DISCUSSION ACCOUNTING 2
Introductory Paragraph
Money market funds are mutual funds that invest in short-term debt securities such as
Treasury bills, commercial paper, and certificates of deposit (Ennis et al., 2023; Kordy et al.,
2020). They are designed to be low-risk, highly liquid investment options that provide stability
and a modest rate of return. The Securities and Exchange Commission (SEC) recently approved
new rules governing money market funds in an effort to enhance their resilience during periods
of market stress. These rules were implemented following the financial crisis of 2008, which
highlighted certain vulnerabilities in money market funds. The new rules require prime
institutional money market funds to value their assets using a floating net asset value (NAV)
instead of the traditional fixed $1 NAV (. This means that the value of a share in these funds may
fluctuate, reflecting changes in the market value of the underlying securities. In addition, the
rules allow money market funds to impose fees and gates during times of market stress.
Fees can be imposed on shareholders who redeem their shares, typically up to 2% of the
redemption amount. Gates enable money market funds to temporarily suspend redemptions,
preventing a run on the fund during times of significant market turmoil. Furthermore, the rules
require enhanced reporting and disclosure requirements, increased diversification of fund
investments, and stricter stress testing by fund managers. These measures aim to improve the
overall stability of money market funds and prevent disruptions in the broader financial system.
The implementation of these rules seeks to address concerns raised during the financial crisis,
where one prominent money market fund "broke the buck" by deviating from the fixed $1 NAV
(Ennis et al., 2023). This event triggered a run on several other money market funds, leading to
widespread investor panic and significant strain on the financial system. By implementing the
DISCUSSION ACCOUNTING 3
new rules, the SEC intends to strengthen the stability and resilience of money market funds,
reducing the risk of systemic disruptions and protecting investors (Cipriani and La Spada, 2021).
Kovner and Van Tassel, P. (2022) analyzed the impact of regulatory reforms on banks’ cost of
capital and lending whereas Platt (2022) explored the connection between investor disclosure
and corporate governance. However, Stadulis (2018) investigated the regulation of rsearch
reports related to mutual funds and ETFs. Although their works pertain to the financial services
industry, their specific focuses, research questions and findings differed.
DISCUSSION ACCOUNTING 4
References
Cipriani, M., & La Spada, G. (2021). Investors’ appetite for money-like assets: The MMF
industry after the 2014 regulatory reform. Journal of Financial Economics, 140(1), 250-
269. https://doi.org/10.1016/j.jfineco.2020.11.005
Ennis, H. M., Lacker, J. M., & Weinberg, J. A. (2023). Money market fund reform: Dealing with
the fundamental problem. Journal of Risk and Financial Management, 16(1), 42.
https://doi.org/10.3390/jrfm16010042
Kordy, K., Bassiouny, A., & Tooma, E. (2020). Valuation discrepancies in money market funds
during market disruptions: Evidence from egypt. Investment Management & Financial
Innovations, 17(3), 97-110. https://doi.org/10.21511/imfi.17(3).2020.08
Kovner, A., & Van Tassel, P. (2022). Evaluating regulatory reform: Banks' cost of capital and
lending. Journal of Money, Credit and Banking, 54(5), 1313-1367.
https://doi.org/10.1111/jmcb.12875
DISCUSSION ACCOUNTING 5
Platt, A. I. (2022). Beyond "market transparency": Investor disclosure and corporate governance.
Stanford Law Review, 74(6), 1393-1477.
Stadulis, L. P. (2018). The regulation of mutual fund and exchange traded fund research reports
under the SEC's proposed FAIR act implementation rules. The Investment Lawyer, 25(8),
7-18.
White, M. J. (2019). How the SEC's current priorities are shaping its regulatory and enforcement
agenda. The RMA Journal, 102(4), 48.
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