H. Rept. 115-903 - CONSUMER FINANCIAL CHOICE AND CAPITAL MARKETS PROTECTION ACT OF 2017115th Congress (2017-2018)
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115th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 115-903
======================================================================
CONSUMER FINANCIAL CHOICE AND CAPITAL MARKETS PROTECTION ACT OF 2017
_______
August 24, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 2319]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 2319) to protect the investment choices of
investors in the United States, and for other purposes, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Consumer Financial Choice and Capital
Markets Protection Act of 2018''.
SEC. 2. TREATMENT OF MONEY MARKET FUNDS UNDER THE INVESTMENT COMPANY
ACT OF 1940.
The Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) is
amended by adding at the end the following:
``SEC. 66. MONEY MARKET FUNDS.
``(a) Definitions.--In this section--
``(1) the term `covered Federal assistance' means Federal
assistance used for the purpose of--
``(A) making any loan to, or purchasing any stock,
equity interest, or debt obligation of, any money
market fund;
``(B) guaranteeing any loan or debt issuance of any
money market fund; or
``(C) entering into any assistance arrangement
(including tax breaks), loss sharing, or profit sharing
with any money market fund; and
``(2) the term `Federal assistance' means--
``(A) insurance or guarantees by the Federal Deposit
Insurance Corporation;
``(B) transactions involving the Secretary of the
Treasury; or
``(C) the use of any advances from any Federal
Reserve credit facility or discount window, except to
the extent any part of a program or facility with
broad-based eligibility established in unusual or
exigent circumstances might be made available.
``(b) Election To Be a Stable Value Money Market Fund.--
``(1) In general.--Notwithstanding any other provision of
this title, any open-end investment company (or a separate
series thereof) that is a money market fund that relies on
section 270.2a-7 of title 17, Code of Federal Regulations, may,
in the prospectus included in its registration statement filed
under section 8, state that the company or series has elected
to compute the current price per share, for purposes of
distribution or redemption and repurchase, of any redeemable
security issued by the company or series by using the amortized
cost method of valuation, or the penny-rounding method of
pricing, regardless of whether its shareholders are limited to
natural persons, if--
``(A) the company or series has as its objective the
generation of income and preservation of capital
through investment in short-term, high-quality debt
securities;
``(B) the board of directors of the company or series
elects, on behalf of the company or series, to maintain
a stable net asset value per share or stable price per
share, by using the amortized cost valuation method, as
defined in section 270.2a-7(a) of title 17, Code of
Federal Regulations (or successor regulation), or the
penny-rounding pricing method, as defined in section
270.2a-7(a) of title 17, Code of Federal Regulations
(or successor regulation), and the board of directors
of the company has determined, in good faith, that--
``(i) it is in the best interests of the
company or series, and its shareholders, to do
so; and
``(ii) the money market fund will continue to
use such method or methods only as long as the
board of directors believes that the resulting
share price fairly reflects the market-based
net asset value per share of the company or
series; and
``(C) the company or series will comply with such
quality, maturity, diversification, liquidity, and
other requirements, including related procedural and
recordkeeping requirements, as the Commission, by rule
or regulation or order, may prescribe or has prescribed
as necessary or appropriate in the public interest or
for the protection of investors to the extent that such
requirements and provisions are not inconsistent with
this section.
``(2) Exemption from default liquidity fee requirements.--
``(A) Elections under paragraph (1).--Notwithstanding
section 270.2a-7 of title 17, Code of Federal
Regulations (or successor regulation), no company or
series that makes the election under paragraph (1)
shall be subject to the default liquidity fee
requirements of section 270.2a-7(c)(2)(ii) of title 17,
Code of Federal Regulations (or successor regulation)
unless the board of directors of such company or series
elects, in the prospectus included in the registration
statement filed under section 8, to be subject to such
requirements.
``(B) Other funds.--Notwithstanding section 270.2a-7
of title 17, Code of Federal Regulations (or successor
regulation), a company or series that does not make an
election under paragraph (1) shall not be subject to
the default liquidity fee requirements of section
270.2a-7(c)(2)(ii) of title 17, Code of Federal
Regulations (or successor regulation), if it states in
the prospectus included in the registration statement
filed under section 8, that the company or series
satisfies the provisions of subparagraphs (A) and (C)
of paragraph (1) and that the board of directors of
such company or series has elected for the company or
series to not be subject to the default liquidity fee
requirements.
