The August issue of Crane Data's Money Fund Intelligence was sent out to subscribers on Thursday. (Sorry about the delay; we had some e-mail issues Thursday.) The latest edition of our flagship monthly newsletter features the articles: "SEC Passes MMF Reform on Split Vote: Combo is Coming," which discusses the adoption of money market fund reforms by a count of 3-2; "Chair White's Statement on New MMF Reforms," which excerpts SEC Chair Mary Jo White's discussion of the reforms; and, "Modest Outflows Expected from Reforms; 3 Questions," which examines the implications of the MMF reforms on fund flows. We also updated our Money Fund Wisdom database query system with July 31, 2014, performance statistics and rankings late last night, and we also sent out our MFI XLS spreadsheet this a.m. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our July 31 Money Fund Portfolio Holdings data are scheduled to go out on Monday, August 11.
The latest MFI newsletter's lead article comments, "By a vote of 3-2, the SEC adopted long-awaited and much discussed reforms for the $2.6 trillion money market industry on July 23rd. "The amendments make structural and operational reforms to address risks of investor runs in money market funds, while preserving the benefits of the funds," stated the SEC in a press release. We distill the SEC's 869-page reform proposal down to the highlights. Chair Mary Jo White, along with Commissioners Luis Aguilar and Daniel Gallagher, voted in favor of the reform package. Commissioners Kara Stein and Michael Piwowar voted in opposition. Here's what they adopted."
The article explains, "Floating NAV -- Institutional Prime MMFs (including Inst Muni MMFs) are required to maintain a floating net asset value for sales and redemptions based on the current market value of the securities in their portfolios rounded to the fourth decimal place. The requirement would result in the daily share prices of the money market funds fluctuating along with changes in the market-based value of the funds' investments. These funds no longer will be allowed to use the special pricing and valuation conventions that currently permit them to maintain a constant share price of $1.00. Also, the U.S. Dept. of the Treasury and the IRS proposed new regulations to allow floating NAV MMF investors to use a simplified tax accounting method to track gains and losses."
Our monthly "profile" says, "At the Open Meeting of the Securities and Exchange Commission on July 23, the SEC voted to adopt its proposal to reform money market funds. Here are excerpts from Chair White's statement." White said: "Today's reforms will fundamentally change the way that most money market funds operate. They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system in a crisis. Together, this strong reform package will make our financial system more resilient and enhance the transparency and fairness of these products for America's investors."
She continued, "Over the last several decades, money market funds have become a critical part of the American economy, providing an important source of short-term financing for issuers, including American businesses, state and local governments, and other market participants. Today, nearly $3 trillion is invested in money market funds, much of it in institutional prime funds held by investors such as pension funds and corporations. Issuers and investors now rely daily on money market funds, and the benefits of such funds are significant."
The August MFI article on `Modest Outflows Expected from Reforms; 3 Questions asks, "How much money could leave Prime Institutional money funds? How likely is a 30% (or 10%) liquidity buffer breach (and how likely will boards be to use gates and fees at these points)? Will the floating NAV actually float? These are what we see as the 3 most important questions fund companies and investors are asking as the money fund industry begins preparing for the SEC's Money Fund Reforms in August 2016. We examine these below."
Crane Data's August MFI with July 31, 2014, data shows total assets decreasing by $19.8 billion (after decreasing by $13.4 billion in June, rising $10.9 billion in May, and falling by $59.5 billion in April) to $2.461 trillion (1,238 funds, 10 fewer than last month). Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at a record low 0.01% while our Crane 100 Money Fund Index (the 100 largest taxable funds) yielded 0.02% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.13% (Crane MFA, unchanged) and 0.16% (Crane 100) on an annualized basis for both the 7-day and 30-day yield averages. (Charged Expenses averaged 0.12% and 0.14% for the two main taxable averages.) The average WAM for the Crane MFA and the Crane 100 were 42 and 45 days, respectively, increasing 1 day from the prior month for the Crane 100. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
Finally, the final agenda was sent out to subscribers for our European Money Fund Symposium, which will take place Sept. 22-23 in London at the Hilton London Tower Bridge. Though there has been no word from European regulators and the newly elected European Parlaiment has yet to even commence, we expect them to eventually craft legislation similar to the SEC's. This will be a main topic of discussion at Euro MFS, along with other issues impacting Euro, Sterling, USD and "offshore" money market funds domiciled in Dublin, Luxembourg and other European and global financial centers.
