New Mark-to-Market Rules for Money Funds

In May the Securities and Exchange Commission will start requiring that money funds hold more liquid and high-quality assets.

Under the new rules, a fund will now need to disclose monthly its actual “mark-to-market” net asset value, on a 60-day lag. This is known as a fund’s “shadow NAV.” Currently the shadow NAV is reported only twice a year.

Funds will also need to shorten the average maturities of their holdings. The maximum weighted average maturity of a fund’s portfolio is shortened to 60 days from 90 days. Funds will also have to maintain 10% of assets in securities that mature in one day and 30% in securities that mature in one week.

These new rules are in response to when the Reserve Primary Fund “broke the buck” in 2008 when share values dropped below $1 and touched off a withdrawal panic.

These new rules will make it harder to earn any income in a sorry market and in a low interest rate environment.