The Division of Investment Management released a set of 53 Frequently Asked Questions last week relating to the money market reforms adopted in July 2014. The document was accompanied by an FAQ on the valuation guidance that was embedded within the money market rule. The money market fund FAQ covers a wide range of topics including compliance dates, advertising, and the use of amortized cost.
Of note, the document states that a money market fund subject to the floating NAV may not advertise that it will maintain a stable NAV by only investing in securities with maturities of 60 days or less that it can value using amortized cost. The FAQ explains that “staff expects that there will be market circumstances that may require a floating NAV money market fund’s share price to fluctuate, regardless of how it limits its investment duration or its use of amortized cost for certain portfolio securities.” As a result, “all floating NAV money market funds must state in their advertisements, sales materials, and prospectus, that the funds’ share price will fluctuate.” This interpretation may force some funds to change their reported plans to mitigate the effects of the new rules.
The document also indicates that a retail money market fund may engage in an involuntary redemption of shares in order to remove shareholders that would jeopardize the fund’s categorization as a retail fund, provided that the fund complies with the 60-day notice requirement. However, the fund may not exchange the shareholder into another stable-NAV fund.
The staff stated that it plans to continue to update the page as necessary with the responses to additional questions.