The U.S. Securities & Exchange Commission released its latest "Money Market Fund Statistics," which confirmed that assets jumped, led by Government MMFs, and yields continued to rise in February. The report, produced by the SEC's Division of Investment Management, summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We also review a new revision to the SEC's "Money Market Reform Frequently Asked Questions" document, which includes several new questions, including one on repo collateral disclosure. Finally, we also mention the latest commentary from Perkins Coie Senior Counsel Stephen Keen, "Phase Two of Money Market Fund Reform: Important Changes to Diversification, Stress Testing, Disclosure and Reporting," which recaps the path to money fund reform and reminds us not to overlook the approaching April 14 changes.
The SEC's latest statistics show total money market fund assets rose $58.5 billion in February to $3.123 trillion. Assets fell $21.4 billion in January, rose $6.0 billion in December, fell $6.6 billion in November, and rose $62.3 billion in October, according to the SEC's broad total. (This series includes some private and internal funds not reported to ICI, Crane Data or other reporting agencies.) Year-to-date, total assets are up $37.1 billion through 2/29. Of the $3.122 trillion in assets, $1.587 trillion was in Prime funds, up $21.0 billion in February. Prime funds now represent 50.8% of total assets. Government & Treasury funds total $1.287 trillion, or 41.2% of assets, up $45.0 billion in February. Tax Exempt Funds were down $7.5 billion to $248.4 billion, or 9.1% of all assets. The number of money funds was 496, down 1 for the month.
Yields continued to rise in February. The Weighted Average Gross 7-Day Yield for Prime Funds on Feb. 29 was 0.53% (up 0.04% from the previous month), 0.37% for Government/Treasury funds (up 0.03% from last month), and 0.08% for Tax-Exempt funds (up 1 basis point). The Weighted Average Net Prime Yield was 0.32% (up 3 basis points from the month before). For the year-to-date, 7-day gross yields are up 12 basis points and net yields are up 10 basis points. The Weighted Average Prime Expense Ratio was 0.21% (up 2 basis points from the previous month).
The average Weighted Average Life, or WAL, was 55.6 days (down 1.5 days from last month) for Prime funds, 92.6 days (up 3.7 days) for Government/Treasury funds, and 26.4 days (down 1.7 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 35.2 days (up 0.7 days from the previous month) for Prime funds, 41.5 days (up 2.1 days) for Govt/Treasury funds, and 23.8 days (down 2.3 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 30.7% in February (up 2.9% from last month). Total Weekly Liquidity was 43.0% (up 0.5%).
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, the United States topped the list with $190.9 billion, followed by France with $190.2 billion and Canada at $181.9 billion. Japan was fourth with $156.2 billion, followed by Sweden ($112.5B), Australia/New Zealand ($81.9B), UK ($75.0B), and The Netherlands ($50.2B). Switzerland ($47.7B) and Germany ($46.7B) round out the top 10. The biggest gainers for the month were US (up $8.8B), France (up $8.4B), Norway (up $5.9B), Switzerland (up $5.8B), and Germany (up 3.2B). The biggest drops came from Japan (down $5.4B), Sweden (down $3.5B), Singapore (down $3.2B), Australia/New Zealand (down $2.3B), and UK (down $2.21). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $584.9 billion (up from $564.9B from last month), while its subset, the Eurozone, had $304.9 billion (up from $291.9B). The Americas had $374.9 billion (up from $361.7B), while Asia and Pacific had $262.1 billion (down from $272.2B).
Of the $1.591 trillion in Prime MMF Portfolios as of Feb, 29, $509.3B (31.6%) was in CDs (up from $502.5B), $338.5B (21.3%) was in Government (including direct and repo) (down from $338.2B), $413.8B (26.0%) was held in Non-Financial CP and Other Short Term Securities (up from $393.3B), $229.7B (14.4%) was in Financial Company CP (down from $233.4B), and $99.4B (6.2%) was in ABCP (up from $97.2B). Also, the Proportion of Non-Government Securities in All Taxable Funds was 43.5% at month-end, down from 44.0% the previous month. All MMF Repo with Federal Reserve was $79.4 billion on Feb. 29, down from $104.0B. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 37.6% were in maturities of 60 days and over (up from 37.3%), while 4.7% were in maturities of 180 days and over (down from 5.2%).
