The selection of 'major' money market funds by a securities regulator typically involves a process where the regulator identifies and possibly designates certain money market funds that are systemically important or have significant assets under management. These funds may be subject to enhanced regulatory requirements due to their size, liquidity, interconnectedness, or potential impact on financial stability.
The rationale behind this designation is to ensure that these larger and more influential funds operate with sufficient capital buffers, liquidity reserves, and risk management practices to reduce the likelihood of runs or disruptions that could ripple through the financial system. This can include higher levels of liquidity, stress testing, and more stringent investment guidelines.
By focusing on these 'major' money market funds, regulators aim to prevent situations similar to the 2008 financial crisis, where the failure of a money market fund, such as the Reserve Primary Fund, led to widespread redemptions and contributed to broader financial instability. The enhanced oversight can provide greater assurance to investors and the public that the financial system is better protected against shocks originating from the money market fund sector.
Designated funds might also be subject to additional disclosure requirements and could face restrictions on their ability to borrow or leverage their assets. Regulators often collaborate with international bodies to align domestic regulations with global standards to ensure a unified approach to systemic risk management in the financial markets.
Overall, the selection and regulation of 'major' money market funds are part of a broader regulatory framework designed to safeguard financial stability and protect investors' interests.
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