The Floating NAV is Impractical and Unworkable

SAN FRANCISCO, Feb. 23, 2012 /PRNewswire/ -- Institutional Cash Distributors (ICD), released its most recent ICD Commentary™ titled The Floating NAV – MMF Reality Sinks In which challenges the viability of the SEC's proposed floating NAV conversion at the accounting and operational level.

ACCOUNTING IMPLICATIONS - Corporations would have to begin monitoring their mark-to-market value and report on any minute gains or losses resulting in:

• A need for a significant overhaul of general accounting standards; or
• An additional accounting burden on US corporations

OPERATIONAL IMPLICATIONS – A floating NAV will require one of the following new settlement alternatives:

• Delivering payments post pricing;
• Pricing several times per day; or
• Day after pricing (or T+1)

The report further argues that a conversion to a floating NAV is unnecessary to convince sophisticated institutional investors that money funds may lose value.  Rather, it would fundamentally transform the nature of MMF products, making them far less attractive and perhaps, triggering significant transfers of corporate treasury investment from money market funds to ultra-short-term funds and/or off-shore investments not governed by the SEC.

While there has been focused deliberation in the public sector, no evaluation to date has considered the logistical ramifications of moving to a floating NAV from an accounting and operational perspective. "What no one is talking about, and it deserves much greater consideration, is how a floating NAV conversion would affect same day liquidity," commented Sebastian Ramos, ICD's Vice President, North American Trading Operations. "With any careful analysis of how investors actually use these products, it's difficult to see how you can move away from a stable price and still maintain institutional interest in Money Market Funds as an effective cash management tool."

ICD Commentary can be downloaded at www.icdportal.com/downloads/ICD-Commentary_FloatingNAV.pdf 

About ICD

ICD is the world's premier MMF trading and risk management company. ICD's next-generation portal, best practices methodologies and Transparency Plus® exposure analytics support corporate treasury with end-to-end solutions.  ICD's global coverage is facilitated by its offices in London (ICD Trade Desk™), San Francisco (ICD Trade Desk™), Golden, Colorado (ICD Tech), Los Angeles, Boston, and Dubai.  More information about ICD is available at icdportal.com.

Media Contact

Debby Barri, ICD Public Relations Director
424-206-2402, [email protected]
ICD, LLC
580 California Street, Suite 1335
San Francisco, CA 94104
www.icdfunds.com

SOURCE Institutional Cash Distributors, LLC