August 7, 1991
TO: MONEY MARKET FUNDS AD HOC COMMITTEE NO. 21-91
RE: AUGUST 6 MEETING CONCERNING DEMAND FEATURES
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As you know, the Money Market Fund Ad Hoc Committee met on
August 6th to discuss the regulation of demand features under
Rule 2a-7. (See Memorandum to Money Market Funds Ad Hoc
Committee No. 20-91, dated July 25, 1991.) The purpose of the
meeting was to discuss whether any modifications to the
provisions of the Rule governing demand features should be
considered in light of the recent Mutual Benefit Life incident.
At the meeting, the Committee discussed a number of
suggested changes, including (1) requiring that the put provider
be independent from the issuer and/or the guarantor of the
underlying security; (2) modifying the diversification
requirements applicable to guarantees of securities, which
currently allow ten percent of a fund's portfolio to be
guaranteed by a single institution; and (3) requiring that the
underlying security be of eligible quality under the Rule.
The Committee decided that the only change that should be
considered would be to limit the percentage of a fund's assets
that may be invested in securities guaranteed by an institution
that is affiliated with the issuer of the underlying security.
Specifically, instead of allowing a fund to invest up to ten
percent of its assets in securities guaranteed by an institution
affiliated with the issuer of the underlying security, as
currently permitted, a fund would be limited to investing only up
to five percent of its assets in such securities.
The Institute will not be suggesting this modification to
the SEC staff at this time. Instead, we will likely include it
in our comment letter when the SEC proposes changes to the
regulation of tax-exempt money market funds for public comment,
which we understand the staff is currently developing.
Please feel free to call me if you have any questions or
comments relating to the above.
Amy B.R. Lancellotta
Assistant General Counsel