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Regulatory Watch

Acknowledging Rules, Fidelity to Make MMF Changes

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February 04, 2015

The world’s largest manager of money funds changes MMF offerings.

Accounting with BenjaminsFacing new regulations in the money market fund industry, fund giant Fidelity is making changes to its fund offerings. The changes come in light of the July 2014 edicts from the Security and Exchange Commission’s that will do away with a constant net asset value (CNAV) regime for all but government funds. Institutional and municipal prime funds will move to a floating or variable NAV. The new rules also include liquidity fees and redemption gates and will be implemented over the next two years. 

The SEC's rules will require treasury cash managers to be more proactive about their investment policies investment options could prove sparse.

Fidelity is one of the earlier fund companies out of the gate to change its product mix. Most notably, the fund company will convert its prime funds to government funds in 2015. This decision was the result of many customers wanting to keep the CNAV, Fidelity said. The switch will require shareholder approval; therefore the company will look approval by a proxy vote.

No one has a confident idea about what will happen when the rules are implemented. Many wonder whether government funds with their mix of cash, government securities, and/or repurchase agreements will create a rush to the funds.

Greg Fayvilevich of Fitch Ratings has said that polling of treasurers and other MMF investors puts the potential outflows as a result of the new regs in a wide range – from 10 percent to as high as 50 percent. He said there the picture will become clearer as the October 2016 implementation date nears. He added that the impact of the rules will vary widely depending on how specific companies use MMFs. Apple, for example, puts only 3 percent of its cash in MMFs, while Amazon puts 38 percent in the instruments.

Other changes from Fidelity include merging several funds with similar investment strategies, amend polices of government funds to adhere to new SEC requirements (that is to invest at least 99.5 percent of their assets in cash, government securities or repos.

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