The Securities and Exchange Commission on January 31 will publish data showing shadow prices – or the true net asset value -- for money market funds.
And that could spell a lot of panic and calls from investors to their mutual fund companies, say mutual fund experts.
“Its likely that investors will start worrying and not understand that they shouldn’t worry about the value of their fund in the fourth decimal point,” one operations executive at a New York mutual fund company told Securities Technology Monitor. “But in the meantime, they might start calling their mutual fund complexes to ask about the difference in value.”
Money funds held $2.8 trillion as of Jan. 19, down from a peak of $3.9 trillion in January 2009. Changes in interest rates, inflows and other factors could cause the value of a money market fund to be either above or below the $1 per share "net asset value" at which they sell shares to the public based on amortized accounting principles. Funds can claim $1 NAVs if their shadow prices are between $0.9950 to $1.0050.
The new disclosure requirement is part of a series of rules adopted by the SEC in January 2010, designed to bolster protection for investors in money-market funds. The reform measures came in the wake of a crisis in September 2008 when the value of assets of the Reserve Primary Fund fell to 97 cents a share – below the dollar needed for investors to be fully repaid.
Under the SEC rule changes, all money market funds will be required to hold at least 10 percent of their assets in cash and the maximum average maturity of bonds in which they can invest has been shortened to 60 days from 90 days. The SEC is also requiring that mutual funds be able to electronically process investors' purchases and redemptions at a price other than $1 a share to make it easier for invsetor to get their money in a fund "breaks the buck."
As part of the disclosure requirements, money market funds must inform investors exactly how the market would value what investors would pay per share to get into the fund and what they would receive getting out of it. The information has to be disclosed monthly with a sixty day lag. That means January 31 is the first date it could be made public because the sixtieth date comes to January 29 which is a Saturday.
The information published on Form N-MFP will be available on the Commission’s Edgar (Electronic Data Gathering, Analysis and Retrieval) webpage http://www.sec.gov/edgar.shtml. The biggest money market funds are managed by Fidelity Investments, JP Morgan Chase, Federated Investors, BlackRock; Dreyfus; Goldman Sachs and Vanguard.
The Investment Company Institute, the Washington, D.C. trade association for the mutual fund industry, issued a study on January 24 saying it would take major market shifts to swing fund NAVs much above or below $1. Short-term interest rates would have to rise more than 300 basis points in a single day to reduce a fund's per-share value to $0.9950, for example.