Kroll Bond Rating Agency published a new paper entitled, "Money Market Funds Brace for Regulatory Launch." Written by Barry Weiss, Marjan Riggi and Christopher Whalen, it says, "As summer draws to a close, the money market fund industry is bracing itself for the October deadline for implementation of new rules for money market funds, rules that could reshape the short duration marketplace. In July 2014, the Securities and Exchange Commission (SEC) voted to adopt amendments to the rules that govern money market funds, Rule 2a-7. The amendments, which followed earlier attempts at regulatory reform, were meant to address risks of investor runs in money market funds. However, like many regulatory changes put in place since the 2008 crisis, it seems the new SEC amendments to Rule 2a-7 may be causing unintended ripples that threaten to disrupt the liquidity of the very industry they were meant to stabilize."
CME Clearing, a division of the CME Group that clears futures, options and swaps, released a statement entitled, "IEF2 Impact Due to Recent CFTC Staff Interpretation on Prime Money Market Funds earlier this week. It says, "On August 8, 2016, staff of the Commodity Futures Trading Commission's Division of Clearing and Risk released an interpretation concerning the impact of new Securities Exchange Commission (SEC) regulations that, as part of a more comprehensive reform effort, require the boards of directors of prime money market funds to have discretion, under certain circumstances, to temporarily suspend redemptions in such funds. In staff's view, when these discretionary redemption gates take effect on October 14, 2016, prime funds and government funds electing to have this discretion would cease to be eligible as margin collateral for a derivatives clearing organization."
Larry Locke Associate Dean at McLane College of Business at the University of Mary Hardin-Baylor, sent Crane Data a recent commentary entitled, "The Mysterious, and Critical, Future of Money Market Fund Regulation." He explains, "The compliance date for the new money market fund regulations is October 14, 2016, and the industry has been furiously preparing for the new regulatory regime. Most visibly, fund companies have been altering their product mix to include fewer institutional prime funds that will be required to trade at a floating Net Asset Value. Institutional funds are furiously converting from prime funds to government funds, which will be able to continue to sell shares at $1.00."
The SEC released its "Money Market Fund Statistics" for July 31, 2016 late last week, and the latest data shows that assets rose slightly (with yet another sharp drop in Prime and Tax Exempt MMFs and jump in Govt MMFs) and yields decreased slightly. 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. The Commission's latest statistics show total money market fund assets increased by $21.2 billion in July to $3.014 trillion. (The SEC's series includes some private and internal funds not reported to ICI, Crane Data or other reporting agencies.) Assets fell $20.7 billion in June, $18.7B in May, and $40.5B in April. Year-to-date, total assets are down $71.7 billion, or 2.3%, through 7/31. We analyze the latest numbers below, and also quote from a new Deutsche piece, "Primed for October."
S&P Global published a paper on "Negative Rates," which contains a section on European money funds, entitled, "Pay me to give you back less than what you gave me: the new era for money market investors." Written by Andrew Paranthoiene and Emelyne Uchiyama, it says, "Money market funds (MMFs) are well-regarded by investors as an alternative to bank deposits for short-term cash management. Investors benefit primarily from a diversified portfolio of high-credit, short dated liquid assets that seek to provide them with stability of capital, provision of liquidity and a return. Over the last eight years of ultra-low or negative interest rates, these objectives in major markets have been challenged. But for euro-denominated funds, it is business as usual, despite negative interest rates." (See Paranthoiene on CNBC Europe here and note that he'll be speaking at our European Money Fund Symposium next month in London.) We review S&P's negative rates brief below, and also excerpt from an S&P update on ABCP.
The slow-motion run on Prime and Tax Exempt MMF assets picked up speed in the latest week. Prime assets had their steepest decline of the year and are now poised to break below $900 billion overall. Their declines since late 2015 now total over $550 billion, or 38.0%. The shift continues to be fueled by the conversion of sweep assets (more Morgan Stanley assets moved this week). But the carnage was widespread this week as 25 money funds saw outflows of over $1.0 billion, according to our Money Fund Intelligence Daily. ICI's weekly "Money Market Fund Assets" report shows all MMFs decreasing $34.9 billion in the latest week. Prime funds fell $40.0 billion -- their 13th decline out of the past 14 weeks (-$276.0B) and more than double the average rate of the past 13 weeks. Government funds gained just $15.1 billion, reversing a 2-week trend of Govt MMFs gaining more than the prime outflows.
The following is reprinted from the August issue of Crane Data's Money Fund Intelligence newsletter.... This month, MFI interviews Mark Santero, C.E.O of the Dreyfus Corporation, and Charlie Cardona, President of Dreyfus Corporation and C.E.O of BNY Mellon's Cash Investment Strategies division. Cardona will be retiring at the end of the year, and Santero recently became the leader of the cash business at Dreyfus. We wanted to discuss their transition, their latest plans and strategies, and some lessons learned from Cardona's extensive history in the money fund business. Our interview follows.
