Yesterday's Wall Street Journal featured, "Mutual-Fund Giants Give Mixed Reviews to SEC Proposals". The piece said, "Some of the biggest players in the money-market fund industry expressed support for some of the rules the Securities and Exchange Commission has proposed for the $3.7 billion industry -- and concern about others. Fidelity Investments supports changes to money-market fund regulation that would bolster the security of the funds, improve market discipline and transparency and enhance investor confidence.... But it doesn't feel 'radical changes to the way money-market funds are organized or regulated is warranted'.... `Jack Brennan, chairman of the Vanguard Group, said the SEC did a terrific job of getting at the key factors addressing money-market safety, liquidity and other issues.... J. Christopher Donahue, chief executive at Federated Investors, said the SEC proposals shaped up very well overall, but that he will raise concerns on some of its suggestions, among them the distinction between retail and institutional funds when it comes to illiquid securities." See also, the SEC's posting of its summary of proposals, "Making Money Market Funds Less Risky", and see BusinessWeek's "Should Money Market Funds Be Able to Break the Buck?"
Late last week, the Federal Reserve "announce[d] extensions of and modifications to a number of its liquidity programs". The Fed's release says, "The Federal Reserve on Thursday announced extensions of and modifications to a number of its liquidity programs. Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time.... [T]he Federal Reserve is extending a number of facilities through early 2010. At the same time, in light of the improvement in financial conditions and reduced usage of some facilities, the Federal Reserve is trimming the size and changing the terms of some facilities. Specifically, the Board of Governors approved extension through February 1, 2010, of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF). The expiration date for the Term Asset-Backed Securities Loan Facility (TALF) currently remains set at December 31, 2009. The Term Auction Facility (TAF) does not have a fixed expiration date." The release adds, "The Board extended the authorizations for the AMLF and the CPFF through February 1, 2010. The authorization for the MMIFF, which expires on October 30, 2009, was not extended. Usage of the AMLF has declined considerably as market conditions have improved. Nonetheless, in view of the continued fragility in market conditions, the Board judged it appropriate to extend the authorization for the AMLF. To help ensure that the AMLF is used for its intended purpose of providing a temporary liquidity backstop to money market mutual funds (MMMFs), the Federal Reserve established a redemption threshold whereby a MMMF would have to experience material outflows -- defined as at least 5 percent of net assets in a single day or at least 10 percent of net assets within the prior five business days -- before it can sell asset-backed commercial paper (ABCP) that would be eligible collateral for AMLF loans to depository institutions and bank holding companies. Any eligible ABCP purchased from a MMMF that has experienced redemptions at these thresholds could be pledged to AMLF at any time within the five business days following the date that the threshold level of redemptions was reached. The Board similarly judged that market conditions warranted the extension of the CPFF through February 1 in order to help ensure the access of U.S. businesses to short-term funding. Interest rates posted on the CPFF are at levels that are increasingly unattractive for many borrowers as market conditions improve, and accordingly usage of the CPFF is declining fairly steadily. In these circumstances, the Board judged that modifications to the CPFF were not necessary at this time. Given the overall improvement in market conditions and the continued availability of the AMLF and the CPFF, the Board believed that it was not necessary to extend the authorization for the MMIFF."
