WASHINGTON — The Securities and Exchange Commission on Wednesday published rule changes that would make money market funds less susceptible to market turmoil and runs by investors.
It asked for public comments on the proposals to be submitted by Sept. 8.The proposed rule changes would seek to make money market funds safer by requiring funds to maintain a portion of their portfolios in instruments that can be readily converted to cash and to reduce the weighted average maturities of their portfolios.
The rule changes also would permit a fund that has "broken the buck" to suspend redemptions to allow for the orderly liquidation of its assets.
In addition, the agency is proposing to restrict funds from investing in so-called second-tier securities, as well as to require fund managers to conduct periodic stress tests to ensure they can maintain a stable net-asset value and make monthly disclosures of holdings to both the SEC and investors.
The SEC also is seeking comment on more controversial measures that it is considering proposing, including whether it should require funds to maintain a floating net-asset value rather than a stable share price.
In its rulemaking notice, the SEC says that funds serve as a "substantial" source of financing in the broader capital markets and hold 65% of state and local government short-term debt. The amount of short-term debt, in turn, represents 22% of all state and local government debt.
"The health of money market funds is important not only to their investors, but also to a large number of businesses and state and local governments that finance current operations through the issuance of short-term debt," the SEC wrote in the notice.