Vol. 79 Thursday, No. 157 August 14, 2014 Part II Securities and Exchange Commission 17 CFR Parts 230, 239, et al. Money Market Fund Reform; Amendments to Form PF; Final Rule VerDate Mar<15>2010 17:22 Aug 13, 2014 Jkt 232001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\14AUR2.SGM 14AUR2 tkelley on DSK3SPTVN1PROD with RULES2 47736 Federal Register / Vol. 79, No. 157 / Thursday, August 14, 2014 / Rules and Regulations SECURITIES AND EXCHANGE requiring money market funds to report C. Effects on Other Money Market Funds, COMMISSION additional information to the SEC and to Investors, and the Short-Term Financing investors. Finally, the amendments Markets 17 CFR Parts 230, 239, 270, 274 and require investment advisers to certain D. The Financial Crisis 279 E. Examination of Money Market Fund large unregistered liquidity funds, Regulation Since the Financial Crisis [Release No. 33–9616, IA–3879; IC–31166; which can have many of the same 1. The 2010 Amendments FR–84; File No. S7–03–13] economic features as money market 2. The Eurozone Debt Crisis and U.S. Debt funds, to provide additional information Ceiling Impasses of 2011 and 2013 RIN 3235–AK61 about those funds to the SEC. 3. Continuing Consideration of the Need DATES: Effective Date: October 14, 2014. for Additional Reforms Money Market Fund Reform; Compliance Dates: The applicable III. Discussion Amendments to Form PF A. Liquidity Fees and Redemption Gates compliance dates are discussed in 1. Analysis of Certain Effects of Fees and AGENCY: Securities and Exchange section III.N. of the Release titled Gates Commission. ‘‘Compliance Dates.’’ 2. Terms of Fees and Gates ACTION: Final rule. FOR FURTHER INFORMATION CONTACT: 3. Exemptions to Permit Fees and Gates Adam Bolter, Senior Counsel; Amanda 4. Amendments to Rule 22e–3 SUMMARY: The Securities and Exchange Hollander Wagner, Senior Counsel; 5. Operational Considerations Relating to Commission (‘‘Commission’’ or ‘‘SEC’’) Fees and Gates Andrea Ottomanelli Magovern, Senior 6. Tax Implications of Liquidity Fees is adopting amendments to the rules Counsel; Erin C. Loomis, Senior 7. Accounting Implications that govern money market mutual funds Counsel; Kay-Mario Vobis, Senior B. Floating Net Asset Value (or ‘‘money market funds’’) under the Counsel; Thoreau A. Bartmann, Branch 1. Introduction Investment Company Act of 1940 Chief; Sara Cortes, Senior Special 2. Summary of the Floating NAV Reform (‘‘Investment Company Act’’ or ‘‘Act’’). Counsel; or Sarah G. ten Siethoff, 3. Certain Considerations Relating to the The amendments are designed to Assistant Director, Investment Company Floating NAV Reform address money market funds’ Rulemaking Office, at (202) 551–6792, 4. Money Market Fund Pricing susceptibility to heavy redemptions in Division of Investment Management, 5. Amortized Cost and Penny Rounding for times of stress, improve their ability to Stable NAV Funds Securities and Exchange Commission, 6. Tax and Accounting Implications of manage and mitigate potential contagion 100 F Street NE., Washington, DC Floating NAV Money Market Funds from such redemptions, and increase 20549–8549. 7. Rule 10b–10 Confirmations the transparency of their risks, while SUPPLEMENTARY INFORMATION: The 8. Operational Implications of Floating preserving, as much as possible, their Commission is adopting amendments to NAV Money Market Funds benefits. The SEC is removing the rules 419 [17 CFR 230.419] and 482 [17 9. Transition valuation exemption that permitted CFR 230.482] under the Securities Act C. Effect on Certain Types of Money institutional non-government money of 1933 [15 U.S.C. 77a–z–3] (‘‘Securities Market Funds and Other Entities 1. Government Money Market Funds market funds (whose investors Act’’), rules 2a–7 [17 CFR 270.2a–7], historically have made the heaviest 2. Retail Money Market Funds 12d3–1 [17 CFR 270.12d3–1], 18f–3 [17 3. Municipal Money Market Funds redemptions in times of stress) to CFR 270.18f–3], 22e–3 [17 CFR 270.22e– 4. Implications for Local Government maintain a stable net asset value per 3], 30b1–7 [17 CFR 270.30b1–7], 31a–1 Investment Pools share (‘‘NAV’’), and is requiring those [17 CFR 270.31a–1], and new rule 30b1– 5. Unregistered Money Market Funds funds to sell and redeem shares based 8 [17 CFR 270.30b1–8] under the Operating Under Rule 12d1–1 on the current market-based value of the Investment Company Act of 1940 [15 6. Master/Feeder Funds—Fees and Gates securities in their underlying portfolios U.S.C. 80a], Form N–1A under the Requirements rounded to the fourth decimal place Investment Company Act and the 7. Application of Fees and Gates to Other Types of Funds and Certain (e.g., $1.0000), i.e., transact at a Securities Act, Form N–MFP under the ‘‘floating’’ NAV. The SEC also is Redemptions Investment Company Act, and section 3 D. Guidance