Yesterday, Bloomberg wrote "SEC Said to Favor Capital Buffer Plan for Money Market Funds", which said, "Money-market mutual funds would be forced to create capital buffers equaling 1 percent to 3 percent of assets to protect against losses under a plan now favored by staff at the U.S. Securities and Exchange Commission, according to three people briefed on the regulator's deliberations." We discuss the Bloomberg piece below, and we also excerpt from the ICI's most recent round of weekly money fund assets, monthly mutual fund flow statistics, and monthly portfolio composition numbers.
Bloomberg explains, "Top SEC officials, seeking to make money funds safer, prefer the plan over another capital buffer idea crafted by Fidelity Investments and calls to eliminate the funds' stable share price, said the people, who asked not to be identified because they weren't authorized to speak publicly. The concept is based on recommendations submitted to the agency in January by university economists known as the Squam Lake Group. The SEC's staff remains undecided on several details of the plan, including exactly how big the buffer should be, two of the people said. If the plan is endorsed by agency staff, SEC commissioners will have to approve it and may still consider rival proposals, the people said. Florence Harmon, a spokeswoman for the SEC, declined to comment."
The article adds, "The so-called Squam Lake proposal would require funds to establish a segregated account holding cash or liquid assets such as U.S. Treasuries. The money would be used to bail out a fund if it suffered investment losses. Any fund failing to maintain the required buffer would be forced to announce that failure and convert to a floating share price within 60 days, according to the proposal. Under the plan, funds would sell bonds, or subordinated shares, to raise money for the buffer from a separate group of investors. Those investors would lose money if the buffer were tapped to cover investment losses."
In other news, ICI's weekly "Money Market Mutual Fund Assets" comments, "Total money market mutual fund assets decreased by $37.53 billion to $2.634 trillion for the week ended Wednesday, July 27, the Investment Company Institute reported today. Taxable government funds decreased by $26.77 billion, taxable non-government funds decreased by $8.12 billion, and tax-exempt funds decreased by $2.64 billion." (Crane Data's Money Fund Intelligence Daily shows Treasury Institutional Money Funds with outflows of $17.0 billion, or 5.0%, over the three days through July 27.)
Also, ICI's monthly "Trends in Mutual Fund Investing June 2011" says, "The combined assets of the nation's mutual funds decreased by $179.8 billion, or 1.4 percent, to $12.224 trillion in June, according to the Investment Company Institute's official survey of the mutual fund industry.... Money market funds had an outflow of $41.12 billion in June, compared with an outflow of $2.74 billion in May. Funds offered primarily to institutions had an outflow of $48.01 billion. Funds offered primarily to individuals had an inflow of $6.89 billion."
Finally, ICI's latest "Month-End Portfolio Holdings of Taxable Money Market Funds" showed substantial declines in Certificates of Deposits (down $26.0 billion to $572.2 billion, or 24.0% of taxable money fund assets) Repurchase Agreements (down $23.7 billion to $467.0 billion, or 19.6%), and Commercial Paper (down $24.0 billion to $368.6 billion, or 15.5%) during the month of June. U.S. Government Agency Security (up $21.3 billion to $367.0 billion, or 15.4%) and U.S. Treasury Bill (up $10.7 billion to $348.6 billion, or 14.6%) holdings rose in June, according to ICI, likely due to the large shift from Prime to Government money funds last month.
