Yesterday, ignites featured the article, "Day of Reckoning: Money Funds Move to Floating NAVs," which discussed `whether MMFs are ready to transact at 4-digit floating NAVs. It says, "It's finally game day for institutional prime and municipal money market funds -- the two categories of the product that the SEC has mandated to scrap their stable $1.00-per-share price and adopt fluctuating net asset values. The deadline for the change is Oct. 14, but several large fund groups, including Fidelity and J.P. Morgan, this week made the move and more will do so in the coming days before the compliance date." We cover their piece, and we also review the latest batch of liquidations below.
The ignites update explains, "In the more than two years since the July 2014 passage of the final rule, shops sponsoring these two types of money funds have been at work on a raft of operational changes to float their NAVs. In more recent months, firms have been testing their systems to ensure the transition goes smoothly."
J.P. Morgan's Andrew Linton tells the publication, "I think when you really get down to it, it's a confidence game.... It not just our conversion that needs to go well; it's everybody's." If something goes wrong, investor confidence in institutional prime and municipal money funds as an overall category could be shaken, he says.
"Even before the SEC's reform required it, most money funds calculated their "shadow NAV," or market-based value, in addition to the published, $1.00 stable per-share price, says Tracy Hopkins, COO of BNY Mellon cash investment strategies. But being able to provide market prices multiple times a day and implement potential liquidity fees -- another new requirement for these funds under the SEC's rules -- has been "a huge endeavor," she says.
The article continues, "Among other major changes, firms have had to set up systems so that fund accountants for affected products can receive price data from third-party vendors several times throughout the day, instead of just once at the end of the day. Fund providers also have had to make sure that the funds' transfer agents could accept the transmission of multiple NAVs during the day and in turn redeem shareholders accurately."
It adds, "State Street has been testing its internal processes since spring. In July, it began dry runs with its fund manager clients. The Boston-based firm serves as the fund accountant for almost 600 money funds representing $1.7 trillion in assets. About 24 of those funds are adopting a floating NAV, Lyons says. The service provider can strike up to four NAVs during the day, but most clients have chosen two or three strike times, she says, adding that customers have selected different dates to make the switch."
Finally, the piece says, "An Ignites analysis found that 18 of the floating NAV funds managed by 13 of the largest sponsors of money funds will strike NAVs three times during the day. Another 15 funds will strike only once. "[I]t's probably going to wind up being like the Y2K issue in that it won't be as big a deal or as tough a transition as some predicted," says Peter Crane, CEO of Crane Data. A "pretty calm credit environment" will likely aid in the changeover, he says, noting that there have been few credit downgrades or major company defaults. Such events could create volatile prices, making it more difficult for money funds to strike their NAVs."
With another month-end and the approach of the October 14 Money Fund Reform deadline, yet another batch of fund liquidations and changes appeared. Our October Money Fund Intelligence XLS, which will ship Friday morning, has removed the following funds: BlackRock US Treas MMP, Cavanal Hill Tax-Free, Federated Tax-Free MMF, Goldman Sachs FS Prm Ob Class C, JPMorgan's E*Trade share classes, Morgan Stanley Act As Govt Sec, Morgan Stanley Act As Money Tr, Morgan Stanley Active As CA T-F, Morgan Stanley Active As Tax-Free, and Wells Fargo MMF Daily.
BlackRock US Treasury MMP's liquidation filing explains, "On June 13, 2016, the Board of Trustees of BlackRock Funds approved a proposal to close the Fund to new investors and thereafter to liquidate the Fund. Accordingly, effective 4:00 P.M. (Eastern time) on September 15, 2016, the Fund will no longer accept purchase orders from new investors. On or about September 29, 2016, all of the assets of the Fund will be liquidated completely, the shares of any shareholders holding shares on the Liquidation Date will be redeemed at the net asset value per share and the Fund will then be terminated as a series of the Trust."
The Cavanal Hill Tax-Free Prospectus Supplement tells us, "On August 5, 2016, the Board of Trustees of Cavanal Hill Funds approved a plan to liquidate and terminate the Cavanal Hill Tax-Free Money Market Fund, upon the recommendation of Cavanal Hill Investment Management. Inc., the Fund's investment adviser.... In connection with the termination of the Fund and in order to facilitate the exchange of Fund shares for Cavanal Hill Funds Government Securities Money Market Fund shares, Cavanal Hill will make Government Securities Money Market Fund Select shares available for sale beginning September 15, 2016. The Government Securities Money Market Fund Select trades using the ticker symbol APSXX and CUSIP 14956P810."
The Federated filing comments, "On August 12, 2016, the Board of Trustees (the “Board”) of Money Market Obligations Trust approved a Plan of Liquidation for Tax-Free Money Market Fund pursuant to which the Fund will be liquidated on or about September 23, 2016. In approving the Liquidation, the Board determined that the liquidation of the Fund is in the best interests of the Fund and its shareholders.... Investments by existing shareholders may continue until September 22, 2016."
Finally, Morgan Stanley's filing, for its, "Active Assets California Tax-Free Trust, Active Assets Government Securities Trust, Active Assets Money Trust, and Active Assets Tax-Free Trust," says, "`The Board of Directors of each Fund approved the termination (the "Termination") of each Fund. The Termination is expected to occur on or about September 21, 2016. Each Fund will suspend the offering of its shares to all investors at the close of business on September 20, 2016."
