This presentation is a summary only, and is qualified in its entirety by the applicable rules and regulations. Where this presentation includes

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SIFMA Operations Conference:

Money

Money Market

Market Fund Reform

Fund Reform

Peter Crane Peter Crane

President & Publisher President & Publisher

Crane Data Crane Data Michelle Lens Michelle Lens Senior Vice President Senior Vice President

The Dreyfus Corporation, a BNY Mellon The Dreyfus Corporation, a BNY Mellon

Company Company

This presentation is a summary only, and is qualified in its entirety by the applicable rules and regulations. Where this presentation includes interpretations, there is no assurance that, if asked, the applicable regulators or their staff would agree with these interpretations. These materials are provided for educational and informational purposes for the use of those who may be interested in the subject matter.

Tim Schiltz Tim Schiltz

Senior Director, Product Management Senior Director, Product Management

Ameriprise Financial Inc. Ameriprise Financial Inc.

Joan Ohlbaum Swirsky Joan Ohlbaum Swirsky

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Current Stats: Assets, Yields, Expenses

– Recent & Longer-Term Trends

Regulatory Issues: SEC’s MMF Reforms

– Timetable and Key Issues

Money Fund Reform: Update & Implications

– Timetable and Key Issues

Portfolio Holdings Trends & Data

– Latest Data & Pending Disclosures

Global Money Funds, Enhanced, Misc.

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Current State of Money Fund Industry

MMF Assets $2.7 Trillion (Record was $3.9T)

– Bank Savings Over $7.3 Trillion

Approx. 24 Million Shareholders

$3.5 Billion in Annual Revenue (down from $9B)

Approx. 1/4 Share of “Cash” Markets (Banks 50%)

Shifting Regulatory & Competitive Landscape

Zero Yields, Attrition & Consolidation

Record Levels of “Cash”? (Broke $10 Tril.)

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Historical & Recent MMF Asset Flows

Flat Flows (Stable Base)

A New Hope (Bank & Bond Inflows)

Money Funds Are Down $1.2T Since Peak, But Flat Over 3 Years; Still at Mid-2007 Levels.

A New Hope (Bank & Bond Inflows)

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MMF Assets by Type: “Prime” Still King

4

Prime Inst 34% … or 20%?

Treas & Govt Inst Much Bigger Than Retail

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Banks Take Trillions From MMFs

Crisis, Basel III, Regs.

$4 Trillion in Uninsured Deposits

Spreads, $1 Trillion Flow to MMFs?

Money Funds Are Down $1.0T (-30.0%) Over 5 Yrs.; MMDAs Are Up $2.9T (+64.6%)

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Rock Bottom Yields (Crane MFA 7

Rock Bottom Yields (Crane MFA 7--Day)

Day)

Rock Bottom Yields (Crane MFA 7

Rock Bottom Yields (Crane MFA 7--Day)

Day)

Yields Inch Up (Dead Cat Bounce)

Fed Hikes & Projections?

Fee Waiver Unwinding

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Fund Expenses & Fee Waivers

Record Low Expenses/Waivers

Revenue Savaged but Shared

Higher Rates Will Explode Revs.

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Regulatory: Final SEC MMF Reforms

Rule 2a-7 Amendments (2/10)

President’s Working Grp (10/10)

SEC Cancels Vote (8/12)

FSOC Issues Draft (11/12)

Timeline of Events

FSOC Issues Draft (11/12)

SEC Reform Proposal (6/13)

Comment Letters Due (9/13)

Final MMF Reforms (7/14)

Fund Cos Prep for Regs (2/15)

New Disclosures Start (4/16)

Floating NAV/Gates-Fees (10/16)

New Rules

Floating NAV (Prime Inst) &

Liquidity Fees & Gates (Prime)

2a-7 Tweaks, No Buffer

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Fundamental Money Market

Fund Reforms

• Floating NAV for institutional MMFs,

including tax-free MMFs

–

Retail MMFs are exempt from the floating NAV,

but are subject to fees/gates

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but are subject to fees/gates

–

U.S. Government MMFs are exempt from the

floating NAV

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Floating NAV

Floating NAV –

– Retail Fund

Retail Fund

Exemption

“Retail” MMF is a

MMF

MMF with policies

with policies

and procedures reasonably designed

to limit all beneficial owners of the

fund to natural persons

••

For

For MMF

MMF shares held in omnibus

shares held in omnibus

accounts

accounts if

if underlying beneficial owner is

underlying beneficial owner is

a natural person, shares may be

considered

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Fees and Gates

Applicable to all money market funds other than

U.S. Government MMFS:

• Board can impose

up to 2% “Liquidity Fee”

(redemption fee) and/or “Redemption Gate”

(temporary block on redemptions)

–

if weekly liquid assets (WLA) fall below 30% of

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–

if weekly liquid assets (WLA) fall below 30% of

total assets

• 1% fee must be imposed if WLA fall below

10% of total assets

unless Board decides

otherwise

• U.S. Government MMFs may opt into

fees/gates

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Fundamental Reforms

Fundamental Reforms -- Overview

Overview

Treasury and U.S.

Government MMFS

Municipal MMFs Prime MMFS

Retail (SEC said most Municipal MMFs would fit here, but not all

Stable NAV No fee nor gate

Stable NAV Fee and gate

here, but not all do) Institutional (Includes some Municipal MMFs) Stable NAV No fee nor gate

Floating NAV Fee and gate

Floating NAV Fee and gate (SEC said Prime Institutional

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Additional Requirements

• Enhanced disclosure

and reporting

- VNAV, liquidity, flows

- Form N-MFP (no more 60 day lag)

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- Form N-MFP (no more 60 day lag)

• Enhanced diversification testing of

issuers and providers of credit support

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Compliance timeline

• July 14, 2015 – Money market funds must

begin to report negative events to SEC

• April 14, 2016 – Money market funds must

comply with changes other than floating

NAV and fees/gates (e.g., disclosure,

stress testing)

• October 14, 2016 – Money market funds

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Fees and gates

Fees and gates-- Operational

Operational

complications

• Can intermediaries impose fees/gates on the

Board’s demand?

• Can intermediaries change the fee level on the

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• Can intermediaries change the fee level on the

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Floating NAV

Floating NAV—

—What Does It

What Does It

Mean?

• Floating NAV MMF must compute its NAV in

compliance with Rule 2a-4 (definition of “current net asset value”), limiting its use of amortized cost as a fair value to securities with 60 days or less remaining to maturity

– Government and retail MMFs may use amortized cost, but

– Government and retail MMFs may use amortized cost, but must shadow price daily

• Will the NAV float? 60-Day max maturity funds.

• Funds will need to close early to provide same day settlement?

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Tax Complications of Floating

NAV

NAV –

– Treasury & IRS issue final &

Treasury & IRS issue final &

proposed relief

• Shareholder recognizes small gains and losses on

redemption; results in potential issues

• Issue: Must brokers do 1099 reporting for redemptions of

floating NAV MMF shares

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• Issue: Wash sales – Shareholder purchases shares in fund

within 30 days before or after a loss is recognized on redemption – results in disallowance of loss

• Issue: Complexity of shareholder reporting of G/L

• IRS has proposed a solution to all three issues in

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Tax Complications of Floating

Tax Complications of Floating NAV

NAV—

—

Treasury & IRS Issue Proposed and

Final Relief

• Brokers will not be required to do 1099-B reporting:

– Proposed regulations provide that existing exception to 1099-B for MMF shares includes shares in floating NAV MMFs

• Wash sale rules will not apply to shares of floating NAV MMFs – Revenue Procedure 2014-45 provides that wash sale rules will not

– Revenue Procedure 2014-45 provides that wash sale rules will not apply to floating NAV MMF shares

• Proposed “NAV Method” (where applied) also makes wash sale rules irrelevant.

– Relief applies to an institutional MMF even if the fund’s holdings mature within 60 days (and therefore generally are valued at amortized cost)

• Proposed regulations include a simplified method of tax

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Tax Complications of Floating

Tax Complications of Floating NAV

NAV—

—

Proposed

Proposed NAV

NAV Method

Method

• Shareholder may adopt the “NAV Method” of accounting so that gains/losses are recognized based on change in aggregate value of shares over a period of time (that does not exceed one year and does not stretch across two tax years) selected by shareholder, rather than at each redemption

• G/L = value of MMF shares at the end of the period, minus value of

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• G/L = value of MMF shares at the end of the period, minus value of MMF shares at the end of the prior period, minus the taxpayer’s “net investment” in the MMF during the period

– Similar to mark-to-market tax accounting

– “Net investment”= aggregate cost of the shares purchased during the computation period minus the aggregate amount received upon taxable redemptions during such period

– All gains and losses are short-term capital gain/loss if the MMF shares are a capital asset

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Floating NAV

Floating NAV—

—Retail Fund

Retail Fund

Exemption

• “Retail” MMF is a MMF with policies and procedures

reasonably designed to limit all beneficial owners of the fund to natural persons

• Tough questions if one or a few institutions appear in the fund . . . ?