Time is running out to register for Crane's Money Fund Symposium, which will be held August 23-25, 2009, at the Renaissance Hotel in Providence, Rhode Island. Crane Data's new annual conference will bring money fund managers, issuers, investors and servicers together to exchange ideas, to network, and to learn about the latest investment strategies, business tactics, and news impacting the money market fund marketplace. Speakers to date include: Crane Data's Peter Crane, Federated Investors' Eugene Maloney and Debbie Cunningham, Wells Fargo Advantage Funds' Dave Sylvester, Standard & Poor's Peter Rizzo and Joel Friedman, ICI's Brian Reid, Treasury Strategies' Tony Carfang, Fidelity's Michael Morin, CacheMatrix's George Hagerman, SSgA's Jeff St. Peters, Western Asset's Kevin Kennedy, UBS's Rob Sabatino, Dreyfus' Colleen Meehan, SVB Asset Management's Joe Morgan, Banc of America Securities' Chris Walsh, JPMorgan's Alex Roever, Capital Advisors' Lance Pan, IMMFA's Travis Barker, Fitch Ratings' Viktoria Baklanova, Moody's Henry Shilling, Reed Smith's Steven Keen, Pricewaterhousecoopers' Tony Evangelista, and more. The event also includes free post-conference online money fund trading portal demos and Money Fund Wisdom software training workshops. Click here for the full agenda or e-mail Pete for the PDF brochure. Registration is just $500 and includes all meals and refreshments. The special room rate at the Renaissance Providence is $169 a night for attendees that sign up before July 29. Money Fund Symposium space is running out, so be sure to register quickly. We hope to see you in Providence!
Reserve Management Company, Inc., et al. Files a Motion to Dismiss says a release put out Tuesday night. It reads, "On June 11, 2009, Reserve Management Company, Inc., Resrv Partners, Inc., Bruce Bent Sr. and Bruce Bent II filed a Motion to Dismiss the civil action brought by the SEC in the United States District Court for the Southern District of New York (SEC v. Reserve Management Company, Inc., et al.; No. 09-CV-4346). The Motion and the Memorandum of Law supporting the Motion, set forth the reasons as to why the Motion to Dismiss should be granted. (Click here to view a copy of these pleadings.) Reserve Management Company, Inc. and the other defendants are cooperating fully with the SEC's staff regarding this matter, but, at the same time, are vigorously defending themselves in this action." See also: SEC releases "Information for Investors in the Reserve Primary Fund". The posting says, "The Securities and Exchange Commission today [June 15] posted information on its Web site for investors in the Reserve Primary Fund, which 'broke the buck' last September when its net asset value fell below $1 per share. Since then, the fund has withheld a significant amount of money from investors pending the outcome of numerous lawsuits filed against the fund, its trustees, and other officers and directors of Reserve entities. The SEC filed suit on May 5, 2009, seeking, among other things, an order to distribute the fund's remaining assets to investors expeditiously on a pro rata basis. On June 8, 2009, the Honorable Paul G. Gardephe of the U.S. District Court for the Southern District of New York issued an order that sets a schedule for its consideration of the SEC's proposed plan of distribution. Under the court order, all interested parties can file objections to the proposed distribution plan by July 22, 2009. The court will hold a hearing to consider the proposed plan of distribution on Sept. 23, 2009. Pursuant to the court order, the SEC is directing investors to additional information on its Web site, including the SEC's proposed distribution plan as well as the SEC's evidence in its case against the operators of the Primary Fund. The information is available at the following link: www.sec.gov/spotlight/reserve_primary_fund_investors.htm. Investors also can find additional information on the Reserve's Web site at: www.ther.com."
"SEC eyes stricter rules for money market funds" writes Reuters, which says, "U.S. securities regulators are considering steps to boost money market funds' liquidity and protect investors after last year's sudden losses in industry pioneer Reserve Primary Fund, two sources familiar with the agency's thinking said on Tuesday.... The Securities and Exchange Commission, which meets on Wednesday, may require more disclosure about money funds' assets as well as streamlining the process by which a fund's parent company can buy its distressed assets, the sources said.... A retail money market fund could be required to hold a minimum of 5 percent, while an institutional fund could face a minimum of 10 percent in cash or cash equivalents, the source said.... The SEC is expected to issue a concept release on whether it should consider a floating net asset value instead of the current $1 NAV, or the level the fund needs to maintain in order to pay back its customers if they want to redeem their shares, the sources said. A floating NAV, which could reflect actual assets held, could drive investors out of money market funds and into other financial products that protect the principal amount." See also, WSJ's "Federated Still Shops, Embraces Money Funds", which says, "Federated Investors continues to look for good buys, but it has no plans to move away from its core money-market fund business, says Chief Executive J. Christopher Donahue.... Federated's strength lies in the stability its money funds offer, and it wants 'to keep, develop and enhance' that core business, Donahue said.... Federated won't be 'waived into oblivion,' Donahue said. The company isn't subsidizing its money-market funds and is making enough to 'pay the rent,' he said."
