We passed another Money Fund Reform milestone earlier this week as the new mandate for higher liquidity levels (25% daily and 50% weekly) went live (on April 2), along with the ability for funds to implement emergency discretionary liquidity fees. (The mandatory emergency liquidity fees for Prime Inst MMFs don't go live until October 2.) The average DLA (daily liquid assets) for Taxable MMFs is 73.8 days; WLA (weekly liquid assets) is 82.8 days. For Prime Inst MMFs, these average 54.6 and 67.4 days, respectively, and for Prime Retail these average 43.3 and 57.2 days. Below, we review some recent SEC filings, which are adjusting Prospectuses to the new rules. (Note: money fund assets surged to record levels yet again in the first 2 days of April, after dropping sharply at month- and quarter-end, which included the Good Friday Holiday and Easter weekend. Total MMFs rose $140.3 billion on April 1 and 2 to a record $6.538 trillion.)
A Prospectus Supplement filing for Allspring Money Market Funds, tells us, "The following changes are effective April 2, 2024.... The following paragraph replaces the first paragraph under the sub-heading 'Principal Investment Risks' in the 'Fund Summary' section for the Allspring Money Market Fund and the Allspring National Tax-Free Money Market Fund: You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares. An investment in the Fund is not a bank account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor is not required to reimburse the Fund for losses, and you should not expect that the sponsor will provide financial support to the Fund at any time, including during periods of market stress."
It continues, "The following disclosure is added to end of the 'Buying and Selling Fund Shares' section for all of the Funds: Discretionary Liquidity Fees. Under Rule 2a-7, a money market Fund is permitted to impose a discretionary liquidity fee (not to exceed 2% of the value of the shares redeemed) on redemptions if the Fund's Board (or its delegate) determines that doing so is in the best interests of the Fund. Such determination will be based on current market conditions and the Fund's particular circumstances, and it is expected that such fee would be imposed, if at all, during periods of extraordinary market stress. The Fund would retain liquidity fees for the benefit of remaining shareholders. The Board (or its delegate) may, in its discretion, terminate a liquidity fee at any time if it determines that imposing such liquidity fee is no longer in the best interests of the Fund."
A filing for Federated Hermes Municipal Obligations Fund and Federated Hermes Tax-Free Obligations Fund, titled, "Supplement to Current Summary Prospectuses, Prospectuses and Statements of Additional Information," states, "Under amendments to Rule 2a-7, the Funds may no longer impose a redemption gate and the imposition of liquidity fees is no longer tied to the Funds' weekly liquid assets. Accordingly, all references to redemption gates and the link between the imposition of liquidity fees to the Funds' weekly liquid assets are removed. The Funds may impose discretionary liquidity fees on redemptions subject to a determination by the Funds' Board of Trustees or its delegate that such liquidity fee is in the Funds' best interests. If the Funds' Board, including a majority of the independent Trustees, or its delegate, determines that imposing a liquidity fee is in the Funds' best interests, the Funds may impose discretionary liquidity fees of up to 2% of the value of the shares redeemed."
A Prospectus Supplement filing for BNY Mellon's Money Market Funds, other than Treasury Only and Government Only Funds, tells us, "The following information supersedes and replaces any contrary information in the sections 'Principal Risks' in the fund's summary prospectus and 'Fund Summary – Principal Risks,' 'Fund Details – Investment Risks' and 'Shareholder Guide – Buying and Selling Shares' in the fund's prospectus: The fund may impose a discretionary liquidity fee upon the sale of your fund shares if such a fee is determined to be in the best interests of the fund during periods of market stress. Any such fee may not exceed 2% of the value of the shares redeemed and would be applied primarily to mitigate the broader effects of preemptive 'runs' and otherwise to manage potential dilution of remaining shareholders' interests in the fund. Such fee would be applied to all shares redeemed and would remain in effect until it is determined that imposing the fee is no longer in the best interests of the fund."
