions

Because the required website disclosure overlaps with the information that a fund must 

disclose on Form N-CR when the fund receives financial support from a sponsor or fund 

affiliate, or when the fund imposes or removes liquidity fees or suspends or resumes fund 

redemptions, we anticipate that the costs a fund will incur to draft and finalize the disclosure that 

will appear on its website will largely be incurred when the fund files Form N-CR, as discussed 

below in section III.F. The Proposing Release estimated that, in addition, a fund would incur 

costs of $207 each time that it updates its website to include the required disclosure.1189

While certain commenters generally noted, as discussed above, that complying with the 

new website disclosure requirements would add costs for funds,1190 one commenter stated that the 

costs of disclosing liquidity fees and gates and instances of financial support on the fund’s 

website would be minimal when compared to other costs,1191 and another commenter stated that 

the proposed disclosure requirements should not produce any meaningful costs.1192 As described 

above, we have modified the required time frame for disclosing information about financial 

support received by a fund on the fund’s website. However, this modification does not produce 

 1188 We estimate that these costs would be attributable to project assessment (associated with designing and 

presenting the required portfolio holdings information), as well as project development, implementation, 

and testing. The costs associated with these activities are all paperwork-related costs and are discussed in 

more detail below. See infra section IV.A.6.a.

1189 See Proposing Release, supra note 25, at nn.464, 629.

1190 See supra note 1165.

1191 See State Street Comment Letter, at Appendix A.

1192 See HSBC Comment Letter.
374

additional burdens for funds and thus does not affect previous cost estimates. Taking this into 

consideration, as well as the fact that we received no comments providing specific suggestions or 

critiques about our methods of estimating the burdens associated with the Form N-CR-linked 

website disclosure requirements, the Commission has not modified the estimated costs associated 

with these requirements, although it has modified its cost estimates based on updated industry 

data. We now estimate that a fund would incur costs of $227 each time that it updates its website 

to include the required disclosure.1193

F. Form N-CR

1. Introduction

Today we are adopting, largely as we proposed, a new requirement that money market 

funds file a current report with us when certain significant events occur.1194 New Form N-CR 

will require disclosure of certain specified events. Generally, a money market fund will be 

required to file Form N-CR if a portfolio security defaults, an affiliate provides financial support 

to the fund, the fund experiences a significant decline in its shadow price, or when liquidity fees 

or redemption gates are imposed and when they are lifted.1195 In most cases, a money market 

 1193 The costs associated with these activities are all paperwork-related costs and are discussed in more detail 

below. See infra section IV.A.6.d. 

1194 As we proposed, this requirement will be implemented through our adoption of new rule 30b1-8, which 

requires money market funds to file a report on new Form N-CR in certain circumstances. See rule 30b1-8; 

Form N-CR.

1195 See Form N-CR Parts B-H. More specifically, adopted largely as proposed, these events include instances 

of portfolio security default (Form N-CR Part B), financial support (Form N-CR Part C), a decline in a 

stable NAV fund’s current NAV per share (Form N-CR Part D), a decline in weekly liquid assets below 

10% of total fund assets (Form N-CR Part E), whether a fund has imposed or removed a liquidity fee or 

gate (Form N-CR Parts E, F and G), or any such other information a fund, at is option, may choose to 

disclose (Form N-CR Part H). In addition, as proposed, Form N-CR Part A will also require a fund to 

report the following general information: (i) the date of the report; (ii) the registrant’s central index key 

(“CIK”) number; (iii) the EDGAR series identifier; (iv) the Securities Act file number; and (v) the name, 
375

fund will be required to submit a brief summary filing on Form N-CR within one business day of 

the occurrence of the event, and a follow-up filing within four business days that includes a more 

complete description and information.1196

We proposed requiring reporting on Form N-CR under both the floating NAV and fees 

and gates reform alternatives, but the Form differed in certain respects depending on the 

alternative.1197 Today we are adopting a combination of the alternatives, and therefore final Form 

N-CR is a combined single form.1198

As we stated in the Proposing Release,1199 the information provided on Form N-CR will 

enable the Commission to enhance its oversight of money market funds and its ability to respond 

to market events. The Commission will be able to use the information provided on Form N-CR 

in its regulatory, disclosure review, inspection, and policymaking roles. Requiring funds to 

report these events on Form N-CR will provide important transparency to fund shareholders, and 

also will provide information more uniformly and efficiently to the Commission. It will also 

 

email address, and telephone number of the person authorized to receive information and respond to 

questions about the filing. See Form N-CR Part A. As proposed the name, email address, and telephone 

number of the person authorized to receive information and respond to questions about the filing will not be 

disclosed publicly on EDGAR.

1196 A report on Form N-CR will be made public on the Commission’s Electronic Data Gathering, Analysis, 

and Retrieval system (“EDGAR”) immediately upon filing. 

1197 For example, under the liquidity fees and gates alternative, we proposed Form N-CR to include additional 

disclosures specifically related to liquidity fees and gates, which we did not propose to under the floating 

NAV alternative. See Proposing Release, supra note 25, at section III.G.2; proposed (Fees & Gates) Form 

N-CR Parts E, F and G. In addition to other changes we are making today to the form, the final version of 

Form N-CR includes these additional Parts. See Form N-CR Parts E, F and G. We are also reconciling the 

introduction of Part D, which was worded differently under each of the respective main alternatives. See 

proposed (FNAV) Form N-CR Part D; proposed (Fees & Gates) Form N-CR Part D; see also, infra note 

1263.

1198 Id.

1199 See Proposing Release at paragraph containing n.697. 
376

provide investors and other market observers with better and more timely disclosure of 

potentially important events. 

Commenters generally supported new Form N-CR.1200 For example, one commenter 

noted that Form N-CR would generally “[alert] the SEC to issues the funds may be having” and 

“[provide] the public with current information that investors need.”1201 On the other hand, some 

commenters also voiced objections, suggesting that the form may be burdensome or redundant, 

and also offered specific improvements.1202 As discussed in more detail below, we are making 

various changes to Form N-CR to address some of these concerns. However, while we 

appreciate commenters’ concerns about possible redundancies of Form N-CR in light of the 

concurrent website or SAI disclosures, we believe each of these different disclosures to be 

appropriate because they serve distinct purposes.1203 

2. Part B: Defaults and Events of Insolvency 

Part B of Form N-CR is being adopted largely as proposed.1204 We are adopting, as 

 1200 See, e.g., CFA Institute Comment Letter; American Bankers Ass’n Comment Letter; Vanguard Comment 

Letter; Schwab Comment Letter; ICI Comment Letter.

1201 See CFA Institute Comment Letter. 

1202 See, e.g., Dreyfus Comment Letter; Fidelity Comment Letter; ICI Comment Letter; Federated VIII 

Comment Letter; SIFMA Comment Letter.

1203 See discussion following infra notes 1248 and 1249 and accompanying text.

1204 See proposed (FNAV) Form N-CR Part B; proposed (Fees & Gates) Form N-CR Part B. In the Proposing 

Release, we proposed Form N-CR to require a fund to disclose the following information: (i) the security 

or securities affected; (ii) the date or dates on which the defaults or events of insolvency occurred; (iii) the 

value of the affected securities on the dates on which the defaults or events of insolvency occurred; (iv) the 

percentage of the fund’s total assets represented by the affected security or securities; and (v) a brief 

description of the actions the fund plans to take in response to such event. See id.

Among the other changes discussed in this section, in the final amendments we are also adding the clause 

“or has taken” to the “brief description of actions fund plans to take, or has taken, in response to the 

default(s) or event(s) of insolvency” as required by Item B.5 of Form N-CR. See Form N-CR Item B.5. 
377

proposed, the requirement that a money market fund report to us if the issuer or guarantor of a 

security that makes up more than one half of one percent of a fund’s total assets defaults or 

becomes insolvent.1205 Such a report will, also as proposed, include the nature and financial 

effect of the default or event of insolvency, as well as the security or securities affected.1206 As 

we noted in the Proposing Release, the Commission believes that the factors specified in the 

required disclosure are necessary to understand the nature and extent of a default, as well as the 

potential effect of a default on the fund’s operations and its portfolio as a whole.1207 

 

We are clarifying that filers should not omit in Item B.5 any actions that they may have already taken in 

response to a default or event of insolvency prior to their filing of Form N-CR. In particular, if a fund were 

able to complete all actions in response to a default before the deadline of the follow-up filing, it could 

have otherwise effectively omitted its entire response to the default from being disclosed in Item B.5. We 

believe such an omission would significantly diminish the informational utility of Form N-CR to the 

Commission and investors in understanding how a fund has responded to a default. 

1205 See Form N-CR Part B (requiring filing if the issuer of one or more of the fund’s portfolio securities, or the 

issuer of a demand feature or guarantee to which one of the fund’s portfolio securities is subject, and on 

which the fund is relying to determine the quality, maturity, or liquidity of a portfolio security, experiences 

a default or event of insolvency (other than an immaterial default unrelated to the financial condition of the 

issuer), and the portfolio security or securities (or the securities subject to the demand feature or guarantee) 

accounted for at least 1⁄2 of 1 percent of the fund’s total assets immediately before the default or event of 

insolvency).

1206 Form N-CR Part B, adopted largely as proposed, will require a fund to disclose the following information: 

(i) the security or securities affected, including the name of the issuer, the title of the issue (including 

coupon or yield, if applicable) and at least two identifiers, if available; (ii) the date or dates on which the 

defaults or events of insolvency occurred; (iii) the value of the affected securities on the dates on which the 

defaults or events of insolvency occurred; (iv) the percentage of the fund’s total assets represented by the 

affected security or securities; and (v) a brief description of the actions the fund plans to take, or has taken, 

in response to such event. As proposed, an instrument subject to a demand feature or guarantee would not 

be deemed to be in default, and an event of insolvency with respect to the security would not be deemed to 

have occurred, if: (i) in the case of an instrument subject to a demand feature, the demand feature has been 

exercised and the fund has recovered either the principal amount or the amortized cost of the instrument, 

plus accrued interest; (ii) the provider of the guarantee is continuing, without protest, to make payments as 

due on the instrument; or (iii) the provider of a guarantee with respect to an asset-backed security pursuant 

to rule 2a-7(a)(16)(ii) is continuing, without protest, to provide credit, liquidity or other support as 

necessary to permit the asset-backed security to make payments as due. See Instruction to Form N-CR Part 

B. This instruction is based on the current definition of the term “default” in the provisions of rule 2a-7 

that require funds to report defaults or events of insolvency to the Commission. See current rule 2a7(c)(7)(iv).

1207 See Proposing Release, supra note 25, at text following n.703.
378

As stated above, we proposed to require disclosure of the security or securities affected 

by the default.1208 In a change from the proposal, to help us better identify defaulted portfolio 

securities, the final form now requires funds to report the name of the issuer, the title of the issue 

and at least two identifiers, if available (e.g., CUSIP, ISIN, CIK, Legal Entity Identifier (“LEI”)) 

when they file a report under part B of the form.1209 This requirement is similar to what we 

proposed and are adopting with respect to Items C.1 to C.5 of Form N-MFP.1210 In particular, 

better identification of the particular fund portfolio security or securities subject to a default or 

event of insolvency at the time of notice to the Commission will facilitate the staff’s monitoring 

and analysis efforts, as well as inform any action that may be required in response to the risks 

posed by such an event. Fund shareholders and potential investors will similarly benefit from the 

clear identification of defaulted fund portfolio securities when evaluating their investments.1211

One commenter expressed concern that publicly identifying a single security that has 

defaulted could be problematic if other contextual information about the quality of the fund’s 

other holding is not immediately available.1212 We note that the Form N-CR report will provide 

the value as well as the relative size of any defaulted security compared to the rest of a fund’s 

portfolio, providing some context for the default. In addition, as further described in section 

III.F.6 below, we are also adopting a new Part H of Form N-CR that will permit money market 

 1208 Proposed (FNAV) Form N-CR Item B.1; Proposed (Fees & Gates) Form N-CR Item B.1. 

1209 See Form N-CR Item B.1. These requirements are similar to Form N-MFP Items C.1 to C.5 but are 

reported on a more timely basis on Form N-CR. Much like under Form N-MFP, we note that the 

requirement to include multiple identifiers is only required if such identifiers are actually available.

1210 See Proposing Release, supra note 25, at nn.754-757 and accompanying text; see supra section III.G.

1211 Although current rule 2a-7(c)(7)(iii)(A) requires money market funds to report defaults or events of 

insolvency to the Commission by email, as proposed, we are eliminating this now duplicative requirement.

1212 See Dreyfus Comment Letter.
379

funds, in their discretion, to discuss any other events or information that they may consider 

material or relevant, which should allow for additional context if necessary.

3. Part C: Financial Support

We are also adopting a requirement that money market funds report instances of financial 

support by sponsors or other affiliates on Part C of Form N-CR1213 with several changes from the 

proposal.1214 We have modified the definition of financial support from the proposal in response 

to comments, as discussed below. This revised definition will affect when Part C needs to be 

filed. When filed, the Part C report will, as proposed, require disclosure of the nature, amount, 

and terms of the support, as well as the relationship between the person providing the support 

 1213 See Form N-CR Part C. Today, when a sponsor supports a fund by purchasing a security pursuant to rule 

17a-9, we require prompt disclosure of the purchase by email to the Director of the Commission’s Division 

of Investment Management, but we do not otherwise receive notice of such support unless the fund needs 

and requests no-action or other relief. See current rule 2a-7(c)(7)(iii)(B). As proposed, we are eliminating 

this requirement, as it would duplicate the Form N-CR reporting requirements discussed in this section. As 

we stated in the text following note 711 of the Proposing Release, the Form N-CR reporting requirement 

will permit the Commission additionally to receive notification of other kinds of financial support (which 

could affect a fund as significantly as a security purchase pursuant to rule 17a-9) and a description of the 

reason for the support, and it will also assist investors in understanding the extent to which money market 

funds receive financial support from their sponsors or other affiliates.

1214 See proposed (FNAV) Form N-CR Part C; proposed (Fees & Gates) Form N-CR Part C. In particular, in 

the Proposing Release we proposed the term “financial support” to include, but not be limited to, (i) any 

capital contribution, (ii) purchase of a security from the fund in reliance on rule 17a-9, (iii) purchase of any 

defaulted or devalued security at par, (iv) purchase of fund shares, (v) execution of letter of credit or letter 

of indemnity, (vi) capital support agreement (whether or not the fund ultimately received support), (vii) 

performance guarantee, or (viii) any other similar action to increase the value of the fund’s portfolio or 

otherwise support the fund during times of stress. See Proposing Release, supra note 25, at nn.705-712 and 

accompanying discussion. We also proposed Form N-CR to require a fund to disclose the following 

information: (i) a description of the nature of the support; (ii) the person providing support; (iii) a brief 

description of the relationship between the person providing the support and the fund; (iv) a brief 

description of the reason for the support; (v) the date the support was provided; (vi) the amount of support; 

(vii) the security supported, if applicable; (viii) the market-based value of the security supported on the date 

support was initiated, if applicable; (ix) the term of support; and (x) a brief description of any contractual 

restrictions relating to support. In addition, if an affiliated person, promoter, or principal underwriter of the 

fund, or an affiliated person of such a person, purchases a security from the fund in reliance on rule 17a-9, 

we proposed that the money market fund would be required to provide the purchase price of the security, as 

well as certain other information. See Instruction to proposed (FNAV) Form N-CR Part C; Instruction to 

proposed (Fees & Gates) Form N-CR Part C.
380

and the fund1215 except that, in a change from the proposal, the report will also require certain 

identifying information about securities that are the subject of any financial support.1216 

As we noted in the Proposing Release, we believe that requiring disclosure of financial 

support from a fund sponsor or affiliate will provide important, near real-time transparency to 

shareholders and the Commission, and will therefore help shareholders better understand the 

ongoing risks associated with an investment in the fund.1217 The information provided in the 

required disclosure is necessary for investors to understand the nature and extent of the sponsor’s 

discretionary support of the fund and will also assist Commission staff in analyzing the economic 

effects of such financial support.1218 

 1215 See id. Form N-CR Items C.1 through C.10 will require, with changes from the proposal, a fund to disclose 

the following information: (i) a description of the nature of the support; (ii) the person providing support; 

(iii) a brief description of the relationship between the person providing the support and the fund; (iv) the 

date the support was provided; (v) the amount of support, including the amount of impairment and the 

overall amount of securities supported; (vi) the security supported, including the name of the issuer, the 

title of the issue (including coupon or yield, if applicable) and at least two identifiers, if available; (vii) the 

market-based value of the security supported on the date support was initiated, if applicable; (viii) a brief 

description of the reason for the support; (ix) the term of support; and (x) a brief description of any 

contractual restrictions relating to support. We have also rearranged proposed Item C.4 (description of the 

reason for the support) to be new Item C.8 in order to better streamline the disclosures required to be filed 

within one business day (Items C.1 through C.7) versus four business days (Items C.8 through C.10). See 

infra section III.F.7.

1216 See Form N-CR Item C.6 (now requiring, for any security supported, disclosure of the name of the issuer, 

the title of the issue (including coupon or yield, if applicable) and at least two identifiers, if available. We 

are including the new securities identification requirements for the same reasons we are including it in Part 

B, as discussed above. 

1217 See Proposing Release, supra note 25, at n.705 and accompanying text. See also, e.g., Schwab Comment 

Letter (noting that the “[p]roposed disclosures around instances of sponsor support would provide investors 

with useful context for analyzing the stability of the fund”). In addition, as we discussed at n.712 in the 

Proposing Release, money market funds’ receipt of financial support from sponsors and other affiliates has 

not historically been prominently disclosed to investors, which has resulted in a lack of clarity among 

investors about which money market funds have received such financial support.

1218 See Proposing Release, supra note 25, at text following n.708. Another commenter also suggested that 

disclosure of financial support on Form N-CR may have the effect of reducing the likelihood that funds will 

need such support in the future. See American Bankers Ass’n Comment Letter (“[k]nowing that any form 

of sponsor support would be required to be disclosed within 24 hours, fund managers would likely do 

everything they could to avoid the need for sponsor support.”).
381

a. Definition of Financial Support

Although a number of commenters generally supported the proposed financial support 

disclosure,1219 many of these supporters and other commenters also argued that the proposed 

definition of “financial support” was ambiguous and could trigger unnecessary filings.1220 Many 

commenters suggested that the catchall provision of the proposed definition, which would 

require reporting of “any other similar action to increase the value of the Fund’s portfolio or 

otherwise support the Fund during times of stress,” was too broad.1221 Some commenters stated 

that the proposed definition would trigger reports on Form N-CR of routine transactions that 

occur in the ordinary course of business, which do not indicate stress on the fund.1222 For 

example, a few commenters suggested that the proposed definition would result in Form N-CR 

filings with respect to ordinary fee waivers and expense reimbursements, inter-fund lending, 

purchases of fund shares, reimbursements made by the sponsor in error, and certain other routine 

 1219 See, e.g., Oppenheimer Comment Letter (“...we support the SEC’s proposal to require money market funds 

to disclose current and historical instances of sponsor support for stable NAV funds [...].”); Schwab 

Comment Letter; T. Rowe Price Comment Letter; American Bankers Ass’n Comment Letter; Federated 

VIII Comment Letter.

1220 See, e.g., Schwab Comment Letter (noting that the “[p]roposed disclosures around instances of sponsor 

support would provide investors with useful context for analyzing the stability of the fund, though we 

would note that not all instances of sponsor support are indicative of a fund under even mild stress, let 

alone nearing the point of breaking the buck.”); ICI Comment Letter (“We are concerned that the definition 

of ‘financial support’ for purposes of the required disclosures is overly broad and would include the 

reporting of routine fund matters.”); Federated II Comment Letter; Deutsche Comment Letter; UBS 

Comment Letter.

1221 See, e.g., Dreyfus Comment Letter, Deutsche Comment Letter, ICI Comment Letter, Fidelity Comment 

Letter; UBS Comment Letter.

1222 See, e.g., Dechert Comment Letter (stating that the “definition of ‘financial support’ is over-inclusive and 

would capture certain actions taken in the ordinary course of business that would not signal any financial 

distress on the part of the money fund.”); SIFMA Comment Letter, ICI Comment Letter, Federated II 

Comment Letter, Vanguard Comment Letter.
382

fund transactions.1223 Because many of the above actions likely would not indicate stress on a 

fund, commenters noted that reporting these actions would not enhance investors’ ability to fully 

appreciate the risks of investing in a fund, potentially lead to further investor confusion and 

possibly even cause “disclosure fatigue” among investors.1224 We also were asked to clarify what 

constitutes financial support in order to standardize disclosures by different funds.1225

We appreciate these commenters’ concerns, and are today amending the final definition 

of “financial support” to minimize unnecessary filings of Form N-CR and reduce inconsistencies 

among different filers. In response to these comments, we are, among other things, modifying 

the rule text to specify that certain routine actions, and actions not reasonably intended to 

increase or stabilize the value or liquidity of the fund’s portfolio, do not need to be reported as 

financial support on Form N-CR, as discussed below.1226 The revised definition should help 

 1223 See, e.g., PWC Comment Letter (“... an expense waiver is more often than not a means to limit a fund’s 

expense ratio, and not to avoid the NAV falling below $1.00 per share.”); BlackRock II Comment Letter 

(“[a]ffiliates and fund sponsors often use a fund as a cash management vehicle and routinely purchase fund 

shares. These purchases in no way indicate a fund is under stress.”); Fidelity Comment Letter (noting that 

“a ‘(iv) purchase of fund shares’ may be interpreted to include a sponsor’s investment of seed money to 

launch a new fund and investment by affiliated funds or transfer agents on behalf of either funds using 

MMFs as an overnight cash sweep or central funds investing pursuant to the terms of an exemptive order.” 

and that other routine items might include “expense caps, inter-fund lending, loans and overdrafts due to 

settlement timing issues, and credits that service providers of a MMF may give as a result of cash held at 

the service provider”). See also, e.g., Vanguard Comment Letter, Federated VIII Comment Letter, SIFMA

Comment Letter, Deutsche Comment Letter, ICI Comment Letter. 

1224 See, e.g., Federated VIII Comment Letter; Fidelity Comment Letter; ICI Comment Letter; SIFMA 

Comment Letter; Chamber II Comment Letter.

1225 See SIFMA Comment Letter (stating that clarifying the definition of financial support is “necessary to 

standardize disclosures across the industry.”). With respect to the “catch-all” provision of the definition, 

see discussion infra and cf., e.g., Dreyfus Comment Letter. Certain of our final changes to the definition of 

“financial support” are intended to address concerns about inconsistent disclosures by different funds. See, 

e.g., infra notes 1226 and 1232 and the respective accompanying discussions.

1226 In addition, in the Proposing Release, we explained that the instructions specified that the term financial 

support included, but was not limited to certain examples of financial support. See Proposing Release, 

supra note 25, at n.617 and accompanying text. Similarly, in the proposed Form N-CR, we had included 

the phrase “for example” before the definition of financial support, suggesting that this definition was a 
383

avoid Form N-CR filings that do not represent actions that the Commission, shareholders, and 

other market observers would consider significant enough in evaluating or monitoring for 

financial support. Each item of financial support in the definition is the same as was proposed, 

except we have deleted “purchase of fund shares” from the definition, we have refined the 

“catch-all provision,” and we have added several exclusions, all discussed below.

As we are adopting it today, the term “financial support” is defined to include (i) any 

capital contribution, (ii) purchase of a security from the fund in reliance on rule 17a-9, (iii) 

purchase of any defaulted or devalued security at par, (iv) execution of letter of credit or letter of 

indemnity, (v) capital support agreement (whether or not the fund ultimately received support), 

(vi) performance guarantee, (vii) or any other similar action reasonably intended to increase or 

stabilize the value or liquidity of the fund’s portfolio; excluding, however, any (i) routine waiver 

of fees or reimbursement of fund expenses, (ii) routine inter-fund lending, (iii) routine inter-fund 

purchases of fund shares, or (iv) any action that would qualify as financial support as defined 

above, that the board of directors has otherwise determined not to be reasonably intended to 

increase or stabilize the value or liquidity of the fund’s portfolio.1227

As some commenters suggested,1228 we are refining the “catch-all” provision of the 

 

non-exhaustive list of actions that constitute financial support. See proposed (FNAV) Form N-CR Part C; 

proposed (Fees & Gates) Form N-CR Part C. In the final amendments, we are eliminating these 

qualifications in order to reduce any ambiguity over what else might constitute sponsor support. We also 

clarify that the final definition encompasses the entire universe of what does (and does not) constitute 

financial support for purposes of Form N-CR. We believe these clarifications, in addition to our other 

changes to the definition of “financial support,” will provide for more standardized disclosures across the 

industry. 

1227 See Form N-CR Part C. This definition is the same as the one we are adopting today for purposes of the 

website disclosure of sponsor support. See supra section III.F.3. See also, supra note 1214 for a 

description of the proposed definition in the Proposing Release.

1228 See, e.g., Dreyfus Comment Letter (“we recommend that ‘or otherwise support the fund during times of 
384

financial support definition.1229 In the Proposing Release, we had proposed to require disclosure 

of “any other similar action to increase the value of the fund’s portfolio or otherwise support the 

fund during times of stress.”1230 Under the final definition, we are changing this provision to 

read: “any other similar action reasonably intended to increase or stabilize the value or liquidity 

of the Fund’s portfolio.”1231 In particular, we have eliminated the phrases “otherwise support” 

and “during times of stress” contained in the proposed definition to address more general 

concerns that the “catch-all” provision was too vague and could be subject to different 

interpretations by different funds.1232 We also eliminated the phrase “during times of stress” 

because sponsors may also provide support pre-emptively, before a fund is experiencing any 

actual stress. Instead, we believe this new intentionality standard1233 should serve to reduce the 

chance that a fund would need to report an action on Form N-CR that does not represent true 

financial support that the Commission or investors would likely be concerned with. By focusing 

on the primary intended effects of sponsor support – increasing or stabilizing the value or 

 

market stress’ be eliminated from subparagraph (viii), or revised to be made more specific as to actual 

financial support provided. As proposed, this broad ‘catch-all’ provision re-opens the door for debate about 

what constitutes ‘instances of sponsor support.’”); ICI Comment Letter. 

1229 See Form N-CR Part C. 

1230 See Proposing Release, supra note 25, at n.617 and accompanying text; proposed (FNAV) Form N-CR Part 

C; proposed (Fees & Gates) Form N-CR Part C.

1231 See Form N-CR Part C. 

1232 See Dreyfus Comment Letter. See generally, e.g., SIFMA Comment Letter (with respect to definition of 

financial support generally, stating that clarifications are “necessary to standardize disclosures across the 

industry.”). But cf., ICI Comment Letter (proposing a modified “catch-all” provision that would retain the 

phrase “during periods of stress.”).

1233 See Form N-CR Part C. As noted above, if increasing or stabilizing the value or liquidity of the Fund’s 

portfolio is an intended effect of an action, even if not the primary purpose, then it would need to be 

reported on Form N-CR.
385

liquidity of a fund’s portfolio1234 – we believe the revised “catch-all” provision will better capture 

actions that the Commission, shareholders, and other market observers would consider 

significant in evaluating or monitoring for financial support.1235 Actions that would likely fall 

within this “catch-all” provision include, for example, the purchase of a defaulted or devalued 

security at a price above fair value, or exchanges of securities with longer maturities for ones 

with shorter maturities. 

We have also added exclusions to the definition in a change from the proposal. The 

revised definition of financial support explicitly excludes routine waivers of fees or 

reimbursement of fund expenses, routine inter-fund lending, and routine inter-fund purchases of 

fund shares.1236 We agree with commenters that the actions we are excluding from the final 

 1234 To that end, we have also added “or stabilize” and “or liquidity” to what we had originally proposed as the 

catch-all provision. See supra note 1231 and accompanying text. We are doing so because we believe that 

increasing the value of a fund may not be the only primary intended effect of financial support. Rather, we 

believe that stabilizing the value of a fund (e.g., where a sponsor provides support to counter foreseeable 

adverse market effects that may otherwise depress the fund’s value), as well as increasing or stabilizing the 

fund’s liquidity (e.g., where a sponsor might exchange securities with longer maturities for ones of equal 

value but with shorter maturities) may also be intended effects of financial support. 

1235 We also considered whether to make this “catch-all” provision (or the definition of financial support 

generally) subject to a specific threshold or general materiality qualification. See, e.g., T. Rowe Price 

Comment Letter (stating that “if the sponsor is investing in its own fund in order to support the NAV, we 

agree that the SEC could consider requiring disclosure [on Form N-CR] if a money market fund’s NAV has 

dropped below a certain threshold and the sponsor's investment in the fund materially changes the marketbased NAV.”); Cf., e.g., ICI Comment Letter (among other things, proposing to qualify purchases of fund 

shares by adding “to support the fund during periods of stress (e.g., when the fund’s NAV deviates by more 

than 1⁄4 of 1 percent)” behind it). However, we are not including a specific threshold (e.g., a specific drop 

in the fund’s NAV or liquidity) at this time (to the “catch-all” provision or any other part of the definitions) 

because not all types of sponsor support (e.g., a capital support agreement or performance guarantee) may 

result in an immediate change in a fund’s NAV or liquidity. The utility of the reporting might also be 

diminished with such a threshold if sponsors provided support pre-emptively, before the specified threshold 

is met.

1236 Cf., e.g., ICI Comment Letter (proposing to add “nonroutine” before “purchase of fund shares” to “make it 

clear that routine affiliate purchases normally should not be deemed “financial support.”).
386

definition are not generally indicative of stress at a fund.1237 Correspondingly, we have also 

deleted purchases of fund shares as one of the items that had been explicitly included in the

proposed definition.1238 We note that these actions must be “routine” meaning that any such 

actions are excluded only to the extent they are not reasonably intended to increase or stabilize 

the value or liquidity of the fund’s portfolio.1239

The final definition of financial support also includes a new intentionality exclusion that 

may be invoked by boards.1240 Under this new exclusion, a particular action need not be reported 

as financial support under Part C of Form N-CR if the board of directors of the fund finds that 

the action was not “reasonably intended to increase or stabilize the value or liquidity of the 

Fund’s portfolio.” We are adding this exclusion as a way to address certain remaining concerns 

by commenters about the reporting of actions that might otherwise still technically fall within the 

definition of financial support, but are not intended as such.1241 During times of fund or market 

stress, however, we believe that boards likely would find it difficult to determine that a particular 

action that is otherwise captured by the definition of financial support should be excluded under 

this intentionality exception. We recognize that an action may be made for a number of reasons, 

 1237 See generally, commenters’ concerns at supra note 1223 and accompanying discussion.

1238 See clause (iv) of the proposed definition, supra note 1227. 

1239 If increasing or stabilizing the value or liquidity of the Fund’s portfolio is an intended effect of an action, 

even if not the primary purpose, then it would need to be reported on Form N-CR. 

1240 See Form N-CR Part C. 

1241 See, e.g., Fidelity Comment Letter (“For example, ‘(i) any capital contribution’ could be interpreted to 

include a reimbursement of error, as a MMF adviser or sponsor may reimburse a MMF for an error that 

occurred whether part of investment operations, investment activity or other services provided by a service 

provider to the funds.”) In such a case, a fund’s board might be able to determine that such reimbursement 

was not “reasonably intended to increase or stabilize the value or liquidity of the Fund’s portfolio” and thus 

would not report the action on Form N-CR.
387

but note that if an intent of the action is to increase or stabilize the value or liquidity of the 

Fund’s portfolio, even if that is not the primary or sole purpose of the action, then it must be 

reported on the Form.1242 As is the case with any board determination, boards would typically 

record in the board minutes the bases of any such determinations by the board.1243

b. Amount of Support

In the Proposing Release, we proposed that filers disclose, among other things, the 

“amount of support” in Part C of Form N-CR.1244 One commenter asked the Commission to 

clarify the “amount” of financial support that they must report under Part C of the form to avoid 

misleading disclosures and to facilitate comparability in disclosures across the industry.1245 For 

example, in the case of a purchase of a security from the fund, this commenter believed that it 

may be misleading to report the size of the position purchased as the “amount” supported and 

rather thought the amount of support should be the increase in the fund’s NAV that results from 

 1242 For example, a sponsor might purchase a security from a fund (or take another similar action) to eliminate 

potential future risk associated with that security, and may engage in such an action primarily out of 

concern for their reputation or other reasons. Nonetheless, if any intent of the action, even if it is not the 

primary intent, is to increase or stabilize the value or liquidity of the fund’s portfolio (in the present or 

future), then such an action would be reportable on Form N-CR. Similarly, one commenter suggested that 

we exclude certain capital contributions provided by the sponsor of an acquired fund in the case of a 

merger or reorganization from the definition of financial support for purposes of Form N-CR. See

Federated VIII Comment Letter. We have not done so because in some cases such a contribution might be 

reasonably intended to increase or stabilize the value or liquidity of the fund’s portfolio, even if the primary 

intent was to facilitate the merger or reorganization. In particular, such a contribution may qualify as a 

“capital contribution” for purposes of clause (i) of the proposed definition of financial support. Given that 

the capital contribution in the commenter’s example was intended to cover “any net losses previously 

realized by the acquired fund” or “if the shadow price of the acquired fund differs materially from the 

acquiring fund’s shadow price,” the recipient fund’s board would likely find it difficult to conclude that 

such a capital contribution was not reasonably intended to increase or stabilize the value or liquidity of the 

fund’s portfolio. Id.

1243 See supra note 709.

1244 See proposed (FNAV) Form N-CR Item C.6; proposed (Fees & Gates) Form N-CR Item C.6.

1245 See SIFMA Comment Letter.
388

the purchase. This commenter also asked that the Commission clarify that SEC staff 

interpretations relating to reporting the valuation of capital support agreements on Form N-MFP 

would be applicable for these purposes.1246

Below we are providing guidance to clarify what amounts should be reported specifically 

with respect to share purchases on Part C of Form N-CR. With respect to share purchases in 

particular, we disagree with the commenter that when financial support is provided through the 

purchase of a fund portfolio security, the size of the security position purchased is not relevant in 

considering the amount of support. When a distressed or potentially distressed security is 

purchased out of a fund’s portfolio, support can be provided in two ways. First, if it is purchased 

at amortized cost and the security’s market-based value is below amortized cost, one measure of 

the amount of support is the amount of the security’s impairment below amortized cost. 

However, the purchase of the security position from the fund also removes this entire risk 

exposure from the fund and protects the fund from subsequent further price declines in the 

security. Accordingly, we believe that the size of the position purchased from the fund is also 

relevant when considering the “amount” of financial support. Therefore, in such a case filers 

should report under Part C of Form N-CR the following two separate items with respect to the 

“amount” of financial support: (i) the amount of the impairment below amortized cost in the 

security purchased and (ii) the amortized cost value of the securities purchased. 

In the case of a capital support agreement, historically such agreements have supported a 

particular security position while others, as noted by a commenter, may support the market-based 

 1246 This commenter was discussing Staff Responses to Questions about Rule 30b1-7 and Form N-MFP 

updated July 29, 2011, available at http://www.sec.gov/divisions/investment/guidance/formn-mfpqa.htm.
389

NAV per share of the fund as a whole.1247 Where a capital support agreement is supporting a 

particular security position, we would consider the amount of reportable financial support on 

Form N-CR similar to that described above relating to purchases of portfolio securities. That is, 

the “amount” of financial support is the amount of security impairment effectively removed 

through the capital support agreement as well as the amortized cost value of the overall position 

supported (assuming the entire position is subject to the capital support agreement). For a capital 

support agreement that supports the fund as a whole, the amount of reportable financial support 

is the amount of impairment to the fund’s NAV per share effectively removed through the capital 

support agreement with a notation describing that the capital support agreement supports the 

value of the fund as a whole (or the extent of the fund’s value that is supported, if less than the 

full amortized cost value). 

This guidance differs somewhat from the staff guidance relating to capital support 

agreement disclosures on Form N-MFP because the context differs. Form N-MFP already 

requires reporting on the overall size of the security position reported (and information about the 

size of the fund), so the additional capital support agreement reporting focuses on valuing the 

impairment effectively removed through the capital support agreement. Our guidance regarding 

“amount” of financial support reportable on Form N-CR for capital support agreements thus 

provides similar information to that which could be collectively determined by reviewing various 

Form N-MFP line items.

 1247 See SIFMA Comment Letter.
390

c. Concerns over Potential Redundancy

One commenter argued that the financial support disclosure in Form N-CR is redundant 

in light of the corresponding financial support disclosures in the SAI, raising concerns about the 

additional preparation costs and burdens on fund personnel.1248 More generally, commenters 

were also concerned about the redundancy of various other Parts of Form N-CR, Form N-CR as 

a whole, and even the various proposed disclosures in the aggregate.1249 While we appreciate 

these concerns and have considered the costs and burdens of Form N-CR,1250 we note that each of 

the Form N-CR and the corresponding website and SAI disclosure requirements serves a distinct 

purpose.1251 Therefore, although we acknowledge there will be some textual overlap between 

these different formats, we believe there are strong public policy reasons for requiring the 

various different disclosures. We also note that we have required other such parallel reporting 

for similar reasons.1252

Most significantly, Form N-CR will alert Commission staff, shareholders and other 

market observers about any reportable events on Form N-CR (including any financial support) 

on a near real-time basis.1253 In particular, Form N-CR will enable the Commission and other 

 1248 See Dreyfus Comment Letter.

1249 See, e.g., Dreyfus Comment Letter; SIFMA Comment Letter; Federated II Comment Letter; Fin. Svcs. 

Roundtable Comment Letter.

1250 We consider and estimate the various costs and burdens of Form N-CR in more detail in infra section 

III.F.8 as well as in infra section IV.D.2.a.

1251 We note that there are also certain overlapping disclosures with respect to Form N-MFP, which we 

generally discuss in supra section III.G.

1252 For example, money market funds are currently required to disclose much of the portfolio holdings 

information they disclose on Form N-MFP on the fund’s website as well. See current rule 2a-7(c)(12)(ii); 

current rule 30b1-7; Form N-MFP, General Instruction A.

1253 With respect to the need of the Commission staff, shareholders and other market observers to receive the 

alerts on Form N-CR on a near real-time basis, cf. infra notes 1329-1333 and the accompanying text for a 
391

market observers to better monitor the entire fund industry, as they will be able to locate on 

EDGAR all Form N-CR reports specific to any particular time frame without having to search 

through the SAIs of all the funds in the industry. We expect financial news services to be among 

the market observers who will benefit from Form N-CR, which in turn could then also alert 

investors about these important developments more expeditiously.1254 Although any 

corresponding SAI disclosures will also be available on EDGAR, because SAI filings contain 

many other disclosures (including those unrelated to financial support or the other reportable 

events on Form N-CR), it could take significant amounts of time for the Commission and other 

market observers (such as the aforementioned financial news services) to continually review all 

SAI filings for any relevant alerts.1255 Similarly, we believe it would be significantly more 

time-consuming, if not impractical, if the Commission and other market observers had to 

continually check each fund’s website for any relevant updates.1256 We therefore believe that the 

corresponding website and SAI disclosures alone would not accomplish the primary goal of 

Form N-CR in alerting the Commission, investors and other market observers about important 

 

discussion on the importance of the one and four business day deadlines of Form N-CR.

1254 As noted in supra notes 1211 and 1213, with respect to any portfolio defaults or fund share purchases under 

rule 17a-9, we are eliminating the corresponding email notifications to the Director of Investment 

Management or the Director’s designee under current rules 2a-7(c)(7)(iii)(A) and (B). Among other 

reasons, we are replacing them with Form N-CR is because these email notifications are currently not 

publicly available to investors and other market observers. 

1255 Even where a fund updates its registration statement with equal promptness as Form N-CR, as noted by the 

commenter cited below, it would still likely take the Commission and other market observers extensive 

effort and time to continually review all SAI filings for any relevant alerts. See Dreyfus Comment Letter 

(stating that “[w]hile the Commission may feel that Form N-CR will provide the information on a more 

real-time basis, we expect registration statements also will have to be updated with equal promptness with 

these disclosures (via Rule 497 filings with the Commission).”). In addition, as discussed below, we note 

that certain Parts of Form N-CR as amended today will require more extensive disclosures than either the 

corresponding website or SAI disclosures.

1256 Such website monitoring could be particularly burdensome because the presentation of this information 

would likely be different on each fund’s website. 
392

events in a timely and meaningful manner. Moreover, we note that certain Parts of Form N-CR 

as amended today will require more extensive disclosures than either the corresponding website 

or SAI disclosures,1257 which further minimizes the degree to which there would have been any 

functionally overlapping disclosures. Finally, Form N-CR filings will also provide a permanent 

historical record of any financial support provided to the entire money market fund industry, 

which will be accessible on EDGAR. 

On the other hand, we believe that the consolidated discussion in the SAI will be the most 

accessible format for disclosing historical instances of sponsor support in the past 10 years, as it 

would be a significant burden on the Commission, investors and other market observers if they 

had to review various prior Form N-CR filings to piece together a specific fund’s history of 

sponsor support,1258 even in light of the additional costs and burdens faced by funds in providing 

these SAI disclosures.1259 We also believe that, to the extent investors may not be familiar with 

researching filings on EDGAR, including these disclosures in a fund’s SAI (which investors may 

receive in hard copy through the U.S. Postal Service or may access on a fund’s website, as well 

as accessing on EDGAR) may make this information more readily available to these investors 

 1257 For example, with respect to disclosure of any financial support, funds will be required to disclose on their 

websites and in their SAIs only that information that the fund is required to report to the Commission on 

Items C.1, C.2, C.3, C.4, C.5, C.6, and C.7 of Form N-CR. See supra notes 993 and 1137-1138 and 

accompanying text. We also note that Parts E, F, and G of Form N-CR as amended today will require more 

extensive disclosures than the rule 2a-7 and Form N-1A provisions requiring funds to disclose certain 

information about the imposition of fees or gates on the fund’s website and in the fund’s SAI. See supra

notes 960 and 1112 and accompanying text.

1258 Given that funds will be required to disclose historical instances of sponsor support for the past 10 years, 

the corresponding filings on Form N-CR will provide a permanent record for any instances of financial 

support that occurred more than 10 years ago in a single place.

1259 We generally consider and estimate the costs and burdens of the SAI disclosures in infra sections III.F.8 

and IV.G.
393

than disclosure on other SEC forms that are solely accessible on EDGAR. 

Similarly, the website disclosures are intended to be more accessible than Form N-CR for 

individual investors interested in information about particular funds, in particular to the extent 

such investors may not be familiar with researching filings on EDGAR.1260 Given that individual 

investors are typically most interested in information about their own (or potential) investments 

and do not necessarily monitor the entire fund industry, visiting the websites of a few particular 

funds would likely not become overly time-consuming or burdensome for these investors.1261

4. Part D: Declines in Shadow Price

Part D of Form N-CR will, as proposed, require funds that transact at a stable price to file 

a report when the fund’s current NAV per share deviates downward from its intended stable 

price (generally, $1.00) by more than 1⁄4 of 1 percent (i.e., generally below $0.9975).1262 Today 

we are adopting Part D of Form N-CR largely as proposed.1263 As we discussed in the Proposing 

 1260 See CFA Institute Comment Letter (“We particularly endorse the proposed requirement that money market 

funds would have to post on their websites much of the information required in Form N-CR. While Form 

N-CR information is publicly available upon SEC filing, investors will more readily find and make use of 

this information if posted on a particular fund’s website.”)

1261 We also generally consider and estimate the costs and burdens of the related website disclosures in infra

section III.F.8 as well as in infra section IV.A.6.

1262 Form N-CR Part D. As stated in the introduction to Part D, with some changes from the proposal, the 

disclosure requirement under Part D is triggered “[if] a retail money market fund’s or a government money 

market fund’s current net asset value per share deviates downward from its intended stable price per share 

by more than 1⁄4 of 1 percent [...].” In turn, for each day the fund’s current NAV is below this threshold, 

Part D will require, with some changes from the proposal, a fund to disclose the following information: (i) 

the date or dates on which such downward deviation exceeded 1⁄4 of 1 percent; (ii) the extent of deviation 

between the fund’s current NAV per share and its intended stable price; and (iii) the principal reason or 

reasons for the deviation, including the name of any security whose market-based value or sale price, or 

whose issuer’s downgrade, default, or event of insolvency (or similar event) has contributed to the 

deviation. 

1263 See proposed (FNAV) Form N-CR Part D; proposed (Fees & Gates) Form N-CR Part D. Under either 

main alternative, in the Proposing Release we proposed Form N-CR to require an applicable fund, if its 

current NAV (rounded to the fourth decimal place in the case of a fund with a $1.00 share price, or an 
394

Release,1264 this requirement will not only permit the Commission and others to better monitor 

indicators of stress in specific funds or fund groups and in the industry, but also will help 

increase money market funds’ transparency and permit investors to better understand money 

market funds’ risks.1265 To better understand the cause of such a decline in the fund’s shadow 

price, we are also requiring, largely as proposed, funds to provide the principal reason or 

reasons1266 for the reduction, which would involve identifying the particular securities or events 

that prompted the decline.1267 In a change from the proposal, we are also requiring the disclosure 

of the same identifying information included in other parts of the Form.1268 In particular, the 

 equivalent level of accuracy for funds with a different share price) deviates downward from its intended 

stable price per share by more than 1⁄4 of 1 percent, to disclose the following information: (i) the date or 

dates on which such deviation exceeded 1⁄4 of 1 percent; (ii) the extent of deviation between the fund’s 

current NAV per share and its intended stable price; and (iii) the principal reason for the deviation, 

including the name of any security whose market-based value or sale price, or whose issuer’s downgrade, 

default, or event of insolvency (or similar event) has contributed to the deviation. See Proposed (FNAV) 

Form N-CR Part D; Proposed (Fees & Gates) Form N-CR Part D. In addition to the other change discussed 

in this section, we are making various conforming and clarifying changes in the final amendments to Part 

D. In the introduction to Part D, in a conforming change to the other amendments we are adopting today, 

we are now referring to retail and government money market funds instead of just to “Fund” as proposed 

under the floating NAV alternative or to funds “subject to the exemption provisions of rule 2a-7(c)(2) or 

rule 2a-7(c)(3)” as proposed under the liquidity fees and gates alternative). We are also pluralizing the 

“principal reason” in Item D.3 to principal reason or reasons,” as there may be several successive or 

concurrent causes that resulted in a reduction in the shadow NAV. Furthermore, as another conforming 

change, we are inserting the word “downward” before “deviation” in Item D.1 to remove any doubt that 

only downward deviations need to be reported, consistent with the introduction of Part D (which already 

includes a reference to “downward”). 

1264 See Proposing Release, supra note 25, at text accompanying n.714.

1265 See generally, supra section III.B.8.a (discussing the potential benefits and costs of the requirement for a 

money market fund to disclose its current NAV on its website). 

1266 In a change from the Proposing Release, we are pluralizing the “principal reason” in Item D.3, as there may 

be several successive or concurrent causes that resulted in a reduction in the shadow NAV.

1267 Form N-CR Item D.3. This item would not require additional analysis or explanation of the principal 

reason or reasons for the deviation, beyond identifying the particular securities or events that prompted the 

deviation. 

1268 See Form N-CR Item D.3 (requiring, for any such security, disclosure of the name of the issuer, the title of 

the issue (including coupon or yield, if applicable) and at least two identifiers, if available); see Form N-CR 

Item B.1. 
395

final amendments to Item D.3 also now require funds to report the name of the issuer, the title of 

the issue and at least two identifiers, if available.1269 In particular, better identification of the 

particular fund portfolio security or securities that may have prompted a shadow price decline 

will facilitate the staff’s monitoring and analysis efforts, which we expect to help us better 

understand the nature and extent of the shadow price decline, the potential effect on the fund, 

potential contagion risk across funds more broadly, as well as inform any action that may be 

required in response to the risks posed by such an event. Fund shareholders and potential 

investors will similarly benefit from the clear identification of a fund portfolio security or 

securities that may have prompted a shadow price decline when evaluating their investments.1270

Some commenters expressed concerns about the reporting of shadow price declines on 

Form N-CR. For example, commenters argued that it would be redundant and unduly 

burdensome in light of funds’ concurrent website disclosure of the shadow price.1271 However, 

as already discussed with respect to the various concurrent disclosures of financial support in 

section III.F.3 above, while we are sensitive to commenters’ concerns about duplication, we 

believe it appropriate given the different audiences and uses for such information.1272

With respect to the particular deviation threshold of 1⁄4 of 1 percent that we are adopting 

 1269 These changes are similar to what we proposed and are adopting with respect to Items C.1 to C.5 of Form 

N-MFP. See Proposing Release, supra note 25, at nn.754-757 and accompanying text; see supra section 

III.G.2.f. As under Form N-MFP and with respect to Item B.1, we note that the requirement to include 

multiple identifiers is only required if such identifiers are actually available.

1270 With respect to our corresponding changes to Parts B and C of Form N-CR, see also, supra notes 1209 and 

1216 and the accompanying discussions. 

1271 See Federated VIII Comment Letter (stating that “so long [a]s the current shadow price is publicly 

available, Federated does not view such a deviation as a material event that necessitates a separate 

reporting.”); Dreyfus Comment Letter.

1272 See discussion following supra notes 1248 and 1249 and accompanying text.
396

today as proposed, one commenter considered this level of deviation to be arbitrary, “as there are 

no other implications under Rule 2a-7 for the money market fund if it has a 25 basis point 

deviation.” 1273 However, as noted in the Proposing Release,1274 we continue to believe that a 

deviation of 1⁄4 of 1 percent is sufficiently significant that it could signal future, further deviations 

in the fund’s NAV that could require a stable price fund’s board to consider re-pricing the fund’s 

shares (among other actions). We note that we previously have similarly determined that a 1⁄4 of 

one percent decline in the shadow price from its intended stable price is an appropriate threshold 

requiring money market funds to report to us.1275 Moreover, if a Form N-CR filing were not 

triggered until a higher threshold such as after a fall in the NAV that would require the re-pricing 

of fund shares (such as 0.5%),1276 the disclosures would come too late to meaningfully allow the 

Commission and others to effectively monitor and respond to indicators of stress. We also 

believe a threshold of 1⁄4 of 1 percent strikes an appropriate balance with respect to the frequency 

of filings, because during periods of normal market activity we would expect relatively few 

Form N-CR filings for this part of the form.1277 In fact, our staff has analyzed Form N-MFP data 

from November 2010 to February 2014 and found that only one fund had a 1⁄4 of 1 percent 

 1273 See Federated VIII Comment Letter. 

1274 See Proposing Release, supra note 25, at n.715 and accompanying text.

1275 See rule 30b1-6T (interim final temporary rule (no longer in effect) requiring money market funds to 

provide the Commission certain weekly portfolio and valuation information if their market-based NAV 

declines below 99.75% of its stable NAV).

1276 See Federated VIII Comment Letter (proposing a deviation of 0.5% as the reporting trigger). 

1277 Cf., e.g., State Street Comment Letter at Appendix A (“During the September 2008 failure of Lehman 

Brothers Holdings, a large number of money market funds had a 1⁄4 of 1% or greater deviation between the 

amortized-cost NAV and the market NAV. During times of market stress similar to the 2008 crisis, our 

expectation is that the percentages would be similar. However, during times of normal market activity, our 

expectation is that [a 1⁄4 of 1%] or greater deviation between stable NAV and market NAV would be 

infrequent.”)
397

deviation from the stable $1.00 per share NAV, suggesting the burden to funds would be

minimal during normal market activity. We note that funds may also provide additional context 

about the circumstances leading to the shadow price decline in Part H of Form N-CR, discussed 

below. 

Another commenter suggested that disclosure of a deviation in the NAV might result in 

an increase in pre-emptive run risk, as shareholders could come to use these filings as a trigger 

for redemptions.1278 Although we cannot predict individual shareholder actions with certainty, as 

discussed previously, we believe that the transparency provided by this information is important 

to the ability of money market fund shareholders to understand and assess the risks of their 

investments. Furthermore, while we acknowledge the possibility of pre-emptive redemptions, 

some of the other reforms we are adopting today (such as liquidity fees and redemption gates) 

will provide some fund managers additional tools for managing such redemptions, if they were 

to occur. We also note that some of our responses in section III.A.1.c.i to concerns over 

pre-emptive run risk related to the liquidity fees and gates requirement would similarly apply to 

run risk concerns over the disclosure of a deviation in the NAV in Part D of Form N-CR.1279 

More generally, we expect that Form N-CR could decrease, rather than increase, redemption risk 

 1278 See Federated VIII Comment Letter.

1279 For example, as discussed in further detail in section III.A.1.c.i, we expect that the additional discretion we 

are granting fund boards to impose a fee or gate at any time after the fund’s weekly liquid assets have fallen 

below the 30% required minimum should substantially mitigate the risk of pre-emptive redemptions. As 

discussed in supra note 171 and the accompanying text, board discretion concerning when to impose a fee 

or gate may reduce shareholder incentive to pre-emptively redeem shares, because shareholders will be less 

able to accurately predict specifically when, and under what circumstances, fees and gates will be imposed. 

See Wells Fargo Comment Letter; see also Proposing Release, supra note 25, at n.362. For similar reasons, 

we believe that it is less likely that investors would use these filings under Part D of Form N-CR as a 

trigger for redemptions in the first place.
398

by heightening self-discipline at funds.1280

5. Parts E, F, and G: Imposition and Lifting of Liquidity Fees and Gates

Today we are adopting a requirement that a money market fund file a report on Form 

N-CR when a fund imposes or lifts a liquidity fee or redemption gate, or if a fund does not 

impose a liquidity fee despite passing certain liquidity thresholds.1281 As discussed in more detail 

below, we are making some changes from what we proposed.1282 This report, as adopted, will 

 1280 See American Bankers Ass’n Comment Letter (noting that certain disclosures including Form N-CR 

“would exert a discipline on fund advisers to manage assets so conservatively as to avoid raising concerns 

among investors about the credit quality of fund investments that could lead to heavy redemptions.”). See 

also, infra note 1346-1350 and the accompanying text for our additional discussion of concerns over 

widespread redemption risk as a result of Form N-CR.

1281 See Form N-CR Parts E, F, and G.

1282 See proposed (Fees & Gates) Form N-CR Parts E, F, and G. In particular, in the Proposing Release, if, at 

the end of a business day, a fund (except any government money market fund that has chosen to rely on the 

proposed (Fees & Gates) rule 2a-7 exemption) has invested less than 15% of its total assets in weekly 

liquid assets, we proposed to require the fund to disclose the following information: (i) the initial date on 

which the fund’s weekly liquid assets fell below 15% of total fund assets; (ii) if the fund imposes a liquidity 

fee pursuant to proposed (Fees & Gates) rule 2a-7(c)(2)(i), the date on which the fund instituted the 

liquidity fee; (iii) a brief description of the facts and circumstances leading to the fund’s weekly liquid 

assets falling below 15% of total fund assets; and (iv) a short discussion of the board of directors’ analysis 

supporting its decision that imposing a liquidity fee pursuant to proposed (Fees & Gates) rule 2a-7(c)(2)(i) 

(or not imposing such a liquidity fee) would be in the best interests of the fund. Proposed Part E further 

included instructions that a fund must file a report on Form N-CR responding to items (i) and (ii) above on 

the first business day after the initial date on which the fund has invested less than fifteen percent of its 

total assets in weekly liquid assets, and that a fund must amend its initial report on Form N-CR to respond 

to items (iii) and (iv) above by the fourth business day after the initial date on which the fund has invested 

less than fifteen percent of its total assets in weekly liquid assets. See proposed (Fees & Gates) Form N-CR 

Part E. 

Similarly, a fund (except any government money market fund that has chosen to rely on the proposed (Fees 

& Gates) rule 2a-7 exemption) that has invested less than 15% of its total assets in weekly liquid assets (as 

provided in proposed (Fees & Gates) rule 2a-7(c)(2)) suspends the fund’s redemptions pursuant to rule 2a7(c)(2)(ii), we proposed that the fund disclose the following information: (i) the initial date on which the 

fund’s weekly liquid assets fell below 15% of total fund assets; (ii) the date on which the fund initially 

suspended redemptions; (iii) a brief description of the facts and circumstances leading to the fund’s weekly 

liquid assets falling below 15% of total fund assets; and (iv) a short discussion of the board of directors’ 

analysis supporting its decision to suspend the fund’s redemptions. Proposed Part F further included 

instructions providing that a fund must file a report on Form N-CR responding to items (i) and (ii) above on 

the first business day after the initial date on which the fund suspends redemptions, and that a fund must 

amend its initial report on Form N-CR to respond to items (iii) and (iv) by the fourth business day after the 
399

require a description of the primary considerations the board took into account in taking the 

action (modified from the proposal and discussed below), as well as certain additional basic 

information, such as the date when the fee or gate was imposed or lifted, the fund’s liquidity 

levels, and the size of the fee.1283 Except for the change to the requirement to describe the 

primary considerations the board took into account in taking the action, the other changes to 

Parts E, F and G generally derive from the amendments to the liquidity fees and gates 

requirements that are being adopted today and are designed to conform these Parts of Form 

N-CR to those operative requirements. These changes are discussed below.1284

As we noted in the Proposing Release, we believe that the items required to be disclosed 

are necessary for investors and us better to understand the circumstances leading to the 

imposition or removal of a liquidity fee or redemption gate, or the decision not to impose one 

despite a reduction in liquidity.1285 We believe such a better understanding will in turn enhance 

the Commission’s oversight of the fund and regulation of money market funds generally,1286 and 

 

initial date on which the fund suspends redemptions. See proposed (Fees & Gates) Form N-CR Part F. 

Finally, if a fund (except any government money market fund that has chosen to rely on the proposed (Fees 

& Gates) rule 2a-7 exemption) that has imposed a liquidity fee and/or suspended the fund’s redemptions 

pursuant to proposed (Fees & Gates) rule 2a-7(c)(2) determines to remove such fee and/or resume fund 

redemptions, we proposed to require funds to disclose, as applicable, the date on which the fund removed

the liquidity fee and/or resumed fund redemptions. See proposed (Fees & Gates) Form N-CR Part G.

1283 See Form N-CR Parts E, F, and G. We note that a fund would file a new Part E filing of Form N-CR if it 

were to change the size of its liquidity fee after its initial imposition. Observers will also be able to 

determine the duration of any gate by comparing initial filings of Part F (suspension of redemptions) with 

filings of Part G (lifting of such suspensions). 

1284 Also see infra note 1313 for a discussion of our related conforming changes and clarification to Form NCR. 

1285 See Proposing Release, supra note 25, at text following n.719. 

1286 For example, by knowing the reason(s) for why a board imposed a liquidity fee or gate, we expect to be 

able to better understand the potential cause(s) that led to a fund experiencing stress, which could inform 

our determination as to whether further regulatory or other action on our part is warranted. 
400

could inform investors’ decisions to purchase shares of the fund or remain invested in the 

fund.1287

a. Board Disclosures

A number of commenters objected to the proposed requirement that funds provide a 

“short discussion of the board of director’s analysis supporting its decision” 1288 whether or not to 

impose liquidity fees or when imposing redemption gates.1289 Many of these commenters raised 

concerns that the disclosures might chill deliberations among board members, hinder board 

confidentiality and encourage opportunistic litigation.1290 More generally, commenters also 

challenged the materiality or usefulness of the board disclosures to investors.1291 For example, 

one commenter stated that although “whether the fund is imposing a liquidity fee or suspending 

redemptions” would be material, the board’s underlying analysis would not be.

1292 Some 

commenters also expressed concern that such disclosure would set a precedent for board 

 1287 Government money market funds which are not subject to our fees and gates requirements and which have 

not opted to apply them are exempt from the reporting requirements of parts E, F, and G of Form N-CR.

1288 See proposed (Fees & Gates) Form N-CR Item E.4 and Item F.4. 

1289 See, e.g., Dreyfus Comment Letter; Legg Mason & Western Asset Comment Letter; MFDF Comment 

Letter; NYC Bar Committee Comment Letter; SIFMA Comment Letter. 

1290 See, e.g., Dreyfus Comment Letter (noting that “[t]his analysis will implicate significant amounts of 

confidential information, including the identity of shareholders and future expectations about investment 

flows.”); NYC Bar Committee Comment Letter (noting that this “disclosure would subsequently be 

reviewed with the benefit of hindsight and could be used against the board and the fund in the sort of 

opportunistic litigation that follows any financial crisis.”); Legg Mason & Western Asset Comment Letter; 

MFDF Comment Letter; Stradley Ronon Comment Letter. In addition, one commenter stated that 

“[o]utside of the advisory contract approval process, for which there is a statutory basis under Section 15(c) 

of the 1940 Act, the Commission has respected the confidentiality of board deliberations and findings that 

are recorded in board minutes.” See Dreyfus Comment Letter. 

1291 See, e.g., Legg Mason & Western Asset Comment Letter; NYC Bar Committee Comment Letter; Stradley 

Ronon Comment Letter; SIFMA Comment Letter.

1292 See Legg Mason & Western Asset Comment Letter. 
401

disclosures in other contexts.1293

We appreciate these concerns, but we believe that the imposition of a fee or gate is likely 

to be a very significant event for a money market fund1294 and information about why it was 

imposed may prove pivotal to shareholders, many of whom may be evaluating their investment 

decision in the money market fund at that time.1295 Accordingly, as discussed in the Proposing 

Release, we continue to believe that shareholders have a strong interest in understanding why a 

board determined to impose (or not to impose) a liquidity fee or gate.1296 For example, this 

information may enable investors to better understand the events that are affecting and 

potentially causing stress to the fund.1297 This information may also permit investors to confirm 

that the board is, as our rule requires, acting in the best interests of the fund.1298 And given that 

 1293 See, e.g., SIFMA Comment Letter (stating that “a requirement to disclose the board’s analysis that is 

otherwise memorialized in fund minutes is unique, outside of advisory contract approval. We oppose 

setting a precedent that could imply that board analysis must be publicly disclosed for each important 

decision made for a fund.”); MFDF Comment Letter; Dreyfus Comment Letter.

1294 Our conclusion that the imposition of a fee or gate may often be a significant event for a money market 

fund is supported by the view of many commenters that the imposition of a fee or gate could have 

significant implications for a fund that takes this step and that investors may engage in heavy redemptions 

after a fee is imposed or a gate is lifted. See, e.g., supra notes 189 and 190 and accompanying text. 

1295 We note that disclosure of board reasoning is not uncommon in context where shareholders may be 

evaluating their investment decision, such as when a fund engages in a merger or acquisition. In those 

circumstances, a fund board usually provides a recommendation to shareholders and the reasons for their 

recommendation. C.f., e.g., Independent Directors Council, BOARD CONSIDERATION OF FUND MERGERS, 

(June 2006), available at http://www.idc.org/pdf/ppr_idc_fund_mergers.pdf (“Directors typically explain 

the reasons for their decision to recommend that shareholders approve a merger in the fund’s proxy 

statement.”). We note that mergers and acquisitions can also be the subject of litigation and nevertheless 

board disclosure of their primary reasons for their recommendation is commonplace.

1296 See Proposing Release, supra note 25, at section III.G.2.

1297 Cf., e.g., MFDF Comment Letter (acknowledging that “[d]epending on the situation, fund investors may 

well have an interest in better understanding the circumstances that led to the imposition of redemption fees 

or gates.”). 

1298 See, e.g., ABA Business Law Section Comment Letter (with respect to the liquidity fees and gates 

proposal, stating that the “Commission would assign the money market fund’s board of directors 

substantial new responsibilities over ‘life and death’ decisions in the event of a run on the fund.”). 
402

under our final rules a board can impose a fee or gate as soon as the fund’s weekly liquid assets 

fall below the 30% regulatory minimum (and thus different boards may impose fees or gates at 

different times), investors’ interest in understanding the board’s reasoning is likely to be even 

more important.1299 For these reasons, we believe this disclosure will convey material 

information to those investors who are considering whether to redeem their shares in response to 

a fee or gate. 

With respect to concerns that the board disclosures set a precedent implying that the 

reasoning underlying every other important decision taken by the board should be similarly 

disclosed,

1300 we disagree. As discussed in section II.A, ready access to liquidity is one of the 

hallmarks that has made money market funds popular cash management vehicles for both retail 

and institutional investors. Because liquidity fees and redemption gates could affect this core 

feature by potentially limiting the redeemability of money market fund shares under certain 

conditions,

1301 we believe the decision whether to impose those measures is sufficiently different 

in kind from most other significant decisions a board could make that the disclosures required by 

the rule would not be a precedent for broadly requiring the disclosure of boards’ rationales in 

other contexts.

In addition, we have amended this disclosure requirement to address some of the 

commenters’ concerns, while still eliciting useful information for the Commission and investors. 

More specifically, we are revising Form N-CR to require disclosure of a brief discussion of the 

 1299 See supra section III.A.1.b.iii.

1300 See discussion of SIFMA Comment Letter at supra note 1293. 

1301 See supra section III.A.1.b.iii. See also supra notes 196-199 and the accompanying text for a discussion of 

commenters’ concerns of the potentially detrimental effects of a liquidity fee or gate. 
403

“primary considerations or factors taken in account by the board of directors in its decision” to 

impose or not impose a liquidity fee or gate.1302 One commenter suggested we make a similar 

change, requiring disclosure of “a list of material factors considered by the board in making its 

determination.”1303 Rather than just a list of material factors, however, we believe it important 

that funds provide a more substantive, but brief, discussion of the primary considerations or 

factors taken in account by the board, so that our staff and investors better understand why the 

board determined they were important. This report would not need to include every factor 

considered by the board, only the most important or primary ones that shaped the determination 

of the board’s action. This should help alleviate commenters’ concerns that funds would need to 

provide lists of all possible factors or dissect a board’s internal deliberations. Instead, we would 

expect only a description of the primary considerations or factors leading to the action taken by 

the board, and a brief discussion of each. 

That said, we caution that in preparing these board disclosures, funds should avoid 

“boilerplate” summaries of all possible factors in addition to or in lieu of a more substantive 

narrative.1304 Instead, filers generally should provide information that is tailored to their fund’s 

particular situation and the context in which their board’s decision was made. In preparing these 

filings, funds should consider discussing present circumstances as well as any potential future 

risks and contingencies to the extent the board took them into account. We also note that we 

 1302 See Form N-CR Part E.6 and Part F.4. 

1303 See NYC Bar Committee Comment Letter. 

1304 Cf., e.g., SIFMA Comment Letter (stating that the discussion of the board’s analysis “will likely be tailored 

to preempt shareholder plaintiffs’ counsel who might target boards for liability in connection with their 

decisions.” which “... may encourage lengthy, but not necessarily useful, disclosure.”).
404

provided a non-exhaustive list of possible factors that a board may have considered in imposing 

a liquidity fee or gate in section III.A.2.b above.1305

Another commenter argued that the board disclosures themselves might incite widespread 

redemptions, particularly where the board considered but chose not to impose a liquidity fee.1306 

As discussed in section III.A.1.c above, we acknowledge the possibility that the prospect of a 

liquidity fee or gate may cause pre-emptive redemptions, but we believe that several aspects of 

our final reforms both make pre-emptive runs less likely and substantially mitigate their broader 

effects if they occur. In addition, we believe disclosure of a board’s reasoning is particularly

important in times of stress in order to mitigate against investor flight to transparency that might 

otherwise occur.1307

Finally, we received comments discussing concerns about potentially duplicative 

disclosures, in particular the possible redundancy of the board disclosures on a fund’s website as 

well as Form N-CR.1308 However, as already discussed with respect to the various concurrent 

disclosures of financial support in section III.F.3 above, while we are sensitive to commenters’ 

 1305 See supra section III.A.2.b.

1306 See Federated V Comment Letter. But cf., e.g., American Bankers Ass’n Comment Letter (arguing that the 

disclosures of Form N-CR more generally will decrease redemption risk by heightening self-discipline at 

funds). 

1307 Moreover, with respect to a fund whose weekly liquid assets have dropped below 10%, we might be 

concerned that such a fund may imminently become unable to meet redemptions. Such a relative lack of 

liquidity at one fund could also be an indicator of larger effects that might spread to other funds. Either 

scenario may raise concerns that further action by the Commission is warranted. However, if the particular 

fund’s board waived the liquidity fee, the related disclosure thereof (e.g., because the drop in liquidity is 

temporary and only related to the particular fund) could inform our determination that no further action by 

the Commission would be required. 

1308 See Dreyfus Comment Letter. See also, generally, SIFMA Comment Letter (noting that the “fund’s actions 

and the triggering event for the Form N-CR filing may require prospectus disclosure or notification to the 

Commission under other rule provisions, so that in many cases the Form N-CR filing will be duplicative of 

existing disclosure and notice requirements.”). 
405

concerns about duplication, we believe it appropriate given the different audiences and uses for 

such information.1309

b. Conforming and Related Changes

As discussed earlier, the final amendments lower the weekly liquid asset threshold for 

triggering the default liquidity fee from 15% to 10% of total assets, and accordingly, we are 

making corresponding changes that would require reporting under Form N-CR at the lower 

weekly liquid asset threshold.1310 In addition, in a change from the proposal, the final 

amendments permit money market fund boards to institute a liquidity fee or impose a gate at any 

time once weekly liquid assets fall below 30% if they find that doing so is in the best interests of 

the fund.1311 We are therefore amending Form N-CR to reflect these changes.1312 We are making 

certain additional changes to Form N-CR for clarity and to be consistent with our final 

amendments to the liquidity fees and gates requirement.1313 Accordingly, under the revised 

 1309 See discussion following supra notes 1248 and 1249 and accompanying text.

1310 See supra section III.A.2.a.ii; see also, Form N-CR Part E, (where applicable, now referencing 10% instead 

of 15% of weekly liquid assets). 

1311 See supra section III.A.2. 

1312 See Form N-CR Parts E and F. 

1313 In particular, for clarity, in the introduction to Part E we now define any affected fund as “a fund (except a 

government money market fund that is relying on the exemption in rule 2a-7(c)(2)(iii))” as opposed to “a 

Fund (except any Fund that is subject to the exemption provisions of rule 2a-7(c)(2)(iii) and that has chosen 

to rely on the rule 2a-7(c)(2)(iii) exemption provisions” as proposed. See proposed (Fees & Gates) Form 

N-CR Part E, Introduction. Similarly, for clarity and because of fund’s additional flexibility under our final 

amendments to the liquidity fees and gates requirement, in the introduction to Part F we now simply refer 

to “fund” as opposed to “a Fund (except any Fund that is subject to the exemption provisions of rule 2a7(c)(2)(iii) and that has chosen to rely on the rule 2a-7(c)(2)(iii) exemption provisions) that has invested 

less than fifteen percent of its Total Assets in weekly liquid assets (as provided in rule 2a-7(c)(2)).” In 

addition, we received no comments on Part G of Form N-CR (requiring reporting when a liquidity fee or 

redemption gate is removed) and are adopting it unchanged from the proposal. See Form N-CR Part G. 

However, in the Proposing Release, the introduction to Part G contained a parenthesis specifying that 

certain exempt funds are not subject to Part G. See proposed (FNAV) Form N-CR Part G; proposed (Fees 

& Gates) Form N-CR Part G. Because we no longer consider this parenthesis to be necessary, we have 
406

reporting standard, Parts E and/or F of Form N-CR must be filed: (i) when a fund, at the end of a 

business day, has invested less than 10% of its portfolio in weekly liquid assets and is required to 

impose a liquidity fee (unless the board determines otherwise), or (ii) when a fund voluntarily 

imposes a liquidity fee or redemption gate any time it has invested less than 30% of its portfolio 

in weekly liquid assets.1314 

In addition, revised Form N-CR includes a new requirement that funds report their level 

of weekly liquid assets at the time of the imposition of fees or gates.1315 We believe this new 

requirement will allow the Commission and investors to better track and understand funds’ 

liquidity levels when boards impose a fee or gate using their discretion, which we expect will

enhance the Commission’s and investors’ ability to evaluate the extent to which a fund is 

experiencing stress as well as the context in which the board made its decision. Similarly, 

because we are revising the default liquidity fee from the proposed 2% to 1%, and thus we 

expect that there may be instances where liquidity fees are above or below the default fee (rather 

 

deleted it in the final amendments to enhance the clarity of the instructions of Part G.

1314 See Form N-CR Part E, clauses (i) and (ii) of the Introduction (generally triggering disclosure under Part E 

of Form N-CR if a non-exempt fund (i) at the end of a business day, has invested less than 10% of its total 

assets in weekly liquid assets, or (ii) has invested less than 30% of its total assets in weekly liquid assets 

and imposes a liquidity fee pursuant to rule 2a-7(c). Correspondingly, we are also adding “if applicable” to 

Item E.1 (requiring disclosure of the initial date on which the fund invested less than 10% of its total assets 

in weekly liquid assets, if applicable), and amending Item E.5 (requiring a brief description of the facts and 

circumstances leading to the fund’s investing in the amount of weekly liquid assets reported in Item E.3). 

See Form N-CR Items E.1, E.3 and E.5.

1315 Form N-CR Items E.3 and F.1. In the Proposing Release we did not explicitly require funds to disclose 

their size of weekly liquid assets at the time of the imposition of fees or gates, given that as proposed funds 

could only impose a fee or gate once they crossed the 15% weekly liquid asset threshold. Proposed (Fees 

& Gates) Form N-CR Parts E and F. Item F.1 as originally proposed required disclosure of the initial date 

on which the fund invested less than 15% in weekly liquid assets. See proposed (Fees and Gates) Form NCR Item F.1. Today we are not requiring an analogous disclosure of the initial date on which the fund 

invested less than 10% in weekly liquid assets, because this threshold does not have any impact on the 

imposition of a gate and, in any event, would be disclosed in Item E.1.
407

than just lower as permitted under the proposal), we are requiring that funds disclose the size of 

the liquidity fee, if one is imposed.1316 In particular, we expect the particular size of the liquidity 

fee to be highly relevant to an investor determining whether to redeem fund shares, as it has a 

direct impact on the particular costs that such a shareholder would have to bear for redeeming 

fund shares. These changes are closely tailored to our final amendments to the liquidity fees and 

gate requirement, which we expect will enhance the quality and usefulness of Form N-CR to the 

Commission and investors.

6. Part H: Optional Disclosure

We are also adopting a new Part H in Form N-CR which allows money market funds the 

option to discuss any other events or information that they may wish to disclose. We intend new 

Part H to clarify and expand the scope and range of formats of any additional information that a 

fund may wish to provide. In particular, we are adopting Part H to address commenter concerns 

that the information provided in the other parts of Form N-CR may become outdated or lack 

context.1317 We believe that this new optional disclosure could address some of these concerns. 

This optional disclosure is intended to provide money market funds with additional 

flexibility to discuss any other information not required by Form N-CR, or to supplement and 

clarify other required disclosures.1318 This optional disclosure does not impose on money market 

 1316 See Form N-CR Item E.4. 

1317 For example, one commenter cautioned “in a rapidly changing environment, the reasons for which the 

board acted may well change within a period of four days or significant amounts of additional information 

may be available to the fund and its board. In this context, a filing requirement focused on a prior decision 

risks inadvertently misleading fund investors and others about the state of the fund’s operations.” See

MFDF Comment Letter.

1318 See Form N-CR Item H.1, Instructions.
408

funds any affirmative obligation. Rather, this is solely intended as a discretionary forum where 

funds, if they so choose, can disclose any other information they deem helpful or relevant. In 

addition, although we expect that funds would typically file Part H along with a filing under 

another part of Form N-CR, we are not imposing any particular deadline for these filings, and 

thus a fund may file an optional disclosure on Part H of Form N-CR at any time. 

7. Timing of Form N-CR

We are requiring initial filings of Form N-CR to be submitted within one business day of 

the triggering event, and in some cases, requiring a follow-up amendment with additional detail 

to be submitted four days after the event with some modifications from the proposal. A number 

of commenters requested additional time for Form N-CR filings, expressing concern over the 

timing requirements for specific items of Form N-CR,1319 as well as objecting to the timing 

requirements more generally.1320 For example, one commenter recommended that the filing 

deadline for the initial filing be extended from one to three business days and the follow-up filing 

from four to seven business days.1321 Commenters argued that providing additional time would 

 1319 See, e.g., Fidelity Comment Letter, Schwab Comment Letter.

1320 Commenters proposed a range of alternative deadlines. See, e.g., SSGA Comment Letter (generally extend 

time frame), Dechert Comment Letter (extend one-day filing deadline from 5:30pm to 10pm on the next 

business day), Schwab Comment Letter (four business days for filings related to a default or insolvency 

under Part B of Form N-CR), Dreyfus Comment Letter (2-3 day time frame), Stradley Ronon Comment 

Letter (seven business days for certain items), SIFMA Comment Letter (three and seven business days 

respectively for the initial and follow-up filings), IDC Comment Letter (two weeks for the second filing). 

Others proposed moving parts of Form N-CR to other annual or periodic reports altogether. See, e.g.,

MFDF Comment Letter (move the discussion of the circumstances that led to a fee or gate to a new annual 

management discussion of fund performance.), NYC Bar Committee Comment Letter (proposing to revise 

and move the discussion of the board’s analysis to the report to shareholders covering the relevant period). 

1321 SIFMA Comment Letter.
409

permit funds to ensure that filings are prepared accurately and thoughtfully1322 while also better 

enabling fund personnel to prioritize other exigent matters during times of crisis.1323 They also 

argued that it may not be feasible or may be extremely costly for a fund in times of crisis to 

formulate within one business day the actions it may take in response to an event of default and 

prepare a corresponding description, as required under the proposal.1324 We are not changing the 

filing deadlines of Form N-CR. The Commission and shareholders have a significant interest in 

knowing about the events reported on Form N-CR as soon as possible, to be able to effectively 

monitor events and to respond as necessary. We believe the longer reporting periods or entirely 

alternative reporting format (such as periodic reports, which might not be filed until significantly 

later) as proposed by commenters would frustrate the intent of Form N-CR in alerting the 

Commission, investors and other market observers about such important events in a timely and 

meaningful manner.

We appreciate commenters’ concerns, however, and to help ease the filing burden we are 

revising Form N-CR to move certain disclosures in Items B, C and D that may take longer to 

prepare from the initial filing due within a single day to the follow-up filing due in four business 

 1322 See, e.g., SIFMA Comment Letter; IDC Comment Letter, SSGA Comment Letter, Stradley Ronon 

Comment Letter, MFDF Comment Letter.

1323 See SIFMA Comment Letter. See also, e.g., Dreyfus Comment Letter.

1324 See, e.g., Schwab Comment Letter (noting that “[s]ome of the requested information can be provided in one 

business day, such as the securities affected, the date or dates on which the default or event of insolvency 

occurred, the value of the affected securities, and the percentage of the fund’s total assets represented by 

the affected security. But we believe it is unreasonable to require a fund’s board to determine in a single 

day what actions it should take in response to the event.”). Commenters also noted that it may be 

extremely costly to provide some of the reported information in a single business day. See, e.g., Fidelity 

Comment Letter (stating that “[i]t would be difficult for MMFs to produce validated data ready for public 

dissemination within one business day .... Further, providing data within a short timeframe would come at 

an estimated cost of $300,000-$500,000 [...].”).
410

days.1325 In particular, the items moved to the follow-up filing are the description of actions the 

fund plans to take, or has taken, in response to a default (Item B.5), the explanation for the 

reasons and terms of any financial support provided (Item C.8), the term of any financial support 

provided (Item C.9), the brief description of any contractual restrictions relating to any financial 

support (Item C.10), and the principal reason or reasons for a decline in a fund’s shadow price 

(Item D.3).1326 We appreciate commenters’ concerns that disclosures such as these may take 

additional time to prepare.1327 We believe these specific disclosure items may be more labor 

intensive and take longer to prepare because they generally solicit qualitative and analytical 

information, whereas the other items in Parts B through D generally focus more on initially 

alerting the Commission and shareholders about a particular event and other key quantitative 

data.1328 

Reducing the number of items included in the initial filing and moving the more time 

consuming and complicated disclosures to a second filing is designed to help address 

commenters’ concerns about the one-day deadline of the initial filing,

1329 while still ensuring that 

 1325 In particular, filers are required to respond to Items B.5, C.8, C.9, C.10, and D.3 in an amendment to the

initial report within four business days. All other Items in Parts B, C, and D must be disclosed in the initial 

report within one business day. We have made corresponding changes to the instructions to the form. See

Form N-CR Part B, C, D, Instructions. In addition, we have rearranged what used to be proposed Item C.4 

in the Proposing Release to be new Item C.8 in order to better streamline the disclosures required to be 

filed within one business day (Items C.1 through C.7) versus four business days (Items C.8 through C.10). 

See Proposing Release, proposed (Fees & Gates) Form N-CR Item C.4, Form N-CR Item C.8. 

1326 See Fidelity Comment Letter (suggesting “that the SEC simplify the filing requirements for the first 

business day following the event to focus on shareholder notification of the event and key quantitative 

data,” while “providing the remaining qualitative information (proposed Form N-CR Item B.5, C.4, C.9, 

C.10, D.3, E.3, E.4, F.3, F.4) on the second filing.”

1327 See supra note 1324.

1328 Cf. Fidelity Comment Letter.

1329 See, e.g., SIFMA Comment Letter, SSGA Comment Letter, Dreyfus Comment Letter. 
411

the Commission, shareholders and other market observers are provided with these critical alerts 

as quickly as possible. We expect the information filed on the initial report will be sufficient to 

alert the Commission, investors and other interested parties about certain significant events. 

While important, we also believe that the Items we are moving to the follow-up filing of Form 

N-CR may be of less immediate concern to the Commission and shareholders. 

We are not, however, generally changing the one-day deadline of the initial filing,1330 nor 

are we extending the four-day deadline for the follow-up filing of Form N-CR.1331 We are 

concerned that extending the initial filing deadline beyond one business day could substantially 

diminish the informational utility of Form N-CR. The Commission and shareholders have a 

significant interest in knowing about the events reported on Form N-CR as soon as possible, to 

effectively monitor events and respond as necessary. We need this information to be reported 

promptly to effectively monitor money market funds that have come under stress and respond as 

necessary. A longer reporting period would frustrate the intent of Form N-CR in alerting the 

Commission, investors and other market observers about such important events in a timely and 

meaningful manner.1332 

 1330 We have, however, revised the instructions on timing of the one-day deadline of the initial filing in each of 

Parts B through F to conform them to the wording used in the instruction on timing generally in General 

Instruction A. See Form N-CR Part B, C, D, E, F, Instructions. 

1331 We proposed to allow the discussion of the boards’ analysis related to imposing fees or gates be included in 

the follow-up filing, and we are adopting that requirement as proposed, as modified by the amendments to 

the board reporting discussed above. See supra section III.F.5 (Board Disclosures); Form N-CR Item E.5, 

E.6, F.3, F.4. 

1332 For example, if funds were permitted three business days to prepare an initial filing, a fund that experienced 

a portfolio security default on a Friday would not be required to make an initial filing under Part B of Form 

N-CR until just before the close of business the following Wednesday. Depending on the circumstances, 

such a delay could prevent investors from taking into account this disclosure when making an investment 

decision until the next morning on Thursday (such as with respect to potential investors evaluating whether 

to purchase fund shares). Similarly, such a long delay would hinder our ability to effectively monitor 
412

We also remain unpersuaded that the benefits of extending the follow-up filing beyond 

four business days is justified in light of the corresponding reduction in the utility of the 

information reported on Form N-CR to the Commission, shareholders and other market 

observers. Extending the follow-up filing deadline could lead to a prolonged lack of material 

information about the triggering event. Such a delay could hinder investors’ ability to evaluate 

their investments and undermine investor confidence.1333 Furthermore, it could frustrate the 

Commission’s ability to effectively monitor and take any appropriate response with respect to 

money market funds that have come under stress.1334

Because we expect that the information required to be provided in follow-up reports on 

Form N-CR should be readily accessible, we continue to believe four business days should be a 

sufficient amount of time for funds to prepare the report, even in light of the likely competing 

priorities on fund personnel during times of stress. We also recognize that some of the 

preparatory burdens faced by fund personnel could (and likely will)1335 be shifted to legal counsel 

to the extent a fund chooses to engage legal counsel to assist in the drafting of a Form N-CR 

filing. Accordingly, we are adopting a deadline of one business day for an initial report and four 

 

money market funds that have come under stress and respond as necessary (in particular in light of our 

elimination of rule 2a-7(c)(7)(iii)(A), which currently requires money market funds to report defaults or 

events of insolvency to the Commission by email. See supra note 1211).

1333 For example, a prolonged lack of material information may undermine investors’ expectations that they are 

making investment decisions in a transparent market, which may lead to increased market volatility in 

affected money market funds as a result of the relative lack of accurate and timely information.

1334 For example, the Commission has a strong interest in knowing why a fund imposed a fee or gate. 

Depending on whether the reasons for such a gate were unique to the particular fund or related to broader 

market events, further action on the part of the Commission may be required to protect other investors and 

markets. Accordingly, given that the Commission generally needs this information as quickly as possible, 

we do not think the marginal benefits to funds of extending the deadline beyond what we believe to be 

reasonably required to prepare a follow-up filing is justified.

1335 See infra discussion containing note 1376.
413

business days for a follow-up report under Form N-CR.1336 

8. Economic Analysis 

As discussed above and in our proposal,1337 we believe that the Form N-CR reporting 

requirements will provide important transparency to investors and the Commission, and also 

should help investors better understand the risks associated with a particular money market fund, 

or the money market fund industry generally. The Form N-CR reporting requirements will 

permit investors and the Commission to receive information about certain money market fund 

material events consistently and relatively quickly. As discussed above, we believe that 

investors and the Commission have a significant interest in receiving this information in this 

format and with this timing because it will permit investors and the Commission to monitor 

indicators of stress in specific funds or fund groups, as well as the money market fund industry, 

and also to analyze the economic effects of certain material events. The Form N-CR reporting 

requirements will give investors and the Commission a greater understanding of the 

circumstances leading to stress events, and how a fund manages them. We believe that investors 

may find this information to be meaningful in determining whether to purchase fund shares or 

remain invested in a fund. 

However, we recognize that the Form N-CR reporting requirements have operational 

costs (discussed below), and also may result in opportunity costs, in that personnel of a fund that 

has experienced an event that requires Form N-CR reporting may lose a certain amount of time 

 1336 See Form N-CR General Instruction, A; Form N-CR Part B, C, D, E, F, Instructions which specify that 

responses to Items B.5, C.8, C.9, C.10, D.3, E.5, E.6, F.3 and F.4 may be filed within four business days.

1337 See Proposing Release, supra note 25, at section III.G.3.
414

that could be used to respond to that event because of the need to comply with the reporting 

requirement.1338 For example, as discussed with respect to timing in section III.F.7 above, 

commenters argued that providing additional time would permit funds to ensure that filings are 

prepared accurately and thoughtfully1339 while also better enabling fund personnel to prioritize 

other exigent matters during times of crisis.1340 They also argued that it may not be feasible or 

may be extremely costly for a fund in times of crisis to formulate within one business day the 

actions it may take in response to an event of default and prepare a corresponding description, as 

required under the proposal.1341 As discussed in section III.F.7 above, to help ease the filing 

burden we have revised Form N-CR to move certain disclosures that may take longer to prepare 

from the initial filing due within one day to the follow-up filing due in four business days. We 

therefore believe that the final deadlines adopted today for Form N-CR balance the exigency of 

the report with the time and cost it will reasonably take a fund to compile the required 

information.

We believe that the proposed Form N-CR reporting requirements may complement the 

 1338 Various commenters expressed concern that preparing Form N-CR would likely compete with other 

priorities that fund personnel would be handling during a crisis. See, e.g., SIFMA Comment Letter, 

Dreyfus Comment Letter.

1339 See, e.g., SIFMA Comment Letter; IDC Comment Letter, SSGA Comment Letter, Stradley Ronon 

Comment Letter, MFDF Comment Letter.

1340 See SIFMA Comment Letter. See also, e.g., Dreyfus Comment Letter.

1341 See, e.g., Schwab Comment Letter (noting that “[s]ome of the requested information can be provided in one 

business day, such as the securities affected, the date or dates on which the default or event of insolvency 

occurred, the value of the affected securities, and the percentage of the fund’s total assets represented by 

the affected security. But we believe it is unreasonable to require a fund’s board to determine in a single 

day what actions it should take in response to the event.”). Commenters also noted that it may be 

extremely costly to provide some of the reported information in a single business day. See, e.g., Fidelity 

Comment Letter (stating that “[i]t would be difficult for MMFs to produce validated data ready for public 

dissemination within one business day .... Further, providing data within a short timeframe would come at 

an estimated cost of $300,000-$500,000 [...].”).
415

benefits of increased transparency of publicly available money market fund information that 

have resulted from the requirement that money market funds report their portfolio holdings and 

other key information on Form N-MFP each month. The DERA Study noted that the additional 

disclosures that money market funds are required to make on Form N-MFP improve fund 

transparency (although funds file the form on a monthly basis with no interim updates, and the 

Commission currently makes the information public with a 60-day lag).1342 The DERA Study 

also noted that this “increased transparency, even if reported on a delayed basis, might affect a 

fund manager’s willingness to hold securities whose ratings are at odds with the underlying risk, 

especially at times when credit conditions are deteriorating.”1343 Additionally, the availability of 

public, standardized, money market fund-related data that has resulted from the Form N-MFP 

filing requirement has assisted both the Commission and the money market fund industry in 

various studies and analyses of money market fund operations and risks.1344

The Form N-CR reporting requirement should enhance our understanding of the money 

market fund industry that the Commission has gained from analyzing Form N-MFP data by 

providing complementary data and additional transparency about money market funds’ risks on a 

near real-time basis that is not currently available on Form N-MFP. This requirement may, like 

Form N-MFP disclosure, help impose market discipline on portfolio managers1345 and provide 

 1342 See DERA Study, supra note 24, at 31; see also, infra note 1441 and accompanying text (discussing the 

elimination of the 60-day delay in making Form N-MFP information publicly available).

1343 See DERA Study, supra note 24, at 38.

1344 See Money Market Mutual Funds, Risk, and Financial Stability in the Wake of the 2010 Reforms, 19 ICI 

Research Perspective No. 1 (Jan. 2013), at note 29 (noting that certain portfolio-related data points are 

often only available from the SEC’s Form N-MFP report). 

1345 See American Bankers Ass’n Comment Letter (for example, stating that “[k]nowing that any form of 

sponsor support would be required to be disclosed within 24 hours, fund managers would likely do 
416

additional data that would allow investors to make investment decisions, and allow the 

Commission and the money market fund industry to conduct risk- and operations-related 

analyses. 

We believe that the reporting requirements we are adopting today may positively affect 

regulatory efficiency because all money market funds would be required to file information 

about certain material events on a standardized form. This will improve the consistency of 

information disclosure and reporting, and assist the Commission in overseeing individual funds, 

and the money market fund industry generally, more effectively. The requirements also could 

positively affect informational efficiency. This should assist investors in understanding various 

risks associated with certain funds, and risks associated with the money market fund industry 

generally, which in turn should assist investors in choosing whether to purchase or redeem shares 

of certain funds. Currently, funds compete on information provided on a fund’s website and 

Form N-MFP, as well as on more traditional competitive factors such as price and yield. 

Implicitly, investors have also relied on sponsors to step in and support a fund when there is an 

adverse event. However, as we observed with the Reserve Primary Fund, this does not always 

happen. As such, the requirements should positively affect competition because funds may 

compete with each other based on information required to be disclosed on Form N-CR. For 

instance, investors might view a fund that invests in securities whose issuers have never 

experienced a default as a more attractive investment than another fund that frequently files 

reports in response to Form N-CR Part B (“Default or Event of Insolvency of portfolio security 

 

everything they could to avoid needing sponsor support.”).
417

issuer”). However, it is also possible that investors may move their assets to larger fund 

complexes if, based on Form N-CR disclosures, they determine that such fund complexes are 

more likely than smaller entities to provide financial support to their funds. Also, if investors 

move their assets among money market funds or decide to invest in investment products other 

than money market funds as a result of the Form N-CR reporting requirements, this could 

negatively affect the competitive stance of certain money market funds, or the money market 

fund industry generally.

The filing of Form N-CR could have additional effects on capital formation. The 

information filed on Form N-CR could improve capital formation if investors better understand 

that a fund is not sufficiently addressing the cause that led to the Form N-CR filing. One 

commenter1346 suggested that certain Form N-CR disclosures would make money market funds 

more susceptible to heavy redemptions during times of stress. While we acknowledge the 

possibility of pre-emptive redemptions, as discussed in detail above, several aspects of today’s 

amendments are designed to mitigate this risk. In addition, the other reforms we are adopting 

today (such as liquidity fees and redemption gates) will provide some fund managers additional 

tools for managing such redemptions, if they were to occur.1347 Moreover, the additional 

information should assist investors in making a more informed investment decision, which leads 

to improved efficiency and capital formation. Furthermore, commenters have also argued that 

 1346 See, e.g., Federated V Comment Letter (“The goal of reform should be not to have the filing of a Form NCR cause the widespread redemptions the Reform Proposal seeks to avoid.”); Federated VIII Comment 

Letter.

1347 In addition, as discussed in more detail in sections III.F.4 and III.F.5 above, we note that some of our 

responses in section III.A.1.c.i to concerns over pre-emptive run risk related to the liquidity fees and gates 

requirement would similarly apply to run risk concerns with respect to certain specific disclosures in Form 

N-CR. 
418

the proposed Form N-CR disclosures will actually decrease redemption risk by heightening selfdiscipline at funds, which would also increase capital formation.1348 In addition, it is possible 

that investors will react positively to the information on Form N-CR if they feel the fund is 

sufficiently addressing the cause of the Form N-CR filing. For example, as noted in section 

III.F.5, we believe disclosure of a board’s reasoning is particularly important in times of stress in 

order to mitigate against investor flight to transparency that might otherwise occur.

If money market fund investors decide to move all or a substantial portion of their money 

out of the market, this could negatively affect capital formation.1349 On the other hand, capital 

formation could be positively affected if the Form N-CR reporting requirements were to assist 

the Commission in overseeing and regulating the money market fund industry, and the resulting 

regulatory framework would allow investors to more efficiently or more effectively invest in 

money market funds. Additional effects of these filing requirements on efficiency, competition, 

and capital formation would vary according to the event precipitating the Form N-CR filing, and 

they are substantially similar to the effects of other disclosure requirements, as discussed in more 

detail above.1350 

The Commission is unable to measure the quantitative benefits of these requirements 

 1348 See, e.g., American Bankers Ass’n Comment Letter.

1349 For an analysis of the potential macroeconomic effects of our main reforms, see supra section III.K.

1350 We believe that the effects on efficiency, competition, and capital formation of filing Form N-CR in 

response to Part B or C overlap significantly with the effects of the disclosure requirements regarding the 

financial support provided to money market funds. See discussion in supra section III.F. We believe that 

the effects of filing Form N-CR in response to Part D overlap significantly with the effects of the disclosure 

requirements regarding a money market fund’s daily market-based NAV per share. See discussion in supra 

section III.F.4. We believe that the effects of filing Form N-CR in response to Parts E, F, and G overlap 

significantly with the effects of the disclosure requirements regarding current and historical instances of the 

imposition of liquidity fees and/or gates. See supra section III.F.5. 
419

because of uncertainty about how increased transparency may affect different investors’ 

behavior, their understanding of the risks associated with money market funds, and the potential 

effects of the disclosure on market discipline. 

a. Alternatives Considered

As a possible alternative, we could have chosen to not adopt Form N-CR or any of its 

disclosures (as well as any of the corresponding SAI or website disclosures). A variation of this 

alternative would have been to eliminate Form N-CR but adopt the corresponding SAI and/or 

website disclosures. As discussed above, commenters expressed concern about the potential 

redundancy of Form N-CR or parts thereof in light of the corresponding website and SAI 

disclosures.1351 If we did not adopt Form N-CR and/or any of the corresponding SAI and website 

disclosures, affected funds would not incur the additional costs related to Form N-CR that we 

discuss in more detail below.1352 In addition, with respect to the board disclosure requirements in 

Parts E and F for Form N-CR, fund boards would not be concerned about the loss of board 

confidentiality or the possibility of opportunistic shareholder litigation.1353 However, we rejected 

this set of alternatives for a number of reasons, including the following. First, each of the 

disclosures in Form N-CR serves to alert Commission staff, investors, and other market 

observers (such as news services, which in turn may alert investors) about important events in a 

timely manner.1354 Second, as discussed in more detail in section III.F.3 (Concerns over Potential 

 1351 See supra note 1249 and accompanying discussion.

1352 Similarly, if we also had not adopted the corresponding SAI or website disclosures, funds would further not 

incur their related costs previously described. See supra sections III.E.8 and III.E.9.h. 

1353 See our discussion about commenters’ concerns in supra note 1290 and accompanying discussion.

1354 See also supra section III.F.8 for our discussion of the other economic benefits of Form N-CR.
420

Redundancy), although we acknowledge there will be some textual overlap between these 

different forms, we believe each serves a distinct purpose.

1355 Moreover, as discussed in section 

III.F.5 (Board Disclosure) above, we have revised the board disclosure requirements in a number 

of ways in order to minimize any concerns over board confidentiality or opportunistic litigation.

Another alternative suggested by a number of commenters is to extend the deadline for 

filing Form N-CR by up to two weeks. 1356 A variation of this alternative would have been to

move all or certain parts of Form N-CR to other (and typically later) periodic reports. For 

example, one commenter recommended that the board disclosure requirements under Parts E and 

F of Form N-CR “be provided in the report to shareholders covering the relevant period.”1357 

Extending the deadline or moving these disclosures to a later periodic report or other filing could 

lower the cost for funds since funds may have additional cost due to the short time period to 

prepare the initial filings within one day and the follow-up within four days. Such additional 

preparation time may also lower opportunity costs for the fund, in that personnel of a fund can 

spend the initial time responding to the event that requires Form N-CR reporting rather than 

filing the Form N-CR. However, we rejected this set of alternatives because, as discussed above,

in times of market stress the purpose of Form N-CR is to alert the Commission, shareholders and 

other market observers about significant events that affect the fund.1358 If investors feel that they 

will have the necessary information to make an informed decision in times of stress, then this 

 1355 See supra section III.F.3. (Concerns over Potential Redundancy).

1356 See supra note 1320 and accompanying text for a discussion of commenters who proposed extending the 

filings deadlines.

1357 NYC Bar Committee Comment Letter. See, also, e.g., MFDF Comment Letter (move the discussion of the 

circumstances that led to a fee or gate to a new annual management discussion of fund performance.).

1358 For example, see also our related discussion in supra notes 1329-1333 and the accompanying text.
421

may lead to additional capital for funds. Likewise, we also believe that having the initial filing 

within one business day and the follow-up within four business days may lead to more market 

discipline among funds, resulting in increased investor willingness to participate in this market, 

which could also lead to additional capital for funds.

We also considered making the definition of financial support subject to a specific 

threshold or general materiality qualification, such as a specific drop in the NAV or liquidity.1359 

For example, such a threshold might apply if a fund’s NAV drops by more than 1⁄4 of 1 percent 

and the sponsor’s investment in the fund causes the fund’s NAV to recover. We rejected this 

alternative for several reasons. First, some types of sponsor support like a sponsor support 

agreement or a performance guarantee, which is included in the definition, does not necessarily 

or immediately result in a change in NAV or liquidity. Second, it is possible that sponsors would 

provide financial support to their funds before reaching the particular threshold, thereby avoiding 

the reporting requirement. As one commenter stated, “[k]nowing that any form of sponsor 

support would be required to be disclosed within 24 hours, fund managers would likely do 

everything they could to avoid the need for sponsor support.”1360

We also considered various other refinements that specifically related to one of the 

particular disclosure items in Form N-CR, such as commenters’ proposal to increase the 

deviation in the NAV triggering a report on Part D of Form N-CR from 0.25% to 0.5%.1361 We 

generally consider and address these other suggestions in our discussion of the final amendments 

 1359 See, e.g., T. Rowe Price Comment Letter.

1360 See American Bankers Ass’n Comment Letter.

1361 See supra note 1276.
422

above.

b. Operational Costs: Overview

The operational costs of filing Form N-CR in response to the events specified in Parts B 

though H of Form N-CR are discussed below.1362 Our estimates of operational costs below 

generally reflect the costs associated with an actual filing of Form N-CR. We continue to expect 

that the operational costs to money market funds to report the new information will generally be 

the same costs we discuss in the Paperwork Reduction Act analysis in section IV.D.2.a below.1363

We recognize that there could also be some advance discussions and preparation within 

the industry and at money market funds about having the necessary monitoring systems and 

controls in place to detect relevant issues immediately, escalate them quickly and get the form 

approved and filed. While we acknowledge these potential additional costs, we are unable to 

estimate them with any specificity,1364 largely because we do not have the necessary information

on how prepared funds may already be or how much advance preparation is needed in regards to 

filing a report in Form N-CR. For example, because certain disclosures such as Part B and C of 

 1362 These costs incorporate the costs of responding to Part A (“General information”) of Form N-CR. We 

anticipate that the costs associated with responding to Part A will be minimal, because Part A requires a 

fund to submit only basic identifying information.

1363 As discussed in more detail in infra section IV.D.2.a, we have revised our cost estimates associated with 

filing a report with respect to each Part of Form N-CR. The Proposing Release originally estimated that a 

fund would spend on average approximately 5 burden hours and total time costs of $1,708 to prepare, 

review, and submit a report under any Part of Form N-CR. See Proposing Release, supra note 24, at 

nn.1203 and 1204 and accompanying text. This resulted in a total annual burden of approximately 301 

burden hours and total annual time costs of approximately $102,765 under the floating NAV alternative 

and approximately 341 burden hours and total annual time costs of approximately $116,429 under the 

liquidity fees and gates alternative. See Proposing Release, supra note 25, at nn.1113 and 1205 and 

accompanying text.

1364 No commenters provided concrete cost estimates specifically in regards to these potential preparatory costs. 

For a more general discussion of commenters’ comments on the burdens of Form N-CR, see, e.g., supra

note 1363 and III.F.8. 
423

Form N-CR will in part replace existing email notification requirements,1365 we expect that many 

funds may already be prepared to detect and respond to these particular items. Moreover, in 

particular with respect to the disclosures about any liquidity fee or gate on Parts E through G of 

Form N-CR, we question the extent to which any advance preparation would be useful in light of 

the highly fact-specific nature of these disclosures.1366 Accordingly, some funds may engage in 

very little or no advance preparation. In addition, we believe that most (if not all) preparational

costs related to an event reportable on Parts E through G of Form N-CR, such as planning 

appropriate processes for the consideration of a liquidity fee or gate by the board, are more 

directly attributable to the liquidity fees and gates requirement itself,1367 rather than the 

corresponding disclosure requirement on Form N-CR.1368

As discussed in sections III.F.2 – III.F.6 above, we are making a number of changes in 

our final amendments, a number of which we expect to impact the costs associated with filing a 

report on Form N-CR.1369 For example, with respect to Parts B, C and D, we are now permitting 

filers to split their response into an initial and follow-up filing,1370 similar to what we had already 

proposed for Parts E and F in the Proposing Release. Accordingly, in addition to our new 

estimate for Part H, we are updating and providing a more nuanced estimate of the costs 

 1365 See supra notes 1211 and 1213.

1366 For similar reasons, our cost estimates in the PRA analysis in infra section IV.D.2 generally presume no 

particular advance preparation when preparing a filing on Form N-CR.

1367 See, e.g., SIFMA Comment Letter (estimating costs of implementing the ability to impose liquidity fees 

and gates).

1368 See supra section III.A.1.

1369 See supra sections III.F.2 – III.F.6 for a more detailed discussion of each of our final amendments.

1370 See supra section III.F.7.
424

associated with filing a report with respect to each of Parts B through G of Form N-CR.

In updating our estimates, we also considered comments about the operational costs 

related to Form N-CR. One commenter estimated that requiring disclosure of certain Items in 

Form N-CR within one business day could cost $300,000 to $500,000.1371 However, our final 

amendments incorporate this commenter’s proposed solution by shifting Items B.5, C.4, C.9, 

C.10, and D.3 from the initial filing to the follow-up filing.1372 Because today’s amendments 

permit funds to file a response to these Items within four business days instead of just one 

business day, we expect the costs of filing Form N-CR to be notably less than what this 

commenter originally estimated.1373 Although we received no other specific cost estimates from 

commenters with respect to Form N-CR, we also took into account commenters’ general 

concerns and suggestions about the timing and various costs and burdens of Form N-CR. 1374 For 

example, we noted that commenters particularly cited the burdens and the role of the board in 

drafting and reviewing the board disclosures in Parts E and F.1375 

 1371 See Fidelity Comment Letter (stating that “[i]t would be difficult for MMFs to produce validated data ready 

for public dissemination within one business day, particularly for items such as B.5, C.4, C.9, and C.10. 

Providing quantitative data within one business day would not only call for the coordination of information 

and its sources, but also its review and verification to ensure accuracy and completeness. Accordingly, we 

do not believe that this strict filing deadline is operationally feasible. Further, providing data within a short 

timeframe would come at an estimated cost of $300,000-$500,000, without factoring in the costs of 

ongoing compliance and filing, all of which greatly exceeds the SEC’s estimated cost of $1,700 and five 

hours to prepare and review information.”).

1372 See supra note 1326 and accompanying text.

1373 We are generally unable, however, to fully evaluate the basis or validity of this commenter’s cost estimate, 

as we do not have all the data or assumptions on which this commenter’s estimate is based. See supra note 

1324 and accompanying text; Fidelity Comment Letter.

1374 See, e.g., Dreyfus Comment Letter, Federated VIII Comment Letter, Legg Mason & Western Asset 

Comment Letter, MFDF Comment Letter.

1375 See, e.g., IDC Comment Letter (“Any public disclosure about a board’s decision-making process would 

require careful and thoughtful drafting and multiple layers of review (by board counsel, fund counsel, and 

the directors, among others).”); Stradley Ronon Comment Letter; SIFMA Comment Letter.
425

We also updated our estimates to reflect the likelihood that some funds may engage legal 

counsel to assist with the drafting and review of Form N-CR, by which they would incur 

additional external costs. For example, as noted above, commenters cited the particular burdens 

and the role of various parties in drafting and reviewing the board disclosures in Parts E and 

F.1376 In addition, given commenters’ concern about timing as noted in section III.F.7, we take 

these various concerns to be an indicator that some funds may engage legal counsel. 

Accordingly, we estimate, in particular with respect to the follow-up reports under Parts B 

through F as well as any reports on Part H, that certain funds will engage legal counsel to assist 

with the drafting and review of Form N-CR, thereby incurring additional external costs.1377 

c. Operational Costs of Part B: Default Events

As noted in the Proposing Release,1378 we have estimated that the costs of filing a report 

in response to an event specified on Part B of Form N-CR will be higher than the costs that 

money market funds currently incur in complying with the rule 2a-7 provision which currently 

requires money market funds to report defaults or events of insolvency to the Director of 

Investment Management or the Director's designee by e-mail.1379 

In updating our estimates for Part B of Form N-CR, we estimate the costs of filing and 

 1376 See id.

1377 See infra note 2386 and accompanying discussion. 

1378 See Proposing Release, supra note 25, at n.730 and accompanying text.

1379 The requirements of current rule 2a-7(c)(7)(iii)(A) and the requirement of Part B of Form N-CR are 

substantially similar, although Part B on its face specifies more information to be reported than current rule 

2a-7(c)(7)(iii)(A). However, we understand that funds disclosing events of default or insolvency pursuant 

to current rule 2a-7(c)(7)(iii)(A) already have historically reported substantially the same information 

required by Part B. As noted, we are eliminating the existing email notification requirements in rule 2a-7 

and are replacing it with the notification requirements of Form N-CR. See supra note 1211. We discuss 

the impact on costs of this elimination in sections III.F.8 and III.N.3. 
426

amending the report in response to an event specified on Part B of Form N-CR to include time 

costs of $4,830 and external costs of $1,000, for total costs of $5,830 for each set of initial and 

follow-up reports,1380 and we expect, based on our estimate of the average number of 

notifications of events of default or insolvency that money market funds currently file each year, 

that the Commission would receive approximately 20 such filings per year.1381 Therefore, we 

expect that the annual costs relating to filing a report on Form N-CR in response to an event 

specified on Part B would be $116,600.1382 

d. Operational Costs of Part C: Financial Support

In addition to the general discussion above, in updating our estimate for Part C we also 

considered certain changes from the proposal specifically related to Part C of Form N-CR,1383 

most notably our changes to the definition of financial support,1384 which we estimate will impact 

the frequency of filings on Part C of Form N-CR. As we noted in the Proposing Release,1385 we 

have estimated the costs of filing a report in response to an event specified on Part C of Form 

N-CR in part by reference to the costs that money market funds currently incur in complying 

 1380 The costs associated with filing Form N-CR in response to an event specified on Part B of Form N-CR are 

paperwork-related costs and are discussed in more detail in infra section IV.D.2.b.

1381 The Commission estimates this figure based in part by reference to our current estimate of an average of 20 

notifications to the Commission of an event of default or insolvency that we previously estimated money 

market funds to file pursuant to current rule 2a-7(c)(7)(iii) each year. See Submission for OMB Review, 

Comment Request, Extension: Rule 2a-7, OMB Control No. 3235-0268, Securities and Exchange 

Commission 77 FR 236 (Dec. 7, 2012). We believe that this estimate is likely to be high, in particular 

when markets are not in crisis as they were during 2008 or 2011. However, we are continuing to use this 

higher estimate to be conservative in our analysis. 

1382 These estimates are based on the following calculations: $5,830 (cost per complete filing) x 20 filings per 

year = $116,600 per year. See supra notes 1380 and 1381 and accompanying text.

1383 See supra section III.F.3. (Definition of Financial Support).

1384 See supra section III.F.3 and note 1242.

1385 See Proposing Release, supra note 25, at paragraph following n.733.
427

with the rule 2a-7 provision that requires disclosure to the Director of Investment Management 

or the Director's designee by e-mail when a sponsor supports a money market fund by 

purchasing a security in reliance on rule 17a-9.1386 However, because Part C of Form N-CR is 

more extensive and defines “financial support” more broadly than the current requirements, we 

expect that the costs associated with filing a report in response to a Part C event would be higher 

than the current estimated costs of compliance with the current notification requirement.1387 

In updating our proposed estimates for Part C of Form N-CR, we estimate the costs of 

filing and amending the report in response to an event specified on Part C of Form N-CR to 

include time costs of $6,660 and external costs of $1,400, for total costs of $8,060 for each set of 

initial and follow-up reports,1388 and we expect, based in part by reference to our estimate of the 

average number of notifications of security purchases in reliance on rule 17a-9 that money 

market funds currently file each year, that the Commission would receive approximately 301389

such filings per year.1390 Therefore, we expect that the annual costs relating to filing a report on 

Form N-CR in response to an event specified on Part C would be $241,800.

1391

 1386 Current rule 2a-7(c)(7)(iii)(B). 

1387 As previously noted, we are eliminating the existing email notification requirements in rule 2a-7 and are 

replacing it with the notification requirements of Form N-CR. See supra note 1213. We discuss the impact 

on costs of this elimination in sections III.F.8 and III.N.3.

1388 The costs associated with filing Form N-CR in response to an event specified on Part C of Form N-CR are 

paperwork-related costs and are discussed in more detail in infra section IV.D.2.c. 

1389 In the Proposing Release, we originally estimated 40 filings per year under Part C of Form N-CR. See

Proposing Release, supra note 25, at n.735 and accompanying text. As discussed in supra section III.F.3, 

today we are adopting certain exclusions from the definition of financial support that will narrow the 

definition to a certain degree. Correspondingly, in anticipation of a slight reduction in instances that meet 

the definition as amended today, we predict an estimated 30 filings per year under Part C of Form N-CR.

1390 See Submission for OMB Review, Comment Request, Extension: Rule 2a-7, OMB Control No. 3235-0268, 

Securities and Exchange Commission [77 FR 236 (Dec. 7, 2012)]. 

1391 These estimates are based on the following calculations: $8,060 (cost per complete filing) x 30 filings per 
428

e. Operational Costs of Part D: Shadow Price Declines

In an event of filing, we continue to believe a fund’s particular circumstances that gave 

rise to a reportable event under Part D would be the predominant factor in determining the time 

and costs associated with filing a report on Form N-CR, in particular with respect to the followup filing amending the initial report.1392 

In updating our proposed estimates for Part D of Form N-CR, we estimate the costs of 

filing and amending the report in response to an event specified on Part D of Form N-CR to 

include time costs of $4,830 and external costs of $1,000, for total costs of $5,830 for each set of 

initial and follow-up reports,1393 and we expect, based in part by reference to our estimate of the 

average number of instances in which the shadow price for a non-institutional money market 

fund has deviated downward by more than 1⁄4 of 1 percent from its stable per share NAV price 

each year, that we will receive approximately 0.3 such filings per year.1394 Therefore, we expect 

that the annual costs relating to filing a report on Form N-CR in response to an event specified 

on Part D would be $1,749.1395

 year = $241,800 per year. See supra note 1388-1390 and accompanying text.

1392 See Proposing Release, supra note 25, at paragraph following n.736.

1393 The costs associated with filing Form N-CR in response to an event specified on Part D of Form N-CR are 

paperwork-related costs and are discussed in more detail in infra section IV.D.2.d. 

1394 Our staff has analyzed form N-MFP data from November 2010 to February 2014 and found that only one 

non-institutional fund had a 1⁄4 of 1 percent deviation from the stable $1.00 per share NAV. 1 fund in over 

39 months is equivalent to less than 1 (1 x 12 ÷ 39 = 0.31) funds per year. In the Proposing Release, we 

had estimated 0.167 reports filed per year in respect of Part D. See Proposing Release, supra note 25, at 

n.1205. We revised this estimate to reflect more accurate accounting and updated data.

