Voglio sapere a riguardo di…

8950

Federal Register / Vol. 86, No. 26 / Wednesday, February 10, 2021 / Notices
could limit barbell strategies where a fund offsets its short-term assets with riskier longer-term assets that enhance returns but increase the riskiness of the funds portfolio.
Rules to penalize fund managers first for having inadequate portfolio liquidity have the potential to diminish the salience of WLA thresholds to investors by ensuring that initial consequences for crossing the thresholds are not imposed directly on investors.
Potential drawbacks, limitations, and challenges:
Requiring funds to purchase additional near-term liquid assets or maintain larger WLAs to avoid penalties might encourage funds to take greater risks in the less liquid parts of their portfolios, particularly in a low interest rate environment, absent other measures to constrain this behavior.
Imposing the escrow of fees or other penalties on fund managers if WLAs do not meet a new higher minimum requirement could further diminish the usability of WLA buffers by making MMFs less comfortable in deploying their liquid assets in times of stress.
Further increases in liquid asset requirements may provide funds only a little extra time during a run, as institutional prime fund outflows exceeded 5 percent of assets per day at the height of the run in March 2020.
Additional liquid asset requirements for MMFs could heighten roll-over risks for issuers of short-term debt that may see more demand for issuance in shorter tenors. In addition, to the extent that new investors would replace MMFs in the tenors outside the near-term liquidity requirements, transparency regarding the nature of these investors may be lower.
It is not clear whether the required escrow of fees or other penalties could be imposed on fund managers in a way that would not also affect MMF
investors e.g., fund managers may respond by reducing the amount of fees they waive.
Additional considerations:
Funds that purchase additional near-term liquid assets or maintain larger WLAs to avoid penalties may generate lower yield compared to similar investment products, which may reduce investor demand for such funds.
As noted above, a reduction in the size of the prime and tax-exempt MMF
sectors could affect the resilience and functioning of short-term funding markets in a variety of ways.

VerDate Sep<11>2014

18:53 Feb 09, 2021

Jkt 253001

E. Countercyclical Weekly Liquid Asset Requirements
F. Floating NAVs for All Prime and TaxExempt Money Market Funds
During the market stress in March 2020, prime and tax-exempt MMFs that were close to the 30 percent WLA
threshold may have avoided using their liquid assets to meet redemptions.
MMFs incentives to maintain WLAs well above the 30 percent minimum, even in the face of significant outflows, may include the desires to avoid: 1
Prohibitions on purchasing assets that are not WLAs; 2 raising investor concerns about the potential imposition of fees or gates; and 3 potential scrutiny resulting from public disclosure of low WLA amounts. A
countercyclical WLA requirement could reduce some or all of these concerns.
Under this approach, minimum WLA
requirements could automatically decline in certain circumstances, such as when net redemptions are large or when the SEC provides temporary relief from WLA requirements. Any thresholds linked to a funds minimum WLA requirements e.g., fee or gate thresholds would also move with the minimum.
Potential benefits:
A countercyclical WLA requirement could reduce the salience of the 30
percent WLA threshold and may lessen redemption pressures when a fund is near that threshold.
This may improve the usability of WLA buffers by making MMFs more comfortable in deploying their liquid assets in times of stress.
Potential drawbacks, limitations, and challenges:
Funds that reduce WLAs in stress events would be less equipped to manage additional redemptions without engaging in fire sales.
Even if the WLA threshold is reduced, threshold effects may still motivate investors to redeem. In addition, investors may still prefer to redeem from funds that are approaching or breaching the standard 30 percent threshold, and reduced WLA minimums may in fact call attention to potential stress and prompt greater investor outflows.
The benefits of this change for funds use of liquid assets may be modest, as current rules do not preclude funds from using WLAs to meet redemptions or prohibit funds from allowing their WLAs to fall below 30
percent.
Appropriately calibrating a countercyclical WLA requirement, including determining whether it would be an automatic mechanism or one that the SEC has to adjust in a crisis, could be challenging.

Retail prime MMFs and retail taxexempt MMFs currently can use a rounded NAV and value portfolio assets at their amortized cost, which permits the funds to sell and redeem shares at a stable share price e.g., $1.00 without regard to small variations in the value of the securities in their portfolios. A
floating NAV requirement would ensure that these MMFs instead sell and redeem their shares at a price that reflects the market value of a funds portfolio and any changes in that value.
This would be consistent with floating NAV requirements that currently apply to institutional prime and institutional tax-exempt MMFs. Although this option would only affect retail MMFs, those funds had large outflows in March 2020, and outflows likely would have continued or worsened without official sector intervention.46
Potential benefits:
The floating NAV eliminates the salience of a MMFs NAV dropping more than 0.5 percent $0.995. Unlike stable NAV funds, MMFs with floating NAVs cannot break the buck.
Stable NAVs can create an incentive to redeem when MMF portfolios assets lose value because redeeming investors can receive more for their shares than they are worth, while losses are concentrated among non-redeeming investors. In contrast, a floating NAV
mitigates that incentive to redeem as losses are spread across all shareholders on a pro rata basis whether they redeem or not. Thus, a floating NAV
requirement may decrease retail prime and tax-exempt MMFs vulnerabilities to runs by mitigating the first mover advantage for redeeming investors.
Floating NAVs make portfolio risks more transparent by making fluctuations in share values readily observable, which could better align investors expectations with the risks of portfolio holdings.
Potential drawbacks, limitations, and challenges:
A floating NAV requirement would not affect institutional MMFs, which have historically been the most vulnerable to runs but already have floating NAVs.

PO 00000

Frm 00069

Fmt 4703

Sfmt 4703

46 Retail prime MMFs and tax-exempt MMFs were under stress during March 2020, with one taxexempt MMF receiving sponsor support, although stress among retail funds was less severe than that for institutional prime MMFs. See Section III.B, above explaining that outflows from retail prime funds totaled 9 percent or just over $40 billion of assets during the two weeks from March 13 to 26, and outflows from tax-exempt MMFswhich are largely retail fundswere 8 percent $11 billion of assets during the two weeks from March 12 to 25.

E:FRFM10FEN1.SGM

10FEN1