A recent filing for First American Funds states, "The following replaces the information provided under the heading 'Shareholder Information -- Additional Information on Purchasing and Redeeming Fund Shares -- Liquidity Fees' on pages 44-46 of the Prospectus: With respect to Retail Prime Obligations Fund and Retail Tax Free Obligations Fund, under authority delegated to the adviser by the funds' board of trustees, the adviser is permitted to impose a liquidity fee on redemptions (up to 2%) if it determines it is in the best interests of the fund to impose a liquidity fee. A liquidity fee may be imposed as early as the same day on which the adviser determines to impose such fee and may occur before the end of the business day. Liquidity fees may be terminated at any time in the discretion of the adviser. Unprocessed purchase orders that the fund received prior to notification of the imposition of a liquidity fee will be canceled unless re-confirmed. Under certain circumstances, the fund may pay redemptions without adding a liquidity fee to the redemption amount if the fund can verify that the redemption or exchange order was submitted to the fund's agent before the fund imposed liquidity fees. Once a liquidity fee is in place, shareholders will not be permitted to exchange into or out of a fund until the fee is terminated."
It continues, "The adviser generally expects that a liquidity fee would be imposed, if at all, during periods of extraordinary market stress. The adviser generally expects that a liquidity fee would be imposed only after the fund has notified financial intermediaries and shareholders that a liquidity fee will be imposed. Announcements regarding the imposition of liquidity fees, or the termination of liquidity fees, will be filed with the SEC on Form N-CR and will be available on the website of the fund (http://www.firstamericanfunds.com). In addition, the fund will make such announcements through a supplement to its prospectuses and may make such announcements through a press release or by other means. Liquidity fees are designed to transfer the costs of liquidating fund securities from shareholders who remain in the fund to those who leave the fund during periods when liquidity is scarce. Liquidity fees imposed by a fund will reduce the amount you will receive upon the redemption of your shares, and each fund generally expects such fees will generally decrease the amount of any capital gain or increase the amount of any capital loss you will recognize with respect to such redemption. Proceeds to a fund from liquidity fees may take the form of a return to shareholders as a distribution. Financial intermediaries will be required to promptly take such actions reasonably requested by a fund, the transfer agent or the adviser to implement, modify or remove, or to assist the fund in implementing, modifying or removing, a liquidity fee established by the fund."
A Principal Funds Supplment says, "The changes described below are being made to the Prospectus for the Money Market Fund.... In the Principal Risks section, add the following alphabetically: Discretionary Liquidity Fee Risk. The Fund may charge a liquidity fee of up to 2% of the value of shares redeemed if the Fund's Board of Directors (or PGI, in accordance with Board-approved guidelines) determines that doing so is in the best interests of the Fund. Accordingly, your redemptions from the Fund may be subject to a liquidity fee when you sell your shares at certain times."
Finally, a Prospectus Supplement for Fidelity Government Money Market Fund and Fidelity Money Market Fund subtitled, "Special Limitations Affecting Redemptions of Fidelity Money Market Fund: Discretionary Liquidity Fees," says, "A fund may impose liquidity fees during adverse market conditions. If, at any time, the fund's Board of Trustees (or its delegate) determines it is in the fund's best interests, the fund must impose a liquidity fee of no more than 2% of the value of the shares redeemed on all fund redemptions. Any such fee, which may be imposed as early as the same day, would remain in effect until the fund's Board of Trustees (or its delegate) determines that the fee is no longer in the fund's best interests."
It adds, "Liquidity fees are generally designed to transfer the costs of liquidating fund securities from shareholders who remain in a fund to those who leave the fund during periods when liquidity is scarce or otherwise manage potential dilution and/or liquidity during periods of market stress. The fees are payable to the fund and any fees charged to a shareholder will fully or partially offset the gain or increase the loss realized by that shareholder upon redemption. If discretionary liquidity fees are imposed, a fund will notify shareholders on the fund's website or by press release."
For more, see these recent Crane Data News stories: "Federated Liquidating Money Mkt Trust" (4/1/24), "Vanguard Market Liquidity Fund Files to Go Government, Joins American" (3/20/24), "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees" (2/6/24), "DWS Government MMFs File Update" (3/28/24), "Rolling w/Reform Changes V: Little Change in '23 Ahead of MMF Reforms" (1/5/24), "Fund Companies Prep for Liquidity Fees Via Filings, Discretionary Fees" (10/26/23).
The last article comments, "Now that the previous regime of emergency gates and liquidity fees has been removed from money market mutual funds (effective Oct. 2), advisors have begun changing disclosures and filing updates to prepare for the new round of pending regulations. As we mentioned in our Oct. 23 Link of the Day, "Dreyfus Recaps 2a-7 Changes for AFP," discretionary liquidity fees will become live on April 2, 2024 and mandatory liquidity fees for Prime Institutional MMFs will become active on Oct. 2, 2024."
