Money Market Funds Reform
Following the U.S. Securities and Exchange Commission’s (SEC) efforts to reform rules governing money market mutual funds, AFP has expressed concerns regarding proposals to eliminate the stable NAV in favor of a floating NAV. We believe it would greatly reduce investors’ interest in utilizing MMFs as a cash management and investment tool, whether they be retail or institutional investors. For purchasers of MMFs, the return of principal is a much greater driver of the investment decision than return on principal. For a large number of institutional investors, the potential of principal loss would preclude floating NAV MMFs from being an internally approved investment alternative.
The SEC recently approved to move forward on two alternative proposals that could be adopted either in combination or standalone. To be released for public commentary, the follow proposed reforms will be considered:
- Floating the NAV Prime institutional funds be subject to market-based price fluctuations, thus no longer granted amortized cost valuation.
- Price Fluctuation Require that prime institutional funds be priced with greater precision to show more exact fund value fluctuation. Instead of current methods of pricing shares to the nearest one percent (or 'penny rounding'), prime institution funds would be required to 'basis point round' their value to the nearest 1/100th of one percent.
- Exemptions for Government and Retail Funds Government and retail money market funds maintain current pricing and valuation methods, including a stable net asset value. Retail funds are defined as any money market fund limiting redemptions to a maximum of $1 million per business day.
- Stable NAV Money market funds remain at stable share price of $1.00.
- Liquidity Fees Upon 'weekly liquid assets' of a fund declining below 15% of total assets, the money market fund will impose a 2% liquidity fee on redemptions, unless such a fee is determined unadvised by a fund's board of directors.
- Redemption Gates At the discretion of a fund's board of directors, a temporary suspension of redemptions may be imposed, but cannot exceed 30 days.
- Fund Disclosure Funds must publicly disclose in a timely manner any decline below the 15% 'weekly liquid asset' threshold, and the imposition status of liquidity fees or gates.
- Exemptions for Government and Retail Funds Government and Retail money market funds are exempt from liquidity fees and gates.
staff will continue to closely monitor this issue and anticipates offering
extensive formal comments at the appropriate time
2013 AFP Liquidity Survey
Results from the 2013 AFP Liquidity Survey suggest uncertainty about the possible shift of money market funds (MMFs) to a floating-rate net asset value structure and redemption restrictions are likely pushing capital toward bank deposits. Allocation of corporate cash in MMFs already fell to 16 percent, according to the survey. If MMFs shift to a floating net asset value (NAV) or impose redemption holdbacks, as the SEC proposal provides, many financial professionals say their organizations would stop investing in MMFs and reduce or fully liquidate holdings.
Learn more about the 2013 AFP Liquidity Survey, which features data on a broad range of liquidity issues that affect corporate treasurers, by clicking here.
The U.S. Chamber of Commerce has organized a comprehensive campaign to ensure that the SEC’s proposed rule to reform money market mutual funds does not adversely impact organizations’ ability to manage and raise the capital necessary to drive job creation and economic growth. Click here to learn more about the Chamber’s efforts.
The Investment Company Institute (ICI) has also launched a website dedicated to advocating again additional SEC reforms. Click here to learn more about their efforts.
Comment Letters and Testimonies
Support Resources for Changes to 2a-7 MMFs
AFP Liquidity Survey
The AFP Liquidity Survey delves into many questions related to short-term investments and liquidity sources: www.afponline.org/liquidity