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 Financial Stability Oversight Council (FSOC) have made the following recent proposals to the SEC regarding reform action:
- Requiring MMFs to trade under a floating new asset value (NAV), thereby removing their current status fixed to a stable NAV of $1.00.
- Permitting MMFs to maintain a stable NAV, while holding a capital buffer of up to 1 percent of the fund's assets and requiring a marginal percentage be withheld from immediate investor redemption.
- Permitting MMFs to maintain a stable NAV, while holding a 3 percent buffer of the fund's assets for explicit loss-absorption, as well as additional measures, including diversification of fund investments.
In response to the issued proposals by the SEC and FSOC, AFP has submitted comment letters that account for all circumstances, including the role that liquidity of MMFs played in exacerbating the financial crisis. We believe that the rules enacted in 2010 were significant reforms that address liquidity concerns and systemic risks posed by MMFs. AFP argued that the SEC should allow the rules to serve their intended purpose before instituting further proposals, such as floating the NAV, which compromises MMFs as a viable investment alternative for corporate investors.
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 firstname.lastname@example.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.
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