Money market fund assets continued their up and down pattern, increasing this week after dropping last week, says ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets increased by $16.97 billion to $2.69 trillion for the week ended Wednesday, March 25, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $4.79 billion and prime funds increased by $13.94 billion. Tax-exempt money market funds decreased by $1.76 billion. Assets of retail money market funds increased by $80 million to $892.46 billion. Among retail funds, Treasury money market fund assets decreased by $250 million to $194.27 billion, prime money market fund assets increased by $870 million to $509.11 billion, and tax-exempt fund assets decreased by $530 million to $189.08 billion. Assets of institutional money market funds increased by $16.89 billion to $1.80 trillion. Among institutional funds, Treasury money market fund assets increased by $5.05 billion to $787.46 billion, prime money market fund assets increased by $13.07 billion to $938.28 billion, and tax-exempt fund assets decreased by $1.22 billion to $70.62 billion." For the last 8 weeks going back to the beginning of February, MMF assets have seesawed up and down each week. Year-to-date assets are down $44 billion, or 1.6%." In other news, the New York Fed published a "Statement to Revise the Time of Day of the Overnight Reverse Repurchase Agreement Operation for March 31, 2015," which says, "The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) has been working internally and with market participants on operational aspects of tri-party reverse repurchase agreements (RRPs) to ensure that this tool will be ready to support the monetary policy objectives of the Federal Open Market Committee (FOMC). Regarding the overnight reverse repurchase agreement (ON RRP) operation to be conducted on Tuesday, March 31, 2015, the Desk will conduct the operation from 9:30 to 10:00 a.m. Eastern Time, several hours earlier than usual. All other terms of the exercise will remain the same."
Bloomberg writes "CCB Unit Said to Offer Europe's First RQFII Money market ETF", which says, "CCB International Asset Management Ltd. will offer Europe's first exchange-traded fund that invests in China's money market, said two people familiar with the matter. The ETF will be listed in London and will be tradeable in yuan, euro, or pounds, the people, who asked not to be identified as the plan hasn't been announced publicly, said Monday." (Note: This isn't really a "money market" vehicle, since currency fluctuations are involved, but rather a "currency" fund.) The article continues, "It will give access to China's onshore market via renminbi qualified foreign institutional investors, they said. CCB International, a unit of China Construction Bank Corp., will release an official statement in due course, the company said in an e-mail Monday." The Bloomberg piece continues, "China is certainly an attractive destination for money managers around the world, given the high yields," said `Wang Ming, chief operations officer at Shanghai Yaozhi Asset Management LLP, which oversees 2 billion yuan ($322 million) of fixed-income holdings <b:>`_. "A global environment of low interest rates will probably persist this year, so yuan assets will continue to be attractive." Yu'EBao, China's largest money-market fund with 579 billion yuan of assets under management, offers a return of about 4.5 percent, according to data released on the website of Tianhong Asset Management Co., the investment vehicle's manager. That compares with the one-year local benchmark deposit rate of 2.5 percent. There are around 40 ETFs registered in the U.S. tracking China's shares and debt." Also, in other news, The Washington Post published the story, "G Fund's Return Would Drop to Nearly Zero Under House Plan," and The Wall Street Journal wrote Monday, "After Seven Years, Shadow Credit Finally Recovers." The latter story says, "Seven years after the financial crisis, a key form of lending among financial institutions finally appears to have bottomed out, a reversal that could presage a long-awaited uptick in U.S. economic growth. The New York-based Center for Financial Stability says that February showed an increase in the short-term credit that circulates among investment banks like Goldman Sachs Group Inc. and big non-bank managers of money-market funds such as Vanguard."
