AFP on MMF Reforms

Aug 07 14

The Association of Financial Professionals held a webinar last week that explored "What the New Money Fund Rules Mean for Treasurers." Today, AFP published a recap of the webinar, which featured Jim Gilligan, CTP, FP&A, assistant treasurer for Great Plains Energy, and Tom Hunt, CTP, director of treasury services, AFP. "Treasurers who have not given much consideration to what they are going to do should begin preparations before this grace period is up," Gilligan said. "Look at your investment policy and consider changes to that," he said. "You may want to look and see if your investment policy will allow you to invest in money market funds that have a floating NAV. You may also have to see if you are allowed to use funds that have gates or redemption fees. If you're going to invest in funds that have those restrictions, make sure your investment policy allows those." One major concern for some treasury departments is the impact on the commercial paper (CP) market. For example, Great Plains Energy has significant short-term borrowing through the CP market, Gilligan explained. "I personally believe we're going to see a contraction in the CP market, created by a shift in investors' money from existing funds that purchase CP products to other funds not subject to a floating NAV and redemption gates," he said. "That will possibly cause CP issuers to develop alternative markets for CP, and/or lead to issuers turning to their short-term credit facilities, which are typically more expensive than the CP market issuances." There could also be a shift to other certificates of deposit and time deposits, Hunt noted. The 2014 AFP Liquidity Survey revealed a large balance in bank products. "Maybe there's a new investment out there; maybe it's separately managed accounts," he said. "If you want a stable NAV, where are you going to go to find that if you're not comfortable with some of the things that are in your money fund that weren't in there previously?" Based on recent data, it certainly looks like the MMF investment landscape is about to change. The Liquidity Survey asked corporate treasurers and CFOs if a floating NAV was imposed on prime funds while a stable NAV remained on government funds. Twenty-seven percent of respondents said they would not invest in prime funds altogether, while 28 percent said they would move money into government funds. "So we do expect some money to move," Hunt said. "But whether it moves out of prime into government funds, back into Treasuries or bank deposits remains to be seen." (Note: Crane Data's Peter Crane will be participating in AFP's "2014 Liquidity Survey Companion Webinar" on August 26.) In other news, money fund portal provider Cachematrix sent out a press release related to money fund reform. Cachematrix has anticipated this outcome and understands that upcoming modifications will provide many new opportunities for the entire industry. From Cachematrix President Dave Agostine: "Cachematrix's expertise operates at the intersection of technology and corporate cash management. Having expected these changes, we stand ready to help banks and asset managers evolve with the changing landscape of corporate liquidity management." Cachematrix provides the integration expertise, as well as the trading and reporting functionality that allows corporations and banks to seamlessly adapt and benefit from the new regulations. George Hagerman, Founder and CEO of Cachematrix, says, "The SEC's recent changes to Rule 2a-7 is presenting an exciting new landscape for banks and asset managers. I see this as a tremendous opportunity for banks to provide enhanced technology solutions and expanded product offerings to their corporate customers that will not just meet, but exceed, the new demands of corporate cash management."

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