RIABiz on Floating NAV Debate
Financial advisor website RIABiz writes that, "Fidelity and Schwab oddly take opposite sides on issue critical to money market funds." The article says, "Fidelity Investments and Charles Schwab Corp. are clashing on a matter that may determine whether prime and municipal money market funds will still exist. At issue is whether to keep net asset values fixed at one dollar for certain types of retail money market funds and whether sub-categories contorted by unrelenting interest rate drops even warrant the name 'money market fund.' The ... brokerage giants are butting heads over the potential introduction of a floating net asset value (NAV) for all prime and municipal money market funds. The split surfaced in letters submitted in April to the Securities and Exchange Commission (SEC).... 'Schwab believes the time has come to consider whether the stable one dollar per share price of prime and municipal money market funds is based on an accounting convention whose time has passed,' writes Schwab['s] Rick Wurster, in a letter to the SEC. 'The commission will also need to resolve whether floating NAV funds should continue to be permitted to call themselves 'money market funds',' he adds. Yet floating NAVs demonstrably don't prevent redemption runs, and by unpegging prime funds from the dollar, the SEC could kill the prime market, Fidelity chief legal officer, Cynthia Lo Bessette asserts in a response." The piece continues, "Fidelity's view matters on floating NAVs. It is top dog in the retail prime market with $91.9 billion under its management (AUM), followed closely by Schwab with $86.7 billion. The pair have a massive lead over all other vendors; Federated Hermes ($27.5 billion) and JPMorgan ($11.1 billion) are their closest competitors, according to Westborough, Mass., money-market fund tracker Crane Data. Of 49 respondents to the SEC, just five companies or individuals and four trade groups joined Schwab in backing the introduction of floating NAVs.... Some 31 respondents rejected floating NAVs, including Fidelity, Federated Hermes, JP Morgan, BlackRock and BNY Mellon." RIABiz quotes our Peter Crane, "Schwab decided to break ranks and say 'we've got to give a significant concession or else [regulators] will hit us with something harder' [and] the floating NAV on prime money funds might be enough.... It's all about throwing the SEC a bone, and everyone wants to throw a bone that doesn't hurt their business."
