Daily Links Archives: November, 2010

A press release entitled, "Federated Investors, Inc. Completes Transition of $14 billion in Money Market Assets from SunTrust Banks, Inc., says, "Federated Investors, Inc., one of the nation's largest investment managers, completed the transition of approximately $14 billion in money market assets. The assets were previously managed by SunTrust Banks Inc.'s RidgeWorth Capital Management Inc. The assets were transitioned into Federated money market funds with similar investment objectives through a series of closings that began in September 2010. The transactions were completed at the close of business on Wednesday, Nov. 24, 2010." "The transactions are the continuation of Federated's long-term relationship with SunTrust," said J. Christopher Donahue, president and chief executive officer of Federated Investors, Inc. "Federated's wide range of liquidity options and money market products combined with our dedicated customer service and experience in transitioning cash management business can benefit SunTrust and its customers." Crane Data has already removed the RidgeWorth funds from our Money Fund Intelligence Daily and we will be removing the funds from the December issue of our Money Fund Intelligence. In other news, note that this is the last day to receive the discounted $500 rate for Crane's Money Fund University, which will be January 13-14, 2011, at The Westin Jersey City Newport. Starting tonight at midnight, the rate increases to $600.

ICI's weekly "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets increased by $15.36 billion to $2.813 trillion for the week ended Tuesday, November 23, the Investment Company Institute reported today. Taxable government funds increased by $2.05 billion, taxable non-government funds increased by $14.01 billion, and tax-exempt funds decreased by $710 million." It explains, "Assets of retail money market funds increased by $2.86 billion to $942.23 billion. Taxable government money market fund assets in the retail category increased by $1.26 billion to $166.72 billion, taxable non-government money market fund assets increased by $1.25 billion to $572.84 billion, and tax-exempt fund assets increased by $350 million to $202.66 billion. Assets of institutional money market funds increased by $12.49 billion to $1.871 trillion. Among institutional funds, taxable government money market fund assets increased by $790 million to $653.01 billion, taxable non-government money market fund assets increased by $12.77 billion to $1.096 trillion, and tax-exempt fund assets decreased by $1.06 billion to $122.05 billion." ICI's separate "Long-Term Mutual Fund Flows" report also showed bond funds experiencing outflows for the first week in many months. It says, "Bond funds had estimated outflows of $4.33 billion, compared to estimated inflows of $3.96 billion during the previous week. Taxable bond funds saw estimated inflows of $457 million, while municipal bond funds had estimated outflows of $4.78 billion."

CNBC.com writes "Guess What Cash-Flush Companies Are Doing With Their Money?" The article says, "US companies are still sitting on a trillion dollar plus cash mountain, but this hasn't changed the fact, some say, that they continue to squirrel away hundreds of billions of dollars in perhaps the least sexy of all places: the bank." The piece quotes Brian Kalish, head of the finance practice at the Association for Financial Professionals, "You're just not getting paid to do anything right now. You're in this ultra low-yield environment ... leaving the money in the bank isn't costing you anything.... We are still in that conservative mode from two years ago ... safety still trumps. Here we are in late November -- nobody wants to be a hero." The article continues, "If holding cash in the bank seems a bit ... pedestrian, that's because it kind of is. Many companies could be putting their short-term portfolio to work through a range of strategies, including agency securities, munis and asset-backed securities. But many are even passing on the king of low-risk investments -- Treasury bills -- as rock-bottom rates make tying up cash in short stints less attractive than the ease of having cash at hand.... This isn't to say companies aren't spending -- they are, but increasingly with new dollars snapped up by a 'surge' in debt issuance in the third quarter, according to research from Deutsche Bank. Per the firm's research, cash levels at S&P 500 companies excluding financials neared $1.1 trillion in the third quarter. Cash acquisitions in this group are up 75 percent year over year, now touching 2006 levels. The cries of corporate cash hoarding, says Deutsche Bank's chief U.S. equity strategist Binky Chadha, may be overstated, adding that he believes companies are 'clearly' spending and higher levels of cash accumulation is 'pretty typical cyclical behavior.' Besides, some believe a little liquidity might not be such a bad thing nowadays." Peter Crane, founder of money-fund research firm Crane Data, adds, "Levels of cash should always set records. After what we've seen in the last few years, you'd be crazy not to hold a higher liquidity buffer."

