New Rules Will Change the Liquidity Equation
Now Is the Time to Prepare for Money Market Fund Reform
A recent survey by the Association for Financial Professionals (AFP) reveals that 96% of respondents invest in money market funds and many said it was the only option available to them for investing excess cash.[1]
That comfortable routine is about to be disrupted. Intended to preserve the benefits of money market funds while increasing transparency and strengthening investor confidence, new regulations effective in October 2016 will require a re-evaluation of your cash management strategy.
New MMF Regulation Considerations at a Glance
| Terms to Know | Definition | Advantages to Your Business | Client Considerations |
FNAV |
Institutional prime and municipal funds will be required to adjust price per share based on the current market value of the underlying securities in the portfolio, rounded to the 4th decimal place. |
|
|
Liquidity Fees |
Fees (up to 2%) may be imposed at the discretion of the fund’s board of directors, to discourage shareholders from redeeming money market funds when a fund’s weekly liquid assets falls below 30%. |
A tool that a fund’s board of directors can use to directly address potential run |
Investors may be subject |
Redemption Gate |
Fund’s board of directors can also impose a temporary suspension on redemptions (up to 10 days) when a fund’s weekly liquid assets fall below a certain threshold. |
Another tool that a fund’s board of directors can use |
Investors cannot immediately make redemptions during times |
Other Implications of Reform on FNAV Funds:
- Stricter constraints on credit quality and diversification
- Reduction in maximum Weighted Average Maturity from 90 to 60 days
- Establishment of a new maximum Weighted Average Life of 120 days
- Required monthly SEC reporting, stress testing and disclosure
- Greater likelihood for product innovation to avoid MMF reform changes
- High risk of flight to the safety of Government Funds, which could disrupt supply and demand
At PNC, we combine a wider range of financial resources with a deeper understanding of your business to help you achieve your goals.
If you would like to:
- Revisit your investment policy to determine if changes are necessary
- Rethink the way you bucket short-term, mid-term and long-term cash
- Closely watch funds so you are prepared for changes
Please reach out to your Relationship Manager.
Important Legal Disclosures and Information
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MMF Reforms are Coming: How are You Preparing? By Tyler Haws, CPA, Published: 2015-03-24 (AFP)
PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”).
Bank deposit, treasury management and lending products and services are provided by PNC Bank, National Association, a wholly-owned subsidiary of PNC and Member FDIC.
This article was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc. will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission.
©2016 The PNC Financial Services Group, Inc. All rights reserved.
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