participate in the voluntary compliance program. Therefore, we
believe that lengthening the deadline to five business days should
provide funds sufficient time to compile, review, and file Form N-
MFP accurately.
---------------------------------------------------------------------------

    In response to commenters, we are delaying the mandatory filing
date for several months after the effective date of the amendments, to
permit money market funds to develop systems necessary to collect and
submit the portfolio information on Form N-MFP.\340\ Thus, the first
mandatory filing will be due on December 7, 2010, for holdings as of
the end of November 2010. For approximately two months before the first
mandatory filing, our staff will accept the submission of trial data so
that money market funds may voluntarily make (non-public) electronic
submissions with us. We anticipate that these submissions will help
money market funds gain experience collecting and submitting the
information, and we will use these submissions and the experiences of
the funds to make technical adjustments to our systems and provide any
guidance. Because of the possibility of errors or mistakes in the
information submitted, we do not intend to make the trial data public.
---------------------------------------------------------------------------

    \340\ Several commenters requested that the Commission allow
funds at least six months before mandatory compliance with the new
reporting requirement on Form N-MFP. See, e.g., FAF Advisors Comment
Letter; ICI Comment Letter; J.P. Morgan Asset Mgt. Comment Letter.
---------------------------------------------------------------------------

    Method of filing. As proposed, Form N-MFP must be filed
electronically through the Commission's EDGAR system in an eXtensible
Markup Language (``XML'') tagged data format.\341\ We understand that
money market funds already maintain most of the information that will
be filed on the form, and therefore the main requirement for funds will
be the tagging of the data and filing of the reports with the
Commission.\342\ Some commenters recommended that the Commission
require that Form N-MFP be filed in an eXtensible Business Reporting
Language (``XBRL'') format.\343\ Although XBRL may allow for more
comparative analysis or more opportunities for manipulation of data
than XML allows, we believe that the data required by Form N-MFP will
be clearly defined and often repetitive from one month to the next, and
therefore the XML format will provide us with the necessary information
in the most timely and cost-effective manner.\344\

Over time we expect these filings will become highly automated and
involve minimal costs.
---------------------------------------------------------------------------

    \341\ We anticipate that the XML interactive data file will be
compatible with a wide range of open source and proprietary
information management software applications. Continued advances in
interactive data software, search engines, and other Web-based tools
may further enhance the accessibility and usability of the data.
    \342\ We understand that many funds often provide this type of
information in different formats to various information services and
third-parties, including NRSROs. Standardizing the data format in
Form N-MFP may encourage standardization across the industry,
resulting in cost savings for money market funds.
    \343\ See, e.g., Comment Letter of the American Institute of
Certified Public Accountants (Sept. 8, 2009); Comment Letter of
EDGAR Online, Inc. (July 23, 2009); Comment Letter of XBRL US (Sept.
8, 2009). Most commenters were neutral on the submission format for
Form N-MFP. See, e.g., Clearwater Comment Letter; Fund Democracy/CFA
Comment Letter; ICI Comment Letter.
    \344\ The XBRL format would require a longer period for
implementation by the Commission and funds, and would entail
additional costs. However, the XBRL format derives from and is
compatible with the XML format. Moreover, to the extent possible, we
intend to follow the naming convention for the XBRL-tagging of the
Schedule of Investments in the voluntary filer program. See
Interactive Data for Mutual Fund Risk/Return Summary, Investment
Company Act Release No. 28617 (Feb. 11, 2009) [74 FR 7748 (Feb. 19,
2009)]. If the Commission determines at a future date to require the
filing of Form N-MFP in an XBRL format, the Commission and funds
might benefit from their experience with their existing XML
technology.
---------------------------------------------------------------------------

3. Phase-Out of Weekly Reporting by Certain Funds
    We are adopting as final rule 30b1-6T, the temporary rule that
requires the weekly filing of portfolio information by money market
funds in certain circumstances. As adopted, the only change to the rule
is the expiration date. Rule 30b1-6T will expire on December 1, 2010,
which corresponds with the first filing of portfolio information
required by new rule 30b1-7.
    In September 2009, we adopted rule 30b1-6T.\345\ The rule requires
any money market fund that has a market-based net asset value per share
below $0.9975 to provide the Commission with weekly portfolio and
valuation information. The information required by the rule is similar
to the information money market funds participating in the Treasury
Department's Guarantee Program were required to provide under similar
circumstances.\346\ We requested comments on the rule when we adopted
it, but received none.\347\
---------------------------------------------------------------------------

    \345\ See Rule 30b1-6T Release, supra note 303. We adopted the
rule on an interim final basis. See id. at Section II.C.
    \346\ See rule 30b1-6T(b)(3). See also supra note 16.
    \347\ See Rule 30b1-6T Release, supra note 303, at Section III.
---------------------------------------------------------------------------

    Rule 30b1-6T originally would have expired one year after we
adopted it, i.e., on September 17, 2010.\348\ The information that rule
30b1-7, which we are adopting today, will require all money market
funds to file on a monthly basis subsumes the information that funds
with lower market-based NAVs were required to file under rule 30b1-6T.
Therefore we are phasing out the latter rule, but are extending its
expiration date so that we will continue to receive weekly reports
until the monthly reporting requirements of rule 30b1-7 are mandatory.
After that time, our monitoring of information filed by money market
funds on Form N-MFP, as well as notifications of purchases of certain
assets from funds in reliance on rule 17a-9 should enable our staff to
identify, and analyze information from, money market funds that exhibit
signs of distress and the need for further monitoring.\349\
---------------------------------------------------------------------------

    \348\ Rule 30b1-6T(d).
    \349\ See infra Section II.G.2 (notification provision under
amended rule 2a-7 concerning purchases undertaken in reliance on
rule 17a-9).
---------------------------------------------------------------------------

    Because the compliance date for filing monthly portfolio
information on Form N-MFP is December 7, 2010, we are amending rule
30b1-6T so that it expires on December 1, 2010. The last date that
funds will be required to file information under rule 30b1-6T therefore
will be on November 30, 2010.

F. Processing of Transactions

    We are amending rule 2a-7, substantially as proposed, to require
that a fund (or its transfer agent) have the capacity to redeem and
sell its securities at a price based on the fund's current net asset
value per share, including the capacity to sell and redeem shares at
prices that do not correspond to the stable net asset value or price
per share.\350\ This amendment will require that shareholder
transactions be processed in an orderly manner, even under
circumstances that require a fund to ``break a dollar.''\351\ Other
types of mutual funds already have this ability to process transactions
at varying prices.
---------------------------------------------------------------------------

    \350\ Amended rule 2a-7(c)(13).
    \351\ Once a fund has broken a dollar, the fund could no longer
use penny-rounding method of pricing or the amortized cost method of
valuing portfolio securities, and therefore would have to compute
share price by reference to the market values of the portfolio with
the accuracy of at least a tenth of a cent. See 1983 Adopting
Release, supra note 6, at n.6 and accompanying text. Thus, a fund
whose market-based net asset value was determined to be $0.994
would, upon ceasing to use the amortized cost method of valuation,
begin to redeem shares at $0.994 (rather than at $0.990). See
generally id.
---------------------------------------------------------------------------

    Several commenters supported the proposed amendment, noting that it
is important that funds be able to redeem shareholders at prices based
on the current net asset value of the fund.\352\ Some commenters
expressed concerns about the costs for funds to modify their systems
under the amendment.\353\ We noted when we proposed the amendment that,
because funds are already obligated to redeem at a price other than the
stable net asset value per share, there should be no new cost
associated with the requirement that funds (or their transfer agents)
have systems that can meet these requirements.\354\ It is the
responsibility of money market funds, as issuers of redeemable
securities, to be able to satisfy redemption requests within seven days
after tender of the securities, even if a fund has re-priced its net
asset value at a price other than its stable net asset value per
share.\355\ Based on our recent experience, we believe it is unlikely
that a fund that breaks the dollar would be able to satisfy redemption
requests within seven days if it did not already have the capacity to
process redemptions at prices other than the stable net asset
value.\356\ To the extent that funds incur costs in meeting the new
requirement, we believe the benefits to shareholders justify those
costs, which we discuss in detail in the cost benefit section
below.\357\
---------------------------------------------------------------------------

    \352\ See, e.g., Dreyfus Comment Letter; Fund Democracy/CFA
Comment Letter; MFDF Comment Letter.
    \353\ See, e.g., Federated Comment Letter; RidgeWorth Comment
Letter.
    \354\ See Proposing Release, supra note 2, at Section V.A.6
(cost benefit analysis).
    \355\ See section 22(e) of the Act.
    \356\ As we noted in the Proposing Release, the inability of one
money market fund in 2008 to be able to process securities at prices
other than $1.00 per share impeded its ability to distribute assets
during its liquidation. See Proposing Release, supra note 2, at
n.262 and accompanying text. Even if a fund were to break a dollar,
decide to liquidate, and suspend redemptions in reliance on new rule
22e-3 that we are adopting today, see infra Section II.H, the fund's
ability to process redemptions at prices other than the stable net
asset value is necessary to facilitate the orderly liquidation of
the fund.
    \357\ See infra Section V.
---------------------------------------------------------------------------

    When we proposed the amendment, we proposed to require that the
fund's board of directors determine that the fund has the capacity to
sell and redeem securities at the current net asset value.\358\ We
asked for comments on the board's role, and specifically whether the
rule should require that the fund simply have the ability to process
transactions at the fund's current net asset value without a specific
board determination.\359\ Some commenters preferred that the board not
be required to make such a determination, arguing that the
determination is operational in nature and more appropriate for the
fund's investment adviser or chief compliance officer to make.\360\ We
agree that the focus of the rule should be on the fund's ability to
process transactions, rather than on the board's determination
regarding that ability, because the issue is operational in nature and
need not directly involve the board. We have therefore revised the rule
accordingly.\361\
---------------------------------------------------------------------------

    \358\ Proposed rule 2a-7(c)(1) (last two sentences).
    \359\ See Proposing Release, supra note 2, at text following
n.263.
    \360\ See, e.g., Federated Comment Letter; MFDF Comment Letter;
NYC Bar Assoc. Comment Letter.
    \361\ As adopted, the new requirement is paragraph (c)(13) of
amended rule 2a-7, titled ``Processing of Transactions.''
---------------------------------------------------------------------------

    Some commenters raised the issue of whether the rule applies to
third-party intermediaries, i.e., whether it requires third parties to
have the capacity to

process transactions in a money market fund at prices other than the
fund's stable net asset value.\362\ The rule by its terms applies only
to money market funds and their transfer agents. We note, however, that
intermediaries themselves typically have separate obligations to
investors with regard to the distribution of proceeds received in
connection with investments made or assets held on behalf of those
investors.\363\
---------------------------------------------------------------------------

    \362\ See, e.g., Tamarack Funds Comment Letter (requesting that
the Commission clarify that funds ``are not responsible for ensuring
that intermediaries have the capacity to effect share transactions
at other than $1.00''); Russell Inv. Comment Letter (stating that
the proposed rule amendment would not apply to intermediaries); see
also ICI Comment Letter (``proposed amendments are silent with
respect to * * * similar systems changes for broker-dealers, banks,
insurance companies, trusts, 401(k) recordkeepers, and others that
process such amendments''). Some commenters raised concerns about
the costs that third parties might bear to revise their computer
systems to have the capacity to accommodate purchases and
redemptions of money market fund shares at prices other than the
fund's stable net asset value. See, e.g., ICI Comment Letter.
    \363\ Cf. rule 15c3-3(e)(3) under the Securities Exchange Act
[17 CFR 240.15c3-3(e)(3)] (requiring broker-dealers to periodically
re-compute the value of bank accounts held on behalf of broker-
dealer customers); rule 15c3-2 under the Securities Exchange Act [17
CFR 240.15c3-2] (prohibiting a broker-dealer from using proceeds
from free credit balances unless the proceeds are payable on demand
of the customer). See also Gilman v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 404 N.Y.S.2d 258, 262 (N.Y. Sup. Ct. 1978) (holding
that after an investment is sold and proceeds belonging to the
customer come into the broker's possession, the broker becomes a
fiduciary with respect to those proceeds and may not consciously use
them to the detriment of his customer and for his own benefit).
---------------------------------------------------------------------------