``(c) Prohibition Against Federal Government Bailouts of Money Market
Funds.--Notwithstanding any other provision of law (including
regulations), covered Federal assistance may not be provided directly
to any money market fund.
``(d) Disclosure of the Prohibition Against Federal Government
Bailouts of Money Market Funds.--
``(1) In general.--No principal underwriter of a redeemable
security issued by a money market fund nor any dealer shall
offer or sell any such security to any person unless the
prospectus of the money market fund and any advertising or
sales literature for such fund prominently discloses, on the
first page of such prospectus or literature, the prohibition
against direct covered Federal assistance as described in
subsection (c).
``(2) Rules, regulations, and orders.--The Commission may,
after consultation with and taking into account the views of
the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, and the Department of
the Treasury, adopt rules and regulations and issue orders
consistent with the protection of investors, prescribing the
manner in which the disclosure under this subsection shall be
provided.
``(e) Continuing Obligation To Meet Requirements of This Title.--A
company or series that makes an election under subsection (b)(1) shall
remain subject to the provisions of this title and the rules and
regulations of the Commission thereunder that would otherwise apply if
those provisions do not conflict with the provisions of this
section.''.
Purpose and Summary
On May 3, 2017, Representative Keith Rothfus introduced
H.R. 2319, the ``Consumer Financial Choice and Capital Markets
Protection Act''. As modified by an amendment in the nature of
a substitute, H.R. 2319 reverses portions of the U.S.
Securities and Exchange Commission's (SEC or Commission) 2014
rule on money market funds (MMFs). The legislation would allow
MMFs, regardless of whether their investors are retail or
institutional, to elect to use the stable Net Asset Value (NAV)
approach instead of a floating NAV to calculate the price per
share. Additionally, MMFs, either by making the election to use
a stable NAV or through its board of directors, can choose not
to be subject to the mandatory liquidity fee provision of the
SEC's 2014 rule. The bill does not, however, address the
discretion afforded to boards of MMFs under the SEC rule that
allows MMFs to implement gates to limit redemptions in times of
stress. Additionally, the bill contains certain prohibitions
against the use of taxpayer dollars to bail-out MMFs and
requires disclosure of the bail-out prohibition provisions, but
the bill does not restrict the Federal Reserve's authority to
implement a program or facility with broad-based eligibility
established in unusual or exigent circumstances that may
benefit MMFs.
Background and Need for Legislation
The goal of H.R. 2319 is to address certain concerns raised
by municipalities following the implementation of the 2014
SEC's MMF rule, namely that certain municipalities might face
increased funding costs through MMFs as a result of the rule
and that prime and tax-exempt MMFs saw outflows of over $1
trillion into government MMFs after the rule's adoption.
MMFs were established first in the 1970s as a solution to
the Federal Reserve's Regulation Q, which prohibited bank
demand deposits from paying interest and capped the interest
rate on other types of bank accounts at 5.25 percent. Since
then, investors have used MMFs as a type of mutual fund that
offers higher yields than cash held in a bank deposit account
while still allowing investors to quickly withdraw their funds.
By law, MMFs are required to maintain generally low-risk
investments, such as government securities, certificates of
deposit, commercial paper, or other highly liquid and low-risk
securities. MMFs are typically categorized by those that invest
primarily in government securities, tax-exempt municipal
securities, or corporate debt securities (known as prime
funds), with some funds intended for retail investors and
others intended for institutional investors. Money markets are
securities. The FDIC does not federally insure these products,
so they do not have to adhere to reserve requirements imposed
on federally insured depository institutions, which allows MMFs
to pay investors higher yields. But the absence of deposit
insurance can make MMFs vulnerable to panics and runs.
Historically, MMFs attempted to keep their respective NAV
at a constant $1.00 per share by utilizing the ``amortized
cost'' method to value a portfolio of securities. Amortized
cost is the book price of a security--i.e., the price a fund
pays for a security, as adjusted over time for accounting
changes in any discount or premium. In practice, maintaining a
stable $1.00 NAV by utilizing this method can be difficult if a
fund's investments perform poorly, in which case the NAV per
share may fall below $1.00--the occurrence of which is known as
``breaking the buck.''
