The ubiquitous money market mutual fund has been a hot topic at the U.S. Treasury Department and the Securities Exchange Commission (SEC) since the Great Recession and Financial Crisis of 2008/2009. The Government’s concerns are based on actions taken by institutional investors during the crisis when a large institutional money market fund could no longer support a $1.00 share price due to losses in its underlying portfolio. A potential run on the fund – which could have had catastrophic effects on already reeling financial markets – was avoided when the U.S. Treasury Department intervened by announcing that it would guarantee current deposits in all money market funds, institutional and retail alike.
This massive guarantee was not the sort of thing that the Treasury wanted to have to issue again. The SEC has therefore instituted a series of regulatory reforms intended to forestall future emergency interventions of that sort. The reforms either permit or require certain money market funds to impose redemption fees or temporarily suspend redemptions when financial markets are subject to severe stress.
These reforms are technical, and potentially confusing. Because they are likely to have some impact on almost all investors, many are concerned to understand them, so as to respond appropriately by October of this year, when they go into effect.