    Several commenters requested that, if the Commission adopted the
rule amendment, it provide ample time for money market funds to change
their systems to accommodate purchases and redemptions at the current
net asset value.\364\ We have established a compliance date of October
31, 2011, which is approximately 18 months after the effective date of
the rule amendments, and more than 20 months after adoption of the
amendments. This compliance period is designed to enable funds and
those who act on their behalf sufficient time to come into full
compliance with the amended rule.
---------------------------------------------------------------------------

    \364\ See, e.g., Federated Comment Letter (requesting at least
one year); ICI Comment Letter (requesting at least two and a half
years); SIFMA Comment Letter (requesting an ``adequate period of
time'').
---------------------------------------------------------------------------

G. Exemption for Affiliate Purchases

    The Commission is adopting an amendment to rule 17a-9 under the
Investment Company Act to expand the circumstances under which certain
affiliated persons can purchase portfolio securities from a money
market fund.\365\ The amendment permits money market funds to dispose
of distressed securities (e.g., securities depressed in value as a
result of market conditions) quickly during times of market stress. The
Commission is also adopting a related amendment to rule 2a-7, which
requires funds to report all such transactions to the Commission.
---------------------------------------------------------------------------

    \365\ Rule 17a-9 provides an exemption from section 17(a) of the
Act to permit affiliated persons of a money market fund to purchase
distressed portfolio securities from the fund. Absent a Commission
exemption, section 17(a)(2) prohibits any affiliated person or
promoter of or principal underwriter for a fund (or any affiliated
person of such a person), acting as principal, from knowingly
purchasing securities from the fund. Rule 17a-9 exempts certain
purchases of securities from a money market fund from section 17(a),
if the purchase price is equal to the greater of the security's
amortized cost or market value (in each case, including accrued
interest). For convenience, in this Release we refer to all of the
persons who would otherwise be prohibited by section 17(a)(2) from
purchasing securities of a money market fund as ``affiliated
persons.'' ``Affiliated person'' is defined in section 2(a)(3) of
the Act.
---------------------------------------------------------------------------

1. Expanded Exemptive Relief
    We are adopting the amendment to rule 17a-9, as proposed. The
amendment expands the exemption provided by the rule from the Act's
prohibition on affiliated transactions to permit affiliated persons to
purchase from a money market fund a portfolio security that has
defaulted,\366\ but that continues to be an eligible security, as long
as the conditions of the rule governing the purchase price are
satisfied.\367\ These conditions require that the purchase price is
paid in cash and is equal to the greater of the security's amortized
cost or its market value, including accrued interest.\368\
---------------------------------------------------------------------------

    \366\ The rule excludes an immaterial default unrelated to the
financial condition of the issuer, which would make the rule
unavailable in the case of defaults that are technical in nature,
such as where the obligor has failed to provide a required notice or
information on a timely basis. See Proposing Release, supra note 2,
at n.272. Other provisions of rule 2a-7 currently except immaterial
defaults unrelated to the financial condition of the issuer. See
amended rule 2a-7(c)(7)(ii)(A).
    \367\ See amended rule 17a-9(a). Previously, the exemption was
available only for the purchase of a portfolio security that was no
longer an ``eligible security.'' This could occur, for example, when
a security's ratings are downgraded. As we explained in the
Proposing Release, this limitation served as a proxy indicating that
the market value of the security was likely less than its amortized
cost value, and thus the resulting transaction was fair to the fund
and did not involve overreaching. See Proposing Release, supra note
2, at n.269 and accompanying text.
    \368\ See amended rule 17a-9(a)(1)-(2).
---------------------------------------------------------------------------

    We are adding a new provision to the rule that will more broadly
permit affiliated persons, under the same conditions as discussed
above, to purchase other portfolio securities from an affiliated money
market fund, for any reason, provided that such person promptly remits
to the fund any profit it realizes from the later sale of the
security.\369\ In these circumstances there may not be an objective
indication that the security is distressed and thus that the
transaction is clearly in the interest of the fund. Therefore, as
proposed, we have added the ``claw back'' requirement to eliminate
incentives for fund advisers and other affiliated persons to buy
securities for reasons other than protecting fund shareholders from
potential future losses.
---------------------------------------------------------------------------

    \369\ See amended rule 17a-9(b)(1)-(2).
---------------------------------------------------------------------------

    Commenters supported the proposed amendment, agreeing that it would
provide money market fund advisers with important flexibility to manage
fund assets for the benefit of all shareholders during volatile
periods.\370\ One commenter opposed the proposed amendment out of
concern that the expansion of the rule may exacerbate the unwarranted
expectation of some shareholders that advisers will take whatever steps
are necessary to financially support the $1.00 share price of their
money market funds.\371\ While we appreciate the commenter's concern,
we do not believe that today's action will materially change
shareholders' perceptions about money market funds or the likelihood of
sponsor support during times of market turmoil. The amendment simply
extends the existing rule to types of transactions that historically
have been permitted through no-action assurances obtained from the
Commission's staff because the staff believed they were in the best
interest of the fund's shareholders.\372\
---------------------------------------------------------------------------

    \370\ See, e.g., Dreyfus Comment Letter; Vanguard Comment
Letter.
    \371\ See Federated Comment Letter.
    \372\ See Proposing Release, supra note 2, at nn.270-71 and
preceding, accompanying, and following text.
---------------------------------------------------------------------------

    The amendment to rule 17a-9 that we are adopting today is intended
to enable advisers to address acute credit or liquidity problems in a
money market fund portfolio by purchasing securities from the fund that
would be difficult or impossible to sell on the open market at or near
their amortized cost. We have crafted the conditions of the rule,
including the pricing conditions and the new claw back provision, to
protect shareholders' interests and prevent overreaching by advisers.
Our staff's experience is that, under such circumstances, these
transactions appear to be fair and reasonable and in the best interests
of fund shareholders.\373\ Moreover, we believe that the alternative of
funds obtaining no-action assurances from the Commission staff for
these transactions,

particularly during times of market stress, is time consuming and
inefficient.
---------------------------------------------------------------------------

    \373\ See Proposing Release, supra note 2, at text following
n.271.
---------------------------------------------------------------------------

2. New Reporting Requirement
    We also are adopting an amendment to rule 2a-7 to require a money
market fund whose securities have been purchased by an affiliated
person in reliance on rule 17a-9 to provide us with prompt notice by
electronic mail of the transaction and the reasons for the
purchase.\374\ Such reasons might include, for example, that the fund's
adviser expected that the security would be downgraded, that due to the
decreased market value of the security the fund was at risk of breaking
the buck, or that the fund was experiencing significant redemption
requests and wished to avoid a ``fire sale'' of assets to satisfy such
requests. The amendment is intended to provide us with more complete
information about these transactions and to alert us to potential
problems the fund may be experiencing.
---------------------------------------------------------------------------

    \374\ Amended rule 2a-7(c)(7)(iii)(B). We have clarified that
not only purchases by affiliated persons, but also purchases by
promoters and principal underwriters of a fund, and any affiliated
person of such persons, which are exempt under rule 17a-9, must be
reported to the Commission under the provision. Compare amended rule
2a-7(c)(7)(iii)(B) with proposed rule 2a-7(c)(7)(iii)(B).
---------------------------------------------------------------------------

    All commenters who addressed the proposed reporting requirement
agreed with the need to provide the Commission with this
information.\375\ At the suggestion of one,\376\ we have modified the
requirement to provide that the notification must include the price at
which the transaction was conducted and the amortized cost value of the
security (which will be different if the market value is higher than
the amortized cost), which will help us monitor whether the pricing
conditions of rule 17a-9 have been satisfied.\377\
---------------------------------------------------------------------------

    \375\ See, e.g., BlackRock Comment Letter, Dreyfus Comment
Letter. One suggested that sales prices of any securities purchased
by the adviser pursuant to rule 17a-9 be promptly reported to the
fund's board of directors as well as to the Commission. Comment
Letter of the Independent Trustees of Fidelity Fixed Income Funds
(Sept. 8, 2009) (``Fidelity Fixed Income Indep. Trustees Comment
Letter''). We are not extending the reporting provision to include
notification to fund boards because the provision is intended to
enable the Commission to monitor how rule 17a-9 is being used.
Nevertheless, we expect that fund boards will want to know this
information and will request it.
    \376\ See Fidelity Fixed Income Indep. Trustees Comment Letter.
    \377\ See amended rule 2a-7(c)(iii)(B).
---------------------------------------------------------------------------

H. Fund Liquidation

    The Commission is adopting new rule 22e-3, which exempts money
market funds from section 22(e) of the Act to permit them to suspend
redemptions and postpone payment of redemption proceeds in order to
facilitate an orderly liquidation of the fund. The rule permits a fund
to suspend redemptions and payment of redemption proceeds if (i) The
fund's board, including a majority of disinterested directors,
determines that the deviation between the fund's amortized cost price
per share and the market-based net asset value per share may result in
material dilution or other unfair results, (ii) the board, including a
majority of disinterested directors, irrevocably has approved the
liquidation of the fund, and (iii) the fund, prior to suspending
redemptions, notifies the Commission of its decision to liquidate and
suspend redemptions.\378\ The new rule replaces rule 22e-3T, a
temporary rule that provided a similar exemption for money market funds
that participated in the Treasury Department's Guarantee Program.\379\
---------------------------------------------------------------------------

    \378\ Rule 22e-3(a). A fund that intends to be able to rely on
rule 22e-3 may also need to update its prospectus to disclose the
circumstances under which it may suspend redemptions. See, e.g.,
Item 6 of Form N-1A (``Purchase and Sale of Fund Shares'').
    \379\ See Temporary Exemption for Liquidation of Certain Money
Market Funds, Investment Company Act Release No. 28487 (Nov. 20,
2008) [73 FR 71919 (Nov. 26, 2008)]. The Treasury Department's
Guarantee Program guaranteed that shareholders of a participating
money market fund would receive the fund's stable share price for
each share owned as of September 19, 2008, if the fund were to
liquidate under the terms of the Program. See supra note 16 and
accompanying text. The Program expired on September 19, 2009, and
rule 22e-3T expired on October 18, 2009.
---------------------------------------------------------------------------

    Rule 22e-3 is intended to reduce the vulnerability of investors to
the harmful effects of a run on the fund, and minimize the potential
for disruption to the securities markets. Because the suspension of
redemptions may impose hardships on investors who rely on their ability
to redeem shares, the conditions of the rule limit the fund's ability
to suspend redemptions to circumstances that present a significant risk
of a run on the fund and potential harm to shareholders. The rule is
designed only to facilitate the permanent termination of a fund in an
orderly manner. We are revising one of the conditions of the rule,
which requires that the board approve the liquidation of the fund, to
provide that the fund board must have irrevocably approved the
liquidation of the fund.\380\
---------------------------------------------------------------------------

    \380\ Rule 22e-3(a)(2). This revision is designed to limit the
availability of the rule to extraordinary circumstances, by
preventing a fund from invoking the rule if the board determines to
liquidate the fund but subsequently revokes its determination, which
might, in effect, enable the fund to temporarily suspend
redemptions.
---------------------------------------------------------------------------

    Commenters generally supported the rule, which we are adopting
largely as proposed.\381\ We have revised one of the rule's conditions
in response to commenters' concerns. The proposed rule conditioned its
relief on a fund breaking a dollar and re-pricing its shares.\382\ Some
commenters argued that the rule should allow a fund to suspend
redemptions before it breaks a dollar.\383\ We are concerned that,
without appropriate limits, fund sponsors might use the rule in the
course of routine liquidations. We also recognize, however, that
requiring a money market fund to actually re-price its securities may
not be necessary in order to warrant the suspension of redemptions.
Therefore, we have revised the rule's condition to require that the
fund's board of directors, including a majority of disinterested
directors, determine pursuant to rule 2a-7(c)(8)(ii)(C)\384\ that the
extent of the deviation between the fund's amortized cost price per
share and its shadow price may result in material dilution or other
unfair results to investors or existing shareholders.\385\ In order to
invoke the exemption, therefore, the fund's board must make the same
determination that it would make if it were deciding to break a dollar.
We believe the revised condition provides fund directors with the
appropriate amount of discretion to act in the interest of
shareholders.\386\
---------------------------------------------------------------------------

