Disposition&ssbinary=true&blobheadervalue1=inline;filename=FS-PMM-
P.PDF (showing the fund's WAL over the previous year).
---------------------------------------------------------------------------

    Twenty-one commenters supported adding a WAL limit to the
rule.\159\ One large money market fund manager, for example, described
the WAL as ``a very prudent addition to the rule that, combined with
the minimum liquidity requirements * * * represents an important and
substantive risk reduction in the permissible construction of a money
fund portfolio.'' \160\ Another acknowledged that ``the risk that such
a security will begin to deviate significantly from its Amortized Cost
increases with its maturity,'' and agreed that ``the new 120-day WAL
limit should control this risk.''\161\
---------------------------------------------------------------------------

    \159\ See, e.g., Bankers Trust Comment Letter; Goldman Sachs
Comment Letter; Northern Funds Trustees Comment Letter.
    \160\ See BlackRock Comment Letter.
    \161\ See Federated Comment Letter.
---------------------------------------------------------------------------

    Two commenters generally opposed a WAL limitation.\162\ One urged
us to consider, instead, revising the maturity-shortening provisions of
rule 2a-7 to require money market funds to measure the maturity of
adjustable-rate securities by reference to their final legal maturity
date rather than the date at which the interest rate resets.\163\ Such
a change

would dramatically reduce the ability of money market funds to invest
in floating rate securities, and as we discuss below, such a reduction
may be unnecessary.\164\ Another commenter asserted that the WAL
limitation was unnecessarily restrictive of prime retail funds and
disagreed with our assessment of the spread risk posed by floating-rate
Government securities.\165\ The commenter, however, offered no
explanation of why the exposure to spread risk would have less harmful
consequences for a prime retail fund than for other types of funds and
thus be of less concern.
---------------------------------------------------------------------------

    \162\ See Thrivent Comment Letter; USAA Comment Letter.
    \163\ See USAA Comment Letter. Amended rule 2a-7(d) allows money
market funds to shorten the maturity of an adjustable-rate portfolio
security for purposes of the WAM limitation by referring to the
security's interest rate reset date, rather than the final legal
maturity of the security, if the security has a final maturity of
397 days or less (for corporate securities) or an interest rate that
adjusts no less frequently than every 397 days for Government
securities.
    \164\ This comment also implies that rule 2a-7 should only have
a WAL limitation (and not a separate WAM limitation). We believe
that the WAM and WAL limitations address different risks (with the
WAM primarily aimed at limiting interest rate risk and the WAL
primarily aimed at limiting spread risk) and thus believe having
both limitations in rule 2a-7 protects money market funds and their
investors.
    \165\ See Thrivent Comment Letter.
---------------------------------------------------------------------------

    Most commenters supported the proposed WAL limit of 120 days,\166\
which the ICI comment letter described as ``flexible enough even during
`normal' market conditions to not unduly restrict a fund's ability to
offer a diversified portfolio of short-term, high quality debt
securities.''\167\ Four commenters supported a WAL with a longer term,
with two of these commenters suggesting a longer WAL for government
money market funds than for other money market funds.\168\ One of these
commenters argued that the spread risk associated with Government
floating-rate securities is different from the spread risk associated
with non-Government securities.\169\ Another commenter only supported a
WAL limitation applicable to Government securities with maturities of
more than two years, arguing that applying a 120-day WAL to all
adjustable-rate Government securities would disrupt the short-term debt
markets and hinder the ability of Government security issuers to meet
internal funding needs.\170\
---------------------------------------------------------------------------

    \166\ See, e.g., BlackRock Comment Letter; Invesco Aim Comment
Letter; Comment Letter of Ridge Worth Capital Management, Inc.
(``RidgeWorth Comment Letter'').
    \167\ ICI Comment Letter.
    \168\ See Fidelity Comment Letter (supporting a 150-day WAL for
government money market funds and a 120-day WAL for all other money
market funds); Victory Cap. Mgt. Comment Letter (supporting a 150-
day WAL); C. Wesselkamper Comment Letter (supporting a 180-day WAL
for government money market funds and a 150-day WAL for all other
money market funds); Wells Fargo Comment Letter (supporting a 180-
day WAL).
    \169\ See Fidelity Comment Letter.
    \170\ See Comment Letter of Fannie Mae (Sept. 3, 2009) (``Fannie
Mae Comment Letter''). One commenter also argued that a 120-day WAL
would limit Government security issuers' ability to meet their
funding needs. See Fidelity Comment Letter.
---------------------------------------------------------------------------

    On balance, we conclude that 120 days is an appropriate length of
time for the WAL limitation. A WAL limitation of, for example, 90 days
appears to be unnecessarily restrictive to money market funds because
it could significantly constrain the range of high-quality, short-term
debt securities in which money market funds may invest, particularly
when combined with our new minimum liquidity requirements.\171\ Such a
short WAL limitation also may provide spread risk protection beyond
what is reasonably necessary to enhance the stability of money market
funds. For a money market fund to break the buck while maintaining a
WAL of 90 days, average spreads on all securities in the fund's
portfolio would have to widen beyond 200 basis points.\172\ Other
securities held by money market funds may not simultaneously face such
spread widening even if the commercial paper market is under
stress.\173\ Accordingly, protection across an entire money market fund
portfolio against spread widening of the magnitude experienced in the
commercial paper market during the fall of 2008 may be unnecessary.
---------------------------------------------------------------------------

    \171\ One commenter stated that the Commission should not impose
a WAL shorter than 120 days, asserting that a shorter limitation
would be unnecessarily restrictive and limit a fund's ability to
maintain a diversified portfolio of high quality short-term debt
securities. See Charles Schwab Comment Letter. No commenters
supported a shorter WAL than 120 days.
    \172\ This assumes that there are no other simultaneous shocks
to the fund's portfolio from redemption pressures or otherwise. In
order to evaluate commenters' discussion about the appropriate
length of time for a WAL limitation in the context of the shocks a
money market fund might face, we again referred to stress test
scenarios.
    \173\ Such spread widening even in commercial paper has been
rare and commercial paper typically only comprises a portion of
money market funds' portfolios. Spreads between 3-month commercial
paper and the 3-month Treasury bill widened to approximately 300
basis points at the height of the financial crisis in the fall of
2008 and widened similarly in the mid-1970s, but otherwise have
rarely widened by 200 basis points in the last 50 years. This
analysis is based on commercial paper spread data contained in
Bradley T. Ewing, Gerald J. Lynch & James E. Payne, Monetary
Volatility and the Paper-Bill Spread, in Progress in Economics
Research (2006), at p. 58, supplemented with data from Bloomberg on
spreads between yields of 3-month commercial paper and the 3-month
Treasury bill.
---------------------------------------------------------------------------

    On the other hand, we are not convinced that a WAL significantly
longer than 120 days would be appropriate for a money market fund that
is seeking to maintain a stable net asset value. For example, with a
150-day WAL, a money market fund would break the buck with a spread
widening of just over 120 basis points (assuming no other simultaneous
stresses on the fund's portfolio).\174\ Historically, commercial paper
spreads, for example, have widened to that extent fairly
frequently.\175\ Given this limited resilience to spread widening, and
given that a money market fund would break the buck even earlier if any
other shocks to the fund's portfolio occurred simultaneously, we have
determined not to adopt a longer WAL, such as a 150- or 180-day WAL. We
note that the European Union's Committee of European Securities
Regulators has also recently proposed requiring that short-term money
market funds adhere to a maximum 120-day WAL.\176\
---------------------------------------------------------------------------

    \174\ This is based on our staff's analysis of stress test
scenarios.
    \175\ See Ewing et al., supra note 173, at 58.
    \176\ See Committee of European Securities Regulators
Consultation Paper, A Common Definition of European Money Market
Funds, CESR/09-850 (Oct. 20, 2009), available at http://www.cesr.eu/
index.php?page=consultation_details&id=151. In addition, Europe's
Institutional Money Market Fund Association (IMMFA) recently has
adopted changes to its code of conduct that will require IMMFA money
market funds to adhere to a maximum 120-day WAL. See IMMFA Code of
Practice, at Section 40, available at http://www.immfa.org/About/
Codefinal.pdf.
     We also note that the rating agencies have taken varied
approaches to limiting the WAL of rated money market funds. Fitch
has adopted revised ratings requirements limiting top-rated money
market funds to a WAL of 120 days, but allowing longer WALs for
lesser rated money market funds. See Fitch Ratings, Global Money
Market Fund Rating Criteria (Oct. 5, 2009), available at http://
www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_
id=470368. Standard & Poor's has proposed more restrictive
requirements that would limit top-rated money market funds to a WAL
of 90 days, subject to upward adjustment to no more than 120 days
depending on the extent of Government securities in the money market
fund's portfolio. See Standard & Poor's, Principal Stability Fund
Rating Criteria (Jan. 5, 2010), available at http://
www2.standardandpoors.com/spf/pdf/events/FITcon11410RFC.pdf.
---------------------------------------------------------------------------

    Finally, we are not providing for a longer WAL for money market
funds that primarily invest in Government securities. While some
commenters asserted that adjustable-rate Government securities have a
more benign credit risk profile,\177\ they are still exposed to
widening interest rate spreads to the same extent as non-Government
securities and, as we noted in the Proposing Release, spreads on
certain adjustable-rate Government securities did widen during the fall
of

2008.\178\ In addition, many prime money market funds also hold a
sizeable portion of Government securities (and may hold even more
Government securities after the adoption of rule 2a-7's new liquidity
requirements). Given this fact, allowing government money market funds
to have a longer WAL solely because they hold more Government
securities than prime funds do, does not appear to us to be an approach
that treats the risks attendant to longer term, adjustable-rate
Government securities equally, and thus appears inappropriate.
---------------------------------------------------------------------------

    \177\ See, e.g., Fidelity Comment Letter. But see BlackRock
Comment Letter (recent events have shown that spread relationships
can be variable for agency securities); Wells Fargo Comment Letter
(credit spreads on Government securities widened to a significant
degree in 2008).
    \178\ See Proposing Release, supra note 2, at Section II.B.2. We
understand that many floating-rate securities issued by Federal
agencies and outstanding during the financial crisis had rates tied
to LIBOR. As noted in the Proposing Release, the ``TED'' spread (the
difference between the U.S. Treasury Bill rate and LIBOR) reached a
high of 463 basis points on October 10, 2008. See id., at n.67. We
understand that most adjustable-rate Government securities held by
money market funds had a final maturity of two years or less and
thus limiting the WAL limitation to adjustable-rate Government
securities with final maturities greater than two years would not
address these securities' spread risk.
---------------------------------------------------------------------------

3. Maturity Limit for Government Securities
    The Commission is deleting a provision of rule 2a-7 that has
permitted a fund that relied exclusively on the penny-rounding method
of pricing to acquire Government securities with remaining maturities
of up to 762 days, rather than the 397-day limit otherwise provided by
the rule.\179\ As we noted in the Proposing Release,\180\ we are
unaware of any money market fund that currently relies solely on the
penny-rounding method of pricing, and none that holds fixed-rate
Government securities with remaining maturities of two years, which
would involve the assumption of a substantial amount of interest rate
risk. We received one comment on this topic, which supported the
change.\181\ Accordingly, we are adopting this change as proposed.\182\
---------------------------------------------------------------------------

    \179\ See current rule 2a-7(c)(2)(ii). In a conforming change,
we also are amending as proposed the maturity-shortening provision
of the rule for variable-rate Government securities to require that
the variable rate of interest is readjusted no less frequently than
every 397 days, instead of 762 days as the rule has permitted. See
amended rule 2a-7(d)(1).
    \180\ See Proposing Release, supra note 2, at Section II.B.3.
    \181\ See BlackRock Comment Letter.
    \182\ We also requested comment in the Proposing Release on
whether we should impose a limitation on the maximum final legal
maturity of adjustable-rate Government securities that money market
funds are permitted to acquire. We received only two comments on
this proposal. One commenter encouraged us to constrain any
limitation on adjustable-rate Government securities with a final
legal maturity in excess of two years. See Fannie Mae Comment
Letter. Another asserted that the WAL limitation provided a
sufficient limitation on the risks posed by long-term adjustable-
rate Government securities. See Federated Comment Letter. We are
aware that WAL creates some limitation of this risk, but that even
with a 120-day WAL limitation, a fund would still have some ability
to acquire longer term adjustable-rate Government securities. No
commenters provided us with any data on the extent of adjustable-
rate Government securities outstanding from time to time. Two
commenters indicated that these securities experienced variable
spreads during the financial crisis. See BlackRock Comment Letter;
Wells Fargo Comment Letter. In the future, we may reconsider whether
to limit the maximum maturity of adjustable-rate Government
securities that can be held by money market funds after obtaining
additional data.
---------------------------------------------------------------------------

