SEC staff issues money market fund reform frequently asked questions

Purpose – To explain the background and details of the responses from the Staff of the Division of Investment Management of the US Securities and Exchange Commission (SEC) to certain frequently asked questions (FAQs) regarding the July 23, 2014 amendments to Rule 2a-7 and other rules that govern money market funds under the Investment Company Act of 1940 (1940 Act). Design/methodology/approach – In July 2014, the SEC adopted sweeping amendments to Rule 2a-7 and other rules that govern money market funds under the 1940 Act (Amendments). The Amendments (i) require “institutional” money funds to operate with a floating net asset value (NAV), rounded to the fourth decimal place (e.g. $1.0000) and (ii) permit (and, under certain circumstances, require) all money funds to impose a “liquidity fee” (up to 2 per cent) and/or “redemption gate,” once weekly liquidity levels fall below the required regulatory threshold. The article briefly discusses the background and the events leading up to the FAQs and describes key responses from the Staff on a variety of issues. Findings – The Amendments set forth sweeping changes to money fund regulation and will have a profound effect on the money fund industry. Although the most significant provisions of the Amendments – the floating NAV requirement and the imposition of liquidity fees and redemption gates – will not go into effect for two years, the changes to the industry will be apparent almost immediately. The FAQs provide clarity on a number of issues that are relevant to the money fund industry. Practical implications – Money fund managers and boards of directors should begin assessing the potential impact of the Amendments and develop a schedule to come into compliance. Originality/value – Practical guidance from experienced financial services lawyers.

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US SEC approves sweeping amendments to rules governing money market funds

Journal of Investment Compliance ◽

10.1108/joic-01-2015-0016 ◽

2015 ◽

Vol 16 (1) ◽

pp. 25-39

Author(s):

Jack Murphy ◽

Stephen Cohen ◽

Brenden Carroll ◽

Aline A. Smith ◽

Matthew Virag ◽

...

Keyword(s):

Financial Services ◽

Boards Of Directors ◽

Financial Stability ◽

Money Market ◽

Content Type ◽

Fund Managers ◽

Money Market Funds ◽

The Usa ◽

To Come ◽

The Impact

Purpose – To explain the background and details and to discuss the implications of the USA Securities and Exchange Commission’s (SEC’s) July 23, 2014 amendments to Rule 2a-7 and other rules that govern money market funds under the Investment Company Act of 1940. Design/methodology/approach – Explains the background, including problems during the financial crisis, the USA Treasury’s temporary guarantee program in 2008, earlier SEC proposals, and the USA Financial Stability Oversight Council’s recommendations. Details the amendments to Rule 2a-7, including the authorization to impose liquidity fees and redemption gates, the floating net asset value (NAV) requirement, the impact of the amendments on unregistered money funds operating under Rule 12d1-1, guidance on fund valuation methods, disclosure requirements, requirements for money fund portfolios to be diversified as to issuers of securities and guarantors, stress testing requirements, and compliance dates. Findings – The Amendments set forth sweeping changes to money fund regulation and will have a profound effect on the money fund industry. Although the most significant provisions of the Amendments – the floating NAV requirement and the imposition of liquidity fees and redemption gates – will not go into effect for two years, the changes to the industry will be apparent almost immediately. Practical implications – Money fund managers and boards of directors should begin assessing the potential impact of the Amendments and develop a schedule to come into compliance. Originality/value – Practical guidance from experienced financial services lawyers.

