Pub. 4 2016 Issue 4

www.uba.org 12 Why the Impact of MMF Reform is Likely to Benefit Community Banks By Glenn Martin Regional Director, Promontory Interfinancial Network N ow that the SEC’s new rules on money market funds (MMFs) have gone into effect, institutional cash managers are taking a new look at community banks. The October 2016 launch of the new SEC rules, coming after a two-year implementation period, changes how prime money mar- ket funds calculate value. Up to now, these funds have transacted at a stable net asset value (NAV)—meaning that they could be bought and sold at the same price, regardless of the movement in the underlying investments. Additionally, the new rules provide for redemption gates that can be enforced during times of finan- cial stress on the funds, as well as liquidity fees. Following the SEC’s initial announcement of the rule changes, there was a subdued response from institutional investors. The two-year timeline that the SEC specified for implementation gave a long runway for investors and fund managers to adapt. With the changes now in effect, institutional money managers are starting to look at how to adjust their investment strategies with many investors looking for the exits, at least from prime funds. Data from Crane Data’s Money Fund Intelligence shows that, by the end of September (leading up to the rule change), prime funds, which invest in higher yielding securities like commercial paper, had lost more than $900 billion in assets since the begin- ning of 2015. However, more recently, money has started to move out of money market funds entirely. According to Crane’s, in the first two weeks of September 2016, prime money fund assets fell by nearly $100 billion, with only $52 billion of that moving to government funds. Source: Crane Data’s Money Fund Intelligence