MF Reforms: Legal Perspectives
Several leading money fund industry law firms offered their takes on the SEC reforms last week, including Dechert, Stradley Ronon, and Bingham. Stradley's Joan Ohlbaum Swirsky and Amy Smith write, "We expect many questions to arise from the implementation of the new rules and interpretation of the 869-page adopting release. The following are a few issues funds and boards may consider regarding the fundamental reforms. Will the money market funds fit within the retail or U.S. government exemptions from reform, and if not, will the funds seek to restructure to fit within the exemption? How prepared is the money market fund for possible migration of assets from the fund? Will migration of assets from the money market fund affect the fund family in general or the adviser? Will service provider expenses increase (for example, services to value assets at market value rather than amortized cost)? What other operational and expense burdens will the money market funds bear? Will intermediaries be unwilling to change systems to offer money market funds subject to the floating NAV or fees/gates, so that distribution channels will shrink? Will yields be reduced by increased operational and compliance costs and potential increased demand for U.S. government securities? How will funds communicate with shareholders about upcoming changes? Are there adequate methods to monitor shareholder flows? What are expectations about shareholder flows?" Bingham issued its own "legal alert" on reforms. "Today's amendments are largely consistent with the reforms the SEC proposed on June 5, 2013, with some significant modifications. Two key differences from the proposal are the definitions of "retail" money market funds and "government" money market funds. The SEC ... adopted a definition that would require retail money market funds to have policies and procedures in place that are reasonably designed to ensure that its investors are natural persons. Under the new rules, a "government" money market fund will refer to a fund that invests at least 99.5% of its assets in cash, government securities, and repurchase agreements collateralized by government securities." Dechert posted the news as well. "The Amendments begin a new phase of the regulation of money market funds that has permeated the investment management industry since the 2008 financial crisis. An upcoming DechertOnPoint will provide more analysis of the Amendments, as well as their potential impact on the money market fund industry." Stay tuned.
