SEC Rule on Prime Funds Target of Revision?By
The Trump administration’s deregulatory push will have many targets, including rules published by the U.S. Securities & Exchange Commission (SEC), particularly its decision to require Prime Institutional Money Market Funds (MMFs) to use a floating net asset value (NAV). That requirement went into effect in October 2016. Prime funds have seen a 74% or $1.04 trillion decline since January 2015, from $1.41 trillion to $0.37 trillion on December 1, 2016.
Prime MMFs play a dual role in corporate financing. First, the funds provide working capital to companies by buying their corporate debt and commercial paper. Second, companies put short-term cash into those funds. Regarding that second function, the requirement for a floating NAV—which must be reported to the nearest hundredth of a cent by a company investing in the Prime Fund—significantly complicates investments in Prime MMFs by corporate treasurers. “It introduces an element of uncertainty and recordkeeping complications that are not present in stable NAV funds,” says Thomas C. Deas, Jr., chairman of the National Association of Corporate Treasurers.
Business groups are pressing Congress to pass a version of the Consumer Financial Choice & Capital Markets Protection Act, introduced at the start of 2015 by Rep. Gwen Moore (D.-Wis.). The bill, supported by an equal number of Republicans and Democrats, never had a vote in the House Financial Services Committee last year because of a perceived veto by President Obama. President Trump is likely to be sympathetic to the bill.