The latest "Minutes of the Federal Open Market Committee (November 2-3, 2010) discuss Developments in Financial Markets and the Federal Reserve's Balance Sheet. They say, "The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets since the Committee met on September 21, 2010. He also reported on System open market operations, including the continuing reinvestment into longer-term Treasury securities of principal payments received on the SOMA's holdings of agency debt and agency-guaranteed mortgage-backed securities (MBS). The Open Market Desk at the Federal Reserve Bank of New York purchased a total of about $65 billion of Treasury securities since the Committee decided, on August 10, to begin reinvesting such principal payments. Purchases were concentrated in nominal Treasury securities with maturities of 2 to 10 years, though some shorter-term and some longer-term securities were purchased along with some Treasury inflation-protected securities (TIPS). Over the intermeeting period, the Desk also conducted a number of small-value tri-party reverse repurchase operations with the primary dealers and with money market mutual funds that have been accepted as counterparties for such operations; these transactions, which the Desk conducted to ensure continuing operational and systems readiness, used Treasury securities, agency debt, and agency-guaranteed MBS as collateral. In addition, the Federal Reserve conducted another small-value auction of term deposits to ensure the continued operational readiness of the term deposit facility and to increase the familiarity of eligible depository institutions with the auction procedures. There were no open market operations in foreign currencies for the System's account over the intermeeting period. By unanimous vote, the Committee ratified the Desk's transactions over the intermeeting period." The minutes add, "Over September and October, M2 expanded at an average annual rate that was noticeably above its pace earlier in the year. The growth rate of liquid deposits moved up, while small time deposits and retail money market mutual funds continued to contract. The compositional shift likely reflected the relatively attractive yields on liquid deposits. Currency growth strengthened, with indicators suggesting strong demand from abroad."

The Financial Stability Oversight Council meets today at noon. The Treasury's press release says, "On Tuesday, Treasury Secretary Tim Geithner, in his capacity as chairperson of the Financial Stability Oversight Council, will host a meeting of the Council at the U.S. Department of the Treasury. The meeting will include a closed session, beginning at 11:00 AM EDT, and an open session, beginning at 12:00 PM EDT. The open session will be streamed live on the Treasury Department's website. Media are invited to attend the open session, which will include an update on mortgage servicing and foreclosure issues and votes on several resolutions to advance implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These resolutions will include approval of the publication of an Advance Notice of Proposed Rulemaking regarding authority to designate financial market utilities as systemically important, the Council's committee structure and minutes of the inaugural Council meeting. The Dodd-Frank Act, which President Obama signed into law on July 21, 2010, established the Financial Stability Oversight Council. The Council will provide, for the first time, comprehensive oversight over the stability of our nation's financial system. It is charged with identifying threats to the financial stability of the United States; promoting market discipline by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the government will shield them from losses in the event of failure; and responding to emerging risks to the stability of the United States financial system."

DepositAccounts.com features a nice basic educational piece, "Overview of the Federal Reserve". It says, "The history of the Federal Reserve has its roots in the country's long history of paper currency. Massachusetts Bay Colony issued its own paper currency in 1690; this is widely considered the first 'American' paper currency. Notes were in circulation from other colonies as well -- and not all the currency was backed by gold or silver. Even the Continental Congress tried to issue a unified currency, not backed by gold or silver, in 1775.... The Federal Reserve is more than just a single building. It is an entire system. The Federal Reserve System has aspects that are both public and private. The Federal Reserve makes decisions about monetary policy without permission from the government, getting its authority from the 1913 act that created it. However, the seven members of the Board of Governors are appointed by the president and confirmed by the Senate. Terms are 14 years long and staggered. The Chairman of the Board, and the Vice Chairman, are appointed (from the sitting governors) to serve four year terms in those positions. The president can re-nominate Chairs as many times as desired during their terms on the Board."

ICI's most recent weekly "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets decreased by $4.11 billion to $2.798 trillion for the week ended Wednesday, November 17, the Investment Company Institute reported today. Taxable government funds decreased by $1.84 billion, taxable non-government funds decreased by $3.13 billion, and tax-exempt funds increased by $860 million. Assets of retail money market funds increased by $1.83 billion to $939.36 billion. Taxable government money market fund assets in the retail category increased by $570 million to $165.46 billion, taxable non-government money market fund assets increased by $630 million to $571.59 billion, and tax-exempt fund assets increased by $620 million to $202.31 billion. Assets of institutional money market funds decreased by $5.93 billion to $1.859 trillion. Among institutional funds, taxable government money market fund assets decreased by $2.41 billion to $652.22 billion, taxable non-government money market fund assets decreased by $3.76 billion to $1.083 trillion, and tax-exempt fund assets increased by $240 million to $123.12 billion."

