In response to complaints from large money-market fund managers like Fidelity Investments and BlackRock, the SEC is poised to change some provisions of its prior rule proposal concerning money funds, and some mutual funds are celebrating.
The most talked about regulatory alteration among fund providers:
The regulator is expected to change the definition of "retail" money market funds in order to exempt mom-and-pop retail investors from requirements that certain money funds leave their standard $1 share price and float in value like other mutual funds. Large money-fund sponsors have said the agency's proposed definition was unworkable.
Supporters of a floating share price argue it would encourage investors to become comfortable with fluctuations in the value of their shares and not panic if they fall below the $1 price. In other words, the SEC is considering broadening the rule by altering the definition of which funds qualify as "retail." Rather than defining "retail" funds as those that allow investors to redeem $1 million or less on a daily basis, the agency plans to adopt a simpler method defining such funds as those limited to "natural persons," based on whether their investors have Social Security numbers or other factors.
"This will impact every fund differently based on what the mix is between institutional and retail shareholders for funds. Institutional funds would have a floating NAV and retail wouldn't, so this potential regulatory change would not impact the share price of retail money market funds," says Susan Wyderko, president and CEO of the Mutual Fund Directors Forum.
"The fact that the SEC is considering this change shows that it is taking seriously the comment process and endeavoring to find a workable solution for the goal the agency wants to achieve," Wyderko continues.
What's the impact to mutual fund and ETF providers in terms of their marketing and distribution efforts?
"I can see there being a negative impact to mutual funds, as institutions who want stability in their cash holdings will look for a different investment solution," says ETF provider Noah Hamman, CEO of AdvisorShares. "Mutual fund firms will be able to maintain some market share from those institutions who are comfortable with a floating value cash position, however, ETF firms will likely benefit as institutional investors comfortable with a floating value cash position may now look at ultrashort duration fixed income ETFs such as our HOLD ETF as a competitive alternative."
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