SEC Chair Mary Jo White testified on "Examining the SEC's Agenda, Operations and FY 2016 Budget Request" before the House Committee on Financial Services yesterday, and briefly mentioned money market funds. She said, "In July 2014, the Commission adopted significant reforms for governing money market mutual funds. The amendments are intended to reduce the risk of runs in money market funds, provide important tools to help further protect investors and the financial system in a crisis, and enhance the transparency and fairness of these products for America's investors. Under the new rules, "institutional prime" money market funds will be required to maintain a floating net asset value based on the current market value of the securities in their portfolios. The rules also provide new tools for boards of directors of money market funds to directly address heightened redemptions in a fund. Specifically, fund boards will be able to impose liquidity fees or to suspend redemptions temporarily, also known as "gates," if a fund's level of weekly liquid assets falls below certain thresholds. The Commission provided for approximately a two-year transition period for these new provisions to enable both funds and investors time to fully adapt their systems, operations, and investing practices. The new rules also enhance money market fund disclosure requirements. Money market funds will be required to promptly disclose certain significant events, including the imposition or removal of fees or gates, portfolio security defaults, and instances of sponsor support. In addition, money market funds will be required to disclose additional key information on their website on a daily basis, including funds' liquidity levels, net shareholder flows, and market-based net asset values per share." Also, Fed Vice Chair Stanley Fischer spoke Monday in New York on the "Monetary Policy Lessons and the Way Ahead," where he commented on the Fed's RRP program. "We also plan to use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, counterparties may invest funds with the Fed at a given rate, possibly subject to a cap on the aggregate amount invested. Because ON RRP counterparties include many money market participants that are not eligible to receive IOER, the facility can be a powerful tool for controlling money market interest rates. Indeed, testing to date by the New York Fed suggests that ON RRP operations have generally established a soft floor for such rates. However, an ON RRP program also has certain risks. For example, a large and persistent program could have unanticipated and adverse effects on the structure of money markets. In addition, in times of stress, demand for the safety and liquidity of ON RRPs with the central bank might increase sharply, potentially exacerbating disruptive flight-to-quality flows. To mitigate these risks, the FOMC has agreed that it will use an ON RRP facility only to the extent necessary and will phase it out when it is no longer needed. In addition, the Fed has been discussing and testing other supplementary tools, such as term reverse repurchase agreements and term deposits, and can use these tools as needed to help support money market rates."
Dennis Lockhart, President and CEO of the Atlanta Federal Reserve Bank, delivered a speech Friday, entitled, "Thoughts on Prudential Regulation of Financial Firms," where he shared concerns about shadow banking and, more specifically, money market funds. He said, "Today I would like to explore questions related to prudential regulation as it applies to banks and nonbank financial firms. More specifically, I'll contrast prudential regulation of banks and so-called shadow banks, or firms that play a role in the shadow banking system.... Another component of the shadow banking system that has received a lot of attention is the money market mutual fund industry. Money market funds have drawn attention because of the aggregate scale of the industry and the quasi-deposit nature of shareholder investments in these funds. The concern in the regulatory community -- including the Fed -- regarding money market funds relates to the industry's size and perceived vulnerability to runs in times of financial turbulence. Current regulation of money market funds by the U.S. Securities and Exchange Commission allows only a very limited range of investments and tenors. There is considerable correlation among constituent funds that results from this tight regulation. The industry has about $2.7 trillion of liabilities. Almost 40 percent of that is in funds that hold only government and government agency securities. And almost two-thirds of the $2.7 trillion in invested assets represents investments by institutional clients. There is some basis for concern about the industry's potential role in an episode of financial instability. In the fall of 2008, a prime fund -- the Reserve Primary Fund -- "broke the buck" due to holdings of Lehman Brothers commercial paper. In the week or so that followed, roughly $500 billion flowed out of prime money market funds into government money funds. Prime funds met redemptions through decreases in commercial paper holdings, prompting a crisis in that market for issuers. The Federal Reserve quickly stood up market support facilities to address the crisis in short-term markets. The money market fund sector remains a focus of regulators because of its potential to be both contributor to and victim of financial instability." He concludes, "At the beginning of my remarks, I argued that the experience of recent years has made the primary aim of prudential regulation to protect the financial system's ability to support the general economy. In my view, this should be the "true north" of any expansion of the regulatory overlay on shadow banking."