Crane Data has released the full final agenda for our new Crane's Money Fund University, which will be held Jan. 13-14, 2011, at the Westin Jersey City Newport. Money Fund University will offer attendees an affordable and comprehensive two day, "basic training" course on money market mutual funds. We'll cover the history of money funds, interest rates, Rule 2a-7, ratings, rankings, money market instruments such as commercial paper and repo, and portfolio construction and credit analysis. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals should enjoy a refresher course and the opportunity to interact with peers in an informal setting. Visit http://www.moneyfunduniversity.com for the latest details or e-mail Pete Crane for a copy of the full brochure. Note that our discounted early registration rate of $500 goes up to $600 starting December 1. We'd like to especially thank our MFU Sponsors -- BofA Global Capital Management, Fidelity Investments, Fitch Ratings, Morgan Stanley, Citibank Online Investments, Invesco, and G.X. Clarke & Co. -- for supporting our new program. Also, mark your calendars for our next Crane's Money Fund Symposium, which will be held June 22-24, 2011, at the Philadelphia Marriott. We're preparing to release the preliminary agenda in early December, so watch www.cranedata.com, www.moneyfundsymposium.com and Money Fund Intelligence for more details.

As we mentioned in yesterday's News, the ICI recently commented on the FSOC's "Advance Notice of Proposed Rulemaking Regarding Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies (FSOC-2010-0001). We excerpt more from ICI's letter below, which says, "All financial market activities involve some degree of risk. Indeed, the ability of market participants to spread, share, or take on risk through the financial markets is a prime characteristic of vibrant and innovative economies. Thus, the goal of systemic risk regulation, as a senior Treasury official recently acknowledged, should be to eliminate the abuses and excessive risk taking that can endanger the financial system, while at the same time encouraging acceptable levels of the risk taking that is necessary for innovation and economic growth.... Money market funds have all the protections of the Investment Company Act, and are subject to additional regulation pursuant to Rule 2a-7 under that Act. This rule permits money market funds to value their securities at amortized cost, in order to maintain a stabilized value, usually $1.00 per share. In addition to the important protections described above, money market funds also must comply with stringent maturity, credit quality, and diversification standards (collectively, 'risk-limiting provisions') designed to minimize the deviation between a money market fund's stabilized net asset value and its mark-to-market per-share value. The basic objective of money market fund regulation is to limit a fund's exposure to credit, interest rate, liquidity, and other risks. Money market funds may only invest in high-quality securities, which the fund's board of directors (or its delegate) determines present minimal credit risks. In addition, money market funds may invest only in U.S. dollar denominated instruments and thus do not have currency exchange rate risk."

A press release entitled, "Confluence Now Offers Two Ways to Tackle Complex XML Filing Challenge: Free Utility and Comprehensive Automated Solution says, "Confluence, a global leader in investment management data automation, today announced a free utility to help fund administrators comply with the December 7 deadline for filing Form N-MFP, a mandatory requirement of the SEC's new Money Market Mutual Fund Reform Rule (IC-29132). The regulation requires funds to dramatically change the frequency, content and format of their reporting to provide greater transparency to investors. Companies must now submit fund-specific and portfolio-specific information every month using eXtensible Markup Language (XML). The Confluence Form N-MFP Utility is an Excel-based application that produces the XML submission from data inputted manually by the administrator. The utility enables risk control through comprehensive validation and report preview. The tool is available by contacting Confluence at FreeUtility@confluence.com." Scott Powell, Product Manager at Confluence, says, "Since this SEC reporting mandate came at the industry very quickly, we are seeing fund companies at different states of readiness. In response, we developed the Confluence Form N-MFP Utility to help ensure industry-wide compliance. Many are still trying to master the complexities of XML reporting and evaluating technology solutions. Confluence Form N-MFP Utility affords money market fund administrators additional time to evaluate their technology options, while managing the risk associated with preparing filings."