1395 These estimates are based on the following calculations: $5,830 (cost per complete filing) x 0.3 filings per 

year = $1,749 per year. See supra note 1393 and 1394 and accompanying text.
429

f. Operational Costs of Part E and F: Imposition of Fees and Gates

In addition to the general discussion above, in updating our estimates we also considered 

certain changes from the proposal specifically related to Parts E and F of Form N-CR,1396 most 

notably our changes to the board disclosure requirements1397 and the weekly liquid asset 

thresholds permitting or triggering board consideration of a liquidity fee or gate.1398 Moreover, in 

particular with respect to the board disclosures, we expect that most if not all funds may engage 

legal counsel to assist with the drafting and review of Form N-CR, thereby incurring additional 

external costs. 1399 We have also revised our estimates of the frequency of filings under Parts E 

and F.1400 In an event of filing, we continue to believe a fund’s particular circumstances that gave 

rise to a reportable event under Parts E or F would be the predominant factor in determining the 

time and costs associated with filing a report on Form N-CR, in particular with respect to the 

follow-up filing amending the initial report.1401 

In revising our estimates for Part E of Form N-CR,1402 we estimate the costs of filing and 

amending the report in response to an event specified on Part E of Form N-CR to include time 

 1396 See supra section III.F.5.

1397 See supra section III.F.5. (Board Disclosures). 

1398 See supra section III.F.5. (Conforming and Related Changes). 

1399 For example, commenters cited the particular burdens and the role of the board in drafting and reviewing 

the board disclosures in Parts E and F. See, e.g., IDC Comment Letter (“Any public disclosure about a 

board’s decision-making process would require careful and thoughtful drafting and multiple layers of 

review (by board counsel, fund counsel, and the directors, among others).”); Stradley Ronon Comment 

Letter; SIFMA Comment Letter.

1400 See infra notes 1410-1414 and accompanying text.

1401 See Proposing Release, supra note 25, at paragraph following n.736.

1402 The Proposing Release estimated that a fund would spend on average approximately 5 burden hours and 

total time costs of $1,708 to prepare, review, and submit a report under any Part of Form N-CR, including 

Part E. See Proposing Release, supra note 25, at nn.1203 and 1204 and accompanying text.
430

costs of $10,910 and external costs of $3,600, for total costs of $14,510 for each set of initial and 

follow-up reports.1403 The Proposing Release and the DERA Study analyzed the distribution of 

weekly liquid assets to determine how often a prime fund’s weekly liquid asset percentage fell 

below the 30% and 10% thresholds. The analysis found that on average 6.9 out of 253 prime 

funds, or 2.7% of the funds, had their monthly weekly liquid assets percentages fall below 

30%.1404 This corresponds to 83 funds per year.1405 The analysis also found that on average 0.05 

out of 253 prime funds, or 0.02% of the funds, had their monthly weekly liquid assets 

percentages fall below 10%.1406 This corresponds to 0.6 funds per year.1407 As a result of the new 

reporting requirements, we believe that funds will in general try to avoid having to file Form 

N-CR by keeping their weekly liquid asset percentages above 10%.1408 In addition, of the 83

funds per year that reported a weekly liquid assets value below 30%, it is unclear how many 

would have decided to impose a fee, but we expect it to be lower than 83 funds given that not all 

boards would have likely imposed such a discretionary fee. As such, we expect, based on our 

calculation of the average number of instances in which a fund would breach the 10% and 30% 

weekly liquid asset threshold each year, that the Commission would receive between 0.6 and 83

 1403 The costs associated with filing Form N-CR in response to an event specified on Part E of Form N-CR are 

paperwork-related costs and are discussed in more detail in infra section IV.D.2.e. 

1404 See the table in the Proposing Release, supra note 25, referencing n.384; DERA Study, supra note 24, at 

22.

1405 We estimate 83 funds per year as follows: 6.9 funds per month x 12 months = 83 funds per year.

1406 See the table in the Proposing Release, supra note 25, referencing n.384; DERA Study, supra note 24, at 

22.

1407 We estimate 0.6 funds per year as follows: 0.05 funds per month x 12 months = 0.6 funds per year.

1408 See generally, e.g., SIFMA Comment Letter (“[Some members] believe the existence of the liquidity 

trigger for the fee and gate will motivate fund managers to maintain fund liquidity well in excess of the 

trigger level, to avoid triggering the fee or gate.”);
431

such filings per year. For purposes of the Paperwork Reduction Act section below,1409 we 

estimate that 0.6 funds per year would file a report triggered by the 10% weekly liquid asset 

threshold1410 and an additional 0.6 funds per year would file a report because they crossed the 

30% weekly liquid asset threshold and their board determined to impose a liquidity fee,1411 for a 

total average of 1.2 instances per year. Therefore, we expect that the annual costs relating to 

filing a report on Form N-CR in response to an event specified on Part E will be $17,412.1412

In revising our estimates for Part F of Form N-CR,1413 we estimate the costs of filing and 

amending the report in response to an event specified on Part F of Form N-CR of Form N-CR to 

include time costs of $10,910 and external costs of $3,600, for total costs of $14,510 for each set 

of initial and follow-up reports.1414 As stated above, the DERA study found that 83 prime funds 

per year had their weekly liquid asset percentages fall below 30%.1415 Of these 83 funds, it is 

 1409 See infra section IV.D.2.e. In the Proposing Release, we had previously estimated a total of 4 reports in 

response to Parts E and F based on the previously proposed 15% weekly liquid asset trigger. See Proposing 

Release, supra note 25, at n.1202. For a more detailed discussion of the reasons for our changed estimates, 

see also infra note 2408.

1410 As noted above, as a result of the new reporting requirements, we believe that funds will in general try to 

avoid having to file Form N-CR by keeping their weekly liquid asset percentages above 10%. 

Accordingly, we believe our estimates of the frequency of filings in response to Part E of Form N-CR are 

likely to be high. However, we are using these higher estimates to be conservative in our analysis.

1411 As discussed in section IV.D.2.e, we estimate that funds will voluntarily impose a liquidity fee at most as 

often as they will be required to consider a liquidity fee based on the 10% weekly liquid asset trigger. 

Accordingly, the Commission conservatively estimates that 0.6 additional funds per year would file a 

report in response to Part E because it breached the 30% weekly liquid asset threshold and their board 

determined to impose such a discretionary liquidity fee. 

1412 These estimates are based on the following calculations: $14,510 (cost per complete filing) x [0.6+0.6] 

filings per year = $17,412 per year. See supra notes 1403-1410 and accompanying text.

1413 The Proposing Release estimated that a fund would spend on average approximately 5 burden hours and 

total time costs of $1,708 to prepare, review, and submit a report under any Part of Form N-CR, including 

Part F. See Proposing Release, supra note 25, at nn.1203 and 1204 and accompanying text.

1414 The costs associated with filing Form N-CR in response to an event specified on Part F of Form N-CR are 

paperwork-related costs and are discussed in more detail in infra section IV.D.2.f. 

1415 See DERA Study, supra note 24, at 22.
432

unclear how many would have decided to impose a gate, but we expect it to be lower than 83

funds given that not all boards would have likely imposed such a discretionary gate. Thus, we 

expect, based on our calculation of the average number of instances in which a fund would 

breach the 30% weekly liquid asset threshold each year, that the Commission would receive 

between zero and 83 such sets of initial and follow-up reports per year. For purposes of the 

Paperwork Reduction Act section below,1416 we conservatively estimate that 0.6 funds per year 

would file a report because they breached the 30% weekly liquid asset threshold and their board 

determined to impose a gate.1417 Therefore, we expect that the annual costs relating to filing a 

report on Form N-CR in response to an event specified on Part F would be $8,706. 1418

g. Operational Costs of Part G: Lifting of Fees and Gates

As discussed in the Proposing Release, we continue to believe the frequency of filings 

under Part G on Form N-CR to be closely correlated to the frequency of filings under Parts E and 

F.1419 Given our revised estimates of the number of filings under Parts E and F,1420 we are 

 1416 See infra section IV.D.2.f. In the Proposing Release, we had previously estimated a total of 4 reports in 

response to Parts E and F based on the previously proposed 15% weekly liquid asset trigger. See Proposing 

Release, supra note 25, at n.1202. For a more detailed discussion of the reasons for our changed estimates, 

see also infra note 2421.

1417 As discussed and estimated in more detail in infra section IV.D.2.f, we conservatively estimate the number 

of instances in which a fund breached the 30% weekly liquid asset threshold and its board determined to 

impose a voluntary gate to be equal to the number of instances in which a fund breached the 30% weekly 

liquid asset threshold and its board determined to impose a voluntary fee, or 0.6 instances per year.

1418 These estimates are based on the following calculations: $14,510 (cost per complete filing) x 0.6 filings per 

year = $8,706 per year. See supra notes 1414-1417.

1419 See, e.g., Proposing Release, supra note 25, at n.1202 and accompanying discussion. We expect there to be 

a close correlation because Part G requires disclosure of the lifting of any liquidity fee or gate imposed in 

connection with Part E or F. 

1420 See supra notes 1410 and 1417 and accompanying discussions.
433

correspondingly revising our estimate of the number of filings under Part G.1421 We are further 

revising our estimates for Part G, because we expect the cost per filing associated with 

responding to Part G to be lower than for Parts E or F.1422 Unlike Parts B through F and H, for 

which we have included estimated external costs to account for the possibility that funds may 

engage legal counsel to assist in the preparation and review of Form N-CR,1423 we have not done 

so here because of the relative simplicity of Part G.

In revising our estimates for Part G of Form N-CR,1424 we estimate the costs of filing a 

report in response to an event specified on Part G of Form N-CR to include time costs of $695 

per filing,1425 and we expect, based in part by reference to our estimate of how often funds would 

file Form N-CR under Part E or F each year, that the Commission would receive between zero 

and 83 such filings per year.1426 For purposes of the Paperwork Reduction Act section below, we 

 1421 See infra section IV.D.2.g. The Proposing Release estimated a total of 4 reports in response to Part G. See

Proposing Release, supra note 25, at n.1202. For a more detailed discussion of the reasons for our revised 

estimates, see also infra notes 2433-2437 and accompanying text.

1422 In the Proposing Release, our staff originally estimated that a fund would spend on average approximately 

5 burden hours and total time costs of $1,708 to prepare, review, and submit a report under any Part of 

Form N-CR. See Proposing Release, supra note 25, at nn.1203 and 1204 and accompanying text. 

However, we expect a response to Part G to be shorter than under Parts E or G, given that Part G only 

requires disclosure of the date on which a fund removed a liquidity fee and/or resumed Fund redemptions. 

See Form N-CR Item G.1. In addition, unlike Part E or F, Part G would not require any follow-up report.

1423 See supra sections IV.D.2.b – IV.d.2.f; see also infra section IV.D.2.h.

1424 The Proposing Release estimated that a fund would spend on average approximately 5 burden hours and 

total time costs of $1,708 to prepare, review, and submit a report under any Part of Form N-CR, including 

Part F. See Proposing Release, supra note 25, at nn.1203 and 1204 and accompanying text.

1425 The costs associated with filing Form N-CR in response to an event specified on Part G of Form N-CR are 

paperwork-related costs and are discussed in more detail in infra section IV.D.2.g. 

1426 For purposes of this estimate of filings under Part G, we conservatively assume that there would be a filing 

under Part G for every filing under either Parts E or F. Given that some affected funds may liquidate 

instead of ever lifting the respective liquidity fee or gate, we therefore expect this estimate of the frequency 

of Part G filings may be high. 
434

estimate that 1.8 funds per year would file a report because they lifted a liquidity fee or gate.1427 

Therefore, we expect that the annual costs relating to filing a report on Form N-CR in response 

to an event specified on Part G would be $1,251.1428

h. Operational Costs of Part H: Optional Disclosure

Given the broad scope and voluntary nature of the optional disclosure under Part H of 

Form N-CR, we believe that, in an event of filing, a fund’s particular circumstances that led it to 

decide to make such a voluntary disclosure would be the predominant factor in determining the 

time and costs associated with filing a report on Form N-CR. In estimating costs, we expect that 

some funds may engage legal counsel to assist with the drafting and review of Form N-CR, 

thereby incurring additional external costs.1429

Accordingly, we estimate the costs of a filing in response to an event specified on Part H 

of Form N-CR to include time costs of $1,390 and external costs of $800, for a total cost of 

$2,190 per filing,1430 and we expect that the Commission will receive approximately 18 such 

filings per year.1431 Therefore, we expect that the annual costs relating to filing a report on Form 

 1427 See infra section IV.D.2.g.

1428 These estimates are based on the following calculations: $695 (cost per complete filing) x 1.8 filings per 

year = $1,251 per year. See supra notes 1425-1427 and accompanying text. 

1429 In particular, we expect that funds are more likely to file a report on Part H when there are more complex 

events that need to be addressed, which we believe will make it correspondingly more likely that funds will 

engage legal counsel. 

1430 The costs associated with filing Form N-CR in response to an event specified on Part H of Form N-CR are 

paperwork-related costs and are discussed in more detail in infra section IV.D.2.h. 

1431 For purposes of our estimate in section IV.D.2.h below, we conservatively estimate that funds would 

include a disclosure under Part H in about a quarter of the instances they submit a follow-up filing under 

Parts B through F, as well as with respect to a quarter of all filings under Part G. Because of the timing 

constraints, we generally would not expect funds would to make a Part H disclosure in an initial filing. We 

also would not generally expect funds to make a Form N-CR filing under Part H alone. However, given the 

possibility that funds might make a Part H disclosure in the initial filing or on a stand-alone basis, we 
435

N-CR in response to an event specified on Part H will be $32,850.

1432

i. Aggregate Operational Costs

In the aggregate, we estimate that compliance with new rule 30b1-8 and Form N-CR 

would result in total annual time costs of approximately $339,5881433 and total external costs of 

$80,780.

1434 Given an estimated 559 money market funds that would be required to comply with 

new rule 30b1-8 and Form N-CR,1435 this would result in average annual time costs of 

approximately $607 and average annual external costs of $145 on a per-fund basis.1436

G. Amendments to Form N-MFP Reporting Requirements

The Commission is today adopting amendments to Form N-MFP, the form that money 

market funds use to report their portfolio holdings and other key information to us each month. 

We use the information to monitor money market funds and support our examination and 

regulatory programs. Each fund must file the required information on Form N-MFP 

electronically within five business days after the end of each month. Currently, we make the 

information public 60 days after the end of the month.1437 Money market funds began reporting 

this information to us in November 2010.1438

 

conservatively estimate one additional Part H filing per year under each scenario. As calculated in in 

section IV.D.2.h below, we therefore estimate an annual total of 15 filings in response to Part H. 

1432 These estimates are based on the following calculations: $2,190 (cost per complete filing) x 15 filings per 

year = $32,850 per year. See supra notes 1430 and 1431 and accompanying text. 

1433 See infra note 2446. 

1434 See infra note 2447. 

1435 See supra note 2448.

1436 See infra note 2449. 

1437 See current rule 30b1-7(b).

1438 On average, 575 money market funds (excluding feeder funds) filed Form N-MFP with us each month 
436

Today we are amending Form N-MFP to reflect the amendments to rule 2a-7 discussed 

above. In addition, we are requiring the reporting of certain new information that will be useful 

for our oversight of money market funds, and making other improvements to the form based on 

our previous experience with filings submitted to us. Most commenters generally supported the 

proposed amendments to Form N-MFP, agreeing that the improved reporting would be useful to 

the Commission and investors.1439 Although these commenters generally supported the proposed 

amendments, many of them raised concerns with certain specific changes and additional 

reporting items.1440 We did not receive any comment on a number of the proposed amendments, 

and are generally adopting those amendments as proposed. 

To respond to comments we received, the final form amendments differ in some respects 

from what we proposed, such as not adopting the lot level security and shareholder concentration 

reporting requirements, as well as certain other refinements which are discussed below. We are 

adopting many of the other proposed amendments unchanged, including eliminating the 60-day 

delay on public availability of the data. As proposed, we are not changing the requirement that 

funds continue to file reports on Form N-MFP once each month (as they do today), but are 

adopting a requirement that certain limited information (such as the NAV per share, liquidity 

 

throughout 2013. Funds reported information on approximately 67,000 securities on average each month. 

1439 See, e.g., Wells Fargo Comment Letter; ICI Comment Letter (“We generally support the proposed 

amendments...”); Boston Federal Reserve Comment Letter. One commenter opposed the amendments 

generally, suggesting that Form N-MFP is a tool for the Commission, not investors, and argued that the 

cost of the greater reporting requirements is not justified by the usefulness of the information to the 

Commission. See Dreyfus Comment Letter. We discuss the usefulness of the information reported on 

Form N-MFP to investors throughout this section, and similarly discuss the costs of compliance in section 

III.G.5. below. 

1440 See, e.g., Wells Fargo Comment Letter (objecting to shareholder flow reporting); Fidelity Comment Letter 

(objecting to lot level purchase and sale data); SIFMA Comment Letter (objecting to shareholder 

concentration reporting). 
437

levels, and shareholder flow) be reported on a weekly basis within the monthly filing.1441

We are adopting these changes to Form N-MFP because they further support the 

Commission’s efforts to oversee the stability of money market funds and compliance with rule 

2a-7,1442 and should assist money market fund shareholders in better understanding the risks of 

their investments. As proposed, in connection with these amendments, we are renumbering the 

items of Form N-MFP to separate the items into four separate sections and are making other 

minor reformatting changes.1443 These amendments will apply to all money market funds, with 

both stable value and floating NAV money market funds reporting on Form N-MFP as amended. 

1. Amendments Related to Rule 2a-7 Reforms

We proposed a number of changes to Form N-MFP designed to conform it with the 

general reforms of rule 2a-7.1444 Commenters generally did not object to these proposed 

amendments, and we are adopting them largely as proposed, with some revisions to reflect the 

revised approach we are taking to the primary reforms. 

a. Amortized Cost

As part of the primary reforms to rule 2a-7, we proposed to eliminate the use of the 

 1441 We requested comment on potentially requiring filing of Form N-MFP on a weekly, rather than a monthly 

basis. Commenters generally opposed such an increase in frequency of filing of the form, and we are 

retaining the requirement to file the form on a monthly basis at this time. See, e.g., Dreyfus Comment 

Letter; SIFMA Comment Letter. 

1442 References to amended Form N-MFP will be to “Form N-MFP Item” or to “Item” and references to Form 

N-MFP as it was proposed to be amended in 2013 will be to “Proposed Form N-MFP Item.” We are not 

amending items in Form N-MFP that reference credit ratings at this time. 

1443 See Form N-MFP: (i) general information (Items 1 – 8); (ii) information about each series of the fund 

(Items A.1 – A.21; (iii) information about each class of the fund (Items B.1 – B.8); and (iv) information 

about portfolio securities (Items C.1 – C.25). Our renumbering of the items will enable us to add or delete 

items in the future without having to re-number all subsequent items in the form. 

1444 See Proposing Release supra note 25, at section III.H.1. 
438

amortized cost valuation method for stable value money market funds, and to correspond with 

that elimination, we also proposed to remove references to amortized cost and shadow prices 

from Form-N-MFP. However, as discussed previously in section II.B.5, the final amendments 

will permit the continued use of the amortized cost valuation method for stable value money 

market funds.1445 Accordingly, to conform the changes to Form N-MFP to the final amendments 

to rule 2a-7, we are not adopting the Form N-MFP amendments that would have removed 

references to the amortized cost of securities in certain existing items, although we are moving 

and rephrasing the references where appropriate to be consistent with the final amendments to 

rule 2a-7.1446

Because we proposed to eliminate amortized cost valuation (which would have required 

all money market funds to value their shares at market-based values even if they transacted at a 

dollar through penny rounding), we had correspondingly proposed to eliminate the reporting 

requirements related to money market fund “shadow prices” from Form N-MFP and instead 

require funds to report their market-based NAV. As a result of the final amendments to rule 2a-7 

permitting the continued use of amortized cost for certain money market funds, the final 

 1445 See supra section II.B.5. 

1446 Form N-MFP currently requires that each series of a fund disclose the total amortized cost of its portfolio 

securities (Item 13) and the amortized cost for each portfolio security (Item 41). As we proposed, we are 

amending Items 13 and 41 by replacing amortized cost with “value” as defined in section 2(a)(41) of the 

Act (generally the market-based value). See Form N-MFP Items A.14.b and C.18, and Form N-MFP 

General Instructions, E. Definitions. As a result, we are removing current Form N-MFP Items 45 and 46, 

which require that a fund disclose the value of each security using available market quotations, both with 

and without the value of any capital support agreement. Form N-MFP Item C.18 would require that money 

market funds report portfolio security market values both including and excluding the value of any sponsor 

support. As we proposed, to improve transparency of MMF’s risks, we are also clarifying that money 

market funds must disclose the value of “any sponsor support” applicable to a particular portfolio security, 

rather than “capital support agreements” as stated in current Form N-MFP Items 45 and 46. We are also 

continuing to require, as proposed, reporting of the amortized cost value of money market funds that use 

that method to value securities for all or any portion of their portfolio. See Form N-MFP Item A.14.b.i . 
439

amendments to Form N-MFP also continue to require reporting of fund shadow prices (on a 

series and class level) for funds that use the amortized cost method of valuation.1447 This 

requirement would be part of the requirement to report the fund’s NAV on a class and series 

level. 

b. Weekly Reporting Within Monthly Filing

The final rules also require reporting of a money market fund’s NAV per share (and 

shadow price), daily and weekly liquid assets, and shareholder flows on a weekly basis within 

the monthly filing of the form, as we proposed.1448 Two commenters generally objected to the 

proposed requirements for weekly reporting within a monthly form.1449 These commenters 

argued that weekly information gathering will increase fund costs and suggested that the benefits 

are speculative. They also noted that this weekly reported information would be available on the 

fund’s website, resulting in redundant disclosure.1450 We appreciate these concerns, but disagree. 

Form N-MFP and website disclosure have different purposes. Under our final disclosure 

amendments, as discussed above funds will be required to report market-based NAV per share 

information daily on their websites (as well as the liquidity and shareholder flow information), so 

the weekly information should be readily available at little additional cost. Including this weekly 

information on the fund’s filing will allow Commission staff to better monitor risks and trends in 

 1447 See Form N-MFP Items A.20 and B.5. These requirements are moved and reformatted from the existing 

form as part of the overall renumbering and re-organizing of the form. 

1448 Form N-MFP Items A.13, A.20, B.5 and B.6. As discussed in section IV.A.6.c funds would also be 

required to report their NAV per share and shadow price on a daily basis on their website. 

1449 Dreyfus Comment Letter; SIFMA Comment Letter. These commenters objected to all of the proposed 

weekly items, including reporting on the funds’ NAV per share, levels of daily and weekly liquid assets, 

and shareholder flows. 

1450 Id. 
440

fund valuation (as well as liquidity and shareholder flow) in an efficient and more precise 

manner without requiring frequent visits to the websites of many different funds, and will be a 

useful resource for investors and others as well. Because it will be housed in a central repository 

of data, this information can be aggregated and analyzed across the fund industry and can be 

used in a standardized manner to enhance comparability.1451 The additional data points we 

collect will enable us to better monitor trends and risks on a more granular time level for 

individual funds and money market funds as a whole. In contrast, the website disclosures are 

intended to be more accessible and “user-friendly” than Form N-MFP for individual investors 

trying to research particular funds. We have required other such parallel reporting for similar 

reasons.1452 

c. NAV per share (and shadow price) reporting to Fourth Decimal 

Place

Today on Form N-MFP, funds report, both for each series and each class, shadow price 

of their NAV, rounded to the fourth decimal place for a fund with a $1.00 share price (or an 

equivalent level of accuracy for funds with a different share price).1453 Under the proposed 

amendments to the Form, we proposed to keep this reporting requirement (although in a different 

place within the Form consistent with the general reformatting). This reporting is consistent with 

the rounding convention that was proposed for floating NAV money market funds to price and 

transact in our rule proposal. No commenters specifically addressed this current Form N-MFP 

 1451 See also supra section III.F. 

1452 For example, money market funds are currently required to disclose much of the portfolio holdings 

information they disclose on Form N-MFP on the fund’s website as well. See current rule 2a-7(c)(12)(ii); 

Form N-MFP General Instruction A. 

1453 Form N-MFP Items 18 and 25. See also Proposing Release supra note 25, at section III.H.1. 
441

requirement, or its reformatting. As discussed in section III.B.3.c above we are adopting a 

requirement for floating NAV funds to transact at this “basis point rounding” level of accuracy. 

As when we originally adopted this requirement in 2010, we continue to believe that information 

about a fund’s NAV priced to a basis point rounding level of accuracy will be relevant and useful 

for the Commission and investors when monitoring money market fund risks and trends.1454 This 

information will be used by the Commission and others to identify money market funds that 

continue to seek to maintain a stable price per share1455 and help us better evaluate any potential 

deviations in their unrounded share price. Reporting the NAV per share to the fourth decimal 

place on Form N-MFP is also consistent with the precision of NAV reporting that funds would 

be required to provide on their websites under our final amendments. Accordingly, the Form 

continues to require reporting of a money market fund’s NAV to the fourth decimal place, as is 

required today and under the proposal.1456 

d. Category Reporting

As we proposed, we are also amending the category options at the series level that money 

market funds use to identify themselves to include exempt government fund as an option.1457 We 

are also adding a sub question, new from the proposal, asking if the fund is an exempt retail fund 

 1454 See 2010 Adopting Release, supra note 81, at section II.E.2. We note that many large fund complexes 

already disclose on their websites the daily money market fund market valuations (i.e., shadow prices) of at 

least some of their money market funds, rounded to four decimal places (“basis point” rounding), for 

example, BlackRock, Fidelity Investments, and J.P. Morgan. See, e.g., Money Funds' New Openness 

Unlikely to Stop Regulation, WALL ST. J. (Jan. 30, 2013). See also sections III.B and IV.A.6.

1455 We are also adopting, as proposed, a new item requiring reporting for funds that seek to maintain a stable 

price per share to state the price that the fund seeks to maintain. See Form N-MFP Item A.18.

1456 Form N-MFP Items A.20 and B.5. 

1457 See Form N-MFP, Item A.10. 
442

under rule 2a-7.1458 This new subsection is necessary to help identify whether a fund is exempt 

because it is a government fund or if it is exempt because it is a retail fund which will be 

important in our ongoing monitoring efforts. These new categories will allow us to better 

identify the types of funds operating.

e. Economic Analysis

Consistent with the proposal, any effect resulting from these amendments (except as 

noted below), including the requirement that each monthly report include information on a 

weekly basis, is included in our economic analysis of our amendments that require money 

market funds to disclose NAV, liquidity and shareholder flow daily on fund websites.1459 

Accordingly, we do not believe that the proposed amendments would impose other costs not 

discussed in that section on money market funds other than those required to modify systems 

used to aggregate data and file reports on Form N-MFP, as discussed below. We expect, as 

discussed previously in this section, that the revised forms will benefit investors by enhancing 

their understanding of money market funds, and will enhance our monitoring and regulatory 

programs. 

We believe that the revised form will be easier for investors to understand because the 

amendments will allow investors to better focus on a single market-based valuation for 

individual portfolio securities and the fund’s overall NAV per share. Accordingly, we expect 

that the overall effects will be to increase efficiency for investors. Because we believe that 

investors are likely to make at least incremental changes to their trading patterns in money 

 1458 See Form N-MFP, Item A.10.a. 

1459 See supra section III.E.9.h.
443

market funds due to the changes to Form N-MFP, it is likely that the changes will affect 

competition and capital formation. Although it is difficult to quantify the size of these effects 

without better knowledge about how investors will respond, we believe that the effects from the 

changes to Form N-MFP will be small relative to the effects of the underlying reforms. 

2. New Reporting Requirements

We are also adopting several new items to Form N-MFP that we believe will improve our 

(and investors’) ability to monitor money market funds. As discussed further below, these final 

amendments include some, but not all of the new reporting requirements that we had proposed. 

For example, as proposed, the final amendments include additional information about fair value 

categorization and LEIs (if available). We are also adopting, with some changes from the 

proposal, revisions to several other items, including revised investment categories for portfolio

securities and repurchase agreement collateral. However, we are not adopting the lot level 

portfolio security disclosure, top 20 shareholder information, and security identifier level 

reporting on repo collateral that we had proposed. These amendments we are adopting should 

help address gaps in data that have become apparent from analysis of Form N-MFP filings that 

we have received to date. As discussed further below, each amendment requires reporting of 

additional information that should be readily available to the fund and, in many cases, should 

infrequently change from report to report.

a. Security Identifiers

Certain of the final amendments we are adopting today are designed to help us and 
444

investors better identify fund portfolio securities.1460 To facilitate monitoring and analysis of the 

risks posed by funds, it is important for Commission staff to be able to identify individual 

portfolio securities. Fund shareholders and potential investors that are evaluating the risks of a 

fund’s portfolio will similarly benefit from the clear identification of a fund’s portfolio securities. 

Currently, the form requests information about the CUSIP number of a security, which the staff 

uses as a search reference. The staff has found that some securities reported by money market 

funds lack a CUSIP number, and this absence has reduced the usefulness of other information 

reported.1461 To address this issue, we are adopting as proposed the requirement that funds also 

report the LEI that corresponds to the security, if available.1462 We are also adopting as proposed 

final amendments that require that funds report at least one other security identifier, if 

 1460 We also are also adopting, as proposed, a requirement that a fund provide the name, e-mail address, and 

telephone number of the person authorized to receive information and respond to questions about Form 

N-MFP from Commission staff. We will exclude this information from Form N-MFP information that is 

made publicly available through EDGAR. See Form N-MFP Item 8.

1461 Our inability to identify specific securities, for example, limits our ability to compare ownership of the 

security across multiple funds and monitor issuer exposure. As discussed in the proposal, during the month 

of February 2013, funds reported 6,821 securities without CUSIPs (approximately 10% of all securities

reported on the form).

1462 See Form N-MFP Item C.4; Form N-MFP General Instructions, E. Definitions (defining “LEI”). To ensure 

accurate identification of Form N-MFP filers and update the Form for pending industry-wide changes, we 

are also requiring, as proposed, that each registrant provide its LEI, if available. See Form N-MFP Item 3. 

The Legal Entity Identifier is a unique identifier associated with a single corporate entity and is intended to 

provide a uniform international standard for identifying counterparties to a transaction. The Commission 

has begun to require disclosure of the LEI, once available. See, e.g., Form PF, Reporting Form for 

Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading 

Advisors, available at http://www.sec.gov/rules/final/2011/ia-3308-formpf.pdf. A global LEI standard is 

currently in the implementation stage. See Frequently Asked Questions: Global Legal Entity Identifier 

(LEI) (Feb. 2013), U.S. Treasury Dept., available at 

http://www.treasury.gov/initiatives/ofr/data/Documents/LEI_FAQs_February2013_FINAL.pdf. Consistent 

with staff guidance provided in a Form PF Frequently Asked Questions, available at 

http://www.sec.gov/divisions/investment/pfrd/pfrdfaq.shtml, funds that have been issued a CFTC Interim 

Compliant Identifier (“CICI”) by the Commodity Futures Trading Commission may provide this identifier 

in lieu of the LEI until a global LEI standard is established. 
445

available.1463 One commenter suggested that the proposed requirement to include multiple 

securities identifiers might not be possible for certain securities, such as municipal securities, 

which may only have a single identifier available.1464 We note that the requirement to include 

multiple identifiers is only required if such identifiers are actually available.

1465 

b. Fair Value Categorization

We are also adopting, with certain modifications from the proposal described below, 

amendments that are designed to help the staff and investors better identify certain risk 

characteristics that the form currently does not capture. Responses to these new items, together 

with other information reported, would improve the staff and investors’ understanding of a fund 

and its potential risks by providing information about how the fund is valuing its investments. 

We proposed to require funds to report whether a security is categorized as a level 1, 

level 2, or level 3 measurement in the fair value hierarchy under U.S. GAAP.

1466 We noted in the 

Proposing Release that we understood that most money market fund portfolio securities are 

categorized as level 2, and that although we understood that very few of a money market fund’s 

 1463 See Form N-MFP Item C.5 (requiring that, in addition to the CUSIP and LEI, a fund provide at least one 

additional security identifier, if available). Security identifiers should be readily available to funds. See, 

e.g., http://www.sec.gov/edgar/searchedgar/cik.htm (providing a CIK lookup that is searchable by company 

name). We are also requiring that a fund provide the LEI (if available) for a security subject to a 

repurchase agreement (but unlike under the proposal, not the CUSIP). See Form N-MFP Items C.8.

1464 See Vanguard Comment Letter. 

1465 Form N-MFP Items C.4 and C.5. 

1466 See Accounting Standards Codification 820, “Fair Value Measurement”; Proposed Form N-MFP Item 

C.20. Level 1 categorized measurements include quoted prices for identical securities in an active market. 

Level 2 categorized measurements include: (i) quoted prices for similar securities in active markets; 

(ii) quoted prices for identical or similar securities in non-active markets; and (iii) pricing models whose 

inputs are observable or derived principally from or corroborated by observable market data through 

correlation or other means for substantially the full term of the security. Security measurements 

categorized as level 3 are those whose value cannot be determined by using observable measures (such as 

market quotes and prices of comparable instruments) and often involve estimates based on certain 

assumptions. 
446

portfolio securities are currently valued using significant unobservable inputs, and thus 

categorized as level 3, information about any such securities would enable our staff to identify 

individual securities that may be more susceptible to wide variations in pricing.1467 We also 

discussed how Commission staff could use this information to monitor for increased valuation 

risk in these securities, and to the extent there is a concentration in the security across the 

industry, identify potential outliers that warrant additional monitoring or investigation. One 

commenter objected to the requirement to report the fair value level of portfolio securities,

arguing that because most money market fund securities are categorized as level 2, a more 

efficient approach would be to only require disclosure if a security is categorized as level 3.1468 

We agree that because most money market fund securities are categorized as level 2, the relevant 

information for us and investors is whether the security is categorized as level 3, and that it 

would be simpler and less costly for funds to report whether a security is categorized as level 3, 

rather than the level used for each security in the fund’s portfolio. Accordingly, the final 

amendments require funds to disclose whether a security is categorized at level 3, not the fair 

value level of each security.1469 We believe that most funds directly evaluate the fair value level

measurement categorization when they acquire the security and reassess the categorization when 

they perform portfolio valuations.1470 Accordingly, we continue to believe that funds should have 

 1467 For a discussion of some of the challenges regulators may face with respect to Level 3 accounting, see, e.g., 

Konstantin Milbradt, Level 3 Assets: Booking Profits and Concealing Losses, 25 Rev. Fin. Stud. 55,95 

(2011).

1468 See Federated VIII Comment Letter. 

1469 Form N-MFP Item C.20. 

1470 Funds should regularly evaluate the pricing methodologies used and test the accuracy of fair value prices (if 

used). See Accounting Series Release No. 118, Financial Reporting Codification (CCH) section 404.03 

(Dec. 23, 1970).
447

ready access to the nature of the portfolio security valuation inputs used.

c. Lot Level Reporting

We proposed to require funds to report additional information about each portfolio 

security, including, in addition to the total principal amount, the purchase date, the yield at 

purchase, the yield as of the Form N-MFP reporting date (for floating and variable rate 

securities, if applicable),1471 and the purchase price.1472 This information would have been 

required to be reported separately for each lot purchased.1473 In addition, we proposed to require 

that money market funds disclose the same information for any security sold during the reporting 

period.1474 In the Proposing Release, we suggested that because money market funds often hold 

multiple maturities of a single issuer, each time a security is purchased or sold, price discovery 

occurs and an issuer yield curve could be updated and used for revaluing all holdings of that 

particular security. Therefore, our proposed amendments, if adopted, could have had the 

incidental benefit of facilitating price discovery and would have enabled the Commission, 

 1471 We understand that the yields on variable rate demand notes, for example, may vary daily, weekly, or 

monthly. Our amendments would have provided Commission staff and others with a way to monitor the 

market’s response to changes in credit quality, as well as identify potential outliers. 

1472 See proposed N-MFP Item C.17. Because yield at purchase would be disclosed in a separate item, we 

proposed to delete the reference to “(including coupon or yield)” from current Form N-MFP Item 27 (Form 

N-MFP Item C.2). Because as discussed below, we are not adopting the lot level reporting requirements 

we proposed, we are retaining the reference to coupon in the title of the issue. However, to facilitate use of 

the data collected and to clarify the time that the yield of the security must be calculated (as of the Form NMFP reporting date), we are moving the question about yield out of the title question and adopting it as a 

standalone response. See proposed N-MFP Item C.17. When disclosing a security’s coupon or yield (as 

required in proposed Form N-MFP Items C.2 or C.8.e), funds generally should report (i) the stated coupon 

rate, where the security is issued with a stated coupon, and (ii) the coupon rate as of the Form N-MFP 

reporting date, if the security is floating or variable rate. Because we not adopting the lot level reporting 

requirement, funds would not need to report, as discussed in the proposal, the interest rate at purchase. 

Finally, funds generally should disclose the name of the collateral issuer (and not the name of the issuer of 

the repurchase agreement). 

1473 See proposed Form N-MFP Item C.17.

1474 See proposed Form N-MFP Item C.25. 
448

investors, and others to evaluate pricing consistency across funds (and identify potential 

outliers).1475 

A number of commenters strongly opposed this proposed new lot level reporting 

requirement.1476 They noted that the number of reporting line items could go up tenfold under 

this requirement, and that costly new systems would need to be built to effectively report this 

information on an ongoing basis.1477 Commenters also noted that the lot level security 

information is proprietary, and could be used to the disadvantage of funds and shareholders.1478 

They also questioned the value of this information to the Commission, noting the high costs of 

providing it.1479 We appreciate the concerns of commenters, and are modifying the final 

amendments to eliminate the proposed lot level security reporting requirement. Although 

collecting data on the purchase and sale of money market fund securities could improve pricing 

transparency, and allow us to better monitor risks and valuation issues, we are persuaded by 

commenters that reporting this information at the lot level may be costly and could disclose 

proprietary information about security purchase prices that could harm funds, and therefore their 

shareholders. We also believe that this data might be more useful if collected on a systematic, 

 1475 See Comment Letter of the Presidents of the 12 Federal Reserve Banks (Feb. 12, 2013) (available in File 

No. FSOC–2012–0003) (‘‘Federal Reserve Bank Presidents FSOC Comment Letter’’), supra note 48

(suggesting that more frequent reporting on Form N-MFP might increase price discovery for market-based 

NAV calculations). 

1476 See, e.g., ICI Comment Letter; Federated II Comment Letter; Wells Fargo Comment Letter. 

1477 See, e.g., Dreyfus Comment Letter; Fidelity Comment Letter (noting that for one fund, one month’s 

reporting included 336 lines at the CUSIP level, and under the proposed lot level requirement, that fund 

would have contained over 2100 reporting lines, and that of those lots, only 15 were purchased at different 

yields, and 11 of those were Treasury securities). 

1478 See, e.g., Vanguard Comment Letter; BlackRock II Comment Letter. 

1479 See, e.g., ICI Comment Letter (“Indeed, our members have expressed concern that the reporting of this type 

of confidential trading information could compromise management of their portfolios.”); Fidelity Comment 

Letter. 
449

market-wide basis which may both provide more comprehensive and consistent coverage and 

mitigate the concerns about proprietary data disclosure.1480 Accordingly, we are not adopting the 

lot level purchase and sale data reporting requirements that we proposed. 

d. Liquidity and Shareholder Flow Data

We are also adopting amendments, with certain modifications from the proposal as 

described below, that require funds to report the amount of cash they hold,1481 the fund’s daily 

liquid assets and weekly liquid assets,1482 and whether each security is considered a daily liquid 

asset or weekly liquid asset.1483 Unlike the other items of disclosure on Form N-MFP that must 

be disclosed on a monthly basis, as discussed previously, we are requiring that funds report their 

Daily Liquid Assets and Weekly Liquid Assets on a weekly basis.1484 One commenter suggested 

that we align reporting of fund liquid assets on Form N-MFP (which is dollar based) with the 

reporting of liquid assets on fund websites (which is percentage based).1485 We agree that such 

alignment would provide better consistency and comparability of information between 

 1480 One commenter discussed a similar approach, suggesting that “price discovery might be enhanced through 

other methods, such as increasing the categories of securities reported through the Financial Industry 

Regulatory Authority’s Trade Reporting and Compliance Engine (TRACE) system.” Wells Fargo 

Comment Letter. 

1481 See Form N-MFP Item A.14.a and Form N-MFP General Instructions, E. Definitions (requiring, as 

proposed, disclosure of the amount of cash held and defining “cash” to mean demand deposits in insured 

depository institutions and cash holdings in custodial accounts, respectively). We are also amending, as 

proposed, Item 14 of Form N-MFP (total value of other assets) to clarify that “other assets” excludes the 

value of assets disclosed separately (e.g., cash and the value of portfolio securities). See Form N-MFP Item 

A.14.c. This amendment would ensure that reported amounts are not double counted. 

1482 See Form N-MFP Item A.13. 

1483 Form N-MFP Items C.21 – C.22. 

1484 See supra note 1448. 

1485 Fidelity Comment Letter. Requiring both the total value and percentage of total assets of these data points 

parallels the information that is collected for each security in Items C.18 and C.19 (dollar value and 

percentage basis). 
450

information on fund’s website and the information reported on Form N-MFP. Accordingly, the 

final amendments to Form N-MFP require reporting of fund daily and weekly liquid assets on 

both a dollar and percentage basis.1486 Because the percentages are already reported on fund 

websites, this information should be readily available. The information should help us and 

others to better understand the relative liquidity of fund portfolios. 

Similarly, we are adopting the proposed amendments to require that money market funds 

disclose the weekly gross subscriptions (including dividend reinvestments) and weekly gross 

redemptions for each share class, once each week during the month reported.1487 As discussed 

earlier, money market funds would continue to file reports on Form N-MFP once each month, 

but certain information (including disclosure of daily and weekly liquid assets) would be 

reported weekly within the form. Several commenters objected to the requirement to disclose 

shareholder flow data, arguing that such disclosure could be confusing to shareholders, and is not 

necessarily indicative of stress.1488 One commenter also suggested that if shareholder flow data 

was reported, it should be on a net rather than gross basis.1489 

We agree that shareholder flows do not necessarily indicate stress in a fund, but they can 

be informative in monitoring fund activity and evaluating the potential risks. We believe gross 

 1486 Form N-MFP Items A.13.a – A.13.d. As discussed in section III.G.2.i, we are not requiring disclosure of 

liquid assets on fund websites on a dollar basis because we believe that the most relevant information to 

investors is the percentage of fund assets that are liquid. 

1487 See Form N-MFP Item B.6. We also are continuing to require that money market funds disclose the 

monthly gross subscriptions and monthly gross redemptions for the month reported. See current Form NMFP Item 23. 

1488 See, e.g., Legg Mason & Western Asset Comment Letter; Dreyfus Comment Letter; Wells Fargo Comment 

Letter. 

1489 SIFMA Comment Letter. 
451

rather than net flow data is more useful for us and investors because it allows more transparency 

into the particular redemption and purchase patterns at a fund. We do not believe this additional 

information would confuse investors, because they can compare the gross inflows to the gross 

outflows if they believe that the net data is the relevant information in their decision making 

process. We continue to believe that these amendments would provide Commission staff and 

others with additional relevant data to efficiently monitor fund risk (such as monitoring the risk 

that a fund might cross the 10% liquidity-based fee threshold under the liquidity fee amendments 

we are adopting today), and correlated risk shifts in liquidity across the industry.1490 Increased 

periodic disclosure of the daily and weekly liquid assets on Form N-MFP would provide 

increased transparency into how funds manage their liquidity, and it may also impose market 

discipline on portfolio managers. In addition, increased disclosure of weekly gross subscriptions 

and gross redemptions (reported weekly, in addition to monthly) would improve the ability of the 

Commission, investors, and others to better understand the significance of other liquidity 

disclosures required by our proposals (e.g., daily and weekly liquid assets). It will also allow the 

Commission to better understand patterns of shareholder flows over time and how funds respond 

to those shareholder flows, and compare those flows to funds’ liquid assets, and we may use 

them in connection with our examination and regulatory efforts. Accordingly, we are adopting 

the amendments to disclose weekly gross subscriptions and weekly gross redemptions as 

proposed.

 1490 As discussed in section III.E.9.a, money market funds would also be required to disclose each day on its 

website the fund’s Daily Liquid Assets and Weekly Liquid Assets and shareholder flows. 
452

e. Fee Waivers

We are today also adopting the proposed requirement that each fund must disclose 

whether its adviser or a third party paid for or waived all or part of its operating expenses or 

management fees during a given reporting period.1491 One commenter objected to this proposed 

requirement, arguing that fee waivers are not necessarily indicative of an adviser’s financial 

position, and that such information may confuse investors and leave an incorrect impression of 

the health of the adviser because waivers are just one aspect of the financial ability of an adviser 

to support a fund.1492

We agree that fee waivers are not necessarily dispositive information about an adviser’s 

financial position or its willingness to potentially support a fund. We do not agree that this 

information would confuse investors, in part because fee waivers are already disclosed in the 

fund’s prospectus (as discussed below), and interested investors may wish to use this information 

in their investment decision making process, even if it is not the sole or even most dispositive 

piece of information used in evaluating the financial health of the adviser or the ability of the 

adviser to support the fund in times of stress. We continue to believe, as stated in the proposal, 

that information about expense waivers is relevant and will help both investors and the 

Commission better evaluate money market fund performance and risk and respond accordingly. 

To the extent that money market funds waive fees to boost performance and attract assets, the 

new disclosure requirement should help investors better understand the basis of fund 

 1491 Form N-MFP Item B.8 (requiring that funds provide the name of the person and describe the nature and 

amount the expense payment or fee waiver, or both (reported in dollars)). 

1492 Schwab Comment Letter. 
453

performance so they can make more informed investment choices.1493 In addition, the 

Commission will be better able to evaluate and respond to financial strains on fund advisers. In 

low interest rate environments, money market fund yields can become sufficiently small that 

advisers must waive fees to offer investors positive returns.1494 It may also help us better monitor 

the overall financial impact of fee waivers on money market fund advisers and the effect of such 

waivers on the industry as a whole. Accordingly, we are adopting the fee waiver reporting 

requirement as proposed.

f. Percentage of Shares Held by Top 20 Shareholders

We proposed to amend Form N-MFP to require funds to disclose the total percentage of 

shares outstanding held by the twenty largest shareholders of record. At the time, we noted that 

this information could help us (and investors) identify funds with significant potential 

redemption risk stemming from shareholder concentration, and evaluate the likelihood that a 

significant market or credit event might result in a run on the fund or the imposition of a liquidity 

 1493 We recognize fee waivers are also required to be disclosed in a fund’s fee table, but believe it is useful to 

have them reported on Form N-MFP as well, for the same reasons discussed in the section on weekly 

reporting within a monthly filing above, as each set of disclosures may reach different audiences who may 

be seeking out the information for different purposes (i.e. an investor looking at fee waivers in the fee table 

may be looking at them for purposes of whether fees on their investments may go up later, while investors 

looking in Form N-MFP may be looking to help determine the potential impact on the adviser). 

1494 In some cases, fee waivers can have similar effects as capital support. Since 2009, MMFs have 

dramatically increased fee waivers to keep yields positive in a low interest rate environment. In 2011, 

MMFs waived more fees ($5.2 billion) than they collected ($4.7 billion). See Investment Company 

Institute, “Submission by the Investment Company Institute Working Group On Money Market Fund 

Reform Standing Committee on Investment Management International Organization of Securities 

Commissions,” Feb 7, 2012. Moreover, more money was forfeited in fee waivers from 2009-2011 ($13.3 

billion) than was spent during the financial crises from 2007-2009 by fund advisers on capital support 

events ($12.0 billion) to stabilize the NAVs of the largest 100 (US and European) prime funds. See

Moody’s Sponsor Support Report, supra note 54.
454

fee or gate.1495 

A number of commenters objected to this proposed reporting requirement, arguing that 

such data could be confusing to shareholders because investments through omnibus accounts 

would be counted as single shareholders of record, potentially portraying a misleading portrait of 

the concentration level of the fund.1496 A commenter also suggested that the appearance of 

higher shareholder concentration levels as a result of omnibus accounts does not necessarily 

correlate with higher run risk and may mislead the public.

1497 We recognize this, and agree that 

because of the prevalence of omnibus accounts, the proposed shareholder concentration 

disclosure may not succeed in achieving its purpose as the information provided may portray an 

incorrect and misleading picture of the level of shareholder concentration in a fund. This 

disclosure may create confusion if certain funds appear more concentrated than they actually are, 

as a result of those omnibus accounts appearing to be a single shareholder. For the same reasons, 

we expect that the information would similarly not be particularly useful for us in our monitoring 

efforts. Accordingly, upon further consideration of these concerns, we are not adopting the 

requirement to report the percentage of fund shares held by the top 20 shareholders. 

g. Investment Categories

We are also adopting, with some changes in response to comments, certain amendments 

to Form N-MFP’s investment categories for portfolio securities. The new investment categories 

should help Commission staff identify particular exposures that otherwise are often reported in 

 1495 Form N-MFP Item A.19. 

1496 See, e.g., Schwab Comment Letter; Federated VIII Comment Letter. 

1497 Dreyfus Comment Letter. 
455

other less descriptive categories (e.g., reporting sovereign debt as “treasury debt” or reporting 

asset-backed securities (that are not commercial paper) as “other note” or “other instrument”).1498 

Several commenters suggested revisions to the investment categories we proposed, noting that 

these changes would better match investment categories that are used more broadly and 

consistently in the industry.1499 After reviewing these comments, we have revised the final 

investment categories to better align the categories with typical industry categorizations and 

provide a more precise description of fund investments.1500 We expect that the revised categories 

should not pose an additional burden compared to the categories we proposed, as they are very 

similar, with minor changes to better reflect our understanding of common industry practice. 

h. Other Amendments

In addition, we are adopting, as we proposed, the amendments that would require funds 

 1498 Currently N-MFP requires funds to categorize their investments from among the following categories: 

“Treasury Debt; Government Agency Debt; Variable Rate Demand Note; Other Municipal Debt; Financial 

Company Commercial Paper; Asset Backed Commercial Paper; Other Commercial Paper; Certificate of 

Deposit; Structured Investment Vehicle Note; Other Note; Treasury Repurchase Agreement; Government 

Agency Repurchase Agreement; Other Repurchase Agreement; Insurance Company Funding Agreement; 

Investment Company; Other Instrument. If Other Instrument, include a brief description.” Current Form 

N-MFP Item 31. We proposed to amend the investment categories in proposed Form N-MFP Item C.6 to 

include new categories: “Non U.S. Sovereign Debt,” “Non-U.S. Sub-Sovereign Debt,” “Other AssetBacked Security,” “Non-Financial Company Commercial Paper” (instead of “Other Commercial Paper”), 

and “Collateralized Commercial Paper,” and amend “U.S. Government Agency Debt” and “Certificate of 

Deposit (including Time Deposits and Euro Time Deposits).” 

1499 See Wells Fargo Comment Letter; Fidelity Comment Letter. 

1500 The final rules would amend the amend the investment categories in Form N-MFP Item C.6 to include the 

following selections: “U.S. Treasury Debt; U.S. Government Agency Debt; Non-U.S. Sovereign, SubSovereign and Supra-National debt; Certificate of Deposit; Non-Negotiable Time Deposit; Variable Rate 

Demand Note; Other Municipal Security; Asset Backed Commercial Paper; Other Asset Backed Securities; 

U.S. Treasury Repurchase Agreement, if collateralized only by U.S. Treasuries (including Strips) and cash; 

U.S. Government Agency Repurchase Agreement, collateralized only by U.S. Government Agency 

securities, U.S. Treasuries, and cash; Other Repurchase Agreement, if any collateral falls outside Treasury, 

Government Agency and cash; Insurance Company Funding Agreement; Investment Company; Financial 

Company Commercial Paper; Non-Financial Company Commercial Paper; or Tender Option Bond. If 

Other Instrument, include a brief description.” 
456

to report the maturity date for each portfolio security using the maturity date used to calculate the 

dollar-weighted average life maturity (“WAL”) (i.e., without reference to the exceptions in rule 

2a-7(i) regarding interest rate readjustments).1501 As we discussed in our proposal, this 

information will assist the Commission in monitoring and evaluating this risk, at the security 

level, as well as help evaluate compliance with rule 2a-7’s maturity provisions.1502 In addition, 

our amendments would make clear that funds must disclose for each security all three maturity 

calculations as required under rule 2a-7: WAM, WAL, and the legal maturity date.1503

We are also adopting, as proposed, a requirement that a fund disclose the number of 

shares outstanding, to the nearest hundredth, at both the series level and class level.1504 This 

information would permit us to verify or detect errors in information provided on Form N-MFP, 

such as NAV. We are also adopting, as proposed, a requirement that a fund disclose, where 

applicable, the period remaining until the principal amount of a security may be recovered 

through a demand feature and whether a security demand feature is conditional.1505 As we 

discussed in the proposal, these amendments will improve the Commission’s and (investors’) 

ability to evaluate and monitor a security’s credit and default risk. We did not receive comment 

 1501 Form N-MFP Item C.12. 

1502 We are also newly clarifying that the maturity date required to be reported in current Form N-MFP Item 35 

is the maturity date used to calculate WAM under rule 2a-7(d)(1)(ii) (see Form N-MFP Item C.11) and the 

maturity date required to be reported in current Form N-MFP Item 36 is the ultimate legal maturity date, 

i.e., the date on which, in accordance with the terms of the security without regard to any interest rate 

readjustment or demand feature, the principal amount must unconditionally be paid (see Form N-MFP Item 

C.13). The ultimate legal maturity date, as clarified, will help us distinguish between debt securities that 

are issued by the same issuer.

1503 Form N-MFP Items C.11, C.12 and C.13. In a modification from the proposal, we have changed the term 

“final legal maturity date” in Item C.13of Form N-MFP to “ultimate legal maturity date” to clarify the 

reporting date for securities that may have varying maturity dates. 

1504 Form N-MFP Items A.17 and B.4.

1505 Form N-MFP Items C.14.e and C.14.f. 
457

on these other amendments and are adopting them as proposed. 

i. Economic Analysis

As detailed above and discussed in the proposal, these new reporting requirements are 

intended to address gaps in the reporting regime that Commission staff has identified through our 

experience with Form N-MFP and to enhance the ability of the Commission and investors to 

monitor funds. Although the benefits are difficult to quantify, they will improve the ability of 

the Commission and investors to identify and analyze a fund’s portfolio securities (e.g., by 

requiring disclosure of LEIs and an additional security identifier, if available, already required). 

In addition, many of our new reporting requirements will enhance the ability of the Commission 

and investors to evaluate a fund’s risk characteristics (by requiring that funds disclose, for 

example, the following data: security categorizations, whether a security is valued using level 3 

measurements; more detailed information about securities at the time of purchase; and liquidity 

metrics). We believe that the additional information required is readily available to funds as a 

matter of general business practice and therefore will not impose costs on money market funds 

other than those required to modify systems used to aggregate data and file reports on Form NMFP. These costs are discussed in section IV.C.2 below.

These new reporting requirements will improve informational efficiency by improving 

the transparency of potential risks in money market funds and promoting better-informed 

investment decisions, which, in turn, will lead to a better allocation of capital. Similarly, the 

increased transparency may promote competition among funds as fund managers are exposed to 

external market discipline and better-informed investors who may be more likely to select an 

alternative investment if they are not comfortable with the risk-return profile of their fund. As 
458

we discussed in the Proposing Release, the newly disclosed information may cause some money 

market fund investors to move their assets among different money market funds, but we do not 

have the information necessary to provide a reasonable estimate of this possibility. In addition, 

some investors may move assets among money market funds and alternative investments (e.g.,

private liquidity funds, separately managed accounts, or certificates of deposit) or other segments 

of the short-term financing markets, but we are unable to estimate how frequently this will 

happen with specificity and we do not know how the other underlying assets compare with those 

of money market funds. In addition, it is difficult to establish the extent to which any such 

exchanges would be a result of the broader amendments we are making or a marginal effect of 

the amendments we are making to Form N-MFP. In addition, no commenters suggested ways 

for us to quantify these exchanges with specificity. Thus, we continue to remain unable to 

estimate the amount of such asset movements with specificity. Therefore, we are unable to 

estimate the overall net effect on capital formation or competition. Nevertheless, we believe that 

the net effect will be small, especially during normal market conditions, in part because such 

asset movements would generally be among investment alternatives, rather than avoiding 

investment entirely. 

3. Clarifying Amendments

We are adopting, as proposed, several amendments to clarify current instructions and 

items of Form N-MFP. Revising the form to include these clarifications should improve the 

ability of fund managers to complete the form and improve the quality of the data they submit to 
459

us.1506 We believe that many of our clarifying amendments are consistent with current filing 

practices.1507

We understand that some fund managers compile their funds’ portfolio holdings 

information as of the last calendar day of the month, even if that day falls on a weekend or 

holiday. To provide flexibility, we are amending, as proposed, the instructions to Form N-MFP 

to clarify that, unless otherwise specified, a fund may report information on Form N-MFP as of 

the last business day or any later calendar day of the month.1508 We are also revising, as 

proposed, the definition of “Master-Feeder Fund” to clarify that the definition of “Feeder Fund” 

includes unregistered funds (such as offshore funds).1509 Our final amendments also would 

clarify, as proposed, that funds should calculate the WAM and WAL reported on Form N-MFP 

using the same methods they use for purposes of compliance with rule 2a-7.1510 We also are 

 1506 We are also adopting, as proposed, technical changes to the “General Information” section of the form that 

will clarify the circumstances under which a money market fund must complete certain question sub-parts. 

See Form N-MFP Items 6 and 7.

1507 As discussed below, the final amendments are consistent with written guidance our staff has provided to 

money market fund managers and service providers completing Form N-MFP.

1508 See Form N-MFP General Instruction A (Rule as to Use of Form N-MFP); rule 30b1-7. Our approach is 

also consistent with a previous interpretation provided by our staff. See Staff Responses to Questions about 

Rule 30b1-7 and Form N-MFP, Question I.B.1 (revised July 29, 2011), available at

http://www.sec.gov/divisions/investment/guidance/formn-mfpqa.htm. 

1509 See Form N-MFP General Instruction E (defining “Master-Feeder Fund,” and defining “Feeder Fund” to 

include a registered or unregistered pooled investment vehicle). Form N-MFP requires that a master fund 

report the identity of any feeder fund. Our amendment is designed to address inconsistencies in reporting 

of master-feeder fund data that we have observed in filings, and will help us determine the extent to which 

feeder funds, wherever located, hold a master fund’s shares. The change will also reflect how we 

understand data from master-feeder funds is collected by the ICI for its statistical reports. We are also 

making grammatical and conforming amendments to Form N-MFP Items A.7 and A.8, as proposed.

1510 See Form N-MFP Items A.11 and A.12 (defining “WAM” and “WAL” and cross-referencing the maturity 

terms to rule 2a-7). We are also amending the 7-day gross yield to require that the resulting yield figure be 

carried to (removing the words “at least”) the nearest hundredth of one per cent and clarify that master and 

feeder funds should report the 7-day gross yield (current Form N-MFP Item 17) at the master fund level. 

Form N-MFP Item A.19. These amendments are intended to achieve consistency in reporting and remove 

potential ambiguity for feeder funds when reporting the 7-day gross yield.
460

requiring, as proposed, that funds disclose in Part B (Class-Level Information about the Fund) 

the required information for each class of the series, regardless of the number of shares 

outstanding in the class.1511

We also are amending, with certain modifications from the proposal discussed below, the 

reporting requirements for repurchase agreements by restating the item’s requirements as two 

distinct questions.1512 The amendment would make clear that information about the securities 

subject to a repurchase agreement must be disclosed regardless of how the fund treats the 

acquisition of the repurchase agreement for purposes of rule 2a-7’s diversification 

requirements.1513 As part of these amendments, we proposed to amend form N-MFP to require 

reporting of a security identifier of collateral securities underlying repurchase agreements.1514 

One commenter objected to this revision, arguing that this level of detail would publicly disclose 

proprietary information about broker-dealer inventories, which may negatively affect allocations 

of repurchase agreements to money market funds.1515 We appreciate this concern and are not 

 1511 See text before Form N-MFP Item B.1. Our staff has found that funds inconsistently report fund class 

information, for example, when a fund does not report a fund class registered on Form N-1A because the 

fund class has no shares outstanding. Our amendment is intended to clarify a fund’s reporting obligations 

and provide Commission staff (and investors) with more complete information about each fund’s capital 

structure.

1512 See Form N-MFP Item C.7 (requiring that a fund disclose if it is treating the acquisition of a repurchase 

agreement as the acquisition of the underlying securities (i.e., collateral) for purposes of portfolio 

diversification under rule 2a-7). See Form N-MFP Item C.8. (requiring that a fund describe the securities 

subject to the repurchase agreement). This information should be readily available to funds and would 

enhance the ability of Commission staff and others to evaluate the risks (e.g., rollover risk or the duration 

of the lending) presented by investments in repurchase agreements. See Form N-MFP Item C.8.a. 

1513 We are also making several other non-substantive clarifications to other items. See Form N-MFP Item 1 

(amending the format of reporting date provided by funds); and Form N-MFP Item A.10 (modifying, for 

consistency, the names of money market fund categories). 

1514 Proposed Form N-MFP Item C.8.c. 

1515 Wells Fargo Comment Letter. 
461

adopting the requirement to report a security identifier of the collateral securities underlying 

repurchase agreements for that reason.1516 In addition, the same commenter objected to the 

revised investment categories we proposed regarding this collateral, arguing that we should 

instead use the categories used to report tri-party repurchase agreement information to the 

Federal Reserve Bank of New York (“NY Fed”).1517 We agree that conforming these categories 

to those used in other reporting contexts will ease reporting burdens and enhance comparability, 

and accordingly have modified the proposed investment categories to conform them to the 

categories used by the NY Fed.1518 

Finally, we are amending, as proposed, the items in Form N-MFP that require 

information about demand features, guarantors, or enhancement providers to make clear that 

funds should disclose the identity of each demand feature issuer, guarantor, or enhancement 

provider and the amount (i.e., percentage) of fractional support provided, which should help us 

monitor funds diversification.1519 Our amendments also clarify, as proposed, that a fund is not 

required to provide additional information about a security’s demand feature(s) or guarantee(s) 

unless the fund is relying on the demand feature or guarantee to determine the quality, maturity, 

or liquidity of the security.1520

 1516 See Form N-MFP Item C.8. 

1517 Wells Fargo Comment Letter. 

1518 See Form N-MFP Item C.8.h. 

1519 See Form N-MFP Items C.14 – C.16.

1520 Form N-MFP already requires that a fund disclose only security enhancements on which the fund is relying 

to determine the quality, maturity, or liquidity of the security. See current Form N-MFP Item 39. 

Similarly, we are amending, as proposed, current Form N-MFP Items 37 (demand features) and 38 

(guarantees) to make clear that funds are required to disclose information relating to demand features and 

guarantees only when the fund is relying on these features to determine the quality, maturity, or liquidity of 

the security. See Form N-MFP Items C.14 and C.15. 
462

As discussed above, and in the proposal, these clarifying amendments are intended to 

improve the quality of the data we receive on Form N-MFP by clarifying a number of reporting 

obligations so that all funds report information on Form N-MFP in a consistent manner. 

Accordingly, we do not believe that these clarifying amendments would impose any new costs 

on funds other than those required to modify systems used to aggregate data and file reports on 

Form N-MFP, to the extent that funds in the past may have reported this information differently. 

These costs are discussed in section III.G.5 below. Because these clarifying amendments will 

not change funds’ current reporting obligations, we believe there will be no effect on efficiency, 

competition, or capital formation. 

4. Public Availability of Information

As we proposed, we are today eliminating the 60-day delay on public availability of 

Form N-MFP data.1521 Currently, each money market fund must file information on Form 

N-MFP electronically within five business days after the end of each month and that information 

is made publicly available 60 days after the end of the month for which it is filed. 

Several commenters objected to our proposed elimination of the 60-day delay, 

particularly considering the sensitivity of the new lot level security reporting that we had 

proposed (but, as discussed above, are not adopting).1522 Other commenters supported shortening 

the delay to five or ten days (primarily to permit amendments to fix problems in the data if 

needed),1523 or eliminating it entirely.1524

 1521 See rule 30b1-7 (eliminating subsection (b), public availability).

1522 See, e.g., BlackRock II Comment Letter; Legg Mason & Western Asset Comment Letter. 

1523 See, e.g., ICI Comment Letter; Federated II Comment Letter; Vanguard Comment Letter. 
463

This delay, which we instituted when we adopted the form in 2010, responded to 

commenters’ concerns regarding potential reactions of investors to the extent of the additional 

disclosure of funds’ portfolio information and shadow NAVs in the form.1525 Although we 

expected that, over time, investors and analysts would become more accustomed to the 

information disclosed about fund portfolios and thus there may be less need in the future to keep 

the portfolio information private for 60 days, we believed then that the shadow price data should 

not be made public immediately, at least initially.1526 However, with experience, we now believe 

that the immediate release of the shadow price data and other money market fund portfolio 

security data would not be harmful and that investors may benefit from more timely access to the 

data. This is based, in part, on our understanding that many money market funds now disclose 

their shadow prices every business day on their websites, and frequently provide lists of holdings 

and information about liquidity to the public as well. 

Several commenters requested that if we eliminated the public availability delay that we 

lengthen the 5-day filing time period in light of the increased reporting requirements under the 

amended form, in order to provide additional time to fix any potential errors.1527 As discussed 

above, we are not adopting some of the more extensive reporting requirements that we proposed 

(such as lot level security reporting) and we have streamlined and revised other requirements to 

better ease the filing burden. In addition, the longer the filing period provided, the more it 

 1524 See U.S. Bancorp Comment Letter (“We are in full support of immediate release of a monthly Form NMFP...”). 

1525 See 2010 Adopting Release, supra note 17, at section II.E.2 (noting that there may be less need in the future 

to require a 60-day delay). 

1526 See 2010 Adopting Release, supra note 17, at text accompanying nn.329-343. 

1527 See, e.g., ICI Comment Letter; Dechert Comment Letter; Schwab Comment Letter.
464

increases the risk of staleness in the reported data and thereby reduces its usefulness to the 

Commission and to the public. We do not believe providing a filing period of longer than 5 days 

is necessary, in part because we are not adopting some of the more onerous reporting 

requirements we proposed, and in part because in our experience, less than 0.5% of money 

market funds have needed to make amendments to Form N-MFP filings after the reporting 

deadline to fix reporting issues in their filings. This leads us to believe that the value of 

immediate public access to the data justifies the risk of needing to make amendments. 

Accordingly, we are not changing the current 5-day reporting period at this time. 

Eliminating the 60-day delay will provide more timely information to the public and 

greater transparency of money market fund information, which could promote efficiency. This 

disclosure could also make the monthly disclosure on Form N-MFP more relevant to investors, 

financial analysts, and others by improving their ability to more timely assess potential risks and 

make informed investment decisions. In other words, investors may be more likely to use the 

reported information because it is more timely and informative. Because, as discussed above, 

shadow prices (which were a primary reason why we adopted the 60-day delay in making filings 

public) have been disclosed by a number of money market funds since February 2013 apparently 

without incident, we do not believe that eliminating the 60-day delay would affect capital 

formation. 

5. Operational Implications of the N-MFP Amendments

We anticipate that fund managers would incur costs relating to reporting the new items of 

information we are requiring on Form N-MFP. To reduce costs, we have decided to make 

needed improvements to the form at the same time we are making amendments necessitated by 
465

the amendments to rule 2a-7 we are adopting.1528 We note that the clarifying amendments should 

not affect, or should only minimally affect, current filing obligations or the information content 

of the filings. 

As we discussed in the proposal, we expect that the operational costs to money market 

funds to report the information required in proposed Form N-MFP would be the same costs we 

discuss in the Paperwork Reduction Act analysis in section IV of the Release, below, and we 

requested comment on that belief.1529 No commenters provided specific data or estimates 

regarding the cost estimates we provided in the Proposing Release for the amendments to Form 

N-MFP, although some suggested that the costs of some amendments could be significant.1530 As 

discussed above, we have revised the final amendments from our proposal in a number of ways 

in order to reduce costs to the extent feasible and still achieve our goals of enhancing and 

improving the monitoring of money market fund risks. Accordingly, we continue to expect that 

the operational costs to money market funds to report the information required in Form N-MFP 

would be the same costs we discuss in the Paperwork Reduction Act analysis in section IV.C.3

of the Release, below, which have been reduced to account for the changes we are making from 

the proposal, as discussed in that section. As discussed in more detail in that section, we

estimate that our amendments to Form N-MFP will result in first-year aggregate additional 

47,515 burden hours at a total time cost of $12.3 million plus $356,256 in total external costs for 

 1528 One commenter noted the benefit of consolidating changes to the form at a single time, noting that each 

time they have to amend their systems to report new information to the Commission on Form N-MFP they 

incur significant technology related costs. See Dreyfus Comment Letter. 

1529 See Proposing Release supra note 25, at section III.H.6.

1530 See, e.g., Fidelity Comment Letter. 
466

all funds, and 33,540 burden hours at a total time cost of $8.7 million plus $356,256 in total 

external costs for all funds each year hereafter.1531 

H. Amendments to Form PF Reporting Requirements

Today the Commission is also amending Form PF, the form that certain investment 

advisers registered with the Commission use to report information regarding the private funds 

they manage. Among other things, Form PF requires advisers to report certain information about 

the “liquidity funds” they manage, which are private funds that seek to maintain a stable NAV 

(or minimize fluctuations in their NAVs) and thus can resemble money market funds.1532 In the 

proposal, we noted a concern that some of the proposed reforms could result in assets shifting 

from registered money market funds to unregistered products such as liquidity funds, and we 

proposed amendments to Form PF to, in part, help the Commission and FSOC track any such 

potential shift in assets and better understand the risks associated with it.1533 

Most commenters who addressed the proposed PF amendments supported them, agreeing 

that they would help track such a potential shift,1534 and one commenter objected, urging the 

Commission to consider the significant costs, and questioning the potential benefits.1535 As 

discussed in greater detail below, we have considered the costs of filing this information with us, 

and believe that they are justified by the significant benefits to the Commission and FSOC in 

 1531 See infra section IV.C.3.

1532 For purposes of Form PF, a “liquidity fund” is any private fund that seeks to generate income by investing 

in a portfolio of short term obligations in order to maintain a stable net asset value per unit or minimize 

principal volatility for investors. See Form PF: Glossary of Terms. 

1533 See Proposing Release, supra note 25, at section I. 

1534 See, e.g., Goldman Sachs Comment Letter; ICI Comment Letter; Oppenheimer Comment Letter. 

1535 See SSGA Comment Letter. 
467

better enabling us to track and respond to potential shifts in assets from registered money market 

funds into unregistered alternatives. Accordingly, today we are adopting the Form PF 

amendments largely as proposed, with some revisions to respond to comments and correspond 

the reporting as much as possible to the amendments we are making to Form N-MFP. 

We adopted Form PF, as required by the Dodd-Frank Act,1536 to assist in the monitoring 

and assessment of systemic risk; to provide information for FSOC’s use in determining whether 

and how to deploy its regulatory tools; and to collect data for use in our own regulatory 

program.1537 As discussed in more detail below, the Commission and FSOC have recognized the 

potentially increased significance of cash management products other than money market funds, 

including liquidity funds, after the money market fund reforms we are adopting today are 

effective.1538 Therefore, to enhance the ability to monitor and assess the short-term financing 

markets and to facilitate our oversight of those markets and their participants, we are today 

requiring large liquidity fund advisers—registered advisers with $1 billion or more in combined 

money market fund and liquidity fund assets—to file virtually the same information with respect 

to their liquidity funds’ portfolio holdings on Form PF as money market funds are required to file 

 1536 See Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and 

Commodity Trading Advisors on Form PF, Investment Advisers Act Release No. 3308 (Oct. 31, 2011) [76 

FR 71128 (Nov. 16, 2011)] (“Form PF Adopting Release”) at section I. Form PF is a joint form between 

the Commission and the CFTC only with respect to sections 1 and 2 of the Form; section 3, which we are 

amending today, and section 4 were adopted only by the Commission. Id. 

1537 Although Form PF is primarily intended to assist FSOC in its monitoring obligations under the Dodd-Frank 

Act, we also may use information collected on Form PF in our regulatory program, including examinations, 

investigations, and investor protection efforts relating to private fund advisers. See Form PF Adopting 

Release, supra note 1536, at sections II and VI.A.

1538 See infra note 1565 and accompanying text.
468

on Form N-MFP.1539 

As discussed in the Proposing Release, we share the concern expressed by some 

commenters that, if the money market fund reforms we are adopting today cause investors to 

seek alternatives to money market funds, including private funds that seek to maintain a stable 

NAV but that are not registered with the Commission, this shift could increase risk by reducing

transparency of the potential purchasers of short-term debt instruments.

1540 We discuss in detail 

the potential for money market fund investors to reallocate their assets to alternative investments 

in section III.A.1.c.iv above. 

The amendments that we are adopting to Form PF today are designed to achieve two 

primary goals. First, they are designed to ensure to the extent possible that any further money 

market fund reforms do not decrease transparency in the short-term financing markets, which 

will better enable FSOC to monitor and address any related systemic risks and better enable us to 

develop effective regulatory policy responses to any shift in investor assets. Second, the 

amendments to Form PF are designed to enable more effective administration of relevant

 1539 As we proposed, we are incorporating in a new Question 63 in section 3 of Form PF the substance of 

virtually all of the questions on Part C of Form N-MFP as amended, except that we have modified the 

questions where appropriate to reflect that liquidity funds are not subject to rule 2a-7 (although some 

liquidity funds have a policy of complying with rule 2a-7’s risk-limiting conditions) and have not added 

questions that would parallel Items C.7 and C.9 of amended Form N-MFP. As we proposed, we are not 

including a question that would parallel Item C.7 because that item relates to whether a money market fund 

is treating the acquisition of a repurchase agreement as the acquisition of the collateral for purposes of rule 

2a-7’s diversification testing; liquidity funds, in contrast, are not subject to rule 2a-7’s diversification 

limitations, and the information on repurchase agreement collateral we are collecting through new Question 

63(g) on Form PF would allow us to better understand liquidity funds’ use of repurchase agreements and

their collateral. Item C.9 asks whether a portfolio security is a rated first tier security, rated second tier 

security, or no longer an eligible security. As we proposed, we are not including a parallel question in 

Form PF because these concepts would not necessarily apply to liquidity funds, and we believe the 

additional questions on Form PF would provide sufficient information about a portfolio security’s credit 

quality and the large liquidity fund adviser’s use of credit ratings. 

1540 See Proposing Release, supra note 25, n.803. 
469

regulatory programs even if investors do not shift their assets as a result the amendments we are 

adopting today, as the increased transparency concerning liquidity funds, combined with 

information we already collect on Form N-MFP, will provide a more complete picture of the 

short-term financing markets in which liquidity funds and money market funds both invest. 

1. Overview of Proposed Amendments to Form PF

Our Form PF amendments apply only to large liquidity fund advisers, which generally 

are SEC-registered investment advisers that advise at least one liquidity fund and manage, 

collectively with their related persons, at least $1 billion in combined liquidity fund and money 

market fund assets.1541 Large liquidity fund advisers today are required to file information on 

Form PF quarterly, including certain information about each liquidity fund they manage.1542 

Under our final amendments, for each liquidity fund it manages, a large liquidity fund adviser 

would be required to provide, quarterly and with respect to each portfolio security, the following 

 1541 An adviser is a large liquidity fund adviser if it has at least $1 billion combined liquidity fund and money 

market fund assets under management as of the last day of any month in the fiscal quarter immediately 

preceding its most recently completed fiscal quarter. See Form PF: Instruction 3 and Section 3. This $1 

billion threshold includes assets managed by the adviser’s related persons, except that an adviser is not 

required to include the assets managed by a related person that is separately operated from the adviser. Id. 

An adviser’s related persons include persons directly or indirectly controlling, controlled by, or under 

common control with the investment adviser. See Form PF: Glossary of Terms (defining the term “related 

person” by reference to Form ADV). Generally, a person is separately operated from an investment adviser 

if the adviser: (1) has no business dealings with the related person in connection with advisory services the 

adviser provides to its clients; (2) does not conduct shared operations with the related person; (3) does not 

refer clients or business to the related person, and the related person does not refer prospective clients or 

business to the adviser; (4) does not share supervised persons or premises with the related person; and (5) 

has no reason to believe that its relationship with the related person otherwise creates a conflict of interest 

with the adviser’s clients. See Form PF: Glossary of Terms (defining the term by reference to Form ADV). 

1542 See Form PF Instruction 3 and section 3. This in contrast to Form N-MFP, which is filed on a monthly 

basis. As discussed below, we currently believe that quarterly filing of this information most appropriately 

balances our need for this information with the burdens of filing the data, especially considering that large 

liquidity fund advisers file information quarterly already about the funds they advise, but do not currently 

file portfolio information about those funds. 
470

information for each month of the reporting period:1543

• the name of the issuer; 

• the title of the issue;

• certain security identifiers;

• the category of investment1544 (e.g., Treasury debt, U.S. government agency debt, 

asset-backed commercial paper, certificate of deposit, repurchase agreement1545); 

• if the rating assigned by a credit rating agency played a substantial role in the 

liquidity fund’s (or its adviser’s) evaluation of the quality, maturity or liquidity of 

the security, the name of each credit rating agency and the rating each credit 

rating agency assigned to the security;

• the maturity date used to calculate weighted average maturity; 

• the maturity date used to calculate weighted average life; 

• the ultimate legal maturity date;1546

 1543 See Form PF Question 63. Advisers will be required to file this information with their quarterly liquidity 

fund filings with data for the quarter broken down by month. Advisers will not be required to file 

information on Form PF more frequently as a result of today’s proposal because large liquidity fund 

advisers already are required to file information each quarter on Form PF. See Form PF Instruction 9. 

1544 As under amended Form N-MFP, we are revising the investment categories form the proposal in the same 

way to more accurately reflect the investment categories commonly used today. See supra section 

III.G.2.g. 

1545 For repurchase agreements we are also requiring large liquidity fund advisers to provide additional 

information regarding the underlying collateral and whether the repurchase agreement is “open” (i.e., 

whether the repurchase agreement has no specified end date and, by its terms, will be extended or “rolled” 

each business day (or at another specified period) unless the investor chooses to terminate it). As under 

amended Form N-MFP, we are not adopting the proposed CUSIP reporting requirement, and we are 

amending the proposed repurchase agreement collateral investment categories to better align with the 

categories used by the NY Fed. See supra section III.G.3. 

1546 We are changing this from “final” as proposed to “ultimate” for the same reasons we are making this 

change in Form N-MFP. See supra note 1503. 
471

• whether the instrument is subject to a demand feature, guarantee, or other 

enhancements, and information about any of these features and their providers; 

• the value of the fund’s position in the security and, if the fund uses the amortized 

cost method of valuation, the amortized cost value, in both cases with and without 

any sponsor support; 

• the percentage of the liquidity fund’s assets invested in the security; 

• whether the security is categorized as a level 3 asset or liability on Form PF;1547

• whether the security is an illiquid security, a daily liquid asset, and/or a weekly 

liquid asset, as defined in rule 2a-7; and 

• any explanatory notes.1548 

These amended reporting requirements are largely the same as the reporting requirements 

for registered money market funds under amended Form N-MFP, with some modifications to 

better tailor the reporting to private liquidity funds. As we proposed, the final amendments will 

also remove current Questions 56 and 57 on Form PF. These questions generally require large 

liquidity fund advisers to provide information about their liquidity funds’ portfolio holdings 

broken out by asset class (rather than security by security). We will be able to derive the 

information currently reported in response to those questions from the new portfolio holdings 

information we propose to require advisers to provide. The amendments will also require, as 

proposed, large liquidity fund advisers to identify any money market fund advised by the adviser 

 1547 See Form PF Question 14. See also infra notes 1466-1470 and accompanying and following text.

1548 We are also defining the following terms in Form PF, as proposed: conditional demand feature; credit 

rating agency; demand feature; guarantee; guarantor; and illiquid security. See Form PF: Glossary of 

Terms.
472

or its related persons that pursues substantially the same investment objective and strategy and 

invests side by side in substantially the same positions as a liquidity fund the adviser reports on 

Form PF.1549

After considering the comments received and the importance and utility of the 

information that would be reported on amended Form PF (as discussed further below), we are 

today adopting the Form PF amendments substantially as proposed. As noted above, most 

commenters who discussed the Form PF amendments generally supported them,1550 although one 

commenter objected, suggesting that the costs of compliance would outweigh the benefits.1551 

We have made a number of modifications to the Form PF reporting requirement, such as 

removing lot level purchase and sale reporting, that should help minimize costs and ease the 

burden. Nonetheless, we recognize that there are costs to filing this information with us which 

are discussed in detail below, and believe that they are justified by the significant benefits to 

FSOC and the Commission in better enabling tracking and responding to potential shifts in assets 

from registered money market funds into unregistered alternatives. 

Another commenter suggested that we reorganize and consolidate the questions in the 

proposed form amendments to minimize the system changes necessary to file the form.1552 We 

agree with this commenter and the final amendments have been organized to minimize system 

 1549 See Form PF Question 64. This question is based on the current definition of a “parallel fund structure” in 

Form PF. See Form PF: Glossary of Terms (defining a “parallel fund structure” as “[a] structure in which 

one or more private funds (each, a ‘parallel fund’) pursues substantially the same investment objective and 

strategy and invests side by side in substantially the same positions as another private fund”). 

1550 See, e.g., Goldman Sachs Comment Letter; ICI Comment Letter; Oppenheimer Comment Letter. 

1551 SSGA Comment Letter. 

1552 Comment Letter of Axiom SL (Aug. 28, 2013) (“Axiom Comment Letter”). 
473

changes and costs as much as possible.1553 

Consistent with our proposed amendments to Form N-MFP, we proposed to require large 

liquidity fund advisers to provide lot level information about any securities purchased or sold by 

their liquidity funds during the reporting period, including sale and purchase prices.1554 As 

discussed in section III.G.2.c above, we have been persuaded by commenters that the costs of 

such reporting do not justify the potential benefits at this time, and that the data may be better 

collected on a more systematic market wide basis. Accordingly, we are not today adopting the 

proposed lot level reporting for Form PF.1555 

One commenter suggested that Form PF be filed monthly like N-MFP, rather than on a 

quarterly basis, to better align the information in the two forms,1556 although another comment 

opposed such a monthly filing requirement.1557 We are not requiring monthly filing of Form PF 

at this time because we believe the ongoing costs and system changes necessary for large 

liquidity funds to make such a monthly filing would not be justified by the utility of more 

 1553 By eliminating lot level sale data reporting (proposed question 64 of Form PF) and accordingly 

renumbering proposed question 65 (parallel funds) as question 64, we have restructured the amendments to 

Form PF so that the amendments keep the same numbering range as the current form like the commenter 

suggested. See Form PF Question 64. 

1554 See proposed Form PF Question 64. See also supra notes 1474-1475 and accompanying text. 

1555 See supra note 1476 and accompanying text. Although as discussed above, we are not adopting the lot 

level reporting requirements generally, we are adopting a requirement to report the coupon or yield of the 

security as of the reporting date. We proposed to include this reporting requirement with the other lot level 

reporting questions. See proposed Form PF Question 63(o). Reporting this information would not require 

the use of lot level data, and thus should not pose the same difficulties as the other reporting requirements 

we are not adopting. Much like under the final amendments to Form N-MFP, the final Form PF 

amendments would include reporting of the coupon in the title of the issue but information about yield 

would be in a standalone question. See proposed Form PF Questions 63(c) and 63(o). As a result of not 

adopting question 64 about lot level sales, we are also renumbering proposed question 65 on parallel funds 

as question 64 and relabeling the Item as F rather than Item G. See Form PF Item F, Question 64.

1556 ICI Comment Letter. 

1557 Oppenheimer Comment Letter. 
474

frequent filing, especially in light of the fact that these funds currently file Form PF on a 

quarterly basis and these amendments are an enhancement to that filing. To require large 

liquidity advisers to move to a monthly reporting schedule would impose significant new costs, 

over and above the costs associated with the Form PF amendments we are adopting today, 

requiring these advisers to change systems and processes designed for quarterly reporting to a 

monthly schedule. As noted above, several reporting requirements do ask for information on a 

monthly basis within the quarterly filed Form PF, which should allow an effective comparison of 

the data to the information collected on Form N-MFP and will allow for effective oversight of 

investment activities of large liquidity advisers. 

Another commenter asked that we exempt unregistered money market funds from filing 

the Form PF amendments if the unregistered money market fund is exclusively owned by 

registered funds investing in an unregistered fund pursuant to rule 12d1-1 under the Investment 

Company Act.

1558 Rule 12d1-1 permits a registered fund to invest in an unregistered money 

market fund in excess of the limits of section 12(d)(1) of the Act, provided, among other things, 

that the unregistered fund operates in compliance with rule 2a-7 of the Act. The commenter 

argued that because these funds are exclusively owned by registered funds, any shift in assets to 

these unregistered money market funds would not represent the kind of shift that the Form PF 

amendments are designed to monitor, and thus such 12d1-1 funds should not be required to bear 

the burdens of filing the Form PF amendments. Our amendments to Form PF are designed, in 

part, to allow better monitoring of risks associated with investments in money market 

 1558 See Wells Fargo Comment Letter.
475

instruments and to generally track and monitor money market asset flows. Exempting such 

funds from filing amended Form PF would not be consistent with this goal, and could leave a 

significant gap in our ability to monitor and track money market instrument holdings. In the 

absence of the Form PF portfolio security reporting requirements, if there was a shift in assets 

from registered money market funds that file portfolio holdings reports under Form N-MFP to 

unregistered 12d1-1 funds that do not file such information about their holdings, we and FSOC 

would lose significant transparency and monitoring ability. Accordingly, we are not adopting 

such an exemption. 

2. Utility of New Information, Including Benefits, Costs, and Economic 

Implications

As discussed in the 2013 Proposing Release, the information that advisers must report on 

Form PF (both currently and under the final amendments) concerning their liquidity funds is 

designed to assist FSOC in assessing the risks undertaken by liquidity funds, their susceptibility 

to runs, and how their investments might pose systemic risks either among liquidity funds or 

through contagion to registered money market funds.1559 The information that advisers must 

report is intended to aid FSOC in its determination of whether and how address issues related to 

systemic risk.

1560 Finally, the information that advisers must report is designed to assist FSOC 

and the Commission in assessing the extent to which a liquidity fund is being managed 

consistent with restrictions imposed on registered money market funds that might mitigate their 

likelihood of posing systemic risk.

 1559 See Form PF Adopting Release, supra note 1536, at section II.C.3.

1560 Id.
476

We believe, based on our staff’s consultations with staff representing the members of 

FSOC, that the additional information we are requiring advisers to report on Form PF will assist 

FSOC in carrying out these responsibilities. Several commenters agreed that the Form PF 

amendments will assist FSOC and the Commission in these responsibilities.1561 FSOC and the 

Commission have recognized the risks that may be posed by cash management products other 

than money market funds, including liquidity funds, and the potentially increased significance of 

such products after we adopt the money market fund reforms we are making today.1562 FSOC has 

also stated that it and its members “intend to use their authorities, where appropriate and within 

their jurisdictions, to address any risks to financial stability that may arise from various products 

within the cash management industry in a consistent manner,” as “[s]uch consistency would be 

designed to reduce or eliminate any regulatory gaps that could result in risks to financial stability 

 1561 See Goldman Sachs Comment Letter (the PF amendments will “...assist the Financial Stability Oversight 

Council in fulfilling its responsibilities and better enable the Commission to develop effective regulatory 

policy responses to any shift in investor assets from money funds to private liquidity funds.”); ICI 

Comment Letter. 

1562 See Proposed Recommendations Regarding Money Market Mutual Fund Reform, Financial Stability 

Oversight Council [77 FR 69455 (Nov. 19, 2012)] (the “FSOC Proposed Recommendations”), at 7 (“The 

Council recognizes that regulated and unregulated or less-regulated cash management products (such as 

unregistered private liquidity funds) other than MMFs may pose risks that are similar to those posed by 

MMFs, and that further MMF reforms could increase demand for non-MMF cash management products. 

The Council seeks comment on other possible reforms that would address risks that might arise from a 

migration to non-MMF cash management products.”) We, too, have recognized that “[l]iquidity funds and 

registered money market funds often pursue similar strategies, invest in the same securities and present 

similar risks.” See Form PF Adopting Release, supra note 1536, at section II.A.4. See also Reporting by 

Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading 

Advisors on Form PF, Investment Advisers Act Release No. 3145 (Jan. 26, 2011) [76 FR 8068 (Feb. 11, 

2011)] (“Form PF Proposing Release”), at note 68 and accompanying text (explaining that, “[d]uring the 

financial crisis, several sponsors of ‘enhanced cash funds,’ a type of liquidity fund, committed capital to 

those funds to prevent investors from realizing losses in the funds,” and noting that “[t]he fact that sponsors 

of certain liquidity funds felt the need to support the stable value of those funds suggests that they may be 

susceptible to runs like registered money market funds”). 
477

if cash management products with similar risks are subject to dissimilar standards.”1563 We 

expect, therefore, that requiring advisers to provide additional information on Form PF will 

enhance the ability to monitor and assess risk in the short-term financing markets. 

We are requiring only large liquidity fund advisers to report this additional information 

for the same reason that we previously determined to require only larger private fund advisers to 

provide more comprehensive information on their respective industries on Form PF: because a 

relatively small group of advisers represents a substantial portion of the assets.1564 Based on 

information filed on Form PF and Form ADV, as of the end of 2013, we estimate that there were 

approximately 24 large liquidity fund advisers (out of 43 total advisers that advise at least one 

liquidity fund), with their aggregate liquidity fund assets under management representing 

approximately 91% of liquidity fund assets managed by all advisers registered with the 

Commission. 

This threshold also should minimize the costs of our amendments because large liquidity 

fund advisers already are required to make quarterly reports on Form PF and, as of the end of 

2013, virtually all either advise a money market fund or have a related person that advises a 

money market fund. Requiring large liquidity fund advisers to provide substantially the same 

information required by Form N-MFP therefore may reduce the burdens associated with our 

 1563 See FSOC Proposed Recommendations, supra note 1562, at 7. The President’s Working Group on 

Financial Markets reached a similar conclusion, noting that because vehicles such as liquidity funds “can 

take on more risks than MMFs, but such risks are not necessarily transparent to investors..., unregistered 

funds may pose even greater systemic risks than MMFs, particularly if new restrictions on MMFs prompt 

substantial growth in unregistered funds.” See PWG Report, supra note 506, at 21. The potentially 

increased risks posed by liquidity funds were of further concern because these risks “are difficult to 

monitor, since [unregistered cash management products like liquidity funds] provide far less market 

transparency than MMFs.” Id. at 35.

1564 See Form PF Adopting Release, supra note 1536, at n.88 and accompanying text.
478

amendments, which we discuss below, because large liquidity fund advisers generally already 

have (or may be able to readily obtain access to) the systems, service providers, and/or staff 

necessary to capture and report the same types of information for reporting on Form N-MFP. 

These same systems, service providers, and/or staff may allow large liquidity fund advisers to 

comply with our changes to Form PF more efficiently and at a reduced cost than if we were to 

require advisers to report information that differed materially from that which the advisers must 

file on Form N-MFP. 

In addition to our concerns about the ability to assess risks associated with money market 

fund investments, we also are concerned about losing transparency regarding money market fund 

investments that may shift into liquidity funds as a result of the other reforms we are adopting 

today and our ability effectively to formulate policy responses to such a shift in investor 

assets.1565 We noted in the proposal that a run on liquidity funds could spread to money market 

funds because, for example, both types of funds often invest in the same securities as noted 

above.1566 Our ability to formulate a policy response to address this risk could be diminished if 

 1565 See, e.g., DERA Study, supra note 24, at section 4.C (analysis of investment alternatives to money market 

funds, considering, among other issues, the potential for investors to shift their assets to money market fund 

alternatives, including liquidity funds, in response to further money market fund reforms and certain

implications of a shift in investor assets). 

1566 Liquidity funds may generally have a higher percentage of institutional shareholders than money market 

funds because liquidity funds rely on exclusions from the Investment Company Act’s definition of 

“investment company” provided by section 3(c)(1) or 3(c)(7) of that Act. See section 202(a)(29) of the 

Advisers Act (defining the term “private fund” to mean an issuer that would be an investment company, as 

defined in section 3, but for section 3(c)(1) or 3(c)(7) of that Act). Funds relying on those exclusions sell 

their shares in private offerings which in many cases are restricted to investors who are “accredited 

investors” as defined in rule 501(a) under the Securities Act. Investors in funds relying on section 3(c)(7), 

in addition, generally must be “qualified purchasers” as defined in section 2(a)(51) of the Investment 

Company Act. Having a larger institutional shareholder base may increase the potential for a run to 

develop at a liquidity fund. As discussed in greater detail in section II.C of this Release, redemption data 

from the financial crisis suggest that some institutional money market fund investors are likely to redeem 

from distressed money market funds more quickly than other investors and to redeem a greater percentage 
479

we had less transparency concerning the portfolio holdings of liquidity funds as compared to 

money market funds, and thus were not able as effectively to assess the degree of correlation 

between various funds or groups of funds that invest in the short-term financing markets, or if we 

were unable proactively to identify funds that own distressed securities. Several commenters 

agreed that the Form PF amendments would reduce the chance that these reforms will diminish 

transparency in the short-term financing markets.1567 Indeed, Form PF, by defining large 

liquidity fund advisers subject to more comprehensive reporting requirements as advisers with $1 

billion in combined money market fund and liquidity fund assets under management today 

reflects the similarities between money market funds and liquidity funds and the need for 

comprehensive information concerning advisers’ management of large amounts of short-term 

assets through either type of fund. The need for this comprehensive data will be heightened if 

money market fund investors shift their assets to liquidity funds in response to the amendments 

we are adopting today. 

Finally, this increased information on liquidity funds managed by large liquidity fund 

advisers also will be useful even absent a shift in money market fund investor assets resulting 

from these reforms. Collecting this information about these liquidity funds will, when combined 

with information collected on Form N-MFP, provides a more complete picture of the short-term 

financing markets, allowing the SEC and FSOC to more effectively fulfill our respective 

statutory mandates. For example, we discuss the contagion risk above. But it may be difficult to 

 

of their holdings. This may be indicative of the way institutional investors in liquidity funds would behave, 

particularly liquidity funds that more closely resemble money market funds.

1567 See, e.g., Goldman Sachs Comment Letter (“Finally, GSAM generally supports the amendments to Form 

PF, which will ensure that further money market fund reforms do not decrease transparency in the shortterm financing markets...’); ICI Comment Letter. 
480

assess this risk fully today without more detailed information about the portfolio holdings of the 

liquidity funds managed by advisers who manage substantial amounts of short-term investments 

and the ability to combine that data with the information we collect on Form N-MFP. 

For example, if a particular security or issuer were to come under stress, without these 

amendments, our staff would be unable to determine which liquidity funds, if any, held that 

security, much like before we adopted Form N-MFP for registered money market funds. This is 

because advisers currently are required only to provide information about the types of assets their 

liquidity funds hold, rather than the individual positions.1568 Our staff could see the aggregate 

value of all of a liquidity fund’s positions in unsecured commercial paper issued by non-U.S. 

financial institutions, for example, but could not tell whether the fund owned commercial paper 

issued by any particular non-U.S. financial institution. If a particular institution were to come 

under stress, the aggregated information available today would not allow us or our staff to 

determine the extent to which liquidity funds were exposed to the financial institution; lacking 

this information, neither we nor our staff would be able as effectively to assess the risks across 

the liquidity fund industry and, by extension, the short-term financing markets. 

Position level information for liquidity funds managed by large liquidity fund advisers 

also will allow our staff more efficiently and effectively to identify longer-term trends in the 

industry and at particular liquidity funds or advisers. The aggregated position information that 

advisers provide today may obscure the level of risk in the industry or at particular advisers or 

liquidity funds that, if more fully understood by our staff, could allow the staff to more 

 1568 See Form PF Question 56 (requiring advisers to provide exposures and maturity information, by asset class, 

for liquidity fund assets under management); Form PF Question 57 (requiring advisers to provide the asset 

class and percent of the fund’s NAV for each open position that represents 5% or more of the fund’s NAV).
481

efficiently and effectively target our examinations efforts of these advisers, and could better 

inform the staff’s policy recommendations. 

As we discussed in the proposal, our experience with the portfolio information money 

market funds report on Form N-MFP—which was limited at the time we adopted Form PF—has 

proved useful in our regulation of money market funds in these and other ways and has informed 

the amendments we are adopting today.1569 During the 2011 Eurozone debt crisis, for example, 

we and our staff benefitted from the ability to determine which money market funds had

exposure to specific financial institutions (and other positions) and from the ability to see how 

funds changed their holdings as the crisis unfolded. This information was useful in assessing 

risk across the industry and at particular money market funds. Given the similarities between 

money market funds and liquidity funds and the possibility for risk to spread between the types 

of funds, our experience with portfolio information filed on Form N-MFP suggests that receiving 

virtually the same information for liquidity funds managed by large liquidity fund advisers will 

provide significant benefits to oversight efforts. 

For all of these reasons and as discussed above, we expect that requiring large liquidity 

fund advisers to report their liquidity funds’ portfolio information on Form PF as we are 

requiring today will provide substantial benefits for us and FSOC, including positive effects on 

efficiency and capital formation. As we explained in more detail when we initially adopted 

Form PF, requiring advisers to report on Form PF is intended to positively affect efficiency and 

 1569 Money market funds were required to begin filing information on Form N-MFP by December 7, 2010. See

2010 Adopting Release, supra note 17 at n.340 and accompanying text. Form PF was proposed shortly 

thereafter on January 26, 2011, and adopted on October 31, 2011. See Form PF Proposing Release, supra 

note 1562; Form PF Adopting Release, supra note 1536. 
482

capital formation, in part by enhancing our ability to evaluate and develop regulatory policies 

and to more effectively and efficiently protect investors and maintain fair, orderly, and efficient 

markets.1570

The additional information on Form PF should better inform our understanding of the 

activities of liquidity funds and their advisers and the operation of the short-term financing 

markets, including risks that may arise in liquidity funds and harm other participants in those 

markets or those who rely on them—including money market funds and their shareholders and 

the companies and governments that seek financing in the short-term financing markets. The 

additional information that advisers will report on Form PF, particularly when combined with 

similar data reported on Form N-MFP, therefore should enhance our ability to evaluate and 

develop regulatory policies and enable us to more effectively and efficiently protect investors 

and maintain fair, orderly, and efficient markets. 

As discussed in detail in the proposal, we recognize that large liquidity fund advisers may 

have concerns about reporting information about their liquidity funds’ portfolio holdings and 

may regard this as commercially sensitive information, but noted that such data may be not be as 

sensitive in this context when compared to other private funds, largely because of the types of 

 1570 See generally Form PF Adopting Release, supra note 1536, at section V.A (explaining that, in addition to 

assisting FSOC fulfill its mission, “we expect this information to enhance [our] ability to evaluate and 

develop regulatory policies and improve the efficiency and effectiveness of our efforts to protect investors 

and maintain fair, orderly, and efficient markets”). We explained, for example, that Form PF data was 

designed to allow us to more efficiently and effectively target our examination programs and, with the 

benefit of Form PF data, to better anticipate regulatory problems and the implications of our regulatory 

actions, and thereby to increase investor protection. See id. We also explained that Form PF data could 

have a positive effect on capital formation because, as a result of the increased transparency to regulators 

made possible by Form PF, private fund advisers might assess more carefully the risks associated with 

particular investments and, in the aggregate, allocate capital to investments with a higher value to the 

economy as a whole. See id. at text accompanying and following n.494.
483

securities that liquidity funds invest in.1571 No commenters on the proposed Form PF 

amendments objected to the amendments on the basis of the information being sensitive or 

proprietary. As we discussed in the Form PF Adopting Release, we do not intend to make public 

Form PF information identifiable to any particular adviser or private fund, and indeed, the DoddFrank Act amended the Advisers Act to preclude us from being compelled to reveal this 

information except in very limited circumstances.1572 

We note that although the increased transparency to regulators provided by our 

amendments could positively affect capital formation as discussed above, increased 

transparency, as we observed when adopting Form PF, also may have a negative effect on capital 

formation if it increases advisers’ aversion to risk and, as a result, reduces investment in 

enterprises that may expose the fund to more risk but be beneficial to the economy as a whole.1573

Nevertheless, the information collected generally will be non-public, it should not affect large 

liquidity fund advisers’ ability to raise capital. To the extent that our amendments were to cause 

changes in investment allocations that lead to reduced economic outcomes in the aggregate, our 

amendments may result in a negative effect on capital available for investment. 

We also do not believe that our amendments to Form PF will have a significant effect on 

competition because the information that advisers report on Form PF, including the new 

information we are requiring, generally will be non-public and similar types of advisers will have 

 1571 See Proposing Release, supra note 25, at Section I.2. 

1572 See Form PF Adopting Release, supra note 1536, at section II.D.

1573 See id. at text accompanying and following n.537.
484

comparable burdens under the form as we propose to amend it.1574 We do not believe the 

amendments’ effect on capital formation discussed above will be significant, again because the 

information collected generally will be non-public and, therefore, should not affect large 

liquidity fund advisers’ ability to raise capital.1575

j. Alternatives Considered 

We considered whether we and FSOC would be able as effectively to carry out our 

respective missions as discussed above using the information large liquidity fund advisers 

currently must file on Form PF. But as we discuss above, we expect that requiring large liquidity 

funds advisers to provide portfolio holdings information will provide a number of benefits and 

will allow better understanding of the activities of large liquidity fund advisers and their liquidity 

funds than would be possible with the higher level, aggregate information that advisers file today 

on Form PF (e.g., the ability to determine which liquidity funds own a distressed security). 

For the reasons discussed above we also considered, but ultimately chose not to adopt, 

changes requiring advisers to file portfolio information about their liquidity funds that differs 

from the information money market funds are required to file on Form N-MFP. Generally, given 

our experience with Form N-MFP data, we believe that not only could different portfolio 

holdings information be less useful than that required by Form N-MFP, it also could be more 

difficult to combine with Form N-MFP data. Requiring advisers to file on Form PF virtually the 

same information money market funds file on Form N-MFP also should be more efficient for 

advisers and reduce the costs of reporting from a systems standpoint, because many large 

 1574 See id. at text accompanying and following n.535.

1575 See id.
485

liquidity advisers also manage money market funds and already have the systems in place to 

report the data. 

Finally, we considered whether to require large liquidity fund advisers to provide their 

liquidity funds’ portfolio information more frequently than quarterly, but as discussed in greater 

detail above, chose not to adopt this requirement.1576 Monthly filings, for example, would 

provide more current data and could facilitate our combining the new information with the 

information money market funds file on Form N-MFP (which money market funds file each 

month). We balanced the potential benefits of more frequent reporting against the costs it would 

impose and believe, at this time, that quarterly reporting is more appropriate.1577 

k. Operational Costs

We recognize, however, that our amendments to Form PF, while limited to large liquidity 

fund advisers, will create some costs for those advisers, and also could affect competition, 

efficiency, and capital formation. We continue to expect that the operational costs to advisers to 

report the new information will be the same costs we discuss in the Paperwork Reduction Act 

analysis in section IV.H.3 below, as reduced by the lower costs associated with the changes we 

are making from the proposal discussed in that section. As discussed in more detail in that 

section, we estimate that our amendments to Form PF would result in an annual aggregate 

additional burden per large liquidity fund adviser of 298 burden hours, at a total time cost of 

$79,566, and external costs of $17,104. This will result in increased aggregate burden hours 

 1576 See supra note 1556. 

1577 Large liquidity fund advisers already are required to make quarterly filings on Form PF. See Form PF 

Instruction 9. Requiring large liquidity fund advisers to provide the new portfolio holdings information on 

a quarterly basis should therefore be more cost effective for the advisers. 
486

across all large liquidity fund advisers of 8,344 burden hours,1578 at a time cost of $2,227,848, 

and $478,912 in external costs.1579 

These estimates are based on our estimates of the paperwork burdens associated with our 

final amendments to Form N-MFP because advisers will be required to file on Form PF virtually 

the same information about their large liquidity funds as money market funds will be required to 

file on Form N-MFP as we are amending it. We therefore expect that the paperwork burdens 

associated with Form N-MFP (as we are amending it) are representative of the costs that large 

liquidity fund advisers will incur as a result of our amendments to Form PF. We note, however, 

that this is a conservative approach for several reasons. Large liquidity fund advisers may 

experience economies of scale because, as discussed above, virtually all of them advise a money 

market fund or have a related person that advises a money market fund. Large liquidity fund 

advisers therefore likely will pay a combined licensing fee or fee to retain the services of a third 

party that covers filings on both Forms PF and Form N-MFP. We expect that this combined fee 

likely will be less than the combined estimated Paperwork Reduction Act costs associated with 

Forms PF and Form N-MFP. 

I. Diversification

We are amending the rule 2a-7 diversification provisions as proposed, with certain 

modifications as discussed below. Under the current rule, money market funds generally must 

limit their investments in: (i) the securities of any one issuer of a first tier security (other than 

 1578 This estimate is based on the following calculation: 298 estimated additional burden hours per large 

liquidity fund adviser x 28 large liquidity fund advisers = 8,344.

1579 See infra section IV.H.3.
487

with respect to government securities and securities subject to a guarantee issued by a noncontrolled person) to no more than 5% of fund assets; and (ii) securities subject to a demand 

feature or a guarantee to no more than 10% of fund assets from any one provider.1580 Under our 

diversification amendments, we are requiring that money market funds treat certain entities that 

are affiliated with each other as single issuers when applying rule 2a-7’s 5% issuer 

diversification limit.1581 As discussed further below, the amended diversification provisions 

exclude certain majority equity owners of asset-backed commercial paper (“ABCP”) conduits

from the requirement to aggregate affiliates for purposes of the 5% issuer diversification limit. 

The diversification provisions that we are adopting today also require that a money market fund 

treat the sponsors of asset-backed securities (“ABS”) as guarantors subject to rule 2a-7’s 10% 

diversification limit applicable to guarantees and demand features, unless the fund’s board makes 

certain findings.1582 Lastly, we have decided to adopt (i) as proposed, the removal of the twentyfive percent basket, under which as much as 25% of the value of securities held in a money 

market fund’s portfolio may be subject to guarantees or demand features from a single institution 

for money market funds other than tax-exempt money market funds, and (ii) the reduction to 

15%, rather than the elimination of, the twenty-five percent basket for tax-exempt money market 

funds, including single state money market funds. Under our amendments, up to 15% (as 

compared to 10%, which was proposed) of the value of securities held in a tax-exempt money 

 1580 See current rules 2a-7(c)(4)(i) and (c)(4)(iii). The current rule also provides a “twenty-five percent basket,” 

under which as much as 25% of the value of securities held in a fund’s portfolio may be subject to 

guarantees or demand features from a single institution. See current rule 2a-7(c)(4)(iii). A money market 

fund may currently use a twenty-five percent basket to invest in demand features or guarantees that are first 

tier securities issued by non-controlled persons. See id.

1581 See rule 2a-7(d)(3)(ii)(F).

1582 See rule 2a-7(a)(18)(ii) (definition of guarantee).
488

market fund’s portfolio may be subject to guarantees or demand features from a single 

institution.1583 

1. Treatment of Certain Affiliates for Purposes of Rule 2a-7’s Five Percent 

Issuer Diversification Requirement

As noted above, today we are amending rule 2a-7’s diversification provisions to provide 

that money market funds limit their exposure to affiliated groups, rather than to discrete 

issuers.1584 As discussed in the Proposing Release, financial distress at an issuer can quickly 

spread to affiliates and the valuations and creditworthiness of the issuer may depend, in large 

part, on the financial well-being of other firms within the same corporate family.1585 By requiring 

diversification of exposure to entities that are affiliated with each other, the rule mitigates credit 

risk to a money market fund by limiting the fund from assuming a concentrated amount of risk in 

a single economic enterprise. Commenters generally supported the proposal to treat certain 

entities that are affiliated with each other as single issuers when applying rule 2a-7’s 5% issuer 

diversification limit.1586 Commenters also confirmed our understanding that money market funds 

today generally attempt to identify and measure their exposure to entities that are affiliated with 

 1583 See rule 2a-7(d)(3)(iii)(B). We note that amended rule 2a-7(d)(3)(iii)(B), which provides a basket for taxexempt money market funds, has been revised from current rule 2a-7(c)(4)(iii). The revised rule text is 

intended to be a clarifying change from the current rule text and is not designed to have any substantive 

effect other than to reduce the twenty-five percent basket to a fifteen percent basket for tax-exempt funds.

1584 As discussed below, entities are “affiliated” with one another if one controls the other entity or is controlled 

by it or is under common control with it. “Control” for this purpose, is defined to mean ownership of more 

than 50% of an entity’s voting securities. Rule 2a-7(d)(3)(ii)(F)(1). We note that we are not amending rule 

2a-7’s diversification requirements to require that money market funds treat affiliates as a single entity for 

purposes of the 10% diversification limit on investments in securities subject to a demand feature or 

guarantee. 

1585 See Proposing Release supra note 25, at section III.J.1.

1586 See, e.g., ICI Comment Letter; U.S. Bancorp Comment Letter; Goldman Sachs Comment Letter; Dreyfus 

Comment Letter; Wells Fargo Comment Letter; Vanguard Comment Letter.
489

each other as part of their risk management processes.1587 Based on the comments we received, 

we continue to believe that requiring diversification of exposure to affiliated entities will 

mitigate a money market fund’s credit risk.

a. Definition of control

We are adopting as proposed that, for purposes of applying the amended rule, entities are 

affiliated with one another if one controls the other entity or is controlled by it or is under 

common control with it.1588 For this purpose only, control is defined to mean ownership of more 

than 50% of an entity’s voting securities.1589 By using a more than 50% test (i.e., majority 

ownership), we continue to believe the alignment of economic interests and risks of the affiliated 

entities is sufficient to justify aggregating their exposures for purposes of rule 2a-7’s 5% issuer 

diversification limit. As discussed in the Proposing Release, we considered several alternative 

approaches to delineating a group of affiliates. We requested comment as to whether we should 

use any of these alternative approaches or whether there are other approaches we should 

consider. A number of commenters supported the proposed majority ownership test.1590 Some 

commenters also agreed with us that other approaches to defining control could limit a money 

market fund’s investment flexibility unnecessarily.1591 One commenter noted that while the 

 1587 See, e.g., ICI Comment Letter; U.S. Bancorp Comment Letter; Goldman Sachs Comment Letter; Dreyfus 

Comment Letter; Vanguard Comment Letter; Federated II Comment Letter.

1588 See rule 2a-7(d)(3)(ii)(F).

1589 See id. We note that the definition of control we are adopting today with respect to the treatment of 

affiliates for purposes of issuer diversification under rule 2a-7 is not the same as the definition of control in 

section 2(a)(9) of the Investment Company Act. 

1590 See, e.g., ABA Business Law Section Comment Letter; Wells Fargo Comment Letter. 

1591 See ICI Comment Letter (stating that a definition of control that would include more attenuated 

relationships or lower ownership levels could limit a money market fund’s investment opportunities to 

issuers whose risks are not necessarily correlated to the issuer’s parents). See also Wells Fargo Comment 
490

proposed definition of control would not generally limit money market funds’ investment 

flexibility or be difficult to apply, incorporating the definition of a “majority-owned subsidiary” 

from section 2(a)(24) of the Investment Company Act, rather than introducing a new definition 

of control, would be more desirable.1592 Under the section 2(a)(24) definition, a “majority-owned 

subsidiary” of a person means a company 50% or more of the outstanding voting securities of 

which are owned by such person, or by a company which is a majority-owned subsidiary of such 

person.1593 We note however, that the section 2(a)(24) definition is not in itself a definition of 

control and only includes the circumstances in which an entity is a majority-owned subsidiary of 

another entity. Although we requested comment as to whether we should incorporate the section 

2(a)(24) definition of majority-owned subsidiaries into our definition of control, we believe that 

a more than 50% test is indicative of circumstances in which an entity controls another entity or 

is controlled by it as opposed to circumstances in which an entity owns half of another entity’s

voting securities. The definition of control we are adopting today is used to define entities that 

are required to be consolidated for purposes of our diversification requirements. Therefore, we 

believe it is appropriate to look at the circumstances in which entities generally are required to be 

consolidated because they represent exposure to a single economic entity. We continue to 

believe that the approach we are adopting today is preferable because it is consistent with various 

circumstances under which affiliated entities must be consolidated on financial statements 

prepared in accordance with GAAP, under which a parent generally must consolidate its 

 

Letter (supporting the decision to not require money market funds to treat as affiliates all entities that must 

be consolidated on a balance sheet). 

1592 See ICI Comment Letter.

1593 See Section 2(a)(24).
491

majority-owned subsidiaries.1594 These majority-owned subsidiaries generally must be 

consolidated under GAAP because the operations of the group are sufficiently related such that 

they are presented under GAAP as if they “were a single economic entity.” 

b. Majority equity owners of asset-backed commercial paper conduits

We requested comment as to whether the exposures to risks of issuers that would be 

treated as affiliated under our proposal would be highly correlated and whether our proposed 

approach to delineating affiliates was too broad or too narrow.1595 After further consideration, 

based on the comments we received in response to our proposal, we recognize that the majority 

ownership definition of control that we proposed may encompass certain affiliated parties that 

are not part of the same economic enterprise and therefore should be excluded from the 

definition. Accordingly, as discussed further below, the majority ownership definition of control 

that we are adopting today excludes certain equity owners of ABCP conduits from the 

requirement to aggregate affiliates for purposes of the 5% issuer diversification limit.1596 

Without an exclusion from the amended rule, money market funds would be required to 

aggregate their exposure to the ABCP conduits and to the equity owners of ABCP conduits for 

 1594 See, e.g., FASB ASC, supra note 425, at paragraph 810-10-15-8 (“The usual condition for a controlling 

financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by 

one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of 

another entity is a condition pointing toward consolidation.”).

1595 See Proposing Release, supra note 25, at section III.J.1.

1596 One commenter suggested that we also exclude TOBs from the amended rule, noting that under certain 

circumstances liquidity providers may own more than 50 percent of the securities issued by a TOB but may 

not be part of the same corporate family. See SIFMA Comment Letter. We believe that excluding TOBs 

from the amended rule is unnecessary in light of the fact that an owner of TOB-issued securities would not 

likely have voting rights in a TOB trust and therefore would not fall under the definition of affiliate for 

purposes of the 5% issuer diversification limit. We note that the Volcker Rule may likely have an impact 

on TOB program structures. 
492

purposes of the 5% issuer diversification limit. One commenter argued that we should exclude 

equity owners of ABCP conduits from the proposed affiliate aggregation rule to allow money 

market funds to treat each special purpose entity (“SPE”) issuing ABCP as a separate issuer for 

purposes of issuer diversification, even if the same entity or affiliate group controls the voting 

equity of multiple ABCP conduits.1597 This commenter noted that voting equity of an ABCP 

conduit is typically almost entirely owned by an otherwise unaffiliated third party that is in the 

business of owning such entities and providing management and administrative services, and not 

by the ABCP conduit sponsor, and that requiring money market funds to aggregate conduits on 

the basis of common equity ownership would unnecessarily restrict the amount of ABCP 

available for purchase by money market funds.1598 We agree that if certain independent equity 

owners are simply providing services in a management and administrative capacity and are 

concentrated in the ABCP industry, failure to provide an exception to those equity owners could 

unnecessarily limit ABCP investment or reduce economies of scale in ABCP administration with 

no diversification benefit to money market funds. 

