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The March issue of Crane Data's Money Fund Intelligence was sent out to subscribers on Friday morning. The latest edition of our flagship monthly newsletter features the articles: "Commissioners Push Alternatives in Reform Debate," which reviews recent SEC comments on pending regulations; "Federated Investors Debbie Cunningham," which interviews Federated's CIO for Global Money Markets; and, "Cash Breaks $10 Trillion; Deposits Continue Surging," which reviews the continued growth in bank deposits. We also updated our Money Fund Wisdom database query system with Feb. 28, 2014, performance statistics and rankings last night, and we sent out our MFI XLS spreadsheet earlier. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our February 28 Money Fund Portfolio Holdings data are scheduled to go out on Tuesday, March 11.
The latest MFI newsletter's lead article comments, "After SEC Chair White indicated last month that completing money fund regulatory reforms is a "critical priority for the Commission in the relatively near term of 2014," several other SEC Commissioners have weighed in on the topic in recent speeches. Commissioner Michael Piwowar told the Wall Street Journal that he advocated letting investors choose between a floating NAV and a gates and fees option, while Commissioners Gallagher and Stein blasted and defended the FSOC, respectively. Meanwhile, meetings and lobbying over the pending regulations continues."
As we wrote in our March 4 CraneData.com News , "The Journal commented late last week: As U.S. securities regulators move to finalize long-awaited rules aimed at reducing risks to the $2.7 trillion money-market mutual-fund industry, one official wants investors to have greater choice in the types of funds in which they can invest."
The "profile" with Federated's Cunningham says, "This month MFI interviews Federated Investors' Executive VP & CIO for Global Money Markets Deborah Cunningham. Our Q&A follows. MFI: Tell us about your history. Cunningham: From Federated's perspective, we've been involved in running cash since the beginning of time. We now have the oldest registered money market fund on the books of the SEC, Federated Money Market Management. It has 40+ years of history at this point. We ran cash before we even had funds, so we had risk-averse strategies from the very beginning."
Cunningham's intro continues, "As far as our historical involvement in the money fund industry, we've been involved in every step of the process, from the original exemptive orders that led to amortized cost, to the first go-round of 2a-7, to the '92 amendments, the '96 amendments, the 2010 amendments, etc.... I started at Federated in 1981, and began in our accounting department. I moved in to the Investment Management and began actively involved in the team management process for the money funds in 1986." (Watch for excerpts of this interview later this month, or write us to request the full article.)
The February MFI article on Cash Breaking $10 Trillion explains, "The latest Federal Reserve statistics show that bank deposits, the main competitor of money funds and main beneficiary of the financial crisis, continue to surge, even following last year's expiration of unlimited FDIC insurance. Overall cash, including bank deposits (in banks and thrifts), money fund assets and small time deposits, broke above the $10 trillion level late last year for the first time in history."
Crane Data's March MFI with Feb. 28, 2014 data shows total assets falling by $44.9 billion (after rising by $561 million last month) to $2.574 trillion (1,238 funds, the same number as last month. Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at a record low 0.01% while our Crane 100 Money Fund Index (the 100 largest taxable funds) yielded 0.02% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.13% (Crane MFA, down one bps) and 0.16% (Crane 100) on an annualized basis for both the 7-day and 30-day yield averages. (So Charged Expenses averaged 0.12% and 0.14% for the two main taxable averages.) The average WAM and WAL for the Crane MFA and the Crane 100 were 45 and 47 days, respectively, unchanged from last month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
U.S. Securities and Exchange Commission Commissioner Daniel M. Gallagher took another opportunity to blast capital requirements and banking regulations for investment funds, and warn of the threat of FSOC, at "Remarks Given at the Institute of International Bankers 25th Annual Washington Conference Monday. He didn't say much on pending money fund regulations, but comments, "Before I begin, I'd like to point out that two years ago, I spoke at this conference and discussed the Financial Stability Oversight Council, or FSOC, in great detail. I spoke about the inherently political nature of FSOC, how it had been vested with tremendous power, and how it could threaten our capital markets. So, given everything that has happened since then, I have to say: I told you so." (See also, our Jan. 16 Crane Data News, "SEC Commissioner Gallagher Blasts Capital, Banking Paradigm for Mkts".)
Gallagher continues, "Today, I'd like to share some thoughts about regulatory capital requirements. I've spoken before about the significant differences between bank capital and broker-dealer capital, because I fear that these distinctions are all too often overlooked in the debates over regulatory capital.... In the capital markets, there is no opportunity without risk -- and that means real risk, with a real potential for losses. Whereas bank capital requirements are based on the reduction of risk and the avoidance of failure, broker-dealer capital requirements are designed to manage risk -- and the corresponding potential for failure -- by providing enough of a cushion to ensure that a failed broker-dealer can liquidate in an orderly manner, allowing for the transfer of customer assets to another broker-dealer."
