REGULATORY DEVELOPMENTS
On February 4, the SEC published a request for public comment regarding potential reform measures for money market funds, as highlighted in a recent report of the President’s Working Group on Financial Markets (PWG). The PWG report discussed the results of the PWG’s study on the effect of the COVID-19 pandemic on the short-term funding markets and, in particular, on money market funds, including the general stress experienced by prime and tax-exempt money market funds. The report concluded that the events of March 2020 show that more work is needed to reduce the risk that structural vulnerabilities in prime and tax-exempt money market funds will exacerbate or lead to stresses in short-term funding markets. The potential reform measures as outlined in the PWG report seek to: (i) address money market funds’ structural vulnerabilities that can contribute to stress in short-term funding markets; (ii) improve the resilience of money market funds and broader short-term funding short-term markets; and (iii) reduce the likelihood that official sector interventions and taxpayer support will be needed to halt money market fund runs. Some of PWG’s proposed policy measures include money market fund liquidity management changes, removing the tie between liquidity and the thresholds at which liquidity fees and redemption gates may be implemented, reform of conditions for imposing redemption gates, capital buffer and swing pricing requirements, and new requirements governing sponsor support.