December 11, 1992
TO: BOARD OF GOVERNORS NO. 88-92
SEC RULES MEMBERS NO. 68-92
MONEY MARKET MEMBERS - ONE PER COMPLEX NO. 23-92
RE: SEC STAFF LETTER CONCERNING MONEY MARKET FUND INVESTMENT
IN ILLIQUID SECURITIES
__________________________________________________________
In the attached letter, the SEC’s Division of Investment
Management states its position that the Guidelines to Form N-1A
continue to require that money market funds invest no more than
10 percent of their net assets in illiquid securities. The staff
stated that although the Commission revised the Guidelines in
March to raise the percentage limitation to 15 percent for most
open-end funds, the agency intended to maintain the 10 percent
limitation for money market funds.
In its letter, the staff noted that the Commission revised
the Guidelines only after determining that even during periods of
abnormally high selling activity, mutual funds have had no
difficulty meeting redemption requests from available cash
reserves. According to the staff, "the Commission did not
consider the unique liquidity and valuation requirements of money
market funds." The staff also reasoned that the fact that small
businesses were the intended beneficiaries of the Guidelines
revision indicates that the Commission did not intend to raise
the standard for money market funds.
Thomas M. Selman
Assistant Counsel
Attachment