He says, "As I said, it's counterintuitive, but the possibility -- and the reality -- of failure is part of our capital markets.... A safety-and-soundness bank-based capital regime simply doesn't work in the context of capital markets. To put it another way, when you deposit a dollar into a bank account, you expect to get that dollar back, plus a bit of interest.... When you invest a dollar through a broker-dealer account, however, the market determines how much you get back. You could break even, you could double your investment, or, of course, you could lose part or all of that initial investment. The point is that when we make a bank deposit, we expect, at a minimum, to receive the entirety of our principal back, while when we make an investment, we expect the market to dictate what we receive in return. It stands to reason, therefore, that the capital requirements for broker-dealers must be tailored accordingly."
Gallagher explains, "I'm sure you didn't need an SEC Commissioner to explain to you the difference between a deposit and an investment. And yet, when it comes to setting capital requirements, bank regulators seem increasingly determined to seek a one-size-fits-all regulatory construct for financial institutions. In addition, as noted by my friend Peter Wallison in an important recent op-ed in The Hill, both the Dodd-Frank-created FSOC and the G-20-created -- and bank regulator dominated -- Financial Stability Board seem intent on applying the bank regulatory model to all financial institutions they deem to be systemically important."
Gallagher tells us, "The recent FSOC intervention in the money market mutual fund space shined a spotlight on this newly expansive vision of the role of banking regulators. The money market mutual fund reform debates that raged through 2012 focused in large part on the concept of a "NAV buffer," which effectively is a capital requirement for money market funds. This debate culminated in the November 2012 issuance of a report by FSOC which incorporated the concept of a so-called "NAV buffer."
He adds, "The reasoning behind capital buffer requirements for money market funds is that they would serve to mitigate the risk of investor panic leading to a run on a fund. The figures under discussion, however, were far too low to promise any serious effect on panic, while the imposition of real, bank- or even broker-dealer-like capital requirements in this space, on the other hand, would simply kill the market for money market mutual funds. A 50 basis point buffer, to be phased in over a several year period, would hardly stem investor panic, unless one believes that investors would be comforted by the knowledge that for every dollar they had on deposit, the money market fund had set aside half a penny as a capital buffer."
Gallagher says, "Crucially, as I've noted before, there is no limiting principle to the application of this bank-based view of capital -- indeed, last September, Treasury's Office of Financial Research issued a fatally-flawed "Asset Management and Financial Stability" report featuring similar reasoning, as reflected in its implied support for "liquidity buffers" for asset managers. It remains unclear as to whether the Fed is indeed seeking to impose bank-based capital charges on non-bank entities in conjunction with granting them access to the discount window -- at the cost of submitting to prudential regulation -- or whether it is instead proposing those additional capital charges in order to prevent non-prudentially regulated financial entities from ever relying upon the "government safety net" provided by the discount window."
He continues, "Bank regulators and their wide-eyed admirers have spoken at length about the risks of "shadow banking," which they define broadly to include the types of "securities funding transactions," such as repo and reverse repo, securities lending and borrowing, and securities margin lending, used by both banks and broker-dealers for short-term funding. The loaded term "shadow banking" isn't exactly used as an honorific, and I find it concerning that so many bank regulators routinely use the term to describe the day-to-day transactions so crucial to ensuring the ongoing operations of our capital markets."
The Commissioner states, "To be clear, I respect the Fed's concerns about capital requirements for bank affiliated non-bank financial institutions, notwithstanding my fears as to the steps the Fed might take to address those concerns. Our financial institutions are interconnected as never before, increasing the importance of taking a holistic view of those institutions, subsidiaries and all. In doing so, however, it is crucial that we bring to bear the specialized experience and expertise of the regulators with primary oversight responsibility over the constituent parts of those institutions. In the case of broker-dealers, this means the Commission, with its nearly eight decades of experiences in this regulatory space."
