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:

Proposal One:

• 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.

Proposal Two:

• 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.

For more information, please contact AFP’s Director of Government Relations & Public Policy Jeanine Arnett at jarnett@AFPonline.org.  

2012 AFP Liquidity Survey

If money market mutual funds (MMFs) shift to a floating net asset value (NAV), impose redemption holdbacks or seek additional reserve capital through fees, corporations say they would stop investing in these vehicles and would most likely reduce or fully liquidate their holdings, according to data released June 20 by the Association for Financial Professionals (AFP).

Results from the 2012 AFP Liquidity Survey, find that organizations would be less willing to invest in MMFs and/or would reduce/eliminate their holdings of MMFs in their short-term investment portfolio under three regulatory reform proposals, which are reported to be under consideration by the U.S. Securities and Exchange Commission.

Learn more about the 2012 AFP Liquidity Survey, which features data on a broad range of liquidity issues that affect corporate treasurers, by clicking here.

• Press Release: Companies to Liquidate Money Fund Holdings under Three Reform Scenarios; Reduction in money market fund balances would harm commercial paper market, important source of corporate funding

• MMF Findings: Download Slides

• Journalists, please contact pr@afponline.org or call AFP’s PR department at 301.907.2862 for more information, to request the full report or to set up an interview with AFP's research team.

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.

Articles/Advisories

• AFP Members Overwhelmingly Positive on MMF Vote Cancellation
• Just Say No: Schapiro Cancels SEC Money-Market Reforms Vote
• More Resistance to SEC Money Fund Proposals from Congress
• AFP Member Alert: Imminent Action on Money Market Fund Reforms
• Transparency for Money Funds Post-Crisis
• AFP Warns Treasury and SEC Not to Adopt Variable NAV
• SEC's Investor Advisory Committee to Discuss MMF and NAV Issue
• "Big Changes to Money Market Funds and Their Yields"
• "Federal Reserve Confirms Wind-down of Emergency Liquidity Programs"
• "The Bottom Line: More on Floating NAVs"
• Cash Column: T-Time, The Case for Treasury Bills
• AFP's Finance Practice Lead Discusses Money Market Funds
• "Companies Stockpiling Cash, Credit Access Still Tight, AFP Survey Shows"

Comment Letters and Testimonies

• AFP Comments on FSOC MMF Recommendations
• AFP Comments on MMF Rules
• Letter to extend the Commercial Paper Funding Facility to Tier 2
• AFP Comment Letter on the Commercial Paper Funding Facility

Support Resources for Changes to 2a-7 MMFs

• Details to Rule Changes  
• Accounting Interpretation  
• Summary of Changes and Effective Dates (pdf)  
• FAQs  

AFP Liquidity Survey

The AFP Liquidity Survey delves into many questions related to short-term investments and liquidity sources: www.afponline.org/liquidity