Corporations Want Visibility into Money Market Funds

Terry Flanagan

Corporations that invest in money market funds for their day-to-day treasury operations are seeking greater visibility into their investments, as the fund industry itself faces fundamental regulatory reforms.

Citi has enhanced its global web-based investment service, Citibank Online Investments, offering new account options for money market mutual funds.

“We know that transparency is increasingly important to our clients, which is why we have enhanced our web-based investment service supporting local investment options in over 30 countries and 19 currencies,” said Elyse Weiner, global head of liquidity management services for Citi Treasury and Trade Solutions. “These new account options include an ability to provide STP for all investments regardless of the account set-up.”

“Nominee” and “Fully Disclosed” account options allow clients to leverage all key features and benefits of the current omnibus account model. These include straight-through processing (STP), consolidated online trades, balance and dividend reporting, as well as direct automated settlement to a Citibank operating or custody account.

At an open meeting on June 5, the Securities and Exchange Commission proposed fundamental reform of money market funds that operate under the Investment Company Act of 1940, along with additional proposals that would expand money market funds’ required disclosures, constrain their portfolio management and broaden stress testing.

“If adopted, the reforms will increase operational and compliance demands on money market funds and their advisers and enhance board responsibilities,” said Joan Ohlbaum Swirsky, of counsel at Stradley Ronon Stevens & Young, in a client note. “In addition, the reforms could dampen yields on money market funds if operational and compliance costs are passed on to shareholders or if managers invest conservatively in response to the reforms.”

Under the SEC proposal, a money market fund may permit an omnibus account holder to redeem more than $1 million on any one business day if the money market fund has policies and procedures to prevent any beneficial owner of the fund’s shares from redeeming more than $1 million on any one business day (the Omnibus Exception).

The Omnibus Exception “could be problematic for funds with omnibus account holders whose redemptions aggregate in excess of $1 million per day, but that represent the aggregate redemptions of numerous underlying retail shareholders, each of whose redemptions is less than $1 million,” said Swirsky.

With Citi’s Fully Disclosed account option, clients may elect to open an investment account directly with the fund company as compared with investing through an omnibus account relationship between the fund company and Citi.

This option more clearly defines the counterparties to the transactions, with transparency between investors and investment vehicles. Fund complexes will have the ability to view balances and client activity in real time, assisting in the maintenance of client/fund relationship.

Disclosure of a client’s balances to the underlying fund complexes is an important trend in the cash investment world. Citibank Online Investments addresses that need with the introduction of Nominee accounts, which provide enhanced balance disclosure to funds.

For clients selecting this option, fund complexes will get visibility into the clients’ balances and transactions on a real time basis, facilitating tracking of investor relationships and provision of relationship credit.

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