With implementation just one year out, a couple of new reports indicate a lack of readiness for money market reform, which takes effect in October 2016. Simcorp, a provider of investment management software and services, along with consultant KPMG, conducted a survey of asset managers and fund administrators, and the results show most still have a long way to go to get ready for implementation. Also, Pensions & Investments came out with a story called, "Don't Delay Moves on Money Market, Investors Warned," which discusses how consultants are pushing clients to prepare for reforms.
The Simcorp/KPMG report was based on a survey of 100 individuals from 58 asset management firms across North America. The press release, "SimCorp Survey Reveals Lack of Preparedness for Compliance with the SEC's Money Market Fund Reform Regulations says "There is a large amount of uncertainty and lack of preparedness for the pending Money Market Reform, due for compliance by Q3 2016. MMR will affect the U.S. and global fund managers holding U.S. funds."
It explains, "The amendments of key rule 2a-7 will mostly affect floating NAV, liquidity fees and redemption gates, diversification, stress testing, and disclosure and reporting, all of which will have technological and strategic impact on money market funds. The survey was conducted during a recent webinar hosted by SimCorp and KPMG, titled "Money Market Reform: The implications for your firm and the available technology solutions to help you comply.""
The release tells us that some of the survey highlights include: "85% claim to have limited or no understanding of the SEC's final ruling 2a-7; Only 23% are currently able to strike multiple NAVs during the day; Only 19% receive online alerts when daily liquidity is reduced to 10% or less; and 75% state that their organizations are not completely prepared for MMR to go into effect."
Marc Mallett, a SimCorp Vice President, comments in the release, "Stakeholders rely on their firm to make wise investment decisions on their behalf based on accurate numbers. Without them, the entire process becomes compromised. By design, SimCorp Dimension is inherently built to handle the parameters set forth by the SEC for MMR, offering full integration front-to-back, with real-time access to portfolio positions and P/L. It allows fund managers to quickly apply liquidity fees or redemption gates, to strike NAVs and to run stress tests and shock scenarios while offering customized reporting that meets the new requirements."
The P&I article explains, "New rules requiring floating net asset values and potential withdrawal restrictions on institutional prime money market funds won't take effect until October 2016, but some money managers and consultants are warning the time to move out of them is now. Among the issues with delaying, they warn, are the potential for investment losses and reduced liquidity from a last-minute rush to the exits that could negatively affect the nearly $1 trillion of assets now in institutional prime funds."
The story quotes Kimberly Gillett of Towers Watson & Co. LLC, "I understand why some people might have the perspective that it's too early.... But it's not too early to have these conversations Decisions will need to be made, and if you can already make the change to Treasury and government money market funds, it's an easy change to make."
It continues, "Brandon Swensen, senior portfolio manager, co-head of fixed income at RBC Global Asset Management(U.S.), Minneapolis, argued that now's the time to make the change as the maximum allowable maturity for securities in prime funds is 13 months. "We're at 13 months before the regulations take effect, so the composition of prime funds means that people should act now," Mr. Swensen said."
P&I also quotes BlackRock's Thomas Callahan on how the Fed Funds rate could affect the spread between Prime and Govie funds, "Right now that spread is about 12 basis points.... Is that enough premium to move from a (constant NAV) government fund to a (fluctuating NAV) prime fund? Probably not. But if rates go up, is 20 basis points enough compensation? 30? 50?" It adds, "Those uncertainties, not any foot-dragging, are the real reason asset owners aren't acting, Mr. Callahan said. They again quote Callahan, "Those concerns make institutions uncertain, and when they're uncertain, they watch and wait. That's what you're seeing now."
Finally, the article says, "Peter Yi, senior vice president and head of short-duration fixed income, Northern Trust Asset Management, Chicago, said he expects institutions to make the move from prime funds starting early next year. "It all depends on what's the right liquidity solution," Mr. Yi said. "If a balanced solution exists today, then we encourage them to move when they are ready. If not, we want to start working with them now to think about all the enhancements they think they need to improve their liquidity management experience.... I'd say in early to mid-2016, we think that's a good time frame to conclude our final discussions and put this all together with thoughtful recommendations.""
