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New Details on Potential Capital Buffer for Money Market Funds

Bob Plaze, a senior SEC official in the Division of Investment Management, has provided additional details on the money market fund reform proposal under consideration by the SEC Commissioners.  As previously reported, the proposal contemplates two options: (1) forcing money market funds to float their NAV or (2) requiring a capital buffer along with imposing holdback restrictions on investor redemptions.  On Tuesday, Mr. Plaze explained that the size of the buffer being contemplated would be less than 1.00% of a fund's assets.  The buffer amount would vary depending on how "risky" the fund's assets are deemed.  For example, a fund investing in U.S. Treasury securities may have a lower required capital buffer than a fund investing in corporate debt.

The proposal is not yet public.  The SEC Commissioners have been given 30 days to review the draft proposal, although it is unclear whether SEC Chairman Mary Schapiro will then call for a vote.  Three of the five SEC Commissioners will need to vote for the proposal before it can be released for public comment.