As part of its overhaul of money market fund regulations, the SEC adopted a rule requiring money market funds to file information about their holdings and portfolio valuations. Under the rule, the SEC will release the information with a 60-day delay.
Why are the new money market fund regulations important to corporates? "Given all the challenges we have all been through, if your boss asks you what your MMFs are worth, and with the recent changes to MMFs, you need to be able to answer," said Brian Kalish, AFP's Finance Practice Lead.
How to Find a Shadow NAV
- Retrieve the ticker symbol of the money market fund in the fund's prospectus or by visiting http://www.sec.gov/edgar/searchedgar/companysearch.html and entering the fund's name.
- Click on filing "N-MFP" to bring up the N-MFP filing of the fund.
- Click on "primary_doc.html." Items 18 and 25 contain the information concerning the Fund's Shadow NAV.
What is a shadow price? A money market fund's shadow price is the NAV per share most recently calculated using available market quotations (or an appropriate substitute that reflects current market conditions). The NAV reflects the current market value of the securities the fund owns, rather than the amortized cost of those securities. SEC rules permit a money market fund to value its securities at cost and spread out (or amortize) any discounts given or premiums paid on the securities when the fund acquired them. SEC rules also permit a fund to round the cost-based NAV to the nearest penny per share. Both of these provisions, combined with the strict limits on money market fund investments under SEC rules, enable a money market fund to maintain a stable NAV, typically $1 per share.
What if the Shadow NAV Differs?
What if a money market fund's shadow NAV differs from the $1 per share at which the fund sells and redeems its shares?
It is not uncommon for a fund's shadow NAV per share to differ from exactly $1.000 per share. As long as the fund's shadow NAV per share is at least 99� cents (or $0.995) and no greater than 100� cents (or $1.005), the fund can continue to sell and redeem shares at $1 per share.
If a money market fund's shadow NAV per share goes outside these limits, the fund may need to re-price its shares at a value other than $1 per share, an event known as "breaking the buck." Only two money market funds have broken the buck.
For more information, visit www.afponline.org/moneyfunds