Forbes writes "Mutual Funds: The New Regs". It says, "In the political tussle between traditional banking and investment banking we are sure to witness over the next few months, however, there is clear potential for collateral damage to the mutual fund industry. For example, the white paper suggests that money market funds should be required to abandon their hallmark 'stable net asset value' feature. Conceived in the mid-1970s as a way to offer investors a vehicle akin to bank certificates of deposit, money market funds have operated with astounding stability for over thirty years. Notwithstanding the headlines associated with the implosion of Reserve Fund (which may prove to have had more to do with unauthorized investments and garden-variety securities fraud), money market funds have weathered the seismic events of the last few months effectively and without shareholder losses. While additional safeguards may, perhaps, be appropriate (e.g., increasing credit requirements or shorting maturities) tinkering with a fundamentally sound product is unwarranted."
Dow Jones writes "Trade Group: Obama Disclosure Plan Must Be Comprehensive". The piece says, "The Obama administration's proposal targets another area of mutual fund regulation by endorsing the SEC's plans to roll out new rules to improve the credit quality and liquidity of money market funds. Those proposed rules, which the SEC will unveil next week, come in response to the troubles surrounding the Reserve Primary Fund, which 'broke the buck' last fall when its net asset value fell below $1 a share. That led to runs on other funds after panicked investors rushed to pull their money out.... Among the things the SEC said it is considering is whether money markets should have a floating NAV instead of a stable $1-a-share NAV, a concept the Obama plan urged the agency to explore. The Investment Company Institute previously made recommendations for new regulations on money market funds to improve credit quality and liquidity. And while the SEC is expected to explore some of the institute's suggestions, Stevens said his group will speak out against any attempt to push for creating a floating NAV. A stable NAV, he said, has always been a 'bedrock' of money market funds and the lack of one would harm the industry, making the products less appealing to investors." Stevens told Dow Jones, "If you float the net asset value, virtually everyone in our industry believes these products will go away."
Joan Ohlbaum Swirsky of law firm Stradley Ronon writes in a new Fund Alert, A Special Edition, June 2009 "Obama Administration Recommends Reform of Money Market Funds". The bulletin says, "The Obama administration (the administration) has recommended that the SEC 'move forward with its plans to strengthen the regulatory framework around money market funds,' including moving to consider some of the reforms proposed by the Investment Company Institute (ICI) in its Report of the Money Market Working Group released March 17, 2009. The administration also proposed that more fundamental changes be considered, including, for example, moving away from the stable net asset value (NAV) of money market funds or requiring money market funds to 'obtain access to reliable emergency liquidity facilities from private sources.' Under the administration's recommendations, the President's Working Group on Financial Markets (PWG) would consider the more fundamental changes in a report to be completed by Sept. 15, 2009, which 'could include' those changes. The PWG is an informal working group comprised of the Secretary of the Treasury and the Chairmen of the Federal Reserve Board, the SEC, and the CFTC."
The Securities & Exchange Commission issued a "Sunshine Act Notice" to hold an "Open Meeting" on Wednesday, June 24, 2009 at 10:00 a.m., in the Auditorium, Room L-002. "The subject matter of the Open Meeting will be: The Commission will consider whether to propose amendments governing the operations of money market funds." The notice adds, "At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551-5400. Elizabeth M. Murphy, Secretary." For more, see yesterday's Crane Data News "SEC Proposals for Money Fund Reg Changes to Be Mild Says Bloomberg". When the proposed regulations are issued, we expect them to be posted on the SEC's website here. In other news, see also the Bloomberg articles "Money-Fund Rules May Change as Obama Seeks Regulatory Overhaul" and "Fidelity Breaks With Money Funds on Plan Limit to Debt Holdings".
