On Wednesday, we noted that the Association for Financial Professionals, formerly known as the Treasury Management Association, published its "2011 AFP Liquidity Survey," which "provides CFOs, treasurers and other financial professionals data to benchmark their companies' short-term investment strategies." We excerpted from its "Key Findings," which showed that companies continue to build cash and that "companies continue to hold nearly four-fifths of their cash and short-term investment holdings in three historically ultra-safe investment vehicles: bank deposits, money market mutual funds and Treasury securities." Today, we excerpt from AFP's survey sections on Money Market Funds and Multi-Family Trading Portals."

AFP writes, "In January 2009, the Securities and Exchange Commission (SEC) voted to adopt new rules to strengthen money market funds. The new rules focus on limiting risks associated with money market funds, increasing protection of investors, improving fund operations, and enhancing fund disclosures. The amendments were designed to increase the resilience of money market funds to economic stresses, reduce the risks of runs on funds, facilitate the orderly liquidation of a money market fund (MMF) that breaks, or is about to break, the buck, and improve the SEC's oversight of money market funds."

They say, "Changes are now in place with the goals of tightening liquidity requirements, imposing higher credit-quality requirements, shortening portfolio maturity limits addressing reliance on rating agencies, enhancing disclosure of portfolio holdings, and addressing issues that arise when money market funds experience market challenges. Still on the table is the issue of the Floating NAV (net asset value). Money market funds now post their shadow NAV on a 60-day delay basis so that investors can see the true value. If the floating NAV for money market funds were mandated it would surely be a deal breaker for treasury departments.... Nearly seven out of ten respondents report that the changes in 2a-7 money fund rules have had no impact on their organizations' investment decisions (69 percent)."

The Survey continues, "With the substantial percentage of cash and short-term investment holdings in money market funds, organizations must be able to evaluate the counterparty risk of these funds. Organizations may draw upon analysis conducted by internal staff and/or by third-parties to conduct this crucial work. Just over half of organizations rely on the credit ratings issued by a nationally registered statistical rating organization (NRSRO) when it analyzes and monitors counterparty risk of its money market funds. Larger organizations are more likely than smaller ones to use credit ratings to analyze counterparty risk. Other techniques used include: Reviewing fund holdings on a more frequent basis (41 percent); Reviewing the parent company and/or the fund sponsor ownership (32 percent); Increased use of technology, portals and/or additional reporting validations (17 percent); and, Outsourcing investments and utilizing the services of the third-party's credit team (13 percent)."

On "Multi-Family Trading Portals," AFP's Liquidity Survey comments, "Organizations have the option of using an electronic, multi-family trading portal to execute short-term investment transactions. These portals provide organizations an opportunity to more easily facilitate transactions and compare investment choices. In addition, trading portals can lower the costs associated with managing and administering an organization's short-term investments. Thirty-one percent of organizations use an electronic, multi-family trading portal to execute at least a portion of their short-term investment transactions.... The use of multi-family trading portals increased over that reported last year."

It adds, "While organizations can use electronic trading portals to trade a number of investment vehicles, they use them primarily to trade prime money market funds (79 percent) and direct holdings in treasury/government securities (59 percent). Nearly one out of five organizations that uses an electronic trading portal does so to manage bank time deposits, while eight percent use such portals for transactions involving treasury/government money market funds and their holdings of commercial paper."

AFP continues, "There are a number of benefits to using electronic, multi-family trading portals. Seven out of eight organizations that use electronic portals agree that they provide all the needed information in a single platform. Users of electronic trading platforms also note that these portals provide for better transparency and reporting (55 percent), allow the ability to tie funds back to an organization’s bank relationships (thus allowing for better tracking) (41 percent) and allow for better pricing and more competitive offerings (32 percent)."

The Survey comments, "The most important criteria when choosing an electronic, multi-family trading portal is the functionality of the platform (58 percent). Users of portals also consider whether the platform is offered by their organizations' banking partners (45 percent), breadth of the money market funds offered (36 percent), its integration with organization's treasury management systems (31 percent), fees (31 percent) and the portal's reporting capabilities (30 percent)."

Finally, AFP writes, "Organizations examine a number of criteria when selecting the money market funds to include in their short-term investment portfolio. The only criterion used by more than half of organizations that include MMFs in their short-term investment portfolios is the credit ratings of the funds, used by 64 percent of organizations.... For both smaller organizations and those that are privately held, the top consideration is the current yield offered by the fund. Other criteria considered include: Current yield (49 percent); The underlying investments are permitted funds (38 percent); Allowable credit ratings of permitted underlying investment vehicles of fund (23 percent); Assets under management (AUM) (22 percent); and, The fund's sponsor (22 percent)."

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