C. Portfolio Liquidity

    We are amending rule 2a-7 to require that money market funds
maintain a sufficient degree of liquidity necessary to meet reasonably
foreseeable redemption requests and reduce the likelihood that a fund
will have to meet redemptions by selling portfolio securities into a
declining market. As discussed in the Proposing Release, money market
funds generally have a higher and less predictable volume of
redemptions than other open-end investment companies.\183\ Their
ability to maintain a stable net asset value will depend, in part, on
their ability to convert portfolio holdings to cash to pay redeeming
shareholders without having to sell them at a loss. The liquidity of
fund portfolios became a critical factor in permitting them to absorb
very heavy redemption demands in the fall of 2008 when the secondary
markets for many short-term securities seized up.
---------------------------------------------------------------------------

    \183\ See Proposing Release, supra note 2, at n.172 and
accompanying text.
---------------------------------------------------------------------------

    Commenters generally agreed with our analysis of the liquidity
needs of money market funds. They emphasized the importance of
liquidity for money market funds and their ability to meet shareholder
redemptions.\184\ Several also acknowledged the need to place outside
limits on the risks money market funds may take.\185\ Most commenters
supported amending the rule to impose more robust liquidity
requirements, but many disagreed with our specific proposals.\186\ Some
asserted that the proposed requirements might negatively affect funds'
ability to manage their portfolios, place excessive burdens on the
board of directors, and affect the markets of some portfolio
securities.\187\ Others argued that the proposals are not sufficient to
meet money market funds' liquidity concerns.\188\
---------------------------------------------------------------------------

    \184\ See, e.g., Comment Letter of the Securities Industry and
Financial Markets Association (Sept. 8, 2009) (``SIFMA Comment
Letter''); State Street Comment Letter.
    \185\ See, e.g., Federated Comment Letter; Comment Letter of the
Independent Directors Council (Sept. 8, 2009) (``IDC Comment
Letter'').
    \186\ See, e.g., State Street Comment Letter (opposing a general
liquidity standard and different minimum liquidity thresholds for
retail and institutional funds); Invesco Aim Comment Letter (same).
    \187\ See, e.g., Fidelity Comment Letter; ICI Comment Letter;
Shadow FRC Comment Letter.
    \188\ See, e.g., Fund Democracy/CFA Comment Letter (requesting
that the Commission mandate private liquidity insurance for money
market funds); HighMark Capital Comment Letter (suggesting a private
liquidity bank or that Treasury continue to provide emergency
liquidity as possible solutions to address liquidity concerns);
Vanguard Comment Letter (asserting that the proposed rule does not
address liquidity risk arising from factors other than size of
accounts, such as geographical concentration of the shareholders);
Waddell & Reed Comment Letter (recommending some type of permanent
backstop be available to money market funds); Wells Fargo Comment
Letter (suggesting the Federal Reserve set up a secured lending
facility to serve as a lender of last resort).
---------------------------------------------------------------------------

    After reviewing the comments, and based on our analysis of
redemption activity during the 2008 run on money market funds, we are
amending rule 2a-7 to add three new provisions, substantially as
proposed, which address different aspects of portfolio liquidity.\189\
Together, we believe they will result in money market funds that are
better able to absorb large amounts of redemptions.
---------------------------------------------------------------------------

    \189\ See Proposing Release, supra note 2, at Section II.C.1-2.
---------------------------------------------------------------------------

1. General Liquidity Requirement
    We are amending rule 2a-7, as proposed, to require that each money
market fund hold securities that are sufficiently liquid to meet
reasonably foreseeable shareholder redemptions in light of its
obligations under section 22(e) of the Act and any commitments the fund
has made to shareholders (the ``general liquidity requirement'').\190\
Depending upon the volatility of its cash flows (particularly
shareholder redemptions), this new provision may require a fund to
maintain greater liquidity than would be required by the daily and
weekly minimum liquidity requirements set forth in the rule and
discussed below.
---------------------------------------------------------------------------

    \190\ Amended rule 2a-7(c)(5).
---------------------------------------------------------------------------

    Most commenters who addressed this proposal supported the addition
of a general liquidity requirement.\191\ They agreed that funds should
be required to assess appropriate levels of liquidity above the
minimums set forth in the rule.\192\ Some commenters, however,
expressed concerns that the proposed requirement was too vague,\193\ or
was

unnecessary in light of the minimum daily and weekly liquidity
requirements.\194\ We disagree. Funds will have different liquidity
needs that we cannot sufficiently anticipate and codify in a rule
beyond the minimums we are adopting today.\195\ Therefore, we believe
it is incumbent upon the management of each fund and its board of
directors to evaluate the fund's liquidity needs and to protect the
fund and its shareholders from the harm that can occur from failure to
properly anticipate and provide for those needs.
---------------------------------------------------------------------------

    \191\ See, e.g., ICI Comment Letter; Northern Funds Indep.
Trustees Comment Letter; Tamarack Funds Comment Letter.
    \192\ See, e.g., Federated Comment Letter; ICI Comment Letter.
    \193\ See, e.g., Charles Schwab Comment Letter; Dreyfus Comment
Letter. We note, however, that similar general requirements in rule
2a-7 have not hampered fund managers. See, e.g., current rule 2a-
7(c)(2) (requiring a money market fund to maintain a dollar-weighted
average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per share or price per share).
Thus, we do not share commenters' concerns that the general
liquidity standard could expose a money market fund to liability
based on hindsight review of the fund's subjective determinations
and market events.
    \194\ See, e.g., TDAM Comment Letter. Another commenter asserted
that money market funds are already subject to this requirement
under section 22(e) of the Act. See State Street Comment Letter. The
general liquidity requirement, together with rule 2a-7's specific
obligations related to illiquid securities and daily and weekly
liquid assets, identifies the liquidity obligations that are
specific to money market funds.
    \195\ For example, suggestions that we require each fund to
maintain sufficient liquidity to meet redemptions by the largest
shareholders seem inadequate because they assume that only those
shareholders will redeem. See Stradley Ronon Comment Letter; SIFMA
Comment Letter.
---------------------------------------------------------------------------

    To comply with this general liquidity requirement, we would expect
money market fund managers to consider factors that could affect the
fund's liquidity needs, including characteristics of a money market
fund's investors and their likely redemptions.\196\ For example, some
shareholders may have regularly recurring liquidity needs, such as to
meet monthly or more frequent payroll requirements. Others may have
liquidity needs that are associated with particular annual events, such
as holidays or tax payment deadlines. A fund also would need to
consider the extent to which it may require greater liquidity at
certain times when investors' liquidity needs may coincide. In
addition, a volatile or more concentrated shareholder base would
require a fund to maintain greater liquidity than a stable shareholder
base consisting of thousands of retail investors.\197\
---------------------------------------------------------------------------

    \196\ See Proposing Release, supra note 2, at text following
n.205.
    \197\ See Thrivent Comment Letter (suggesting that we approach
portfolio liquidity on the basis of concentration among a fund's
shareholders). In determining the amount of liquidity available to
meet the requirements of rule 2a-7, funds should not consider the
fund's ability to access overdraft protection, lines of credit, and
inter-fund borrowing arrangements. See Federated Comment Letter
(suggesting that we adopt the opposite approach). A fund that
borrowed to satisfy redemptions would leverage its holdings, thus
amplifying the risk of shareholder losses if the fund eventually
broke the buck.
---------------------------------------------------------------------------

    Thus, to comply with rule 2a-7, as amended, money market funds
should adopt policies and procedures designed to assure that
appropriate efforts are undertaken to identify risk characteristics of
shareholders.\198\ In other words, fund boards should make sure that
the adviser is monitoring and planning for ``hot money.'' In their
consideration of these procedures and in the oversight of their
implementation, fund boards should appreciate that, in some cases, fund
managers' interests in attracting additional fund assets may be in
conflict with their overall duty to manage the fund in a manner
consistent with maintaining a stable net asset value.\199\ We urge
directors to consider the need for establishing guidelines that address
this conflict.
---------------------------------------------------------------------------

    \198\ Upon adoption of these amendments, such policies and
procedures are, we believe, required under rule 38a-1 under the
Investment Company Act (the ``compliance rule''). Although two
commenters suggested that the requirement to adopt the policies and
procedures should be incorporated in rule 2a-7, we do not see a
reason to duplicate the requirements for policies and procedures
encompassed in the compliance rule. See Dreyfus Comment Letter;
Comment Letter of Fifth Third Asset Management, Inc. (Sept. 8, 2009)
(``Fifth Third Comment Letter''). One commenter recommended that
``know your customer'' policies apply only to shareholders whose
redemptions (in their entirety) would have a material impact on the
fund's ability to satisfy redemptions. Stradley Ronon Comment
Letter. See also SIFMA Comment Letter. Another commenter argued that
the relevant shareholder characteristics should be limited to
clearly defined parameters such as historical net flows. See
RidgeWorth Comment Letter. We are not identifying specific
characteristics that should be addressed in a fund's policies and
procedures because we believe that money market funds are in a
better position to do so. For example, concurrent redemptions of
several shareholders may have a material effect on a fund's ability
to satisfy redemptions even if the shareholders' individual
redemptions alone would not have such an effect. Nor are we setting
limits as to the scope of the policies and procedures because
different money market funds may have different needs in this
regard.
    \199\ See Proposing Release, supra note 2, at n.180 and
accompanying text.
---------------------------------------------------------------------------

    As some commenters noted, identification of these risks may be more
challenging when share ownership is less transparent because the shares
are held in omnibus accounts.\200\ Funds may seek access to information
about the investors who hold their interests through omnibus accounts
in addition to considering information about the omnibus accounts,
including their aggregate historical redemption patterns and the
account recordholder's ability to redeem the entire account.\201\
---------------------------------------------------------------------------

    \200\ See, e.g., Comment Letter of the Coalition of Mutual Fund
Investors (Sept. 10, 2009) (``CMFI Comment Letter''); HighMark
Capital Comment Letter.
    \201\ Some commenters argued that we should require greater
transparency of investments held through financial intermediaries to
allow funds to better monitor client profiles. See, e.g., BlackRock
Comment Letter; CMFI Comment Letter. Funds may seek to access this
information in contractual arrangements with their financial
intermediaries.
---------------------------------------------------------------------------

2. Limitation on Acquisition of Illiquid Securities
    We are amending rule 2a-7 to further limit a money market fund's
investments in illiquid securities (i.e., securities that cannot be
sold or disposed of in the ordinary course of business within seven
days at approximately the value ascribed to them by the money market
fund).\202\ Under the amended rule, a money market fund cannot acquire
illiquid securities if, immediately after the acquisition, the fund
would have invested more than five percent of its total assets in
illiquid securities.\203\
---------------------------------------------------------------------------

    \202\ We have construed section 22(e) of the Investment Company
Act, which requires registered investment companies to satisfy
redemption requests within seven days, to restrict a money market
fund from investing more than 10% of its assets in illiquid
securities. See 1983 Adopting Release, supra note 6, at nn.37-38 and
accompanying text; Acquisition and Valuation of Certain Portfolio
Instruments by Registered Investment Companies (Mar. 12, 1986) [51
FR 9773 (Mar. 21, 1986)], at n.21 and accompanying text; Proposing
Release, supra note 2, at n.171 and accompanying text.
    \203\ Amended rule 2a-7(c)(5)(i).
---------------------------------------------------------------------------

    In light of the risk that liquid assets would become illiquid
thereby impairing the ability of a money market fund to meet redemption
demands, we proposed to prohibit funds from acquiring securities that
were, at the time of their acquisition, already illiquid. Many fund
commenters objected, arguing such a limitation could preclude them from
investing in certain high quality illiquid securities in which money
market funds have historically invested,\204\ make it more difficult
for tax-exempt funds to construct a well-diversified, high quality
portfolio,\205\ and prevent funds from investing in new types of
securities that are illiquid until a market for them has been
established.\206\ Others asserted that a ban may be unnecessary in
light

of the new daily and weekly liquidity standards.\207\
---------------------------------------------------------------------------

    \204\ These include, among other securities, term repurchase
agreements, some time deposits, and insurance company funding
agreements. See, e.g., Am. Bankers Assoc. Comment Letter; Comment
Letter of New York Life Investments (Sept. 14, 2009); Comment Letter
of Promontory Interfinancial Network, LLC (Sept. 8, 2009); Wells
Fargo Comment Letter.
    \205\ See Stradley Ronon Comment Letter; Wells Fargo Comment
Letter.
    \206\ See, e.g., Deutsche Comment Letter; Stradley Ronon Comment
Letter; USAA Comment Letter.
    \207\ See, e.g., Charles Schwab Comment Letter; TDAM Comment
Letter.
---------------------------------------------------------------------------

