The SEC’s long-awaited money market fund reforms came into force in the US on Friday after eight years in the making, transforming key elements of the investment products.

Potential liquidity fees and gates are imposed by the new rules on many MMFs and require institutional prime funds to move from fixed to variable net asset values (NAVs).

The changes are a response to the bankruptcy of Lehman Brothers in 2008, which forced the Reserve Primary Fund, the oldest money market fund, to “break the buck” leaving customers with only 97 cents for each dollar they had invested.

Money market funds had long been considered as safe and risk-free pre-2008 and for institutions of all kinds - businesses, nonprofit organisations, government agencies, and financial institutions - are a preferred vehicle for cash management.

However, as a result of the legislation, scores of prime money market funds, which invest in low-risk short-term debt securities and repurchase agreements, have either changed to government money market funds or liquidated this year.

Some $1.1trn has already left prime money funds in the past year, and institutional prime funds have seen $838bn in outflows, pulled by investors anxious over the new rules.

“This SEC rulemaking required funds to make a number of significant operational changes on a very aggressive timeframe,” said Investment Company Institute (ICI) president and chief executive Paul Schott Stevens this week.

“Thanks to substantial effort, planning, and execution within the industry, funds are prepared to meet the new requirements on time.

“After all of this work, three things are clear: today’s money market funds are very different products than their pre-crisis predecessors; investors value the vital role that money market funds play in helping meet their cash management needs; and money market funds do not need further reform.

“Indeed, when coupled with SEC reforms from 2010, these new rules add layers of transparency and redundant safeguards that more than adequately address any risks that may have existed in 2008.

“Funds have worked overtime to prepare for the new regulatory landscape. By entrusting $2.6trn in assets to these funds, investors continue to register their confidence in money market funds’ ability to meet their needs for years to come.”