    \381\ Commenters generally agreed that the rule would facilitate
fair and orderly liquidations to the benefit of all fund
shareholders. See, e.g., IDC Comment Letter; MFDF Comment Letter.
    \382\ Proposed rule 22e-3(a)(1).
    \383\ See, e.g., ABA Comment Letter; ICI Comment Letter; IMMFA
Comment Letter.
    \384\ Amended rule 2a-7(c)(8)(ii)(C) provides that, if a money
market fund's board of directors believes that the deviation between
the fund's amortized cost price per share and its shadow price may
result in material dilution or other unfair results to investors or
existing shareholders, it shall cause the fund to take such action
as it deems appropriate to eliminate or reduce to the extent
practicable such dilution or unfair results.
    \385\ Rule 22e-3(a)(1).
    \386\ Under the final rule, the exemption applies to securities
tendered for redemption but not yet priced at the time the fund
begins to rely on the rule. Therefore, for example, if a shareholder
submits a redemption order at noon and the fund decides to liquidate
and suspend redemptions pursuant to rule 22e-3 at 2:00 pm, the
shareholder would be entitled to receive only his or her pro rata
share of the fund's liquidation proceeds. This is also the case for
shareholders who submitted redemption orders after the last time as
of which the fund computed its net asset value and shareholders who
submitted redemption orders after 2:00 pm.
---------------------------------------------------------------------------

    Paragraph (b) of rule 22e-3 allows a conduit fund (i.e., a fund
that invests in a money market fund) to rely on the rule if the money
market fund in which it invests has suspended redemptions under the
rule.\387\ We anticipated when

we proposed this provision that it would be used principally by
insurance company separate accounts issuing variable insurance
contracts and by funds participating in master-feeder
arrangements.\388\ At the suggestion of one commenter who pointed out
that most insurance company separate accounts are organized as unit
investment trusts rather than management companies,\389\ we have
expanded the rule to include unit investment trusts.\390\
---------------------------------------------------------------------------

    \387\ Rule 22e-3(b) also requires that the conduit fund promptly
notify the Commission that it has suspended redemptions in reliance
on the rule.
    \388\ See Proposing Release, supra note 2, at text accompanying
n.289.
    \389\ See Committee Ann. Insur. Comment Letter.
    \390\ Rule 22e-3(b) (providing relief to a ``registered
investment company'' rather than to a ``fund,'' or ``registered
open-end management investment company,'' as proposed).
---------------------------------------------------------------------------

    Paragraph (c) of the rule provides that the Commission may take
certain steps to protect shareholders. It permits the Commission to
rescind or modify the relief provided by the rule (and thus require the
fund to resume honoring redemptions) if, for example, a liquidating
fund has not devised, or is not properly executing, a plan of
liquidation that protects fund shareholders. Under this provision, the
Commission may modify the relief after appropriate notice and
opportunity for hearing in accordance with section 40 of the Act.\391\
Commenters did not address this provision, and we are adopting it as
proposed.
---------------------------------------------------------------------------

    \391\ Rule 22e-3(c).
---------------------------------------------------------------------------

    One commenter recommended that the rule not require prior notice to
the Commission.\392\ In light of the seriousness of the consequences to
shareholders, we believe it is important that the Commission receive
prior notice of a suspension of redemptions, particularly when the
burden of providing such notice is minimal.\393\ Another commenter
suggested that the Commission require funds to disclose their plan of
liquidation as a condition for suspending redemptions.\394\ We are
reluctant to impose such a requirement because the time needed to
formulate such a plan may prevent fund boards from acting in a timely
fashion in the case of an emergency, but we expect that funds would
promptly communicate their plan of liquidation to shareholders. Another
commenter recommended that the suspension period be limited to 60
days.\395\ We have not modified the final rule in response to these
comments because liquidations will proceed differently depending on a
fund's particular circumstances, and we believe that fund management,
under the supervision of the board, is best able to devise and execute
a plan of liquidation that is in the best interest of fund
shareholders. Furthermore, as discussed above, the Commission will
retain authority under the rule to rescind or modify the relief (after
appropriate notice and opportunity for hearing) if we conclude, for
example, that a liquidating fund has not devised, or is not properly
carrying out, a plan of liquidation that protects fund
shareholders.\396\
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    \392\ See ABA Comment Letter.
    \393\ In addition, these prior notices will, among other things,
help us to ascertain whether a fund has erroneously invoked the rule
in circumstances for which it was not intended to be used (e.g., a
routine liquidation).
    \394\ See Federated Comment Letter.
    \395\ See Bankers Trust Comment Letter.
    \396\ See supra note 391 and accompanying paragraph.
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III. Compliance Dates

    The amendments to rules 2a-7, 17a-9 and 30b1-6T, and new rules 22e-
3 and 30b1-7, and new Form N-MFP become effective May 5, 2010. Unless
otherwise discussed below or in this Release, the compliance date is
the date of effectiveness.
    Some money market funds may have policies that can be changed only
if authorized by a shareholder vote. For example, a money market fund
may have a disclosed policy of maintaining a WAM (i.e., weighted
average maturity) no greater than 90 days, which is less restrictive
than the amendment the Commission is adopting today requiring a money
market fund to maintain a WAM no greater than 60 days.\397\ The
Commission believes that, in those circumstances where the existing
policy is less restrictive than the amendments we are today adopting
and does not conflict with those amendments, a money market fund would
not need to hold a shareholder vote under sections 8(b) or 13(a) of the
Act merely to comply with the amendments.\398\ Moreover, we would not
object if a fund were to amend its registration statement to reflect
the fund's compliance with the amended rule pursuant to rule 485(b)
under the Securities Act of 1933, if other changes in the fund's post-
effective amendment meet the conditions for immediate effectiveness
under that rule.\399\
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    \397\ See supra Section II.B.1.
    \398\ 15 U.S.C. 80a-8(b), 80a-13(a).
    \399\ 17 CFR 230.485(b).
---------------------------------------------------------------------------

A. Portfolio Requirements

    Except as indicated below, the compliance date for amendments to
rule 2a-7 related to portfolio quality, maturity, liquidity, and
repurchase agreements, is May 28, 2010. Funds are not required to
dispose of portfolio securities owned, or terminate repurchase
agreements entered into, as of the time of adoption of the amendments
to comply with the requirements of the rule as amended. Fund portfolios
must meet the new maximum WAM and WAL limits by June 30, 2010.

B. Designation of NRSROs

    Each fund must disclose the designated NRSROs in its Statement of
Additional Information pursuant to amended rule 2a-7(a)(11)(iii) no
later than December 31, 2010. This additional time should permit fund
boards of directors to evaluate and designate NRSROs without the need
to call a special board meeting. Fund boards are free to take advantage
of the rule amendments any time after the effective date.

C. Disclosure and Reporting of Portfolio Information

    Web site disclosure. The compliance date for public Web site
disclosure is October 7, 2010. This should provide each fund sufficient
time to revise its information and other systems to ensure that
required information is accurately posted and maintained on its Web
site.
    Reporting to the Commission. All money market funds must begin
filing information on Form N-MFP pursuant to rule 30b1-7 no later than
December 7, 2010. This compliance date is designed to permit money
market funds to develop systems necessary to collect and submit the
portfolio information on Form N-MFP. Funds filing information with the
Commission pursuant to rule 30b1-6T will no longer be required to file
this information after December 1, 2010.
    Beginning October 7, 2010, our staff will be able to receive trial
data from funds, on a voluntary basis, pursuant to the requirements of
rule 30b1-7. We will use these voluntary submissions and the
experiences of funds during this period to make adjustments to our
filing system and provide guidance to funds. We do not intend to make
these submissions public.\400\
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    \400\ We do not intend to make public the information submitted
to us on Form N-MFP as trial data before the mandatory compliance
date because of the possibility of errors in the information
submitted. See supra text following note 339.
---------------------------------------------------------------------------

D. Processing of Transactions

    Funds must comply with the new requirement to be able to process
transactions at prices other than stable net asset value no later than
October 31, 2011, which is more than 20 months

after adoption of the amendments.\401\ This compliance period is
designed to enable funds and those who act on their behalf sufficient
time to come into full compliance with the amended rule.
---------------------------------------------------------------------------

    \401\ See supra text accompanying and following note 364.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act Analysis

    Certain provisions of the amendments to rules 2a-7 and 30b1-6T, new
rules 22e-3 and 30b1-7, and Form N-MFP under the Investment Company Act
contain ``collections of information'' within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\402\ The titles for the
existing collections of information that are affected by the rule
amendments are: ``Rule 2a-7 under the Investment Company Act of 1940,
Money market funds'' (OMB Control No. 3235-0268), ``Rule 30b1-6T under
the Investment Company Act of 1940, Weekly portfolio report for certain
money market funds'' (OMB Control No. 3235-0652), and ``Rule 38a-1
under the Investment Company Act of 1940, Compliance procedures and
practices of registered investment companies'' (OMB Control No. 3235-
0586). The titles for the new collections of information are: ``Rule
22e-3 under the Investment Company Act of 1940, Exemption for
liquidation of money market funds,'' ``Rule 30b1-7 under the Investment
Company Act of 1940, Monthly report for money market funds,'' and
``Form N-MFP under the Investment Company Act of 1940, Portfolio
Holdings of Money Market Funds.'' We published notice soliciting
comments on the collection of information requirements in the Proposing
Release and submitted the proposed collections of information to the
Office of Management and Budget (``OMB'') for review in accordance with
44 U.S.C. 3507(d) and 5 CFR 1320.11 under the control numbers 3235-0268
(rule 2a-7), 3235-0654 (rule 22e-3), and 3235-0653 (rule 30b1-6 and
Form N-MFP). OMB has approved the collection of information pursuant to
rule 30b1-6T under the control number 3235-0652.
---------------------------------------------------------------------------

    \402\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

    Our amendments and new rules are designed to make money market
funds more resilient to risks in the short-term debt markets, and to
provide greater protections for investors in a money market fund that
is unable to maintain a stable net asset value. An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number.

A. Rule 2a-7

    Rule 2a-7 under the Investment Company Act exempts money market
funds from the Act's valuation requirements, permitting money market
funds to maintain stable share pricing, subject to certain risk-
limiting conditions. As discussed above, we are amending rule 2a-7 in
several respects. Our amendments revise portfolio quality and maturity
requirements; introduce liquidity requirements; require money market
fund boards to adopt procedures providing for periodic stress testing
of the fund's portfolio; require funds to disclose monthly on their Web
sites information on portfolio securities; and finally, require money
market funds to have the capability to redeem and issue their
securities at prices other than the fund's stable net asset value per
share.\403\ Several of the amendments create new collection of
information requirements. The respondents to these collections of
information will be money market funds or their advisers, as noted
below.
---------------------------------------------------------------------------

    \403\ See supra Section II.A-F.
---------------------------------------------------------------------------

1. Designation of NRSROs
    Under the amendments to rule 2a-7, money market funds will be
required to disclose designated NRSROs (including any limitation in the
use of the designated NRSRO) in their SAI,\404\ which constitutes a
collection of information. Compliance with this disclosure requirement
will be mandatory for any fund that holds itself out as a money market
fund in reliance on rule 2a-7. This information will not be kept
confidential. The disclosures are intended to provide investors and
third party analysts with information on NRSROs that money market funds
will look to when they have to consider credit ratings under rule 2a-7,
which may be relevant to investors in choosing among funds. Many money
market funds currently discuss credit rating agencies in their
registration statements describing threshold credit ratings for
portfolio investments, and often specify NRSROs that rate instruments
of the type the fund purchases. We anticipate that adding one or two
sentences to the discussion identifying designated NRSROs (and any
limitations on the use of a designated NRSRO) will not result in
additional hourly burdens or printing costs beyond those currently
approved in the existing collection of information titled ``Form N-1A
under the Securities Act of 1933 and under the Investment Company Act
of 1940, registration statement of open-end management investment
companies'' (OMB Control No. 3235-0307).
---------------------------------------------------------------------------

    \404\ Amended rule 2a-7(a)(11)(iii).
---------------------------------------------------------------------------