    These comments persuaded us that prohibiting funds from acquiring
any illiquid securities may have undesirable consequences for money
market funds. Instead, we are further limiting the circumstances under
which a money market fund may acquire illiquid securities. Under the
amended rule, a fund cannot acquire an illiquid security if, after the
purchase, more than five percent of the fund's total assets would
consist of illiquid securities.\208\ Several commenters suggested that
we lower the existing 10 percent limit as an alternative to our
proposal.\209\ We are reducing by half the existing limit in order to
strike a balance between our concern regarding liquidity risk, i.e., a
fund's ability to satisfy redemption demands if it is holding illiquid
securities, and funds' concerns that they retain some ability to make
investments in high quality illiquid securities.
---------------------------------------------------------------------------

    \208\ Amended rule 2a-7(c)(5)(i).
    \209\ See Federated Comment Letter; J.P. Morgan Asset Mgt.
Comment Letter; Vanguard Comment Letter; Wells Fargo Comment Letter
(all recommending a 5% percent limit). See also TDAM Comment Letter
(recommending that we reduce the existing limit). Other commenters
argued that we should maintain the 10% limit. See, e.g., Charles
Schwab Comment Letter; Deutsche Comment Letter.
---------------------------------------------------------------------------

    We are also amending the rule to define the term ``illiquid
security'' as a security that cannot be sold or disposed of in the
ordinary course of business within seven days at approximately the
value ascribed to it by the money market fund. At the suggestion of
commenters, we would not treat as illiquid a security that could not be
sold at amortized cost.\210\
---------------------------------------------------------------------------

    \210\ See amended rule 2a-7(a)(19). See, e.g., Charles Schwab
Comment Letter; Wells Fargo Comment Letter. The proposed rule
defined ``liquid security'' with reference to the security's
``amortized cost value.'' See proposed rule 2a-7(a)(18). Under the
amended rule, a money market fund using the amortized cost method
will be able to treat as liquid a security that the fund can sell at
a price that deviates from the security's amortized cost value, as
long as the price approximates the market-based value that the fund
has ascribed to the security for purposes of determining its shadow
price. Because the market-based value assigned by a money market
fund to its securities is the measure that ultimately justifies the
fund's use of a stable net asset value, a money market fund should
treat as illiquid any security that cannot be sold at a price
approximating such market-based value. See 1983 Adopting Release,
supra note 6, at n.37 and paragraphs following n.39.
---------------------------------------------------------------------------

3. Minimum Daily and Weekly Liquidity Requirements
    The Commission is adopting new liquidity requirements that mandate
each money market fund maintain a portion of its portfolio in cash and
securities that can readily be converted into cash. More specifically,
we are amending rule 2a-7 to require all taxable money market funds to
hold at least 10 percent of their total assets in ``daily liquid
assets'' and all money market funds to hold at least 30 percent of
their total assets in ``weekly liquid assets.''\211\ A money market
fund must comply with the daily and weekly liquidity standards at the
time each security is acquired.\212\
---------------------------------------------------------------------------

    \211\ See amended rule 2a-7(c)(5)(ii)-(iii). See also amended
rule 2a-7(a)(8) (defining ``daily liquid assets''); 2a-7(a)(32)
(defining ``weekly liquid assets''); infra notes 229-243 and
accompanying text. ``Total assets'' means with respect to a money
market fund using the amortized cost method, the total amortized
cost of its assets and, with respect to any other money market fund,
the total market-based value of its assets. See amended rule 2a-
7(a)(27).
    \212\ See amended rule 2a-7(a)(8); 2a-7(a)(32). One commenter
recommended that the minimum liquidity standards apply on an ongoing
basis, which could require money market funds with holdings that
fall below the requirements to sell securities in order to meet the
requisite daily and weekly liquid asset thresholds. See Fund
Democracy/CFA Comment Letter. We do not agree with such an approach.
A money market fund whose portfolio does not meet the minimum daily
or weekly liquidity standards is not in violation of the rule, but
may not acquire any assets other than daily or weekly liquid assets.
See Dreyfus Comment Letter (requesting that the standards
incorporate some flexibility to allow funds not to comply with them
under unforeseeable circumstances).
---------------------------------------------------------------------------

    As we explained in the Proposing Release, current liquidity
standards applicable to money market funds presume that a fund is able
to find a buyer of its securities.\213\ Our new approach would include
as a ``daily liquid asset'' or ``weekly liquid asset'' only cash or
securities that can readily be converted to cash (as discussed below).
Thus, a fund should be able to use those assets to pay redeeming
shareholders even in market conditions (such as those that occurred in
September and October 2008) in which money market funds cannot rely on
a secondary or dealer market to provide immediate liquidity.
---------------------------------------------------------------------------

    \213\ See Proposing Release, supra note 2, at Section II.C.2.
---------------------------------------------------------------------------

    Commenters who addressed the issue largely supported the
introduction of daily and weekly liquidity standards.\214\ One large
sponsor of money market funds asserted that it ``recognize[d] that a
meaningful and sustained level of liquidity has the potential to ease
concerns of investors and may be useful for unforeseen events.''\215\
Another agreed that ``mandating liquidity requirements will bolster
investor confidence in the ability of money market funds to sustain
prolonged redemption pressures with increased levels of immediate cash
on hand, both on a daily and weekly basis.''\216\ One commenter,
however, urged us to rely solely on the general liquidity requirement,
arguing that requiring a minimum requirement would require unnecessary
levels of liquidity at times that will not be sufficient during a
severe market crisis.\217\
---------------------------------------------------------------------------

    \214\ See, e.g., Calvert Comment Letter; Vanguard Comment
Letter.
    \215\ J.P. Morgan Asset Mgmt. Comment Letter.
    \216\ Invesco Aim Comment Letter.
    \217\ See Wells Fargo Comment Letter. See also T. Rowe Price
Comment Letter (the weekly liquidity standard is overly restrictive
in light of the daily liquidity standard and other proposed changes
to rule 2a-7).
---------------------------------------------------------------------------

    Markets can become illiquid very rapidly in response to events that
money market fund managers may not anticipate. The failure of a single
fund to anticipate such conditions may lead to a run of the sort we saw
in September 2008 affecting all or many funds. We think it would be
ill-advised to rely solely on the ability of managers to anticipate
liquidity needs, which may arise from events the money market fund
manager cannot anticipate or control. We acknowledge our minimum
standards alone may not establish sufficient liquidity to allow funds
to meet every liquidity crisis, which is why we also are adopting a
general liquidity requirement (discussed above) to supplement the
minimum requirements.
    Distinguishing between Retail and Institutional Funds. In the
Proposing Release, we observed that institutional money market funds
need (and typically maintain) greater portfolio liquidity. These funds
had substantially greater redemption pressure on them in the fall of
2008. During the four-week period ending October 8, 2008, prime
institutional funds (or share classes) experienced 30 percent net
outflows compared to only 4.6 percent outflows of prime retail funds,
according to data compiled by the ICI.\218\ Consequently, we proposed
to impose substantially lower liquidity requirements on retail funds
because the higher thresholds appeared unnecessary and would have
resulted in higher costs on them in terms of lower yields. For example,
instead of 30 percent ``weekly liquid assets,'' we proposed to require
that

retail prime money market funds maintain 15 percent ``weekly liquid
assets.'' We proposed to require that each money market fund's board
make an annual determination whether a fund was an institutional fund
(and thus subject to the higher liquidity requirements) based on the
nature of record owners of shares, minimum initial investment
requirements, and cash flows from purchases and redemptions.\219\
---------------------------------------------------------------------------

    \218\ See ICI, Money Market Mutual Fund Assets Historical Data,
available at http://www.ici.org/pdf/mm_data_2010.pdf. See also
Proposing Release, supra note 2, at n.63 and accompanying text. The
Proposing Release also noted that on September 17, 2008,
approximately 4% of prime retail money market funds (or share
classes) and 25% of prime institutional money market funds had
outflows greater than 5%; on September 18, 2008, approximately 5% of
prime retail funds and 30% of prime institutional funds had outflows
greater than 5%; and on September 19, 2008, approximately 5% of
prime retail funds and 22% of prime institutional funds had outflows
greater than 5%. Proposing Release, supra note 2, at n.185.
    \219\ See proposed rule 2a-7(a)(17) (defining ``institutional
fund''); Proposing Release, supra note 2, at Section II.C.2.a-b.
---------------------------------------------------------------------------

    Most commenters representing money market funds argued against
drawing such a regulatory distinction, asserting that there are
inherent difficulties in determining the difference between the two
types of funds within a generally applicable definition.\220\
Commenters asserted that many money market funds include both types of
shareholders, and even if one could distinguish a fund with an
institutional rather than a retail shareholder base, not all
shareholders behave in the same manner and present the same liquidity
challenges as their peers.\221\ Others expressed concern that the
fund's board is not in the best position to make these
determinations.\222\ The difficulty in drawing bright lines led some
commenters to express concern with the competitive consequences that
might result when fund boards of directors come to different
conclusions.\223\
---------------------------------------------------------------------------

    \220\ See, e.g., BlackRock Comment Letter; Goldman Sachs Comment
Letter; ICI Comment Letter; Comment Letter of TCW Investment
Management Company (Sept. 4, 2009); Vanguard Comment Letter. A few
commenters expressed support for the distinction. See, e.g., Dreyfus
Comment Letter; Fidelity Comment Letter; USAA Comment Letter.
    \221\ See, e.g., GE Asset Mgt. Comment Letter; SIFMA Comment
Letter; State Street Comment Letter. Many also argued that the
nature of the financial intermediary record owner does not always
correspond to the behavior of the ultimate investor. See, e.g., T.
Rowe Price Comment Letter; Vanguard Comment Letter. A few commenters
objected for other reasons. See Comment Letter of the Committee of
Annuity Insurers (Sept. 8, 2009) (``Committee Ann. Insur. Comment
Letter'') (the characterization as retail or institutional would be
confusing for investors); J.P. Morgan Asset Mgt. Comment Letter
(retail investors would suffer if they invested in an institutional
fund through an omnibus account or a money market fund lost its
retail status because of institutional investments in the fund);
Comment Letter of Russell Investment Management Company (Sept. 8,
2009) (``Russell Inv. Comment Letter'') (money market funds would
incur substantial costs to monitor and enforce the distinction);
Waddell & Reed Comment Letter (the distinction is punitive for
retail money market funds, which have a less concentrated
shareholder base).
    \222\ See, e.g., IDC Comment Letter; Comment Letter of the New
York City Bar Association (Sept. 8, 2009) (``NYC Bar Assoc. Comment
Letter'').
    \223\ See, e.g., Comment Letter of FAF Advisors (Sept. 9, 2009)
(``FAF Advisors Comment Letter'') (in the absence of clear
guidelines, boards would likely characterize funds with largely the
same shareholder base differently); Goldman Sachs Comment Letter
(the distinction would create an incentive to characterize a fund as
retail so that the fund would be subject to the lower standard); IDC
Comment Letter (a board might take a conservative approach and
identify more funds as institutional at the expense of the funds'
shareholders).
---------------------------------------------------------------------------

    We anticipated these concerns and requested comment on alternative
approaches. One commenter suggested that we treat as institutional a
fund that has any class which offers same day liquidity to
shareholders.\224\ We are uncertain, however, whether institutional
investors will be willing to migrate to funds that offer next day
liquidity in order to obtain additional yield, and if they did our
purpose in drawing the distinction would be defeated. We have similar
concerns that institutional investors might invest in retail funds that
are defined with respect to minimum initial account sizes or maximum
expense ratios, as suggested by other commenters.\225\ The suggestion
that the distinction be based on average account size raises different
concerns, including the appropriate size for this measure and whether
it should be based on total assets in omnibus accounts or in the
accounts of the underlying shareholders.\226\
---------------------------------------------------------------------------

    \224\ See Fidelity Comment Letter. See also Charles Schwab
Comment Letter; Waddell & Reed Comment Letter.
    \225\ See HighMark Capital Comment Letter; T. Rowe Price Comment
Letter.
    \226\ See Waddell & Reed Comment Letter. Similar concerns would
arise if we used the definition the ICI uses for its analysis of
retail money market share classes, i.e., those ``offered primarily
to individuals with moderate-sized accounts.'' See http://
www.ici.org/my_ici/mmf_developments/faqs_money_funds.
---------------------------------------------------------------------------

    Taking into account the comments and after further consideration,
we have not identified an effective way at this time to distinguish
between types of money market funds to achieve our purpose. Therefore,
we have determined to apply the same minimum liquidity standards to
both institutional and retail money market funds.\227\ We believe the
compelling need to limit the liquidity risk of money market funds
before another run occurs is reason not to further distinguish retail
from institutional money market funds. We intend, however, to consider
revisiting our determination to apply the same minimum liquidity
standards to all money market funds and reevaluate whether there is a
workable objective definition that would accurately identify funds with
lower liquidity needs and thus justify applying lower minimum standards
to them.\228\
---------------------------------------------------------------------------

