New Rules Lessen Appeal of Money Funds

Fees and gates threaten companies’ access to their funds; changes pose administrative challenges for treasurers.

The SEC’s changes to money market fund regulations aim to make the funds less vulnerable to a rush of withdrawals in times of financial stress. But the new rules will also make money funds, especially prime funds, a less hospitable destination for short-term corporate cash.

For corporate treasurers, the regulatory changes pose challenges ranging from the uncertainty created by the possible imposition of liquidity fees and gates to the effort and cost treasuries will have to expend to prepare for the changes.

Tax and Accounting Implications
Switching to a floating NAV from a constant NAV also entails tax and accounting changes as companies deal with the gains and losses on the funds. In conjunction with the SEC’s changes, the U.S. Treasury Department and the Internal Revenue Service proposed allowing corporate treasuries to simplify the accounting by aggregating gains and losses on money funds. Tyler Haws, director of business development at Clearwater Analytics, wrote in an email that that announcement “alleviated many of the concerns with floating NAV.

“Now, [money market fund] investors will not be required to track gains and losses individually, and will be able to instead take more of a net approach,” Haws wrote.

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