Amendments to the rules governing money market funds, adopted by the Securities and Exchange Commission (SEC) in July 2014, impose significant structural changes on the money market fund industry. According to the SEC, the rules are designed to address money market funds' susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, their benefits.
The changes also allow or, in certain circumstances, require money market funds to impose a liquidity fee or redemption gate if a fund's weekly liquid assets fall below a certain threshold or if the fund's board determines such action to be in the best interests of the fund. The new rules also require institutional prime and institutional tax exempt money market funds to sell and redeem shares using a floating net asset value (NAV) and to round prices to four decimal places. While not explicitly stated in the new rules, some asset managers may calculate more than one NAV per day for institutional funds in order to meet customers' liquidity needs.
In connection with Money Market Fund Reform implementation, NSCC collaborated with a working group of the Investment Company Institute's (ICI) Broker/Dealer and Bank, Trust and Retirement Advisory Committees (BDAC and BTRAC, respectively; the "Working Group") to propose recommendations for enhancing NSCC's Mutual Fund Services for purposes of helping our clients comply with the new Money Market Fund Reform operational requirements. The recommended enhancements allow for communication of (1) multiple price (NAV) strikes, (2) data points for funds to administer Liquidity Fees and Redemption Gates, (3) liquidity fees withheld by funds and (4) access to Money Market Fund Reform-related data points as specified in the funds' Prospectuses.
Money Market Fund Reform User Guide and Best Practices
This guide will focus on NSCC Mutual Fund Services that were enhanced with the purpose of helping our clients comply with the Money Market Fund Reform operational requirements. Best practices referenced in this document were identified by the ICI Working Group and should be used in conjunction with the NSCC Mutual Funds Record Layouts.
Communicating Negative Rate & Share Cancellation Activity for CNAV Money Market Funds: Best Practices
Money Market User Guide
Money Market Reform Enhancements Webcast
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