    \227\ See amended rule 2a-7(c)(5)(ii)-(iii).
    \228\ One commenter suggested that we impose different minimum
liquidity standards for government and non-government money market
funds. See C. Wesselkamper Comment Letter. We believe this is
unnecessary, however, given that most Government money market funds
have sufficient holdings of Treasury securities and Government
agency discount notes to satisfy the rule's requirements for daily
and weekly liquid assets. See amended rule 2a-7(a)(8) (defining
``daily liquid assets''); 2a-7(a)(32) (defining ``weekly liquid
assets'').
---------------------------------------------------------------------------

    New Daily and Weekly Minimum Liquidity Requirements. We are
adopting the higher minimum liquidity thresholds we proposed for all
money market funds. Under the final rule, (i) no taxable money market
fund can acquire any security other than a daily liquid asset if,
immediately after the acquisition, the fund would have invested less
than 10 percent of its total assets in daily liquid assets, and (ii) no
money market fund can acquire any security other than a weekly liquid
asset if, immediately after the acquisition, the fund would have
invested less than 30 percent of its total assets in weekly liquid
assets.\229\ We proposed these liquidity levels based on the levels of
cash and overnight repurchase agreements that we believe reflect the
liquidity needs of money market funds with institutional investors or
other investors with similar liquidity needs.\230\
---------------------------------------------------------------------------

    \229\ Amended rule 2a-7(c)(5)(ii)-(iii).
    \230\ See Proposing Release, supra note 2, at n.191 and
accompanying and following text.
---------------------------------------------------------------------------

    A few commenters supported our proposed levels for daily and weekly
liquid assets, but most supported the lower levels recommended in the
ICI Report of five percent of portfolios in daily liquid assets and 20
percent of portfolios in weekly liquid assets.\231\ Commenters argued
that when combined with our other proposals, these thresholds would
provide sufficient protection to investors.\232\ They also suggested
that the lower levels strike an appropriate balance of improving funds'
liquidity while providing sufficient flexibility to allow portfolio
managers to meet the challenges of different market conditions.\233\
---------------------------------------------------------------------------

    \231\ See, e.g., FAF Advisors Comment Letter; Invesco Aim
Comment Letter. Others recommended different standards. See Crane
Data Comment Letter (5% daily and 15% weekly liquidity for all money
market funds); Fifth Third Comment Letter (10% daily liquidity and
25% weekly liquidity for all money market funds); J.P. Morgan Asset
Mgt. Comment Letter (5% daily liquidity for taxable money market
funds and 20% weekly liquidity for all money market funds); Vanguard
Comment Letter (weekly liquidity requirement for institutional funds
should not exceed 25%).
    \232\ See Dreyfus Comment Letter ($119 billion redeemed in
institutional funds during the week of September 17, 2008
represented 5% of institutional fund assets as reported by iMoneyNet
on August 5, 2009); FAF Advisors Comment Letter; Goldman Sachs
Comment Letter.
    \233\ See Invesco Aim Comment Letter.

---------------------------------------------------------------------------

    We are concerned that the lower minimum liquidity levels suggested
by commenters would be insufficient to establish an adequate liquidity
floor for money market funds in the event of a crisis such as we
experienced in September 2008. The five percent daily liquidity level
would have been insufficient to satisfy redemptions in one-fifth of
prime institutional funds (or share classes) on each of three days
during the week of September 15, and the 20 percent weekly liquidity
level would have been insufficient to address outflows in more than a
quarter of those funds during that week.\234\ We would be concerned if
such a large portion of money market funds had to increase their
liquidity quickly in response to sudden market turmoil at the same time
the overall market experiences a flight to liquidity.\235\ As we noted
above, one fund's inability to satisfy redemption requests may lead to
a run on other money market funds.\236\ Accordingly, we believe that
the floor we establish for minimum liquidity requirements must be
sufficiently high to allow most money market funds to manage their
liquidity risk in a crisis, particularly when they may experience
significant redemption requests on successive days.\237\ For this
reason, we have adopted the higher liquidity thresholds, under which we
estimate that approximately 90 percent of retail and institutional
funds would have been able to satisfy the level of redemption demands
during individual days as well as the week of greatest redemption
pressure in the fall of 2008 (September 15-19).\238\ At the same time,
we appreciate commenters' concerns that the proposed liquidity
thresholds would limit funds' flexibility to meet the challenges of
different market conditions. In order to address those concerns as well
as our concerns regarding liquidity risk, the amendments preserve
funds' ability to invest in a limited amount of illiquid securities,
which is designed to permit funds some flexibility in dealing with
varying market conditions.\239\
---------------------------------------------------------------------------

    \234\ On September 17, 2008, approximately 25% of prime
institutional money market funds experienced outflows greater than
5% of total assets; on September 18, 2008, approximately 30% of
prime institutional money market funds experienced outflows greater
than 5%; and on September 19, 2008, approximately 22% of prime
institutional money market funds experienced outflows greater than
5%. As noted in the Proposing Release, during that week,
approximately 27% of prime institutional money market funds
experienced redemptions of more than 20% of assets, and 22% had
outflows greater than 25%. This is based on analysis of data from
the iMoneyNet Money Fund Analyzer Database. Proposing Release, supra
note 2, at n.185.
    \235\ As of January 20, 2010, assets in taxable institutional
share classes represented approximately 63% of the total assets of
money market funds, and assets in prime institutional share classes
represented approximately 37% of the total assets of money market
assets. See ICI, Money Market Mutual Fund Assets, available at
http://www.ici.org/research/stats/mmf/mm_01_21_10.
    \236\ See supra text following note 217.
    \237\ In support of its proposed lower liquidity levels, the ICI
stated that the 5% daily and 20% weekly thresholds ``would have met
the demands of a large majority of the prime funds with at least one
institutional share class'' and noted that between September 10
through 24, 52% of these funds had outflows of less than 5 percent,
and 22 percent experienced outflows of between 5% and 20% of assets,
which would have been covered by the thresholds recommended by the
ICI Report. Under the ICI's analysis, however, one quarter of prime
money market funds would not have been covered by the thresholds
recommended by the ICI Report, which as discussed above, we believe
is too large a proportion that might have to increase liquidity
quickly in response to sudden severe economic stress. We are not
considering the redemption levels of the week following September
19, when the Treasury Department adopted the Guarantee Program,
because we have no basis to estimate what the redemptions would have
been had the Treasury not adopted the Program. We also note that
another commenter that provided specific information on redemption
flows, a large sponsor of money market funds, reported in its
comment letter that on September 17, redemptions in its money market
funds exceeded 5% and during the week of September 15, redemptions
in the funds exceeded 20%. Federated Comment Letter.
    \238\ See Proposing Release, supra note 2, at n.201 and
accompanying text. The 9% of institutional money market funds that
had redemptions exceeding 30% of assets in the week after The
Reserve Fund broke the buck accounted for 10.9% of all institutional
funds' total assets as of September 15, 2008. We estimate that under
the minimum liquidity standards we are adopting more retail funds
would have been able to satisfy the level of redemption demands than
would have institutional funds. During the week ending September 19,
2008, 3% of retail funds experienced outflows greater than 30%. This
is based on analysis of data from the iMoneyNet Money Fund Analyzer
Database.
    \239\ See supra Section II.C.2 (limitations on illiquid
securities).
---------------------------------------------------------------------------

    Tax-Exempt Money Market Funds. As proposed, the final rule excludes
tax-exempt money market funds from the daily liquidity
requirements.\240\ Several commenters supported the proposal, noting
that these funds cannot engage in repurchase agreements and the supply
of tax-exempt securities with daily demand features is extremely
limited.\241\ One commenter, however, argued that tax-exempt funds are
subject to daily redemptions and should be subject to the required
minimum.\242\ Based on the comments we received, we continue to believe
that the different nature of the markets for tax-exempt securities
justifies exempting tax-exempt money market funds from the daily
liquidity requirements.\243\
---------------------------------------------------------------------------

    \240\ See Proposing Release, supra note 2, at nn.198-99 and
accompanying text.
    \241\ See, e.g., Federated Comment Letter; ICI Comment Letter.
    \242\ See Fidelity Comment Letter.
    \243\ We understand that most of the portfolios consist of
longer term floating and variable-rate securities with seven-day
demand features from which the fund obtains much of its liquidity,
and that they are unlikely to have investment alternatives that
would permit them to meet a daily liquidity requirement. See
Proposing Release, supra note 2, at n.199 and accompanying text.
---------------------------------------------------------------------------

    Definition of Daily and Weekly Liquid Assets. As discussed above,
the new daily and weekly liquidity requirements are designed to ensure
that a money market fund has the legal right to receive cash within one
or five business days so that a fund may more easily satisfy redemption
requests during times of market stress.\244\ Like our proposal, the
final definition of ``daily liquid assets'' includes cash (including
demand deposits), Treasury securities, and securities (including
repurchase agreements) for which a money market fund has a legal right
to receive cash in one business day.\245\ Our proposed definition of
``weekly liquid assets'' included the same assets (except that the fund
would have had to have the right to receive cash in five business days
rather than one).\246\ We proposed to include Treasury securities
regardless of their maturity in the liquidity baskets because they have
been the most liquid assets during times of market stress.\247\ Indeed,
we understand that the ``flight to liquidity'' that happens during
times of uncertainty makes it easy to sell Treasury securities in even
large quantities.\248\
---------------------------------------------------------------------------

    \244\ See supra note 213 and accompanying and following text.
    \245\ Amended rule 2a-7(a)(8) (defining ``daily liquid asset''
to mean (i) cash; (ii) direct obligations of the U.S. Government;
and (iii) securities that will mature or are subject to a demand
feature that is exercisable and payable within one business day).
    \246\ Proposed rule 2a-7(a)(32).
    \247\ U.S. Treasury securities were highly liquid during the
market turmoil in 2008. See, e.g., FRB Open Market Committee Oct.
28-29 Minutes, supra note 13, at 5; Minutes of the Federal Open
Market Committee, Federal Reserve Board, Dec. 15-16, 2008, at 4,
available at http://www.federalreserve.gov/monetarypolicy/files/
fomcminutes20081216.pdf.
    \248\ See, e.g., Francis A. Longstaff, The Flight-to-Liquidity
Premium in U.S. Treasury Bond Prices, 77 J. Bus. 511 (July 2004).
---------------------------------------------------------------------------

    Commenters supported our inclusion of Treasury securities, but many
argued that we should include additional securities.\249\ In
particular, a number of

commenters argued that we should also include agency notes (i.e.,
direct obligations of Federal government agencies and government-
sponsored enterprises) as daily or weekly liquid assets or in both
liquid asset baskets.\250\ We are persuaded, based on the comments we
received, that the market for very short-term agency notes is likely to
be sufficiently liquid under stressful market conditions to treat them
as weekly liquid assets. Therefore, amended rule 2a-7 includes agency
discount notes with remaining maturities of 60 days or less in the
definition of weekly liquid assets.\251\
---------------------------------------------------------------------------

    \249\ See, e.g., Comment Letter of the Federal Home Loan Banks
(Sept. 8, 2009) (``FHLB Comment Letter'') (include Federal Home Loan
Bank discount notes); RidgeWorth Comment Letter (include fixed-rate
agency discount notes with maturities of 95 days or less); Victory
Cap. Mgmt. Comment Letter (include fixed-rate agency discount notes
with maturities of 397 days or less). See also Dreyfus Comment
Letter (include bank time deposits); Fidelity Comment Letter
(include shares of other money market funds). Both shares of money
market funds and bank time deposits, which some commenters advocated
we specifically include in the rule text, fall within the
definitions of daily and weekly liquid assets if they satisfy the
applicable maturity terms.
    \250\ See, e.g., Comment Letter of the Capital Management of the
Carolinas (Sept. 4, 2009) (``Cap. Mgt. Carolinas Comment Letter'')
(include discount notes with maturity of 397 days or less as daily
liquid assets); Fidelity Comment Letter (include discount notes with
maturity of 397 days or less as both daily and weekly liquid
assets); ICI Comment Letter (include fixed-rate agency discount
notes with maturity of 397 days or less as weekly liquid assets); C.
Wesselkamper Comment Letter (include in daily and weekly liquid
assets Government securities with fixed rates or fixed rate
Government securities maturing in no more than 60 days). One
commenter also expressed concern about the supply of assets that
would qualify as daily or weekly liquid assets. See Fidelity Comment
Letter.
    \251\ Amended rule 2a-7(a)(32) (defining ``weekly liquid
assets'' to mean (i) cash; (ii) direct obligations of the U.S.
Government; (iii) Government securities issued by a person
controlled or supervised by and acting as an instrumentality of the
Government of the United States pursuant to authority granted by the
Congress of the United States, that are issued at a discount to the
principal amount to be repaid at maturity and have a remaining
maturity of 60 days or less; and (iv) securities that will mature or
are subject to a demand feature that is exercisable and payable
within five business days).
---------------------------------------------------------------------------