The purpose of treating affiliated parties as a single issuer when applying the 

diversification limit is to mitigate risk to a money market fund by limiting the fund from 

assuming a concentrated amount of risk in a single economic enterprise, not to limit the exposure 

to entities that might fall under the definition of “affiliated” but are otherwise independent and 

not part of the same economic enterprise. In light of these considerations, we have decided to 

provide an exception from the amended rule for certain independent equity owners of ABCP 

 1597 Comment Letter of Structured Finance Industry Group (Sept. 17, 2013) (“SFIG Comment Letter”).

1598 Id.
493

conduits. The commenter that argued we should exclude equity owners of ABCP conduits 

recommended that we provide that money market funds need not aggregate an ABCP conduit 

and its independent equity owners if owning equity interests in SPEs is a primary line of business 

of such owner.1599 This commenter also noted that the voting equity of an ABCP conduit is 

typically owned by an unaffiliated third party that provides certain management services to the 

ABCP conduit. In addition, this commenter suggested limiting the exception to those equity 

owners that are not originating qualifying assets to the ABCP conduits.1600 We agree with the 

commenter’s statements above and we are providing an exception, which we expect addresses 

the concerns regarding the current marketplace organization of ABCP conduits. Accordingly, 

under the exception, money market funds will be subject to the 5% issuer diversification limit on 

the ABCP conduit and any ten percent obligors,

1601 but need not aggregate an ABCP conduit and 

its independent equity owners for purposes of the 5% issuer diversification limit provided that a 

primary line of business of those independent equity owners is owning equity interests in SPEs 

and providing services to SPEs, the independent equity owners’ activities with respect to the 

SPEs are limited to providing management or administrative services, and no qualifying assets of 

the ABCP conduit were originated by the equity owners.1602 Subject to the exception for certain 

majority equity owners of ABCP conduits, we continue to believe that the majority ownership 

test appropriately requires a money market fund to limit its exposure to particular economic 

enterprises without unnecessarily limiting a fund’s investments. 

 1599 Id.

1600 Id.

1601 See infra note 1603 (definition of ten percent obligor).

1602 See rule 2a-7(d)(3)(ii)(F)(2). 
494

c. Treatment of affiliates for ten percent obligor determinations

One commenter expressed concern regarding the impact of the proposed diversification 

amendments on the treatment of ten percent obligors1603 for ABS.1604 The commenter noted that 

currently each ABS issued by a separate entity is analyzed separately, and an ABCP conduit 

typically represents to money market funds that it does not intend to purchase any ABS which 

would result in a ten percent obligor.

1605 The commenter expressed concern that, if the proposed 

treatment of affiliates is made applicable to the ten percent obligor, it is likely that some of the 

ABS held by an ABCP conduit will need to be aggregated, resulting in ten percent obligors.1606 

This commenter argued that such a result may create legal and practical issues for sponsors, 

given confidentiality restrictions that may prevent funds from determining which obligors are 

affiliated, and may not reflect actual risks if such obligors are not part of the same economic 

enterprise.1607 In addition, this commenter noted that conduits may restructure their programs to 

avoid having consolidated affiliate ten percent obligors, which would potentially reduce funding 

capacity to those obligors.1608 

We acknowledge that the application of our diversification amendments on the treatment 

 1603 Generally, ABS acquired by a money market fund (“primary ABS”) are deemed to be issued by the SPE 

that issued the ABS (e.g., the trust, corporation, entity organized for sole purpose of issuing the ABS). See 

rule 2a-7(d)(3)(ii)(D)(1). However, if obligations of any issuer constitute 10% or more of the qualifying 

assets of the primary ABS, that issuer will be deemed to be the issuer of that portion of the primary ABS 

that is comprised of its obligations (“ten percent obligor”). See rule 2a-7(d)(3)(ii)(D)(1)(i). 

1604 See SFIG Comment Letter. See also Memorandum from the Division of Investment Management 

regarding a September 10, 2013 meeting with representatives of the Structured Finance Industry Group. 

1605 Id.

1606 Id.

1607 Id.

1608 Id.
495

of ten percent obligors may cause certain sponsors to conduct additional due diligence and also 

may mean that some conduits would have to restructure their programs, which could result in 

reduced funding capacity from money market funds. However, we understand that these 

affiliated obligors generally represent exposure to the same economic enterprise. Therefore, 

after further consideration, we continue to believe that requiring aggregation of obligors in 

determining whether an obligor is a ten percent obligor reflects our objective.1609 We continue to 

believe that by using a more than 50% test, the alignment of economic interests and risks of 

affiliated obligors is sufficient to justify aggregating their exposures for purposes of applying 

rule 2a-7’s 5% issuer diversification limit. Requiring aggregation of obligors in determining ten 

percent obligors will require diversification of exposure to obligors that are affiliated with each 

other, thereby mitigating the credit risk to a money market fund when taking a highly 

concentrated position in ABS with affiliated obligors. 

d. Issuers of securities subject to a guarantee issued by a noncontrolled person

Under current rule 2a-7, a money market fund is not required to be diversified with 

respect to issuers of securities that are subject to a guarantee issued by a non-controlled 

person.1610 Under our proposed rule 2a-7 amendments, non-ABS that are subject to a guarantee 

by a non-controlled person would be subject to rule 2a-7’s 10% diversification limit applicable to 

guarantees and demand features but would continue to have no issuer diversification limit. 

 1609 See rule 2a-7(d)(3)(ii)(F)(3).

1610 Current rule 2a-7(a)(18). A guarantee issued by a non-controlled person means a guarantee issued by: (i) a 

person that, directly or indirectly, does not control, and is not controlled by or under common control with 

the issuer of the security subject to the guarantee (control for these purposes means “control” as defined in 

section 2(a)(9); or (ii) a sponsor of an SPE with respect to ABS. Current rule 2a-7(a)(18)(i) and (ii).
496

However, we proposed that a presumed guarantee issued by a sponsor of an SPE with respect to 

ABS would no longer qualify as a guarantee issued by a non-controlled person, thereby creating 

a disparity between treatment because ABS and non-ABS would be treated differently under the 

proposal.1611 Therefore, as proposed, ABS would be subject to both a 5% issuer diversification 

limit on the SPE and any ten percent obligors, and a 10% limit on the sponsor as the presumed 

guarantor. One commenter mentioned this potential discrepancy and argued that the portion of 

ABS presumed to be guaranteed by the sponsor should not be subject to the issuer diversification 

limitations and thus treated parallel with other money market fund portfolio securities subject to 

a guarantee issued by a non-controlled person.1612 After further consideration of this disparity in 

treatment, we preliminarily believe that the approach that most advances our diversification 

reform goal of limiting concentrated exposure of money market funds to particular economic 

enterprises is to eliminate the exclusion from the 5% issuer diversification requirement for both 

ABS and non-ABS that are subject to a guarantee by a non-controlled person. Therefore, instead 

of creating a disparity in treatment between ABS and non-ABS by adopting the proposed 

definition of a guarantee issued by a non-controlled person, we are retaining the current 

definition of a guarantee issued by a non-controlled person, and we are proposing in our Release

issued today regarding removing references to credit ratings in rule 2a-7 that the 5% issuer 

diversification limit be imposed on all securities with a guarantee by a non-controlled person.1613 

 1611 See proposed (Fees and Gates) rule 2a-7(a)(17). Under the proposed rule, ABS that are subject to a 

guarantee by a non-controlled person that meets the definition in current rule 2a-7(a)(18)(i) would continue 

to have no issuer diversification limit.

1612 Memorandum from the Division of Investment Management regarding a September 10, 2013 meeting with 

representatives of the Structured Finance Industry Group.

1613 See Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification 
497

e. Additional economic analysis

As discussed in the Proposing Release, these amendments are intended to more 

efficiently achieve the diversification of risk contemplated by the rule’s current 5% issuer 

diversification limit. The treatment of affiliates for purposes of rule 2a-7’s 5% issuer 

diversification limit, and our diversification amendments collectively, are designed to diversify 

the risks to which money market funds may be exposed and thereby reduce the impact of any 

single issuer’s (or guarantor’s or demand feature provider’s) financial distress on a fund. Except 

to the extent that money market funds choose to reinvest some or all of their excess exposure in 

securities of higher risk, requiring money market funds to more broadly diversify against credit 

risk should reduce the volatility of fund returns (and hence NAVs) and limit the impact of an 

issuer’s distress on fund liquidity, which should mitigate the risk of heavy shareholder 

redemptions from money market funds in times of financial distress and may promote capital 

formation by making money market funds a more stable source of financing for issuers of shortterm credit instruments. Reducing money market funds’ volatility and making their liquidity 

levels more resilient also could cause money market funds to attract further investments, 

increasing their role as a source of capital in the short-term financing markets for issuers. We are 

not able to quantify these benefits (although we do provide quantitative information concerning 

certain impacts), primarily because we continue to believe it is impractical, if not impossible, to 

identify with sufficient precision the marginal decrease in risk and increase in stability we expect 

 

Requirement in the Money Market Fund Rule, Investment Company Act Release No. _____ (July 23, 

2014). 
498

these diversification amendments to provide. We received no comments providing 

quantification of benefits.

More fundamentally, as discussed in the Proposing Release, these amendments are 

designed to more effectively achieve the diversification of risk contemplated by the rule’s 

current 5% issuer diversification limit. As discussed in the Proposing Release, we explained that 

“[d]iversification limits investment risk to a fund by spreading the risk of loss among a number 

of securities.”1614 Requiring funds to purchase “a number of securities” rather than a smaller 

number of concentrated investments will only “spread . . . the risk of loss” if the performance of 

those securities is not highly correlated. That is, a fund’s investments in Issuers A, B and C are 

no less risky (or only marginally so) than a single investment in Issuer A if Issuers A, B, and C 

are likely to experience declines in value simultaneously and to approximately the same extent. 

This may indeed be likely if Issuers A, B and C are affiliated with each other. In addition, if 

Issuers A, B and C are affiliated with each other, they likely would share financial resources in 

the event of a crisis, which would make it more likely that they would experience declines in 

value simultaneously and to approximately the same extent. Prime money market funds’ 

concentrated exposures to financial institutions increase these concerns because prime money 

market funds’ portfolios already appear correlated to some extent.1615

As discussed in the Proposing Release, we recognize, however, that the amendments 

could impose costs on money market funds and could affect competition, efficiency, and capital 

formation. We expect that the requirement to aggregate affiliates for purposes of the 5% issuer 

 1614 See Proposing Release, supra note 25, at section III.J.1. 

1615 See Proposing Release, supra note 25, nn.66-67 and accompanying text.
499

diversification limit will increase the diversification of at least some money market funds.1616 A 

money market fund that had invested more than 5% of its assets in a parent or corporate group 

would, when those investments matured, have to reinvest some of the proceeds in a different 

parent or corporate group (or in unrelated issuers).1617 We requested comment on how the 

amendment would affect competition, efficiency and capital formation, and the ways in which 

money market funds may invest in response to the amendment. One commenter stated that the 

requirement to treat affiliates as a single issuer for purposes of the 5% issuer diversification limit 

could impede a money market fund’s ability to purchase high quality securities, and that, as a 

result, money market funds could be forced to purchase securities of issuers with credit ratings 

lower than those of the affiliated issuers.1618 As noted above and discussed further below, we 

believe that any effect caused by a money market fund investing in securities with higher credit 

risk will be minimal due to the substantial risk-limiting provisions of rule 2a-7.1619

As discussed above, we acknowledge that the application of our diversification 

 1616 See The Exposure Money Market Funds Have to the Parents of Issuers (“DERA Diversification Memo”) 

(July 10, 2013), available at http://www.sec.gov/comments/s7-03-13/s70313-20.pdf. The Division of 

Risk, Strategy, and Financial Innovation (“RSFI”) is now known as the Division of Economic and Risk 

Analysis (“DERA”), and accordingly we are no longer referring to this study as the “RSFI Diversification 

Memo” as we did in the Proposing Release, but instead as the “DERA Diversification Memo.” The DERA 

Diversification Memo shows, among other things, that some money market funds invested more than 5% of 

their assets in the issuances of specific corporate groups, or “parents” (as defined in the DERA 

Diversification Memo) between November 2010 and November 2012. For example, our staff’s analysis 

shows that 30 money market funds, on average, invest at least 5% of their portfolios in the issuances of the 

largest parent. Our staff’s analysis also shows that the largest fund-level exposure of at least 7% to the 

issuances of one parent is 14 while the largest average fund-level exposure of at least 10% of the issuances 

of one parent is 3.

1617 Money market funds will not be required to sell any of their portfolio securities as a result of any of our 

diversification amendments because rule 2a-7’s diversification limits are measured at acquisition. 

1618 Schwab Comment Letter. See also Dechert Comment Letter (arguing that our diversification amendments, 

in combination, may have the effect of reducing a money market fund’s ability to invest in high quality 

securities).

1619 See supra notes 10 and 11 and accompanying text.
500

amendments on the treatment of ten percent obligors may cause certain sponsors to conduct 

additional due diligence and also may mean that some conduits would have to restructure their 

programs, particularly if information regarding the identity of obligors is unavailable, which 

could result in reduced funding capacity from money market funds. To the extent ABCP 

conduits may decide to restructure their programs, we expect that the ABCP conduits might 

incur costs associated with the restructuring, although we are unable to quantify any such costs 

as we do not know to what extent ABCP conduits will decide to restructure, and we also did not 

receive any comments regarding costs that ABCP conduits may incur. 

We acknowledge that, as a result of our amendments, it is possible that some money 

market funds may purchase securities of issuers with lower credit quality, although we note that 

money market funds will continue to be required to meet the minimum credit risk standards set 

forth in rule 2a-7.1620 It also seems reasonable to expect that a divestment by one money market 

fund (because its exposure to a particular group of affiliates is too great) might become a 

purchasing opportunity for another money market fund whose holdings in that affiliated group 

does not constrain it. If the credit qualities of the investments were similar, there should be no 

net effect on fund risk and yield, although we discuss below how fund risk and yield may be 

affected if money market funds choose to invest in securities of higher or lower credit risk than 

they do currently. In the Proposing Release we discussed ways in which a money market fund 

may reallocate its investments under our amendments to the diversification provisions of rule 2a7 as well as possible ways in which the amendment might affect capital formation. We discuss 

 1620 See rule 2a-7(d)(2) (portfolio quality).
501

above that requiring money market funds to more broadly diversify against credit risk may 

promote capital formation by making money market funds a more stable source of financing for 

issuers of short-term investments. However, the rule amendment could also reduce capital 

formation if money market funds choose to reinvest some or all of their excess exposure in 

securities of higher risk. In these instances, a money market fund’s portfolio risk would increase, 

its NAV and fund liquidity may become more volatile and yields would rise. Money market 

funds in this scenario could become less stable than they are today, investor demand for the 

funds could fall (to the extent increased volatility in money market funds is not outweighed by 

any increase in fund yield), and capital formation could be reduced. Alternatively, money 

market funds might choose to reinvest excess exposure in securities of lower risk. In these 

instances, portfolio risk (e.g., credit risk, counterparty risk) would decrease, fund NAVs and 

liquidity would likely become less volatile and yields would fall. In this scenario, money market 

funds would become more stable than they are today, investor demand for the funds could rise 

(to the extent increased stability in money market funds is not outweighed by any decrease in 

fund yield), and capital formation might be enhanced. 

As stated in the Proposing Release, we cannot predict how money market funds will 

invest in response to our amendments and we thus do not have a basis for determining money 

market funds’ likely reinvestment strategies. We also did not receive comment on this issue. 

We note that money market funds’ current exposures in excess of what our amendments will 

permit may reflect the overall risk preferences of their managers. To the extent that these 

amendments reduce the concentration of issuer risk, fund managers that have particular risk 

tolerances or preferences may shift their funds’ remaining portfolio assets, within rule 2a-7’s 
502

minimal credit risk requirements,1621 to higher risk assets. If so, portfolio risk, although more 

diversified, would increase (or remain constant), and we would expect portfolio yields to rise (or 

to remain constant). If yields were to rise, money market funds might be able to compete more 

favorably with other short-term investment products (to the extent the increased yield is not 

outweighed by any increased volatility). 

We continue to be unable to predict or quantify the precise effects this amendment will

have on competition, efficiency, or capital formation and did not receive comments addressing 

the precise effects. The effects depend on how money market funds, their investors, and 

companies that issue securities to money market funds will adjust on a long-term basis to our 

amendment. The ways in which these groups could adjust, and the associated effects, are too 

complex and interrelated to allow us to predict them with specificity or to quantify them. For 

example, if a money market fund must reallocate its investments under our amendment, whether 

that will affect capital formation depends on whether there are available alternative investments 

the money market fund could choose and the nature of any alternatives. Assuming there are 

alternative investments, the effects on capital formation will depend on the amount of yield the 

issuers of the alternative investments will be required to pay as compared to the amount they 

would have paid absent our amendments. For example, our amendment could cause money 

market funds to seek alternative investments and this increased demand could allow their issuers 

to pay a lower yield than they would absent this increase in demand. This would decrease 

issuers’ financing costs, enhancing capital formation. But it also could decrease the yield the 

 1621 See id.
503

money market fund paid to its shareholders, potentially making money market funds less 

attractive and leading to reduced aggregate investments by the money market fund which, in 

turn, could increase financing costs for issuers of short-term debt. 

The availability of alternative investments and the ease with which they could be 

identified could affect efficiency, in that money market funds might find their investment process 

less efficient if they were required to expend additional effort identifying alternative investments. 

These same factors could affect competition if more effort is required to identify alternative 

investments under our amendments and larger money market funds are better positioned to 

expend this additional effort or to do so at a lower marginal cost than smaller money market 

funds. These factors also could affect capital formation in other ways, in that money market 

funds could choose to invest in lower quality securities under our proposal if they are not able to 

identify alternative investments with levels of risk equivalent to the funds’ current investments. 

As discussed in the Proposing Release, the amendments could require money market 

funds to update the systems they use to monitor their compliance with rule 2a-7’s 5% issuer 

diversification limit in order to aggregate exposures to affiliates. Although we understand, as 

discussed above, that most money market funds today consider their exposures to entities that are 

affiliated with each other for risk management purposes, any systems money market funds 

currently have in place for this purpose may not be suitable for monitoring compliance with a 

diversification requirement, as opposed to a risk management evaluation (which may entail less 

regular or episodic monitoring). 

We requested comment as to whether funds expect that they would incur operational 

costs in addition to, or that differ from the costs estimated in the Proposing Release. We did not 
504

receive comments regarding specific costs, although one commenter stated that it did not believe 

that the amendments would have a significant impact on the operations of most money market 

funds.1622 Another commenter stated that additional time and data costs may be required to 

determine issuer affiliations, but also stated that it did not see a significant increase in costs 

related to complying with our amended issuer diversification requirements.1623

Based on the activities typically involved in making systems modifications, and 

recognizing that money market funds’ existing systems currently have varying degrees of 

functionality, we estimated in the Proposing Release, and continue to estimate, that the one-time 

systems modifications costs (including modifications to related procedures and controls) for a 

money market fund associated with these amendments would range from approximately 

$600,000 to $1,200,000.1624 As we stated in the Proposing Release, we do not expect that 

money market funds will incur material ongoing costs to maintain and modify their systems as a 

result of this amendment because we expect modifications required by this amendment will be 

incremental changes to existing systems that already perform similar functions (track exposures 

for purposes of monitoring compliance with rule 2a-7’s 5% issuer diversification limit). 

Although we have estimated the costs that a single money market fund could incur as a 

result of this amendment, we expect that these costs will be shared among various money market 

funds in a complex. As discussed in the Proposing Release, we do not expect that money market 

 1622 ICI Comment Letter.

1623 State Street Comment Letter.

1624 Staff estimates that these costs will be attributable to the following activities: (i) planning, coding, testing, 

and installing system modifications; (ii) drafting, integrating, and implementing related procedures and 

controls; and (iii) preparing training materials and administering training sessions for staff in affected 

areas. See also supra section III.A.5.a. 
505

funds will be required to spend additional time determining affiliations under our amendments, 

or if an additional time commitment is required, we expect that it would be minimal. We 

estimated in the Proposing Release that the costs of this minimal additional time commitment to 

a money market fund, if it were to occur, will range from approximately $5,000 to $105,000 

annually.1625 We did not receive comments on these particular estimates, although we have 

updated our estimates based on more recent data, and now estimate that the costs of this minimal 

additional time commitment to a money market fund, if it were to occur, will range from 

approximately $6,700 to $109,500 annually.1626

 1625 In arriving at this estimate in the Proposing Release, we expected that any required additional work 

generally would be conducted each time a money market fund determined whether to add a new issuer to 

the approved list of issuers in which the fund may invest. The frequency with which a money market fund 

makes these determinations would depend on its size and investment strategy. To be conservative, and 

based on Form N-MFP data concerning the number of securities held in money market funds’ portfolios, 

we estimated that a money market fund could be required to make such a determination between 33 and 

339 times each year. This was based on our staff’s review of data filed on Form N-MFP as of February 28, 

2013, which showed that the 10 smallest money market funds by assets had an average of 33 investments 

and the 10 largest money market funds by assets had an average of 339 investments. The number of a 

money market fund’s investments should be a rough proxy for the number of times each year that a money 

market fund could add an issuer to its approved list, although this will overstate the frequency of these 

determinations (e.g., a fund may have a number of separate investments in a single issuer). We estimated 

that the additional time commitment imposed by our amendments, if any, would be an additional 1-2 hours 

of an analyst’s time each time the fund determined whether to add an issuer to its approved list. The 

estimated range of costs, therefore, was calculated as follows: (33 evaluations x 1 hour of a junior business 

analyst’s time at $155 per hour = $5,115) to (339 evaluations x 2 hours of a junior business analyst’s time 

at $155 per hour = $105,090). Finally, we recognize that some money market funds do not use an 

approved list, but instead evaluate each investment separately. We believe that the number of a money 

market fund’s investments also should be a rough proxy for the number of times such a money market fund 

would evaluate each investment. Such funds may be on the higher end of the range, however, because the 

extent to which a fund’s average number of investments reflects the number of times such a fund purchases 

securities would depend on the rate of the fund’s portfolio turnover. Whether any additional analysis 

would be required as a result of our amendments for such a fund also would depend on whether the fund 

invested proceeds from maturing securities in issuers for which a new credit risk analysis was required or in 

issuers of securities owned by the fund for which the analysis may already have been done.

1626 In arriving at this estimate, we expect that any required additional work generally will be conducted each 

time a money market fund determined whether to add a new issuer to the approved list of issuers in which 

the fund may invest. The frequency with which a money market fund will make these determinations 

would depend on its size and investment strategy. To be conservative, and based on Form N-MFP data 

concerning the number of securities held in money market funds’ portfolios, we estimate that a money 
506

2. ABS – Sponsors Treated as Guarantors

We are amending rule 2a-7, as proposed, to require that money market funds treat the 

sponsors of ABS as guarantors subject to rule 2a-7’s 10% diversification limit applicable to 

guarantees and demand features, unless the money market fund’s board of directors (or its 

delegate) determines that the fund is not relying on the sponsor’s financial strength or its ability 

or willingness to provide liquidity, credit or other support to determine the ABS’s quality or 

liquidity.1627 As discussed in the Proposing Release, money market funds’ reliance on and 

exposure to sponsors of ABCP, a type of ABS, specifically during 2007, suggests that current 

 market fund could be required to make such a determination between 42 and 342 times each year. This is 

based on our staff’s review of data filed on Form N-MFP as of February 28, 2014, which showed that the 

10 smallest money market funds (not including government or Treasury funds) by assets had an average of 

42 investments and the 10 largest money market funds (not including government or Treasury funds) by 

assets had an average of 342 investments. The number of a money market fund’s investments should be a 

rough proxy for the number of times each year that a money market fund could add an issuer to its 

approved list, although this will overstate the frequency of these determinations (e.g., a fund may have a 

number of separate investments in a single issuer). We estimate that the additional time commitment 

imposed by our amendments, if any, will be an additional 1-2 hours of an analyst’s time each time the fund 

determined whether to add an issuer to its approved list. The estimated range of costs, therefore, is 

calculated as follows: (42 evaluations x 1 hour of a junior business analyst’s time at $160 per hour = 

$6,720) to (342 evaluations x 2 hours of a junior business analyst’s time at $160 per hour = $109,440). 

Finally, we recognize that some money market funds do not use an approved list, but instead evaluate each 

investment separately. We believe that the number of a money market fund’s investments also should be a 

rough proxy for the number of times such a money market fund would evaluate each investment. Such 

funds may be on the higher end of the range, however, because the extent to which a fund’s average 

number of investments reflects the number of times such a fund purchases securities would depend on the 

rate of the fund’s portfolio turnover. Whether any additional analysis would be required as a result of our 

amendments for such a fund also would depend on whether the fund invested proceeds from maturing 

securities in issuers for which a new credit risk analysis was required or in issuers of securities owned by 

the fund for which the analysis may already have been done.

1627 As a result, subject to an exception, a money market fund cannot invest in ABS, if immediately after the 

investment it would have invested more than 10% of its total assets in securities issued by or subject to 

demand features or guarantees from the ABS sponsor. See rule 2a-7(a)(18)(ii) and rule 2a-7(d)(3)(iii). 

Current rule 2a-7 applies a 10% diversification limitation on demand features and guarantees to 75% of 

money market funds’ total assets. As discussed in infra section III.I.3, we are amending rule 2a-7 to apply 

the 10% diversification limitation to 85% of a tax-exempt money market fund’s assets and to 100% of a 

fund’s assets for money market funds other than tax-exempt funds.
507

rule 2a-7 potentially permits money market funds to become overexposed to ABCP sponsors.1628 

Our amendments today therefore provide that, subject to an exception, money market funds 

investing in ABS rely on the sponsor’s financial strength or its ability or willingness to provide 

liquidity, credit, or other support to the ABS, and require diversification against such reliance 

and exposure to ABS sponsors.1629 

A number of commenters generally supported the requirement to treat sponsors of ABS 

as guarantors.1630 For example, one commenter noted that ABS sponsors have provided explicit 

as well as implicit credit and liquidity support for the vehicles they have sponsored and that it is 

therefore appropriate that such support be presumed for purposes of applying rule 2a-7 

diversification limitations.1631 Several commenters however, generally opposed the proposed 

requirement.1632 Some of these commenters argued that the requirement to treat sponsors of ABS 

as guarantors is not consistent with the current practice of money market funds.1633 For example, 

 1628 See Proposing Release, supra note 25, at section III.J.2.

1629 Under the amended rule, the sponsor of an ABS will be deemed to guarantee the entire principal amount of 

those ABS, except that the sponsor will not be deemed to have provided such a guarantee for purposes of 

the following paragraphs of rule 2a-7: (a)(12)(iii) (definition of eligible security); (d)(2)(iii) (credit 

substitution); (d)(3)(iv)(A) (fractional guarantees); and (e) (guarantees not relied on). We also are adopting 

a number of conforming amendments to other provisions of rule 2a-7 to implement the treatment of ABS 

sponsors as guarantors. See rule 2a-7(f)(4)(iii) (defining defaults for purposes of rule 2a-7(f)(2) and (3) as 

applied to guarantees issued by ABS sponsors); rule 2a-7(g)(7) (requiring periodic re-evaluations of any 

finding that the fund is not relying on the sponsor’s financial strength or ability or willingness to provide 

support in determining the quality or liquidity of ABS); and rule 2a-7(h)(6) (recordkeeping requirements 

for the periodic re-evaluations). 

1630 See, e.g., Goldman Sachs Comment Letter; Schwab Comment Letter; U.S. Bancorp Comment Letter; 

Vanguard Comment Letter; BlackRock II Comment Letter; Wells Fargo Comment Letter.

1631 Goldman Sachs Comment Letter.

1632 See, e.g., SSGA Comment Letter; Federated II Comment Letter. See also ICI Comment Letter (arguing 

that the amendment could result in a reduction of the supply of securities to money market funds without 

any increase in investor protection).

1633 See, e.g., Federated VIII Comment Letter; SSGA Comment Letter; ICI Comment Letter.
508

one commenter stated that while money market funds cannot usually review information about 

the particular assets underlying ABS,1634 money market funds nevertheless base their credit 

decisions on a multitude of factors other than the sponsor’s financial strength.1635 Some 

commenters also argued that money market funds look to the legal requirement for a sponsor to 

provide a guarantee rather than relying on an implicit guarantee by the sponsor,1636 and that 

partial or incidental reliance on the financial strength of an ABS sponsor should not require 

treatment of the sponsor as a 100% guarantor of the ABS.1637 Another commenter argued that 

the requirement to treat the sponsor of an SPE issuing ABS as a guarantor of ABS would require 

money market funds to expand diversification of ABS sponsors at the same time many of these 

sponsors are exiting the market.1638 While we recognize that in many cases a money market fund 

is not basing its investment decision solely on the financial strength of the sponsor or on an 

implicit guarantee by the sponsor, we understand, as discussed in the Proposing Release, that 

money market funds often make investment decisions based, at least in part, on the presumption 

 1634 See Proposing Release, supra note 25, nn.870-872 and accompanying text (discussing that an asset-liability 

mismatch in ABCP conduits causes ABCP investors to analyze the structure of the ABCP conduits more so 

than underlying asset level information).

1635 Federated II Comment Letter (describing information it reviews, including pool level information about the 

underlying assets). See also Federated VIII Comment Letter (discussing its evaluation of ABCP before 

investing, noting that only a portion of their analysis is based on the sponsor, and that significant emphasis 

is placed on the qualifying assets); SSGA Comment Letter (stating that it believes credit analysis with 

regard to ABS should not solely rely upon sponsor support).

1636 See, e.g., Federated II Comment Letter; ICI Comment Letter (arguing that because the proposed 

requirement would treat a sponsor as a guarantor of the entire amount of the ABS even when the sponsor 

has no legal obligation to support its ABS, the amendment seems to endorse the practice of relying on an 

“implicit” guarantee when assessing the credit risk of ABS). See also Federated VIII (arguing that the 

amendment would encourage investors that are assessing the credit risk of ABS to rely on an unproven 

assumption that a sponsor will voluntarily assume losses on its financial products, and that because such 

“implicit guarantees” are not reliable, endorsing this practice would only increase risks to money market 

funds that invest in ABS.) 

1637 See, e.g., ICI Comment Letter; Federated VIII Comment Letter. 

1638 Invesco Comment Letter.
509

that the sponsor will take steps to prevent the ABS from defaulting.1639 However, money market 

funds are generally not required to diversify against ABS sponsors because the support that ABS 

sponsors provide, implicitly or explicitly, which money market funds often rely on, typically 

does not meet the current rule’s definition of “guarantee” or “demand feature.”1640 

We acknowledge that if sponsor supply were to become limited, it may be more difficult 

for money market funds to obtain ABS. However, after further consideration, we continue to 

believe it is appropriate to amend rule 2a-7 to require diversification against such support to limit 

a money market fund’s concentration in a single sponsor because a fund could seek to rely on 

liquidity or capital support from that sponsor, if necessary. When a money market fund is 

determining the ABS’s quality or liquidity based, at least in part, on the ABS sponsor’s financial 

strength or its ability or willingness to provide liquidity, credit or other support, limiting a money 

market fund’s concentration in that sponsor mitigates the risk that a money market fund would 

face in the case where such ABS sponsor would be unable to support the value of the fund’s 

investments in times of severe market stress because it reduces the amount of a money market 

fund’s investments that would be impacted by the inability of the sponsor to support the value of 

those investments.

 1639 Comment Letter of the American Securitization Forum (Aug. 2, 2010) (available in File No. S7–08–10) 

(“ASF August 2010 Comment Letter”). (“[T]he liquidity and credit support for the vast majority of ABCP 

conduits are provided by their financial institution sponsors.”). But see SFIG Comment Letter (describing 

that a subset of ABCP conduits are administered by entities that are not financial institutions and that credit 

or liquidity support to the ABCP conduit is provided by financial institutions that are not affiliated with the 

administrator); ICI Comment Letter (suggesting that there is no reason to require diversification against 

sponsors as opposed to other service providers such as servicers and liquidity providers). Although persons 

other than the sponsor, such as servicers and liquidity providers, could support ABS, we understand that, to 

the extent ABS have explicit support, it typically is provided by the sponsor. We also understand that 

investors in ABS without explicit support may view the sponsor as providing implicit support. See, e.g., 

Goldman Sachs Comment Letter.

1640 See Proposing Release, supra note 25, n.868 and accompanying text.
510

As discussed further below, we recognize that in certain cases an ABS sponsor should not 

be deemed to guarantee the ABS. An ABS sponsor therefore will not be deemed to guarantee 

the ABS if the money market fund’s board of directors (or its delegate) determines that the fund 

is not relying on the ABS sponsor’s financial strength or its ability or willingness to provide 

liquidity, credit, or other support to determine the ABS’s quality or liquidity. We also discuss 

below that an ABS sponsor will not be deemed to guarantee the full amount of ABS in cases of 

fractional guarantees.

Commenters noted that under current rule 2a-7, if a company guarantees or provides a 

demand feature of a portion of the qualifying assets, only that portion of the ABS is counted 

towards the diversification limit.1641 These commenters expressed concern that amended rule 

2a-7 would change this result by treating a company that sponsors ABS as a guarantor of the 

entire amount held by a fund, even if the company’s guarantee or demand feature is limited to a 

smaller amount.1642 As proposed, in cases where a security is subject to a fractional demand 

feature or guarantee by the sponsor, as defined in rule 2a-7, a money market fund may count the 

fractional demand feature or guarantee in place of deeming the sponsor as a guarantor of the 

entire principal amount of the ABS.1643 However, in cases where a money market fund is 

partially or incidentally relying on the financial strength of the ABS sponsor, but such partial or 

incidental reliance does not fall under the definition of a fractional guarantee, the money market 

 1641 See, e.g., ICI Comment Letter; Memorandum from the Division of Investment Management regarding a 

September 10, 2013 meeting with representatives of the Structured Finance Industry Group.

1642 Id.

1643 See rule 2a-7(d)(3)(iv)(A) (calculation of fractional demand features or guarantees) and rule 2a-7(a)(18)(ii) 

(providing an exception from the requirement to deem a sponsor of an SPE as providing a guarantee with 

respect to the entire principal amount of ABS in the case of fractional guarantees). 
511

fund will be required to treat the sponsor as a guarantor of the entire principal amount of the 

ABS. In this case, even though a sponsor may not be providing a full guarantee, the fund would 

not be able to readily determine the actual portion of assets for which the guarantor is providing 

structural support. Therefore, except in cases of fractional guarantees as discussed above, we 

continue to believe that, unless the board of directors determines that the fund is not relying on 

the financial strength of the sponsor, it is appropriate to require diversification against such 

sponsor with respect to all the qualifying assets in order to mitigate the risk that an ABS sponsor 

would be unable to support the value of a money market fund’s investments in times of severe

market stress.

One commenter suggested that explicit support would not always be dispositive in 

determining the sponsor’s identity and that treating certain entities as sponsors would not reflect 

actual economic risks to the fund.1644 This commenter also recommended that we define the term 

sponsor in our final amendments, noting that otherwise it may be difficult for certain money 

market funds to determine the entity that is providing the deemed guarantee.1645 Although 

providing a specific definition of ABS sponsor may exclude certain entities that should otherwise 

be treated as a sponsor, and may not allow for future flexibility with regards to new types of 

ABS structures, we understand that determining the ABS sponsor in certain cases may present 

difficulties. We recognize that in some cases where the administrator of an ABCP conduit, 

which may otherwise be commonly thought of as the sponsor, is not providing liquidity or credit 

 1644 SFIG Comment Letter (recommending that we define a provider of credit and liquidity support to an ABCP 

conduit that equals or exceeds fifty percent of the outstanding face amount of the ABCP of such conduit as 

the sponsor). 

1645 Id.
512

support, the administrator would not appropriately be defined as a sponsor for purposes of our 

amended diversification requirements. In this case, requiring diversification against entities that 

do not, or could not, provide liquidity, credit or other support to the ABCP conduit would not 

reflect the actual risks of a fund’s exposure to such an entity. For ABCP, we believe that the 

sponsor will typically be the financial institution that provides explicit liquidity and/or credit 

support and also provides administrative services to the ABCP conduit.1646 The amended 

diversification requirements we are adopting today aim to diversify against the risks of 

concentration of exposure to entities that a fund may be relying on, whether explicitly or 

implicitly, in determining the ABS’s quality or liquidity. Therefore, if a money market fund is 

relying on an entity’s financial strength or its ability or willingness to provide liquidity, credit, or 

other types of support to determine the ABS’s quality or liquidity, such entity would 

appropriately be defined as a sponsor for purposes of our amended diversification requirements. 

As proposed, our amended rule requires that, unless the board (or its delegate) determines 

otherwise, all ABS sponsors are deemed to guarantee their ABS. We are applying this 

requirement to all ABS sponsors because we are concerned that applying the requirement only to 

sponsors of certain types of ABS could become obsolete as new forms of ABS are introduced. 

Because we recognize that it may not be appropriate to require money market funds to treat ABS 

sponsors as guarantors in all cases, under amended rule 2a-7, an ABS sponsor would not be 

 1646 For TOB programs in which the liquidity provider for the TOB program or its affiliate holds the residual 

interest in the TOB trust, we believe the entity that provides both the liquidity support and holds the 

residual interest typically will be the sponsor. For TOB programs in which the liquidity provider or its 

affiliate does not also own the residual interest in the TOB trust, we believe the financial institution that 

sets up the TOB program, markets and remarkets the TOBs, transfers the municipal security into the TOB 

trust and/or provides liquidity typically will be the sponsor.
513

deemed to guarantee the ABS if the money market fund’s board of directors (or its delegate) 

determines that the fund is not relying on the ABS sponsor’s financial strength or its ability or 

willingness to provide liquidity, credit, or other support to determine the ABS’s quality or 

liquidity.1647 In determining whether a money market fund is relying on the ABS sponsor’s 

financial strength or its ability or willingness to provide liquidity, credit, or other support, the 

money market fund board of directors may want to consider, among other things, whether the 

fund considers the ABS sponsor’s financial strength or its ability or willingness to provide 

liquidity, credit, or other support as a factor when determining the ABS’s quality or liquidity.

While one commenter specifically supported the exception to the ABS sponsor 

designation through money market fund board of directors (or delegate) action,1648 other 

commenters expressed concern that overseeing determinations that a money market fund is not 

relying on ABS sponsors would impose further burdens on money market fund directors.1649 

However, a board can, and likely will, delegate this responsibility.1650 While we recognize that a 

board will, at a minimum, need to provide oversight and establish procedures1651 if it delegates its 

responsibility, we believe that any incremental burden to make a determination (by the board or 

its delegate) regarding reliance on an ABS sponsor should be minimal, as the money market fund 

would already have analyzed the security’s credit quality and liquidity when assessing whether 

 1647 Rule 2a-7(a)(18)(ii). This determination must be documented and retained by the money market fund. See 

rule 2a-7(g)(7) and rule 2a-7(h)(6).

1648 Goldman Sachs Comment Letter.

1649 Federated VIII Comment Letter; ICI Comment Letter; Fidelity Comment Letter.

1650 See rule 2a-7(j) (providing a money market fund’s board of directors the ability to delegate to the fund’s 

adviser or officers the responsibility to make certain determinations required to be made by the board of 

directors under rule 2a-7).

1651 See rule 2a-7(j)(1) and (2).
514

the security posed minimal credit risks and whether the fund could purchase the security 

consistent with rule 2a-7’s limits on investments in “illiquid securities.”1652 One commenter 

supported a board exception that applied when a money market fund board (or its delegate) 

determines that a sponsor’s financial strength or its ability or willingness to provide liquidity, 

credit or other support did not play a substantial role in the money market fund’s assessment of 

the ABS’s quality or liquidity.1653 On balance however, we believe that even when a money 

market fund board of directors (or its delegate) determines that a sponsor’s financial strength or 

its ability or willingness to provide liquidity, credit or other support plays a less than substantial

role in the money market fund’s assessment of the ABS’s quality or liquidity, it is beneficial to 

require diversification against such sponsor because it limits a money market fund’s 

concentration in a single sponsor on which the fund could still seek to rely. In addition, 

requiring diversification against such sponsor also mitigates the possible effect of an ABS 

sponsor being unable to support the value of the ABS because a money market fund will be 

required to diversify against its investments in ABS with such sponsor. We are therefore 

adopting the board exception as proposed. 

Several commenters argued that a board should not have to make a finding in certain 

situations where the ABS is fully supported by a guarantee or demand feature provided by a third 

party.1654 One of these commenters argued that if an issuance of ABS has a contractual guarantee 

of support by a third party, we should require money market funds to count the third-party 

 1652 Rule 2a-7(a)(12) (definition of “eligible security”) and rule 2a-7(d)(4) (portfolio liquidity).

1653 Invesco Comment Letter.

1654 See, e.g., ICI Comment Letter; Fidelity Comment Letter; Wells Fargo Comment Letter.
515

guarantor, rather than the sponsor, for purposes of the diversification limit.1655 This commenter 

noted that for ABS that carry contractual guarantees of support by third parties, a fund manager 

often looks to financial strength and creditworthiness of the third-party guarantor to evaluate the 

creditworthiness or liquidity of the ABS.1656 We recognize that in certain cases, ABS may be 

fully supported by a guarantee or demand feature provided by a third party where the board (or 

its delegate) would determine that the money market fund is not relying on the ABS sponsor’s 

financial strength or its ability or willingness to provide liquidity, credit, or other support to 

determine the ABS’ quality or liquidity. However, some money market funds may view the 

third-party guarantee as a “layered guarantee” on top of the sponsor’s guarantee, which today are 

both subject to a 10% diversification limit under rule 2a-7. We believe it is appropriate to allow 

for instances of layered guarantees when a third-party guarantor is present, and therefore believe 

that in cases where a money market fund is relying only on the third-party guarantor the board 

(or its delegate) can determine that it is not relying on the sponsor, and in cases where a money 

market fund views the third-party guarantor as providing a layered guarantee, the amended rule 

will provide that the money market fund treat the guarantee by the sponsor and the guarantee by 

the third-party guarantor as layered guarantees.

Commenters also argued that the board should not have to make the required findings for 

certain types of ABS, such as TOBs. Commenters argued that diversification from TOB 

sponsors is unnecessary because TOBs have dedicated liquidity providers and frequently have 

 1655 Wells Fargo Comment Letter.

1656 Id.
516

credit enhancement, and the TOB sponsor may not necessarily be the provider of either.1657 

Commenters also stated that tax-exempt money market funds in particular would suffer if TOBs 

were not excluded because the amended diversification requirements would further restrict a 

money market fund’s ability to hold TOBs.1658 One commenter recommended excluding 

sponsors of all types of ABS (other than ABCP) from the proposed ABS sponsor rule, noting 

that sponsors of non-ABCP ABS do not typically provide explicit credit or liquidity support.1659 

We recognize that in some cases diversification from non-ABCP ABS sponsors, including TOB 

sponsors may be unnecessary if the fund is not relying on the sponsor’s financial strength or its 

ability or willingness to provide liquidity, credit or other support to determine the ABS’s quality 

or liquidity. 

Although commenters suggested providing an exclusion from the amended rule, we 

believe that non-ABCP ABS, including TOBs, are more appropriately addressed through the 

board exception to the diversification requirement. Because at least in some instances a fund 

may be looking to the sponsor’s financial strength or its ability or willingness to provide 

liquidity, credit or other support to determine the ABS’s quality or liquidity, we have decided to 

retain the presumption for ABS generally. In addition, we believe that it would be inefficient to 

attempt to anticipate every type of ABS sponsor that should be excluded now or in the future, 

and designating particular exclusions in the amended rule may not provide for innovation of new 

types of ABS over time. The rebuttable presumption we are adopting today however, does allow 

 1657 See, e.g., Vanguard Comment Letter. See also SIFMA Comment Letter.

1658 See, e.g., Fidelity Comment Letter; SIFMA Comment Letter (noting that TOBs already have a limited 

number of sponsors).

1659 SFIG Comment Letter. 
517

for flexibility in instances where the fund is not looking to the sponsor, irrespective of the actual 

type of ABS, where the board of directors determines that the fund is not relying on the sponsor 

to make determinations about quality or liquidity. 

3. The Twenty-Five Percent Basket

We proposed amending rule 2a-7 to eliminate the “twenty-five percent basket,” under 

which as much as 25% of the value of securities held in a money market fund’s portfolio may be 

subject to guarantees or demand features from a single institution.1660 After further consideration, 

and in light of the comments received, our final amendments (i) remove the twenty-five percent 

basket for money market funds other than tax-exempt money market funds, and (ii) reduce to 

15%, rather than eliminate, the twenty-five percent basket for tax-exempt money market funds, 

including single state money market funds.1661

 1660 Current rule 2a-7 applies a 10% diversification limit on guarantees and demand features only to 75% of a 

money market fund’s total assets. See current rule 2a-7(c)(4)(iii)(A). A money market fund, however, may 

only use the twenty-five percent basket to invest in demand features or guarantees that are first tier 

securities issued by non-controlled persons. See rules 2a-7(c)(4)(iii)(B) and (C). Although we proposed to 

delete current rule 2a-7(a)(10) (definition of demand feature issued by a non-controlled person) because the 

term is used only in connection with the twenty-five percent basket, we are retaining the definition because 

our amendments provide a fifteen percent basket for tax-exempt money market funds. See rule 2a-7(a)(10). 

We also are adopting certain amendments to clarify that a fund must comply with this 10% diversification 

limit immediately after it acquires a security directly issued by, or subject to guarantees or demand features 

provided by, the institution that issued the security or provided the demand feature or guarantee. See rules 

2a-7(d)(3)(i) and (iii). We believe this amendment reflects funds’ current practices and is consistent with 

rule 2a-7’s current requirements. 

1661 We note that Investment Company Act rule 12d3-1 also refers to a twenty-five percent basket. See rule 

12d3-1(d)(7)(v). That rule generally permits investment companies to purchase certain securities issued by 

companies engaged in securities-related activities notwithstanding section 12(d)(3)’s limitations on these 

kinds of transactions. Among other things, rule 12d3-1 provides that the acquisition of a demand feature or 

guarantee as defined in rule 2a-7 will not be deemed to be an acquisition of the securities of a securitiesrelated business provided that “immediately after the acquisition of any Demand Feature or Guarantee, the 

company will not, with respect to 75 percent of the total value of its assets, have invested more than 10 

percent of the total value of its assets in securities underlying Demand Features or Guarantees from the 

same institution.” We requested comment as to whether we should revise rule 12d3-1 to apply this 

diversification requirement with respect to all of an investment company’s total assets, rather than just 75% 

of assets, for consistency with the proposed elimination of the twenty-five percent basket in rule 2a-7. We 
518

As discussed in the Proposing Release, a number of recent events have highlighted the 

risks to money market funds caused by their substantial exposure to providers of demand 

features and guarantees.1662 For example, during the financial crisis, many funds were heavily 

exposed to bond insurers and a few major financial institutions that served as liquidity providers. 

This concentration led to considerable stress in the municipal markets when some of these bond 

insurers and financial institutions came under pressure during the financial crisis. We continue 

to believe that tightening diversification requirements with respect to a money market fund’s 

exposure to securities subject to guarantees or demand features from a single guarantor or 

demand feature provider will reduce this risk. However, we are concerned that removing the 

twenty-five percent basket entirely for tax-exempt money market funds would inhibit the ability 

of these funds to be fully invested in securities subject to guarantees or demand features or may 

force them to invest in securities that have weaker credit than the securities they might otherwise 

purchase, due to the more limited availability of guarantors and demand feature providers for 

tax-exempt money market funds as compared to non-tax-exempt money market funds.

1663 

Accordingly, under our amendments, as much as 15% of the value of securities held in a taxexempt money market fund’s portfolio may be subject to guarantees or demand features from a 

 

received no comments regarding rule 12d3-1. At this time we are not amending rule 12d3-1 to reflect our 

amendments to rule 2a-7’s diversification provisions because although rule 12d3-1 provides a twenty-five 

percent basket for purposes of section 12(d)(3) limitations, this twenty-five percent basket is not directly 

associated with the twenty-five percent basket in rule 2a-7.

1662 See Proposing Release, supra note 25, at section III.J.3.

1663 As discussed in more detail below, this concern primarily applies to tax-exempt funds, the largest users of 

the basket, as they face a significantly more constrained supply of investable securities than other types of 

money market funds. 
519

single institution.1664 

a. Use of Twenty-Five Percent Basket by Money Market Funds

i. Non-tax-exempt money market funds

To help us evaluate the possible effects of removing the twenty-five percent basket on 

non-tax-exempt money market funds, DERA staff analyzed the exposure that money market 

funds have to guarantors, as described in detail in the DERA Guarantor Diversification 

Memo.

1665 As demonstrated below, DERA staff found that the majority of money market funds 

do not use the twenty-five percent basket. 

As presented in the figure below, DERA staff examined the number of money market 

funds for which guarantors compose more than 10%, 15% and 20% of their portfolios, 

respectively.1666 

 1664 See rule 2a-7(d)(3)(iii)(B) and rule 2a-7(a)(28). See also supra note 1583.

1665 See Municipal Money Market Funds Exposure to Parents of Guarantors (“DERA Guarantor Diversification 

Memo”) (March 17, 2014), available at http://www.sec.gov/comments/s7-03-13/s70313-323.pdf. In the 

DERA Guarantor Diversification Memo, the term “guarantors” is used to refer both to the ultimate parent 

of issuers of guarantees and issuers of demand feature, and the term “guarantees” is used to refer both to 

guarantees and demand features.

1666 Id. The DERA Guarantor Diversification Memo also provides information regarding tax-exempt money 

market funds, which we discuss below.
520

As shown in the figure below, DERA staff also examined the percent of all money 

market funds for which guarantors compose more than 10%, 15%, and 20% of their portfolios, 

respectively.1667 

In addition, as illustrated in the figure below, DERA staff examined the amount of excess 

exposure that money market funds have above the 10%, 15%, and 20% thresholds, 

 1667 Id.

131

40

14

0

20

40

60

80

100

120

140

160

180

200

Number of All Funds

Number of Funds with at Least One Guarantee Above Threshold

>10%

>15%

>20%

Includes All Money Market Funds

21.9%

6.7%

2.3%

0%

5%

10%

15%

20%

25%

30%

Percent of All Funds

Percent of Funds with at Least One Guarantee Above Threshold

>10%

>15%

>20%

Includes All Money Market Funds
521

respectively.1668 

DERA staff also found, as illustrated below, that only a small percentage of the entire 

money market fund industry assets are exposed to guarantors in excess of the 10%, 15%, and 

20% thresholds.1669 

In addition to showing that the majority of money market funds do not use the basket, the 

 1668 Id.

1669 Id.

6.76

0.74

0.26 $0

$2

$4

$6

$8

$10

$12

$14

$16

$18

Total Amortized Cost (Billion)

Excess Industry Dollars

>10%

>15%

>20%

Includes All Money Market Funds

0.54%

0.23%

0.03%

0.0% 0.01%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

Percent of Industry Dollars

Percent of Industry Dollars in Excess

>10%

>15%

>20%

Includes All Money Market Funds
522

data analyzed in the DERA Guarantor Diversification Memo also shows that money market 

funds that do use the twenty-five percent basket use the basket to a limited extent for purposes of 

gaining a high level of exposure to any one particular guarantor or demand feature provider.1670 

In fact, commenters noted that although a money market fund may use the full twenty-five 

percent basket to gain exposure to one guarantor or demand feature, money market funds will 

often use the twenty-five percent basket to gain a smaller amount of exposure to two guarantors 

or demand feature providers above the 10% diversification limit, for a total of up to twenty-five 

percent.1671 

As noted by commenters, currently, a money market fund can use the twenty-five percent 

basket in two ways. First, a money market fund can apply the basket to one guarantor where the 

guarantor can account for as much as 25% of the portfolio’s guarantees. The figures above show 

that $260 million or 0.01% of the industry dollars are above the 20% threshold as of November 

2012 and $740 million or 0.03% of the industry dollars are above the 15% threshold as of 

November 2012, suggesting that few funds are using the basket this way. Second, a money 

market fund can apply the basket to two guarantors where each guarantor has between 10% and 

15% of the portfolio guarantees and the sum equals 25% or less. The difference between the 

 1670 Id. The DERA Guarantor Diversification Memo shows that money market funds’ exposure in excess of the 

15% diversification threshold is relatively small, amounting to 0.03% of the assets in the entire money 

market fund industry as of November 2012. 

1671 See, e.g., Wells Fargo DERA Comment Letter; Comment Letter of Federated Investors, Inc. (Municipal 

Money Market Funds) (Apr. 23, 2014) (“Federated DERA III Comment Letter”); SIFMA DERA Comment 

Letter. For example, money market funds may use the twenty-five percent basket to obtain exposure for 

two demand feature providers or guarantors above the 10% diversification limit, in which case the exposure 

to any one demand feature provider or guarantor would have to be less than 15%, and the average exposure 

to any one demand feature provider or guarantor could not exceed 12.5%. See Federated DERA III 

Comment Letter.
523

15% and the 10% threshold amounts in the above illustrations represents the usage under this 

scenario. As of November 2012, $6.02 billion or 0.2% of the industry dollars are used this way, 

suggesting that most funds use the twenty-five percent basket divided up among two guarantors 

with exposures up to 15%.1672 If we assume an even split of 12.5% between two guarantors, then 

instead of having to reduce exposure from 25% to 10% for one guarantor, most money market 

funds will be required to reduce exposure from 12.5% to 10% for two guarantors. Thus, because 

most money market funds are not today using the twenty-five percent basket to gain high levels 

of exposure to any one particular guarantor or demand feature provider, we believe that any 

negative effects for these money market funds that would be associated with reducing exposure 

to guarantors would generally be minimal. 

One commenter suggested that the figures we provided in the Proposing Release (which 

were derived from monthly Form N-MFP filings) only captured the funds that used the twentyfive percent basket on one particular day, but that the basket is regularly relied upon during the 

course of the fund’s operations.1673 The DERA Guarantor Diversification Memo addresses the 

commenter’s concern by reviewing the use of the twenty-five percent basket over a period of two 

years.1674 After further review, our staff found that the data we provided in the Proposing 

Release is comparable with the use of the twenty-five percent basket when we analyze money 

 1672 As discussed below, the DERA analysis further shows that the usage of the twenty-five percent basket is 

predominantly used by tax-exempt money market funds.

1673 BlackRock II Comment Letter. See also Federated II Comment Letter (stating that tax-exempt money 

market funds regularly rely on the twenty-five percent basket during the course of their operations and that 

three quarters of its tax-exempt money market funds and all but two of its 14 single state funds currently 

hold securities in their twenty-five percent basket). 

1674 See DERA Guarantor Diversification Memo, supra note 1665.
524

market funds’ use over two years.1675 Therefore, although commenters suggest that the use of the 

twenty-five percent basket may vary considerably during the course of operation, and 

commenters did not provide any specific data suggesting otherwise, our staff found that the use 

of the twenty-five percent basket over a longer period was in fact relatively constant.

The data and figures provided above, which show that most funds that are using the 

basket are using the basket between the 15% and 10% thresholds, suggest that eliminating the 

basket for all money market funds (other than tax-exempt money market funds), as opposed to 

providing a fifteen percent basket, most effectively addresses our concerns about a money 

market fund’s exposure to a single guarantor or demand feature provider because eliminating the 

basket provides a significant mitigation of the risks to money market funds caused by their 

substantial exposure to these providers. After further consideration, we continue to believe that 

removing the twenty-five percent basket for money market funds (other than tax-exempt money 

market funds) instead of providing a fifteen percent basket (or other size basket), more 

appropriately addresses the risk that a fund faces when it is heavily exposed to a single guarantor 

or demand feature provider. 

ii. Tax-exempt money market funds

As discussed in greater detail in the DERA Guarantor Diversification Memo, and as 

discussed further below, DERA staff also analyzed data and figures regarding the use of the 

twenty-five percent basket by tax-exempt money market funds. DERA staff found that taxexempt money market funds in general, and single state money market funds in particular, use 

 1675 Id.
525

the twenty-five percent basket to a higher degree than money market funds as a whole. As set 

forth below, DERA staff examined the number of other tax-exempt funds and single state funds 

for which guarantors compose more than 10%, 15%, and 20% of their portfolios, respectively.1676 

As illustrated below, DERA staff also examined the percent of other tax-exempt funds 

and single state funds for which guarantors compose more than 10%, 15%, and 20% of their 

portfolios, respectively.1677 

 1676 Id. The DERA Guarantor Diversification Memo divides municipal money market funds into two 

categories, consistent with the two types of municipal money market funds on Form N-MFP (Item 10), 

“single state funds” and “other tax-exempt funds.” 

1677 Id.

89

3934

6

12

0 2

20

40

60

80

100

120

Number of Funds

>10% Single State >10% Other Tax-Exempt

>15% Single State >15% Other Tax-Exempt

>20% Single State >20% Other Tax-Exempt

Number of Municipal Funds with at Least One Guarantor Above Threshold
526

In addition, DERA staff examined the amount of excess exposure that other tax-exempt 

funds and single state funds have in assets above the 10%, 15%, and 20% thresholds, 

respectively.1678 

 1678 Id.

80.2%

50.0%

30.6%

7.7%

10.8%

2.6% 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percent of Funds

>10% Single State >10% Other Tax-Exempt

>15% Single State >15% Other Tax-Exempt

>20% Single State >20% Other Tax-Exempt

Percent of Municipal Funds with at Least One Guarantor Above Threshold
527

Lastly, as illustrated below, DERA staff found that only a small percentage of the entire 

other tax-exempt fund and single state fund industry assets are exposed to guarantors in excess of 

the 10%, 15%, and 20% thresholds.1679 

 1679 Id.

2.56

4.18

0.43

0.31 0.22

0.04 $0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Total Amortized Cost (Billion)

Excess Municipal Dollars

>10% Single State >10% Other Tax-Exempt

>15% Single State >15% Other Tax-Exempt

>20% Single State >20% Other Tax-Exempt
528

DERA staff analyzed, among other things: (i) the percentage of tax-exempt money 

market fund assets exposed to guarantors above the 10% threshold, which shows the percentage 

of assets that would need to be reinvested if we eliminated the twenty-five percent basket, as 

proposed; and (ii) the percentage of tax-exempt money market fund assets exposed to guarantors 

above the 15% threshold, which shows the percentage of assets that will need to be reinvested as 

a result of the fifteen percent basket that we are adopting today for tax-exempt money market 

funds. We believe that our staff’s analysis of the percentage of assets invested in securities 

subject to demand features or guarantees in excess of the 10% and 15% guarantor diversification 

limits, respectively, provides an accurate reflection of the potential impact that elimination or 

reduction of the twenty-five percent basket would have on other tax-exempt funds and single 

state funds. We also believe that looking to the percentage of assets, as opposed to the number 

of funds or excess amount of assets in dollars (which only show absolute numbers), most 

accurately shows the corresponding level of assets that will need to be reinvested. 

3.3%

2.0%

0.5%

0.2%

0.3%

0% 0.0%

1%

2%

3%

4%

5%

6%

Percent of Dollars

>10% Single State >10% Other Tax-Exempt

>15% Single State >15% Other Tax-Exempt

>20% Single State >20% Other Tax-Exempt

Percent of Municipal Dollars in Excess
529

The above data shows that the percentage of other tax-exempt funds and single state fund 

assets exposed to guarantors above the 10% and 15% guarantor diversification limits are 

relatively small when compared to other municipal money market funds and the money market 

fund industry as a whole, although the data also shows that other tax-exempt funds and single 

state funds use the basket to a greater extent than money market funds generally. In addition to 

acknowledging that the proposed elimination of the basket would have a greater effect on taxexempt money market funds because of their higher use of the basket, we have also taken into 

account commenters’ concerns, as discussed below, regarding the limited availability of 

guarantor and demand feature providers for tax-exempt money market funds as opposed to nontax-exempt money market funds. 

b. Additional Considerations

i. Non-tax-exempt money market funds

Several commenters generally supported the removal of the twenty-five percent 

basket.1680 For example, one commenter argued that eliminating the twenty-five percent basket 

for all money market funds would be an appropriate step to further reducing concentration risk in 

money market funds.1681 Other commenters, however, opposed the removal of the twenty-five 

percent basket.1682 Commenters argued that the elimination of the twenty-five percent basket 

 1680 See, e.g., Barnard Comment Letter; CFA Institute Comment Letter. See also U.S. Bancorp Comment 

Letter (supporting the removal of the twenty-five percent basket for all money market funds); Wells Fargo 

Comment Letter (supporting the removal of the twenty-five percent basket only for taxable money market 

funds); Schwab Comment Letter (supporting the removal of the twenty-five percent basket, but 

recommending that state-specific municipal money market funds be allowed to continue using the basket to 

some extent).

1681 U.S. Bancorp Comment Letter.

1682 See, e.g., SSGA Comment Letter; ICI Comment Letter; Legg Mason & Western Asset Comment Letter. 
530

would increase money market funds’ reliance on lower quality investments with higher credit 

risk, particularly due to the limited number of providers of guarantees and demand features.1683 

One commenter argued that since the financial crisis, fewer issuers have been providing 

guarantees and other credit support for securities to be purchased by money market funds, and 

that removing the twenty-five percent basket could force managers to purchase paper of lower 

quality issuers that are unable or unwilling to obtain third-party demand features.1684 Another 

commenter stated that consolidation in the banking industry has substantially reduced the pool of 

high-quality demand feature and guarantee providers, and increased regulatory capital 

requirements will likely further reduce the number of available providers in coming years.1685 

As discussed below, we do not believe that the removal of the twenty-five percent basket 

for non-tax-exempt money market funds will cause money market funds to use lower credit 

quality guarantors and demand feature providers or potentially reduce liquidity and flexibility for 

money market funds, and if any such impact were to occur, we expect that it would be limited. 

As noted above, the data analyzed in the DERA Guarantor Diversification Memo shows, among 

other things, that most funds, especially non-tax-exempt money market funds, do not use the 

twenty-five percent basket, and thus we believe that most money market funds will likely not be 

 

Most of the commenters that opposed the removal of the twenty-five percent basket focused specifically on 

the consequences for tax-exempt money market funds. We address their particular concerns regarding taxexempt money market funds below.

1683 Goldman Sachs Comment Letter; SIFMA Comment Letter; J.P. Morgan Comment Letter; ICI Comment 

Letter; Legg Mason & Western Asset Comment Letter; Vanguard Comment Letter. 

1684 Legg Mason & Western Asset Comment Letter. See also ICI Comment Letter (expressing concern that 

eliminating the twenty-five percent basket would increase rather than decrease risk by increasing a fund’s 

reliance on less creditworthy credit support providers, noting that the universe of institutions issuing or 

providing guarantees or liquidity for eligible money market fund securities has become limited).

1685 J.P. Morgan Comment Letter.
531

forced to use lower credit quality guarantors and demand feature providers.1686 Under today’s 

amendments, non-tax-exempt money market funds will not be required to include more than 10 

guarantors or demand feature providers in their portfolios if each one maximized the 10% 

diversification limit. DERA staff evaluated the exposure to guarantors and found that the top 

five guarantor parents accounted for a combined total of 43% of the exposure across all money 

market funds. DERA staff measured the credit risk for each guarantor by credit default swap 

(CDS) spreads and composite credit ratings (NRSROs) and found that the credit quality of 

guarantors among the top twenty guarantors is similar to that of the top five guarantors.1687 Thus, 

we believe that, if today’s amendments cause non-tax-exempt money market funds to include 

additional guarantors or demand feature providers in the funds’ portfolios, there exists a supply 

of guarantors and demand feature providers that have similar credit quality as the top five 

guarantors used by funds. As such, we believe that, for non-tax-exempt money market funds that 

are currently using the twenty-five percent basket, it is likely that these money market funds 

would be able to use these additional guarantors and demand feature providers and will not be 

forced to resort to low credit quality guarantors or demand feature providers because of the 

amended rule.

A few commenters argued that composite credit ratings from NRSROs are not a reliable 

standalone metric to assess credit quality.1688 We agree. This is why the DERA memo also 

assessed credit risk through CDS spreads, which are the market’s current assessment of a 

 1686 See DERA Guarantor Diversification Memo, supra note 1665 and accompanying text. 

1687 Id.

1688 See, e.g., Wells Fargo DERA Comment Letter
532

guarantor’s future financial capacity to provide the necessary support. A few commenters also 

argued that money market funds analyze the credit quality of guarantors using a variety of 

factors other than CDS spreads and composite credit ratings.1689 While we recognize that money 

market funds’ internal analysis of the credit quality of guarantors and demand feature providers 

might be different, we believe that using a combination of the objective factors, CDS spreads and 

composite credit ratings, for the purpose of our staff’s analysis is an acceptable alternative to 

conducting an individual credit risk analysis of guarantors and closely approximates the credit 

risk of such guarantors and demand feature providers. Thus, after further review, we believe our 

staff’s findings support the conclusion that, to the limited extent a money market fund may need 

to engage new institutions as providers of guarantees and demand features, there will be a 

sufficient supply of first tier guarantors in the market. We therefore believe that, even with a 

10% guarantor limit for non-tax-exempt money market funds, any increase in guarantor 

diversification should not lead to deterioration in credit quality. 

ii. Tax-exempt money market funds

Although a number of commenters opposed the removal of the twenty-five percent basket 

generally, many commenters specifically opposed the removal of the twenty-five percent basket 

for tax-exempt money market funds, and single state money market funds in particular.1690 Some 

commenters argued that the twenty-five percent basket has not been the reason tax-exempt 

 1689 See, e.g., Wells Fargo DERA Comment Letter; Dreyfus DERA Comment Letter.

1690 See, e.g., Federated II Comment Letter; Dreyfus Comment Letter; Wells Fargo Comment Letter; Schwab 

Comment Letter; Vanguard Comment Letter; BlackRock II Comment Letter. 
533

money market funds have experienced credit events in the past.1691 For example, one commenter 

argued that the twenty-five percent basket did not have an adverse impact on tax-exempt money 

market funds and their shareholders and that significant disruptions should not justify removal of 

the twenty-five percent basket for tax-exempt money market funds.1692 However, as we 

discussed in the Proposing Release, in 2008, the concentration of tax-exempt money market 

funds in guarantee and demand feature providers led to considerable stress in the municipal 

markets.1693 During this time municipal issuers had to quickly find substitutes for demand 

features on which they relied to shorten their securities’ maturities.1694 In addition, at least one 

provider of demand features and guarantees for many municipal securities held by money market 

funds avoided bankruptcy in part due to substantial support received from various entities.1695 

We believe the risk that a money market fund faces in cases where the guarantor or demand 

feature provider comes under significant strain is substantial and that possible external support is 

unreliable in cases when guarantors or demand feature providers may become stressed. We 

therefore continue to believe that it is appropriate to amend rule 2a-7 to enhance the 

diversification requirements by reducing the twenty-five percent basket to a fifteen percent 

basket, in order to limit a tax-exempt money market fund’s exposure to any one guarantor or 

demand feature provider, thereby mitigating the risk the fund faces when it heavily relies on a 

 1691 See, e.g., Vanguard Comment Letter; Federated II Comment Letter. 

1692 Federated II Comment Letter. See also Federated VII Comment Letter (arguing that tax-exempt money 

market funds weathered problems by relying on the credit of the underlying obligor or working with the 

obligor to substitute another guarantor).

1693 See Proposing Release, supra note 25, section III.J.3.

1694 Id.

1695 Id.
534

single guarantor or demand feature provider. 

As discussed above and in the Proposing Release, when evaluating money market funds 

in the aggregate, most money market funds do not use the twenty-five percent basket and those 

funds that do use the twenty-five percent basket do not make significant use of it.1696 

Commenters, however, argued that tax-exempt money market funds in particular do regularly 

rely on the twenty-five percent basket.1697 For example, one commenter stated that as of June 30, 

2013, 75% of municipal money market funds made use of the twenty-five percent basket.1698 

Another commenter noted that nine of the top 10 largest tax-exempt money market funds, which 

represent approximately 40% of the tax-exempt money market fund assets, use the twenty-five 

percent basket.1699 As previously discussed, commenters noted that besides using a single 

guarantor in the twenty-five percent basket, money market funds may also use two guarantors to 

fill the twenty-five percent basket by having, for example, a 13% exposure to one guarantor and 

a 12% exposure to another.1700 The DERA Guarantor Diversification Memo found, as shown 

above, that 10.8% and 2.6% of “single state funds” and “other tax-exempt funds” had at least one 

guarantor above the 20% threshold as of November 2012, respectively.1701 The DERA Guarantor 

Diversification Memo also found that 30.6% and 7.7% of single state funds and other tax-exempt 

 1696 See Proposing Release, supra note 25, nn.892-893 and accompanying text.

1697 See, e.g., SIFMA Comment Letter; Fidelity Comment Letter.

1698 SIFMA Comment Letter. 

1699 Fidelity Comment Letter (noting that only one of those nine funds was over 15% and recommending a 

fifteen percent basket for all money market funds). 

1700 See, e.g., Comment Letter of Investment Company Institute DERA (Apr. 22, 2014) (“ICI DERA Comment 

Letter”).

1701 See DERA Guarantor Diversification Memo, supra note 1665. 
535

funds had at least one guarantor above the 15% threshold as of November 2012, respectively. In 

addition, the memo shows that 80.2% and 50.0% of single state and other tax-exempt funds had 

at least one guarantor above the 10% threshold as of November 2012, respectively.1702 DERA 

staff’s findings are consistent with the data provided by the commenters above, which suggest 

that tax-exempt money market funds use the twenty-five percent basket to a greater extent than 

non-tax-exempt money market funds. 

One commenter argued that although the DERA staff analysis demonstrates that most 

tax-exempt money market funds use the twenty-five percent basket, the sample period (2010-

2012) is not appropriate because there were no events during this time period that caused stress 

on money market funds.1703 We note, however, that another commenter stated that it was 

beneficial for money market funds to have the flexibility of the twenty-five percent basket during 

the Eurozone concerns in 2011,1704 which occurred during our sample time period. As discussed 

above, the data analyzed in the DERA Guarantor Diversification Memo shows that over the 

course of two years, the use of the twenty-five percent basket remained steady and there was 

minimal variability in the use of the basket over time, even when certain events during this time 

period caused stress on money market funds.1705 

Many commenters expressed concern regarding the impact of the proposed removal of 

the twenty-five percent basket for tax-exempt money market funds, and single state money 

market funds in particular, due to the limited availability of demand feature providers and 

 1702 Id. 

1703 See Wells Fargo DERA Comment Letter.

1704 See Fidelity DERA Comment Letter.

1705 See DERA Guarantor Diversification Memo, supra note 1665.
536

guarantors for these types of funds. Commenters argued that the elimination of the twenty-five 

percent basket would limit a tax-exempt money market fund’s flexibility to obtain greater 

exposure to strong credit sources in times when high credit quality may be scarce.1706 A number 

of commenters also argued that the removal of the twenty-five percent basket will make it 

difficult for tax-exempt money market funds to acquire sufficient liquid assets.1707 Commenters 

argued that there is a relatively narrow group of banks and other financial institutions that 

provide much of the liquidity in the short-term municipal and TOB markets,1708 and that single 

state funds in particular have even fewer issuers available to them.1709 

One commenter stated that with a constrained supply of securities with diverse 

guarantors, a twenty-five percent basket may actually allow a manager to reduce risk by avoiding 

or reducing exposure to the relatively weakest guarantors.1710 Some commenters also argued that 

the twenty-five percent basket is an important tool that money market funds may use to 

accommodate the variability and unpredictability of supply and demand in the municipal 

market.1711 We recognize commenters’ concerns regarding the proposed removal of the twentyfive percent basket for tax-exempt money market funds, and single state money market funds in 

 1706 Vanguard Comment Letter; Invesco Comment Letter; BlackRock II Comment Letter. See also Dreyfus 

Comment Letter; ICI Comment Letter; Legg Mason & Western Asset Comment Letter; Federated VII 

Comment Letter; Federated II Comment Letter.

1707 Wells Fargo Comment Letter; Invesco Comment Letter; BlackRock II Comment Letter; SIFMA Comment 

Letter; Goldman Sachs Comment Letter; Federated II Comment Letter. See also Fidelity Comment Letter. 

1708 Id. 

1709 See, e.g., BlackRock II Comment Letter.

1710 Wells Fargo Comment Letter.

1711 See, e.g., Dreyfus Comment Letter; BlackRock II Comment Letter. See also Wells Fargo DERA Comment 

Letter (noting that the basket provides a means for money market funds to limit portfolio credit risk by 

concentrating exposure in the highest quality guarantor).
537

particular, due to the limited availability of demand feature providers and guarantors for these 

types of funds. As noted above, we believe that requiring tax-exempt money market funds to 

limit exposure to any one guarantor or demand feature provider while still providing tax-exempt 

money market funds with a fifteen percent basket, will address many of the commenters’ 

concerns regarding the limited supply of demand feature providers and guarantors for tax-exempt 

money market funds.

Several commenters suggested we reduce the twenty-five percent basket to a fifteen 

percent basket for tax-exempt money market funds.1712 One commenter stated that, although the 

twenty-five percent basket may not have been heavily used recently by money market funds, the 

availability of a basket would provide useful flexibility to money market funds on occasion.1713 

A second commenter argued that a fifteen percent basket would achieve the objective of 

balancing diversification and flexibility, while reducing the potential for unintended 

consequences.1714 After further consideration, and in light of the data for tax-exempt money 

market funds and commenters’ concerns and recommendations regarding the removal of the 

basket for tax-exempt money market funds, we have decided to allow tax-exempt money market 

 1712 See, e.g., Goldman Sachs Comment Letter; Fidelity DERA Comment Letter. See also Schwab Comment 

Letter (recommending that single state money market funds be allowed to continue using the twenty-five 

percent basket except that within the basket no single guarantor or demand feature provider could represent 

more than 15% of the fund’s assets). Some commenters suggested we reduce the twenty-five percent 

basket to a fifteen percent basket for all money market funds (both tax-exempt funds and non-tax-exempt 

funds). See Goldman Sachs Comment Letter; SIFMA Comment Letter; Fidelity Comment Letter. See also

J.P. Morgan Comment Letter (recommending that instead of eliminating the basket, we mandate a 

maximum guarantee and/or demand feature exposure that can be held within the basket in any one entity, 

such as at a 15% cap).

1713 Goldman Sachs Comment Letter (suggesting that our data is limited to a short period of time and arguing 

that it supports the conclusion that a smaller basket would satisfy portfolio managers of most funds). 

1714 Fidelity Comment Letter.
538

funds, including single state funds, to rely on a fifteen percent basket, under which as much as 

15% of the value of securities held in a tax-exempt money market fund’s portfolio may be 

subject to guarantees or demand features from a single institution. Although eliminating the 

basket for tax-exempt money market funds would reduce concentration risk by requiring taxexempt money market funds to lessen their exposure to a single guarantor or demand feature 

provider, we are concerned that eliminating the basket entirely could cause these funds to invest 

in weaker credits. We believe that a reduction of the twenty-five percent basket to a fifteen 

percent basket for tax-exempt money market funds, which the DERA Guarantor Diversification 

Memo shows use the basket more than non-tax-exempt money market funds, appropriately 

addresses the concerns related to heavy concentration in a single guarantor or demand feature 

provider as well as the concerns that eliminating the twenty-five percent basket for tax-exempt 

money market funds could lead to an overall deterioration of credit quality or liquidity because 

tax-exempt funds may have to obtain guarantees or demand features from less creditworthy 

institutions due to a limited supply of guarantees and demand features. 

We believe for several reasons that reducing the twenty-five percent basket to a fifteen 

percent basket should not significantly restrict the ability of guarantors to fill the needed capacity 

as the guarantors become more diversified. First, the data analyzed in the DERA Guarantor 

Diversification Memo shows 0.5% and 0.2% of the guarantor’s dollars are excess dollars above 

the 15% threshold when single state funds and other tax-exempt funds, respectively, are 

considered separately in November 2012, meaning little if any additional capacity has to be 
539

developed.1715 Second, it is reasonable to expect that a reduction by one money market fund 

(because its exposure to a particular guarantor is too high) could become a purchasing 

opportunity for another money market fund whose exposure to a particular guarantor is below 

the 15% threshold. Third, should any of the top guarantors listed in the DERA Guarantor 

Diversification Memo choose to increase their capacity, this could become a purchasing 

opportunity for a money market fund since the amount of excess dollars above the 15% threshold

is smaller than the amount needed for the remaining funds to reach the 10% or 15% threshold for 

the same guarantor. Lastly, it is also reasonable to expect that if a reduction by any of the top 

guarantors does occur, this could become an opportunity for another guarantor to step in. We 

therefore believe that, although other tax-exempt funds and single state funds may currently use 

the twenty-five percent basket to a higher degree than money market funds generally and may 

face greater supply constraints than non-tax-exempt funds, because these funds will be permitted 

to use a fifteen percent basket, any increase in guarantor diversification should not lead to 

deterioration in credit quality and any negative effects for tax-exempt money market funds that 

currently use the twenty-five percent basket will be minimal.1716

A couple of commenters argued that VRDNs provide a significant source of liquidity for 

money market funds and that the proposed removal of the twenty-five percent basket would 

therefore have a negative impact on a fund’s ability to access liquidity through VRDNs.1717 In 

 1715 See DERA Guarantor Diversification Memo, supra note 1665.

1716 See supra note 1665 and accompanying text (discussing level of assets and supply of providers).

1717 Legg Mason & Western Asset Comment Letter; Invesco Comment Letter. The interest rates on VRDNs 

are typically reset either daily or every seven days. VRDNs include a demand feature that provides the 

investor with the option to put the issue back to the trustee at a price of par value plus accrued interest. 

This demand feature is supported by a liquidity facility such as letters of credit, lines of credit, or standby 
540

addition, one of these commenters argued that the combination of regulatory requirements and 

the diminishing number of financial guaranty companies and highly rated banks has significantly 

reduced the number of entities offering credit support for VRDNs,1718 noting that in late 2012, 

tax-exempt money market funds had an average of 83% of total assets invested in VRDNs.1719 

As discussed in the Proposing Release, and as discussed further below, concerns about the 

creditworthiness of guarantors and demand feature providers have reduced the amount of 

VRDNs outstanding since 2010.1720 We expect that reducing the twenty-five percent basket to a 

fifteen percent basket instead of eliminating the basket will alleviate commenters’ concerns 

regarding the availability of VRDNs. In addition, because the amount of outstanding VRDNs 

and other short-term municipal debt has decreased 47% between 2008 and 2013, the top 

guarantors will have some additional capacity built in should the overall demand for such 

securities continue to decrease into the future.1721 Rule 2a-7 restricts money market funds to 

short-term maturities, which in turn limits the municipal debt in money market funds to VRDNs 

and other short-term municipal debt.1722 In addition, analyzing money market fund municipal 

 purchase agreements provided by financial institutions. The interest-rate reset and demand features shorten 

the duration of the security and allow it to qualify as an eligible security under Rule 2a-7. See HANDBOOK 

OF FIXED INCOME SECURITIES 237 (Frank J. Fabozzi & Steven V. Mann eds., 8th ed. 2012) nn.735-36. 

1718 Invesco Comment Letter (stating that, while total municipal market debt outstanding has held stable for the 

past five years at about $3.7 trillion, VRDNs outstanding have declined steadily from $444.9 billion in 

December 2008 to only $246.8 billion in June 2013). 

1719 Id. (noting that there has been a marked decline in the issuance of credit enhanced securities and that the 

contraction in the availability of these securities hinders the level of diversification that managers can 

achieve in tax-exempt money market fund portfolios; also providing data that securities issued with a letter 

of credit, standby purchase agreement or guarantee comprised 25.6% of total municipal market issuance in 

2008 and that in 2012 these securities made up 9.5% of total issuance).

1720 See Proposing Release, supra note 25, at section III.E.

1721 See infra note 1723.

1722 Our staff’s review of portfolio holdings of single state funds and other tax-exempt funds from Form N-
541

debt holdings and the availability of acceptable money market fund municipal securities 

(VRDNs and other short-term municipal debt) from 2002 to 2013 suggests that the municipal 

debt market is able to adjust to both increasing and decreasing demand for such securities.1723 

c. Additional economic analysis 

Our diversification amendments, including (i) the amendment to require that money 

market funds treat the sponsors of ABS as guarantors subject to rule 2a-7’s 10% diversification 

limit applicable to guarantees and demand features, unless the money market fund’s board of 

directors (or its delegate) determines that the fund is not relying on the sponsor’s financial 

strength or its ability or willingness to provide liquidity, credit or other support to determine the 

ABS’s quality or liquidity (“ABS amendment”) and (ii) the amendment to remove the twentyfive percent basket for money market funds other than tax-exempt money market funds and to 

reduce to fifteen percent, rather than eliminate, the twenty-five percent basket for tax-exempt 

money market funds, including single state money market funds (“twenty-five percent basket 

 

MFP filings, using aggregate amortized values from November 2010 to December 2013, found that these 

funds held approximately 71% in VRDNs and 18% in other municipal debt.

1723 The Federal Reserve Board’s Flow of Funds of the United States provides the amount of municipal 

securities held by money market funds and the overall market. It ranged from about $270 billion in 2002 to 

a maximum of $520 billion in 2008 only to decline to approximately $305 billion by 2013. The decrease 

shows that $215 billion ($520 - $305) or 39% exited the money market fund industry since the financial 

crisis. One can closely approximate these money market fund holdings by summing the amount of 

outstanding VRDNs (Source: Securities Market and Financial Markets Association website) with the 

amount of outstanding short term municipal debt (Source: Federal Reserve Board’s Flow of Funds of the 

United States), suggesting that money market funds hold nearly all the VRDNs and short-term municipal 

debt. This sum has nearly halved from a high of $500 billion in 2008 to $265 billion in 2013. This 

corresponds to a decrease of $235 billion, or 47%, of short term municipal debt and VRDNs money market 

funds holdings. We note, as well, that the overall municipal debt market has absorbed these large money 

market fund outflows, and, in fact, the overall municipal debt market has grown approximately $200 billion 

during this same time period. See Federal Reserve Board, Flow of Funds of the United States, available at

http://www.federalreserve.gov/releases/z1 and Securities Market and Financial Market Association 

Reports, available at http://www.sifma.org/research/reports.aspx. 
542

amendment”),1724 are designed to provide a number of benefits, as discussed in more detail 

below. DERA staff’s review of data suggests that our ABS amendment and twenty-five percent 

basket amendment (treating only ABCP sponsors as guarantors for purposes of this analysis)1725

would have little impact on the majority of money market funds, which do not make use of the 

twenty-five percent basket, and would likely have a minimal impact on those funds that do. 

Because tax-exempt money market funds make greater use of the basket than non-tax-exempt 

money market funds and may face greater constraints regarding the availability of demand 

feature providers and guarantors, we have provided tax-exempt money market funds with the 

ability to use a fifteen percent basket. DERA staff’s review of data suggests that the effect of our 

twenty-five percent basket amendment on tax-exempt money market funds would thus also have 

little impact on the majority of tax-exempt money market funds. 

Based on the data analyzed in the DERA Guarantor Diversification Memo, our staff 

found that approximately 131 funds, or 21.9% of all funds submitting Form N-MFP for 

November 2012, reported that they made use of the twenty-five percent basket for guarantees 

and demand features, even when we treat sponsors of ABCP as guarantors (and thus subject to a 

10% diversification limitation). Thus, although a minority does use the twenty-five percent 

basket, the majority of money market funds do not. Furthermore, money market funds as of 

 1724 See infra note 1660.

1725 Our staff assumed when reviewing the Form N-MFP data that any fully or partially supported ABCP 

owned by a fund would result in the sponsor guaranteeing the ABCP. For this purpose, our staff 

considered an ABCP conduit to be fully supported when the program’s investors are protected against asset 

performance deterioration and primarily rely on the ABCP sponsor to provide credit, liquidity, or some 

other form of support to ensure full and timely repayment of ABCP, and considered an ABCP conduit to be 

partially supported when the ABCP sponsor, although not fully supporting the program, provided some 

form of credit, liquidity, or other form of support. See also infra note 1726.
543

February 28, 2014, had invested 16.5% of their assets in ABS and securities subject to demand 

features or guarantees, suggesting that issuers have a ready supply of money market fund 

investors eligible to purchase their securities. The 131 funds that used the twenty-five percent 

basket had, on average, $31.4 billion of their assets invested in excess of the 10% diversification 

limitation we are adopting today (i.e., in the twenty-five percent basket) as of November 

2012.1726 Furthermore, data as of November 2012, shows that 98.9% of total money market fund 

assets are not in funds’ twenty-five percent baskets. Thus, because most money market funds are 

not using the twenty-five percent basket to gain high levels of exposure to any one particular 

guarantor or demand feature provider and because a very high percentage of money market fund 

assets are not in a twenty-five percent basket, we believe any negative effects for these non-taxexempt money market funds will generally be minimal. In addition, we believe that, if today’s 

amendments cause non-tax-exempt money market funds to include additional guarantors or 

demand feature providers in the funds’ portfolios, there exists a sufficient supply of guarantors 

and demand feature providers.

 1726 This estimate likely overstates the number of funds and the amount of money market funds’ assets that 

could be affected by our ABS amendments for three reasons. First, it assumes that any fully or partially 

supported ABCP owned by a fund would result in the sponsor guaranteeing the ABCP. Under our 

amendments, however, an ABCP (or other ABS) sponsor would not be deemed to guarantee the ABCP if 

the board (or its delegate) determines the fund is not relying on the sponsor’s financial strength or its ability 

or willingness to provide support to determine the ABCP’s quality or liquidity. We did not assume 

sponsors of other types of ABS guaranteed those ABS because we understand that other forms of ABS 

offered to money market funds either do not typically have sponsor support or, if they are supported, the 

support typically is in the form of a guarantee or demand feature, which would already be included in our 

calculation of exposure to providers of demand features and guarantees. Second, Form N-MFP data does 

not differentiate between funds that would have had exposure in excess of 10% upon the acquisition of a 

demand feature or guarantee (which will not be permitted under our amendments) and those funds that 

were under that level of exposure at the time of acquisition but the fund later decreased in size, increasing 

the fund’s exposure above the 10% limit (which will be permitted under our amendments). Third, where a 

fund owned securities issued by or subject to demand features or guarantees from affiliated institutions, we 

treated the separate affiliated institutions as single institutions for purposes of these estimates. 
544

As discussed above, and as addressed by certain commenters, we recognize that taxexempt money market funds, and in particular, single state tax-exempt money market funds, use 

the twenty-five percent basket to a greater degree than other types of money market funds. 

DERA staff found that approximately 128 tax-exempt funds, or 67.7% of all tax-exempt funds 

submitting Form N-MFP for November 2012, made use of the twenty-five percent basket. For 

single state funds, our staff found that approximately 89 single state funds, or 80.2% of single 

state funds submitting Form N-MFP for November 2012 made use of the twenty-five percent 

basket. However, tax-exempt money market funds, including single state funds, that do use the 

twenty-five percent basket generally do not make significant use of it. The 128 tax-exempt 

money market funds that used the twenty-five percent basket had, on average, 2.4% of their 

assets invested in excess of the 10% diversification limitation we are adopting today (i.e., in the 

twenty-five percent basket), and the 89 single state money market funds that used the twenty-five 

percent basket had, on average, 0.5% of their assets invested in access of the 15% diversification 

limitation as of November 2012.1727 In addition, the 128 tax-exempt money market funds that 

used the twenty-five percent basket had, on average, 0.3% of their assets invested in excess of 

the 15% diversification limitation we are adopting today, and the 89 single state money market 

funds that used the twenty-five percent basket had, on average, 0.5% of their assets invested in 

excess of the 15% diversification limitation as of November 2012.1728 

Although we understand that non-tax-exempt money market funds, and tax-exempt 

money market funds in particular, may have made greater use of the twenty-five percent basket 

 1727 Id.

1728 Id.
545

in the past (and might do so in the future if we fully retained the twenty-five percent basket), we 

are concerned that funds were previously exposed to concentrated risks inconsistent with the 

purposes of rule 2a-7’s diversification requirements as discussed above. We continue to believe 

that amending rule 2a-7 to tighten diversification limits for securities subject to guarantees or 

demand features from a single institution for both non-tax-exempt money market funds and taxexempt money market funds will mitigate some of the risk that a money market fund faces by 

limiting a fund’s exposure to any one guarantor or demand feature provider.

The principal effect of the ABS amendment and twenty-five percent basket amendment 

we are adopting today may be to restrain some managers of money market funds from being 

heavily exposed to an individual ABS sponsor and from making use of the twenty-five percent 

basket in the future, under perhaps different market conditions.1729 Our diversification 

amendments may deny fund managers some flexibility in managing fund portfolios and could 

decrease fund yields. To assess our amendment’s effect on yield, our staff examined whether the 

7-day gross yields of funds that use the twenty-five percent basket were higher than the 7-day 

gross yields for those funds that do not.1730 Our staff found: (i) for other tax-exempt funds, the 

average yield for funds using the twenty-five percent basket was 0.0893% as compared to the 

 1729 One commenter suggested that compliance with our amendments would require it to reallocate or sell its 

money market fund portfolio securities. See Fidelity Comment Letter (also suggesting that we extend our 

nine-month implementation period for modifying the twenty-five percent basket due to the need for 

additional time for transactions). However, funds with investments in excess of those permitted under the 

revised rule are not required to sell the excess investments to come into compliance. The amendments 

require a fund to calculate its exposure to issuers of demand features and guarantees as of the time the fund 

acquires a demand feature or guarantee or a security directly issued by the issuer of the demand feature or 

guarantee. See rules 2a-7(d)(3)(i) and (iii).

1730 We assumed that any fully or partially supported ABCP owned by a fund would result in the sponsor 

guaranteeing the ABCP. See supra note 1726. 
546

average yield for other tax-exempt funds that did not use the twenty-five percent basket of 

0.0987% and the average yield for funds using the twenty-five percent basket above the 15% 

threshold was 0.0736% as compared to the average yield for other tax-exempt funds that either 

did not use the twenty-five percent basket or used the twenty-five percent basket below the 15% 

threshold of 0.0951%; (ii) for single state funds, the average yield for funds using the twenty-five 

percent basket was 0.0886% as compared to the average yield for single state funds that did not 

use the twenty-five percent basket of 0.0754% and the average yield for single state funds using 

the twenty-five percent basket above the 15% threshold was 0.1075% as compared to the 

average yield for singe state funds that either did not use the twenty-five percent basket or used 

the twenty-five percent basket below the 15% threshold of 0.0790%; and (iii) for prime money 

market funds, the average yield for funds using the twenty-five percent basket was 0.1740% as 

compared to the average yield for prime money market funds that did not use the twenty-five 

percent basket of 0.1875%.1731 The prime money market fund yield differences may not, of 

course, be caused by the use of the twenty-five percent basket, but may instead reflect the overall 

risk tolerance of fund managers that take advantage of the twenty-five percent basket. In 

addition, we acknowledge that the current low interest-rate environment may cause the yield 

spread in each comparison above to be less than if we were measuring the yield spreads in a 

higher interest rate environment.

We requested comment as to whether there would be a significant impact on fund yield, 

and if so, how significant. Although commenters did not address the specific impact on fund 

 1731 These averages are derived from Form N-MFP data as of February 28, 2014, weighted by money market 

funds’ assets under management.
547

yield, one commenter stated that our staff’s analysis assumed that funds could replace securities 

guaranteed or subject to a demand feature in a twenty-five percent basket with the same 

securities that were held by the funds that do not use the twenty-five percent basket, and 

suggested that the elimination of the basket might therefore decrease both yield and liquidity of 

tax-exempt funds.1732 We recognize that it is possible that one money market fund may not be 

able to obtain the exact securities of another money market fund that is not currently relying on 

the basket. However, as discussed above, our staff’s analysis shows that there exists a sufficient 

supply of first tier guarantors in the market for funds to invest. Therefore, after further 

consideration, we believe that the effect on yield, given the 7-day gross yields of funds that use 

the twenty-five percent basket versus the 7-day gross yields for those funds that do not, will be 

minimal.

Our twenty-five percent basket amendment requires non-tax-exempt money market funds 

that use the twenty-five percent basket, and tax-exempt money market funds that use the twentyfive percent basket at levels above the fifteen percent threshold, or that would use it in the future, 

to either not acquire certain demand features or guarantees (if the fund could not assume 

additional exposure to the provider of the demand feature or guarantee) or to acquire them from 

different institutions. Funds that choose the latter course could thereby increase demand for 

providers of demand features and guarantees and increase competition among their providers. If 

new entrants do not enter the market for demand features and guarantees in response to this 

increased demand, reducing the twenty-five percent basket to a fifteen percent basket for tax-

 1732 Federated VII Comment Letter.
548

exempt money market funds, and removing the twenty-five percent basket for all other money 

market funds, could result in money market funds acquiring guarantees and demand features 

from lower quality providers than those the funds use today, although, as discussed above, we 

expect such potential effect to be mitigated due to the available supply of first-tier guarantors and 

demand feature providers that have similar credit quality as the top guarantors that are used by 

funds. If new entrants do enter the market (or if current participants increase their participation), 

the effect on money market funds would depend on whether these new entrants (or current 

participants) are of high or low credit quality as compared to the providers money market funds 

would use absent our amendments. 

Our ABS amendment and twenty-five percent basket amendment also may increase the

costs of monitoring the credit risk of funds’ portfolios or make that monitoring less efficient, to 

the extent they are more diversified under our amendments and money market fund advisers 

must expend additional effort to monitor the credit risks posed by a greater number of guarantors 

and demand feature providers. Although we cannot provide a point estimate of these costs, and 

commenters did not provide us with any data that would assist us with a point estimate, we 

expect that these costs would be included in our broader cost estimates as discussed above in 

section III.I.1. A money market fund that could not acquire a particular guarantee or demand 

feature under our amendments could, for example, be able to acquire a guarantee or demand 

feature from another institution in which the fund already was invested, at no additional 

monitoring costs to the fund. 

Issuers also could incur costs if they were required to engage different providers of 

demand features or guarantees under our amendments, which could negatively affect capital 
549

formation. This could occur because an issuer might otherwise have sought a guarantee or 

demand feature from a particular bank, but might choose not to use that bank because the money 

market funds to which the issuer hoped to market its securities could not assume additional 

exposure to the bank. If issuers were unable to receive demand features or guarantees from 

banks (or other institutions) to which they would have turned absent our amendments, they 

would have to engage different banks, which could make the offering process less efficient and 

result in higher costs if the different banks charged higher rates. Issuers of securities with 

guarantees or demand features (e.g., issuers of longer-term securities that can be sold to money 

market funds only with a demand feature) also could be required to broaden their investor base 

or seek out different providers of guarantees or demand features under our amendments, which 

could make their offering process less efficient or more costly.

As discussed above, some commenters argued that single state funds in particular would 

be negatively affected by the removal of the twenty-five percent basket.1733 We believe that 

providing single state funds a fifteen percent basket retains much of the flexibility for single state 

funds to invest in securities subject to guarantees or demand features while also limiting the 

extent to which a single state fund can become exposed to any one guarantor or demand feature 

provider. Although our amendments reduce the twenty-five percent basket for all single state 

funds, we are not changing the application of rule 2a-7’s 5% issuer limit to single state funds, 

which today applies only to 75% of a single state fund’s total assets.1734 We historically have 

 1733 See, e.g. BlackRock II Comment Letter; Schwab Comment Letter; Federated VII Comment Letter; Dreyfus 

Comment Letter.

1734 See current rule 2a-7(c)(4)(i)(B) and rule 2a-7(d)(3)(i)(B). 
550

applied the issuer diversification limitation differently to single state funds, recognizing that 

“single state funds face a limited choice of very high quality issuers in which to invest” and, 

therefore, that there is a risk that “too stringent a diversification standard could result in a net 

reduction in safety for certain single state funds.”1735 The market for demand features and 

guarantees, in contrast, is national for most single state funds and therefore may not be subject to 

the same supply constraints as is the market for issuers in which single state funds may directly 

invest. However, the market for demand features and guarantees for some single state funds is 

not national. For example, the state of California through the California State Teachers 

Retirement System is a guarantor for securities held in California municipal money market fund 

portfolios as reported on Form N-MFP. Additional analysis of the data in the DERA Guarantor 

Diversification Memo shows that 74% of the single state fund’s excess guarantees above the 

15% threshold on average come from California municipal money market funds (39%), New 

York municipal money market funds (24%), and Massachusetts municipal money market funds 

(11%). All other state municipal money market funds account for 5% or less of the excess 

guarantees dollars above the 15% threshold. As such, we would expect that in terms of the 

amount of assets, California, New York, and Massachusetts may be affected more than other 

states. However, as we discussed earlier, we expect the impact to be minimal since the amount 

of excess guarantee dollars above the 15% threshold is less than 0.5% of the single state 

guarantee dollars.1736 This may be reduced further if other single state funds with guarantees 

 1735 See Revisions to Rules Regulating Money Market Funds, Investment Company Act Release No. 21837 

(Mar. 21, 1996) [61 FR 13956 (Mar. 28, 1996)] (“1996 Adopting Release”), at text following n.38.

1736 See DERA Guarantor Diversification Memo, supra note 1665.
551

below the 10% and 15% threshold choose to increase their percent exposures to those guarantors 

with excess exposure in other funds.

We do not expect that our ABS and twenty-five percent basket diversification 

amendments will result in operational costs for funds. We understand that money market funds 

generally have systems to monitor their exposures to guarantors (among other things) and to 

monitor the funds’ compliance with rule 2a-7’s current 10% demand feature and guarantee 

diversification limit. We expect that money market funds could use those systems to track 

exposures to ABS sponsors under our amendments and could continue to track the funds’ 

compliance with a 10% demand feature and guarantee diversification limit. To the extent a 

money market fund did have to modify its systems as a result of our ABS and twenty-five 

percent basket diversification amendments, we expect that the money market fund would make 

those modifications when modifying its systems in response to our amendments to require 

money market funds to aggregate exposure to affiliated issuers for purposes of rule 2a-7’s 5% 

diversification limit, for which we provide cost estimates above.1737 Because the costs estimated 

above are those associated with activities typically involved in making systems modifications, 

we expect they also would cover any systems modifications associated with our ABS and 

twenty-five percent basket diversification amendments.

In the Paperwork Reduction Act analysis in section IV.A.1 below, we identified certain 

initial and ongoing hour burdens and associated time costs related to our diversification 

amendments. Specifically, our ABS amendment requires that the board of directors adopt 

 1737 See supra note 1625 and accompanying text.
552

written procedures requiring periodic evaluation of any determinations made regarding instances 

in which the fund is not relying on the ABS sponsor’s financial strength or its ability or 

willingness to provide quality or liquidity. Furthermore, for a period of not less than three years 

from the date when the evaluation was most recently made, the fund must preserve and maintain 

in an easily accessible place a written record of the evaluation. These requirements are a 

collection of information under the Paperwork Reduction Act, and are designed to help ensure 

that the objectives of the diversification limitations are achieved. We estimate the one-time 

burden to prepare and adopt these procedures will be 1,368 hours at $1,130,880 in total time 

costs for all money market funds and we estimate that the annual burden would be approximately 

608 burden hours and $842,080 in total time costs for all money market funds. We also note that 

a board can delegate its responsibility to determine whether the fund is relying on the ABS 

sponsor’s financial strength or its ability or willingness to provide quality or liquidity pursuant to 

rule 2a-7.1738 To the extent that a board delegates this responsibility, it may incur additional costs 

related to its oversight of such a delegate, although we expect that any such additional costs 

would be minimal.

J. Amendments to Stress Testing Requirements

We are adopting amendments to the stress testing requirements under rule 2a-7, with 

modifications from the proposal in response to comments. Specifically, we are adopting reforms 

to the current stress testing provisions that will require funds periodically to test their ability to 

maintain weekly liquid assets of at least 10% and to minimize principal volatility1739 in response 

 1738 See rule 2a-7(j).

1739 Stable NAV funds will continue to be required to test their ability to maintain a stable NAV. See rule 2a-
553

to specified hypothetical events that include (i) increases in the level of short-term interest rates, 

(ii) the downgrade or default of particular portfolio security positions, each representing various 

exposures in a fund’s portfolio, and (iii) the widening of spreads in various sectors to which the 

fund’s portfolio is exposed, each in combination with various increases in shareholder 

redemptions.1740 The fund adviser must report the results of such stress testing to the board, 

including such information as may be reasonably necessary for the board of directors to evaluate 

the stress testing results.1741 We discuss these requirements and the modifications from the 

proposal in further detail below.

1. Overview of Current Stress Testing Requirements and Proposed 

Amendments

The current stress testing requirements, adopted in 2010, require that the fund adopt 

procedures providing for periodic testing of the fund’s ability to maintain a stable price per share 

based on (but not limited to) certain hypothetical events. These hypothetical events include a 

change in short-term interest rates, an increase in shareholder redemptions, a downgrade of or 

default on portfolio securities, and the widening or narrowing of spreads between yields on an 

appropriate benchmark selected by the fund for overnight interest rates and commercial paper 

and other types of securities held by the fund. As we discussed in the Proposing Release, we 

have monitored the stress testing requirement and how different fund groups have approached its 

implementation in the marketplace. Through our staff’s examinations of money market fund 

 

7(g)(8)(i). Additionally, as discussed below, we recognize that fund advisers and boards are more likely to 

be concerned with, and the hypothetical events are focused on, downside volatility. 

1740 Id.

1741 See rule 2a-7(g)(8)(ii).
554

stress testing procedures, we have observed disparities in the quality and comprehensiveness of 

stress tests, the types of hypothetical circumstances tested, and the effectiveness of materials 

produced by fund managers to explain the stress testing results to boards. For example, some 

funds test for combinations of events, as well as for correlations between events and between 

portfolio holdings, whereas others do not. As discussed in the proposal, we believe that an 

evaluation of combinations of events and correlations among portfolio holdings is an important 

part of a fund’s stress testing.1742

We also noted in the proposal that we have had several opportunities to assess the 

effectiveness of the stress testing requirements during periods of market stress, including the 

2011 Eurozone debt crisis and the 2011 U.S. debt ceiling impasses. We further assessed the role 

of stress testing in fund boards’ assessment of fund risks during the 2013 U.S. debt ceiling 

impasse. Our staff has observed that funds that had strong stress testing procedures were able to 

use the results of those tests to better manage their portfolios and better understand and minimize 

the risks associated with these events.1743 

Finally, we also noted that, both with stable NAV and floating NAV funds, we believe 

that stress testing the liquidity of money market funds could enhance a fund board’s 

understanding of the risks to the fund related to periods of heavy shareholder redemptions and 

could help the fund manage those risks. We also noted that from the staff’s review of stress 

testing by funds, some funds already incorporate an analysis of their ability to maintain liquidity 

 1742 See Proposing Release, supra note 25, at section III.L.

1743 Id.
555

in their stress tests.1744 

Considering this information and experience, the Commission proposed certain 

modifications, enhancements, and clarifications to the current stress testing requirements in rule 

2a-7 to strengthen the stress testing requirements. First, we added a proposed requirement for 

each fund to stress test its ability to avoid having its weekly liquid assets fall below 15% of all 

fund assets. Under the floating NAV alternative, we also proposed removing the requirement 

that floating NAV funds test their ability to maintain a stable share price. Additionally, we 

proposed certain enhancements and clarifications to the list of hypothetical events that funds 

were required to include in their stress testing. Finally, we proposed to modify the requirements 

to report results to the board, proposing an additional requirement that the fund adviser include 

such information as may be reasonably necessary for the board of directors to evaluate the stress 

testing.1745

Comments on the proposed changes to the stress testing requirement were mixed. Some 

commenters supported the proposed reforms to varying degrees.1746 Others opposed them.1747 

Commenters who supported the reforms suggested that they will enable better management of 

money market fund risk and help address run incentives by heightening board awareness of how 

 1744 Id.

1745 Id.

1746 See, e.g., TIAA-CREF Comment Letter; BlackRock II Comment Letter; MFDF Comment Letter; Comment 

Letter of Treasurer, State of Connecticut (Sept. 17, 2013) (“Conn. Treasurer Comment Letter”); Barnard 

Comment Letter; Santoro Comment Letter.

1747 See, e.g., Federated VIII Comment Letter; ICI Comment Letter; Schwab Comment Letter; Legg Mason & 

Western Asset Comment Letter; Dreyfus Comment Letter.
556

events can affect liquidity and share price.1748 Commenters who opposed the reforms indicated 

that they believed the current stress testing requirements were sufficient, and that the reforms 

might be costly, difficult to implement, and provide unnecessary information to boards.1749 Two 

commenters believed that stress testing should not be required for floating NAV funds.1750 Other 

commenters believed that stress testing requirements should continue to apply to floating NAV 

funds.1751 These comments are discussed in more detail below.

2. Stress Testing Metrics

a. Liquidity

As proposed, we are requiring money market funds to test their liquidity, but have 

modified the threshold to require funds to test their ability to maintain 10% weekly liquid assets 

from the 15% proposed.1752 This change is consistent with the modification from the proposal 

regarding the threshold of weekly liquid assets that will trigger a default liquidity fee.1753 Several 

commenters generally supported the proposed requirement that funds test their liquidity.1754 One 

commenter supported the proposal that funds test against the 15% threshold, and added that the 

 1748 See, e.g., BlackRock II Comment Letter (noting that stress testing plays a critical role in a board’s 

understanding of money market fund risks). 

1749 See, e.g., ICI Comment Letter (noting that there are limitations to stress testing and of fund directors’ 

capacity to review and interpret stress tests, which could lead to diminishing returns as the number and 

complexity of stress tests increase).

1750 See Deutsche Comment Letter; Legg Mason & Western Asset Comment Letter.

1751 See, e.g., BlackRock II Comment Letter; Fidelity Comment Letter; MSCI Comment Letter.

1752 See rule 2a-7(g)(8)(i).

1753 See rule 2a-7(c)(2(ii).

1754 See, e.g., BlackRock II Comment Letter; Fidelity Comment Letter; MSCI Comment Letter; Dreyfus 

Comment Letter (but expressing objection to the stress tests as proposed as vague, qualitative, and 

onerous).
557

commenter already tests against multiple liquidity thresholds and will continue to do so.1755 

Another commenter argued that funds should be required to test against a more conservative 

threshold, such as 20%, to allow funds to manage liquidity with “an eye toward a significant 

buffer” against the liquidity threshold that would trigger fees and gates.1756 Finally, one 

commenter, although generally supportive of testing liquidity, suggested that rather than 

requiring funds to test against a specific liquidity threshold, funds should analyze the impact of 

specific hypothetical event scenarios on weekly liquidity and the fund’s NAV, even if such 

events fall short of triggering a specific liquidity threshold.1757 

Several commenters, however, opposed the proposed requirement to have funds stress 

test their liquidity.1758 One commenter noted that it believed that testing liquidity would not be 

particularly meaningful for funds, as it is not possible to predict what assets a fund would sell to 

meet redemptions.1759 This commenter also believed that testing liquidity in floating NAV funds 

would serve no useful purpose because any losses on sales of securities to meet redemptions 

would be reflected in the fund’s NAV.1760 Several commenters believed that it was not feasible 

for a fund to test “the magnitude of each hypothetical event that would cause” the fund to cross 

the liquidity threshold,1761 as the proposed rule would have required for reporting to the board.1762 

 1755 See BlackRock II Comment Letter.

1756 See MSCI Comment Letter.

1757 See Fidelity Comment Letter.

1758 See ICI Comment Letter; Federated II Comment Letter; Federated VIII Comment Letter; Legg Mason & 

Western Asset Comment Letter; Invesco Comment Letter; IDC Comment Letter.

1759 See Legg Mason & Western Asset Comment Letter.

1760 Id.

1761 See ICI Comment Letter; Federated VIII Comment Letter. See also IDC Comment Letter (noting that 

testing when a hypothetical event may impact a fund’s ability to maintain weekly liquid assets of 15% may 
558

These commenters noted that, unlike stable share price, there was not a direct relationship 

between a fund’s liquidity levels and the hypothetical events listed in the proposed rule, other 

than shareholder redemptions.1763 They believed that conducting such stress tests would 

therefore require funds to make complex assumptions about how hypothetical events, such as an 

interest rate increase, would affect the level of shareholder redemptions or a portfolio manager’s 

decision to sell securities.1764 As an alternative, commenters suggested that funds could calculate 

the level of shareholder redemptions that, if satisfied using only weekly liquid assets, would 

reduce the fund’s weekly liquid assets to 15%.1765 Additionally, one commenter, although not 

objecting to having funds stress test for liquidity maintenance generally, believed that the stress 

tests as proposed were vague and qualitative in nature.1766

We continue to believe that funds should assess their liquidity as part of the stress testing 

process. As one commenter noted, investors are likely to monitor their funds’ liquidity levels, 

 

not be feasible).

1762 See proposed rule 2a-7(g)(7)(ii) (Floating NAV Alternative or Fees and Gates Alternative).

1763 See ICI Comment Letter (arguing that there is no practical means of testing when a hypothetical event, 

other than redemptions, would cause a money market fund to cross the 15% liquidity threshold); Federated 

II Comment Letter (same); Federated VIII Comment Letter (same). See also Invesco Comment Letter 

(objecting to the testing of scenarios in which a fund falls below the 15% liquidity threshold because the 

only reasonable scenario in which this would occur is shareholder redemptions).

1764 See ICI Comment Letter (noting that funds do not have a basis for determining the amount of redemptions 

might indirectly result from significant changes in interest rates, spreads or a downgrade or default on 

portfolio securities); Federated VIII Comment Letter (arguing that the proposed test on liquidity levels 

would have to be based on a behavioral relationship between changes in interest rates and decisions by the 

fund’s portfolio manager to sell portfolio securities); Schwab Comment Letter (noting that testing liquidity 

requires estimation of data that is not directly observable, such as redemption contagion and security level 

price correlations).

1765 Id.

1766 See Dreyfus Comment Letter.
559

and the deterioration of liquidity could spark redemptions.1767 We agree. We also believe that 

the benefits to testing liquidity will apply to floating NAV funds as well as stable NAV funds. 

We believe that floating NAV funds need to understand what can place stress on liquidity, 

regardless of the fact that losses from the sales of securities are reflected in a market-based NAV, 

particularly in light of the potential for triggering a fee or gate.1768 It is important for boards to 

understand and be aware of what could cause a fund’s liquidity to deteriorate below certain 

thresholds (or below a regulatory threshold) as this renders the fund less able to satisfy 

redemptions through internal liquidity and thus increases the likelihood that satisfying future 

redemptions will generate liquidity costs. 

We disagree with the commenter that indicated that testing liquidity would not be 

meaningful because it is not possible to predict what assets would be sold to meet 

redemptions.1769 As discussed below, we have made several modifications to the proposed rule 

in response to comments to reduce the number and complexity of assumptions that funds will 

need to make. We recognize that funds still need to make certain assumptions in their stress 

testing. In particular, when testing the effect of an increase in shareholder redemptions, funds 

will have to make assumptions regarding which assets are sold to meet such redemptions. We 

believe, however, that the stress testing requirements that we are adopting today will still be 

helpful to a board’s understanding of a fund’s liquidity and the events that can make it 

deteriorate, even when it includes some assumptions. In support of this belief that such testing 

 1767 See MSCI Comment Letter.

1768 See Legg Mason & Western Asset Comment Letter.

1769 Id.
560

can be useful to funds, we note that some commenters indicated that they already stress test 

liquidity, even though it is not currently required.1770 Additionally, as we discuss below, we 

believe that a disclosure and discussion of the assumptions that fund managers made when 

developing stress testing can increase the board’s understanding of the stress testing results, and 

how the results might differ if different assumptions are used.

Regarding the commenters that noted that there was not a direct relationship between a 

fund’s liquidity levels and the hypothetical events listed in the rule, we recognize that many of 

the hypothetical events in the rule do not have a direct effect on liquidity. We did not intend to 

require funds to make complex assumptions regarding how the hypothetical events listed in the 

proposed rule would affect redemption levels and therefore liquidity. In response to the concerns 

that these commenters raised, and as discussed further below, we have modified the stress testing 

requirements so that each hypothetical event listed in the amendments is tested assuming varying 

levels of shareholder redemptions. We are not requiring the fund to test, for example, how a 

change in interest rates or credit spreads by itself affects a fund’s level of weekly liquid assets, 

but rather how increases in redemptions combined with the effect of specific hypothetical events, 

like a change in interest rates or credit spreads, may affect fund liquidity. It should also simplify 

the implementation of the requirement by not requiring the fund to make potentially complex or 

speculative assumptions about how an increase in interest rates or deterioration in portfolio credit 

quality will affect shareholder redemptions, and thereby affect liquidity, a concern that was 

raised by commenters.1771 We believe this measure, in addition to modifications to the proposed 

 1770 See BlackRock II Comment Letter; Dreyfus Comment Letter.

1771 See Federated VIII Comment Letter; ICI Comment Letter.
561

hypothetical events discussed below, addresses the concern of the commenter that did not object 

to testing liquidity in principle but believed that the proposed hypothetical events made the stress 

testing requirements vague and qualitative in nature. Finally, as discussed further below, we are 

eliminating the proposed requirement that funds report the “magnitude of each hypothetical 

event” that would cause the fund to fall below the liquidity threshold. This change from the 

proposal responds to commenters’ concerns that making such a determination is not feasible.1772

As noted above, we are requiring funds to test against a 10% weekly liquid assets 

threshold. We have chosen the 10% weekly liquid assets threshold because it is the same 

threshold that will trigger a default liquidity fee absent board action under the final amendments. 

