As Tom Hunt, Director of Treasury Services, at the AFP, listened to the testimony by the Securities and Exchange commissioners and SEC staff on the money market fund proposals at the agency’s meeting on 22nd July, he thought about what these changes would entail, and what treasurers need to think about over the next two years as the fund industry implements the money fund changes that were approved. 

His 10 takeaways were:

1. consider changes to your investment policy, to allow for floating NAV for prime funds, and the new fees/redemption rates
2. educate and inform your board about what floating NAV funds are and how they work
3. conduct money fund due diligence differently in terms of who makes up fund, the mix of investors, and the new reporting transparency
4. discuss fund changes with your bank if they are the sponsor of the fund
5. understand the tax changes coming
6. understand the change to remove the reliance of credit ratings on money funds will be, e.g. how will your fund conduct credit research, etc.
7. work with your money fund portal provider to understand when the changes will be implemented and how reporting will differ
8. watch for potential money fund legislation to be adopted elsewhere; what are the implications for your investments outside the USA
9. what is your exposure to money fund like products?
10. do you issue commercial paper through a dealer? Work with your dealer to determine best placement for your funding.

Much more in this highly recommended item, see.

Winners and losers

iTreasurer in their commentary on 23 July reviewed who were the winners and losers from the SEC’s decision on the new MMF rules, see: their conclusions were that: 

• “treasurers ultimately will feel the most pain of having to comply with new money market fund rules: the “rules“eliminate the attractiveness of what makes prime funds so appealing” to treasurers, said Brandon Semiloff, managing director at StoneCastle Cash Management. Gone will be the no-brainer use of the funds for treasurers, which for more than four decades meant a dollar was a dollar out.” 
• the winners were the retail funds, which aren’t required to use the floating NAV, and the lawyers who write the money fund prospectuses.

Maybe it is not as bad as it could have been

After their knee-jerk reactions, commentators, such as Bloomberg’s Dave Michael, are now considering how much worse it could have been.

Yesterday, in his article entitled, ‘Money Funds Embrace U.S. SEC’s Rules to Escape FSOC’, he wrote: “Given a choice between a regulator whose mission is to promote growth through investment, or an unfamiliar committee dominated by the Federal Reserve, the mutual-fund industry opted for the devil it knew.

The threat of regulation by the Financial Stability Oversight Council, an umbrella group charged with monitoring regulators’ blind spots, encouraged fund companies to negotiate with the Securities and Exchange Commission on new rules for money-market mutual funds that were approved yesterday. The strongest provisions affect funds that hold about one-third of the industry’s assets, while those catering to retail investors and holding U.S. government securities were exempted.”

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CTMfile take: Maybe it is not as bad as it could have been. Anyway, corporate treasurers will have to get on with making the best of it in their short-term investments programmes and policies. At least, they have Tom Hunt’s 10 steps, not to heaven, but to a manageable situation.