Much-anticipated reforms for money market funds from the Securities and Exchange Commission will be decided at an open meeting July 23 in Washington.
SEC officials have proposed several approaches. One would make prime institutional money market funds have a net asset value that floats on a daily basis, as opposed to the current stable share price of $1. Another option would be to keep the stable share price, but let the money market funds impose a 2% liquidity fee or redemption gates to temporarily suspend redemptions if a fund falls below 15% liquidity. A third option would be some combination of the two approaches.
As many as half of all defined contribution and defined benefit plans use money market funds for stability, liquidity and a low-cost diversified way to access commercial paper and government securities, according to data from Investment Company Institute.
New rules will negatively impact some of the largest managers, Moody's Investors Service said earlier this year. Moody's looked at the four leading independent money market fund managers — Fidelity Investments, BlackRock, Vanguard Group and Federated Investors — and concluded that all four would experience higher operating costs and lose some business to bank deposits if the proposed SEC reforms are enacted. Federated, which derives roughly 40% of its overall revenue from $227.5 billion in money market funds, is particularly vulnerable, Moody's said.
A recent analysis by Fitch Ratings said some fund managers are already repositioning products to take advantage of the coming changes.
In August 2012, then-SEC Chairwoman Mary Schapiro presented a plan that would have allowed net asset values to fluctuate with changing market conditions but failed to win a majority of commissioners' votes.
“I think it will be good for the asset management community to get this rule behind it. We all know it's coming,” said an industry observer close to the deliberations who declined to be identified. He expects the implementation phase to take at least two years and input from multiple regulators. “This is highly complex stuff,” he said.
