Attorney Stephen Keen of Perkins Coie published a comment entitled, "Why Intermediaries Can Stop Worrying About Money Fund Liquidity Fees -- Part One." Writes Keen, "I continue to hear about intermediaries fretting over whether and how to redesign their trading systems to accommodate the possibility of money market fund liquidity fees. This series of blogs will explain why this should be a problem only for the funds' transfer agents ("TAs"). An intermediary should never need to collect and remit a liquidity fee." Keen continues, "The Board's new ability to set liquidity fees has raised the specter of funds charging different fees and constantly changing their rates. Intermediaries are concerned that they must develop systems that can collect fees for different funds at different rates that may change on a moment's notice. The likelihood that funds may implement liquidity fees during a market meltdown heightens their concerns. While I am skeptical that directors would ever tweak fees in this fashion, the prospect of their doing so need not alarm anyone other than the TAs. The need for intermediaries to make major systems changes could be avoided if the TA collected all liquidity fees directly from redemption proceeds. Intermediaries' systems could then prorate the proceeds received from the TA by the dollar or share amount of each client's redemption. For example, assume an intermediary has three clients redeeming shares from funds that have imposed liquidity fees. Clients A and B each redeem $1 million from Fund X, and Clients B and C each redeem $1 million from Fund Y. Assume Fund X imposed a 1% fee and Fund Y imposed a 2% fee. This means the intermediary would receive $1,980,000 from Fund X and $1,960,000 from Fund Y. As each client redeemed equal amounts from each fund, the proceeds would be split evenly, with Clients A and B each receiving $990,000 from Fund X and Clients B and C each receiving $980,000 from Fund Y. Proration will produce the correct result, even if the intermediary does not know the percentage fee imposed by each fund. A proration algorithm could run all the time, insofar as it would allocate the correct amount of proceeds to each client even when the fund was not charging a liquidity fee. So, the intermediary would never need to modify its systems to implement a liquidity fee. What happens if other clients also purchase shares from the fund? There are at least three ways to address this question, which I will explore in the next two parts." Also, the SEC issued a release naming David Grim as Director of the Division of Investment Management, permanently replacing Norm Champ, who stepped down earlier this year.