on the Amortized Cost adopting amendments that will give the of Form PF under the Investment Method of Valuation and Other boards of directors of money market Advisers Act [15 U.S.C. 80b], and new Valuation Concerns funds new tools to stem heavy Form N–CR under the Investment 1. Use of Amortized Cost Valuation redemptions by giving them discretion Company Act.1 2. Other Valuation Matters to impose a liquidity fee if a fund’s E. Amendments to Disclosure weekly liquidity level falls below the Table of Contents Requirements required regulatory threshold, and I. Introduction 1. Required Disclosure Statement giving them discretion to suspend II. Background 2. Disclosure of Tax Consequences and redemptions temporarily, i.e., to ‘‘gate’’ A. Role of Money Market Funds Effect on Fund Operations—Floating B. Certain Economic Features of Money NAV funds, under the same circumstances. 3. Disclosure of Transition to Floating NAV These amendments will require all non- Market Funds 1. Money Market Fund Investors’ Desire To 4. Disclosure of the Effects of Fees and government money market funds to Gates on Redemptions impose a liquidity fee if the fund’s Avoid Loss 2. Liquidity Risks 5. Historical Disclosure of Liquidity Fees weekly liquidity level falls below a 3. Valuation and Pricing Methods and Gates designated threshold, unless the fund’s 4. Investors’ Misunderstanding About the 6. Prospectus Fee Table board determines that imposing such a Actual Risk of Investing in Money Market 7. Historical Disclosure of Affiliate fee is not in the best interests of the Funds Financial Support fund. In addition, the SEC is adopting 8. Economic Analysis 9. Web site Disclosure 1 amendments designed to make money Unless otherwise noted, all references to F. Form N–CR market funds more resilient by statutory sections are to the Investment Company Act, and all references to rules under the 1. Introduction increasing the diversification of their Investment Company Act, including rule 2a–7, will 2. Part B: Defaults and Events of Insolvency portfolios, enhancing their stress testing, be to Title 17, Part 270 of the Code of Federal 3. Part C: Financial Support and improving transparency by Regulations, 17 CFR Part 270. 4. Part D: Declines in Shadow Price VerDate Mar<15>2010 17:22 Aug 13, 2014 Jkt 232001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\14AUR2.SGM 14AUR2 tkelley on DSK3SPTVN1PROD with RULES2 Federal Register / Vol. 79, No. 157 / Thursday, August 14, 2014 / Rules and Regulations 47737 5. Parts E, F, and G: Imposition and Lifting 4. Notice to the Commission good faith by the fund’s board of of Liquidity Fees and Gates 5. Stress Testing directors (i.e., use a floating NAV).5 In 6. Part H: Optional Disclosure 6. Web Site Disclosure 1983, the Commission codified an 7. Timing of Form N–CR 7. Total Burden for Rule 2a–7 exemption to this requirement allowing 8. Economic Analysis B. Rule 22e–3 money market funds to value their G. Amendments to Form N–MFP Reporting C. Rule 30b1–7 and Form N–MFP Requirements 1. Discussion of Final Amendments portfolio securities using the ‘‘amortized 1. Amendments Related to Rule 2a–7 2. Current Burden cost’’ method of valuation and to use the Reforms 3. Change in Burden ‘‘penny-rounding’’ method of pricing.6 2. New Reporting Requirements D. Rule 30b1–8 and Form N–CR Under the amortized cost method, a 3. Clarifying Amendments 1. Discussion of New Reporting money market fund’s portfolio securities 4. Public Availability of Information Requirements generally are valued at cost plus any 5. Operational Implications of the N–MFP 2. Estimated Burden amortization of premium or Amendments E. Rule 34b–1(a) accumulation of discount, rather than at H. Amendments to Form PF Reporting F. Rule 482 Requirements their value based on current market G. Form N–1A factors.7 The penny rounding method of 1. Overview of Proposed Amendments to H. Advisers Act Rule 204(b)–1 and Form Form PF PF pricing permits a money market fund 2. Utility of New Information, Including 1. Discussion of Amendments when pricing its shares to round the Benefits, Costs, and Economic 2. Current Burden fund’s NAV to the nearest one percent Implications 3. Change in Burden (i.e., the nearest penny).8 Together, I. Diversification V. Regulatory Flexibility Act Certification these valuation and pricing techniques 1. Treatment of Certain Affiliates for VI. Update to Codification of Financial create a ‘‘rounding convention’’ that Purposes of Rule 2a–7’s Five Percent Reporting Policies permits a money market fund to sell and Issuer Diversification Requirement VII. Statutory Authority redeem shares at a stable share price 2. ABS—Sponsors Treated as Guarantors Text of Rules and Forms 3. The Twenty-Five Percent Basket without regard to small variations in the 9 J. Amendments to Stress Testing I.