Fitch Ratings writes "SEC Money Fund Reform Raises Questions for LGIPs". The release says, "The Securities and Exchange Commission's (SEC) proposal for further reforms of money market funds may limit use of local government investment pools (LGIPs) unless state statutes change, according to Fitch Ratings. The SEC voted on June 5 to approve the initial proposal for further reform of the money fund industry. The proposal suggests enacting one or two substantial changes in addition to other enhancements. The first change mandates that prime institutional money market funds use floating net asset values (NAV), rather than the stable NAV of $1.00 that has been the standard since the industry's inception. The second requires nongovernment money funds to impose a 2% liquidity fee on redemptions if a fund's weekly liquid assets fall below 15% of total assets and allows fund boards of directors to impose temporary redemption gates. Additional requirements in the proposal include enhanced diversification, disclosures, and stress testing. The floating NAV proposal may have direct implications for LGIPs that are money market fund-like investment pools, and are required by law or investment policies to maintain a stable NAV per share. Government accounting rules allow LGIPs to use stable NAV as long as they operate in a manner consistent with Rule 2a-7. As noted by the SEC, state statutes and policies may need to be amended to reflect any additional changes to Rule 2a-7. Given the unknown potential impact on LGIPs, the SEC is requesting comment from the industry on the floating NAV proposal and its cost implications. The SEC is also requesting comment from industry participants concerning the effects of these proposals on efficiency, competition or capital formation." In other news, see the ICI's latest weekly "Money Market Mutual Fund Assets".