In September 2008, the oldest MMF in the United States--the
Reserve Primary Fund--``broke the buck'' due in large part to
holding large amounts of Lehman Brothers' commercial paper and
was forced to suspend investor redemptions following Lehman
Brothers' bankruptcy filing. When this happened, investors in
other MMFs became concerned about the safety of their
investments and began to withdraw money from these funds,
causing the other fund managers to liquidate assets to meet
these redemption requests. No other MMFs ``broke the buck'' but
some holding companies or ``parents'' of MMFs provided their
funds with assistance to meet redemptions. To stem this run on
MMFs, the U.S. Treasury Department announced that it would
``guarantee the share price of any publicly offered eligible
money market mutual fund.'' Using the Exchange Stabilization
Fund--an emergency reserve fund normally used for foreign
exchange intervention--the Treasury provided an explicit
government backstop to the $3 trillion MMF industry.
In the aftermath of the crisis, the SEC adopted broad
reforms in January 2010 to promote both the resilience and
stability of MMFs in the SEC's words ``by tightening the
maturity and credit quality standards and imposing new
liquidity requirements''. The 2010 rules:
required MMFs to have a minimum percentage
of their assets in highly liquid securities so that
those assets can be readily converted to cash to pay
redeeming shareholders;
placed new limits on a money market fund's
ability to acquire lower quality (Second Tier)
securities;
shortened the average maturity limits for
money market funds, which helps to limit the exposure
of funds to certain risks such as sudden interest rate
movements;
required funds to hold sufficiently liquid
securities to meet foreseeable redemptions;
required fund managers to examine the fund's
ability to maintain a stable net asset value per share
in the event of shocks--such as interest rate changes,
higher redemptions, and changes in credit quality of
the portfolio;
limited a money market fund's investment in
rated securities to those securities rated in the top
two rating categories (or unrated securities of
comparable quality);
required money market funds to perform an
independent credit analysis of every security
purchased. As such, the credit rating serves as a
screen on credit quality, but can never be the sole
factor in determining whether a security is appropriate
for a money market fund;
required money market funds each month to
post on their Web sites their portfolio holdings;
required money market funds each month to
report to the Commission detailed portfolio schedules
in a format that can be used to create an interactive
database through which the Commission can better
oversee the activities of money market funds;
require money market funds and their
administrators to be able to process purchases and
redemptions electronically at a price other than $1.00
per share. This requirement facilitates share
redemptions if a fund were to break the buck;
permit a money market fund's board of
directors to suspend redemptions if the fund is about
to break the buck and decides to liquidate the fund;
and
expanded the ability of affiliates of money
market funds to purchase distressed assets from funds
in order to protect a fund from losses.
In addition, the 2010 rules improved the way that funds
evaluate securities ratings provided by the Nationally
Recognized Statistical Rating Organizations (NRSROs or credit
rating agencies):
required funds to designate each year at
least four NRSROs whose ratings the fund's board
considers to be reliable;
eliminated the current requirement that
funds invest only in those asset backed securities that
have been rated by an NRSRO; and
strengthened the requirements for allowing a
money market fund to ``look through'' the repurchase
issuer to the underlying collateral securities for
diversification purposes.
The Treasury Department proposed in its Financial
Regulatory Reform: A New Foundation (2009), that the
President's Working Group on Financial Markets (PWG) prepare a
report on fundamental changes needed to address systemic risk
and to reduce the susceptibility of MMFs to runs. In October
2010, the President's Working Group on Financial Markets issued
a report on MMF reform in light of the Reserve Primary Fund's
collapse and its effect on the financial system. The
President's Working Group presented several policy options for
further reforming MMFs, which included requiring MMFs to float
their NAV. At the time, the former SEC Chairman noted that the
2010 rules were a ``first step'' to strengthen MMFs. On
November 13, 2012, the Financial Stability Oversight Council
(FSOC) voted unanimously to advance proposed recommendations
for reform for public comment. Using its authority under
Section 120 of the Dodd-Frank Act, the FSOC proposed several
alternatives for structural reforms to address the risks posed
by MMFs. The FSOC sought comment on the proposed
recommendations for structural reforms of MMFs ``that reduce
the risk of runs and significant problems spreading through the
financial system stemming from the practices and activities
associated with MMFs.''
