Details of the reform and how it affects U.S. Corporate Trust clients

October 14th, 2016 is the deadline for Money Market Fund Families to implement the regulatory changes to Rule 2a-7 required by the SEC. The changes are most significant for institutional prime and tax-free funds but also may affect government funds.

What’s Changing and How it Affects U.S. Corporate Trust Clients

The significant changes for institutional prime money market funds will include the following:

  • Floating NAV: Institutional prime money market funds will be required to maintain a “floating” net asset value (NAV) calculated to four decimal points, meaning that the funds will no longer maintain a stable $1.00 NAV. The NAV is expected to fluctuate based on the value of its securities.
  • NAV Strike Times: A majority of fund families have expressed that there will be up to 3 NAV strike times per day.
  • Gates: Institutional prime money market funds’ boards will have discretion to temporarily suspend redemptions by imposing a “gate” if a fund’s weekly liquid assets fall below 30% of its total assets.
  • Fees: Institutional prime money market funds’ boards will have the discretion to impose redemption fees of up to two percent of a redemption if the fund’s weekly liquid assets fall below 30%
  • The gate and fee provisions are optional for government money market funds and no government money market fund on our platform has decided to enact the right. 

How does Money Market Fund Reform affect clients?

Money Market Fund Reform will affect clients in a few ways:

  • Deal documents and investment direction may not contemplate a floating NAV, so they may need to be updated to include a floating NAV as a permitted investment.
  • Clients who invest in floating NAV money market funds could potentially see gates and fees as a result of the reform.
  • Clients who invest in floating NAV money market funds should expect to see a change in principal value as the NAV floats.

Deutsche Bank Will Be Supporting a Floating NAV

  • Deutsche Bank’s Corporate Trust business will support floating NAV funds. We are enhancing our trust accounting applications to support all aspects of the fNAV funds, including multiple NAV strikes.

How Clients Can Prepare for the Reform

  • For existing deals and deal documents, clients will be required to submit an affirmative direction letter in the event they choose to invest in an fNAV fund. Clients should seek advice from their counsel concerning floating NAV permissibility as an investment under their current contract. Going forward, all new deal documents may include language that will allow a floating NAV fund as a permitted investment decision.

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