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The nation's largest money market fund manager, Fidelity Investments, has begun producing a series of white papers on money fund regulatory reforms. The first in Fidelity's "Money Market Reform Communication Series" is entitled, Understanding Government & U.S. Treasury Money Market Funds. "Fidelity is well prepared for the new rules. Where needed, we will make changes to our product offerings and fund operations to comply with these rules. Fidelity remains fully committed to the money market mutual fund business and to educating investors through a series of publications that discuss how these new regulatory requirements will impact various types of money market mutual funds," writes Fidelity's `Nancy Prior, president fixed income, and Kevin Meagher senior vice president, deputy general counsel.

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A critical piece of the SEC's money market reform rules is a proposal by the U.S. Department Treasury and IRS to allow floating NAV money market fund investors to use a simplified tax accounting method to track gains and losses and provide relief from the "wash sale" rules for any losses on shares of a floating NAV money market fund. In a July 23rd release ("Treasury Guidance on Accounting for Gains and Losses in Certain Money Market Funds") that coincided with the SEC's vote to adopt money fund reform, the Treasury Department wrote, "Today's guidance is proposed rather than final to provide the public an opportunity for comment. Nevertheless, shareholders in floating NAV MMFs can now rely on these proposed regulations to begin to use the simplified method." (See the Treasury's "".)

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While Final Money Market Fund Reform Rules were adopted last week, two SEC Commissioners, Michael Piwowar and Kara Stein, voted in opposition. Here are excerpts from their statements, explaining why they opposed the new rules. First, we look at Piwowar's remarks. "As to the first recommendation, while I support the adoption of all the amendments to the disclosure, reporting, and stress testing requirements, I am not able to support the adoption of the so-called combination approach which would require institutional prime and tax-exempt money market funds to price and transact at a floating net asset value (NAV) calculated to the fourth decimal place (nearest basis point) and also would require liquidity fees and discretionary redemption gates." (For more on the new Reforms, see the SEC's press release here, the SEC's "Speeches" page here, the archived Webcast here, and the full 869-page Final Rule here.)

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Much of Federated Investors Q2 earnings conference call (see transcript here) was dominated by discussion of the SEC's July 23rd adoption of new money fund rules, but President and CEO Chris Donahue made it clear that the focus will be on making sure "no client is left behind" as the company prepares for the changes to take effect in two years. Federated's earnings release says, "Money-market assets were $245.2 billion at June 30, 2014, down $23.3 billion or 9 percent from $268.5 billion at June 30, 2013 and down $18.4 billion or 7 percent from $263.6 billion at March 31, 2014. Money-market mutual fund assets were $212.4 billion at June 30, 2014, down $20.5 billion or 9 percent from $232.9 billion at June 30, 2013 and down $15.1 billion or 7 percent from $227.5 billion at March 31, 2014. Revenue decreased by $10.8 million or 5 percent primarily due to an increase in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields and a decrease in revenue due to lower average money-market and fixed-income assets." During Q2 Federated derived 32 percent of its revenues from money-market assets. (Note: The SEC just posted a version of the new rules "Marked to Show Changes from Previous Rule 2a-7" on its "Final Rules" page, but it has yet to post the "Federal Register" version of the rules.)

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Following Wednesday's Open Meeting, where Final Money Market Fund Reforms were adopted by a vote of 3-2, the SEC released the text of statements from all five Commissioners. We published Chair Mary Jo White's speech yesterday ("SEC Adopts MMF Reforms; Chair White on Rule's Fundamental Changes"), and today we post excerpts from the two Commissioners who joined her in favor of the rule -- Luis Aguilar and Daniel Gallagher. (For more on the new Reforms, see the SEC's press release here, the SEC's "Speeches" page here, the archived Webcast here, and the full 869-page Final Rule here.) Here's what Aguilar had to say. "It is well known that the journey to arrive at the amendments considered today was a difficult one, and I can confidently say that this has been, at times, perhaps one of the most flawed and controversial rulemaking processes the Commission has undertaken. He added, "The quality of the June 2013 release resulted in the Commission receiving thoughtful input and a considerable amount of data and detailed analysis, which, in turn, has significantly improved today's proposal. In total, the Commission received over 1,400 comment letters from a variety of commenters, including individuals, academics, investment companies, investment advisers, banks, operating companies, professional and trade associations, and government entities. The comment letters commented on all aspects of the June 2013 proposal from a variety of perspectives, including, expressing support, or opposition, to the floating NAV proposal, indicating varying degrees of support, or opposition, for liquidity fees and/or redemption gates (or the combination thereof), and mostly support of the enhanced disclosure requirements in the proposed reforms."

