The U.S. Securities and Exchange Commission (SEC or Commission) on June 5, 2013 proposed for public comment sweeping amendments to Rule 2a-7 under the Investment Company Act of 1940 and other rules relating to money market funds (money funds). The Proposal included two key alternatives – (i) requiring “institutional” prime money funds to operate with a floating net asset value (NAV), rounded to the fourth decimal place (e.g., $1.0000) (Alternative 1) or (ii) requiring money funds (other than government money funds) to impose a 2% liquidity fee during times of stress and allowing them temporarily to suspend redemptions using “redemption gates” during such times (Alternative 2). At the meeting approving the Proposal for public comment, several Commissioners raised the possibility of combining the two Alternatives into a single proposal and the SEC asked for public comment on that approach in the Proposal.

In addition to the Alternatives, the SEC recommended reforms that would be adopted under either Alternative, including more stringent disclosure, diversification and stress testing requirements. The SEC also recommended amendments to Form PF to require investment advisers to private liquidity funds, which generally operate in a manner similar to registered money funds, to disclose the funds’ portfolio holdings and certain other information. Finally, the SEC proposed a number of amendments to clarify certain provisions of Rule 2a-7.