SIFMA OPS 2013: Floating Asset Value ‘No Good’

If the net asset value of a money market fund is forced to float, the ramifications on maintaining customer accounts are huge and could force them to move to other investments.

Severing the fixed value of a share of a money market mutual fund from its $1 mooring means that every move into or out of a stock  or bond by a fund would have to be recorded as an individual trade, according to Randy Barnes, Senior Product Manager and Engagement Manager at Thomson Reuters Wealth Management.

‘Are we ready for the confirm volume?,’’ Barnes asked attendees of the Securities Industry and Financial Markets Association’s 2013 Operations Conference.

A single regional broker may send out instructions for 100,000 trades in wide sweeps during a day, Barnes said.

If the value of a share were uprooted, those trades would all have to be recorded and reflected on individual customers’ account statements.

“That is going to be a significant system change,’’ he said.

If settlement goes from same-day reckoning to, as in stocks, multiple day reckoning, that also is going to be a significant change.

And, each trade also will have to take account of the original cost of the stock in question, he said, to meet revised Internal Revenue Service requirements on cost-basis reporting.

There is going to be a "tremendous increase in volume" of trades being reported and it’s going to be absolutely a bear to explain to customers" what, for instance, wash sales are.

Beyond this, “all of this stuff is going to come at a cost and people will move” to other types of funds "that aren't subject to this,’’ he said.

“It’s game on,’’ Barnes said of Securities and Exchange Commission consideration of floating the net asset value of a share in a money fund. But, even if it’s intended to reduce financial system risks, he said, “it’s no good.’’

 

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