Suspending Money Market Redemptions Is Now Legal; SEC Approves New Money Market Regulation In 4-1 Vote
Zero Hedge discussed a month ago the disastrous prospects of what would happen if the new proposal contemplated by the SEC, which would allow the suspension of redemptions from Money Market Funds, were to pass. Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC's just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Too bad investors' hardships considerations ended up being completely irrelevant.
As a reminder, here is the gist of the proposal as pertains to redemption suspension:
Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if: (i)
The fund’s current price per share, calculated pursuant to rule
2a–7(c), is less than the fund’s stable net asset value per share; (ii)
its board of directors, including a majority of directors who are not
interested persons, approves the liquidation of the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee. These proposed conditions are intended to ensure that any suspension of redemptions will be consistent with the underlying policies of section 22(e). We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares. Accordingly, our proposal is limited to permitting suspension of this statutory protection only in extraordinary circumstances. Thus,
the proposed conditions, which are similar to those of the temporary
rule, are designed to limit the availability of the rule to
circumstances that present a significant risk of a run on the fund. Moreover,
the exemption would require action of the fund board (including the
independent directors), which would be acting in its capacity as a
fiduciary. The proposed rule contains an additional provision that
would permit us to take steps to protect investors.
Specifically, the proposed rule would permit us to rescind or modify
the relief provided by the rule (and thus require the fund to resume
honoring redemptions) if, for example, a
liquidating fund has not devised, or is not properly executing, a plan
of liquidation that protects fund shareholders. Under this provision,
the Commission may modify the relief ‘‘after appropriate notice and
opportunity for hearing,’’ in accordance with section 40 of the Act.