    Our decision to include these securities is based on our
consideration of the relative liquidity of agency discount notes during
times of extreme market stress.\252\ We compared average daily yields
for the two weeks before and the two weeks after the Lehman Brothers
bankruptcy on September 15, 2008. Between these periods, the yields for
30-day Treasury bills fell 75 percent while yields for 30-day and 60-
day agency discount notes remained essentially the same.\253\ The
yields for other money market assets increased over the same periods.
For example, the average daily yield for 90-day agency discount notes
increased four percent; while the yield for 30-day first tier financial
securities increased 23 percent.\254\ Transaction volume in agency
discount notes increased over this time period,\255\ which suggests to
us that money market funds were able to sell their shorter maturity
agency discount notes at amortized cost or higher prices.
---------------------------------------------------------------------------

    \252\ Commenters who advocated including agency discount notes
in the liquid asset baskets stressed the depth of liquidity in the
secondary markets for these securities. See, e.g., Charles Schwab
Comment Letter; ICI Comment Letter; SIFMA Comment Letter; FHLB
Comment Letter (comment limited to Federal Home Loan Bank discount
notes).
    \253\ Between these periods, 30-day Treasury bill average daily
yields fell from 1.53% to 0.39%; 30-day agency discount note average
daily yields held constant at 2.14%; and 60-day agency discount note
average daily yields increased from 2.25% to 2.27%. See Bloomberg
Terminal Database, US 30-Day T-Bill USGB030Y (Index); Agency
Discount Note 30 Day Yield AGDN030Y (Index); Agency Discount Note 60
Day Yield AGDN060Y (Index). We note that in September 2008, the
Federal Reserve's Open Market Trading Desk purchased discount notes
issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks
in order to support market functioning. See Press Release, Federal
Reserve Bank of New York, Statement Regarding Planned Purchases of
Agency Debt (Sept. 19, 2008), available at http://
www.newyorkfed.org/markets/operating_policy_080919.html. Data
concerning the purchases are available at the Federal Reserve Bank
of New York's Permanent Open Market Operations Historical Search
webpage, available at http://www.newyorkfed.org/markets/pomo/
display/index.cfm?fuseaction=showSearchForm.
    \254\ Average daily yields on 90-day agency discount notes
increased from 2.35% to 2.45%. See Bloomberg, Agency Discount Note
90 Day Yield AGDN090Y (Index). In addition, average daily yields on
30-day first tier financial securities increased from 2.40% to 2.96%
and average daily yields on 30-day first tier non-financial
securities increased from 2.03% to 2.16%. See Federal Reserve
Commercial Paper Data, supra note 47 (select rates from the
preformatted data package menu and follow the instructions to
reformat the date range and download). Average daily yields on 60-
day first tier financial securities increased from 2.57% to 2.99%
and average daily yields on 60-day first tier non-financial
securities increased from 2.03% to 2.19%. See id.
    \255\ See Federal Reserve Bank of New York, Primary Dealer
Statistics, available at http://www.newyorkfed.org/markets/gsds/
search.cfm.
---------------------------------------------------------------------------

4. Stress Testing
    We are adopting amendments to rule 2a-7 to require the board of
directors of each money market fund to adopt procedures providing for
periodic stress testing of the money market fund's portfolio.\256\
Almost all of the commenters who addressed this matter supported
requiring stress testing of fund portfolios,\257\ although several
suggested changes from our proposal.\258\
---------------------------------------------------------------------------

    \256\ See amended rule 2a-7(c)(10)(v).
    \257\ See, e.g., J.P. Morgan Asset Mgt. Comment Letter; Tamarack
Funds Comment Letter. But see C. Wesselkamper Comment Letter (stress
testing should be an adviser's best practice).
    \258\ At the suggestions of some commenters, we have made the
stress testing requirement applicable to all money market funds that
employ either the amortized cost method of valuing portfolio
securities or the penny-rounding method of pricing fund shares. See
Federated Comment Letter; TDAM Comment Letter. We believe that few,
if any, money market funds will be affected by this change.
---------------------------------------------------------------------------

    Under the amended rule, a fund must adopt procedures that provide
for the periodic testing of the fund's ability to maintain a stable net
asset value per share based upon certain hypothetical events. These
include an increase in short-term interest rates, an increase in
shareholder redemptions, a downgrade of or default on portfolio
securities, and widening or narrowing of spreads between yields on an
appropriate benchmark selected by the fund for overnight interest rates
and commercial paper and other types of securities held by the
fund.\259\ Commenters differed on whether we should specify details for
stress testing in addition to these hypothetical events.\260\ Because
different tests may be appropriate for different market conditions and
different money market funds, we believe that the funds are better
positioned to design and modify their stress testing systems and have
not included more specific criteria in the rule.\261\
---------------------------------------------------------------------------

    \259\ Amended rule 2a-7(c)(10)(v)(A).
    \260\ See, e.g., Charles Schwab Comment Letter (opposing more
specific tests in the rule); State Street Comment Letter (same);
RidgeWorth Comment Letter (requesting that the Commission more
clearly define feasible stress testing requirements); TDAM Comment
Letter (same).
    \261\ See Federated Comment Letter (different types of money
market funds should have different stress testing procedures);
Invesco Aim Comment Letter (``each investment adviser should have
the discretion to determine the appropriate assumptions and
hypothetical events for which to test.''). As discussed above,
amended rule 2a-7's new liquidity requirements require money market
funds to evaluate their liquidity needs based on their shareholder
base. See supra note 195 and preceding and accompanying text. Money
market funds should also incorporate this element in their stress
testing procedures as appropriate. See Thrivent Comment Letter.
---------------------------------------------------------------------------

    The amendment requires the testing to be done at such intervals as
the fund board of directors determines appropriate and reasonable in
light of current market conditions.\262\ This is the same approach that
rule 2a-7 takes with respect to the frequency of shadow pricing.\263\
The rule does not, however, specifically require the board to design
the portfolio stress testing, as may have been suggested by our
proposing

release.\264\ We agree with the many commenters that asserted that the
board may not have sufficient expertise to construct appropriate stress
tests for a fund.\265\ Each board may, of course, consider the extent
to which it wishes to become involved in design of the stress tests.
---------------------------------------------------------------------------

    \262\ Amended rule 2a-7(c)(10)(v)(A). Commenters differed in
their views on the appropriate intervals for testing. See, e.g.,
J.P. Morgan Asset Mgt. Comment Letter (monthly or even more
frequently); HighMark Comment Letter (quarterly under normal market
conditions); Shriver Poverty Law Ctr. Comment Letter (same). We
believe that a fund's board of directors is best positioned to
choose the appropriate frequency under different conditions. We urge
funds to adopt thresholds for testing frequency based, in part, on
the amount of the deviation of the funds market-based net asset
value per share from its amortized cost value per share similar to
many funds' thresholds for more frequent shadow pricing. Thus, we
would expect that if a fund's shadow net asset value per share
decreased to less than $0.9975, the fund would conduct stress tests
at least every week, even if the fund stress tests less frequently
under normal conditions. More frequent testing would likely allow
the fund to better understand and manage the risks to which the fund
and its shareholders are exposed.
    \263\ Amended rule 2a-7(c)(8)(ii)(A)(1).
    \264\ See Proposing Release, supra note 2, at text following
n.209.
    \265\ See, e.g., ABA Comment Letter; HighMark Capital Comment
Letter; IDC Comment Letter.
---------------------------------------------------------------------------

    The rule also requires that the board receive a report of the
results of the stress testing at its next regularly scheduled meeting,
as proposed, and more frequently, if appropriate, in light of the
results.\266\ We have added the requirement for more frequent reporting
in light of results because we believe that the board should be
apprised of test results when they indicate that the magnitude of
hypothetical events required to cause the fund to break a buck (such as
changes in interest rates or shareholder redemptions or a combination
of factors) is slight when compared with actual conditions.
---------------------------------------------------------------------------

    \266\ Amended rule 2a-7(c)(10)(v)(B). We disagree with
commenters that recommended that the adviser report to the board
only annually and on an exception basis. See, e.g., Stradley Ronon
Comment Letter; Tamarack Funds Comment Letter; T. Rowe Price Comment
Letter. We believe that regular reports will allow the board more
effectively to monitor the fund's ability to withstand hypothetical
events that alone or in combination would cause the fund to break
the buck. In the Proposing Release, we asked whether we should
impose minimum liquidity requirements based on the results of a
particular stress test. See Proposing Release, supra note 2, at text
following n.216. Commenters were divided on this issue. See Fidelity
Comment Letter (against); Bankers Trust Comment Letter (in favor);
Shriver Poverty Law Ctr. (same). As discussed above, we expect that
money market funds take into consideration the results of their
stress testing in assessing their liquidity needs under the general
liquidity requirement of rule 2a-7(c)(5). See supra note 261.
---------------------------------------------------------------------------

    As proposed, the report must include: (i) The date(s) on which the
fund portfolio was tested; and (ii) the magnitude of each hypothetical
event that would cause the money market fund to break the buck.\267\
The report also must include an assessment by the fund's adviser of the
fund's ability to withstand the events (and concurrent occurrences of
those events) that are reasonably likely to occur within the following
year.\268\ Finally, as proposed, funds are required to maintain records
of the stress testing for six years, the first two years in an easily
accessible place.\269\
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    \267\ Amended rule 2a-7(c)(10)(v)(B)(1).
    \268\ Amended rule 2a-7(c)(10)(v)(B)(2). We do not agree with
commenters who argued that advisers should not be required to
provide an assessment of a fund's ability to withstand events that
are reasonably likely to occur within the following year. See
Charles Schwab Comment Letter; Federated Comment Letter; Stradley
Ronon Comment Letter; Vanguard Comment Letter. The rule does not
require advisers to predict the future in order to determine which
hypothetical events to use in stress testing (and we recognize that
advisers will not always be correct in their assessments of which
events are reasonably likely to occur within the following year).
Instead, the provision is designed to provide to the board some
context within which to evaluate the assessment on the magnitude of
each hypothetical event that would cause the fund to break the buck.
See Proposing Release, supra note 2, at text following n.211.
    \269\ Amended rule 2a-7(c)(11)(vii).
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D. Repurchase Agreements

    Money market funds typically invest a significant portion of their
assets in repurchase agreements, many of which mature the following day
and provide an immediate source of liquidity. We are adopting, as
proposed, two amendments to rule 2a-7 that affect fund investments in
repurchase agreements for purposes of rule 2a-7's diversification
provisions.\270\
---------------------------------------------------------------------------

    \270\ Amended rule 2a-7(c)(4)(ii)(A); Proposing Release, supra
note 2, at Section II.E.
---------------------------------------------------------------------------

    First, we are limiting money market funds to investing in
repurchase agreements collateralized by cash items or Government
securities in order to obtain special treatment of those investments
under the diversification provisions of rule 2a-7.\271\ This change is
designed to reduce the risk that a money market fund would experience
losses upon the sale of collateral in the event of a counterparty's
default.\272\ Most commenters who addressed our proposal supported
it.\273\ Commenters also confirmed our understanding that many managers
of money market funds already look through only those repurchase
agreements that are collateralized by Government securities or cash
instruments.\274\
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    \271\ Amended rule 2a-7(a)(5) (defining the term
``collateralized fully''). The special treatment allows money market
funds to consider the acquisition of the repurchase agreement as an
acquisition of the underlying collateral for diversification
purposes. See Proposing Release, supra note 2, at n.228 and
accompanying text. Under the new rule, securities with the highest
rating, or unrated securities of comparable credit quality, will no
longer be acceptable collateral. Compare amended rule 2a-7(a)(5)
with current rule 2a-7(a)(5).
    \272\ See Proposing Release, supra note 2, at n.229 and
accompanying text.
    \273\ See Bankers Trust Comment Letter; BlackRock Comment
Letter; HighMark Capital Comment Letter; RidgeWorth Comment Letter.
Two commenters opposed the proposal. Wells Fargo made a number of
arguments based on the premise that the change will prevent money
market funds from investing in repurchase agreements collateralized
by non-government securities. The rule, however, does not restrict
funds from investing in repurchase agreements. Instead, it limits
the circumstances under which a fund may look through the repurchase
agreement to the underlying collateral for diversification purposes.
A money market fund will continue to be able to invest in repurchase
agreements collateralized by other types of assets, although the
securities will not be eligible for special treatment under the
diversification provisions. Another commenter asserted that the
limitation is unnecessary if a fund evaluates the creditworthiness
of the counterparty or if it adequately values the collateral in
light of rule 2a-7(c)'s minimal credit risk determination. See Am.
Securit. Forum Comment Letter. As discussed above and in the
Proposing Release, we are adopting this provision to protect against
circumstances in which the fund may be unable to obtain its
collateral or the full value of that collateral.
    \274\ See Federated Comment Letter (Federated has never relied
on the diversification look-through approach for repurchase
agreements collateralized by non-government securities); ICI Comment
Letter (ICI members typically adopt the look-through approach only
for repurchase agreements collateralized by cash items and
government securities). See also Fitch Ratings, Money Market Funds
Special Report, U.S. Prime Money Market Funds: Managing Portfolio
Composition to Address Credit and Liquidity Risks (Aug. 14, 2009)
(``Fitch Report''), at 6 available at http://www.fitchratings.com/
creditdesk/reports/report_frame.cfm?rpt_id=462366 (reporting that
after the end of 2008 ``a number of advisors to Fitch-rated U.S.
prime money market funds * * * significantly amended their
investment policies with respect to repurchase agreements
counterparties and collateral schedules''; the amendments include,
among others, ``[r]educed acceptance of repurchase agreement
collateral other than U.S. Treasury and agency securities'').
---------------------------------------------------------------------------

