Fidelity Cements Money Fund Industry Shift on Disclosure
SEC's Chairman 'Encouraged'
January 11, 2013
Fidelity Investments will make daily disclosures of its money-market mutual funds’ market values, cementing an industry shift to greater transparency in a product regulators believe poses a threat to financial stability.
Fidelity will reveal the previous day’s closing value for all its funds beginning Jan. 16, the Boston-based company said today in a statement. Fidelity is the biggest money-fund manager with almost $430 billion in assets.
“Historically, the per-share market values of our money market mutual funds have fluctuated by only tiny fractions of a penny each day,” stated Nancy Prior, president of Money Markets for Fidelity Investments.
“Providing more frequent disclosure of these minute changes will help investors better understand how vigilant we are in keeping our money market mutual funds safe and in maintaining the $1.00 NAV, which has always been and continues to be our #1 objective in managing these funds.”
As of November 30, 2012, Fidelity managed nearly $430 billion in its money market mutual funds.
BlackRock and Federated Investors also are following the lead set by Goldman Sachs two days ago.
A spokesman for Federated Investors said his firm also will publish daily NAVs for five of its prime money market funds, including the Prime Obligations Fund, Prime Cash Obligations Fund, Prime Value Obligations Fund, Prime Management Obligations Fund, and Federated Capital Reserves Fund, beginning the week of Jan. 21.
Richard Hoerner, Head of Global Cash Management Business at BlackRock, said: "We have been a long-time advocate of improved transparency for money market fund investors and will be reporting daily market value NAV for all US-money market funds by January 16th.'
SEC Encouraged
In a statement, Securities and Exchange Commission spokesman John Nester said: "Chairman [Elisse] Walter is encouraged when industry voluntarily takes steps to provide greater transparency for investors.”
Companies managing $1.1 trillion in money fund assets, or about 43 percent of the U.S. market, have introduced the change in the past three days, increasing the pressure on the rest of the industry to follow. Goldman Sachs Group Inc. was the first to take the step on Jan. 9, followed the same day by JPMorgan Chase & Co., BlackRock Inc. and Bank of New York Mellon Corp.
“The companies are hearing from their client base, and investors who shop among different funds want them to be on a level playing field in terms of transparency,” Michael Krasner, managing editor at money-fund research firm iMoneyNet in Westborough, Massachusetts, said in an interview.
Goldman Sachs’s decision caught competitors by surprise and angered some, said people from three money-fund providers who asked not to be named because they weren’t authorized to speak publicly on the matter. The voluntary shift means that the industry has given away a bargaining chip in the ongoing fight over money fund regulation, the people said.
Schapiro’s Plan
Regulators led by former U.S. Securities and Exchange Commission Chairman Mary Schapiro have worked to impose tighter restrictions on money funds since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. Its closure triggered a wider run on funds that helped freeze global credit markets.
The SEC enacted new rules in 2010 that introduced liquidity minimums, reduced the average maturity of holdings and set higher standards for credit quality.
Schapiro has since argued that funds are still prone to investor runs that can destabilize financial markets. Her plan to make the funds stronger would have required that funds either abandon their fixed $1 share price or adopt capital buffers to protect against losses and withdrawal restrictions to discourage rapid investor redemptions. Money-fund providers have argued that abandoning the $1 share price would destroy the appeal of the product.
A majority of SEC commissioners blocked the plan in August saying they wanted to see a more detailed study of the possible impact of those changes and of restrictions introduced in 2010.
FSOC Process
A senior panel of regulators, the Financial Stability Oversight Council, began a process in November by which it can pressure SEC commissioners to reconsider the elements of Schapiro’s plan. The panel includes the chairmen of the SEC and Federal Reserve, and is headed by the Treasury Secretary. Public comments on the panel’s draft recommendations to the SEC are due by Jan. 18.
Executives from companies including Fidelity and BlackRock jointly proposed their own plan to SEC commissioners in October for bolstering funds. It called for the industry to restrict withdrawals for funds that come under stress. It also offered to increase fund disclosure by revealing market values on a weekly basis with a five-day lag.
Money-market funds buy short-term debt securities and book them based on their expected value at maturity. They also round their share prices to the nearest 1 cent. Those practices obscure small fluctuations in the funds’ underlying holdings.
‘Shadow NAV’
The SEC’s 2010 changes forced funds to disclose each fund’s market value, or “shadow NAV,” on a monthly basis with a 60- day lag. Fidelity was among firms that initially opposed the change, saying it could confuse investors.
“This will help investors understand what’s going on with their money funds,” Joan Swirsky, an attorney at Philadelphia law firm Stradley, Ronon, Stevens & Young LLP who specializes in money fund oversight, said in an interview. “Yet, when things go bad they go bad very quickly, so it remains to be seen how much of a warning this will really provide.”
This story reported by Money Management Executive and Bloomberg News.