Much like the inability to maintain a stable price, the triggering of a default fee absent board 

action under our fees and gates reform may result in consequences for a fund and its 

shareholders. Requiring funds to stress test their ability to avoid falling below this threshold 

should help inform boards and fund managers of the circumstances that could cause a fund to 

trigger a default liquidity fee and provide them a tool to help avoid doing so. We considered 

setting the required threshold at a more conservative level, in particular 30%, because this 

threshold is the level of weekly liquid assets that funds are required to maintain and the level 

below which fund directors will be permitted to impose a discretionary fee or gate. We believe, 

however, that fund directors would benefit most from understanding the events that could place 

such stress on a fund’s liquidity that it would trigger a liquidity fee, absent board action. 

Although we believe funds would also benefit from testing the ability to maintain higher 

 1772 Id.
562

liquidity thresholds,1773 we are sensitive to the potential costs of requiring funds to stress test 

against multiple liquidity thresholds, and have therefore chosen to set the liquidity threshold for 

required testing at the lower 10% threshold. Nonetheless, we encourage funds to consider testing 

multiple liquidity thresholds, particularly up to and including the 30% threshold, and to consider 

more generally the effects of hypothetical events and combinations of those events on liquidity.

b. Principal Volatility

In addition to requiring funds to test their liquidity against, at minimum, specified 

hypothetical events, we are requiring funds to test their ability to minimize principal volatility.1774 

Funds are currently required to test their ability to maintain a stable NAV. In the Proposing 

Release, we proposed replacing this requirement for floating NAV funds with a requirement to 

test their ability to maintain weekly liquid assets, and proposed requiring stable NAV funds to 

test their ability to maintain both a certain level of liquidity and a stable share price.1775 In the 

Proposing Release, however, we recognized that there might be other metrics that could be used 

in stress testing. Specifically, we requested comment on whether to require floating NAV funds 

to test their ability to meet an investment objective, avoid losses or minimize principal 

volatility.1776 

In response, several commenters argued that floating NAV funds should continue to test 

 1773 See BlackRock II Comment Letter (noting that it stress tests against other weekly thresholds it deems 

appropriate); Fidelity Comment Letter (noting that testing the effects of events on liquidity and share price 

can be useful to boards even if the event “is not of sufficient magnitude to cause the MFF to violate” a 

threshold).

1774 See rule 2a-7(g)(8)(i).

1775 See Proposing Release, supra note 25, at section III.L.

1776 See Proposing Release, supra note 25, at section III.L.
563

their NAV stability.1777 These commenters pointed out investors in floating NAV funds will

continue to expect a relatively stable NAV.1778 Additionally, commenters argued that the stress 

testing requirements should not differ between floating NAV and fixed NAV funds.1779 As we 

noted above, two commenters did not believe that stress testing requirements should apply to 

floating NAV funds. 1780 One such commenter argued that testing for floating NAV funds was 

not necessary because a floating NAV already provides optimal price transparency.1781

We agree with commenters that believed floating NAV funds should test their NAV 

stability. We believe that money market funds, regardless of whether they have a floating NAV 

or maintain a stable NAV, will continue to strive to minimize principal volatility to maintain a 

stable share price. In times of market stress, funds could face challenges in limiting principal 

volatility, and we believe that funds and fund boards would benefit from stress testing to help 

them understand the potential pressures on principal stability, as the current requirements do 

today. We have therefore modified the proposed rule to require a fund to test both its ability to 

maintain liquidity and its ability to minimize principal volatility based on specified hypothetical 

events. We have determined not to set specific limitations or thresholds against which funds 

 1777 See BlackRock II Comment Letter (noting that investors in floating NAV funds expect a relatively stable 

NAV); Fidelity Comment Letter (same); MSCI Comment Letter (noting that even with a floating NAV, 

there will still be a valuation “tipping point”).

1778 Id.

1779 See BlackRock II Comment Letter; Fidelity Comment Letter.

1780 See Deutsche Comment Letter; Legg Mason & Western Asset Comment Letter (commenting that no stress 

testing should be required for Floating NAV funds, and arguing that having a floating NAV fund test for 

liquidity would serve no useful purpose). The argument raised in the Legg Mason & Western Asset 

Comment Letter is discussed above in the discussion regarding the use of liquidity as a metric in stress 

testing.

1781 See Deutsche Comment Letter.
564

should test principal volatility. Unlike stable NAV funds, which have a clear threshold, we do 

not believe that there is single measure of what level of volatility investors in floating NAV 

funds will tolerate. This measure might differ among floating NAV funds, depending on, for 

example, investor composition. Accordingly, we believe that funds and fund boards are best 

suited to determining the amount of principal volatility that investors in their floating NAV funds 

will likely tolerate and, accordingly, what volatility threshold or thresholds should be used in 

their stress testing.

We have chosen to use the term “minimize principal volatility” rather than “maintain a 

stable share price” to clarify this requirement applies regardless of whether the fund has a 

floating or a stable NAV, and believe that this metric is consistent with the comments 

submitted.1782 We believe, based on comments, that funds would generally approach this 

requirement similar to how they today test the ability to maintain a stable share price although, as 

discussed above, funds will need to determine what volatility threshold or thresholds they believe 

are appropriate to test against.1783 We have chosen to use the metric of minimizing volatility, 

rather than avoiding losses because certain investors in floating NAV funds might demand 

overall price stability, and therefore some floating NAV funds might determine that it is 

appropriate to consider both upward and downward price pressures when developing stress 

 1782 See BlackRock II Comment Letter (noting that it believes that investors in a floating NAV fund will expect 

the fund to have a “relatively stable NAV”); MSCI Comment Letter (noting that it is unlikely that investors 

in floating NAV funds will accept NAV fluctuations outside of a very small band, and that there will be 

some form of a “valuation tipping point”)

1783 See State Street Comment Letter (noting that it currently offers stress testing to liquidity funds with a 

floating NAV, including the ability for a floating NAV to avoid losses greater than 25 or 50 basis points, 

and that these tests are “relatively simple” modifications to the stable NAV tests).
565

tests.1784 

We have retained the requirement that stable NAV funds test their ability to maintain a 

stable share price. Although we do not anticipate that stable NAV funds would approach this 

additional requirement in a way that differs much, if at all, from a test to minimize principal 

volatility, it clarifies that stable NAV funds are required to test the ability of the fund to avoid 

breaking the buck.

The Commission believes that requiring funds to test against both the level of weekly 

liquid assets and principal volatility is appropriate. Several commenters similarly supported 

testing both liquidity and principal stability.1785 Although we recognize that requiring testing 

against both metrics could require more tests than requiring testing against one metric, we 

believe that testing for both metrics justifies the additional burden of more tests. As commenters 

pointed out, principal stability and minimizing price volatility are two primary objectives of 

money market funds.1786 Additionally, we believe that principal stability and liquidity are 

interrelated. In particular, we agree with a commenter that pointed out that, in times of market 

stress, a fund could experience (i) less price stability, resulting from a decline in liquidity or in an 

attempt to maintain adequate liquidity, or (ii) less liquidity, resulting from a decline in price 

 1784 Although we recognize that upward price pressures might be a relevant metric to stress test for some funds, 

we also recognize that funds will generally be more concerned with downward price pressures. 

Accordingly, we do not interpret the requirement to test the ability to minimize principal volatility to 

require funds, as a matter of course, to test against upward price movements. This is consistent with staff’s 

clarification of the stress testing rules adopted in 2010 that funds did not have to stress test against 

“breaking the buck on the upside.” See Staff Responses to Questions about Money Market Fund Reform, 

August 7, 2012, available at http://www.sec.gov/divisions/investment/guidance/mmfreform-imqa.htm.

1785 See BlackRock II Comment Letter; Fidelity Comment Letter; MSCI Comment Letter.

1786 Id.
566

stability or an attempt to maintain price stability.1787 We therefore believe boards should 

understand the range of events that could place stress on liquidity, principal stability or both, and 

that stress testing both liquidity and volatility will increase such understanding. 

3. Hypothetical Events Used in Stress Testing

The Commission is also adopting modifications to the hypothetical events that funds use 

in stress testing. As discussed further below, we have modified these events from the Proposing 

Release to address commenter concerns about the potential complexity of testing for some of the 

proposed hypothetical events, while still enhancing stress tests to incorporate correlations 

between securities and combinations of events. In response to commenters’ concerns, we have 

modified the rule text to clarify the number and extent of tests that the rule requires. 

As discussed above, we proposed improvements to stress testing in the Proposing Release 

because we believed that certain enhancements and clarifications to the hypothetical events 

currently used in stress testing were necessary to improve the minimum quality of the stress 

testing by some funds. The proposed enhancements included requiring the funds to consider 

factors such as correlations among securities returns and various combinations of events in their 

stress tests, an assessment of how a fund would meet increasing shareholder redemptions (taking 

into consideration assumptions regarding the liquidity and price of portfolio securities), and both 

parallel and non-parallel shifts in the yield curve.

Some commenters generally supported the proposed enhancements.1788 Several 

 1787 See Fidelity Comment Letter.

1788 See, e.g., MSCI Comment Letter; TIAA-CREF Comment Letter.
567

commenters opposed or expressed concerns about the proposed enhancements.1789 Specifically, 

some commenters argued that the enhancements would not allow funds to retain flexibility to 

tailor stress tests to the fund.1790 Some commenters expressed concerns that the proposed 

enhancements would increase the burden, expense, and complexity of stress testing.1791 Some 

commenters believed that the proposed enhancements were too vague.1792 Commenters 

expressed concerns that the proposed requirements to test for combinations of events and other 

events made the rule unclear about what events must be tested and the extent of testing necessary 

to comply with the proposed requirements, with some commenters arguing that the proposed rule 

required potentially endless numbers of tests.1793 

In particular, some commenters believed that the proposed enhancements would require 

funds to make unrealistic assessments about the liquidity and price of securities that a fund might 

sell to meet redemptions, and assessments about how an adverse event in one portfolio security 

might affect other portfolio securities. Commenters argued that these requirements might require 

significant assumptions that would be difficult to make and that could render the results not 

useful to boards.1794

 1789 See, e.g., Dreyfus Comment Letter; ICI Comment Letter; Federated VIII Comment Letter; Schwab 

Comment Letter; Invesco Comment Letter.

1790 See Legg Mason & Western Asset Comment Letter; Comment Letter of Waddell & Reed Investment 

Management Company (Sept. 17, 2013) (“Waddell & Reed Comment Letter”); SIFMA Comment Letter.

1791 See, e.g., Federated II Comment Letter; Dreyfus Comment Letter; Invesco Comment Letter; SSGA 

Comment Letter.

1792 See, e.g., ICI Comment Letter; Federated II Comment Letter; Federated VIII Comment Letter; Dreyfus 

Comment Letter; Schwab Comment Letter.

1793 See Federated II Comment Letter (noting that the rule is unclear about the type and number of tests 

required); ICI Comment Letter (noting that the requirement to incorporate combinations of events causes 

the number of test results to grow geometrically with each permutation of stress events).

1794 See, e.g., Schwab Comment Letter; ICI Comment Letter; Federated VIII Comment Letter; Dreyfus 
568

The Commission disagrees with commenters who argued that modifications to 

hypothetical events will reduce funds’ flexibility in developing stress tests. 1795 First, the 

requirements we are adopting today still leave the specific parameters of the hypothetical events 

to the fund’s discretion. Furthermore, the hypothetical events specified in the rule are not a 

comprehensive list of the hypothetical events that funds may stress test, but a minimum set. As 

discussed below, the rule requires a fund adviser to include additional combinations of events 

that the fund adviser deems relevant.

We are, however, persuaded by commenters that some of the proposed enhancements 

might require funds to make complex behavioral assumptions that might not be realistic and that 

might ultimately reduce the utility of stress testing to fund boards. We also recognize that, as 

proposed, some of the hypothetical events were vague and might be difficult to implement. 

Finally, we also are sensitive to the potential burdens that administering a large number of stress 

tests with complex assumptions can place on funds and their boards, a point raised by 

commenters. To address these concerns, and as discussed below, we have modified the proposed 

enhancements to specify certain minimum hypothetical events that funds are required to 

incorporate in their testing. We believe that the proposed requirements reflected four primary 

areas of risk that can place stress on funds. Those are (i) an increase in the general level of 

short-term interest rates, (ii) a downgrade or default of a portfolio security position, (iii) a 

correlated increase in the credit spreads for certain portfolio securities, and (iv) an increase in 

 

Comment Letter; Invesco Comment Letter.

1795 See Legg Mason & Western Asset Comment Letter; Waddell & Reed Comment Letter; SIFMA Comment 

Letter.
569

shareholder redemptions.1796 We have therefore modified the hypothetical events that funds must 

use in stress testing so that they focus on these risks and eliminated several of the elements in the 

proposed rule within those areas of risk that commenters argued would require the most complex 

and unrealistic assumptions. As discussed further below, each fund is required to test each of the 

first three events in combination with increasing shareholder redemptions, which we believe will 

allow funds to focus on the most important combination of events that will provide the most 

meaningful results to boards, while reducing the number of combinations of events that the rule 

requires as a minimum set for stress testing. 

a. Interest Rate Increases

Funds are currently required to stress test for a change in short-term interest rates. We 

proposed modifying this requirement so that funds would only need to test for increases in the 

general level of short-term interest rates, making clear that funds did not have to test for 

decreases in short-term interest rates. We received no comments on this aspect of the proposal, 

and we are adopting the modifications as proposed.1797 

Second, we proposed to add a hypothetical event for funds to test, namely “[o]ther 

movements in interest rates that may affect fund portfolio securities, such as parallel and nonparallel shifts in the yield curve.” Commenters expressed concerns with this requirement. First, 

commenters noted that testing for non-parallel shifts in the yield curve would be unlikely to yield 

 1796 See ICI Comment Letter (noting that the rule should only require tests for spreads in the yield curve; an 

increase in the spread of non-Treasury securities over the yield curve, redemptions, and a downgrade or 

default of a significant issuer and/or provider of demand features and guarantees); Fidelity Comment Letter 

(suggesting standardized scenarios with combinations of interest rate increases, yield spread shocks across 

a sector of portfolio securities, a credit event of an issuer of a portfolio securities, and shareholder 

redemptions).

1797 See rule 2a-7(g)(8)(i)(A).
570

results that are any more informative than carefully chosen parallel shifts in the yield curve, yet 

incorporating this factor into stress testing would require significantly more effort. 1798 Another 

commenter noted that this requirement was vague and open-ended, as there are an infinite 

number of non-parallel interest rate movements.1799 

We are not adopting the proposed requirement to test for “[o]ther movements in interest 

rates that may affect fund portfolio securities, such as parallel and non-parallel shifts in the yield 

curve.” We are persuaded by commenters’ concerns that incorporating non-parallel shifts in the 

yield curve will require funds to expend effort determining the types of shifts to test for, with 

little more benefit than testing for parallel shifts in the yield curve, and that testing for parallel 

shifts in the yield curve is encompassed by the requirement to test for general increases in the 

level of short-term interest rates.1800

b. Credit events

Funds currently are required to test for a downgrade of or default on portfolio 

securities.1801 We proposed to enhance this requirement by requiring that funds test for a 

“downgrade or default of portfolio securities and the effects these events could have on other 

securities held by the fund.” As discussed in the Proposing Release, we had proposed this 

requirement to ensure that funds consider portfolio correlations when stress testing. Commenters 

expressed concerns about the proposed enhancement, arguing that the requirement was vague 

 1798 See ICI Comment Letter; Fidelity Comment Letter. 

1799 See ICI Comment Letter.

1800 See ICI Comment Letter (noting that a test for a parallel increase in the Treasury yield curve corresponds to 

test for general increases in short-term interest rates).

1801 See current rule 2a-7(c)(10)(v).
571

and qualitative in nature because the fund would have to make assumptions about the event that 

led to the downgrade or default, resulting in stress testing results that might not be meaningful to 

its board.1802 We were persuaded by commenters of the potentially speculative nature of the 

proposed requirement and that, as a result, the proposed requirement might not provide 

meaningful information to boards about the correlation of portfolio securities, which was the 

intent of the proposed requirement. We have therefore determined not to require funds to 

incorporate in their testing the effect of a downgrade or default of one security on the price of 

other securities in the portfolio. We also believe that eliminating this proposed requirement will 

reduce the burden of the stress testing requirements relative to the proposed requirements.1803

After reviewing the comments, we have modified the requirement from what was 

proposed. Specifically, we are requiring that funds test for “a downgrade or default of particular

portfolio security positions, each representing various portions of the fund’s portfolio (with 

varying assumptions about the resulting loss in the value of the security)....” The current rule 

requires, and the proposed rule would have continued to require, that funds stress test for the 

downgrade or default on more than one portfolio security (i.e., they are required to test for a 

downgrade or default of portfolio securities). Commenters suggested that the rule could require 

funds to stress test a particular portfolio security, such as the most significant individual credit 

 1802 See, e.g., Dreyfus Comment Letter; see also ICI Comment Letter (noting that a stress test can assume a 

downgrade or default without making any assumptions about what caused it, but cannot assess what other 

portfolio securities might be correlated to the downgrade or default without some basis for assuming the 

adverse event that led to the downgrade or default).

1803 See ICI Comment Letter (noting the time and cost that would need to be incurred in developing highly 

sophisticated stress tests that the commenter believed would be required to incorporate this requirement).
572

risk to the fund, measured by the size of the holding, the likelihood of default or both,1804 or the 

“median” portfolio security.1805 

Rather than have the rule define which securities in the portfolio to test, we believe that it

is appropriate for the adviser to make a determination of which security positions, representing 

different portions of the portfolio, would be most informative to the board to test for a 

downgrade or default of an issuer. We believe the most appropriate security to test for a 

hypothetical default will vary among funds depending on several factors, including the 

composition of the fund’s portfolio and contemporaneous market events. The fund could 

determine that it should test a security that represents the single biggest credit risk in the 

portfolio and a security that represents a “median” exposure, like commenters suggested, or it 

could include securities representing different levels of exposure. 

Although the rule we are adopting gives funds general discretion when making the 

determination of which securities to test, we do believe it is appropriate to require funds to select 

particular security positions representing varying, i.e., different, portions of the portfolio when 

making such determinations, so that the fund’s adviser and its board can better compare the 

differing results to the fund depending on the security that is tested. Tests of the hypothetical 

downgrade or default of a portfolio security representing the largest credit risk to the fund and of 

a portfolio security representing a median exposure, for example, allows a board to see how the 

results from these stress tests differ, and therefore better understand that a downgrade or default 

of different securities will have different impacts on the fund. 

 1804 Id.

1805 See Fidelity Comment Letter.
573

Finally, although we are not requiring funds to assume that any particular event is 

causing the hypothetical downgrade or default, funds may want to consider incorporating in this 

stress test, as appropriate, a deterioration in the credit quality of a guarantor (or provider of 

demand features) of portfolio securities, as suggested by one commenter.1806 This type of 

scenario might be particularly relevant for funds in which a single entity is a guarantor or 

provider of a demand feature for a high concentration of portfolio securities.

After reviewing the comments, the Commission is also modifying the rule to require that 

funds make varying assumptions about the resulting loss in the value of the security when testing 

for a downgrade or default of a portfolio security. The Commission notes that a downgrade or 

default of a portfolio security does not always have a uniform effect on the price of a security. In 

some cases, the downgrade or default could cause almost a complete loss on that portfolio 

security.1807 In other cases, the loss on the security might be less, potentially even substantially 

less.1808 

As with the size of the portfolio position of an issuer that has a downgrade or default, the 

impact on a fund of a downgrade or default of a portfolio security may vary substantially 

depending on the size of the loss that the downgrade or default causes.1809 Accordingly, we 

 1806 See ICI Comment Letter (arguing that funds should be required to stress test a “downgrade or default of a 

significant issuer and/or provider of demand feature and guarantees).

1807 For example, according to filings submitted to us pursuant to temporary rule 30b1-6T, money market 

funds’ holdings of securities issued by Lehman Brothers Holdings Inc. or its affiliates were typically valued 

at approximately 17% of their amortized cost value in 2009.

1808 For example, according to filings submitted to us pursuant to temporary rule 30b1-6T, money market 

funds’ holdings of securities issued by structured investment vehicle were typically valued at 

approximately 50% of their amortized cost value in 2009.

1809 A comparison of commenters’ discussion of stress testing a downgrade or default of a portfolio security 

illustrates that the effect of a downgrade or default can differ substantially, and thereby have substantially 
574

believe that it is appropriate to require stress testing to include varying assumptions on the 

amount of loss on a security as a result of a downgrade or default so that boards better 

understand how the amount of loss of a portfolio security will affect the fund overall.1810 It can 

also help boards understand when pricing pressures on certain securities are unlikely to have a 

significant impact on the fund. For example, during the debt ceiling impasse of 2013, staff 

observed through discussions with fund advisers that although yields on certain Treasury bills 

increased and some funds holding these Treasury bills experienced some increase in 

redemptions, there was very little effect on the shadow price of Treasury or government money 

market funds. Stress testing can illustrate these effects.

c. Credit spread increase in portfolio sectors

We proposed requiring that funds test for the “widening or narrowing of spreads among 

the indexes to which interest rates of portfolio securities are tied” in order to require funds to test 

for changes in spreads that may affect specific asset classes. One commenter supported the 

proposed requirement, noting that testing for asset class spreads can provide information about a 

fund’s exposure to investor flights that have occurred in the past, such as in asset-backed 

commercial paper and European financials.1811 One commenter suggested that funds be required 

 

different effects on the fund. Compare Dreyfus Comment Letter (“We also know that a single default of a 

1% position...in a MMF can break the buck.”) with Fidelity Comment Letter (showing the results of stress 

testing the effect on a hypothetical fund of a credit event resulting in a 10% loss on the portfolio security, 

which does not cause the hypothetical fund’s NAV per share to drop below $0.9950).

1810 As with the requirement that funds test for a downgrade or default of particular portfolio security positions 

representing various portions of the fund’s portfolio, we believe it is efficient for funds to make the 

determination of the appropriate magnitudes of loss to incorporate in stress testing, as that decision will 

vary depending on several factors, including, for example, historical information on losses on similar 

securities following a downgrade or default. 

1811 See MSCI Comment Letter. 
575

to test for a change in spreads by testing for a parallel increase in the spread of non-Treasury 

securities over the Treasury yield curve, assuming a perfect correlation in the price movement, 

regardless of issuer or maturity, which would show the board the “worst case scenario” for yield 

spread changes.1812 Another commenter suggested that a test for changes in yield spreads that 

would require the fund to test for a yield spread shift in a “typical portfolio sector,” which it 

described as a sector (i.e., a logically related subset of holdings) representing the median 

exposure in the portfolio among all defined sectors.1813 This commenter also noted that its 

suggested approach would incorporate into stress testing a test for correlated price movements 

among portfolio securities.

In response to these comments, we are modifying the proposed requirement to require 

funds to test for “a widening of spreads compared to the indexes to which portfolio securities are 

tied in various sectors of a fund portfolio (in which a ‘sector’ is a logically related subset of 

portfolio securities, such as securities of issuers in similar or related industries or geographic 

region, or securities of a similar security type).”1814 As discussed above and in the Proposing 

Release, the Commission believes that it is important for funds to stress test for potential 

correlations in the price movements of related securities. That is because an event that affects 

the price of one security may also affect the prices of securities of similarly situated issuers or 

asset classes. We believe, as one commenter suggested, that testing for a correlated shift in the 

yield spread among logically related securities (i.e., sectors) will illustrate the impact on funds of 

 1812 See ICI Comment Letter.

1813 See Fidelity Comment Letter.

1814 See rule 2a-7(g)(8)(i)(C).
576

a concurrent price shift among portfolio securities representing, for example, a similar industry, 

similar geographic region, or security type.1815 We understand that some money market funds 

today use such assumed sectors in their stress testing.

To implement this requirement, funds should generally group securities into logically 

related categories, or sectors, such as securities of a similar industry, similar geographic region 

or security type (such as asset-backed commercial paper or variable rate demand notes), and then 

test for the impact of yield spread changes on various sectors. For example, a fund with 

concentrations of securities in a particular geographic region, such as Europe, could test a 

correlated spread shift among those securities, and perhaps even test a correlated shift of 

securities from a single country or group of countries that are experiencing or have experienced 

stress, such as during the 2011 Eurozone debt crisis. We also believe that it could be helpful to 

boards to include in the required report, discussed below, a summary of the sector composition 

and the concentration of that sector within the portfolio as part of the assessment of stress testing.

We are not further specifying how funds should define sectors or which sectors funds 

should test for a yield spread change, such as requiring funds to test a “typical” or “median” 

sector, as suggested by one commenter.1816 We believe that such determinations are appropriate 

to leave to the fund’s discretion because such determinations will vary among funds depending 

on several factors, including the composition of the fund’s portfolio and contemporaneous 

market events. We are not adopting the suggestion of one commenter that funds test for a perfect 

 1815 See Fidelity Comment Letter (suggesting that the stress testing requirements include standardized yield 

shift spreads of a logically related subset of holdings); MSCI Comment Letter (supporting stress testing 

requirements that focus on, among other things, stresses on spreads in asset classes, such as asset-backed 

commercial paper or European financials).

1816 See Fidelity Comment Letter.
577

correlation of spreads in all non-Treasury securities to show funds the “worst case scenario” of a 

spread shift.1817 This suggested test would not provide information about potential correlations 

among similarly situated securities. For example, the suggested test would not provide any 

information about how an adverse event in a particular industry in which the fund held portfolio 

securities might affect the fund. We believe that testing a spread of different sectors of a 

portfolio, will help the board better understand the composition of the fund portfolio and 

potential correlations among portfolio securities. 

Additionally, in the Proposing Release, we proposed to require funds to test for 

combinations of events that the adviser deemed relevant, “assuming a positive correlation of risk 

factors...and taking into consideration the extent to which portfolio securities are correlated such 

that adverse events affecting a given security are likely to also affect one or more other securities 

(e.g., a consideration of whether issuers in the same or related industries or geographic regions 

would be affected by adverse events affecting issuers in the same industry or geographic 

region).” This proposed requirement was intended to have stress testing include an evaluation of 

the effect that hypothetical events on issuers that operate in a similar industry, are based in a 

similar geographic region, or have other related attributes. Commenters expressed concerns 

about this proposed requirement, arguing that it would be difficult to implement because it 

required complex or speculative assumptions about the effects of adverse events.1818 

We believe that the requirement that we are adopting of an assumed correlated yield shift 

in specific sectors of portfolio securities provides funds and boards information about the effect 

 1817 See ICI Comment Letter.

1818 See ICI Comment Letter; Federated VIII Comment Letter.
578

of correlated price movements among similar securities in a simpler and less burdensome way 

than the proposed requirement of taking into consideration correlations among securities. 

Because the requirement allows funds to assume a perfectly correlated change in spreads among 

similarly situated securities, funds will not be required to make assumptions about how adverse 

events affect prices of these securities. Accordingly, although we are requiring some 

combinations of events, as discussed below, we are not adopting the requirement that fund 

advisers “assum[e] a positive correlation of risk factors...and “tak[e] into consideration the 

extent to which the fund’s portfolio securities are correlated....” when considering whether to 

test for additional events. 

d. Shareholder redemptions

The fourth hypothetical event identified by the Commission and commenters that is 

important to include in stress testing is shareholder redemption levels. As noted above, however, 

rather than requiring funds to consider shareholder redemptions in isolation, as is currently 

required and would have been required under the proposed rule, we are requiring that funds test 

for various levels of shareholder redemptions in combination with each of the three other 

required hypothetical events, i.e., an increase in interest rates, a downgrade or default of various 

portfolio securities, and a yield spread change in various sectors of portfolio securities.

As discussed in the Proposing Release, the Commission believes that testing for 

combinations of events can help funds better understand risks to the fund, and therefore included 

in the proposed rule a requirement that the fund test for combinations of events that the adviser 

deems relevant. Although the Commission did not include in the proposed rule any specific 

combinations of events, the Commission requested comment on whether specific combinations 
579

of events should be required in the rule, noting in particular the possibility of combining an 

increase in shareholder redemptions with an increase in interest rates or a downgrade of a 

portfolio security.1819

Generally, redemptions, by themselves, are unlikely to create stress on a fund as long as 

the market for the fund’s portfolio securities is liquid and interest rates remain unchanged.1820 

Similarly, an increase in interest rates, if no shareholders redeem from the fund until the 

securities affected by the interest rate shift mature, should have no price impact on the fund.1821 

It is the combination of events—and particularly an interest rate or credit event combined with 

redemptions—that most typically can create fund stress.1822 We also believe combinations of 

events are more likely to be realistic scenarios than market events or increases in redemptions in 

isolation (e.g., it is reasonable to expect that a money market fund that experiences a significant 

credit event may also experience a subsequent increase in redemptions). 1823 We are not including 

 1819 See Proposing Release, supra note 25, at section III.L.

1820 Prices of fixed income securities typically remain stable if interest rates do not change. Thus, shareholder 

redemptions that require funds to sell securities should have no effect on funds’ NAVs as long as interest 

rates have not changed. We note that redemptions from a stable value money market fund have no impact 

on the fund’s market-based NAV per share as long as the NAV per share is $1.00. 

1821 Prices of fixed income securities typically fall when interest rates rise. Thus funds that must sell fixed 

income securities before maturity are likely to realize capital losses if interest rates have risen. If instead 

funds hold securities to maturity, they receive securities’ par value and should realize no losses. Thus, 

interest rates increases that are not accompanied by securities sales to meet redemption requests should not 

cause funds to incur capital losses.

1822 See Fidelity Comment Letter (illustrating the effect on liquidity and NAV on increasing shareholder 

redemptions in combination with each of an (i) interest rate increase, (ii) a credit event, and (iii) a spread 

shift).

1823 See State Street Comment Letter (noting that stress testing combinations of events is important because 

stress events do not typically happen in isolation, and suggesting the Commission consider the combination 

of shareholder redemptions in combination with increases in interest rates, a downgrade or default, and 

credit spreads).
580

in the rule the redemption levels that funds must include in stress testing.1824 We believe that the 

appropriate level of redemptions to test will vary among funds, and will depend, for example, on 

the composition of funds’ investor bases and shareholder redemption preferences, as well as 

historical redemption activity in the fund.

We also proposed to require that funds incorporate in stress testing an assessment of how 

a fund would meet redemptions, taking into consideration factors such as the liquidity and 

pricing of the fund’s portfolio securities. One commenter supported this proposed requirement, 

but noted that liquidity data regarding fund portfolio securities transactions was scarce.1825 Other 

commenters expressed concerns that this requirement was vague and qualitative, and would 

require detailed and sophisticated assumptions. 1826 We were persuaded by commenters’ 

concerns that the proposed requirement could require complex assumptions to implement for 

which data might not be readily available, particularly the requirement that the fund take into 

account the liquidity and pricing of the fund’s portfolio securities. We have therefore not 

adopted this requirement to simplify, and thereby reduce the potential burden of, the stress 

testing requirements relative to the proposal. 

We note, however, that funds need to make some basic assumptions about how a fund 

obtains cash for redemptions to satisfy the new stress testing requirements relating to the fund’s 

level of weekly liquid assets. In doing so, a fund could use a variety of assumptions. For 

 1824 See Fidelity Comment Letter (suggesting standard scenarios including redemption levels of 0%, 25%, and 

50%).

1825 See MSCI Comment Letter.

1826 See, e.g., ICI Comment Letter (expressing concerns about how to fulfill this requirement); Dreyfus 

Comment Letter (same).
581

example, some commenters suggested that funds assume that all redemptions are satisfied first 

using weekly liquid assets.1827 This assumption would provide conservative stress test results 

given that it would have the most dramatic effect on a fund’s level of weekly liquid assets. On 

the other hand, some funds may prefer to assume in their stress tests other methods of meeting 

shareholder redemptions (or may prefer to show how the stress tests results would differ if this 

assumption were varied). For example, a fund might assume that redemptions are met with a 

combination of weekly liquid assets and sales of portfolio securities.1828 The rule does not 

specify what assumptions the fund must make, leaving that to the discretion of fund advisers 

because we believe the determination of which assumptions are most appropriate will vary 

among funds, depending on, for example, how funds have satisfied redemptions historically, and 

the composition of the fund’s portfolio. The rule requires, however, that the fund’s adviser 

include a summary of the significant assumptions made when performing the stress test. For 

example, such assumptions may include how redemptions are satisfied and the size of any 

“haircut” that the fund assumed in the sale of portfolio securities in order to meet redemptions.

e. Other combinations of events

The proposed rule would have required funds to test for “combinations of these and any 

other events that the adviser deems relevant...”1829 We have made clarifying edits to the rule we 

 1827 See ICI Comment Letter; Federated VIII Comment Letter.

1828 See Fidelity Letter (illustrating a stress test that includes the assumption that sales of non-liquid assets to 

meet redemptions incur a cost); MSCI Comment Letter (noting that to the extent that a redemption scenario 

would require the fund to sell securities, then the fund should make some assumption regarding a liquidity 

haircut, but that only simple assumptions can be reasonably expected).

1829 See proposed rule 2a-7(g)(7)(i)(F) (Floating NAV Alternative or Fees and Gates Alternative). The full 

proposed requirement was “Combinations of these and any other events the adviser deems relevant, 

assuming a positive correlation of risk factors (e.g., assuming that a security default likely will be followed 
582

are adopting today in response to some commenters who expressed concerns that the proposed 

rule was open-ended and could be read to require that funds test for combinations of every event 

listed in the rule.1830 Specifically, we are requiring funds to test for “[a]ny additional 

combinations of events that the adviser deems relevant.” We believe that the modified language 

clarifies that the fund is only required to test for additional combinations as the fund adviser 

deems relevant, not for combinations of every permutation of the events listed in the rule. 

The rule requires that fund advisers test for combinations of events that they deem 

relevant. Although a fund adviser might determine that the three combinations of events 

included in the rule are sufficient, there might be circumstances when a fund adviser believes it 

is necessary to incorporate additional scenarios. For example, a fund adviser might believe that 

it would be relevant for the board to understand the effect of a yield spread increase in a sector, 

in combination with a downgrade of a portfolio security in that sector, particularly if that sector, 

or an issuer within that sector, has historically experienced stress. 

One commenter also argued that the requirement could be interpreted to mean that all 

special risk assessments take the form of stress tests.1831 This is not a requirement of the rule. 

We agree with the commenters that stress tests are not the only method to communicate fund 

 

by increased redemptions) and taking into consideration the extent to which the fund’s portfolio securities 

are correlated such that adverse events affecting a given security are likely to also affect one or more other 

securities (e.g., a consideration of whether issuers in the same or related industries or geographic regions 

would be affected by adverse events affecting issuers in the same industry or geographic region).” We 

discuss above why we are not adopting the proposed requirement that follows the clause “Combinations of 

these any other events the adviser deems relevant.”

1830 See ICI Comment Letter; Federated VIII Comment Letter.

1831 See Federated VIII Comment Letter.
583

risks to the board and that not every risk can be incorporated into a stress test.1832 The rule does 

not require the adviser to develop a stress test for every risk the fund faces, but requires the 

adviser to consider whether stress testing for combinations of events not explicitly listed in the 

rule might be relevant to the fund’s board. We believe stress testing should be used to help the 

board understand the principal risks of the particular fund and the risks that reasonably 

foreseeable stress events may place on the fund.

4. Board Reporting Requirements

Funds are currently required to provide the board with a report of the results of stress 

testing, which must include the dates of testing, the magnitude of each hypothetical event that 

would cause a fund to “break the buck,” and an assessment of the fund’s ability to withstand 

events that are reasonably likely to occur within the following year. We proposed modifications 

to these reporting requirements. First, we proposed adding a requirement that the fund report to 

the board the magnitude of each hypothetical event that would cause the fund to have invested 

less than 15% of its total assets in weekly liquid assets. Second, we proposed requiring funds to 

include in their assessment “such information as may reasonably be necessary for the board of 

directors to evaluate the stress testing...and the results of the testing.” 

We are adopting modifications to the proposed reporting requirements to boards 

regarding stress testing in response to comments we received on the proposal. Specifically, we 

are adopting a requirement that the board of directors be provided at its next annual meeting, or 

sooner if appropriate, a report that includes the dates on which the testing was performed and an 

assessment of the fund’s ability to maintain at least 10% in weekly liquid assets and to limit 

 1832 See ICI Comment Letter; Federated VIII Comment Letter.
584

principal volatility.1833 As discussed above, some commenters had concerns that the proposed 

requirement that funds report to the board the magnitude of each hypothetical event that would 

cause the fund to have invested less than 15% in weekly liquid assets was not feasible. 1834 We 

believe that requiring funds to provide an assessment of the fund’s ability to maintain liquidity, 

rather than requiring the funds report a specific value for each hypothetical event, addresses such 

concerns. We have also added the requirement for an assessment of the fund’s ability to 

minimize principal volatility because, as discussed above, we have added this metric to the stress 

testing requirements in response to comments. We believe that requiring funds to provide an 

assessment of their ability to maintain liquidity and minimize principal volatility (and in the case 

of stable NAV funds, to maintain a stable share price), rather than the more prescriptive 

requirements proposed and that are in the rule currently, is also appropriate because we have 

modified the rule so that each “hypothetical event” is a combination of two events. We want to 

clarify that funds are not required to separately test for interest rate increases, a downgrade or 

default, a spread shift, or shareholder redemptions in isolation. 1835 

We understand that under the current requirements, many funds, in addition to reporting 

the magnitude of each event that would cause the fund to “break the buck,” provide a table 

showing how the fund’s shadow NAV is affected by different combinations of events and 

different values. Some funds include information regarding, for example, the concentrations of 

 1833 See rule 2a-7(g)(8)(ii).

1834 See, e.g., ICI Comment Letter; Federated II Comment Letter; Federated VIII Comment Letter.

1835 See ICI Comment Letter (noting that the stress testing requirements adopted in 2010, by requiring funds to 

report the “magnitude of each hypothetical event” that would cause a fund to “break the buck,” required 

funds to perform and report stress tests of each event in isolation, and noting that changing this requirement 

would make it easier for boards to include combinations tests in the fund’s procedures).
585

several of the funds’ largest portfolio holdings, both by individual issuer and by sector, and of 

historical redemptions rates, as points of reference. Several funds also include narratives to help 

explain the results. In some instances, for example, fund advisers used the narrative to compare 

results among funds or to explain results that they considered to be unusual. Some narratives 

also assessed the likelihood of the hypothetical events. We are not including requirements for 

any of these specific items in the rule because we recognize that there is no one set of factors that 

will be relevant for all funds, but we believe these are examples of items that we encourage fund 

advisers to consider when developing the required report assessing stress test results.

We are adopting as proposed the requirement that a fund’s adviser provide “such 

information as may reasonably be necessary for the board of directors to evaluate the stress 

testing conducted by the adviser and the results of the testing.” One commenter supported this 

requirement, noting that it is a common practice to provide directors with information that helps 

to place stress-testing results in context.1836 Some commenters opposed this requirement, arguing 

that the provision of additional information could be burdensome for boards and would not 

provide useful information to fund boards.1837 We disagree. As we noted in the Proposing 

Release, the staff’s examination of stress testing reports revealed disparities in the quality of 

information regarding stress testing provided to fund boards. We believe that this requirement 

will allow boards of directors to receive information that is useful for understanding and 

interpreting stress testing results. We note that this requirement does not require a fund adviser 

to provide the details and supporting information for every stress test that the fund administered. 

 1836 See ICI Comment Letter.

1837 See Dreyfus Comment Letter; SIFMA Comment Letter.
586

To the contrary, a thoughtful summary of stress testing results with sufficient context for 

understanding the results may be preferable to providing details of every test. For example, 

information about historical redemption activities, as mentioned above, and the fund’s investor 

base could help boards evaluate the potential for shareholder redemptions at the levels that are 

being tested. Additionally, information regarding any contemporaneous market stresses to 

particular portfolio sectors could be helpful to a board’s consideration of stress testing results. 

Finally, after considering comments regarding the assumptions that funds will need to 

make in administering stress tests,1838 the Commission has added a requirement that the adviser 

include in the report a summary of the significant assumptions made when performing the stress 

tests. As discussed above, we have, in response to comments, modified the required hypothetical 

events from the proposal to reduce the number and complexity of the assumptions funds are 

required to make. We recognize, however, that funds will need to make some basic assumptions 

when conducting the stress tests. These assumptions would include, for example, how the fund 

would satisfy shareholder redemptions (e.g., through weekly liquid assets or by selling certain 

portfolio securities, including any assumption of haircuts such securities can be sold at) and the 

amount of loss in value of a downgraded or defaulted portfolio security. We believe that having 

a summary of such assumptions will help the board better understand the stress testing results, 

and particularly the sensitivity of those results to given assumptions. We believe this 

information will allow the board to better understand money market fund risk exposures, and 

 1838 See, e.g., Fidelity Comment Letter (including in its suggested stress testing an assumption regarding the 

size of the loss on the sales of securities to meet redemption and the size of the loss on a portfolio security 

when testing a hypothetical credit event); ICI Comment Letter (suggesting funds use an assumption that 

redemptions are satisfied using weekly liquid assets).
587

thus allow it to provide more effective oversight of the fund and its adviser.

5. Dodd-Frank Mandated Stress Testing

In the Proposing Release, we requested comment on certain aspects of money market 

fund stress testing as it relates to our obligation under section 165(i)(2) of the Dodd-Frank Act to 

specify certain stress testing requirements for nonbank financial companies that have total 

consolidated assets of more than $10 billion and are regulated by a primary federal financial 

regulatory agency. 1839 Under this section of the Dodd-Frank Act, among other matters, we must 

establish methodologies for the conduct of stress tests that shall provide for at least three 

different sets of conditions, including baseline, adverse, and severely adverse.1840 Two 

commenters responded, noting that they did not believe that the scenarios currently published by 

the Federal Reserve Board for stress testing under Dodd-Frank Act Section 165(i) would be an 

effective means of stress testing for money market funds, because the Federal Reserve’s 

scenarios are focused on long-term horizons, which do not have a direct causal link to 

foreseeable changes in money market funds.1841 Another commenter, however, expressed some 

 1839 For a definition of “nonbank financial companies” for these purposes, see Definition of “Predominantly 

Engaged in Financial Activities” and “Significant” Nonbank Financial Company and Bank Holding 

Company, Board of Governors of the Federal Reserve System, [78 FR 20756 (April 5, 2013)].

1840 Under this section of the Dodd-Frank Act, we also must define the term “stress test” for purposes of that 

section, establish the form and content of the report to the Federal Reserve Board and the Commission 

regarding such stress testing, and require companies subject to this requirement to publish a summary of the 

results of the required stress tests. We note that under this section of the Dodd-Frank Act, we must design 

stress testing not just for certain money market funds, but also other types of funds and investment advisers 

that we regulate and that meet the $10 billion total consolidated assets test.

1841 See Fidelity Comment Letter (noting that the Federal Reserve scenarios have at best an indirect causal link 

to changes in a money market fund); MSCI Comment Letter (noting that the horizon for the Federal 

Reserve’s stress scenarios is between one and two years, while the scenarios that are of concern to money 

market funds are short-term, such as valuation shocks and rapid shareholder redemptions).
588

support for incorporating macroeconomic factors in money market fund stress tests.1842 One 

commenter made recommendations regarding the stress testing scenarios required under section 

165(i), including scenarios involving the four hypothetical events in the stress testing rule 

amendments we are adopting today, and stated that its recommendations would be an effective 

means to evaluate risk in a money market fund portfolio.1843

As discussed in the Proposing Release, we intend to engage in a separate 

rulemaking to implement the requirements of Section 165(i) of the Dodd-Frank Act, including 

determining appropriate baseline, adverse, and severely adverse scenarios for money market 

funds and other funds and advisers with more than $10 billion in consolidated assets.1844 In 

proposing such stress testing for money market funds subject to these requirements, we expect to 

consider the efficiencies that funds subject to these additional requirements will achieve if the 

scenarios broadly are built off of the parameters set forth today. 

6. Economic Analysis

Our baseline for the economic analysis we discuss below is the current stress testing 

requirements for money market funds. The costs and benefits, and effects on competition, 

efficiency, and capital formation are measured in increments over the current stress testing 

requirement baseline. The benefits, as well as the costs, of the stress test requirements will 

depend in part on the extent to which funds already engage in stress tests that are similar to the 

 1842 See Santoro Comment Letter (noting that stress testing should align with existing stress testing 

methodologies, and specifically macro market stress scenarios).

1843 Fidelity Comment Letter (noting that the standardized scenario that it proposed could serve as the “severely 

adverse” conditions required by Section 165(i)(2)(C)(2) of the Dodd-Frank Act).

1844 Proposing Release, supra note 25, at section III.L.
589

requirements. For example, although we are now requiring funds to test for increases in the 

general level of short-term interest rates in combination with various levels of an increase in 

shareholder redemptions, we understand that many funds already tested for increases in interest 

rates in combination with shareholder redemptions. 

The additional information generated from the amendments to the stress testing 

requirements should provide several qualitative benefits to funds. Specifically, they should help 

fund managers, advisers, and boards monitor, evaluate, and manage fund risk, and thus better 

protect the fund and its investors from the adverse consequences that may result from falling 

below the 10% weekly liquid assets threshold or failing to minimize principal volatility (or, in 

the case of stable NAV funds, a stable share price). The magnitude of these qualitative benefits 

are not easily quantified and will vary from fund to fund based on the extent to which funds are 

already voluntarily conducting stress testing that meet the new requirements, as well as the 

investor base and portfolios of each fund. We received no comments regarding how to quantify 

such benefits. 

In the Proposing Release, we stated that because funds are currently required to meet a 

stress testing requirement, we did not anticipate significant additional costs to funds under the 

proposed rule. Several commenters responded that they expected to incur increased costs as a 

result of the changes.1845 One commenter noted that it believed a majority of funds will need to 

 1845 See, e.g., SSGA Comment Letter (generally supporting stress testing by funds, but asking the Commission 

to consider the benefits of the enhancements against the “substantial increase in costs” associated with the 

proposed changes); State Street Comment Letter (noting that there will be both a development cost and ongoing operational costs); Schwab Comment Letter (noting that the proposal is costly); TIAA-CREF 

Comment Letter (supporting the proposed requirement and acknowledging that they would require 

operational changes that would require time and resources to implement).
590

change their stress testing procedures to some degree, specifically with respect to stress testing 

liquidity levels.1846 One commenter provided a quantitative estimate for some of the proposed 

changes, estimating that required software changes to implement two of the proposed 

requirements, not including costs to load data, run the tests, and analyze the results, would range 

from $250,000 to $750,000.1847 We note, however, that the estimate was based on an evaluation 

of two of the hypothetical stress tests that we proposed, one of which the Commission has 

determined not to adopt and the other which the Commission has modified and simplified 

substantially. 

We stated in the Proposing Release that we expected funds would use similar 

hypothetical events when testing their ability to avoid falling below a liquidity threshold to those 

events they use when stress testing their ability to maintain a stable price. We also understand 

many funds already test for their ability to avoid falling below a 15% weekly liquid asset 

threshold as part of their current stress tests. One commenter noted that it already tests against 

the 15% liquidity threshold and other liquidity thresholds, and one commenter stated generally 

that it already tests for liquidity maintenance, and neither commenter discussed the costs of 

including liquidity metric in stress testing.1848 Two commenters indicated that requiring funds to 

add this liquidity metric to the stress testing requirements would impose new costs, but did not 

provide quantitative estimates of the costs of adding a liquidity metric to the stress testing 

 1846 See State Street Comment Letter.

1847 Federated VIII Comment Letter (noting that it contacted a third-party service provider regarding the costs 

of implementing proposed rule 2a-7(g)(7)(i)(E), concerning testing for parallel and non-parallel shifts in the 

yield curve, and rule 2a-7(g)(7)(i)(F), concerning testing for “combinations of these and any other events 

that the adviser deems relevant, assuming a positive correlation of risk factors...and taking into 

consideration the extent to which the fund’s portfolio securities are correlated...”).

1848 See BlackRock Comment Letter; Dreyfus Comment Letter.
591

requirements.1849 One commenter, which provides stress testing services to funds, noted that it 

currently provides liquidity-related stress tests, but it did not currently provide a stress test that 

tests a fund’s ability to avoid falling below a 15% liquidity asset threshold.1850

After reviewing the comments, we believe that the amendments to the stress testing 

requirements will impose some development and ongoing costs to funds, particularly the 

requirement to test against a liquidity threshold. We believe that the costs will be lower for 

funds that already include liquidity and combinations of events as part of their stress testing, as

some funds do. We understand from commenters, however, that even funds that currently 

incorporate liquidity metric in their stress testing might need to modify their procedures to test 

against the 10% threshold.1851 We also recognize that funds, which currently are required to test 

their ability to maintain a stable share price, will now be required to test the ability to minimize 

principal volatility. We believe, based on our review of comments, that the costs of modifying 

stress testing from the metric of maintaining a stable share price to the metric of minimizing 

principal volatility will not be substantial.1852 We recognize, however, that funds might incur 

some costs in analyzing and determining the appropriate level of volatility against which to test.

Additionally, we believe there will be costs associated with stress testing the effect of the 

 1849 See Federated VIII Comment Letter; State Street Comment Letter (noting that the new requirement would 

imposed both a development cost and on-going operational costs). 

1850 See State Street Comment Letter. See also Federated VIII Comment Letter (noting that it contacted a 

service provider of a risk management system, who indicated that the provider’s system could not test for 

an ability to maintain weekly liquid assets at or above 15% of its total assets).

1851 See State Street Comment Letter (noting that it currently provides a range of liquidity related stress tests).

1852 See State Street Comment Letter (noting that it currently provides stress testing services to floating NAV 

liquidity funds that include testing a fund’s ability to avoid losses of greater than 25 or 50 basis points, and 

that this would entail “relatively simple modifications,” with no associated development costs). 
592

hypothetical events that we are adopting. The extent of those costs will depend upon the extent 

to which a fund currently tests for the requirements or would need to modify their stress testing 

procedures and systems to add such tests. We understand that many funds already test for events 

such as interest rate increases and credit events in combination with hypothetical increases in 

shareholder redemptions. We also note that we have determined not to adopt several of the 

hypothetical events that commenters indicated would require the most estimation or modeling.1853 

Finally, as the rule requires that a fund test for “any additional combinations of events that the 

adviser deems relevant,” a fund might incur periodic costs for making such an assessment and, if 

necessary, incorporating such additional tests in its stress testing.

In the Paperwork Reduction Act analysis in section IV.A.5 below, we identified certain 

initial and ongoing hour burdens and associated time costs related to the collection of 

information requirements for our stress testing amendments. As we discuss there in more detail, 

our staff estimates that the amendments to stress testing associated with the requirement that 

money market funds maintain a written copy of their stress testing procedures, and any 

modifications thereto, and preserve for a period of not less than six years following the 

replacement of such procedures with new procedures, the first two years in an easily accessible 

place, would involve 51,428 burden hours, at an average one-time cost of $24.52 million for all 

money market funds. In addition, our staff estimates that the amendments to stress testing 

associated with the requirement that money market funds have written procedures that provide 

 1853 See, e.g., Fidelity Comment Letter (noting that the proposed requirement to test for non-parallel shifts in 

the yield curve would require significantly more effort and analysis than testing for non-parallel shifts with 

little benefit); ICI Comment Letter (noting that the proposed requirement to include assumptions as to how 

the fund would sell portfolio securities to meet redemptions were sophisticated and complex assumptions).
593

for a report of the stress testing results to be presented to the board of directors at its next 

regularly scheduled meeting (or sooner, if appropriate in light of the results) would create a total 

annual burden for all money market funds of an additional 25,155 burden hours at a total time 

cost of approximately $7.28 million.

We believe the new costs for stress testing will be so small as compared to the fund’s 

overall operating expenses that any effect on competition would be insignificant. Although some 

commenters believed the proposed requirements would impose new costs, commenters did not 

indicate that such costs would have competitive effects. The new stress testing requirements 

may increase allocative efficiency if the information it provides to the fund adviser, and board of 

directors improves the fund adviser’s ability to manage the fund’s risk and the board’s oversight 

of fund risk management. Some money market fund investors also may view the enhanced stress 

testing requirements positively, which could marginally increase those investors’ demand for 

money market funds and correspondingly the level of the funds’ investment in the short-term 

financing markets. This in turn positively affects capital formation. We do not have the 

information necessary to provide a reasonable estimate of the effects the amendments might have 

on capital formation, because we do not know to what extent these changes would result in 

increases or decreases in investments in money market funds or in money market funds’ 

allocation of investments among different types of short-term debt securities. No commenters 

provided such information or discussed the potential effects of the proposed stress testing rule on 

efficiency or capital formation. 

K. Certain Macroeconomic Consequences of the New Amendments 

In this section, as well as in sections III.A and III.B above, we analyze the 
594

macroeconomic consequences of the primary reform amendments that require fees and gates 

for all non-government funds and an additional floating NAV requirement for institutional 

prime funds. We also examine, in conjunction with analyses in these preceding sections, the 

effects that the amendments may have on efficiency, competition, and capital formation and 

discuss the potential implications of the changes for money market fund investors, funds, and 

the short-term financing markets. We note that we presented extensive economic analyses of 

the specific benefits and costs associated with the amended rules in sections III.A.5 and III.B.8

above, as well as examined commenters’ specific evaluations of the proposed fees and gates 

and floating NAV requirements. As such, we focus here on the specific macroeconomic effects 

of the reforms on current money market funds and the impact of the reforms on efficiency, 

competition, and capital formation. It is important to note that although a large number of 

commenters supported our proposed fees and gates requirement for non-government funds, 1854

and some commenters supported our floating NAV requirement for institutional prime funds,1855

many commenters opposed the combination of alternatives.1856 The baseline for these analyses 

(and all of our economic analysis in this Release) is money market fund investment and the 

short-term financing markets as they exist today.

In earlier sections we discussed the specific benefits and costs associated with other

reforms adopted today, including the amended rules that increase portfolio and guarantor 

 1854 See, e.g., Form Letter Type A [1], Type C [2], and Type D [2]; Page Comment Letter; Federated V 

Comment Letter; J.P. Morgan Comment Letter; TIAA-CREF Comment Letter; ICI Comment Letter; Reich 

& Tang Comment Letter; Northern Trust Comment Letter.

1855 See, e.g., BlackRock II Comment Letter; Goldman Sachs Comment Letter; Schwab Comment Letter; 

Vanguard Comment Letter; CFA Institute Comment Letter; Comm. Cap. Mkt. Reg. Comment Letter.

1856 See, e.g., BlackRock II Comment Letter; Dreyfus Comment Letter; Federated X Comment Letter; Goldman 

Sachs Comment Letter; Vanguard Comment Letter; American Benefits Council Comment Letter.
595

diversification, enhance disclosure, and mandate stress testing. We discuss in these sections the 

macroeconomic effects of the amendments, as well as their effects on efficiency, competition, 

and capital formation. The specific operational costs of implementing the reforms are 

discussed in each respective section.

We note that the reforms adopted today will affect the economy in a number of ways, 

many of which are difficult, if not impossible to quantify. The effect of the reforms will depend 

on investors’ choices among many investment alternatives, funds’ and competitors’ responses 

to the reforms and to each other’s strategies, and many other factors in the larger economy. For 

these reasons, many of the macroeconomic effects discussed here are unquantifiable. We 

provide, however, ranges of possible outcomes where we can without being speculative and we 

discuss effects qualitatively, as well. Much of the qualitative analysis of the reforms remains 

similar to that presented in the Proposing Release. We note, however, that the magnitude of the 

macroeconomic effects, both positive and negative, may be greater for funds that are subject to 

both a floating NAV and fees and gates than the funds subject to just one type of reform. Many

commenters noted that the combination of reforms would have a greater impact than either 

alternative alone.1857

In the remaining portion of this section, we discuss in detail the likely macroeconomic 

effects of our primary reforms and the effects that these amendments may have on efficiency, 

competition, and capital formation. We first examine the effect of our amendments on 

investors in money market funds. We then analyze the effect on the money market fund 

 1857 See, e.g., Fidelity Comment Letter; Invesco Comment Letter; Northern Trust Comment Letter; State Street 

Comment Letter; SunGard Comment Letter; Wells Fargo Comment Letter; Government Finance Officers 

Association, et al. (Sept. 17, 2013) (“GFOA II”).
596

industry and the short-term financing markets. 

1. Effect on Current Investors in Money Market Funds

As of February 28, 2014, money market funds had approximately $3.0 trillion in assets 

under management. Of this $3.0 trillion, government money market funds had approximately 

$959 billion in assets under management.1858 Government money market funds will not be 

required to comply with either fees and gates or floating NAV requirements. Because the 

regulatory landscape for these funds will remain largely unchanged, we anticipate current 

investors will likely remain invested in the funds. 

Non-government funds, however, will be subject to fees and gates, and some investors 

may shift their assets to government funds or other investment alternatives. Non-government 

funds, which include prime and tax-exempt funds, held approximately $2.1 trillion in assets as of 

February 28, 2014. Of this approximately $2.1 trillion, we estimate retail prime funds managed 

approximately 33% of prime fund assets (not including tax-exempt funds) or $593 billion, 

whereas retail tax-exempt funds managed 71% of tax-exempt fund assets or $197 billion of 

assets, or $790 billion in total retail fund assets.

1859 The remaining funds are institutional prime 

funds, which will be subject to an additional floating NAV requirement. We estimate that

institutional prime funds, other than tax-exempt funds, managed approximately 67% of prime 

 1858 Based on Form N-MFP data as of February 28, 2014.

1859 Based on data from Form N-MFP and iMoneyNet data as of February 28, 2014. To estimate retail and 

institutional segments for non-government funds, we used self-reported fund data from iMoneyNet as of 

February 28, 2014 to estimate percentages for retail and institutional segments for each fund type. We then 

multiplied the percentages times the total market size segments, as provided by Form N-MFP as of 

February 28, 2014. We note the retail designation is self-reported and omnibus accounts in these funds 

may include both individual and institutional beneficial owners. For these reasons, our estimates may 

underestimate the number of funds with retail investors.
597

fund assets (not including tax-exempt fund assets) or $1.2 trillion in assets and institutional taxexempt funds managed 29% of tax-exempt funds assets or $82 billion, for a total of $1.269 

trillion.1860 Consistent with these estimates, commenters noted that approximately 30% of taxexempt funds currently self-report as institutional funds.1861

As noted in the Proposing Release, the Commission recognizes that imposing fees and 

gates on non-government money market funds and an additional floating NAV requirement on 

institutional prime funds will likely affect the willingness of investors to commit capital to 

certain money market funds. On the one hand, the fees and gates requirements will have little 

effect on funds and their investors except during times of fund distress. During such 

exceptional times, investors, especially investors who are unlikely to redeem shares, may view 

the fees and gates requirements as protecting them from incurring costs from heavy shareholder 

redemptions and improving their funds’ ability to manage and mitigate potential contagion 

from such redemptions. Likewise, some, but not all, investors in institutional prime funds may

view the floating NAV requirement as reducing their funds’ susceptibility to heavy investor

redemptions and minimizing shareholder dilution. We believe the amendments more generally 

will increase funds’ resiliency and treat investors more equitably than the rules do today.

Further, one commenter pointed out that floating NAV money market funds will likely offer 

higher returns than stable NAV government money market funds, and thus will continue to 

 1860 Our staff’s analysis, based on iMoneyNet data, shows that the amount of municipal money market fund 

assets held by institutional investors varied between 25% to 43% between 2001 to 2013.

1861 See, e.g., BlackRock II Comment Letter; Federated VII Comment Letter; J.P. Morgan Comment Letter; 

Dreyfus II Comment Letter.
598

attract investment.1862 This commenter argued that institutional investors are unlikely to 

reallocate assets from floating NAV institutional prime funds because they will continue to be 

one of the most conservative and flexible investment alternatives, even with a floating NAV. 1863 

Finally, this commenter contended that investor education may improve investor confidence in 

floating NAV money market funds, which could attract capital.1864

On the other hand, we recognize many current investors in non-government funds, 

especially institutions, may prefer products that offer guaranteed liquidity and a stable NAV 

rather than non-government funds that will be subject to fees and gates and a floating NAV 

requirement after the reforms. As we noted in the Proposing Release and in this Release, we 

anticipate these investors will consider the tradeoffs involved with continuing to invest in the 

money market funds that are subject to the new requirements. As discussed in section 

III.A.1.c.iv above, several commenters noted and we concur that fees and gates might force 

some investors to either abandon or severely restrict investment in affected money market 

funds.1865 Likewise, commenters expressed concern that investors would migrate away from 

institutional prime funds because a floating NAV would eliminate the stable value feature that 

currently makes money market funds attractive to many shareholders.1866 As discussed in detail 

 1862 See Thrivent Comment Letter.

1863 Id.

1864 Id.

1865 Ky. Inv. Comm’n Comment Letter; Boeing Comment Letter; Schwab Comment Letter; American Bankers 

Ass’n Comment Letter; State Street Comment Letter; GFOA II Comment Letter; 42 Members of U.S. 

Congress Comment Letter.

1866 Fidelity Comment Letter; Legg Mason & Western Asset Comment Letter; SunGard Comment Letter; U.S. 

Bancorp Comment Letter; Association for Financial Professionals, et al. (Sept. 17, 2013) (“Ass’n Fin. 

Profs. II Comment Letter”); Defined Contribution Institutional Investment Association (Sept. 17, 2013) 

(“Def. Contrib. Inst. Inv. Ass’n Comment Letter”); GFOA II Comment Letter.
599

in section III.B.1 above, and noted by commenters,1867 unlike most investment products, money 

market funds are generally used as cash management tools, and a floating NAV may curtail the 

ability of some investors to use money market funds for cash management purposes. Investors 

also may be prohibited by board-approved guidelines, internal policies, or other restrictions 

from investing in products that do not have a stable value per share.

1868 A floating NAV also 

could drive investors with a more limited loss tolerance away from money market funds.1869

The Commission acknowledges, and many commenters concur,1870 that, as a result of our 

reforms, some investors may reallocate assets to either government money market funds or other 

investment alternatives. We do not anticipate our reforms will have a substantial effect on the 

total amount of capital invested, although investors may reallocate assets among investment 

alternatives, potentially affecting issuers and the short-term financing markets, which we discuss 

below. 

As noted earlier in this section, retail investors owned approximately $790 billion of 

assets in non-government money market funds as of February 28, 2014. Under the reforms, 

money market funds that qualify as retail funds may continue to offer a stable value as they do 

 1867 See, e.g., Form Letter Type E [1]; Federated IV Comment Letter; Invesco Comment Letter; State Street 

Comment Letter; Chamber II Comment Letter; GFOA II Comment Letter; National Association of State 

Auditors, Comptrollers and Treasurers (Sept. 17, 2013).

1868 Form Letter Type B [2], Type D [1-2], and Type F [1]; Federated IV Comment Letter; J.P. Morgan 

Comment Letter; American Benefits Council Comment Letter; Ass’n Fin. Profs. II Comment Letter; 

National Association of College and University Business Officers (Sept. 17, 2013) (“Nat’l Ass’n of College 

& Univ. Bus. Officers Comment Letter”); Chamber II Comment Letter; State Treasurer, State of Utah 

(Aug. 26, 2013) (“Utah Treasurer Comment Letter”).

1869 BlackRock II Comment Letter; SunGard Comment Letter; Treasury Strategies Comment Letter; American 

Bankers Ass’n Comment Letter; ABA Business Law Section Comment Letter.

1870 See Dreyfus DERA Comment Letter, Federated DERA I Comment Letter, Fidelity DERA Comment Letter, 

Invesco DERA Comment Letter, and Wells Fargo DERA Comment Letter.
600

today—and facilitate their stable price by use of amortized cost valuation and/or penny-rounding 

pricing of their portfolios. We anticipate few investors in retail funds will reallocate assets to 

other investment choices, given that retail funds will continue to offer price stability, yield, and 

liquidity in all but exceptional circumstances. We are defining a retail money market fund to 

mean a money market fund that has policies and procedures reasonably designed to limit all 

beneficial owners of the fund to natural persons.1871 We expect, however, that at least some 

investors who are natural persons that currently are invested in non-government funds that are 

not designated retail may reallocate their assets to retail funds. We anticipate these investors will 

likely move to retail funds that have investment objectives that are similar to the objectives of 

their current funds. 

Institutions invested approximately $1.27 trillion in non-government money market funds 

as of February 28, 2014. Of this $1.27 trillion, institutional prime funds, other than tax-exempt 

funds, managed approximately $1.19 trillion in assets and institutional tax-exempt funds 

managed $82 billion. Under the reforms, these funds will be subject not only to fees and gates, 

but also to an additional floating NAV requirement. As such, we believe as much as $1.269 

trillion in assets could be at risk for being reallocated to government funds and other investment 

alternatives. 

But as discussed below, neither the Commission nor most commenters believe that all 

institutional investors in non-government funds will reallocate their assets. Institutional prime 

funds typically offer higher yields than government funds, and certain investors receive tax 

 1871 See rule 2a-7(a)(25). “Beneficial ownership” typically means having voting and/or investment power. See 

supra note 679. 
601

advantages from investing in tax-exempt funds. In addition, we have been informed that, today, 

the Treasury Department and the IRS will propose new regulations and issue a revenue 

procedure that we believe should remove the most significant tax-related impediments associated 

with our floating NAV reform.1872 Additionally, the Commission, which has authority to set 

accounting standards, has clarified that an investment in a floating NAV money market fund 

generally meets the definition of a “cash equivalent.”1873 And according to one commenter, more 

than half of survey respondents indicated the likelihood of using a floating NAV money market 

fund would increase if such a fund’s shares are considered cash equivalents for accounting 

purposes.1874 Thus, we believe these factors and actions taken by the Commission and other 

regulatory agencies should help preserve the attractiveness of institutional prime funds to 

investors, perhaps reducing the assets reallocated to alternatives.

As noted by several commenters, it is difficult to estimate the amount of assets that 

institutional investors might reallocate from non-government funds to either government funds 

or other investment alternatives.1875 One commenter estimated that 64% or $806 billion could 

shift from prime funds to government funds,1876 whereas another commenter estimated that 25% 

of assets in its institutional prime funds would transfer permanently into government funds.1877 A 

 1872 See supra section III.B.6.

1873 As discussed in detail in section III.B.6.b, many investors questioned whether an investment in a floating 

NAV money market fund would meet the definition of a “cash equivalent.”

1874 See Deutsche Comment Letter.

1875 See Federated DERA I Comment Letter; Invesco DERA Comment Letter.

1876 See Fidelity DERA Comment Letter.

1877 See Dreyfus DERA Comment Letter; Federated DERA I Comment Letter. The commenter did not provide 

a basis for the estimate in this letter. We note, however, the commenter presented similar estimates using 

survey data in a previous letter. See Federated X Comment Letter. 
602

third commenter estimated a shift in assets of between $500 billion and $1 trillion.1878 In an 

earlier letter, this commenter cited a survey of institutional investors that estimates investors may 

withdraw between $660 and $750 billion from money market funds if the Commission adopts a 

floating NAV requirement because they cannot tolerate principal volatility.1879 As with much of 

the survey evidence provided by commenters,1880 however, we note that this survey was 

administered before the Proposing Release and before the tax and accounting relief that we are 

discussing today was known. For example, the survey, which was administered between 

February 13, 2012 and March 6, 2012, did not consider that government funds might not be 

subject to the fees, gates, and floating NAV requirements,1881 and retail money market funds 

might continue to maintain a stable price. Similarly, the survey designers did not present to 

survey participants the possibility that the Treasury Department and IRS would propose new 

regulations and issue a revenue procedure that we believe will remove the most significant taxrelated impediments associated with a floating NAV reform.1882 Moreover, survey designers 

were not able to anticipate that the Commission, which has authority to set accounting standards, 

 1878 See Federated DERA I Comment Letter.

1879 See Federated X Comment Letter and Treasury Strategies, Money Market Fund Regulations: The Voice of 

the Treasurer (Apr. 19, 2012) http://www.ici.org/pdf/rpt_12_tsi_voice_treasurer.pdf, which is cited in 

Federated X Comment Letter. Federated concludes, “...at a minimum, $660 to $750 billion would be 

driven from institutional prime funds...” We note, however, the cited survey queries institutional 

respondents about money market funds generally and does not reflect that government funds are not be 

subject to the floating NAV requirement. In addition, the survey did not address fees and gates.

1880 A number of commenters cited survey data indicating that organizations would reduce their use of money 

market funds under either our floating NAV or liquidity fees and gates reform. See, e.g., ICI Comment 

Letter (citing the 2013 AFP Liquidity Survey, Association of Financial Professionals, 2013 AFP Liquidity

Survey: Report of Survey Results (June 2013)); Wells Fargo Comment Letter; Northern Trust Comment 

Letter; Invesco Comment Letter; BlackRock II Comment Letter; Sungard Comment Letter.

1881 See Treasury Strategies, Money Market Fund Regulations: The Voice of the Treasurer (Apr. 19, 2012), 

available at http://www.ici.org/pdf/rpt_12_tsi_voice_treasurer.pdf.

1882 See supra section III.B.6.a.
603

would clarify that an investment in a floating NAV money market fund would meet the 

definition of a “cash equivalent.” For these and other reasons herein, we believe that the survey 

data submitted by commenters reflecting that certain investors expect to reduce or eliminate their 

money market fund investments under the floating NAV alternative may overstate how investors 

are likely to actually behave under the final amendments that we are adopting today.1883

The Commission recognizes, however, that some assets will likely flow out of nongovernment funds as a result of the reforms, and that the greatest effect will likely be on 

institutional prime funds. Commenters specifically noted that a combination of proposals 

would force most money market fund sponsors to exit the prime space,1884 and would cause 

many investors to invest their cash assets in government money market funds, direct 

investments, bank deposits, or other investment alternatives.1885 As discussed in the DERA 

Study,1886 the Proposing Release,1887 and below, there are a range of investment alternatives that 

currently compete with money market funds. Each of these choices involves different 

tradeoffs, and money market fund investors that are unwilling or unable to invest in their 

 1883 See, e.g., Better Markets FSOC Comment Letter, supra note 59 (in response to industry survey data 

reflecting intolerance for the floating NAV, stating that “it is difficult to predict the level of contraction that 

would actually result from instituting a floating NAV. [. . . .] The move to a floating NAV does not alter 

the fundamental attributes of money market funds with respect to the type, quality, and liquidity of the 

investments in the fund. [. . . .] It is therefore unrealistic to think that money market funds . . . will become 

extinct solely as a result of a move to a more accurate and transparent valuation methodology.”); Comment 

Letter of John M. Winters (Dec. 18, 2012) (available in File No. FSOC-2012-0003) (“[T]he feared 

migration to unregulated funds has not been quantified and is probably overstated.”).

1884 See, e.g., Dreyfus Comment Letter; Invesco Comment Letter; PFM Asset Mgmt. Comment Letter; ICI 

Comment Letter; SIFMA Comment Letter.

1885 See, e.g., Blackrock II Comment Letter; Dreyfus Comment Letter; Legg Mason & Western Asset 

Comment Letter; Northern Trust Comment Letter; PFM Asset Mgmt. Comment Letter; SunGard Comment 

Letter.

1886 See DERA Study, supra note 24, Table 6.

1887 See Proposing Release, supra note 25, Table 2.
604

current option under the reforms would need to analyze the various tradeoffs associated with 

each alternative. Specifically, investors could choose from among at least the following 

alternatives: direct investments in money market instruments; money market funds that are not 

subject to the reforms; bank deposit accounts; bank certificates of deposit; bank collective trust 

funds; LGIPs; U.S. private funds; offshore money market funds; short-term investment funds 

(“STIFs”); separately managed accounts; ultra-short bond funds; and short-duration exchangetraded funds (“ETFs”).

1888 The following table, taken from the DERA Study and Proposing 

Release, outlines the principal features of various cash alternatives to money market funds that 

exist today.

Table 1

Cash Investment Alternatives

Product Valuation

Investment 

RisksA

Redemption 

Restrictions YieldB Regulated

Restrictions 

on Investor 

Base

Bank demand 

deposits

Stable Below 

benchmark up 

to depository 

insurance 

(“DI”) limit; 

above 

benchmark 

above DI 

limitC

No Below 

benchmark

Yes No

Time deposits 

(CDs)

Stable Bank 

counterparty 

risk above DI 

limit

YesD Below 

benchmark

Yes No

 1888 See, e.g., Comment Letter of Investment Company Institute (Feb. 16, 2012) (available in File No 4-619.) 

(“ICI Feb 2012 PWG Comment Letter”); Comment Letter of the Association for Financial Professionals et 

al. (Apr. 4, 2012) (available in File No. 4-619) (“AFP Comment Letter”).
605

Cash Investment Alternatives

Product Valuation

Investment 

RisksA

Redemption 

Restrictions YieldB Regulated

Restrictions 

on Investor 

Base

Offshore 

money funds 

(European 

short-term 

MMFs)E

Stable or 

Floating 

NAV

Comparable 

to benchmark

SomeF Comparable 

to benchmark

Yes YesG

Offshore 

money funds 

(European 

MMFs)H

Floating 

NAV

Above 

benchmark

Some Above 

benchmark

Yes Yes

Enhanced cash 

funds (private 

funds)

Stable NAV 

(generally)

Above 

benchmark

By contract Above 

benchmark

NoI YesJ

Ultra-short 

bond funds

Floating 

NAV

Above 

benchmark

Some Above 

benchmark

Yes No

Collective 

investment 

fundsK

Not stable Above 

benchmark

No Above 

benchmark

Yes Tax-exempt 

bank clientsL

Short-term 

investment

funds 

(“STIFs”)

Stable Above 

benchmark

No Above 

benchmark

YesM Tax-exempt 

bank clients

Local 

government 

investment 

pools 

(“LGIPs”)

Stable 

(generally)N

Benchmark No Benchmark Yes Local 

government 

and public 

entities

Short-duration 

ETFs

Floating 

NAV; Market 

priceO

Above 

benchmark

No Above 

benchmark

Yes No

Separately 

managed 

accounts 

(including 

wrap accounts)

Not stable Above 

benchmark

No Above 

benchmark

No Investment 

minimumP

Direct 

investment in 

MMF 

instruments

Not stable Comparable 

to benchmark 

but may vary 

depending on 

investment 

mixQ

No Comparable 

to benchmark 

but may vary 

depending on 

investment 

mix

No SomeR
606

A For purposes of this table, investment risks include exposure to interest rate and credit risks. The column also indicates the 

general level of investment risk for the product compared with the baseline of prime money market funds and is generally a 

premium above the risk-free or Treasury rate. B The table entries reflect average yields in a normal interest rate environment. Certain cash management products, such as 

certificates of deposits (“CDs”) and demand deposits, may be able to offer rates above the baseline in a low interest rate 

environment. C The current DI limit is $250,000 per owner for interest-bearing accounts. See Deposit Insurance Summary, Federal Deposit 

Insurance Corporation (“FDIC”), available at http://www.fdic.gov/deposit/deposits/. D Time deposits, or CDs, are subject to minimum early withdrawal penalties if funds are withdrawn within six days of the date 

of deposit or within six days of the immediately preceding partial withdrawal. See 12 CFR 204.2(c)(1)(i). Many CDs are 

also subject to early withdrawal penalties if withdrawn before maturity, although market forces, rather than federal 

regulation, impose such penalties. CDs generally have specific fixed terms (e.g., one-, three-, or six-month terms), although 

some banks offer customized CDs (e.g., with terms of seven days). E The vast majority of money market fund assets are held in U.S. and European money market funds. See Consultation Report 

of the IOSCO Standing Committee 5 (Apr. 27, 2012) (“IOSCO SC5 Report”), at App. B, §§ 2.1 - 2.36 (in 2011, of the assets 

invested in money market funds in IOSCO countries, approximately 61% were invested in U.S. money market funds and 

32% were invested in European money market funds). Consequently, dollar-denominated European money market funds 

may provide a limited offshore money market fund alternative to U.S. money market funds. Most European stable value 

money market funds are a member of the Institutional Money Market Funds Association (“IMMFA”). According to 

IMMFA, as of March 1, 2013, there were approximately $286 billion U.S. dollar-denominated IMMFA money market 

funds. See www.immfa.org (this figure excludes accumulating NAV U.S. dollar-denominated money market funds). Like 

U.S. money market funds, European short-term money market funds must have a dollar-weighted average maturity of no 

more than 60 days and a dollar-weighted average life maturity of no more than 120 days, and their portfolio securities must 

hold one of the two highest short-term credit ratings and have a maturity of no more than 397 days. However, unlike U.S. 

money market funds, European short-term money market funds may either have a floating or fixed NAV. Compare

Common Definition of European Money Market Funds (Ref. CESR/10-049) with rule 2a-7. F Most European money market funds are subject to legislation governing Undertakings for Collective Investment in 

Transferable Securities (“UCITS”), which also covers other collective investments. See, e.g., UCITS IV Directive, Article 

84 (permitting a UCITS to, in accordance with applicable national law and its instruments of incorporation, temporarily 

suspend redemption of its units); Articles L. 214-19 and L. 214-30 of the French Monetary and Financial Code (providing 

that under exceptional circumstances and if the interests of the UCITS units holders so demand, UCITs may temporarily 

suspend redemptions). G Section 7(d) of the Investment Company Act requires that any non-U.S. investment company that wishes to register as an 

investment company in order to publicly offer its securities in the U.S. must first obtain an order from the SEC. To issue 

such an order, the SEC must find that “by reason of special circumstances or arrangements, it is both legally and practically

feasible to enforce the provisions of [the Act against the non-U.S. fund,] and that the issuance of [the] order is otherwise 

consistent with the public interest and the protection of investors.” No European money market fund has received such an 

order. European money market funds could be offered to U.S. investors privately on a very limited basis subject to certain 

exclusions from investment company regulation under the Investment Company Act and certain exemptions from 

registration under the Securities Act. U.S. investors purchasing non-U.S. funds in private offerings, however, may be 

subject to potentially significant adverse tax implications. See, e.g., Internal Revenue Code of 1986 §§ 1291 through 1297. 

Moreover, as a practical matter, and in view of the severe consequences of violating the Securities Act registration and 

offering requirements, most European money market funds currently prohibit investment by U.S. Persons. H European money market funds may have a dollar-weighted average portfolio maturity of up to six months and a dollarweighted average life maturity of up to 12 months that are significantly greater than are permitted for U.S. money market 

funds. Compare Common Definition of European Money Market Funds (Ref. CESR/10-049) with rule 2a-7. I Private funds generally rely on one of two exclusions from investment company regulation by the Commission. Section 

3(c)(1) of the Investment Company Act, in general, excludes from the definition of “investment company” funds whose 

shares are beneficially owned by not more than 100 persons where the issuer does not make or propose to make a public 

offering. Section 3(c) (7) of the Act places no limit on the number of holders of securities, as long as each is a “qualified 

purchaser” (as that term is defined in section 2(a)(51) of the Act) when the securities are acquired and the issuer does not 
607

make or propose to make a public offering. Most retail investors would not fall within the definition of “qualified 

purchaser.” Moreover, such private funds also generally rely on the private offering exemption in section 4(2) of the 

Securities Act or Securities Act rule 506 to avoid the registration and prospectus delivery requirements of Section 5 of the 

Securities Act. Rule 506 establishes “safe harbor” criteria to meet the private offering exemption. The provision most often 

relied upon by private funds under rule 506 exempts offerings made exclusively to “accredited investors” (as that term is 

defined in rule 501(a) under the Securities Act). Most retail investors would not fall within the definition of “accredited 

investor.” Offshore private funds also generally rely on one of the two non-exclusive safe harbors of Regulation S, an issuer 

safe harbor and an offshore resale safe harbor. If one of the two is satisfied, an offshore private fund will not have to 

register the offer and sale of its securities under the Securities Act. Specifically, rules 903(a) and 904(a) of Regulation S 

provide that offers and sales must be made in “offshore transactions” and rule 902(h) provides that an offer or sale is made 

in an “offshore transaction” if, among other conditions, the offer is not made to a person in the United States. Regulation S 

is not available to offers and sales of securities issued by investment companies required to be registered, but not registered, 

under the Investment Company Act. See Regulation S Preliminary Notes 3 and 4. J See id. K Collective investment funds include collective trust funds and common trust funds managed by banks or their trust 

departments, both of which are a subset of short-term investment funds. For purposes of this table, short-term investment 

funds are separately addressed. L Collective trust funds are generally limited to tax-qualified plans and government plans, while common trust funds are 

generally limited to tax-qualified personal trusts and estates and trusts established by institutions. M STIFs are generally regulated by 12 CFR 9.18. The Office of the Comptroller of the Currency recently reformed the rules 

governing STIFs subject to their jurisdiction to impose similar requirements to those governing money market funds. See

Office of the Comptroller of Currency, Treasury, Short-Term Investment Funds [77 FR 61229 (Oct. 9, 2012)]. N Regarding all items in this row of the table, LGIPs generally are structured to meet a particular investment objective. In most 

cases, they are designed to serve as short-term investments for funds that may be needed by participants on a day-to-day or 

near-term basis. These local government investment pools tend to emulate typical money market mutual funds in many 

respects, particularly by maintaining a stable net asset value of $1.00 through investments in short-term securities. A few 

local government investment pools are designed to provide the potential for greater returns through investment in longerterm securities for participants’ funds that may not be needed on a near-term basis. The value of shares in these local 

government investment pools fluctuates depending upon the value of the underlying investments. Local government 

investment pools limit the nature of underlying investments to those in which its participants are permitted to invest under 

applicable state law. See http://www.msrb.org/Municipal-Bond-Market/About-Municipal-Securities/Local-GovernmentInvestment-Pools.aspx. Investors in local government investment pools may include counties, cities, public schools, and 

similar public entities. See, e.g., The South Carolina Local Government Investment Pool Participant Procedures Manual, 

available at http://www.treasurer.sc.gov/media/4755/The-South-Carolina-Local-Government-Investment-Pool-ParticipantProcedures-Manual.pdf.

O Although the performance of an ETF is measured by its NAV, the price of an ETF for most shareholders is not determined 

solely by its NAV, but by buyers and sellers on the open market, who may take into account the ETF’s NAV as well as other 

factors. P Many separately managed accounts have investment minimums of $100,000 or more.

Q Depending on the nature and scope of their investments, these investors may also face risks stemming from a lack of 

portfolio diversification. R Some money market fund instruments are only sold in large denominations or are only available to qualified institutional 

buyers. See generally rule 144A under the Securities Act (17 CFR 230.144A(7)(a)(1)).

These investment options offer different combinations of price stability, risk exposure, 

return, investor protections, and disclosure. For example, some current money market fund 

investors, in particular bank trust departments and corporate trusts, may choose to manage their 
608

cash themselves and, based on our understanding of institutional investor cash management 

practices, many of these investors will invest directly in securities similar to those held by 

money market funds today. According to one commenter, however, this strategy may create 

additional burdens and risks for these investors, including having to acquire, retain, and monitor 

the maturity of short-term investments.1889 Any desire to self-manage cash will likely be 

tempered by the expertise required to invest in a diversified portfolio of money market 

securities directly and the costs of investing in those securities given the economies of scale that 

will be lost when each investor has to conduct credit analysis itself for each investment (in 

contrast to money market funds which are able to spread their credit analysis costs for each 

security across their entire shareholder base).1890 As such, we anticipate that direct investment 

in securities similar to those held by money market funds today will be limited to investors with 

large cash management requirements and active Treasury functions. 

Alternatively, commenters suggested that some investors, especially investors in 

institutional prime funds, will reallocate assets to government funds. 1891 Investors that shift their 

assets from institutional prime funds to government money market funds will likely sacrifice 

yield,1892 but they will retain the principal stability and liquidity of their assets. To the extent that 

 1889 See, e.g., M&T Bank Comment Letter.

1890 See, e.g., Comment Letter of U.S. Chamber (Jan. 23, 2013) (available in File No. FSOC-2012-0003) (“U.S. 

Chamber FSOC Comment Letter”) (“Quite simply, it is more efficient and economical to pay the 

management fee for a money market funds than to hire the internal staff to manage the investment of 

cash.”).

1891 Federated IV Comment Letter; TRACS Financial Comment Letter; Wells Fargo Comment Letter; Boeing 

Comment Letter; American Bankers Ass’n Comment Letter; Def. Contrib. Inst. Inv. Ass’n Comment 

Letter; ICI Comment Letter; see also supra section III.C.

1892 See, e.g., Federated X Comment Letter; Angel Comment Letter. Commenters noted that investors that shift 

assets from prime funds to government funds will earn lower rates on their investments because 
609

assets under management in government funds increase, we anticipate investors will have more 

government funds from which to choose than they do today. This expected increase in the 

number government funds could be because complexes that currently offer government funds 

will offer additional government funds or because other complexes will offer new government 

funds. In either case, competition among government funds should increase although the impact 

on competition likely should, at the margin, be larger if new complexes enter the government 

fund market.

In addition, a reallocation of assets to government funds could lower the yields received 

by both investors in government funds and direct purchasers of government securities. If an 

increase in demand for government funds, which must largely invest in eligible government 

securities, subsequently increases the demand for these securities,1893 the rates on eligible 

government securities and hence yields on government funds might fall.1894 Several 

commenters argued that absorbing assets from non-government funds into government funds 

could reduce yields on eligible government securities in what is already a low yield 

environment.1895 The extent to which asset reallocation affects yields on government funds, 

however, will depend on the amount of capital that shifts into government funds and on the 

 government funds are less risky and offer lower yields than prime funds.

1893 Government money market funds must invest at least 99.5 percent of their portfolio in cash, “government 

securities” as defined in section 2(a)(16) of the Act, and repurchase agreements collateralized with 

government securities. See rule 2a-7(a)(16). Allowable securities include securities issued by governmentsponsored entities such as the Federal Home Loan Banks, government repurchase agreements, and those 

issued by other ‘‘instrumentalities’’ of the U.S. government. It excludes, however, securities issued by 

state and municipal governments, which do not generally share the same credit and liquidity traits as U.S. 

government securities.

1894 See, e.g., Federated X Comment Letter.

1895 See Dreyfus DERA Comment Letter; Federated DERA I Comment Letter; Invesco DERA Comment 

Letter; Wells Fargo DERA Comment Letter.
610

supply of eligible government securities to meet heightened demand for these securities by 

government funds. We discuss these issues in further detail below.

As noted above, commenters indicated that some investors that currently invest in nongovernment funds may shift assets into demand deposits or short-maturity certificates of 

deposit. FDIC insurance that covers deposit accounts (which include checking and savings 

accounts, money market deposit accounts, and certificates of deposit) guarantees principal 

stability within the insurance limits and in certain instances liquidity irrespective of market 

conditions.1896 We noted in the Proposing Release that some institutions may be deterred from 

moving their investments from money market funds to banks, because their assets in many 

cases may be above the current depository insurance limits; assets above the limits would be 

exposed to counterparty and sector-specific risks that are different and less attractive than the 

risk profiles of diversified non-government money market funds today.1897 Nevertheless, these 

investors may gain full insurance coverage if they are willing and able to break their cash 

holdings into sufficiently small pieces and spread them across banks, but doing so may impose 

 1896 FDIC insurance covers all deposit accounts, including checking and savings accounts, money market 

deposit accounts and certificates of deposit. FDIC insurance does not cover other financial products and 

services that banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities, 

or securities. The standard insurance amount is $250,000 per depositor, per insured bank, for each account 

ownership category. See http://www.fdic.gov/deposit/deposits/.

1897 See, e.g., Comment Letter of Crawford and Company (Jan. 14, 2013) (available in File No. FSOC-2012-

0003) (“Bank demand deposits . . . lack the diversification of money market funds and carry inherent 

counterparty risk.”); Comment Letter of Investment Company Institute (Jan. 10, 2011) (available in File No 

4-619) (“The Report suggests that requiring money market funds to float their NAVs could encourage 

investors to shift their liquid balances to bank deposits. We believe that this effect is overstated, 

particularly for institutional investors. Corporate cash managers and other institutional investors would not 

view an undiversified holding in an uninsured (or underinsured) bank account as having the same risk 

profile as an investment in a diversified short-term money market fund. Such investors would continue to 

seek out diversified investment pools, which may or may not include bank time deposits.”). See also 

Federated X Comment Letter.
611

an administrative burden on investors.1898

It is important to note that investors will likely earn lower yields on deposit accounts than 

what they currently receive on non-government funds.1899 One commenter even suggested flows 

of capital into banks may create additional downward pressure on the yields paid to depositors, 

further lowering investor returns.1900 If the additional capital that flows from non-government 

funds is more than banks can profitably lend, then banks might reduce the interest rates that they 

pay to depositors. If, however, banks have sufficient opportunities to invest the additional 

capital, interest rates would likely not fall. 

In addition, as discussed above, investors in non-government funds may not reallocate 

assets in a significant way, and if they do, may not reallocate large amounts of capital to banks. 

Given that deposit accounts held over $8 trillion as of February 28, 2014,

1901 we do not anticipate 

that additional flows from non-government funds will have a sufficient impact to materially push 

down interest rates at banks. Even if investors reallocate capital to demand deposits, recent 

history indicates demand deposits can successfully absorb large flows of capital from investors.

As discussed in the DERA Study, individual and business holdings in checking deposits and 

currency have significantly increased in recent years relative to their holdings of money market 

 1898 Certain third party service providers offer such services. See, e.g., Nathaniel Popper and Jessica SilverGreenberg, Big Depositors Seek New Safety Net , N.Y. Times (Dec. 30, 2012).

1899 See, e.g., Federated X Comment Letter; Angel Comment Letter.

1900 See Angel Comment Letter.

1901 From Board of Governors, Federal Reserve System, as of February 28, 2014. Demand deposits at 

domestically chartered commercial banks, U.S. branches, and agencies of foreign banks, and Edge Act 

corporations (excluding those amounts held by depository institutions, the U.S. government, and foreign 

banks and official institutions) less cash items in the process of collection and Federal Reserve float held 

$1.069 trillion. Savings deposits, which include money market deposit accounts, totaled $7.221 trillion. 

See http://www.federalreserve.gov/Releases/h6/current/default.htm.
612

fund shares.1902 The 2012 AFP Liquidity Survey of corporate treasurers indicates that bank 

deposits accounted for 51% of the surveyed organizations’ short-term investments in 2012, 

which is up from 25% in 2008.1903 Money market funds accounted for 19% of these 

organizations’ short-term investments in 2012, down from 30% just a year earlier, and down 

from almost 40% in 2008.1904

We discussed in the Proposing Release and commenters who addressed this issue

agreed that one practical constraint for many money market fund investors is that they may be 

precluded from investing in certain alternatives outside of funds regulated under rule 2a-7, such 

as STIFs, offshore money market funds, LGIPs, separately managed accounts, and direct 

investments in money market instruments, due to significant restrictions on participation.1905

For example, STIFs are only available to accounts for personal trusts, estates, and employee 

benefit plans that are exempt from taxation under the U.S. Internal Revenue Code.1906 STIFs 

subject to regulation by the Office of the Comptroller of the Currency also are subject to less 

stringent regulatory restrictions than rule 2a-7 imposes, and STIFs under the jurisdiction of 

other banking regulators may be subject to no restrictions at all equivalent to rule 2a-7.1907

 1902 See DERA Study, supra note 24, at figure 18.

1903 See 2012 AFP Liquidity Survey, supra note 64.

1904 See id., 2008 AFP Liquidity Survey, supra note 64.

1905 See, e.g., Form Letter Type B [2], Type D [1-2], and Type F [1]; Federated IV Comment Letter; J.P. 

Morgan Comment Letter; Treasury Strategies Comment Letter; American Benefits Council Comment 

Letter; Ass’n Fin. Profs. II Comment Letter; Nat’l Ass’n of College & Univ. Bus. Officers Comment 

Letter.

1906 See, e.g., American Bankers Ass’n Comment Letter. See Testimony of Paul Schott Stevens, President and 

CEO of the Investment Company Institute, before the Committee on Banking, Housing, and Urban Affairs, 

United States Senate, on “Perspectives on Money Market Mutual Fund Reforms,” June 21, 2012, available 

at http://www.ici.org/pdf/12_senate_pss_mmf_written.pdf.

1907 For a discussion of the regulation of STIFs by the Office of the Comptroller of the Currency (OCC), see 
613

Similarly, European money market funds can take on more risk than U.S. money market funds 

because they are not currently subject to regulatory restrictions as stringent as rule 2a-7 on their 

credit quality, liquidity, maturity, and diversification.1908 If investment alternatives are less 

stringently regulated than non-government funds, then they could pose greater risk than money 

market funds and thus may not be viable or attractive alternatives to investors that highly value 

principal stability. Offshore money market funds, which are investment pools domiciled and 

authorized outside the United States, generally sell shares to U.S. investors only in private 

offerings, limiting their availability to investors at large.1909 Further, few offshore money 

market funds offer their shares to U.S. investors in part because doing so could create adverse 

tax consequences.1910

In the Proposing Release and sections III.A and III.B of this Release, we recognize, and 

commenters concurred, 1911 that some current money market fund investors may have selfimposed restrictions or fiduciary duties that limit the risks they can assume or that preclude 

them from investing in certain alternatives. They may be prohibited from investing in, for 

 Proposing Release, supra note 25, Table 2, explanatory n.M. The OCC’s rule 9.18 governs STIFs managed 

by national banks and federal savings associations. Other types of banks may or may not follow the 

requirements of OCC rule 9.18, depending, for example, on state law requirements and federal tax laws. 

See Office of the Comptroller of Currency, Treasury, Short-Term Investment Funds, at n.6 and 

accompanying text [77 FR 61229 (Oct. 9, 2012)].

1908 For a discussion of the regulation of European money market funds, see Proposing Release, supra note 25, 

Table 2, explanatory nn.E and H; Common Definition of European Money Market Funds (Ref. CESR/10-

049). See also supra section II.B.3.

1909 See Proposing Release, supra note 25, Table 2, explanatory n.I.

1910 See Proposing Release, supra note 25, Table 2, explanatory n.G.

1911 See, e.g., Form Letter Type B [2], Type D [1-2], and Type F [1]; Federated IV Comment Letter; J.P. 

Morgan Comment Letter; Treasury Strategies Comment Letter; American Benefits Council Comment 

Letter; Ass’n Fin. Profs. II Comment Letter; Nat’l Ass’n of College & Univ. Bus. Officers Comment 

Letter.
614

example, enhanced cash funds that are privately offered to institutions, wealthy clients, and 

certain types of trusts due to greater investment risk, limitations on investor base, or the lack of 

disclosure and legal protections of the type afforded them by U.S. securities regulations.1912

Likewise, we recognized in the Proposing Release that money market fund investors that can 

only invest in SEC-registered investment vehicles could not invest in LGIPs, which are not 

registered with the SEC (as states and local state agencies are excluded from regulation under 

the Investment Company Act). In addition, many unregistered and offshore alternatives to 

money market funds—unlike registered money market funds in the United States today—are 

not prohibited from imposing gates or redemption fees or suspending redemptions.1913 Other 

investment alternatives, such as bank CDs, also impose redemption restrictions. 

The Commission recognizes that not every cash investment alternative presented here 

will be available and attractive to each investor, which may leave investors with fewer 

investment options than those enumerated above. Investors, however, have available a range of 

investment options, with each choice offering different tradeoffs. Money market fund investors 

that are unwilling or unable to invest in their current option after the reforms will need to 

analyze the various tradeoffs associated with each alternative. We anticipate the money market 

fund industry may also innovate in various ways to meet investors’ needs. For example, some 

managers may try to stabilize their funds’ NAVs by choosing low principal-risk portfolio 

investment strategies, whereas other funds may seek to offer higher yields within the 

 1912 According to the 2012 AFP Liquidity Survey, supra note 64, only 21% of respondents stated that enhanced 

cash funds were permissible investment vehicles under the organization’s short-term investment policy. In 

contrast, 44% stated that prime money market funds were a permissible investment and 56% stated that 

Treasury money market funds were a permissible investment.

1913 See, e.g., Proposing Release, supra note 25, Table 2, explanatory n.F.
615

restrictions of rule 2a-7.

We also recognize the reforms adopted today may cause investors to reallocate assets to 

investment alternatives that offer different combinations of yield, risk, and features than those 

of the funds in which they are invested today. The fact that investors have bought nongovernment funds rather than these other investment alternatives reveals that they almost 

certainly prefer these funds to the alternatives. We, and a number of commenters,1914

acknowledge that it is doubtful that any of the non-money market fund investment alternatives 

provide the identical combination of price stability, transparency, risk, liquidity, yield, and level 

of regulation provided by past money market funds. However, with today’s adopted 

amendments, the Commission addresses certain concerns inherent in the current structure of 

non-government money market funds that create incentives for shareholders to redeem shares 

ahead of other investors and thus contribute to the likelihood of heavy share redemptions and 

shareholder dilution. Specifically and as pointed out in the DERA study, although the 2010 

reforms made the funds more resilient to both portfolio losses and investor redemptions, no 

fund would have been able to withstand the losses that the Reserve Primary Fund incurred in 

2008 without breaking the buck, and nothing in the 2010 reforms would have prevented the 

Reserve Primary Fund’s holding of Lehman Brothers debt. We therefore believe that the 

relative costs to investors from losing certain features of some of today’s money market funds 

 1914 Form Letter Type A [1], Type B [2], Type C [1], Type D [1], and Type F [1]; Federated II Comment Letter; 

PFM Asset Mgmt. Comment Letter; Comment Letter of Square 1 Asset Management (Sept. 17, 2013) 

(“Square 1 Comment Letter”); Comment Letter of Farmers Trust Company (July 23, 2013) (Farmers Trust 

Comment Letter”); Comment Letter of City of Chicago, Office of the City Treasurer (Sept. 24, 2013) 

(“Chicago Treasurer Comment Letter”); Comment Letter of United States Conference of Mayors (July 18, 

2013) (“U.S. Conference of Mayors Comment Letter”).
616

should be acceptable in light of the significant benefits stemming from advancing our goals of 

reducing money market funds’ susceptibility to heavy redemptions, improving their ability to 

manage and mitigate potential contagion from redemptions, and increasing the transparency of 

their risks.

2. Efficiency, Competition and Capital Formation Effects on the Money 

Market Fund Industry

In this section, we consider certain effects on the money market fund industry of 

investors reallocating money away from certain money market funds as a result of our reforms. 

As discussed in section III.A, our primary reforms will not apply to government money market 

funds.

1915 As such, we anticipate current investors in government funds will likely remain 

invested in these funds, as they will offer the price stability, liquidity, and yield to which these 

investors are accustomed.1916 As discussed further in section III.K.3 below, in fact we expect 

some non-government money market fund shareholders will likely reallocate their investments to 

government money market funds. Accordingly, to the extent investors reallocate funds between 

these two alternatives, we expect that our primary reforms will affect the short-term funding 

market and capital allocation at least in the short-run as discussed further below. We also expect 

to have an increase in allocative efficiency because investors will be making choices best suited 

to their investment risk profiles. Furthermore, to the extent that new government funds will be 

offered because of an increased demand for government funds, competition among government 

 1915 Government money market funds are permitted to opt in to the fees and gates reforms if they disclose they 

are doing so in advance. Because government funds hold assets with little credit risk, we believe it is 

unlikely that these funds will ever choose to impose fees or gates.

1916 If government funds experience heavy inflows, the yields on eligible government securities, in which 

government funds largely invest, might fall. If the yields on portfolio assets fall, the yields on the fund will 

decline as well. We discuss this possibility and its impact in greater detail below. 
617

funds will also increase.

Like government funds, money market funds that qualify as retail funds will also be able 

to continue transacting at a stable value and will not be subject to the floating NAV reform. 

Retail funds will be required to consider imposing a fee or gate if their liquidity comes under 

stress. As such, retail funds will be competing with government and floating NAV funds based 

on their structure. Although some investors may reallocate their investments away from retail 

money market funds because they could impose a fee or gate, we expect many investors will 

remain in these funds because their investment experience under normal market conditions is 

unlikely to change. Some investors may move into retail money market funds in response to our 

reforms, as there are likely some natural persons currently invested in funds that are categorized 

as institutional prime or institutional tax-exempt money market funds that would prefer to stay in 

a money market fund that maintains a stable NAV per share and that has a similar investment 

risk profile as their current fund. Funds with both retail and institutional investors also may 

create new retail-only non-government funds with the same investment objective. Although we 

do not have a basis for estimating the amount of assets that might be reallocated to retail nongovernment funds because we do not know what fraction of the shareholder base of these funds 

today categorized as institutional would qualify as natural persons, we anticipate the number of 

retail funds and competition among these funds to increase as they compete to attract new 

investors and thus increase their allocative efficiency. The impact on competition likely should, 

at the margin, be larger if the increase in the number retail funds stems from new complexes 

offering additional retail funds as opposed to current complexes offering additional retail funds.

Today’s fees and gates amendments are designed to moderate redemption requests by 
618

allocating liquidity costs to those shareholders who impose such costs on funds through their 

redemptions and, in certain cases, stop heavy redemptions in times of market stress by providing 

fund boards with additional tools to manage heavy redemptions and improve risk transparency. 

As such, the fees and gates amendments should increase allocational efficiency in the nongovernment money market fund industry by making liquidity risk more apparent to shareholders 

in these funds through enhanced disclosure and by allocating the costs of redeeming shares when 

liquidity is costly to shareholders that redeem shares. 1917 If investors make better informed 

investment decisions given the liquidity risk inherent in these money market funds as a result of 

the fees and gates amendments, allocational efficiency will be enhanced. 

In addition to the impacts discussed above, the combination of our floating NAV and 

fees and gates reforms may have a number of effects on efficiency, competition, and capital 

formation in the institutional prime money market fund industry. First, by allocating marketbased gains and losses on portfolio securities in institutional prime funds to each shareholder on 

a proportionate basis, the floating NAV should increase allocational efficiency in this industry, 

as investors are allocating their investment capital based on true returns. 1918 Doing so will 

further increase the allocative efficiency discussed above in institutional prime money market 

 1917 Allocational efficiency refers to investors efficiently allocating their funds to available investments, taking 

all relevant factors into account.

1918 Some commenters noted the potential for inequitable treatment of shareholders under the stable NAV 

model. See, e.g., Better Markets FSOC Comment Letter (stating that “an investor that succeeds in 

redeeming early in a downward spiral may receive more than they deserve in the sense that they liquidate at 

$1.00 per share even though the underlying assets are actually worth less. Without a sponsor contribution 

or other rescue, that differential in share value is paid by the shareholders remaining in the fund, who 

receive less not only due to declining asset values but also because early redeemers received more than 

their fair share of asset value.”); Comment Letter of Wisconsin Bankers Association (Feb. 15, 2013) 

(available in File No. FSOC-2012-0003) (stating that “[a] floating NAV has the benefits of . . . reducing the 

possibilities for transaction activity that results in non-equitable treatment across all shareholders”). See 

also supra section II.B.1.
619

funds attributable to the fees and gates reform and its effect on shareholders’ understanding of 

money market funds’ liquidity risk.

Our primary reforms also may affect how different kinds of money market funds 

compete in the industry, and thus affect efficiency, competition, and capital formation in the 

industry. For example, we anticipate that some institutional investors will continue to demand 

a combination of relative price stability, liquidity, and yields that are higher than the yields 

offered by government funds. Managers of floating NAV money market funds may respond to 

these investors in one of several ways. Some managers may respond by altering their portfolio 

management and preferentially investing portfolio holdings in shorter-maturity, lower-risk 

securities than they do today. They would do so to reduce NAV fluctuations and lessen the 

probability the fund’s weekly liquid assets decline sufficiently for a fee or gate to be possible. 

These portfolio management changes may affect competition within the institutional prime 

money market fund industry (or broader money market fund industry) if these funds more 

favorably compete with other less conservatively managed funds. They also could affect

capital formation to the extent they shift portfolio investment away from certain issuers or 

certain maturities or lessen the yields passed through to investors from their money market fund 

investments. In addition, an increase in these types of funds could encourage issuers to fund 

themselves with shorter term debt.

Other portfolio managers of institutional prime funds could respond by using affiliate 

financial support to minimize principal volatility or avoid declines in weekly liquid assets that 
620

could lead to the imposition of a fee or gate.1919 The emergence of these types of money market 

funds also could have competitive effects within the institutional prime money market fund 

industry (or broader money market fund industry), depending on how favorably they compete 

with money market funds that are managed differently. These funds could reduce allocational

efficiency to the extent shareholders invest in money market funds based on the assumption that 

principal volatility and liquidity risk will be borne by the fund’s sponsor or other affiliate rather 

than on the risk-return profile of the fund’s portfolio (although this impact could be tempered to 

the extent any of these costs are passed on to investors through higher management fees). They 

also could affect capital formation if affiliate sponsor support leads to higher investment in 

riskier or longer-term debt securities than otherwise would occur if investors had to bear the 

principal volatility or liquidity risk accompanying those money market fund investments.

Finally, some portfolio managers of institutional prime money market funds may seek to 

competitively distinguish their funds post-reform by altering their portfolio management and 

investing in relatively longer-term or riskier securities than they do today. These funds may seek 

to appeal to investors that, if investing in a floating NAV money market fund that could be 

subject to fees or gates, now may be willing to sacrifice liquidity in times of stress or some 

principal stability for greater yield. The emergence of these types of money market funds may 

enhance competition in the money market fund industry among different types of institutional 

prime money market funds along the risk-return spectrum. It also would affect changes in 

 1919 Fund affiliates could avoid declines in weekly liquid assets, for example by purchasing non-weekly liquid 

assets or directly purchasing fund shares. Under the reforms we are adopting today, we are requiring 

increased disclosure of any affiliate financial support of money market funds. These reforms, and their 

effects on efficiency, competition, and capital formation, are discussed above in sections III.E and III.F
621

capital formation post-reform to the extent that it shifts investment to issuers of longer-term or 

riskier securities or increases yields paid to investors (or increases management fees paid to 

certain types of fund complexes). Thus, depending on the magnitude of the primary reforms’ 

effect on the assets managed by different types of money market funds, the type and number of 

institutional prime funds may contract overall, potentially limiting investors’ choices among 

them, or may expand, potentially enhancing investors’ choices among them. Accordingly, 

competition among institutional prime funds may increase or decrease with an impact that will 

likely be stronger if the number of complexes offering institutional prime funds changes. 

Finally, as discussed above, we recognize investors in institutional prime funds may 

reallocate assets to investment alternatives. In addition to the potential effects on investors 

described above and the short-term funding markets described below, a reallocation of assets out 

of these funds may affect the profitability of the money market fund industry, and thus have 

incremental effects on efficiency, competition, and capital formation. For example, fund 

complexes that, on net, experience a decline in managed money market fund assets as a result of 

our primary reforms, will likely earn lower fund advisers’ management and other fees than they 

do today.

1920 It is important to note, however, that fees for managing these assets will still be 

earned, but by the asset managers to which assets are reallocated. To the extent investors shift 

assets within a fund complex (e.g., to a government fund), at least some of the fees may be 

retained by the fund complex. If, however, investors instead reallocate assets to non-money 

market fund alternatives, the managers of these other options will benefit. This shift may have 

 1920 See Federated X Comment Letter.
622

competitive implications within the money market fund industry as not all fund complexes are 

likely to be equally affected by a movement in money market fund assets as a result of the 

primary reforms. For example, fund complexes that primarily advise government money market 

funds may benefit competitively as these funds are generally not affected by our primary reforms 

and may experience inflows, which would raise these fund advisers’ management fee income. 

Similarly, fund complexes that manage mostly retail money market funds may be competitively 

advantaged post-reform over those that primarily manage institutional prime funds. These latter 

funds will be subject to both our floating NAV and fees and gates reforms and thus may 

experience a greater decline in assets than retail money market funds as a result of our primary 

reforms. We thus anticipate our primary reforms may significantly alter the competitive makeup 

of the money market fund industry, producing related effects on efficiency and capital formation. 

We believe, however, that these changes are necessary to accomplish our policy goals.

3. Effect of Reforms on Investment Alternatives, and the Short-Term 

Financing Markets

In this section, we consider the effects of the reforms on investment alternatives, issuers, 

and the short-term financing markets. We have presented extensive economic analysis relating

to our final policy choices and discussed commenters’ views in earlier sections of the Release. 

As such, we focus here on the specific macroeconomic effects of the reforms on investment 

alternatives, as well as the short-term financing markets and the impact of the reforms on 

efficiency, competition, and capital formation on issuers in the short-term financing market and 

the short-term financing market.

We recognized in the Proposing Release that the amendments we are adopting today 

could create incentives for investors to shift assets out of non-government money market funds, 
623

which could lead to changes in the funding of and other effects on the short-term financing 

markets. Many commenters agreed with our views.1921 Some commenters, for example, 

cautioned that a decrease in investor demand for money market funds could limit the availability 

and raise the cost of short-term funding for businesses, as well as federal, state, and local 

governments, and that it is currently unclear whether these entities would be able to find and use 

alternative efficient sources of credit.1922 Since government funds are not subject to the fees and 

gates and floating NAV requirements, we disagree that today’s adopted amendments have a 

negative impact on the availability and cost of short-term funding for the federal government. 

As discussed in the Proposing Release and herein, we believe the effects of a shift, including any 

effects on efficiency, competition, and capital formation, will depend on the amount of capital 

reallocated to specific investment alternatives and the nature of the alternatives. More 

specifically, the extent to which money market fund investors choose to reallocate their assets to 

investment alternatives, including other money market fund types, as a result of these reforms 

will drive the effect on the short-term financing markets. We discuss the potential impact of 

these shifts in investment below. 

As discussed in the Proposing Release, because non-government money market funds’ 

investment strategies differ from a number of the investment alternatives enumerated, a shift by 

investors from non-government money market funds to these alternatives could affect the 

markets for short-term securities. Commenters warned that movement of invested assets from 

 1921 See, e.g., MFDF Comment Letter; Ariz. Ass’n of County Treasurers Comment Letter; Utah Treasurer 

Comment Letter; Northern Trust Comment Letter; Fidelity Comment Letter.

1922 Form Letter Type E [1] and Type F [1]; Fidelity Comment Letter; Invesco Comment Letter; iMoneyNet 

Comment Letter; KeyBank Comment Letter; Ass’n Fin. Profs. II Comment Letter; Fin. Svcs. Inst. 

Comment Letter.
624

prime money market funds to, for example, government money market funds could skew shortterm funding away from private markets to the public sector.1923 The magnitude of the effect will 

depend on not only the size of the shift but also the extent to which there are portfolio investment 

differences between non-government money market funds and the chosen investment 

alternatives. As discussed in the DERA Study, for example, even a modest shift from prime 

funds to other types of money market funds could represent a sizeable increase in certain 

investments.1924 If instead investors in institutional prime funds choose to manage their cash 

directly rather than invest in alternative cash management products, they may invest in securities 

that are similar to those currently held by prime funds, in which the effects on issuers and the 

short-term financing markets will likely be minimal.1925

We believe, and a number of commenters agreed,1926 that some capital will be reallocated 

from non-government funds, especially institutional prime funds, to government money market 

funds. If the magnitude of the flows is large, we anticipate the shift in investment could affect 

not only the government securities market, but also issuers, including companies and 

municipalities, that previously sold securities to non-government funds. It is important to note 

that although investors may reallocate assets to government funds, it is also possible and even 

 1923 Blackrock II Comment Letter; Invesco Comment Letter; Wells Fargo Comment Letter; U.S. Bancorp 

Comment Letter; ICI Comment Letter.

1924 See DERA Study, supra 24, Table 7.

1925 The preference for this alternative, however, may be tempered by the cost to investors of managing cash on 

their own. See, e.g., supra note 580 and accompanying text.

1926 See, e.g., Federated IV Comment Letter; TRACS Financial Comment Letter; Wells Fargo Comment Letter; 

Boeing Comment Letter; American Bankers Ass’n Comment Letter; Def. Contrib. Inst. Inv. Ass’n 

Comment Letter. See also Dreyfus DERA Comment Letter, Federated DERA I Comment Letter, Fidelity 

DERA Comment Letter, Invesco DERA Comment Letter, and Wells Fargo DERA Comment Letter.
625

likely that some will reallocate assets to bank demand deposits and other investment vehicles, 

which would mitigate the negative impact of the reforms on the short-term funding market in 

general and bank issuers of short-term papers in particular.

1927

Commenters cautioned that there is limited market capacity if investors reallocate their 

assets from non-government money market funds into government money market funds.1928

Commenters noted a specific concern that reallocating assets from non-government funds to 

government funds would increase the demand for eligible government securities,1929 which could 

reduce these securities’ yields in what is already a low-yield environment. Low yields on 

eligible government securities would not only affect investors in government funds, but also 

those investors who directly purchase government securities.1930 Commenters noted heavy flows 

to government funds during the financial crisis caused several government funds to close to new 

investors to prevent additional net inflows, 1931 while yields fell close to zero.1932 These problems 

arose even with large issuances of government securities during the financial crisis.1933 One 

commenter specifically stated that negative yields would be problematic for the competitiveness 

of government funds and investors, as well as for parties holding government securities for 

 1927 See supra section III.K.1 of this Release.

1928 See, e.g., Blackrock II Comment Letter; Dreyfus Comment Letter; Federated II Comment Letter; Invesco 

Comment Letter; Northern Trust Comment Letter; Schwab Comment Letter.

1929 See supra section III.C.1.

1930 See, e.g., Federated X Comment Letter; Dreyfus DERA Comment Letter; Federated DERA I Comment 

Letter; Invesco DERA Comment Letter; Wells Fargo DERA Comment Letter.

1931 See Dreyfus DERA Comment Letter; Invesco DERA Comment Letter. The commenters did not address 

where the potential new investors ultimately invested their assets.

1932 See Dreyfus DERA Comment Letter; Federated DERA I Comment Letter.

1933 See BlackRock DERA Comment Letter; Invesco DERA Comment Letter; ICI DERA Comment Letter.
626

regulatory capital and collateral purposes.1934

Evidence from the financial crisis also indicates, however, that government funds 

absorbed large inflows of assets. Specifically, approximately $498 billion or 24% of assets 

flowed out of prime funds, whereas $409 billion or 44% of assets flowed into government funds 

between September 2, 2008 and October 7, 2008,

1935 and even with these unprecedented 

reallocations of assets, Treasury-bill rates approached or fell below zero for only a relatively 

short period during the crisis.1936 One commenter also noted the supply of Treasury bills has 

declined by more than $250 billion on three separate occasions between January 31, 2009 and 

March 31, 2014 without apparent market dislocation.