    Second, we are reinstating the requirement that the money market
fund's board of directors or its delegate evaluate the creditworthiness
of the repurchase agreement's counterparty in order for the fund to
take advantage of the special look-through treatment under rule 2a-7's
diversification provisions.\275\ The effect of this amendment is to
require a fund adviser to determine that the counterparty is a
creditworthy institution, separate and apart from the value of the
collateral supporting the counterparty's obligation under the
repurchase agreement.\276\
---------------------------------------------------------------------------

    \275\ See amended rule 2a-7(c)(4)(ii)(A). We eliminated the
requirement in 2001. See Proposing Release, supra note 2, at nn.230-
33 and accompanying text. Three commenters specifically supported
the change. See BlackRock Comment Letter; HighMark Capital Comment
Letter; Shriver Poverty Law Ctr. Comment Letter.
    \276\ A number of commenters argued that the evaluation should
not be the board's responsibility. See, e.g., IDC Comment Letter;
Comment Letter of the North Carolina Capital Management Trust--
Independent Trustees (Sept. 8, 2009). We note that rule 2a-7(e)
allows a board to delegate the creditworthiness evaluation to the
fund's investment adviser or officers, under guidelines and
procedures that the board establishes and reviews.
---------------------------------------------------------------------------

    We are not adopting an approach suggested by some of the commenters
that the evaluation of a repurchase agreement should be limited to the
credit risk determination already required by rule 2a-7(c)(3) with
regard to the purchase of any security.\277\ That

approach would not require a fund to evaluate separately the
creditworthiness of the counterparty in order to take advantage of the
special look-through treatment for diversification purposes. Under that
approach, the fund's evaluation of a repurchase agreement could be
based primarily or exclusively on the quality of the collateral. As we
explained in the Proposing Release, in the midst of a market disruption
caused by the default of a counterparty, a money market fund may find
it difficult to protect fully its collateral without incurring
losses.\278\ The amendment is designed to avoid such losses by
requiring money market funds to evaluate the creditworthiness of the
counterparty in order to limit exposure to less creditworthy
institutions.
---------------------------------------------------------------------------

    \277\ Three commenters argued that the proposed creditworthiness
evaluation is unnecessary because it is already an element of the
minimal credit risk determination that a fund makes pursuant to rule
2a-7(c)(3). See Federated Comment Letter; ICI Comment Letter; IDC
Comment Letter. Two other commenters recommended that the applicable
standard be the minimal credit risk evaluation. See Fidelity Comment
Letter; Stradley Ronon Comment Letter.
    \278\ Proposing Release, supra note 2, at n.233 and accompanying
text.
---------------------------------------------------------------------------

E. Disclosure of Portfolio Information

1. Public Web Site Posting
    We are amending rule 2a-7 to require money market funds to disclose
information about their portfolio holdings each month on their Web
sites. The disclosure will provide greater transparency of portfolio
information in a manner convenient for most investors. The amendment is
designed to give investors a better understanding of the current risks
to which the fund is exposed, strengthening their ability to exert
influence on risk-taking by fund advisers.
    Commenters generally supported requiring money market funds to post
portfolio information monthly, although several urged us to revise the
amendments in certain ways.\279\ The amendments we are today adopting
are substantially similar to those we proposed, with modifications to
(i) The information required to be disclosed, (ii) the time within
which a fund must post its portfolio holdings information, and (iii)
the length of time a fund must maintain the information on its Web
site. We discuss each of these modifications below.
---------------------------------------------------------------------------

    \279\ See, e.g., Assoc. for Fin. Professionals Comment Letter;
SIFMA Comment Letter; Vanguard Comment Letter.
---------------------------------------------------------------------------

    Information Required to be Disclosed. As proposed, the amendments
to rule 2a-7 would have required a fund to disclose the fund's schedule
of investments, as prescribed by rules 12-12 through 12-14 of
Regulation S-X,\280\ identifying, among other things, the issuer, the
title of the issue, the principal amount, the interest rate, the
maturity date, and the current amortized cost of the security.\281\
Several commenters asserted that requiring the information specified in
rules 12-12 through 12-14 of Regulation S-X would include information
that would not be helpful to investors. They urged us instead to
require information about money market fund portfolios that would
better fit the needs of investors seeking information relevant to their
investment decisions.\282\ For example, some commenters noted that
under the proposed amendments a fund would be required to classify and
subtotal securities by industry, provide detailed restricted securities
disclosures, and provide detailed information regarding repurchase
agreement counterparties and collateral. One also noted that under the
proposal funds may be required to provide certain notes required by
generally accepted accounting principles (``GAAP''), as many funds do
for filings on Form N-Q.\283\ Commenters asserted that these
requirements would unnecessarily complicate the disclosure, be of
little interest or benefit to investors, be difficult to comply with,
and would impose a significant additional burden on money market funds.
They suggested modifying the disclosure requirements to exclude some of
the detail.\284\
---------------------------------------------------------------------------

    \280\ 17 CFR 210.12-12--12-14.
    \281\ Proposed rule 2a-7(c)(12). As discussed below, all of
these enumerated items are required under amended rule 2a-7(c)(12).
    \282\ See, e.g., BlackRock Comment Letter; GE Asset Mgt. Comment
Letter; Invesco Aim Comment Letter.
    \283\ See ICI Comment Letter.
    \284\ See, e.g., BlackRock Comment Letter; Fidelity Comment
Letter; ICI Comment Letter.
---------------------------------------------------------------------------

    We are revising the information about portfolio holdings that funds
must disclose on their Web sites. Instead of referring to Regulation S-
X as we proposed, we are listing in rule 2a-7(c)(12) the information
that funds must disclose.\285\ These revisions more closely tailor the
required information to the needs of money market fund investors and
others who seek information about fund holdings through Internet Web
sites. For example, rule 12-12 of Regulation S-X requires funds to
disclose the subtotal of each category of investments, subdivided by
business grouping or investment type. We agree with commenters who
argued that this level of detail, although appropriate for financial
statements, is unnecessary in a fund's Web site disclosures to
investors.\286\ For investors who may prefer to obtain the more
detailed information, it will continue to be available in money market
funds' quarterly Form N-CSR and Form N-Q filings.\287\ As discussed
below, detailed information also will be available on a fund's filings
on Form N-MFP.\288\
---------------------------------------------------------------------------

    \285\ Rules 12-12 through 12-14 of Regulation S-X require, and
the proposed rule amendments would have required, in addition to the
information required by rule 2a -7(c)(12), the following
information, which we believe is not critical to be made available
to investors on money market fund Web sites: (i) The subtotals for
each category of investments, subdivided by business grouping or
investment type, with their percentage value compared to net assets;
(ii) for repurchase agreements, showing for each, among other
things, the date of the agreement, the total amount to be received
upon repurchase, the repurchase date, and a description of the
securities that are subject to the repurchase agreement; (iii) for
restricted securities (1) as to each such issue (a) The acquisition
date, (b) the carrying value per unit of investment at date of
related balance sheet, and (c) the cost of such securities, (2) as
to each issue acquired during the year preceding the date of the
related balance sheet, the carrying value per unit of investment of
unrestricted securities of the same issuer at (a) The day the
purchase price was agreed to, (b) the day on which an enforceable
right to acquire such securities was obtained, and (c) the aggregate
value of all restricted securities and the percentage which the
aggregate value bears to net assets; (iv) the aggregate gross
unrealized appreciation for all securities in which there is an
excess of value over tax cost; (v) the aggregate gross unrealized
depreciation for all securities in which there is an excess of tax
cost over value; (vi) the net unrealized appreciation or
depreciation; (vii) the aggregate cost of securities for Federal
income tax purposes; (viii) disclosure of investments in non-
securities; (ix) the amount of equity in net profit and loss for the
period; and (x) the dollar amount of dividends or interest in
investments in affiliates.
    \286\ See supra note 282.
    \287\ Money market funds must provide a full schedule of their
portfolio holdings in quarterly filings to the Commission, within 60
days after the end of the quarter. See Form N-CSR [17 CFR 274.128]
(form used by registered management investment companies to file
shareholder reports); Form N-Q [17 CFR 274.130] (form used by
registered management investment companies to file quarterly reports
of portfolio holdings after the first and third quarters).
    \288\ See infra Section II.E.2.
---------------------------------------------------------------------------

    As amended, rule 2a-7(c)(12) will require funds to disclose monthly
with respect to each security held: (i) The name of the issuer; (ii)
the category of investment (e.g., Treasury debt, government agency
debt, asset backed commercial paper, structured investment vehicle
note); (iii) the CUSIP number (if any); (iv) the principal amount; (v)
the maturity date as determined under rule 2a-7 for purposes of
calculating weighted average maturity; (vi) the final maturity date, if
different from the maturity date previously described; (vii) coupon or
yield; and (viii) the amortized cost value.\289\ In addition, the
amendments require funds to disclose their overall weighted average
maturity and weighted

average life maturity of their portfolios.\290\ The information
required is substantially the same as was proposed but eliminates some
of the details required by Regulation S-X, to which investors will
continue to have access in the fund's quarterly filings.\291\
---------------------------------------------------------------------------

    \289\ Amended rule 2a-7(c)(12)(ii). We have added disclosure of
the security's CUSIP number as an item of the web disclosure, which
is designed to help users identify the securities in the fund's
portfolio. We proposed and are adopting CUSIP number reporting on
Form N-MFP, and commenters did not object to this reporting. See
infra note 306 and accompanying text.
    \290\ Amended rule 2a-7(c)(12)(i). We proposed to require that
funds disclose this information on Form N-MFP, which we indicated we
intended to make public. Some commenters also recommended we include
these disclosure items in funds' Web site disclosures. See Assoc.
Fin. Professionals Comment Letter; BlackRock Comment Letter;
Fidelity Comment Letter.
    \291\ As discussed above, the proposed amendments to rule 2a-7
would have required money market funds to disclose on their Web
sites their monthly schedule of investments in accordance with rules
12-12 to 12-14 of Regulation S-X. To avoid unnecessarily duplicative
disclosure obligations, we also proposed to amend rule 30b1-5 to
exempt money market funds from Item 1 of Form N-Q, which similarly
requires funds to disclose their schedule of investments in
accordance with rules 12-12 to 12-14 of Regulation S-X in quarterly
filings with the Commission. Because we have revised the Web site
disclosure requirement not to include certain items in rules 12-12
to 12-14 of Regulation S-X, the disclosure requirements of rule 2a-7
and Item 1 of Form N-Q are no longer duplicative. As a result, we
are not adopting the proposed amendments to rule 30b1-5.
---------------------------------------------------------------------------

    Time of Posting Information on Web site. The amended rule requires
funds to post the portfolio information, current as of the last
business day of the previous month, no later than the fifth business
day of the month.\292\ Under the proposed amendments, a fund would have
been required to post the portfolio information on its Web site no
later than the second business day of the month.\293\ We have extended
the time in response to commenters that asserted that the second
business day deadline would not provide funds with enough time to
compile, review, and post the required portfolio information
accurately.\294\
---------------------------------------------------------------------------

    \292\ Amended rule 2a-7(c)(12).
    \293\ Proposed rule 2a-7(c)(12).
    \294\ See, e.g., BlackRock Comment Letter; Charles Schwab
Comment Letter; T. Rowe Price Comment Letter; Vanguard Comment
Letter. One commenter estimated that compliance with the proposed
second business day deadline would cost $1.5 million initially and
$220,000 annually. See Fidelity Comment Letter. The recommended
deadlines submitted by commenters ranged from 5 business days to 15
or 30 business days after the end of each month. In light of the
modifications we are making to the information that must be posted
on the fund's Web site, as discussed above, we believe that
lengthening the deadline to five business days should provide funds
sufficient time to compile, review, and post the portfolio holding
information accurately. We also note that a five business day
deadline will typically mean seven calendar days and, when holidays
intervene, eight calendar days.
---------------------------------------------------------------------------

