Alert March 16, 2010

FRBNY Announces Eligibility of Certain Money Market Funds for Reverse Repurchase Program

The Federal Reserve Bank of New York (the “FRBNY”) announced that money market funds that meet certain criteria may be eligible counterparties in a possible Federal Reserve Bank-sponsored reverse repurchase program intended to drain reserves from the U.S. financial system.  Previously, only the eighteen primary government securities dealers reporting to the Government Securities Dealers Statistics Unit of the FRBNY had been considered as eligible counterparties for the proposed program.  To be eligible, a money market fund must, among other things: (a) be registered with the SEC as an open-end management investment company, (b) be in compliance with Rule 2a-7 under the Investment Company Act of 1940, the SEC rule that sets forth certain risk-limiting conditions on a money market fund’s portfolio, as well as certain other conditions designed to allow the fund to maintain a stable share price, (c) have been in existence for at least one year, and (d) have net assets of at least $20 billion for the previous six consecutive months. 

A money market fund that intends to participate in the program must submit its initial application to the FRBNY by March 19, 2010.  The FRBNY expects to notify all applicants by March 26, 2010.  If the FRBNY deems that a fund meets the eligibility criteria, the fund will be asked to submit additional materials by April 2, 2010.  The FRBNY has said that it expects that it will take at least one month to consider a fund’s complete application, which will include a review of the fund’s compliance program, discussions with the fund’s compliance and credit risk management staff, discussions with senior management about the fund’s financial condition and ability to meet the FRBNY’s business needs, a review of financial information, and consultation with primary supervisors and regulators.