Pozen MMF Reg Piece in FT
The Financial Times published, "SEC's New Rules Gives US Money Market Funds a Floating Feeling," a basic overview of new MMF regulations written by Robert Pozen and Theresa Hammacher. It reads, "The rules will have the biggest impact on money market funds serving institutional investors, which will have to move from a constant to a floating net asset value. The rules will also put pressure on most institutional and retail money market funds to impose liquidity fees and suspend redemptions during financial crises. But neither set of rules will apply to money market funds holding 99.5 per cent or more of government securities. Thus, the two critical questions are what constitutes a government security, and what differentiates an institutional from a retail money market fund? The rules narrowly define governmental securities to include cash, US Treasuries and securities issued by US federal agencies. Notably, for this purpose, government securities do not include securities issued by state or city governments -- the assets held by most tax-exempt money market funds." It continues, "In short, the new rules are likely to reduce the chances of runs on money market funds in times of financial crisis. But it remains to be seen whether these tougher requirements will diminish the appeal of the funds relative to bank deposits for short-term investors." In other news, Federated CIO Debbie Cunningham released her monthly commentary. "A little over two months ago, cash management in this country was hindered by new rules that the Securities and Exchange Commission issued for institutional prime and institutional municipal money-market funds. Last month, it was the Federal Reserve's turn.... But only a few months into that process, the Fed announced that it was changing one of its programs that has actually been helpful to the cash-management industry. Since September 2013, the New York Fed has run an overnight reverse repo program for certain large counterparties, with Treasuries as collateral. After some experimentation, since early 2014 it had settled on offering five basis points daily to fund this facility. While not much, at least it provided a floor to money-market trading. As the majority of the market was focused on tightening and tapering in the Federal Open Market Committee release mid-September, we were also dealing with different news. The New York Fed simultaneously announced that the entire ON RRP would be restricted to $300 billion nightly and that a five basis point floor would no longer be guaranteed -- essentially destroying its main goal of helping money funds in this time of its extraordinary accommodative policy. The new process could hardly be more needlessly complicated."