Wells Fargo Advantage Funds' monthly "Portfolio Manager Commentary" writes, "Even as supply and demand conditions in the taxable money markets have stabilized, supply concerns are surfacing elsewhere. In the municipal money markets, there is the potential for a decline in supply stemming from regulations that are being imposed on banks, while in the government markets there is some concern that supply may be curtailed by the Federal Reserve's second round of quantitative easing. The President's Working Group on Financial Markets further stirred the already murky regulatory cauldron with the release of its report on 'Money Market Fund Reform Options.' And in the face of a persistently low interest-rate environment, some money market funds are seeking higher yields by extending the terms of their investments. While this may temporarily boost their funds' appeal, we contend that a shorter and more liquid portfolio structure is a more prudent choice as we navigate these turbulent waters." The piece explains, "The dwindling supply of eligible investments for taxable money funds has been a theme we've discussed here repeatedly. The combined forces of a sluggish economy, the deleveraging of the financials sector, the ability of issuers to obtain longer-term financing at record-low rates and spreads, and a general shift away from wholesale funding sources have driven short-term borrowing and, therefore, the supply side of the money markets, lower month after month. Especially hard hit has been the asset-backed commercial paper sector.... Of particular note is the degree to which the contraction in overall supply has been cushioned by 2a-7 eligible U.S. Treasury securities. Throughout 2007, both money fund assets and the supply of eligible investments grew in tandem; in early 2008, the growth of both money fund assets and the supply of investments flattened. In the fall of 2008, supply and demand began to take divergent paths, with money fund assets beginning to grow again while the supply of eligible investments plummeted. By year-end 2008, the amount of eligible investments in the market -- excluding U.S. Treasuries -- was over $1 trillion less than it was at the beginning of 2007, while demand for these investments, as evidenced by money fund assets, was nearly $1.5 trillion higher. And while MMF assets began to contract in early 2009, the pace of the supply decline was even more rapid. For now at least, both supply and demand seem to have stabilized."

ICI's weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $6.59 billion to $2.800 trillion for the week ended Wednesday, November 3, the Investment Company Institute reported today. Taxable government funds decreased by $2.50 billion, taxable non-government funds decreased by $5.03 billion, and tax-exempt funds increased by $930 million." In other news, Bloomberg writes "FSB to Focus on Regulating Shadow-Banking Industry, Draghi Says". It says, "The Financial Stability Board is set to focus on tougher rules for too-big-to-fail organizations operating in the 'shadow-banking sector' to prevent another global economic crisis, its chairman Mario Draghi said. Systemically important financial institutions, or SIFIs, 'don't reside only within the banking sector,' Draghi said in a Nov. 5 interview in Ancona, Italy. Over the next two years, the FSB will focus on 'the progressive enlargement of what we call the regulatory perimeter to include the most important segments' of the 'shadow financial sector.' Leaders from the Group of 20 meeting today in Seoul will review possible measures by the FSB and the Basel Committee on Banking Supervision to subject too-big-to-fail organizations to tougher rules.... Tougher regulations for the shadow industry -- which includes securities brokers, hedge funds and money-market funds -- aim to prevent a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc. The sector's liabilities totaled about $16 trillion in the first three months of 2010, according to a staff report published by the Federal Reserve Bank of New York in July."

Bloomberg writes "Money Funds Get 'Micro Bailouts' as Disclosure Rules Take Effect". The article says, "Money funds are covering small losses on their investments to avoid unsettling clients when tighter U.S. rules will require them to disclose even small shortfalls. Charles Schwab Corp., based in San Francisco, spent $132 million last quarter and Baltimore's T. Rowe Price Group Inc. said it will spend $17 million this quarter to eliminate losses from securities that went sour in 2008. The deficits weren't big enough to push the funds' share prices below $1." "The reforms may usher in an era of micro-bailouts," Bloomberge quotes Peter Crane, president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts. It adds, "Starting this month, the Securities and Exchange Commission is requiring money funds to unveil a net asset value that reflects small, previously undisclosed realized and unrealized losses or gains, a figure known as a 'shadow NAV.'.... The predicament adds to woes for the industry caused by record low interest rates. Yields that average 0.08 percent for the biggest 100 taxable funds, according to Crane Data, have helped reduce assets by 14 percent this year to $2.8 trillion. Funds have also been forced to waive some fees in order to keep yields above zero. Crane estimated the industry's fee revenue will fall below $7 billion this year, down from $11 billion in 2009."

