January 15, 1993
TO: SEC RULES MEMBERS NO. 7-93
MONEY MARKET FUNDS AD HOC COMMITTEE NO. 1-93
RE: SEC STAFF POSITION ON VARIABLE RATE RESET CAPS UNDER RULE
2a-7
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In a recent telephone conversation, the SEC staff notified
the Institute that the staff had informally advised the Student
Loan Marketing Association that money market funds could purchase
Sallie Mae floating rate notes with a remaining maturity of up to
five years that were subject to a reset cap of 24% under Rule 2a-
7(d)(1). As we previously informed you, in a recent no-action
letter the staff had indicated that a fund purchasing instruments
with floating rates that may not rise above a preset cap could
not rely on paragraph (d)(1). This condition arose from the
staff's interpretation that Rule 2a-7 requires that instruments
covered by paragraph (d)(1) "have a market value that
approximates their par value upon the readjustment of the
interest rate." (See Memorandum to SEC Rules Members No. 59-92
and Money Market Funds Ad Hoc Committee No. 10-92, dated November
6, 1992.)
The staff's advice to Sallie Mae apparently was based upon
the fact that (1) the 24% cap was imposed in order to ensure that
the notes would not violate New York usury law and (2) given the
notes' relatively short remaining maturity and high cap, they
could reasonably be expected to have a market value that
approximates their par value upon their next rate reset.
Craig S. Tyle
Vice President - Securities