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Capital Markets / Investment Management

A Handy Guide to the SEC's MMF Rules

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August 29, 2014

Investment firm Fidelity provides a good overview of the coming rules.

Accounting with BenjaminsThe SEC in July passed rules aimed at strengthening the $2.6 trillion MMF market, including requiring prime money funds to abandon their fixed $1 share price and adopt a floating rate like other mutual funds. Also, the rules allow all MMFs to temporarily block investors from withdrawing cash during times of stress or allow the funds to impose fees for investors to redeem shares – so-called gates and fees.

If treasurers are uncertain about putting it all together, Fidelity has done the work for them in a new report, part of its Money Market Reform
Communication Series

Over the next two years – by the end of which the rules need to be in place – corporate treasurers will have to factor in these new rules when considering where to put their short-terms funds. According to Association of Financial Professionals Liquidity Survey, most companies will retain their current portfolio makeups when it comes to MMF allocations.

“Most organizations would not make significant changes to how they invest in government money market funds should the SEC allow government MMFs to hold up to 20 percent in non-government securities while maintaining a stable NAV. Were they to take any sort of action, it would most likely be in the form of monitoring the funds for their holdings and exposures (22 percent). This might mean that relying on outside data sources for additional information or money fund portals will help manage the additional administrative burden to validate the funds still fit in with an organization’s investment policy mandate.”

If a company has an issue with the new rules, according to the AFP, most are concerned that the SEC’s rules on MMFs “will impact the commercial paper market’s ability to be a source of liquidity for many companies in the future. Many of the largest buyers of commercial paper are money market funds.”

For its part, Fidelity is not making any changes to its investments until it has fully absorbed the SEC’s new rules. “Fidelity Investments is well prepared for the new rules and we are ready to make any changes to our product offerings and fund operations that may be needed to comply with them,” it said in its report. And it “ultimately shares the same goal as regulators and policymakers: to ensure the strength and stability of money market mutual funds and our financial system while preserving the benefits that these funds provide investors, issuers, and our economy.”

See chart below for a quick overview (Source: Fidelity Investments).

Fidelity MMF Guide 

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