Yet another entry has appeared on the SEC's website commenting on the President's Working Group Report on Money Market Fund Reform. This latest, written by Cachematrix CEO & Founder George Hagerman, discusses the "portal" marketplace and is the first entry responding to the SEC's request for comments on its upcoming "Roundtable on Money Funds and Systematic Risk," which will take place next Tuesday, May 10 at 2pm EDT. Hagerman writes, "Cachematrix Holdings LLC appreciates the opportunity to submit comments in connection with the Roundtable Discussion Regarding Money Market Funds and Systemic Risk to be hosted by the Securities and Exchange Commission on May 10, 2011."
It continues, "We understand that the roundtable is intended to provide a forum for exchanging views on the potential effectiveness of certain options in mitigating systemic risks of money market funds, including, but not limited to, those contained in the Report of the President's Working Group on Financial Markets. The role of omnibus accounts and electronic portals and the purported lack of transparency through such channels has been an area of focus in the analysis of the financial crisis of 2008 and its aftermath. We believe that a comprehensive understanding of the potential strengths and benefits of portals, and the technology and other capabilities of portal providers, is critical to an evaluation of systemic risk in the money market arena and any related reform efforts."
Hagerman says, "Short term investing is a critical function of most corporate treasury departments. Historically, treasury and other short term investors have viewed money market mutual funds as safe havens in which to invest their excess cash. Over the past decade, particularly after 2006, many treasury and other short term investors have turned to webbased investment portals to manage their investments in money market funds and other short term instruments such as commercial paper. From the perspective of banks and financial institutions seeking to meet the needs of corporate treasury departments and other clients who are short term investors, portals provide a powerful tool. Portals can offer investors time savings, electronic compliance monitoring, investment diversification, and the ability to facilitate reporting and mutual fund analysis within one consolidated platform. Following the liquidity crisis in 2008, investment portals facilitated investors' research by posting recent fund holdings, subprime/SIV statements, fund fact sheets, prospectuses and other information."
He explains, "During challenging or turbulent market conditions, portals allow investors with a myriad of choices. These include not only a menu of institutional money market funds, but also other money market instruments such as commercial paper and discount notes. In addition, by offering precise information on the destination of wire transactions, the name of the authorizer and time stamps, portals can help financial institution customers comply with Sarbanes Oxley, which requires tighter audit controls on cash management."
Hagerman's letter also says, "Portals can also offer participating money market funds many benefits including efficiencies in processing, compliance and risk management tools, customized reporting and realtime transparency. Many portals use omnibus settlement in which trades are consolidated and settled through a single wire. Accordingly, participating funds or their transfer agents do not need to process the voluminous amount of trading that can occur in institutional money market funds that are geared toward providing daily liquidity to corporate treasurers and other financial institutions. In addition, portals provide extensive audit trails and checks and balances, which not only increase efficiency but also reduce the likelihood of errors."
He tells the SEC, "Currently, there are approximately 17 portals operating in the institutional money market space, including 9 portals powered by Cachematrix technology, and assets of approximately $500 billion traded through such portals. In addition, we estimate that there are over 100,000 small to Fortune 500 companies that use portals. Accordingly, portals are an integral participant in the institutional money market space and provide critical interfaces between short term investors including bank and financial institution customers, and money market funds. With their heavy emphasis on online technology and innovation, portals and technology providers to portals have played and can continue to play an integral role in developing private market based solutions to managing systemic risk. Accordingly, we strongly believe that portals should be viewed as a part of the solution to systemic risk management, rather than part of the problem."
Hagerman says, "Electronic portals were criticized during the liquidity 'run' that occurred in the fall of 2008 following the Lehman Brothers bankruptcy. Following the events of 2008, some providers of money market portal technology developed significant enhancements that have helped industry participants evaluate and manage liquidity risk by creating a range of transparency solutions, compliance tools and customized reporting."
Finally, he writes, "Cachematrix believes that both portals and omnibus accounts serve an important function to all key constituencies in the money market space including money market funds, financial intermediaries and end investors such as corporate treasurers. Cachematrix supports reform initiatives that are aimed at mitigating risk through increased transparency with respect to transactions placed through portals or other omnibus arrangements. Various measures have ranged from increased reporting to more significant measures, such as extending Rule 22c-2 to money markets funds. As discussed above, certain private industry participants and service providers have already developed technology enhancements to achieve the goal of greater transparency. We believe that the staff of the Commission should seek to fully understand the technology capabilities of private market participants in formulating further reform efforts with respect to money market funds."
