Money Market Fund Reform – What you need to know about changes in regulations.

The Securities and Exchange Commission changed the rules for valuing institutional money market funds (MMF). These new rules become effective October 14, 2016.   Banks and brokerage firms are reviewing cash management accounts to comply with the new rules. This reform changes the way certain types of money market funds are valued by requiring financial institutional accounts to ‘float’ the daily value of particular MMFs rather than using a stable net asset value (NAV) of $1-per-share. During times of extreme volatility – such as periods of heavy redemptions – the rules also allow money market funds to be temporarily frozen, preventing investors from making withdrawals and imposing fees for those investors who redeem shares.

What does this mean for you, the investor? Your financial advisor may be contacting you to change your current cash management investments as a result of the MMF reform. Many firms are creating new accounts for their clients; these accounts will not be subject to the newly adopted MMF rules, thus preserving the way cash accounts are currently valued. Not all MMFs are affected by these new regulations.  If you’re unsure whether or not your MMF will be affected by this change, we suggest that you talk to your financial investment advisor.

For tax planning purposes, if you open a new MMF account in 2016, you will receive multiple Form 1099s from that financial institution for this year only. Be sure to send us all Form 1099s you receive next February so we can include them on your 2016 tax return. In the meantime, expect to hear about any changes to your current cash management structure between now and October 14th, when the new policy comes into effect.

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