1937 We recognize that any reallocation of 

assets from non-government money market funds into government money market funds may 

affect yields in the short-run. However, we believe that the two-year period for funds to 

implement the fees and gates and floating NAV reforms that we are adopting may help facilitate 

the market adjustment process. For example, fund complexes with non-government funds that 

have both institutional and retail investors as well as other fund complexes will have time to 

originate retail funds not subject to the floating NAV requirement to meet the needs of retail 

clients. Similarly, retail investors in non-government funds that will be subject to the floating 

NAV after the implementation period will have time to reallocate assets to a retail fund. More 

generally, investors will have time to identify investment alternatives and consider trade-offs for 

 1934 See Federated DERA I Comment Letter.

1935 See SEC Staff Analysis http://www.sec.gov/comments/s7-03-13/s70313-324.pdf. These investors would 

not be government money market funds [5].

1936 See SEC Staff Analysis http://www.sec.gov/comments/s7-03-13/s70313-324.pdf. These investors would 

not be government money market funds [6-7].

1937 See Fidelity DERA Comment Letter.
627

alternatives other than government funds.

Commenters, using data from July 2013 through March 2014, estimated there are 

between $5.2-$6.8 trillion in eligible government securities.1938 However, as noted by several 

commenters, it is difficult to estimate the amount of assets that institutional investors might 

reallocate from non-government funds to government funds.1939 Several commenters cautioned 

this supply of eligible government securities would likely be insufficient if today’s reforms were 

adopted.1940 One commenter, however, argued that the supply would be adequate.1941 This

commenter estimated 64% or $806 billion could shift from prime funds to government funds,1942

whereas a second commenter estimated 25% of assets in its institutional prime funds would 

transfer permanently into government funds.1943 A third commenter estimated between $500 

billion to $1 trillion.1944 The first commenter noted, however, that prime funds invested 19.5% of 

their assets on average in eligible government securities as of February 28, 2014, explaining that

prime funds hold eligible government securities to meet the Daily Liquid Asset and Weekly 

 1938 See Federated DERA I Comment Letter; Fidelity DERA Comment Letter; ICI DERA Comment Letter; 

Wells Fargo DERA Comment Letter. One commenter (see the Invesco DERA Comment Letter) estimated 

eligible government assets were $2 trillion, which is substantially lower than the other commenters’ 

estimates. It appears the estimate does not include repurchase agreements collateralized by U.S. Treasuries 

or other government securities and may have other assumptions, so we focus here on the estimates provided 

in the other four letters. 

1939 See Federated DERA I Comment Letter and Invesco DERA Comment Letter. See also supra sections 

III.A-B.

1940 See BlackRock DERA Comment Letter; Dreyfus DERA Comment Letter; Federated DERA I Comment 

Letter; Invesco DERA Comment Letter.

1941 See Fidelity DERA Comment Letter.

1942 Id.

1943 See Dreyfus DERA Comment Letter.

1944 See Federated DERA I Comment Letter. The commenter did not provide a basis for the estimate in this 

letter. We note, however, the commenter presented similar estimates using survey data in a previous letter. 

See Federated X Comment Letter. We address limitations of inferences from the survey in section III.B.
628

Liquid Asset requirements of Rule 2a-7.1945 As such, they would likely divest some of these 

assets to meet investor redemption requests, thereby freeing up eligible government securities for 

government fund purchase. Applying this 19.5% estimate to prime funds at large and assuming 

investors reallocated 64% of prime fund assets to government funds,1946 the commenter then 

estimated the demand for eligible government securities would increase “approximately $806 

billion, which is only about 8% of current total available eligible government securities.”1947 The 

commenter concluded, “the supply of eligible government securities is more than adequate to 

meet anticipated demand.”1948 We agree with this commenter. Applying the 19.5% estimate to 

institutional prime funds at large and assuming investors reallocated 25% of prime fund assets to 

government funds,1949 the demand for eligible government securities would increase about $239 

billion, which is only about 4% of current total available eligible government securities.1950

Therefore, we do not anticipate the reallocation of fund assets will be large relative to the market 

for eligible government securities. 

 1945 See Fidelity DERA Comment Letter. The Federated DERA I Comment Letter estimated prime funds 

invested 27% of assets in eligible government securities. More specifically, the letter stated prime money 

market funds held $95 billion in Treasury securities, $130 billion in agency securities, and $169 in fully 

collateralized repurchase agreements. It cited year-end assets in prime money market funds of $1.486 

trillion.

1946 See Fidelity DERA Comment Letter.

1947 Id.

1948 Id.

1949 See Dreyfus DERA Comment Letter.

1950 See Dreyfus DERA Comment Letter. This estimate assumes institutions invest about $1.187 trillion in 

prime funds. To estimate assets managed by institutional prime funds, we used self-reported fund data 

from iMoneyNet as of February 28, 2014 to estimate the percentage of assets managed by institutional 

prime funds. We then multiplied the percentage times the assets managed by prime funds, as provided 

by Form N-MFP as of February 28, 2014. Commenters, using data from July 2013 through March 2014, 

estimated there are between $5.2-$6.8 trillion Eligible Government Securities. See Federated DERA I 

Comment Letter; Fidelity DERA Comment Letter; ICI DERA Comment Letter; Wells Fargo DERA 

Comment Letter.
629

It is also difficult to estimate the future supply of available eligible government securities, 

given market forces and possible changes in the supply and demand. Commenters, as well as the 

staff, noted a number of factors that may affect the supply and demand of eligible government 

securities.1951 Some factors would affect the net supply negatively, whereas other factors would 

affect it positively. Given the large number of possible factors and the range of possible effects 

of each factor on both the supply of eligible government securities and the economy overall, we 

cannot estimate the net macroeconomic effect of the factors overall.1952 For this reason, we 

discuss these factors qualitatively. 

Several factors could increase the future demand for and decrease the future supply of 

eligible government securities. For example, one commenter discussed the impact of rising 

interest rates on the demand for money market funds generally and the concomitant increase in 

demand for eligible government securities.1953 This commenter suggested, for example, the 

“eventual resolution of the Federal National Mortgage Association and Federal Home Loan 

Mortgage Corporation will reduce the supply,”1954 as will a reduction in the federal deficit.1955

The same commenter noted several factors have increased the demand of government securities, 

including the stockpiling of securities by the Federal Reserve “as a result of quantitative easing 

 1951 See SEC Staff Analysis http://www.sec.gov/comments/s7-03-13/s70313-324.pdf, pp. [4-5].

1952 We note commenters did not provide data to help the Commission estimate the effects of these factors. See, 

e.g., BlackRock DERA Comment Letter; Dreyfus DERA Comment Letter; Federated DERA I Comment 

Letter; Fidelity DERA Comment Letter; Invesco DERA Comment Letter; Wells Fargo DERA Comment 

Letter.

1953 See Federated DERA I Comment Letter.

1954 Id.

1955 Id.
630

and other policy initiatives.”1956 The commenter further notes continued trade deficits, structural 

and regulatory changes in the markets for financial contracts, and regulatory capital and liquidity 

requirements have increased and are likely to continue increasing the demand for U.S. 

government securities.1957 We agree with the commenter that many of these factors will increase 

the demand for U.S. government securities.

1958

On the other hand, several factors may decrease the future demand for and increase the 

future supply of eligible government securities. For example, one commenter hypothesized 

companies, seeking better investment opportunities, may reduce their holdings of cash 

equivalents, thereby reducing their holdings of government money market funds and eligible 

government securities.1959 This commenter further suggested that central banks might wind down 

their open market bond purchases, which could cause investors to sell short-term and purchase 

long-term government securities to earn higher yields. In addition, the commenter suggested that

the Federal Reserve Bank of New York through its Overnight Reverse Repo Program might 

increase government repurchase agreements as part of its quantitative easing exit strategy,1960 and 

the Treasury could increase the supply of Treasury Floating Rate Notes designed to be attractive 

 1956 See Federated DERA I Comment Letter; Invesco DERA Comment Letter.

1957 See Federated DERA I Comment Letter; Invesco DERA Comment Letter; Wells Fargo DERA Comment 

Letter.

1958 See SEC Staff Analysis http://www.sec.gov/comments/s7-03-13/s70313-324.pdf.

1959 See Fidelity DERA Comment Letter.

1960 See Fidelity DERA Comment Letter; Federated DERA I Comment Letter. The Federated DERA I 

Comment Letter notes, however, using the Program to counteract “the unintended consequences of the 

Commission’s reforms may not be an appropriate use, however, of a monetary policy tool,” and it may be 

an unreliable source of supply.
631

to money market funds and their investors.1961 Because we cannot foresee all of the ways 

markets will evolve, we cannot predict the macroeconomic effects of these changes.1962

Nevertheless, we acknowledge changes in the market arising from the reforms may have 

macroeconomic effects in the future.

In a separate analysis, the staff noted that some investors that currently own eligible 

government securities might choose to reallocate these assets to other global safe assets,1963

which could free up eligible government securities for government fund purchase.1964 A number 

of commenters argued the Commission should focus solely on the supply of eligible government 

securities, given that government funds are largely restricted to investing in eligible government 

securities.1965 Several commenters also argued investors other than government funds may be 

restricted from holding assets other than eligible government securities, which would preclude 

 1961 See Fidelity DERA Comment Letter.

1962 It is important to also note that arguments supporting the idea of a shortfall typically ignore the ability of 

market participants to adapt to a changing landscape. See SEC Staff Analysis 

http://www.sec.gov/comments/s7-03-13/s70313-324.pdf.

1963 See SEC Staff Analysis http://www.sec.gov/comments/s7-03-13/s70313-324.pdf. A “safe asset” is defined 

as any debt asset that promises a fixed amount of money in the future with virtually no default risk. Safe 

assets are generally considered to be information insensitive: Investors’ concerns about asymmetric 

information or adverse selection are ameliorated when trading because the asset’s creditworthiness is 

known with near certainty, reducing the need for investors to collect information. The safety of a given 

asset does not depend on the creditworthiness of the issuer alone but also is determined by the liquidity of 

the market in which the asset trades and by guarantees. Any asset can be rendered safe by an implicit or 

explicit promise from a central bank or credit-worthy institution to buy it if its price falls below a certain 

level.

1964 See SEC Staff Analysis http://www.sec.gov/comments/s7-03-13/s70313-324.pdf. We note government 

money market funds are largely precluded from investing in securities other than government securities. 

The market for global safe assets may provide investment alternatives for current investors in government 

funds and institutional investors invested in non-government funds that are willing to reallocate assets.

1965 See Dreyfus DERA Comment Letter; Federated DERA I Comment Letter; Fidelity DERA Comment 

Letter; ICI DERA Comment Letter; Invesco DERA Comment Letter; Wells Fargo DERA Comment Letter.
632

them from buying other assets.1966 One commenter pointed out certain global safe assets can 

present risks, such as foreign exchange risk,1967 credit risk (securitized assets and investment 

grade corporate debt),1968 and commodity risk (gold),1969 and suggested investors either may not 

choose to or cannot hold them.1970 Moreover, this commenter suggested that using global safe 

assets for regulatory and counterparty purposes may be more expensive than using eligible 

government securities.1971

We recognize that government funds and certain other investors are restricted from 

investing in assets other than eligible government securities and that other investors may prefer 

to invest in eligible government securities. As discussed above, commenters estimated there are 

between $5.2-$6.8 trillion of eligible government securities.1972 Of these, government money 

market funds today hold about $959 billion or 16%, which leaves over $5 trillion or 84% of 

eligible government securities in the hands of investors that may be able to reallocate their 

investments in eligible government securities to other assets.1973 The staff’s analysis, which we 

credit, suggests any shift in demand from eligible government securities to global safe assets 

 1966 See Federated DERA I Comment Letter; Wells Fargo DERA Comment Letter.

1967 Id.

1968 See Federated DERA I Comment Letter.

1969 Id.

1970 Id.

1971 Id.

1972 See Federated DERA I Comment Letter; Fidelity DERA Comment Letter; ICI DERA Comment Letter; 

Wells Fargo DERA Comment Letter. One commenter (see the Invesco DERA Comment Letter) estimated 

eligible government assets were $2 trillion, which is substantially lower than the other commenters’ 

estimates. It appears the estimate does not include repurchase agreements collateralized by U.S. Treasuries 

or other government securities and may have other assumptions, so we focus here on the estimates provided 

in the other four letters. 

1973 Based on Form N-MFP data as of February 28, 2014, government money market funds had approximately 

$959 billion in assets under management.
633

more generally would be small relative to the overall supply of global safe assets, which is 

estimated to be $74 trillion.1974 Consistent with this argument, a commenter notes that the entire 

market for eligible government securities is less than 10% of the market for global safe assets.1975 

Based on these comments and the staff’s analysis, we continue to believe that some investors and 

market participants may reallocate assets from eligible government securities to other safe assets, 

which would free up eligible government securities for government fund purchase.

If significant capital flows from institutional prime funds to demand deposits, issuers and 

the short-term capital markets may be affected. If banks invest the additional capital in the shortterm financing markets, we do not anticipate a large impact on issuers or the short-term capital 

markets. But if they do not, less capital will be available to issuers, which could negatively 

impact capital formation in the short-term financing market and perhaps increase the cost of 

short-term financing. In this scenario, however, banks, which tend to fund longer-term lending 

and capital investments, will have additional monies to invest in the long-term financing market, 

which could lower the cost of capital for long-term financing and aid capital formation in that

market. 

Several commenters noted that shifts in assets from institutional prime funds to banks, 

although reducing systemic risk in money market funds, might increase systemic risk in the 

banking system.1976 Some commenters, for example, noted that a shift of assets from money 

 1974 See SEC Staff Analysis http://www.sec.gov/comments/s7-03-13/s70313-324.pdf [3].

1975 See Wells Fargo DERA Comment Letter.

1976 See, e.g., Federated X DERA Comment Letter; Fidelity DERA Comment Letter; Invesco DERA Comment 

Letter; PFM Asset Mgmt. DERA Comment Letter; Reich & Tang DERA Comment Letter; UBS DERA 

Comment Letter.
634

market funds to bank deposits would increase the size of the banking sector and investors’ 

reliance on FDIC-deposit insurance, possibly increasing the concentration of risk in banks.1977

Several commenters also observed that banks in this scenario would likely need to raise capital 

to meet capital adequacy standards.1978 Several commenters discussed the effects of evolving 

regulations (and related regulatory uncertainty) on banks’ willingness to accept large inflows. 

For example, they noted that pending proposals to increase banks’ leverage ratios could limit 

banks’ willingness to accept large cash deposits on their balance sheets, because banks will need 

to raise large amounts of new capital to reflect the growth in bank assets.1979 Finally, 

commenters explained that state and municipal entities might not be able to find banks willing to 

accept their large deposits due to the high cost of collateralizing public bank deposits, a common 

requirement among municipalities.1980

As discussed above, although we are not able to estimate the flows of capital from 

institutional prime funds, we do expect some outflow when investors in institutional prime funds

 1977 See, e.g., Comment Letter of James Angel (Feb. 6, 2013) (available in File No. FSOC-2012-0003) (“Angel 

FSOC Comment Letter”) (stating that “[m]any of the proposed reforms would seriously reduce the 

attractiveness of money market funds,” which “could increase, not decrease, systemic risk as assets move 

to too-big-to-fail banks.”); Comment Letter of Jonathan Macey (Nov. 27, 2012) (available in File No. 

FSOC-2012-0003) (stating that a “reduced money market fund industry may lead to the flow of large 

amounts of cash into [the banking system], especially through the largest banks, and increase pressure on 

the FDIC.”); See, e.g., Comment Letter of Federated Investors, Inc. (Jan. 25, 2013) (available in File No. 

FSOC-2012-0003) (“A floating NAV would accelerate the flow of assets to “Too Big to Fail” banks, 

further concentrating risk in that sector.”).

1978 See, e.g., Federated X Comment Letter; Angel Comment Letter.

1979 See, e.g., Federated X Comment Letter; State Street Comment Letter; American Bankers Ass'n Comment 

Letter.

1980 See, e.g., Ga. Treasurer Comment Letter; WV Bd. of Treas. Invs. Comment Letter; Chicago Treasurer 

Comment Letter. The commenters explained that many state and local governments have laws that require 

their bank deposits to be collateralized by marketable securities at a higher amount than the current 

$250,000 FDIC deposit insurance limit (often over 100 percent of the deposits after the deduction of the 

amount of deposit insurance).
635

weigh the costs and benefits of each investment alternative against the prime fund investment 

and find an investment alternative a superior allocation. Given the heterogeneity of investors’ 

preferences and investment objectives and constraints, we do not expect that all investors will 

allocate assets to the same alternative. We expect, for example, that some investors will allocate 

assets to government funds, some to demand deposits, and others to various other alternatives. 

If, however, significant capital flows from prime money market funds to demand deposits, the 

size of the banking sector will increase. It is uncertain to what extent an increase in the size of 

the banking sector is a concern. First, banks are highly regulated and attuned to managing and 

diversifying risks. Second, because the size of the remaining institutional prime funds’ 

portfolios will, in aggregate, be smaller, these portfolios could contain a higher percentage of 

high-quality prime assets, with improved diversification, and likely could be less susceptible to 

heavy redemptions. Taken together, it is not clear what the net effect on the resilience of the 

short-term funding markets will be due to a shift of assets from institutional prime funds to the 

banking sector.

Historically, money market funds have been a significant source of financing for issuers 

of commercial paper, especially financial commercial paper, and for issuers of short-term 

municipal debt.1981 Analysis of Form N-MFP data from November 2010 through March 2014 

indicates that financial company commercial paper and asset-backed commercial paper 

 1981 Based on Form N-MFP data, non-financial company commercial paper, which includes corporate and nonfinancial business commercial paper, is a small fraction of overall money market holdings. In addition,

commercial paper financing by non-financial businesses is a small portion (one percent) of their overall 

credit market instruments. According to Federal Reserve Board flow of funds data, as of December 31, 

2012 non-financial company commercial paper totaled $130.5 billion compared with $12,694.2 billion of 

total credit market instruments outstanding for these entities. As such, we do not anticipate a significant 

effect on the market for non-financial corporate fund raising. Federal Reserve Board flow of funds data is 

available at http://www.federalreserve.gov/releases/z1/Current/z1.pdf.
636

comprise most of money market funds’ commercial paper holdings.1982 Thus, we acknowledge 

that a shift by investors from non-government money market funds to other investment 

alternatives could cause a decline in demand for commercial paper and municipal debt, 

reducing these firms and municipalities’ access to capital from money market funds and 

potentially creating a decline in short-term financing for them.1983 If, however, money market 

fund investors shift capital to investment alternatives that demand the same assets as prime 

money market funds, the net effect on the short-term financing markets should be small.

As discussed in the DERA Study, the 2008-2012 increase in bank deposits coupled with 

the contraction of money market funds provides data to examine how capital formation can be 

affected by a reallocation of capital among different funding sources. According to Federal 

Reserve Board flow-of-funds data, money market funds’ investments in commercial paper 

declined by 45%, or $277.7 billion, from the end of 2008 to the end of 2012. 

Contemporaneously, funding corporations reduced their holdings of commercial paper by 99% 

 1982 In addition, according to the DERA Study, supra note 24, “as of March 31, 2012, money market funds held 

$1.4 trillion in Treasury debt, Treasury repo, Government agency debt, and Government agency repo as its 

largest sector exposure, followed by $659 billion in financial company commercial paper and CDs, its next 

largest sector exposure.”

1983 See, e.g., Comment Letter of Associated Oregon Industries (Jan. 18, 2013) (available in File No. FSOC2012-0003) (stating that if the proposed reforms “drive investors out of money market funds, the flow of 

short-term capital to businesses will be significantly disrupted.”); U.S. Chamber FSOC Comment Letter 

(stating that “any changes [that make money market funds] a less attractive investment will impact the 

overall costs for issuers in the commercial paper market resulting from a reduced demand in commercial 

paper.”); Comment Letter of N.J. Municipal League (Jan. 23, 2013) (available in File No. FSOC-2012-

0003) (stating that “money market funds hold more than half of the short-term debt that finances state and 

municipal governments for public projects,” which could force local governments to “limit projects and 

staffing, spend more on financing . . . or increase taxes” if such financing was no longer available.); 

Comment Letter of Government Finance Officers Association, et al. (Feb. 13, 2013) (available in File No. 

FSOC-2012-0003) (stating that with respect to FSOC’s floating NAV proposal, “changing the fundamental 

feature of money market funds . . . would dampen investor demand for municipal securities and therefore 

could deprive state and local governments and other borrowers of much-needed capital.”).
637

or $357.7 billion.1984 The end result was a contraction of more than 40% or $647.5 billion in the 

amount of commercial paper outstanding. 

Although the decline in funds’ commercial paper holdings was large, it is important to 

place commercial paper borrowing by financial institutions into perspective by considering its 

size compared with other funding sources. As with non-financial businesses, financial 

company commercial paper is a small fraction (3.2%) of all credit market instruments.1985 We 

have also witnessed the ability of issuers, especially financial institutions, to adjust to changes 

in markets. Financial institutions, for example, dramatically reduced their use of commercial 

paper from $1.1 trillion at the end of 2008 to $449.2 billion at the end of 2012.1986 As such, we 

continue to believe that financial institutions, as well as other firms, will be able to identify 

alternate short-term financing sources if the amount of capital available to purchase financial 

commercial paper declines in response to our money market fund rule changes. 

We recognize, however, that as part of this shift there is the potential that commercial 

paper issuers may have to offer higher yields to attract alternate investors, which would 

 1984 The Federal Reserve flow of funds data defines funding corporations as “funding subsidiaries, custodial 

accounts for reinvested collateral of securities lending operations, Federal Reserve lending facilities, and 

funds associated with the Public-Private Investment Program (PPIP).”

1985 According to the Federal Reserve Flow of Funds data as of December 31, 2012, commercial paper 

outstanding was $449.2 billion compared with $13,852.2 billion of total credit market instruments 

outstanding for financial institutions.

1986 The statistics in this paragraph are based on the Federal Reserve Board’s Flow of Funds data. See also

2012 FSOC Annual Report, available at

http://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf, at 55-56, 66 

(showing substantial declines in domestic banking firm’s reliance on short-term wholesale funding 

compared with deposit funding). The Basel III liquidity framework also proposes requirements aimed at 

limiting banks’ reliance on short-term wholesale funding. See 2011 FSOC Annual Report, available at

http://www.treasury.gov/initiatives/fsoc/Documents/FSOCAR2011.pdf, at 90 (describing Basel III’s 

proposed liquidity coverage ratio and the net stable funding ratio); Basel Committee on Banking 

Supervision: Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools (Jan. 2013), 

available at http://www.bis.org/publ/bcbs238.pdf (describing revisions to the liquidity coverage ratio).
638

increase issuers’ short-term cost of capital.1987 Any increase in yield would likely increase 

demand for these investments which in turn could to some extent mitigate the potential adverse 

capital formation effects on the commercial paper market. Issuers, facing higher short-term 

financing costs, might consider the trade-offs of shifting into longer-term sources of financing. 

To the extent issuers’ funding costs rise, whether short or long term, issuers will be less likely 

to raise capital and invest in projects, possibly affecting capital formation negatively. However, 

we also note that to the extent that fees and gates slow capital from leaving money market funds 

during times of stress, the fees and gates amendments adopted today should benefit the shortterm funding market. This is because money from maturing portfolio assets may need to be 

reinvested in the short-term funding market, which may help prevent that market from

completely locking up during times of stress as we have experienced during the financial crisis.

To that extent, fees and gates may allow issuers to continue accessing the short-term capital 

market served by money market funds while they identify alternate sources of short-term 

capital.

Municipalities also could be affected if the new amendments cause the size or number of 

municipal money market funds to contract. Commenters expressed concern about a loss of 

funding or other adverse impacts on state and local governments. 1988 As discussed in detail in 

 1987 See, e.g., Federated X Comment Letter.

1988 A number of commenters argued that applying our floating NAV reform to municipal funds would reduce 

demand for municipal securities and raise the costs of financing. See, e.g., Fidelity Comment Letter (noting 

that tax-exempt funds purchase approximately 65% of short-term municipal securities and that fewer 

institutional investors in tax-exempt funds will lead to less purchasing of short-term municipal securities by 

tax-exempt funds and a corresponding higher yield paid by municipal issuers to attract new investors); 

BlackRock II Comment Letter; Federated VII Comment Letter; ICI Comment Letter; U.S. Mayors 

Comment Letter.
639

section III.B, however, we anticipate the impact will likely be relatively small. As of the last 

quarter of 2013, municipal funds held approximately 7% of the municipal debt outstanding.1989

Of that 7%, retail investors owned approximately 71% of the assets under management. Even 

though municipal funds will be subject to our fees and gates reforms, we do not anticipate that 

retail investors in significant numbers will divest their assets in municipal funds because these 

funds should continue to offer price stability,1990 yield, and liquidity in all but exceptional 

circumstances. We therefore anticipate that many retail investors will continue to find municipal 

funds to be an attractive cash management tool compared to other alternatives. 

Of that 7% of municipal debt outstanding that municipal funds held, institutional 

investors, who might divest their municipal fund assets if they do not want to invest in a floating 

NAV fund, held approximately 30% of assets.1991 Because we estimate that institutional 

municipal funds held approximately 2% of the total municipal debt outstanding, we believe at 

 1989 Based on data from Form N-MFP and the Federal Reserve Board “Flow of Funds Accounts of the United 

States” (Z.1), which details the flows and levels of municipal securities and loans, to estimate outstanding 

municipal debt, (March 6th, 2014), available at http://www.federalreserve.gov/releases/z1/current/z1.pdf. 

This estimate is consistent with a previous estimate presented in U.S. Securities and Exchange 

Commission. 2012 Report on the Municipal Securities Market. The estimate in the 2012 report was based 

on data from Mergent’s Municipal Bond Securities Database.

1990 Retail municipal funds are exempt from the floating NAV requirement adopted today.

1991 See Dreyfus II Comment Letter indicated that based on data from iMoneyNet institutional tax-exempt 

funds represent “approximately $80 billion in assets,” which “constitute approximately 30% of the current 

Municipal MMF industry.” Commission staff estimates based on data from Form N-MFP and iMoneyNet 

as of February 28, 2014 confirm these statistics. To estimate the assets managed by the retail and 

institutional segments of municipal funds, we used self-reported fund data from iMoneyNet as of February 

28, 2014 to estimate percentages. We then multiplied the percentages times the total assets managed by 

municipal funds, as provided by Form N-MFP as of February 28, 2014. We note the retail designation is 

self-reported and omnibus accounts in these funds may include both individual and institutional beneficial 

owners. For these reasons, our estimates may underestimate the number of funds with retail investors. In 

the Proposing Release, we estimated that retail investors own close to all municipal fund assets. We now 

recognize retail investors own approximately 71% of municipal fund assets.
640

most approximately 2% is at risk of leaving the municipal debt market.1992 Of this 2% of the 

municipal debt market that institutions hold, we anticipate many investors that currently invest in 

institutional municipal funds likely value the tax benefits of the funds and should choose to 

continue investing in municipal funds to take advantage of the tax benefits. In addition, we 

anticipate that some investors who qualify as natural persons and currently are invested in 

institutional prime funds may reallocate their assets to retail municipal funds, thereby increasing 

investment in retail municipal funds. 

Even if municipal funds were to reduce their purchasing of municipal securities, we 

expect that other investors may fill the gap. Between the end of 2008 and the end of 2012, for 

example, money market funds decreased their holdings of municipal debt by 34% or $172.8 

billion.1993 Despite this reduction in holdings by money market funds, municipal issuers 

increased aggregate borrowings by over 4% between the end of 2008 and the end of 2012. 

Municipalities were able to fill the gap by attracting other investor types. Other types of mutual 

funds, for example, increased their municipal securities holdings by 61% or $238.6 billion. 

Depository institutions have also increased their funding of municipal issuers during this time 

period by $141.2 billion as investors have shifted their assets away from money market funds 

into bank deposit accounts. Life insurance companies almost tripled their municipal securities 

holdings from $47.1 billion at the end of 2008 to $121 billion at the end of 2012. Because 

historically other types of investors have increased their investment in municipal debt when 

 1992 This estimate is calculated as follows: Municipal funds hold 7.5% of municipal debt outstanding x 29% of 

municipal assets held by institutional investors = 2.2% of total municipal debt held by institutions.

1993 The statistics in this paragraph are based on the Federal Reserve Board’s Flow of Funds data.
641

money market funds have decreased their investment, the Commission expects that other 

investors may again increase their investment in municipal debt if money market funds reduce 

their funding of the municipal debt market in the future, though we note that yields on municipal 

securities could rise. For these reasons, we do not anticipate the amendments adopted today will 

substantially affect capital formation in the municipal debt market.

The amendments we are adopting today, including the floating NAV requirement and 

enhanced disclosure requirements should improve informational efficiency in the capital 

markets by increasing investors’ ability to knowledgably allocate capital. We recognize, 

however, that a fund’s imposition of a liquidity fee increases the cost of reallocating their assets 

while it is in place, whereas a gate prevents investors from doing so. The additional costs of 

liquidity and inability of investors to redeem shares may impede the efficient allocation of 

capital and hence capital formation during periods of market stress because investors will not 

be able to reallocate capital as freely. We have tried to mitigate the magnitude of this effect by 

reducing the time that gates are in place to at most 10 business days in any 90-day period (down 

from the proposed 30 calendar days) and by adopting a 1% default liquidity fee (down from the 

proposed 2% fee). We also expect that funds will impose fees and gates infrequently.1994 

Although we recognize that the reallocation of assets by money market fund investors

may affect efficiency, competition, and capital formation within the short-term financing 

markets, the final amendments reflect our efforts to moderate the amount of assets that may be 

potentially redistributed by limiting our fees and gates requirement to non-government funds 

 1994 As discussed in section III.E, the DERA study found that 2.7% of the funds had their monthly weekly 

liquid assets percentages fall below 30% and 0.02% of the funds had their monthly weekly liquid assets 

percentages fall below 10%.
642

and our floating NAV requirement to institutional prime funds. If shareholders either remain in 

non-government money market funds or move to alternatives that invest in similar underlying 

assets, the competitive effects are likely to be small. If, however, investors reallocate (whether 

directly or through intermediaries) investments into substantively different assets, the effects 

may be larger. In that case, issuers may have to access different investor bases and perhaps 

offer higher yields to attract capital, whether from the smaller money market fund industry or 

from other investors. Either way, we recognize that issuers that are unable to offer the required 

higher yield may have difficulties raising capital, at least in the short-term financing markets. 

However, as discussed in detail earlier in this section, we can neither precisely estimate the 

amount of capital that will be reallocated nor its destination.

The Commission anticipates other competitive consequences and effects on capital 

formation as well. For example, we expect managers of non-government money market funds 

will have incentives to closely manage weekly liquid assets and principal risk so as to avoid 

crossing the threshold for triggering fees and gates or having a volatile NAV.1995 To manage 

these risks, fund managers will have incentives to hold short-maturity, low-risk securities, and 

as a result the overall short-term financing markets may tilt toward these issuances. If so, the 

prices of these securities are likely to rise and yields may fall. We anticipate issuers that are 

able and willing to issue securities that meet these criteria may gain a competitive advantage 

over other issuers in the market. Alternatively, the new amendments may create a competitive 

advantage for issuers of higher yielding and riskier assets that are rule 2a-7-eligible securities if 

 1995 See, e.g., SIFMA Comment Letter; BlackRock II Comment Letter; Wells Fargo Comment Letter; Peirce & 

Greene Comment Letter; Dreyfus Comment Letter; Goldman Sachs Comment Letter.
643

non-government funds pursue more aggressive investment strategies within the confines of rule 

2a-7 or if relatively less risk-averse investors avoid government funds and instead invest in 

non-government funds. If so, issuers of higher-yielding 2a-7-eligible assets may gain a 

competitive advantage.

The DERA study pointed out that although the 2010 reforms made money market funds 

more resilient to both portfolio losses and investor redemptions, no fund would have been able 

to withstand the losses that the Reserve Primary Fund incurred in 2008 without breaking the 

buck, and nothing in the 2010 reforms would have prevented the Reserve Primary Fund’s 

holding of Lehman Brothers debt. We therefore believe that the costs to participants in the 

short-term funding market are acceptable relative to the benefits stemming from advancing our 

goals of reducing money market funds’ susceptibility to heavy redemptions, improving their 

ability to manage and mitigate potential contagion from redemptions, and increasing the 

transparency of their risks.

L. Certain Alternatives Considered

In this section, we discuss certain reasonable alternatives that we considered as potential 

other methods for achieving our primary reform goals, as well as a number of other alternatives 

suggested by commenters, and discuss their benefits as well as their limitations.1996 The goals of 

today’s reforms include reducing money market funds’ susceptibility to heavy redemptions, 

improving their ability to manage and mitigate potential contagion from such redemptions, and 

 1996 This section discusses reasonable alternatives to the primary fees and gates and floating NAV reforms 

discussed above. We also discuss reasonable alternatives to other rule amendments, as well as more 

specific or distinct issues, throughout other parts of the Release. For example, see supra section III.B.5 for 

a discussion of alternatives related to decimal place rounding.
644

increasing the transparency of their risks, while preserving, as much as possible, the benefits of 

money market funds. Having considered carefully the trade-offs of the alternatives discussed 

below, we believe, based on our experience, observations, and analysis, as well as careful 

consideration of comments received on the adopted reforms and alternatives, that the 

amendments we are adopting today best effectuate our policy goals.

1. Liquidity Fees, Gates, and Floating NAV Alternatives

In the Proposing Release, we presented a number of reform options. Among them were 

standalone floating NAV, standalone fees and gates, and a combination of fees, gates, and a 

floating NAV requirement. Today we are adopting an approach that includes fees and gates for 

all non-government money market funds, as well as an additional targeted reform of a floating 

NAV for the funds with investors most susceptible to heavy redemptions, institutional prime 

funds.1997 We are adopting this approach based on our evaluation, discussed both in other 

sections of this Release and below, of our policy goals, experience, observations, and analysis, as 

well as careful consideration of comments received on the following reasonable alternatives. 

a. Standalone Liquidity Fees and Redemption Gates 

One option outlined in the Proposing Release was for non-government fund boards to be 

given discretion to impose liquidity fees and permit imposition of redemption gates under certain 

conditions, but without also requiring a floating NAV for institutional prime money market 

 1997 We did not propose to apply either the fees and gate or floating NAV reforms to government money market 

funds, and accordingly the final amendments do not apply to government funds, for the policy reasons 

discussed in section III.C.1. The analysis of reasonable alternatives below therefore does not focus on the 

potential effects of these alternatives as applied to government funds. 
645

funds.1998 We believe a standalone fee option would reduce money market funds’ susceptibility 

to heavy redemptions when liquidity costs are high and fund liquidity is stressed and would 

allocate liquidity costs to redeeming shareholders, making them pay for the liquidity that they 

receive, rather than transferring such liquidity costs to remaining shareholders. Gates, in 

addition to liquidity fees, would help improve the ability of fund managers and boards to manage 

and mitigate potential contagion from high levels of shareholder redemptions.1999 A standalone 

fees and gates requirement would eliminate some of the benefits of money market funds as they 

exist today for investors, but retain others. Investors would face the possibility of costly 

redemptions or the elimination of redemptions temporarily when fund liquidity is stressed. On 

the other hand, fees and gates, as discussed in section III.A and below, would retain the 

advantages of a stable-price product, avoiding certain issues associated with floating NAV funds. 

A large number of commenters supported, to varying degrees and with varying caveats, our fees 

and gates proposal.2000 Many other commenters, however, expressed their opposition to fees and 

gates.2001 We discuss specific comments on fees and gates in detail in section III.A.

2002

As discussed here and in the Proposing Release, liquidity fees are designed to preserve 

the current benefits of principal stability, liquidity, and a market yield, but reduce the likelihood 

 1998 See Proposing Release, supra note 25, at section III.B. We note that we have adopted this alternative for a 

certain subset of funds-namely retail funds that limit their investors to natural persons. We discuss the 

reasons why we adopted this alternative for retail funds, and the tradeoffs involved, in section III.C.2. 

1999 See section III.A for a detailed discussion of commenters’ responses.

2000 See, e.g., Form Letter Type A, Fidelity Comment Letter; Federated V Comment Letter; Northern Trust 

Comment Letter.

2001 See, e.g., Capital Advisors Comment Letter; Boston Federal Reserve Comment Letter; Americans for Fin. 

Reform Comment Letter; Edward Jones Comment Letter.

2002 We discuss the trade-offs of standalone fees versus standalone gates in section III.L.1.a below.
646

that “when markets are dislocated, costs that ought to be attributed to a redeeming shareholder 

are externalized on remaining shareholders and on the wider market.”2003 Even if a liquidity fee 

is imposed, fund investors will continue to be able to access liquidity, although at a cost. The 

ability of fund boards to impose liquidity fees when liquidity costs are high would have many 

benefits, including reducing the incentives for shareholders to redeem shares when the fees are in 

effect. Liquidity fees will require redeeming shareholders to bear the liquidity costs associated 

with their redemptions, rather than transferring those costs to remaining shareholders. Likewise, 

fees would help reduce investors’ incentives to redeem shares ahead of other investors, 

especially if fund managers deplete their funds’ most liquid assets first to meet redemptions, 

leaving later redemption requests to be met by selling less liquid assets. Liquidity fees would 

protect fund liquidity by requiring redeeming shareholders to repay funds for the liquidity costs 

incurred. For these reasons, we believe liquidity fees would reduce money market funds’ 

susceptibility to heavy redemptions when liquidity fees are high and would improve fund 

managers and boards’ ability to manage and mitigate potential contagion from such redemptions.

We also recognize that the possibility of fees and gates being imposed when a fund is 

under stress may make the risk of investing in money market funds more salient and transparent 

to some investors, which could sensitize them to the risks of investing in the funds. The 

disclosure amendments we are adopting today will require funds to provide disclosure to 

investors regarding the possibility of fees and gates being imposed if a fund’s liquidity is 

significantly stressed. Funds’ disclosures that shareholders may face liquidity fees and 

 2003 See Proposing Release, supra note 25, n.343.
647

redemption gates may help inform and could perhaps sensitize some of those investors to some 

of the risks of investing in money market funds. 

Redemption gates would stop heavy redemptions in times of market or fund stress.2004 

Like liquidity fees, gates would preserve the current benefits of money market funds under most 

market conditions. Funds, however, would be able to use gates to respond to runs by halting 

redemptions. Gates would provide a “cooling off” period, which might temper the effects of 

short-term investor panic, possibly reducing investors’ incentives to redeem shares. In addition, 

gates would allow funds to generate additional internal liquidity as assets mature and would 

reduce or eliminate the likelihood that funds sell otherwise desirable assets and engage in “fire 

sales.” They would also provide time for funds to identify solutions in crises and communicate 

the nature of any stresses to shareholders. 

Standalone liquidity fees and gates would preserve many of the current benefits of money 

market funds under normal market conditions. As discussed in the Proposing Release, the ability 

of funds to impose liquidity fees and redemption gates, had it been available during the financial 

crisis, might have helped some funds manage the heavy redemptions that occurred and may have 

helped limit the contagion effects of such redemptions, though it is impossible to know what 

exactly would have happened if money market funds had operated with fees and gates at that 

time. Unlike a floating NAV, which affects day-to-day fund pricing, fund boards would impose 

 2004 See supra section III.A. We note, however, gates could prompt pre-emptive runs if investors anticipate 

them. We believe, however, that several aspects of today’s amendments mitigate this risk, and the effects 

of such pre-emptive runs should they occur. For example, board discretion in imposing gates mitigates this 

risk. We have also tried to mitigate the magnitude of this effect by reducing the time that gates are in place 

to at most 10 business days in any 90-day period (down from the proposed 30 days) and adopted a 1% 

default liquidity fee (down from a 2% fee).
648

liquidity fees and gates only when liquidity costs are high and fund liquidity is stressed. In 

addition, a standalone liquidity fee and redemption gate structure would preserve many of the 

benefits of stable price money market funds, avoiding many of the costs associated with floating 

NAV funds.2005

The Commission recognizes, however, that liquidity fees and redemption gates address 

some of the risks associated with money market funds, but cannot address all of the factors that 

might lead to heavy redemptions in certain money market funds. As discussed previously, we 

have found that certain money market funds (i.e., institutional prime funds) pose particularly 

significant risks that fees and gate alone do not fully address.2006 Specifically, fees and gates are 

intended to enhance money market funds’ ability to manage and mitigate potential contagion 

from high levels of redemptions and make investors pay their share of the costs of the liquidity 

that they receive. They do not, however, eliminate the incremental incentive for certain investors 

to redeem shares ahead of other shareholders when their money market fund’s shadow price falls 

below $1.00—a risk to which institutional prime funds are particularly susceptible, and the 

potential resultant dilution of remaining shareholders interests. Thus, we believe a liquidity fee 

combined with a redemption gate—without a floating NAV—will not adequately address this 

risk of heavy redemptions for institutional prime funds. However, balanced with the competing 

goal of retaining the benefits of money market funds for investors to the extent possible, as 

discussed above, we believe that a standalone fees and gates approach does meet our policy goals 

 2005 As discussed previously, the Commission acknowledges, for example, some investors may reallocate assets 

from floating NAV prime funds to either government money market fund or other stable-price alternatives, 

which may impose costs on investors, funds, and the short-term capital markets. We discuss these effects 

in more detail in section III.K.

2006 See supra section III.B.
649

when applied to retail funds.2007 

b. Standalone Floating NAV 

Another option outlined in the Proposing Release was for institutional prime funds to 

transact at a floating NAV with no liquidity fees or gates.2008 Most commenters opposed 

requiring a standalone floating NAV. 2009 As we discuss in detail in section III.B, we believe a 

floating NAV requirement reduces certain money market funds’ susceptibility to heavy 

redemptions and improves the allocation of gains, losses, and costs among shareholders. It does 

not, however, fully address the ability of fund managers and boards to manage and mitigate 

potential contagion from high levels of shareholder redemptions. A standalone floating NAV 

requirement would eliminate some of the benefits of a stable-price fund for institutional 

investors, while retaining other benefits that investors currently experience with money market 

funds.

First and foremost, we believe a standalone floating NAV would help reduce institutional

prime money market funds’ susceptibility to heavy redemptions by reducing the incremental 

incentive for shareholders in these funds to redeem shares ahead of other investors when a fund’s 

shadow NAV falls below $1.00.2010 As discussed in Section III.B, a floating NAV requirement 

 2007 The tradeoffs of just a fee or gate (without a floating NAV) are discussed in section III.A. We note that one 

commenter suggested a “penny rounding” alternative that, if combined with fees and gates, is very similar 

to the fees and gates alternative we proposed (which included a requirement for penny-rounded pricing). 

We discuss this alternative at notes 512 - 515 and accompanying text. We are not adopting this suggested 

“penny rounding” alternative combined with fees and gates for the reasons described in this section 

III.L.1.a.

2008 See Proposing Release, supra note 25, at section III.A. 

2009 See supra section III.B for a detailed discussion of comments we received on this issue.

2010 Although most commenters opposed requiring a floating NAV, a number of commenters did agree that a 

floating NAV would address this incremental incentive to redeem. See, e.g., Thrivent Comment Letter; 
650

mandating that institutional prime money market funds transact at share prices that reflect 

current market-based factors (not amortized cost or penny rounding, as currently is permitted) 

would lessen investors’ incentives to redeem early to take advantage of transacting at a stable 

value. As a result, the floating NAV requirement by itself without an accompanying liquidity fee 

and/or redemption gate would help mutualize potential losses and costs among all investors, 

including redeeming shareholders.2011

A standalone floating NAV, which many observers perceive to be more equitable than a 

stable NAV,2012 may also minimize investor dilution. A standalone floating NAV should result 

in redeeming investors receiving only their fair share of the fund when there are embedded losses 

in the portfolio, thereby avoiding dilution of remaining shareholders. A standalone floating 

NAV requirement would also preserve certain current benefits of money market funds, because 

investors would continue to be able to redeem shares during times of market stress without 

paying a liquidity fee or waiting for a redemption gate to be lifted. A standalone floating NAV 

would also avoid certain costs associated with liquidity fees and redemption gates. 

We anticipate a standalone floating NAV would contribute to the allocation of money 

market fund risks in the same ways that a floating NAV does in a combination approach. As 

discussed in the Proposing Release and in section III.B, a floating NAV requirement is designed 

to increase the allocation of the risks present in money market funds by causing shareholders to 

 TIAA-CREF Comment Letter; Fin. Svcs. Roundtable Comment Letter; SIFMA Comment Letter; Systemic 

Risk Council Comment Letter. But see, e.g., BlackRock II Comment Letter; Dreyfus Comment Letter; 

Federated IV Comment Letter; Ropes & Gray Comment Letter; ICI Comment Letter; Chamber II 

Comment Letter. 

2011 See, e.g., Deutsche Comment Letter; TIAA-CREF Comment Letter; Systemic Risk Council Comment 

Letter.

2012 See supra section III.B; see also TIAA-CREF Comment Letter.
651

experience gains and losses when a fund’s value fluctuates. Some money market fund investors, 

accustomed to a stable NAV, may not appreciate the risks associated with money market funds 

whose prices may remain stable, but whose underlying values may fluctuate in times of market 

stress. As we have discussed previously, transacting at prices based on current market values 

will help ensure that institutional investors who invest in floating NAV funds do so only if they 

are willing to tolerate small fluctuations in share price in return for potentially higher yield.2013 

And for those investors who are unwilling to tolerate the risk that the price fluctuations reflect, 

we anticipate they may reallocate their investments to other, more appropriate alternatives, which 

may help reduce any redemption pressure that these investors could have caused in times of 

stress had they remained in the funds.

2014

A standalone floating NAV would not necessarily eliminate, however, shareholders’ 

incentives to redeem shares from institutional prime money market funds ahead of other 

investors when liquidity costs are high. In times of severe market stress when the secondary 

markets for funds’ assets become illiquid and liquidity costs are high, investors may still have an 

incentive to rapidly redeem shares before their fund’s liquidity dries up. A floating NAV may 

also not alter institutional prime money market fund shareholders’ incentives to redeem shares in 

times of market stress when investors want to shift from money market funds into securities with 

greater quality, liquidity, and transparency. As such, when the situation develops, a standalone 

floating NAV would not necessarily prevent heavy shareholder redemptions in institutional 

prime money market funds and the related effects on the short-term capital markets or help fund 

 2013 See, e.g. Vanguard Comment Letter. 

2014 See supra section III.B.
652

managers and boards manage redemptions.2015 Thus, a standalone floating NAV would likely be 

insufficient to satisfy these important policy goals of the money market fund reform. 

We have therefore determined to adopt a floating NAV as a targeted reform that is 

intended to supplement the broader liquidity fees and gates reforms discussed above (as well as 

other reforms discussed in sections III.E, III.I, and III.J) by addressing the incremental incentive 

for institutional investors to redeem from prime funds. We believe that an approach that includes 

both fees and gates for all non-government money market funds as well as a floating NAV for a 

subset of those funds (i.e., institutional prime money market funds) provides fund managers and 

boards with targeted and additional tools to manage heavy redemptions and help limit contagion. 

c. Fund Choice of Standalone Floating NAV or Standalone Liquidity 

Fees and Redemption Gates

We also considered providing institutional prime money market funds a choice of either 

transacting with a floating NAV or being able to impose liquidity fees and gates in times of 

stress—in other words, each institutional prime money market fund would choose to apply either 

the floating NAV alternative or the liquidity fees and gates alternative.2016 In the Proposing 

Release, we discussed how providing such a choice might allow each money market fund to 

select the reform alternative that is most efficient, cost-effective, and preferable to its 

shareholders. We suggested such a choice might enhance the efficiency of our reforms and 

 2015 We have discussed the particular risks posed by institutional prime funds throughout this Release and 

especially in section III.B.

2016 We note that we did not propose to require retail or government funds to adopt a floating NAV, and 

accordingly this discussion focuses on the tradeoffs between allowing such a choice for institutional prime 

funds. We discuss the reasons why we are not mandating either a floating NAV or fees and gates for 

government money market funds, but allowing them to opt in to fees and gates if they choose in section 

III.C.1 and discuss why we believe that a floating NAV is not necessary for retail funds in section III.C.2.
653

minimize costs and competitive impacts. 

A number of commenters offered support for this “choice” reform approach, 2017 and one 

commenter specifically opposed it.2018 The commenters who supported allowing funds to choose 

which reform alternative to implement argued that this approach would allow the market to 

decide which reform was most suitable rather than imposing a top-down solution. They noted 

that each alternative offers a varying set of benefits and drawbacks and that allowing funds to 

choose which reform to implement would allow them to offer different kinds of funds to clients 

who may have divergent priorities for either liquidity or a stable NAV.2019 These commenters 

also suggested that letting each fund choose would allow them to select the approach that they 

can implement at lowest cost and with least disruption. The commenters who supported 

allowing fund choice between the principal reforms we are adopting today also emphasized they 

did not support imposing both reforms in combination, only alternatively.2020 One commenter 

that supported fund choice nonetheless suggested intermediaries may be unwilling to 

accommodate funds that have two options as they would have to bear the costs of dealing with 

both sets of reforms for different funds.2021 The commenter that opposed allowing a choice of 

structural reforms stated that having both primary structural reforms available could be confusing 

for investors and may promote regulatory arbitrage.2022 They argued that the Commission should 

 2017 Dreyfus Comment Letter; Legg Mason Comment Letter; ICI Comment Letter; MFDF Comment Letter. 

2018 Vanguard Comment Letter.

2019 See, e.g., ICI Comment Letter; MFDF Comment Letter; SPARK Comment Letter. 

2020 See, e.g., ICI Comment Letter; Dreyfus Comment Letter; Goldman Sachs Comment Letter. 

2021 See ICI Comment Letter. 

2022 See Vanguard Comment Letter. 
654

adopt a standardized structure that is simple for investors to understand.2023

We have carefully considered these comments. However, for the same reasons that we 

believe a standalone approach with either fees and gates or floating NAV would not fully address 

the risks inherent in money market funds, we believe, based on our consideration of relevant 

risks and policy objectives, allowing institutional prime money market funds to choose between 

them also would not address the risks posed by money market funds. As discussed above, the

floating NAV alternative by itself would not necessarily eliminate shareholders’ incentives to 

redeem shares from money market funds ahead of other investors when liquidity costs are high. 

In times of severe market stress when the secondary markets for funds’ assets become illiquid 

and liquidity costs are high, investors may still have an incentive to redeem shares before their 

fund’s liquidity dries up. A floating NAV also may not alter money market fund shareholders’ 

incentives to redeem shares in times of market stress when investors want to shift from money 

market funds into securities with greater quality, liquidity, and transparency. As such, a floating 

NAV alternative by itself would not necessarily prevent heavy shareholder redemptions and the 

related effects on the short-term capital markets or help fund managers and boards manage the 

rapid heavy redemptions to which institutional prime funds can be susceptible. These funds 

would lack the additional tools of fees and gates to help manage heavy redemptions and limit 

contagion. Thus, providing institutional prime funds an alternative and having some funds adopt 

a floating NAV would prevent us from satisfying certain important policy goals of the money 

market fund reform for those funds. 

 2023 Id.
655

Some funds might instead choose to adopt the liquidity fees and gates option. However, 

as discussed above, these funds, while having certain tools to manage heavy redemptions, would 

have a diminished ability to address an important factor that can lead to redemptions in money 

market funds. Specifically, fees and gates would not eliminate the incentive for institutional 

investors to redeem shares ahead of other shareholders to avoid market-based losses embedded 

in their fund’s portfolio or mitigate shareholder dilution. Liquidity fees and gates would not 

allocate day-to-day gains, losses, and costs to investors on a proportionate basis, a risk that is 

particularly relevant to institutional prime funds. 

In addition, we note that today neither funds nor their investors may necessarily 

internalize the full likely effects of their own decisions on other funds and investors and the 

short-term financing markets, and thus capital formation.

2024 The approach that we are adopting 

today, which subjects all non-government funds to the fees and gates reform and only 

institutional prime funds to the additional floating NAV requirement, is designed to address these 

externalities by reducing money market funds’ susceptibility to heavy redemptions and 

improving their ability to manage and mitigate potential contagion from such redemptions. 

Because allowing institutional prime funds to choose between either a floating NAV or fees and 

gates would effectively negate the combined effects of the reforms that we have found to be 

necessary to address their risks, we believe that this is not the most appropriate alternative, for 

the reasons discussed above. For these reasons, we now believe neither liquidity fees and 

redemption gates nor floating NAV, alone, addresses all of the factors that might lead to heavy 

 2024 See generally MFDF Comment Letter (discussing, in the context of fees and gates, that boards need not put 

significant emphasis on the broader systemic effects of their decisions). 
656

redemptions in institutional prime money market funds, and thereby to allow them such a choice 

would not effectively mitigate all of the risks that our reforms are designed to address.

d. Standalone Fees or Standalone Gates

The amendments we are adopting today will allow funds to impose liquidity fees and 

redemption gates.2025 Some commenters on the proposal, however, expressed a preference for 

either just fees or just gates. For example, some commenters noted a preference for fees over 

gates.2026 One commenter argued that liquidity fees could slow runs, as the price for liquidity 

would be factored into investors’ redemption decisions, whereas a gate could exacerbate the risk 

of pre-emptive runs if investors expect gates to be imposed.2027 Another commenter stated that 

although a liquidity fee might be acceptable to shareholders if it reflected the cost of liquidity, 

gates that prevented investors from accessing their cash would be the least attractive alternative 

for institutional investors that use money market funds for cash management purposes.2028

Conversely, other commenters expressed a preference for gates over fees.2029 One 

commenter noted liquidity fees are unlikely to prevent institutional investors from redeeming 

 2025 As discussed in section III.C.1, government funds are not required to impose fees or gates, but may opt to 

do so if they choose. We believe that if a government fund were to choose to opt into a fee and gate 

regime, for the same reasons discussed below, such a fund should have the flexibility to use both tools, 

rather than be limited to just one or the other. We further note that gating is always entirely discretionary 

(once a fund goes below 30% weekly liquid assets), and that if a board finds that a fee is not in the best 

interests of the fund need not impose it, and thus a government fund that opted into fees and gates could 

apply effectively only a fee or only a gate if the boards finds that using only one such tools is in the best 

interests of the fund. 

2026 See, e.g., Deutsche Comment Letter; Capital Advisors Comment Letter.

2027 See Deutsche Comment Letter.

2028 See Capital Advisors Comment Letter.

2029 See, e.g., Fein Comment Letter; Peirce & Greene Comment Letter.
657

shares in a crisis, but that gates would be more likely to achieve the Commission’s goals.2030

Similarly, another commenter described gates as the “most effective option in addressing run 

risk,” but was skeptical as to whether fees “would deter shareholders from redeeming their 

shares in a time of extreme market stress.”2031 Finally, a commenter suggested implementing 

only fully discretionary gates but no fees, noting in part that, “establishing appropriate triggers 

and setting properly sized fees in advance are difficult and likely futile tasks.”2032

We continue to believe that funds and their boards should be permitted to choose between 

fees and gates but be capable of utilizing both when determining the best way to address heavy 

redemptions. As discussed in section III.1 above, fees and gates can accomplish similar policy 

goals, but one may be better suited to one set of circumstances or funds than the other.2033 The 

flexibility in today’s amendments should address many of the commenters’ concerns in favoring 

one approach over the other,2034 because it gives boards the option to impose fees, gates, neither 

 2030 See Fein Comment Letter.

2031 See U.S. Bancorp Comment Letter.

2032 See Peirce & Greene Comment Letter.

2033 As discussed in the Proposing Release, shareholders valuing principal preservation may prefer a 

redemption gate over a liquidity fee, particularly if the fund expects to rebuild liquidity through maturing 

assets. In contrast, shareholders preferring liquidity over principal preservation may prefer a liquidity fee 

because it allows access to that investor’s money market fund shareholdings – it just imposes a greater cost 

for that liquidity if the fund is under stress. See, e.g., Comment Letter of BlackRock, Inc. on the IOSCO 

Consultation Report on Money Market Fund Systemic Risk Analysis and Reform Options (May 28, 2012), 

available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD392.pdf (stating their preference for 

liquidity fees over gates “because clients with an extreme need for liquidity can choose to pay for that 

liquidity in a crisis”); Comment Letter of BNP Paribas on the IOSCO Consultation Report on Money 

Market Fund Systemic Risk Analysis and Reform Options (May 25, 2012), available at 

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD392.pdf (stating that it “would not make sense to 

restrict the redeemer willing to pay the price of liquidity”); see also Capital Advisors Comment Letter.

2034 See supra section III.A.1.c.i addressing pre-emptive run concerns and section III.A.2 addressing concerns 

with default thresholds and fees. We also note that, to the extent an investor is seeking to invest in a money 

market fund for cash management purposes and views a fund with the ability to impose a fee or gate as 

incompatible with cash management, it may alternatively invest in a government money market fund that 
658

or both. The flexibility provided in today’s amendments will allow funds to tailor the 

redemption restrictions they employ to market conditions, as well as the preferences and 

behavior of their particular shareholder base and to adapt restrictions over time as they and the 

industry gain experience employing such restrictions. Of course, consideration of any such 

factors would have to be made in the context of the fund’s best interests.2035 The flexibility 

provided by today’s amendments also allows funds to alter their approach as events unfold. For 

example, if a board determines initially that a liquidity fee is in the best interests of the fund, but 

the fee turns out to be ineffective in reducing heavy redemptions, the board may then choose to 

impose a redemption gate. Accordingly, we believe that providing funds and their boards with 

the flexibility to choose on an ongoing basis between fees and gates best meets our policy goals 

of reducing money market funds’ susceptibility to heavy redemptions and helping funds manage

and mitigate potential contagion from such redemptions. 

e. Partial Gates

We are adopting amendments to rule 2a-7 that, like the proposal, will allow a fund board 

to impose a gate on all redemptions, but that will not allow for partial redemption gates.2036 A 

number of commenters advocated allowing the board greater discretion to impose partial 

gates.2037 For example, some commenters noted partial gates would provide investors with some 

 

does not impose fees and gates. 

2035 See rule 2a-7(c)(i) and (ii). 

2036 See rule 2a-7(c)(2)(i)(B). 

2037 See, e.g., Wilmington Trustees Comment Letter; UBS Comment Letter; Chamber II Comment Letter; ABA 

Business Law Section Comment Letter; see also Comment Letter of HSBC Global Asset Management on 

the European Commission’s Green Paper on Shadow Banking (May 28, 2012) (stating that a money market 

fund should be able to limit the total number of shares that the fund is required to redeem on any trading 

day to 10% of the shares in issue, that any such gate be applied pro rata to redemption requests, and that 
659

immediate liquidity, but allow funds time to regenerate liquidity or service redemptions under 

improved market conditions.2038 In addition, a commenter stated that partial gates would, “make 

it easier for a board to determine that a gate is in the best interests of the fund because a partial 

gate would impose a lesser hardship on investors.”2039

Commenters suggested a variety of approaches for imposing partial gates. For example, 

a commenter proposed allowing shareholders to redeem “at least 50% of their remaining balance 

at the then basis-point rounded NAV plus a 1% fee.”2040 Others proposed imposing partial gates 

with greater restrictions on shareholders making larger redemptions and lower or no restrictions 

on shareholders making smaller redemptions.2041 Another commenter suggested limiting

redemptions to 10% of outstanding shares per day and applying this limitation pro rata among 

all redeeming shareholders that day, with the balance of unredeemed shares carried to the next 

day until all redemption requests have been met.2042 In contrast, other commenters were opposed 

to the idea of partial redemption gates, citing significant operational challenges and costs,2043 as 

well as the potential for arbitrary and inconsistent application among funds and inequitable 

treatment among shareholders.2044

 

any redemption requests not met be carried over to the next business day and so forth until all redemption 

requests have been met). 

2038 See, e.g., Wilmington Trustee Comment Letter; ABA Business Law Section Comment Letter; Deutsche 

Comment Letter. 

2039 See ABA Business Law Section Comment Letter.

2040 See Capital Advisors Comment Letter.

2041 See UBS Comment Letter; Chamber II Comment Letter.

2042 See HSBC Comment Letter.

2043 See Fidelity Comment Letter; Fin. Info. Forum Comment Letter; Federated V Comment Letter.

2044 See Fidelity Comment Letter. 
660

We have determined not to permit partial redemption gates under amended rule 2a-7. An 

important policy goal of this reform is to improve funds’ ability to manage and mitigate potential 

contagion from such redemptions. Partial gates do not fully stop runs, because shareholders can 

continue to redeem shares. Although board discretion to impose partial gates may be effective 

for individual funds, it may not address our larger concerns about contagion resulting from rapid 

heavy redemptions. There may exist times when full gates are required to limit the contagion 

effects of heavy redemptions on remaining investors and the short-term financing markets, but 

individual firms may choose instead to impose partial gates. We also note that a number of 

commenters opposed partial gates, noting significant operational challenges and costs, which are 

not associated with full gates.2045 We also believe the benefits of allowing partial gating is 

further diminished now that we are adopting only a 10 business day maximum gate period, 

because 10 business days (rather than the 30-day gate under the proposal) may be a more 

reasonably manageable period of time during which investors may not need the safety valve that 

a partial gate might afford.

There are several additional potential issues with partial gates. First, we understand it 

may be difficult for funds to achieve desired outcomes with partial gates, and partial gates may 

create unintended consequences. For example, when a Florida LGIP suspended redemptions in 

2007 in response to a run, it re-opened with a combined partial gate and liquidity fee – local 

governments could take out the greater of 15% of their holdings or $2 million without penalty, 

and the remainder of any redemptions was subject to a 2% redemption fee.2046 We understand 

 2045 See, e.g., Fidelity Comment Letter; Fin. Info. Forum Comment Letter; Federated V Comment Letter. 

2046 See David Evans and Darrell Preston, Florida Investment Chief Quits; Fund Rescue Approved, 
661

that investors redeemed most of what was allowed under the partial gate without triggering the 

redemption fee, which meant the partial gate not only did not stop the run, but may have 

triggered redemptions up to that limit.2047

Second, partial gates based on the size of redemptions may also be easily manipulated 

unless appropriate, but costly and complex, procedures are put in place to prevent such gaming. 

For example, a partial gate that allowed small redemptions could result in investors redeeming 

small amounts over a number of days, essentially achieving large redemptions through multiple 

smaller redemption transactions.2048 Funds could prevent this sort of gaming by limiting each 

shareholder’s redemptions to a certain amount, but this type of restriction would only serve to 

increase the costs and complexity of such a gate. Third, a partial gate based on the size of 

redemptions could effectively exempt certain types of funds and their shareholders (e.g., retail 

funds and their shareholders) from a gating requirement. 

Fourth, we also believe partial gates would complicate the fees and gates requirements as 

an operational matter. If partial gates were assessed on a redemption-by-redemption basis (e.g.,

the size of a shareholder’s redemption), we believe, as one commenter stated, “[t]he systems 

enhancements necessary to track holdings for purposes of determining each shareholder’s 

redemption limit would be more complicated, cumbersome, and costly than the changes required 

 

BLOOMBERG (Dec. 4, 2007).

2047 See, e.g., Neil Weinberg, Florida Fund Meltdown: Bad to Worse, Forbes (Dec. 6, 2007) (noting that 

investors withdrew $1.2 billion from the $14 billion pool after it re-opened, while depositing only $7 

million, but that only 3 out of about 1,700 participants in the pool withdrew assets subject to the 

redemption fee).

2048 See supra section III.A.1.c herein discussing gaming of redemption restrictions.
662

to implement the full gate.”2049 Similarly, complexity would be compounded by the existence of 

omnibus accounts, as funds would need to track all redemptions made by a single investor 

through multiple accounts over the course of a day to prevent investors from making 

redemptions in excess of the limit imposed by a partial gate in a single day by spreading them 

over multiple omnibus accounts. 

f. In-Kind Redemptions 

As discussed in the Proposing Release, we requested comment in 2009 on a potential 

amendment that would require funds to satisfy redemption requests in excess of a certain size 

through in-kind redemptions. 2050 We also requested comment on this type of redemption 

restriction when we requested comment on the PWG Report.2051 Almost all commenters on the 

PWG alternative opposed it.2052 Most commenters believed that requiring in-kind redemptions 

would be technically unworkable due to the complex valuation and operational issues that would 

be imposed on both the fund and on investors receiving portfolio securities.2053 Several 

commenters stated that investors would dislike the prospect of receiving redemptions in-kind and 

 2049 See Fidelity Comment Letter.

2050 See 2009 Proposing Release, supra note 66, at section III.B; PWG Report, supra note 506, at section 3.c. 

An in-kind redemption occurs when a shareholder’s redemption request to a fund is satisfied by distributing 

to that shareholder portfolio assets of that fund instead of cash. In-kind redemptions might lessen the effect 

of large redemptions on remaining money market fund shareholders, and they would ensure that the 

redeeming investors bear part of the cost of their liquidity needs. During the financial crisis, one money 

market fund stated that it would honor certain large redemptions in-kind in an attempt to decrease the level 

of redemptions in that fund. See 2009 Proposing Release, supra note 66, at n.30.

2051 See PWG Report, supra note 506, at section 3.c (discussing requiring that money market funds satisfy 

certain redemptions in-kind).

2052 But see Proposing Release, supra note 25 at n.472.

2053 See Proposing Release, supra note 25 at 233-34 n.473. They also asserted that required in-kind 

redemptions could result in disrupting, rather than stabilizing, markets if redeeming shareholders needing 

liquidity were forced to sell into declining markets. See Proposing Release, supra note 25, at n.474.
663

would structure their holdings to avoid the requirement, but would nevertheless still collectively 

engage in redemptions if the money market funds were to come under stress with similar adverse 

consequences for the funds and the short-term financing markets.2054

In connection with the current reforms, we again asked for comment regarding possible 

in-kind redemption restrictions. Two commenters noted the complexity of implementing this 

mechanism.

2055 One of these commenters suggested that the Commission permit, but not require, 

money market funds to meet redemptions by returning a pro rata share of the fund’s assets rather 

than cash to investors.2056 In light of these comments and comments we previously received, we 

continue to believe requiring in-kind redemptions could create operational difficulties that might 

prevent funds from treating investors fairly in practice. In contrast, we anticipate reforms such 

as liquidity fees and gates would fulfill many of our policy goals in a manner that is 

operationally simpler and potentially fairer to investors than in-kind redemptions. 

We also note requiring in-kind redemptions would not necessarily stop runs and the 

related adverse effects on the short-term financing markets and capital formation. Rather, we 

believe the liquidity fees and gates approach described in section III.A would better achieve our 

policy goals, including improving money market funds’ ability to manage and mitigate potential 

contagion from high levels of redemptions and helping to preserve the benefits of money market 

funds for investors and the short-term financing markets for issuers. We note that money market 

 2054 See Proposing Release, supra note 25 at n.475.

2055 See State Street Comment Letter (“State Street agrees with commenters that requiring in‐kind redemptions 

would be unworkable due to the complex valuation and operational issues that would be imposed on both 

the fund and on investors receiving portfolio securities.”); HSBC Comment Letter.

2056 See HSBC Comment Letter.
664

funds are already permitted to satisfy redemptions in kind if they disclose such a possibility in 

the fund’s prospectus.2057 

g. Standalone Floating NAV Combined with only Liquidity Fees or 

Redemption Gates

The Commission also considered combining a floating NAV with either a liquidity fee or 

a redemption gate; that is, we considered an alternative where money market funds would be 

required to maintain a floating NAV combined with a liquidity fee but not a redemption gate and 

an alternative where money market funds would be required to maintain a floating NAV 

combined with a redemption gate but not a liquidity fee. Combining a floating NAV with just a 

liquidity fee or just a redemption gate would simplify the operational implementation of the rule 

and perhaps make money market funds more attractive to investors. 

These more limited combinations, however, would likely fail to achieve the policy goals 

of the money market fund reform to the same extent as the full set of reforms that we are 

adopting today. Without liquidity fees, there would be heightened incentives for shareholders to 

redeem in times of market stress before fund managers deplete their funds’ liquidity to meet 

redemptions. The costs of providing liquidity to redeeming shareholders would fall on nonredeeming shareholders, creating a financial inequity between shareholder types. 

Similarly, without the possibility of imposing gates, funds would lose an important tool 

to manage redemptions during periods of stress. They would not be able to fully halt 

redemptions, which could affect funds’ ability to generate internal liquidity as assets mature, 

 2057 See section 2(a)(32) (defining a redeemable security as a security where the holder is entitled ... to receive 

approximately his proportionate share of the issuer's current net assets, or the cash equivalent thereof 

(italics added)). See also rule 18f-1, which provides an exemption from certain prohibitions of section 

18(f)(1) of the Act with regard to redemptions in kind and in cash. 
665

perhaps undermining capital formation. Losing the time necessary to generate internal liquidity 

would increase the likelihood funds would have to sell desirable assets, perhaps at “fire sale” 

prices. Funds would not have as much time to identify solutions and communicate with 

investors as they would with gates. They would also lose the ability to create a “cooling off” 

period, which might temper the effects of short-term investor panic, possibly reducing investors’ 

incentives to redeem shares.

Precommiting to either a combination of a floating NAV and fees or a combination of a 

floating NAV and gates would reduce funds’ ability to manage heavy redemptions relative to 

having a floating NAV and both fees and gates. In addition, it would limit boards’ ongoing 

discretion to address potential problems. A fund’s optimal response to managing heavy 

redemptions would likely depend on its particular circumstance, market conditions, and the 

appropriateness of imposing a fee or gate. As discussed in section III.A above, we believe funds 

are likely to first impose fees in times of market stress and then to impose gates, but only if fees 

fail to control redemptions. That said, the managers of a fund that experiences a credit event in 

an otherwise healthy economy might instead choose to gate their fund to staunch redemptions, 

forgoing a liquidity fee because liquidity costs are low. By forcing funds to precommit to fees or 

gates (along with a floating NAV), this alternative limits funds’ ability to manage and mitigate 

potential contagion from such redemptions.

2. Alternatives in the FSOC Proposed Recommendations

As discussed in the Proposing Release, we considered a number of alternatives for 

regulatory reform, including the reforms proposed by FSOC. We received comment on several 

of these alternatives. After considering the comments that FSOC received on their proposed 
666

reforms (the “FSOC Proposed Recommendations”), as well as the comments we received on the 

Proposing Release and the economic analysis set forth in this Release, we have concluded that 

these alternatives generally would not achieve our regulatory goals as well as the reforms we are 

adopting today. We are, however, today adopting a floating NAV for institutional funds, which 

was one proposed reform included in the FSOC Proposed Recommendations. We discuss below 

these options, and our principal reasons for not adopting them (other than the floating NAV for 

institutional prime money market funds).

In November 2012, the FSOC proposed to recommend that we undertake structural 

reforms of money market funds. FSOC proposed three alternatives for consideration, which, it 

stated, could be implemented individually or in combination. The first option2058—requiring that 

money market funds use a floating NAV—is one of the reforms we are adopting today for 

institutional prime money market funds. We discuss this option in section III.B below. The 

other two options in the FSOC Proposed Recommendations each would require that money 

market funds maintain a NAV buffer, or a specified amount of additional assets available to 

absorb daily fluctuations in the value of the fund’s portfolio securities. One option would require 

that most money market funds have a risk-based NAV buffer of up to 1% to absorb day-to-day 

fluctuations in the value of the funds’ portfolio securities and allow the funds to maintain a stable 

NAV and that this NAV buffer be combined with a “minimum balance at risk.”2059 The required 

minimum size of a fund’s NAV buffer would be determined based on the composition of the 

 2058 See FSOC Proposed Recommendations, supra note 1562, at section V.A.

2059 Under the FSOC Proposed Recommendations, Treasury money market funds would not be subject to a 

NAV buffer or a minimum balance at risk. See FSOC Proposed Recommendations, supra note 1562, at 

sections V.B and V.C for a full discussion of these two alternatives. This section of the Release provides a 

summary based on those sections of the FSOC Proposed Recommendation.
667

money market fund’s portfolio according to the following formula:

• No buffer requirement for cash, Treasury securities, and repos collateralized 

solely by cash and Treasury securities (“Treasury repo”);

• A 0.75% buffer requirement for other daily liquid assets (or weekly liquid assets, 

in the case of tax-exempt money market funds); and 

• A 1% buffer requirement for all other assets.

A fund whose NAV buffer fell below the required minimum amount would be required to 

limit its new investments to cash, Treasury securities, and Treasury repos until its NAV buffer 

was restored. A fund that completely exhausted its NAV buffer would be required to suspend 

redemptions and liquidate or could continue to operate with a floating NAV indefinitely or until 

it restored its NAV buffer.

A money market fund could use any funding method or combination of methods to build 

the NAV buffer, and could vary these methods over time. The FSOC Proposed 

Recommendations identified three funding methods that would be possible with Commission 

relief from certain provisions of the Investment Company Act: (1) an escrow account that a 

money market fund’s sponsor established and funded and that was pledged to support the fund’s 

stable share price; (2) the money market fund’s issuance of a class of subordinated, nonredeemable equity securities (“buffer shares”) that would absorb first losses in the funds’ 

portfolios; and (3) the money market fund’s retention of some earnings that it would otherwise 
668

distribute to shareholders (subject to certain tax limitations).2060 We believe that the first funding 

method would be the most likely approach for funding the buffer given the complexity of a fund 

offering a new class of buffer shares (and the uncertainty of an active, liquid market for buffer 

shares developing) and the tax limitations on the third method.2061 We note, however, that we 

believe this funding method is the most expensive of the three because of the opportunity costs 

the fund’s sponsor would bear to the extent that the firms redirect this funding from other 

essential activities, as further discussed below.2062

The minimum balance at risk (“MBR”) would require that the last 3% of a shareholder’s 

highest account value in excess of $100,000 during the previous 30 days (the shareholder’s MBR 

or “holdback shares”) be redeemable only with a 30-day delay.2063 All shareholders may redeem 

97% of their holdings immediately without being restricted by the MBR. If the money market 

 2060 See FSOC Proposed Recommendations, supra note 1562, at section V.B.

2061 Under the Internal Revenue Code, each year, mutual funds, including money market funds, must distribute 

to shareholders at least 90% of their annual earnings or lose the ability to deduct dividends paid to their 

shareholders. See, e.g., Comment Letter of the Investment Company Institute (May 16, 2012) (available in 

File No. 4-619). We note that the retained earnings method is similar to how some money market funds 

paid for insurance that was provided by ICI Mutual Insurance Company from 1993 to 2003. This insurance 

covered losses on money market fund portfolio assets due to defaults and insolvencies but not from events 

such as a security downgrade or a rise in interest rates. Coverage was limited to $50 million per fund, with 

a deductible of the first 10 to 40 basis points of any loss. Premiums ranged from 1 to 3 basis points. See 

PWG Report, supra note 506, at n.24 and accompanying text. Because of the tax disadvantages of this 

funding method, it would take a long time for a NAV buffer of any size to build, particularly in the current 

low interest rate environment.

2062 This funding method also could have the greatest competitive impacts on the money market fund industry, 

as larger bank-affiliated sponsors would have less costly access to funding for the NAV buffer than 

independent asset management firm sponsors. See, e.g., Comment Letter of The Systemic Risk Council 

(Jan.18, 2013) (available in File No. FSOC 2012–0003) (“Systemic Risk Council FSOC Comment Letter”) 

(“Capital requirements would likely encourage money market fund consolidation—particularly toward 

larger bank-affiliated sponsors (who traditionally have, and can access, more capital than traditional, 

independent asset managers). If so, this could further concentrate systemic risk from these institutions, and

create conflicts of interest in the short-term financing markets (as fewer money funds would control a 

larger share of the short-term lending markets.”)).

2063 See FSOC Proposed Recommendations, supra note 1562, at section V.C.
669

fund suffers losses that exceed its NAV buffer, the losses would be borne first by the MBRs of 

shareholders who have recently redeemed (i.e., their MBRs would be “subordinated”). The 

extent of subordination of a shareholder’s MBR would be approximately proportionate to the 

shareholder’s cumulative net redemptions during the prior 30 days—in other words, the more the 

shareholder redeems, the more their holdback shares become “subordinated holdback shares.”

The last option in the FSOC Proposed Recommendations would require money market 

funds to have a risk-based NAV buffer of up to 3% (which otherwise would have the same 

structure as discussed above), and this larger NAV buffer could be combined with other 

measures.2064 The other measures discussed in the FSOC Proposed Recommendations include 

more stringent investment diversification requirements (which we are generally adopting, as 

discussed in section III.I above), increased minimum liquidity levels (which we are not 

adopting), and more robust disclosure requirements (which we are generally adopting, as 

discussed in sections III.E and III.F above).2065

In the sections that follow, we discuss our evaluation of a NAV buffer requirement and 

an MBR requirement for money market funds. We also discuss comments FSOC received on 

these recommendations, and that we received on the Proposing Release. As we discuss in more 

 2064 See id, at section V.C.

2065 The FSOC Proposed Recommendations asked the Commission to consider increasing minimum weekly 

liquidity requirements from 30% of total assets to 40% of total assets. The justification provided by FSOC 

was that most funds already have weekly liquidity in excess of this 40% minimum level. We are not 

adopting this alternative. There is no evidence that current liquidity requirements are inadequate, and 

several commenters agreed. See, e.g., ICI Comment Letter, U.S. Bancorp Comment Letter, Federated 

Comment Letter. For example, the DERA Study notes that the heightened redemption activity in the 

summer of 2011 did not place undue burdens on MMFs when they sold assets to meet redemption requests. 

No fund lost more than 50 basis points during this period nor did their shadow NAVs deviate significantly 

from amortized cost. See DERA Study, supra note 24. We have therefore determined not to address 

additional minimum liquidity requirements at this time. 
670

detail below, the Commission is not pursuing these alternatives because we continue to believe 

that the imposition of either a NAV buffer combined with a minimum balance at risk or a standalone NAV buffer, while advancing some of our goals for money market fund reform, might 

prove costly for money market fund shareholders and could result in a contraction in the money 

market fund industry that could harm the short-term financing markets and capital formation to a 

greater degree than the reforms we are adopting today.

a. NAV Buffer

Several commenters expressed support for a NAV buffer (which we did not propose), 

although no commenters explicitly discussed an opposition to such a buffer as part of their 

comments on this proposal.2066 In particular, two commenters argued that a capital buffer would 

reduce the incentives for a fund to take excessive risk and for investors to run.2067 As discussed 

in the Proposing Release, in considering a NAV buffer such as those recommended by FSOC as 

a potential reform option for money market funds, we considered the benefits that such a buffer 

could provide, as well as its costs. Our evaluation of what could be a reasonable size for a NAV 

buffer also factored into our analysis of the advantages and disadvantages of these options. A 

buffer can be designed to satisfy different potential objectives. A large buffer could protect 

shareholders from losses related to defaults, such as the one experienced by the Reserve Primary 

Fund following the Lehman Brothers bankruptcy. However, if complete loss absorption is the 

 2066 See, e.g., Americans for Fin. Reform Comment Letter; Comment Letter of Dorothy B. Sherry (Sept. 21, 

2013) (“Sherry Comment Letter”); Occupy the SEC Comment Letter. However, many commenters 

opposed a NAV buffer when included as an alternative in the FSOC recommendation. See, e.g. Comment 

Letter of Invesco Ltd. (Feb. 15, 2013) (available in File No. FSOC–2012–0003) (“Invesco FSOC Comment 

Letter”); Blackrock FSOC Comment Letter; Comment Letter of Independent Directors Council (Jan. 23, 

2013) (available in File No. FSOC–2012–0003) (“IDC FSOC Comment Letter”).

2067 See, e.g., Hanson et al. Comment Letter; Squam Lake Comment Letter.
671

objective, a substantial buffer would be required, particularly given that money market funds can 

hold up to 5% of their assets in a single security.2068

Alternatively, if a buffer were not intended for complete loss absorption, but rather 

designed primarily to absorb day-to-day variations in the market-based value of money market 

funds’ portfolio holdings under normal market conditions, this would allow a fund to hold a 

significantly smaller buffer. Accordingly, the relatively larger buffers contemplated in the FSOC 

Proposed Recommendations2069 must have been designed to absorb daily price fluctuations as 

well as relatively large security defaults.2070 In fact, a 3% buffer would accommodate all but 

 2068 Even commenters in favor of a buffer showed concern that FSOC’s proposed buffer size of 1% or 3% may 

be inadequate. See, e.g., Federal Reserve Bank Presidents FSOC Comment Letter, supra note 47 (“For a 

poorly diversified fund with portfolio assets that carry relatively more credit risk, a 3% (maximum) NAV 

buffer may not be sufficient.”); Harvard Business School FSOC Comment Letter, supra note 47 (“For a 

well-diversified portfolio, we estimate that MMFs should hold 3 to 4% capital against unsecured paper 

issued by financial institutions, the primary asset held by MMFs. For more concentrated portfolios, we 

estimate that the amount of capital should be considerably higher.”); Better Markets FSOC Comment 

Letter, supra note 59 (“The primary shortcoming of [FSOC’s proposed buffer] is its low level of 1 or 3 

percent.... [Any buffer] must be set at a level that is sufficient to cover all of these factors: projected and 

historical losses; additional costs in the form of liquidity damages or government backstops; and investor 

psychology in the face of possible financial shocks or crises. [....] Historical examples alone...indicate 

that MMF losses have risen as high as 3.9 percent. This serves only as a floor regarding actual potential 

losses, clearly indicating that the necessary buffer must be substantially higher than 3.9 percent.”); 

Comment Letter of Occupy the SEC (Feb. 15, 2013) (available in File No. FSOC–2012–0003) (“Occupy 

the SEC FSOC Comment Letter”), supra note 52 (arguing that FSOC’s proposed buffer does not go far 

enough in accounting for potential risks in a fund’s portfolio. Instead, the approach should be a two-layer 

buffer, with a first layer of up to 3% depending on the portfolio’s credit rating and a second layer to be 

sized according to the concentration of the portfolio).

2069 While the second alternative in the FSOC Proposed Recommendation only includes a NAV buffer of up to 

1%, it was combined with a 3% MBR, which would effectively provide the fund with a 4% buffer before 

non-redeeming shareholders in the fund suffered losses.

2070 For example, beginning in September 2008, money market funds that chose to participate in the Treasury 

Temporary Guarantee Program were required to file with the Treasury their weekly shadow price if it was 

below $0.9975. Our staff has reviewed the data, and found that through October 17, 2008, only three funds 

carried losses larger than four percent, and only five funds carried losses larger than three percent. 

Reported shadow prices excluded the value of any capital support agreements in place at the time, but in 

some cases included sponsor-provided capital contributions to the fund. Not every money market fund that 

applied to participate in the program reported shadow price data for every day during the period between 

September 1, 2008 and October 17, 2008. See also Patrick E. McCabe et al., The Minimum Balance at 

Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market Funds, at 31, Table 2 Federal 
672

extremely large losses, such as those experienced during the crisis. However, a buffer that was 

designed to absorb such large losses may be too high and too costly because the opportunity cost 

of this capital would be borne at all times even though it was likely to be drawn upon to any 

degree only rarely. Two commenters disagreed, noting that a capital buffer in the range of three 

to four percent would reduce yields for ordinary investors by about five basis points.2071 

However, another commenter asserted that a capital buffer would have a much more dramatic 

effect on yields by effectively turning prime money market funds into synthetic Treasury 

funds.2072 Accordingly, as we discuss below, a buffer of the size contemplated by either 

alternative in the FSOC Proposed Recommendations appears to be too costly to be 

practicable.2073

i. Benefits of a NAV Buffer

As discussed in the Proposing Release, the FSOC Proposed Recommendations discusses 

a number of potential benefits that a NAV buffer could provide to money market funds and their 

 Reserve Bank of New York Staff Report No. 564, July 2012 (providing additional statistical analysis of 

shadow price information reported by money market funds filing under the Treasury Temporary Guarantee 

Program). During that period there were over 800 money market funds based on Form N-SAR data.

2071 See Americans for Fin. Reform Comment Letter; Squam Lake Comment Letter.

2072 See Craig M. Lewis, The Economic Implications of Money Market Fund Capital Buffers (Nov. 2013), 

available at http://www.sec.gov/divisions/riskfin/workingpapers/rsfi-wp2014-01.pdf (“Lewis”).

2073 There is another potential adverse effect of requiring large NAV buffers for money market funds to address 

risk from systemic events. According to the FSOC Proposed Recommendations, outflows from 

institutional prime money market funds following the Lehman Brothers bankruptcy tended to be larger 

among money market funds with sponsors that were themselves under stress, indicating that investors 

redeemed shares when concerned about sponsors’ potential inability to support ailing funds. But these 

sponsors were the ones most likely to need funding dedicated to the buffer for other purposes. As a result, 

larger buffers may negatively affect other important activities of money market fund sponsors and cause 

them to fail faster.
673

investors, many of which we discuss below.2074 As noted by commenters, it would preserve 

money market funds’ stable share price and potentially increase the stability of the funds, but 

would likely reduce the yields (and in the option that combines a 1% NAV buffer with an MBR, 

the liquidity) that money market funds currently offer to investors.2075 Like the reforms we are 

adopting today, the NAV buffer presents trade-offs between stability, yield, and liquidity. 

In effect, depending on the size of the buffer, a buffer could provide various levels of 

coverage of losses due to both the illiquidity and credit deterioration of portfolio securities. 

Money market funds that are supported by a NAV buffer would be more resilient to redemptions 

and credit or liquidity changes in their portfolios than stable value money market funds without a 

buffer (the current baseline).2076 As long as the NAV buffer is funded at necessary levels, each 

$1.00 in money market fund shares is backed by $1.00 in fund assets, eliminating the incentive 

of shareholders to redeem at $1.00 when the market-based value of their shares is worth less. 

This reduces shareholders’ incentive to redeem shares quickly in response to small losses or 

concerns about the quality and liquidity of the money market fund portfolio, discussed in section 

II.B above, particularly during periods when the underlying portfolio has significant unrealized 

capital losses and the fund has not broken the buck. As long as the expected effect on the 

portfolio from potential losses is smaller than the NAV buffer, investors would be protected—

they would continue to receive a stable value for their shares.

A second benefit is that a NAV buffer would force money market funds to provide 

 2074 See FSOC Proposed Recommendations, supra 1562, at section V.B.

2075 See Americans for Fin. Reform Comment Letter; Squam Lake Comment Letter.

2076 See, e.g., Occupy the SEC FSOC Comment Letter, supra note 52.
674

explicit capital support rather than the implicit and uncertain support that is permitted under the 

current regulatory baseline. This would require funds to internalize some of the cost of the 

discretionary capital support sometimes provided to money market funds and to define in 

advance how losses will be allocated. In addition, as noted by commenters, a NAV buffer could 

reduce fund managers’ incentives to take risk beyond what is desired by fund shareholders 

because investing in less risky securities reduces the probability of buffer depletion.2077

Another potential benefit is that a NAV buffer might provide counter-cyclical capital to 

the money market fund industry. This is because once a buffer is funded it remains in place 

regardless of redemption activity. With a buffer, redemptions increase the relative size of the 

buffer because the same dollar buffer now supports fewer assets.2078 As an example, consider a 

fund with a 1% NAV buffer that experiences a 25 basis point portfolio loss, which then triggers 

redemptions of 20% of its assets. The NAV buffer, as a proportion of fund assets and prior to 

any replenishment, will increase from 75 basis points after the loss to 93.75 basis points after the 

redemptions. This illustrates how the NAV buffer strengthens the ability of the fund to absorb 

further losses, reducing investors’ incentive to redeem shares. This result contrasts to the current 

regulatory baseline under rule 2a-7 where redemptions amplify the impact of losses by 

 2077 See, e.g., Harvard Business School FSOC Comment Letter, supra note 47 (“Capital buffers also mean that 

there is an investor class that explicitly bears losses and has incentives to curb ex ante risk taking.”); 

Americans for Fin. Reform Comment Letter; Hanson et al. Comment Letter; and Squam Lake Comment 

Letter.

2078 See, e.g., Comment Letter of J.P. Morgan Asset Management (Jan. 14, 2013) (available in File No. FSOC–

2012–0003) (“J.P. Morgan FSOC Comment Letter”) (“[W]here capital support is utilized as a first loss 

position upon liquidation, the level of capital can be tied to a MMF’s highest asset levels. This can result in 

a structure whereby, as redemptions accelerate and cause the unrealized loss per share to increase further, 

the amount of capital support available per share increases accordingly, providing further capital support to 

the remaining shareholders that do not redeem their shares.”).
675

distributing them over a smaller investor base. For example, suppose a fund with a shadow price 

of $1.00 (i.e., no embedded losses) experiences a 25 basis point loss, which causes its shadow 

price to fall to $0.9975. If 20% of the fund’s shares are then redeemed at $1.00, its shadow price 

will fall to $0.9969, reflecting a loss that is 24% greater than the loss precipitating the 

redemptions. 

Finally, by allowing money market funds to absorb small losses in portfolio securities 

without affecting their ability to transact at a stable price per share, a NAV buffer may facilitate 

and protect capital formation in short-term financing markets during periods of modest stress. 

Currently, money market fund portfolio managers are limited in their ability to sell portfolio 

securities when markets are under stress because they have little ability to absorb losses without 

causing a fund’s shadow NAV to drop below $1.00 (or embed losses in the fund’s market-based 

NAV per share). As a result, managers tend to avoid trading when markets are strained, 

contributing to further illiquidity in the short-term financing markets in such circumstances. A 

NAV buffer should enable funds to absorb small losses and thus could reduce this tendency. 

Thus, by adding resiliency to money market funds and enhancing their ability to absorb losses, a 

NAV buffer may benefit capital formation in the long term. A more stable money market fund 

industry may produce more stable short-term financing markets, which would provide more 

reliability as to the demand for short-term credit to the economy.

ii. Costs of a NAV Buffer

The Proposing Release also recognized that there are significant ongoing costs associated 

with a NAV buffer. Some commenters agreed that a capital buffer would impose a cost on funds 

and their investors, but these commenters claimed that the magnitude of the costs would be 
676

relatively modest.2079 For the reasons discussed below, we disagree with these commenters that 

the costs would be relatively modest. Costs can be divided into direct costs that affect money 

market fund sponsors or investors and indirect costs that impact capital formation. In addition, a 

NAV buffer does not protect shareholders completely from the possibility of heightened rapid 

redemption activity during periods of market stress, particularly in periods where the buffer is at 

risk of depletion. As the buffer becomes impaired (or if shareholders believe the fund may suffer 

a loss that exceeds the size of its NAV buffer), shareholders have an incentive to redeem shares 

quickly because, once the buffer fails, the fund will no longer be able to maintain a stable value 

and shareholders will experience sudden losses.2080 Such rapid severe redemptions could impair 

the fund’s business model and viability. 

Another possible implication is that money market funds with buffers may avoid holding 

riskier short-term debt securities (like commercial paper) and instead hold a higher amount of 

low yielding investments like cash, Treasury securities, or Treasury repos. This could lead 

money market funds to hold more conservative portfolios than investors may prefer, given 

tradeoffs between principal stability, liquidity, and yield.2081

 2079 See Americans for Fin. Reform Comment Letter; Hanson et al. Comment Letter; Squam Lake Comment 

Letter.

2080 See, e.g., Systemic Risk Council FSOC Comment Letter (stating that capital is difficult to set and is 

imperfect, that “[g]iven the lack of data and impossibility of modeling future events, even [a 3% NAV 

buffer] runs the risk of being too high, or too low to protect the system in the future” and that “too little 

capital could provide a false sense of security in a crisis”). See also infra note 2091 and accompanying 

discussion.

2081 But see, e.g., U.S. Chamber FSOC Comment Letter (arguing that “a NAV buffer is likely to incentivize 

sponsors to reach for yield.”); Vanguard FSOC Comment Letter (“Capital buffers are also likely to carry 

unintended consequences, as some funds may purchase riskier, higher-yielding securities to compensate for 

the reduction in yield. As a result, capital buffers are likely to provide investors with a false sense of 

security.”); Federated V Comment Letter (“If anything, creating a junior class of equity puts earnings 

pressure on an MMF to alter its balance sheet to decrease near-term liquid assets to generate investment 
677

The most significant indirect cost of a NAV buffer is the opportunity cost associated with 

maintaining a NAV buffer.2082 Those contributing to the buffer essentially deploy valuable 

scarce resources to maintain a NAV buffer rather than being able to use the funds elsewhere. 

The cost of diverting funds for this purpose represents a significant incremental cost of doing 

business for those providing the buffer funding. We cannot provide estimates of these 

opportunity costs because the relevant data is not currently available to the Commission.2083

The second indirect cost of a NAV buffer is the equilibrium rate of return that a provider 

of funding for a NAV buffer would demand.2084 An entity that provides such funding, possibly 

the fund sponsor, would expect to be paid a return that sets the market value of the buffer equal 

to the amount of the capital contribution. Since a NAV buffer is designed to absorb the same 

amount of risk regardless of its size, as noted by at least one commenter, the promised yield, or 

cost of the buffer, increases with the relative amount of risk it is expected to absorb.2085 This is a 

 

returns available from longer-term, higher risk investments in order to either build capital through retained 

earnings or to compensate investors who have invested in the new class of subordinated equity capital of 

the MMF.”).

2082 See Lewis, supra note 2072.

2083 The opportunity costs would represent the net present value of these forgone opportunities, an amount that 

cannot be estimated without relevant data about each firm’s productive opportunities. However, a number 

of FSOC commenters have already cautioned that a NAV buffer could make money market funds 

unprofitable. See, e.g., Angel FSOC Comment Letter (stating that “in today’s low yield environment, even 

five basis points [of cost associated with a NAV buffer] would push most money market funds into 

negative yield territory.”); BlackRock FSOC Comment Letter (“[A]ny capital over 0.75% will make the 

MMF product uneconomical for sponsors to offer.”); Comment Letter of Federated Investors, Inc. (Feb. 15. 

2013) (available in File No. FSOC–2012–0003) (“Federated Investors Feb. 15 FSOC Comment Letter”) 

(calculating that “prime MMFs would no longer be economically viable products” based on cost estimates 

provided by the ICI.).

2084 See Lewis, supra note 2072.

2085 See Squam Lake Comment Letter.
678

well-known leverage effect.2086

One could analogize a NAV buffer to bank capital by considering the similarities 

between money market funds with a NAV buffer and banks with capital. A traditional bank 

generally finances long-term assets (customer loans) with short-term liabilities (demand 

deposits). The Federal Reserve Board, as part of its prudential regulation, requires banks to 

adhere to certain minimum capital requirements.2087 Bank capital, among other functions, 

provides a buffer that allows banks to withstand a certain amount of sudden demands for 

liquidity and losses without becoming insolvent and thus needing to draw upon federal deposit 

insurance or other aspects of the regulatory safety net for banks.2088 The fact that the bank assets 

have a long maturity and are illiquid compared to the bank’s liabilities results in a maturity and 

liquidity mismatch problem that creates the possibility of a depositor run during periods of 

stress.2089 Capital is one part of a prudential regulatory framework employed to deter runs in 

 2086 The leverage effect reflects the concept that higher leverage levels induce an equity holder to demand 

higher returns to compensate for the higher risk levels.

2087 See the Federal Reserve Board’s website on Capital Guidelines and Adequacy, available at 

http://www.federalreserve.gov/bankinforeg/topics/capital.htm, for an overview of minimum capital 

requirements.

2088 See, e.g., Allen N. Berger et al., The Role of Capital in Financial Institutions, 19 J. OF BANKING AND FIN. 

393 (1995) (“Berger”) (“Regulators require capital for almost all the same reasons that other uninsured 

creditors of banks ‘require’ capital—to protect themselves against the costs of financial distress, agency 

problems, and the reduction in market discipline caused by the safety net.”).

2089 More generally, banks are structured to satisfy depositors’ preference for access to their money on demand 

with businesses’ preference for a source of longer-term capital. However, the maturity and liquidity 

transformation provided by banks can also lead to runs. Deposit insurance, access to a lender of last resort, 

and other bank regulatory tools are designed to lessen the incentive of depositors to run. See, e.g., Douglas 

W. Diamond & Philip H. Dybvig, Bank Runs, Deposit Insurance, and Liquidity, 91 J. POL. ECON 401 (June 

1983) (“Diamond & Dybvig”); Mark J. Flannery, Financial Crises, Payment System Problems, and 

Discount Window Lending, 28 JOURNAL OF MONEY, CREDIT AND BANKING 804 (1996); Jeffrey A. Miron, 

Financial Panics, the Seasonality of the Nominal Interest Rate, and the Founding of the Fed, 76 AMERICAN 

ECONOMIC REVIEW 125 (1986); S. Bhattacharya & D. Gale, Preference Shocks, Liquidity, and Central 

Bank Policy, in NEW APPROACHES TO MONETARY ECONOMICS (eds., W. Barnnett and K. Singleton, 1987).
679

banks and generally protect the safety and soundness of the banking system. A money market 

fund with a NAV buffer has been described as essentially a “special purpose bank” where fund 

shareholders’ equity is equivalent to demand deposits and a NAV buffer is analogous to the 

bank’s capital.2090 Since a NAV buffer is effectively a leveraged position in the underlying assets 

of the fund that is designed to absorb interest rate risk and mitigate default risk, a provider of 

buffer funding should demand a return that reflects the fund’s aggregate cost of capital plus 

compensation for the fraction of default risk it is capable of absorbing.

The effectiveness of a NAV buffer to protect against large-scale redemptions during 

periods of stress is predicated upon whether shareholders expect the decline in the value of the 

fund’s portfolio to be less than the value of the NAV buffer. Once investors anticipate that the 

buffer will be depleted, they have an incentive to redeem before it is completely depleted.2091 In 

this sense, a NAV buffer that is not sufficiently large is incapable of fully mitigating the 

possibility of a liquidity run. The drawback with increasing buffer size to address this risk, 

however, is that the opportunity costs of operating a buffer increase as the size of the buffer 

increases. Due to the correlated nature of portfolio holdings across money market funds, this 

could amplify market-wide run risk if NAV buffer impairment also is highly correlated across 

 2090 See, e.g., Gary Gorton & George Pennacchi, Money Market Funds and Finance Companies: Are They the 

Banks of the Future?, in STRUCTURAL CHANGE IN BANKING (Michael Klausner & Lawrence J. White, eds. 

1993), at 173-214. 

2091 See, e.g., Federal Reserve Bank Presidents FSOC Comment Letter (“The [FSOC] Proposal notes that a 

fund depleting its NAV buffer would be required to suspend redemptions and liquidate under rule 22e-3 or 

continue operating as a floating NAV fund. However, this sequence of events could be destabilizing. 

Investors in 3% NAV buffer funds may be quite risk averse, even more so than floating NAV MMF 

investors might be, given their revealed preference for stable NAV shares. If they foresee a possible 

conversion to floating NAV once the buffer is depleted, these risk-averse investors would have an incentive 

to redeem prior to conversion. If, on the other hand, investors foresee a suspension of redemptions, they 

would presumably have an even stronger incentive to redeem before facing a liquidity freeze when the 

NAV buffer is completely depleted.”).
680

money market funds. The incentive to redeem could be further amplified if, as contemplated in 

the FSOC Proposed Recommendations, a NAV buffer failure would require a money market 

fund to either liquidate or convert to a floating NAV. If investors anticipate this occurring, some 

investors that value principal stability and liquidity may no longer view money market funds as 

viable investments.

As noted above, substantial NAV buffers may be able to absorb much, if not all, of the 

default risk in the underlying portfolio of a money market fund. This implies that any 

compensation for bearing default risk will be transferred from current money market fund 

shareholders to those financing the NAV buffer, effectively converting a prime money market 

fund into a fund that mimics the return of a Treasury fund for current money market fund 

shareholders. If fund managers are unable to pass through the yield associated with holding 

relatively riskier securities (compared to government securities), like commercial paper or shortterm municipal securities, to money market fund shareholders, it is likely that they will reduce 

their investment in these securities.

2092 While lower yields would reduce, but not necessarily 

eliminate, the utility of the product to investors, it could have a negative impact on capital 

formation. Since the probability of breaking the buck is higher for a money market fund that 

invests in these relatively riskier securities (e.g., a fund with a WAM of 90 days rather than one 

with a WAM of 60 days)2093 and fund managers cannot pass through the higher associated yields, 

it is likely that managers will reduce investments in these securities because they cannot 

differentiate their funds on the basis of yield.

 2092 But see supra note 2081.

2093 See DERA Study, supra note 24, at 28-31.
681

In addition, many investors are attracted to money market funds because they provide a 

stable value but have higher rates of return than Treasury securities. These higher rates of return 

are intended to compensate for exposure to greater credit risk and potential volatility than 

Treasury securities. As a result of funding the buffer, the returns to money market fund 

shareholders are likely to decline, potentially reducing demand from investors who are attracted 

to money market funds for their higher yield than alternative stable value investments.2094

Taken together, the demand by investors for some yield and the incentives for fund 

managers to reduce portfolio risk may impact competition and capital formation in two ways. 

First, investors seeking higher yield may move their funds to other alternative investment 

vehicles resulting in a contraction in the money market fund industry. In addition, fund 

managers may have an incentive to reduce the funds’ investment in commercial paper or shortterm municipal securities in order to reduce the volatility of cash flows and increase the 

resilience of the NAV buffer. In both of these cases, there may be an effect on the short-term 

financing markets if the decrease in demand for short-term securities from money market funds 

results in an increase in the cost of capital for issuers of commercial paper and other securities.

We have carefully considered the comments received on both the PWG report and our 

Proposing Release regarding the NAV buffer alternative and we continue to believe that our 

original analysis of the costs and benefits remains appropriate. Specifically, we continue to 

 2094 See, e.g., Invesco FSOC Comment Letter (“As a result of the ongoing ultra-low interest rate environment, 

MMF yields remain at historic lows ... A requirement to divert a portion of a MMF’s earnings in order to 

build a NAV buffer would result in prime MMF yields essentially equaling those of Treasury MMFs 

(which would not be required to maintain a buffer under the Proposal). Faced with the choice of equivalent 

yields but asymmetrical risks, logical investors would abandon prime funds for Treasury funds, potentially 

triggering the very instability that reforms are intended to prevent and vastly reducing corporate borrowers’ 

access to short-term financing.”).
682

believe that a NAV buffer should not be adopted because we feel that a NAV buffer would 

reduce yields on money market funds and would therefore render such funds to be unattractive to 

many investors to a greater extent than the reforms we are adopting.

b. Minimum Balance at Risk 

As discussed above, under the second alternative in the FSOC Proposed 

Recommendations, a 1% capital buffer is paired with an MBR or a holdback of a certain portion 

of a shareholder’s money market fund shares.2095 In the event of fund losses, this alternative 

effectively would create a “waterfall” with the NAV buffer bearing first losses, subordinated 

holdback shares bearing second losses, followed by non-subordinated holdback shares, and 

finally by the remaining shares in the fund (and then only if the loss exceeded the aggregate 

value of the holdback shares). This allocation of losses, in effect, would impose a “liquidity fee” 

on redeeming shareholders if the fund experiences a loss that exceeds the NAV buffer. The 

value of the holdback shares effectively provides the non-redeeming shareholders with an 

additional buffer cushion when the NAV buffer is exhausted. The Commission did not receive 

any comments on this alternative, and, as discussed below, we continue to believe that a 

minimum balance at risk is not the most appropriate alternative to meet the policy goals of our 

reforms.

i. Benefits of a Minimum Balance at Risk

As discussed in the Proposing Release, an MBR requirement could provide some benefits 

to money market funds. First, it would force redeeming shareholders to pay for the cost of 

 2095 See FSOC Proposed Recommendations, supra note 1562, at section V.B.
683

liquidity during periods of severe market stress when liquidity is particularly costly. Such a 

requirement could create an incentive against shareholders participating in a run on a fund facing 

potential losses of certain sizes because shareholders will incur greater losses if they redeem.2096

It thus may reduce the amount of less liquid securities that funds would need to sell in the 

secondary markets at unfavorable prices to satisfy redemptions and therefore may increase 

stability in the short-term financing markets.

Second, it would allocate liquidity costs to investors demanding liquidity when the fund 

itself is under severe stress. This would be accomplished primarily by making redeeming 

shareholders bear first losses when the fund first depletes its buffer and then the fund’s value 

falls below its stable share price within 30 days after their redemption. Redeeming shareholders 

subject to the holdback are the ones whose redemptions may have contributed to fund losses if 

securities are sold at fire sale prices to satisfy those redemptions. If the fund sells assets to meet 

redemptions, the costs of doing so would be incurred while the redeeming investor is still in the 

fund because of the delay in redeeming his or her holdback shares. Essentially, investors would 

face a choice between redeeming to preserve liquidity and remaining invested in the fund to 

protect their principal.

Third, an MBR would provide the fund with 30 days to obtain cash to satisfy the 

holdback portion of a shareholder’s redemption. This may give the fund time for distressed 

securities to recover when, for example, the market has acquired additional information about the 

ability of the issuer to make payment upon maturity. As of February 28, 2014, 43% of prime 

 2096 See, e.g., Comment Letter of Jeffrey Gordon (Feb. 28, 2013) (available in File No. FSOC–2012–0003) 

(“Gordon FSOC Comment Letter”) (“[T]he Minimum Balance at Risk feature is a novel way to reduce 

MMF run risk by imposing some of the run costs on the users of MMFs.”).
684

money market fund assets had a maturity of 30 days or less.2097 Thus, an MBR would provide 

time for potential losses in fund portfolios to be avoided since distressed securities could trade at 

a heavy discount in the market but may ultimately pay in full at maturity. This added resiliency 

could not only benefit the fund and its investors, but it also could reduce the contagion risk that a 

run on a single fund can cause when assets are correlated across the money market fund industry.

ii. Costs of a Minimum Balance at Risk

However, we also recognized that there are a number of drawbacks to an MBR 

requirement. It forces shareholders that redeem more than 97% of their assets to pay for any 

losses, if incurred, on the entire portfolio on a ratable basis. Rather than simply delaying 

redemption requests, the contingent nature of the way losses are distributed among shareholders 

forces early redeeming investors to bear the losses they are trying to avoid.

As discussed in section III.A.1 above, there may be a tendency for a money market fund 

to meet redemptions by selling assets that are the most liquid and have the smallest capital 

losses. Liquid assets may be sold first because managers can trade at close to their nondistressed valuations because they do not typically experience large liquidity discounts. 

Managers also tend to sell assets whose market-based values are close to or exceed amortized 

cost because realized capital gains and losses will be reflected in a fund’s shadow price. Assets 

that are highly liquid will not be sold at significant discounts to fair value. Since the liquidity 

discount associated with the sale of liquid assets is smaller than that for illiquid assets, 

shareholders can continue to immediately redeem shares at $1.00 per share under an MBR 

 2097 Based on Form N-MFP data, with maturity determined in the same manner as it is for purposes of 

computing the fund’s weighted average life.
685

provided the fund is capable of selling liquid assets. Once a fund exhausts its supply of liquid 

assets, it will sell less liquid assets to meet redemption requests, possibly at a loss. If in fact 

assets are sold at a loss, the stable value of the fund’s shares could be impaired, motivating 

shareholders to be the first to leave. Therefore, even with a NAV buffer and an MBR there 

continues to be an incentive to redeem in times of fund and market stress.2098

The MBR, which applies to all redemptions without regard to the fund’s circumstances at 

the time of redemption, constantly restricts some portion of an investor’s holdings. Under the 

resulting continuous impairment of full liquidity, many current investors who value liquidity in 

money market funds may shift their investment to other short-term investments that offer higher 

yields or fewer restrictions on redemptions. A reduction in the number of money market funds 

and/or the amount of money market fund assets under management as a result of any further 

money market fund reforms would have a greater negative impact on money market fund 

sponsors whose fund groups consist primarily of money market funds, as opposed to sponsors 

that offer a more diversified range of mutual funds or engage in other financial activities (e.g., 

brokerage). Given that money market funds’ largest commercial paper exposure is to issuances 

by financial institutions,2099 a reduction in the demand of money market instruments may have an 

impact on the ability of financial institutions to issue commercial paper.2100

 2098 See, e.g., Comment Letter of Federated Investors, Inc. (Dec. 17, 2012) (available in File No. FSOC-2012-

0003) (“The data, analyses, surveys and other commentary in the SEC’s docket show convincingly that the 

MBR/capital proposal’s impact in reducing runs is speculative and unproven and in fact could and likely 

would precipitate runs under certain circumstances.”); Comment Letter of Charles Schwab (Jan. 17, 2013) 

(available in File No. FSOC–2012–0003) (“[I]t is not clear to us that holding back a certain percentage of a 

client’s funds would reduce run risk.”)

2099 See supra section III.K.3.

2100 See, e.g., Wells Fargo FSOC Comment Letter (“the MBR requirement would have the anticipated impact of 
686

The MBR would introduce additional complexity to what to-date has been a relatively 

simple product for investors to understand. For example, requiring shareholders that redeem 

more than 97% of their balances to bear the first loss creates a cash flow waterfall that is 

complex and that may be difficult for unsophisticated investors to understand fully.2101

Implementing an MBR could involve significant operational costs. These would include 

costs to convert existing shares or issue new holdback and subordinated holdback shares and 

changes to systems that would allow record-keepers to account for and track the MBR and 

allocation of unrestricted, holdback or subordinated holdback shares in shareholder accounts. 

We expect that these costs would vary significantly among funds depending on a variety of 

factors. In addition, funds subject to an MBR may have to amend or adopt new governing 

documents to issue different classes of shares with different rights: unrestricted shares, holdback 

shares, and subordinated holdback shares.2102 The costs to amend governing documents would 

vary based on the jurisdiction in which the fund is organized and the amendment processes 

enumerated in the fund’s governing documents, including whether board or shareholder approval 

 

driving investors and sponsors out of money market funds. We expect that the resulting contraction of 

assets in the money market fund industry would, in turn, have disruptive effects on the short-term money 

markets, decrease the supply of capital and/or raise the cost of borrowing for businesses, states, 

municipalities and other local governments that rely on money market funds, and jeopardize the fragile 

state of the economy and its long-term growth prospects.”).

2101 Several commenters have noted that the MBR would be confusing to retail investors. See, e.g., Comment 

Letter of Fidelity Investments (Feb. 14, 2013) (available in File No. FSOC–2012–0003); Comment Letter 

of T. Rowe Price (Jan. 30, 2013) (available in File No. FSOC–2012–0003).

2102 One commenter on the PWG Report suggested that the MBR framework may be achieved by issuing 

different classes of shares with conversion features triggered by shareholder activity. See Comment Letter 

of Federated Investors, Inc. (Mar. 16, 2012) (available in File No. 4-619). Multiple class structures are 

common among funds offering different arrangements for the payment of distribution costs and related 

shareholder services. Funds have also developed the operational capacity to track and convert certain share 

classes to others based on the redemption activity of the shareholder. See Mutual Fund Distribution Fees; 

Confirmations, Investment Company Act Release No. 29367 (July 21, 2010) [75 FR 47064 (Aug. 4, 

2010)], at section III.D.1.b.
687

is necessary.2103 The costs of obtaining shareholder approval, amending governing documents, or 

changing domicile would depend on a number of factors, including the size and the number of 

shareholders of the fund.2104

As noted above, we did not receive any comments on the MBR alternative based on our 

discussion of it in the Proposing Release and we continue to believe that overall, the complexity 

of an MBR may be more costly for unsophisticated investors because they may not fully 

appreciate the implications. In addition, money market funds and their intermediaries (and 

money market fund shareholders that have in place cash management systems) could incur 

potentially significant operational costs to modify their systems to reflect a MBR requirement. 

We believe that an MBR coupled with a NAV buffer would turn money market funds into a 

more complex instrument whose valuation may become more difficult for investors to 

understand.

3. Alternatives in the PWG Report

As discussed in the Proposing Release, we considered each option discussed in the 

President’s Working Group on Financial Markets, which published a report on money market 

fund reform options in 2010 (the “PWG Report”).

2105 We discussed these alternatives in the 

 2103 See Comment Letter of Federated Investors, Inc. (Re: Alternative 2) (Jan. 25. 2013) (available in File No. 

FSOC–2012–0003); March 2012 PWG Comment Letter.

2104 Other factors may include the concentration of fund shares among certain shareholders, the number of 

objecting beneficial owners and non-objecting beneficial owners of street name shareholders, whether 

certain costs can be shared among funds in the same family, whether the fund employs a proxy solicitor and 

the services the proxy solicitor may provide, and whether the fund, in connection with sending a proxy 

statement to shareholders, uses the opportunity to have shareholders vote on other matters. Other matters 

that may be set forth in the proxy materials include the election of directors, a change in investment 

objectives or fundamental investment restrictions, and fund reorganization or re-domicile.

2105 Report of the President’s Working Group on Financial Markets, Money Market Fund Reform Options (Oct. 

2010) (“PWG Report”) available at http://www.treasury.gov/press-center/press-
688

Proposing Release, and the comments that we had received on several of these alternatives, as 

discussed below. We have decided not to pursue these options because we believe, after 

considering the comments we received on the PWG Report, as well as the comments we received 

on the Proposing Release and the economic analysis set forth in this Release, that they would not 

achieve our regulatory goals as well as the package of reforms that we are adopting today. We 

discuss below these options, and our principal reasons for not adopting them.2106

a. Private Emergency Liquidity Facility

As discussed in the Proposing Release, one option outlined by the PWG Report, is a 

private emergency liquidity facility (“LF”) for money market funds.2107 One comment letter on 

the PWG Report proposed a structure for such a facility in some detail.2108 Under this proposal, 

the LF would be organized as a state-chartered bank or trust company. Sponsors of prime money 

market funds would be required to provide initial capital to the LF in an amount based on their 

assets under management up to 4.9% of the LF’s total initial equity, but with a minimum 

investment amount. The LF also would charge participating funds commitment fees of 3 basis 

points per year on fund assets under management. Finally, at the end of its third year, the LF 

would issue to third parties time deposits paying a rate approximately equal to the 3-month bank 

CD rate. The LF would be designed to provide initially $7 billion in backup redemption 

 

releases/Documents/10.21%20PWG%20Report%20Final.pdf. The members of the PWG included the 

Secretary of the Treasury Department (as chairman of the PWG), the Chairman of the Board of Governors 

of the Federal Reserve System, the Chairman of the SEC, and the Chairman of the Commodity Futures 

Trading Commission.

2106 We note we may not have the legal authority to implement some of the alternatives discussed below, even 

were we to find that they might help achieve our regulatory goals. 

2107 See PWG Report, supra note 506, at 23-25.

2108 See ICI Jan 2011 PWG Comment Letter.
689

liquidity to prime money market funds, $12.3 billion at the end of the first year, $30 billion at the 

end of five years, and $50-55 billion at the end of year 10 (these figures take into account the 

LF’s ability to expand its capacity by borrowing through the Federal Reserve’s discount 

window). The LF would be leveraged at inception, but would seek to achieve and maintain a 

minimum leverage ratio of 5%. Each fund would be able to obtain a maximum amount of cash 

from the LF. The LF would not provide credit support. It would not provide liquidity to a fund 

that had “broken the buck” or would “break the buck” after using the LF. There also would be 

eligibility requirements for money market fund access to the LF.

