(Adds dropped letters to "examine" instead of "exam" in
By Sarah N. Lynch
WASHINGTON Jan 12 Money market mutual fund
operators can expect a visit this year from federal securities
regulators, who announced on Thursday they plan to conduct exams
to ensure funds are complying with sweeping new rules that took
effect in October.
The Securities and Exchange Commission announced its
intention to scrutinize money funds, as part of its annual list
of top compliance examination priorities for the coming year.
The priorities were announced by outgoing SEC Chair Mary Jo
White, who is slated to depart after President-elect Donald
Trump takes office. It is unclear whether Trump's pick to
replace her, attorney Jay Clayton, would seek to make any
changes to the priorities.
Money market mutual funds were the target of major
structural reforms in 2014, in an effort by regulators to reduce
the risk of runs on the funds by panicked investors in the event
of a market crisis.
The final rules required "prime" money funds used by
institutional investors to float their values, instead of
letting them maintain a stable value at $1 per share.
The rules were a direct response to the 2008 financial
crisis, when the Reserve Primary Fund's exposure to Lehman
Brothers prompted panicked investors to withdraw their money in
a run that led the fund to "break the buck" and see its net
asset value fall below $1 a share.
The rules adopted in 2014 also gave fund boards discretion
to lower "gates" on redemptions, or charge fees of up to 2
percent if market stress causes a fund's weekly liquid assets to
fall below 30 percent.
They additionally imposed other requirements, including
enhancing stress testing and increasing portfolio
The SEC said on Thursday its exams in 2017 will focus on a
few key themes: retail investors, senior investors and retirees,
cyber security, market-wide risks and a closer look at how the
Financial Industry Regulatory Authority (FINRA) is carrying out
its duties as Wall Street's self-funded regulator.
In addition to money funds, the SEC said it will examine
brokerages for compliance with "best execution" rules, or rules
requiring firms to give their customers the best price in the
shortest possible time.
Others that will be reviewed also include advisers to
government pension plans, with a focus on ensuring they are
managing conflicts of interest, upholding their fiduciary duty
and complying with "pay to play" rules which limit advisers from
making political contributions in exchange for business.
(Reporting by Sarah N. Lynch; Editing by Tom Brown)