Finally, he comments, "It's my hope that the bank regulators constructively participate in this dialogue as well. The last thing anyone wants is the old Washington cliche of a "turf war." For one thing, we'd lose -- the SEC will never have the resources of the banking agencies -- after all, it's hard to outspend agencies that can print their own money. More to the point, however, we'd never want to "win" -- not only are we busy enough as it is, with approximately sixty Dodd-Frank mandated rules yet to be completed along with the day-to-day, blocking-and-tackling work that's so critical to the agency's mission, but we recognize that the banking regulators are best situated to regulate banks. When it comes to the broker-dealer subsidiaries of banks, however, we stand ready to work with the Fed and other banking regulators to ensure that any new rules applicable to those entities are enhancements to our existing regime, not duplicative, contradictory or counterproductive regulations inspired by a regulatory paradigm designed for wholly different entities."
Preparations are underway for Crane Data's 6th annual Money Fund Symposium, which will be held June 23-25, 2014 at The Renaissance Boston Waterfront. The Agenda and the brochure are now available via PDF and on the Symposium website (www.moneyfundsymposium.com), and we are now accepting registrations ($750) and hotel reservations. (Brochures were recently e-mailed to past attendees and Crane Data subscribers, but contact us at firstname.lastname@example.org to request the full one.) Last year's Money Fund Symposium in Baltimore attracted over 450 attendees and over 30 sponsors and exhibitors, making it the world's largest annual gathering of money fund and money market professionals. Participants include money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators.
After an initial "Welcome to Money Fund Symposium 2014" by Peter Crane, President & Publisher of Crane Data, this year's agenda in Boston will start the afternoon of June 23 with the keynote speech "Money Market Funds - Past & Future" by Fidelity Investment's Nancy Prior. The opening afternoon will also feature: "Strategists Speak '14: Fed Taper, Repos, Regs" with Brian Smedley of Bank of America Merrill Lynch, Joseph Abate of Barclays , and Garret Sloan of Wells Fargo Securities. This will be followed by a panel entitled, "The Growing Role of Online Trading Portals," moderated by Dave Agostine of Cachematrix and including: Greg Fortuna of State Street's Fund Connect, Justin Meadows of MyTreasury, and Jonathan Spirgel of BNY Mellon Liquidity Services. The first day will close with a panel, moderated by Fitch Ratings' Roger Merrritt entitled, "Major Money Fund Issues 2013," featuring Charlie Cardona of BNY Mellon CIS/Dreyfus, Andrew Linton of J.P. Morgan A.M., and Steve Meier of State Street. The opening reception will be sponsored by Bank of America Merrill Lynch.
Day 2 of Money Fund Symposium features: "The State of The Money Market Fund Industry" with Peter Crane of Crane Data, Debbie Cunningham of Federated Investors, and Alex Roever of J.P. Morgan Securities; "Senior Portfolio Manager Perspectives," moderated by Joel Friedman of Standard & Poor's Ratings and including Rich Mejzak of BlackRock, Rob Sabatino of UBS Global Asset Management, and John Tobin of J.P. Morgan Asset Management; "Government MF Issues & Repo Update," with Andrew Hollenhorst of Citi, Marques Mercier of Invesco, and Mike Bird of Wells Fargo Advantage Funds; and "Treasury Dept. on FRNs & Risk Agenda" with U.S. Department of the Treasury's Matt Rutherford.
The afternoon of Day 2 (after a Dreyfus-sponsored lunch) features: "Dealer Panel: Supply Outlook, New Products," moderated by Dave Sylvester of Wells Fargo Funds and featuring Chris Condetta of Barclays, John Kodweis of J.P. Morgan Securities, and Jean-Luc Sinniger of Citi Global Markets; "Accounting Issues, Disclosure & Floating NAVs," with Chris May of PriceWaterhouseCoopers; "Enhanced Cash, ETF & Ultra‐Short Bond Growth," with Alex Roever of J.P. Morgan Securities, Jonathan Carlson of BofA Global Capital Management, and Peter Yi of Northern Trust; and, "European & Global Money Fund Outlook" with Jonathon Curry of HSBC Global Asset Management and Dan Morrissey of William Fry. (The Day 2 reception is sponsored by Barclays.)
The third day of Symposium features: "Money Fund Reforms A Look at the Final Rule," with Stephen Keen of Reed Smith and Jack Murphy of Dechert LLP; "Regulatory Roundtable: Discussing New Rules" with Jane Heinrichs of the Investment Company Institute, Kevin Meagher of Fidelity, and Sarah ten Siethoff of the U.S. Securities & Exchange Commission; and, "Corporate Cash Investor Issues & Alternatives, with Tony Carfang of Treasury Strategies, Lance Pan of Capital Advisors, and Jamie Cortas of EMC Corp. Finally, the last session is entitled, "FDIC, Brokerage & Retail MMF Update," and features Rick Holland of Charles Schwab, Ted Hamilton of Promontory Interfinancial Network, and Tim Schiltz of Ameriprise Financial.
Money Fund Symposium 2014 promises to be "the" place to be for money market professionals -- register and reserve your spot today! Exhibit space for Money Fund Symposium is $3,000; and sponsorship opportunities are $4.5K, $6K, $7.55K, and $10K. Finally, our next "offshore" money fund event, European Money Fund Symposium, is scheduled for Sept. 22-23, 2014 in London, England, and our next Crane's Money Fund University is scheduled for Jan. 22-23, 2015, in Stamford, Conn. We hope to see you in Boston in June!
The February issue of Crane Data's Money Fund Intelligence was sent out to subscribers Friday. The latest edition of our flagship monthly newsletter features the articles: "Final SEC Regs Coming Soon, But Still Unclear If Combo," which predicts that Money Market Fund Reforms may arrive as early as late March; "Capital Advisors Group's Campbell & Pan Talk SMAs," which interviews the founder of and the director of research for a boutique cash and separate account manager; and, "Focus on Treasury: New FRNs & Debt Ceiling Redux," which reviews the Treasuries new floating rate securities and the latest debt ceiling debate. We also updated our Money Fund Wisdom database query system with Jan. 31, 2014, performance statistics and rankings, and sent out our MFI XLS spreadsheet Friday. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our January 31 Money Fund Portfolio Holdings data are scheduled to go out on Tuesday, Feb. 11.
The latest MFI newsletter's lead article comments, "While most money fund professionals expect the SEC's pending final Money Market Fund Reforms to arrive late in the second quarter or even Q3 of this year (most also expect the "combination" of floating NAV and emergency fees with gates), we think recent comments from SEC Chair Mary Jo White may mean it could get here as soon as the end of March. But recent comments from another Commissioner indicate that the choice of possible alternatives has likely not been finalized yet."
As we wrote in our Jan. 28 CraneData.com News and quoted in MFI, SEC Chair White said recently on the pending reforms, "We have received hundreds of letters on the proposals with a wide range of differing views that we are reviewing closely. Completing these reforms with a final rule is a critical priority for the Commission in the relatively near term of 2014."
The "profile" with Capital Advisors says, "This month, MFI interviews Capital Advisors Group's Ben Campbell, President & CEO, and Lance Pan, Director of Investment Research & Strategy. We discuss their business, and issues in the money markets, the separately managed account space, and the area just beyond money market funds. Our Q&A follows."
Our interview asks, "MFI: How long has Capital Advisors been running cash?" Campbell answers, "We started in 1991 as an "outsourced" investment management solution for treasurers. Our focus was then and is now managing separate accounts for institutional cash investors. As we've gone through different credit and investment cycles, we've seen the need for and developed credit and risk management products in response to inquiries from treasurers. We began by providing credit analysis of securities and portfolios, which although separate from our invest management business, drew upon our strong research and portfolio management capabilities." (Watch for excerpts of this interview later this month, or write us to request the full article.)
The February MFI article on Treasury FRNs explains, "The U.S. Treasury was a bigger focus than usual for the money markets this month as the agency launched its new floating rate securities and as another game of chicken over the debt ceiling looms. We don't know yet how much of the new FRN note was purchased by money funds, but we'll have our first glimpse from our Jan. 31 Money Fund Portfolio Holdings [tomorrow and Wednesday]."
Crane Data's February MFI with Jan. 31, 2014 data shows total assets rising by $561 million to $2.619 trillion (1,238 funds, five more than last month). Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at a record low 0.01% while our Crane 100 Money Fund Index (the 100 largest taxable funds) yielded 0.02% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.14% (Crane MFA) and 0.16% (Crane 100) on an annualized basis for both the 7-day and 30-day yield averages. (So Charged Expenses averaged 0.13% and 0.14% for the two main taxable averages.) The average WAM and WAL for the Crane MFA and the Crane 100 were 45 and 47 days, respectively, up from 43 and 46 days last month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Finally, on Friday we also released the Agenda and brochure for our main conference event, Crane's Money Fund Symposium, which will take place June 23-25, 2014 <b:>`_ at the Renaissance Boston Waterfront Hotel. Our 6th annual Symposium should again attract the largest audience of money market professionals in the world. (We're estimating almost 500 for our Boston show.) Registrations and sponsorships are now being accepted for our 2014 Symposium. Our second annual "offshore" event, European Money Fund Symposium, is scheduled for Sept. 22-23 in London (watch for this agenda later this month), and our next "basic training" Crane's Money Fund University, will take place Jan. 22-23, 2015, in Stamford, Conn.