As we've been writing about over the past two weeks, the Securities & Exchange Commission proposed its latest set of Money Market Fund Reforms, which include much higher liquidity levels, the removal of gates and fees, a controversial swing pricing feature and additional disclosures. See the Proposed Rules here, the press release here the Fact Sheet here, our Dec. 16 News, "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing," and our Dec. 27 News, "More Reforms: SEC Commissioners Comment on Controversial Proposal." Given the close 3-2 vote and the pending 60-day comment period, there could be substantial changes in the final rule, which is expected later in 2022. Today, we quote from the "Amendments to Reporting Requirements" section, which starts on page 119 of the 325-page proposal. (Note: Thanks again for your support and readership in 2021! Happy Holidays and Happy New Year from Crane Data & Money Fund Intelligence!)
Discussing "Amendments to Form N-CR," the SEC writes, "Money market funds are required to file reports on Form N-CR when certain specified events occur. Currently, a money market fund typically is required to file Form N-CR reports if a portfolio security defaults or experiences an event of insolvency, an affiliate provides financial support to the fund, the fund experiences a deviation between current net asset value per share and intended stable price per share, liquidity fees or redemption gates are imposed or lifted, as well as any optional disclosure made at the fund's discretion. We are proposing to add a new requirement for a money market fund to file a report on Form N-CR when the fund falls below a specified liquidity threshold. We also propose to require funds to file Form N-CR reports in a structured data language. Further, we are proposing other amendments to improve the utility of reported information and to remove reporting requirements related to the imposition of liquidity fees and redemption gates under rule 2a-7."
They also propose "Amendments to Form N-MFP," explaining, "Form N-MFP is the form that money market funds use to report their portfolio holdings and other key information each month. We use the information on Form N-MFP to monitor money market funds and support our examination and regulatory programs. We are proposing amendments to improve our ability to monitor money market funds. The proposed amendments would provide certain new information about a fund's shareholders and disposition of non-maturing portfolio investments. We are also proposing changes to enhance the accuracy and consistency of information funds currently report, to increase the frequency of certain data points, and to improve identifying information for the reporting fund."
Discussing the "New Information Requirements," the SEC states, "We are proposing to require additional information about the composition and concentration of money market fund shareholders. With respect to shareholder concentration, we are proposing that all money market funds disclose the name and percent of ownership of each person who owns of record or is known by the fund to own beneficially 5% or more of the shares outstanding in the relevant class. Money market funds currently provide substantially the same information on an annual basis in their registration statements. We believe more frequent information about shareholder concentration would be helpful for monitoring a fund's potential risk of redemptions by an individual or a small group of investors that could significantly affect the fund's liquidity."
They explain, "We recognize that as a result of omnibus accounts, there are circumstances in which multiple investors would be represented as a single shareholder of record for purposes of this disclosure. The proposal would require information about beneficial owners known by the fund in recognition that funds may not have information about the amount each beneficial owner holds in an omnibus account. The proposed item would distinguish between record owners and beneficial owners to facilitate a more nuanced understanding of potential concentration levels. We are proposing to require funds to use a 5% ownership threshold for this reporting requirement to align with analysis funds already must conduct each year for purposes of updating their registration statements."
The proposal continues, "We also propose to require a money market fund that is not a government money market fund or a retail money market fund to provide information about the composition of its shareholders by type. The proposed item would require these funds to identify the percentage of investors within the following categories: non-financial corporation; pension plan; non-profit; state or municipal government entity (excluding governmental pension plans); registered investment company; private fund; depository institution and other banking institution; sovereign wealth fund; broker-dealer; insurance company; and other. This information would assist with monitoring the liquidity and redemption risks of institutional money market funds, as different types of investors may pose different redemption risks."
It adds, "In addition, we propose to add new Part D to Form N-MFP, which would require information about the amount of portfolio securities a prime money market fund sold or disposed of during the reporting period. This information would facilitate monitoring of prime money market funds' liquidity management, as well as their secondary market activities in normal and stress periods. It also would improve the availability of data about how selling activity by money market funds relates to broader trends in short-term funding markets. The proposal would require a prime fund to disclose the aggregate amount it sold or disposed of for each category of investment. The categories of investments would mirror the categories funds already use on Form N-MFP for identifying their month-end holdings (e.g., certificate of deposit, non-negotiable time deposit, financial or non-financial company commercial paper, or U.S. Treasury debt). To focus the disclosure on secondary market activity, the proposal would exclude portfolio securities the fund held until maturity."