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SEC adopts rules and forms to modernize reporting requirements for registered investment companies

Journal of Investment Compliance ◽

10.1108/joic-02-2017-0012 ◽

2017 ◽

Vol 18 (1) ◽

pp. 25-42

Author(s):

Stephen Cohen ◽

Megan Johnson ◽

Gary Brooks ◽

Brooke Higgs

Keyword(s):

Financial Services ◽

Service Providers ◽

Securities And Exchange Commission ◽

Content Type ◽

Fund Managers ◽

Investment Companies ◽

Reporting Requirements ◽

Final Rule ◽

The Impact ◽

Practical Implications

Purpose To explain the new rules, forms, and amendments to current rules and forms (Final Rule) that the Securities and Exchange Commission (SEC) has adopted to modernize the reporting of information provided by registered investment companies (funds) and to improve the quality and type of information that funds provide to the SEC and investors. Design/methodology/approach Discusses the background leading up to the Final Rule, provides an overview and summary of the Final Rule’s key components, and highlights issues that may be raised by the new reporting regime. Findings The Final Rule will have a significant effect on many funds. Funds will experience a substantially increased reporting burden with respect to both the frequency of reporting and the granularity of information required. Practical implications Fund managers and fund service providers should begin to evaluate the impact of the Final Rule, the processes that will need to be implemented to prepare filings on new forms, and the changes in fund disclosure practices that will be required in response to the amendments to certain forms. Originality/value Practical guidance from financial services lawyers specializing in the investment management industry.

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Harnessing Whales: The Role Of Shadow Price Disclosure In Money Market Mutual Fund Reform

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v11i4.7747 ◽

2013 ◽

Vol 11 (4) ◽

pp. 187

Author(s):

Larry G. Locke ◽

Ethan Mitra ◽

Virginia Locke

Keyword(s):

Mutual Fund ◽

Financial Stability ◽

Shadow Price ◽

Money Market ◽

Securities And Exchange Commission ◽

Shadow Prices ◽

Font Size ◽

Money Market Funds ◽

Fund Industry ◽

The Impact

The money market mutual fund industry is experiencing a sea change. Thanks, in large part, to their role in the 2008 market break, U.S. securities regulators have targeted money market funds for a structural overhaul. Runs on money market funds by institutional investors in the wake of the Lehman Brothers bankruptcy weakened the short-term credit market to the point of collapse. The resulting intervention of the Federal Reserve and the Treasury may have saved the economy from further damage but came at such a perceived cost that legislation now forbids it. Both the Securities and Exchange Commission (SEC) and the Financial Stability Oversight Council (FSOC) believe restructuring is necessary. Their only question appears to be exactly what form the product will take. One of the elements being considered in the reform effort will be increased disclosure of money market fund shadow prices. The regulators have posited that more frequent and more available disclosure of fund shadow prices will lead to more discipline being exerted on the fund industry, especially by the institutional market. A revamped disclosure regime, however, has been in effect since monthly shadow price disclosures were imposed by the SEC in December 2010. This study looks at the impact of those 2010 disclosure regulations on different sectors of the market. It seeks to identify a correlation between shadow prices and changes in assets for both retail and institutional funds. The authors assess the findings of the study and discuss the implications of those findings for the impending regulatory restructuring.

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The SEC turns up the heat on private equity expense allocations

Journal of Investment Compliance ◽

10.1108/joic-05-2016-0024 ◽

2016 ◽

Vol 17 (2) ◽

pp. 35-38

Author(s):

Samuel Lieberman ◽

John T. Araneo

Keyword(s):

Financial Services ◽

Private Equity ◽

Equity Fund ◽

Content Type ◽

Private Equity Fund ◽

Fund Managers ◽

Compliance Programs ◽

Raising Awareness ◽

The Us ◽

Practical Implications

Purpose To discuss the US Securities and Exchange Commission’s (“SEC’s”) increasing focus on disclosure and conflict-of-interest problems arising from how private equity fund (“PE Fund”) managers allocate expenses between management and fund investors. Design/methodology/approach This article summarizes the background of this focus on expense allocations and, drawing from the recent SEC enforcement actions focused on this issue, and identifies the types of both expenses and disclosures that have caught SEC attention. Findings After spending the first two or three years post Dodd-Frank raising awareness of these issues, the SEC has begun to impose large fines over expense-allocation conflicts and disclosure issues. Practical implications It is imperative for PE Fund managers to retain counsel to review their fund offering documents, expense allocation practices, and compliance programs to ensure consistency with the SEC’s recent decisions on these issues. Originality/value Practical guidance from experienced financial services lawyers.