Richard W. Fisher of the Federal Reserve Bank of Dallas gave a speech yesterday entitled, "Recent Decisions of the Federal Open Market Committee: A Bridge to Fiscal Sanity? Remarks before the Association for Financial Professionals in San Antonio, Texas. Fisher said, "I agree that we are indeed in what is referred to in economic parlance as a liquidity trap. Yet, I think it worth noting that we already have low interest rates, and spreads against risk-free instruments are historically narrow. Despite their theoretical promise, reductions in interest rates to Lilliputian levels have not done much thus far to spark loan demand.... On the supply side, we know that businesses are floating on a sea of liquidity. Banks already hold over $1 trillion in excess reserves; holdings of government securities as a percentage of total assets on bank balance sheets are growing; loans as a percentage of assets are declining.... In his speech in Jackson Hole, Wyo., in August, Chairman Bernanke had asked all of us to consider the costs and the benefits of further accommodation. My response was that I was skeptical about many of the presumed benefits of further asset purchases. I was more certain of some of the potential costs.... I might understand the case for accommodation if serious deflation were a clear and present danger. As I pointed out by citing the trimmed mean and through my anecdotal reports, it is not.... In sum, I asked that the FOMC consider that we might be prescribing the wrong medicine for the ailment from which our economy is suffering. Liquidity and abundant money are not the binding constraints on the economic activity we wish to see.... This is risky business. We know that history is littered with the economic carcasses of nations that incorporated this as a regular central bank practice. So how can the decision made last Wednesday be justified?"

"DTCC Starts Publishing Daily Index of General Collateral Repo Rates" says a press release on TradingMarkets.com. It explains, "The Depository Trust & Clearing Corp. (DTCC) said that it has begun publishing the financial service industry's first index to list average daily interest rates for the multi-billion-dollar daily market in General Collateral Finance (GCF) repurchase agreements (repos). The new DTCC GCF Repo Index lists the average interest rate paid each day for the most-traded general collateral repos involving U.S. Treasury securities, federal agency securities and mortgage-backed securities issued by Fannie Mae and the Federal Home Loan Mortgage Corp. The index also records the total par value of these repo transactions each day. Repos are typically a form of short-term secured loan that involves the sale of a security and the subsequent repurchase of the same security. Trading in GCF repos averaged more than $690 billion a day in 2009." Murray Pozmanter, DTCC managing director, Fixed Income Clearing and Settlement, says, "Leveraging our data to make these repo rates public will bring some much-needed transparency to this large and crucial market. It's one of a number of initiatives we're taking at DTCC to meet the needs of our customers for ways to manage risk, and to meet the needs of regulators for more accurate and timely information to supervise markets." The release adds, "According to the Company, daily publication of the GCF Repo rates will help dealers and investors to manage their portfolios and calculate the value of the securities they hold in inventory. The new index will also enable institutional investors and corporations to estimate their short-term funding costs more accurately. In addition, having the interest rate data publicly available each day will create greater transparency and help regulators conduct risk management oversight in the General Collateral repo market. The index will be published daily on DTCC's public website and includes data going back a year as well as analytical tools that allow the construction of trend lines and comparison of the different asset types."

Law firm Bingham writes "President's Working Group Evaluates Options for Money Market Fund Reform". The brief says, "On October 21, 2010, the President's Working Group on Financial Markets released its long-awaited report on money market fund reform. The report was prepared in response to the Department of the Treasury's June 2009 request that the PWG assess the additional reforms needed to further reduce the money market fund industry's susceptibility to runs and risk to the U.S. financial system. The report states that, even though the SEC has already tightened money market fund regulation, further reform is needed. However, it does not endorse any particular approach to reform but rather provides a summary of reform options and the potential benefits and risks of each option. The PWG has requested that the newly established Financial Stability Oversight Council (FSOC) examine further the options detailed in the report. In support of this effort, the SEC will solicit public comments and empirical data on the reform proposals in the near future. [The SEC began soliciting comments late Wednesday.]" Bingham adds, "While the PWG's report argues that further money market fund reforms are necessary, its inability, after more than a year of deliberation, to make a definitive recommendation highlights the fact that further reforms would not be without cost and risks. Among those risks is the possibility that the role of money market funds as a source of credit and liquidity for our financial system may be undermined. It remains to be seen whether the FSOC, the SEC and other policy makers will conclude that the benefits of any specific reform proposal outweigh the associated costs and risks."