Participating funds would elect a board of directors that would oversee the LF, with 

representation from large, medium, and smaller money market fund complexes. The LF would 

have restrictions on the securities that it could purchase from funds seeking liquidity and on the 

LF’s investment portfolio. The LF would be able to pledge approved securities (less a haircut) to 

the Federal Reserve discount window. We note that the interaction with the Federal Reserve 

discount window (as well as the bank structure of the LF) means that the Commission does not 

have regulatory authority to create the LF.

An LF could lessen and internalize some of the liquidity risk of money market funds that 

contributes to their vulnerability to liquidity runs by acting as a purchaser of last resort if a 

liquidity event is triggered. It also could create efficiency gains by pooling this liquidity risk 

within the money market fund industry.2109 Commenters on the PWG Report addressing this 

option generally supported the concept of the LF, stating that it would facilitate money market 

 2109 The liquidity facility would function in a fashion similar to private deposit insurance for banks. For the 

economics of using a liquidity facility to stop runs, see Diamond & Dybvig, supra note 2089.
690

funds internalizing the costs of liquidity and other risks associated with their operations through 

the cost of participation. In addition, such a facility could reduce contagion effects by limiting 

the need for fire sales of money market fund assets to satisfy redemption pressures.2110

However, several commenters expressed reservations regarding this reform option. For 

example, one commenter supported “the idea” of such a facility “in that it could provide an 

incremental liquidity cushion for the industry,” but noted that “it is difficult to ensure that [a 

liquidity facility] with finite purchasing capacity is fairly administered in a crisis..., [which] 

could lead to [money market funds] attempting to optimize the outcome for themselves, rather 

than working cooperatively to solve a systemic crisis.”2111 This commenter also stated that 

shared capital “poses the danger of increased risk-taking by industry participants who believe 

that they have access to a large collective pool of capital.”2112 Another commenter, although

“receptive to a private liquidity facility,” expressed concern that the facility itself might be 

vulnerable to runs if the facility raises funding through the short-term financing markets.2113 This 

commenter also noted other challenges in designing such a facility, including governance issues 

and “the fact that because of its size, the liquidity facility would only be able to address the 

liquidity needs of a very limited number of funds and would not be able to meet the needs of the 

 2110 See, e.g., ICI Jan 2011 PWG Comment Letter; Letter of the Dreyfus Corporation (Jan. 10, 2011) (available 

in File No. 4–619) (“Dreyfus PWG Comment Letter”); Comment Letter of Federated Investors, Inc. (Jan. 

7, 2011) (available in File No. 4–619).

2111 Comment Letter of BlackRock Inc. (Jan. 10, 2011) (available in File No. 4–619) (“BlackRock PWG 

Comment Letter”).

2112 Id. In the case of deposit insurance, bank capital is used to overcome the moral hazard problem of 

excessive risk taking. See, e.g., Berger, supra note 2088; Michael C. Keeley & Frederick T. Furlong, A 

Reexamination of Mean-Variance Analysis of Bank Capital Regulation, 14 J. OF BANKING AND FIN. 69 

(1990).

2113 Comment Letter of Wells Fargo Funds Management, LLC (Jan. 10, 2011) (available in File No. 4–619) 

(“Wells Fargo PWG Comment Letter”).
691

entire industry in the event of a run.”2114 Another commenter expressed concerns that “the costs, 

infrastructure and complications associated with private liquidity facilities are not worth the 

minimal liquidity that would be provided.”2115 Finally, another commenter echoed this concern, 

stating:

[a private liquidity facility] cannot possibly eliminate completely the risk of breaking the 

buck without in effect eliminating maturity transformation, for instance through the 

imposition of capital and liquidity standards on the private facilities. Thus, in the case of 

a pervasive financial shock to asset values, [money market fund] shareholders will almost 

certainly view the presence of private facilities as a weak reed and widespread runs are 

likely to develop. In turn, government aid is likely to flow. Because shareholders will 

expect government aid in a pervasive financial crisis, shareholder and [money market 

fund] investment decisions will be distorted. Therefore, we view emergency facilities as 

perhaps a valuable enhancement, but not a reliable overall solution either to the problem 

of runs or to the broader problem of distorted investment decisions.2116

A private liquidity facility was also discussed at the 2011 Roundtable, where many 

participants made points and expressed concerns similar to those discussed above.2117

 2114 Id.

2115 Comment Letter of Fidelity Investments (Jan. 10, 2011) (available in File No. 4–619) (“Fidelity Jan 2011 

PWG Comment Letter”).

2116 Comment Letter of Federal Reserve Bank of Richmond (Jan. 10, 2011) (available in File No. 4–619) 

(“Richmond Fed PWG Comment Letter”).

2117 See, e.g., Roundtable Transcript, supra note 63. (Brian Reid, Investment Company Institute) (discussing the 

basic concept for a private liquidity facility as proposed by the Investment Company Institute and its 

potential advantages providing additional liquidity to money market funds when market makers were 

unwilling or unable to do so); (Paul Tucker, Bank of England) (discussing the potential policy issues 
692

The Commission did not receive any comments regarding this alternative after we 

proposed our reforms. However, as noted in the Proposing Release, we have considered 

comments on the PWG Report, and our staff has spent considerable time evaluating whether an 

LF would successfully mitigate the risk of liquidity runs in money market funds and change the 

economic incentives of market participants. We continue to believe that this alternative should 

not be adopted for the reasons discussed in the Proposing Release, including, foremost because 

we are concerned that a private liquidity facility would not have sufficient purchasing capacity in 

the event of a widespread run without access to the Federal Reserve’s discount window and we

do not have legal authority to grant discount window access to an LF. Access to the discount 

window would raise complicated policy considerations and likely would require legislation.2118 

In addition, such a facility would not protect money market funds from capital losses triggered 

by credit events as the facility would purchase securities at the prevailing market price. Thus, we 

are concerned that such a facility without additional loss protection would not sufficiently 

prevent widespread liquidity-induced runs on money market funds. 

 

involved in the Federal Reserve extending discount window access to such a facility); (Daniel K. Tarullo, 

Federal Reserve Board) (discussing the potential policy issues involved in the Federal Reserve extending 

discount window access to such a facility); (Jeffrey A. Goldstein, Department of Treasury) (questioning 

whether there were potential capacity issues with such a facility); (Sheila C. Bair, Federal Deposit 

Insurance Corporation) (stating her belief that “the better approach would be to try to reduce or eliminate 

the systemic risk, as opposed to just kind of acknowledge it” and institutionalize a “bailout facility” in a 

way that would exacerbate moral hazard).

2118 See, e.g., id. (Paul Tucker, Bank of England) (“As I understand it, this is a bank whose sole purpose is to 

stand between the Federal Reserve and the money market mutual fund industry. If I think about that as a 

central banker, I think ‘So, I’m lending to the money market mutual fund industry.’ What do I think about 

the regulation of the money market mutual fund industry? ...And the other thought I think I would have 

is...‘If the money market mutual fund industry can do this, what’s to stop other parts of our economy doing 

this and tapping into the special ability of the central bank to create liquidity’...It’s almost to bring out the 

enormity of the idea that you have floated...it’s posing very big questions indeed, about who should have 

direct access and to the nature of the monetary economy.”)
693

We also continue to be concerned about the conflicts of interest inherent in any such 

facility given that it would be managed by a diverse money market fund industry, not all of 

whom may have the same interests at all times. Participating money market funds would be of 

different sizes and the governance arrangements would represent some fund complexes and not 

others. There may be conflicts relating to money market funds whose nature or portfolio makes 

them more or less likely to ever need to access the LF. The LF may face conflicts allocating 

limited liquidity resources during a crisis, and choosing which funds gain access and which do 

not. To be successful, an LF would need to be managed such that it sustains its credibility, 

particularly in a crisis, and does not distort incentives in the market to favor certain business 

models or types of funds.

These potential issues collectively created a concern that such a facility may not prove 

effective in a crisis and thus we would not be able to achieve our regulatory goals of reducing 

money market funds’ susceptibility to liquidity runs and the corresponding impacts on investor 

protection and capital formation. Combined with our lack of authority to create an LF bank with 

access to the Federal Reserve’s discount window, these concerns ultimately have led us to not 

pursue this alternative. 

b. Insurance

As discussed in the Proposing Release, we also considered whether money market funds 

should be required to carry some form of public or private insurance, similar to bank accounts 

that carry Federal Deposit Insurance Corporation deposit insurance, which has played a central 
694

role in mitigating the risk of runs on banks.2119 The Treasury’s Temporary Guarantee Program 

helped slow the run on money market funds in September 2008, and thus we naturally 

considered whether some form of insurance for money market fund shareholders might mitigate 

the risk of liquidity runs in money market funds and their detrimental impacts on investors and 

capital formation.2120 Insurance might replace money market funds’ historical reliance on 

discretionary sponsor support, which has covered capital losses in money market funds in the 

past but, as discussed above, also contributes to these funds’ vulnerability to liquidity runs.

As noted in the Proposing Release, although a few commenters on the PWG Report 

expressed some support for a system of insurance for money market funds,2121 most opposed this 

potential reform option.2122 Those commenters expressed concern that government insurance 

would create moral hazard and encourage excessive risk taking by funds. 2123 They also asserted 

that such insurance could distort capital flows from bank deposits or government money market 

 2119 See generally Charles W. Calomiris, Is Deposit Insurance Necessary? A Historical Perspective, 50 J.

ECON. HIST. 283 (1990); RITA CARISANO, DEPOSIT INSURANCE: THEORY, POLICY AND EVIDENCE (1992); 

Diamond & Dybvig, supra note 2089.

2120 Authority for a guarantee program like the Temporary Guarantee Program for Money Market Funds has 

since been removed. See Emergency Economic Stabilization Act of 2008 § 131(b), 12 U.S.C. 5236 (2008) 

(prohibiting the Secretary of Treasury from using the Exchange Stabilization Fund for the establishment of 

any future guaranty programs for the U.S. money market fund industry).

2121 See, e.g., Richmond Fed PWG Comment Letter (stating that insurance would be a second best solution for 

mitigating the risk of runs in money market funds after a floating net asset value because insurance 

premiums and regulation are difficult to calibrate correctly, so distortions would likely remain); Comment 

Letter of Paul A. Volcker (Feb. 11, 2011) (available in File No. 4-619) (“Volcker PWG Comment Letter”) 

(stating that money market funds wishing to retain a stable net asset value should reorganize as special 

purpose banks or “submit themselves to capital and supervisory requirements and FDIC-type insurance on 

the funds under deposit”). 

2122 See, e.g., Comment Letter of the American Bankers Association (Jan. 10, 2011) (available in File No. 4-

619) (“American Bankers PWG Comment Letter”); BlackRock PWG Comment Letter; Dreyfus PWG 

Comment Letter; Fidelity Jan 2011 PWG Comment Letter; Wells Fargo PWG Comment Letter; Comment 

Letter of John M. Winters (Jan. 5, 2011) (available in File No. 4-619) (“Winters PWG Comment Letter”).

2123 See, e.g., American Bankers PWG Comment Letter; BlackRock PWG Comment Letter; ICI Jan 2011 PWG 

Comment Letter; Wells Fargo PWG Comment Letter.
695

funds into prime money market funds, and that this disintermediation could and likely would 

cause significant disruption to the banking system and the money market.2124 For example, one 

commenter stated that:

“If the insurance program were partial (for example, capped at $250,000 per 

account), many institutional investors likely would invest in this partially insured product 

rather than directly in the market or in other cash pools because the insured funds would 

offer liquidity, portfolios that were somewhat less risky than other pools, and yields only 

slightly lower than alternative cash pools. Without insurance covering the full value of 

investors’ account balances, however, there would still be an incentive for these investors 

to withdraw the uninsured portion of their assets from these funds during periods of 

severe market stress.”2125

Commenters stated that with respect to private insurance, it has been made available in 

the past but the product proved unsuccessful due to its cost and in the future would be too 

costly.2126 They also stated that they did not believe any private insurance coverage would have 

sufficient capacity.2127 However, some commenters on our Proposing Release supported a 

system of insurance for money market funds, noting that historically insurance has provided 

stability during times of stress.2128

 2124 See, e.g., ICI Jan 2011 PWG Comment Letter; Wells Fargo PWG Comment Letter.

2125 See ICI Jan 2011 PWG Comment Letter.

2126 See, e.g., BlackRock PWG Comment Letter; Fidelity Jan 2011 PWG Comment Letter; Dreyfus PWG 

Comment Letter; Wells Fargo PWG Comment Letter; Winters PWG Comment Letter.

2127 See, e.g., BlackRock PWG Comment Letter; Fidelity Jan 2011 PWG Comment Letter; Wells Fargo PWG 

Comment Letter; Winters PWG Comment Letter.

2128 See Comment Letter of John Chang (June 27, 2013) (“Chang Comment Letter”); Comm. on Cap. Mkt. Reg. 
696

We have carefully considered the comments on the PWG Report and our Proposing 

Release. However, considering foremost that we do not have regulatory authority to create a 

public insurance scheme for money market funds, we are not pursuing this option. Separately, 

we continue to believe that it would not achieve our goal, among others, of materially reducing 

the contagion effects from heavy redemptions at money market funds without undue costs. We 

have made this determination based on money market fund insurance’s potential for creating 

moral hazard and encouraging excessive risk-taking by money market funds, given the 

difficulties and costs involved in creating effective risk-based pricing for insurance and 

additional regulatory structure to offset this incentive.2129 If insurance actually increases moral 

hazard and decreases corresponding market discipline, it may in fact increase rather than 

decrease money market funds’ susceptibility to liquidity runs. If the only way to counter these 

incentives was by imposing a very costly regulatory structure and risk-based pricing system our 

reforms potentially offer a better ratio of benefits to associated costs. Finally, we were 

concerned with the difficulty of creating private insurance at an appropriate cost and of sufficient 

capacity for a several trillion-dollar industry that tends to have highly correlated tail risk. All of 

these considerations have led us to not pursue this option further.

c. Special Purpose Bank

In the Proposing Release, we also evaluated whether money market funds should be 

regulated as special purpose banks. Stable net asset value money market fund shares can bear 

 

Comment Letter.

2129 See, e.g., Yuk-Shee Chan et al., Is Fairly Priced Deposit Insurance Possible?, 47 J. FIN. 227 (1992).
697

some similarity to bank deposits.2130 Some aspects of bank regulation could be used to mitigate 

some of the risks described in section II above.2131 Money market funds could benefit from 

access to the special purpose bank’s capital, government deposit insurance and emergency 

liquidity facilities from the Federal Reserve on terms codified and well understood in advance, 

and thus with a clearer allocation of risks among market participants. We did not receive any 

comments on this alternative.

As the PWG Report noted, and as commenters reinforced, there are a number of 

drawbacks to regulating money market funds as special purpose banks. Although a few 

commenters expressed some support for this option,2132 almost all commenters on the PWG 

Report addressing this possible reform option opposed it.2133 Some commenters stated that the 

costs of converting money market funds to special purpose banks would likely be large relative 

to the costs of simply allowing more of this type of cash management activity to be absorbed into 

the existing banking sector.2134 Others expressed concern that regulating money market funds as 

special purpose banks would radically change the product, make it less attractive to investors and 

 2130 See supra note 2090 and accompanying text.

2131 Id.

2132 See Volcker PWG Comment Letter (“MMMFs that desire to offer their clients bank-like transaction 

services...and promises of maintaining a constant or stable net asset value (NAV), should either be 

required to organize themselves as special purpose banks or submit themselves to capital and supervisory 

requirements and FDIC-type insurance on funds under deposit.”); Winters PWG Comment Letter 

(supporting it as the third best option, stating that “[a]s long as the federal government continues to be the 

only viable source of large scale back-up liquidity for MMFs, it is intellectually dishonest to pretend that 

MMFs are not the functional equivalent of deposit-taking banks. Thus, inclusion in the federal banking 

system is warranted.”).

2133 See, e.g., BlackRock PWG Comment Letter; Fidelity Jan 2011 PWG Comment Letter; ICI Jan 2011 PWG 

Comment Letter; Comment Letter of the Institutional Money Market Funds Association (Jan. 10, 2011) 

(available in File No. 4-619) (“IMMF Comment Letter”).

2134 See, e.g., Richmond Fed PWG Comment Letter; ICI Jan 2011 PWG Comment Letter.
698

thereby have unintended consequences potentially worse than the mitigated risk, such as leading 

sophisticated investors to move their funds to unregulated or offshore money market fund 

substitutes and thereby limiting the applicability of the current money market fund regulatory 

regime and creating additional systemic risk.2135 For example, one of these commenters stated 

that transforming money market funds into special purpose banks would create homogeneity in 

the financial regulatory scheme by relying on the bank business model for all short-term cash 

investments and that “[g]iven the unprecedented difficulties the banking industry has 

experienced recently, it seems bizarre to propose that [money market funds] operate more like 

banks, which have absorbed hundreds of billions of dollars in government loans and 

handouts.”2136 Some pointed to the differences between banks and money market funds as 

justifying different regulatory treatment, and expressed concern that concentrating investors’ 

cash management activity in the banking sector could increase systemic risk.2137

Foremost, we are not pursuing this option because we lack regulatory authority to 

transform money market funds into special purpose banks. Separately, however, we continue to 

believe that the potential costs involved in creating a new special purpose bank regulatory 

framework to govern money market funds are not justified. In addition, given our view that 

money market funds have some features similar to banks but other aspects quite different from 

banks, applying substantial parts of the bank regulatory regime to money market funds would not 

 2135 See, e.g., Comment Letter of the Mutual Fund Directors Forum (Jan. 10, 2011) (available in File No. 4-

619) (“MFDF PWG Comment Letter”); Fidelity Jan 2011 PWG Comment Letter; ICI Jan 2011 PWG 

Comment Letter.

2136 See Fidelity Jan 2011 PWG Comment Letter.

2137 See, e.g., Fidelity Jan 2011 PWG Comment Letter; ICI Jan 2011 PWG Comment Letter.
699

be well tailored to the structure of and risks involved in money market funds compared to the 

reforms we are adopting in this Release. As noted above, we received no comments on this 

alternative after the Proposing Release was issued. After considering our lack of regulatory 

authority to transform money market funds into special purpose banks as well as the views 

expressed in the PWG comment letters and for the reasons set forth above, we continue to 

believe that transforming money market funds into special purpose banks is not the most 

appropriate reform. 

d. Dual Systems of Money Market Funds

In the Proposing Release, we evaluated options that would institute a dual system of 

money market funds, where either institutional money market funds or money market funds 

using a stable share price would be subject to more stringent regulation than others. As 

discussed in the PWG Report,2138 money market fund reforms could focus on providing enhanced 

regulation solely for money market funds that seek to maintain a stable net asset value, rather 

than a floating NAV. Enhanced regulations could include any of the regulatory reform options 

discussed above such as mandatory insurance, a private liquidity facility, or special purpose bank 

regulation. Money market funds that did not comply with these enhanced constraints would 

have a floating NAV (though they would still be subject to the other risk-limiting conditions 

contained in rule 2a-7).

There also may be other enhanced forms of regulation or other types of dual systems. 

For example, an alternative formulation of this regulatory regime would apply the enhanced 

 2138 See PWG Report, supra note 506, at 29-32.
700

regulatory constraints discussed above (e.g., a private liquidity facility or insurance) only to 

“institutional” money market funds, and “retail” money market funds would continue to be 

subject to rule 2a-7 as it exists today. We note that our decision to not subject retail and 

government money market funds to a floating NAV requirement and to not subject government 

money market funds to a fees and gates requirement in effect creates a dual system, which we 

discuss in greater detail in section III.C.1.

These dual system regulatory regimes for money market funds could provide several 

important benefits. They attempt to apply the enhanced regulatory constraints on those aspects 

of money market funds that most contribute to their susceptibility to liquidity runs—whether it is 

institutional investors that have shown a tendency to run or a stable net asset value created 

through the use of amortized cost valuation that can create a first mover advantage for those 

investors that redeem at the first signs of potential stress. A dual system that imposes enhanced 

constraints on stable net asset value money market funds would allow investors to choose their 

preferred mixture of stability, risk, and return.

Because insurance, special purpose banks, and the private liquidity facility generally are 

beyond our regulatory authority to create, these particular dual options, which would impose one 

of these regulatory constraints on a subset of money market funds, could not be created under 

our current regulatory authority. Other options, such as requiring a floating NAV or liquidity 

fees and gates only for some types of money market funds, however, could be imposed under our 

current authority and are being adopted today.

Each of these dual systems generally has the same advantages and disadvantages as the 

potential enhanced regulatory constraints that would be applied, described above. In addition, 
701

for any two-tier system of money market fund regulation to be effective in reducing the risk of 

contagion effects from heavy redemptions, investors would need to fully understand the 

difference between the two types of funds and their associated risks. If they did not, they may 

indiscriminately flee both types of money market funds even if only one type experiences 

difficulty.2139

However, given the difficulties, drawbacks, and limitations on our regulatory authority 

associated with dual systems involving a special purpose bank, private liquidity facility and 

insurance, we continue to believe that a dual system of money market fund regulation involving 

these enhanced regulatory constraints should not be adopted. We did not receive any comments 

on these types of dual systems. However, as noted above, our current reforms would to some 

extent create a dual system of money market funds, and we discuss in greater detail our rationale 

for that approach, together with an analysis of commenter’s views and the economic effects of 

that approach, in section III.C.1.

M. Clarifying Amendments

Since our adoption of amendments to rule 2a-7 in 2010, a number of questions have 

arisen regarding the application of certain of those changes. As stated in the Proposing Release, 

we are taking this opportunity to amend rule 2a-7 to clarify the operation of these provisions. In 

addition, we are also amending rule 2a-7 to state more clearly a limit we imposed on money 

 2139 For example, when the Reserve Primary Fund broke the buck in September 2008, all money market funds 

managed by Reserve Management Company, Inc. experienced runs, even the Reserve U.S. Government 

Fund, despite the fact that the Reserve U.S. Government Fund had a quite different risk profile. See Press 

Release, A Statement Regarding The Reserve Primary and U.S. Government Funds (Sept. 19, 2008) 

available at http://www.primary-yieldplus-inliquidation.com/pdf/PressReleasePrimGovt2008_0919.pdf

(“The U.S. Government Fund, which had approximately $10 billion in assets under management at the 

opening of business on September 15, 2008, has received redemption requests this week of approximately 

$6 billion.”).
702

market funds’ investments in second tier securities in 2010.2140 Two commenters stated that they 

supported our clarifying amendments but did not comment on any specific provisions of the 

amendments.2141 One of these commenters generally supported our amendments but did not 

address or discuss any costs or benefits.2142 The second commenter stated that it believed the 

clarifying amendments conform with current fund practices, that there would be no costs to 

funds that may not currently conform to these amendments, and that there would be little to no 

effect on market efficiency, competition or capital formation.2143 A third commenter stated that 

most, if not all, money market funds currently conform to the proposed clarifying amendments, 

and stated that it does not anticipate a significant cost burden to the industry in conforming with 

any of the proposed amendments.2144 This commenter specifically supported certain of the 

amendments and provided comment on certain specific provisions of the amendments.2145 We 

discuss these comments below. No commenters objected to the proposed clarifying 

amendments. 

As stated in the Proposing Release, we believe that for funds that are already acting 

consistently with our amendments, there will be no associated costs. We requested comment as 

to whether there would be any costs to funds that may not currently conform to the clarifying 

 2140 In addition, we are adopting as proposed, technical, conforming amendments to rule 419(b)(2)(iv) under the 

Securities Act of 1933 (17 CFR 230.419(b)(2)(iv)), which references certain paragraphs in rule 2a-7 the 

location of which is changing under our amendments. Specifically, we are replacing references to 

“paragraphs (c)(2), (c)(3), and (c)(4)” with “paragraph (d)”. 

2141 See U.S. Bancorp Comment Letter; Fidelity Comment Letter.

2142 See Fidelity Comment Letter.

2143 See U.S. Bancorp Comment Letter.

2144 See State Street Comment Letter.

2145 Id.
703

amendments. As noted above, no commenter provided any quantification of potential costs or 

benefits but one commenter suggested that there would be no costs to funds that may not 

currently conform to the clarifying amendments2146 and one commenter stated that it does not 

anticipate a significant cost burden to the industry in conforming with the proposed 

amendments.2147 As stated in the Proposing Release, we understand that most funds currently 

comply with our clarifying amendments and did not receive comments stating otherwise, except 

that one commenter noted that funds do not always include open sales receivables as liquid 

assets, and do not necessarily determine maturity for short-term floating rate securities in the 

manner proposed by the amendment.2148 This commenter did note however, that it agreed that 

most, if not all money market funds currently conform to the proposed clarifying 

amendments.2149 We therefore expect that the clarifying amendments will likely not result in any 

significant economic effects or quantifiable costs or benefits.

1. Definitions of Daily Liquid Assets and Weekly Liquid Assets

We are adopting, as proposed, amendments to clarify certain characteristics of 

instruments that qualify as a “daily liquid asset” or “weekly liquid asset” for purposes of the rule. 

First, we are making clear that money market funds cannot use the maturity-shortening 

provisions in current paragraph (d) of rule 2a-7 regarding interest rate readjustments2150 when 

 2146 See U.S. Bancorp Comment Letter.

2147 See State Street Comment Letter.

2148 Id.

2149 Id.

2150 See current rule 2a-7(d) (providing a number of exceptions to the general requirement that the maturity of a 

portfolio security be deemed to be the period remaining (from the trade date) until the date on which, in 

accordance with the terms of the security, the principal amount must unconditionally be paid; the 
704

determining whether a security satisfies the maturity requirements of a daily liquid asset or 

weekly liquid asset,2151 which include securities that will mature within one or five business days, 

respectively.2152 Using an interest rate readjustment to determine maturity as permitted under 

current paragraph (d) for these purposes allows funds to include as daily or weekly liquid assets 

securities that the fund would not have a legal right to convert to cash in one or five business 

days. This is not consistent with the purposes of the minimum daily and weekly liquidity 

requirements, which are designed to increase a fund’s ability to pay redeeming shareholders in 

times of market stress when the fund cannot rely on the market or a dealer to provide immediate 

liquidity.2153 

Second, we are adopting as proposed, amendments to require that an agency discount 

note with a remaining maturity of 60 days or less qualifies as a “weekly liquid asset” only if the 

note is issued without an obligation to pay additional interest on the principal amount.2154 Our 

amendment clarifies that interest-bearing agency notes that are issued at a discount do not 

 

exceptions generally provide that a fund may shorten the maturity date of certain securities to the period 

remaining until the next readjustment of the interest rate or the period remaining until the principal amount 

can be recovered through demand).

2151 See rule 2a-7(a)(8); rule 2a-7(a)(34). The amended definitions require funds to determine a security’s 

maturity in the same way they must calculate for purposes of determining WAL under amended rule 2a7(d)(1)(iii).

2152 Current rule 2a-7(a)(8) defines “daily liquid assets” to include (i) cash, (ii) direct obligations of the U.S. 

government, or (iii) securities that will mature or are subject to a demand feature that is exercisable and 

payable within one business day. Current rule 2a-7(a)(32) defines “weekly liquid assets” to include (i) 

cash; (ii) direct obligations of the U.S. government; (iii) securities that will mature or are subject to a 

demand feature that is exercisable and payable within five business days; or (iv) Government securities (as 

defined in section 2(a)(16) of the Act) that are issued by a person controlled or supervised by and acting as 

an instrumentality of the U.S. government that are issued at a discount to the principal amount to be repaid 

at maturity and have a remaining maturity date of 60 days or less.

2153 See 2010 Adopting Release, supra note 17, at text following n.213. 

2154 See rule 2a-7(a)(34)(iii).
705

qualify.2155 We understand that these interest-bearing agency notes issued at a discount are 

extremely rare and do not believe that interest-bearing agency notes are among the very shortterm agency discount notes that appeared to be relatively liquid during the 2008 market events 

and that we determined could qualify as weekly liquid assets.2156 

Finally, we are amending as proposed, rule 2a-7 to include in the definitions of daily and 

weekly liquid assets amounts receivable that are due unconditionally within one or five business 

days, respectively, on pending sales of portfolio securities.2157 These receivables, like certain 

other securities that qualify as daily or weekly liquid assets, provide liquidity for the fund 

because they give a fund the legal right to receive cash in one to five business days. A fund (or 

its adviser) could include these receivables in daily and weekly liquid assets if the fund (or its 

adviser) has no reason to believe that the buyer might not perform. 

We continue to understand that the instruments that most money market funds currently 

hold as daily and weekly liquid assets currently conform to the amendments and that these 

practices are consistent with positions our staff has taken in informal guidance to money market 

funds.2158 Although one commenter noted that it is not always typical for money market funds to 

 2155 We understand that an interest-bearing agency note might be issued at a discount to facilitate a rounded 

coupon rate (i.e., 2.75% or 3.5%) when yield demanded on the note would otherwise require a coupon rate 

that is not rounded. 

2156 See 2010 Adopting Release, supra note 17, at text accompanying and following nn.251-55. Our 

determination was informed by average daily yields of 30 day and 60 day agency discount notes during the 

fall of 2008. We believe that interest-bearing agency notes issued at a discount were not included in the 

indices of the agency discount notes on which we based our analysis or if they were included, there were 

too few to have affected the indices’ averages.

2157 See rule 2a-7(a)(8)(iv); rule 2a-7(a)(34)(v).

2158 See Staff Responses to Questions about Money Market Fund Reform, (revised Nov. 24, 2010) 

(http://www.sec.gov/divisions/investment/guidance/mmfreform-imqa.htm) (“Staff Responses to MMF 

Questions”), Questions II.1, II.2, II.4. 
706

include open sales receivables as liquid assets, this commenter also stated that most, if not all, 

money market funds currently conform to the proposed amendments.2159 The first two clarifying 

amendments discussed above are designed to make clear that securities with maturities 

determined according to interest rate resets and interest bearing agency notes issued at a discount 

do not qualify as daily or weekly liquid assets, as applicable.2160 Because both of these types of 

securities are less liquid than the limited types of instruments that do qualify, any funds that alter 

their future portfolio investments to conform to these requirements would benefit from increased 

liquidity and ability to absorb larger amounts of redemptions. We continue to believe that by 

including certain receivables as daily and weekly assets, funds will benefit because the types of 

assets that can satisfy those liquidity requirements will be increased. 

We also continue to believe that there would not be any significant costs associated with 

our amendments to the definitions of daily and weekly liquid assets. We do not anticipate that 

there will be operational costs for any funds that currently hold securities that will no longer 

qualify as daily or weekly assets because those securities likely would mature before the 

compliance date for our amendments.2161 Because we continue to believe that most money 

market funds are currently acting consistently with the amendments that clarify assets that 

qualify as daily and weekly assets, we do not anticipate that the amendments will have any effect 

on efficiency or capital formation. To the extent that some funds’ practices do not already 

 2159 See State Street Comment Letter.

2160 See rule 2a-7(a)(8)(iii) (definition of daily liquid assets); rule 2a-7(a)(34)(iii) and (iv) (definition of weekly 

liquid assets).

2161 See current rule 2a-7(a)(12)(i) (An eligible security must have a remaining maturity of no more than 397 

days); see infra section III.N.4 (discussing the compliance date for the clarifying amendments).
707

conform, however, the clarifications may eliminate any competitive advantages that may have 

resulted from those practices, although we expect that any such advantages would have been 

small because the amendments make minor clarifying changes to the assets that qualify as daily 

and weekly liquid assets but do not otherwise remove a significant portion of assets that would 

otherwise qualify as daily or weekly liquid assets. We did not receive comments suggesting 

otherwise. 

2. Definition of Demand Feature

We are amending the definition of demand feature in rule 2a-7 as proposed to mean a 

feature permitting the holder of a security to sell the security at an exercise price equal to the 

approximate amortized cost of the security plus accrued interest, if any, at the time of exercise, 

paid within 397 calendar days of exercise.2162 Our amendment eliminates the requirement that a 

demand feature be exercisable at any time on no more than 30 calendar days’ notice.2163 

One commenter addressed this proposed clarifying amendment, stating that it agreed that 

eliminating the requirement that a demand feature be exercisable at any time on no more than 30 

days’ notice would clarify the operation of rule 2a-7.2164 Eliminating the requirement that a 

demand feature be exercisable at any time on no more than 30 days’ notice removes from rule 

2a-7 a provision that has become obsolete. In 1986, the Commission expanded the notice period 

 2162 See rule 2a-7(a)(9).

2163 A demand feature is currently defined to mean (i) a feature permitting the holder of a security to sell the 

security at an exercise price equal to the approximate amortized cost of the security plus accrued interest, if 

any, at the time of exercise. A demand feature must be exercisable either: (a) At any time on no more than 

30 calendar days’ notice; or (b) At specified intervals not exceeding 397 calendar days and upon no more 

than 30 calendar days' notice; or (ii) A feature permitting the holder of an ABS unconditionally to receive 

principal and interest within 397 calendar days of making demand. See current rule 2a-7(a)(9).

2164 See State Street Comment Letter.
708

from seven days to 30 days for all types of demand features and emphasized that the notice 

requirement was at least in part designed to ensure that money market funds maintain adequate 

liquidity.2165 Because, as discussed in section II.E.1 above, the 2010 amendments added 

significant new provisions to enhance the liquidity of money market funds, we continue to 

believe it is unnecessary to continue to require that demand features be exercised at any time on 

no more than 30 days’ notice.2166 Therefore, the demand feature definition will focus on funds’ 

ability to receive payment within 397 calendar days of exercise of the demand feature.

As stated in the Proposing Release, we believe that eliminating the 30-day notice 

requirement may improve efficiency by simplifying the operation of rule 2a-7 regarding demand 

features and providing issuers with more flexibility. One commenter agreed that limiting the 30-

day notice requirement may improve efficiency by simplifying the operation of rule 2a-7.2167 As 

noted in the Proposing Release, our amendment will permit funds to purchase securities with 

demand features from a larger pool of issuers. We continue to believe that permitting funds to 

purchase securities with demand features from a larger pool of issuers may promote competition 

among issuers and facilitate capital formation because issuers will have a higher number of other 

 2165 See Acquisition and Valuation of Certain Portfolio Instruments by Registered Investment Companies, 

Investment Company Act Release No. 14983 (Mar. 12, 1986) [51 FR 9773 (Mar. 21, 1986)] (“The 

Commission still believes that some limit must be placed on the extent to which funds relying on the rule 

will have to anticipate their cash and investment needs more than seven days in advance. However, the 

Commission believes that funds should be able to invest in the demand instruments that are being marketed 

with notice periods of up to 30 days, as long as the directors are cognizant of their responsibility to 

maintain an adequate level of liquidity.”). Liquidity was also a concern when the Commission added the 

definition of demand feature for asset-backed securities and noted that it was done, in part, to make clear 

the date on which there was a binding obligation to pay (and not just the scheduled maturity). See 1996 

Adopting Release, supra note 1735, at accompanying nn.151-152.

2166 Our amendments are also consistent with a position our staff has taken in the past. See, e.g., SEC NoAction Letter to Citigroup Global Markets, Inc. (May 28, 2009), available at

http://www.sec.gov/divisions/investment/noaction/2009/citigroupglobal052809-2a7.htm. 

2167 See State Street Comment Letter.
709

issuers to compete against in selling securities to funds, which in turn may incentivize issuers to 

develop new or additional securities with demand features. We also continue to believe that our 

amendment will not impose costs on funds, and did not receive comment indicating otherwise.2168 

One commenter agreed that it did not anticipate any additional cost to the industry in connection 

with this amendment.2169

3. Short-Term Floating Rate Securities

We are also amending rule 2a-7 as proposed to clarify the method for determining WAL 

for short-term floating rate securities.2170 WAL is similar to a fund’s WAM, except that WAL is 

determined without reference to interest rate readjustments.2171 Under current rule 2a-7, a shortterm variable rate security, the principal of which must unconditionally be paid in 397 calendar 

days or less, is “deemed to have a maturity equal to the earlier of the period remaining until the 

next readjustment of the interest rate or the period remaining until the principal amount can be 

recovered through demand.”2172 A short-term floating rate security, the principal amount of 

which must unconditionally be paid in 397 calendar days or less, is “deemed to have a maturity 

 2168 We note that demand features and guarantees are referenced in rule 12d3-1(d)(7)(v) (providing that, subject 

to a diversification limitation, the acquisition of a demand feature or guarantee is not an acquisition of 

securities of a securities related business (that would otherwise be prohibited pursuant to section 12(d)(3) of 

the Act)) and rule 31a-1(b)(1) (requiring that a fund’s detailed records of daily purchase and sale records 

include the name and nature of any demand feature provider or guarantor). We do not believe that our 

amendment will provide any benefits or impose any costs with respect to these rules, other than those 

described above. We also are updating the cross references to the definition of the terms “demand feature” 

and “guarantee” in rule 12d3-1(d)(7)(v), which defines these terms by reference to rule 2a-7 (replacing the 

references to “rule 2a-7(a)(8)” and “rule 2a-7(a)(15)” with “§ 270.2a-7(a)(9)” and “§ 270.2a-7(a)(18)”) and 

rule 31a-1(b)(1) (replacing the references to “rule 2a-7(a)(8)” and “rule 2a-7(a)(15)” with “§ 270.2a7(a)(9)” and “§ 270.2a-7(a)(18)”). 

2169 See State Street Comment Letter.

2170 See rule 2a-7(i)(4).

2171 See current rule 2a-7(c)(2)(iii).

2172 See current rule 2a-7(d)(2).
710

of one day” because the interest rate for a floating rate security will change on any date there is a 

change in the specified interest rate.2173

Despite the difference in wording of the maturity-shortening provisions for floating rate 

and variable rate securities, the Commission has always intended for these provisions to work in 

parallel and provide the same results.2174 The omission of an explicit reference to demand 

features in the maturity-shortening provision for short-term floating rate securities, however, has 

created uncertainty in determining the maturity of short-term floating rate securities with a 

demand feature for purposes of calculating a fund’s WAL.2175 Therefore, we are amending rule 

2a-7(d)(4) to provide that, for purposes of determining WAL, a short-term floating rate security 

shall be deemed to have a maturity equal to the period remaining until the principal amount can 

be recovered through demand.2176 

As stated in the Proposing Release, we understand that most money market funds 

currently determine maturity for short-term floating rate securities consistent with our 

amendment.2177 Although one commenter noted that it does not determine maturity for shortterm floating rate securities in the manner consistent with the proposed amendment and instead 

 2173 See current rule 2a-7(d)(4). Rule 2a-7 distinguishes between floating rate and variable rate securities based 

on whether the securities’ interest rate adjusts (i) when there is a change in a specified interest rate (floating 

rate securities), or (ii) on set dates (variable rate securities); current rule 2a-7(a)(15) (defining “floating rate 

security”); current rule 2a-7(a)(31) (defining “variable rate security”).

2174 See 1996 Adopting Release, supra note 1735, at n.154 (the maturity of a floating rate security subject to a 

demand feature is the period remaining until principal can be recovered through demand).

2175 Long-term floating rate securities that are subject to a demand feature are deemed to have a maturity equal 

to the period remaining until the principal amount can be recovered through demand. See current rule 2a7(d)(5).

2176 See rule 2a-7(i)(4). 

2177 Such a determination would be consistent with informal guidance that the staff has provided. See

Investment Company Institute, Request for Interpretation under rule 2a-7 (Aug. 10, 2010) (incoming letter 

and response) at http://www.sec.gov/divisions/investment/noaction/2010/ici081010.htm. 
711

uses the rate reset date regardless of the type of security, this commenter did state that most, if 

not all, money market funds currently conform to the proposed clarifying amendments.2178 This 

commenter also noted that it agreed that there would be minimal cost related to the proposed 

amendment.2179 Accordingly, we continue to believe that the amendment will likely not result in 

costs to most funds and that to the extent a fund may not already act consistently with our 

amendment, the amendment will likely not result in significant costs to such a fund. Any funds 

that currently limit or avoid investments in short-term floating rate securities because they would 

look to the security’s stated final maturity date rather than the demand feature for purposes of 

determining WAL (which could significantly increase the WAL) may benefit if they increase 

investments in short-term floating rate securities that are higher yielding than alternative 

investments in the fund’s portfolio. To the extent that those funds may have experienced any 

competitive yield disadvantage because they limited or avoided these investments, the 

amendments should address those effects. Because we continue to believe that most funds 

currently interpret the maturity requirements as we provide in our amendments, we believe that 

although our changes may produce benefits, these benefits are not quantifiable because we 

cannot predict the extent to which, absent our amendments, funds may have decided to interpret 

the maturity requirements differently in the future. For those funds that do not currently interpret 

the maturity requirements as we provide in our amendments, we are unable to estimate any 

quantifiable benefits because we are unable to predict the extent to which a fund may increase 

investments in short-term floating rate securities that are higher yielding than alternative 

 2178 See State Street Comment Letter.

2179 Id.
712

investments in the fund’s portfolio, and did not receive any comments on such issue. We also 

believe that our amendments will not result in a significant, if any, impact on efficiency or 

capital formation. We did not receive any comments suggesting otherwise. 

4. Second Tier Securities

In 2010, we amended rule 2a-7 to limit money market funds to acquiring second tier 

securities with remaining maturities of 45 days or less.2180 As discussed in the Proposing 

Release, our analysis in adopting this requirement was focused primarily on second tier 

securities’ credit risk, credit spread risk, and liquidity, all of which are more appropriately 

measured by the security’s final legal maturity, rather than its maturity recognizing interest rate 

readjustments, which focuses on interest rate risk. Thus to state more clearly the way in which 

this limitation operates, we are amending rule 2a-7 as proposed to state specifically that the 45-

day limit applicable to second tier securities must be determined without reference to the 

maturity-shortening provisions in rule 2a-7 for interest rate readjustments.2181 

We continue to believe that most money market funds currently determine the remaining 

maturity for second tier securities consistent with this amendment. Accordingly, we continue to 

believe that our amendment will likely not result in costs to funds or impact competition, 

efficiency, or capital formation. In cases where the 45-day limit applicable to second tier 

securities is determined with reference to the maturity-shortening provisions for interest rate 

adjustments for certain funds, such funds that alter their future portfolio investments to conform 

to this amendment may benefit from increased liquidity. In addition, as we noted in the 

 2180 See 2010 Adopting Release, supra note 17, at nn.65-69 and accompanying text. 

2181 See rule 2a-7(d)(2)(ii). 
713

Proposing Release, any funds that currently hold securities that would no longer qualify as 

second tier securities would not incur costs because those securities likely would mature before 

the compliance date for our amendments.2182 We did not receive any comments suggesting 

otherwise.

N. Compliance Dates

The compliance dates for our amendments are set forth below. The compliance date for 

our floating NAV and liquidity fees and gates amendments is October 14, 2016. The compliance 

date for new Form N-CR is July 14, 2015 and the compliance date for our diversification, stress 

testing, disclosure, Form PF, Form N-MFP, and clarifying amendments is April 14, 2016. If any 

provision of these rules, or the application thereof to any person or circumstance, is held to be 

invalid, such invalidity shall not affect other provisions or application of such provisions to other 

persons or circumstances that can be given effect without the invalid provision or application.

1. Compliance Date for Amendments Related to Liquidity Fees and Gates

The compliance date for our amendments related to liquidity fees and gates, including 

any related amendments to disclosure, is October 14, 2016.

2183 We are adopting a compliance 

period of 2 years for money market funds to implement the fees and gates amendments instead of 

the proposed one-year compliance period. One commenter argued that the compliance period for 

our fees and gates amendments should be reduced.2184 Several commenters, however, argued that 

 2182 See infra section III.N.4 (discussing the compliance date for the clarifying amendments).

2183 We expect a fund to make any related changes to disclosure at the time the fund implements the 

amendments related to fees and gates.

2184 See Santoro Comment Letter.
714

our fees and gates amendments require at least 2 years to implement.2185 For example, one

commenter stated that the multiple programming requirements and costs involved suggest that 2 

years is a reasonable amount of time to require implementation of fees and gates.2186 In addition, 

a few commenters recommended extending the compliance period for fees and gates to 3 

years.2187 After further consideration, we have decided to extend the compliance period to 2

years. 

We expect that providing a longer compliance period will allow additional time for 

money market funds and their sponsors and service providers to conduct the requisite operational 

changes to their systems to implement these provisions, and for fund sponsors to restructure or 

establish new money market funds if they choose to rely on an available exemption.2188 It also 

will provide a substantial amount of time for money market fund shareholders to consider the 

reforms and make any corresponding changes to their investments. In addition, we have decided 

to adopt a two-year compliance period in order to provide a uniform compliance date for the 

floating NAV and fees and gates amendments, which we believe will provide money market 

funds with a smoother transition and prevent funds from having to make various operational and 

compliance changes multiple times. Accordingly, the compliance date is 2 years after the 

effective date of the adoption of the amendments to rule 2a-7(c)(2) and other related provisions 

of rule 2a-7 that apply to the liquidity fees and gates amendments, rule 22e-3(a)(1) and (d), rule 

 2185 See, e.g., Dreyfus Comment Letter; UBS Comment Letter.

2186 See Dreyfus Comment Letter.

2187 See Fidelity Comment Letter.

2188 See, e.g., Fidelity Comment Letter (stating that, as the SEC acknowledges, in addition to the requisite 

systems modifications that fund sponsors and service providers must implement, many fund sponsors may 

need to restructure or establish new money market funds if they chose to rely on any exemptions available).
715

30b1-7, rule 30b1-8, rule 482(b)(3)(i) and (b)(4), Parts E – G of Form N-CR, Form N-MFP and 

Items 3, 4(b)(1), and 16(g)(1) of Form N-1A.

2. Compliance Date for Amendments Related to Floating NAV

The compliance date for our amendments related to floating NAV, including any related 

amendments to disclosure, is October 14, 2016.

2189 We are adopting, as proposed, a compliance 

period of 2 years for money market funds to implement the floating NAV amendments. A few

commenters stated that they agreed that the transition period for the floating NAV amendments

should be at least 2 years.

2190 Most commenters, however, argued for a compliance period longer 

than the proposed two-year period,2191 with some commenters specifically arguing that the 

floating NAV amendments require at least 3 years to implement.2192 Several commenters 

suggesting a longer compliance period argued that adopting a floating NAV would require 

significant operational modifications.2193 In addition, many of the commenters recommending a 

longer compliance period argued that the relevant tax and accounting issues should be resolved 

by the appropriate regulator well before the compliance date of any final money market fund 

reform.2194 As we discuss above in section III.B.6, we have been informed that, the Treasury 

Department and the IRS today will propose new regulations and issue a revenue procedure (with 

an effective date of 60 days after publication of today’s reforms in the Federal Register) that 

 2189 We expect a fund to make any related changes to disclosure at the time the fund implements the 

amendments related to floating NAV.

2190 See, e.g., T. Rowe Price Comment Letter; HSBC Comment Letter; Northern Trust Comment Letter.

2191 See, e.g., BlackRock II Comment Letter; Dreyfus Comment Letter; Fidelity Comment Letter.

2192 See, e.g., ICI Comment Letter; Goldman Sachs Comment Letter; Legg Mason Comment Letter. 

2193 See, e.g., ICI Comment Letter; Legg Mason & Western Asset Comment Letter. 

2194 See, e.g., BlackRock II Comment Letter; Fidelity Comment Letter; J.P. Morgan Comment Letter; ABA 

Business Law Section Comment Letter.
716

address relevant tax and accounting issues associated with our amendments.2195 A two-year 

compliance period also will allow time for the Commission to consider finalizing rules removing 

NRSRO ratings from rule 2a-7, so that funds could make many of the compliance-related 

changes at one time. 

After further consideration, we believe it is appropriate to adopt a compliance period of 2 

years. We expect that a two-year compliance period will provide time for funds and their 

shareholders to make any operational modifications necessary to transition to a floating NAV. In 

addition, we expect that a two-year compliance period will allow time for funds to implement 

any needed changes to their investment policies and train staff, and also provide time for 

investors to analyze and consider how they might wish to adjust their cash management 

strategies. A two-year compliance period also will allow funds to reorganize their operations 

and establish new funds to meet the definition of a retail money market fund, to the extent 

necessary. Accordingly, the compliance date is 2 years after the effective date of the adoption of 

the amendments to rule 2a-7(c) and other related provisions of rule 2a-7 that apply to the floating 

NAV amendments, rule 22e-3(a)(1) and (d), rule 30b1-7, rule 482(b)(3)(i) and (b)(4), Form NMFP and Item 4(b)(1) of Form N-1A. 

3. Compliance Date for Rule 30b1-8 and Form N-CR

The compliance date for rule 30b1-8, Form N-CR, and the related website disclosure2196 is 

July 14, 2015. We received no comments specifically addressing the compliance date for rule 

30b1-8, Form N-CR or the related website disclosure. After reviewing the operational 

 2195 See supra section III.B.6.

2196 See rule 2a-7(h)(10)(v) (website disclosure of certain information required to be reported in Form N-CR).
717

considerations as well as the significant interest of investors and the Commission in receiving 

this information, we are adopting, as proposed, a compliance period of 9 months. 

We are eliminating, as proposed, the provision in current rule 2a-7 that requires money 

market funds to report defaults or events of insolvency to the Commission by email, because it 

would duplicate Part B (default or event of insolvency of portfolio security issuer) of Form NCR.2197 We are also eliminating, as proposed, the provision in current rule 2a-7 that requires 

money market funds to disclose to the Commission by email instances when a sponsor supports a 

fund by purchasing a security pursuant to rule 17a-9, because it would duplicate Part C 

(provision of financial support to fund) of Form N-CR.2198 Money market funds will continue to 

be required to comply with these email notification requirements in rule 2a-7 until the date in 

which money market funds are required to comply with Part B and Part C of Form N-CR. 

Accordingly, the effective date of removal of the email notification requirements in rule 2a-7 is 9 

months after the effective date of the adoption of Part B and Part C of Form N-CR.2199

We note that Part E (imposition of liquidity fee), Part F (suspension of fund redemptions) 

and Part G (removal of liquidity fees and/or resumption of fund redemptions) of Form N-CR are 

disclosure items specifically related to our liquidity fees and gates amendments and therefore 

would also have a conforming compliance period of 2 years. Accordingly, the compliance date 

for Parts E - G of Form N-CR and the related website disclosure requirements pursuant to rule 

 2197 See current rule 2a-7(7)(iii)(A).

2198 See current rule 2a-7(7)(iii)(B).

2199 We note that a money market fund need not comply with the email notification requirements prior to the 

effective date of removal if the money market fund instead elects to comply with the requirements of Part B 

and Part C of Form N-CR, as applicable. 
718

2a-7(h)(10)(v) is 2 years after the effective date of the adoption of Part E - G of Form N-CR and 

rule 2a-7(h)(10)(v). The compliance date for all other Parts of Form N-CR is 9 months. 

Accordingly, the compliance date for rule 30b1-8, Parts A - D and Part H of Form N-CR, and the 

related website disclosure requirements pursuant to rule 2a-7(h)(10)(v) is 9 months after the 

effective date of the adoption of rule 30b1-8, Parts A - D and Part H of Form N-CR and rule 2a7(h)(10)(v).

4. Compliance Date for Diversification, Stress Testing, Disclosure, Form 

PF, Form N-MFP, and Clarifying Amendments

The compliance date for amendments that are not specifically related to either floating 

NAV or liquidity fees and gates, including amendments to diversification, stress testing, 

disclosure that are not specifically related to either floating NAV or liquidity fees and gates, 

Form PF, Form N-MFP, and clarifying amendments is April 14, 2016. We are adopting an 18 

month compliance period for money market funds to implement these amendments instead of the 

proposed 9 month compliance period. As discussed above, disclosure amendments that relate to 

the floating NAV or liquidity fees and gates amendments will have a two-year compliance 

period. For disclosure amendments that are not specifically related to the floating NAV or 

liquidity fees and gates amendments, we are adopting an 18 month compliance period. These 

disclosure amendments include amendments to Form N-1A requiring historical disclosure of 

affiliate financial support,

2200 and amendments to rule 2a-7 requiring certain website disclosure of 

 2200 See Item 16(g)(2) of Form N-1A (historical disclosure of affiliate financial support). For purposes of the 

required historical disclosure of affiliate financial support, funds will be required only to disclose events 

that occur on or after the compliance date. See supra section III.E.5. 
719

portfolio holdings and other fund information.2201 Several commenters argued that the 

compliance period for amendments not relating to floating NAV or liquidity fees and gates 

should be extended in order for funds to implement the amendments and make any necessary 

operational changes.2202 After further consideration, we expect that 18 months will allow 

additional time for money market funds and their sponsors and service providers to implement 

any applicable requirements and conduct any requisite operational changes to their systems to 

implement these provisions. 

Accordingly, the compliance date for amendments relating to diversification is 18 months 

after the effective date of the amendments to rule 2a-7(a)(18) and (d)(3) and other related 

provisions of rule 2a-7 that apply to the diversification amendments. The compliance date for 

amendments related to stress testing is 18 months after the effective date of the amendments to 

rule 2a-7(g)(8) and other related provisions of rule 2a-7 that apply to the stress testing 

amendments. The compliance date for disclosure amendments not specifically related to either 

floating NAV or liquidity fees and gates is 18 months after the effective date of the amendments 

to Item 16(g)(2) of Form N-1A and rule 2a-7(h)(10). The compliance date for amendments to 

rule 204(b)-1 under the Advisers Act and Form PF is 18 months after the effective date of the 

amendments to rule 204(b)-1 under the Advisers Act and Form PF. The compliance date for 

 2201 See rules 2a-7(h)(10)(i)-(iv). For purposes of the required website disclosure of portfolio holdings and 

other fund information, funds will be required to disclose such information for the prior six months, even if 

such information is from prior to the compliance date. See supra section III.E.9.

2202 See, e.g., ICI Comment Letter (recommending a minimum of 18 months for funds to comply with the 

disclosure amendments); UBS Comment Letter (recommending a 12 to 18 month compliance period for all 

proposed regulatory changes that are not specifically related to either floating NAV or liquidity fees and 

gates); Dreyfus Comment Letter (recommending a two-year compliance period for amendments that are not 

specifically related to either floating NAV or liquidity fees and gates).
720

amendments to rule 30b1-7 and Form N-MFP is 18 months after the effective date of the 

amendments to rule 30b1-7 and Form N-MFP. The compliance date for the clarifying 

amendments is 18 months after the effective date of the amendments to rule 2a-7 pertaining to 

the clarifying amendments. 

IV. PAPERWORK REDUCTION ACT

Certain provisions of the proposed amendments contain “collections of information” 

within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).2203 The titles for the 

existing collections of information are: “Rule 2a-7 under the Investment Company Act of 1940, 

money market funds” (Office of Management and Budget (“OMB”) Control No. 3235-0268); 

“Rule 22e-3 under the Investment Company Act of 1940, Exemption for liquidation of money 

market funds” (OMB Control No. 3235-0658); “Rule 30b1-7 under the Investment Company Act 

of 1940, Monthly report for money market funds” (OMB Control No. 3235-0657); “Rule 34b1(a) under the Investment Company Act of 1940, Sales Literature Deemed to be Misleading” 

(OMB Control No. 3235-0346); “Rule 204(b)-1 under the Investment Advisers Act of 1940, 

Reporting by investment advisers to private funds” (OMB Control No. 3235-0679); “Rule 482 

under the Securities Act of 1933, Advertising by an Investment Company as Satisfying 

Requirements of Section 10” (OMB Control No. 3235-0565); “Form N-1A under the Securities 

Act of 1933 and under the Investment Company Act of 1940, Registration statement of open-end 

management investment companies” (OMB Control No. 3235-0307); “Form N-MFP, Monthly 

schedule of portfolio holdings of money market funds” (OMB Control No. 3235-0657); and 

“Form PF, Reporting Form for Investment Advisers to Private Funds and Certain Commodity 

 2203 44 U.S.C. 3501 through 3521.
721

Pool Operators and Commodity Trading Advisers” (OMB Control No. 3235-0679). We are also 

submitting new collections of information for new rule 30b1-8 and new Form N-CR under the 

Investment Company Act of 1940.2204 The Commission submitted these collections of 

information to the OMB for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of 

information unless it displays a currently valid control number.

Today the Commission is adopting amendments intended to address money market 

funds’ susceptibility to heavy redemptions, improve their ability to manage and mitigate 

potential contagion from such redemptions, and increase the transparency of their risks. Our 

amendments will (i) permit all money market funds to impose a liquidity fee and/or “gate” the 

fund if a fund’s weekly liquidity level falls below the required regulatory amount; (ii) require all 

non-government money market funds to impose a liquidity fee if the fund’s weekly liquidity 

level falls below a designated regulatory threshold, unless the fund’s board determines that 

imposing such a fee is not in the best interests of the fund; (iii) require, as a targeted reform, that 

institutional non-government money market funds sell and redeem shares based on the current 

market-based value of the securities in their underlying portfolios, rounded to four decimal 

places (e.g., $1.0000), i.e., transact at a floating NAV; and (iv) require that money market funds 

adopt other amendments designed to make money market funds more resilient, including 

increasing diversification of their portfolios, enhancing their stress testing, and improving 

transparency through enhanced disclosure. The amendments further require investment advisers 

 2204 We also are proposing additional amendments that do not affect the relevant rules’ paperwork collections 

(e.g., we propose to amend Investment Company Act rule 12d3-1 solely to update cross references in that 

rule to provisions of rule 2a-7).
722

to certain unregistered liquidity funds, which can resemble money market funds, to provide 

additional information about those funds to the SEC. We discuss below the collection of 

information burdens associated with these amendments. 

A. Rule 2a-7

A number of the amendments we are adopting today, including our liquidity fees and 

gates reform, as well as our floating NAV reform, affect rule 2a-7. These amendments to rule 

2a-7 also amend or establish new collection of information burdens by: (a) requiring money 

market funds to be diversified with respect to the sponsors of asset-backed securities by deeming 

the sponsor to guarantee the asset-backed security unless the fund’s board of directors makes a 

finding otherwise; (b) requiring that “retail money market funds” adopt and implement policies 

and procedures reasonably designed to limit beneficial ownership of the fund to natural persons; 

(c) requiring that “government money market funds” amend policies and procedures to reflect 

the 0.5% de minimis non-conforming basket; (d) requiring money market funds’ boards to make 

and document a number of determinations regarding the imposition of fees and gates when 

weekly liquid assets fall below a certain threshold; (e) replacing the requirement that funds 

promptly notify the Commission via electronic mail of defaults and other events with disclosure 

on new Form N-CR; (f) amending the stress testing requirements; and (g) amending the 

disclosures that money market funds are required to post on their websites. Unless otherwise 

noted, the estimated burden hours discussed below are based on estimates of Commission staff 

with experience in similar matters. Several of the amendments create new collection of 

information requirements. The respondents to these collections of information are money market 

funds, investment advisers and other service providers to money market funds, including 
723

financial intermediaries, as noted below. The currently approved burden for rule 2a-7 is 517,228 

hours.

1. Asset-Backed Securities

Under the amendments we are adopting today, we are requiring that a money market fund 

treat the sponsors of ABS as guarantors subject to rule 2a-7’s 10% diversification limit 

applicable to guarantee and demand features, unless the fund’s board of directors (or its delegate) 

determines that the fund is not relying on the sponsor’s financial strength or its ability or 

willingness to provide liquidity, credit or other support to determine the ABS’s quality or 

liquidity.2205 The board of directors must adopt written procedures requiring periodic evaluation 

of this determination.2206 Furthermore, for a period of not less than three years from the date 

when the evaluation was most recently made, the fund must preserve and maintain, in an easily 

accessible place, a written record of the evaluation.2207 These requirements are collections of 

information under the PRA, and are designed to help ensure that the objectives of the 

diversification limitations are achieved. The new collection of information is mandatory for 

money market funds that rely on rule 2a-7, and to the extent that the Commission receives 

confidential information pursuant to the collection of information, such information will be kept 

confidential, subject to the provisions of applicable law.

2208 

 2205 See rule 2a-7(a)(18)(ii).

2206 See rule 2a-7(g)(7).

2207 See rule 2a-7(h)(6).

2208 See, e.g., 5 U.S.C. 552 (Exemption 4 of the Freedom of Information Act provides an exemption for “trade 

secrets and commercial or financial information obtained from a person and privileged or confidential.” 5 

U.S.C. 552(b)(4). Exemption 8 of the Freedom of Information Act provides an exemption for matters that 

are “contained in or related to examination, operating, or condition reports prepared by, or on behalf of, or 

for the use of an agency responsible for the regulation or supervision of financial institutions.” 5 U.S.C. 
724

In the Proposing Release, the Commission estimated that approximately 183 money 

market funds held asset-backed securities and would have been required to adopt written 

procedures regarding the periodic evaluation of determinations made by the fund as to ABS not 

subject to guarantees. The Commission estimated the one-time burden to prepare and adopt 

these procedures would have been 1,647 hours2209 at approximately $1.2 million in total time 

costs for all money market funds.2210 Amortized over a three-year period, this would have 

resulted in an average annual burden of 549 hours and time costs of approximately $400,000 for 

all money market funds.2211 The Commission estimated that the average annual burden to 

prepare materials and written records for the boards’ required review of new and existing 

determinations would have been 732 burden hours2212 and approximately $940,071 in total time 

costs for all money market funds.2213 Averaging the initial burden plus the average annual 

burdens over three years would have resulted in an average annual burden of 1,281 hours and 

time costs of approximately $1.3 million for all money market funds. The Commission 

estimated in the Proposing Release that there would have been no external costs associated with 

this collection of information. 

 

552(b)(8)).

2209 This estimate was based on the following calculation: 8 burden hours to prepare written procedures + 1 

burden hour to adopt procedures = 9 burden hours per money market fund required to adopt procedures; 9 

burden hours per money market fund x 183 funds expected to adopt procedures = 1,647 total burden hours.

2210 This estimate was based on the following calculation: 183 money market funds x $7,032 in total costs per 

fund = $1.2 million.

2211 This estimate was based on the following calculations: 1,647 burden hours ÷ 3 = 549 average annual 

burden hours; $1.2 million burden costs ÷ 3 = $400,000 average annual burden cost.

2212 This estimate was based on the following calculation: 4 burden hours per money market fund x 183 funds 

= 732 total burden hours.

2213 This estimate was based on the following calculation: 183 money market funds x $5,137 in total costs per 

fund = $940,071.
725

The Commission did not receive any comments on the estimated hour and cost burdens. 

The Commission has modified the estimated increase in annual burden hours and total time costs 

that will result from the amendment based on updated industry data. The Commission believes 

that the written procedures will be developed for all the money market funds in a fund complex 

by the fund adviser, and that a fund complex will have economies of scale to the extent that there 

may be more than one money market fund in a complex. Based on its review of reports on Form 

N-MFP as of February 28, 2014, the Commission estimates that approximately 152 money

market funds hold asset-backed securities and will be required to adopt written procedures 

regarding the periodic evaluation of determinations made by the fund as to ABS not subject to 

guarantees. The Commission continues to estimate that it will take approximately eight hours of 

a fund attorney’s time to prepare the procedures and one hour for a board to adopt the 

procedures. Therefore, the Commission estimates the one-time burden to prepare and adopt 

these procedures will be approximately nine hours per money market fund, at a time cost of 

$7,440 per fund.2214 The Commission further estimates the one-time burden to prepare and adopt 

these procedures will be 1,368 hours2215 at $1,130,880 in total time costs for all money market 

 2214 This estimate is based on the following calculation: (8 hours x $380 per hour for an attorney = $3,040) + (1 

hour x $4,400 per hour for a board of 8 directors = $4,400) = $7,440. The staff previously estimated in 

2009 that the average cost of board of director time was $4,000 per hour for the board as a whole, based on 

information received from funds and their counsel. Adjusting for inflation, the staff estimates that the 

current average cost of board of director time is approximately $4,400. All other estimated wage figures 

discussed here and throughout section IV of this Release are based on published rates have been taken from 

SIFMA’s Management & Professional Earnings in the Securities Industry 2013, available at

http://www.sifma.org/research/item.aspx?id=8589940603, modified by Commission staff to account for an 

1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and 

overhead.

2215 This estimate is based on the following calculation: 8 burden hours to prepare written procedures + 1 

burden hour to adopt procedures = 9 burden hours per money market fund required to adopt procedures; 9 

burden hours per money market fund x 152 funds expected to adopt procedures = 1,368 total burden hours.
726

funds.2216 Amortized over a three-year period, this will result in an average annual burden of 456 

hours and time costs of $376,960 for all funds.2217 The Commission continues to estimate that a 

money market fund that will be required to adopt such written procedures will spend, on an 

annual basis, (i) two hours of a fund attorney’s time to prepare materials for the board’s review 

of new and existing determinations, (ii) one hour for the board to review those materials and 

make the required determinations, and (iii) one hour of a fund attorney’s time per year, on 

average, to prepare the written records of such determinations.2218 Therefore, the Commission 

estimates that the average annual burden to prepare materials and written records for a board’s 

required review of new and existing determinations will be approximately four hours per fund2219

at a time cost of approximately $5,540 per fund.2220 The Commission therefore estimates the 

annual burden will be 608 burden hours2221 and $842,080 in total time costs for all money market

funds.2222 Adding the one-time burden, amortized over three years, to prepare and adopt 

procedures with the annual burden to prepare materials for determinations will result in a total

 2216 This estimate is based on the following calculation: 152 money market funds x $7,440 in total costs per 

fund complex = $1,130,880.

2217 This estimate is based on the following calculations: 1,368 burden hours ÷ 3 = 456 average annual burden 

hours; $1,130,880 burden costs ÷ 3 = $376,960 average annual burden cost. 

2218 This estimate includes documenting, if applicable, the fund board’s determination that the fund is not 

relying on the fund sponsor’s financial strength or its ability or willingness to provide liquidity or other 

credit support to determine the ABS’s quality or liquidity. See rule 2a-7(a)(18)(ii) and rule 2a-7(h)(6).

2219 This estimate is based on the following calculation: 2 hours to adopt + 1 hour for board review + 1 hour for 

record preparation = 4 hours per year. 

2220 This estimate is based on the following calculations: (3 hours x $380 per hour for an attorney = $1,140) + 

(1 hour x $4,400 per hour for a board of 8 directors = $4,400) = $5,540.

2221 This estimate is based on the following calculation: 4 burden hours per money market fund x 152 funds 

= 608 total burden hours.

2222 This estimate is based on the following calculation: 152 money market funds x $5,540 in total costs per 

fund = $842,080.
727

amortized annual burden of 1,064 hours and time costs of $1,219,040 for all funds.2223 We 

estimate that there are no external costs associated with this collection of information. 

2. Retail and Government Funds

i. Retail Funds

Under our floating NAV reform, a retail money market fund—which means a money 

market fund that adopts and implements policies and procedures reasonably designed to limit 

beneficial owners to natural persons—will be allowed to continue to maintain a stable NAV 

through the use of amortized cost valuation and/or penny-rounding pricing. The requirement that 

retail money market funds adopt policies and procedures is a collection of information under the 

PRA. The new collections of information are mandatory for money market funds that seek to 

qualify as “retail money market funds” under rule 2a-7 as amended,2224 and to the extent that the 

Commission receives confidential information pursuant to this collection of information, such 

information will be kept confidential, subject to the provisions of applicable law.

2225

For purposes of the PRA, the Commission estimates that approximately 55 money market 

fund complexes will seek to qualify as retail money market funds under rule 2a-7 and therefore 

be required to adopt written policies and procedures reasonably designed to limit beneficial 

owners to natural persons.2226 We continue to estimate, as we did in the Proposing Release, that 

 2223 This estimate is based on the following calculation: (1,368 burden hours ÷ 3 = 456 average annual burden 

hours) + 608 annual burden hours = 1,064 hours; ($1,130,880 burden costs ÷ 3 = $376,960 average annual 

burden cost) + $842,080 annual time costs = $1,219,040.

2224 See rule 2a-7(a)(25); 2a-7(c)(1)(i).

2225 See supra note 2208. 

2226 For purposes of the PRA, staff estimates that those money market funds that self-reported as “retail” funds 

as of February 28, 2014 (based on iMoneyNet data) will likely seek to qualify as retail money market funds 

under amended rule 2a-7. Based on iMoneyNet data, these 55 fund complexes managed 195 self-reported 
728

it will take approximately 12 hours of a fund attorney’s time to prepare the procedures and one 

hour for a board to adopt the procedures.2227 The Commission did not receive any comments on 

the estimated hour and cost burdens. Accordingly, we have modified our estimate of the total 

time cost that will result from the amendments based on updated industry data and estimate an 

initial time cost of approximately $8,960 per fund complex.2228 Therefore, we estimate the onetime burden to prepare and adopt these procedures will be approximately 715 hours2229 at 

$492,800 in total time costs for all fund complexes.2230 Amortized over a three year period, this 

will result in an average annual burden of 238 hours and time costs of $164,267 for all funds.2231 

We estimate that there are no external costs associated with this collection of information.

ii. Government Funds

Under today’s amendments, government money market funds will not be required to 

implement a floating NAV or fees and gates. We define a government money market fund to 

mean a fund that invests at least 99.5% of its total assets in cash, government securities, and/or 

repurchase agreements collateralized by cash or government securities. Currently, a government 

 

“retail” money market funds. 

2227 Staff believes that the burden associated with drafting and adopting policies and procedures reasonably 

designed to limit beneficial ownership to natural persons will be approximately the same as the burden that 

would have been required under our proposal (requiring that funds adopt and implement procedures 

reasonably designed to allow the conclusion that the omnibus account holder does not permit any beneficial 

owner, directly or indirectly, to redeem more than the daily permitted amount).

2228 This estimate is based on the following calculation: ([12 hours x $380 per hour for an attorney = $4,560] + 

[1 hour x $4,400 per hour for a board of 8 directors = $4,400] = $8,960). 

2229 This estimate is based on the following calculation: 12 burden hours to prepare written procedures + 1 

burden hour to adopt procedures = 13 burden hours per money market fund complex; 13 burden hours per 

fund complex x 55 fund complexes = 715 total burden hours for all fund complexes.

2230 This estimate is based on the following calculation: 55 fund complexes x $8,960 in total costs per fund 

complex = $492,800.

2231 This estimate is based on the following calculation: 715 burden hours ÷ 3 = 238 average annual burden 

hours; $492,800 burden costs ÷ 3 = $164,267 average annual burden cost. 
729

money market fund is permitted to invest up to 20% of its total assets in non-government 

assets.2232 Under our amendments, a government money market fund will no longer be permitted 

to invest up to 20% of its total assets in non-government assets; rather, these funds will be 

permitted a 0.5% de minimis non-conforming basket in which the fund may invest in nongovernment assets. Accordingly, we anticipate that government money market funds will need 

to amend their existing policies and procedures to reflect the new 0.5% de minimis basket.

For purposes of the PRA, the Commission estimates that approximately 60 money market 

fund complexes will seek to qualify as government money market funds under rule 2a-7 and 

therefore be required to amend their written policies and procedures to reflect the 0.5% de 

minimis basket.2233 We estimate that it will take approximately one hour of a fund attorney’s 

time to amend the procedures and 0.5 hours for a board to adopt the amended procedures. 

Accordingly, we estimate the total initial time cost that will result from the amendments will be 

approximately $2,580 per fund complex.2234 Therefore, we estimate the one-time burden to 

amend these procedures will be approximately 90 hours2235 at $154,800 in total time costs for all 

fund complexes.2236 Amortized over a three-year period, this will result in an average annual 

 2232 See supra note 628 (defining “non-government assets”); see also supra note 629 (noting that the “names 

rule” effectively limits government funds from investing more than 20% of total assets in non-government 

assets).

2233 This estimate is based on Form N-MFP data as of February 28, 2014.

2234 This estimate is based on the following calculation: ([1 hours x $380 per hour for an attorney = $380] + 

[0.5 hours x $4,400 per hour for a board of 8 directors = $2,200] = $2,580). 

2235 This estimate is based on the following calculation: 1 burden hours to amend written procedures + 0.5 

burden hours to adopt procedures = 1.5 burden hours per money market fund complex; 1.5 burden hours 

per fund complex x 60 fund complexes = 90 total burden hours for all fund complexes.

2236 This estimate is based on the following calculation: 60 fund complexes x $2,580 in total costs per fund 

complex = $154,800.
730

burden of approximately 30 hours and time costs of $51,600 for all funds.2237 We estimate that 

there are no external costs associated with this collection of information. 

3. Board Determinations – Fees and Gates

Under the fees and gates amendments, if a money market fund’s weekly liquid assets fall 

below 30% or 10%, respectively, of its total assets, the fund’s board may be required to make 

and document a number of determinations regarding the imposition of fees and gates, 2238

including (i) whether to impose a liquidity fee, and if so, what the amount of the liquidity fee 

should be (not to exceed 2%); (ii) whether to impose a redemption gate; (iii) when to remove a 

liquidity fee put in place (subject to other rule requirements); and (iv) when to lift a redemption 

gate put in place (subject to other rule requirements).2239 This requirement is a collection of 

information under the PRA, and is designed to ensure that a fund that imposes a fee or gate does 

so when it is in its best interests (as determined by its board). This new collection of information 

is mandatory for money market funds that rely on rule 2a-7, and to the extent that the 

Commission receives confidential information pursuant to these collections of information, such 

information will be kept confidential, subject to the provisions of applicable law.2240

As proposed, the fees and gates amendments would have required the same collection of 

information if a money market fund’s weekly liquid assets fell below 15% of its total assets. As 

 2237 This estimate is based on the following calculation: 90 burden hours ÷ 3 = 30 average annual burden hours; 

$154,800 burden costs ÷ 3 = $51,600 average annual burden cost. 

2238 As discussed in section III.A above, after a fund’s weekly liquid assets have dropped below 30%, a fund’s 

board may determine that it is in the best interests of the fund to impose a liquidity fee or redemption gate. 

After a fund’s weekly liquid assets have dropped below 10%, a fund must impose a 1% a liquidity fee on 

all redemptions, unless its board determines it is not in the best interests of the fund to do so. See rule 2a7(c)(2)(i) and (ii).

2239 See id.

2240 See supra note 2208.
731

discussed in the Proposing Release, Commission staff analysis of Form N-MFP data showed 

that, between March 2011 and October 2012, five prime money market funds had weekly liquid 

assets below 15% of total assets.2241 As set forth in the Proposing Release, the same 

Commission staff analysis of Form N-MFP data shows that 138 prime money market funds had 

weekly liquid assets below 30% of total assets during this same period.

2242 In the proposal, the 

Commission estimated approximately 28 annual burden hours, 2243 and a total time cost of 

$39,580 for all money market funds.2244 We did not receive any comments on the estimated 

hour and cost burdens related to board determinations under the fees and gates amendments. 

The Commission continues to estimate that the affected money market funds that will

satisfy the triggering event will spend, on an annual basis, (i) four hours of a fund attorney’s time 

to prepare materials for the board’s determinations, (ii) two hours for the board to review those 

materials and make the required determinations, and (iii) one hour of a fund attorney’s time per 

year, on average, to prepare the written records of such determinations.2245 Therefore, the 

Commission estimates that the average annual burden to prepare materials and written records 

 2241 See Proposing Release, supra note 25, at 548-49 (showing that, during the period, four funds dropped 

below 15% weekly liquid assets and one fund dropped below 10% weekly liquid assets).

2242 See Proposing Release, supra note 25, at 177. This same analysis shows that one prime money market fund 

had weekly liquid assets below 10% between March 2011 and October 2012. Because 30% is the higher 

threshold, the fund that dropped below 10% weekly liquid assets during the period would also be included 

within the 138 funds that crossed below 30% weekly liquid assets during the period.

2243 This estimate was based on the following calculation: 7 burden hours per money market fund x 4 funds 

= 28 total burden hours.

2244 This estimate was based on the following calculation: 4 money market funds x $9,895 in total costs per 

fund complex = $39,580.

2245 This estimate includes preparing and evaluating materials relevant to the determinations required in 

imposing (and removing) either or both liquidity fees and redemption gates. See supra note 2239. 
732

for a board’s required determinations will be approximately seven hours per fund,2246 the same as 

proposed, at a time cost of approximately $10,700 per fund.2247 The estimated time cost has 

increased from the proposal, which estimated $9,895 per fund, as a result of updated industry 

data.2248 Based on a total of 83 funds per year that will have weekly liquid assets below 30% of 

total assets,2249 the Commission estimates the annual burden will be approximately 581 burden 

hours,2250 and $888,100 in total time costs for all money market funds.2251 

The increases in annual burden hours and total time costs from the proposal are largely 

due to the increase in the estimated number of funds that will be subject to collection of 

information (from four to 83) as a result of the higher weekly liquid assets threshold for 

imposition of fees and gates. We estimate that there are no external costs associated with this 

collection of information. 

 2246 This estimate is based on the following calculation: 4 hours to prepare materials + 2 hours for board review 

+ 1 hour for record preparation = 7 hours per year. 

2247 This estimate is based on the following calculation: [5 hours x $380 per hour for an attorney = $1900] + [2 

hours x $4,400 per hour for a board of 8 directors = $8,800] = $10,700. 

2248 The proposal estimated $379 per hour for an attorney based on published rates that had been taken from 

SIFMA’s Management and Professional Earnings in the Securities Industry 2012, available at

http://www.sifma.org/research/item.aspx?id=8589940603, modified by Commission staff to account for an 

1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits, and 

overhead. The proposal also estimated that the average cost of board of director time was $4,000 per hour 

for the board as a whole based on information received from funds and their counsel. Adjusting for 

inflation, the staff estimates that the current average cost of board of director time is approximately $4,400. 

2249 This estimate is based on the following calculation: (138 funds ÷ 20 months) x 12 months = 83 funds per 

year.

2250 This estimate is based on the following calculation: 7 burden hours per fund x 83 funds = 581 burden 

hours.

2251 This estimate is based on the following calculation: $10,700 in total costs per fund x 83 money market 

funds = $888,100.
733

4. Notice to the Commission

Our amendments also eliminate, as proposed, the requirements under rule 2a-7 relating to 

notifications money market funds must make to the Commission upon the occurrence of certain 

events. Specifically, the amendments eliminate the requirements for money market funds to 

promptly notify the Director of Investment Management or its designee by electronic mail (i) of 

any default or event of insolvency with respect to the issuer of one or more portfolio securities 

(or any issuer of a demand feature or guarantee), where immediately before the default the 

securities comprised one half of one percent or more of the fund’s total assets;2252 and (ii) of any 

purchase of a security from the fund by an affiliated person in reliance on rule 17a-9 under the 

Investment Company Act.2253 The Proposing Release also estimated that approximately 20 

money market funds per year previously would have been required to provide the notification of 

an event of default or insolvency, and that each such notification would entail 0.5 burden hours. 

The Commission also estimated that approximately 25 money market fund complexes per year 

previously would have been required to provide notification of a purchase of a portfolio security 

in reliance on rule 17a-9, and each such notification would entail one burden hour. Based on 

these estimates, we calculated that the elimination of these requirements would reduce the 

current annual burden by approximately 10 hours for notices of default or insolvency, at a total 

 2252 See current rule 2a-7(c)(7)(iii)(A) (requiring that the notice include a description of the actions the money 

market fund intends to take in response to the event).

2253 See current rule 2a-7(c)(7)(iii)(B) (requiring that the notice include identification of the security, its 

amortized cost, the sale price, and the reasons for the purchase).
734

time cost savings of $3,790,2254 and by approximately 25 hours for notices of purchases in 

reliance on rule 17a-9, at a total time cost savings of $9,475.2255 

No commenters addressed the number of money market funds that would be affected by 

the proposal or the estimated reduction in annual burden hours or total time cost savings that 

would result from the proposed amendments. Accordingly, the Commission has not modified 

the estimated reduction in annual burden hours associated with the amendments, although it has 

modified its estimate of the total hour burden reduction that will result from the amendments 

based on updated industry data. Given these estimates, the amendments will reduce the current 

annual burden by approximately 10 hours for notices of default or insolvency, at a total time cost 

reduction of $3,800,2256 and by approximately 25 hours for notices of purchases in reliance on 

rule 17a-9, at a total time cost reduction of $9,500.2257 Therefore, the total reduction in burden is 

35 hours at a total time cost of $13,300.2258 We estimate that there are no external costs 

associated with this collection of information.

5. Stress Testing

We are adopting amendments to the stress testing requirements under rule 2a-7. 

 2254 This estimate was based on the following calculations: 20 funds x 0.5 hour reduction in hours per fund = 

reduction of 10 hours; 10 burden hours x $379 per hour for an attorney = $3,790.

2255 This estimate was based on the following calculations: 25 fund complexes x 1 hour reduction in hours per 

fund = reduction of 25 hours; 25 burden hours x $379 per hour for an attorney = $9,475.

2256 This estimate is based on the following calculations: 20 funds x 0.5 hour reduction in hours per fund = 

reduction of 10 hours; 10 burden hours x $380 per hour for an attorney = $3,800.

2257 This estimate is based on the following calculations: 25 fund complexes x 1 hour reduction in hours per 

fund = reduction of 25 hours; 25 burden hours x $380 per hour for an attorney = $9,500.

2258 This estimate is based on the following calculation: 10 hours (reduction for notices of default or 

insolvency) + 25 hours (reduction for notices of purchases in reliance on rule 17a-9) = 35 hours total 

reduction; $3,800 (reduction for notices of default or insolvency) + $9,500 (reduction for notices of 

purchases in reliance on rule 17a-9) = $13,300 total reduction.
735

Specifically, we are adopting reforms to the current stress testing provisions that will require 

funds to test their ability to maintain weekly liquid assets of at least 10% and to minimize 

principal volatility in response to specified hypothetical events that include (i) increases in the 

level of short-term interest rates, (ii) a downgrade or default of particular portfolio security 

positions, each representing various portions of the fund’s portfolio, and (iii) the widening of 

spreads in various sectors to which the fund’s portfolio is exposed, each in combination with 

various increases in shareholder redemptions. A written copy of the procedures and any 

modifications thereto, must be maintained and preserved for a period of not less than six years 

following the replacement of such procedures with new procedures, the first two years in an 

easily accessible place.2259 In addition, the written procedures must provide for a report of the 

stress testing results to be presented to the board of directors at its next regularly scheduled 

meeting (or sooner, if appropriate in light of the results).2260 These requirements are collections 

of information under the PRA, and are designed, in part, to address disparities in the quality and 

comprehensiveness of stress tests. The collection of information is mandatory for money market 

funds that rely on rule 2a-7, and to the extent that the Commission receives confidential 

information pursuant to this collection of information, such information will be kept confidential, 

subject to the provisions of applicable law.

2261

In the Proposing Release, we noted that we were proposing to amend the stress testing 

provisions of rule 2a-7 to enhance the hypothetical events for which a fund (or its adviser) is 

 2259 See rule 2a-7(h)(8).

2260 See rule 2a-7(g)(8)(ii).

2261 See supra note 2208. 
736

required to stress test, including: (i) increases (rather than changes) in the general level of shortterm interest rates; (ii) downgrades or defaults of portfolio securities, and the effects these events 

could have on other securities held by the fund; (iii) “widening or narrowing of spreads among 

the indexes to which interest rates of portfolio securities are tied”; (iv) other movements in 

interest rates that may affect the fund’s portfolio securities, such as shifts in the yield curve; and 

(v) combinations of these and any other events the adviser deems relevant, assuming a positive 

correlation of risk factors.2262 Under our proposed amendments, floating NAV money market 

funds would have been required to replace their current stress test for the ability to maintain a 

stable price per share with a test of the fund’s ability to maintain 15% of its total assets in weekly 

liquid assets. 

Based on the proposed amendments to stress testing, the Commission estimated in the 

Proposing Release that each fund that would have been required to implement the proposed 

stress testing changes would have to incur an average one-time burden of 92 hours at a time cost 

of $42,688.2263 Based on an estimate of 92 funds that would incur this one-time burden,2264 the 

Commission estimated that the aggregate one-time burden for all money market funds to 

 2262 See proposed (FNAV) rule 2a-7(g)(7).

2263 Staff estimated that these systems modifications would include the following costs: (i) project planning

and systems design (24 hours x $291 (hourly rate for a senior systems analyst) = $6,984); (ii) systems 

modification integration, testing, installation, and deployment (32 hours x $282 (hourly rate for a senior 

programmer) = $9,024); (iii) drafting, integrating, implementing procedures and controls (24 hours x $327 

(blended hourly rate for assistant general counsel ($467), chief compliance officer ($441), senior EDP 

auditor ($273) and operations specialist ($126)) = $7,848); and (iv) preparation of training materials ((8 

hours x $354 (hourly rate for an assistant compliance director) = $2,832) + (4 hours (4 hour training session 

for board of directors) x $4,000 (hourly rate for board of 8 directors) = $16,000) = $18,832). Therefore, 

staff estimated an average one-time burden of 92 hours (24+32+24+8+4), at a total cost per fund of 

$42,688 ($6,984+$9,024+$7,848+$18,832).

2264 This estimate was based on staff experience and discussions with industry.
737

implement the proposed amendments to stress testing would have been 8,464 hours at a total 

time cost of $3.9 million.2265 Amortized over a three year period, this would have resulted in an 

average annual burden of 2,821 burden hours and $1.3 million total time cost for all funds.2266 

The Commission estimated in the Proposing Release that there would have been no external 

costs associated with this collection of information. The Commission did not receive any 

comments on the estimated hour and cost burdens.

Although we are adopting amendments to the stress testing requirements with 

modifications from the proposal, the Commission does not believe that the changes from the 

proposed amendments will directly affect the burden hours or total time costs associated with the 

requirement that money market funds maintain a written copy of their stress testing procedures, 

and any modifications thereto, and preserve for a period of not less than six years following the 

replacement of such procedures with new procedures, the first two years in an easily accessible 

place. However, the Commission has modified the estimated increase in annual burden hours 

and total time costs that will result from the amendment based on updated industry data. 

We understand that most money market funds, in their normal course of risk 

management, include many of the elements we are adopting in their stress testing. Nevertheless, 

we expect that funds may incur a one-time internal burden to reprogram an existing system to 

provide the required reports of stress testing results based on our amendments. We believe that 

the stress testing procedures will be modified for all the money market funds in a fund complex 

 2265 This estimate was based on the following calculations: 92 funds x 92 hours per fund = 8,464 hours; 92 

funds x $42,688 = $3.9 million.

2266 This estimate is based on the following calculations: 8,464 hours ÷ 3 = 2,821 burden hours; $3.9 million ÷ 

3 = $1.3 million burden cost.
738

by the fund adviser, and that a fund complex will have economies of scale to the extent that there 

may be more than one money market fund in a complex. The Commission estimates that each 

fund that will have to implement the stress testing changes will incur an average one-time burden 

of 92 hours at a time cost of $43,872.2267 Based on an estimate of 559 money market funds that 

will incur this one-time burden,2268 the Commission estimates that the aggregate one-time burden 

for all money market funds to implement the amendments to stress testing will be 51,428 hours 

at a total time cost of $24,524,448.

2269 Amortized over a three year period, this will result in an 

average annual burden of approximately 17,143 burden hours and $8,174,816 total time cost for 

all funds.2270 We estimate that there are no external costs associated with this collection of 

information. 

Each report to the board of directors will include an assessment of the money market 

fund’s ability to have invested at least 10% of its total assets in weekly liquid assets and to 

minimize principal volatility, and an assessment by the fund’s adviser of the fund’s ability to 

withstand the events that are reasonably likely to occur within the following year. Under current 

 2267 The Commission estimates that these systems modifications will include the following costs: (i) project 

planning and systems design (24 hours x $260 (hourly rate for a senior systems analyst) = $6,240); (ii) 

systems modification integration, testing, installation, and deployment (32 hours x $303 (hourly rate for a 

senior programmer) = $9,696); (iii) drafting, integrating, implementing procedures and controls (24 hours x 

$319 (blended hourly rate for assistant general counsel ($426), chief compliance officer ($485), senior EDP 

auditor ($241) and operations specialist ($125)) = $7,656); and (iv) preparation of training materials ((8 

hours x $335 (hourly rate for an assistant compliance director) = $2,680) + (4 hours (4 hour training session 

for board of directors) x $4,400 (hourly rate for board of 8 directors) = $17,600) = $20,280). Therefore, the 

Commission estimates an average one-time burden of 92 hours (24+32+24+8+4), at a total cost per fund of 

$43,872 ($6,240+$9,696+$7,656+$20,280).

2268 We increased the estimated number of funds from the Proposing Release based on staff experience and 

discussions with industry.

2269 This estimate is based on the following calculations: 559 funds x 92 hours per fund = 51,428 hours; 559 

funds x $43,872 = $24,524,448

2270 This estimate is based on the following calculations: 51,428 hours ÷ 3 = approximately 17,143 burden 

hours; $24,524,448 ÷ 3 = $8,174,816.
739

rule 2a-7, money market funds are required to have written procedures that provide for a report 

of the stress testing results to be presented to the board of directors at its next regularly scheduled 

meeting (or sooner, if appropriate in light of the results). However, because we are amending the 

type of information that must be included in the report to the board, we have estimated the 

collection of information burden hours increase and the total time cost increase.

The Commission estimates that it will take on average an additional: (i) two hours of 

portfolio management time, (ii) one hour of compliance time, (iii) one hour of professional legal 

time and (iv) 0.5 hours of support staff time, requiring an additional 4.5 burden hours at a time 

cost of approximately $1,302 per fund.2271 Under normal circumstances, the report must be 

provided at the next scheduled board meeting, and the Commission estimates that the report and 

the adviser’s assessment will cover all money market funds in a complex. For purposes of these 

calculations, the Commission assumes that funds will conduct stress tests no less than monthly. 

With an average of six board meetings each year, the Commission estimates that the annual 

burden for regularly scheduled reports will be 27 hours per money market fund.2272 Under the 

rule, a report must be provided earlier if appropriate in light of the results of the test. The 

Commission estimates that as a result of unanticipated changes in market conditions or other 

events, stress testing results are likely to prompt additional reports on average four times each 

year.2273 Thus, the Commission estimates reports will result in an additional 18 hours for an 

 2271 This estimate is based on the following calculation: (2 hours x $301 per hour for a portfolio manager = 

$602) + (1 hour x $283 for a compliance manager = $283) + (1 hour x $380 for an attorney = $380) + (0.5 

hours x $74 per hour for an administrative assistant = $37) = $1,302.

2272 This estimate is based on the following calculation: (2 hours (portfolio management) + 1 hour (compliance) 

+ 1 hour (legal) + 0.5 hours (support staff)) = 4.5 hours x 6 meetings = 27 hours.

2273 The Commission anticipates that in many years there will be no need for special reports, but that in a year 
740

individual fund each year.2274 The Commission estimates the total annual burden for all money 

market funds will be an additional 25,155 hours at a total time cost of $7,278,180.

2275 

Adding the one-time burden, amortized over three years, to implement the stress testing 

amendments with the annual burden to report the results of the stress tests to the board of will

result in a total amortized annual burden of 42,298 hours and time costs of $15,452,996 for all 

funds.2276 We estimate that there are no external costs associated with this collection of 

information. 

6. Website Disclosure

The amendments we are adopting today require money market funds to disclose certain 

additional information on their websites. These amendments promote transparency to investors 

of money market funds’ risks and risk management by: 

• Harmonizing the specific portfolio holdings information that rule 2a-7 requires a fund 

to disclose on the fund’s website with the corresponding portfolio holdings information 

required to be reported on Form N-MFP;2277

 

in which there is severe market stress, a fund may report to the board weekly for a period of 3 to 6 months. 

Such reporting will generate 9 to 18 reports in addition to the regular monthly reports. Assuming that this 

type of event may occur once every five years, and additional reports will be generated for 6 months, a fund 

will produce an average of four additional reports per year (18 additional reports ÷ 5 = 3.6 reports).

2274 This estimate is based on the following calculation: 4.5 hours x 4 = 18 hours.

2275 This estimate is based on the following calculation: (27 hours + 18 hours = 45 hours) x 559 money market 

funds = 25,155 hours and ($1,302 x (6 regularly scheduled reports + 4 additional reports = 10 reports per 

year) = $13,020 per fund) x 559 funds = $7,278,180.

2276 This estimate is based on the following calculation: (51,428 burden hours ÷ 3 = 17,143 average annual 

burden hours) + 25,155 annual burden hours = 42,298 hours; ($24,524,448 burden costs ÷ 3 = $8,174,816 

average annual burden cost) + $7,278,180 annual time costs = $15,452,996.

2277 See rule 2a-7(h)(10)(i).
741

• Requiring that a fund disclose on its website a schedule, chart, graph, or other depiction 

showing the percentage of the fund’s total assets that are invested in daily and weekly 

liquid assets, as well as the fund’s daily net inflows or outflows, as of the end of each 

business day during the preceding six months (which depiction must be updated each 

business day as of the end of the preceding business day);2278

• Requiring that a fund disclose on its website a schedule, chart, graph, or other depiction 

showing the fund’s daily current NAV per share, as of the end of each business day 

during the preceding six months (which depiction must be updated each business day as 

of the end of the preceding business day);2279 and

• Requiring a fund to disclose on its website certain information that the fund is required 

to report to the Commission on Form N-CR regarding the imposition and removal of 

liquidity fees, the suspension and resumption of fund redemptions, and the provision of 

financial support to the fund.2280 

These new collections of information are mandatory for money market funds that rely on 

rule 2a-7 and are not kept confidential.

a. Disclosure of Portfolio Holdings Information

We are adopting, largely as proposed, the requirement for a money market fund to 

disclose on its website certain portfolio holdings information that the fund also will be required 

to disclose on Form N-MFP. This requirement will harmonize the holdings information that a 

 2278 See rule 2a-7(h)(10)(ii).

2279 See rule 2a-7(h)(10)(iii).

2280 See rule 2a-7(h)(10)(v).
742

fund is required to disclose on its website with the corresponding portfolio holdings information 

required to be reported on Form N-MFP. We anticipate that the burden for each fund to draft 

and finalize the disclosure that appears on its website will largely be incurred when the fund files 

Form N-MFP.2281 In the Proposing Release, the Commission estimated that a fund would incur 

an additional burden of one hour each time that it updates its website to include the new 

disclosure. Using an estimate of 586 money market funds that would be required to include the 

proposed new portfolio holdings disclosure on the fund’s website, we estimated that each fund 

would incur 12 additional hours of internal staff time per year (one hour per monthly filing), at a 

time cost of $2,484, to update the website to include the new disclosure, for a total of 7,032 

aggregate hours per year, at a total aggregate time cost of $1,455,624. 

Certain commenters generally noted that complying with the new website disclosure 

requirements would add costs for funds, including costs to upgrade internal systems and software 

relevant to the website disclosure requirements (which possibly could include costs to engage 

third-party service providers for those money market fund managers that do not have existing 

relevant systems).

2282 One commenter, however, noted that the portfolio holdings disclosure 

 2281 See infra section IV.C. 

2282 See, e.g., UBS Comment Letter (“The SEC also proposed additional information regarding the posting of: 

(i) the categories of a money fund’s portfolio securities; (ii) maturity date information for each of the fund’s 

portfolio securities; and (iii) market-based values of the fund’s portfolio securities at the same time as this 

information becomes publicly available on Form N-MFP. We believe this information is too detailed to be 

useful to most investors and would be cost prohibitive to provide. Complying with these new website 

disclosure requirements would add notable costs for each money fund that UBS Global AM advises.”); 

Chamber II Comment Letter (“With respect to the website disclosure requirements, internal systems and 

software would need to be upgraded or, for those MMF managers that do not have existing systems, 

third-party service providers would need to be engaged. The costs (which ultimately would be borne by 

investors through higher fees or lower yields) could potentially be significant to an MMF and higher than 

those estimated in the Proposal.”); Dreyfus Comment Letter (noting that “several of the new Form 

reporting and web site and registration statement disclosure requirements . . . come with . . . material cost 

to funds and their sponsors”); see also Fin. Svcs. Roundtable Comment Letter (noting that the disclosure 
743

requirements should not cause a significant cost increase as long as the information is made 

available from relevant accounting systems,2283 and another commenter stated that the proposed 

disclosure requirements generally should not produce any meaningful costs.2284 Another 

commenter urged the Commission to harmonize new disclosure requirements so that funds 

would face lower administrative burdens, and investors would bear correspondingly fewer 

costs.2285 As described above, the portfolio holdings disclosure requirements we are adopting

have changed slightly from those that we proposed, in order to conform to modifications we are 

making to the proposed Form N-MFP disclosure requirements.2286 The Commission estimates 

that the number of money market funds is currently 559 and that the hour burden per fund 

remains the same as previously estimated.2287 Because the 2010 money market fund reforms 

already require money market funds to post monthly portfolio information on their websites,2288

funds should not need to upgrade their systems and software, or develop relevant systems (either 

in-house or with the assistance of a third-party service provider) to comply with the new 

portfolio holdings information disclosure requirements. The Commission therefore does not 

 requirements would produce “significant cost to the fund and ultimately to the fund’s investors”); SSGA 

Comment Letter (urging the Commission to consider the “substantial administrative, operational, and 

expense burdens” of the proposed disclosure-related amendments); Chapin Davis Comment Letter (noting 

that the disclosure- and reporting-related amendments will result in increased costs in the form of fund staff 

salaries, or consultant, accountant, and lawyer hourly rates, that will ultimately be borne in large part by 

investors and portfolio issuers). 

2283 See State Street Comment Letter.

2284 See HSBC Comment Letter.

2285 See Fin. Svcs. Roundtable Comment Letter.

2286 See supra section III.E.9.h (Costs of harmonization of rule 2a-7 and Form N-MFP portfolio holdings 

disclosure requirements).

2287 The estimate regarding the number of money market funds is based on a review of reports on Form N-MFP 

filed with the Commission for the month ended on February 28, 2014.

2288 See 2010 Adopting Release, supra note 17, at section II.E.1.
744

believe that comments about the costs required to upgrade relevant systems and software should 

affect its estimates of the burdens and costs associated with the portfolio holdings disclosure 

requirements. Taking this into consideration, the Commission has not modified its previous hour 

burden estimates. Although we have slightly revised the portfolio holdings disclosure 

requirements since proposing the requirements, we believe that these revisions do not produce 

additional burdens for funds and thus does not affect previous hour burden estimates. 

Based on an estimate of 559 money market funds posting their portfolio holdings on their 

webpages, we estimate that, in the aggregate, the amendment will result in a total of 6,708 

burden hours per year,2289 at a total aggregate time cost of $1,522,716.2290 We estimate that there 

are no external costs associated with this collection of information. 

b. Disclosure of Daily Weekly Assets and Weekly Liquid Assets and 

Net Shareholder Flow

We are adopting, as proposed, the requirement for a money market fund to disclose on its 

website a schedule, chart, graph, or other depiction showing the percentage of the fund’s total 

assets that are invested in daily and weekly liquid assets, as well as the fund’s net inflows or 

outflows, as of the end of each business day during the preceding six months. The burdens 

associated with this requirement include one-time burdens as well as ongoing burdens. In the 

Proposing Release, the Commission estimated that a money market fund would incur a one-time 

burden of 70 hours, at a time cost of $20,150, to design the required schedule, chart, graph, or 

 2289 This estimate is based on the following calculation: 12 hours per year x 559 money market funds = 6,708 

hours.

2290 This estimate is based on the following calculation: 6,708 hours x $227 per hour for a webmaster = 

$1,522,716.
745

other depiction, and to make the necessary software programming changes to the fund’s website 

to disclose the percentage of the fund’s total assets that are invested in daily liquid assets and 

weekly liquid assets, as well as the fund’s net inflows or outflows, as of the end of each business 

day during the preceding six months. Using an estimate of 586 money market funds, the 

Commission estimated that money market funds would incur, in aggregate, a total one-time 

burden of 41,020 hours, at a time cost of $11,807,900, to comply with these website disclosure 

requirements. We estimated that each fund would incur an ongoing annual burden of 32 hours,

at a time cost of $9,184, to update the depiction of daily and weekly liquid assets and the fund’s 

net inflows or outflows on the fund’s website each business day during that year. We further 

estimated that, in the aggregate, money market funds would incur an average ongoing annual 

burden of 18,752 hours, at a time cost of $5,381,824, to comply with this disclosure requirement.

As discussed above, certain commenters generally noted that complying with the new 

website disclosure requirements would add costs for funds, including costs to upgrade internal 

systems and software relevant to the website disclosure requirements (which possibly could 

include costs to engage third-party service providers for those money market fund managers that 

do not have existing relevant systems).

2291 One commenter noted that these costs could 

potentially be “significant to [a money market fund] and higher than those estimated in the 

Proposing Release.”2292 Another commenter suggested that obtaining the daily and weekly liquid 

asset data for purposes of complying with the disclosure requirements would result in additional 

 2291 See UBS Comment Letter (“We do not support these changes, because they would require a significant 

restructuring of the money funds’ websites, which would be expensive to complete and maintain.”); see 

also supra note 2282.

2292 See Chamber II Comment Letter.
746

costs that the Commission did not include in its estimate in the Proposing Release, namely, the 

costs associated with the enhanced controls required to disseminate this information publicly 

each day.2293 However, one commenter stated that the proposed disclosure requirements should 

not produce any meaningful costs.2294 

The Commission estimates that the number of money market funds is currently 559. We 

agree that the one-time costs for certain money market funds to upgrade internal systems and 

software, and/or develop such systems if a money market fund does not have existing relevant 

systems, could be higher than those average one-time costs estimated in the Proposing Release. 

However, because the estimated one-time costs were based on the mid-point of a range of 

estimated costs, the higher costs that may be incurred by certain industry participants have 

already been factored into our estimates.2295 Our assumptions in estimating one-time hour and 

cost burdens therefore have not changed from those discussed in the Proposing Release. Based 

on an estimate of 559 money market funds posting information about their daily and weekly 

liquid assets, as well as their net inflows or outflows, on their webpages, we estimate that, in the 

aggregate, the amendment will result in a total one-time burden of 39,130 hours,2296 at a time cost 

of $11,336,520,2297 to comply with these website disclosure requirements. Amortized over a 

 2293 See State Street Comment Letter at Appendix A (“Due to the inherent risks associated with public 

disclosure, there will be enhanced controls required with respect to the daily public dissemination of daily 

and weekly liquid assets and the risks of shareholders making redemption decisions in reliance on that 

information . . . adds to staff to calculate and review the daily and weekly liquid assets.”). 

2294 See HSBC Comment Letter.

2295 See Proposing Release, supra note 25, at n.1044.

2296 This estimate is based on the following calculation: 70 hours x 559 money market funds = 39,130 hours.

2297 This estimate is based on the following calculation: $20,280 per fund x 559 money market funds = 

$11,336,520. The $20,280 per fund figure is, in turn, based on the following calculations: (20 hours (mid-
747

three-year period, this will result in an average annual burden of approximately 13,043 hours and 

time costs of approximately $3,778,840 for all money market funds.2298 

The Commission agrees that money market funds may incur additional costs associated 

with the enhanced controls required to publicly disseminate daily and weekly liquid asset data, 

which costs were not estimated in the Proposing Release. Incorporating these additional costs 

into new estimates, we estimate that each fund will incur an ongoing annual burden of 36 

hours,2299 at a time cost of $10,274,2300 to update the depiction of daily and weekly liquid assets 

and the fund’s net inflows or outflows on the fund’s website each business day during that year. 

 point of 16 hours and 24 hours for project assessment) x $309 (blended hourly rate for a compliance 

manager ($283) and a compliance attorney ($334)) = $6,180) + (50 hours (mid-point of 40 hours and 60 

hours for project development, implementation, and testing) x $282 (blended hourly rate for a senior 

systems analyst ($260) and a senior programmer ($303)) = $14,100) = $20,280 per fund. See Proposing 

Release, supra note 25, at nn.1044 and 1045. 

2298 This estimate was based on the following calculations: 39,130 burden hours ÷ 3 = 13,043 average annual 

burden hours; $11,336,520 burden costs ÷ 3 = $3,778,840 average annual burden cost.

2299 The Commission estimates that the lower bound of the range of the ongoing annual hour burden to update 

the required website information will be 21 hours per year (5 minutes per day x 252 business days in a year 

= 1,260 minutes, or 21 hours). We estimate that the upper bound of the range of the ongoing annual hour 

burden to update the required website information will be 42 hours per year (10 minutes per day x 252 

business days in a year = 2,520 minutes, or 42 hours).

Additionally, we estimate that each fund will incur an additional ongoing annual hour burden of between 3 

hours and 6 hours associated with implementing enhanced controls required to publicly disseminate the 

data at issue. Specifically, depending on the controls the fund already has in place, the Commission 

estimates that it will take a compliance manager and an attorney between 3 and 6 hours to review and 

update (or if necessary, to develop and implement) the controls associated with the public dissemination of 

daily liquid asset and weekly liquid asset data each year.

Because we do not have the information necessary to provide a point estimate of the costs to modify a 

particular fund’s systems we thus have provided ranges of estimated costs in our economic analysis. See

supra section III.E.9.h. Likewise, for purposes of our estimates for the PRA analysis, we have taken the 

mid-point of the range discussed above (mid-point of 24 hours (21 hours + 3 hours) and 48 hours (42 hours 

+ 6 hours) = 36 hours).

2300 This estimate is based on the following calculation: (31.5 hours (mid-point of 21 hours and 42 hours for 

updating the required website information) x $282 (blended rate for a senior systems analyst and senior 

programmer) = $8,883) + (4.5 hours (mid-point of 3 hours and 6 hours for implementing enhanced controls 

associated with public dissemination of data) x $309 (blended rate for a compliance manager and a 

compliance attorney) = $1,391) = $10,274 per fund.
748

Based on an estimate of 559 money market funds posting information about their daily and 

weekly liquid assets (as well as their net inflows or outflows) on their webpages, we estimate 

that the amendment will result in an average aggregate ongoing annual burden of 20,124 

hours,2301 at a time cost of $5,743,166,2302 to comply with this disclosure requirement. 

Adding the one-time burden, amortized over three years, to prepare and adopt procedures 

with the annual burden to prepare materials for determinations will result in a total amortized 

annual burden of 33,167 hours and time costs of $9,522,006 for all funds.2303 We estimate that 

there are no external costs associated with this collection of information.2304 

c. Disclosure of Daily Current NAV

We are adopting, as proposed, the requirement for a money market fund to disclose on its 

website a schedule, chart, graph, or other depiction showing the fund’s current NAV per share as 

of the end of each business day during the preceding six months. The burdens associated with 

this requirement include one-time burdens as well as ongoing burdens. In the Proposing Release, 

the Commission estimated that a money market fund would incur a one-time burden of 70 hours, 

at a time cost of $20,150, to design the required schedule, chart, graph, or other depiction, and to 

make the necessary software programming changes to the fund’s website to disclose the fund’s 

 2301 This estimate is based on the following calculation: 36 hours x 559 money market funds = 20,124 hours.

2302 This estimate is based on the following calculation: $10,274 per fund x 559 money market funds = 

$5,743,166.

2303 This estimate is based on the following calculation: (39,130 burden hours ÷ 3 = 13,043 average annual 

burden hours) + 20,124 annual burden hours = 33,167 hours; ($11,336,520 burden costs ÷ 3 = $3,778,840 

average annual burden cost) + $5,743,166 annual time costs = $9,522,006.

2304 While a money market fund could rely on third-party service providers to assist in developing systems 

relevant to the website disclosure requirements (see supra note 2282 and accompanying text; infra note 

2305 and accompanying text), a fund also could rely on in-house capability to develop such systems. Our 

cost estimates assume that funds will use in-house resources to develop such systems except where it is 

more economical to use third-party service providers.
749

current NAV per share as of the end of each business day during the preceding six months. 

Using an estimate of 586 money market funds, we estimated that money market funds would 

incur, in aggregate, a total one-time burden of 41,020 hours, at a time cost of $11,807,900, to 

comply with these website disclosure requirements. We estimated that each fund would incur an 

ongoing annual burden of 32 hours, at a time cost of $9,184, 

to

update the depiction of the fund’s 

current NAV per share on the fund’s website each business day during that year. We further 

estimated that, in the aggregate, money market funds would incur an average ongoing annual 

burden of 18,752 hours, at a time cost of $5,381,824, to comply with this disclosure requirement.

As discussed above, certain commenters generally noted that complying with the new 

website disclosure requirements would add costs for funds, including costs to upgrade internal 

systems and software relevant to the website disclosure requirements (which possibly could 

include costs to engage third-party service providers for those money market fund managers that 

do not have existing relevant systems).

2305 One commenter noted that these costs could 

potentially be “significant to [a money market fund] and higher than those estimated in the 

Proposal.”2306 However, another commenter stated that it agrees that those money market funds 

that presently publicize their current NAV per share daily on the fund’s website will incur few 

additional costs to comply with the proposed disclosure requirements, and also that it agrees with 

the Commission’s estimates for the ongoing costs of providing a depiction of the fund’s current 

NAV each business day.2307

 2305 See supra note 2282.

2306 See Chamber II Comment Letter.

2307 See State Street Comment Letter at Appendix A; see also HSBC Comment Letter (stating that the proposed 
750

The Commission estimates that the number of money market funds is currently 559. We 

agree that the one-time costs for certain money market funds to upgrade internal systems and 

software, and/or develop such systems if a money market fund does not have existing relevant 

systems, could be higher than those average one-time costs estimated in the Proposing Release. 

However, because the estimated one-time costs were based on the mid-point of a range of 

estimated costs, the higher costs that may be incurred by certain industry participants have 

already been factored into our estimates.2308 Our assumptions in estimating one-time hour and 

cost burdens therefore have not changed from those discussed in the Proposing Release. Based 

on an estimate of 559 money market funds posting information about their current NAV per 

share on their webpages, we estimate that, in the aggregate, the amendment will result in a total 

one-time burden of 39,130 hours,2309 at a time cost of $11,336,520,2310 to comply with these 

website disclosure requirements. As discussed above, we received no comments providing 

specific suggestions or critiques about our assumptions in estimating ongoing hour and cost 

burdens associated with the disclosure of a fund’s current NAV per share, and therefore our 

methods of estimating these burdens also have not changed from those discussed in the 

Proposing Release. Based on an estimate of 559 money market funds posting information about 

 

disclosure requirements should not produce any “meaningful cost”).

2308 See Proposing Release, supra note 25 at n.1044.

2309 This estimate is based on the following calculation: 70 hours x 559 money market funds = 39,130 hours.

2310 This estimate is based on the following calculation: $20,280 per fund x 559 money market funds = 

$11,336,520. The $20,280 per fund figure is, in turn, based on the following calculations: (20 hours (midpoint of 16 hours and 24 hours for project assessment) x $309 (blended hourly rate for a compliance 

manager ($283) and a compliance attorney ($334)) = $6,180) + (50 hours (mid-point of 40 hours and 60 

hours for project development, implementation, and testing) x $282 (blended hourly rate for a senior 

systems analyst ($260) and senior programmer ($303)) = $14,100) = $20,280 per fund. See Proposing 

Release, supra note 25, at nn.1044 and 1045. 
751

their daily current NAV per share on their webpages, we estimate that, in the aggregate, the 

amendment will result in an average ongoing annual burden of 17,888 hours,2311 at a time cost of 

$5,044,416,2312 to comply with this disclosure requirement. 

Amortizing these hourly and cost burdens over three years results in an average annual 

increased burden of 30,931 burden hours2313 at a time cost of $8,823,256.

2314 We estimate that 

there are no external costs associated with this collection of information.2315 Adding the one-time 

burden, amortized over three years, to prepare and adopt procedures with the annual burden to 

prepare materials for determinations will result in a total amortized annual burden of 30,931 

hours and time costs of $8,823,256 for all funds.

2316 

d. Disclosure Regarding Financial Support Received by the Fund, the 

Imposition and Removal of Liquidity Fees, and the Suspension and 

Resumption of Fund Redemptions

We are adopting, substantially as proposed, the requirement for a money market fund to

disclose on its website certain information that the fund is required to report on Form N-CR 

 2311 This estimate is based on the following calculation: 32 hours x 559 money market funds = 17,888 hours.

2312 This estimate is based on the following calculation: (32 hours x $282 (blended hourly rate for a senior 

systems analyst ($260) and a senior programmer ($303)) = $9,024) x 559 money market funds = 

$5,044,416.

2313 This estimate is based on the following calculation: [(39,130 initial burden hours + 17,888 annual burden 

hours (year 1)) + 17,888 burden hours (year 2) + 17,888 burden hours (year 3)] ÷ 3 = 30,931 hours. 

2314 This estimate is based on the following calculation: [($11,336,520 initial monetized burden + $5,044,416 

monetized burden (year 1)) + $5,044,416 monetized burden (year 2) + $5,044,416 monetized burden (year 

3)] ÷ 3 = $8,823,256.

2315 While a money market fund could rely on third-party service providers to assist in developing systems 

relevant to the website disclosure requirements (see supra notes 2282 and 2305 and accompanying text), a 

fund also could rely on in-house capability to develop such systems. Our cost estimates assume that funds 

will use in-house resources to develop such systems except where it is more economical to use third-party 

service providers.

2316 This estimate is based on the following calculation: (39,130 burden hours ÷ 3 = 13,043 average annual 

burden hours) + 17,888 annual burden hours = 30,931 hours; ($11,336,520 burden costs ÷ 3 = $3,778,840 

average annual burden cost) + $5,044,416 annual time costs = $8,823,256.
752

regarding the provision of financial support to the fund, as well as the imposition and removal of 

liquidity fees, and the suspension and resumption of fund redemptions.2317 In the Proposing 

Release, the Commission estimated that the Commission would receive 40 reports per year filed 

in response to an event specified on Part C (“Provision of financial support to Fund”) of Form 

N-CR. We further estimated that the Commission would receive 8 reports per year filed in 

response to events specified on Part E (“Imposition of liquidity fee”), Part F (“Suspension of 

Fund redemptions”), and Part G (“Removal of liquidity fee and/or resumption of Fund 

redemptions”). Using these numbers, we estimated that the requirement to disclose information 

about financial support received by a money market fund on the fund’s website would result in a 

total aggregate burden of 40 hours per year, at a total aggregate time cost of $8,280. We further 

estimated that the requirement to disclose information about the imposition and removal of 

liquidity fees, and the suspension and resumption of fund redemptions, on the fund’s website 

would result in a total aggregate burden of eight hours per year, at a total aggregate time cost of 

$1,656. 

