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Fighting Fund Runs
Money Market Funds and the New SEC Regulation
On October 14, 2016, amendments to Securities and Exchange Commission (SEC) rule 2a-7, which governs money market mutual funds (MMFs), went into effect. The changes are designed to reduce MMFs? susceptibility to destabilizing runs and contain two principal requirements. First, institutional prime and muni funds?but not retail or government funds?must now compute their net asset values (NAVs) using market-based factors, thereby abandoning the fixed NAV that had been a hallmark of the MMF industry. Second, all prime and muni funds must adopt a system of gates and fees on redemptions, which can ...