Regulatory reform continues to raise questions regarding the fate of treasury investments in money market funds (MMFs). In a new CTC perspective piece, AFP recaps a recent Treasury Advisory Group (TAG) discussion on MMF reform. Treasury executives discuss how reform will likely affect their industries and operations.
Under the Investment Company Act of 1940, the Securities and Exchange Commission (SEC) finalized new rules governing MMFs on July 23, 2014. In essence, the new regulations will make requisite all of the elements treasury professionals had fought hard against:
- Maintenance of a floating net asset value (NAV) for institutional Prime and institutional Municipal MMFs.
- Maintenance of a constant NAV of $1.00 for all government/treasury MMFs, retail Prime and retail Municipal MMFs.
- The discretion to impose liquidity fees or to suspend redemptions temporarily (i.e., gates) by MMFs’ boards of directors.
- Enhanced diversification, disclosure, stress-testing requirements and updated reporting requirements for MMFs, and private funds that operate like MMFs.
The new rules go into effect in 2016, turning MMFs into something entirely different, according to some.
At a recent session of the AFP Treasury Advisory Group, bankers, advisors and treasurers gathered to discuss the latest MMF regulatory changes and the implications for treasury professionals. Their conversation raised more questions than answers.
Tyler Haws, business development manager at Clearwater Analytics, pointed out that the objectives of the SEC’s reform:
- Address MMFs’ susceptibility to heavy redemptions in times of stress
- Increase the transparency of their risks while preserving their benefits.
According to Haws, “There are some things we know about MMF reform, but there’s a lot we don’t know.” He advised companies to keep calm and find out as much as they can about the reforms, ask questions, and pursue action items.
To discover what aspects of the reforms will affect you and learn what questions you should be asking, download Executive Perspectives: Strategic Insight into Money Market Funds Reformhere.