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At the Open Meeting of the Securities and Exchange Commission on July 23, the SEC voted to pass Final Money Market Fund Reforms by a vote of 3-2, adopting the floating NAV for institutional prime funds, fees and gates for all non-government funds, and additional disclosures and other measures which were proposed in June 2013. (See yesterday's Crane Data News, "SEC Final Rule on MMF Reform Just Like Proposal," and see the SEC's press release here, the archived Webcast here and the full 869-page Final Rule here. Also, see the Treasury's "Guidance on Accounting for Gains and Losses in Certain Money Market Funds".) Chair Mary Jo White along with Commissioners Daniel Gallagher and Luis Aguilar voted in favor, while Commissioners Kara Stein and Michael Piwowar voted against. Below are excerpts from White's statement; look for comments from the other commissioners in the coming days. See the SEC's "Speeches" page here, Chair White's Opening Statement here, Commissioner Aguilar's Comments here, Commissioner Gallagher's Comments here, Commissioner Piwowar's (dissenting) Comments here, and Commissioner Stein's (dissenting) Comments here.

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The U.S. Securities & Exchange Commission (SEC), which discussed and passed its Final Money Market Fund Reforms Wednesday morning (July 23 10am) with a 3-2 vote, released the following press release and "Fact Sheet" outlining the new rules. (The SEC's full 869-page Final MMF Reform Rules are now available here. Visitors may also view the archived Webcast of the Sunshine Meeting here.) The SEC's "Fact Sheet" on Money Market Fund Reform says, "The Commission will consider whether to adopt final rules that reform the way money market funds are structured and operate in order to better equip them to address run risks, while preserving the benefits of money market funds. The money market fund reforms would: Floating NAV - Require certain money market funds to maintain a floating net asset value (NAV) for sales and redemptions based on the current market value of the securities in their portfolios rounded to the fourth decimal place (e.g., $1.0000). The requirement, which would apply to institutional prime money market funds (including institutional municipal money market funds), would result in the daily share prices of the money market funds fluctuating along with changes in the market-based value of the funds' investments. Fees and Gates - Provide new tools to money market fund boards of directors to directly address a run on a fund. The new tools -- fees and gates -- would give fund boards the ability to impose liquidity fees or to suspend redemptions temporarily, also known as "gate," if a fund's level of weekly liquid assets falls below a certain threshold." (Note: See Chair Mary Jo White's Opening Statement here, Commissioner Aguilar's Comments here, Commissioner Gallagher's Comments here, Commissioner Piwowar's (dissenting) Comments here, and Commissioner Stein's (dissenting) Comments here. You can see the ...

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The U.S. Securities & Exchange Commission (SEC), which is scheduled to discuss and vote on Final Money Market Fund Reforms Wednesday morning, July 23, at 10am Eastern, has posted an Agenda for the meeting. (We'll excerpt from the expected press release as soon as it's available tomorrow morning, and we'll forward this to subscribers. Visitors should also be able to view the Webcast of the Sunshine Meeting here.) We quote from the Meeting Agenda, and include comments from some analysts that have been weighing in with their expectations and the ramifications of money fund reform below. Wednesday's "Open Meeting Agenda" (July 23, 2014) lists, "Item 1: Money Market Fund Reform; Amendments to Form PF, Office: Division of Investment Management, Staff: Norm Champ, Diane Blizzard, Sarah ten Siethoff, Thoreau Bartmann, Sara Cortes, Adam Bolter, Erin Loomis, Andrea Ottomanelli Magovern, Kay Mario Vobis, Amanda Wagner." It says, "The Commission will consider whether to adopt amendments to certain rules under the Investment Company Act of 1940 that govern the operation of money market funds and related amendments to Form PF under the Investment Advisers Act of 1940. For further information, please contact Thoreau Bartmann, Division of Investment Management, at (202) 551-6745."