Rather than allow the FSOC to dictate capital market
standards, on July 23, 2014, the SEC approved a second package
of rules governing money market funds. The 2014 rule requires
institutional prime and institutional municipal MMFs to adopt
market-based pricing by floating their NAV. Meanwhile,
government and retail MMFs are permitted to continue using the
amortized cost method of seeking to maintain a stable share
price. The SEC's 2014 final rule also authorized the boards of
MMFs to impose liquidity fees and redemption gates during
periods of stress, and under certain circumstances, requires
liquidity fees to be imposed. The SEC's rule became effective
on October 14, 2016. At the time of adoption, Robert Pozen, a
senior fellow at the Brookings Institution, noted that ``the
new rules are likely to reduce the chances of runs on money
market funds in times of financial crisis. But it remains to be
seen whether these tougher requirements will diminish the
appeal of the funds relative to bank deposits for short-term
investors.''
Not everyone who was involved with the SEC's final rule
agreed that it would reduce the likelihood of runs on money
market funds. Former Commissioner Michael Piwowar, when
dissenting from the SEC rule, said: ``While the floating NAV
will not stop runs, it will impose costs on money market funds
that will ultimately be borne by its shareholders in the form
of higher fees and expenses, and lower returns.''
However, then-SEC Commissioner Dan Gallagher supported the
final rule and observed that the SEC cannot bail out any firm
or product and that oversight of products should be focused on
market-based valuations and capital standards. Former
Commissioner Gallagher also said:
[The floating NAV] eliminates the first-mover `put'
advantage that favors sophisticated institutional
investors at the expense of retail investors, leaving
the latter holding the proverbial bag. Just as
importantly, in my view, today's floating NAV reforms
clarify for the investors the risks associated with
investing in money market mutual funds while making it
clear to the markets and to policymakers that these
financial instruments are not bank products to be
overseen by prudential regulators, but rather
investment products properly regulated by the SEC.
By setting October 14, 2016, as the date these new
regulations would go into effect, the SEC provided MMFs two
years to modify their business models and comply with the new
rule. According to October 2017 statistics from the SEC's
Division of Investment Management, leading up to implementation
of these reforms, prime and tax-exempt MMFs did experience a
decrease in assets of $1 trillion, with government MMFs seeing
an increase in assets of $968 billion during the same period.
According to the SEC, during this period, some short-term rates
increased, though these rate increases have since dissipated.
The SEC anticipated this reallocation of assets from prime to
government MMFs and potential effects on yields in the short-
run in the rule's 2014 adopting release but determined that the
goals of the rulemaking justified the reforms, despite the
costs. According to the SEC, since the MMF reforms were
implemented, investor fund reallocations have not significantly
changed, with assets in both government and prime MMFs largely
stabilizing. The time period since the compliance date of the
reforms has also coincided with a rising interest rate
environment, with the Federal Reserve raising short-term
interest rates several times over the last year, which has
resulted in yield increases for MMFs.
On September 14, 2017, Capital Markets, Securities, and
Investment Subcommittee Chairman Huizenga (R-MI) and Ranking
Member Maloney (D-NY) sent a letter to SEC Chairman Jay Clayton
asking for the SEC's analysis of the impact of the 2014 money
market reforms since they went into effect in October 2016, as
well as the effects that would occur if the SEC were to reverse
the rule requiring prime and municipal MMFs to float their
NAVs. On October 5, 2017, Chairman Clayton responded that
``[i]t is difficult at this time to predict what the impact on
prime and municipal funds would be if the Commission were to
permit them again to use a stable $1.00 NAV'' and expressed
concern ``that making major changes at this time could be
disruptive to the short-term funding markets.'' Chairman
Clayton also noted that ``the Commission and its staff are
monitoring the short-term funding markets and MMFs' activities
generally, and will remain focused on the role MMFs play for
investors and the short-term markets.'' At a hearing before the
House Financial Services Committee on October 4, 2017, Rep.
David Scott (D-GA) asked Chairman Clayton about his thoughts on
the implemented MMF reforms, Chairman Clayton offered a similar
response, saying: ``Our Department of Economic Research is
looking at it. And so I think--I think it's too early to say
we're wrong.'' In the U.S. Treasury Department's Core
Principles Report on asset management and insurance released on
October 26, 2017, Treasury included a section that explained
the SEC's 2014 MMF reforms but the report did not make any
policy recommendations.
