The Association for Financial Professionals put out a press release late yesterday entitled, "CFOs, Treasurers Should Prepare for Big Changes in Money Market Funds." The piece is subtitled, "Shadow NAV Could Fall Below $1. Does this fit in your investment policy guidelines?" and announces the launch of AFP's "information resource for corporate investors who need to know what today's changes in money fund regulations might mean for their companies." It says, "The AFP Money Market Resource Center (www.afponline.org/moneyfunds) supports finance professionals who invest their cash balances in money market mutual funds."
The AFP release explains, "U.S. organizations continue to hold significant cash balances, and AFP research has shown that about 32 percent of short-term corporate investment balances reside in money market mutual funds. Those money market funds are now under increased scrutiny from the Securities and Exchange Commission (SEC). Effective today, fundamental changes have occurred to the guidelines under which 2a-7 money market funds (MMFs) operate."
It explains, "The SEC has instituted new rules about maturities of fund holdings, types of holdings, amount of liquidity, and the way in which funds report the value of their holdings to the public: The weighted-average-maturity (WAM) of a fund must now be 60 days or less, down from 90 days, mitigating the risk of a fund 'breaking the buck.' A shorter WAM might decrease the weighted-average-yield, however. To provide investors with greater protection in the event of a market disruption, a fund must have 10 percent of its assets maturing in one day, and 30 percent of its assets maturing within seven days.... The SEC is now requiring money market funds to disclose their 'shadow NAV' -- the mark-to-market valuation that a money market fund is required to calculate for each security it owns -- with a 60-day delay, beginning February 7, 2011."
Brian Kalish of AFP says, "Corporate treasurers need to be prepared for potentially having to explain to their senior management and board why they own or owned a money market fund with a shadow NAV that broke the buck. Now that the shadow NAV will be publically disclosed, albeit on a delayed basis, will investors be willing to invest in a money market fund that was or could be reported as worth less than one dollar? This is the question that investment managers at organizations must be asking themselves now so they aren't caught unprepared when this rule goes into effect."
The release says, "The AFP Money Market Resource Center includes articles, fact sheets, research and a complimentary webinar for finance professionals. (Note: Crane Data's Peter Crane will present the AFP webinar, "Money Market Mutual Funds: Reviewing the New Regulations & Discussing the Outlook for Future Changes" on May 19 at 3:30pm.) AFP will continue to take a leadership role in this subject in its upcoming liquidity survey. Results will be published in June."
In other news, Secretary Geithner testified before the Financial Crisis Inquiry Commission on 'The Shadow Banking System' this morning. His comments discuss the emergence of parallel banking system and how its collapse has made the need for comprehensive financial reform undeniable."