    Maintenance of Information on the Web site. Portfolio information
must be maintained on the fund's Web site for no less than six months
after posting.\295\ We have reduced the maintenance period from the
proposed twelve months in response to commenters.\296\ Many commenters
stated that the proposed twelve-month maintenance period was too
long.\297\ Half of these commenters recommended a six-month period,
asserting that historical portfolio holdings information could be
obtained from publicly available semi-annual filings with the
Commission.\298\ Other commenters recommended that no historical data
be maintained on a fund's Web site at all.\299\ We believe that it is
important for investors to be able to compare current holdings
information with previous holdings information from which they (or
others analyzing the data) may discern trends. However, because
historical portfolio holdings information is available to investors in
semi-annual filings to the Commission, we have determined to reduce the
maintenance period to six months.\300\
---------------------------------------------------------------------------

    \295\ Amended rule 2a-7(c)(12). The amended rule also requires
funds to provide a link to a Securities and Exchange Commission Web
page where a user may obtain access to the fund's most recent 12
months of publicly available filings on Form N-MFP. Amended rule 2a-
7(c)(12)(iii).
    \296\ Proposed rule 2a-7(c)(12).
    \297\ See Comment Letter of Clearwater Analytics, LLC (Sept. 7,
2009) (``Clearwater Comment Letter''); Comment Letter of Data
Communiqu[eacute] (Sept. 8, 2009) (``Data Communiqu[eacute] Comment
Letter''); Dreyfus Comment Letter; Fidelity Comment Letter; Fifth
Third Comment Letter; GE Asset Mgt. Comment Letter; SIFMA Comment
Letter; T. Rowe Price Comment Letter.
    \298\ See Dreyfus Comment Letter; Fifth Third Comment Letter;
SIFMA Comment Letter; T. Rowe Price Comment Letter.
    \299\ See Clearwater Comment Letter; Data Communiqu[eacute]
Comment Letter (investors ``only interested in the most recent
data''); Fidelity Comment Letter; GE Asset Mgt. Comment Letter.
    \300\ Two commenters stated that retaining portfolio holdings
information on a fund's Web site for no more than six months would
be consistent with the current requirements for portfolio holdings
of open-end management investment companies. See Fifth Third Comment
Letter; T. Rowe Price Comment Letter.
---------------------------------------------------------------------------

2. Reporting to the Commission
    We are adopting a new rule requiring money market funds to provide
the Commission a monthly electronic filing of more detailed portfolio
holdings information. The information will permit us to create a
central database of money market fund portfolio holdings, which will
enhance our oversight of money market funds and our ability to respond
to market events.\301\ As discussed further below, the information will
also be made public on a delayed basis.
---------------------------------------------------------------------------

    \301\ As we explained in the Proposing Release, our current
information on money market portfolio holdings is limited to
quarterly reports filed with us which, due to the high turnover rate
of portfolio securities, quickly become stale. See Proposing
Release, supra note 2, at Section II.F.2.
---------------------------------------------------------------------------

    New rule 30b1-7 requires money market funds to report portfolio
information on new Form N-MFP. We received 49 comment letters on the
proposed rule and form, most of which supported enhancing our oversight
capabilities. Many of these commenters suggested technical
modifications, a number of which we are adopting, as discussed
below.\302\ The rule and form that we are adopting today are
substantially similar to what we proposed.\303\
---------------------------------------------------------------------------

    \302\ See, e.g., Charles Schwab Comment Letter; Stradley Ronon
Comment Letter; Tamarack Funds Comment Letter.
    \303\ In September 2009, we adopted interim final temporary rule
30b1-6T. Disclosure of Certain Money Market Fund Portfolio Holdings,
Investment Company Act Release No. 28903 (Sept. 18, 2009) [74 FR
48376 (Sept. 23, 2009)] (``Rule 30b1-6T Release''). We therefore
have adopted proposed rule 30b1-6 as rule 30b1-7. The portfolio
securities information that money market funds currently must report
each quarter (pursuant to rule 30b1-5) is less timely and more
limited in scope, and includes information about the issuer, the
title of the issue, the balance held at the close of the period, and
the value of each item at the close of the period. See Item 1 of
Form N-Q [17 CFR 274.130] and Item 6 of Form N-CSR [17 CFR 274.128]
(requiring funds to include a schedule of investments as set forth
in rule 12-12 through 12-14 of Regulation S-X [17 CFR 210.12-12--12-
14]).
---------------------------------------------------------------------------

    Information. Money market funds must report on Form N-MFP, with
respect to each portfolio security held on the last business day of the
prior month, the following items: \304\ (i) The name of the issuer;
(ii) the title of the issue, including the coupon or yield; \305\ (iii)
the CUSIP number; \306\ (iv) the category of investment (e.g., Treasury
debt, government agency debt, asset backed commercial paper, structured
investment vehicle note, repurchase agreement \307\); (v) the NRSROs

designated by the fund, the credit ratings given by each NRSRO, and
whether each security is first tier, second tier, unrated, or no longer
eligible; (vi) the maturity date as determined under rule 2a-7, taking
into account the maturity shortening provisions of rule 2a-7(d); (vii)
the final legal maturity date, taking into account any maturity date
extensions that may be effected at the option of the issuer; (viii)
whether the instrument has certain enhancement features; \308\ (ix) the
principal amount; (x) the current amortized cost value; \309\ (xi) the
percentage of the money market fund's assets invested in the security;
\310\ (xii) whether the security is an illiquid security (as defined in
amended rule 2a-7(a)(19)); \311\ and (xiii) ``Explanatory notes.''
\312\ Form N-MFP also requires funds to report to us information about
the fund,\313\ including information about the fund's risk
characteristics such as the dollar weighted average maturity of the
fund's portfolio and its seven-day gross yield.\314\
---------------------------------------------------------------------------

    \304\ We have revised the form's general instructions to clarify
that a filer may amend the form at any time. See Form N-MFP at
General Instruction A.
    \305\ We understand that the title of an issue typically
includes the coupon or yield of the instrument, and we have revised
Item 27 to require this information, if applicable.
    \306\ Item 20 of proposed Form N-MFP would have required a fund
to disclose the CIK of the issuer. Several commenters suggested that
the form not require the issuer's CIK because the CIK is not a
widely used identifier for money market instruments and is not
generally maintained by money market funds. See, e.g., Dreyfus
Comment Letter; Federated Comment Letter; SIFMA Comment Letter. Form
N-MFP, as adopted, only requires the issuer's CIK number if the
security does not have a CUSIP number and the issuer has a CIK. Item
28 and Item 30 of Form N-MFP. If the security does not have a CUSIP
number, the fund must provide a unique identifier for the security
if there is one. Item 29 of Form N-MFP.
    \307\ For repurchase agreements we are also requiring funds to
provide additional information regarding the underlying collateral.
Item 32 of Form N-MFP. This information would have been required
under our proposed amendments to rule 2a-7 regarding the Web site
disclosure of portfolio holdings. Although we continue to believe
that the information is important to understanding the risks
associated with a repurchase agreement and should be readily
available to investors who seek it, we agree with commenters who
asserted that that level of detail may not be necessary on the Web
site disclosure. Fidelity Comment Letter (``detailed information
regarding repurchase agreement counterparties and collateral'' is
contained across multiple systems); ICI Comment Letter. Accordingly,
we have added the disclosure requirement to Form N-MFP.
    \308\ At the suggestion of one commenter, we are incorporating
defined terms from amended rule 2a-7 into Form N-MFP. See Federated
Comment Letter. The form requires a fund to report: (i) Whether the
instrument has a ``demand feature'' (as defined in amended rule 2a-
7(a)(9)); (ii) the identity of the issuer of the demand feature;
(iii) the designated NRSRO(s) for the demand feature or its
provider; (iv) the credit rating provided by each designated NRSRO,
if any; (v) whether the instrument has a ``guarantee'' (as defined
in amended rule 2a-7(a)(17)); (vi) the identity of the guarantor;
(vii) the designated NRSRO(s) for the guarantee or guarantor; (viii)
the credit rating provided by each designated NRSRO, if any; (ix)
whether the instrument has any other enhancements (i.e., other than
a demand feature or guarantee); (x) the type of enhancement; (xi)
the identity of the enhancement provider; (xii) the designated
NRSRO(s) for the enhancement or enhancement provider; and (xiii) the
credit rating provided by each designated NRSRO, if any. See Items
37-39 of Form N-MFP.
    \309\ Under Item 37 of proposed Form N-MFP, a fund would have
had to provide the amortized cost of a security to the nearest
hundredth of a cent. Commenters pointed out that fund accounting
systems carry costs of securities in whole cents, and recommended
that funds therefore be required to report the amortized cost to the
nearest cent. See, e.g., Dreyfus Comment Letter; ICI Comment Letter;
State Street Comment Letter. We therefore have revised the form to
require the amortized cost of each portfolio security to the nearest
cent. Item 41 of Form N-MFP.
    \310\ Under Item 39 of proposed Form N-MFP, a fund would have
had to disclose the percentage of gross assets invested in the
security. We have revised the form to require that funds disclose
the percentage of net assets invested in the security (Item 42 of
Form N-MFP) to conform to existing disclosure requirements. See rule
12-12 of Regulation S-X.
    \311\ See Item 44 of Form N-MFP. We have added this disclosure
requirement at the suggestion of one commenter who believed that it
would be useful for us to know if different funds have taken
different positions regarding the liquidity of a commonly held
security. See Federated Comment Letter. Conversely, we are not
adopting proposed Item 38, which would have required funds to
disclose whether the inputs used in determining the value of the
securities are Level 1, Level 2, or Level 3, if applicable. See
Financial Accounting Standards Board, Statement of Financial
Accounting Standards No. 157, ``Fair Value Measurement,'' available
at http://www.fasb.org/cs/
BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=
1175818754924&blobheader=application%2Fpdf. Commenters explained
that industry practice is to categorize all securities valued
through reference to amortized cost as Level 2. See, e.g., Dreyfus
Comment Letter; ICI Comment Letter. We understand that industry
practice is to determine the value of an illiquid security using
Level 3 inputs. Requiring funds to disclose whether a security is
illiquid will provide comparable information regarding the
classification of the security.
    \312\ See Item 43 of Form N-MFP. This item permits funds to add
miscellaneous information that may be material to other disclosure
in the form.
    \313\ As proposed, many of the items would have been disclosed
with regard to each series of the fund. As adopted, however, we are
requiring that funds provide some of this information with regard to
each class of the fund, where relevant (e.g., minimum initial
investment and flow activity). We believe that class-specific
information about these items will be more useful for analysis. We
also understand that funds typically maintain this information with
regard to each class of the fund. For example, funds are required to
disclose class-specific information about net assets and flow
activities in financial statements. See Rules 6-04 and 6-09 of
Regulation S-X. Therefore we do not believe that requiring certain
information on a class basis will be any more burdensome than what
we proposed. See also Clearwater Comment Letter (suggesting that
total net asset value should be disclosed on a class-level basis).
    \314\ We also have revised or augmented some of the disclosure
items of Form N-MFP. In addition to the seven-day gross yield, the
form as adopted requires the fund's seven-day net yield for each
class as calculated under Item 26(a)(1) of Form N-1A. Item 24 of
Form N-MFP. Item 15 of proposed Form N-MFP would have required that
a fund provide its net shareholder flow activity for the month
ended. As adopted, Form N-MFP requires the net shareholder flow
information for each class and also requires the fund to provide the
gross subscriptions and redemptions for the month from which the net
shareholder flow is calculated. Item 23 of Form N-MFP. Item 9 of
proposed Form N-MFP would have required a fund to indicate if the
fund was primarily used to invest cash collateral. One commenter
stated that the term ``cash collateral'' is ambiguous (it could
include corporate trust accounts and escrows as well as collateral
for securities loans or over-the-counter derivatives) and that it
would be difficult for a fund to know when it is being used
``primarily'' for these investments. See Federated Comment Letter.
As adopted, Form N-MFP does not require this information. Items 12-
14 of proposed Form N-MFP would have required certain assets and
liabilities information to the nearest hundredth of a cent. We have
slightly revised these items to conform to accounting conventions
and added an item for the net assets of the class. Items 13-16 and
21-22 of Form N-MFP. In addition, in response to commenters'
assertion that fund accounting systems only carry costs in whole
cents, Form N-MFP as adopted requires this information to the
nearest cent. Id.
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    Money market funds also must report on Form N-MFP the market-based
values of each portfolio security \315\ and the fund's market-based net
asset value per share, with separate entries for values that do and do
not take into account any capital support agreements into which the
fund may have entered.\316\ When we proposed Form N-MFP, we solicited
comment on requiring funds to report market-based values, including the
value of any capital support agreement, on the form.\317\ Two
commenters supported requiring money market funds to report market-
based values to the Commission.\318\ Other commenters objected to the
public disclosure of market-based values.\319\ We have decided to
require market-based information in the monthly reports, because it
will assist us in our understanding of fund portfolio valuation
practices as well as the potential risks associated with a fund, e.g.,
a fund that has a market-based net asset value that suggests that it
may be at risk of breaking the buck. The information regarding capital
support agreements will help show the extent to which the funds'
valuations depend on external support agreements.
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    \315\ See Items 45-46 of Form N-MFP. It should be noted that
Form N-MFP requires the total market-based value of each portfolio
security, not the per-unit price of the security.
    \316\ See Item 18 (shadow NAV of the series) and Item 25 of Form
N-MFP (shadow NAV of each class).
    \317\ See Proposing Release, supra note 2, at paragraph
accompanying n.253.
    \318\ See Fund Democracy/CFA Comment Letter (``We strongly
support the SEC's proposal to require that additional information be
filed with the Commission on a temporarily confidential basis. It is
critical that the Commission be able to gauge the stability of the
MMF industry on an ongoing basis. * * * We believe strongly that the
values at which MMFs are carrying portfolio securities is the most
important piece of information for monitoring potential liquidity
problems.''); Tamarack Funds Comment Letter.
    \319\ See, e.g., ABA Comment Letter; Dreyfus Comment Letter;
Goldman Sachs Comment Letter; Tamarack Funds Comment Letter.
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    Public availability. Under rule 30b1-7, the information contained
in the portfolio reports that money market funds file with the
Commission on Form N-MFP will be available to the public 60 days after
the end of the month to which the information pertains.\320\ Although
the portfolio information and other information reported to the
Commission on Form N-MFP is not

