Morgan Stanley made changes last week to its money market disclosure practices in anticipation of regulatory reforms at the SEC and released a document titled “Weighted Average Life: Enhancing Money Markey Fund Transparency”. In doing so, the firm’s money market family claims to be the first such fund family to add
the weighted average life (WAL) as a new risk measure in investor communications.
This addition falls in line with the recent SEC money market fund reform proposal aimed at increasing transparency of money market funds. Morgan Stanley notes that the WAL will serve as a complimentary measure to the weighted average maturity (WAM), whose disclosure was already required by the SEC for each money market fund.
The SEC commission passed measures to amend rule 2a-7 to require money market funds to post each month on their website and disclose the fund’s schedule of investments (see The MFWire
). The SEC noted in its proposal that it believes the “greater transparency of fund portfolios is a positive development by which investors can exert influence on risk-taking by fund advisors, and thus reduce the likelihood that a fund will break the buck,” and the regulatory agency made additional suggestions as to what measures could further enhance full disclosure of fund details. The SEC suggested a new maturity limitation based on the weighted average life of fund securities that would limit the portion of a fund’s portfolio that could be held in longer term floating or variable-rate securities. The new restriction would necessitate that a fund calculates the WAM of its portfolio without regard to interest rate reset dates, and the WAM would be limited to 120 days.
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