Looking back at 2010, it was another stressful and eventful year for money market mutual funds. The year began with the SEC's Money Market Fund Reforms, the most recent round of changes to Rule 2a-7 of the Investment Company Act of 1940 and ended with the release of the President's Working Group Report on further "Money Market Fund Reform Options". In between, the news was punctuated with liquidations and outsourcing, asset declines, and plenty of debate over the future of money market funds. Below, we excerpt from some of the highlights in Crane Data's News during 2010.
On January 27, we wrote "SEC Approves Money Market Fund Reform Proposals, Hosts Webcast," which said, "This morning, the SEC voted to approve its Money Market Reform Proposals.... A released summary statement says, 'The Securities and Exchange Commission today will consider adopting new rules designed to significantly strengthen the regulatory requirements governing money market funds. The rules will, if adopted, increase the resilience of these funds to economic stresses and reduce the risks of runs on the funds.... The rules would improve liquidity, increase credit quality and shorten maturity limits. They also would enhance disclosures by, among other things, requiring the posting on a delayed basis of a fund's 'shadow' net asset value or NAV.'"
On Feb. 24, Crane Data featured, "SEC Posts Full Final 220-Page Text of Money Market Fund Reforms," which said, "The summary says, 'The Securities and Exchange Commission is adopting amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The amendments will tighten the risk-limiting conditions of rule 2a-7 by, among other things, requiring funds to maintain a portion of their portfolios in instruments that can be readily converted to cash, reducing the maximum weighted average maturity of portfolio holdings, and improving the quality of portfolio securities; require money market funds to report their portfolio holdings monthly to the Commission; and permit a money market fund that has 'broken the buck', or is at imminent risk of breaking the buck, to suspend redemptions to allow for the orderly liquidation of fund assets. The amendments are designed to make money market funds more resilient to certain short-term market risks, and to provide greater protections for investors in a money market fund that is unable to maintain a stable net asset value per share."
Other Crane Data News stories of note throughout the first half of 2010 included: "ICI's Stevens Defends $1 NAV, Reveals Liquidity Facility Blueprint," which said, "ICI President & CEO Paul Schott Stevens strongly defended the money market mutual fund industry and its $1.00 NAV standard, and revealed that the ICI is pursuing the challenge of a 'stronger liquidity backstop' for the industry;" "Money Fund Assets Fall Below $3 Trillion, First Time Since Oct. 2007," which says, "Money market mutual fund assets fell below the $3.0 trillion level for the first time since October 31, 2007;" and, "`New Securities Appear to Address MMF Reform 7-Day Liquidity Bucket," which says, "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."
During the second half, we featured: "Federated to Take Over SunTrust's RidgeWorth Money Mkt Fund Assets," which quoted a press release, "Federated Investors, Inc., one of the nation's largest investment managers, reached a definitive agreement with SunTrust Banks, Inc. to transition approximately $17 billion in money market assets to Federated;" "Moody's Proposes New Money Market Fund Rating Methodology, Symbols;" and, "Liquidations Continue in Money Fund Space; Neuberger Files to Quit," which said, "Neuberger Berman appears to be the latest casualty of ultra-low rates, asset outflows and rising regulatory requirements in the money market mutual fund space."
In late October we wrote, "President's Working Group on Financial Mkts Gives MMF Reform Options." This article said, "The U.S. Treasury has released its long-awaited 'Report of the President's Working Group on Financial Markets: Money Market Fund Reform Options,' a paper 'detailing a number of options for reforms related to money market funds. These options address the vulnerabilities of money market funds that contributed to the financial crisis in 2008.... Treasury's press release says, 'Following the crisis, the Treasury Department directed the PWG to develop this report to assess options for mitigating the systemic risk associated with money market funds and reducing their susceptibility to runs. The PWG agrees that, while a number of positive reforms have been implemented, more should be done to address this susceptibility. The PWG now requests that the Financial Stability Oversight Council (FSOC), established by the Dodd-Frank Wall Street Reform and Consumer Protection Act, consider the options discussed in this report and pursue appropriate next steps."
Finally, our News continued, "[T]he Securities and Exchange Commission, as the regulator of money market funds, will solicit public comments.... Today's release is one part in a series of steps that the regulatory community will be taking in the coming months to implement financial reform and to help ensure that the financial system continues to become more resilient.... [U]nder 'Policy Options,' the report discusses, Floating net asset values; Private emergency liquidity facilities for MMFs; Mandatory redemptions in kind; Insurance for MMFs; A two-tier system of MMFs with enhanced protection for stable NAV funds; A two-tier system of MMFs with stable NAV MMFs reserved for retail investors; Regulating stable NAV MMFs as special purpose banks; and Enhanced constraints on unregulated MMF substitutes."
