While we have nearly two years to prepare, DST and its enterprise partners, Boston Financial and State Street, are collaborating with clients so that our technology and operations are positioned to handle money market funds under the new rules.
The final regulations, itemized in an 893-page document published in the Federal Register on October 14, 2014, are complex. All money market funds will feel the impact of the reform to some degree. Some of the big changes include:
- Floating NAV: The rules require institutional prime and institutional tax exempt money market funds to value their portfolio securities at market value and sell and redeem shares based on a floating NAV rounded to four decimal places and provide for intra-day liquidity.
- Stable NAV: The rules still allow for government and retail money market funds to maintain a stable NAV using amortized cost valuation and/or penny rounding.
- Government money market fund: The new rules define a government money market fund as a money market fund that invests at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are collateralized by cash or government securities.
- Retail money market fund: The new rules define a retail money market fund as a money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the fund to be natural persons. The SEC notes that “beneficial ownership” typically means having voting and/or investment power. Falling within that definition are many types of retirement plans. Relief will be given for funds to restructure into separate money market funds for retail and institutional investors.
- Fees and gates (applies to all non-government money market funds): Fund boards may choose to impose a liquidity fee or gate if a fund’s weekly liquid assets fall below the required thresholds. The rules also require all non-government money market funds (including floating NAV money market funds) to impose a liquidity fee if the fund’s weekly liquid assets fall below a designated threshold, unless the fund’s board determines that imposing such a fee is not in the best interests of the fund.
Here is a brief rundown on how we are preparing for the changes.
- We established an internal working group and a client money market steering committee to discuss the reforms and their operational impacts.
- We developed a technology plan and timeline for incorporating the regulatory changes into our transaction processing and compliance monitoring tools before the go-live date.
- Across the enterprise, we are keeping clients apprised of the required changes and our progress through one-on-one meetings, webinars, white papers and blog posts. These efforts are informed, in part, through our active and on-going participation in numerous industry discussion groups on the topic.
Most recently DST, Boston Financial and State Street hosted a Money Market Town Hall in Kansas City, MO. This invite-only event brought a number of our institutional money market clients together with industry experts to both learn about and influence the strategy for modifying our systems and procedures to meet client business requirements and needs. The more than 70 people in attendance were presented with a consensus driven set of core system requirements and a high-level project timeline, to establish a common understanding of the enhancements being implemented. Those who participated felt it was a very effective and worthwhile session.
Money market reform touches many aspects of the services we provide to our clients. We will continue to work together as an enterprise to keep clients informed, and ready our systems and operations well in advance of the October 14, 2016 go-live date.