2. Portfolio Liquidity
    As discussed above, the amended rule includes a general liquidity
requirement, under which each money market fund must hold securities
that are sufficiently liquid to meet foreseeable shareholder
redemptions in light of its obligations under section 22(e) of the Act
and any commitments the fund has made to shareholders. We also noted
that in order to comply with this provision in amended rule 2a-7 under
the compliance rule, we expect that money market funds will adopt
policies and procedures designed to assure that appropriate efforts are
undertaken to identify risk characteristics of the fund's
shareholders.\405\ We anticipate that these policies and procedures may
add additional burdens to those currently approved in the existing
collection of information under rule 38a-1 under the Investment Company
Act. Based on commenters' views, we assume that money market funds
currently monitor and manage daily net flows in and out of the
funds,\406\ and in doing so, monitor the risk characteristics and
likely redemptions of certain shareholders, which is a factor we would
expect funds to consider under the general liquidity requirement in the
amended rule. We believe, however, that many, if not most, funds may
have to document the procedures they adopt for the compliance rule. For
purposes of this PRA analysis, we estimate that funds would incur a
one-time average burden of 8 hours to document policies and procedures
to identify risk characteristics of the fund's investors. In addition,
staff estimates that the board of directors (as a whole) would take 1
hour to review and adopt these policies and procedures. Amortized over
a 3 year period, this would be an annual burden per fund complex of 3
hours. We believe that these characteristics would be applicable to and
documented on behalf of all money market funds in a fund complex, and
we estimate that 163 fund complexes with money market funds are subject
to rule 2a-7. Accordingly, we estimate that the total additional burden
to document these policies would be 1467 hours.\407\ Amortized over a
3-year period, the estimated annual hourly burden would be 489 hours
for all

money market fund complexes.\408\ We believe that any ongoing burdens
to reevaluate the need for changes in the policies and procedures would
be incorporated in the current estimated burdens for rule 38a-1.
---------------------------------------------------------------------------

    \405\ See supra note 198 and accompanying text.
    \406\ See Dreyfus Comment Letter; RidgeWorth Comment Letter.
    \407\ This estimate is based on the following calculation: (8 +
1) hours x 163 fund complexes = 1467 hours.
    \408\ PRA submissions for approval are made every three years.
To estimate an annual burden for a collection of information that
occurs one time, the total burden is amortized over the three-year
period.
---------------------------------------------------------------------------

3. Stress Testing
    We are requiring, substantially as proposed, that a money market
fund's board of directors adopt written procedures that provide for the
periodic testing of the fund's ability to maintain a stable net asset
value per share based on certain hypothetical events.\409\ The rule
requires the board to determine the frequency of testing. The
procedures must provide for a report of the testing results to be
submitted to the board of directors at its next regularly scheduled
meeting, or sooner if appropriate based on the results. The report 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.\410\
Compliance with the new reporting requirement is mandatory for any fund
that holds itself out as a money market fund and uses either the
amortized cost method of valuing portfolio securities or the penny-
rounding method of pricing fund shares. When provided to the Commission
in connection with staff examinations or investigations, the
information will be kept confidential to the extent permitted by law.
---------------------------------------------------------------------------

    \409\ See supra Section II.C.4. These events include, without
limitation, a change in short-term interest rates, an increase in
shareholder redemptions, a downgrade of or default on portfolio
securities, and the widening or narrowing of spreads between yields
on an appropriate benchmark the fund has selected for overnight
interest rates and commercial paper and other types of securities
held by the fund. See amended rule 2a-7(c)(10)(v)(A).
    \410\ Amended rule 2a-7(c)(10)(v)(B). The report to the board
must include the dates on which the testing was performed and the
magnitude of each hypothetical event that would cause the deviation
of the money market fund's net asset value calculated using
available market quotations (or appropriate substitutes that reflect
current market conditions) from its net asset value per share
calculated using amortized cost to exceed \1/2\ of 1%.
---------------------------------------------------------------------------

    We anticipate that stress testing will give fund advisers a better
understanding of the effect of potential market events and shareholder
redemptions on their funds' ability to maintain a stable net asset
value, the fund's exposure to the risk of not maintaining a stable net
asset value, and actions the adviser may need to take to mitigate the
possibility of the fund breaking the buck.\411\
---------------------------------------------------------------------------

    \411\ See Proposing Release, supra note 2, at text following
n.212.
---------------------------------------------------------------------------

    Commission staff believes that in light of the events of the fall
of 2008, most, if not all, money market funds currently conduct some
stress testing of their portfolios as a matter of routine fund
management and business practice.\412\ These procedures likely vary
depending on the fund's investments. For example, a prime money market
fund that is offered to institutional investors may test for
hypothetical events such as potential downgrades or defaults in
portfolio securities while a U.S. Treasury money market fund might
not.\413\ Some funds that currently conduct testing may be required to
include additional hypothetical events under the amended rule. These
funds likely provide regular reports of the test results to senior
management. We assumed, however, that currently most funds do not have
written procedures documenting the stress testing, do not report the
results of testing to their boards of directors, and do not provide an
assessment from the fund's adviser regarding the fund's ability to
withstand the hypothetical events reasonably likely to occur in the
next year.
---------------------------------------------------------------------------

    \412\ Commenters corroborated our staff's belief. See, e.g.,
State Street Comment Letter; T. Rowe Price Comment Letter. The
estimates of hour burdens and costs provided in the PRA and cost
benefit analyses in the Proposing Release were based on staff
discussions with representatives of money market funds and on the
experience of Commission staff. We did not receive any comment on
the estimates and assumptions with respect to stress testing
included in the analysis in our proposal. Accordingly, we have not
modified any of those assumptions and estimates other than as
necessary in light of the new requirement included in the amended
rule.
    \413\ See TDAM Comment Letter (noting that testing Treasury
funds for downgrades or defaults would be unnecessary).
---------------------------------------------------------------------------

    Commission staff believes that stress testing procedures will be
developed for all the money market funds in a fund complex by the fund
adviser, and will address appropriate variations for individual money
market funds within the complex.\414\ Staff estimates that it will take
a portfolio risk analyst an average of 22 hours initially to draft
procedures documenting the complex's stress testing, and 3 hours for
the board of directors (as a whole) to consider and adopt the written
procedures.\415\ We therefore estimate that the total burden to draft
these procedures initially will be 4075 hours.\416\ Amortized over a
three-year period, this will result in an average annual burden of 8.33
hours for an individual fund complex and a total of 1358 hours for all
fund complexes.\417\ Staff estimates that a risk analyst will also
spend an average of 6 hours per year revising the written procedures to
reflect changes in the type or nature of hypothetical events
appropriate to stress tests and the board will spend 1 hour to consider
and adopt the revisions, for a total annual burden of 1141 hours.\418\
---------------------------------------------------------------------------

    \414\ We expect that the board of directors would be the same
for all the money market funds in a complex, and thus could adopt
the stress test procedures for all money market funds in the complex
at the same meeting.
    \415\ We have added 1 hour to the estimate of 21 hours in the
Proposing Release to account for drafting procedures on when
additional reports must be provided to the board based on the
results of stress testing.
    \416\ This estimate is based on the following calculation: (22
hours + 3 hours) x 163 fund complexes = 4075 hours.
    \417\ These estimates are based on the following calculations:
(22 + 3) / 3 = 8.33 hours; 8.33 x 163 fund complexes = 1357.79
hours. PRA submissions for approval are made every three years. To
estimate an annual burden for a collection of information that
occurs one time, the total burden is amortized over the three-year
period.
    \418\ This estimate is based on the following calculation: (6
hours (analyst) + 1 hour (board)) x 163 fund complexes = 1141 hours.
---------------------------------------------------------------------------

    As noted above, each report to the board of directors will include
an assessment by the fund's adviser of the fund's ability to withstand
reasonably likely hypothetical events in the coming year. Staff
estimates that it will take on average: (i) 10 hours of portfolio
management time to draft each report to the board and 2 hours of an
administrative assistant's time to compile and copy the report (for a
total of 12 hours), and (ii) 15 hours for the fund adviser to provide
its assessment. Under normal circumstances, the report must be provided
at the next scheduled board meeting, and we estimate that the report
and the adviser's assessment will cover all money market funds in a
complex. We assume that funds will conduct stress tests no less than
monthly. With an average of 6 board meetings each year, we estimate
that the annual burden for regularly scheduled reports would be 162
hours for an individual fund complex.\419\ Under the final rule, a
report must be provided earlier if appropriate in light of the results
of the test. Staff estimates that as a result of unanticipated changes
in market conditions or other events, stress testing results are likely
to prompt additional reports on average four times each year.\420\
Thus, we estimate these

reports would result in an additional 108 hours for an individual fund
complex each year.\421\ We estimate the total annual burden for all
fund complexes would be 44,010 hours.\422\
---------------------------------------------------------------------------

    \419\ This estimate is based on the following calculation: (10
hours + 2 hours + 15 hours) x 6 meetings = 162 hours.
    \420\ We anticipate that in many years there will be no need for
special reports, but that in a year in which there is severe market
stress, a fund may report to the board weekly for a period of 3 to 6
months. Such reporting would generate 9 to 18 reports in addition to
the regular monthly reports. Assuming that this type of event may
occur once every five years, and additional reports would be
generated for 6 months, a fund would produce an average of four
additional reports per year (18 additional reports / 5 = 3.6
reports).
    \421\ This estimate is based on the following calculation: (10
hours + 2 hours + 15 hours) x 4 = 108 hours.
    \422\ This estimate is based on the following calculation: (162
hours + 108 hours) x 163 fund complexes = 44,010 hours.
---------------------------------------------------------------------------

    The amended rule requires a money market fund to retain records of
the reports on stress tests for at least 6 years (the first two in an
easily accessible place).\423\ The retention of these records is
necessary to allow the staff during examinations of funds to determine
whether a fund is in compliance with the stress test requirements. We
estimate that the burden will be 10 minutes per fund complex per report
to retain these records for a total annual burden of 272 hours for all
fund complexes.\424\
---------------------------------------------------------------------------

    \423\ Amended rule 2a-7(c)(11)(vii).
    \424\ This estimate is based on the following calculation:
0.1667 hours x 10 reports x 163 fund complexes = 271.7 hours.
---------------------------------------------------------------------------

    Thus, we estimate that for the three years following adoption, the
average annual burden resulting from the stress testing requirements
will be 287 hours for each fund complex with a total of 46,781 hours
for all fund complexes.\425\
---------------------------------------------------------------------------

    \425\ These estimates are based on the following calculations:
8.33 hours (draft procedures) + 7 hours (revise procedures) + 120
hours (10 reports) + 150 hours (10 assessments) + 1.67 hours (record
retention) = 287 hours; 287 hours x 163 complexes = 46,781 hours.
---------------------------------------------------------------------------

4. Repurchase Agreements
    We are adopting, as proposed, amendments affecting a money market
fund's ability to ``look through'' a repurchase agreement for purposes
of rule 2a-7's diversification provisions.\426\ One of these amendments
is that a money market fund will be able to look through a repurchase
agreement only if the fund's board of directors or its delegate
evaluates the counterparty's creditworthiness.\427\
---------------------------------------------------------------------------

    \426\ See supra Section II.D; Proposing Release, supra note 2,
at Section II.E.
    \427\ Amended rule 2a-7(c)(4)(ii)(A).
---------------------------------------------------------------------------

    Several commenters stated that money market fund boards already
evaluate the credit quality of counterparties in the course of making
an overall credit risk determination under rule 2a-7(c)(3)(i).\428\
Because we are adding a separate creditworthiness evaluation in rule
2a-7(c)(4)(ii)(A), funds will need to keep records of such evaluations
pursuant to rule 2a-7(c)(11)(ii), which requires a money market fund to
retain a record of considerations and actions under the rule for at
least 6 years (the first two in an easily accessible place).\429\
Compliance with this recordkeeping requirement is mandatory for all
funds that take advantage of the special look-through treatment for
diversification purposes. We estimate that the burden to keep those
records will be 2 hours per fund complex, for a total annual burden of
326 hours for all fund complexes.\430\
---------------------------------------------------------------------------

    \428\ See supra note 277.
    \429\ Amended rule 2a-7(c)(11)(ii).
    \430\ This estimate is based on the following calculation: 2
hours x 163 fund complexes = 326 hours.
---------------------------------------------------------------------------

