Regulatory Update: 2014 Money Fund Reform

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Regulatory Update:2014 Money Fund Reform

Jim Gilligan, CTP, FP&AAssistant TreasurerGreat Plains Energy Inc.

Presentation to Iowa TMA

September 9, 2014

AFP, Association for Financial Professionals and the AFP logo are registered trademarks of the Association for Financial Professionals. 2

Overview of Changes

• Combination of reform– Floating NAV– Gates and fees

• Gov’t fund changes• Retail fund changes• Reporting changes• Time horizon• Tax changes• Treasury implications


Floating NAV & Gates/Fees

Type of Fund Net Asset Value (NAV)

Redemption Gates

Redemption Fees

Accounting Method

Institutional Prime Floating Yes Yes NAV

U.S. Treasury Stable Opt In Opt In Amortized Cost

Government Stable Opt In Opt In Amortized Cost

Institutional Muni/Tax Exempt Floating Yes Yes NAV

Retail Stable Yes Yes Amortized Cost

• Floating NAV is non discretionary• Gates and Fees are discretionary by the Board of the Fund• If weekly liquidity assets fall below 30% of the Fund’s total assets

• Board can implement up to a 2% Fee• Suspend redemptions (lower a gate) for up to 10 business days• Only gate up to10 business days per 90 day period

• Mandatory fee of 1% if weekly liquidity assets fall below 10% of total assets


Government Fund Changes

• Re-defined as 99.5%* of total assets invested in:– Cash– Government securities– Repos collateralized by gov’t securities

• Gates and Fees are:– At the discretion of the fund board with

investor notification• Special reporting if NAV falls below $0.9975__________________

* Was 80%


Retail Fund Changes

• Retail Investor– Now defined as a natural person– Tied to Social Security Number

• Not related to asset size• Share classes/structure could change• Special reporting if NAV falls below

$0.9975


Reporting Changes

• Floating NAV calculated to 1/100 of a penny ($0.0001) for Prime and Muni Funds

• Fund disclosure if <10% weekly liquidity• Daily reporting of:

– Daily and weekly liquid assets– Net shareholder flows– Market based NAV’s– Imposition of Fees and Gates– Sponsor support of the fund

• New material event disclosure (on Form N-CR)• Disclosure of Sponsor support for prior 10 yrs• Form PF- private liquidity funding to report same as N-MFP


Reporting Changes Cont’d

• 5% issuer diversification limit requires affiliated entities to be treated as a single issuer

• 10% limit for guarantors of demand feature providers including Asset Backed Guarantors– 15% for Muni funds

• Enhanced stress testing• Removal of Credit Ratings reference re-proposed

– Discretion of the board to determine appropriate securities

– Tier I/Tier II restriction removed


Time Horizon

Fund Floating NAV

Gates/Fees N-CR All Other (Divers, PF, N-MFP, etc.)

Prime 2 years 2 years 9 months 18 months

Gov’t/Treas n/a 2 years(if opt in)

9 months 18 months

Muni 2 years 2 years 9 months 18 months

Retail n/a 2 years 9 months 18 months

• Clock starts when rules are published in Federal Register


Tax Changes

• NAV Method vs. Amortized Cost– Aggregated reporting of sales– Realized gain/loss is “short term”– Not subject to “Wash Sale” Rules

• For More Information:http://www.treasury.gov/resource-center/tax-policy/Documents/MMF%20Acc%27t%27g%20NPRM.pdf

http://www.treasury.gov/resource-center/tax-policy/Documents/MMF%20Acc't'g%20NPRM.pdf



Treasury Implications

• Investment policy considerations• Board approval and education

– Floating NAV – Gates/Fees– Accounting considerations

• Revised fund due diligence– Discussions with your fund manager– Discussion with your fund sponsor/bank– Credit rating’s reform– How tax reporting will be delivered

• Bank product shift- more into CDs,TD’s?• Rise of non 2a-7 products• Basel III timing and reform timing


Treasury Implications Cont’d• More discretion given to the fund board• Offshore cash not subject to Money Fund Reform….

YET• More than just money funds impacted- Money fund like

products• Consider other areas: DB, DC, Securities Lending, etc.• Muni based investors need gov’t backing; limited options• CP Issuers affected; dealer placed; alternate sources of

funding• Portal provider reporting changes - timing


Action Will Occur

0%

10%

20%

30% 2723

28

21

28

Source: The AFP Liquidity Survey, Association for Financial Professionals

Anticipated Actions Should the SEC Rule that Prime MMFs Operate with a Floating NAV and Government MMFs Operate with a Stable NAV

(Percent of Organizations Currently Investing in Prime MMFs)


Short-Term Investment Objective

2008 2009 2010 2011 2012 2013 20140%

20%

40%

60%

80%

100%

Safety of Principal

LiquidityReturn (Yield)

Most Important Short-Term Investment Objective, 2008-2014(Percent of Respondents)



Change in Allocation of Investments

2009 2010 2011 2012 2013 20140%

20%

40%

60%

80%

100%

37 42 4251 50 52

1616 19

13 10 916 9

10 76 7

98

64 8 7

22 26 22 26 26 26

OtherTreasury BillsGovt MMFsPrime MMFsBank Deposits

Allocation of Short-Term Investments, 2009-2014(Mean Percent Distribution)



Money Fund Selection Could Change

Other

Investment manager for separately managed accounts or manages other investment products for us

Diversification of underlying instruments

Fund sponsor as part of our overall bank relationship mix and support

Counterparty risk of underlying instruments

Fund ratings

Yield

0% 20% 40% 60% 80%

73

69

51

51

44

6

6

Primary Drivers to Select a Money Market Fund(Percent of Organizations that Permit MMFs as an In-

vestment Vehicle)



For More Information

Tom Hunt, CTPDirector of Treasury ServicesAssociation for Financial [email protected]

SEC Information:http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679#.U9Pwy1h0yM-

http://www.sec.gov/rules/exorders/2014/34-72658.pdf

http://www.sec.gov/rules/final/2014/33-9616.pdf

Treasury/IRS Information:http://www.treasury.gov/resource-center/tax-policy/Documents/MMF%20Acc%27t%27g%20NPRM.pdf

mailto:[email protected]

http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679

http://www.sec.gov/rules/exorders/2014/34-72658.pdf

http://www.sec.gov/rules/final/2014/33-9616.pdf



http://www.afponline.org/mbr/reg/pdf/2014_Liquidity_Report.pdf