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Modeling brand resonance score (BRS) – an application in financial services

Journal of Modelling in Management ◽

10.1108/jm2-10-2016-0088 ◽

2018 ◽

Vol 13 (1) ◽

pp. 119-136 ◽

Cited By ~ 1

Author(s):

Ande Raja Ambedkar ◽

Punniyamoorthy Murugesan ◽

N. Thamaraiselvan

Keyword(s):

Mutual Fund ◽

Financial Services ◽

Structural Equation ◽

Analytic Network Process ◽

Equation Modeling ◽

Service Firms ◽

Content Type ◽

Fund Managers ◽

Network Process ◽

Brand Resonance

Purpose The experts in industry and academicians value brand resonance is the prerequisite factor in the firms of financial services. In this regard, the purpose of this paper is to model the brand resonance score (BRS) for modified customer-based brand equity (CBBE) model in mutual fund financial services using structural equation modeling (SEM) and analytic network process (ANP). Design/methodology/approach Criteria and sub-criteria relative weights are calculated from the SEM and sub-sub-criteria relative weights are measured through pair-wise comparison matrix for BRS modeling using ANP approach. Findings The brand resonance using ANP has been quantified, and BRSs of each brand through brand judgments and brand feelings criteria are calculated using two renowned Indian mutual fund services brands State Bank of India and Hong Kong and Shanghai Banking Corporation. Research limitations/implications Interdependency between sub-criteria are not explored. This research study is specific to Indian bank mutual fund services context. Practical implications Research findings provide useful guidelines for fund managers/analysts of mutual fund service firms to improve the brand resonance to investors. Originality/value The paper explained modeling BRS using ANP technique which helps organizations quantify the brand resonance effectively.

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Portraits of five hedge fund fraud cases

Journal of Financial Crime ◽

10.1108/13590790810866890 ◽

2008 ◽

Vol 15 (2) ◽

pp. 179-213 ◽

Cited By ~ 5

Author(s):

Majed R. Muhtaseb ◽

Chun Chun “Sylvia” Yang

Keyword(s):

Asset Management ◽

Hedge Funds ◽

Hedge Fund ◽

Investment Fund ◽

Good Opportunity ◽

Content Type ◽

Fund Managers ◽

Management Group ◽

Fund Industry ◽

Asset Managers

PurposeThe purpose of this paper is two fold: educate investors about hedge fund managers' activities prior to the fraud recognition by the authorities and to help investors and other stakeholders in the hedge fund industry identify red flags before fraud is actually committed.Design/methodology/approachThe paper investigates fraud committed by the Bayou Funds, Beacon Hill Asset Management, Lancer Management Group (LMG), Lipper & Company and Maricopa investment fund. The fraud activities took place during 2000 and 2005.FindingsThe five cases alone cost the hedge fund investors more than $1.5 billion. Investors may have had a good opportunity for avoiding the irrecoverable costs of the fraud had they carefully vetted the backgrounds of the hedge fund managers and/or continuously monitored the funds activities, especially during turbulent market environments.Originality/valueThis is the first research paper to identify and extensively investigate fraud committed by hedge funds. In spite of the size of the hedge fund industry and relatively substantial level and inevitably recurring fraud, academic journals are to yet address this issue. The paper is of great value to hedge funds and their individual and institutional investors, asset managers, financial advisers and regulators.