In other news, the SEC also recently updated its "2014 Money Market Reform Frequently Asked Questions." The "Changes" version of the FAQs highlights the new questions in blue. One of the new FAQs related to Form N-MPF reads, "Q. Items C.8b-h require that a money market fund describe the securities subject to the repurchase agreement (i.e., collateral). Although a fund may aggregate some of the information required by Items C.8b-h for multiple securities of the same issuer, providing the information required by Items C.8b-h for securities of each of more than 50 issuers would result in extremely lengthy filings. May the fund continue to provide the information required by Items C.8b-h in a modified form consistent with prior guidance published in the Staff Responses to Questions about Rule 30b1-7 and Form N-MFP revised July 29, 2011 with respect to Item 32a-f of the 2010 Form N-MFP?"
The SEC answers, "Yes. Consistent with the prior guidance provided by the Division staff, if a fund board (or its delegate) is not relying on the collateral to make its determination that a repurchase agreement presents minimal credit risks to the fund and there are more than 50 issuers of the collateral securities, the fund may provide the following information in lieu of the information required by Items C.8 b-h: Item C.8b: The fund should select the appropriate range of the number of collateral issuers of the underlying securities from one of the following: 51-100; 101-500; 501-1000; or more than 1000.... The fund should provide a break-down of the various categories of collateral securities held (in dollars as well as percentage of total collateral securities)."
Another new FAQ is, "What is the difference between a fund that is "Exempt Government" and "Government" The SEC responds, "In the staff's view, "Government/Agency" means a government money market fund that has chosen to rely on the ability to impose a liquidity fee or gate pursuant to rule 2a-7(c)(2)(iii), whereas "Exempt Government" means a government money market fund that has not chosen to do so." The rest of the update is mostly minor, very technical changes.
Finally, Stephen Keen's article on "Phase Two of Money Market Fund Reform", tells us, "It has been mistakenly asserted that money market funds are canaries in the financial coalmines -- in that distress in money market funds signals problems in the capital markets at large. The history of money market funds generally belies this claim, insofar as idiosyncratic defaults represent the most frequent threat to money market funds. Money market funds are regulatory canaries, however, insofar as significant reforms to money market fund regulations often presage reforms for investment companies generally. For example, the SEC proposed and adopted money market fund reforms in response to the financial crisis months before the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "DFA"). Thus, it may not be a coincidence that three massive reform proposals, regarding derivatives, liquidity and reporting, followed the most significant amendments to Rule 2a-7 since 1991."
He explains, "While these broader reform proposals are pending, money market fund managers continue to work on compliance with the amendments to Rule 2a-7 and related regulations and forms adopted in 2014. These changes were so significant that the SEC allowed the funds two years after the effective date of the amendments (October 14, 2014) before they must fully comply with the amendments. The SEC established two intervening compliance dates, however, for certain aspects of the reforms. The first compliance date (for Form N-CR) passed this summer; the next compliance date is April 14, 2016. This article explains the reforms with which money market funds must comply on this second compliance date (the "Phase Two Reforms"). Many of the Phase Two Reforms will require substantial changes to existing procedures and operations, so they should not be overlooked in anticipation of the more far-reaching reforms that will take effect on the final compliance date of October 14, 2016."
Keen concludes, "With all of the concerns about the conversion of institutional money market funds to a floating NAV and the potential implementation of fees and gates, there is a risk that some managers may overlook the important changes included in the Phase Two Reforms. It is critical that managers and their compliance staffs complete their work on these reforms in the near term to allow Fund Boards to review and adopt revised procedures in advance of the April 14, 2016 deadline. Fund Boards commonly meet only once a quarter, so they will need to act on these procedures in the first quarter of 2016 in order to meet the compliance deadline."