Yet another Tax Exempt money market mutual fund is giving up the ghost. The $2.0 billion ($3.3B as of a month ago) Federated Tax Free Money Market Fund filed to liquidate, the latest in a long line of municipal exits. (See our August 4 News, "Muni MMFs "Decimated" by Rules Says Bloomberg; More Liquidations," and our Feb. 24 "Clean Sweep: Tax Free MMFs Liquidating En Masse; BofA, RBC, Deutsche.") This latest T-E liquidation filing says, "On August 12, 2016, the Board of Trustees (the "Board") of Money Market Obligations Trust approved a Plan of Liquidation for Tax-Free Money Market Fund (the "Fund") pursuant to which the Fund will be liquidated on or about September 23, 2016 (the "Liquidation" or the "Liquidation Date"). In approving the Liquidation, the Board determined that the liquidation of the Fund is in the best interests of the Fund and its shareholders." Also this week, Wilmington Prime merged into Wilmington U.S. Government, and Nicholas MMF and Putnam Liquidity MMF liquidated. We review the latest money fund carnage below, and we also excerpt from a recent article on Investment Policies.
BlackRock's "Cash Academy" learning center features a new "Focus on Government Money Funds" section including a video from Portfolio Manager Joseph Markowski and a paper entitled, "Differentiating in a Commoditized Market." Markowski explains, "Given the current market dynamics and shifting regulatory framework facing cash investors, we expect government money market funds to become increasingly attractive. Regulatory change is a key driver, due to the ability of government money market funds to retain constant net asset value pricing, with optional adoption of the liquidity fee and redemption gate provisions under Rule 2a-7 of the Investment Company Act of 1940. As cash investors confront a possible re-allocation between prime and government money market funds, we feel it is important to carefully evaluate providers as well as the construction of these products, even government money market funds. Here's why."
As we wrote in Friday's Link of the Day, "Prime and Muni MMFs Fall Hard Again," Prime and Tax Exempt MMF assets continued their steep slide last week. Though at this point it appears everybody is selling or switching, brokerage sweep accounts continue to be the major contributor of the now over $500 billion shift from Prime and Muni into Government MMFs. As we hinted, shifts by Morgan Stanley money funds drove much of last week's flows. According to our Money Fund Intelligence Daily, which tracks daily asset flows, yields, MNAVs and WLA liquidity figures, Morgan Stanley Govt Sec Inst took in a massive $21.5 billion in the week through Thursday, while while MSIM's Prime and Municipal Active Assets, and Liquid Assets funds showed declines of $12.9 billion. While there is no official word that their retail Prime and Muni funds are liquidating, they did lose over half of their assets and are showing single-digit WAMs (often a sign of an imminent liquidation). We review a recent statement by Morgan Stanley brokerage on changes to their sweep program, and also quote from an ignites article on strike and cutoff times below.
Contrary to what they said this spring (see our April 1 News, "All In: TDAM to Maintain Full MMF Roster; ICI Trends, Composition"), TD Asset Management has filed a Prospectus Supplement (497) to liquidate its TDAM Institutional Money Market Fund and TDAM Institutional Municipal Money Market Fund. TDAM, the 28th largest money fund manager with $6.4 billion (down from $7.8 billion 3 months ago), issued a March 31 press release ("TD Asset Management Announces Product Strategy for Money Market Funds) detailing its plans to maintain a full roster of Prime Retail, Prime Institutional, Tax-Exempt Retail, Tax-Exempt Inst MMFs, and Govt MMFs in its post-reform money fund lineup. But it appears to have changed its mind. We review the latest update as well as another recent liquidation and two fund merger filings below.
Fidelity Investments, the largest manager of money market mutual funds with over $450 billion in assets, released an "Update: Fidelity Money Market Mutual Fund Changes" and a new "Q&A: Money Market Mutual Fund Regulatory Update" on its latest reactions to pending money market fund reforms. They write, "Since July 2014, when the U.S. Securities and Exchange Commission (SEC) issued new rules for money market mutual funds and a multi-year implementation period for those rules, we have spent significant time listening to our investors' preferences and taking steps to ensure that our funds will meet the new requirements by the SEC's October 14, 2016 final implementation date. We know that money market mutual funds are very important to investors and these funds continue to be an integral part of our business. Over the past year, we have made several changes to our money market mutual funds." (See Fidelity's recap of previously announced money fund changes here, and see our previous CraneData.com News stories: "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt (2/2/15)," "Fidelity Operational Update Details More Changes; Alpine Liquidates (4/14/15)," "Fidelity Details Retail vs. Inst MMF Changes; Only One Floating Fund (10/15/15)," and "Fidelity's Prior at AFP on Recent and Pending Changes; No Silver Bullet (10/28/15).")Archives »