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Money market floating NAV "increases risk"
10 November 2011
The Securities and Exchange Commission's plan to apply a floating net asset value to money market funds would undermine their purpose and increase risk, according to fund providers. Annabelle Palmer reports.
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SEC
SIFMA
money market funds
Vanguard
Fidelity
The Securities and Exchange Commission (SEC) has announced plans to implement further reforms to money market funds, however providers of money market funds have said reforms would undermine the purpose of the funds and could increase risk.
Mary Shapiro, commissioner of the SEC, has proposed a floating net asset value (NAV) rate on money market funds as opposed to their daily $1 stable NAV.
Shapiro said a money market fund’s $1 stable NAV is “brittle” and investors often treat it as an “all-or-nothing proposition and run at the first sign of trouble”, causing mass redemptions and the destabilisation of short-term credit markets.
However, Vincent Loporchio, a spokesperson for Fidelity Investments, says the introduction of a floating NAV could increase redemptions and create, rather than reduce, risk in the short-term markets.
“Experience with enhanced cash and other short...
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