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Interest free liquidity management scheme (time-weighted debt units)

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-05-2015-0060 ◽

2017 ◽

Vol 10 (1) ◽

pp. 60-76 ◽

Cited By ~ 2

Author(s):

Ahmed Taha Al Ajlouni

Keyword(s):

Financial Services ◽

Financial Management ◽

Financial Institution ◽

Money Market ◽

Current Paper ◽

Open Market ◽

Lender Of Last Resort ◽

Liquidity Management ◽

Content Type ◽

The Rich

Purpose This paper aims to develop an instrument that helps in managing liquidity. Liquidity is one of the most critical issues to be considered by the financial management of the business firms to meet its financial obligations. It is more vital for banks because of the liquid nature of its assets and liabilities, along with the fact that the confidence in the bank and degree of risk depends heavily on liquidity as an indicator of its wellbeing. Islamic banks (IBs) look at the liquidity issue from the same side as the traditional banks. IBs – the most apparent Islamic financial institution – suffered from the problem of not benefiting from the lender of last resort that Central Banks (CBs) offer to traditional banks because IBs cannot borrow from the CBs at interest. The experience of Institution(s) offering Islamic Financial Services[1] (IIFS) regarding the establishment of Islamic money markets did not show a tangible success instead of the early studies done by some scholars. In spite of the rich experience of some countries in creating new money market instruments or configuration of the interest-based ones according to Islamic - Sharī’ah[2], the designs of these instruments have many limitations in terms of their tradability and flexibility, restricting their use for open-market operations by CBs. Design/methodology/approach The purpose of calculating the time weighted debt units (TWDUs) is to find the equivalent amount of money that the supplier can borrow to the lender in the future for a maturity that differs from the first credit contract. It is a swap between an amount of credit for a particular period of time and another amount for another period. The scheme are called traditionally as reciprocal (mutual) loans, reciprocal (mutual) deposits, swapped conditional loans and “I lend you, provided you lend me” (Hammad, 2010). It is also well known in Pakistan as time multiple counter loan (TMCL), and known within some Arabic IBs as specks (Nomar = numbers) system. This contract will be called the reciprocal loans in the current paper. Findings The current paper represents a blue print of suggested money market instrument (scheme) that is based on the idea of Al Qardh El Hasan (interest-free loan) – called TWDUs. This instrument does not promise any revenue for the supplier and no charge for the lender. Research limitations/implications The suggested model is known in traditional and contemporary writings of Islamic economists and - Sharī’ah scholars. It is accepted by many - Sharī’ah Boards in IBs (Merah, 2011) and was accepted by the Council of Islamic Ideology in Pakistan in 1980 through the TMCL. Despite that, it is still not discussed in depth by international - Sharī’ah boards as the International Islamic Fiqh Academy – in addition to the wide spread of opponent viewpoint that considers this contract as a kind of riba. Originality/value TWDUs is presumed to help IBs and other IIFS to add more flexibility in liquidity management in the side of risk management[3] (represented by the potential loss to IIFS arising from their inability either to meet their obligations or to fund increases in assets as they fall due without incurring unacceptable costs or losses) in addition to avoiding the case of hoarding surplus funds in the short term. Also, the suggested instrument will not be exclusive to IBs or IIFS; it can be developed to be used at a later stage by them as a mean of overdraft between IBs and their clients. Moreover, beside its viability to help in liquidity management for other firms in business sector (non-financial) or government agencies in liquidity management, TWDUs look for Islamic financial theory as an alternative to the traditional financial theory that is based on interest. Moreover, TWDUs is expected to play an important role in monetary policy in a totally Islamic financial system or even in a mixed one (Islamic and capitalistic).

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SEC approves new continued listing standards for ETFs

Journal of Investment Compliance ◽

10.1108/joic-06-2017-0037 ◽

2017 ◽

Vol 18 (3) ◽

pp. 21-25

Author(s):

Adam Teufel ◽

Christopher J. Geissler

Keyword(s):

