Proposed Money Market Fund Reforms Could Cost Billions

By July 26, 2013Taxation

Proposed reforms for money market mutual funds (MMFs) could hit investors with as much as $2 billion in up-front costs, according to a new study. Since manufacturers and other corporations are the largest users of money market funds, they will be faced with a tough decision – either walk away from investing in these effective cash management vehicles, or feel the brunt of this cost burden.

In June, the SEC proposed two alternatives for reforming MMFs: require prime institutional MMFs to use a floating net asset value (NAV) instead of the current $1.00 stable share price, and/or allow for the use of liquidity fees and redemption gates in times of stress. According to the SEC, the intent of the reforms is to mitigate the susceptibility of MMFs to runs and improve transparency, but this may just be another case of regulatory costs outweighing the benefits.

For manufacturers, the floating NAV comes with significant operational, accounting, and tax complications. Complying with the conversion to a floating NAV is estimated to cost between $1.8 and $2 billion initially, and $2-$2.5 billion in annual operating costs because companies will need to modify operations and treasury management systems. On the other hand, the liquidity fees and redemption gates could prevent corporate treasurers from quickly accessing their cash when needed to fund payroll or make a payment to suppliers and vendors, which is one of the major reasons that companies currently rely on money market funds.

NAM wrote a letter to the SEC on July 2, urging the Commission to hold a roundtable of key stakeholders to gain a better perspective on how these proposals will affect companies who use MMFs for short-term financing and cash management.

Christina Crooks

Christina Crooks is Director, Tax Policy for the National Association of Manufacturers, where she is responsible for providing NAM members with important updates on tax policy, pensions, and corporate finance and management issues and representing the NAM’s position on these issues before Congress and the Administration. Within the NAM tax policy portfolio, Christina focuses on the R&D tax credit and tax extenders, and serves as the Executive Secretary for the R&D Credit Coalition and a leader in the Broad Tax Extenders Coalition.

Before joining the NAM, Crooks served as senior manager of government affairs for Financial Executives International, where she advocated on behalf of the association’s membership of senior-level business executives on tax, corporate treasury, pension and benefit issues. Previously, she worked as a legislative assistant to Rep. Michael Castle (R-DE), a senior member of the House Committee on Financial Services. Christina handled financial services issues for the Congressman during consideration of the Dodd-Frank Act, and also worked on small business and judiciary issues. Christina earned a B.A. in Political Science from the University of Delaware and a M.A. in Political Science from American University.

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