Rates on brokerage sweep accounts, bank accounts and money market funds all moved lower following last Wednesday's Federal Reserve rate cut. (See our Oct. 31 Link of the Day, "Fed Cuts Rates a Third Time.") Our latest Brokerage Sweep Intelligence publication, with data as of Friday, Nov. 1, shows E*Trade, Fidelity, Merrill Lynch and TD Ameritrade all lowering rates. Fidelity, who still pays the highest sweep rate, cut its yield by 12 bps to 0.82%. Merrill Lynch dropped rates on balances over $250K, but their 100K tier remained at 0.10%. TD Ameritrade cut rates on most tiers; their 100K tier dropped 2 bps to 0.02%. E*Trade's 25K tier through 250K (balance) tier fell to 0.01%.

Our Crane Brokerage Sweep Index inched down to 0.18% from 0.19% in the week ended November 1 for balances of $100K. E*Trade currently has the lowest rate for balances at this level (0.01%), but TD Ameritrade is close behind (0.02%). Meanwhile, Fidelity continues to have the highest rate (0.82%). Merrill and Morgan Stanley are both paying 0.05%. Ameriprise, Schwab, UBS and Wells Fargo are paying 0.10%, Raymond James is paying 0.15%, and RW Baird is paying 0.45% for balances of $100K. Fin-tech brokerage firms Robinhood and Wealthfront also dropped rates. Before the Fed cut, Robinhood and Wealthfront both offered rates of 2.07%. Since then, Wealthfront has cut its rate to 1.82%, down 25 bps, while Robinhood's rate has fallen 27 bps to 1.80%.

Money market fund yields are also fell last week. Our Money Fund Intelligence Daily shows the Crane Money Fund Average 7-day yield falling by 0.06% to 1.51% in the latest week (through 11/1). The Crane 100 MF Index also dropped 0.06% to 1.64% over the past week. Treasury Inst, Government Inst and Prime Inst average yields were down 4 bps, 7 bps and 6 bps, respectively, to 1.52%, 1.58% and 1.73%, respectively. Treasury Retail MFs currently yield 1.25%, (down 0.05%), Government Retail MFs yield 1.31% (down 0.05%) and Prime Retail MFs yield 1.55% (down 0.06%). Tax-exempt MF 7-day yields fell to 0.79%, down 0.05% from the previous week. Yields should continue lower in the coming weeks as funds digest the remainder of the latest Fed move.

In other news, Federated Investors filed its latest Form 10-Q Quarterly Report, which discusses the regulatory environment and reviews the impact of U.S. and European Money Fund Reforms.

Federated writes, "Deregulation also is a focus of certain legislative efforts. The House Financial Services Committee advanced a bill seeking to reverse certain aspects of money market fund reform and a hearing on that bill was held in the Senate in June 2018, and similar bills have been introduced in both the Senate and the House of Representatives in 2019 in a continuing effort to get revisions to money market fund reform passed and signed into law. The proposed law would permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements for, institutional and municipal (or tax-exempt) money market funds."

They explain, "These requirements were imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance). Compliance with the 2014 Money Fund Rules and Guidance became effective on October 14, 2016. Federated continues to support efforts to permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements imposed under the 2014 Money Fund Rules and Guidance for, institutional and municipal (or tax-exempt) money market funds."

The 10-Q says, "The current regulatory environment has impacted, and will continue to impact, Federated's business, results of operations, financial condition and/or cash flows. For example, changes required under the 2014 Money Fund Rules and Guidance resulted in a shift in asset mix from institutional prime and municipal (or tax-exempt) money market funds to stable NAV government money market funds across the investment management industry and at Federated. This shift impacted Federated's AUM, revenues and operating income. Management continues to believe that, as and to the extent interest rates remain at higher levels and do not return to near zero, money market funds will benefit generally from increased yields, particularly as compared to deposit account alternatives, and that, as spreads widen, investors who exited prime money market funds will likely continue to reconsider their investment options over time, including Federated's prime private money market fund. While 2018 and 2019 to date did see a shift in asset mix back toward institutional prime and municipal (tax-exempt) money market funds, there is no guarantee such shift will continue and return the asset mix between institutional prime, municipal (or tax-exempt) and government money market funds to pre-October 2016 levels; therefore, the degree of improvement to Federated's prime money market business can vary and is uncertain."

It continues, "Management believes that the floating NAV, and fees and gates, required by the 2014 Money Fund Rules, as well as other Regulatory Developments, have been and will continue to be detrimental to Federated's fund business. In addition to the impact on Federated's AUM, revenues, operating income and other aspects of Federated's business described above, on a cumulative basis, Federated's regulatory, product development and restructuring, and other efforts in response to the Regulatory Developments discussed above, including the internal and external resources dedicated to such efforts, have had, and may continue to have, a material impact on Federated's expenses and, in turn, financial performance."

The report also tells us, "On July 19, 2019, the ESMA published a Final Report on Guidelines on stress test scenarios under the EU Money Market Fund Regulation (MMF Regulation) and a Final Report on reporting to competent authorities under Article 37 of the MMF Regulation, which are aimed at ensuring a coherent application of the MMF Regulation. As required by Article 28 of the MMF Regulation, the Guidelines on stress testing establish common reference parameters of the stress test scenarios money market funds or managers of money market funds should include in their stress testing scenarios. As required by Article 37 of the MMF Regulation, the Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that their managers will transmit to competent authorities as of the first quarter of 2020. Federated continues to analyze the new Guidelines and the requirements for compliance."

Finally, Federated writes, "On April 5, 2017, European Parliament passed EU money market fund reforms (Money Market Fund Regulation or MMFR). The MMFR provides for the following types of money market funds in the EU: (1) Government constant NAV (CNAV) funds; (2) Low volatility NAV (LVNAV) funds; (3) Short-term variable NAV (VNAV) funds; and (4) standard VNAV funds. The reforms had to be completed in regard to new funds on July 21, 2018 and in regard to certain existing funds (including the Federated Funds in Ireland and the UK) on January 21, 2019."

They add, "Federated utilized both internal and external resources to complete the conversion of two non-U.S. money market funds to LVNAV funds and two government non-U.S. money market funds to public debt CNAV funds, and otherwise began to comply with the MMFR, on January 11, 2019. Federated also continues to engage with trade associations and appropriate regulators in connection with the MMFR because the European Securities Market Authority and the European Commission continue work on implementing the MMFR and government CNAV and LVNAV fund reforms will be subject to a future review of their adequacy from a prudential and economic perspective by the European Commission in 2022."

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