5. Public Web site Posting
    The amendments require money market funds to post monthly portfolio
information on their Web sites.\431\ We believe that greater
transparency of fund portfolios will provide investors with a better
understanding of the fund's investment risks, and may allow investors
to exert influence on risk-taking by fund advisers and thus reduce the
likelihood that a fund will break the buck. Information will be posted
on a public Web site, and compliance with this requirement is mandatory
for any fund that holds itself out as a money market fund in reliance
on rule 2a-7. In the Proposing Release, Commission staff estimated that
there are approximately 750 money market funds that would be affected
by the amendments. In addition, our staff noted that based on
interviews with industry representatives, most money market funds
already post portfolio information on their webpages at least
quarterly.\432\ Commission staff also estimated that 20 percent of
money market funds, or 150 funds, do not currently post this
information at least quarterly, and therefore would need to develop a
webpage to comply with the amendments. Staff estimated that a money
market fund would spend approximately 24 hours of internal money market
fund staff time initially to develop the Web page. Staff further
estimated that a money market fund would spend approximately 4 hours of
professional time to maintain and update the relevant webpage with the
required information on a monthly basis.
---------------------------------------------------------------------------

    \431\ Amended rule 2a-7(c)(12).
    \432\ Certain of the required information is currently
maintained by money market funds for regulatory reasons, such as in
connection with accounting, tax, and disclosure requirements. We
understand that the remaining information is retained by funds in
the ordinary course of business. Accordingly, for the purposes of
our analysis, we do not ascribe any time to producing the required
information.
---------------------------------------------------------------------------

    No commenters addressed the number of money market funds that would
be affected by the proposal or the estimated burden hours for
developing, maintaining and updating the webpage. Although, as
described above, we have revised the proposed disclosure which should
result in less information being required on a fund's Web site,
Commission staff believes that the number of money market funds is
currently 719 and that the hour burden per fund remains the same as
previously estimated. Although it is possible that the reduced
information required might result in a minimal decrease in the amount
of time required to develop, maintain and update the webpage,
Commission staff believes that the decrease would be negligible.
    One commenter stated that the funds that currently post portfolio
holdings information at least quarterly on their Web sites would need,
under the rule amendments, to develop the capability to retain previous
months' portfolio holdings information on their Web sites, resulting in
an additional one-time burden that Commission staff did not include in
its estimate in the Proposing Release.\433\ Based on a review of some
of the current portfolio Web site disclosure by some commenters and
follow-up discussions with some commenters, Commission staff estimates
that 500 of the 575 funds that currently post portfolio information on
their webpages at least quarterly will need to develop this capability.
Commission staff further estimates that each of these 500 funds will
spend 12 hours to develop this capability, resulting in an additional
one-time burden for all such funds of 6000 hours.\434\
---------------------------------------------------------------------------

    \433\ See Data Communiqu[eacute] Comment Letter. Under our
proposal, funds would have been required to maintain the portfolio
holdings information on their Web sites for at least 12 months. We
are adopting a 6-month maintenance period for portfolio holding
information.
    \434\ The estimated 12 hours is one-half the time that we
estimated that a fund would need to set up a new webpage (24 hours).
---------------------------------------------------------------------------

    Based on an estimate of 719 money market funds posting their
portfolio holdings on their webpages, including 144 funds incurring
start-up costs to develop a webpage and 500 funds incurring a one-time
cost to develop the capability to retain previous months' portfolio
holdings information on their Web sites, we estimate that, in the
aggregate, the amendment will result in a total of 37,664 average
burden hours for all money market funds for each of the first three
years.\435\
---------------------------------------------------------------------------

    \435\ The estimate is based on the following calculations. The
staff estimates that 144 funds will require a total of 3456 hours
initially to develop a webpage (144 funds x 24 hours per fund = 3456
hours) and 500 funds will require a total of 6000 hours initially to
develop the capability to maintain historical portfolio holding
information (500 funds x 12 hours per fund = 6000 hours). In
addition, each of the 719 funds would require 48 hours per year to
update and maintain the webpage, for a total of 34,512 hours per
year (4 hours per month x 12 months = 48 hours per year; 48 hours
per year x 719 funds = 34,512). The average annual hour burden for
each of the first three years would thus equal 37,664 hours (3456 +
6000 + (34,512 x 3) / 3).

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

6. Reporting of Rule 17a-9 Transactions
    We are amending rule 2a-7 to require a money market fund to
promptly notify the Commission by electronic mail of the purchase of a
money market fund's portfolio security by certain affiliated persons in
reliance on rule 17a-9 and to explain the reasons for, and the
transaction price of, such purchase.\436\ The reporting requirement is
designed to assist Commission staff in monitoring money market funds'
affiliated transactions that otherwise would be prohibited. The new
collection of information will be mandatory for money market funds that
rely on rule 2a-7 and that rely on rule 17a-9 for an affiliated person
to purchase a money market fund's portfolio security. Information
submitted to the Commission related to a rule 17a-9 transaction will
not be kept confidential.
---------------------------------------------------------------------------

    \436\ See amended rule 2a-7(c)(7)(iii)(B).
---------------------------------------------------------------------------

    We estimate that fund complexes will provide one notice for all
money market funds in a particular fund complex holding a distressed
security purchased in a transaction under rule 17a-9. As noted above,
Commission staff estimates that there are 163 fund complexes with money
market funds subject to rule 2a-7. Of these fund complexes, Commission
staff estimates that an average of 25 per year will be required to
provide notice to the Commission of a rule 17a-9 transaction, with the
total annual response per fund complex, on average, requiring 1 hour of
an in-house attorney's time. We received no comments on this estimate
and have not modified it. Given these estimates, the total annual
burden of this amendment to rule 2a-7 for all money market funds would
be approximately 25 hours.\437\
---------------------------------------------------------------------------

    \437\ The estimate is based on the following calculation: (25
fund complexes x 1 hour) = 25 hours.
---------------------------------------------------------------------------

7. Total Burden
    The currently approved burden for rule 2a-7 is 310,983 hours. The
additional burden hours associated with the proposed amendments to rule
2a-7 will increase the renewal estimate to 395,779 hours annually.\438\
---------------------------------------------------------------------------

    \438\ This estimate is based on the following calculation:
310,983 hours (current burden) + 46,781 hours (stress testing) + 326
hours (repurchase agreements) + 37,664 hours (Web site posting) + 25
hours (reporting 17a-9 transactions) = 395,779 hours.
---------------------------------------------------------------------------

B. Rule 22e-3

    Rule 22e-3 permits a money market fund that has broken the buck, or
is at imminent risk of breaking the buck, to suspend redemptions and
postpone the payment of proceeds pending board-approved liquidation
proceedings. The rule also requires a money market fund to provide
prior notification to the Commission of its decision to suspend
redemption and liquidate. Rule 22e-3 is intended to facilitate an
orderly liquidation, reduce the vulnerability of shareholders to the
harmful effects of a run on a fund, and minimize the potential for
market disruption. The notification requirement is a collection of
information under the PRA, and is designed to assist Commission staff
in monitoring a money market fund's suspension of redemption. The
respondents to this information collection would be money market funds
that break the buck, or are at imminent risk of breaking the buck, and
elect to rely on the exemption afforded by the rule. Respondents also
will include certain conduit funds that have invested in money market
funds that suspended redemptions in reliance on the rule. Compliance
with the notification requirement is mandatory for funds and conduit
funds that rely on rule 22e-3, and the information will not be kept
confidential.
    In the Proposing Release, Commission staff estimated for purposes
of the Paperwork Reduction Act that, on average, one money market fund
would break the buck and liquidate every six years.\439\ The staff
further estimated that a fund would spend approximately one hour of an
in-house attorney's time to prepare and submit the notice. No commenter
addressed the estimated number of money market funds that would rely on
the rule or the estimated burden hours associated with complying with
the rule's notification requirement. The rule permits funds that invest
in a money market fund pursuant to section 12(d)(1)(E) of the Act
(``conduit funds'') to rely on the rule, and requires the conduit fund
to notify the Commission of its reliance on the rule.\440\ The proposed
rule would have applied only to conduit funds that are registered open-
end management investment companies, and in response to one comment we
have expanded the provision to also permit conduit funds that are
organized as unit investment trusts to rely on the rule.\441\ The staff
estimates that there are a total of 780 conduit funds that may invest
in money market funds that suspend redemptions in reliance on the rule,
and that an average of 10 conduit funds may invest in any money market
fund.\442\ Given these estimates, the total annual burden of proposed
rule 22e-3 for all money market funds and conduit funds would be
approximately 110 minutes.\443\
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    \439\As noted above, only two money market funds have broken the
buck since the adoption of rule 2a-7 in 1983.
    \440\See rule 22e-3(b).
    \441\See supra note 390 and accompanying text.
    \442\These estimates are based on a review of filings with the
Commission.
    \443\This estimate is based on the following calculations: (1
hour / 6 years) = 10 minutes per year for each fund and conduit fund
that is required to provide notice under the rule. 10 minutes per
year x 11 (combined number of affected funds and conduit funds) =
110 minutes.
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C. Monthly Reporting of Portfolio Holdings

    Rule 30b1-7 requires money market funds to file electronically a
monthly report on Form N-MFP within five business days after the end of
each month. The rule is intended to improve transparency of information
about money market funds' portfolio holdings and facilitate oversight
of money market funds. The information required by the form will be
data-tagged in XML format and filed through EDGAR. The respondents to
rule 30b1-7 will be investment companies that are regulated as money
market funds under rule 2a-7. Compliance with rule 30b1-7 is mandatory
for any fund that holds itself out as a money market fund in reliance
on rule 2a-7. Responses to the disclosure requirements will not be kept
confidential.
    In the Proposing Release, Commission staff estimated that 750 money
market funds would be required by proposed rule 30b1-6 to file, on a
monthly basis, a complete Form N-MFP disclosing certain information
regarding the fund and its portfolio holdings.\444\ No commenters
addressed this estimate. For purposes of this PRA analysis, the burden
associated with the requirements of rule 30b1-7 has been included in
the collection of information requirements of Form N-MFP.
---------------------------------------------------------------------------

    \444\ As noted above, in September 2009 we adopted interim final
temporary rule 30b1-6T. In order to minimize confusion over rule
numbering, we are adopting proposed rule 30b1-6 as rule 30b1-7.
---------------------------------------------------------------------------

    Based on our experience with other interactive data filings, we
estimated in the Proposing Release that money market funds would
require an average of approximately 40 burden hours to compile, tag,
and electronically file the required portfolio holdings information

for the first time and an average of approximately 8 burden hours in
subsequent filings.\445\ Two commenters asserted that the Commission's
estimates did not include time to review the information required in
Form N-MFP.\446\ While the estimate did include time for the review of
the information, we nevertheless have increased our estimate to include
an additional 2 hours per filing for review of the information to
account for a full and careful review of the information to be filed.
We now estimate that there are 719 money market funds and that they
will require an average of approximately 42 burden hours to compile
(including review of the information), tag and electronically file the
required portfolio holdings information for the first time and an
average of approximately 10 burden hours in subsequent filings. Based
on these estimates, we estimate the average annual burden over a three-
year period would be 131 hours per money market fund.\447\ Based on an
estimate of 719 money market funds submitting Form N-MFP in interactive
data format, each incurring 131 hours per year on average, we estimate
that, in the aggregate, Form N-MFP would result in 94,189 burden hours,
on average, for all money market funds for each of the first three
years.\448\
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    \445\ See Proposing Release, supra note 2, at n.334 and
accompanying text. We understand that the required information is
currently maintained by money market funds pursuant to other
regulatory requirements or in the ordinary course of business.
Accordingly, for the purposes of our analysis, we do not ascribe any
time to producing the required information.
    \446\ See Data Communiqu[eacute] Comment Letter; Comment Letter
of Bowne & Co. Inc. (Oct. 29, 2009) (``Bowne Comment Letter''). In
addition, one commenter asserted that the Commission's estimate of
128 burden hours per money market fund for the first year (1 filing
x 40 hours + 11 filings x 8 hours) is far too low for subadvised
funds. See Committee Ann. Insur. Comment Letter. The commenter,
however, did not provide an estimate of the first year burden hour
for subadvised funds. As explained below in our discussion of the
effect the rule and form will have on competition, we do not believe
that the one-time burden for subadvised funds will be much different
than the burden on non-subadvised money market funds because the
information already should be readily available to the subadviser
and the lengthened time for filing Form N-MFP (from the proposed two
business days to five business days after the end of each month)
should provide subadvisers with sufficient time to send the
information to the principal adviser without having to invest in new
infrastructure to provide the information on a real-time basis. See
also infra Section VI.D.
    \447\ The staff estimates that a fund will make 36 filings in
three years. The first filing will require 42 hours and subsequent
filings would require 10 hours each, for an average annual burden of
131 hours (1 filing x 42 hours = 42 hours; 35 filings x 10 hours =
350 hours; 42 hours + 350 hours = 392 hours; 392 hours / 3 years =
130.66 hours). Thereafter, filers generally would not incur the
start-up burdens applicable to the first filing.
    \448\ This estimate is based on the following calculation: 719
portfolios x 131 hours = 94,189 hours.
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D. Weekly Reporting of Portfolio Holdings

