Money market funds are meeting or in some cases exceeding proposed guidelines from the Securities & Exchange Commission that would make them more diversified.
In an attempt to limit “single risk concentration levels,” the SEC in 2013 proposed requiring MMFs to consolidate affiliated entities into single issuers and capping exposures to each at 5 percent. And to limit indirect risk to a guarantor, the SEC has proposed applying a 10 percent concentration limit to each. As of the end of March, most funds are there.
Fitch said that based on a review by of 121 Fitch-rated and not-rated funds, it looks like a “large majority currently manage to standards that meet or exceed the proposed SEC diversification guidelines; consequently it appears that the new guidelines, if adopted, would have only modest impact on non-Fitch-rated MMFs.”
For now that is likely one of the few proposals that will have little impact. The SEC is currently finalizing rules meant to curb runs and other risks at MMFs, most notably a floating net asset value for prime institutional funds and gates and fees for all prime funds or perhaps a combination of the two. They’re expected to have a large impact and are reportedly coming soon. At a recent Investment Company Institute (ICI) membership meeting, SEC Chairman Mary-Jo White said the SEC was “intensely focused” on MMF reform. “I expect it will be completed in the very near term. I won’t say what the very near term is. But it’s front and center.”
Most funds are hoping for gates and fees will be the limit of the rules and have actively been fighting against the imposition of a floating NAV. Most recent letters to the SEC have stressed that gates and fees, if done correctly, will halt large-scale redemptions, if only temporarily. However floating NAV will not halt runs, they say. Many also note that implementing a combination of the two rules – gates and fees as well as a floating NAV, will make using some funds cost prohibitive.