Although certain commenters generally noted, as discussed above, that complying with 

the new website disclosure requirements would add costs for funds,2318 one commenter stated that 

the costs of disclosing liquidity fees and gates and instances of financial support on the fund’s 

website would be minimal when compared to other costs,2319 and another commenter stated that 

 2317 As discussed in section III.E.9, the final amendments include certain changes to the website disclosure 

requirements from the proposal, largely designed to track the information on the website with the initial 

filings that will be provided on Form N-CR. 

2318 See supra note 2282.

2319 See State Street Comment Letter.
753

the proposed disclosure requirements should not produce any meaningful costs.2320 As described 

above, we have modified the required time frame for disclosing information about financial 

support received by a fund on the fund’s website, and have also modified the financial support 

disclosure requirement to require a fund to post only a subset of the information required to be 

filed in response to Part C of Form N-CR. However, this modification does not produce 

additional burdens for funds because it merely allows more time for the same disclosure and thus 

does not affect previous hour burden estimates. The Commission also has determined not to 

change the assumptions used in our estimates in response to the comments we received, as the 

comments provided no specific suggestions or critiques regarding our methods for estimating the 

hour burdens and costs associated with the Form N-CR-linked website disclosure requirements. 

We have, however, modified our estimates of the number of reports that will be filed each year 

on Part C, Part E, Part F, and Part G of Form N-CR, and these modified estimates have affected 

our estimates of the burdens associated with the related website disclosure requirements.2321 

Given these estimates, the requirement to disclose information about financial support received 

by a money market fund on the fund’s website will result in a total aggregate burden of 30 hours 

per year, at a total aggregate time cost of $6,810.2322 In addition, the requirement to disclose 

information about the imposition and removal of liquidity fees, and the suspension and 

 2320 See HSBC Comment Letter.

2321 See infra section IV.D.2.

2322 This estimate is based on the following calculation: 30 hours per year (1 hour per website update x 30 total 

website updates per year) x $227 per hour for a webmaster = $6,810. Because all money market funds are 

required to have a website (see rule 2a-7(h)(10)), and because the disclosure at issue does not require any 

particular formatting or computational capacity, we assume that money market funds will not need to create 

a website or update their current systems capability to disclose the relevant information, and therefore we 

estimate that there are no one-time costs associated with this disclosure requirement. 
754

resumption of fund redemptions, on the fund’s website will result in a total aggregate burden of 

3.6 hours per year, at a total aggregate time cost of $817.2323 We estimate that there are no 

external costs associated with this collection of information.

e. Change in Burden

The aggregate additional annual burden associated with the website disclosure 

amendments discussed above is 70,840 hours2324 at a time cost of $19,875,605.

2325 There is no 

change in the external cost burden associated with this collection of information.

7. Total Burden for Rule 2a-7

The currently approved burden for rule 2a-7 is 517,228 hours. The net aggregate 

additional burden hours associated with the amendments to rule 2a-7 increase the burden 

estimate to 632,244 hours annually for all funds.2326

 2323 This estimate is based on the following calculation: 3.6 hours per year (1 hour per website update x 3.6 

total website updates per year) x $227 per hour for a webmaster = approximately $817. We estimate that 

there are no one-time costs associated with this disclosure requirement. 

2324 This estimate is based on the following calculation: 6,708 hours (annual aggregate burden for the disclosure 

of portfolio holdings information) + 33,167 (average annual aggregate burden for the disclosure of daily 

liquid assets and weekly liquid assets and net shareholder flow) + 30,931 (average annual aggregate burden 

for the disclosure of daily current NAV) + 30 hours (annual aggregate burden for the disclosure of financial 

support provided to money market funds) + 3.6 hours (annual aggregate burden for the imposition and 

removal of liquidity fees, and suspension and resumption of fund redemptions) = 70,840 hours. This 

calculation reflects hourly burdens that have been amortized over three years, where appropriate. 

2325 This estimate is based on the following calculation: $1,522,716 (annual aggregate costs associated with the 

disclosure of portfolio holdings information) + $9,522,006 (average annual aggregate costs associated with 

the disclosure of daily liquid assets and weekly liquid assets and net shareholder flow) + $8,823,256

(average annual aggregate costs associated with the disclosure of daily current NAV) + $6,810 (annual 

aggregate costs associated with the disclosure of financial support provided to money market funds) + $817 

(annual aggregate costs associated with the imposition and removal of liquidity fees, and suspension and 

resumption of fund redemptions) = $19,875,605. This calculation reflects hourly burdens that have been

amortized over three years, where appropriate.

2326 This estimate is based on the following calculation: 517,228 hours (currently approved burden) + 1,064 

hours (ABS determination & recordkeeping) + 238 hours (retail funds) + 30 hours (government funds) + 

581 hours (board determinations) - 35 hours (notice to the Commission) + 42,298 hours (stress testing) + 

70,840 (website disclosure) = 632,244 hours.
755

B. Rule 22e-3

As outlined above, rule 22e-3 under the Investment Company Act exempts money market 

funds from section 22(e) of the Act to permit them to suspend redemptions and postpone 

payment of redemption proceeds in order to facilitate an orderly liquidation of the fund, provided 

that certain conditions are met. The rule requires a money market fund to provide prior 

notification to the Commission of its decision to suspend redemptions and liquidate.2327 This 

requirement is a collection of information under the PRA, and is designed to assist Commission 

staff in monitoring a money market fund’s suspension of redemptions. The collection of 

information is mandatory for any fund that holds itself out as a money market fund in reliance on 

rule 2a-7 and any conduit funds that rely on the rule,2328 and to the extent that the Commission 

receives confidential information pursuant to this collection of information, such information will

be kept confidential, subject to the provisions of applicable law.

To provide shareholders with protections comparable to those currently provided by the 

rule while also updating the rule to make it consistent with our amendments to rule 2a-7, we are 

amending rule 22e-3 to permit a money market fund to invoke the exemption in rule 22e-3 if the 

fund, at the end of a business day, has invested less than 10% of its total assets in weekly liquid 

assets.2329 As under the current rule, a money market fund that maintains a stable NAV will

continue to be able to invoke the exemption in rule 22e-3 if it has broken the buck or is about to 

 2327 See rule 22e-3(a)(3). 

2328 The rule permits funds that invest in a money market fund pursuant to section 12(d)(1)(E) of the Act 

(“conduit funds”) to rely on the rule, and requires the conduit fund to notify the Commission of its reliance 

on the rule. See rule 22e-3(b).

2329 See rule 22e-3(a)(1).
756

“break the buck.”2330 

The amendments to rule 22e-3 are designed to permit a money market fund to suspend 

redemptions when the fund is under significant stress, as the funds may do today under rule 22e3. We do not expect that money market funds will invoke the exemption provided by rule 22e-3 

more frequently under our amendments than they do today. Although the amendments change 

the circumstances under which a money market fund may invoke the exemption provided by rule 

22e-3, the amended rule still will permit a money market fund to invoke the exemption only 

when the fund is under significant stress, and we estimate that a money market fund is likely to 

experience that level of stress and choose to suspend redemptions in reliance on rule 22e-3 with 

the same frequency that funds today may do so. Therefore, as we indicated in the Proposing 

Release, we are not revising rule 22e-3’s current approved annual aggregate collection of 

information. 

The rule’s current approved annual aggregate burden is approximately 30 minutes and is 

based on estimates that: (1) on average, one money market fund will break the buck and 

liquidate every six years;2331 (2) there are an average of two conduit funds that may be invested in 

a money market fund that breaks the buck;2332 and (3) each money market fund and conduit fund 

will spend approximately one hour of an in-house attorney’s time to prepare and submit the 

 2330 See id.; see also supra section III.A.4 (discussing amended rule 22e-3).

2331 This estimate is based upon the Commission’s experience with the frequency with which money market 

funds have historically required sponsor support. Although many money market fund sponsors have 

supported their money market funds in times of market distress, for purposes of this estimate the 

Commission conservatively estimates that one or more sponsors may not provide support.

2332 These estimates are based on a staff review of filings with the Commission. Generally, rule 22e-3 permits 

conduit funds to suspend redemptions in reliance on rule 22e-3 and requires that they notify the 

Commission if they elect to do so. 
757

notice required by the rule.2333 As discussed in the Proposing Release, there will be no change in 

the external cost burden associated with this collection of information. We did not receive any 

comments on the estimated hour and cost burdens related to amended rule 22e-3.

C. Rule 30b1-7 and Form N-MFP

Rule 30b1-7 under the Investment Company Act currently requires money market funds 

to file electronically a monthly report on Form N-MFP within five business days after the end of 

each month. The information required by the form must be data-tagged in XML format and filed 

through EDGAR. The rule is designed to improve transparency of information about money 

market funds’ portfolio holdings and facilitate Commission oversight of money market funds. 

Preparing a report on Form N-MFP is a collection of information under the PRA.2334 This 

collection of information will be mandatory for money market funds that rely on rule 2a-7 and 

the information will not be kept confidential.

1. Discussion of Final Amendments

We are adopting a number of amendments to Form N-MFP which will include new and 

amended collections of information. As discussed in more detail in section III.G. above, we 

have revised the final amendments from our proposal in a number of ways in order to reduce 

costs to the extent feasible and still achieve our goals of enhancing and improving the monitoring 

 2333 This estimate is based on the following calculations: (1 hour ÷ 6 years) = 10 minutes per year for each fund 

and conduit fund that is required to provide notice under the rule; 10 minutes per year x 3 (combined 

number of affected funds and conduit funds) = 30 minutes. The estimated cost associated with the 

estimated burden hours ($189) is based on the following calculations: $378/hour (hourly rate for an inhouse attorney based on the Securities Industry and Financial Markets Association, Management & 

Professional Earnings in the Securities Industry 2011, modified to account for an 1,800-hour work year and 

multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.) x 30 minutes = 

$189.

2334 For purposes of the PRA analysis, the current burden associated with the requirements of rule 30b1-7 is 

included in the collection of information requirements of Form N-MFP.
758

of money market fund risks. While the final form amendments differ in some respects from 

what we proposed, we are adopting many of the other proposed amendments unchanged.2335

These amendments include: 

Amendments Related to Rule 2a-7 Reforms. As discussed in more detail in section III.G. 

above, we proposed a number of changes to Form N-MFP designed to conform it with the 

general reforms of rule 2a-7. We are adopting them largely as proposed, with some revisions to 

reflect the revised approach we are taking to the primary reforms.2336 

New Reporting Requirements. We are also adopting several new items to Form N-MFP 

that we believe will improve the Commission’s (and investors’) ability to monitor money market 

funds. As discussed in more detail in section III.G. above, these final amendments include some, 

but not all, of the new reporting requirements that we had proposed. For example, as proposed, 

the final amendments include additional reporting on fair value categorization and LEI 

information (if available).2337 We are also adopting, with some changes from the proposal, 

revisions to several other items, including revised investment categories for portfolio securities 

and repurchase agreement collateral. However, we are not adopting the lot level portfolio 

security disclosure, top 20 shareholder information, and security identifier level reporting on 

repo collateral that we had proposed.

 2335 We provide a more detailed discussion of our final amendments and commenters’ comments in section 

III.G above.

2336 See supra section III.G.

2337 Id.
759

Clarifying and Other Amendments. We are adopting, as proposed, several amendments 

to clarify current instructions and items of Form N-MFP.2338 We are also making certain other, 

non-substantive, structural changes to Form N-MFP.2339

2. Current Burden

The current approved collection of information for Form N-MFP is 45,214 annual 

aggregate hours and $4,424,480 in external costs.

3. Change in Burden

The Commission estimates that 559 money market funds are required to file reports on 

Form N-MFP on a monthly basis.2340 No commenters provided specific data or estimates 

regarding the cost estimates we provided in the Proposing Release for the amendments to Form 

N-MFP, although some suggested that the costs of some aspects of our proposed amendments to 

Form N-MFP could be significant.2341 For example, some commenters expressed concern that 

the proposed lot level portfolio security disclosure would significantly increase the costs and 

burdens of preparing Form N-MFP.2342 After consideration of these comments, we believe that 

our original cost estimates may have understated the costs if we had implemented the 

amendments as proposed. As noted above, we have revised the final amendments from our 

 2338 See supra section III.G for a more detailed discussion of these clarifications.

2339 As proposed, the amendments will renumber the items of Form N-MFP to separate the items into four 

separate sections to allow the Commission to reference, add, or delete items in the future without having to 

re-number all subsequent items in the form. See supra section III.G for a more detailed discussion of this 

restructuring. 

2340 This estimate is based on a review of reports on Form N-MFP filed with the Commission for the month 

ended February 28, 2014.

2341 See, e.g., Fidelity Comment Letter; State Street Comment Letter. 

2342 See supra note 1477 and accompanying text.
760

proposal in a number of ways in order to reduce costs to the extent feasible and still achieve our 

goals of enhancing and improving the monitoring of money market fund risks. In light of these 

changes, and taking into account other commenters’ estimates,2343 we believe our original cost 

estimates continue to be reasonable. Accordingly, the Commission has not modified the 

estimated annual burden hours associated with the final amendments from those we estimated at 

the proposal. However, the Commission has modified its estimates based on updated industry 

data on time costs as well as the updated total number of money market funds that will be 

affected.2344

The Commission understands that approximately 35% of the 5592345 (for a total of 1962346) 

money market funds that report information on Form N-MFP license a software solution from a 

third party that is used to assist the funds to prepare and file the required information. The 

 2343 See, e.g., State Street Comment Letter, (estimating that “the additional disclosures that will be required will 

at a minimum double the cost of preparing and filing the Form N-MFP. If purchases and sales information 

is also required, it may increase even more.”); Dreyfus Comment Letter (estimating that it “incurred several 

hundreds of thousands of dollars in technology-related costs to build systems required to populate the Form 

N-MFP for (at the time) 51 MMFs,” and that the reprogramming for each round of changes to Form NMFP “will require several months of time at tens of thousands of dollars in cost for each.”). As discussed 

in more detail below, given that we are not adopting certain costlier disclosures such as lot level reporting, 

the Commission estimates that the current approved collection of information for Form N-MFP of 45,214 

aggregate annual hours will almost double to 83,412 aggregate annual hours, while external costs will rise 

from $4,424,480 to $4,780,736. See supra section IV.C.2 and infra note 2363 and accompanying 

discussion.

2344 The updated industry data on time costs reflects salary information from SIFMA’s Management & 

Professional Earnings in the Securities Industry 2013, supra note 2214.

2345 We are estimating that 559 money market funds will be affected by our final amendments to Form N-MFP. 

This estimate is based on a review of reports on Form N-MFP filed with the Commission for the month 

ended February 28, 2014. In the Proposing Release we estimated 586 funds would be affected by our 

proposed amendments. See Proposing Release supra note 25 at n.688.

2346 The Commission estimated this 35% in the current burden. This estimate is based on the following 

calculation: 559 funds x 35% = 196 funds.
761

Commission also understands that approximately 65% of the 5592347 (for a total of 363) money 

market funds that report information on Form N-MFP retain the services of a third party to 

provide data aggregation and validation services as part of the preparation and filing of reports 

on Form N-MFP on behalf of the fund. The Commission estimates that, in the first year, each 

fund (regardless of whether the fund licenses the software or uses a third-party service provider, 

given our assumption that these two options are cost-competitive with one another) will incur an 

additional average annual burden of 85 hours, at a time cost of $22,069 per fund,2348 to prepare 

and file the report on Form N-MFP (as amended) and an average of approximately 60 additional 

burden hours (five hours per fund, per filing), at a time cost of $15,569 per fund2349 each year 

thereafter.2350 

 2347 The Commission estimated this 65% in the current burden. This estimate is based on the following 

calculation: 559 funds x 65% = 363 funds.

2348 This estimate is based on the following calculations: [30 hours for the initial monthly filing at a total cost 

of $7,824 per fund (8 hours x $232 blended average hourly rate for a financial reporting manager ($266 per 

hour) and fund senior accountant ($198 per hour) = $1,856 per fund) + (4 hours x $157 per hour for an 

intermediate accountant = $628 per fund) + (6 hours x $312 per hour for a senior database administrator = 

$1872 per fund) + (4 hours x $301 for a senior portfolio manager = $1204 per fund) + (8 hours x $283 per 

hour for a compliance manager = $2,264 per fund)] + [55 hours (5 hours per fund x 11 monthly filings) at a 

total cost of $14,245 per fund ($259 average cost per fund per burden hour x 55 hours)]. The additional 

average annual burden per fund for the first year is 85 hours (30 hours (initial monthly filing) + 55 hours 

(remaining 11 monthly filings)) and the additional average cost burden per fund for the first year is $22,069 

($7,824 (initial monthly filing) + $14,245 (remaining 11 monthly filings = $22,069).

2349 This estimate is based on the following calculations: (16 hours x $232 blended average hourly rate for a 

financial reporting manager ($266 per hour) and fund senior accountant ($198 per hour) = $3,712 per fund) 

+ (9 hours x $157 per hour for an intermediate accountant = $1,413 per fund) + (13 hours x $312 per hour 

for a senior database administrator = $4,056 per fund) + (9 hours x $301 for a senior portfolio manager = 

$2,709 per fund) + (13 hours x $283 per hour for a compliance manager = $3,679 per fund) = 60 hours (16 

+ 9 + 13 + 9 + 13) at a total cost of $15,569 per fund ($3,712 + $1,413 + $4,056 + $2,709 + $3,679). 

Therefore, the additional average cost per fund per burden hour is approximately $259 ($15,569 ÷ 60 

burden hours).

2350 In the Proposing Release, we estimated each fund would incur an additional average annual burden of 85 

hours (30 hours for the initial monthly filing and 55 hours for the remaining monthly filings (5 hours per 

fund, per filing x 11 months)), at a time cost of $22,045 per fund, to prepare and file the report on Form NMFP (as proposed) and an average of approximately 60 additional burden hours (five hours per fund, per 

filing), at a time cost of $15,562 per fund each year thereafter. See Proposing Release, supra note 25, at 
762

In the Proposing Release, we also discussed that software service providers (whether 

provided by a licensor or third-party service provider) would be likely to incur additional 

external costs to modify their software and might pass those costs down to money market funds 

in the form of higher annual licensing fees.2351 In the Proposing Release, although we did not 

have the information necessary to provide a point estimate of the external costs or the extent to 

which the software service providers would pass down any external costs to funds, we were able 

to estimate a range of costs, from 5% to 10% of current annual licensing fees.2352 We received no 

specific comments on this estimate. While we are making certain changes to the final 

amendments as described above that may reduce costs, we do not believe that these changes 

would significantly alter our estimated range of additional external licensing costs.2353 

Accordingly, as proposed, the Commission estimates that 35% of funds (196 funds) will pay 

$336 in additional external licensing costs each year and 65% of funds (363 funds) will pay $800 

in additional external licensing costs each year because of our final amendments to Form 

N-MFP.2354 

The Commission therefore estimates that our final amendments to Form N-MFP will 

 

nn.1092 and 1093 and accompanying text.

2351 See Proposing Release, supra note 25, at n.1094 and accompanying text.

2352 Id.

2353 Similar to our previous estimates of time costs, we believe our original estimates of external costs continue 

to be reasonable in light of certain changes in the final amendments and consideration of commenters’ 

comments. See supra note 2343 and accompanying discussion.

2354 As proposed, the Commission estimates that the annual licensing fee for 35% of money market funds is 

$3,360: a 5% to 10% increase = $168 - $336 in increased costs; the Commission estimates that the annual 

licensing fee for 65% of money market funds is $8,000: a 5% to 10% increase = $400 - $800 in increased 

costs. See also, Proposing Release, supra note 25, at n.1094 and accompanying text.
763

result in a first-year aggregate additional 47,515 burden hours2355 at a total time cost of 

$12,336,5712356 plus $356,256 in total external costs2357 for all funds, and 33,540 burden hours2358

at a total time cost of $8,703,0712359 plus $356,256 in total external costs2360 for all funds each 

year hereafter. Amortizing these additional hourly burdens over three years results in an average 

annual aggregate burden of approximately 38,198 hours at a total time cost of $9,914,238, and 

$356,256 in total external costs for all funds.2361 Finally, the Commission estimates that our final 

amendments to Form N-MFP will result in a total aggregate annual collection of information 

burden of 83,412 hours2362 and $4,780,736 in external costs.2363 

D. Rule 30b1-8 and Form N-CR

1. Discussion of New Reporting Requirements 

Today we are adopting a new requirement that money market funds file a current report 

 2355 This estimate is based on the following calculation: 559 funds x 85 hours = 47,515 burden hours in year 

one.

2356 This estimate is based on the following calculation: 559 funds x $22,069 annual cost per fund in the initial 

year = $12,336,571.

2357 This estimate is based on the following calculation: (196 funds x $336 additional external costs = $65,856) 

+ (363 funds x $800 additional external costs = $290,400) = $356,256.

2358 This estimate is based on the following calculation: 559 funds x 60 hours per fund = 33,540 hours.

2359 This estimate is based on the following calculation: 559 funds x $15,569 annual cost per fund in 

subsequent years = $8,703,071.

2360 See supra note 2357.

2361 This estimate is based on the following calculation: (47,515 hours in year 1 + 33,540 hours in year 2 + 

33,540 hours in year 3) ÷ 3 = 38,198 average annual burden hours; ($12,336,571 in year 1 + $8,703,071 in 

year 2 + $8,703,071 in year 3) ÷ 3 = $9,914,238 average annual burden costs; ($356,256 in year 1 + 

$356,256 in year 2 + $356,256 in year 3) ÷ 3 = $356,256 average external costs.

2362 This estimate is based on the following calculation: current approved burden of 45,214 hours + 38,198 in 

additional burden hours as a result of our amendments = 83,412 hours.

2363 This estimate is based on the following calculation: current approved burden of $4,424,480 in external 

costs + $356,256 in additional external costs as a result of our amendments = $4,780,736.
764

with us when certain significant events occur.2364 Generally, a money market fund will be 

required to file Form N-CR if a portfolio security defaults, an affiliate provides financial support 

to the fund, the fund experiences a significant decline in its shadow price, or when liquidity fees 

or redemption gates are imposed and when they are lifted.2365 In most cases, a money market 

fund will be required to submit a brief summary filing on Form N-CR within one business day of 

the occurrence of the event, and a follow up filing within four business days that includes a more 

complete description and information.

2366 This requirement is a collection of information under 

the PRA. The information provided on Form N-CR will enable the Commission to enhance its 

oversight of money market funds and its ability to respond to market events. The Commission 

will be able to use the information provided on Form N-CR in its regulatory, disclosure review, 

inspection, and policymaking roles. Requiring funds to report these events on Form N-CR will 

provide important transparency to fund shareholders, and also will provide information more 

uniformly and efficiently to the Commission. It will also provide investors and other market 

 2364 As we proposed, this requirement will be implemented through our adoption of new rule 30b1-8, which 

requires funds to file a report on new Form N-CR in certain circumstances. See rule 30b1-8; Form N-CR. 

For purposes of the PRA analysis, therefore, the burden associated with the requirements of rule 30b1-8 is 

included in the collection of information requirements of Form N-CR.

2365 See Form N-CR Parts B-H. More specifically, these events include instances of portfolio security default 

(Form N-CR Part B), financial support (Form N-CR Part C), a decline in a stable NAV fund’s current NAV 

per share (Form N-CR Part D), a decline in weekly liquid assets below 10% of total fund assets (Form NCR Part E), whether a fund has imposed or removed a liquidity fee or gate (Form N-CR Parts E, F and G), 

or any such other event(s) a Fund, in its discretion, may wish to disclose (Form N-CR Part H). In addition, 

Form N-CR Part A will also require a fund to report the following general information: (i) the date of the 

report; (ii) the registrant’s central index key (“CIK”) number; (iii) the EDGAR series identifier; (iv) the 

Securities Act file number; and (v) the name, email address, and telephone number of the person authorized 

to receive information and respond to questions about the filing. See Form N-CR Part A. While the 

Commission estimates the burden of reporting the information in response to Part A to be minimal, they 

were considered in the estimates of the burdens incurred generally in connection with the preparation, 

formatting and filing of a report under any of the other Parts of Form N-CR.

2366 A report on Form N-CR will be made public on EDGAR immediately upon filing. 
765

observers with better and timelier disclosure of potentially important events. This collection of 

information will be mandatory for money market funds that rely on rule 2a-7 and the information 

will not be kept confidential.

2. Estimated Burden

a. Overview of Cost and Burden Changes

Our cost estimates below generally reflect the costs associated with an actual filing of 

Form N-CR.2367 The Proposing Release estimated that a fund would annually spend on average 

approximately five burden hours and total time costs of $1,708 to prepare, review and submit a 

report under any Part of Form N-CR.2368 In the aggregate, the Proposing Release estimated that 

compliance with new rule 30b1-8 and Form N-CR would result in a total annual burden of 

approximately 341 burden hours and total annual time costs of approximately $116,429.2369 The 

Proposing Release estimated 586 money market funds would be required to comply with new 

rule 30b1-8 and Form N-CR, 2370 which would have resulted in an average annual burden of 

approximately 0.58 burden hours and average annual time costs of approximately $199 on a perfund basis. The Proposing Release further estimated that there would be no external costs 

associated with this collection of information.2371

As discussed in section III.F above, we are making various changes from the proposal to

our final amendments, a number of which we expect to impact the frequency of filings as well as 

 2367 We also recognize the possibility for some advance industry discussions and preparation in connection with 

Form N-CR, as discussed in more detail in the text following supra note 1363.

2368 See Proposing Release supra note 25 at n.1203 and accompanying text.

2369 See Proposing Release supra note 25 at n.1205 and accompanying text.

2370 See Proposing Release supra note 25 at n.1206 and accompanying text.

2371 See Proposing Release supra note 25 at discussion following n.1206.
766

the costs associated with filing a report on Form N-CR.2372 For example, with respect to Parts B, 

C and D, we are now permitting filers to split their response into an initial and follow-up 

filing,2373 similar to what we proposed for Parts E and F in the Proposing Release. We believe 

this change will increase total filing costs by increasing the number of filings. In addition, 

although only one commenter provided specific cost estimates,2374 we also took into account 

commenters’ general concerns and suggestions about the timing and burdens of Form N-CR.2375

For example, commenters cited the particular burdens and the role of the board in drafting and 

reviewing the board disclosures in Parts E and F.2376 In light of commenters’ input, we therefore 

revisited (and typically increased) our prior cost estimates. Recognizing the substantive 

differences between each Part of Form N-CR, we are also breaking out our cost estimates for 

each Part individually, rather than providing just one estimate with respect to any Part as in the 

proposal.

2377 We further expect, in particular with respect to the follow-up reports under Parts B 

through F as well as any reports on Part H, that certain funds may engage legal counsel to assist 

with the drafting and review of Form N-CR, thereby incurring additional external costs.2378 

Accordingly, we have added an estimate for new Part H and, in the discussion below, we are also

 2372 See supra sections III.F.2-5 for a more detailed discussion of each of our final amendments.

2373 See supra section III.F.7 (Timing of Form N-CR).

2374 See supra note 1295 and accompanying text. As discussed in that section, because today we are allowing 

funds to file a response to the Items discussed by the commenter within four business days instead of just 

one business day, we expect that the costs of filing Form N-CR should be significantly reduced from this 

commenter’s estimates. Id. 

2375 See, e.g., supra sections III.F.7 (Timing of Form N-CR) and III.F.8 (Operational Costs: Overview).

2376 See, e.g., IDC Comment Letter (“Any public disclosure about a board’s decision-making process would 

require careful and thoughtful drafting and multiple layers of review (by board counsel, fund counsel, and 

the directors, among others).”); Stradley Ronon Comment Letter; SIFMA Comment Letter.

2377 See supra note 2368 and accompanying text. 

2378 See supra note 1347 and accompanying discussion. 
767

updating and providing a more nuanced estimate of the costs associated with filing a report with 

respect to each of Parts B though G of Form N-CR. 

b. Part B: Default Events

As proposed,2379 we estimate that the Commission would receive, in the aggregate, an 

average of 20 sets2380 of initial and follow-up reports2381 per year in response to Part B. Taking 

into account a blend of legal and financial in-house professionals,2382 we estimate that a fund 

would on average spend a total of 13.5 burden hours2383 and time costs of $4,8302384 for one set of 

 2379 See Proposing Release supra note 25 at n.1107 and accompanying text.

2380 This estimate is based on the Commission’s current estimate of an average of 20 notifications of an event 

of default or insolvency sent via email to the Director of IM pursuant to rule 2a-7(c)(7)(iii) each year. See 

Submission for OMB Review, Comment Request, Extension: Rule 2a-7, OMB Control No. 3235-0268, 

Securities and Exchange Commission 77 FR 236 (Dec. 7, 2012). We believe that this estimate is likely to 

be high, in particular when markets are not in crisis as they were during 2008 or 2011. However, we are 

continuing to use this higher estimate to be conservative in our analysis.

2381 A fund must file a report on Form N-CR responding to Items B.1 through B.4 on the first business day after 

the initial date on which a default or event of insolvency contemplated in Item B occurs. A fund must 

amend its initial report on Form N-CR to respond to Item B.5 by the fourth business day after the initial 

date on which a default or event of insolvency contemplated in Item B occurs. See Form N-CR Item B 

Instructions.

2382 Recognizing that, depending on the particular circumstances, different members of a fund’s financial team 

may assist with the preparation of Form N-CR in varying degrees, we have estimated the time costs for a 

financial professional to be $255 per hour, which is the blended average hourly rate for a senior portfolio 

manager ($301), financial reporting manager ($266), and senior accountant ($198). For similar reasons, we 

have estimated the time costs for a legal professional to be $440 per hour, which is the blended average 

hourly rate for a deputy general counsel ($546) and compliance attorney ($334). In the Proposing Release, 

we based our estimate of time costs on an in-house attorney and in-house accountant only. See Proposing 

Release supra note 25 at n.1111 and accompanying text. As noted in this section, we are making these and 

other changes to provide a more nuanced estimate of the costs associated with filing a report on Part B of 

Form N-CR.

2383 When filing a report, the Commission estimates that a fund would spend on average approximately 3 hours 

of legal professional time and 3 hours of financial professional time to prepare, review and submit an initial 

filing. In addition, the Commission estimates that a fund would spend on average approximately 4.5 hours 

of legal professional time and 3 hours of financial professional time to prepare, review and submit a followup amendment. The estimates of the average legal professional time above have already been reduced by 

the corresponding average amount of time that we estimate will be shifted in the aggregate from in-house 

counsel to outside counsel. See infra note 2386. 

2384 This estimate is based on the following calculations: ((3 hours for the initial filing + 4.5 hours for the 

follow-up filing) x $440 per hour for a legal professional = $3,300) + ((3 hours for the initial filing + 3 
768

initial and follow-up reports in response to Part B. Because some funds may also engage outside

legal counsel,2385 we estimate funds will also incur on average external costs of approximately 

$1,000 for one set of reports.

2386 The Commission therefore estimates that the total annual 

burden for Part B reporting would be 270 burden hours, time costs of $96,600, and external costs 

of $20,000.

2387

c. Part C: Financial Support

In a change from the proposal, we have made modifications to the definition of financial 

support in Part C of Form N-CR,

2388 which we estimate will impact the frequency of filings on 

Part C of Form N-CR. Accordingly, updating our estimate from the proposal,2389 we estimate 

 

hours for the follow-up filing) x $255 per hour for a financial professional = $1,530) = 13.5 burden hours 

and time costs of $4,830. 

2385 We estimate the cost for outside legal counsel to be $400 per hour. This is based on an estimated $400 per 

hour cost for outside legal services, and is the same estimate used by the Commission for these services in 

the “Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 

Million Under Management, and Foreign Private Advisers” final rule: SEC Release No. IA-3222 (June 22,

2011); [76 FR 39646 (July 6, 2011)].

2386 Commenters provided us with no specific comments that would allow us to estimate with any precision to 

what extent funds may engage legal counsel to assist in the preparation of Form N-CR. However, for 

purposes of this PRA, we estimate that in approximately half of all instances funds will engage legal 

counsel to assist in the preparation of a set of initial and follow up filings responding to Part B of Form 

N-CR. In such cases, we estimate that approximately half of the total legal professional time that in-house 

counsel would have otherwise spent on responding to Part B of Form N-CR will be shifted to outside 

counsel. Accordingly, a quarter of the total legal professional time that would otherwise have been spent

on responding to Part B of Form N-CR, or 2.5 hours, will be shifted from in-house counsel to outside 

counsel (1⁄2 of all instances x 1⁄2 legal professional time = 1⁄4 aggregate legal professional time). 

Accordingly, we estimate that funds will incur additional external legal costs of $1,000 (2.5 hours x $400 

per hour for outside counsel) per set of initial and follow-up reports in response to Part B.

2387 This estimate is based on the following calculation: 20 reports per year x 13.5 burden hours per report = 

270 burden hours; 20 reports per year x $4,830 time cost per report = $96,600 in time costs; 20 reports per 

year x $1,000 external cost per report = $20,000 in external costs.

2388 See supra section III.F.3 (Definition of Financial Support).

2389 See Proposing Release supra note 25 at n.1108 and accompanying text (estimating an average of 40 reports 

per year filed in response to an event specified on Part C).
769

that the Commission will receive, in the aggregate, an average of 30 sets2390 of initial and followup reports2391 per year in response to Part C. Taking into account a blend of legal and financial 

in-house professionals,2392 we estimate that a fund will on average spend a total of 18.5 burden 

hours2393 and time costs of approximately $6,6602394 for one set of initial and follow-up reports in 

response to Part C. We also estimate funds will also incur on average external costs of 

 2390 This estimate is based on our current estimate of an average of 25 notifications of certain rule 17a-9

security purchases that money market funds currently send via email to the Director of IM pursuant to rule 

2a-7(c)(7)(iii) each year. See Submission for OMB Review, Comment Request, Extension: Rule 2a-7, OMB 

Control No. 3235-0268, Securities and Exchange Commission 77 FR 236 (Dec. 7, 2012). Because money 

market funds will be required to file a report in response to Part C of Form N-CR if the fund receives any 

form of financial support from the fund’s sponsor or other affiliated person (which support includes, but is 

not limited to, a rule 17a-9 security purchase), the Commission estimates that the Commission will receive 

a greater number of reports on Form N-CR Part C than the number of notifications of rule 17a-9 security 

purchases that it currently receives. In the Proposing Release, we originally estimated 40 filings per year 

under Part C of Form N-CR. See Proposing Release supra note 25 at n.735 and accompanying text. As 

discussed in supra section III.F.3, today we are adopting certain exclusions from the definition of financial 

support that will narrow the definition to a certain degree. Correspondingly, in anticipation of a moderate 

reduction in instances that meet the definition as amended today, we predict an estimated 30 filings per 

year under Part C of Form N-CR. We believe that this estimate is likely to be high, in particular when 

markets are not in crisis as they were during 2008 or 2011. However, we are using this higher estimate to 

be conservative in our analysis.

2391 A fund must file a report on Form N-CR responding to Items C.1 through C.7 on the first business day after 

the initial date on which any financial support contemplated in Item C is provided to the fund. A fund must 

amend its initial report on Form N-CR to respond to Items C.8 through C.10 by the fourth business day 

after the initial date on which any financial support contemplated in Item C is provided to the fund. See

Form N-CR Item C Instructions.

2392 See supra note 2382.

2393 When filing a report, the Commission estimates that a fund will spend on average approximately 4.5 hours 

of legal professional time and 4 hours of financial professional time to prepare, review and submit an initial 

filing. In addition, the Commission estimates that a fund will spend on average approximately 6 hours of 

legal professional time and 4 hours of financial professional time to prepare, review and submit a follow-up 

amendment. The estimates of the average legal professional time above have already been reduced by the 

corresponding average amount of time that we estimate will be shifted in the aggregate from in-house 

counsel to outside counsel. See infra note 2395. 

2394 This estimate is based on the following calculations: ((4.5 hours for the initial filing + 6 hours for the 

follow-up filing) x $440 per hour for a legal professional = $4,620) + ((4 hours for the initial filing + 4 

hours for the follow-up filing) x $255 per hour for a financial professional = $2,040) = 18.5 burden hours 

and time costs of $6,660. 
770

approximately $1,400 for one set of reports.

2395 The Commission therefore estimates that the 

total annual burden for Part C reporting will be 555 burden hours, time costs of $199,800, and 

external costs of $42,000.

2396

d. Part D: Shadow Price Declines

In a change from the proposal, we estimate that the Commission will receive, in the 

aggregate, an average of 0.3 sets2397 of initial and follow-up reports2398 per year in response to 

Part D. Taking into account a blend of legal and financial in-house professionals,2399 we estimate

that a fund will on average spend a total of 13.5 burden hours2400 and time costs of approximately 

 2395 Using the same assumptions as with respect to Part B in supra note 2386, we estimate that approximately a 

quarter of the total legal professional time that would otherwise have been spent on responding to Part C of 

Form N-CR, or 3.5 hours, will be shifted from in-house counsel to outside counsel. Accordingly, we 

estimate that funds will incur additional external legal costs of $1,400 (3.5 hours x $400 per hour for 

outside counsel) per set of initial and follow-up reports in response to Part C.

2396 This estimate is based on the following calculation: 30 reports per year x 18.5 burden hours per report = 

555 burden hours; 30 reports per year x $6,660 time cost per report = $199,800 in time costs; 30 reports per 

year x $1,400 external cost per report = $42,000 in external costs.

2397 Commission staff analyzed form N-MFP data from November 2010 to February 2014 and found that only 

one non-institutional fund had a 1⁄4 of 1 percent deviation from the stable $1.00 per share NAV. 1 fund in 

over 39 months is equivalent to less than 1 (1 x 12 ÷ 39 = 0.31) funds per year. See also supra note 1394. 

In the Proposing Release, we had estimated 0.167 reports filed per year in respect of Part D. See Proposing 

Release, supra note 25, at n.1205. We revised this estimate to reflect more accurate accounting and

updated data.

2398 A retail or government money market fund must file a report on Form N-CR responding to Items D.1 and 

D.2 on the first business day after the initial date on which the fund’s current NAV deviates downward 

from its intended stable price per share by more than 1⁄4 of 1 percent. A fund must amend its initial report 

on Form N-CR to respond to Item D.3 by the fourth business day after the initial date on which the fund’s 

current NAV deviates downward from its intended stable price per share by more than 1⁄4 of 1 percent. See

Form N-CR Item D Instructions.

2399 See supra note 2382.

2400 When filing a report, the Commission estimates that a fund will spend on average approximately 3 hours of 

legal professional time and 3 hours of financial professional time to prepare, review and submit an initial 

filing. In addition, the Commission estimates that a fund will spend on average approximately 4.5 hours of 

legal professional time and 3 hours of financial professional time to prepare, review and submit a follow-up 

amendment. The estimates of the average legal professional time above have already been reduced by the 

corresponding average amount of time that we estimate will be shifted in the aggregate from in-house 

counsel to outside counsel. See infra note 2402. 
771

$4,8302401 for one set of initial and follow-up reports in response to Part D. We also estimate 

funds will also incur on average external costs of approximately $1,000 for one set of reports.

2402 

The Commission therefore estimates that the total annual burden for Part D reporting will be four

burden hours, time costs of $1,449, and external costs of $300.2403

e. Part E: Imposition of Liquidity Fees

In addition to other changes from the proposal,2404 we have made modifications to the 

weekly liquid asset thresholds permitting or triggering board consideration of a liquidity fee in 

Part E of Form N-CR,

2405 We therefore have updated our estimates of the frequency of filings 

under Part E.2406 Moreover, in particular with respect to the board disclosures, we expect that 

most if not all funds may engage outside legal counsel to assist with the drafting and review of 

Form N-CR, thereby incurring additional external costs. 2407 Accordingly, we estimate that the 

 2401 This estimate is based on the following calculations: ((3 hours for the initial filing + 4.5 hours for the 

follow-up filing) x $440 per hour for a legal professional = $3,300) + ((3 hours for the initial filing + 3 

hours for the follow-up filing) x $255 per hour for a financial professional = $1,530) = 13.5 burden hours 

and time costs of $4,830. 

2402 Using the same assumptions as with respect to Part B in supra note 2386, we estimate that approximately a 

quarter of the total legal professional time that would otherwise have been spent on responding to Part D of 

Form N-CR, or 2 hours, will be shifted from in-house counsel to outside counsel. Accordingly, we 

estimate that funds will incur additional external legal costs of $1,000 (2.5 hours x $400 per hour for 

outside counsel) per set of initial and follow-up reports in response to Part D.

2403 This estimate is based on the following calculation: 0.3 reports per year x 13.5 burden hours per report = 4 

burden hours; 0.3 reports per year x $4,830 time cost per report = $1,449 in time costs; 0.3 reports per year 

x $1,000 external cost per report = $300 in external costs.

2404 See supra section III.F.5 for a discussion of all our final amendments to Part E. For example, we have 

made modifications to the board disclosure requirements. See supra section III.F.5 (Board Disclosures). In 

addition, as noted in supra note 2376, commenters cited the particular burdens and the role of the board in 

drafting and reviewing the board disclosures in Parts E and F. Accordingly, taking into account these and 

our other changes to Part E, we have increased our cost estimates for Part E.

2405 See supra section III.F.5 (Conforming Changes).

2406 See infra note 2408 and accompanying text.

2407 See supra note 1377 and accompanying discussion. 
772

Commission will receive, in the aggregate, an average of 1.2 sets2408 of initial and follow-up 

reports2409 per year in response to an event specified on Part E. Taking into account a blend of 

legal and financial in-house professionals,2410 as well as time spent by the board reviewing the 

disclosure, 2411 we estimate that a fund will on average spend a total of 20 burden hours2412 and 

time costs of approximately $10,9102413 for one set of initial and follow-up reports in response to 

 2408 For purposes of this estimate, the Commission estimates that 0.6 funds per year will file a report triggered 

by the 10% weekly liquid asset threshold. See supra section III.F.5 (Operational Costs of Part E, F, and G: 

Imposition and Lifting of Fees and Gates). In the Proposing Release, we had previously estimated a total 

of 4 reports in response to Parts E and F based on the previously proposed higher 15% weekly liquid asset 

trigger. See Proposing Release supra note 25 at n.1202. In addition, the DERA Study analyzed the 

distribution of weekly liquid assets and found that 83 prime funds per year had their weekly liquid asset 

percentages fall below 30%. See supra section III.F.5 (Operational Costs of Part E, F, and G: Imposition 

and Lifting of Fees and Gates). We are unable to estimate with any specificity how many of these 83 prime 

funds would have decided to impose a discretionary liquidity fee upon breaching the 30% weekly liquid 

asset threshold. However, we generally expect relatively few funds will impose a discretionary liquidity 

fee given its voluntary nature and potential costs on redeeming shareholders. For purposes of this PRA, we 

estimate that funds will voluntarily impose a liquidity fee at most as often as they will be required to 

consider a liquidity fee based on the 10% weekly liquid asset trigger. Accordingly, the Commission 

conservatively estimates that 0.6 additional funds per year will file a report in response to Part E because it 

breached the 30% weekly liquid asset threshold and their board determined to impose such a discretionary 

liquidity fee. Together with the filings triggered by the 10% weekly liquid asset threshold, this will result 

in a total of 1.2 sets of filings in response to Part E per year. Although we believe this estimate is likely to 

be high, we are using this estimate to be conservative in our analysis. See supra section III.F.5 

(Operational Costs of Part E, F, and G: Imposition and Lifting of Fees and Gates).

2409 A fund must file a report on Form N-CR responding to Items E.1 through E.4 on the first business day after 

the initial date on which the reporting requirement under Part E was triggered. A fund must amend its 

initial report on Form N-CR to respond to Items E.5 and E.6 by the fourth business day after the initial date 

on which the reporting requirement under Part E was triggered. See Form N-CR Item E Instructions.

2410 See supra note 2382.

2411 For purposes of this PRA, we estimate time costs of $4,400 per hour for a board of 8 directors. See supra

note 2214.

2412 When filing a report, the Commission estimates that a fund would spend on average approximately 3 hours 

of legal professional time and 4 hours of financial professional time to prepare, review and submit an initial 

filing. In addition, the Commission estimates that a fund would spend on average approximately 6 hours of 

legal professional time and 6 hours of financial professional time to prepare, review and submit a follow-up 

amendment. The Commission also estimates that a fund would spend 1 hour for a board of directors to 

review the reports. The estimates of the average legal professional time above have already been reduced 

by the corresponding average amount of time that we estimate will be shifted in the aggregate from inhouse counsel to outside counsel. See infra note 2415. 

2413 This estimate is based on the following calculations: ((3 hours for the initial filing + 6 hours for the followup filing) x $440 per hour for a legal professional = $3,960) + ((4 hours for the initial filing + 6 hours for 
773

Part E. Because we expect that most, if not all, funds may also engage outside legal counsel to 

assist with the drafting and review of Part E,

2414 we also estimate funds will also incur on average 

external costs of approximately $3,600 per set of reports.

2415 The Commission therefore 

estimates that the total annual burden for Part E reporting will be 24 burden hours, time costs of 

$13,092, and external costs of $4,320.2416

f. Part F: Suspension of Fund Redemptions

In addition to other changes from the proposal,2417 we have increased the weekly liquid 

asset threshold permitting boards to impose a discretionary gate.2418 We therefore have updated 

our estimates of the frequency of filings under Part F.2419 In particular with respect to the board 

disclosures, we expect that most if not all funds may engage legal counsel to assist with the 

 

the follow-up filing) x $255 per hour for a financial professional = $2,550) + (1 hour x $4,400 per hour for 

a board of 8 directors = $4,400) = 20 burden hours and time costs of $10,910. 

2414 Because, for the reason discussed in supra note 1301 and accompanying text, the potential imposition of a 

liquidity fee is one of the most significant events that can occur to money market funds, to be conservative 

we estimate that all funds would seek outside counsel for purposes of this estimate.

2415 On average, we estimate that approximately half of the total legal professional time that in-house counsel 

would have otherwise spent on reviewing and responding to Part E of Form N-CR will be shifted to outside 

counsel. Accordingly, for purposes of this PRA, we estimate that a total of 9 hours will be shifted from inhouse counsel to outside counsel. Accordingly, we estimate that funds would incur external legal costs of 

$3,600 (9 hours x $400 per hour for outside counsel) per set of initial and follow-up reports in response to 

Part E.

2416 This estimate is based on the following calculation: 1.2 reports per year x 20 burden hours per report = 24 

burden hours; 1.2 reports per year x $10,910 time cost per report = $13,092 in time costs; 1.2 reports per 

year x $3,600 external cost per report = $4,320 in external costs.

2417 See supra section III.F.5 for a discussion of all our final amendments to Part F. For example, we have 

made modifications to the board disclosure requirements. See supra section III.F.5 (Board Disclosures). In 

addition, as noted in supra note 2376, commenters cited the particular burdens and the role of the board in 

drafting and reviewing the board disclosures in Parts E and F. Accordingly, taking into account these and 

our other changes to Part F, we have increased our cost estimates for Part F.

2418 See supra section III.F.5 (Conforming Changes).

2419 See infra note 2421 and accompanying text.
774

drafting and review of Form N-CR, thereby incurring additional external costs. 2420 Accordingly, 

we estimate that the Commission will receive, in the aggregate, an average of 0.6 sets2421 of 

initial and follow-up reports2422 per year in response to an event specified on Part F. Taking into

account a blend of legal and financial in-house professionals,2423 as well as time spent by the 

board reviewing the disclosure, we estimate that a fund will on average spend a total of 20

burden hours2424 and time costs of approximately $10,9102425 for one set of initial and follow-up 

 2420 See supra note 1376 and accompanying discussion. 

2421 In the Proposing Release, we had previously estimated a total of 4 reports in response to Parts E and F 

based on the previously proposed 15% weekly liquid asset trigger. See Proposing Release supra note 25 at 

n.1202. However, we are revising this estimate in light of the amended higher 30% weekly liquid asset 

threshold for discretionary gates. In particular, the DERA Study found that 83 prime funds per year had 

their weekly liquid asset percentages fall below 30%. See supra section III.F.8 (Operational Costs of Part 

E, F, and G: Imposition and Lifting of Fees and Gates). Similar to discretionary liquidity fees, we are 

unable to estimate with any specificity how many of these 83 prime funds would have decided to impose a 

discretionary gate upon breaching the 30% weekly liquid asset threshold. Cf. supra note 2408. However, 

we conservatively estimate the number of instances in which a fund breached the 30% weekly liquid asset 

threshold and its board determined to impose a voluntary gate to be equal to the number of instances in 

which a fund breached the 30% weekly liquid asset threshold and its board determined to impose a 

voluntary fee. This results in an estimate of approximately 0.6 sets of initial and follow-up reports filed per 

year in response to Part F. Although we believe this estimate is likely to be high, we are using this estimate 

to be conservative in our analysis. See supra section III.F.8 (Operational Costs of Part E, F, and G: 

Imposition and Lifting of Fees and Gates).

2422 A fund must file a report on Form N-CR responding to Items F.1 and F.2 on the first business day after the 

initial date on which a fund suspends redemptions. A fund must amend its initial report on Form N-CR to 

respond to Items F.3 and F.4 by the fourth business day after the initial date on which a fund suspends 

redemptions. See Form N-CR Item F Instructions.

2423 See supra note 2382.

2424 When filing a report, the Commission estimates that a fund would spend on average approximately 3 hours 

of legal professional time and 4 hours of financial professional time to prepare, review and submit an initial 

filing. In addition, the Commission estimates that a fund would spend on average approximately 6 hours of 

legal professional time and 6 hours of financial professional time to prepare, review and submit a follow-up 

amendment. The Commission also estimates that a fund would spend 1 hour for a board of directors to 

review the reports. The estimates of the average legal professional time above have already been reduced 

by the corresponding average amount of time that we estimate will be shifted in the aggregate from inhouse counsel to outside counsel. See infra note 2427. 

2425 This estimate is based on the following calculations: ((3 hours for the initial filing + 6 hours for the followup filing) x $440 per hour for a legal professional = $3,960) + ((4 hours for the initial filing + 6 hours for 

the follow-up filing) x $255 per hour for a financial professional = $2,550) + (1 hour x $4,400 per hour for 

a board of 8 directors = $4,400) = 20 burden hours and time costs of $10,910.
775

reports in response to Part F. Because we expect most if not all funds may also engage legal 

counsel to assist with the drafting and review of Form N-CR,2426 we estimate funds also further 

incur on average external costs of approximately $3,600 for each set of reports.

2427 The 

Commission therefore estimates that the total annual burden for Part F reporting will be 12

burden hours, time costs of $6,546, and external costs of $2,160.

2428

g. Part G: Removal of Liquidity Fees and/or Resumption of Fund 

Redemptions

As discussed in the Proposing Release, we continue to believe the frequency of filings 

under Part G on Form N-CR to be closely correlated to the frequency of filings under Parts E and 

F.2429 Given our revised estimates of the number of filings under Parts E and F,2430 we are 

correspondingly updating our estimate of the number of filings under Part G. We are further 

updating our estimates for Part G, because the Commission expects the cost per filing associated 

 2426 Because, for the reason discussed in supra note 1301 and accompanying text, the potential imposition of a 

gate is one of the most significant events that can occur to money market funds, to be conservative we 

estimate that all funds would seek outside counsel for purposes of this estimate. 

2427 On average, we estimate that approximately half of the total legal professional time that in-house counsel 

would have otherwise spent on reviewing and responding to Part F of Form N-CR will be shifted to outside 

counsel. Accordingly, for purposes of this PRA, we estimate that a total of 8 hours will be shifted from inhouse counsel to outside counsel. Accordingly, we estimate that funds will incur external legal costs of 

$3,600 (9 hours x $400 per hour for outside counsel) per set of initial and follow-up reports in response to 

Part F.

2428 This estimate is based on the following calculation: 0.6 reports per year x 20 burden hours per report = 12 

burden hours; 0.6 reports per year x $10,910 time cost per report = $6,546 in time costs; 0.6 reports per 

year x $3,600 external cost per report = $2,160 in external costs.

2429 See, e.g., Proposing Release supra note 25 at n.1202 and accompanying discussion. We expect there to be 

a close correlation because Part G requires disclosure of the lifting of any liquidity fee or gate imposed in 

connection with Part E or F. 

2430 See supra notes 2408 and 2421.
776

with responding to Part G to be lower than for Parts E or F.2431 Unlike Parts B through F and H, 

for which we have included estimated external costs to account for the possibility that funds may 

engage legal counsel to assist in the preparation and review of Form N-CR,2432 we have not done 

so here because of the relative simplicity of Part G. Accordingly, we estimate that the 

Commission will receive, in the aggregate, an average of 1.8 reports2433 per year in response to 

Part G. Taking into account a blend of legal and financial in-house professionals,2434 we estimate 

that a fund will on average spend a total of two burden hours2435 and time costs of approximately 

$6952436 for a filing in response to Part G. The Commission therefore estimates that the total 

annual burden for Part G reporting will be 3.6 burden hours, and time costs of $1,251.2437

 2431 The Proposing Release estimated that a fund would spend on average approximately 5 burden hours and 

total time costs of $1,708 to prepare, review, and submit a report under any Part of Form N-CR. See 

Proposing Release supra note 25 at n.1203 and accompanying text. However, we expect a response to Part 

G to be shorter than under Parts E or F, given that Part G only requires disclosure of the date on which a 

fund removed a liquidity fee and/or resumed Fund redemptions. See Form N-CR Item G.1. In addition, 

unlike Part E or F, Part G would not require any follow-up report.

2432 See supra IV.D.2.g for our discussion of the external costs of Parts B through F; see also infra this section 

for our discussion of the external costs of Part H.

2433 As discussed in section III.F, we expect the frequency of Part G filings will be closely correlated to any 

filings under Part E of F, given that Part G will disclose the lifting of any liquidity fee or gate imposed in 

connection with Part E or F. See supra section III.F.8 (Operational Costs of Part E, F, and G: Imposition 

and Lifting of Fees and Gates). In particular, for purposes of this estimate the Commission estimates that 

1.8 funds per year will file a report in response to Part G, based on the assumption that each time a fund 

files a report under Parts E or F it will also eventually file a report under Part G. We believe this to be a 

high estimate given that, among other things, at least some funds that impose a liquidity fee or gate will 

likely to go out of business (and thus would never reopen), although we are unable to predict with certainty 

how many would do so. 

2434 See supra note 2382.

2435 When filing a report, the Commission estimates that a fund will spend on average approximately 1 hour of 

legal professional time and 1 hour of financial professional time to prepare, review, and submit a filing in 

response to Part G.

2436 This estimate is based on the following calculations: (1 hour x $440 per hour for a legal professional = 

$440) + (1 hour x $255 per hour for a financial professional = $255) = 2 burden hours and time costs of 

$695. 

2437 This estimate is based on the following calculation: 1.8 reports per year x 2 burden hours per report = 3.6 
777

h. Part H: Other Events

Given the broad scope and voluntary nature of the optional disclosure under Part H of 

Form N-CR, which is new from the proposal, we believe that, in an event of filing, a fund’s 

particular circumstances that led it to decide to make such a voluntary disclosure will be the 

predominant factor in determining the time and costs associated with filing a report on Part H. 

To be conservative, we also expect that some funds may engage outside legal counsel to assist 

with the drafting and review of Part H, thereby incurring additional external costs.2438 We 

estimate that the Commission will receive, in the aggregate, approximately 15 reports2439 per year 

in response to Part H of Form N-CR. Taking into account a blend of legal and financial in-house 

professionals,2440 we estimate that a fund will on average spend a total of four burden hours2441

 

burden hours; 1.8 reports per year x $695 time cost per report = $1,251 in time costs.

2438 See supra note 2386 and accompanying discussion. 

2439 For purposes of this estimate, the Commission conservatively estimates that funds will include a disclosure 

under Part H in about a quarter of the instances they submit a follow-up filing under Parts B through F, as 

well as with respect to a quarter of all filings under Part G. Because of the timing constraints, we generally 

would not expect that funds will make a Part H disclosure in an initial filing. However, given the 

possibility that funds might make a Part H disclosure in the initial filing or on a stand-alone basis, we 

conservatively estimate one additional Part H filing per year under each scenario. We therefore estimate an 

annual total of approximately 15 filings in response to Part H based on the following calculation: (20 sets 

of Part B filings per year) + (30 sets of Part C filings per year) + (0.3 sets of Part D filings per year) + (1.2 

sets of Part E filings per year) + (0.6 sets of Part F filings per year) + (1.8 Part G filings per year) = 

approximately 54 Parts B-G filings per year. (54 Parts B-G filings per year ÷ 4) + (2 additional Part H 

filings per year in an initial filing or on a stand-alone basis) = approximately 15 Part H filings per year. 

2440 See supra note 2382.

2441 This estimate is derived in part from our current PRA estimate for Form 8-K under the Exchange Act. See 

“Form 8-K, Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934” (OMB 

Control No. 3235-0060), available at http://www.reginfo.gov. In particular, we estimate that Form 8-K 

takes approximately 5 hours per response if rounded up to the next whole hour. As an initial step, we 

conservatively added an additional hour, for a total of 6 hours. Of this total, we estimate that an average of 

2 hours will be shifted to outside legal counsel (corresponding to the 2 hours of legal professional time 

discussed immediately below). Accordingly, when filing a report, the Commission estimates that a fund 

would spend on average approximately 2 hours of legal professional time and 2 hours of financial 

professional time to prepare, review and submit a response to Part H. 
778

and time costs of approximately $1,3902442 for one set of initial and follow-up reports in response 

to Part H. We also estimate funds will also incur on average external legal costs of 

approximately $800 per report.

2443 The Commission therefore estimates that the total annual 

burden for Part H reporting will be 60 burden hours, time costs of $20,850, and external costs of 

$12,000.2444

i. Aggregate Burden of Form N-CR

In the aggregate, we estimate that compliance with Form N-CR will result in a total 

annual burden of approximately 929 burden hours,2445 total annual time costs of approximately 

$339,588,

2446 and total external costs of $80,780.2447 Given an estimated 559 money market funds 

that will be required to comply with Form N-CR,2448 this will result in an average annual burden 

 2442 This estimate is based on the following calculations: (2 hours x $440 per hour for a legal professional = 

$880) + (2 hours x $255 per hour for a financial professional = $510) = 4 burden hours and time costs of 

$1,390. 

2443 In particular, we expect that funds are more likely to file a report on Part H when there are more complex 

events that need to be addressed, which correspondingly we believe will make it significantly more likely 

that funds will engage legal counsel. To be conservative, we estimate that funds would engage outside 

legal counsel in all cases they file a response to Part H. Accordingly, we estimate that funds would incur 

additional external legal costs of $800 (2 hours x $400 per hour for outside counsel) per set of initial and 

follow-up reports in response to Part H (with the estimated 2 hours of outside counsel time corresponding 

to the 2 hours of legal professional time we estimate in supra note 2441).

2444 This estimate is based on the following calculation: 15 reports per year x 4 burden hours per report = 60 

burden hours; 15 reports per year x $1,390 time cost per report = $20,850 in time costs; 15 reports per year 

x $800 external cost per report = $12,000 in external costs.

2445 This estimate is based on the following calculation: 270 hours (Part B) + 555 hours (Part C) + 4 hours 

(Part D) + 24 hours (Part E) + 12 hours (Part F) + 3.6 hours (Part G) + 60 hours (Part H) = 929 aggregate 

burden hours. 

2446 This estimate is based on the following calculation: $96,600 (Part B) + $199,800 (Part C) + $1,449 (Part 

D) + $13,092 (Part E) + $6,546 (Part F) + $1,251 (Part G) + $20,850 (Part H) = $339,588 aggregate time 

costs. 

2447 This estimate is based on the following calculation: $20,000 (Part B) + $42,000 (Part C) + $300 (Part D) + 

$4,320 (Part E) + $2,160 (Part F) + $12,000 (Part H) = $80,780 total external costs. 

2448 See supra note 2340.
779

of approximately 1.7 burden hours, average annual time costs of approximately $607 on a perfund basis, and average annual external costs of $145.

2449

E. Rule 34b-1(a)

Rule 34b-1 under the Investment Company Act is an antifraud provision governing sales 

material that accompanies or follows the delivery of a statutory prospectus. Among other things, 

rule 34b-1 deems to be materially misleading any advertising material by a money market fund 

required to be filed with the Commission by section 24(b) of the Act that includes performance 

data, unless such advertising also includes the rule 482(b)(4) risk disclosures already discussed in 

section IV.F below. In the Proposing Release, the Commission noted that the proposal to amend 

the wording of the rule 482(b)(4) risk disclosures would indirectly affect rule 34b-1(a), although 

the Commission proposed no changes to rule 34b-1(a) itself. We also noted that our discussion 

of the amendments to rule 482(b)(4) accounted for the burdens associated with the wording 

changes to the risk disclosures in money market fund advertising, and by complying with our 

amendments to rule 482(b)(4), money market funds would also automatically remain in 

compliance with rule 34b-1(a) as affected by these amendments. Therefore, any burdens 

associated with rule 34b-1(a) as a result of our proposed amendments to rule 482(b)(4) were 

already accounted for in the Proposing Release’s Paperwork Reduction Act analysis of rule 482. 

No commenters addressed rule 34b-1, and we continue to believe that any burdens associated 

with rule 34b-1(a) as a result of the amendments we are adopting to rule 482(b)(4) are accounted 

for in section IV.F below.

 2449 This estimate is based on the following calculation: 929 burden hours ÷ 559 funds = 1.7 annual burden 

hours per fund; $339,588 ÷ 559 funds = $607 annual time costs per fund; $80,780 ÷ 559 funds = $145 

annual external costs per fund. 
780

F. Rule 482

We are adopting amendments affecting current requirements under rule 482 of the 

Securities Act relating to the information that is required to be included in money market funds’ 

advertisements or other sales materials. Specifically, the amendments revise the particular 

wording of the current rule 482(b)(4) risk disclosures required to appear in advertisements for 

money market funds (including on the fund website). The fees and gates amendments, as well as 

the floating NAV amendments, will change the investment expectations and experience of 

money market fund investors. Accordingly, the amended wording of the rule 482(b)(4) risk 

disclosures reflects the particular risks associated with the imposition of liquidity fees or gates 

and/or a floating NAV. In the Proposing Release, using an estimate of 586 money market funds, 

the Commission estimated that money market funds would incur, in aggregate, a total one-time 

burden of 3,077 hours, at a time cost of $857,904, to comply with the amended requirements of 

rule 482. This collection of information will be mandatory for money market funds that rely on 

rule 2a-7, and the information will not be kept confidential.

Certain commenters generally noted that complying with all of the new disclosure 

requirements, including the amended requirements of rule 482, would involve additional 

costs.2450 Several commenters provided dollar estimates of the initial costs to implement a fees 

and gates or floating NAV framework and noted that these estimates would include the costs of 

 2450 See, e.g., Fin. Svcs. Roundtable Comment Letter (noting that the proposed disclosure requirements 

generally would produce “significant cost to the fund and ultimately to the fund’s investors”); SSGA 

Comment Letter (urging the Commission to consider the “substantial administrative, operational, and 

expense burdens” of the proposed disclosure-related amendments); Chapin Davis Comment Letter (noting 

that the disclosure- and reporting-related amendments will result in increased costs in the form of fund staff 

salaries, or consultant, accountant, and lawyer hourly rates, that will ultimately be borne in large part by 

investors and portfolio issuers). 
781

related disclosure, but these commenters did not specifically break out the disclosure-related 

costs in their estimates.2451 One commenter stated that the costs to update website disclosures to 

reflect the new floating NAV and fees and gates requirements would be “minimal when 

compared to other costs,”2452 and another commenter stated that the proposed disclosure 

requirements should not produce any meaningful costs.2453 As described above, we are adopting 

amendments to rule 482 that have been modified from the proposed amendments to respond to 

certain commenters’ concerns and other suggestions. The rule 482 disclosure requirements that 

we are adopting therefore differ from the proposed rule 482 disclosure requirements in content 

and format.2454 We believe that these revisions to the proposed requirements do not produce 

additional burdens for funds because the revisions only involve changes in the wording and 

formatting of the required disclosure statement and do not impact the measures funds must take 

to effect the disclosure requirements. Taking this into consideration, as well as the fact that we 

received no comments providing specific suggestions or critiques about our methods for 

estimating the burdens and costs associated with the rule 482 amendments, the Commission has 

not modified its previous hour burden estimates.2455 

 2451 See, e.g., Chamber I Comment Letter; Fidelity Comment Letter.

2452 See State Street Comment Letter, at Appendix A.

2453 See HSBC Comment Letter.

2454 See supra section III.E.1.

2455 The compliance period for updating rule 482(b)(4) risk disclosures to reflect the floating NAV or liquidity 

fees and gates amendments is 2 years. We understand that money market funds commonly update and 

issue new advertising materials on a periodic and frequent basis. Accordingly, given the extended 

compliance period proposed, we expect that funds should be able to amend the wording of their rule 

482(b)(4) risk disclosures as part of one of their general updates of their advertising materials. Similarly, 

we believe that funds could update the corresponding disclosure statement on their websites when 

performing other periodic website maintenance. We therefore account only for the incremental change in 

burden that amending the rule 482(b)(4) risk disclosures will cause in the context of a larger update to a 
782

Based on an estimate of 559 money market funds that will be required to update the risk 

disclosure included in fund advertisements pursuant to rule 482, as amended, we estimate that, in 

the aggregate, the amendments will result in 2,935 total one-time burden hours,2456 at a total onetime time cost of $818,376.2457 Amortized over a three-year period, this will result in an average 

additional annual burden of approximately 978 burden hours2458 at a total annual time cost of 

approximately $272,792 for all funds.2459 Given that the amendments are one-time updates to the 

wording of the risk disclosures already required under current rule 482(b)(4), we believe that, 

once funds have made these one-time changes, the amendments to rule 482(b)(4) will only 

require money market funds to incur the same costs and hour burdens on an ongoing basis as 

under current rule 482(b)(4). 

G. Form N-1A

We are adopting amendments to Form N-1A relating to money market funds’ disclosure 

of: (i) certain of the risks associated with liquidity fees and gates and/or a floating NAV; (ii) 

 

fund’s advertising materials or website.

2456 This estimate is based on the following calculation: 5.25 hours per year (4 hours to update and review the 

wording of the rule 482(b)(4) risk disclosure for each fund’s printed advertising and sales material, plus 

1.25 hours to post and review the wording of the rule 482(b)(4) risk disclosures on a fund’s website) x 559 

money market funds = approximately 2,935 hours.

2457 This estimate is based on the following calculation: $1,464 (total one-time costs per fund) x 559 funds = 

$818,376. The $1,464 per fund figure is, in turn, based on the following calculations: (3 hours (spent by a 

marketing manager to update the wording of the risk disclosures for each fund’s marketing materials) x 

$254/hour for a marketing manager = $762) + (1 hour (spent by a webmaster to update a fund’s website 

risk disclosures) x $227/hour for a webmaster = $227) + (1.25 hours (spent by an attorney to review the 

amended rule 482(b)(4) risk disclosures) x $380/hour for an attorney = $475) = $1,464.

2458 This estimate is based on the following calculation: 2,935 hours ÷ 3 = approximately 978 hours. The 

current approved collection of information for Rule 482 is 305,705 hours annually for all investment 

companies. Adding 978 hours to this approved collection of information will result in a burden of 306,683 

hours each year.

2459 This estimate is based on the following calculation: $818,376 ÷ 3 = $272,792. 
783

historical occasions on which the fund has considered or imposed liquidity fees or gates; and (iii) 

historical instances in which the fund has received financial support from a sponsor or fund 

affiliate. Specifically, we are adopting amendments to Form N-1A that will require funds to 

include certain risk disclosure statements in their prospectuses. We are also adopting 

amendments to Form N-1A that will require money market funds (other than government money 

market funds that have not chosen to retain the ability to impose liquidity fees and suspend 

redemptions) to provide disclosure in their SAIs regarding any occasion during the last 10 years 

in which: (i) the fund’s weekly liquid assets have fallen below 10%, and with respect to each 

occasion, whether the fund’s board has determined to impose a liquidity fee and/or suspend 

redemptions; and (ii) the fund’s weekly liquid assets have fallen below 30%, and the fund’s 

board has determined to impose a liquidity fee and/or suspend redemptions.2460 Finally, we are 

also adopting amendments to Form N-1A that will require each money market fund to disclose in 

its SAI historical instances in which the fund has received financial support from a sponsor or 

fund affiliate.2461 

 In addition, the fee and gate requirements we are adopting will entail certain additional 

prospectus and SAI disclosure requirements that will not necessitate rule and form amendments. 

Specifically, pursuant to current disclosure requirements, we will expect that money market 

funds (besides government money market funds that have not chosen to retain the ability to 

impose liquidity fees and suspend redemptions) will disclose in the statutory prospectus, as well 

as in the SAI, as applicable, the effects that the potential imposition of fees and/or gates may 

 2460 See supra section III.E.5.

2461 See supra section III.E.7.
784

have on a shareholder’s ability to redeem shares of the fund.2462 We also expect that, promptly 

after a money market fund imposes a redemption fee or gate, it will inform investors of any fees 

or gates currently in place by means of a post-effective amendment or prospectus supplement.2463 

The floating NAV amendments we are adopting will also require certain additional 

prospectus and SAI disclosures, which will not necessitate rule and form amendments. Pursuant 

to current disclosure requirements, we expect that floating NAV money market funds will

include disclosure in their prospectuses about the tax consequences to shareholders of buying, 

holding, exchanging, and selling the shares of the floating NAV fund.2464 In addition, we expect 

that a floating NAV money market fund will update its prospectus and SAI disclosure regarding 

the purchase, redemption, and pricing of fund shares, to reflect any procedural changes resulting 

from the fund’s use of a floating NAV.2465 We also expect that, at the time a stable NAV money 

market fund transitions to a floating NAV, it will update its registration statement to include 

relevant related disclosure by means of a post-effective amendment or prospectus supplement.2466

This collection of information will be mandatory for money market funds that rely on rule 2a-7, 

and the information will not be kept confidential.

In the Proposing Release, the Commission estimated that the proposed amendments to 

Form N-1A relating to the fees and gates proposal, the Form N-1A requirements relating to the 

fees and gates proposal that would not necessitate form amendments, and the proposed sponsor 

 2462 See supra section III.E.4.

2463 See supra section III.E.9.f.

2464 See supra section III.E.2.

2465 See supra section III.E.3.

2466 See id.
785

support disclosure requirements together would result in all money market funds incurring an 

annual increased burden of 1,007 hours, at a time cost of $298,072. We also estimated that, 

under the fees and gates alternative, there would be one-time aggregate external costs (in the 

form of printing costs) of $6,269,175 associated with the new Form N-1A disclosure 

requirements. The Commission estimated that the proposed amendments to Form N-1A relating 

to the floating NAV proposal, the Form N-1A requirements relating to the floating NAV 

proposal that would not necessitate form amendments, and the proposed sponsor support 

disclosure requirements together would result in all money market funds incurring an annual 

increased burden of 907 hours, at a time cost of $268,472. Additionally, we estimated that, 

under the floating NAV alternative, there would be one-time aggregate external costs (in the 

form of printing costs) of $3,134,588 associated with the new Form N-1A disclosure 

requirements. 

Certain commenters generally noted that complying with all of the new disclosure 

requirements, including the Form N-1A disclosure requirements, would involve some additional 

costs.2467 Several commenters provided dollar estimates of the initial costs to implement a fees 

and gates or floating NAV regime and noted that these estimates would include the costs of 

related disclosure, but these commenters did not specifically break out the disclosure-related 

costs in their estimates.2468 One commenter stated that the costs to update a fund’s registration 

statement to reflect the new fees and gates and floating NAV requirements would be “minimal 

 2467 See supra note 2450. 

2468 See, e.g., Chamber I Comment Letter; Fidelity Comment Letter.
786

when compared to other costs,”2469 and another commenter stated that the proposed disclosure 

requirements should not produce any meaningful costs.2470 As described above, we are adopting 

amendments to the Form N-1A disclosure requirements that have been modified from the 

proposed amendments to respond to commenters concerns. The amendments we are adopting to 

the Form N-1A risk disclosure requirements therefore differ from the proposed requirements in 

content and format.2471 In addition, the amendments we are adopting to require funds to provide 

disclosure in their SAIs about historical occasions on which the fund has considered or imposed 

liquidity fees or gates, as well as historical occasions on which the fund has received financial 

support from a sponsor or fund affiliate, have been modified in certain respects from the 

proposed amendments. We believe that these revisions do not produce additional burdens for 

funds2472 and therefore do not affect the assumptions we used in estimating hour burdens and 

related costs. The comments we received on the new disclosure requirements also do not affect 

the assumptions we used in our estimates, as these comments provided no specific suggestions or 

critiques regarding our methods for estimating hour and cost burdens associated with the Form 

 2469 See State Street Comment Letter, at Appendix A.

2470 See HSBC Comment Letter.

2471 See supra section III.E.1.

2472 The revisions to the proposed Form N-1A risk disclosure requirements do not produce additional burdens 

for funds because the revisions only involve changes in the wording and formatting of the required 

disclosure statement and do not impact the measures funds must take to effect the disclosure requirements. 

The revisions to the proposed SAI historical disclosure requirements do not produce additional burdens for 

funds because the adopted amendments to Form N-1A require a fund to disclose less detailed information 

than that which would have been required under the proposed amendments to Form N-1A. See supra text 

following note 975 and text accompanying and following note 1019. Furthermore, because the SAI 

historical disclosure overlaps with the information that a fund must disclose on Parts C, E, F, and G of 

Form N-CR (see supra section III.E.8), we believe that the burden for a fund to draft and finalize this 

historical disclosure will largely be incurred when the fund files Form N-CR, and thus the differences in the 

Form N-1A historical disclosure requirements that we are adopting, compared to those that we proposed, 

should not substantially affect our previous hour burden estimates.
787

N-1A requirements. As described below, however, our current estimates reflect the fact that the 

amendments we are adopting today combine the floating NAV and fees and gates proposal 

alternatives into one unified approach. 

The burdens associated with the proposed amendments to Form N-1A include one-time 

burdens as well as ongoing burdens. The Commission estimates that each money market fund 

(except government funds that have not chosen to retain the ability to impose liquidity fees and 

suspend redemptions, and floating NAV money market funds) will incur a one-time burden of 

five hours,2473 at a time cost of $1,595,2474 to draft and finalize the required disclosure and amend 

its registration statement. In addition, we estimate that each government fund that has not 

chosen to retain the ability to impose liquidity fees and suspend redemptions will incur a 

one-time burden of two hours,2475 at a time cost of $638,2476 to draft and finalize the required 

 2473 This estimate is based on the following calculation: 1 hour to update the registration statement to include 

the required disclosure statement + 3 hours to update the registration statement to include the disclosure 

about effects that fees/gates may have on shareholder redemptions, and the disclosure about historical 

occasions on which the fund has considered or imposed liquidity fees or gates + 1 hour to update the 

registration statement to include the disclosure about historical occasions of financial support received by 

the fund = 5 hours.

2474 This estimate is based on the following calculation: (1 hour (to update registration statement to include 

required disclosure statement) x $319 (blended hourly rate for a compliance attorney ($334) and a senior 

programmer ($303)) = $319) + (3 hours (to update registration statement to include disclosure about effects 

that fees/gates may have on shareholder redemptions, and disclosure about historical occasions on which 

the fund has considered or imposed liquidity fees or gates) x $319 (blended hourly rate for a compliance 

attorney ($334) and a senior programmer ($303)) = $957) + (1 hour (to update registration statement to 

include disclosure about historical occasions of financial support received by the fund) x $319 (blended 

hourly rate for a compliance attorney ($334) and a senior programmer ($303)) = $319) = $1,595. 

2475 This estimate is based on the following calculation: 1 hour to update registration statement to include 

required disclosure statement + 1 hour to update registration statement to include disclosure about financial 

support received by the fund = 2 hours.

2476 This estimate is based on the following calculation: (1 hour (to update registration statement to include 

required disclosure statement) x $319 (blended hourly rate for a compliance attorney ($334) and a senior 

programmer ($303)) = $319) + (1 hour (to update registration statement to include disclosure about 

financial support received by the fund) x $319 (blended hourly rate for a compliance attorney ($334) and a 

senior programmer ($303)) = $319) = $638. 
788

disclosure and amend its registration statement. We also estimate that each floating NAV money 

market fund will incur a one-time burden of eight hours,2477 at a time cost of $2,552,2478 to draft 

and finalize the required disclosure and amend its registration statement. In aggregate, the 

Commission estimates that all money market funds will incur a one-time burden of 2,933 

hours,2479 at a time cost of $935,627,2480 to comply with the Form N-1A disclosure requirements. 

Amortizing the one-time burden over a three-year period results in an average annual burden of 

978 hours at a time cost of $311,876.2481

The Commission estimates that each money market fund (except government funds that 

have not chosen to retain the ability to impose liquidity fees and suspend redemptions) will incur 

 2477 This estimate is based on the following calculation: 1 hour to update registration statement to include 

required disclosure statement + 3 hours to update registration statement to include disclosure about effects 

that fees/gates may have on shareholder redemptions, and disclosure about historical occasions on which 

the fund has considered or imposed liquidity fees or gates + 3 hours to update registration statement to 

include tax- and operations-related disclosure about floating NAV + 1 hour to update registration statement 

to include disclosure about financial support received by the fund = 8 hours.

2478 This estimate is based on the following calculation: (1 hour (to update registration statement to include 

required disclosure statement) x $319 (blended hourly rate for a compliance attorney ($334) and a senior 

programmer ($303)) = $319) + (3 hours (to update registration statement to include disclosure about effects 

that fees/gates may have on shareholder redemptions, and disclosure about historical occasions on which 

the fund has considered or imposed liquidity fees or gates) x $319 (blended hourly rate for a compliance 

attorney ($334) and a senior programmer ($303)) = $957) + (3 hours (to update registration statement to 

include tax- and operations-related disclosure about floating NAV) x $319 (blended hourly rate for a 

compliance attorney ($334) and a senior programmer ($303)) = $957) + (1 hour (to update registration 

statement to include disclosure about financial support received by the fund) x $319 (blended hourly rate 

for a compliance attorney ($334) and a senior programmer ($303)) = $319) = $2,552. 

2479 This estimate is based on the following calculations: (5 hours x 195 funds (559 money market funds – 205 

institutional prime funds – 159 funds that will rely on the government fund exemption) = 975 hours) + (2 

hours x 159 funds that will rely on the government fund exemption = 318 hours) + (8 hours x 205 

institutional prime funds = 1,640 hours) = 2,933 hours. For purposes of this PRA analysis, our calculations 

of the number of institutional prime funds and funds that will rely on the government fund exemption are 

based on Form N-MFP data as of February 28, 2014.

2480 This estimate is based on the following calculation: 2,933 hours x $319 (blended hourly rate for a 

compliance attorney ($334) and a senior programmer ($303)) = $935,627.

2481 This estimate is based on the following calculation: 2,933 burden hours ÷ 3 = 977 average annual burden 

hours; $935,627 burden costs ÷ 3 = $311,876 average annual burden cost.
789

an ongoing burden of one hour, at a time cost of $319,2482 each year to: 1) review and update the 

SAI disclosure regarding historical occasions on which the fund has considered or imposed 

liquidity fees or gates; 2) review and update the SAI disclosure regarding historical occasions in 

which the fund has received financial support from a sponsor or fund affiliate; and 3) inform 

investors of any fees or gates currently in place (as appropriate), or the transition to a floating 

NAV (as appropriate), by means of a prospectus supplement. The Commission also estimates 

that each government money market fund that has not chosen to retain the ability to impose 

liquidity fees and suspend redemptions will incur an ongoing burden of 0.5 hours, at a time cost 

of $160,2483 each year to review and update the SAI disclosure regarding historical instances in 

which the fund has received financial support from a sponsor or fund affiliate. In aggregate, we 

estimate that all money market funds will incur an annual burden of 480 hours,2484 at a time cost 

of $153,120,2485 to comply with the Form N-1A disclosure requirements.

Amortizing these one-time and ongoing hour and cost burdens over three years results in 

an average annual increased burden of 2.3 hours per fund (other than government funds that have 

 2482 This estimate is based on the following calculation: (0.5 hours (to review and update the SAI disclosure 

regarding historical occasions on which the fund has considered or imposed liquidity fees or gates, and to 

inform investors of any fees or gates currently in place (as appropriate), or the transition to a floating NAV 

(as appropriate), by means of a prospectus supplement) x $319 (blended hourly rate for a compliance 

attorney ($334) and a senior programmer ($303)) = $159.5) + (0.5 hours (to review and update the SAI 

disclosure regarding historical instances in which the fund has received financial support from a sponsor or 

fund affiliate) x $319 (blended hourly rate for a compliance attorney ($334) and a senior programmer 

($303)) = $159.5) = $319.

2483 This estimate is based on the following calculation: (0.5 hours x $319 (blended hourly rate for a 

compliance attorney ($334) and a senior programmer ($303)) = approximately $160. 

2484 This estimate is based on the following calculations: (1 hour x 400 funds (559 money market funds – 159 

funds that will rely on the government fund exemption) = 400 hours) + (0.5 hours x 159 funds that will rely 

on the government fund exemption = approximately 80 hours) = 480 hours.

2485 This estimate is based on the following calculation: 480 hours x $319 (blended hourly rate for a compliance 

attorney ($334) and a senior programmer ($303)) = $153,120.
790

not chosen to retain the ability to impose liquidity fees and suspend redemptions, and floating 

NAV money market funds),2486 at a time cost of $744.2487 Government funds that have not 

chosen to retain the ability to impose liquidity fees and suspend redemptions will incur an 

average annual increased burden of 1 hour,2488 at a time cost of $319,2489 to comply with the Form 

N-1A disclosure requirements. Floating NAV money market funds will incur an average annual 

increased burden of 3.3 hours,2490 at a time cost of $1,063,2491 to comply with the Form N-1A 

disclosure requirements. 

In total, the Commission estimates that all money market funds will incur an average 

annual increased burden of 1,285 hours,2492 at a time cost of $413,716,2493 to comply with the 

Form N-1A disclosure requirements. Additionally, we estimate that there will be annual

 2486 This estimate is based on the following calculation: 5 burden hours (year 1) + 1 burden hour (year 2) + 1 

burden hour (year 3) ÷ 3 = approximately 2.3 burden hours. 

2487 This estimate is based on the following calculation: $1,595 (year 1 monetized burden hours) + $319 (year 2 

monetized burden hours) + $319 (year 3 monetized burden hours) ÷ 3 = approximately $744.

2488 This estimate is based on the following calculation: 2 burden hours (year 1) + 0.5 burden hours (year 2) + 

0.5 burden hours (year 3) ÷ 3 = 1 burden hour.

2489 This estimate is based on the following calculation: $638 (year 1 monetized burden hours) + $160 (year 2 

monetized burden hours) + $160 (year 3 monetized burden hours) ÷ 3 = approximately $319.

2490 This estimate is based on the following calculation: 8 burden hours (year 1) + 1 burden hour (year 2) + 1 

burden hour (year 3) ÷ 3 = approximately 3.3 burden hours.

2491 This estimate is based on the following calculation: $2,552 (year 1 monetized burden hours) + $319 (year 2 

monetized burden hours) + $319 (year 3 monetized burden hours) ÷ 3 = approximately $1,063.

2492 This estimate is based on the following calculation: (2.3 hours x 195 funds (559 money market funds – 205 

institutional prime funds – 159 funds that will rely on the government fund exemption) = approximately 

449 hours) + (1 hour x 159 funds that will rely on the government fund exemption = 159 hours) + (3.3 

hours x 205 institutional prime funds = approximately 677 hours) = 1,285 hours.

The current approved collection of information for Form N-1A is 1,578,689 hours annually for all 

investment companies. Adding 1,285 hours to this approved collection of information will result in a 

burden of 1,579,974 hours each year.

2493 This estimate is based on the following calculation: ($744 x 195 funds (559 money market funds – 205 

institutional prime funds – 159 funds that will rely on the government fund exemption) = $145,080) + 

($319 x 159 funds that will rely on the government fund exemption = $50,721) + ($1,063 x 205 

institutional prime funds = $217,915) = $413,716.
791

aggregate external costs (in the form of printing costs) of $6,269,175 associated with the Form 

N-1A disclosure requirements.

2494

H. Advisers Act Rule 204(b)-1 and Form PF

Advisers Act rule 204(b)-1 requires SEC-registered private fund advisers that have at 

least $150 million in private fund assets under management to report certain information 

regarding the private funds they advise on Form PF. The rule implements sections 204 and 211 

of the Advisers Act, as amended by the Dodd-Frank Act, which direct the Commission (and the 

CFTC) to supply FSOC with information for use in monitoring potential systemic risk by 

establishing reporting requirements for private fund advisers. Form PF divides respondents into 

groups based on their size and the types of private funds they manage, with some groups of 

advisers required to file more information than others or more frequently than others. Large 

liquidity fund advisers—the only group of advisers affected by today’s amendments to Form 

PF—must provide information concerning their liquidity funds on Form PF each quarter. 

Form PF contains a collection of information under the PRA.2495 This new collection of 

 2494 We expect that a fund that must include disclosure about historical occasions on which the fund has 

considered or imposed liquidity fees or gates, or historical instances in which the fund has received 

financial support from a sponsor or fund affiliate, will need to add 2-8 pages of new disclosure to its 

registration statement. Adding this new disclosure will therefore increase the number of pages in, and 

change the printing costs of, the fund’s registration statement. The Commission calculates the external 

costs associated with the proposed Form N-1A disclosure requirements as follows: 5 pages (mid-point of 2 

pages and 8 pages) x $0.045 per page x 27,863,000 money market fund registration statements printed 

annually = $6,269,175 annual aggregate external costs. Our estimate of potential printing ($0.045 per page: 

$0.035 for ink + $0.010 for paper) is based on data provided by Lexecon Inc. in response to Investment 

Company Act Release No. 27182 (Dec. 8, 2005) [70 FR 74598 (Dec. 15, 2005)]. See Comment Letter of 

Lexecon Inc. (Feb. 13, 2006) (“Lexecon Comment Letter”). For purposes of this analysis, our best estimate 

of the number of money market fund registration statements printed annually is based on 27,863,000 

money market fund shareholder accounts in 2012. See Investment Company Institute, 2013 Investment 

Company Fact Book, at 178, available at http://www.ici.org/pdf/2013_factbook.pdf. 

2495 For purposes of the PRA analysis, the current burden associated with the requirements of rule 204(b)-1 is 

included in the collection of information requirements of Form PF.
792

information will be mandatory for large liquidity fund advisers, and will be kept confidential to 

the extent discussed above in section III.H. Based on data filed on Form PF and Form ADV, the 

Commission estimates that, as of April 30, 2014, there were 28 large liquidity fund advisers 

subject to this quarterly filing requirement that collectively advised 56 liquidity funds.

1. Discussion of Amendments

Under our final amendments, for each liquidity fund it manages, a large liquidity fund 

adviser will be required to provide, quarterly and with respect to each portfolio security, certain 

additional information for each month of the reporting period.2496 We discuss the additional 

information we are requiring large liquidity fund advisers to provide in more detail in section 

III.H.1 above. Generally, however, this additional information is largely the same as the 

reporting requirements for registered money market funds under amended Form N-MFP, with 

some modifications to better tailor the reporting to private liquidity funds.2497 As proposed, the 

final amendments will also remove current Questions 56 and 57 on Form PF, which generally 

require large liquidity fund advisers to provide information about their liquidity funds’ portfolio 

holdings broken out by asset class (rather than security by security).2498 The amendments will 

also require, as proposed, large liquidity fund advisers to identify any money market fund 

advised by the adviser or its related persons that pursues substantially the same investment 

objective and strategy and invests side by side in substantially the same positions as a liquidity 

 2496 See Question 63 of Form PF. Advisers will be required to file this information with their quarterly liquidity 

fund filings with data for the quarter broken down by month. Advisers will not be required to file 

information on Form PF more frequently as a result of today’s proposal because large liquidity fund 

advisers already are required to file information each quarter on Form PF. See Form PF: Instruction 9. 

2497 See supra section IV.H.1 for a more detailed discussion of these additional reporting requirements.

2498 See supra section IV.H.1.
793

fund the adviser reports about on Form PF.2499 In addition, the final amendments have been 

reorganized to minimize system changes and costs as much as possible.2500 Finally, our changes 

from the proposal to the final amendments to Form PF generally reflect any changes from the 

proposal to the final amendments to Form N-MFP, such as the elimination of the proposed lot 

level reporting.2501

2. Current Burden 

The current approved collection of information for Form PF is 258,000 annual aggregate 

hours and $25,684,000 in aggregate external costs. In estimating these total approved burdens, 

we estimated that the amortized average annual burden of Form PF for large liquidity fund 

advisers in particular would be 290 hours per large liquidity fund adviser for each of the first 

three years, resulting in an aggregate amortized annual burden of 23,200 hours for large liquidity 

fund advisers for each of the first three years.

2502 We estimated that the external cost burden 

would range from $0 to $50,000 per large private fund adviser, which resulted in aggregate 

estimated external costs attributable to large liquidity fund advisers of $4,000,000. The external 

cost estimates also included estimates for filing fees, which are $150 per annual filing and $150 

 2499 See Question 64 to Form PF. See also supra section IV.H.1.

2500 By eliminating lot level sale data reporting (proposed question 64 of Form PF) and accordingly 

renumbering proposed question 65 (parallel funds) as question 64, we have restructured the amendments to 

Form PF so that the amendments keep the same numbering range as the current form. See question 64 of 

Form PF; Axiom Comment Letter (suggesting to reorganize and consolidate the questions in the proposed 

form amendments to minimize the system changes necessary to file the form).

2501 See supra section IV.H.1. See also, e.g., supra section IV.C.1 (New Reporting Requirements). 

2502 See Form PF Adopting Release supra note 1536 (“290 burden hours on average per year x 80 large 

liquidity fund advisers = 23,200 hours.”). 
794

per quarterly filing, resulting in annual filings costs for large liquidity fund advisers of 

$48,000.2503

3. Change in Burden

The Commission continues to estimate that, as proposed, the paperwork burdens 

associated with Form N-MFP (as adopted with our final amendments) are representative of the 

burdens that large liquidity fund advisers could incur as a result of our final amendments to Form 

PF because advisers will be required to file on Form PF virtually the same information money 

market funds will file on Form N-MFP as amended and because, as discussed in section IV.H, 

virtually all of the 28 large liquidity funds advisers affected already manage a money market 

fund or have a related person that manages a money market fund. Therefore, we continue to 

believe that large liquidity fund advisers—when required to compile and report for their liquidity 

funds generally the same information virtually all of them already report for their money market 

funds—likely will use the same (or comparable) staff and/or external service providers to 

provide portfolio holdings information on Form N-MFP and Form PF.

Commenters provided no concrete cost estimates with respect to our amendments to 

Form PF. As noted in section IV.H above, although one commenter asserted that the costs of 

compliance for Form PF would outweigh the benefits,2504 most commenters who discussed the 

 2503 This estimate is based on the following calculation: ($150 quarterly filing fee x 4 quarters) x 80 large 

liquidity fund advisers) = $48,000.

2504 See SSGA Comment Letter. See also, e.g., Wells Fargo Comment Letter (noting that the “[t]he burdens 

associated with complying with the proposed amendments to Form PF are substantial” as a reason for why 

the proposed amendments to Form PF should not apply to unregistered liquidity vehicles owned 

exclusively by registered funds and complying with rule 12d1-1 under the Investment Company Act.)
795

Form PF amendments generally supported them.2505 For the reasons discussed in section IV.C,

we believe our original cost estimates continue for Form N-MFP to be reasonable. Likewise, for 

the same reasons, the Commission generally has not modified from our proposal the cost 

estimates associated with the final amendments to Form PF.2506 However, as with Form N-MFP, 

the Commission has modified its estimates for Form PF based on updated industry data on time 

costs as well as the updated total number of large liquidity funds that would be affected. 

Accordingly, the Commission estimates that our final amendments to Form PF will result 

in paperwork burden hours and external costs as follows. First, as discussed in the PRA analysis 

for our amendments to Form N-MFP, the Commission estimates that the average annual 

amortized burdens per money market fund imposed by Form N-MFP as amended are 149 

hours2507 and $8,552 in external costs.2508 As discussed above, the Commission estimates that 

large liquidity fund advisers generally will incur similar burdens for each of their liquidity funds. 

Accordingly, we estimate that large liquidity fund advisers will incur a time cost of $38,740

associated with these 149 estimated burden hours for each large liquidity fund.

2509 The 

 2505 See, e.g., Goldman Sachs Comment Letter; ICI Comment Letter; Oppenheimer Comment Letter. 

2506 Similarly, we estimate that our various other final changes to Form PF, such as those referenced in supra

note 2497 - 2500 and the accompanying discussion, will not significantly alter the estimated paperwork 

burdens. 

2507 As discussed in the PRA analysis for Form N-MFP, the Commission estimates that Form N-MFP, as 

amended, will result in an aggregate annual, amortized collection of information burden of 83,412 hours. 

See supra note 2343 and accompanying text. Based on the Commission’s estimated 559 money market 

fund respondents, this results in a per fund annual burden of approximately 149 hours. 

2508 As discussed in the PRA analysis for Form N-MFP, the Commission estimates that Form N-MFP, as 

amended, will result in an aggregate external cost burden of $4,780,736. See supra note 2363 and 

accompanying text. Based on the Commission’s estimated 559 money market fund respondents, this 

results in a per fund annual external cost burden of approximately $8,552. 

2509 The Commission estimates, as discussed above, that large liquidity fund advisers are likely to use the same 

(or comparable) staff and/or external service providers to provide portfolio holdings information on Form 
796

Commission therefore estimates increased annual burdens per large liquidity fund adviser with 

two large liquidity funds each of 298 burden hours, at a total time cost of $79,566, and external 

costs of $17,104.2510 This will result in increased aggregate burden hours across all large 

liquidity fund advisers of 8,344 burden hours,2511 at a time cost of $2,227,848,2512 and $478,912 in 

external costs.2513 Finally, the aggregate annual, amortized paperwork burden for Form PF as 

amended therefore will be 251,264 burden hours2514 and $23,531,712 in external costs.2515

 

N-MFP and Form PF. Accordingly, the Commission estimates that large liquidity fund advisers will use 

the same professionals, and in comparable proportions (conservatively based on the proportion of 

professionals used with respect to our final amendments to Form N-MFP as amortized over the first three 

years), for purposes of the Commission’s estimate of time costs associated with our amendments to Form 

PF. As discussed in supra note 2362 and the accompanying text, amortizing these additional hourly and 

cost burdens of our final amendments to Form N-MFP over three years results in an average annual 

aggregate burden of approximately 38,198 hours at a total time cost of $9,914,238, or average time costs of 

approximately $260 per hour. This results in the following estimated time cost for the Commission’s 

estimated 149 hour burdens per liquidity fund: 149 burden hours (per liquidity fund for Form PF) x $260 

(average per hour time costs) = $38,740 additional time costs per fund.

2510 This estimate assumes for purposes of the PRA that each large liquidity fund adviser advises two large 

liquidity funds (56 total liquidity funds ÷ 28 large liquidity fund advisers). Each large liquidity fund 

adviser therefore will incur the following burdens: 149 estimated burden hours per fund x 2 large liquidity 

funds = 298 burden hours per large liquidity fund adviser; $38,740 estimated time cost per fund x 2 large 

liquidity funds = $77,480 time cost per large liquidity fund adviser; and $8,552 estimated external costs per 

fund (based on $4,780,736 in total external costs for 559 funds with respect to Form N-MFP) x 2 large 

liquidity funds = $17,104 external costs per large liquidity fund adviser.

2511 This estimate is based on the following calculation: 298 estimated additional burden hours per large 

liquidity fund adviser x 28 large liquidity fund advisers = 8,344.

2512 This estimate is based on the following calculation: $77,480 estimated time cost per large liquidity fund 

adviser x 28 large liquidity fund advisers = $2,169,440. 

2513 This estimate is based on the following calculation: $17,104 estimated external costs per large liquidity 

fund adviser x 28 large liquidity fund advisers = $478,912.

2514 Form PF’s current approved burden includes 23,200 aggregate burden hours associated with large liquidity 

fund advisers, based on 80 large liquidity fund advisers and an estimated 290 burden hours per large 

liquidity fund adviser. As calculated below, because we are reducing our estimate of the number of large 

liquidity funds from 80 to 28, our estimates of costs will actually decrease on an aggregate basis. However, 

on a per fund basis, our amendments to Form PF will increase the burden hours per large liquidity fund 

adviser by 298 hours, as discussed above, resulting in a total of 588 burden hours per large liquidity fund 

adviser. Multiplying 588 by the current estimated number of 28 large liquidity fund advisers results in 

16,464 burden hours attributable to large liquidity fund advisers, a 6,736 reduction from the approved 

burden hours attributable to large liquidity fund advisers. This therefore results in 249,300 total burden 

hours for all of Form PF (current approved 258,000 burden hours – 6,736 reduction = 251,264).
797

V. REGULATORY FLEXIBILITY ACT CERTIFICATION

Section 3(a) of the Regulatory Flexibility Act of 19802516 (“RFA”) requires the 

Commission to undertake an initial regulatory flexibility analysis (“IRFA”) of the proposed rule 

amendments on small entities unless the Commission certifies that the rule, if adopted, would not 

have a significant economic impact on a substantial number of small entities.2517 As stated in the 

Proposing Release, based on information in filings submitted to the Commission, we believe that 

there are no money market funds that are small entities.2518 Accordingly, the Commission 

certified, pursuant to section 605(b) of the RFA, that new rule 30b1-8 and Form N-CR under the 

Investment Company Act of 1940 and the proposed amendments to rules 2a-7, 12d3-1, 18f-3, 

22e-3, 30b1-7, and 31a-1 and Forms N-MFP and N-1A under the Investment Company Act, 

Form PF under the Investment Advisers Act of 1940, and rules 482 and 419 under the Securities 

Act of 1933, if adopted would not have a significant economic impact on a substantial number of 

 2515 Form PF’s current approved burden includes $25,684,000 in external costs, which includes $4,000,000 

attributable to large liquidity fund advisers for certain costs ($50,000 per adviser), and $48,000 (or $600 per 

adviser) for filing fees, in both cases assuming 80 large liquidity fund adviser respondents. Form PF’s 

approved burden therefore includes a total of $4,048,000 in external costs attributable to large liquidity 

fund advisers. As calculated below, because we are reducing our estimate of the number of large liquidity 

funds from 80 to 28, our estimates of external costs will actually decrease on an aggregate basis. However, 

we estimate external costs to increase on a per fund basis. Reducing these estimates to reflect the 

Commission’s current estimate of 28 large liquidity fund adviser respondents results in costs of $1,400,000 

(28 large liquidity fund advisers x $50,000 per adviser) and $16,800 (28 large liquidity fund advisers x 

$600), respectively, for an aggregate cost of $1,416,800. These costs, plus the additional external costs 

associated with our amendments to Form PF ($478,912 as estimated above), result in total external costs 

attributable to large liquidity fund advisers of $1,895,712, a reduction of $2,152,288 from the currently 

approved external costs attributable to large liquidity fund advisers. This therefore results in total external 

cost for all of Form PF of $23,531,712 (current approved external cost burden of $25,684,000 - $2,152,288 

reduction = $23,531,712). 

2516 5 U.S.C. 603(a).

2517 5 U.S.C. 605(b).

2518 See Proposing Release, supra note 25, at n.1249 and accompanying text.
798

small entities. 2519 We included this certification in section VI of the Proposing Release.2520 

We encouraged written comments regarding this certification.2521 One commenter 

responded.2522 Among other things, this commenter argued that, while our certification evaluated 

the impact of our amendments on money market funds to which the amendments directly apply, 

we did not account for the “impact on numerous smaller entities that are investors in money 

market funds or that do business with money market funds....”2523 This RFA certification is 

properly based on the economic impact of the amended rule on the entities that are subject to the 

requirements of the amended rule.2524 The numerous other entities suggested by the commenter 

are not subject to the requirements of the amended rule and also are not included in the definition 

of “small business” or “small organization” for purposes of the RFA under the Investment 

Company Act,2525 Investment Advisers Act2526 or Securities Act.2527 We recognize, however, that 

 2519 5 U.S.C. 605(b).

2520 See Proposing Release supra note 25, section VI.

2521 See Id.

2522 See Federated X Comment Letter.

2523 Id.

2524 In advancing the argument, the commenter relies on Aeronautical Repair Station Association v. Federal 

Aviation Administration, 494 F.3d 161 (DC Cir. 2007). This case is inapposite, however, because there the 

agency’s own rulemaking release expressly stated that the rule imposed responsibilities directly on certain 

small business contractors. The court reaffirmed its prior holdings that the RFA limits its application to 

small entities ‘‘which will be subject to the proposed regulation—that is, those small entities to which the 

proposed rule will apply.’’ Id. at 176 (emphasis and internal quotations omitted). See also Cement Kiln 

Recycling Coal v. EPA, 255F. 3d 855, 869 (DC Cir. 2001).

2525 See rule 0-10 of the Investment Company Act, which defines the term “small business” or “small 

organization” for purposes of rules under the Act to mean an investment company that, together with other 

investment companies in the same group of related investment companies, has net assets of $50 million or 

less as of the end of its most recent fiscal year. 

2526 See rule 0-07 of the Investment Advisers Act, which defines the term “small business” or “small 

organization” for purposes of rules under the Act to mean an investment adviser that, among other things, 

has assets under management of less than $25 million. Our changes to rule 204(b)-1 and Form PF would 

only apply to certain large liquidity fund advisers with at least $1 billion in combined liquidity fund and 
799

entities other than those subject to the requirements of the amended rule may be affected by the 

amendments we adopt today. As such, we have discussed in the appropriate sections of this 

Release the effects of today’s amendments on entities other than those subject to the 

requirements of the amended rule.2528

The commenter also noted that our RFA analysis fails to consider money market funds 

that have yet to enter the industry and may need to begin their operations as “small entities.”2529 

We believe that the commenter misconstrues the RFA, which contemplates that an agency shall 

calculate the number of small businesses that currently would be affected by its proposed 

regulation.2530

For the reasons described above, the Commission again certifies that the amendments to new 

rule 30b1-8 and Form N-CR under the Investment Company Act of 1940 and the amendments to 

rules 2a-7, 12d3-1, 18f-3, 22e-3, 30b1-7, and 31a-1 and Forms N-MFP and N-1A under the 

Investment Company Act, Form PF under the Investment Advisers Act of 1940, and rules 482 

and 419 under the Securities Act of 1933, would not, if adopted have a significant economic 

 money market fund assets, well above the $25 million threshold in rule 0-7 under the Investment Advisers 

Act.

2527 See rule 157 of the Securities Act, which, with respect to investment companies, adopts the definition of 

rule 0-10 of the Investment Company Act. We also note that our changes to rule 482 under the Securities 

Act will only apply to advertisements by money market funds and not by any other issuers, whereas we are 

making only technical, conforming amendments to rule 419 under the Securities Act.

2528 See, e.g., supra sections III.A.5, III.B.8, III.C and III.K.

2529 See Federated X Comment Letter.

2530 For example, the Office of Advocacy for the United States Small Business Administration (“SBA”) 

publishes a guide for government agencies regarding how to comply with the RFA, which contains an 

example of an appropriate RFA certification. This example has an agency calculate the number of small 

businesses that currently would be affected by a proposed regulation. See “A Guide for Government 

Agencies: How to Comply with the Regulatory Flexibility Act,” available at 

http://www.sba.gov/sites/default/files/rfaguide_0512_0.pdf. 
800

impact on a substantial number of small entities.

VI. UPDATE TO CODIFICATION OF FINANCIAL REPORTING POLICIES

The Commission amends the “Codification of Financial Reporting Policies” announced 

in Financial Reporting Release No. 1 (April 15, 1982) [47 FR 21028] as follows: 

1. By adding new Section 220 “Cash Equivalents” and including the text of the second and 

third paragraphs of Section III.A.7 and the third paragraph of Section III.B.6.b of this 

Release.

2. By adding a new Section 404.05.c “Guidance on the Amortized Cost Method of 

Valuation and Other Valuation Concerns” and including the first two introductory 

paragraphs before Section III.D.1., except for the phrase “After further consideration, and 

as suggested by a number of commenters,” and except for footnote 870.

a. By adding the subject heading “1. Use of Amortized Cost Valuation”, and 

including the first, third and fourth paragraphs, except for footnote 874, of Section 

III.D.1.

b. By adding the subject heading “2. Other Valuation Matters” and including the 

first sentence of the first paragraph of Section III.D.2.

c. By adding the subject heading “Fair Value for Thinly Traded Securities” and 

including below the subject heading, the fourth and fifth paragraphs of Section 

III.D.2.

d. By adding the subject heading “Use of Pricing Services” and including below the 

subject heading, the first sentence of the sixth paragraph except for the phrase “As 

noted above,” and the seventh, eighth and ninth paragraphs of Section III.D.2.
801

The Codification is a separate publication of the Commission. It will not be published in 

the Federal Register or Code of Federal Regulations. For more information on the Codification 

of Financial Reporting Policies, contact the Commission’s Public Reference Room at 202-551-

5850.

VII. STATUTORY AUTHORITY

The Commission is adopting amendments to rule 419 under the rulemaking authority set 

forth in sections 3, 4, 5, 7, and 19 of the Securities Act [15 U.S.C. 77c, 77d, 77e, 77g, and 77s]. 

The Commission is adopting amendments to rule 482 pursuant to authority set forth in sections 

5, 10(b), 19(a), and 28 of the Securities Act [15 U.S.C. 77e, 77j(b), 77s(a), and 77z–3] and 

sections 24(g) and 38(a) of the Investment Company Act [15 U.S.C. 80a–24(g) and 80a–37(a)]. 

The Commission is adopting amendments to rule 2a-7 under the exemptive and rulemaking 

authority set forth in sections 6(c), 8(b), 22(c), 35(d), and 38(a) of the Investment Company Act 

of 1940 [15 U.S.C. 80a-6(c), 80a-8(b), 80a-22(c), 80a-34(d), and 80a-37(a)]. The Commission is 

adopting amendments to rule 12d3-1 pursuant to the authority set forth in sections 6(c) and 38(a)

of the Investment Company Act [15 U.S.C. 80a-6(c) and 80a-37(a)]. The Commission is 

adopting amendments to rule 18f-3 pursuant to the authority set forth in sections 6(c) and 38(a) 

of the Investment Company Act [15 U.S.C. 80a-6(c) and 80a-37(a)]. The Commission is 

adopting amendments to rule 22e-3 pursuant to the authority set forth in sections 6(c), 22(e) and 

38(a) of the Investment Company Act [15 U.S.C. 80a-6(c), 80a-22(e), and 80a-37(a)]. The 

Commission is adopting amendments to rule 30b1-7 and Form N-MFP pursuant to authority set 

forth in Sections 8(b), 30(b), 31(a), and 38(a) of the Investment Company Act [15 U.S.C. 

80a-8(b), 80a-29(b), 80a-30(a), and 80a-37(a)]. The Commission is adopting new rule 30b1-8 
802

and Form N-CR pursuant to authority set forth in Sections 8(b), 30(b), 31(a), and 38(a) of the 

Investment Company Act [15 U.S.C. 80a-8(b), 80a-29(b), 80a-30(a), and 80a-37(a)]. The 

Commission is adopting amendments to rule 31a-1 pursuant to authority set forth in sections 6(c) 

and 38(a)] of the Investment Company Act [15 U.S.C. 80a-6(c) and 80a-37(a)]. The 

Commission is adopting amendments to Form N-1A pursuant to authority set forth in Sections 5, 

6, 7, 10, and 19(a) of the Securities Act [15 U.S.C. 77e, 77f, 77g, 77j and 77s(a)] and Sections 8, 

24(a), 24(g), 30, and 38 of the Investment Company Act [15 U.S.C. 80a-8, 80a-24(a), 80a-24(g), 

80a-29, and 80a-37]. The Commission is adopting amendments to Form PF pursuant to 

authority set forth in Sections 204(b) and 211(e) of the Advisers Act [15 U.S.C. 80b-4(b) and 

80b-11(e)].

List of Subjects in 17 CFR Parts 230, 239, 270, 274, and 279

Investment companies, Reporting and recordkeeping requirements, Securities.

TEXT OF RULES AND FORMS

For reasons set out in the preamble, Title 17, Chapter II of the Code of Federal 

Regulations is amended as follows:

PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 

1933

1. The authority citation for Part 230 continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77d note, 77f, 77g, 77h, 77j, 77r, 77s, 77z3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 

80a-28, 80a-29, 80a-30, and 80a-37, and Pub. L. 112-106, sec. 201(a), 126 Stat. 313 (2012),

unless otherwise noted.
803

* * * * *

2. Section 230.419(b)(2)(iv)(B) is amended by removing the phrase “paragraphs 

(c)(2), (c)(3), and (c)(4)” and adding in its place “paragraph (d)”. 

3. Section 230.482 is amended:

a. In paragraph (b)(3)(i) by adding after “An advertisement for a money market 

fund” the phrase “that is a government money market fund, as defined in § 270.2a-7(a)(16) of 

this chapter, or a retail money market fund, as defined in § 270.2a-7(a)(25) of this chapter”.

b. By revising paragraph (b)(4) to read as follows:

§ 230.482 Advertising by an investment company as satisfying requirements of 

section 10.

* * * * *

(b) * * *

(4) Money market funds. (i) An advertisement for an investment company that holds 

itself out to be a money market fund, that is not a government money market fund, as defined in 

§ 270.2a-7(a)(16) of this chapter, or a retail money market fund, as defined in § 270.2a-7(a)(25) 

of this chapter, must include the following statement:

You could lose money by investing in the Fund. Because the share price of the 

Fund will fluctuate, when you sell your shares they may be worth more or less 

than what you originally paid for them. The Fund may impose a fee upon sale of 

your shares or may temporarily suspend your ability to sell shares if the Fund’s 

liquidity falls below required minimums because of market conditions or other 

factors. An investment in the Fund is not insured or guaranteed by the Federal 
804

Deposit Insurance Corporation or any other government agency. The Fund’s 

sponsor has no legal obligation to provide financial support to the Fund, and you 

should not expect that the sponsor will provide financial support to the Fund at 

any time.

(ii) An advertisement for an investment company that holds itself out to be a money 

market fund, that is a government money market fund, as defined in § 270.2a-7(a)(16) of this 

chapter or a retail money market fund, as defined in § 270.2a-7(a)(25) of this chapter, and that is 

subject to the requirements of § 270.2a-7(c)(2)(i) and/or (ii) of this chapter (or is not subject to 

the requirements of § 270.2a-7(c)(2)(i) and/or (ii) of this chapter pursuant to § 270.2a-7(c)(2)(iii) 

of this chapter, but has chosen to rely on the ability to impose liquidity fees and suspend 

redemptions consistent with the requirements of § 270.2a-7(c)(2)(i) and/or (ii)), must include the 

following statement:

You could lose money by investing in the Fund. Although the 

Fund seeks to preserve the value of your investment at $1.00 per 

share, it cannot guarantee it will do so. The Fund may impose a 

fee upon sale of your shares or may temporarily suspend your 

ability to sell shares if the Fund’s liquidity falls below required 

minimums because of market conditions or other factors. An 

investment in the Fund is not insured or guaranteed by the Federal 

Deposit Insurance Corporation or any other government agency. 

The Fund’s sponsor has no legal obligation to provide financial 
805

support to the Fund, and you should not expect that the sponsor 

will provide financial support to the Fund at any time. 

(iii) An advertisement for an investment company that holds itself out to be a money 

market fund, that is a government money market fund, as defined in § 270.2a-7(a)(16) of this 

chapter, that is not subject to the requirements of § 270.2a-7(c)(2)(i) and/or (ii) of this chapter 

pursuant to § 270.2a-7(c)(2)(iii) of this chapter, and that has not chosen to rely on the ability to 

impose liquidity fees and suspend redemptions consistent with the requirements of 

§ 270.2a-7(c)(2)(i) and/or (ii)), must include the following statement:

You could lose money by investing in the Fund. Although the 

Fund seeks to preserve the value of your investment at $1.00 per 

share, it cannot guarantee it will do so. An investment in the Fund 

is not insured or guaranteed by the Federal Deposit Insurance 

Corporation or any other government agency. The Fund’s 

sponsor has no legal obligation to provide financial support to the 

Fund, and you should not expect that the sponsor will provide 

financial support to the Fund at any time. 

Note to paragraph (b)(4). If an affiliated person, promoter, or principal underwriter of 

the Fund, or an affiliated person of such a person, has contractually committed to provide 

financial support to the Fund, the statement may omit the last sentence (“The Fund’s sponsor has 

no legal obligation to provide financial support to the Fund, and you should not expect that the 

sponsor will provide financial support to the Fund at any time.”) for the term of the agreement. 

For purposes of this Note, the term “financial support” includes any capital contribution, 
806

purchase of a security from the Fund in reliance on § 270.17a-9 of this chapter, purchase of any 

defaulted or devalued security at par, execution of letter of credit or letter of indemnity, capital 

support agreement (whether or not the Fund ultimately received support), performance 

guarantee, or any other similar action reasonably intended to increase or stabilize the value or 

liquidity of the fund’s portfolio; however, the term “financial support” excludes any routine 

waiver of fees or reimbursement of fund expenses, routine inter-fund lending, routine inter-fund 

purchases of fund shares, or any action that would qualify as financial support as defined above, 

that the board of directors has otherwise determined not to be reasonably intended to increase or 

stabilize the value or liquidity of the fund’s portfolio.

* * * * *

PART 270 – RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 

1940

5. The authority citation for Part 270 continues to read, in part, as follows:

Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, and 80a-39, and Pub. L. 111-

203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.

* * * * *

6. Section 270.2a-7 is revised to read as follows:

§ 270.2a-7 Money market funds.

(a) Definitions—(1) Acquisition (or acquire) means any purchase or subsequent rollover 

(but does not include the failure to exercise a demand feature).

(2) Amortized cost method of valuation means the method of calculating an investment 
807

company’s net asset value whereby portfolio securities are valued at the fund’s acquisition cost 

as adjusted for amortization of premium or accretion of discount rather than at their value based 

on current market factors.

(3) Asset-backed security means a fixed income security (other than a government 

security) issued by a special purpose entity (as defined in this paragraph (a)(3)), substantially all 

of the assets of which consist of qualifying assets (as defined in this paragraph (a)(3)). Special 

purpose entity means a trust, corporation, partnership or other entity organized for the sole 

purpose of issuing securities that entitle their holders to receive payments that depend primarily 

on the cash flow from qualifying assets, but does not include a registered investment company. 