A press release entitled, "Federated Investors' Ohio Municipal Cash Trust to Acquire $91 Million in Assets from Touchstone Ohio Tax-Free Money Market Fund," says, "Federated Investors, Inc., one of the nation's largest investment managers, and Touchstone Advisors, Inc., have reached a definitive agreement regarding the acquisition by Federated of certain assets relating to Touchstone's management of the Touchstone Ohio Tax-Free Money Market Fund, a series of Touchstone Tax-Free Trust. In connection with the acquisition, approximately $91 million in tax-free money market assets will be reorganized from the Touchstone Ohio Tax-Free Money Market Fund into Federated Ohio Municipal Cash Trust, a portfolio with a similar investment objective. Established in 1990, Federated Ohio Municipal Cash Trust has approximately $391 million in net assets and is a portfolio of the Federated Money Market Obligations Trust, which has approximately $184 billion in aggregate net assets. With approximately $19 billion in tax-free, state-specific money market assets under management, Federated offers more tax-free state money market products than any other investment manager. "Federated's experience in handling these types of transactions and our commitment to providing a variety of liquidity-management solutions for our clients provide an ideal opportunity for the shareholders of the Touchstone fund to transition to Federated," said Joe Machi, director of alliances at Federated. "As a leading provider of cash management services, Federated regularly works with organizations of many types and sizes as they evaluate their liquidity-management needs, and we continue to seek opportunities for mutually beneficial transactions." It continues, "In light of the changing regulatory landscape with respect to money market funds, we sought a party that had a commitment to the money market fund business. Federated offers shareholders of the Touchstone Ohio Tax-Free Money Market Fund the opportunity to continue their investments in a larger fund with comparable investment objectives, investment strategies, tax benefits, expenses and performance," said Steve Graziano, president of Touchstone Investments. The reorganization is expected to be tax-free and is anticipated to be completed in the second quarter of 2015. Closing of the transaction is subject to shareholder approval and certain other contingencies." In our March 5 "News", we reported, "Touchstone Rescinds Liquidations, Moves to Dreyfus, saying Touchstone was transitioning three of its money funds to Dreyfus. SEC filings said a fourth, Touchstone's Ohio Tax free MMF would be reorganized "into a comparable money market fund advised by a third-party investment manager (the "Acquiring Fund"). The Acquiring Fund would have a similar investment objective and expenses to those of the Fund." In other news, the New York Fed updated its "Reverse Repo Counterparties List," removing the Reich & Tang Daily Income Fund, which is being liquidated and possibly moved to Federated. (See our March 17 News, "Federated In Talks with Reich & Tang Over MMF Assets.")
Money market fund assets declined this week, likely due to corporate tax payments, after rising last week says ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets decreased by $19.18 billion to $2.67 trillion for the week ended Wednesday, March 18, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $1.58 billion and prime funds decreased by $20.66 billion. Tax-exempt money market funds decreased by $100 million. Assets of retail money market funds increased by $1.29 billion to $892.38 billion. Among retail funds, Treasury money market fund assets increased by $290 million to $194.52 billion, prime money market fund assets increased by $680 million to $508.24 billion, and tax-exempt fund assets increased by $330 million to $189.61 billion. Assets of institutional money market funds decreased by $20.47 billion to $1.78 trillion. Among institutional funds, Treasury money market fund assets increased by $1.29 billion to $782.41 billion, prime money market fund assets decreased by $21.34 billion to $925.22 billion, and tax-exempt fund assets decreased by $420 million to $71.85 billion." Money fund assets fell for the first 5 weeks of 2015, then they've alternated between increases and decreases the past 6 weeks. Year-to-date, money fund assets have declined by $61 billion, or 2.2%.
