It's been 3 weeks since the SEC passed and published its 424-page "Money Market Fund Reforms," and we continue to dig through and discuss the details with money fund professionals, investors and servicers. Of particular interest to Crane Data are the latest "Amendments to Reporting Requirements," which should produce yet another bonanza of data and business for us as market participants look for assistance in compiling, navigating and interpreting the updated batch of data disclosures. Below, we quote from the rule's section on disclosures and reporting. The new reporting amendments become effective June 11, 2024. (See the MMF Reforms press release and Fact Sheet, and see our previous News pieces: "Money Fund Managers Publishing, Educating on Latest SEC MMF Reforms" (7/26), "More from the SEC's Money Market Fund Reforms: Liquidity Fee Excerpts" (7/24) and "SEC's Money Market Fund Reforms: Swing Pricing Out, More Liquidity In" (7/14).)
The "Reporting Requirements" section says about "Amendments to Form N-CR," "We are adopting the amendments to Form N-CR as proposed. In particular, the final amendments add a new requirement for a money market fund to report publicly if it experiences a liquidity threshold event (i.e., the fund has invested less than 25% of its total assets in weekly liquid assets or less than 12.5% of its total assets in daily liquid assets) because such an event represents a significant drop in liquidity of which investors should be aware. We are also adopting all other proposed amendments to Form N-CR, including the structured data requirement, to improve the availability, clarity, and utility of information about money market funds."
It explains, "As proposed, the final rule will require money market funds to file reports on Form N-CR in a custom eXtensible Markup Language ('XML')-based structured data language created specifically for reports on Form N-CR.... The few comments the Commission received on this topic were mixed. In support, one commenter regarded it as a reporting enhancement that would increase transparency for institutional and retail investors, and allow regulators and policymakers to better assess the state of the financial system. In opposition, one commenter suggested that structured data is more expensive and not used by investors."
The SEC writes, "We also are adopting the following amendments to Form N-CR as proposed: (1) require the registrant name, series name, and legal entity identifiers ('LEIs') for the registrant and the series to improve identifying information on the form; (2) add definitions of LEI, registrant, and series to Form N-CR for clarity and consistency with the same defined terms on Form N-MFP; (3) remove the reporting events that relate to liquidity fees and redemption gates, as money market funds will no longer be permitted to impose redemption gates under rule 2a-7, and other disclosure about the imposition of liquidity fees is more appropriate than Form N-CR disclosure under the final rule's amended liquidity fee framework; and (4) amend Part C of Form N-CR, which relates to the provision of financial support to the fund. Specifically, when such support involves the purchase of a security from the fund, the final rule, as proposed, will require reporting of the date the fund acquired the security, which will allow better identification of, and context for, support that occurs within a short period of time."
The "Amendments to Form N-MFP" and "New Information Requirements" section (starting on page 135) states, "We are adopting, with the modifications discussed below, the reporting requirements regarding additional information about the composition and concentration of money market fund shareholders and about prime funds' sales of non-maturing investments. In addition, similar to the proposed requirement to report information about the use of swing pricing, we are requiring funds to report information about their application of liquidity fees under the final rule. Further, because the final rule will permit stable NAV funds to use share cancellation in a negative interest rate environment, we are requiring reporting related to share cancellation."
Discussing "Shareholder Concentration," the rules tell us, "In a change from the proposal, after considering comments raising privacy and related concerns, we will not require money market funds to disclose the name of each person who is known by the fund to own beneficially or of record 5% or more of the shares outstanding in the relevant class. Rather, the final rule requires money market funds to report only the type of beneficial or record owner who owns 5% or more of the shares outstanding in the relevant class. Accordingly, amended Form N-MFP includes the following categories of owner types from which filers will make the appropriate selection: retail investor; non-financial corporation; pension plan; non-profit; state or municipal government entity (excluding governmental pension plans); registered investment company; private fund; depository institution or other banking institution; sovereign wealth fund; broker-dealer; insurance company; and other. The shareholder concentration information the final amendments require will provide the Commission and investors with a greater ability to monitor redemption and liquidity risks."
It continues, "As proposed, the final amendments require funds to use a 5% ownership threshold for the shareholder concentration reporting requirement. Commenters generally did not engage substantively on the proposed 5% ownership threshold, though one commenter did agree that 5% would be an appropriate threshold. Funds currently provide similar ownership information using a 5% threshold on an annual basis in their registration statements. More frequent reporting of information on Form N-MFP is designed to facilitate monitoring of a fund's potential risk of redemptions by an individual or a small group of investors that could significantly affect the fund's liquidity."
The rule then says, "Some commenters objected to the proposal that funds must publicly disclose the names of specific investors on the basis that the information is private and confidential. For instance, one commenter suggested that disclosure of investor names would be anti-competitive and give other fund sponsors a window into shareholder composition of money market funds. Another commenter suggested such reporting may cause investors to adjust holdings as of month end to avoid public disclosure of their money market fund holdings and drive redemptions. To address these concerns, some commenters suggested that the information should only be reported to the Commission on a confidential basis, particularly given the frequency of the reporting."
