SEC’s Final Temporary Rule Imposes New Reporting Requirements for Certain Money Market Funds

The Securities and Exchange Commission (“Commission” or “SEC”) is adopting an interim final temporary rule under the Investment Company Act of 1940 to require money market funds to report their portfolio holdings and valuation information to the Commission under certain circumstances.

The new reporting requirement is designed to provide information substantially similar to that submitted by certain money market funds under the Temporary Guarantee Program for Money Market Funds established by the Department of the Treasury (“Treasury Department”), which will expire on September 18, 2009.

The effective date of this final temporary rule is from September 18, 2009 through September 17, 2010.

By way of background, money market funds are open-end management investment companies that invest in short-term obligations and have a principal investment objective of maintaining a net asset value of $1.00 per share.

According to the SEC, since October 2008, most money market funds have participated in the Treasury Department’s Temporary Guarantee Program for Money Market Funds (“Guarantee Program”), which has guaranteed the $1.00 share value of accounts held by investors as of September 19, 2008 in participating money market funds.

The Guarantee Program, the SEC explained,  was established to help stabilize money market funds following a period of substantial redemptions that threatened the ability of some money market funds to maintain the $1.00 share value. The program will expire on September 18, 2009.

The SEC added that money market funds participating in the Guarantee Program have been required, in certain circumstances, to submit their portfolio schedules and related information each week to the Treasury Department and the Commission.

The SEC has found these reports very useful in monitoring money market funds, and believes that continuing to receive this information will further its mission to protect investors. When the program expires, however, money market funds will no longer be required to submit such portfolio information, and the SEC will not receive current information about money market fund holdings.

The SEC explained that Rule 30(b)1-6T requires money market funds to provide the Commission weekly portfolio and valuation information substantially similar to what money market funds participating in the Guarantee Program provided to the SEC and the Treasury Department under the program, if their market-based net asset value per share was below $.9975. Each money market fund that is required to report must provide a portfolio schedule as of the last business day of each week that includes, with respect to the fund: (A) the name of the money market fund; (B) the fund’s SEC file number; (C) the net asset value per share used to effect shareholder transactions; (D) the most recent market-based net asset value (including the value of any capital support agreement); (E) the most recent market-based net asset value (excluding the value of any capital support agreement); (F) the date as of which the most recent market-based net asset value was calculated; (G) the total assets of the fund; (H) the total net assets of the fund; and (I) the number of shares outstanding. The portfolio schedule also must include, with respect to each security held: (A) the name of the security; (B) CUSIP number (if any); (C) principal amount; (D) maturity date; (E) final maturity date, if different from the maturity date as determined under rule 2a-7; (F) categorization of the security’s status as a “First Tier Security,” “Second Tier Security” or a security that is no longer an “Eligible Security” under rule 2a-7; (G) the most recent market-based price (including the value of any capital support agreement), or appropriate substitute for such price, in which case the portfolio schedule or an exhibit to it must describe with reasonable specificity the appropriate substitute; (H) the most recent market-based price (excluding the value of any capital support agreement), or appropriate substitute for such price, in which case the portfolio schedule or an exhibit to it must describe with reasonable specificity the appropriate substitute; (I) the amortized cost value of the security; and (J) in the case of a tax-exempt security, whether there is a demand feature.

The SEC also stated that as was the case under the Guarantee Program, only a money market fund with market-based net asset value per share (“market-based NAV”) below $.9975 must report information under the rule.

Such a fund must notify the Commission by electronic mail and provide a portfolio schedule to the Commission promptly, but in no event later than the next business day. Subsequently, the fund must report its portfolio schedule as of the last business day of the week, and submit it no later than the second day of the following week, until the fund’s market-based NAV at the end of the week is $.9975 or greater.

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