On Friday, the U.S. Securities & Exchange Commission quietly posted its second set of Q&A's on its Money Market Fund Reforms. The newly-posted "Staff Responses to Questions about Rule 30b1-7 and Form N-MFP says, "The staff of the Division of Investment Management has prepared the following responses to questions related to rule 30b1-7 under the Investment Company Act and Form N-MFP and expects to update this document from time to time to include responses to additional questions.... Responses to questions regarding rule 2a-7 are included in a separate document that is available at: http://www.sec.gov/divisions/investment/guidance/mmfreform-imqa.htm ('Money Market Fund Reform Q&A')."
The new Q&A asks about the "Scope of Rule 30b1-7," "Is compliance with new rule 30b1-7 and Form N-MFP mandatory for a registered fund that holds itself out to investors as a money market fund but that does not use the Amortized Cost Method of valuation or the Penny Rounding Method of share pricing?" It answers, "Rule 30b1-7 requires every registered fund 'that is regulated as a money market fund under [rule 2a-7]' to file Form N-MFP with the Commission. Accordingly, all funds subject to rule 2a-7, including those that do not use the Amortized Cost Method or Penny Rounding Method, must file Form N-MFP."
Regarding the new Form N-MFP, is asks, "If a money market fund has classes of shares, Form N-MFP requires disclosure of the shadow price of the series and of each class of shares. If the fund has a policy of paying daily dividends on each class of shares equal to the full amount of accrued net income attributable to the class (so no class will accumulate any value apart from its pro rata share of the fund's net assets), and only calculates its shadow NAV based on the total outstanding shares without regard to classes, can the fund use the series shadow NAV for each class?" The Staff answers, "If a money market fund's dividend and accounting policies assure that there will be no deviation between the market-based NAVs of the classes of shares offered by the fund, the fund may use the same shadow NAV for each class without a separate calculation."
On "Investment Categories, the Q&A asks, "Form N-MFP (like the monthly website posting provision under rule 2a-7) requires funds to indicate the specific category most closely identified with each portfolio security. Must funds use the categories specified in Form N-MFP or can they use other categories?" It answers, "Funds must use the categories specified in Form N-MFP."
The document also discusses the "Value of Capital Support Agreements," saying, "Q: Items 45 and 46 of Form N-MFP require disclosure of the value of a money market fund share, including and excluding the effect of any capital support agreement. The value of certain capital support agreements will be determined only at such time as a loss is determined. (For example, an affiliate may agree to provide sufficient capital, up to a maximum, to bring a fund's NAV to $.995, if a loss occurs.) How should a fund reflect the value of such an agreement? A: If an affiliate has agreed to provide sufficient capital up to a maximum to bring a fund's NAV to $.995, for example, then the value of the support agreement is the amount necessary to bring the fund's shadow NAV up to $.995. If the fund's shadow NAV is $.995 or above, then the support agreement has no value for purposes of Form N-MFP."
The Q&A asks on Gross Yields, "If the money market fund is a tax-exempt fund and it holds taxable paper, should the fund adjust the gross yield to reflect federal income taxes that would be imposed on the taxable paper?" It answers, "No." It also asks, "Q: In the absence of a CUSIP, if a security is assigned a 'dummy' CUSIP (i.e., a random series of digits used internally to identify a particular security), should the 'dummy' CUSIP be provided as the other unique identifier? A: Yes."
Finally, regardng the "Public Availability of Form N-MFP's Technical Specifications (Schema)," the document asks, "When will the technical specifications (schema) for Form N-MFP be available to the public?" It answers, "The technical specifications (schema) for Form N-MFP will be publicly available on the SEC website in mid to late summer."
(Note that Crane's Money Fund Symposium, July 26-28 at The InterContinental Boston, will discuss these issues and more in its final session "Critical Questions on The New Rule 2a-7. The panel includes: SEC Senior Special Counsel Sarah ten Siethoff, Reed Smith Counsel Leslie Ross, and PriceWaterhouse Coopers Partner Richard Grueter.)
