The Securities and Exchange Commission released its latest "Money Market Fund Statistics" report, which shows assets and yields up for the month ended August 31, 2015. The report, produced by the SEC's Division of Investment Management, summarizes monthly Form N-MFP data and includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends. Also, law firm Ropes & Gray released an alert entitled, "SEC Removes Credit-Rating References and Amends Issuer Diversification Requirements in Money Fund Rules."
In the SEC's new statistical update, total money market fund assets stood at $3.026 trillion overall at the end of August, up $20.9 billion after rising $40.9 billion in July, according to the SEC's broad total (which includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies). Of the $3.026 trillion in assets, $1.750 trillion was in Prime funds (up $22.6B from July 31), $1.020T was in Government/Treasury funds (down $4.0B), and $256.6 billion was in Tax-Exempt funds (up $2.2B). Total assets are down $54.4 billion year to date through August 31. Prime assets are down $22.7 billion year-to-date, while Government/Treasury MMF assets are down $18.1 billion year-to-date. Tax exempt assets are down $13.6 billion year-to-date. The number of money funds was 523, down 8 from last month and down 37 from a year ago.
The Weighted Average Gross 7-Day Yield for Prime Funds on August 31 was 0.25% (up from 0.24% the previous month), 0.12% for Government/Treasury funds (up from 0.11%), and 0.07% for Tax-Exempt funds (unchanged). The Weighted Average Net Prime Yield was 0.08% (unchanged). The Weighted Average Prime Expense Ratio was 0.17% (up from 0.16%). Gross yields for Prime MMFs are up 5 basis points YTD (to 0.25%) and up 6 bps since a year ago, expense ratios for Prime MMFs are up 2 bps YTD and over the past year (to 0.17%), and net yields for Prime MMFs are up 3 bps YTD and 4 bps over 1 year (to 0.07%).
Further, the Weighted Average Life, or WAL, was 67.7 days (down from 72.6 last month) for Prime funds, 78.4 days (up from 76.8 days last month) for Government/Treasury funds, and 33.6 days (down from 34.3 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 32.3 days (down from 36.6) for Prime funds, 38.6 days (down from 40.6) for Govt/Treasury funds, and 31.2 days (down from 32.2) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 27.7% in August (up from 26.4% last month). Total Weekly Liquidity was 41.6% (up from 40.0%).
In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, the US topped the list with $215.6 billion, followed by Canada at $209.8 billion. France was third with $190.0 billion, followed by Japan with $175.5 billion, Sweden ($120.2B), the UK ($97.5B), Australia/New Zealand ($85.2B), The Netherlands ($53.3B), Germany ($49.4B), and Switzerland ($46.6B),. The biggest gainers for the month were Norway (up $7.1B), France (up $5.1B), UK (up $4.1B), and Germany (up $3.1B). The biggest drops came from Switzerland (down $5.9B), Australia/New Zealand (down $4.5B), US (down $2.5B) and China (down $2.4B). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $607.5 billion (up $10.3B from last month), while its subset, the Eurozone, had $306.8 (up $6.8B). The Americas was next with $428.2 billion (down $1.5B), while Asia and Pacific had $288.6 billion (down $9.2B).
Of the $1.752 trillion in Prime MMF Portfolios as of August 31, $573.4B was in CDs (up from $572.6B), $366.2B was in Government (including direct and repo) (up from $338.1B), $461.5B was held in Non-Financial CP and Other Short term Securities (up from $459.6B), $252.3B was in Financial Company CP (down from $261.6B), and $99.4B was in ABCP (up from $95.8B). Also, the Proportion of Non-Government Securities in All Taxable Funds was 49.8% at month-end, down from 50.8% the previous month. All MMF Repo with Federal Reserve was $143.9 billion on August 31, up from $129.4B. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 36.9% were in maturities of 60 days and over (down from 41.4% last month), while 9.6% were in maturities of 180 days and over (down from 10.9% last month).
The Ropes & Gray alert focuses on the SEC decision to remove references to credit ratings in MMF reform. (See our Sept. 18 News, "SEC Removes References to Credit Ratings in Final Money Fund Rules.") The piece says, "In a September 16, 2015 Release (the "Release"), the SEC completed its obligations under Section 939A of the Dodd-Frank Act by removing references to credit ratings from Rule 2a-7. Most notably, the Release removes credit ratings from Rule 2a-7's definition of "eligible security." In the process, the Release creates a uniform credit quality standard -- "presents minimal credit risks to the fund" -- for each security acquired by a money market fund. The Release also requires money market funds to adopt written procedures requiring a fund's adviser to provide ongoing review of the credit quality of each portfolio security to determine that the security continues to present minimal credit risks.... The compliance date for all of the Release's changes is October 14, 2016."
The Alert says, "In its current form, Rule 2a-7 imposes two credit quality requirements with respect to the securities that a money market fund may acquire. First, an objective standard requires that each acquisition must be an eligible security, which is defined by reference to credit ratings provided by "nationally recognized statistical rating organizations" (each, an "NRSRO"). Second, a subjective standard requires that each acquisition, as determined by the fund's board (or its delegate), presents "minimal credit risks" to the fund. Minimal credit risks is not defined in Rule 2a-7."
It explains, "As revised, an eligible security is a security that "presents minimal credit risks to the fund." Because minimal credit risks is undefined, the Release codifies earlier SEC staff guidance regarding the credit quality factors that may be used to determine that a security presents minimal credit risks. Thus, with the Release's revisions, an eligible security is a security: "that the fund's board of directors [or its delegate] determines presents minimal credit risks to the fund, which determination must include an analysis of the capacity of the security's issuer or guarantor (including for this paragraph the provider of a conditional demand feature, when applicable) to meet its financial obligations, and such analysis must include, to the extent appropriate, consideration of the following factors with respect to the security's issuer or guarantor: (A) Financial condition; (B) Sources of liquidity; (C) Ability to react to future market-wide and issuer- or guarantor-specific events, including ability to repay debt in a highly adverse situation; and (D) Strength of the issuer or guarantor's industry within the economy and relative to economic trends, and issuer or guarantor’s competitive position within its industry.""
Ropes & Gray writes, "Currently, Rule 2a-7 requires a money market fund's board (or its delegate) to reassess promptly whether a security that has been downgraded by an NRSRO continues to present minimal credit risks, and to take such action as it determines is in the best interests of the fund and its shareholders. In the Release, this requirement has been eliminated. In its place, money market funds must adopt written procedures that require a fund's adviser to provide ongoing reviews of the credit quality of each portfolio security to determine that the security continues to present minimal credit risks."
Finally, on Form N-MFP, they state, "In 2010, the SEC staff issued a no-action letter to the effect that the staff would not object if a fund did not designate NRSROs (and did not make related disclosures in its statement of additional information) before the SEC had modified Rule 2a-7 in accordance with Section 939A of the Dodd-Frank Act. The Release marks the completion of these SEC's modifications. Therefore, money market funds will be required to disclose the NRSRO ratings that the fund's board (or its delegate) considered, if any, in making its minimal credit risks determination for a given security, along with the name of the agency that provided the rating."