The Wall Street Journal writes "Administration Considers Breaking Buck-a-Share Rule for Money Funds". It says, "The administration called for new rules to prevent runs on money-market funds that can pose risks to the entire financial system, as occurred last fall. It urged study of potential solutions such as requiring funds to secure private investors as a backstop or -- more controversially -- dumping the $1 standard in favor of a floating number. The Securities and Exchange Commission is expected to propose rules next week, and is likely to raise the possibility of a floating number, technically a net asset value. Already, the Investment Company Institute, the lobby for the mutual-fund industry, is pushing back." The Journal quotes ICI's Paul Schott Stevens, "If you float the value of a money fund, you've essentially destroyed the product. We're going to explain clearly to the working group why we believe a fluctuating [NAV] is a very bad idea." The article adds, "But with a floating NAV, many investors might not be able to use money funds for their day-to-day cash transactions, said Peter Crane, president of Crane Data LLC, which tracks the funds. The elimination of the $1 standard 'could cause a major flight from the asset class.'" Finally, the WSJ article says, "In the near term, the SEC is expected to propose shortening the maturity, raising the creditworthiness and increasing liquidity of securities money funds can hold.... `Another idea the SEC is expected to propose is public disclosure of net asset values to the third decimal. The ICI opposes that, saying fluctuations in the rate could drive investors away from funds."
"CAG Announces New Executive VP of Business Development" says a press release from Capital Advisors Group. As we mentioned in our "People" News last week, "Bill Crist Joins Capital Advisors Group As Executive Vice President of Business Development. The release says, "Capital Advisors Group (CAG), a leading institutional investment advisor, announced today that it has hired Bill Crist to the position of Executive Vice President, Business Development. Bill joins CAG with more than 18 years experience in distribution, sales, and product development in institutional money market funds and fixed income products." Crist says, "I'm excited to join Capital Advisors Group and help contribute to the company's established success and continued growth. From my experience in the institutional money market fund and fixed income industries, I'm keenly aware of the need for more transparent short-term investment options, and specifically, products like separate cash accounts that provide a more customized research and liquidity management experience for institutional corporate and municipal investors. I look forward to focusing my efforts on addressing the needs of these underserved organizations while opening new distribution channels and contributing to Capital Advisors Group's development." The release also quotes Ben Campbell, CAG president and CEO, "We are thrilled to welcome Bill to the Capital Advisors Group team. He brings a proven track record, an extensive background in strategic growth and first-hand knowledge of the short-term cash investment needs of larger companies and public organizations. We believe his depth of experience in the institutional money market fund industry will be a great asset to CAG as we continue to strengthen and expand our offerings to institutions that may be unaware of the benefits of customized short-term cash portfolios." Finally, the press release says, "`Prior to joining Capital Advisors Group, Bill was a Managing Director for Janus Capital Group, where he was responsible for the distribution, sales, and product development of Janus' institutional money market funds. Previous to Janus, Bill spent 14 years at Fidelity Investments Institutional Services Company."