BlackRock's Response to the PWG Report says, "The Treasury Department has now released its Report of the President’s Working Group on Financial Markets: Money Market Reform Options. On October 21, 2010, the President's Working Group on Financial Markets released a report related to the reform of the money market industry. The ideas discussed in the Report are ones that have been under discussion in various forums within the industry since the financial crisis of 2008, including for example: An industry liquidity facility; A tiered money market industry; A floating money market NAV per share, among others.... To the extent they are warranted, BlackRock favors changes to the money market industry that would have the following characteristics: Preserves the stable NAV as this is a crucial feature to our clients; Does not have the effect of sharing or socializing risk among industry participants; Does not directly apply a bank model given the very different structure of money market funds. BlackRock will continue to express its views and provide support to the SEC and all other regulators. We welcome continued debate around means to strengthen money market funds. However, we urge caution and careful consideration in introducing further change which may not serve to protect shareholders or support growth in the wider economy." In other news, see "FSA warns firms on Money Market funds," which says, "The [U.K.-based] FSA is warning firms against using the word 'cash' when naming Money Market Funds (MMFs), saying it is 'potentially misleading'. It says the word cash implies little or no risk to investors' capital when in fact the current low interest rate environment, combined with annual management charges, has created negative yields for some funds."

Yesterday's Bond Buyer wrote "Low Yields Prompt Money Market Funds to Keep Waiving". It said, "Money market funds continue to waive big chunks of their management fees as yields on cash instruments remain too low to charge the full amount. A spike in certain short-term interest rates in the second and third quarters allowed money funds to reclaim a few basis points of the fees they had been waiving. It didn't last. Now that those interest rates have slipped back down, money market fund managers expect to continue reimbursing most of their fees to shareholders.... The industry is on pace to collect about $7.5 billion in fees this year, about half what it collected last year. Not all funds are waiving fees -- some are closing down altogether. There were more than 2,000 money funds at the end of 2008, according to the Investment Company Institute. Today, there are 1,775. If money fund complexes wanted to blame someone, it would be Ben Bernanke. The Federal Reserve chairman has pinned his target for short-term interest rates to zero since late 2008, and has repeatedly pledged to keep it there indefinitely. The Fed's overnight lending rate is officially in a range between 0% and 0.25%." Bond Buyer adds, "The average expense ratio for the 10 biggest tax-free money funds is 0.32%, according to Crane Data, compared with 0.22% for the biggest taxable funds. Peter Crane, founder of the firm, cited two reasons tax-free funds charge higher fees. The most important is that taxable funds are used principally by institutional investors, while tax-free funds are a retail phenomenon. That means taxable funds are ­executing more big-block transactions, while tax-free funds are dealing with smaller shareholders with smaller transactions."

See the CFTC's Fact Sheet on "Proposed Rule on Regulations 1.25 and 30.7 Regarding Investment of Customer Funds and Credit Ratings", which discusses the Commission's "Proposed Rule on Regulations 1.25 and 30.7 Regarding Investment of Customer Funds and Credit Ratings," which proposed to limit CFMs (commodities futures merchants) to a 10% maximum collateral investment in money funds. It says, "Commodity Exchange Act, Section 4d(a)(2) provides that the investment of customer segregated funds is limited to obligations of the United States and obligations fully guaranteed as to principal and interest by the United States, and general obligations of any State or of any political subdivision thereof. Commission Regulations 1.25 and 30.7: Pursuant to authority under Section 4(c) of the CEA, the Commission substantially expanded the list of permitted investments by amending Commission Regulation 1.25 in December 2000 to permit investments in general obligations issued by any enterprise sponsored by the United States, bank certificates of deposit, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds (MMMFs).... The proposed rule would amend Regulations 1.25 and 30.7 in several respects."

The AFP posted a piece entitled, "President's Working Group Suggests More Reforms for Money Market Funds". It says, "Last week, the President's Working Group (PWG) on Financial Markets issued a report suggesting more reforms to ensure the resiliency of money market funds during periods of financial crises. The PWG, which is chaired by the Secretary of the Treasury, is comprised of the Chairs of the Federal Reserve Board (Fed), the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) outlined a list of options they said would reduce money-market funds' vulnerability to investor runs. The list of options included a discussion of a previously withdrawn proposal for floating net asset values. In the report, the PWG indicated that switching money-market funds to a floating net asset value, or NAV, could reduce risk, but gave only measured support for such a change. Switching to a floating NAV "would have potential benefits, but those benefits would have to be weighed carefully against the risks that such a change would entail," the report said.... In the past, AFP's Government Relations Committee (GRC) has weighed in on the floating NAV issue and sent a comment letter to the SEC opposing the elimination of the stable NAV in favor of a floating NAV. AFP believes the introduction of a floating NAV would greatly reduce investors' interest in utilizing MMFs as a cash management/investment tool. AFP has consistently stated that for purchasers of MMFs, the return of principal is a much greater driver of the investment decision than return on principal. Likewise, for a large number of institutional investors, the potential of principal loss would preclude MMFs with a floating NAV from being an approved investment alternative."