By Phoebe Papageorgiou
The SEC has released a series of frequently asked questions on its 2014 reforms of money market mutual funds. The FAQs represent staff views on the new rules and address a number of issues including which investors would be eligible to invest in retail prime money market funds starting in October 2016 when the reforms take effect. As background, retail prime money market funds will be allowed to keep a stable net asset value per share and may invest in corporate debt (as opposed to government money market funds, which are generally limited to cash and government securities).
Of particular note is FAQ 15, which indicates that in order to be considered an investor eligible to invest in a retail prime fund, the SEC would look to who has proxy voting and/or investment power over the account. For example, if a bank as trustee or executor has both voting and investment power over the securities invested in the account, this FAQ seems to indicate that the fiduciary account may not be eligible to invest in a retail prime fund, and therefore would be eligible only to invest in government money market funds and institutional prime funds. It is unclear whether a bank fiduciary account in which the bank shares the voting/investment power with an natural person would be considered a “retail investor” or an “institutional investor.”
Below is a chart that represents the three types of MMFs available when this part of the rule goes into effect in October 2016: