We hope our subscribers and visitors all had a nice Holiday break; Happy New Year! Below, we excerpt from what we think are contenders for the 10 biggest stories covered on www.cranedata.com's daily News in 2013. While the year was dominated by continued virtually zero rates, regulatory stories and the SEC's Money Market Fund Reform Proposal in June (and comments on the proposal) featured heavily in our news coverage. Our Top 10 Stories of 2013 include (in chronological order): JP Morgan Joins Goldman in Disclosing Daily Mark-to-Market NAVs (1/10/13), SEC's Gallagher Attacks FSOC, Says Moving Forward w/Proposal Shortly (2/26/13), FSOC Report Comments on MMF Reform, Will Stand Down if SEC Moves (4/26/13), Bernanke Expects Zero Rates to Continue, But Aware of Costs, Risks (5/23/13), SEC Chair Mary Jo White on Reforming MMFs Proposal and Alternatives (6/6/13) , Fidelity Argues Municipal MMFs Funds Not a Risk in Recent SEC Meeting (8/29/13), RIP MMFs in Europe? EU Issues Proposed Rules With 3 Percent Buffer (9/4/13), Wells Reform Comment Sums Up Majority View; Disclosure Concerns (9/19/13), Federated's Donahue Says 98 Percent Oppose Float; Rules After Q1'14 (10/28/13), and SEC Charges Ambassador Money Mkt Fund Portfolio Manager With Fraud (11/27/13).
Our Jan. 10 News story, "JP Morgan Joins Goldman in Disclosing Daily Mark-to-Market NAVs," says, "Goldman Sachs announced that they would begin reporting mark-to-market, or "shadow" NAVs out to 4 decimal places on a daily basis. Now the 2nd largest money fund manager says it will join them. A press release says, "J.P. Morgan Asset Management today announced that three of its U.S. money market funds will begin to disclose their market-based NAVs per share (also known as Shadow NAVs) on a daily basis. This additional disclosure will provide investors with greater transparency regarding the Market-Based NAV's fluctuation, but will not change the funds' existing objective to maintain $1.00 stable NAV."
A Feb. 26 piece, entitled, "`SEC's Gallagher Attacks FSOC, Says Moving Forward w/Proposal Shortly (2/26/13)," says, "U.S. Securities & Exchange Commission Commissioner Daniel Gallagher, presenting at "The SEC Speaks in 2013," attacked the encroachment of the Financial Stability Oversight Council (FSOC) upon the SEC's turf and again predicted that an SEC proposal on money fund reforms was coming soon. (See our Jan. 17 Crane Data News, "SEC's Gallagher Says Proposals Coming in Q1, Backs Floating NAV.") Gallagher said, "This brings me to the elephant in the room: FSOC. FSOC was created, in part, to respond to the realization during the financial crisis that regulatory balkanization had resulted in a lack of communication and information-sharing among financial services regulators, which undoubtedly led to poor policy decisions during the crisis. None of us who lived through the crisis on the ground floor would argue against improvements to the regulatory structure that would facilitate coordination and information-sharing among regulators. However, with FSOC the threats to the Commission's independence move from the theoretical to the immediate, for already in its short existence, this new body has directly challenged the Commission's regulatory independence. It is also where just one member of the Commission, the Chairman, can defend that independence. Pursuant to the provisions of Dodd-Frank establishing FSOC, the group is composed not of agencies, but the individual heads of agencies, acting ex officio."
An April 26 piece, "FSOC Report Comments on MMF Reform, Will Stand Down if SEC Moves," comments, "The Financial Stability Oversight Council (FSOC) issued its "2013 Annual Report, which contains an update on "Reforms of Wholesale Funding Markets" and a section on "Money Market Funds." It says, "The Council took concrete steps to support the implementation of structural reforms to mitigate the vulnerability of money market mutual funds (MMFs) to runs, a recommendation made by the Council in its 2011 and 2012 annual reports. In November 2012, the Council issued Proposed Recommendations Regarding Money Market Mutual Fund Reform, under Section 120 of the Dodd-Frank Act. This action followed the decision by SEC Commissioners not to move forward with the MMF reforms as proposed by their staff in August 2012.... If the SEC moves forward with meaningful structural reforms of MMFs before the Council completes its Section 120 process, the Council expects that it would not issue a final Section 120 recommendation to the SEC."
We also quote a May 23 article, "Bernanke Expects Zero Rates to Continue, But Aware of Costs, Risks." It says, "Federal Reserve Chairman Ben Bernanke testified on "The Economic Outlook before Congress' Joint Economic Committee. While he didn't give much hope that rates would be rising anytime soon, he did offer hope that the Fed would begin withdrawing its special accommodations soon and again recognized the severe plight of savers. He says, "With unemployment well above normal levels and inflation subdued, fostering our congressionally mandated objectives of maximum employment and price stability requires a highly accommodative monetary policy. Normally, the Committee would provide policy accommodation by reducing its target for the federal funds rate, thus putting downward pressure on interest rates generally. However, the federal funds rate and other short-term money market rates have been close to zero since late 2008, so the Committee has had to use other policy tools."
Our June 6 News piece, "SEC Chair Mary Jo White on Reforming MMFs Proposal and Alternatives," says, "[T]he Securities & Exchange Commission unanimously approved a proposal on "Reforming Money Market Funds" (see yesterday's "News"). The SEC's press release says, "The Securities and Exchange Commission today voted unanimously to propose rules that would reform the way that money market funds operate in order to make them less susceptible to runs that could harm investors. The SEC's proposal includes two principal alternative reforms that could be adopted alone or in combination. One alternative would require a floating net asset value (NAV) for prime institutional money market funds. The other alternative would allow the use of liquidity fees and redemption gates in times of stress. The proposal also includes additional diversification and disclosure measures that would apply under either alternative. The SEC began evaluating the need for money market fund reform after the Reserve Primary Fund "broke the buck" at the height of the financial crisis in September 2008." "Our goal is to implement effective reform that decreases the susceptibility of money market funds to runs and prevents events like what occurred in 2008 from repeating themselves," said Mary Jo White, Chair of the SEC. The public comment period for the proposal will last for 90 days after its publication in the Federal Register." (Note: The SEC has also now released the full 698-page text of its "Money Market Fund Reform" Proposal.)"
An August 29 story, "Fidelity Argues Municipal MMFs Funds Not a Risk in Recent SEC Meeting," comments, "While there haven't been many new "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF" of substance lately, we did notice some recent additions to the "Meetings with SEC Officials section at the bottom of the comment page. The new additions include two recent meetings of Fidelity Investments, which is by far the largest manager of money market mutual funds with over $419.5 billion (17.0%) in assets, with SEC representatives.... As we mentioned, the earlier meeting, though, contains a Powerpoint showing why Municipal, or Tax-Exempt money funds, should be exempt from the SEC's onerous proposals.
On Sept. 4, we wrote, "RIP MMFs in Europe? EU Issues Proposed Rules With 3 Percent Buffer (9/4/13)," saying, "The European Union issued a release on "shadow banking" and proposed rules on money market funds on Wednesday, which include a controversial 3% "NAV buffer" mandate for Constant NAV funds. The "Commission's roadmap for tackling the risks inherent in shadow banking, says "The Commission has today adopted a communication on shadow banking and proposed new rules for money market funds (MMFs). The communication is a follow-up to last year's Green Paper on Shadow Banking (IP/12/253). It summarises the work undertaken so far by the Commission and sets out possible further actions in this important area. The first of these further actions -- the proposed new rules for money market funds -- is unveiled today and aims to ensure that MMFs can better withstand redemption pressure in stressed market conditions by enhancing their liquidity profile and stability." The Commission also released a document entitled, "New rules for Money Market Funds proposed -- Frequently Asked Questions." (Note: Crane Data will be hosting its first European Money Fund Symposium in less than 3 weeks, Sept. 24-25, in Dublin, Ireland, so we expect this proposal to be a major topic of discussion.)"
On Sept. 19, we began covering the host of SEC comment letters with "Wells Reform Comment Sums Up Majority View; Disclosure Concerns." It says, "With the deadline for Comments on the SEC's Money Market Fund Reform Proposal now passed, we continue to read through the mountain of feedback. Today, we quote from the Wells Fargo Advantage Funds' comment, which, though there have been many diverse views, represents the mainstream of comment letters to date. It also addresses some of the technical disclosure issues that are causing concerns among portfolio managers. (See the latest list of comment letters here.) The comment, "Karla Rabusch, President, Wells Fargo Funds Management, LLC says, "While we believe the 2010 Amendments adequately reduced the risk that money market funds pose to financial stability, we do not oppose in principle additional measures to further strengthen money market funds and further reduce the risk of rapid and substantial redemptions, or "runs," during periods of market distress. We believe, however, that any further regulatory measures must strike an appropriate balance between the costs to investors and others, including businesses, states, municipalities and other local governments that rely on money market funds as a source of short-term credit, and any benefits in the form of a marginal reduction in run risk. We largely opposed the set of proposed recommendations issued by the Financial Stability Oversight Council ("FSOC") in November 2012 because we believed they lacked such balance."
On Oct. 28, we wrote, "Federated's Donahue Says 98 Percent Oppose Float; Rules After Q1'14 Federated Investors, the third largest manager of money market mutual funds with over $226 billon (according to Crane Data's Money Fund Intelligence XLS), held its third quarter earnings conference call, and, as usual, CEO and President J. Christopher Donahue weighed in on a number of issues impacting money market funds, including the SEC's Money Market Fund Reform Proposals. (See the transcript of the call from Seeking Alpha here.) He said, "We were heartened to see that many of our clients and issuers that we invest with went on the record to express their strong concern with the measures proposed by the SEC. The overall response to the SEC has been broad based. Many individuals and groups representing literally millions of businesses, treasury and financial professionals, as well as state and local government finance professionals and investment officers have submitted their views for consideration. These responses overwhelmingly express opposition to Alternative One, the SEC's floating NAV proposal. In fact, over 98% of the more than 1,400 letters expressed opposition to the SEC's floating NAV proposal."
Finally, on Nov. 27 we featured, "SEC Charges Ambassador Money Mkt Fund Portfolio Manager With Fraud, which says, "The Securities & Exchange Commission issues a press release yesterday entitled, "SEC Announces Fraud Charges Against Detroit-Based Money Market Fund Manager," which says, "The Securities and Exchange Commission today announced fraud charges against a Detroit-based investment advisory firm and a portfolio manager for deceiving the trustees of a money market fund and failing to comply with rules that limit risk in a money market fund's portfolio. Money market funds seek to maintain a stable share price by investing in highly safe securities. Under the federal securities laws, a money market fund may only invest in securities determined by the fund's board of trustees to present minimal credit risk." (See the full SEC order here.) This is the only SEC action we're aware of involving a money market fund, other than ones related to the now infamous Reserve Primary Fund (which "broke the buck" in 2008)."
