BlackRock announced some changes to its TempCash money market fund in a website posting entitled, "TempCash Investment Strategy Change." They tell us, "Since our implementation of the structural changes required for money market fund reform in October 2016, we have partnered with you to understand the impacts of the new cash investment landscape. In an effort to adapt our product offerings to your needs, we are pleased to announce that the BlackRock Liquidity Funds TempCash (the "Fund") will adopt a new investment strategy, effective February 28, 2017."
BlackRock explains, "The Fund will invest in a broad range of U.S. dollar-denominated money market instruments, including government, U.S. and foreign bank, and commercial obligations and repurchase agreements maturing in 397 days or less (with certain exceptions) and the portfolio will have a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less. This is a change from the Fund's current short-dated investment strategy, which sought to maintain a dollar-weighted average maturity and dollar-weighted average life of 5 days."
They add, "We believe that cash investors may benefit from the availability of a prime money market fund that will strike its net asset value only one time each day and takes advantage of the full maturity limits of Rule 2a-7. The Fund will seek to maintain the "Aaa-mf" and "AAAm" ratings from Moody's and Standard & Poors, respectively. Thank you for allowing us to serve you in your cash management needs. Please contact your BlackRock representative with any questions."
For history on the plans for TempCash, see our April 7, 2015 News, "BlackRock Announces Changes, Keeps Options Open; TempFund Floats." Our piece explained, "In a letter addressed to its money market fund clients, entitled, "New Product Line Up Plans," BlackRock announced ... changes to its money market fund lineup in response to last summer's sweeping SEC reforms. Among the proposed changes are the introduction of 7-day maximum maturity funds and the possible conversion of prime retail and sweep funds to government funds."
In other news, an article published by Global Capital entitled, "EU blunts the teeth of money market rules," comments, "The European Union has allowed lobbyists to blunt the teeth of its long-awaited money market fund reform act.... On November 16, it [the EU] finally reconciled the three separate versions of the reform produced by the European Commission, the European Parliament and the European Council, discarding in the process the suggested 3% capital buffer requirement. Though technical details are yet to be settled, the bill's reduced ambitions are gradually becoming clearer."
The article continues, "Lobbying from constant net asset value (CNAV) fund managers has left the reform lacking the bite of its American counterpart. The regulation was initially expected to force CNAV funds to convert to variable NAVs (VNAVs). Then, the concept of a low volatility NAV (LVNAV) fund emerged.... When LVNAVs were first floated, it was as a temporary measure to ease the transition to full VNAV status -- a transition that was to be enforced by a five year sunset clause that would force LVNAVs to convert to full VNAVs. But the sunset clause has been abandoned -- a casualty of lobbying -- so the mutant LVNAV is here to stay."
Global Capital adds, "Even if Europe were to introduce a hardline reform: mandatory immediate conversion to VNAVs, the consequences would be far less drastic than the turmoil in US funds. The US reform triggered a $1tr shift from prime funds to government-only funds, but such a sharp move is unlikely in Europe. For one thing, government only funds in Europe yield minus 70bp, while there simply isn't the capacity in short term European public debt to allow a mass influx of prime fund money. But most importantly, VNAVs are a far more familiar and less frightening concept to European investors than they were to US investors because, unlike America, Europe already has a flourishing community of VNAV funds."
Finally, we noticed a Wall Street Journal piece a couple days ago entitled, "Clearinghouses Park Billions in New Fed Accounts." It explains, "Financial firms are lining up for the hottest new account on Wall Street: checking with interest at the Federal Reserve. CME Group Inc. and the Options Clearing Corp. are among large companies that have parked billions of dollars in new accounts at the Fed, reflecting a recent rule change that made the accounts more widely available and the attractive rates paid by the central bank on deposits."
The Journal adds, "Earning interest on reserves at the Fed has been the privilege of banks since 2008, but a wider swath of Wall Street won the right under a provision of the 2010 Dodd-Frank Act that aimed to bolster "clearinghouses" that guarantee obligations on trades for a fee.... The clearinghouse operators are using their Fed accounts to earn interest on the cash collateral that members, such as Citigroup Inc., Goldman Sachs Group Inc. and Interactive Brokers LLC, pledge in the course of their daily transactions and trade-processing."
