The following is excerpted from the August issue of our Money Fund Intelligence newsletter: Crane Data recently surveyed MFI subscribers and readers of our website at www.cranedata.com about the SEC's recent Money Market Fund Reform Proposals and issues facing money funds. The responses indicate that ultra-low interest rates have surpassed regulatory changes as the most important issue facing money funds, and that the proposals overall are rated relatively favorably. (For the full survey questions and our previous website story, see our July 30 article, "Money Fund Intelligence Conducting Survey on SEC MMF Proposals".)
MFI e-mailed the brief survey questions to its 800+ readers ... [and asked them to] rate the SEC's proposals on a scale of 1 to 10, with 10 being the highest. The average score was 6.3. The SEC proposals overall got '8' scores (the highest) from 7 respondents and '1' scores from two. (See the August MFI for a summary of the full survey results.) We then asked, "Which of the SEC's proposed MMF Reform amendments do you think would do the most good?" The most popular option, "Adding liquidity mandates," was chosen by 48.3% of respondents. This was followed by "Other" (20.7%), where the majority of write-in options cited the 120-day maximum 'spread WAM' as likely the most effective mandate.
The next question asked, "Which of the SEC's Proposed MMF Reform Amendments do you think would do the most harm?" Responses were widely distributed with "Moving WAM from 90 to 60 days" garnering the most votes (27.6%), followed again by "Other." This time the write-ins included: "introduction of Floating NAV," "differentiating between retail/institutional funds, as it relates to liquidity requirements (30% 7 day punitive!)," and "showing the shadow price to investors."
MFI then asked, "What are the most important issues facing money market mutual funds in the coming months?" "Ultra-low interest rates" ranked [as] the most important issue (1.7), followed by "Regulatory changes" (2.2), "Competition from banks or new products" (3.6), and "Rising rates" (3.8). "Consolidation" trailed in importance (3.9) followed by "Other" (4.3), where a couple of write-in responses included the, "threat of floating NAV."
We asked readers to "Rate the attractiveness of a floating NAV." Though the overall average of 3.5 indicates this concept's unpopularity among the money fund community, there were some surprising pockets of support for the idea. Ten of our 26 respondents rated the concept a '1' (plus one who went off the scale with a zero), while 4 respondents gave the concept a '10'. One respondent commented, "potential changes to accounting treatment make it less desirable."
We then asked, "If you could add or remove a change, what would it be?" Survey takers' comments included: "Change liquidity mandates," "I would nix removal of illiquid securities," "Remove floating NAV from comment consideration," "In addition to the punitive 30% 7 day liquidity bucket for institutional funds (should be lower) the 'maturity limit for other portfolio security' should not be reduced from 397 days," "Removing second tier securities," "2nd tier reinstated," "Removing illiquid securities," "Liquidity mandates," "Limit FRNS longer then 12 months and limit the % of FRNs in the fund," and "don't change illiquid bucket."
Finally, we asked, "Are there any other important issues you think Crane Data should address in a comment letter or in an article?" Readers said: "US government support in the form of liquidity backstop would help the industry. Not an FDIC insurance but a perpetual program to buy securities, or lend against them in the event of market disruptions," "The notion of having to distinguish between retail and institutional funds for determination of liquidity requirement," "Definitely have concerns with publicly publishing actual security prices. Eliminating illiquid securities could potentially stifle innovation -- why not have a low max of say 5%?"
Look for more comments on the SEC's website and industry feedback following Crane's Money Fund Symposium, which begins this Sunday, August 23, in Providence (and lasts through Tuesday, August 25). Crane Data's inaugural conference will feature a number of discussions involving the SEC's Money Market Fund Reform Proposals.