The Reserve Funds issued a press release yesterday entitled "Court Issues Order Setting Objection and Hearing Dates on Securities and Exchange Commission's Proposed Plan for Distribution of Reserve Primary Fund's Assets," which appears to pave the way for the final resolution and distribution of The Reserve Primary Fund's final liquidation. The release says, "The Board of Trustees of The Reserve Primary Fund announced that the United States District Court for the Southern District of New York has issued an Order on an application made by the U.S. Securities and Exchange Commission concerning the distribution of the Primary Fund's remaining assets. The Commission's application proposes a plan to distribute the remaining assets of the Primary Fund on a pro rata basis to shareholders of the Primary Fund whose shares have not been fully redeemed since September 15, 2008. The Commission also seeks an order enjoining certain claims against the Primary Fund and other parties named as defendants in litigation involving the Primary Fund.... [S]hareholders have to date received approximately 90 percent of their assets in the Fund.... The Court will hold a hearing at 9:30 a.m. on September 23, 2009 in Courtroom 18B of the United States Courthouse, 500 Pearl Street, New York, New York on whether it will grant the Commission's application and approve the proposed pro rata plan of distribution sought by the Commission and other aspects of the Term Sheet. By June 22, 2009, the Primary Fund will mail copies of the Order and the Term Sheet to all owners of record for unredeemed shares in the Fund as of September 15, 16, 17 or 18, 2008." (See http://www.sec.gov/spotlight/reserve_primary_fund_investors.htm for more.) See also, Investment News writes on "Expenses on the Reserve Primary Fund".
NYT writes "F.D.I.C. Is Watching as a Bank Sets Rates". The article says, "Our tale begins in earnest with a letter that the president and chief executive of the American Bankers Association, Edward L. Yingling, sent on May 27, 2009, to Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation. He argued that Ally Bank, an online bank owned entirely by GMAC Financial Services, posed a danger to the industry and the F.D.I.C. Chief among those concerns, he said, was Ally's high interest rates on certificates of deposit." (See Crane Data's June 4 News "ABA Criticizes Aggressive Deposit Gathering Strategies of GMAC Bank".) The NY Times adds, "And wouldn't you know it? Ally decided to lower some of its rates, not once but twice in the last six business days." See also, BusinessWeek's "Money Market Funds in a Squeeze", which says, "Money market funds, the investments that individuals, companies, and institutions use to stash cash, look like another victim of the financial crisis. As interest rates drop and costs rise, some financial firms have pulled out of the business."
BlackRock Agress to Acquite Barclays Global Investors according to a company press release. It says, "BlackRock, Inc. announced it has executed a purchase agreement to acquire Barclays Global Investors, including its market-leading ETF platform, iShares, from Barclays PLC. The combination of BlackRock and BGI would bring together market leaders in active and index strategies to create the preeminent asset management firm operating under the name BlackRock Global Investors. The transaction would create an independent and fully integrated asset management firm with combined assets under management of over $2.7 trillion." `BlackRock currently ranks 4th in money fund management with $246 billion while Barclays ranks 27th with $13.6 billion, according to our Money Fund Intelligence XLS. In other news, ICI's weekly money fund asset totals fell by $16.33 billion to $3.747 trillion in the week ended June 10. The release says, "Assets of retail money market funds decreased by $16.43 billion to $1.242 trillion.... Assets of institutional money market funds increased by $100 million to $2.505 trillion." Finally, the no-action letter has been posted for Citi's new Window Variable Rate Demand Bonds.
The LA Times wrote yesterday, "Sidelined cash is huge, but is it antsy to go somewhere?". The article discusses the "Wall of Cash" theory and says, "There's no doubt that some fickle money-fund cash will flow into stocks; indeed, after peaking in early January, money fund assets have edged lower as the stock market has surged. But money funds might not provide as much juice as the bulls expect. For one thing, much of the cash flow into money funds over the past two years had little to do with the collapsing stock market, said Peter Crane, chief executive of research firm Crane Data. Corporations, which account for two-thirds of money-fund assets, have built up funds for purposes ranging from emergency reserves to bankrolling mergers, and are unlikely to put that cash into stocks, Crane said. That's a big reason why overall money-fund assets are down only 4% from their mid-January peak despite the torrid market rally since early March." The article quotes Crane, "Money is trickling back in off the sidelines, but the thought that this wall of cash will come pouring back into the market overnight is ridiculous. If it were going to do that, it already would have."