• Board must decide at what point procedures are not “reasonably designed”

• Beneficial ownership “typically means” direct or indirect, sole or shared voting, and/or investment power

• Release also mentions Exchange Act Rule 16a-1(a)(2), which refers to beneficial ownership via pecuniary

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Floating

Floating NAV

NAV—

—Retail Fund

Retail Fund

Examples

• SEC says if underlying beneficial owner is a natural person (including shares held in omnibus accounts), shares may be considered retail

• Possible earmark of natural persons—social security number or similar identifier unique to natural persons

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number or similar identifier unique to natural persons

• SEC gives examples of accounts beneficially owned by natural persons

– Managed investment accounts in which only natural persons have a pecuniary interest

– Tax-advantaged savings accounts such as certain retirement, college, or health plans

– Personal trusts established for the benefit of natural persons

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Floating NAV

Floating NAV—

—Retail Fund

Retail Fund

Exemption

Exemption—

—Examples

Examples Not

Not Retail

Retail

• SEC gives examples of accounts that are not

beneficially owned by natural persons (for example, accounts not associated with social security

numbers), such as those opened by numbers), such as those opened by

– businesses, including small businesses

• Corporations, partnerships, limited liability companies, business trusts, or other businesses requiring TINs

– defined benefit plans, or

– endowments

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Floating NAV

Floating NAV—

—Retail Fund

Retail Fund

Exemption

Exemption—

—Procedures

Procedures

• SEC mentions Possible Procedures

– Social Security Number provided directly on account

opening

– Social Security Number provided indirectly to adviser

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– Social Security Number provided indirectly to adviser

that is record-keeper for a plan or for beneficiaries when account is opened for a trust

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Floating NAV

Floating NAV—

—Retail Fund

Retail Fund

Exemption

Exemption—

—Intermediaries

Intermediaries

• Fund must reasonably conclude that beneficial shareholders who own through intermediaries are natural persons

• SEC gives examples of how to satisfy the definition

• SEC gives examples of how to satisfy the definition with intermediaries:

– contractual arrangements

– periodic certifications

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Complications of the Floating

NAV

NAV—

—Transition

Transition

• How to transition without triggering a pre-emptive run (e.g., if NAV is slightly below $1.00, shareholders may redeem prior to transition)

• SEC says: “money market fund managers could take

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• SEC says: “money market fund managers could take steps to ensure that the fund’s market-based NAV is $1.00 or higher at the time of conversion and

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Floating NAV

Floating NAV—

—Government

Government

Money Market Fund Exemption

• 99.5% of a Government MMF’s total assets must be:

– Government securities as defined by ICA §2(a)(16)

– Repurchase agreements collateralized fully under rule 2a-7(a)(5) (only government securities and cash permitted as 7(a)(5) (only government securities and cash permitted as collateral)

– Cash

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Confirms for Floating NAV Money

Market Funds

• SEC proposed an exemption from Rule 10b-10 that will allow floating NAV MMFs to provide periodic

statements rather than transactional confirmations if:

– Notice is given of the right to request a con-firmation, and

28 – Notice is given of the right to request a con-firmation, and

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Big Issues with Brokerage Sweep

What is a “natural person”?

Social Security, Codes

Intraday Pricing

Same-day settlement

Costs, frequency

Pricing to 4 decimal places

Mini Y2K problem?

Gates & Fees

Timing

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Preparing for Reforms: Recent Moves

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Fidelity Prime to Govt

Federated Short WAM

JPMAM Retail vs. Inst

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Largest Issuers & Largest Credit Issuers

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Ultra

Ultra--Short, Enhanced Cash & SMAs

Short, Enhanced Cash & SMAs

Ultra

Ultra--Short, Enhanced Cash & SMAs

Short, Enhanced Cash & SMAs

Bond Funds & Ultra-Shorts

Bonds $3.5T But Ultras < $200B

ETFs (<$100B)

PIMCO MINT, Guggenheim, SHY

Enhanced Cash (maybe $200B)

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Enhanced Cash (maybe $200B)

Banned from using stable NAV?

Separately Managed Accounts

($200B-$400B?)

Bankerage/FDIC Amalgamators

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Contact Info

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