    Rule 30b1-6T requires a money market fund whose market-based net
asset value is less than $0.9975 to electronically (i) notify the
Commission promptly and submit a portfolio schedule within one business
day, and (ii) submit a portfolio schedule within two business days
after the end of each week until such time as the fund's market-based
net asset value equals or exceeds $0.9975. The rule is intended to
facilitate our oversight of money market funds. We are adopting as
final rule 30b1-6T. As adopted, the only change to the rule is the
expiration date. Rule 30b1-6T will expire on December 1, 2010. The
respondents to rule 30b1-6T are investment companies that are regulated
as money market funds under rule 2a-7. Compliance with the rule is
mandatory for any money market fund whose market-based NAV is less than
$0.9975. Responses to the disclosure requirements will be kept
confidential.
    We previously estimated, based on past experience under the
Guarantee Program, that at any given time 10 money market funds will be
required by rule 30b1-6T to provide weekly reports disclosing certain
information regarding the fund's portfolio holdings.\449\ We received
no comments on our estimates. We estimate that money market funds will
require an average of approximately 6 burden hours to compile and
electronically submit the initial required portfolio holdings
information, and an average of approximately 4 burden hours in
subsequent reports.\450\ Based on these estimates, we estimate the
annual burden will be 210 hours per money market fund that is required
to provide the information.\451\ Based on an estimate of 10 money
market funds submitting information under the rule, we estimate that,
in the aggregate, rule 30b1-6T will result in 2100 burden hours for all
money market funds required to submit portfolio schedules.
---------------------------------------------------------------------------

    \449\ See Rule 30b1-6T Release, supra note 303, at Section V.
    \450\ We understand that the required information is currently
maintained by money market funds pursuant to other regulatory
requirements or in the ordinary course of business. Accordingly, for
the purposes of our analysis, we do not ascribe any time to
producing the required information.
    \451\ Because one report is required each week, a fund would
submit 52 reports in one year. The first report would require 6
hours and subsequent reports would require 4 hours each. The
difference between the hours is due to the fact that funds generally
would not incur the additional start-up time applicable to the first
report. The burden of the reporting requirement would be 210 hours
(1 report x 6 hours = 6 hours, 51 reports x 4 hours = 204 hours, and
6 hours + 204 hours = 210 hours).
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V. Cost Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by
its rules. We have identified certain costs and benefits of the
amendments and new rules. We received comments on the Commission's cost
benefit analysis of our proposed amendments to rule 2a-7 and on new
rule 30b1-7 and Form N-MFP, which are discussed below. The Commission
notes that no comments addressed the Commission's analysis of the costs
and benefits associated with the proposed amendments to rule 17a-9 and
new rule 22e-3 contained in the Proposing Release. We also received no
comments on the cost benefit analysis of rule 30b1-6T. As discussed
throughout the release, although there are costs associated with the
rules, we think the rules we are adopting will provide significant
benefits to the investing public and money market funds. We believe
these benefits justify the costs.

A. Rule 2a-7

1. Second Tier Securities, Portfolio Maturity, and Liquidity
Requirements
    We are adopting several changes to the risk-limiting conditions of
rule 2a-7. While we believe that these changes will impart substantial
benefits to money market funds, we recognize that they also may also
impose certain costs.
    First, we are amending rule 2a-7 to further restrict money market
funds' exposure to the risks presented by second tier securities. Under
the amendments, money market funds will not be permitted to acquire
second tier securities unless immediately after their acquisition the
money market fund would not have invested (i) more than three percent
of its total assets in second tier securities and (ii) more than 0.5
percent of its total assets in second tier securities of any particular
issuer.\452\ In addition, money market funds will not be permitted to
acquire any second tier security with a remaining maturity in excess of
45 days.\453\
---------------------------------------------------------------------------

    \452\ See amended rule 2a-7(c)(3)(ii) (portfolio quality--second
tier securities); amended rule 2a-7(a)(27) (defining ``total
assets''); amended rule 2a-7(c)(4)(i)(C) (portfolio
diversification--issuer diversification--second tier securities). We
also are proportionately reducing by half the ability of a money
market fund to acquire ``demand features'' or ``guarantees'' of a
single issuer that are second tier securities from 5% to 2.5% of the
money market fund's total assets. See amended rule 2a-
7(c)(4)(iii)(B) and discussion of our rationale for making this
change in note 59 supra.
    \453\ See amended rule 2a-7(c)(3)(ii).
---------------------------------------------------------------------------

    Second, we are changing rule 2a-7's portfolio maturity limits. We
are

reducing the maximum weighted average maturity of a money market fund
permitted by rule 2a-7 from 90 days to 60 days.\454\ We also are
adopting a new 120-day maturity limitation on the ``weighted average
life'' of fund portfolio securities that will limit the portion of a
fund's portfolio that can be held in longer term floating- or variable-
rate securities.\455\ This restriction will require a fund to calculate
the weighted average maturity of its portfolio without regard to
interest rate reset dates. Finally, we are deleting a provision in rule
2a-7 that permitted money market funds not relying on the amortized
cost method of valuation to acquire Government securities with a
remaining maturity of up to 762 calendar days.\456\ Under the amended
rule, money market funds cannot acquire any security with a remaining
maturity of more than 397 days, subject to the maturity shortening
provisions for floating- and variable-rate securities and securities
with a demand feature.\457\
---------------------------------------------------------------------------

    \454\ See amended rule 2a-7(c)(2)(ii).
    \455\ See amended rule 2a-7(c)(2)(iii).
    \456\ Compare amended rule 2a-7(c)(2)(i) with current rule 2a-
7(c)(2)(ii). In a conforming change, we also are amending 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 previously permitted. See amended rule 2a-7(d)(1).
    \457\ See amended rule 2a-7(c)(2)(i); amended rule 2a-7(d)(1)-
(5).
---------------------------------------------------------------------------

    Third, we are adopting new liquidity requirements for money market
funds. In particular, we are amending rule 2a-7 to (i) 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; \458\ (ii) 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); \459\ and (iii) require a taxable money market fund to hold at
least 10 percent of its total assets in ``daily liquid assets'' and any
money market fund to hold at least 30 percent of its total assets in
``weekly liquid assets.'' \460\
---------------------------------------------------------------------------

    \458\ See amended rule 2a-7(c)(5).
    \459\ See amended rule 2a-7(c)(5)(i). 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.
    \460\ See amended rule 2a-7(c)(5)(ii)-(iii). See also amended
rule 2a-7(a)(8) (defining ``daily liquid assets'') and 2a-7(a)(32)
(defining ``weekly liquid assets'').
---------------------------------------------------------------------------

a. Benefits
    We believe that the amendments to rule 2a-7's risk-limiting
conditions are likely to produce broad benefits for money market fund
investors. As discussed in Sections II.A-C above, commenters agreed
that the proposed rule 2a-7 amendments concerning second tier
securities, maturity, and liquidity would benefit money market funds
and their investors.\461\ The amendments should reduce money market
funds' exposure to certain credit, interest rate, spread, and liquidity
risks. For example, limiting money market funds' ability to acquire
second tier securities will decrease money market funds' exposure to
credit, spread, and liquidity risks. Reducing the maximum weighted
average maturity of money market funds' portfolios will further
decrease their interest rate sensitivity. It also will increase their
ability to maintain a stable net asset value in the face of multiple
shocks to a money market fund, such as a simultaneous widening of
spreads and increase in redemptions, such as occurred during the fall
of 2008.\462\ Introducing the weighted average life limitation on money
market funds' portfolios will limit credit spread risk and interest
rate spread risk to funds from longer term floating- or variable-rate
securities. In addition, fund portfolios with a lower WAM and a 120-day
maximum WAL will turn over more quickly, and the fund will be better
able to increase its holdings of highly liquid securities in the face
of illiquid markets than funds operating under a maximum 90-day WAM
limitation.
---------------------------------------------------------------------------

    \461\ See supra notes 36-40 and accompanying text; notes 137-139
and accompanying text; notes 159-161 and accompanying text; and
notes 184-185 and accompanying text.
    \462\ See discussion in Section II.B.1 of this Release for an
example of the size of simultaneous shocks that a money market fund
could withstand with a WAM of 90 days as opposed to a WAM of 60
days.
---------------------------------------------------------------------------

    We believe that the new liquidity requirements will decrease
liquidity risk. As discussed above, they are designed to increase a
money market fund's ability to withstand illiquid markets by ensuring
that the fund further limits its acquisitions of illiquid securities
and that a certain percentage of its assets are held in daily and
weekly liquid assets.\463\ Under the general liquidity requirement,
moreover, each money market fund must assess its liquidity needs on an
ongoing basis and take additional actions as appropriate in order to
manage its liquidity. Together, these requirements should decrease the
likelihood that a fund would have to realize losses from selling
portfolio securities into an illiquid market to satisfy redemption
requests, which could put pressure on the fund's ability to maintain a
stable net asset value.\464\ The minimum daily and weekly liquidity
standards require a money market fund to hold cash or securities that
can be readily converted to cash. In certain circumstances, funds would
be required to increase the level of these assets under the general
liquidity standard.\465\ We believe that these requirements, rather
than our traditional notion of liquidity, which was based on a fund's
ability to find a buyer of a security, are more likely to enable money
market fund advisers to meet their funds' liquidity needs and adjust
the funds' portfolios to increase liquidity when needed.\466\
---------------------------------------------------------------------------

    \463\ See supra Section II.C.
    \464\ See id.
    \465\ See supra Section II.C.1.
    \466\ See supra Section II.C.
---------------------------------------------------------------------------

    We believe that a reduction of these credit, interest rate, spread,
and liquidity risks will better enable money market funds to weather
market turbulence and maintain a stable net asset value per share. The
amendments are designed to reduce the risk that a money market fund
will break the buck, and thereby prevent losses to fund investors. To
the extent that money market funds are more stable, they also will
reduce systemic risk to the capital markets and provide a more stable
source of financing for issuers of short-term credit instruments, thus
promoting capital formation. If money market funds become more stable
investments as a result of the rule amendments, they may attract
further investment, increasing their role as a source of capital.
b. Costs
    We recognize that our amendments regarding second tier securities,
portfolio maturity, and liquidity will impose costs on some money
market funds. For example, yields might decrease in funds depending on
their current positions in second tier securities, less liquid
securities, and longer term instruments because those instruments
typically offer above average yields. We note that the yield offered by
a security is tied to its risk. It is important to consider our rule
amendments' impact on money market fund yields in this context.
    Second Tier Securities. We received several comments on the
estimated costs of eliminating money market funds' ability to acquire
second tier securities. One commenter stated that such an elimination
would cost a money market fund 2 basis points in yield, assuming

that this money market fund held 5 percent of its assets in second tier
securities.\467\ This commenter stated that it believed that this cost
would be appropriate to strengthen the stability of money market funds
to weather potential future liquidity and credit crises and to promote
investor confidence. Several commenters agreed, stating that they did
not expect elimination to lead to market disruption.\468\ One commenter
added that given the small size of the second tier securities market,
the benefits of elimination would far outweigh any disadvantages.\469\
---------------------------------------------------------------------------

    \467\ This number was obtained in discussions with a commenter
clarifying certain aspects of its comment letter. See J.P. Morgan
Asset Mgt. Comment Letter.
    \468\ ICI Comment Letter; TDAM Comment Letter; Thrivent Comment
Letter.
    \469\ TDAM Comment Letter.
---------------------------------------------------------------------------

    Another commenter stated that the benefits of money market funds
being able to invest in second tier securities, in terms of reducing
portfolio concentration in financial institution securities and
providing affordable financing for second tier security issuers,
outweigh any potential increased credit risk.\470\ This commenter
estimated that elimination of a money market fund's ability to acquire
second tier securities would cost it 3 basis points in yield, again
assuming that the money market fund held a full 5 percent of its assets
in second tier securities. Finally, a third commenter estimated that
elimination of money market funds' ability to acquire second tier
securities would cost a retail money market fund 4-8 basis points in
yield, a non-rated institutional money market fund 2-4 basis points in
yield, and a rated institutional fund 1-3 basis points in yield.\471\
This commenter assumed that these money market funds held 5 percent of
their assets in second tier securities and 5 percent of their assets in
lower quality first tier assets, and that all of these assets would not
be held if funds' ability to acquire second tier securities was
eliminated.
---------------------------------------------------------------------------