Investment News writes "Muni bills might help liquefy ARS market", which discusses the pending-in-Congress Municipal Market Liquidity Enhancement Act. "The draft legislation would provide a government backstop for new issues of variable-rate-demand notes if the proceeds were used for, among other things, the refinancing of auction rate securities. Such notes have been widely used by issuers to cut financing costs.... The liquidity backstop for variable-rate-demand notes historically has been provided by banks. The backstop is essentially a put feature that guarantees liquidity for holders. With the credit crisis, though, some banks have withdrawn from the liquidity-providing business or don't have a high enough credit rating to provide the service, leaving the variable-rate-demand-note market in disarray, observers said." Tax-exempt money funds are the main buyers of VRDNs. IN adds, "The [Regional Bond Dealers] association estimates that about $400 billion in variable-rate-demand notes remains outstanding." See also, State Street's "Sec lending: calls for risk management and transparency".
The Chicago Board of Trade's (CBOT's) 30-Day Federal Funds Futures gives the market's estimate of future short-term interest rates. (Take 100 minus the price to get the expected Federal funds target rate, then divide the difference from the current rate by 0.25 to get the percent odds of a move.) On Friday, the chances of an interest rate hike by the Federal Reserve during the remainder of 2008 went from near zero to a 100% chance of a move by December. Expectations of higher rates alone should begin to ease some of the intense fee waiving pressure being felt by the most conservative money market funds, and indeed our Money Fund Intelligence Daily showed 1-day yields inch up on Friday. But it remains to be seen whether expectations for higher rates last. (See also, WSJ's "Fed to Show Some Reserve on Rate Moves".)
The weekend Wall Street Journal writes, "Vanguard Props Up Yields at Some Money Funds", which discusses the recent announcement by Vanguard to merge its Treasury money funds and close its Federal MMF to new investors. (See June 3 Crane Data News "Vanguard Merges Treasury Money Funds, Closes Federal Money Market".) The Journal article says, "As money-market-fund yields remain low, Vanguard Group Inc. said it is taking steps to keep returns positive. Vanguard said the $6.7 billion Treasury Money Market Fund will merge into the cheaper $21.8 billion Admiral Treasury Money Market Fund in August.... The firm also has closed the Federal Money Market Fund to new accounts and institutional money and slapped a $10,000 daily limit on existing retail accounts." Vanguard spokeswoman Rebecca Cohen told WSJ, "New cash must be invested in securities at current yields, which are historically low. This can dilute the fund's overall yield, to the detriment of current investors in the fund." The article continues, "Vanguard's moves come as the money-market-fund business faces up to months of negligible yields on its offerings because the Federal Reserve's target overnight lending rate among banks is between zero and 0.25%. Several fund firms have waived fees on some of their money-market funds to ensure investors don't lose money." Cohen added that Vanguard remained committed to its money-market business. "We strongly believe that the money-market fund is a great product for investors, providing safety, liquidity and income," she said.
ICI reported its weekly "Money Market Mutual Fund Assets" last night, saying, "Total money market mutual fund assets decreased by $25.22 billion to $3.764 trillion for the week ended Wednesday, June 3." The release explains, "Assets of retail money market funds decreased by $9.80 billion to $1.258 trillion. Taxable government money market fund assets in the retail category decreased by $4.11 billion to $215.14 billion, taxable non-government money market fund assets decreased by $5.88 billion to $769.62 billion, and tax-exempt fund assets increased by $184 million to $273.68 billion. Assets of institutional money market funds decreased by $15.41 billion to $2.505 trillion. Among institutional funds, taxable government money market fund assets decreased by $13.30 billion to $1.097 trillion, taxable non-government money market fund assets decreased by $2.09 billion to $1.218 trillion, and tax-exempt fund assets decreased by $20 million to $190.02 billion." Note too that ICI has revamped its website at www.ici.org.
