Pub. 6 2016 Issue 3

Why the Impact of MMF Reform is Likely to Benefit Community Banks By GLENN MARTIN, REGIONAL DIRECTOR, PROMONTORY INTERFINANCIAL NETWORK N O W THAT THE SEC’S NEW RULES ON MONEY MARKET FUNDS (MMFS) HAVE GONE INTO EFFECT, INSTITU- TIONAL CASH MANAGERS ARE TAKING A NEW LOOK AT COMMUNITY BANKS. The October 2016 launch of the new SEC rules, coming after a two-year implementation period, changes how prime money market funds calculate value. Up till now, these funds have transacted at a stable net asset value (NAV)—mean- ing that they could be bought and sold at the same price, regardless of the movement in the underlying investments. Additionally, the new rules provide for redemption gates that can be enforced during times of financial stress on the funds, as well as liquidity fees. Following the SEC’s initial announcement of the rule changes, there was a subdued response from institutional investors. The two-year timeline that the SEC specified for implementation gave a long runway for investors and fund managers to adapt. With the changes now in effect, institutional money manag- ers are starting to look at how to adjust their investment strategies with many investors looking for the exits, at least 20 www.azbankers.org