    \470\ See Federated Comment Letter. As discussed in Section
II.A.1 of this Release, other commenters also asserted that a
complete ban on acquisition of second tier securities would not be
justified on a cost-benefit basis, would have a material adverse
impact on second tier security issuers, would have unintended
effects on the capital markets, and would increase borrowing costs
for second tier security issuers. We discuss these comments, and
provide our response, supra notes 41-53 and accompanying and
following text.
    \471\ Fidelity Comment Letter. According to the iMoneyNet Money
Market Fund Analyzer Database, as of November 17, 2009, 61% of money
market fund assets were held in funds that were top rated by at
least one NRSRO and 34% of money market funds had a top rating from
at least one NRSRO. In order to retain a top rating, money market
funds must only hold first tier securities. According to analysis of
the iMoneyNet analyzer database, as of December 1, 2009,
approximately 48% of money market funds were retail funds and 52%
were institutional funds. Accordingly, Fidelity's estimates result
in a blended impact on money market funds of (6 basis points x 48%
retail funds) + (3 basis points x 34% non-rated institutional funds)
+ (2 basis points x 18% rated institutional funds) = 4.3 basis
points per fund.
---------------------------------------------------------------------------

    As discussed above, we have determined not to eliminate money
market funds' ability to acquire second tier securities, but instead
are further restricting this ability. This change from our proposal
should result in costs that are less than estimated in the proposal and
less than commenters estimated for full-scale elimination. We believe
that the 3 percent limitation on money market funds' ability to acquire
second tier securities will have a small impact on money market
funds.\472\ Based on commenters' estimates described above, a reduction
in a money market fund's investment in second tier securities from 5
percent to 3 percent of its total assets would reduce its yield on
average by approximately 1.2 basis points.\473\ However, very few money
market funds hold more than 3 percent of their total assets in second
tier securities, and even fewer hold a full 5 percent. Our staff's
review of money market fund portfolios in September 2008 found that
only 4 percent of money market funds held more than 3 percent of their
assets in second tier securities. Accordingly, we estimate that each of
only 29 money market funds \474\ would face a reduction of yield of 1.2
basis points as a result of our amendments.
---------------------------------------------------------------------------

    \472\ As discussed above, we do not believe that further
limitations on money market funds' ability to acquire second tier
securities will prevent their ability to achieve diversification
benefits. See supra note 47 and accompanying text.
    \473\ This estimate is based on averaging the 2 basis point, 3
basis point, and 4.3 basis point estimates from commenters for a
reduction in second tier securities investment from 5% to 0%,
proportionately adjusted to reflect a reduction in investment from
5% to 3%.
    \474\ This estimate is based on the following calculation: 719
money market funds x 4% = 29 money market funds.
---------------------------------------------------------------------------

    We also are further reducing the ability of money market funds to
acquire second tier securities of any particular issuer from the
greater of 1 percent of assets or $1 million to 0.5 percent of assets.
Based on our staff's review of money market fund portfolios in
September 2008, 8 percent of money market funds held second tier
securities of any particular issuer in excess of 0.5 percent of the
money market fund's assets. We expect that these money market funds,
however, will simply reinvest this excess in the securities of other
second tier issuers and, therefore, that there will be no loss in fund
yield as a result of this restriction.\475\ Several commenters argued
that there are many second tier security issuers worthy of
investment.\476\ If any of these money market funds did not perform
credit analysis of a large enough group of second tier security
issuers, these funds may incur some administrative costs in tracking
additional issuers.\477\
---------------------------------------------------------------------------

    \475\ Commenters (for example, the Federated Comment Letter and
the Fidelity Comment Letter) asserted that there are numerous
quality second tier security issuers. Because this limitation, when
combined with the 3% aggregate limitation on acquisition of second
tier securities, only limits money market funds to holding a minimum
of 6 second tier issuers if it were to maximize the limitations
(rather than 5 second tier issuers under the current rule), we do
not expect that money market funds would have difficulty finding six
appropriate second tier security issuers in which to invest.
    \476\ See, e.g., Chamber/Tier 2 Issuers Comment Letter;
Federated Comment Letter; Fidelity Comment Letter; USAA Comment
Letter.
    \477\ Based on discussions we had with certain commenters
clarifying certain aspects of their comment letters, we understand
that all of these larger managers track sufficient second tier
security issuers that the 0.5% limitation per second tier security
issuer should not create additional costs related to tracking
additional issuers.
---------------------------------------------------------------------------

    Finally, we are limiting money market funds to only acquiring
second tier securities with a remaining maturity of less than 45 days.
According to Federal Reserve data, in 2009, only 4 percent of A2/P2
non-financial commercial paper had a maturity of greater than 40 days
on issuance, and thus we do not expect that the 45-day maturity limit
will have more than a negligible cost impact on taxable money market
funds.\478\ In addition, based on our staff's review of tax-free money
market fund portfolios in September 2008, we estimate that very few
money market funds held second tier municipal securities with a
maturity of greater than 45 days that were second tier securities at
the time of acquisition. As a result, we do not expect that the 45-day
maturity limit will have more than a negligible cost impact on money
market funds.
---------------------------------------------------------------------------

    \478\ See Federal Reserve, Volume Statistics for Commercial
Paper, A2/P2 Nonfinancial, available at http://
www.federalreserve.gov/releases/cp/volumestats.htm.
---------------------------------------------------------------------------

    WAM and WAL. Three commenters provided cost estimates for a
reduction in the maximum weighted average maturity for money market
funds. One commenter estimated that if all money market funds had a WAM
of 75 days and reduced their WAM to 60 days, it would cost each money
market fund 2.5 to 3 basis points in yield.\479\ Similarly, another
commenter estimated that this same reduction would cost each money
market fund 3 basis points in yield, and a reduction in WAM from 90
days to 75

days would also cost a money market fund 3 basis points in yield.\480\
Finally, a third commenter estimated that if all money market funds had
a WAM of 90 days and reduced their WAM to 60 days, it would cost each
money market fund 5 to 10 basis points in yield.\481\ According to
these estimates, it would cost a money market fund 5 to 10 basis points
in yield to reduce its WAM from 90 days to 60 days.
---------------------------------------------------------------------------

    \479\ J.P. Morgan Asset Mgt. Comment Letter.
    \480\ Federated Comment Letter.
    \481\ Fidelity Comment Letter.
---------------------------------------------------------------------------

    However, historically most money market funds have not maintained a
WAM of more than 60 days. According to data provided by the ICI, from
January 1998 through April 2009, even the 75th percentile of prime
money market funds has maintained an average WAM of 53 days and the
90th percentile of prime money market funds has maintained an average
WAM of 65 days.\482\ As of November 17, 2009, despite the historically
low interest rate environment in which money market funds have tended
to extend WAM closer to the maximum limits to gain additional yield,
only 1.5 percent of taxable money market funds reported a WAM of more
than 75 days (with most of those having a WAM of only slightly over 75
days) and only 15.5 percent reported a WAM of 61-75 days (with these
funds having an average WAM of 68 days).\483\ We understand that most
money market funds like to have some cushion by maintaining a WAM below
the permitted maximum, but we do not believe that money market funds
believe that such a large cushion must always be maintained. Rather, we
believe that many money market funds have maintained lower WAMs than
required because they believed that it is prudent management of their
portfolio to do so.\484\
---------------------------------------------------------------------------

    \482\ Investment Company Institute, Average Maturity of Taxable
Prime Money Market Funds, 1998-2009, available at http://
www.sec.gov/comments/s7-11-09/s71109-14.htm.
    \483\ Based on data from the iMoneyNet Money Market Fund
Analyzer Database as of November 17, 2009. The WAMs of the funds
with WAMs over 75 days were: 2 at 76 days, 1 at 77 days, and 3 at 78
days. Tax-free money market funds have WAMs considerably lower (30%
of money market funds were tax-free as of December 8, 2009 according
to data from the iMoneyNet Money Market Fund Analyzer Database).
    \484\ See, e.g., supra notes 137-139 and accompanying text.
---------------------------------------------------------------------------

    Based on this data, on the WAMs of taxable and prime money market
funds and on commenters' estimates of the impact of a reduction in WAM,
we estimate that 10 money market funds will have to reduce their WAM
from 78 days to 55 days at a cost of 6 basis points per fund. We
further estimate that 70 money market funds will have to reduce their
WAM from 68 days to 55 days at a cost of 2 basis points per fund.
    Three commenters provided cost estimates for a reduction in the
maximum weighted average life for money market funds. One commenter
estimated that if all money market funds had a WAL of 180 days and
reduced their WAL to 120 days, it would cost each money market fund 2
to 4 basis points in yield.\485\ Another commenter estimated that a WAL
reduction of 150 to 120 days would cost each money market fund 1 to 3
basis points in yield.\486\ Finally, a third commenter estimated that
if all money market funds reduced their WAL to 120 days, it would cost
each money market fund 3 basis points in yield.\487\ According to these
estimates, it would cost a money market fund 1 to 3 basis points in
yield to reduce its WAL from 150 days to 120 days.\488\ We estimate
that two-thirds of taxable money market funds and all tax-free money
market funds already maintain a WAL of 120 days or less and thus will
incur no cost in transitioning to this amendment to rule 2a-7.\489\ We
estimate that the other third of taxable money market funds, or 163
funds, maintain a maximum WAL of no greater than 150 days and will
incur on average a cost of 2 basis points per fund to reduce their WAL
to 120 days.
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    \485\ J.P. Morgan Asset Mgt. Comment Letter and subsequent
Commission staff conversation with J.P. Morgan staff breaking down
the cost estimate in the J.P. Morgan Asset Mgt. Comment Letter by
each proposed amendment to rule 2a-7.
    \486\ Fidelity Comment Letter (focusing on government money
market funds).
    \487\ Federated Comment Letter. The Federated Comment Letter did
not specify a WAL starting point for its assumed reduction to a 120-
day WAL. Rather, it evaluated instruments that it believed would
likely be subject to greater demand or a shorter maturity with a
120-day maximum WAL requirement and estimated the increased cost to
money market funds from those securities becoming more expensive as
a result.
    \488\ Based on discussions we had with certain commenters
clarifying certain aspects of their comment letters, we do not
believe that more than a negligible number of money market funds are
maintaining a WAL of 180 days.
    \489\ We are not aware of any data provider that tracks the WAL
of all money market funds (likely because money market funds are not
limited currently in the weighted average life that they must
maintain). An analysis of the 16 largest, top-rated, prime
institutional money market funds (representing 53% of all prime
institutional money market fund assets as of June 30, 2009) found
that of the 14 funds providing information on the final maturities
of their portfolio securities, all had a WAL of under 120 days. See
Capital Advisors Group, How Safe are Prime Money Market Funds? (Nov.
1, 2009), available at http://web.capitaladvisors.com/whitepapers/
How%20Safe%20Are%20MMFs.pdf (``CAG Report''). This information,
combined with discussions we had with certain commenters clarifying
certain aspects of their comment letters, leads us to estimate that
two thirds of money market funds currently are maintaining a WAL of
no greater than 120 days and that the other third currently are
maintaining a WAL of no greater than 150 days. We also understand
that the majority of money market funds currently are in compliance
with the maximum 120-day WAL because of their voluntary compliance
with the recommendations contained in the ICI Report. Because most
securities held by tax-free money market funds have a demand feature
reducing the security's maturity under the WAL calculation to a very
short duration, we understand that tax-free money market funds do
not have a WAL greater than 120 days.
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    Several commenters stated that the new WAM limitation would reduce
the range of securities available for money market fund investment and
increase demand for shorter term securities.\490\ No commenters
provided any cost estimate for this potential impact. If this did
occur, and if the increased demand was not met with increased supply of
such securities, the new maturity limitations could result in
additional incremental costs to money market funds.
---------------------------------------------------------------------------