SIFMA, formerly the Bond Market Association, will host its annual Asset Management Account (AMA) Roundtable and its Operations Conference April 13-16 in San Diego. SIFMA's AMA Roundtable includes presentations and networking for brokerage and "cash" account product managers. The group is seeking more attendees -- e-mail Theresa Andino at email@example.com for a meeting registration form. This year's Ops event will again include a panel on "Money Market Reform," which will be moderated by Joan Ohlbaum Swirsky of Stradley Ronon Stevens & Young and which will feature Pete Crane of Crane Data and Tim Schiltz of Ameriprise Financial. The session description says, "Money market reform is here! In July 2014, the SEC adopted amendments to the rules that govern money market mutual funds. The amendments make structural and operational reforms to address risks of investor runs in money market funds, while preserving the benefits of the funds. This panel will explore what these reforms mean for the market as they fundamentally change the way institutional prime money markets operate with the introduction of a floating NAV, liquidity fees and redemption gates. The panel will also address what modifications may be necessary in operations, customer relations and across your firm to implement these reforms." Crane is also moderating a panel at the "SIFMA Asset Management Account Roundtable" on Cash Sweep Products. The panelists include: Crane; Kevin Bannerton, Managing Director Head of Marketing and Sales, Total Bank Solutions; Tom Nelson, Chief Investment Officer, Reich & Tang; and Michelle Lens, Vice President, Institutional Sales, Dreyfus. Click here to register or for more details.
Bloomberg reported, "Federated, BlackRock Mull Private Money Funds Amid Rules." The article says, "Regulators' attempts to prevent another run on the $2.7 trillion money-market fund industry is having some unintended consequences. Some of the largest fund providers, led by Federated Investors Inc. and BlackRock Inc., are considering offering private funds with a fixed $1 dollar share price as an alternative to institutional prime funds that were forced last year to adopt a floating price. Invesco Ltd. is discussing several alternatives with clients, including letting them move money into its existing private pool, said Lu Ann Katz, who heads the firm's global liquidity business. Abandoning the stable share price was among the key changes the U.S. Securities and Exchange Commission introduced last year to make the biggest money funds safer. Opponents unsuccessfully argued that the change could drive large corporations to look for alternatives. If the money managers go ahead with their plans, billions of dollars may end up leaving the regulated funds and move into pools that are largely outside the reach of the SEC." It continues, "Money managers are responding with a range of alternatives before the rule goes into effect October 2016. Fidelity Investments plans to convert several of its prime money market funds to ones that buy only securities issued or backed by the U.S. government.... Others, including Vanguard Group and Legg Mason Inc.'s Western Asset Management Co., are offering ultra-short bond funds with fluctuating share prices for investors who want more yield.... BlackRock plans to give clients a choice of different variations of government, prime, municipal and short-duration funds as well as separate accounts, Tom Callahan, co-head of cash management at the firm, said in a statement. The world's largest money manager is also considering private pools for clients, according to a person familiar with the matter, who asked not to be identified because the plans are preliminary. "We are in active dialogue with our clients, and are learning that different client types have particular sensitivity to different elements of these new regulations," said Callahan, who didn't elaborate beyond the statement. Private pools could be an option for investors who find a floating share price and redemption gates unsettling, but who want higher returns from their money funds, said Invesco's Katz. Federated, one of the largest providers of money-market mutual funds with more than $258 billion of those assets, is giving investors options including separate accounts, offshore funds and government pools, Chris Donahue, chief executive officer of Pittsburgh-based Federated, said in a fourth-quarter earnings call. It is also proposing to limit some of its funds to securities that mature within 60-days since the SEC allows that debt to be valued at cost. "We are also working on developing privately placed funds in attempt to mirror existing Federated money market funds to serve the needs of groups of qualified, usually institutional investors unable to use money funds modified by the new rules," Donahue said."
