What You Need to Know About New Rules for Money Market Funds

Better Investing

What's Hot


How to Cut the Cable TV Cord in 2017Family

8 Major Freebies and Discounts You Get With Amazon PrimeSave

8 Creative Ways to Clear ClutterAround The House

Study: People Who Curse Are More HonestFamily

This Free Software Brings Old Laptops Back to LifeMore

Pay $2 and Get Unlimited Wendy’s Frosty Treats in 2017Family

The 3 Golden Rules of Lending to Friends and FamilyBorrow

6 Reasons Why Savers Are Sexier Than SpendersCredit & Debt

Resolutions 2017: Save More Money Using 5 Simple TricksCredit & Debt

Porta-Potties for Presidential Inauguration Cause a StinkFamily

Protecting Trump Will Cost Taxpayers $35 MillionFamily

Tax Hacks 2017: Don’t Miss These 16 Often-Overlooked Tax BreaksTaxes

5 New Year’s Resolutions That Will Pay Off 10 Years From NowCollege

10 Simple Money Moves to Make Before the New YearFamily

After years of debate, the SEC has adopted moderate reforms for money market mutual funds.

The Securities and Exchange Commission voted 3-2 this week to tighten rules on the $2.6 trillion money market industry.

In a nutshell, money market funds are open-ended mutual funds that invest in low-risk securities, according to the SEC. Often regarded as being a safe place for investors to park their cash, money market funds aim to earn a little interest, while maintaining a net asset value of $1 per share.

The SEC’s long-awaited reforms are an effort to prevent another mass investor exodus from money market funds, which contributed to the 2008 financial crisis. SEC chair Mary Jo White said in a statement:

[Wednesday’s] reforms will fundamentally change the way that most money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system in a crisis.

According to The Wall Street Journal, the new rules will have minimal impact on asset managers like Charles Schwab that cater to individual investors.

But they have big implications for prime institutional funds, which make up about 35 percent of money market funds, USA Today said.

The new rules are essentially twofold:

  • Share prices. Some money market funds will be required to have floating share prices like other mutual funds, instead of artificially maintaining a stable $1 share price. If the shares fall below $1, investors would then see potential losses in the funds, USA Today said.

However, The New York Times adds:

But not all funds will be covered by that rule. Only funds whose investors are institutions and that purchase corporate debt or municipal securities are covered. Funds whose investors are individuals are not subject to the change.

  • Redemption suspension. This amendment will allow a money market fund’s board to temporarily stop investors from redeeming shares or charge a fee on redemptions “if the level of liquid assets falls below 30 percent,” says USA Today.

Both measures will take effect in two years.

The rules are getting mixed reviews. The WSJ said:

The prospect of losing immediate access to their cash, or risk to principal, already has caused some corporate treasurers to shift money away from the industry. Verett Mims, assistant treasurer at Boeing Co., said in a conference call Tuesday that the aircraft maker’s pension unit has already moved cash into separately managed accounts in anticipation of the new rules.

Meanwhile, some people think the new rules don’t go far enough. According to USA Today, former Federal Deposit Insurance Corp. chair Sheila Bair said:

“I remain concerned, however, that this approach may be too limited to address the systemic risks posed by money market funds, and that the new gates and fees could exacerbate it,” Bair said in an e-mailed statement. “A better, and simpler, approach would be to apply a floating [net asset value] to all money funds just like other mutual funds which have operated well without systemic risk, or implicit support, since 1940.”

What do you think of the SEC’s tightened rules? Share your thoughts below or on our Facebook page.

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!

💰🗣📰

Read Next: How the Trump Tax Plan Will Affect You

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,833 more deals!