A new type of money market security began appearing last week designed to address both the recent SEC Money Market Fund Reform liquidity mandates and concerns about European debt with longer maturities. Intesa SanPaolo, Italy's largest bank, issued $1.6 billion in floating rate notes with a 7-day "put" feature, a "step-up" interest rate feature (1-month LIBOR for the first month plus 5 bps for every additional month) and a 1-year final maturity. The securities were distributed by Barclays Capital and JPMorgan Securities, according to the Bloomberg description.

With bank regulators demanding longer maturity issuance and money fund regulators requiring shorter issuance, it appears that Wall Street's financing wizards are once again busy trying to meet the market's needs. Natixis is expected to follow soon with a similar issue, and money fund demand was said to be very robust. While we have yet to see a "no-action" letter on these securities, we expect many more hybrids such as these to appear.

As we wrote in our March 4 Crane Data News piece, "Goodwin's John Hunt Reads Regulatory Tea Leaves in Ignites Webinar," which quoted Hunt, "I do think it's likely that in response to the new rules that there could be new kinds of products that are going to be designed for money market funds.... As these products start to test the limits of Rule 2a-7 ... I think it's likely that there could be further no-action relief."

While "hard put" features, or the ability to return the security to the issuer or to a dealer, are common in the tax-exempt sector, they're rare among taxable money markets, especially since extendible asset-backed commercial paper disappeared in 2007. As with previous changes to Rule 2a-7 of the Investment Act of 1940, debt issuers and securities dealers have been quick to adapt to changes in money fund regulations.

(Note that both Intesa Sanpaolo and Natixis are among the over 20 exhibitors and sponsors scheduled to display at our Crane's Money Fund Symposium, which will take place on July 26-28 at The InterContinental Boston. The conference also recently added a session on "Europe & Stresses in the Money Markets," featuring Barclays' Joe Abate and Fidelity's Michael Morin.)

In other Europe news, a Wall Street Journal blog yesterday featured a "Q&A: ECB's Orphanides Dismisses Concerns of Greek Default", which quotes the European Central Bank's Athanasios Orphanides. He was asked, "Is the euro-zone's economic upswing robust enough to cope with rising money market rates?" Orphanides answered, "We are sensitive to the liquidity needs in the banking sector. Currently the ECB supplies as much liquidity as demanded by the banking sector in order to defuse any concerns about the availability of liquidity. With a fixed-rate, full allotment procedure for the three-month operations for the third quarter already announced, the ECB has ensured that banks will have available as much liquidity as needed through the end of the year, and we are still in June."

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