2a-7 Money Fund Changes FAQs
1) What percentage of money funds are affected by this ruling?
According to industry sources, approximately 55 percent of all money funds are 2a7 rated and impacted by these changes. Non-rated money funds are not impacted by these changes.
2) What do these changes mean for corporate treasury investors?
These changes will require 2a7 money funds to become shorter in maturity and more liquid, thereby offering lower yields as a result. Many money funds already have shortened their portfolios in anticipation of the rule changes. Ultimately, there will be more funds looking to buy more investments with specific maturity parameters causing a tightness in the supply of securities offered. The Shadow net asset value (NAV) could cause shifts between funds if the 60 day prior NAV is less than a $1. Our feedback from corporate treasurers indicates that corporate investors will stay away from funds with a shadow NAV less than $1 due to the perceived notion that the preservation of principal is at risk.
3) What are alternatives to investing in 2a-7 money funds?
For investors that target a stable NAV, options include non-rated money funds; FDIC-insured accounts, separately managed accounts, or actively investing in a portfolio of securities such as commercial paper, bank CDs and government securities. In addition, ultrashort bond funds, enhanced cash accounts, or similar type products where the NAV trades in a certain range might be considered for more opportunistic investment alternatives.
4) What other regulations are the SEC expected to issue related to money funds?
The floating NAV still is undetermined at this point. Industry consensus is that it is not favored due to the protection of principal that a stable NAV fund offers. The Shadow NAV is a proxy at this point for the floating NAV until a final ruling is made.
5) Where can I get more information?
AFP will conduct a complimentary webinar on May 19 by Peter Crane to review these changes and how they impact corporate treasuries. You can also visit: