BNY Mellon's Liquidity DIRECT online money market fund "portal" (formerly known as Money Funds Direct), recently posted a new issue of its "Liquidity Directions" newsletter. The latest edition features comments on global liquidity and money funds by Jonathan Spirgel, Managing Director of Liquidity Services at BNY Mellon and a review of proposed money fund reforms by Peter G. Crane of Crane Data LLC.
The first piece, "Half-Empty or Half-Full?, is subtitled, "A Puzzling Predicament for Global Liquidity." The newsletter asks Spirgel, "Even the most liquid of assets, such as money market funds, have come under increased scrutiny. What are portfolio managers and regulators doing to ensure fund safety?" He says, "Early in the credit crises, a high-profile fund 'broke the buck' and this sent shockwaves throughout the industry. Much like banking, the industry is tightening its standards while working closely with government regulators to ensure safety, stability and liquidity. New regulatory proposals include shorter maturity limits, more stringent ratings, and periodic stress tests to examine a fund's ability to maintain a stable net asset value in the event of market shocks."
Liquidity Directions also asks, "What makes BNY Mellon's Liquidity DIRECT one of the industry's top investment portals for cash management?" Spirgel answers, "Through Liquidity DIRECT, we offer a wide range of money markets funds, as well as individual securities available through BNY Mellon Capital Markets, LLC, a registered broker-dealer, all on a single investment platform. Also, since we are part of the world's largest custodian bank, we also offer a wide range of first-class custody services. BNY Mellon has over $22 trillion in assets under custody and is consistently ranked as the industry's top custodian. This adds considerable comfort as clients seek safekeeping in capital markets around the world."
Crane writes in "A Review of Proposed, and Likely, Money Market Fund Reforms, "Pending SEC proposals would require funds to maintain a portion of their portfolios in instruments that can be readily converted to cash, shorten the weighted average maturity of holdings from 90 days to 60, and limit investments to only the highest quality securities. The new proposals would also require money market funds to report their holdings monthly to the SEC; and permit a money market fund that has 'broken the buck' to suspend redemptions to allow for the orderly liquidation of fund assets."
Crane says in the newsletter, "Other significant proposed changes include eliminating 'illiquid' and 'second tier' securities from money funds, requiring liquidity buckets of 5% or 10%, and 15% or 30% for daily and weekly holdings for retail or institutional funds, and requiring the disclosure of monthly portfolio holdings (from quarterly). We expect the WAM to change, but to 75 days instead of 60. We expect the liquidity buckets to be toned down, and the retail vs. institutional distinction to be removed. We'd also guess that the 'illiquid' bucket, currently 10%, is reduced to 5%, but that the ban on 'tier 2' securities sticks."
Finally, Crane adds, "While the majority of the potential changes to money funds involve minor technical issues and tweaks, the SEC also asked market participants to comment on the theoretical possibility of a floating net asset value for money funds. Practically every single comment letter submitted opposed this radical idea. It's important, too, to note that this concept was put out for discussion only, and not proposed as a change in current regulations. Given the lack of support for the concept and the uncertainty surrounding such a drastic change, we think it's highly unlikely that regulators will alter the core concepts of money market funds' structure, the $1.00 a share stable value and amortized cost method of valuation."