The SEC writes, "Upon consideration of the comments, the amended rule will not require funds to report the names of the greater than 5% owners. Although shareholder concentration information is already reported publicly by funds on an annual basis on Form N-1A, we recognize the sensitivities associated with publicly reporting the names of owners with ownership of more than 5% on a monthly basis. Accordingly, the amendments instead require funds to provide information about the types of owners who invest 5% or more in a class of the fund.... In response to comments questioning the value of shareholder concentration information, we believe that more frequent information about shareholder concentration will assist both the Commission and investors in monitoring a fund's potential risk of redemptions."
On "Shareholder Composition," the new rule tells us, "We are adopting, as proposed, amendments requiring a money market fund that is not a government money market fund or a retail money market fund to provide information about the composition of its shareholders by type. Accordingly, funds must identify the percentage of investors within the following categories: non-financial corporation; pension plan; non-profit; state or municipal government entity (excluding governmental pension plans); registered investment company; private fund; depository institution and other banking institution; sovereign wealth fund; broker-dealer; insurance company; and other. This information is designed to assist with monitoring the liquidity and redemption risks of institutional money market funds, as different types of investors may pose different redemption risks. We are not requiring this information of government money market funds because these funds have lower redemption and liquidity risks than other money market funds. In addition, we are not applying this requirement to retail funds because these funds, by definition, are limited to retail investors."
Discussing "Prime Money Market Funds' Selling Activity," the SEC comments, "We are adopting, as proposed, an amendment to require information about the gross market value of portfolio securities a prime money market fund sold or disposed of during the reporting period. Commenters did not address this aspect of the proposed requirement. This information will facilitate monitoring of prime money market funds' liquidity management, as well as their secondary market activities in normal and stress periods. It also will improve the availability of data about how selling activity by money market funds relates to broader trends in short-term funding markets. A prime fund will be required to disclose the aggregate amount it sold or disposed of for each category of investment. The categories of investments mirror the categories funds already use on Form N-MFP for identifying their month-end holdings (e.g., certificate of deposit, non-negotiable time deposit, financial or non-financial company commercial paper, or U.S. Treasury debt). To focus the disclosure on secondary market activity, as proposed, portfolio securities held by a fund until maturity are excluded from the disclosure."
For "Liquidity Fees," they require, "Consistent with the changes described above in the liquidity fee mechanism section, and in a change from the proposal, we are amending Form N-MFP to require money market funds to report the date on which the liquidity fee was applied, the type of liquidity fee, and the amount of the liquidity fee applied by the fund. In addition, we are removing existing reporting requirements on Form N-CR related to the application of liquidity fees because we believe monthly reporting of the frequency, type, and size of liquidity fees on Form N-MFP is more consistent with the modified liquidity fee framework we are adopting than requiring current reporting on Form N-CR."
Discussing changes in disclosure around repo, the rules say, "We are adopting amendments that will require additional information about repurchase agreement transactions and standardize how filers report certain information. Specifically, the final amendments will require, as proposed, that filers identify (1) the name of the counterparty in a repurchase agreement; (2) whether a repurchase agreement is centrally cleared and the name of the central clearing counterparty, if applicable; (3) if a repurchase agreement was settled on a triparty platform; and (4) the CUSIP of the securities involved in the repurchase agreement. As proposed, the final amendments will also include 'cash' as a category of investment that most closely represents the collateral in repurchase agreements. However, in a change from the proposal, we are not adopting the amendments to remove the ability of funds to aggregate certain required information if multiple securities of an issuer are subject to the repurchase agreement."
The SEC also writes, "Our proposed amendments to Form N-MFP also included amendments to specify that, for purposes of reporting a fund's schedule of portfolio securities in Part C of Form N-MFP, filers would be required to provide information separately for the initial acquisition of a security and any subsequent acquisitions of the security (i.e., lot-level reporting).... After considering these comments, we understand the concern that requiring public lot-level reporting and trade date information may subject filers to the risk that predatory traders and other bad actors may seek to misuse this information. While we continue to believe such information could, among other things, help facilitate the Commission's understanding of money market fund portfolio turnover during normal and stressed market condition, we are also adopting other amendments to Form N-MFP that will help facilitate the Commission's understanding in this area, including new Part D to Form N-MFP, which includes information on prime money market fund portfolio securities sold or disposed of during the reporting period, and more frequent data reporting of daily liquidity, net asset value, and flow data. In light of the potential risks identified by commenters coupled with the other amendments to Form N-MFP that we are adopting, we are not requiring public lot-level reporting at this time."
They add, "We are also adopting as proposed a new item in Form N-MFP that would require filers to indicate whether the fund is established as a cash management vehicle for affiliated funds and accounts. This item is designed to make it easier and more efficient to identify privately offered institutional money market funds. Separately, and as proposed, we are adopting an amendment to the form to require a fund to affirmatively state whether it seeks to maintain a stable price per share, consistent with our proposal."
Finally, under "More Frequent Data Points," the final rule states, "As proposed, we are amending Form N-MFP to require a money market fund to provide in its monthly report certain daily data points to improve the utility of the reported information. Specifically, the amendments require a fund to report its percentage of total assets invested in daily liquid assets and in weekly liquid assets, net asset value per share (including for each class of shares), and shareholder flow data for each business day of the month. Currently, in monthly reports on Form N-MFP, a money market fund must provide the same general information on a weekly basis.... As proposed, we are also increasing the frequency with which funds report certain yield information. Currently, funds must report 7-day gross yields (at the series level) and 7-day net yields (at the share class level) as of the end of the reporting period. We are amending Form N-MFP to require funds to report this information for each business day."
