A press release entitled, "Fitch Study of MMF Shadow NAV Shows Stability," says, "Fitch Ratings recently updated its study of U.S. prime money market funds' (MMFs) "shadow" net asset values (NAV), underscoring that volatility of MMFs' NAV has declined significantly since the 2007-2009 financial crisis and has held up through the recent Eurozone crisis and other stresses. We believe the stability shown by MMFs is due to high credit quality of portfolio holdings, heightened risk-aversion by MMF shareholders and managers, and, importantly, the introduction of MMF regulatory reform (Rule 2a-7 amendments) by the Securities and Exchange Commission (SEC) in May 2010. An important part of the 2010 MMF reform was the introduction of mandatory liquidity buffers, which were put in place in order to honor redemptions without reliance on the secondary market. Taxable MMFs are required to maintain minimum daily and weekly liquidity reserves of 10% and 30%, respectively. In practice, Fitch-rated prime MMFs invested over 30% of their assets in daily liquid instruments and over 43% of their assets in weekly liquid instruments at the end of April 2012. These liquidity cushions have proved to be sufficient to accommodate the investors' cash flows despite the Eurozone crisis, negative credit migration among global financial institutions, and the longer term fiscal trends facing the U.S. The shadow NAV offers investors an appraisal of the market value of a MMF's underlying assets on a per-share basis. As long as the NAV does not deviate by more than 50 basis points, the fund's $1.00 stable share price is maintained. Under new guidelines imposed by the SEC in May 2010, shadow NAVs for all U.S. MMFs are now publicly available, albeit it with a 60-day lag." See also, ICI's "Money Market Mutual Fund Assets."
