SEC Updates MMF Reform FAQs
Below, we have more coverage of the SEC's updated "2014 Money Market Fund Reform Frequently Asked Questions, which we first reported Friday. The SEC writes for FAQ 2: Would a capital contribution made by the fund's investment adviser to correct an NAV error qualify as financial support that must be reported on part C of Form N-CR? The answer was amended to add: "The staff will not object if a fund board determines in advance that these types of routine actions will not constitute financial support." There was also an amendment to an FAQ related to "topping up." The amended question now reads: "Would a capital contribution made by the fund's investment adviser to a fund to avoid dilution or other unfair results during a fund reorganization pursuant to the exemptive relief provided in the Adopting Release or in connection with a conversion of a fund to a floating NAV qualify as financial support that must be reported on Form N-CR?" The answer explains, "No, provided that the contribution occurs as part of a transition for money market funds to implement the floating NAV reform before the October 16, 2016 compliance deadline. As discussed in the previous question, financial support reporting is intended to increase transparency of investment risks. For example, a capital contribution meant to "top up" a fund as part of a voluntary reorganization made in the ordinary course of business would normally qualify as financial support that would be reported on Part C of Form N-CR because it would be an action meant to stabilize or increase the value of the fund. However, the staff recognizes that reorganizations made pursuant to the exemptive relief are primarily intended to bring a fund into compliance with the 2014 money market fund reforms. In addition, the staff recognizes that an adviser or its affiliates may elect to top-up a fund converting to a $1.0000 floating NAV, so that all shareholders will receive the same value per share at the time of the transition from a stable NAV to a floating NAV. This may be important to assure a smooth transition to floating NAV funds. Accordingly, the staff would not object if associated capital contribution actions designed to avoid unfair results or dilution made to bring a fund into compliance with the 2014 money market fund reforms are not reported as financial support on Form N-CR (or in Form N-1A and on funds' websites). However, in the staff's view, any such future contributions would need to be reported as financial support on Form N-CR once the compliance period for the amendments has passed."