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The Investment Company Institute released its latest "Money Market Funding Holdings" report, which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds (as of June 30, 2014). ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets table shows Prime Money Market Funds' Daily liquid assets at 24.2% as of June 30, up from 22.8% on May 31. "Daily liquid assets" were made up of: "All securities maturing within 1 day," which totaled 19.7% (vs. 18.7% last month) and "Other treasury securities," which added 4.5% (vs. 4.2% last month). Prime funds' Weekly liquid assets totaled 36.1% (vs. 36.6% last month), which was made up of "All securities maturing within 5 days" (30.0% vs. 31.5% in May), Other treasury securities (4.4% vs. 4.0% in May), and Other agency securities (1.7% vs. 1.1% a month ago).

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On behalf of Federated Investors, David Freeman, partner at Arnold & Porter LLP law firm, issued yet another comment letter to the SEC on money fund reform. The letter, which may be setting the stage for a legal challenge to pending SEC rules, is addressed to Chair Mary Jo White and was posted to the SEC's web site on July 16. It was prompted by the news that the SEC will meet to discuss and potentially adopt new money fund rules on July 23. (See our July 17 News "SEC Posts Notice Confirming MMF Reform Vote on July 23".) Note that the SEC's "Comments on Proposed Rule: Money Market Fund Reform" page also now shows July 15 letters from Senator Mike Crapo and Senator Pat Toomey to Treasury Secretary Lew on the tax issues associated with a floating NAV. (See our "Link of the Day" from July 17, "Reuters writes "U.S. Senators Urge Treasury to Fix Money Fund Tax Concerns".)

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In their latest Quarterly Corporate Cash Briefing webinar, principals from Treasury Strategies talked about trends in corporate cash and led a panel discussion on the ramifications of next Wednesday's meeting of the SEC Commissioners to address money fund reform. (See our "Crane Data News" from yesterday "SEC Posts Notice Confirming MMF Reform Vote on July 23; Market Share.") The 45-minute webinar featured commentary from Tony Carfang, partner, Treasury Strategies; Edmonia Lindsey, managing director, Treasury Strategies; Debbie Cunningham, chief investment officer, global money markets, Federated Investors; and Roger Merritt, managing director, Fitch Ratings.

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The SEC posted a "Sunshine Act Meeting" notice late Wednesday, officially confirming its meeting on Money Market Fund Reform next Wednesday (July 23). In addition to voting on the reform alternatives of floating NAV for prime institutional funds, emergency gates and fees, or a combination of these, it appears that the Commission will provide exemptive relief from 'de minimus' taxes and propose rules on ratings. The statement says, "Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94-409, that the Securities and Exchange Commission will hold an Open Meeting on Wednesday, July 23, 2014 at 10:00 a.m., in the Auditorium, Room L-002. The subject matters of the Open Meeting will be: The Commission will consider whether to adopt amendments to certain rules under the Investment Company Act of 1940 that govern the operation of money market funds and related amendments to Form PF under the Investment Advisers Act of 1940. The Commission will also consider whether to issue a related notice of proposed exemptive relief. The Commission will consider whether to (i) re-propose amendments to the principal rule under the Investment Company Act of 1940 that governs the operation of money market funds to address provisions that reference credit ratings and (ii) propose an amendment to the diversification provisions in that rule. 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. Kevin M. O'Neill, Deputy Secretary."

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