Though it has yet to be posted, we received a copy of Deutsche Investment Management Americas comment letter regarding the SEC's Money Market Fund Reform, which takes a novel tack on the recently proposed amendments to Rule 2a-7. Their response says, "We have chosen to focus on the Commission's request for comment on whether money market funds should, like other types of mutual funds, effect shareholder transactions at the market-based net asset value and have a floating NAV." (See yesterday's Link of the Day, "ignites writes DWS Bucks Trend With Pending Floating NAV Fund".)
The Deutsche letter proposes, "In our view the question to ask is whether the Commission should consider and enable mutual fund companies to offer both Stable NAV and Floating NAV money funds. We believe the Commission should do so, and, therefore, propose that Rule 2a-7 be amended to permit registrants to operate a money market fund under either or both structures. Investors and cash markets would benefit, in our judgment, if Rule 2a-7 were amended to permit both Stable NAV funds, which would operate pursuant to the amendments proposed by the Commission, and Floating NAV funds, which would operate pursuant to the existing terms of Rule 2a-7 other than the provisions contemplating a money fund maintaining a stable $1 net asset value."
Author Joe Benevento continues, "In our view, the current provisions of Rule 2a-7 pertaining to quality, maturity and diversification are sufficient to safeguard the interests of investors in a money market fund that would calculate its NAV by reference to market quotations, or a Floating NAV. Therefore, we believe that the proposed amendments should not be applicable to such a money market fund. We note that, as currently structured, Rule 2a-7 permits money funds to stabilize their price per share using amortized cost valuation and/or penny rounding, and it permits a fund that does not do so to hold itself out as a money market fund, provided such a fund complies with the quality, maturity and diversification requirements of the rule."
The letter explains, "DIMA continues to support the need for and existence of money market funds that maintain a Stable NAV. We do not, in any way, suggest that Floating NAV funds replace Stable NAV funds that use the amortized cost and/or penny rounding valuation method. That said, primarily due to the events that occurred during and beyond September 2008 ... DIMA believes registrants should be allowed to offer Floating NAV funds, which would be based on daily mark-to-market pricing and a starting price of $10 per share.... By introducing an alternative solution, we would offer a choice between both stable and floating net asset value money market funds allowing investors to decide which type of money market fund to invest based upon their investment objectives."
Finally, the Deutsche letter also comments in an appendix on minimum liquidity requirements, maximum maturity requirements and illiquid securities. They say, "While we are generally in favor of minimum liquidity requirements to fund redemptions, we oppose different thresholds for moeny funds based on whether their investors are considered retail or institutional.... The Commission has requested comment on whether it should reduce the maximum maturity for individual non-Government securities ... from 397 days to ... 270 days. We do not believe that such a change is necessary.... We believe that a money fund should retain the ability to invest up to 10% of its assets in illiquid securities."
