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Explainer: Why is the U.S. SEC reforming money market funds?

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The U.S. Securities and Exchange Commission (SEC) on Wednesday finalized long-awaited regulations to improve the resilience and transparency of the roughly $5.5 trillion U.S. money market fund industry.

Signage is seen at the headquarters of the U.S. Securities and Exchange Commission in Washington, D.C., U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Andrew Kellylong-awaited regulations to improve the resilience and transparency of the roughly $5.5 trillion U.S. money market fund industry.

All the major asset managers and bank groups, including BlackRock, Vanguard, Fidelity and Goldman Sachs offer money market funds.Because money market fund investors generally expect immediate liquidity with little volatility, they are easily spooked when those expectations are not met during market stress.

The panic was reminiscent of 2008 when a run on money market funds threatened to freeze up global markets and prompted the government to backstop the sector. First, it boost funds' liquidity so they can more easily meet redemptions. Currently, at least 10% of funds' total assets must be held in daily liquid assets, and at least 30% of total assets must be held in weekly liquid assets. The SEC is raising that to 25% and 50%, respectively.

 

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