Fidelity Investments, the largest manager of money market mutual funds with over $450 billion in assets, released an "Update: Fidelity Money Market Mutual Fund Changes" and a new "Q&A: Money Market Mutual Fund Regulatory Update" on its latest reactions to pending money market fund reforms. They write, "Since July 2014, when the U.S. Securities and Exchange Commission (SEC) issued new rules for money market mutual funds and a multi-year implementation period for those rules, we have spent significant time listening to our investors' preferences and taking steps to ensure that our funds will meet the new requirements by the SEC's October 14, 2016 final implementation date. We know that money market mutual funds are very important to investors and these funds continue to be an integral part of our business. Over the past year, we have made several changes to our money market mutual funds." (See Fidelity's recap of previously announced money fund changes here, and see our previous CraneData.com News stories: "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt (2/2/15)," "Fidelity Operational Update Details More Changes; Alpine Liquidates (4/14/15)," "Fidelity Details Retail vs. Inst MMF Changes; Only One Floating Fund (10/15/15)," and "Fidelity's Prior at AFP on Recent and Pending Changes; No Silver Bullet (10/28/15).")
Fidelity's document explains, "We now would like to share an update on our plans to convert Fidelity's two publicly available institutional prime money market funds to a floating net asset value (NAV), and to add to all Fidelity municipal and prime money market funds the ability, during periods of extraordinary market stress, to potentially apply liquidity fees and redemption gates. Communicating the effective dates of these final changes now will allow investors to know how each Fidelity money market mutual fund will be affected in advance of the SEC compliance deadline."
It tells us, "First, let's review the forthcoming rules. Upon implementation, the rules establish new definitions for government funds and retail funds, and will require institutional prime (also known as "general purpose") and institutional municipal money market mutual funds to price and transact at a "floating" (or variable) NAV. During periods of extraordinary market stress, under the new rules, both retail and institutional prime and municipal money market mutual funds may charge shareholders liquidity fees, payable to the fund upon redemption, as well as provide for redemption gates that would temporarily halt all withdrawals. Government and U.S. Treasury money market mutual funds will not be subject to any of the new structural changes."
On the "Floating (or Variable) NAV," the update says, "When the new rules are fully implemented, the daily price per share of all institutional prime and institutional municipal money market mutual funds will be required to "float." This means that instead of fund shares being priced at $1.00, as they are today, a fund will be required to price and transact at an NAV that uses four-decimal-place precision (e.g., $1.0000), a process known as "basis-point rounding. When a fund uses basis-point rounding to calculate its NAV, its shareholders may experience a gain or loss if the per-share value of the fund changes by 1/100th of a penny. For example, if a shareholder owned 10,000 shares priced at $1.0000, a 1 basis point change in a floating NAV fund would result in a gain or loss of $1.00."
Fidelity continues, "FIMM Prime Money Market Portfolio and FIMM Prime Reserves Portfolio are the only two Fidelity money market funds publicly available to investors that will be converting to a floating (or variable) NAV. Both funds will begin transacting at a floating NAV, effective October 1, 2016. Five Fidelity money market central funds, which are not publicly available to investors, will convert to a floating NAV throughout September. Central funds are available as cash investments by other mutual funds and are not available directly to individual investors."
Regarding "Liquidity Fees and Redemption Gates," it explains, "The SEC rules permit both retail and institutional prime and municipal money market mutual funds to limit redemptions under certain rare circumstances, by imposing liquidity fees or redemption gates. Subject to the discretion of a fund's board of trustees, these funds can impose a fee of up to 2% on shareholder redemptions if weekly liquid assets were to fall below 30%. Additionally, a fund's board may impose a temporary suspension of redemptions ("gate") if weekly liquid assets were to fall below 30%. This redemption gate can only be in effect for up to ten business days during any ninety day period. The potential for liquidity fees and redemption gates for all Fidelity prime and municipal funds will be effective October 1, 2016. Unlike the floating (or variable) NAV, the introduction of these features will not result in any immediate change for fund shareholders, as they would only be applicable in very rare circumstances."
Fidelity's Prime Retail funds ("Liquidity fees and redemption gates may apply at times of extraordinary market stress") include: Fidelity Money Market and FIMM Money Market Portfolio. Its Institutional MMFs "that will have a floating or variable NAV, and/or be subject to the potential for liquidity fees and redemption gates, as of October 1, 2016" include: FIMM Prime Money Market Portfolio and FIMM Prime Reserves Portfolio.
The piece adds, "FIMM Prime Money Market Portfolio will "strike" or "set" its NAV at 9 am ET and at 3 pm ET on days when the fund is open and will offer only same day settlement (not available on all platforms). FIMM Prime Reserves Portfolio, which was launched in June 2016, will "strike" or "set" its NAV at 4 pm ET on days when the fund is open and will offer only standard next day settlement. Shareholders of record of FIMM Prime Money Market Portfolio on August 8, 2016, may receive an additional distribution from the fund prior to the fund’s conversion to a floating NAV. The amount and payment date of any such distribution will be determined at a time closer to the conversion date. U.S. Treasury and Government Funds All U.S. Treasury and government money market funds are exempt from these structural reforms and will not be subject to fees, gates or a floating NAV."
It says, "None of Fidelity's prime or municipal money market mutual funds are yet subject to the potential for liquidity fees or redemption gates. Similarly, Fidelity's two institutional prime money market mutual funds do not yet have a floating NAV. Today's announcement gives prime and municipal money market fund shareholders information and time to prepare for these structural changes, which Fidelity plans to implement by October 1, 2016."
Finally, Fidelity writes, "These are the final set of changes planned for our money market mutual funds and represent the culmination of a significant, multi-year effort to ensure that our money market mutual funds meet the stringent new SEC requirements. At Fidelity, we remain committed to offering a variety of investment options and will continue to have a robust money market mutual fund product lineup that includes retail and institutional funds, prime and municipal funds, and government and U.S. Treasury funds. As market conditions and investor preferences evolve, we will continue to review our money market mutual fund lineup to ensure that we are meeting investors' needs. Investors can find an overview of the new SEC rules and the types of money market mutual funds in these key resources."
