The Securities and Exchange Commission said Wednesday that it had removed credit rating references in the principal rule that governs money market funds and the form that the funds use to report information to the Commission each month about their portfolio holdings.
The Commission also adopted amendments to “subject additional securities to issuer diversification provisions” in the money market fund rule.
“Reducing reliance on credit ratings to determine which securities money market funds can hold is an important part of our efforts related to these funds,” said SEC Chairwoman Mary Jo White, in a statement. “These amendments also remove credit ratings from one of the last areas of the Commission’s rules where they are referenced.”
The amendments eliminate the following two requirements in the money market fund Rule 2a-7: Money market funds must invest only in securities that have received one of the two highest short-term credit ratings or, if they are not rated, securities that are of comparable quality; and the requirement that a money market fund invest at least 97% of its assets in securities that have received the highest short-term credit rating.
The amended rule adopted Wednesday requires a money market fund to be limited to “investing in a security only if the fund determines that the security presents minimal credit risks after analyzing certain prescribed factors.”
The DoddFrank Act requires the SEC to review its rules that use credit ratings as an assessment of creditworthiness and replace those credit-rating references with other “appropriate standards.”
White stated previously when issuing rules to allow for independent evaluation of the quality of asset-backed securities and credit ratings that the issuance of “flawed credit ratings by certain credit rating agencies was a key contributor to the financial crisis.”
Including the SEC’s Wednesday action, the Commission has now removed references to credit ratings from 32 rules and forms.
The rules adopted Wednesday have a compliance date of Oct. 14, 2016.
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