Money Markets & Short-Duration Bond ETFs

A floating net asset value on money market funds could cause operational and accounting issues that would deter money fund investors and potentially divert money toward short-duration bond exchange traded funds as an alternative.

According to a U.S. Chamber of Commerce Center for Capital Markets Competitiveness (CCMC) report, operational complexity, systems alternatives and business process changes to support a floating NAV in the money market fund fund industry threatens the viability of the funds for most investors. [Scrutiny Over Money Fund Holdings Helps Short-Duration ETF Outlook]

The “Operational Implications of a Floating NAV across Money Market Fund Industry Key Stakeholders” report reveals that the switch to a floating NAV would force investors to incur an upfront cost of between $1.8 billion and $2 billion. Additionally, new estimated operating costs would add an additional $2 billion to $2.5 billion annually. [Money Market Debate Puts Focus on Short-Duration ETFs]

“While the SEC’s proposed change might seem to be a small change in the large scheme of things, the impact is actually quite dramatic in both cost and operations,” David Hirschmann, president and CEO of CCMC, said in a report. “This proposed change represents a fundamental redesign of the structure and nature of MMFs making them undesirable to institutional investors trying to manage liquidity.”

Institutional Cash Distributors (ICD) also questions the viability of the SEC’s floating NAV idea, arguing that fundamental operational and accounting issues would disrupt the trading process, deter investors from investing in money funds and diminish the availability of affordable short-term financing for many government and corporate bodies.