The proposal also says, "As described above in the proposed swing pricing requirement section, we also propose to amend Form N-MFP to require money market funds that are not government money market funds or retail money market funds to report the number of times the fund applied a swing factor over the course of the reporting period, and each swing factor applied. In that section, we requested comment on these swing pricing-related amendments to Form N-MFP."
It states, "We are proposing to specify that, for purposes of reporting the fund's schedule of portfolio securities in Part C of Form N-MFP, filers must provide required information separately for the initial acquisition of a security and any subsequent acquisitions of the security (i.e., for each lot). Currently, some funds report information separately for each lot, while others do not. Requiring funds to report information separately for each lot would facilitate the Commission's ability to analyze other information we propose to require. Specifically, we are proposing an additional item that would require funds to provide the trade date on which the security was acquired and the yield of the security as of that trade date. These proposed amendments, collectively, would assist the Commission in understanding how long a fund has held a given position and the maturity of the position when it was first acquired. This information is important to understand a money market fund's portfolio turnover during normal market conditions and to monitor a potentially higher level of asset disposition during periods of market stress."
The section also tells us, "Form N-MFP requires filers to report particular information about funds' repurchase agreements. We are proposing to amend the form to require additional information about repurchase agreement transactions and to standardize how filers report certain information. Specifically, the amendments would require that filers identify (1) the name of the counterparty in a repurchase agreement; (2) whether a repurchase agreement is centrally cleared and the name of the central clearing counterparty, if applicable; (3) if a repurchase agreement was settled on a triparty platform; and (4) the CUSIP of the securities involved in the repurchase agreement. Currently, Form N-MFP simply asks for the name of the issuer."
It explains, "We are also proposing to include 'cash' as a category of investment that most closely represents the collateral in repurchase agreements. This amendment is designed to recognize that cash is sometimes used as collateral for repurchase agreements, and we expect that the addition would reduce inaccurate disclosure suggesting that a repurchase agreement is under-collateralized. Moreover, we are proposing to remove the ability for funds to aggregate certain required information if multiple securities of an issuer are subject to the repurchase agreement. Removing this provision would provide more complete information about securities subject to a repurchase agreement."
The SEC comments, "We are proposing a new item in Form N-MFP that would require filers to indicate whether the fund is established as a cash management vehicle for affiliated funds and accounts. This item would make it easier and more efficient to identify privately offered institutional money market funds. Our proposal also includes an amendment to enhance consistency of reporting of whether a fund seeks to maintain a stable price per share.... We are proposing to include a new category that distinguishes between U.S. Government agency notes that are coupon-paying and those that are no-coupon discount notes. We believe that including this distinction would allow us to better understand whether an agency security should be categorized as a weekly liquid asset, as only agency discount notes with less than 60 days to maturity can be considered weekly liquid assets under the rule."
Finally, under "More Frequent Data Points," they tell us, "Under current rule 2a-7, a money market fund must prominently disclose on its website, as of the end of each business day during the preceding six months, the fund's percentage of total assets invested in daily liquid assets and in weekly liquid assets, as well as the fund's net asset value per share (including for each class of shares) and net shareholder flow. Currently, in monthly reports on Form N-MFP, a money market fund must provide the same general information for each Friday during the month reported. Based on the Commission's experience with using current Form N-MFP data to analyze the events of March 2020 and other periods, we are proposing to amend Form N-MFP to require a money market fund to provide in its monthly report this liquidity, net asset value, and flow data for each business day of the month, rather than on a weekly basis."
The SEC adds, "We are proposing to require daily liquidity, net asset value, and flow data in monthly reports to allow Commission staff to better and more precisely monitor risks and trends in these areas in an efficient and more precise manner without requiring frequent visits to the websites of many different funds, and to provide industry-wide daily data in a central repository as a resource for investors and others. Although data vendors provide some daily data based on information gathered from funds' websites, the staff has found this data could be incomplete at times, and therefore may not be appropriate for purposes of staff monitoring and analyses. We are also proposing to increase the frequency with which funds report certain yield information. Currently, funds must report 7-day gross yields (at the series level) and 7-day net yields (at the share class level) as of the end of the reporting period. We propose to require funds to report this information each business day. We believe the higher-frequency reporting would assist in the timely monitoring and assessment of fund risks, particularly during periods of market stress."