AP writes "Asset manager shares mostly rise on upgrades", which cites a report from Citi analyst Keith Walsh. The article says, "The trends should boost asset managers' earnings, which could be further enhanced by a potential flow of investor cash out of safe-harbor money-market funds and into fixed-income investments and equities, Walsh said. Trends suggest money-market assets peaked in last year's fourth quarter and this year's first quarter, he wrote. Money funds -- typically short-term investments from which money managers earn relatively small fees compared with longer-term investments -- became safe havens for many investors amid the market turmoil of last fall and early this year. Historically, longer-term funds attract more cash during market recoveries when investors flee money funds for riskier investments offering potentially higher returns." Also, hear the Webcast of Federated's Investors President and CEO J. Christopher Donahue at Keefe, Bruyette & Woods Financial Services Conference.
Crane Data has launched a new "Money Fund Intelligence Subscriber Group" on Linked In (at http://www.linkedin.com/e/vgh/1971411/). The new Money Fund Intelligence Subscriber Group was "formed to provide a forum for Crane Data subscribers and money market mutual fund professionals to discuss issues involving money markets and cash investments," says the Group's Profile. While we're still learning about the features and usefulness of this additional forum, we encourage readers to join us and add their thoughts to the discussion. In other news, The Wall Street Journal features "Savings Accounts Beckon Investors With Better Rates", which says, "The dowdy savings account is making a comeback. A growing number of high-yield bank savings and money-market accounts are paying interest rates -- 'high yield' being relative -- of around 2% or better. That makes them a safe alternative for the many savers whose accounts are hardly bearing any interest at all, putting them at risk of losing money to inflation. If you haven't looked closely at your accounts lately, you may be in for a surprise. Checking accounts and some money-market mutual funds that invest primarily in Treasurys are yielding as little as 0.01%, or $1 a year for every $10,000 invested."
The FDIC has begun posting "Weekly National Rates and Rate Caps", we learned recently from banking blog BankDeals. The FDIC page says, "On May 29, 2009, the FDIC Board of Directors approved a final rule making certain revisions to the interest rate restrictions applicable to less than well capitalized institutions under Part 337.6 of the FDIC Rules and Regulations. The final rule redefined the 'national rate' as a simple average of rates paid by U.S. depository institutions as calculated by the FDIC. Although the final rule is not effective until January 1, 2010, the FDIC does not object to the immediate use of the newly defined national rate by an insured depository institution. The national rates and rate caps for various deposit maturities and sizes are provided below." For "Money Markets" the "National Rate" is 0.46% and the new rate cap is 1.21%. See also, the ABA's recent letter complaining about high rates from GMAC/Ally Bank.
"SEC to propose major overhaul of money funds" writes Investment News, saying, "The Securities and Exchange Commission is considering a list of regulations for money market funds that goes far beyond proposed reforms issued in March by the Investment Company Institute. The SEC, which is expected to issue its proposed rules this month, is considering guidelines that would make clear a fund's responsibility to turn away influxes of cash from institutional investors that may cause large swings in the fund's assets. Beyond those measures, the SEC is considering a rule change that would require funds to disclose regularly the market value of their underlying assets. Currently, money market funds are required to disclose their holdings quarterly, without assigning a market value to those holdings." The article adds, "The SEC is unlikely to endorse the idea of a so-called floating net asset value, which would untie money market funds from their $1-a-share value, according to a source with knowledge of the commission's deliberations, who asked not to be identified." It quotes Peter Crane, president of Crane Data LLC of Westborough, Mass., a research firm that tracks money market mutual funds, "The $1 [per share net asset value] holds vast psychological importance. Moving to any other number may shake the faith in the product." IN quotes Crane on the possibility of funds having to disclose actual NAVs, "An investor would see a $0.999 NAV and panic, thinking, 'Oh my God, it's not $1.' It would allow for arbitrage, and it [would] be dangerous in the hands of some investors." "They're going to do [primarily] what the ICI recommended," Mr. Crane predicted.