Nonetheless, proponents of the legislation believe that
further delays to reverse portions of the 2014 MMF rules will
continue to unduly impose costs on municipalities and will
further affect the ability for prime funds to operate more
efficiently for investors. At a November 3, 2017 Capital
Markets subcommittee hearing, Patrick McCoy, President of the
Government Finance Officers Association, testified that
``[s]tate and local governments access the capital markets and
issue short term debt for a variety of reasons. This important
legislation would allow governments to continue this access
without increasing costs for taxpayers.'' Additionally,
proponents assert that with other reforms the SEC has already
implemented, investors can more accurately evaluate the risks
that were overlooked leading up to the financial crisis of
investing in MMFs.
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 2319 on November 3, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
January 17, 2018, and January 18, 2018, and ordered H.R. 2319
to be reported favorably to the House as amended by a recorded
vote of 34 yeas to 21 nays (recorded vote no. FC-145), a quorum
being present. Before the motion to report was offered, the
Committee adopted an amendment in the nature of a substitute
offered by Mr. Rothfus by voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House as amended. The motion
was agreed to by a recorded vote of 34 yeas to 21 nays (Record
vote no. FC-145), a quorum being present.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 8, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2319, the Consumer
Financial Choice and Capital Markets Protection Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Mark P. Hadley
(For Keith Hall, Director)
Enclosure.
H.R. 2319--Consumer Financial Choice and Capital Markets Protection Act
of 2017
Under current law, money market mutual funds are generally
required to show the floating net asset value for their shares,
that is, the share price must fluctuate with changes in the
market value of the fund's assets. Those funds also are
required to round their share prices to the fourth decimal
place and to impose liquidity fees or suspend redemptions
temporarily if the fund's liquid assets falls below 10 percent
of its total assets.
H.R. 2319 would allow money market mutual funds to use
alternate methods of valuation for their shares and to round
those prices to the second decimal place. The bill also would
remove the requirement for money market funds to impose
liquidity fees.
Using information from the Securities Exchange Commission
(SEC), CBO estimates that implementing H.R. 2319 would cost $1
million over the 2019-2023 period for the agency to update its
rules and to monitor money market funds that use alternate
valuation methods. However, the SEC is authorized to collect
fees sufficient to offset its annual appropriation; therefore,
assuming appropriation actions consistent with that authority,
CBO estimates that the net effect on discretionary spending
would be negligible.
Enacting H.R. 2319 would not affect direct spending or
revenues; therefore, pay-as-you-go procedures do not apply.
CBO estimates that enacting H.R. 2319 would not increase
net direct spending or on-budget deficits in any of the four
consecutive 10-year periods beginning in 2029.
H.R. 2319 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA).
The bill would impose a private-sector mandate on principal
underwriters and dealers of securities issued by money market
funds by requiring those entities to disclose that there is a
prohibition against direct federal assistance for those money
market funds. The disclosure would need to be included in the
prospectus or literature of the security being sold. Using
information from the SEC about the costs of complying with
current disclosure requirements, CBO estimates that the
incremental costs of the mandate would be small and would fall
well below the annual threshold for private-sector mandates
established in UMRA ($156 million in 2017, adjusted annually
for inflation).
The CBO staff contact for this estimate is Stephen Rabent.
The estimate was reviewed by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This Section cites H.R. 2319 as the ``Consumer Financial
Choice and Capital Markets Protection Act''
Section 2. Treatment of money market funds under the Investment Company
Act of 1940
This section amends the Investment Company Act of 1940 to
allow MMFs to elect to use the stable NAV approach to calculate
price per share. Additionally those MMFs that do elect to use
the stable NAV approach are exempted from the mandatory
liquidity fee provision of the 2014 SEC rule so long as they
comply with certain requirements. This section also provides
certain prohibitions against the use of taxpayer funds to bail
out MMFs.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic):
INVESTMENT COMPANY ACT OF 1940
* * * * * * *
SEC. 66. MONEY MARKET FUNDS.
(a) Definitions.--In this section--
(1) the term ``covered Federal assistance'' means
Federal assistance used for the purpose of--
(A) making any loan to, or purchasing any
stock, equity interest, or debt obligation of,
any money market fund;
(B) guaranteeing any loan or debt issuance of
any money market fund; or
(C) entering into any assistance arrangement
(including tax breaks), loss sharing, or profit
sharing with any money market fund; and
(2) the term ``Federal assistance'' means--
(A) insurance or guarantees by the Federal
Deposit Insurance Corporation;
(B) transactions involving the Secretary of
the Treasury; or
(C) the use of any advances from any Federal
Reserve credit facility or discount window,
except to the extent any part of a program or
facility with broad-based eligibility
established in unusual or exigent circumstances
might be made available.
