Signon to Passport
Portfolio Liquidity
New Rule: To facilitate redemptions, under the new SEC rules, all taxable money market funds will be required to maintain at least 10 percent of assets liquid within one day and at least 30 percent within one week. No such liquidity requirements exist today.
Deadline: May 28, 2010
Northern Trust Action: Already in compliance with many of the new requirements.
Credit Quality
New Rule: To reduce risk, money market funds will be limited to investing no more than 3 percent of portfolio assets in lower quality (Tier 2) securities, with a half a percent limit per issuer. Currently, the limit is up to 5 percent of portfolio assets, with a 1 percent limit per issuer. In addition, the new rule does not permit a fund to invest in lower quality securities with a maturity beyond 45 days.
Deadline: May 28, 2010
Northern Trust Action: Already in compliance with the rule. It has been Northern Trust’s practice not to invest in Tier 2 securities.
Portfolio Maturity
New Rule: To reduce the exposure of funds to specific risks, such as sudden interest rate movements, the maximum weighted average maturity of securities in money market funds will be reduced to 60 days from the current 90 days. The rule also restricts the weighted average life of a fund’s portfolio to 120 days (currently, no such limit), which will limit the ability of the fund to invest in long-term floating rate securities.
Deadline: June 30, 2010
Northern Trust Action: Already in compliance with the new requirements.
Periodic Stress Tests
New Rule: Investment managers must adopt procedures that examine the fund’s ability to maintain a stable net asset value per share in the event of shocks to the fund or market.
Deadline: May 28, 2010
Northern Trust Action: Will implement a stress test framework that will address several hypothetical shocks, including an increase in interest rates, an increase in shareholder redemptions, a downgrade of, or default, on portfolio securities, and a sudden widening or narrowing of yield spreads.
Enhanced Disclosure
New Rule: Money market funds will be required to post their portfolio holdings monthly on their Web sites, as well as disclose to the SEC the fund’s “shadow” floating share price, monthly with a 60-day lag.
Deadline: October 7, 2010 (Web posting); December 7, 2010 (SEC disclosure)
Northern Trust Action: Will meet requirement by compliance date.
Suspension of Redemptions
New Rule: To provide protection against a sudden, large increase in redemptions, a money market fund’s board of directors will now be allowed to suspend redemptions and liquidate a fund if the fund’s net asset value (NAV) falls below $1. The fund must notify the SEC prior to relying on this rule. Currently, the board must receive SEC approval prior to suspending redemptions.
Deadline: May 5, 2010
Northern Trust Action: Will meet requirement by compliance date.
“Know Your Investor” Procedures
New Rule: To protect against the risk of large, unexpected outflows, funds must hold securities that are sufficiently liquid to meet foreseeable redemptions and develop procedures to identify shareholders whose redemptions may pose risks for funds.
Deadline: May 28, 2010
Northern Trust Action: Will meet requirement by compliance date.
Rating Agencies
New Rule: The fund will be required to designate annually at least four Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings the fund’s board considers to be reliable. Funds must identify the designated NRSROs in the fund’s statement of additional information (SAI).
Deadline: December 31, 2010
Northern Trust Action: Will meet requirement by compliance date.
Fluctuating NAV
New Rule: All money market funds (or their transfer agents) will be required to process purchases and redemptions at prices other than $1 per share (stable net asset value). This requirement facilitates orderly redemptions in the case where a fund “breaks the buck.”
Deadline: October 31, 2011
Northern Trust Action: Will meet requirement by compliance date.
Conservative Investment Approach
Northern Trust employs a conservative investment process in which we seek to make principal preservation and liquidity our highest priority for our money market funds. We remain committed to our investment methodology, which has helped us deliver competitive returns in a risk-managed framework for more than 25 years.
If you have any questions about the SEC rule changes or how Northern Trust will meet these requirements, please contact your financial advisor, or call the Northern Funds Center at 800-595-9111 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Past performance does not guarantee future results.
An investment in the Money Market Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Money Market Funds.
