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Costs of a Floating NAV

The SECs proposed change to money-market funds would cost an estimated $4.8 billion over 10 years. How much of that would fall on your business?

By Meg Waters | Updated on August 28, 2013

The U.S. Securities and Exchange Commission (SEC) is currently considering a proposal that would require institutional investors to account for their holdings in prime money-market funds—those that invest in short-term corporate debt—using a variable net asset value (NAV), rather than the stable NAV that is currently the industry standard. The proposal was announced in June, and the deadline for comments is September 17.

The goal would be to increase transparency, in order to avoid a run on money funds in future financial crises like the run that occurred in September 2008 when the Reserve Primary Fund “broke the buck,” repricing shares below $1 to devalue investors’ holdings. Critics of constant NAV money funds argue that their constant $1 price masks movement in the market and that if they’re going to promise liquidity on par with bank accounts, they should be regulated like banks. The problem is that what may seem like a fairly minor accounting change could have a major impact on corporate usage of money funds.

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