Archive for Proposed Regulations

SEC Proposes Amendments to Form PF for Private Equity Advisers (Abstract)

One June 5, 2013, the SEC proposed amendments impacting money market funds and money market type funds.  This is Part IV of a Four-Part Blog on the 671-page proposal delineated in the following compliance areas: (ia) changes the net asset value per share (“NAV”) from fixed-rate to floating-rate for certain money market funds; (ib) authorizes money market funds to suspend redemptions or impose liquidity fees during heavy redemption periods. These proposed rule changes are “designed to address money market funds’ susceptibility to heavy redemptions, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, the benefits of money market funds.”  Under this proposal, the SEC continued that they could adopt either alternative by itself or a combination of the two alternatives.;” (ii) additional disclosures, including new Form N-CR and Form N-MFP; (iii) portfolio diversification and stress testing of money market funds holdings; (iv) additional disclosure on Form PF of money market type funds held by private equity firms.

The SEC proposed to amend the Form PF section where private equity advisers report information regarding the private funds.  Specifically, “liquidity funds,” which are private funds that seek to maintain a stable NAV (or minimize fluctuations in their NAVs) and thus can resemble money market funds.  For purposes of Form PF, a “liquidity fund” is any private fund that seeks to generate income by investing in a portfolio of short term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors.

Large liquidity fund advisers, which are registered advisers with $1 billion or more in combined money market fund and liquidity fund assets, would file substantially the same information with respect to their liquidity funds’ portfolio holdings on Form PF as money market funds are required to file on Form N-MFP.  In addition, provide information about any securities sold by their liquidity funds during the reporting period, including sale and purchase prices.  Finally, large liquidity fund advisers would identify any money market fund advised by the adviser or its related persons that pursues substantially the same investment objective and strategy and invests side by side in substantially the same positions as a liquidity fund the adviser reports on Form PF.

Also, it was proposed to remove current Questions 56 and 57 on Form PF because these questions generally require large liquidity fund advisers to provide information about their liquidity funds’ portfolio holdings broken out by asset class (rather than security by security).  And regulators would be able to derive the information currently reported in response to those questions from the new portfolio holdings information advisers would provide.

 

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SEC Proposes Amendments to Form PF for Private Equity Advisers

One June 5, 2013, the SEC proposed amendments impacting money market funds and money market type funds.  This is Part IV of a Four-Part Blog on the 671-page proposal delineated in the following compliance areas: (ia) changes the net asset value per share (“NAV”) from fixed-rate to floating-rate for certain money market funds; (ib) authorizes money market funds to suspend redemptions or impose liquidity fees during heavy redemption periods. These proposed rule changes are “designed to address money market funds’ susceptibility to heavy redemptions, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, the benefits of money market funds.”  Under this proposal, the SEC continued that they could adopt either alternative by itself or a combination of the two alternatives.;” (ii) additional disclosures, including new Form N-CR and Form N-MFP; (iii) portfolio diversification and stress testing of money market funds holdings; (iv) additional disclosure on Form PF of money market type funds held by private equity firms.

The SEC proposed to amend the Form PF section where private equity advisers report information regarding the private funds.  Specifically, “liquidity funds,” which are private funds that seek to maintain a stable NAV (or minimize fluctuations in their NAVs) and thus can resemble money market funds.  For purposes of Form PF, a “liquidity fund” is any private fund that seeks to generate income by investing in a portfolio of short term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors.

Large liquidity fund advisers, which are registered advisers with $1 billion or more in combined money market fund and liquidity fund assets, would file substantially the same information with respect to their liquidity funds’ portfolio holdings on Form PF as money market funds are required to file on Form N-MFP.  In addition, provide information about any securities sold by their liquidity funds during the reporting period, including sale and purchase prices.  Finally, large liquidity fund advisers would identify any money market fund advised by the adviser or its related persons that pursues substantially the same investment objective and strategy and invests side by side in substantially the same positions as a liquidity fund the adviser reports on Form PF.

Also, it was proposed to remove current Questions 56 and 57 on Form PF because these questions generally require large liquidity fund advisers to provide information about their liquidity funds’ portfolio holdings broken out by asset class (rather than security by security).  And regulators would be able to derive the information currently reported in response to those questions from the new portfolio holdings information advisers would provide.

The SEC stated that the proposed Form PF changes are designed to achieve two primary goals.  First, they are designed to ensure to the extent possible that any further money market fund reforms do not decrease transparency in the short-term financing markets, and to better enable FSOC to monitor and address any related systemic risks and to better enable us to develop effective regulatory policy responses to any shift in investor assets.  Second, the proposed amendments to Form PF are designed to allow FSOC and us to more effectively administer our regulatory programs even if investors do not shift their assets as a result of any further money market fund reforms, as the increased transparency concerning liquidity funds, combined with information we already collect on Form N-MFP, will provide a more complete picture of the short-term financing markets in which liquidity funds and money market funds both invest.

Finally, it was reiterated what was discussed in the Form PF Adopting Release, that the SEC does not intend to make public Form PF information identifiable to any particular adviser or private fund, the Dodd-Frank Act amended the Advisers Act to preclude them from being compelled to reveal this information except in very limited circumstances.

 

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SEC Proposes Amendments to Money Market Fund Rules: Portfolio Diversification and Stress Testing (Abstract)

One June 5, 2013, the SEC proposed amendments impacting money market funds and money market type funds.  This is Part III of a Four-Part Blog on the 671-page proposal delineated in the following compliance areas: (ia) changes the net asset value per share (“NAV”) from fixed-rate to floating-rate for certain money market funds; (ib) authorizes money market funds to suspend redemptions or impose liquidity fees during heavy redemption periods.  These proposed rule changes are “designed to address money market funds’ susceptibility to heavy redemptions, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, the benefits of money market funds.”  Under this proposal, the SEC continued that they could adopt either alternative by itself or a combination of the two alternatives.;” (ii) additional disclosures, including new Form N-CR and Form N-MFP; (iii) portfolio diversification and stress testing of money market funds holdings; (iv) additional disclosure on Form PF of money market type funds held by private equity firms.

The current rule 2a-7 requires a money market fund’s portfolio to be diversified, both as to the issuers of the securities it acquires and providers of guarantees and demand features related to those securities.  Money market funds must limit their investments in the securities of any one issuer of a first tier security (other than government securities) to no more than 5% of fund assets.  They must also limit their investments in securities subject to a demand feature or a guarantee to no more than 10% of fund assets from any one provider, except that the rule provides a so-called “twenty-five percent basket,” under which as much as 25% of the value of securities held in a fund’s portfolio may be subject to guarantees or demand features from a single institution.

However, the SEC’s concern that the diversification requirements in rule 2a-7 today may not appropriately limit money market fund risk exposures has resulted in these proposed amendments to rule 2a-7.

 

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