Financial Services ◽

Investment Decision ◽

Securities And Exchange Commission ◽

Exchange Traded Funds ◽

Law Firm ◽

Content Type ◽

Securities Exchanges ◽

Rule Changes ◽

Significant Compliance ◽

Key Industry

Purpose To introduce and analyze recent amendments to the rules of three US securities exchanges to add specific continued listing standards applicable to exchange-traded funds (ETFs). Design/methodology/approach Provides an introduction and summary overview of the topic, summarizes the scope of the rule changes, discusses the industry reaction to the proposed rule changes and the regulator’s response, notes the applicability of the rule changes to ETFs relying on their own fund-specific regulatory relief, and identifies compliance dates. Findings Each of three US securities exchanges filed separate proposals to amend their listing standards to add specific continued listing standards for ETFs. Notwithstanding various concerns expressed in comment letters from key industry participants, by March 2017 the Securities and Exchange Commission (SEC) approved all three proposals in substantially the form proposed. Practical implications ETF sponsors should note that significant compliance enhancements may be required to ensure proper and continuous testing of securities in an ETF’s underlying index and/or portfolio in lieu of testing for compliance solely at the time of initial listing or at the time of an investment decision. The rule changes are scheduled to take effect by October 1, 2017. Originality/value Practical analysis from a premier financial services law firm on the issues presented by the ETF rule changes.

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Recent key Bitcoin and virtual currency regulatory and law enforcement developments

Journal of Investment Compliance ◽

10.1108/joic-01-2015-0009 ◽

2015 ◽

Vol 16 (1) ◽

pp. 13-18 ◽

Cited By ~ 7

Author(s):

Evan L. Greebel ◽

Kathleen Moriarty ◽

Claudia Callaway ◽

Gregory Xethalis

Keyword(s):

New York ◽

Law Enforcement ◽

Financial Services ◽

New York State ◽

Securities And Exchange Commission ◽

Regulatory Regime ◽

York State Department ◽

Virtual Currency ◽

Content Type ◽

Commodity Futures Trading Commission

Purpose – To explain and draw conclusions from six recent bitcoin and virtual currency regulatory and law enforcement developments. Design/methodology/approach – Discusses and draws conclusions from six recent, important developments: two administrative rulings from the Financial Crimes Enforcement Network (FinCEN), recent remarks by New York State Department of Financial Services Superintendent Benjamin Lawsky, remarks by Mark Wetjen of the Commodity Futures Trading Commission (CFTC), a recent Securities and Exchange Commission (SEC) informational sweep of crowdsales of crypto-equity, and the US Department of Justice proceedings against Trendon Shavers. Findings – Rather than trying to stifle or control virtual currencies, US governmental entities recognize the long-term value of virtual currencies and are trying to create a regulatory regime to foster growth and development, and an atmosphere where institutional and retail investors are protected. Originality/value – Provides an overview of the key United States regulatory issues facing companies engaged in Bitcoin-related businesses.

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Can mutual fund flows serve as market risk sentiment?

The Journal of Risk Finance ◽

10.1108/jrf-08-2016-0103 ◽

2017 ◽

Vol 18 (2) ◽

pp. 159-185 ◽

Cited By ~ 1

Author(s):

Hsin-Hui Chiu ◽

Lu Zhu

Keyword(s):

Mutual Fund ◽

Risk Perceptions ◽

Money Market ◽

Fund Flows ◽

Equity Fund ◽

Content Type ◽

Market Sentiment ◽

Money Market Funds ◽

Primary Driver ◽

Mutual Fund Flows

Purpose This paper aims to examine the information content of mutual fund flows and its indication on investors’ preference/tolerance toward risk. Design/methodology/approach Mutual funds are grouped into different categories based on assets with different levels of risk perceptions (e.g. equity fund, money market fund), and this information is publicly accessible. This paper examines the correlation patterns between fund flows and changes in credit default swaps (CDS) spreads. In addition, it also examines such a relation by dividing the samples into different fund types (e.g. retail vs institutional fund flows). Findings This paper suggests that equity fund flows are negatively related to CDS spreads, whereas money market fund flows are positively related to CDS spreads. Furthermore, it indicates that retail fund flows provide insightful information and serve as the primary driver behind the relation between fund flows and CDS spreads. Originality/value The findings of this paper indicate that flows into equity and money market funds could serve as a risk sentiment in credit markets. And this is the first study, to the best of the author’s knowledge, to establish such a linkage between fund flows and CDS spreads to help investors gauge credit market sentiment.

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