Qualifying assets means financial assets, either fixed or revolving, that by their terms convert 

into cash within a finite time period, plus any rights or other assets designed to assure the 

servicing or timely distribution of proceeds to security holders.

(4) Business day means any day, other than Saturday, Sunday, or any customary business 

holiday.

(5) Collateralized fully has the same meaning as defined in § 270.5b-3(c)(1) except that § 

270.5b-3(c)(1)(iv)(C) and (D) shall not apply. 

(6) Conditional demand feature means a demand feature that is not an unconditional 

demand feature. A conditional demand feature is not a guarantee.

(7) Conduit security means a security issued by a municipal issuer (as defined in this 

paragraph (a)(7)) involving an arrangement or agreement entered into, directly or indirectly, with 

a person other than a municipal issuer, which arrangement or agreement provides for or secures 

repayment of the security. Municipal issuer means a state or territory of the United States 
808

(including the District of Columbia), or any political subdivision or public instrumentality of a 

state or territory of the United States. A conduit security does not include a security that is: 

(i) Fully and unconditionally guaranteed by a municipal issuer;

(ii) Payable from the general revenues of the municipal issuer or other municipal issuers 

(other than those revenues derived from an agreement or arrangement with a person who is not a 

municipal issuer that provides for or secures repayment of the security issued by the municipal 

issuer);

(iii) Related to a project owned and operated by a municipal issuer; or 

(iv) Related to a facility leased to and under the control of an industrial or commercial 

enterprise that is part of a public project which, as a whole, is owned and under the control of a 

municipal issuer. 

(8) Daily liquid assets means:

(i) Cash;

(ii) Direct obligations of the U.S. Government; 

(iii) Securities that will mature, as determined without reference to the exceptions in 

paragraph (i) of this section regarding interest rate readjustments, or are subject to a demand 

feature that is exercisable and payable, within one business day; or

(iv) Amounts receivable and due unconditionally within one business day on pending 

sales of portfolio securities.

(9) Demand feature means a feature permitting the holder of a security to sell the security 

at an exercise price equal to the approximate amortized cost of the security plus accrued interest, 

if any, at the later of the time of exercise or the settlement of the transaction, paid within 397 
809

calendar days of exercise.

(10) Demand feature issued by a non-controlled person means a demand feature issued 

by:

(i) A person that, directly or indirectly, does not control, and is not controlled by or under 

common control with the issuer of the security subject to the demand feature (control means 

“control” as defined in section 2(a)(9) of the Act) (15 U.S.C. 80a-2(a)(9)); or

(ii) A sponsor of a special purpose entity with respect to an asset-backed security.

(11) Designated NRSRO means any one of at least four nationally recognized statistical 

rating organizations, as that term is defined in section 3(a)(62) of the Securities Exchange Act of 

1934 (15 U.S.C. 78c(a)(62)), that:

(i) The money market fund’s board of directors:

(A) Has designated as an NRSRO whose credit ratings with respect to any obligor or 

security or particular obligors or securities will be used by the fund to determine whether a 

security is an eligible security; and

(B) Determines at least once each calendar year issues credit ratings that are sufficiently 

reliable for such use; 

(ii) Is not an “affiliated person,” as defined in section 2(a)(3)(C) of the Act (15 U.S.C. 

80a-2(a)(3)(C)), of the issuer of, or any insurer or provider of credit support for, the security; and

(iii) The fund discloses in its statement of additional information is a designated NRSRO, 

including any limitations with respect to the fund’s use of such designation.

(12) Eligible security means:

(i) A rated security with a remaining maturity of 397 calendar days or less that has 
810

received a rating from the requisite NRSROs in one of the two highest short-term rating 

categories (within which there may be sub-categories or gradations indicating relative standing); 

or

(ii) An unrated security that is of comparable quality to a security meeting the 

requirements for a rated security in paragraph (a)(12)(i) of this section, as determined by the 

money market fund’s board of directors; provided, however, that: a security that at the time of 

issuance had a remaining maturity of more than 397 calendar days but that has a remaining 

maturity of 397 calendar days or less and that is an unrated security is not an eligible security if 

the security has received a long-term rating from any designated NRSRO that is not within the 

designated NRSRO’s three highest long-term ratings categories (within which there may be subcategories or gradations indicating relative standing), unless the security has received a longterm rating from the requisite NRSROs in one of the three highest rating categories.

(iii) In addition, in the case of a security that is subject to a demand feature or guarantee:

(A) The guarantee has received a rating from a designated NRSRO or the guarantee is 

issued by a guarantor that has received a rating from a designated NRSRO with respect to a class 

of debt obligations (or any debt obligation within that class) that is comparable in priority and 

security to the guarantee, unless:

(1) The guarantee is issued by a person that, directly or indirectly, controls, is controlled 

by or is under common control with the issuer of the security subject to the guarantee (other than 

a sponsor of a special purpose entity with respect to an asset-backed security);

(2) The security subject to the guarantee is a repurchase agreement that is collateralized 

fully; or
811

(3) The guarantee is itself a government security; and

(B) The issuer of the demand feature or guarantee, or another institution, has undertaken 

promptly to notify the holder of the security in the event the demand feature or guarantee is 

substituted with another demand feature or guarantee (if such substitution is permissible under 

the terms of the demand feature or guarantee).

(13) Event of insolvency has the same meaning as defined in § 270.5b-3(c)(2).

(14) First tier security means any eligible security that:

(i) Is a rated security that has received a short-term rating from the requisite NRSROs in 

the highest short-term rating category for debt obligations (within which there may be subcategories or gradations indicating relative standing); 

(ii) Is an unrated security that is of comparable quality to a security meeting the 

requirements for a rated security in paragraph (a)(14)(i) of this section, as determined by the 

fund’s board of directors; 

(iii) Is a security issued by a registered investment company that is a money market fund; 

or

(iv) Is a government security.

(15) Floating rate security means a security the terms of which provide for the 

adjustment of its interest rate whenever a specified interest rate changes and that, at any time 

until the final maturity of the instrument or the period remaining until the principal amount can 

be recovered through demand, can reasonably be expected to have a market value that 

approximates its amortized cost.

(16) Government money market fund means a money market fund that invests 99.5 
812

percent or more of its total assets in cash, government securities, and/or repurchase agreements 

that are collateralized fully.

(17) Government security has the same meaning as defined in section 2(a)(16) of the Act 

(15 U.S.C. 80a-2(a)(16)).

(18) Guarantee:

(i) Means an unconditional obligation of a person other than the issuer of the security to 

undertake to pay, upon presentment by the holder of the guarantee (if required), the principal 

amount of the underlying security plus accrued interest when due or upon default, or, in the case 

of an unconditional demand feature, an obligation that entitles the holder to receive upon the 

later of exercise or the settlement of the transaction the approximate amortized cost of the 

underlying security or securities, plus accrued interest, if any. A guarantee includes a letter of 

credit, financial guaranty (bond) insurance, and an unconditional demand feature (other than an 

unconditional demand feature provided by the issuer of the security).

(ii) The sponsor of a special purpose entity with respect to an asset-backed security shall 

be deemed to have provided a guarantee with respect to the entire principal amount of the assetbacked security for purposes of this section, except paragraphs (a)(12)(iii) (definition of eligible 

security), (d)(2)(iii) (credit substitution), (d)(3)(iv)(A) (fractional guarantees) and (e) (guarantees 

not relied on) of this section, unless the money market fund’s board of directors has determined 

that the fund is not relying on the sponsor’s financial strength or its ability or willingness to 

provide liquidity, credit or other support to determine the quality (pursuant to paragraph (d)(2) of 

this section) or liquidity (pursuant to paragraph (d)(4) of this section) of the asset-backed 

security, and maintains a record of this determination (pursuant to paragraphs (g)(7) and (h)(6) of 
813

this section). 

(19) Guarantee issued by a non-controlled person means a guarantee issued by:

(i) A person that, directly or indirectly, does not control, and is not controlled by or under 

common control with the issuer of the security subject to the guarantee (control means “control” 

as defined in section 2(a)(9) of the Act) (15 U.S.C. 80a-2(a)(9))); or

(ii) A sponsor of a special purpose entity with respect to an asset-backed security.

(20) Illiquid security means a security that cannot be sold or disposed of in the ordinary 

course of business within seven calendar days at approximately the value ascribed to it by the 

fund.

(21) Penny-rounding method of pricing means the method of computing an investment 

company’s price per share for purposes of distribution, redemption and repurchase whereby the 

current net asset value per share is rounded to the nearest one percent.

(22) Rated security means a security that meets the requirements of paragraphs (a)(22)(i) 

or (ii) of this section, in each case subject to paragraph (a)(22)(iii) of this section:

(i) The security has received a short-term rating from a designated NRSRO, or has been 

issued by an issuer that has received a short-term rating from a designated NRSRO with respect 

to a class of debt obligations (or any debt obligation within that class) that is comparable in 

priority and security with the security; or

(ii) The security is subject to a guarantee that has received a short-term rating from a 

designated NRSRO, or a guarantee issued by a guarantor that has received a short-term rating 

from a designated NRSRO with respect to a class of debt obligations (or any debt obligation 

within that class) that is comparable in priority and security with the guarantee; but
814

(iii) A security is not a rated security if it is subject to an external credit support 

agreement (including an arrangement by which the security has become a refunded security) that 

was not in effect when the security was assigned its rating, unless the security has received a 

short-term rating reflecting the existence of the credit support agreement as provided in 

paragraph (a)(22)(i) of this section, or the credit support agreement with respect to the security 

has received a short-term rating as provided in paragraph (a)(22)(ii) of this section.

(23) Refunded security has the same meaning as defined in § 270.5b-3(c)(4).

(24) Requisite NRSROs means:

(i) Any two designated NRSROs that have issued a rating with respect to a security or 

class of debt obligations of an issuer; or

(ii) If only one designated NRSRO has issued a rating with respect to such security or 

class of debt obligations of an issuer at the time the fund acquires the security, that designated 

NRSRO.

(25) Retail money market fund means a money market fund that has policies and 

procedures reasonably designed to limit all beneficial owners of the fund to natural persons.

(26) Second tier security means any eligible security that is not a first tier security.

(27) Single state fund means a tax exempt fund that holds itself out as seeking to 

maximize the amount of its distributed income that is exempt from the income taxes or other 

taxes on investments of a particular state and, where applicable, subdivisions thereof.

(28) Tax exempt fund means any money market fund that holds itself out as distributing 

income exempt from regular federal income tax.

(29) Total assets means, with respect to a money market fund using the Amortized Cost 
815

Method, the total amortized cost of its assets and, with respect to any other money market fund, 

means the total value of the money market fund’s assets, as defined in section 2(a)(41) of the Act 

(15 U.S.C. 80a-2(a)(41)) and the rules thereunder.

(30) Unconditional demand feature means a demand feature that by its terms would be 

readily exercisable in the event of a default in payment of principal or interest on the underlying 

security or securities.

(31) United States dollar-denominated means, with reference to a security, that all 

principal and interest payments on such security are payable to security holders in United States 

dollars under all circumstances and that the interest rate of, the principal amount to be repaid, 

and the timing of payments related to such security do not vary or float with the value of a 

foreign currency, the rate of interest payable on foreign currency borrowings, or with any other 

interest rate or index expressed in a currency other than United States dollars.

(32) Unrated security means a security that is not a rated security.

(33) Variable rate security means a security the terms of which provide for the 

adjustment of its interest rate on set dates (such as the last day of a month or calendar quarter) 

and that, upon each adjustment until the final maturity of the instrument or the period remaining 

until the principal amount can be recovered through demand, can reasonably be expected to have 

a market value that approximates its amortized cost.

(34) Weekly liquid assets means: 

(i) Cash;

(ii) Direct obligations of the U.S. Government; 

(iii) Government securities that are issued by a person controlled or supervised by and 
816

acting as an instrumentality of the government of the United States pursuant to authority granted 

by the Congress of the United States that:

(A) Are issued at a discount to the principal amount to be repaid at maturity without 

provision for the payment of interest; and 

(B) Have a remaining maturity date of 60 days or less.

(iv) Securities that will mature, as determined without reference to the exceptions in 

paragraph (i) of this section regarding interest rate readjustments, or are subject to a demand 

feature that is exercisable and payable, within five business days; or 

(v) Amounts receivable and due unconditionally within five business days on pending 

sales of portfolio securities.

(b) Holding out and use of names and titles—(1) Holding out. It shall be an untrue 

statement of material fact within the meaning of section 34(b) of the Act (15 U.S.C. 80a-33(b)) 

for a registered investment company, in any registration statement, application, report, account, 

record, or other document filed or transmitted pursuant to the Act, including any advertisement, 

pamphlet, circular, form letter, or other sales literature addressed to or intended for distribution 

to prospective investors that is required to be filed with the Commission by section 24(b) of the 

Act (15 U.S.C. 80a-24(b)), to hold itself out to investors as a money market fund or the 

equivalent of a money market fund, unless such registered investment company complies with 

this section.

(2) Names. It shall constitute the use of a materially deceptive or misleading name or 

title within the meaning of section 35(d) of the Act (15 U.S.C. 80a-34(d)) for a registered 

investment company to adopt the term “money market” as part of its name or title or the name or 
817

title of any redeemable securities of which it is the issuer, or to adopt a name that suggests that it 

is a money market fund or the equivalent of a money market fund, unless such registered 

investment company complies with this section.

(3) Titles. For purposes of paragraph (b)(2) of this section, a name that suggests that a 

registered investment company is a money market fund or the equivalent thereof includes one 

that uses such terms as “cash,” “liquid,” “money,” “ready assets” or similar terms.

(c) Pricing and Redeeming Shares—(1) Share price calculation. 

(i) The current price per share, for purposes of distribution, redemption and repurchase, 

of any redeemable security issued by a government money market fund or retail money market 

fund, notwithstanding the requirements of section 2(a)(41) of the Act (15 U.S.C. 80a-2(a)(41)) 

and of §§ 270.2a-4 and 270.22c-1 thereunder, may be computed by use of the amortized cost 

method and/or the penny-rounding method. To use these methods, the board of directors of the 

government or retail money market fund must determine, in good faith, that it is in the best 

interests of the fund and its shareholders to maintain a stable net asset value per share or stable 

price per share, by virtue of either the amortized cost method and/or the penny-rounding method. 

The government or retail money market fund may continue to use such methods only so long as 

the board of directors believes that they fairly reflect the market-based net asset value per share 

and the fund complies with the other requirements of this section.

(ii) Any money market fund that is not a government money market fund or a retail 

money market fund must compute its price per share for purposes of distribution, redemption and 

repurchase by rounding the fund’s current net asset value per share to a minimum of the fourth 

decimal place in the case of a fund with a $1.0000 share price or an equivalent or more precise 
818

level of accuracy for money market funds with a different share price (e.g. $10.000 per share, or 

$100.00 per share).

(2) Liquidity fees and temporary suspensions of redemptions. Except as provided in 

paragraphs (c)(2)(iii) and (v) of this section, and notwithstanding sections 22(e) and 27(i) of the 

Act (15 U.S.C. 80a-22(e) and 80a-27(i)) and § 270.22c-1:

(i) Discretionary liquidity fees and temporary suspensions of redemptions. If, at any 

time, the money market fund has invested less than thirty percent of its total assets in weekly 

liquid assets, the fund may institute a liquidity fee (not to exceed two percent of the value of the 

shares redeemed) or suspend the right of redemption temporarily, subject to paragraphs (c)(i)(A) 

and (B) of this section, if the fund’s board of directors, including a majority of the directors who 

are not interested persons of the fund, determines that the fee or suspension of redemptions is in 

the best interests of the fund. 

(A) Duration and application of discretionary liquidity fee. Once imposed, a 

discretionary liquidity fee must be applied to all shares redeemed and must remain in effect until 

the money market fund’s board of directors, including a majority of the directors who are not 

interested persons of the fund, determines that imposing such liquidity fee is no longer in the best 

interests of the fund. Provided however, that if, at the end of a business day, the money market 

fund has invested thirty percent or more of its total assets in weekly liquid assets, the fund must 

cease charging the liquidity fee, effective as of the beginning of the next business day. 

(B) Duration of temporary suspension of redemptions. The temporary suspension of 

redemptions must apply to all shares and must remain in effect until the fund’s board of 

directors, including a majority of the directors who are not interested persons of the fund, 
819

determines that the temporary suspension of redemptions is no longer in the best interests of the 

fund. Provided, however, that the fund must restore the right of redemption on the earlier of: 

(1) The beginning of the next business day following a business day that ended with the 

money market fund having invested thirty percent or more of its total assets in weekly liquid 

assets; or 

(2) The beginning of the next business day following ten business days after suspending 

redemptions. The money market fund may not suspend the right of redemption pursuant to this 

section for more than ten business days in any rolling ninety calendar day period.

(ii) Default liquidity fees. If, at the end of a business day, the money market fund has 

invested less than ten percent of its total assets in weekly liquid assets, the fund must institute a 

liquidity fee, effective as of the beginning of the next business day, as described in paragraphs 

(c)(2)(ii)(A) and (B) of this section, unless the fund’s board of directors, including a majority of 

the directors who are not interested persons of the fund, determines that imposing the fee is not 

in the best interests of the fund.

(A) Amount of default liquidity fee. The default liquidity fee shall be one percent of the 

value of shares redeemed unless the money market fund’s board of directors, including a 

majority of the directors who are not interested persons of the fund, determines, at the time of 

initial imposition or later, that a higher or lower fee level is in the best interests of the fund. A 

liquidity fee may not exceed two percent of the value of the shares redeemed.

(B) Duration and application of default liquidity fee. Once imposed, the default liquidity 

fee must be applied to all shares redeemed and shall remain in effect until the money market 

fund’s board of directors, including a majority of the directors who are not interested persons of 
820

the fund, determines that imposing such liquidity fee is not in the best interests of the fund. 

Provided however, that if, at the end of a business day, the money market fund has invested 

thirty percent or more of its total assets in weekly liquid assets, the fund must cease charging the 

liquidity fee, effective as of the beginning of the next business day. 

(iii) Government money market funds. The requirements of paragraphs (c)(2)(i) and (ii) 

of this section shall not apply to a government money market fund. A government money 

market fund may, however, choose to rely on the ability to impose liquidity fees and suspend 

redemptions consistent with the requirements of paragraph (c)(2)(i) and/or (ii) of this section and 

any other requirements that apply to liquidity fees and temporary suspensions of redemptions 

(e.g., Item 4(b)(1)(ii) of Form N-1A (§ 274.11A of this chapter)). 

(iv) Variable contracts. Notwithstanding section 27(i) of the Act (15 U.S.C. 80a-27(i)), a

variable insurance contract issued by a registered separate account funding variable insurance 

contracts or the sponsoring insurance company of such separate account may apply a liquidity 

fee or temporary suspension of redemptions pursuant to paragraph (c)(2) of this section to 

contract owners who allocate all or a portion of their contract value to a subaccount of the 

separate account that is either a money market fund or that invests all of its assets in shares of a 

money market fund. 

(v) Master feeder funds. Any money market fund (a “feeder fund”) that owns, pursuant 

to section 12(d)(1)(E) of the Act (15 U.S.C. 80a-12(d)(1)(E)), shares of another money market 

fund (a “master fund”) may not impose liquidity fees or temporary suspensions of redemptions 

under paragraphs (c)(2)(i) and (ii) of this section, provided however, that if a master fund, in 

which the feeder fund invests, imposes a liquidity fee or temporary suspension of redemptions 
821

pursuant to paragraphs (c)(2)(i) and (ii) of this section, then the feeder fund shall pass through to 

its investors the fee or redemption suspension on the same terms and conditions as imposed by 

the master fund. 

(d) Risk-limiting conditions—(1) Portfolio maturity. The money market fund must 

maintain a dollar-weighted average portfolio maturity appropriate to its investment objective; 

provided, however, that the money market fund must not:

(i) Acquire any instrument with a remaining maturity of greater than 397 calendar days; 

(ii) Maintain a dollar-weighted average portfolio maturity (“WAM”) that exceeds 60 

calendar days; or

(iii) Maintain a dollar-weighted average portfolio maturity that exceeds 120 calendar 

days, determined without reference to the exceptions in paragraph (i) of this section regarding 

interest rate readjustments (“WAL”).

(2) Portfolio quality—(i) General. The money market fund must limit its portfolio 

investments to those United States dollar-denominated securities that the fund’s board of 

directors determines present minimal credit risks (which determination must be based on factors 

pertaining to credit quality in addition to any rating assigned to such securities by a designated 

NRSRO) and that are at the time of acquisition eligible securities.

(ii) Second tier securities. No money market fund may acquire a second tier security 

with a remaining maturity of greater than 45 calendar days, determined without reference to the 

exceptions in paragraph (i) of this section regarding interest rate readjustments. Immediately 

after the acquisition of any second tier security, a money market fund must not have invested 

more than three percent of its total assets in second tier securities.
822

(iii) Securities subject to guarantees. A security that is subject to a guarantee may be 

determined to be an eligible security or a first tier security based solely on whether the guarantee 

is an eligible security or first tier security, as the case may be.

(iv) Securities subject to conditional demand features. A security that is subject to a 

conditional demand feature (“underlying security”) may be determined to be an eligible security 

or a first tier security only if:

(A) The conditional demand feature is an eligible security or first tier security, as the case 

may be;

(B) At the time of the acquisition of the underlying security, the money market fund’s 

board of directors has determined that there is minimal risk that the circumstances that would 

result in the conditional demand feature not being exercisable will occur; and

(1) The conditions limiting exercise either can be monitored readily by the fund or relate 

to the taxability, under federal, state or local law, of the interest payments on the security; or

(2) The terms of the conditional demand feature require that the fund will receive notice 

of the occurrence of the condition and the opportunity to exercise the demand feature in 

accordance with its terms; and

(C) The underlying security or any guarantee of such security (or the debt securities of 

the issuer of the underlying security or guarantee that are comparable in priority and security 

with the underlying security or guarantee) has received either a short-term rating or a long-term 

rating, as the case may be, from the requisite NRSROs within the NRSROs’ two highest shortterm or long-term rating categories (within which there may be sub-categories or gradations 

indicating relative standing) or, if unrated, is determined to be of comparable quality by the 
823

money market fund’s board of directors to a security that has received a rating from the requisite 

NRSROs within the NRSROs’ two highest short-term or long-term rating categories, as the case 

may be.

(3) Portfolio diversification—(i) Issuer diversification. The money market fund must be 

diversified with respect to issuers of securities acquired by the fund as provided in paragraphs 

(d)(3)(i) and (d)(3)(ii) of this section, other than with respect to government securities and 

securities subject to a guarantee issued by a non-controlled person.

(A) Taxable and national funds. Immediately after the acquisition of any security, a 

money market fund other than a single state fund must not have invested more than:

(1) Five percent of its total assets in securities issued by the issuer of the security, 

provided, however, that such a fund may invest up to twenty-five percent of its total assets in the 

first tier securities of a single issuer for a period of up to three business days after the acquisition 

thereof; provided, further, that the fund may not invest in the securities of more than one issuer 

in accordance with the foregoing proviso in this paragraph at any time; and

(2) Ten percent of its total assets in securities issued by or subject to demand features or 

guarantees from the institution that issued the demand feature or guarantee.

(B) Single state funds. Immediately after the acquisition of any security, a single state 

fund must not have invested:

(1) With respect to seventy-five percent of its total assets, more than five percent of its 

total assets in securities issued by the issuer of the security; and

(2) With respect to all of its total assets, more than ten percent of its total assets in 

securities issued by or subject to demand features or guarantees from the institution that issued 
824

the demand feature or guarantee.

(C) Second tier securities. Immediately after the acquisition of any second tier security, a 

money market fund must not have invested more than one half of one percent of its total assets in

the second tier securities of any single issuer, and must not have invested more than 2.5 percent 

of its total assets in second tier securities issued by or subject to demand features or guarantees 

from the institution that issued the demand feature or guarantee. 

(ii) Issuer diversification calculations. For purposes of making calculations under 

paragraph (d)(3)(i) of this section:

(A) Repurchase agreements. The acquisition of a repurchase agreement may be deemed 

to be an acquisition of the underlying securities, provided the obligation of the seller to 

repurchase the securities from the money market fund is collateralized fully and the fund’s board 

of directors has evaluated the seller’s creditworthiness.

(B) Refunded securities. The acquisition of a refunded security shall be deemed to be an 

acquisition of the escrowed government securities.

(C) Conduit securities. A conduit security shall be deemed to be issued by the person 

(other than the municipal issuer) ultimately responsible for payments of interest and principal on 

the security.

(D) Asset-backed securities—(1) General. An asset-backed security acquired by a fund 

(“primary ABS”) shall be deemed to be issued by the special purpose entity that issued the assetbacked security, provided, however:

(i) Holdings of primary ABS. Any person whose obligations constitute ten percent or 

more of the principal amount of the qualifying assets of the primary ABS (“ten percent obligor”) 
825

shall be deemed to be an issuer of the portion of the primary ABS such obligations represent; and

(ii) Holdings of secondary ABS. If a ten percent obligor of a primary ABS is itself a 

special purpose entity issuing asset-backed securities (“secondary ABS”), any ten percent obligor 

of such secondary ABS also shall be deemed to be an issuer of the portion of the primary ABS 

that such ten percent obligor represents.

(2) Restricted special purpose entities. A ten percent obligor with respect to a primary or 

secondary ABS shall not be deemed to have issued any portion of the assets of a primary ABS as 

provided in paragraph (d)(3)(ii)(D)(1) of this section if that ten percent obligor is itself a special 

purpose entity issuing asset-backed securities (“restricted special purpose entity”), and the 

securities that it issues (other than securities issued to a company that controls, or is controlled 

by or under common control with, the restricted special purpose entity and which is not itself a 

special purpose entity issuing asset-backed securities) are held by only one other special purpose 

entity.

(3) Demand features and guarantees. In the case of a ten percent obligor deemed to be 

an issuer, the fund must satisfy the diversification requirements of paragraph (d)(3)(iii) of this 

section with respect to any demand feature or guarantee to which the ten percent obligor’s 

obligations are subject.

(E) Shares of other money market funds. A money market fund that acquires shares 

issued by another money market fund in an amount that would otherwise be prohibited by 

paragraph (d)(3)(i) of this section shall nonetheless be deemed in compliance with this section if 

the board of directors of the acquiring money market fund reasonably believes that the fund in 

which it has invested is in compliance with this section.
826

(F) Treatment of certain affiliated entities—(1) General. The money market fund, when 

calculating the amount of its total assets invested in securities issued by any particular issuer for 

purposes of paragraph (d)(3)(i) of this section, must treat as a single issuer two or more issuers of 

securities owned by the money market fund if one issuer controls the other, is controlled by the 

other issuer, or is under common control with the other issuer, provided that “control” for this 

purpose means ownership of more than 50 percent of the issuer’s voting securities.

(2) Equity owners of asset-backed commercial paper special purpose entities. The 

money market fund is not required to aggregate an asset-backed commercial paper special 

purpose entity and its equity owners under paragraph (d)(3)(ii)(F)(1) of this section provided that 

a primary line of business of its equity owners is owning equity interests in special purpose 

entities and providing services to special purpose entities, the independent equity owners’ 

activities with respect to the SPEs are limited to providing management or administrative 

services, and no qualifying assets of the special purpose entity were originated by the equity 

owners.

(3) Ten percent obligors. For purposes of determining ten percent obligors pursuant to 

paragraph (d)(3)(ii)(D)(1)(i) of this section, the money market fund must treat as a single person 

two or more persons whose obligations in the aggregate constitute ten percent or more of the 

principal amount of the qualifying assets of the primary ABS if one person controls the other, is 

controlled by the other person, or is under common control with the person, provided that 

“control” for this purpose means ownership of more than 50 percent of the person’s voting 

securities.

(iii) Diversification rules for demand features and guarantees. The money market fund 
827

must be diversified with respect to demand features and guarantees acquired by the fund as 

provided in paragraphs (d)(3)(iii) and (d)(3)(iv) of this section, other than with respect to a 

demand feature issued by the same institution that issued the underlying security, or with respect 

to a guarantee or demand feature that is itself a government security.

(A) General. Immediately after the acquisition of any demand feature or guarantee, any 

security subject to a demand feature or guarantee, or a security directly issued by the issuer of a 

demand feature or guarantee, a money market fund must not have invested more than ten percent 

of its total assets in securities issued by or subject to demand features or guarantees from the 

institution that issued the demand feature or guarantee, subject to paragraphs (d)(3)(iii)(B) and 

(d)(3)(iii)(C) of this section. 

(B) Tax exempt funds. Immediately after the acquisition of any demand feature or 

guarantee, any security subject to a demand feature or guarantee, or a security directly issued by 

the issuer of a demand feature or guarantee (any such acquisition, a “demand feature or 

guarantee acquisition”), a tax exempt fund, with respect to eighty-five percent of its total assets, 

must not have invested more than ten percent of its total assets in securities issued by or subject 

to demand features or guarantees from the institution that issued the demand feature or 

guarantee; provided that any demand feature or guarantee acquisition in excess of ten percent of 

the fund’s total assets in accordance with this paragraph must be a demand feature or guarantee 

issued by a non-controlled person.

(C) Second tier demand features or guarantees. Immediately after the acquisition of any 

demand feature or guarantee, any security subject to a demand feature or guarantee, a security 

directly issued by the issuer of a demand feature or guarantee, or a security after giving effect to 
828

the demand feature or guarantee, in all cases that is a second tier security, a money market fund 

must not have invested more than 2.5 percent of its total assets in securities issued by or subject 

to demand features or guarantees from the institution that issued the demand feature or 

guarantee.

(iv) Demand feature and guarantee diversification calculations—(A) Fractional demand 

features or guarantees. In the case of a security subject to a demand feature or guarantee from 

an institution by which the institution guarantees a specified portion of the value of the security, 

the institution shall be deemed to guarantee the specified portion thereof.

(B) Layered demand features or guarantees. In the case of a security subject to demand 

features or guarantees from multiple institutions that have not limited the extent of their 

obligations as described in paragraph (d)(3)(iv)(A) of this section, each institution shall be 

deemed to have provided the demand feature or guarantee with respect to the entire principal 

amount of the security. 

(v) Diversification safe harbor. A money market fund that satisfies the applicable 

diversification requirements of paragraphs (d)(3) and (e) of this section shall be deemed to have 

satisfied the diversification requirements of section 5(b)(1) of the Act (15 U.S.C. 80a-5(b)(1)) 

and the rules adopted thereunder.

(4) Portfolio liquidity. The money market fund must hold securities that are sufficiently 

liquid to meet reasonably foreseeable shareholder redemptions in light of the fund’s obligations 

under section 22(e) of the Act (15 U.S.C. 80a-22(e)) and any commitments the fund has made to 

shareholders; provided, however, that:

(i) Illiquid securities. The money market fund may not acquire any illiquid security if, 
829

immediately after the acquisition, the money market fund would have invested more than five 

percent of its total assets in illiquid securities. 

(ii) Minimum daily liquidity requirement. The money market fund may not acquire any 

security other than a daily liquid asset if, immediately after the acquisition, the fund would have 

invested less than ten percent of its total assets in daily liquid assets. This provision does not 

apply to tax exempt funds.

(iii) Minimum weekly liquidity requirement. The money market fund may not acquire 

any security other than a weekly liquid asset if, immediately after the acquisition, the fund would 

have invested less than thirty percent of its total assets in weekly liquid assets.

(e) Demand features and guarantees not relied upon. If the fund’s board of directors has 

determined that the fund is not relying on a demand feature or guarantee to determine the quality 

(pursuant to paragraph (d)(2) of this section), or maturity (pursuant to paragraph (i) of this 

section), or liquidity of a portfolio security (pursuant to paragraph (d)(4) of this section), and 

maintains a record of this determination (pursuant to paragraphs (g)(3) and (h)(7) of this section), 

then the fund may disregard such demand feature or guarantee for all purposes of this section.

(f) Downgrades, defaults and other events—(1) Downgrades.

(i) General. Upon the occurrence of either of the events specified in paragraphs 

(f)(1)(i)(A) and (B) of this section with respect to a portfolio security, the board of directors of 

the money market fund shall reassess promptly whether such security continues to present 

minimal credit risks and shall cause the fund to take such action as the board of directors 

determines is in the best interests of the money market fund:

(A) A portfolio security of a money market fund ceases to be a first tier security (either 
830

because it no longer has the highest rating from the requisite NRSROs or, in the case of an 

unrated security, the board of directors of the money market fund determines that it is no longer 

of comparable quality to a first tier security); and

(B) The money market fund’s investment adviser (or any person to whom the fund’s 

board of directors has delegated portfolio management responsibilities) becomes aware that any 

unrated security or second tier security held by the money market fund has, since the security 

was acquired by the fund, been given a rating by a designated NRSRO below the designated 

NRSRO’s second highest short-term rating category.

(ii) Securities to be disposed of. The reassessments required by paragraph (f)(1)(i) of this 

section shall not be required if the fund disposes of the security (or it matures) within five 

business days of the specified event and, in the case of events specified in paragraph (f)(1)(i)(B) 

of this section, the board is subsequently notified of the adviser’s actions.

(iii) Special rule for certain securities subject to demand features. In the event that after 

giving effect to a rating downgrade, more than 2.5 percent of the fund’s total assets are invested 

in securities issued by or subject to demand features from a single institution that are second tier 

securities, the fund shall reduce its investment in securities issued by or subject to demand 

features from that institution to no more than 2.5 percent of its total assets by exercising the 

demand features at the next succeeding exercise date(s), absent a finding by the board of 

directors that disposal of the portfolio security would not be in the best interests of the money 

market fund.

(2) Defaults and other events. Upon the occurrence of any of the events specified in 

paragraphs (f)(2)(i) through (iv) of this section with respect to a portfolio security, the money 
831

market fund shall dispose of such security as soon as practicable consistent with achieving an 

orderly disposition of the security, by sale, exercise of any demand feature or otherwise, absent a 

finding by the board of directors that disposal of the portfolio security would not be in the best 

interests of the money market fund (which determination may take into account, among other 

factors, market conditions that could affect the orderly disposition of the portfolio security):

(i) The default with respect to a portfolio security (other than an immaterial default 

unrelated to the financial condition of the issuer);

(ii) A portfolio security ceases to be an eligible security;

(iii) A portfolio security has been determined to no longer present minimal credit risks; or

(iv) An event of insolvency occurs with respect to the issuer of a portfolio security or the 

provider of any demand feature or guarantee.

(3) Notice to the Commission. The money market fund must notify the Commission of 

the occurrence of certain material events, as specified in Form N-CR (§ 274.222 of this chapter).

(4) Defaults for purposes of paragraphs (f)(2) and (3) of this section. For purposes of 

paragraphs (f)(2) and (3) of this section, an instrument subject to a demand feature or guarantee 

shall not be deemed to be in default (and an event of insolvency with respect to the security shall 

not be deemed to have occurred) if:

(i) In the case of an instrument subject to a demand feature, the demand feature has been 

exercised and the fund has recovered either the principal amount or the amortized cost of the 

instrument, plus accrued interest; 

(ii) The provider of the guarantee is continuing, without protest, to make payments as due 

on the instrument; or
832

(iii) The provider of a guarantee with respect to an asset-backed security pursuant to 

paragraph (a)(18)(ii) of this section is continuing, without protest, to provide credit, liquidity or 

other support as necessary to permit the asset-backed security to make payments as due.

(g) Required procedures. The money market fund’s board of directors must adopt 

written procedures including the following: 

(1) Funds using amortized cost. In the case of a government or retail money market fund 

that uses the amortized cost method of valuation, in supervising the money market fund’s 

operations and delegating special responsibilities involving portfolio management to the money 

market fund’s investment adviser, the money market fund’s board of directors, as a particular 

responsibility within the overall duty of care owed to its shareholders, shall establish written 

procedures reasonably designed, taking into account current market conditions and the money 

market fund’s investment objectives, to stabilize the money market fund’s net asset value per 

share, as computed for the purpose of distribution, redemption and repurchase, at a single value.

(i) Specific procedures. Included within the procedures adopted by the board of directors 

shall be the following:

(A) Shadow pricing. Written procedures shall provide:

(1) That the extent of deviation, if any, of the current net asset value per share calculated 

using available market quotations (or an appropriate substitute that reflects current market 

conditions) from the money market fund’s amortized cost price per share, shall be calculated at 

least daily, and at such other intervals that the board of directors determines appropriate and 

reasonable in light of current market conditions;

(2) For the periodic review by the board of directors of the amount of the deviation as 
833

well as the methods used to calculate the deviation; and

(3) For the maintenance of records of the determination of deviation and the board’s 

review thereof.

(B) Prompt consideration of deviation. In the event such deviation from the money 

market fund’s amortized cost price per share exceeds 1⁄2 of 1 percent, the board of directors shall 

promptly consider what action, if any, should be initiated by the board of directors.

(C) Material dilution or unfair results. Where the board of directors believes the extent of 

any deviation from the money market fund’s amortized cost price per share may result in 

material dilution or other unfair results to investors or existing shareholders, it shall cause the 

fund to take such action as it deems appropriate to eliminate or reduce to the extent reasonably 

practicable such dilution or unfair results.

(ii) [Reserved]

(2) Funds using penny rounding. In the case of a government or retail money market 

fund that uses the penny rounding method of pricing, in supervising the money market fund’s 

operations and delegating special responsibilities involving portfolio management to the money 

market fund’s investment adviser, the money market fund’s board of directors, as a particular 

responsibility within the overall duty of care owed to its shareholders, must establish written 

procedures reasonably designed, taking into account current market conditions and the money 

market fund’s investment objectives, to assure to the extent reasonably practicable that the 

money market fund’s price per share as computed for the purpose of distribution, redemption and 

repurchase, rounded to the nearest one percent, will not deviate from the single price established 

by the board of directors.
834

(3) Securities for which maturity is determined by reference to demand features. In the 

case of a security for which maturity is determined by reference to a demand feature, written 

procedures shall require ongoing review of the security’s continued minimal credit risks, and that 

review must be based on, among other things, financial data for the most recent fiscal year of the 

issuer of the demand feature and, in the case of a security subject to a conditional demand 

feature, the issuer of the security whose financial condition must be monitored under paragraph 

(d)(2)(iv) of this section, whether such data is publicly available or provided under the terms of 

the security’s governing documentation.

(4) Securities subject to demand features or guarantees. In the case of a security subject 

to one or more demand features or guarantees that the fund’s board of directors has determined 

that the fund is not relying on to determine the quality (pursuant to paragraph (d)(2) of this 

section), maturity (pursuant to paragraph (i) of this section) or liquidity (pursuant to paragraph 

(d)(4) of this section) of the security subject to the demand feature or guarantee, written 

procedures must require periodic evaluation of such determination.

(5) Adjustable rate securities without demand features. In the case of a variable rate or 

floating rate security that is not subject to a demand feature and for which maturity is determined 

pursuant to paragraph (i)(1), (i)(2) or (i)(4) of this section, written procedures shall require 

periodic review of whether the interest rate formula, upon readjustment of its interest rate, can 

reasonably be expected to cause the security to have a market value that approximates its 

amortized cost value.

(6) Ten percent obligors of asset-backed securities. In the case of an asset-backed 

security, written procedures must require the fund to periodically determine the number of ten 
835

percent obligors (as that term is used in paragraph (d)(3)(ii)(D) of this section) deemed to be the 

issuers of all or a portion of the asset-backed security for purposes of paragraph (d)(3)(ii)(D) of 

this section; provided, however, written procedures need not require periodic determinations 

with respect to any asset-backed security that a fund’s board of directors has determined, at the

time of acquisition, will not have, or is unlikely to have, ten percent obligors that are deemed to 

be issuers of all or a portion of that asset-backed security for purposes of paragraph (d)(3)(ii)(D) 

of this section, and maintains a record of this determination.

(7) Asset-backed securities not subject to guarantees. In the case of an asset-backed 

security for which the fund’s board of directors has determined that the fund is not relying on the 

sponsor’s financial strength or its ability or willingness to provide liquidity, credit or other 

support in connection with the asset-backed security to determine the quality (pursuant to 

paragraph (d)(2) of this section) or liquidity (pursuant to paragraph (d)(4) of this section) of the 

asset-backed security, written procedures must require periodic evaluation of such determination.

(8) Stress Testing. Written procedures must provide for:

(i) General. The periodic stress testing, at such intervals as the board of directors 

determines appropriate and reasonable in light of current market conditions, of the money market 

fund’s ability to have invested at least ten percent of its total assets in weekly liquid assets, and 

the fund’s ability to minimize principal volatility (and, in the case of a money market fund using 

the amortized cost method of valuation or penny rounding method of pricing as provided in 

paragraph (c)(1) of this section, the fund’s ability to maintain the stable price per share 

established by the board of directors for the purpose of distribution, redemption and repurchase), 

based upon specified hypothetical events that include, but are not limited to:
836

(A) Increases in the general level of short-term interest rates, in combination with various 

levels of an increase in shareholder redemptions; 

(B) A downgrade or default of particular portfolio security positions, each representing 

various portions of the fund’s portfolio (with varying assumptions about the resulting loss in the 

value of the security), in combination with various levels of an increase in shareholder 

redemptions;

(C) A widening of spreads compared to the indexes to which portfolio securities are tied 

in various sectors in the fund’s portfolio (in which a sector is a logically related subset of 

portfolio securities, such as securities of issuers in similar or related industries or geographic 

region or securities of a similar security type), in combination with various levels of an increase 

in shareholder redemptions; and

(D) Any additional combinations of events that the adviser deems relevant.

(ii) A report on the results of such testing to be provided to the board of directors at its 

next regularly scheduled meeting (or sooner, if appropriate in light of the results), which report 

must include:

(A) The date(s) on which the testing was performed and an assessment of the money 

market fund’s ability to have invested at least ten percent of its total assets in weekly liquid 

assets and to minimize principal volatility (and, in the case of a money market fund using the 

amortized cost method of valuation or penny rounding method of pricing as provided in 

paragraph (c)(1) of this section to maintain the stable price per share established by the board of 

directors); and

(B) An assessment by the fund’s adviser of the fund’s ability to withstand the events (and 
837

concurrent occurrences of those events) that are reasonably likely to occur within the following 

year, including such information as may reasonably be necessary for the board of directors to 

evaluate the stress testing conducted by the adviser and the results of the testing. The fund 

adviser must include a summary of the significant assumptions made when performing the stress 

tests.

(h) Recordkeeping and reporting—(1) Written procedures. For a period of not less than 

six years following the replacement of existing procedures with new procedures (the first two 

years in an easily accessible place), a written copy of the procedures (and any modifications 

thereto) described in this section must be maintained and preserved.

(2) Board considerations and actions. For a period of not less than six years (the first 

two years in an easily accessible place) a written record must be maintained and preserved of the 

board of directors’ considerations and actions taken in connection with the discharge of its 

responsibilities, as set forth in this section, to be included in the minutes of the board of 

directors’ meetings.

(3) Credit risk analysis. For a period of not less than three years from the date that the 

credit risks of a portfolio security were most recently reviewed, a written record of the 

determination that a portfolio security presents minimal credit risks and the designated NRSRO 

ratings (if any) used to determine the status of the security as an eligible security, first tier 

security or second tier security shall be maintained and preserved in an easily accessible place.

(4) Determinations with respect to adjustable rate securities. For a period of not less 

than three years from the date when the assessment was most recently made, a written record 

must be preserved and maintained, in an easily accessible place, of the determination required by 
838

paragraph (g)(5) of this section (that a variable rate or floating rate security that is not subject to 

a demand feature and for which maturity is determined pursuant to paragraph (i)(1), (i)(2) or 

(i)(4) of this section can reasonably be expected, upon readjustment of its interest rate at all times 

during the life of the instrument, to have a market value that approximates its amortized cost).

(5) Determinations with respect to asset-backed securities. For a period of not less than 

three years from the date when the determination was most recently made, a written record must 

be preserved and maintained, in an easily accessible place, of the determinations required by 

paragraph (g)(6) of this section (the number of ten percent obligors (as that term is used in 

paragraph (d)(3)(ii)(D) of this section) deemed to be the issuers of all or a portion of the assetbacked security for purposes of paragraph (d)(3)(ii)(D) of this section). The written record must 

include:

(i) The identities of the ten percent obligors (as that term is used in paragraph 

(d)(3)(ii)(D) of this section), the percentage of the qualifying assets constituted by the securities 

of each ten percent obligor and the percentage of the fund’s total assets that are invested in 

securities of each ten percent obligor; and

(ii) Any determination that an asset-backed security will not have, or is unlikely to have, 

ten percent obligors deemed to be issuers of all or a portion of that asset-backed security for 

purposes of paragraph (d)(3)(ii)(D) of this section.

(6) Evaluations with respect to asset-backed securities not subject to guarantees. For a 

period of not less than three years from the date when the evaluation was most recently made, a 

written record must be preserved and maintained, in an easily accessible place, of the evaluation 

required by paragraph (g)(7) of this section (regarding asset-backed securities not subject to 
839

guarantees).

(7) Evaluations with respect to securities subject to demand features or guarantees. For 

a period of not less than three years from the date when the evaluation was most recently made, a 

written record must be preserved and maintained, in an easily accessible place, of the evaluation 

required by paragraph (g)(4) of this section (regarding securities subject to one or more demand 

features or guarantees).

(8) Reports with respect to stress testing. For a period of not less than six years (the first 

two years in an easily accessible place), a written copy of the report required under paragraph 

(g)(8)(ii) of this section must be maintained and preserved.

(9) Inspection of records. The documents preserved pursuant to paragraph (h) of this 

section are subject to inspection by the Commission in accordance with section 31(b) of the Act 

(15 U.S.C. 80a-30(b)) as if such documents were records required to be maintained pursuant to 

rules adopted under section 31(a) of the Act (15 U.S.C. 80a-30(a)). 

(10) Website disclosure of portfolio holdings and other fund information. The money 

market fund must post prominently on its website the following information:

(i) For a period of not less than six months, beginning no later than the fifth business day 

of the month, a schedule of its investments, as of the last business day or subsequent calendar 

day of the preceding month, that includes the following information:

(A) With respect to the money market fund and each class of redeemable shares thereof:

(1) The WAM; and

(2) The WAL.

(B) With respect to each security held by the money market fund:
840

(1) Name of the issuer;

(2) Category of investment (indicate the category that identifies the instrument from 

among the following: U.S. Treasury Debt; U.S. Government Agency Debt; Non-U.S. Sovereign, 

Sub-Sovereign and Supra-National debt; Certificate of Deposit; Non-Negotiable Time Deposit; 

Variable Rate Demand Note; Other Municipal Security; Asset Backed Commercial Paper; Other 

Asset Backed Securities; U.S. Treasury Repurchase Agreement, if collateralized only by U.S. 

Treasuries (including Strips) and cash; U.S. Government Agency Repurchase Agreement, 

collateralized only by U.S. Government Agency securities, U.S. Treasuries, and cash; Other 

Repurchase Agreement, if any collateral falls outside Treasury, Government Agency and cash; 

Insurance Company Funding Agreement; Investment Company; Financial Company Commercial 

Paper; and Non-Financial Company Commercial Paper. If Other Instrument, include a brief 

description); 

(3) CUSIP number (if any);

(4) Principal amount;

(5) The maturity date determined by taking into account the maturity shortening 

provisions in paragraph (i) of this section (i.e., the maturity date used to calculate WAM under 

paragraph (d)(1)(ii) of this section);

(6) The maturity date determined without reference to the exceptions in paragraph (i) of 

this section regarding interest rate readjustments (i.e., the maturity used to calculate WAL under 

paragraph (d)(1)(iii) of this section);

(7) Coupon or yield; and

(8) Value.
841

(ii) A schedule, chart, graph, or other depiction, which must be updated each business day 

as of the end of the preceding business day, showing, as of the end of each business day during 

the preceding six months:

(A) The percentage of the money market fund’s total assets invested in daily liquid 

assets;

(B) The percentage of the money market fund’s total assets invested in weekly liquid 

assets; and

(C) The money market fund’s net inflows or outflows.

(iii) A schedule, chart, graph, or other depiction showing the money market fund’s net 

asset value per share (which the fund must calculate based on current market factors before 

applying the amortized cost or penny-rounding method, if used), rounded to the fourth decimal 

place in the case of funds with a $1.000 share price or an equivalent level of accuracy for funds 

with a different share price (e.g., $10.00 per share), as of the end of each business day during the 

preceding six months, which must be updated each business day as of the end of the preceding 

business day.

(iv) A link to a website of the Securities and Exchange Commission where a user may 

obtain the most recent 12 months of publicly available information filed by the money market 

fund pursuant to § 270.30b1-7.

(v) For a period of not less than one year, beginning no later than the same business day 

on which the money market fund files an initial report on Form N-CR (§ 274.222 of this chapter)

in response to the occurrence of any event specified in Parts C, E, F, or G of Form N-CR, the 

same information that the money market fund is required to report to the Commission on Part C 
842

(Items C.1, C.2, C.3, C.4, C.5, C.6, and C.7), Part E (Items E.1, E.2, E.3, and E.4), Part F (Items 

F.1 and F.2), or Part G of Form N-CR concerning such event, along with the following 

statement: “The Fund was required to disclose additional information about this event [or “these 

events,” as appropriate] on Form N-CR and to file this form with the Securities and Exchange 

Commission. Any Form N-CR filing submitted by the Fund is available on the EDGAR 

Database on the Securities and Exchange Commission’s Internet site at http://www.sec.gov.” 

(11) Processing of transactions. A government money market fund and a retail money 

market fund (or its transfer agent) must have the capacity to redeem and sell securities issued by 

the fund at a price based on the current net asset value per share pursuant to § 270.22c-1. Such 

capacity must include the ability to redeem and sell securities at prices that do not correspond to 

a stable price per share.

(i) Maturity of portfolio securities. For purposes of this section, the maturity of a 

portfolio security shall be deemed to be the period remaining (calculated from the trade date or 

such other date on which the fund’s interest in the security is subject to market action) until the 

date on which, in accordance with the terms of the security, the principal amount must 

unconditionally be paid, or in the case of a security called for redemption, the date on which the 

redemption payment must be made, except as provided in paragraphs (i)(1) through (i)(8) of this 

section:

(1) Adjustable rate government securities. A government security that is a variable rate 

security where the variable rate of interest is readjusted no less frequently than every 397 

calendar days shall be deemed to have a maturity equal to the period remaining until the next 

readjustment of the interest rate. A government security that is a floating rate security shall be 
843

deemed to have a remaining maturity of one day.

(2) Short-term variable rate securities. A variable rate security, the principal amount of 

which, in accordance with the terms of the security, must unconditionally be paid in 397 calendar 

days or less shall be deemed to have a maturity equal to the earlier of the period remaining until 

the next readjustment of the interest rate or the period remaining until the principal amount can 

be recovered through demand.

(3) Long-term variable rate securities. A variable rate security, the principal amount of 

which is scheduled to be paid in more than 397 calendar days, that is subject to a demand feature, 

shall be deemed to have a maturity equal to the longer of the period remaining until the next 

readjustment of the interest rate or the period remaining until the principal amount can be 

recovered through demand.

(4) Short-term floating rate securities. A floating rate security, the principal amount of 

which, in accordance with the terms of the security, must unconditionally be paid in 397 calendar 

days or less shall be deemed to have a maturity of one day, except for purposes of determining 

WAL under paragraph (d)(1)(iii) of this section, in which case it shall be deemed to have a 

maturity equal to the period remaining until the principal amount can be recovered through 

demand.

(5) Long-term floating rate securities. A floating rate security, the principal amount of 

which is scheduled to be paid in more than 397 calendar days, that is subject to a demand feature, 

shall be deemed to have a maturity equal to the period remaining until the principal amount can 

be recovered through demand.

(6) Repurchase agreements. A repurchase agreement shall be deemed to have a maturity 
844

equal to the period remaining until the date on which the repurchase of the underlying securities 

is scheduled to occur, or, where the agreement is subject to demand, the notice period applicable 

to a demand for the repurchase of the securities.

(7) Portfolio lending agreements. A portfolio lending agreement shall be treated as 

having a maturity equal to the period remaining until the date on which the loaned securities are 

scheduled to be returned, or where the agreement is subject to demand, the notice period 

applicable to a demand for the return of the loaned securities.

(8) Money market fund securities. An investment in a money market fund shall be treated

as having a maturity equal to the period of time within which the acquired money market fund is 

required to make payment upon redemption, unless the acquired money market fund has agreed 

in writing to provide redemption proceeds to the investing money market fund within a shorter 

time period, in which case the maturity of such investment shall be deemed to be the shorter 

period.

(j) Delegation. The money market fund’s board of directors may delegate to the fund’s 

investment adviser or officers the responsibility to make any determination required to be made 

by the board of directors under this section other than the determinations required by paragraphs 

(a)(11)(i) (designation of NRSROs), (c)(1) (board findings), (c)(2)(i) and (ii) (determinations 

related to liquidity fees and temporary suspensions of redemptions), (f)(2) (defaults and other 

events), (g)(1) and (g)(2) (amortized cost and penny rounding procedures), and (g)(8) (stress 

testing procedures) of this section.

(1) Written guidelines. The board of directors must establish and periodically review 

written guidelines (including guidelines for determining whether securities present minimal 
845

credit risks as required in paragraph (d)(2) of this section) and procedures under which the 

delegate makes such determinations.

(2) Oversight. The board of directors must take any measures reasonably necessary 

(through periodic reviews of fund investments and the delegate’s procedures in connection with 

investment decisions and prompt review of the adviser’s actions in the event of the default of a 

security or event of insolvency with respect to the issuer of the security or any guarantee or 

demand feature to which it is subject that requires notification of the Commission under 

paragraph (f)(3) of this section by reference to Form N-CR (§ 274.222 of this chapter)) to assure 

that the guidelines and procedures are being followed.

7. Section 270.12d3-1(d)(7)(v) is amended by removing “§§ 270.2a-7(a)(8) and 

270.2a-7(a)(15)” and adding in its place “§§ 270.2a-7(a)(9) and 270.2a-7(a)(18)”.

8. Section 270.18f-3(c)(2)(i) is amended by removing the phrase “that determines 

net asset value using the amortized cost method permitted by § 270.2a-7” and adding in its place 

“that operates in compliance with § 270.2a-7”.

9. Section § 270.22e-3 is amended by revising paragraph (a)(1) and adding 

paragraph (d). 

The revisions and additions read as follows.

§ 270.22e-3 Exemption for liquidation of money market funds.

(a) * * *

(1) The fund, at the end of a business day, has invested less than ten percent of its total 

assets in weekly liquid assets or, in the case of a fund that is a government money market fund, 

as defined in § 270.2a-7(a)(16) or a retail money market fund, as defined in § 270.2a-7(a)(25), 
846

the fund’s price per share as computed for the purpose of distribution, redemption and 

repurchase, rounded to the nearest one percent, has deviated from the stable price established by 

the board of directors or the fund’s board of directors, including a majority of directors who are 

not interested persons of the fund, determines that such a deviation is likely to occur;

* * * * *

(d) Definitions. Each of the terms business day, total assets, and weekly liquid assets has 

the same meaning as defined in § 270.2a-7.

10. Section 270.30b1-7 is revised to read as follows:

§ 270.30b1-7 Monthly report for money market funds.

Every registered open-end management investment company, or series thereof, that is 

regulated as a money market fund under § 270.2a-7 must file with the Commission a monthly

report of portfolio holdings on Form N-MFP (§ 274.201 of this chapter), current as of the last 

business day or any subsequent calendar day of the preceding month, no later than the fifth 

business day of each month. 

11. Section 270.30b1-8 is added to read as follows: 

§ 270.30b1-8 Current report for money market funds.

Every registered open-end management investment company, or series thereof, that is 

regulated as a money market fund under § 270.2a-7, that experiences any of the events specified 

on Form N-CR (274.222 of this chapter), must file with the Commission a current report on 

Form N-CR within the period specified in that form.

12. Section 270.31a-1(b)(1) is amended by removing “§ 270.2a-7(a)(8) or § 

270.2a-7(a)(15)” and adding in its place “§ 270.2a-7(a)(9) or § 270.2a-7(a)(18)”.
847

PART 239 — FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

13. The authority citation for Part 239 continues to read in part as follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77sss, 78c, 78l, 78m, 78n, 

78o(d), 78o-7, 78o-7 note, 78u-5, 78w(a), 78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 

80a-13, 80a-24, 80a-26, 80a-29, 80a-30, 80a-37, and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 

(2010), unless otherwise noted.

* * * * *

PART 274—FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY 

ACT OF 1940 

14. The authority citation for Part 274 continues to read in part as follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 

80a-24, 80a-26, 80a-29, and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise 

noted.

* * * * *

15. Form N-1A (referenced in §§ 239.15A and 274.11A) is amended by:

a. Revising paragraph 2(b) of the instructions to Item 3;

b. Revising paragraph (b)(1)(ii) of Item 4; and

c. Adding a paragraph (g) to Item 16.

The additions and revisions read as follows:

Note: The text of Form N-1A does not, and this amendment will not, appear in the Code 

of Federal Regulations. 

Form N-1A

* * * * *
848

Item 3. Risk/Return Summary: Fee Table

* * * * *

Instructions

* * *

2. Shareholder Fees.

* * *

(b) “Redemption Fee” includes a fee charged for any redemption of the Fund’s shares, 

but does not include a deferred sales charge (load) imposed upon redemption, and, if the Fund is 

a Money Market Fund, does not include a liquidity fee imposed upon the sale of Fund shares in 

accordance with rule 2a-7(c)(2).

* * * * *

Item 4. Risk/Return Summary: Investments, Risks, and Performance

* * * * *

(b) * * *

(1) * * *

(ii) (A) If the Fund is a Money Market Fund that is not a government Money Market 

Fund, as defined in § 270.2a-7(a)(16) or a retail Money Market Fund, as defined in 

§ 270.2a-7(a)(25), include the following statement: 

You could lose money by investing in the Fund. Because the share price of the 

Fund will fluctuate, when you sell your shares they may be worth more or less 

than what you originally paid for them. The Fund may impose a fee upon sale of 

your shares or may temporarily suspend your ability to sell shares if the Fund’s 
849

liquidity falls below required minimums because of market conditions or other 

factors. An investment in the Fund is not insured or guaranteed by the Federal 

Deposit Insurance Corporation or any other government agency. The Fund’s 

sponsor has no legal obligation to provide financial support to the Fund, and you 

should not expect that the sponsor will provide financial support to the Fund at 

any time.

(B) If the Fund is a Money Market Fund that is a government Money Market Fund, as 

defined in § 270.2a-7(a)(16), or a retail Money Market Fund, as defined in § 270.2a-7(a)(25), 

and that is subject to the requirements of §§ 270.2a-7(c)(2)(i) and/or (ii) of this chapter (or is not 

subject to the requirements of §§ 270.2a-7(c)(2)(i) and/or (ii) of this chapter pursuant to 

§ 270.2a-7(c)(2)(iii) of this chapter, but has chosen to rely on the ability to impose liquidity fees 

and suspend redemptions consistent with the requirements of §§ 270.2a-7(c)(2)(i) and/or (ii)), 

include the following statement: 

You could lose money by investing in the Fund. Although the Fund 

seeks to preserve the value of your investment at $1.00 per share, it 

cannot guarantee it will do so. The Fund may impose a fee upon sale 

of your shares or may temporarily suspend your ability to sell shares 

if the Fund’s liquidity falls below required minimums because of 

market conditions or other factors. An investment in the Fund is not 

insured or guaranteed by the Federal Deposit Insurance Corporation 

or any other government agency. The Fund’s sponsor has no legal 

obligation to provide financial support to the Fund, and you should 
850

not expect that the sponsor will provide financial support to the Fund 

at any time. 

(C) If the Fund is a Money Market Fund that is a government Money Market Fund, as 

defined in § 270.2a-7(a)(16), that is not subject to the requirements of §§ 270.2a-7(c)(2)(i) 

and/or (ii) of this chapter pursuant to § 270.2a-7(c)(2)(iii) of this chapter, and that has not chosen 

to rely on the ability to impose liquidity fees and suspend redemptions consistent with the 

requirements of §§ 270.2a-7(c)(2)(i) and/or (ii)), include the following statement:

You could lose money by investing in the Fund. Although the Fund 

seeks to preserve the value of your investment at $1.00 per share, it 

cannot guarantee it will do so. An investment in the Fund is not 

insured or guaranteed by the Federal Deposit Insurance Corporation or 

any other government agency. The Fund’s sponsor has no legal 

obligation to provide financial support to the Fund, and you should not 

expect that the sponsor will provide financial support to the Fund at 

any time. 

 Instruction. If an affiliated person, promoter, or principal underwriter of the Fund, or an 

affiliated person of such a person, has contractually committed to provide financial support to the 

Fund, and the term of the agreement will extend for at least one year following the effective date 

of the Fund’s registration statement, the statement specified in Item 4(b)(1)(ii)(A), Item 

4(b)(1)(ii)(B), or Item 4(b)(1)(ii)(C) may omit the last sentence (“The Fund’s sponsor has no 

legal obligation to provide financial support to the Fund, and you should not expect that the 

sponsor will provide financial support to the Fund at any time.”). For purposes of this 
851

Instruction, the term “financial support” includes any capital contribution, purchase of a security 

from the Fund in reliance on § 270.17a-9, purchase of any defaulted or devalued security at par, 

execution of letter of credit or letter of indemnity, capital support agreement (whether or not the 

Fund ultimately received support), performance guarantee, or any other similar action reasonably

intended to increase or stabilize the value or liquidity of the fund’s portfolio; however, the term 

“financial support” excludes any routine waiver of fees or reimbursement of fund expenses, 

routine inter-fund lending, routine inter-fund purchases of fund shares, or any action that would 

qualify as financial support as defined above, that the board of directors has otherwise 

determined not to be reasonably intended to increase or stabilize the value or liquidity of the 

fund’s portfolio.

* * * * *

Item 16. Description of the Fund and Its Investments and Risks

* * * * *

(g) Money Market Fund Material Events. If the Fund is a Money Market Fund (except 

any Money Market Fund that is not subject to the requirements of §§ 270.2a-7(c)(2)(i) and/or (ii) 

of this chapter pursuant to § 270.2a-7(c)(2)(iii) of this chapter, and has not chosen to rely on the 

ability to impose liquidity fees and suspend redemptions consistent with the requirements of §§ 

270.2a-7(c)(2)(i) and/or (ii)) disclose, as applicable, the following events:

(1) Imposition of Liquidity Fees and Temporary Suspensions of Fund Redemptions.

(i) During the last 10 years, any occasion on which the Fund has invested less than ten 

percent of its total assets in weekly liquid assets (as provided in § 270.2a-7(c)(2)(ii)), and with 

respect to each such occasion, whether the Fund’s board of directors determined to impose a 
852

liquidity fee pursuant to § 270.2a-7(c)(2)(ii) and/or temporarily suspend the Fund’s redemptions 

pursuant to § 270.2a-7(c)(2)(i).

(ii) During the last 10 years, any occasion on which the Fund has invested less than thirty 

percent, but more than ten percent, of its total assets in weekly liquid assets (as provided in 

§ 270.2a-7(c)(2)(i)) and the Fund’s board of directors has determined to impose a liquidity fee 

pursuant to § 270.2a-7(c)(2)(i) and/or temporarily suspend the Fund’s redemptions pursuant to § 

270.2a-7(c)(2)(i).

Instructions. 

1. With respect to each such occasion, disclose: the dates and length of time for which the 

Fund invested less than ten percent (or thirty percent, as applicable) of its total assets in weekly 

liquid assets; the dates and length of time for which the Fund’s board of directors determined to 

impose a liquidity fee pursuant to § 270.2a-7(c)(2)(i) or § 270.2a-7(c)(2)(ii), and/or temporarily 

suspend the Fund’s redemptions pursuant to § 270.2a-7(c)(2)(i); and the size of any liquidity fee 

imposed pursuant to § 270.2a-7(c)(2)(i) or § 270.2a-7(c)(2)(ii). 

2. The disclosure required by Item 16(g)(1) should incorporate, as appropriate, any 

information that the Fund is required to report to the Commission on Items E.1, E.2, E.3, E.4,

F.1, F.2, and G.1 of Form N-CR [17 CFR 274.222]. 

3. The disclosure required by Item 16(g)(1) should conclude with the following 

statement: “The Fund was required to disclose additional information about this event [or “these 

events,” as appropriate] on Form N-CR and to file this form with the Securities and Exchange 

Commission. Any Form N-CR filing submitted by the Fund is available on the EDGAR 

Database on the Securities and Exchange Commission’s Internet site at http://www.sec.gov.” 
853

(2) Financial Support Provided to Money Market Funds. During the last 10 years, any 

occasion on which an affiliated person, promoter, or principal underwriter of the Fund, or an 

affiliated person of such a person, provided any form of financial support to the Fund, including 

a description of the nature of support, person providing support, brief description of the 

relationship between the person providing support and the Fund, date support provided, amount 

of support, security supported (if applicable), and the value of security supported on date support 

was initiated (if applicable).

Instructions. 

1. The term “financial support” includes any capital contribution, purchase of a security 

from the Fund in reliance on § 270.17a-9, purchase of any defaulted or devalued security at par, 

execution of letter of credit or letter of indemnity, capital support agreement (whether or not the 

Fund ultimately received support), performance guarantee, or any other similar action reasonably 

intended to increase or stabilize the value or liquidity of the Fund’s portfolio; excluding, 

however, any routine waiver of fees or reimbursement of Fund expenses, routine inter-fund 

lending, routine inter-fund purchases of Fund shares, or any action that would qualify as 

financial support as defined above, that the board of directors has otherwise determined not to be 

reasonably intended to increase or stabilize the value or liquidity of the Fund’s portfolio. 

2. If during the last 10 years, the Fund has participated in one or more mergers with 

another investment company (a “merging investment company”), provide the information 

required by Item 16(g)(2) with respect to any merging investment company as well as with 

respect to the Fund; for purposes of this instruction, the term “merger” means a merger, 

consolidation, or purchase or sale of substantially all of the assets between the Fund and a 
854

merging investment company. If the person or entity that previously provided financial support 

to a merging investment company is not currently an affiliated person, promoter, or principal 

underwriter of the Fund, the Fund need not provide the information required by Item 16(g)(2) 

with respect to that merging investment company.

3. The disclosure required by Item 16(g)(2) should incorporate, as appropriate, any 

information that the Fund is required to report to the Commission on Items C.1, C.2, C.3, C.4, 

C.5, C.6, and C.7 of Form N-CR [17 CFR 274.222]. 

4. The disclosure required by Item 16(g)(2) should conclude with the following 

statement: “The Fund was required to disclose additional information about this event [or “these 

events,” as appropriate] on Form N-CR and to file this form with the Securities and Exchange 

Commission. Any Form N-CR filing submitted by the Fund is available on the EDGAR 

Database on the Securities and Exchange Commission’s Internet site at http://www.sec.gov.” 

16. Form N-MFP (referenced in § 274.201) is revised to read as follows:

Note: The text of Form N-MFP does not, and this amendment will not, appear in the 

Code of Federal Regulations.

FORM N-MFP

MONTHLY SCHEDULE OF PORTFOLIO HOLDINGS

OF MONEY MARKET FUNDS

Form N-MFP is to be used by registered open-end management investment companies, or 

series thereof, that are regulated as money market funds pursuant to rule 2a-7 under the 

Investment Company Act of 1940 (“Act”) (17 CFR 270.2a-7) (“money market funds”), to file 

reports with the Commission pursuant to rule 30b1-7 under the Act (17 CFR 270.30b1-7). The 
855

Commission may use the information provided on Form N-MFP in its regulatory, disclosure 

review, inspection, and policymaking roles.

GENERAL INSTRUCTIONS

A. Rule as to Use of Form N-MFP

Form N-MFP is the public reporting form that is to be used for monthly reports of money 

market funds required by section 30(b) of the Act and rule 30b1-7 under the Act (17 CFR 

270.30b1-7). A money market fund must report information about the fund and its portfolio 

holdings as of the last business day or any subsequent calendar day of the preceding month. The 

Form N-MFP must be filed with the Commission no later than the fifth business day of each 

month, but may be filed any time beginning on the first business day of the month. Each money 

market fund, or series of a money market fund, is required to file a separate form. If the money 

market fund does not have any classes, the fund must provide the information required by Part B 

for the series.

A money market fund may file an amendment to a previously filed Form N-MFP at any 

time, including an amendment to correct a mistake or error in a previously filed form. A fund 

that files an amendment to a previously filed form must provide information in response to all 

items of Form N-MFP, regardless of why the amendment is filed.

B. Application of General Rules and Regulations

The General Rules and Regulations under the Act contain certain general requirements 

that are applicable to reporting on any form under the Act. These general requirements should 

be carefully read and observed in the preparation and filing of reports on this form, except that 

any provision in the form or in these instructions shall be controlling. 
856

C. Filing of Form N-MFP

A money market fund must file Form N-MFP in accordance with rule 232.13 of 

Regulation S-T. Form N-MFP must be filed electronically using the Commission’s EDGAR 

system. 

D. Paperwork Reduction Act Information

A registrant is not required to respond to the collection of information contained in Form 

N-MFP unless the Form displays a currently valid Office of Management and Budget (“OMB”) 

control number. Please direct comments concerning the accuracy of the information collection 

burden estimate and any suggestions for reducing the burden to the Secretary, Securities and 

Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. The OMB has 

reviewed this collection of information under the clearance requirements of 44 U.S.C. 3507.

E. Definitions

References to sections and rules in this Form N-MFP are to the Investment Company Act 

of 1940 [15 U.S.C. 80a] (the “Investment Company Act”), unless otherwise indicated. Terms 

used in this Form N-MFP have the same meaning as in the Investment Company Act or related 

rules, unless otherwise indicated. 

As used in this Form N-MFP, the terms set out below have the following meanings:

“Cash” means demand deposits in depository institutions and cash holdings in custodial 

accounts.

“Class” means a class of shares issued by a Multiple Class Fund that represents interests 

in the same portfolio of securities under rule 18f-3 [17 CFR 270.18f-3] or under an order 
857

exempting the Multiple Class Fund from sections 18(f), 18(g), and 18(i) [15 U.S.C. 80a-18(f), 

18(g), and 18(i)].

“Fund” means the Registrant or a separate Series of the Registrant. When an item of 

Form N-MFP specifically applies to a Registrant or a Series, those terms will be used.

“LEI” means, with respect to any company, the “legal entity identifier” assigned by or on 

behalf of an internationally recognized standards setting body and required for reporting 

purposes by the U.S. Department of the Treasury’s Office of Financial Research or a financial 

regulator. In the case of a financial institution, if a “legal entity identifier” has not been assigned, 

then LEI means the RSSD ID assigned by the National Information Center of the Board of 

Governors of the Federal Reserve System, if any.

“Master-Feeder Fund” means a two-tiered arrangement in which one or more Funds (or

registered or unregistered pooled investment vehicles) (each a “Feeder Fund”), holds shares of a 

single Fund (the “Master Fund”) in accordance with section 12(d)(1)(E) [15 U.S.C. 

80a-12(d)(1)(E)].

“Money Market Fund” means a Fund that holds itself out as a money market fund and 

meets the requirements of rule 2a-7 [17 CFR 270.2a-7].

“Securities Act” means the Securities Act of 1933 [15 U.S.C. 77a - aa].

“Series” means shares offered by a Registrant that represent undivided interests in a 

portfolio of investments and that are preferred over all other series of shares for assets 

specifically allocated to that series in accordance with rule 18f-2(a) [17 CFR 270.18f-2(a)].

“Value” has the meaning defined in section 2(a)(41) of the Act (15 U.S.C. 80a-2(a)(41)).
858

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM N-MFP

MONTHLY SCHEDULE OF PORTFOLIO HOLDINGS 

OF MONEY MARKET FUNDS

General Information

Item 1. Report for [mm/dd/yyyy].

Item 2. CIK Number of Registrant.

Item 3. LEI of Registrant (if available) (See General Instructions E.)

Item 4. EDGAR Series Identifier.

Item 5. Total number of share classes in the series.

Item 6. Do you anticipate that this will be the fund’s final filing on Form N-MFP? 

[Y/N] If Yes, answer Items 6.a – 6.c.

a. Is the fund liquidating? [Y/N]

b. Is the fund merging with, or being acquired by, another fund? [Y/N]

c. If applicable, identify the successor fund by CIK, Securities Act file 

number, and EDGAR series identifier.

Item 7. Has the fund acquired or merged with another fund since the last filing? 

[Y/N] If Yes, answer Item 7.a.

a. Identify the acquired or merged fund by CIK, Securities Act file 

number, and EDGAR series identifier.

Item 8. Provide the name, e-mail address, and telephone number of the person 
859

authorized to receive information and respond to questions about this 

Form N-MFP.

Part A: Series-Level Information about the Fund

Item A.1 Securities Act File Number.

Item A.2 Investment Adviser.

a. SEC file number of investment adviser.

Item A.3 Sub-Adviser. If a fund has one or more sub-advisers, disclose the name of 

each sub-adviser.

a. SEC file number of each sub-adviser. 

Item A.4 Independent Public Accountant.

a. City and state of independent public accountant.

Item A.5 Administrator. If a fund has one or more administrators, disclose the 

name of each administrator.

Item A.6 Transfer Agent.

a. CIK Number.

b. SEC file number of transfer agent.

Item A.7 Master-Feeder Funds. Is this a Feeder Fund? [Y/N] If Yes, answer Items 

A.7.a – 7.c.

a. Identify the Master Fund by CIK or, if the fund does not have a CIK, 

by name.
860

b. Securities Act file number of the Master Fund.

c. EDGAR series identifier of the Master Fund.

Item A.8 Master-Feeder Funds. Is this a Master Fund? [Y/N] If Yes, answer Items 

A.8.a – 8.c.

a. Identify all Feeder Funds by CIK or, if the fund does not have a CIK, 

by name. 

b. Securities Act file number of each Feeder Fund.

c. EDGAR series identifier of each Feeder Fund.

Item A.9 Is this series primarily used to fund insurance company separate accounts? 

[Y/N]

Item A.10 Category. Indicate the category that identifies the money market fund 

from among the following: Treasury, Government/Agency, Exempt 

Government, Prime, Single State, or Other Tax Exempt.

a. Is this fund an exempt retail fund as defined in 270.2a-7(a)(25)[Y/N]? 

Item A.11 Dollar-weighted average portfolio maturity (“WAM” as defined in 

rule 2a-7(d)(1)(ii)). 

Item A.12 Dollar-weighted average life maturity (“WAL” as defined in rule 2a7(d)(1)(iii)). Calculate WAL without reference to the exceptions in rule 

2a-7(d) regarding interest rate readjustments. 
861

Item A.13 Liquidity. Provide the following, , as of the close of business on each 

Friday during the month reported (if the reporting date falls on a holiday 

or other day on which the fund does not calculate the daily or weekly 

liquidity, provide the value as of the close of business on the date in that 

week last calculated):

a. Total Value of Daily Liquid Assets to the nearest cent:

i. Friday, week 1:

ii. Friday, week 2:

iii. Friday, week 3:

iv. Friday, week 4:

v. Friday, week 5 (if applicable):

b. Total Value of Weekly Liquid Assets (including Daily Liquid Assets) 

to the nearest cent:

i. Friday, week 1:

ii. Friday, week 2:

iii. Friday, week 3:

iv. Friday, week 4:

v. Friday, week 5 (if applicable):

c. Percentage of Total Assets invested in Daily Liquid Assets:

i. Friday, week 1:

ii. Friday, week 2:

iii. Friday, week 3:
862

iv. Friday, week 4:

v. Friday, week 5 (if applicable):

d. Percentage of Total Assets invested in Weekly Liquid Assets 

(including Daily Liquid Assets):

i. Friday, week 1:

ii. Friday, week 2:

iii. Friday, week 3:

iv. Friday, week 4:

v. Friday, week 5 (if applicable):

Item A.14 Provide the following, to the nearest cent: 

a. Cash. (See General Instructions E.)

b. Total Value of portfolio securities. (See General Instructions E.)

i. If any portfolio securities are valued using amortized cost, the 

total value of the portfolio securities valued at amortized cost. 

c. Total Value of other assets (excluding amounts provided in A.14.a–c.)

Item A.15 Total value of liabilities, to the nearest cent. 

Item A.16 Net assets of the series, to the nearest cent.

Item A.17 Number of shares outstanding, to the nearest hundredth.

Item A.18 If the fund seeks to maintain a stable price per share, state the price the 

fund seeks to maintain.
863

Item A.19 7-day gross yield. Based on the 7 days ended on the last day of the prior 

month, calculate the fund’s yield by determining the net change, exclusive 

of capital changes and income other than investment income, in the value 

of a hypothetical pre-existing account having a balance of one share at the 

beginning of the period and dividing the difference by the value of the 

account at the beginning of the base period to obtain the base period 

return, and then multiplying the base period return by (365/7) with the 

resulting yield figure carried to the nearest hundredth of one percent. The 

7-day gross yield should not reflect a deduction of shareholders fees and 

fund operating expenses. For master funds and feeder funds, report the 7-

day gross yield at the master-fund level.

Item A.20 Net asset value per share. Provide the net asset value per share, calculated 

using available market quotations (or an appropriate substitute that reflects 

current market conditions) rounded to the fourth decimal place in the case 

of a fund with a $1.0000 share price (or an equivalent level of accuracy for 

funds with a different share price), as of the close of business on each 

Friday during the month reported (if the reporting date falls on a holiday 

or other day on which the fund does not calculate the net asset value per 

share, provide the value as of the close of business on the date in that week 

last calculated):

a. Friday, week 1:

b. Friday, week 2:
864

c. Friday, week 3:

d. Friday, week 4:

e. Friday, week 5 (if applicable):

Part B: Class-Level Information about the Fund 

For each Class of the Series (regardless of the number of shares outstanding in the Class),

disclose the following: 

Item B.1 EDGAR Class identifier.

Item B.2 Minimum initial investment.

Item B.3 Net assets of the Class, to the nearest cent.

Item B.4 Number of shares outstanding, to the nearest hundredth.

Item B.5 Net asset value per share. Provide the net asset value per share, calculated 

using available market quotations (or an appropriate substitute that reflects 

current market conditions), rounded to the fourth decimal place in the case 

of a fund with a $1.0000 share price (or an equivalent level of accuracy for 

funds with a different share price), as of the close of business on each 

Friday during the month reported (if the reporting date falls on a holiday 

or other day on which the fund does not calculate the net asset value per 

share, provide the value as of the close of business on the date in that week 

last calculated):

a. Friday, week 1:

b. Friday, week 2:
865

c. Friday, week 3:

d. Friday, week 4:

Friday, week 5 (if applicable):

Item B.6 Net shareholder flow. Provide the aggregate weekly gross subscriptions 

(including dividend reinvestments) and gross redemptions, rounded to the 

nearest cent, as of the close of business on each Friday during the month 

reported (if the reporting date falls on a holiday or other day on which the 

fund does not calculate the gross subscriptions or gross redemptions, 

provide the value as of the close of business on the date in that week last 

calculated):

a. Friday, week 1:

i. Weekly gross subscriptions (including dividend 

reinvestments):

ii. Weekly gross redemptions:

b. Friday, week 2:

i. Weekly gross subscriptions (including dividend 

reinvestments):

ii. Weekly gross redemptions:

c. Friday, week 3:

i. Weekly gross subscriptions (including dividend 

reinvestments):

ii. Weekly gross redemptions:
866

d. Friday, week 4:

i. Weekly gross subscriptions (including dividend 

reinvestments):

ii. Weekly gross redemptions:

e. Friday, week 5 (if applicable):

i. Weekly gross subscriptions (including dividend 

reinvestments):

ii. Weekly gross redemptions:

f. Total for the month reported:

i. Monthly gross subscriptions (including dividend 

reinvestments):

ii. Monthly gross redemptions:

Item B.7 7-day net yield, as calculated under Item 26(a)(1) of Form N-1A (§ 

274.11A of this chapter).

Item B.8 During the reporting period, did any Person pay for, or waive all or part of 

the fund’s operating expenses or management fees? [Y/N] If Yes, answer 

Item B.8.a. 

a. Provide the name of the Person and describe the nature and amount of 

the expense payment or fee waiver, or both (reported in dollars).

Part C: Schedule of Portfolio Securities For each security held by the money market 

fund, disclose the following: 

Item C.1 The name of the issuer.
867

Item C.2 The title of the issue (including coupon, if applicable). 

Item C.3 The CUSIP. 

Item C.4 The LEI (if available). (See General Instruction E.)

Item C.5 Other identifier. In addition to CUSIP and LEI, provide at least one of the 

following other identifiers, if available:

a. The ISIN;

b. The CIK; or

c. Other unique identifier. 

Item C.6 The category of investment. Indicate the category that most closely 

identifies the instrument from among the following: 

U.S. Treasury Debt; U.S. Government Agency Debt; Non-U.S. Sovereign, SubSovereign and Supra-National debt; Certificate of Deposit; Non-Negotiable Time 

Deposit; Variable Rate Demand Note; Other Municipal Security; Asset Backed 

Commercial Paper; Other Asset Backed Securities; U.S. Treasury Repurchase 

Agreement, if collateralized only by U.S. Treasuries (including Strips) and cash; 

U.S. Government Agency Repurchase Agreement, collateralized only by U.S. 

Government Agency securities, U.S. Treasuries, and cash; Other Repurchase 

Agreement, if any collateral falls outside Treasury, Government Agency and cash; 

Insurance Company Funding Agreement; Investment Company; Financial 

Company Commercial Paper; Non-Financial Company Commercial Paper; or 

Tender Option Bond. If Other Instrument, include a brief description. 
868

Item C.7 If the security is a repurchase agreement, is the fund treating the 

acquisition of the repurchase agreement as the acquisition of the 

underlying securities (i.e., collateral) for purposes of portfolio 

diversification under rule 2a-7? [Y/N]

Item C.8 For all repurchase agreements, specify whether the repurchase agreement 

is “open” (i.e., the repurchase agreement has no specified end date and, by 

its terms, will be extended or “rolled” each business day (or at another 

specified period) unless the investor chooses to terminate it), and describe 

the securities subject to the repurchase agreement (i.e., collateral).

a. Is the repurchase agreement “open”? [Y/N]

b. The name of the collateral issuer.

c. LEI (if available).

d. Maturity date.

e. Coupon or yield.

f. The principal amount, to the nearest cent.

g. Value of collateral, to the nearest cent.

h. The category of investments that most closely represents the collateral, 

selected from among the following:

Asset-Backed Securities; Agency Collateralized Mortgage Obligations; 

Agency Debentures and Agency Strips; Agency Mortgage-Backed 

Securities; Private Label Collateralized Mortgage Obligations; Corporate 

Debt Securities; Equities; Money Market; U.S. Treasuries (including 
869

strips); Other Instrument. If Other Instrument, include a brief description, 

including, if applicable, whether it is a collateralized debt obligation, 

municipal debt, whole loan, or international debt.

If multiple securities of an issuer are subject to the repurchase agreement, 

the securities may be aggregated, in which case disclose: (a) the total 

principal amount and value and (b) the range of maturity dates and interest 

rates.

Item C.9 Rating. Indicate whether the security is a rated First Tier Security, rated 

Second Tier Security, an Unrated Security, or no longer an Eligible 

Security.

Item C.10 Name of each Designated NRSRO.

a. For each Designated NRSRO, disclose the credit rating given by the 

Designated NRSRO. If the instrument and its issuer are not rated by 

the Designated NRSRO, indicate “NR.”

Item C.11 The maturity date determined by taking into account the maturity 

shortening provisions of rule 2a-7(i) (i.e., the maturity date used to 

calculate WAM under rule 2a-7(d)(1)(ii)).

Item C.12 The maturity date determined without reference to the exceptions in rule 

2a-7(i) regarding interest rate readjustments (i.e., the maturity date used to 

calculate WAL under rule 2a-7(d)(1)(iii)).
870

Item C.13 The maturity date determined without reference to the maturity shortening 

provisions of rule 2a-7(i) (i.e., the ultimate legal maturity date on which, 

in accordance with the terms of the security without regard to any interest 

rate readjustment or demand feature, the principal amount must 

unconditionally be paid).

Item C.14 Does the security have a Demand Feature on which the fund is relying to 

determine the quality, maturity or liquidity of the security? [Y/N] If Yes, 

answer Items C.14.a – 14.f. Where applicable, provide the information 

required in Items C.14b – 14.f in the order that each Demand Feature 

issuer was reported in Item C.14.a.

a. The identity of the Demand Feature issuer(s).

b. Designated NRSRO(s) for the Demand Feature(s) or provider(s) of the 

Demand Feature(s).

c. For each Designated NRSRO, disclose the credit rating given by the 

Designated NRSRO. If there is no rating given by the Designated 

NRSRO, indicate “NR.”

d. The amount (i.e., percentage) of fractional support provided by each 

Demand Feature issuer.

e. The period remaining until the principal amount of the security may be 

recovered through the Demand Feature.

f. Is the demand feature conditional? [Y/N]
871

Item C.15 Does the security have a Guarantee (other than an unconditional letter of 

credit disclosed in item C.14 above) on which the fund is relying to 

determine the quality, maturity or liquidity of the security? [Y/N] If Yes, 

answer Items C.15.a – 15.d. Where applicable, provide the information 

required in Item C.15.b – 15.d in the order that each Guarantor was 

reported in Item C.15.a.

a. The identity of the Guarantor(s).

b. Designated NRSRO(s) for the Guarantee(s) or Guarantor(s).

c. For each Designated NRSRO, disclose the credit rating given by the 

Designated NRSRO. If there is no rating given by the Designated 

NRSRO, indicate “NR.”

d. The amount (i.e., percentage) of fractional support provided by each 

Guarantor.

Item C.16 Does the security have any enhancements, other than those identified in 

Items C.14 and C.15 above, on which the fund is relying to determine the 

quality, maturity or liquidity of the security? [Y/N] If Yes, answer 

Items C.16.a – 16.e. Where applicable, provide the information required 

in Items C.16.b – 16.e in the order that each enhancement provider was 

reported in Item C.16.a.

a. The identity of the enhancement provider(s).

b. The type of enhancement(s).

c. Designated NRSRO(s) for the enhancement(s) or enhancement 
872

provider(s).

d. For each Designated NRSRO, disclose the credit rating given by the 

Designated NRSRO. If there is no rating given by the Designated 

NRSRO, indicate “NR.”

e. The amount (i.e., percentage) of fractional support provided by each 

enhancement provider.

Item C.17 The yield of the security as of the reporting date.

Item C.18 The total Value of the fund’s position in the security, to the nearest cent: 

(See General Instruction E.)

a. Including the value of any sponsor support:

b. Excluding the value of any sponsor support:

Item C.19 The percentage of the money market fund’s net assets invested in the 

security, to the nearest hundredth of a percent.

Item C.20 Is the security categorized at level 3 in the fair value hierarchy under U.S. 

Generally Accepted Accounting Principles (ASC 820, Fair Value 

Measurement) [Y/N]? 

Item C.21 Is the security a Daily Liquid Asset? [Y/N]

Item C.22 Is the security a Weekly Liquid Asset? [Y/N]

Item C.23 Is the security an Illiquid Security? [Y/N]
873

Item C.24 Explanatory notes. Disclose any other information that may be material to 

other disclosures related to the portfolio security. If none, leave blank.

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940, the registrant has 

duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

______________________________________

(Registrant)

Date ______________________________

________________________________________

(Signature)*

*Print name and title of the signing officer under his/her signature.

17. Section 274.222 and Form N-CR are added to read as follows: 

§ 274.222 Form N-CR, Current report of money market fund material 

events

This form shall be used by registered investment companies that are regulated as money 

market funds under § 270.2a-7 of this chapter to file current reports pursuant to § 270.30b1-8 of 

this chapter within the time periods specified in the form.

Note: The text of Form N-CR will not appear in the Code of Federal Regulations.

FORM N-CR

CURRENT REPORT

MONEY MARKET FUND MATERIAL EVENTS 

Form N-CR is to be used by registered open-end management investment companies, or 

series thereof, that are regulated as money market funds pursuant to rule 2a-7 under the 
874

Investment Company Act of 1940 (“Investment Company Act”) (17 CFR 270.2a-7) (“money

market funds”), to file current reports with the Commission pursuant to rule 30b1-8 under the 

Investment Company Act (17 CFR 270.30b1-8). The Commission may use the information 

provided on Form N-CR in its regulatory, disclosure review, inspection, and policymaking roles. 

GENERAL INSTRUCTIONS

A. Rule as to Use of Form N-CR

Form N-CR is the public reporting form that is to be used for current reports of money 

market funds required by section 30(b) of the Act and rule 30b1-8 under the Act. A money 

market fund must file a report on Form N-CR upon the occurrence of any one or more of the 

events specified in Parts B – H of this form. Unless otherwise specified, a report is to be filed 

within one business day after occurrence of the event, and will be made public immediately upon 

filing. If the event occurs on a Saturday, Sunday, or holiday on which the Commission is not 

open for business, then the report is to be filed on the first business day thereafter. 

B. Application of General Rules and Regulations

The General Rules and Regulations under the Act contain certain general requirements 

that are applicable to reporting on any form under the Act. These general requirements should 

be carefully read and observed in the preparation and filing of reports on this form, except that 

any provision in the form or in these instructions shall be controlling. 

C. Information to Be Included in Report Filed on Form N-CR

Upon the occurrence of any one or more of the events specified in Parts B – H of Form 

N-CR, a money market fund must file a report on Form N-CR that includes information in 

response to each of the items in Part A of the form, as well as each of the items in the applicable 
875

Parts B – H of the form. 

D. Filing of Form N-CR

A money market fund must file Form N-CR in accordance with rule 232.13 of Regulation 

S-T. Form N-CR must be filed electronically using the Commission’s EDGAR system. 

E. Paperwork Reduction Act Information

A registrant is not required to respond to the collection of information contained in Form 

N-CR unless the form displays a currently valid Office of Management and Budget (“OMB”) 

control number. Please direct comments concerning the accuracy of the information collection 

burden estimate and any suggestions for reducing the burden to the Secretary, Securities and 

Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. The OMB has 

reviewed this collection of information under the clearance requirements of 44 U.S.C. 3507.

F. Definitions

References to sections and rules in this Form N-CR are to the Investment Company Act 

(15 U.S.C 80a), unless otherwise indicated. Terms used in this Form N-CR have the same 

meaning as in the Investment Company Act or rule 2a-7 under the Investment Company Act, 

unless otherwise indicated. In addition, as used in this Form N-CR, the term “fund” means the 

registrant or a separate series of the registrant. 
876

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM N-CR

CURRENT REPORT 

MONEY MARKET FUND MATERIAL EVENTS

Part A: General information

Item A.1 Report for [mm/dd/yyyy].

Item A.2 CIK Number of registrant.

Item A.3 EDGAR Series Identifier.

Item A.4 Securities Act File Number.

Item A.5 Provide the name, e-mail address, and telephone number of the person 

authorized to receive information and respond to questions about this 

Form N-CR.

Part B: Default or event of insolvency of portfolio security issuer

If the issuer of one or more of the fund’s portfolio securities, or the issuer of a demand feature or 

guarantee to which one of the fund’s portfolio securities is subject, and on which the fund is 

relying to determine the quality, maturity, or liquidity of a portfolio security, experiences a 

default or event of insolvency (other than an immaterial default unrelated to the financial 

condition of the issuer), and the portfolio security or securities (or the securities subject to the 

demand feature or guarantee) accounted for at least 1⁄2 of 1 percent of the fund’s total assets 

immediately before the default or event of insolvency, disclose the following information:

Item B.1 Security or securities affected. Disclose the name of the issuer, the title of the 

issue (including coupon or yield, if applicable) and at least two identifiers, if 
877

available (e.g., CUSIP, ISIN, CIK, LEI). 

Item B.2 Date(s) on which the default(s) or Event(s) of Insolvency occurred.

Item B.3 Value of affected security or securities on the date(s) on which the default(s) or 

event(s) of insolvency occurred.

Item B.4 Percentage of the fund’s total assets represented by the affected security or 

securities.

Item B.5 Brief description of actions fund plans to take, or has taken, in response to the 

default(s) or event(s) of insolvency.

Instruction. For purposes of Part B, an instrument subject to a demand feature or guarantee will 

not be deemed to be in default (and an event of insolvency with respect to the security will not be 

deemed to have occurred) if: (i) in the case of an instrument subject to a demand feature, the 

demand feature has been exercised and the fund has recovered either the principal amount or the 

amortized cost of the instrument, plus accrued interest; (ii) the provider of the guarantee is 

continuing, without protest, to make payments as due on the instrument; or (iii) the provider of a 

guarantee with respect to an asset-backed security pursuant to rule 2a-7(a)(16)(ii) is continuing, 

without protest, to provide credit, liquidity or other support as necessary to permit the 

asset-backed security to make payments as due.

A report responding to Items B.1 through B.4 is to be filed within one business day after 

occurrence of an event contemplated in this Part B. An amended report responding to Item B.5 

is to be filed within four business days after occurrence of an event contemplated in this Part B.

Part C: Provision of financial support to fund

If an affiliated person, promoter, or principal underwriter of the fund, or an affiliated person of 
878

such a person, provides any form of financial support to the fund (including any (i) capital 

contribution, (ii) purchase of a security from the fund in reliance on § 270.17a-9, (iii) purchase of 

any defaulted or devalued security at par, (iv) execution of letter of credit or letter of indemnity, 

(v) capital support agreement (whether or not the fund ultimately received support), (vi) 

performance guarantee, or (vii) any other similar action reasonably intended to increase or 

stabilize the value or liquidity of the fund’s portfolio; excluding, however, any (i) routine waiver 

of fees or reimbursement of fund expenses, (ii) routine inter-fund lending (iii) routine inter-fund 

purchases of fund shares, or (iv) any action that would qualify as financial support as defined 

above, that the board of directors has otherwise determined not to be reasonably intended to 

increase or stabilize the value or liquidity of the fund’s portfolio), disclose the following 

information: 

Item C.1 Description of nature of support.

Item C.2 Person providing support.

Item C.3 Brief description of relationship between the person providing support and the 

fund.

Item C.4 Date support provided.

Item C.5 Amount of support. 

Item C.6 Security supported (if applicable). Disclose the name of the issuer, the title of the 

issue (including coupon or yield, if applicable) and at least two identifiers, if 

available (e.g., CUSIP, ISIN, CIK, LEI).

Item C.7 Value of security supported on date support was initiated (if applicable).

Item C.8 Brief description of reason for support.
879

Item C.9 Term of support.

Item C.10 Brief description of any contractual restrictions relating to support.

Instruction. If an affiliated person, promoter, or principal underwriter of the fund, or an 

affiliated person of such a person, purchases a security from the fund in reliance on § 270.17a-9, 

the fund must provide the purchase price of the security in responding to Item C.6. 

A report responding to Items C.1 through C.7 is to be filed within one business day after 

occurrence of an event contemplated in this Part C. An amended report responding to Items C.8 

through C.10 is to be filed within four business days after occurrence of an event contemplated 

in this Part C.

Part D: Deviation between current net asset value per share and intended stable price per 

share 

If a retail money market fund’s or a government money market fund’s current net asset value per 

share (rounded to the fourth decimal place in the case of a fund with a $1.00 share price, or an 

equivalent level of accuracy for funds with a different share price) deviates downward from its 

intended stable price per share by more than 1⁄4 of 1 percent, disclose:

Item D.1 Date(s) on which such downward deviation exceeded 1⁄4 of 1 percent.

Item D.2 Extent of deviation between the fund’s current net asset value per share and its 

intended stable price per share. 

Item D.3 Principal reason or reasons for the deviation, including the name of any security 

whose value calculated using available market quotations (or an appropriate 

substitute that reflects current market conditions) or sale price, or whose issuer’s 

downgrade, default, or event of insolvency (or similar event), has contributed to 
880

the deviation. For any such security, disclose the name of the issuer, the title of 

the issue (including coupon or yield, if applicable) and at least two identifiers, if 

available (e.g., CUSIP, ISIN, CIK, LEI). 

Instruction. A report responding to Items D.1 and D.2 is to be filed within one business day after 

occurrence of an event contemplated in this Part D. An amended report responding to Items D.3 

is to be filed within four business days after occurrence of an event contemplated in this Part D.

Part E: Imposition of liquidity fee

If a fund (except a government money market fund that is relying on the exemption in rule 

2a-7(c)(2)(iii)): (i) at the end of a business day, has invested less than ten percent of its total 

assets in weekly liquid assets or (ii) has invested less than thirty percent of its total assets in 

weekly liquid assets and imposes a liquidity fee pursuant to rule 2a-7(c)(2)(i) or (ii), disclose the 

following information:

Item E.1 Initial date on which the fund invested less than ten percent of its total assets in 

weekly liquid assets, if applicable.

Item E.2 If the fund imposes a liquidity fee pursuant to rule 2a-7(c)(2), date on which the 

fund instituted the liquidity fee. 

Item E.3 Percentage of the fund’s total assets invested in weekly liquid assets as of the 

dates reported in items E.1 and E.2, as applicable.

Item E.4 Size of the liquidity fee, if any.

Item E.5 Brief description of the facts and circumstances leading to the fund’s investing in 

the amount of weekly liquid assets reported in Item E.3.

Item E.6 Brief discussion of the primary considerations or factors taken in account by the 
881

board of directors in its decision to impose (or not impose) a liquidity fee. 

Instruction. A report responding to Items E.1 though E.4 is to be filed within one business day 

after occurrence of an event contemplated in this Part E. An amended report responding to Items 

E.5 and E.6 is to be filed within four business days after occurrence of an event contemplated in 

this Part E.

Part F: Suspension of fund redemptions

If a fund suspends redemptions pursuant to rule 2a-7(c)(2)(i), disclose the following information: 

Item F.1 Percentage of the fund’s total assets invested in weekly liquid assets as of the date 

on which the fund suspended redemptions.

Item F.2 Date on which the fund initially suspended redemptions.

Item F.3 Brief description of the facts and circumstances leading to the fund’s investing in 

the amount of weekly liquid assets stated in Item F.1.

Item F.4 Brief discussion of the primary considerations or factors taken in account by the 

board of directors in its decision to suspend the fund’s redemptions.

Instruction. A report responding to Items F.1 and F.2 is to be filed within one business day after 

occurrence of an event contemplated in this Part F. An amended report responding to Items F.3 

and F.4 is to be filed within four business days after occurrence of an event contemplated in this 

Part F.

Part G: Removal of liquidity fees and/or resumption of fund redemptions

If a fund that has imposed a liquidity fee and/or suspended the fund’s redemptions pursuant to 

rule 2a-7(c)(2) determines to remove such fee and/or resume fund redemptions, disclose the 

following, as applicable:
882

Item G.1 Date on which the fund removed the liquidity fee and/or resumed fund 

redemptions.

Part H: Optional disclosure

If a fund chooses, at its option, to disclose any other events or information not otherwise required 

by this form, it may do so under this Item H.1.

Item H.1 Optional disclosure.

Instruction. Item H.1 is intended to provide a fund with additional flexibility, if it so chooses, to 

disclose any other events or information not otherwise required by this form, or to supplement or 

clarify any of the disclosures required elsewhere in this form. Part H does not impose on funds 

any affirmative obligation. A fund may file a report on Form N-CR responding to Part H at any 

time.

SIGNATURES

Pursuant to the requirements of the Investment Company Act of 1940, the registrant has 

duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

______________________________________

(Registrant)

Date ______________________________

________________________________________

(Signature)*

*Print name and title of the signing officer under his/her signature.

PART 279 – FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS 

ACT OF 1940
883

18. The authority citation for Part 279 continues to read as follows:

Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1, et seq.

19. Form PF (referenced in § 279.9) is amended by:

a. In General Instruction 15, removing the reference to Question 57 from the last 

bulleted sentence;

b. Revising section 3; 

c. In the Glossary of Terms, adding and revising certain terms. 

The additions and revisions read as follows:

Note: The text of Form PF does not, and this amendment will not, appear in the Code of 

Federal Regulations.
884

Form PF

* * * * *

Section 3

Section 3: Information about liquidity funds that you advise.

You must complete a separate Section 3 for each liquidity fund that you advise. However, with respect to 

master-feeder arrangements and parallel fund structures, you may report collectively or separately about 

the component funds as provided in the General Instructions.

Item A. Reporting fund identifying and operational information

51. (a) Name of the reporting fund ............................................................................

(b) Private fund identification number of the reporting fund ..............................

52. Does the reporting fund use the amortized cost method of valuation in computing its net 

asset value?

Yes No

53. Does the reporting fund use the penny rounding method of pricing in computing its net asset 

value?

Yes No

54. (a) Does the reporting fund have a policy of complying with the risk limiting conditions

of rule 2a-7?

Yes No

(b) If you responded “no” to Question 54(a) above, does the reporting fund have a policy 

of complying with the following provisions of rule 2a-7:

(i) the diversification conditions? Yes No

(ii) the credit quality conditions? Yes No

(iii)the liquidity conditions? Yes No

(iv) the maturity conditions? Yes No

 

Item B. Reporting fund assets

55. Provide the following information for each month of the reporting period.

1st 

Month

2nd 

Month

3rd 

Month
885

(a) Net asset value of reporting fund as reported to current and 

prospective investors ..................................................................

(b) Net asset value per share of reporting fund as reported to 

current and prospective investors (to the nearest hundredth of 

a cent).........................................................................................

(c) Net asset value per share of reporting fund (to the nearest 

hundredth of a cent; exclude the value of any capital support 

agreement or similar arrangement)............................................

(d) WAM of reporting fund (in days)................................................

(e) WAL of reporting fund (in days).................................................

(f) 7-day gross yield of reporting fund (to the nearest hundredth 

of one percent)............................................................................

(g) Dollar amount of the reporting fund’s assets that are daily 

liquid assets................................................................................

(h) Dollar amount of the reporting fund’s assets that are weekly 

liquid assets................................................................................

(i) Dollar amount of the reporting fund’s assets that have a 

maturity greater than 397 days ...................................................

Item C. Financing information

56. (a) Is the amount of total borrowing reported in response to Question 12 equal to or 

greater than 5% of the reporting fund’s net asset value?

Yes No

(b) If you responded “yes” to Question 56(a) above, divide the dollar amount of total 

borrowing reported in response to Question 12 among the periods specified below 

depending on the type of borrowing, the type of creditor and the latest date on which 

the reporting fund may repay the principal amount of the borrowing without 

defaulting or incurring penalties or additional fees.

(If a creditor (or syndicate or administrative/collateral agent) is permitted to vary 

unilaterally the economic terms of the financing or to revalue posted collateral in its 

own discretion and demand additional collateral, then the borrowing should be 

deemed to have a maturity of 1 day or less for purposes of this question. For 

amortizing loans, each amortization payment should be treated separately and 

grouped with other borrowings based on its payment date.)

(The total amount of borrowings reported below should equal approximately the total 

amount of borrowing reported in response to Question 12.)
886

1 day or 

less

2 days to

7 days

8 days to

30 days

31 days 

to

397 days

Greater 

than 397 

days

(i) Unsecured borrowing

(A) U.S. financial institutions...........................

(B) Non-U.S. financial institutions...................

(C) Other U.S. creditors ...................................

(D) Other non-U.S. creditors............................

(ii) Secured borrowing

(A) U.S. financial institutions...........................

(B) Non-U.S. financial institutions...................

(C) Other U.S. creditors ...................................

(D) Other non-U.S. creditors............................

57. (a) Does the reporting fund have in place one or more committed liquidity facilities?

Yes No

(b) If you responded “yes” to Question 57(a), provide the aggregate dollar 

amount of commitments under the liquidity facilities...............................

Item D. Investor information

58. Specify the number of outstanding shares or units of the reporting fund’s stock 

or similar securities...............................................................................................

59. Provide the following information regarding investor concentration.

(For purposes of this question, if you know that two or more beneficial owners 

of the reporting fund are affiliated with each other, you should treat them as a 

single beneficial owner.)

(a) Specify the percentage of the reporting fund’s equity that is beneficially 

owned by the beneficial owner having the largest equity interest in the 

reporting fund...............................................................................................

(b) How many investors beneficially own 5% or more of the reporting fund’s

equity?

60. Provide a good faith estimate, as of the data reporting date, of the percentage of 

the reporting fund’s outstanding equity that was purchased using securities 
887

lending collateral .................................................................................................. 

61. Provide the following information regarding the restrictions on withdrawals and 

redemptions by investors in the reporting fund.

(For Questions 61 and 62, please note that the standards for imposing suspensions and 

restrictions on withdrawals/redemptions may vary among funds. Make a good faith 

determination of the provisions that would likely be triggered during conditions that you

view as significant market stress.)

As of the data reporting date, what percentage of the reporting fund’s net asset value, if 

any:

(a) May be subjected to a suspension of investor withdrawals/redemptions by 

an adviser or fund governing body (this question relates to an adviser’s or 

governing body’s right to suspend and not just whether a suspension is 

currently effective)........................................................................................

(b) May be subjected to material restrictions on investor withdrawals/ 

redemptions (e.g., “gates”) by an adviser or fund governing body (this 

question relates to an adviser’s or governing body’s right to impose a 

restriction and not just whether a restriction has been imposed) ................

(c) Is subject to a suspension of investor withdrawals/redemptions (this 

question relates to whether a suspension is currently effective and not just 

an adviser’s or governing body’s right to suspend).....................................

(d) Is subject to a material restriction on investor withdrawals/redemptions 

(e.g., a “gate”) (this question relates to whether a restriction has been 

imposed and not just an adviser’s or governing body’s right to impose a 

restriction)....................................................................................................

62. Investor liquidity (as a % of net asset value):

(Divide the reporting fund’s net asset value among the periods specified below depending 

on the shortest period within which investors are entitled, under the fund documents, to 

withdraw invested funds or receive redemption payments, as applicable. Assume that 

you would impose gates where applicable but that you would not completely suspend 

withdrawals/redemptions and that there are no redemption fees. Please base on the 

notice period before the valuation date rather than the date proceeds would be paid to 

investors. The total should add up to 100%.)

% of NAV locked for

(i) 1 day or less...........................................................

(ii) 2 days – 7 days.......................................................

(iii) 8 days – 30 days ....................................................

(iv) 31 days – 90 days ..................................................

(v) 91 days – 180 days ................................................

(vi) 181 days – 365 days...............................................
888

(vii) Longer than 365 days.............................................

Item E. Portfolio Information

63. For each security held by the reporting fund, provide the following information 

for each month of the reporting period.

(a) Name of the issuer........................................................................................

(b) Title of the issue (including coupon, if applicable)......................................

(c) CUSIP...........................................................................................................

(d) LEI, if available ...........................................................................................

(e) In addition to CUSIP and LEI, provide at least one of the following other 

identifiers, if available:

(i) ISIN..............................................................................................

(ii) CIK...............................................................................................

(iii) Other unique identifier.................................................................

(f) The category of investment that most closely identifies the instrument ......

(Select from among the following categories of investment: U.S. 

Treasury Debt; U.S. Government Agency Debt; Non-U.S. Sovereign, 

Sub-Sovereign and Supra-National debt; Certificate of Deposit; NonNegotiable Time Deposit; Variable Rate Demand Note; Other 

Municipal Security; Asset Backed Commercial Paper; Other Asset 

Backed Securities; U.S. Treasury Repurchase Agreement, if 

collateralized only by U.S. Treasuries (including Strips) and cash; 

U.S. Government Agency Repurchase Agreement, collateralized only 

by U.S. Government Agency securities, U.S. Treasuries, and cash; 

Other Repurchase Agreement, if any collateral falls outside Treasury, 

Government Agency and cash; Insurance Company Funding 

Agreement; Investment Company; Financial Company Commercial 

Paper; Non-Financial Company Commercial Paper; or Tender 

Option Bond. If Other Instrument, include a brief description.)

(g) For repos, specify whether the repo is “open” (i.e., the repo has no specified 

end date and, by its terms, will be extended or “rolled” each business day 

(or at another specified period) unless the investor chooses to terminate it), 

and provide the following information about the securities subject to the 

repo (i.e., the collateral):

(If multiple securities of an issuer are subject to the repo, the securities may 

be aggregated, in which case provide: (i) the total principal amount and 

value and (ii) the range of maturity dates and interest rates.)

(i) Whether the repo is “open” ..................................................
889

(ii) Name of the collateral issuer .................................................

(iii) CUSIP....................................................................................

(iv) LEI, if available ....................................................................

(v) Maturity date .........................................................................

(vi) Coupon or yield .....................................................................

(vii) The principal amount, to the nearest cent..............................

(viii) Value of the collateral, to the nearest cent.............................

(ix) The category of investment that most closely represents the 

collateral ................................................................................

(Select from among the following categories of investment: AssetBacked Securities; Agency Collateralized Mortgage Obligations; 

Agency Debentures and Agency Strips; Agency Mortgage-Backed 

Securities; Private Label Collateralized Mortgage Obligations; 

Corporate Debt Securities; Equities; Money Market; U.S. Treasuries 

(including strips); Other Instrument. If Other Instrument, include a 

brief description, including, if applicable, whether it is a 

collateralized debt obligation, municipal debt, whole loan, or 

international debt).

(h) If the rating assigned by a credit rating agency played a substantial role in 

the reporting fund’s (or its adviser’s) evaluation of the quality, maturity or 

liquidity of the security, provide the name of each credit rating agency and 

the rating each assigned to the security.

(i) The maturity date used to calculate WAM...................................................

(j) The maturity date used to calculate WAL....................................................

(k) The ultimate legal maturity date (i.e., the date on which, in accordance with 

the terms of the security without regard to any interest rate readjustment or 

demand feature, the principal amount must unconditionally be paid) .......

(l) If the security has a demand feature on which the reporting fund (or its 

adviser) is relying when evaluating the quality, maturity, or liquidity of the 

security, provide the following information: 

(If the security does not have such a demand feature, enter “NA.”)

(i) Identity of the demand feature issuer(s) ..............................

(ii) If the rating assigned by a credit rating agency played a 

substantial role in the reporting fund’s (or its adviser’s) 

evaluation of the quality, maturity or liquidity of the demand 

feature, its issuer, or the security to which it relates, provide 

the name of each credit rating agency and the rating assigned 

by each credit rating agency ................................................

(iii) The period remaining until the principal amount of the 
890

security may be recovered through the demand feature.......

(iv) The amount (i.e., percentage) of fractional support provided 

by each demand feature issuer..............................................

(v) Whether the demand feature is a conditional demand feature

..............................................................................................

(m) If the security has a guarantee (other than an unconditional letter of credit 

reported in response to Question 63(l) above) on which the reporting fund 

(or its adviser) is relying when evaluating the quality, maturity, or liquidity 

of the security, provide the following information:

(If the security does not have such a guarantee, enter NA.”)

(i) Identity of the guarantor(s) .................................................

(ii) If the rating assigned by a credit rating agency played a 

substantial role in the reporting fund’s (or its adviser’s) 

evaluation of the quality, maturity or liquidity of the 

guarantee, the guarantor, or the security to which the 

guarantee relates, provide the name of each credit rating 

agency and the rating assigned by each credit rating agency

..............................................................................................

(iii) The amount (i.e., percentage) of fractional support provided 

by each guarantor.................................................................

(n) If the security has any enhancements, other than those identified in response 

to Questions 63(l) and (m) above, on which the reporting fund (or its 

adviser) is relying when evaluating the quality, maturity, or liquidity of the 

security, provide the following information:

(If the security does not have such an enhancement, enter “NA.”)

(i) Identity of the enhancement provider(s) ..............................

(ii) The type of enhancement(s) ................................................

(iii) If the rating assigned by a credit rating agency played a 

substantial role in the reporting fund’s (or its adviser’s) 

evaluation of the quality, maturity or liquidity of the 

enhancement, its provider, or the security to which it relates, 

provide the name of each credit rating agency used and the 

rating assigned by the credit rating agency................

(iv) The amount (i.e., percentage) of fractional support provided 

by each enhancement provider .............................................

(o) The yield of the security as of the reporting date:.............................

(p) The total value of the reporting fund’s position in the security, and 

separately, if the reporting fund uses the amortized cost method of 

valuation, the amortized cost value, in both cases to the nearest cent:

(i) Including the value of any sponsor support..........................
891

(ii) Excluding the value of any sponsor support.........................

(q) The percentage of the reporting fund’s net assets invested in the security, 

to the nearest hundredth of a percent...........................................................

(r) Is the security categorized as a level 3 asset or liability in Question 14?

(s) Is the security a daily liquid asset? 

(t) Is the security a weekly liquid asset? 

(u) Is the security an illiquid security? 

(v) Explanatory notes. Disclose any other information that may be material 

to other disclosures related to the portfolio security.

 (If none, leave blank.)

Item F. Parallel Money Market Funds 

64. If the reporting fund pursues substantially the same investment objective and 

strategy and invests side by side in substantially the same positions as a money 

market fund advised by you or any of your related persons, provide the money 

market fund’s EDGAR series identifier................................................................

(If neither you nor any of your related persons advise such a money market fund, 

enter “NA.”)

* * * * *

GLOSSARY OF TERMS

* * *

Conditional demand feature Has the meaning provided in rule 2a-7.

* * *

Credit rating agency Any nationally recognized statistical rating organizations, as that 

term is defined in section 3(a)(62) of the Securities Exchange Act of 1934.

* * *

Demand feature Has the meaning provided in rule 2a-7.

* * *
892

Guarantee For purposes of Question 63, has the meaning provided in paragraph 

(a)(16)(i) of rule 2a-7. 

Guarantor For purposes of Question 63, the provider of any guarantee.

* * *

Illiquid security Has the meaning provided in rule 2a-7.

* * *

Maturity The maturity of the relevant asset, determined without reference to the 

maturity shortening provisions contained in paragraph (i) of rule 2a-7 regarding interest rate 

readjustments. 

* * *

Risk limiting conditions The conditions specified in paragraph (d) of rule 2a-7.

* * *
893

WAL Weighted average portfolio maturity of a liquidity fund calculated taking into 

account the maturity shortening provisions contained in paragraph (i) of rule 2a-7, but 

determined without reference to the exceptions in paragraph (i) of rule 2a-7 regarding interest 

rate readjustments.

WAM Weighted average portfolio maturity of a liquidity fund calculated taking into 

account the maturity shortening provisions contained in paragraph (i) of rule 2a-7

By the Commission.

Kevin M. O’Neill

Deputy Secretary

Date: July 23, 2014