primarily designed for individual investors, we anticipate that many
investors, as well as academic researchers, financial analysts, and
economic research firms, will use this information to study money
market fund holdings and evaluate their risk. Their analyses may help
other investors and regulators better understand risks in money market
fund portfolios.\321\ Therefore we believe that it is important to make
this information publicly available.
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    \320\ Rule 30b1-7(b). As discussed above, money market fund
portfolio information will be required to be posted on fund Web
sites within five business days after the end of the month. See
supra notes 292-294 and accompanying text.
    \321\ See Proposing Release, supra note 2, at paragraph
accompanying n.245. See also Clearwater Comment Letter (``[R]egular
disclosure will also allow third-party analytics and reporting
providers to make meaningful comparisons of money funds and
highlight certain characteristics that are of interest to investors
and the market generally.'').
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    In the Proposing Release, we stated that we expected to make the
information filed on Form N-MFP available to the public on a delayed
basis, and we also requested comment on whether the rule should require
funds to report, and therefore disclose to the public, the market-based
valuations of the portfolio securities and of the net asset value of
the fund.\322\ As discussed further below, commenters' objections to
public availability of the information collected on Form N-MFP
generally fell into two categories--the competitive effects of
portfolio information and the potentially de-stabilizing effects of
market-based value information. We address each objection in turn.
---------------------------------------------------------------------------

    \322\ We stated that we intended to make Form N-MFP information
public two weeks after the filing of the form. See Proposing
Release, supra note 2, at paragraph accompanying n.245.
---------------------------------------------------------------------------

    First, some commenters objected to the disclosure of information
filed on Form N-MFP because of its competitive effects on funds or fund
managers. Three commenters argued that the information to be provided
on the form is proprietary, sensitive, or confidential in nature.\323\
Others expressed concern that making the information public could
result in ``investor confusion.'' \324\ Two other commenters, however,
supported making Form N-MFP information available to the public on a
delayed basis.\325\ One of them emphasized the positive effect that
public disclosure can have on portfolio management practices.\326\
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    \323\ See BlackRock Comment Letter; Federated Comment Letter; T.
Rowe Price Comment Letter.
    \324\ See, e.g., Fidelity Comment Letter; GE Asset Mgt. Comment
Letter; Vanguard Comment Letter. Some commenters stated that the
monthly fund Web site postings would provide sufficient transparency
for investors. See, e.g., Fifth Third Comment Letter; ICI Comment
Letter; Vanguard Comment Letter.
    \325\ See Fund Democracy/CFA Comment Letter; Comment Letter of
J.P. Morgan Investor Services Co. (Sept. 4, 2009).
    \326\ See Fund Democracy/CFA Comment Letter.
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    We believe commenters overstated the competitive risks for money
market funds of public access to the fund's information. As we
discussed in the Proposing Release, the risks of trading ahead of funds
are severely curtailed in the context of money market funds, because of
the short-term nature of money market fund investments and the
restricted universe of eligible portfolio securities.\327\ For similar
reasons, we believe that the potential for ``free riding'' on a money
market fund's investment strategies, i.e., obtaining for free the
benefits of fund research and investment strategies, is minimal.
Because shares of money market funds are ordinarily purchased and
redeemed at the stable price per share, we believe that there would be
relatively few opportunities for profitable arbitrage by investors.
Moreover, most funds currently disclose their current portfolios on
their Web sites, and much of the information contained in Form N-MFP is
already available through other publicly available filings with the
Commission, albeit on a less frequent basis.\328\
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    \327\ See Proposing Release, supra note 2, at n.379 and
accompanying and following text; ICI Report, supra note 14, at 93
(``Because of the specific characteristics of money market funds and
their holdings * * * the frontrunning concerns are far less
significant for this type of fund. For example, money market funds'
holdings are by definition very short-term in nature and therefore
would not lend themselves to frontrunning by those who may want to
profit by trading in a money market fund's particular holdings. Rule
2a-7 also restricts the universe of Eligible Securities to such an
extent that frontrunning, to the extent it exists at all, tends to
be immaterial to money market fund performance.'').
    \328\ As noted above, money market funds must provide a full
schedule of their portfolio holdings in quarterly filings to the
Commission. See supra note 287.
---------------------------------------------------------------------------

    Second, many commenters objected to the disclosure of the market-
based values of portfolio securities and of fund net asset value per
share, because of the possible destabilizing effects on money market
funds. These commenters stated that disclosure of market-based values
would result in investor confusion and alarm that could result in
redemption requests that exacerbate pricing deviations.\329\ One
commenter supported the disclosure of market-based net asset values,
stating that the disclosure could provide discipline to managers
operating their funds near the level of breaking the buck, and would
level the informational playing field for less sophisticated
investors.\330\ Another commenter supported only the public disclosure
of market-based portfolio securities values.\331\
---------------------------------------------------------------------------

    \329\ See, e.g., ABA Comment Letter; T. Rowe Price Comment
Letter; USAA Comment Letter (redemptions might lead to greater
volatility in cash flows and increase the instability of the fund).
In addition, one commenter stated that the investor confusion might
result in additional costs for funds due to the need to answer
investor inquiries. See Dreyfus Comment Letter.
    \330\ See Shadow FRC Comment Letter.
    \331\ See Clearwater Comment Letter.
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    We appreciate the risks that are involved with the real-time public
disclosure of a fund's market-based portfolio and net asset values.
Money market funds normally pay redeeming shareholders $1.00 per share
even if their market-based net asset value is less than $1.00. These
redemptions can hurt the fund's remaining shareholders because the
realized and unrealized losses are spread across fewer shares, further
depressing the fund's market-based net asset value. If enough
shareholders redeem shares under these conditions, the fund, absent a
capital contribution by its investment adviser or another person, can
break the buck, causing remaining shareholders to receive less than
$1.00 per share. We believe that many institutional investors are
currently well aware of this dynamic. If more shareholders understand
the mechanical relationship between shareholder redemptions and market-
based net asset value, the disclosure of a market-based net asset value
below $1.00 might precipitate a run on the fund. If one fund were to
fail for this reason, runs might develop in other money market funds,
even those with relatively high market-based net asset values.
    Notwithstanding these risks, we believe that shareholders will
benefit from knowing the monthly market-based net asset values of money
market funds.\332\ We anticipate that the public availability of these
values will help investors make better informed decisions about whether
to invest, or maintain their investments, in money market funds. This
disclosure will indicate the extent to which the fund is managing its
portfolio to achieve its fundamental objective of maintaining a stable
net asset value. In addition, if market-based prices indicate
significant risks in a fund's portfolio, investors, advisers and others
can have a more meaningful dialogue with the fund's manager about such
risks and any plans the fund manager may have to address any discounts
between the market-based net asset value and the stable net asset
value. This type of dialogue already

takes place between sophisticated investors and funds that disclose
portfolio information on a current basis. These sophisticated, often
institutional, investors have the resources to estimate current market
values and make purchase and redemption decisions on the basis of
information that, in the past, has been beyond the reach of most retail
investors.
---------------------------------------------------------------------------

    \332\ Adequate disclosure to investors is a fundamental
principle of the Commission's regulatory mandate. See, e.g., section
1(b), 1(b)(1) of the Investment Company Act (``[N]ational public
interest and the interests of investors are adversely affected * * *
when investors purchase, pay for, exchange, * * * sell, or surrender
securities issued by investment companies without adequate,
accurate, and explicit information * * *.'').
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    As a collateral effect, we expect that the public disclosure of
monthly market-based net asset values may have the effect of
discouraging a fund's portfolio manager from taking risks that might
reduce the fund's market-based net asset value.\333\ We also anticipate
that such disclosure may lead to greater cash flows into funds that
have a smaller discount from the $1.00 NAV (or less historical
volatility in that discount). This disclosure, which will provide
values that include and exclude the effect of any capital support
agreements, might also have the effect of encouraging funds that have
affiliates to request financial support or other appropriate measures
as soon as problems develop. Such support or other measures could
provide greater stability to money market funds.
---------------------------------------------------------------------------

    \333\ See Fund Democracy/CFA Comment Letter (``[G]reater
transparency should provide a strong incentive for funds to avoid
the excessively risky practices that lead to instability and
encourage redemption.'').
---------------------------------------------------------------------------

    Nevertheless, we understand commenters' concerns that the
disclosure of certain fund information, including market-based values,
might result in investor confusion and alarm, at least in the short
term, that could result in redemption requests that exacerbate pricing
deviations.\334\ In response to these and other concerns discussed
above, we are delaying the public availability of the information filed
on Form N-MFP for 60 days after the end of the reporting period.\335\
This 60-day delay in public availability mirrors the current 60-day lag
under other rules between the end of a fund's reporting period and the
public filing of portfolio information with the Commission.\336\ In
addition, funds currently are required to file twice a year a public
report that includes the fund's market-based net asset value, within 60
days after the end of the reporting period.\337\
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    \334\ See supra note 329 and accompanying text.
    \335\ Rule 30b1-7(b).
    \336\ Funds are required to file each quarter with the
Commission portfolio holdings reports, which are available to the
public, within 60 days after the end of the quarter. See supra note
287.
    \337\ Money market funds currently must disclose their mark-to-
market net asset value per share, to four decimals, twice a year in
their Form N-SAR filings [17 CFR 274.101]. See Sub-Item 74W of Form
N-SAR. Form N-SAR must be filed with the Commission no later than
the 60th day after the end of the fiscal period for which the report
is being prepared. See General Instruction C to Form N-SAR.
Information supplied on Form N-SAR is publicly available on EDGAR
and in the public files of the Commission. See General Instruction A
to Form N-SAR.
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    We anticipate that, during the 60 days between the end of the
reporting period and public availability of the information, funds will
take steps to resolve issues that may raise concerns with investors and
analysts. In addition, because money market fund portfolios have a
limited maturity, many of the portfolio securities will have matured by
the time the information is released to the public. Thus we expect that
the 60-day delay will ameliorate many of the risks associated with
public disclosure. We also expect that, over time, investors and
analysts will become more accustomed to the information disclosed about
fund portfolios, and thus there may be less need in the future to
require a 60-day delay between the end of the reporting period and the
public availability of the information. We therefore may revisit in a
subsequent release whether to retain the same (or any) delay in public
availability of this information.
    Timing. Each money market fund must submit Form N-MFP
electronically to the Commission within five business days after the
end of each month.\338\ Under the proposed rule, a fund would have been
required to file Form N-MFP with the Commission no later than two
business days after the end of each month. Commenters asserted that the
second business day deadline would not have provided funds enough time
to compile, review, and file the requested portfolio information
accurately.\339\
---------------------------------------------------------------------------

    \338\ See rule 30b1-7.
    \339\ See, e.g., BlackRock Comment Letter; Dreyfus Comment
Letter; Vanguard Comment Letter. The recommended deadlines submitted
by commenters ranged from five business days to 15 to 30 business
days. We are providing for an extended implementation period before
compliance with rule 30b1-7 is required, as discussed below, during
which time funds will be able to build or update systems to compile
the data and file the new form, test those systems, and possibly