The Investment Company Institute recently issued a "Supplemental Letter to IRS and Treasury regarding Money Market Fund Reform Tax Guidance regarding the IRS & Treasury's "Proposed Guidance on Taxation of Money Market Funds." The letter, dated March 11, was addressed to the Treasury's Michael Novey, Associate Legislative Counsel, and the IRS's Steven Harrison Branch Chief, Branch 1 Office of Associate Chief Counsel (Financial Institutions and Products). It was authored by ICI's Karen Lau Gibian, Associate General Counsel -- Tax Law, and says, "The Investment Company Institute is pleased to provide additional information in response to questions raised at the public hearing on recently proposed regulations regarding the taxation of money market funds with floating net asset values ("NAVs"). Specifically, this letter addresses: Permitting use of the NAV method on an account-by-account basis; Aligning use of the NAV method by regulated investment companies ("RICs") for income and excise tax purposes; Clarifying the definition of "fair market value" for purposes of the NAV method; and Permitting existing money market funds with both retail and institutional investors to separate into two separate funds in a tax-free manner. In addition to these points, the Institute plans to ask for additional guidance that was not requested in our original comment letter. It has come to our attention that some investment advisors are discussing the possibility of making payments to existing institutional money market funds to bring the NAV up to $1.0000 before the compliance date for the final Securities and Exchange Commission ("SEC") money market fund rule. The Institute plans to seek guidance regarding the proper tax treatment of such payments. Given the time sensitivity of the issues described above, however, the Institute plans to submit a separate letter in the near future regarding advisor contributions. The Institute appreciates the efforts of the Treasury Department and the Internal Revenue Service ("IRS") to issue final guidance on floating NAV money market funds in a timely manner. We hope that this supplemental information will be useful as the government works to finalize the guidance prior to implementation of the final SEC money market fund rule." (Click here to read the full 27-page letter.)
Barclays' Joseph Abate writes "Regulatory Reform: Repo-cussions" in his latest update. The summary says, "[W]e take a closer look at how recent bank reforms have changed the size, scope, and nature of the $2.5trn repo market. We also explore how these challenges are likely to intensify in coming years. Repo volumes have shrunk in two waves since March 2008. The recent decline appears to be driven by several factors in addition to regulatory pressure. The effect of tougher bank regulation on the repo market extends beyond trading volumes. Capital requirements appear to have the most significant effect on repo volumes. Net stable funding requirements will amplify the effect. The liquidity coverage ratio seems to be influencing the mix of collateral pledged. As regulatory deadlines approach, we expect these mix and volume effects to intensify. Non-Fed tri-party repo may contract 20% in the next year or so. While further volume reduction and collateral shifts will likely produce market "winners" and "losers," they will also spur market changes and alter the way banks and dealers think about the business." It concludes, "Most people pay little attention to plumbing, provided it works properly. The repo market has long been considered a dull part of the financial market plumbing, largely overlooked by many until it stops working, as it did during the financial crisis. However, just as plumbing attracts considerable focus when the taps run dry (or otherwise), this mundane market is about to get significantly more attention. Regulatory reform is likely to shrink the market further and reduce the role of banks and dealers as intermediaries in the exchange of collateral and cash. Similarly, balance sheet scarcity is likely to lead to further spread widening with clear winners (banks) and losers (long-only investors who cannot net trades). At the same time, the Fed's efforts to put a floor under short-term interest rates is likely to increase the central bank's presence in the repo market despite its discomfort with the RRP program."
The 25th largest money market fund family, Reich & Tang, has decided to liquidate its money market funds, citing regulatory changes. The press release, entitled, "Reich & Tang Announces Liquidation of its Money Market Mutual Funds," says, "Reich & Tang Asset Management, LLC today announced that the Board of Directors for each of its money market mutual funds has approved plans of liquidation for those funds. The liquidations, which represent approximately $9.5 billion in shareholder assets, are expected to be completed by July 31, 2015. After more than four decades Reich & Tang is moving away from its investment management business. "Our newest chapter is written," said Michael Lydon, Reich & Tang's President and Chief Executive Officer. "Given the ongoing regulatory changes that are being added to the already challenging landscape for money funds, the ability for mid-tier money fund sponsor firms to thrive has become significantly diminished. It is our responsibility to ensure that shareholders' best interests are being served at all times, and our process over the next few months will better help shareholders to stay that course." In shedding the investment management business, the firm will focus on growing its successful FDIC-insured deposit programs that provide valuable solutions to banks, trusts, brokerages, RIA's, and other private and public investment programs. Lydon adds, "The company was built on its expertise in cash management and this fine-tuning of our product line is a direct result of our ability to adapt our business to meet the needs of our customer base. This foundation of more than 40 years' experience has helped us to uncover further opportunities to grow relationships through our leading FDIC-insured sweep and funding programs, areas that will be our focus going forward." Reich & Tang is nationally recognized as a competitive provider of funding for banks as well as having one of the longest track records in extended FDIC- insured sweep programs in the bank and brokerage spaces. "The streamlining of our operations to focus on our FDIC deposit programs enables Reich & Tang to invest all of its resources into these programs and carve deeper into its niche as an expert in the deposit, liquidity, and short-term capital markets," concluded Lydon. Reich & Tang is an affiliate of Natixis Global Asset Management, one of the world's largest asset managers with $890 billion in assets under management as of December 31, 2014." In other news, ICI released its latest "Money Market Mutual Fund Assets" report, which says, "Total money market fund assets increased by $18.19 billion to $2.69 trillion for the week ended Wednesday, March 11."