    \490\ See, e.g., Charles Schwab Comment Letter; J.P. Morgan
Asset Mgt. Comment Letter; State Street Comment Letter.
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    A few commenters also believed that the amended maturity
limitations would increase security issuer costs because they would
have to issue shorter maturity securities and assume greater risk from
having to roll over their securities more frequently.\491\ No
commenters provided any cost estimate for this potential impact. If
security issuer costs do increase as a result of the amended maturity
limitations and these issuers as a consequence are unable to obtain the
same amount of financing, it may have a negative impact on capital
formation.
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    \491\ See, e.g., Fannie Mae Comment Letter; State Street Comment
Letter; Wells Fargo Comment Letter.
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    General Liquidity Requirement. As discussed above, the amended rule
includes a general liquidity requirement, under which a fund's
management and its board must evaluate the funds' liquidity needs and
protect shareholders from the harm that can occur from the failure to
properly anticipate and provide for those needs. We also noted that in
order to comply with this provision in amended rule 2a-7 under the
compliance rule, we expect that money market funds would adopt policies
and procedures designed to assure that appropriate efforts are
undertaken to identify risk characteristics of the fund's
shareholders.\492\ For purposes of the PRA analysis, we estimated that
each fund complex would incur, on average, 9 hours to document, review,
and adopt policies and procedures for monitoring the risk
characteristics of money market

fund investors.\493\ Based on this estimate, we estimate that it would
cost a fund complex $6976 to document, review, and adopt these policies
and procedures, for a total cost of $1,137,000.\494\
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    \492\ See supra note 198 and accompanying text.
    \493\ See supra note 407 and accompanying and preceding text.
    \494\ These estimates are based on the following calculations: 8
hours x $372/hour (for a senior portfolio manager) = $2976; 1 hour x
$4000 (for a board of directors) = $4000; ($2976 + $4000) x 163
complexes = $1,137,088. The hourly wage used for senior portfolio
managers is from the SIFMA Report on Management & Professional
Salaries Data (Sept. 2008), modified to account for an 1800-hour
work-year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead.
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    Illiquid Securities. Two commenters provided estimates with respect
to the proposed ban on purchases of illiquid securities. One commenter
estimated that the proposed ban would decrease money market funds'
yields from 2 to 6 basis points, assuming that the fund holds 10
percent of its total assets in illiquid securities.\495\ Another
commenter submitted that the ban on illiquid securities would decrease
yields by 3 basis points.\496\ Based on commenters' estimates, a money
market fund that reduces its investments in illiquid securities from 10
percent to 5 percent would reduce its yield on average by 2 basis
points.\497\
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    \495\ See Fidelity Comment Letter.
    \496\ See Federated Comment Letter (without specifying the
assumed holdings of illiquid securities).
    \497\ The individual reduction in basis points is calculated by
taking the average of the estimated range of 2 to 6 basis points
((2+6) / 2 = 4 basis points; 4 basis points / 10% = 0.4 basis points
per 1% reduction), proportionally adjusted to reflect an adjustment
in investment in illiquid securities from 10% to 5% (5 x 0.4 = 2).
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    Our staff's review of money market funds' portfolios in September
2008 found that 24 percent of funds reported held any illiquid
securities.\498\ Based on the staff's review as applied to the current
number of money market funds (719),\499\ we estimate current money
market fund holdings of illiquid securities as follows:
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    \498\ We note that these holdings are likely to include some
securities that were not illiquid at acquisition. Thus, our
estimates on the impact of reducing holdings of illiquid securities
may be higher than the impact that would be experienced by some
money market funds.
    \499\ The number of money market funds is based on Investment
Company Institute, Trends in Mutual Fund Investing, Oct. 2009,
available at http://www.ici.org/research/stats/trends/trends_10_
09.

------------------------------------------------------------------------
 Percentage of total assets represented    Percentage of     Number of
         by illiquid securities                funds           funds
------------------------------------------------------------------------
10 percent..............................             0.6               4
9 percent...............................             0.4               3
8 percent...............................             0.4               3
7 percent...............................             0.4               3
6 percent...............................             1.0               7
5 percent or less.......................            97.2             698
------------------------------------------------------------------------

    Based on these estimated holdings, staff makes the following
estimates: 4 funds with 10 percent of assets invested in illiquid
securities will experience a reduction in holdings of 5 percent and a
yield impact of 2 basis points; \500\ 3 funds with 9 percent of assets
invested in illiquid securities holdings will experience a reduction in
holdings of 4 percent and a yield impact of 1.6 basis points; \501\ 3
funds with 8 percent of assets invested in illiquid securities holdings
will experience a reduction in holdings of 3 percent and a yield impact
of 1.2 basis points; \502\ 3 funds with 7 percent of assets invested in
illiquid securities holdings will experience a reduction in holdings of
2 percent and a yield impact of 0.8 basis points;\503\ 7 funds with 6
percent of assets invested in illiquid securities holdings will
experience a reduction in holdings of 1 percent and a yield impact of
0.4 basis points.\504\
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    \500\ (10%-5% (allowable amount remaining) = 5%). 5 x 0.4 basis
points (basis point impact per 1%) = 2 basis points.
    \501\ (9%-5% (allowable amount remaining) = 4%). 4 x 0.4 basis
points = 1.6 basis points.
    \502\ (8%-5% (allowable amount remaining) = 3%). 3 x 0.4 basis
points = 1.2 basis points.
    \503\ (7%-5% (allowable amount remaining) = 2%). 2 x 0.4 basis
points = 0.8 basis points.
    \504\ (6%-5% (allowable amount remaining) = 1%). 1 x 0.4 basis
points = 0.4 basis points.
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    Daily Liquidity Requirements. Two commenters specifically addressed
the proposed daily liquidity requirements. Both commenters estimated
that there would be no yield impact as a result of the proposed 10
percent threshold.\505\ Based on these comments, we assume that the 10
percent daily minimum liquidity standard we are adopting will have no
impact on money market funds' yield.\506\
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    \505\ See Federated Comment Letter; Fidelity Comment Letter.
    \506\ Our understanding is that money market funds' current
practice is to maintain approximately 10% of their portfolio in
daily liquid assets. See CAG Report, supra note 489; Fitch Report,
supra note 274, at 6 (Fitch-rated prime money market funds'
aggregate exposure to sources of overnight liquidity, including
repurchase agreements, time deposits and shares of other money
market funds, was approximately 15% of total assets for the six-
month period ended on May 15, 2009).
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    Weekly Liquidity Requirements. A few commenters provided estimates
on the costs of the proposed weekly liquidity requirements. One
commenter estimated that the yield impact of the proposed 30 percent
weekly liquidity standard for institutional funds would range from 15
to 20 basis points,\507\ while another commenter estimated that the
yield impact would be 10 basis points.\508\ A third commenter submitted
that the proposed 30 percent weekly liquidity requirement would have a
yield impact of 9 basis points, but would have no impact if the
threshold was 20 percent and included agency discount notes with
remaining maturities of 95 days or less.\509\ None of these commenters
explained the baseline (i.e., the percentage of weekly liquid assets
institutional funds currently hold) on which their estimated impacts on
yield are based. A fourth commenter estimated that if money market
funds had to increase their weekly liquid assets by 10 percent, the
yield impact would be between 3 and 6 basis points.\510\ Thus,
commenters' estimates of the yield impact to institutional funds of
maintaining 30 percent of their portfolio in weekly liquid assets
ranged

from 3 to 20 basis points.\511\ We have averaged these estimates to
determine our estimated yield impact on institutional funds of 1.025
basis points per percentage increase in existing assets that would have
to be converted to weekly liquid assets.\512\
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    \507\ See Fidelity Comment Letter (noting that including agency
discount notes with remaining maturities of 397 days or less in
weekly liquid assets would have reduced this estimate by about 3
basis points for institutional money market funds).
    \508\ GE Asset Mgt. Comment Letter (arguing that the requirement
could cause a more pronounced yield widening effect as a result of
supply/demand dynamics, i.e., there would be an increase in demand
for securities with 7-day maturities or less, which would result in
a corresponding decrease in yield for such instruments;
consequently, there could also be a reduced demand for longer-dated
instruments, which would adversely impact the short-term financing
for issuers of such instruments).
    \509\ Federated Comment Letter.
    \510\ J.P. Morgan Asset Mgt. Comment Letter and subsequent
Commission staff conversation with J.P. Morgan staff breaking down
the cost estimate in the J.P. Morgan Asset Mgt. Comment Letter by
each proposed amendment to rule 2a-7.
    \511\ We note that the range of these estimates is likely to be
lower if agency discount notes with remaining maturities of less
than 60 days are included. We have not adjusted for that, however,
to maintain a conservative estimate.
    \512\ Our estimate is based on an average of the commenters'
estimated (or the midpoint of commenters' estimated) impacts of
17.5, 10, 9, and 4.5 basis points per 10% increase in weekly liquid
assets as proportionally adjusted: 1.75 + 1.0 + 0.9 + 0.45 = 4.1;
4.1 basis points / 4 = 1.025 basis point increase. See notes 507-510
and accompanying text.
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    We estimate that half of institutional money market funds currently
maintain 30 percent or more of their total assets in weekly liquid
assets and thus would experience no reduction in yield as a result of
the weekly liquidity requirement. We further estimate that 38 percent
of institutional funds maintain 25 percent of their assets in weekly
liquid assets; 6 percent of institutional funds maintain 20 percent of
their assets in weekly liquid assets and 6 percent of institutional
funds maintain 15 percent of their assets in weekly liquid assets.\513\
Based on these estimates, we estimate that 187 funds may experience no
impact, 142 funds may experience a 5.125 basis point impact on yield,
22 funds may experience a 10.25 basis points, and 22 funds may
experience a 15.375 basis point impact on yield.\514\
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    \513\ While we are not aware of any data provider that tracks
the actual maturities of securities (as opposed to WAM, which
estimates the maturity of floating rate notes based on the interest
reset date rather than actual maturity), we are able to provide
estimates based on the analysis of the Capital Advisors Group that
found that on or near September 30, 2009, the 16 funds providing
information on their portfolio securities averaged 30% of assets in
securities convertible to cash in 1 to 7 days. In addition, 8 (50%)
had 7-day liquidity of 30% or greater; 6 (38%) had 7-day liquidity
of 25%-30%; 1 (6%) had liquidity of 20%-25%, and 1 (6%) had 7-day
liquidity of 15%-20%. See CAG Report, supra note 489. For purposes
of our estimates, we are assuming the funds in each category held
the lowest level of weekly liquid assets in the category.
    \514\ As noted above, there are currently 719 money market
funds, of which we estimate that 52% (374) are institutional funds.
See supra notes 471 and 499.
---------------------------------------------------------------------------

    One commenter provided specific estimates for the impact of the
proposed 15 percent weekly liquid asset requirement on retail money
market funds of between two and four basis points.\515\ Assuming that
the starting point for these estimates was 10 percent of investments in
weekly liquid assets, we estimate that the yield impact per percentage
increase to satisfy the weekly liquid asset requirement would be 0.6
basis points.\516\ We estimate that all retail money market funds
maintain 15 percent of their total assets in weekly liquid assets.\517\
Based on this estimate, we estimate that the average yield impact for
each retail money market fund would be 9 basis points.\518\
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    \515\ See Fidelity Comment Letter.
    \516\ This assumes an average of 3 basis points proportionally
adjusted for an increase of 5%. We assume that the commenter based
its estimate on an increase from 10% holdings because as noted
above, we assume that all money market funds have on average daily
liquidity of at least 10% and the commenter based its estimates on
the proposed weekly liquid asset requirement of 15% for retail
funds. See supra note 506 and accompanying text.
    \517\ We believe that most retail money market funds currently
are in voluntary compliance with the 20% weekly liquidity standard
recommended by the ICI Report, which would include agency discount
notes with original issue maturity of 95 days or less. The final
rule permits agency discount notes with remaining maturities of 60
days or less, and we are conservatively estimating that retail funds
maintain an average of 15% of assets in weekly liquid assets.
    \518\ 0.6 basis points x 15% = 9 basis points. This estimate may
be overstated because, as noted above, we believe that most retail
funds hold 20% of their assets in weekly liquid assets, and thus
would have to convert a smaller percentage of assets to weekly
liquid assets.
---------------------------------------------------------------------------

    Investors. The decreased yield that some money market funds may
offer as a result of the amendments we are adopting today may limit the
range of choices that individual money market fund investors have to
select their desired level of investment risk. This might cause some
investors to shift their assets to, among other places, bank deposits