(b) Election To Be a Stable Value Money Market Fund.--
(1) In general.--Notwithstanding any other provision
of this title, any open-end investment company (or a
separate series thereof) that is a money market fund
that relies on section 270.2a-7 of title 17, Code of
Federal Regulations, may, in the prospectus included in
its registration statement filed under section 8, state
that the company or series has elected to compute the
current price per share, for purposes of distribution
or redemption and repurchase, of any redeemable
security issued by the company or series by using the
amortized cost method of valuation, or the penny-
rounding method of pricing, regardless of whether its
shareholders are limited to natural persons, if--
(A) the company or series has as its
objective the generation of income and
preservation of capital through investment in
short-term, high-quality debt securities;
(B) the board of directors of the company or
series elects, on behalf of the company or
series, to maintain a stable net asset value
per share or stable price per share, by using
the amortized cost valuation method, as defined
in section 270.2a-7(a) of title 17, Code of
Federal Regulations (or successor regulation),
or the penny-rounding pricing method, as
defined in section 270.2a-7(a) of title 17,
Code of Federal Regulations (or successor
regulation), and the board of directors of the
company has determined, in good faith, that--
(i) it is in the best interests of
the company or series, and its
shareholders, to do so; and
(ii) the money market fund will
continue to use such method or methods
only as long as the board of directors
believes that the resulting share price
fairly reflects the market-based net
asset value per share of the company or
series; and
(C) the company or series will comply with
such quality, maturity, diversification,
liquidity, and other requirements, including
related procedural and recordkeeping
requirements, as the Commission, by rule or
regulation or order, may prescribe or has
prescribed as necessary or appropriate in the
public interest or for the protection of
investors to the extent that such requirements
and provisions are not inconsistent with this
section.
(2) Exemption from default liquidity fee
requirements.--
(A) Elections under paragraph (1).--
Notwithstanding section 270.2a-7 of title 17,
Code of Federal Regulations (or successor
regulation), no company or series that makes
the election under paragraph (1) shall be
subject to the default liquidity fee
requirements of section 270.2a-7(c)(2)(ii) of
title 17, Code of Federal Regulations (or
successor regulation) unless the board of
directors of such company or series elects, in
the prospectus included in the registration
statement filed under section 8, to be subject
to such requirements.
(B) Other funds.--Notwithstanding section
270.2a-7 of title 17, Code of Federal
Regulations (or successor regulation), a
company or series that does not make an
election under paragraph (1) shall not be
subject to the default liquidity fee
requirements of section 270.2a-7(c)(2)(ii) of
title 17, Code of Federal Regulations (or
successor regulation), if it states in the
prospectus included in the registration
statement filed under section 8, that the
company or series satisfies the provisions of
subparagraphs (A) and (C) of paragraph (1) and
that the board of directors of such company or
series has elected for the company or series to
not be subject to the default liquidity fee
requirements.
(c) Prohibition Against Federal Government Bailouts of Money
Market Funds.--Notwithstanding any other provision of law
(including regulations), covered Federal assistance may not be
provided directly to any money market fund.
(d) Disclosure of the Prohibition Against Federal Government
Bailouts of Money Market Funds.--
(1) In general.--No principal underwriter of a
redeemable security issued by a money market fund nor
any dealer shall offer or sell any such security to any
person unless the prospectus of the money market fund
and any advertising or sales literature for such fund
prominently discloses, on the first page of such
prospectus or literature, the prohibition against
direct covered Federal assistance as described in
subsection (c).
(2) Rules, regulations, and orders.--The Commission
may, after consultation with and taking into account
the views of the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance
Corporation, and the Department of the Treasury, adopt
rules and regulations and issue orders consistent with
the protection of investors, prescribing the manner in
which the disclosure under this subsection shall be
provided.
(e) Continuing Obligation To Meet Requirements of This
Title.--A company or series that makes an election under
subsection (b)(1) shall remain subject to the provisions of
this title and the rules and regulations of the Commission
thereunder that would otherwise apply if those provisions do
not conflict with the provisions of this section.
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