The Securities and Exchange Commission released its latest "Money Market Fund Statistics" report, with data as of January 31, 2015. The report summarizes Form N-MFP data and which includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends. The data is produced by the SEC's Division of Investment Management. Overall, total money market fund assets stood at $3.057 trillion at the end of January, down $24 billion from Dec. 31, 2014, according to the SEC's broad total (which includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies). Of the $3.057 trillion, $1.769 trillion was in Prime funds (down $3B from Dec. 31), $1.019T was in Government/Treasury funds (down $19B), and $268 billion was in Tax-Exempt funds (down $2B). The number of funds dropped by 2 in Jan. 2015 to 544. Looking at other statistics, the Weighted Average Gross 7-Day Yield for Prime Funds was 0.21% on Jan. 31 (up 0.01%), 0.08% for Government/Treasury funds (unch.), and 0.06% for Tax-Exempt funds (down 0.01%). The Weighted Average Net Prime Yield was 0.05% (Govt and Tax-Exempt net yields were 0.01%), and the Weighted Average Prime Expense Ratio was 0.16% (up 0.01%). The Weighted Average Life, or WAL, for Prime funds at month-end was 77.8 days (up from 76.6 days on Dec. 31, 2014), for Government/Treasury funds was 79.7 days (up from 74.9), and for Tax Exempt funds was 34.0 days (down 3.2 days). The Weighted Average Maturity, or WAM, for Prime funds was 43.5 days (up 0.7 days), for Govt/Treasury funds was 43.7 days (up 0.2 days), and for Tax-Exempt funds was 33.0 days (down 3.3 days). Total Daily Liquidity for Prime funds was 25.7% in January (up 3.2% from last month), while Total Weekly Liquidity was 40.6% (down 0.8%). In the category Prime MMF Holdings of Bank Related Securities by Country, the US topped the list with $203.5 billion, just ahead of Canada at $200.8 billion. France was third with $184.7 billion, followed by Japan at $171.7B, Sweden at $116.0B, the U.K. at $101.8B, and Australia/New Zealand at $100.5B. The Netherlands ($60.8B), Switzerland ($50.9B), and Germany ($49.0B) round out the top 10. For Prime MMF Holdings of Bank-Related Securities by Region, Europe had $626.2 billion in while its subset, the Eurozone, had $315.4. The Americas was next with $407.1 billion, while Asia and Pacific had $303.5 billion. The Total Amortized Cost of Prime MMF Portfolios was $1.771 trillion as of Jan. 31, 2015. That was made up of $611 billion in CDs, $372 billion in Government (including direct and repo), $425 billion in Non-Financial CP and Other Short term Securities, $264 billion in Financial Company CP, and $98 billion in ABCP. Also, the Proportion of Non-Government Securities in All Taxable Funds was 49.5% at month-end. All MMF Repo with Federal Reserve was $173.2 billion on Jan. 31, 2015, down from $371.1 billion at year-end. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 42.4% were in maturities of 60 days and over, while 11.6% were in maturities of 180 days and over.Archives »