Now that you’ve seen what ACA Insight has to offer, don’t be without it. Subscribe now!

The weekly news source for investment management legal and compliance professionals

Current subscribers - please log in to the website in the upper right-hand corner

News January 31, 2011 Issue

SEC Begins Disclosing Money Market Fund Shadow NAVs

Wondering how your favorite money market fund portfolio is doing?

Wonder no more, shadow pricing has arrived.

The money market fund reforms adopted almost one year ago included a requirement for money market funds to report actual market-based per-share values to the SEC on a monthly basis. The reports began flowing to the SEC in early December with information current as of the last business day of November. The SEC then makes that data publicly available on its website after a 60-day delay. January 31 is the inaugural posting of the delayed data by the SEC.

The information is not current, perhaps, but it is more timely, more transparent, and more user friendly for investors than ever before.

Data submitted by money market funds on new Form N-MFP now reveals the fundís market-based net asset value per share and the value of any capital support agreements that ensure the fund will maintain a stable $1 NAV. Separate entries are required for NAVs that "do and do not take into account any capital support agreements into which the fund may have entered," such as share class differences. The fund must also describe its risk characteristics, such as dollar-weighted average maturity and seven-day gross yield.

"We have decided to require market-based information in the monthly reports because it will assist us in our understanding of fund portfolio valuation practices as well as the potential risks associated with a fund, e.g., a fund that has a market-based net asset value that suggests that it may be at risk of breaking the buck," said the SEC in the reformsí adopting release.

The most user-friendly piece of information, that shadow NAV per share, is up front under Item 18 of the report and shown to one-hundredth of a penny Ė four decimal places.

Some industry observers worry that exposing actual per-share values that deviate, even if only slightly, from the stable $1 NAV will cause a crisis of its own for money funds. A random sampling of the available report filings revealed that a number of funds reported values anywhere from $1.0001 to $1.0008, with several at $1.000. One fund reported a NAV of $.9999. All the funds sampled said the expected redemption value of a fund share was $1.00.

Regulators will receive the information on a monthly basis, current as of the last business day of the month, within five business days after the month-end. The information is then made available to investors two months later.

Prior to the reforms, investors had access to most money market fund portfolio information only on a quarterly basis. None of that quarterly information, however Ė without a lot of calculating that is difficult or impossible for the average investor to complete Ė told investors how well a money market fundís portfolio is minding the $1 per share line. The stable $1 NAV has been a fundamental feature of money market funds that has been relied upon almost as a guaranty.

Then came the Reserve Primary Fund.

That failure prompted a rethinking of how to arm investors, both institutional and retail, with more information that might level the playing field a bit and help avoid a similar crisis in the future.

As a result, the reforms aim to put timelier, more recognizable, and more relatable information in the hands of both regulators and investors.

The approach is two-fold. On a monthly basis, certain portfolio information is posted by money market funds on their websites, while more detailed information in a user friendly format is filed with the SEC.

Money market funds must post the following information on their website, current as of the last business day of each month, within the first five business days of the next month:

  • the name of the issuer;
  • the category of investment (e.g., Treasury debt, government agency debt, asset backed commercial paper, structured investment vehicle note);
  • the CUSIP number (if any);
  • the principal amount;
  • the maturity date as determined under rule 2a-7 for purposes of calculating weighted average maturity;
  • the final maturity date, if different from the maturity date previously described; (vii) coupon or yield; and
  • the amortized cost value of the portfolio.

In addition, funds must disclose on their website their overall weighted average maturity and weighted average life of their portfolios. The website information is maintained for a minimum of six months after posting, and the website must also provide a link to the fundís most recent twelve months of publicly available Form N-MFP filings.

In the Form N-MFP report filed with the SEC, money market funds include the above information, as well as the following additional information about the fund and its portfolio securities:

  • the market-based NAV per share;
  • net assets of the series, and total value of other assets of the fund;
  • 7-day gross yield;
  • the market-based values of each portfolio security (the position, not a per-unit value);
  • the NRSROs designated by the fund, the credit ratings given by each NRSRO, and whether each security is first tier, second tier, unrated or no longer eligible;
  • whether the instrument has certain enhancement features (such as demand features, guarantees, or other enhancements);
  • the percentage of the fundís assets invested in the security;
  • whether the security is illiquid; and
  • certain "explanatory notes" offering any additional material information.