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Institutional Prime Money Market Funds Move to Floating NAV

With a 3-2 vote, the U.S. Securities and Exchange Commission (“SEC”) yesterday adopted a final rule to restrict investors’ risk on money market funds. Voted at an open meeting, the rule requires institutional prime money market funds to shift from a $1 per share net asset value (NAV) to a floating NAV. The floating NAV will apply only to institutional prime money market funds, but the rule also contains discretionary liquidity fees and gates for non-government funds.

Also at yesterday’s meeting, the SEC voted to re-propose amendments that would take out credit ratings references from Rule 2a-7, as required by the Dodd-Frank Act. Per the re-proposal, a money market fund would be restricted to investing in securities that the fund’s board of directors considers as a “minimal credit risk”. Further, the SEC will propose exemptive relief that grants an exemption from Exchange Act Rule 10b-10’s confirmation requirements for money market funds, as well as those with a floating NAV, as long as certain conditions are met.

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