Under the new SEC rules for money market funds that were passed in July, funds have the power to impose liquidity fees on redemptions and temporarily suspend, or gate, redemptions under periods of stress. The gates can last for up to 10 days and exit fees can be up to 2% of redeemed balances. Funds have two years to implement the new regulations.
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| The threat of gating is enough to trigger a stampede early Fraser Lundie |
The new rules are targeted at the one third of the US money market industry that invests outside the government bond markets – a total of $890 billion in size.
The SEC also launched an investigation into alternative mutual funds in August, concerned about the growing popularity of liquid alternative funds, which have seen inflows of more than $17 billion so far this year.
Andrew Bowden, director of the SEC’s office of compliance inspections and examinations, raised concerns over the liquidity implications of these funds in March, stating: “The use of hard to value and/or illiquid securities in an open ended mutual fund, which requires daily valuation and offers daily liquidity, is fraught with risk.”
