New Accounting Rules for Interests in Money Market Funds

The SEC’s revisions to the money market fund (“MMF”) rules under Rule 2a-7 of the Investment Company Act of 1940 (“Rule 2a-7”) became effective October 14, 2016. These revisions include mandating the use of a floating net asset value for certain MMFs and allowing certain MMFs to impose liquidity fees and redemption gates. The main objective of these revisions was to address the risks to MMFs from heavy redemptions in times of economic stress.

As a result of these revisions, investors in MMFs need to evaluate whether their interests in MMFs still meet the definition of a cash equivalent for financial statement purposes each reporting period. Generally, investors can still classify their interests in MMFs as cash equivalents provided the MMF is SEC-registered and has no liquidity fees or redemption gates currently in effect, if liquidity fees or redemption gates are in effect, classification of such investments as cash equivalents is no longer appropriate. The interest in the MMF would then be classified as an equity investment and disclosed in the financial statements along with other equity investments.

To determine the appropriate classification, investors should start by reviewing the prospectuses from their MMFs closely. The prospectus should note how the MMF has applied the revisions under Rule 2a-7, such as whether it employs a floating NAV or if it has imposed any liquidity fees or redemption gates. Also, investors should check the SEC website to see if there are any Form N-CR filings by the MMF. Form N-CR is a form filed with the SEC by MMFs to report certain material events.

If you have any questions, please feel free to reach out to Marc Maas at mmaas@conifer.com or Adam Cooper at acooper@conifer.com.