Daily Links Archives: July, 2013

A notice on the European Commission's European press website says, "On Wednesday 4 September, the Commission will adopt a communication on shadow banking. On the same day, the Commission will also present its proposal for a Regulation on Money Market Funds (MFF) -- one of the areas for action outlined in the communication." (The EU had been expected to issue a proposal this month, but it appears to have been delayed until September.) The statement says on "background," "Shadow banking is the system of credit intermediation that involves entities and activities that are outside the regular banking system. Shadow banks are not regulated like banks; they operate outside the regular banking system and yet engage in bank-like activities. The Financial Stability Board (FSB) has roughly estimated the size of the global shadow banking system at around E51 trillion in 2011, up from E21 trillion in 2002. This represents 25-30% of the total financial system and half the size of bank assets. Shadow banking is therefore of systemic importance for Europe's financial system. Learning all the lessons from the financial crisis, the EU has been implementing regulatory reforms in the financial sector in general and in the banking sector in particular. However, the entire shadow bank sector is not yet properly regulated. We must ensure that risks are not accumulating in the unregulated shadow banking sector, in part because new banking rules could be pushing certain banking activities towards this non-regulated shadow banking sector. The Commission's communication is a follow-up to last year's Green Paper on Shadow Banking (see IP/12/253 and MEMO/12/191). It summarises the work undertaken so far and sets out possible further actions in this important area. Money Market Funds (MMFs) are an important source of short-term financing for financial institutions, businesses and government. In Europe, around 22% of short-term debt securities issued by governments or by the corporate sector are held by MMFs. MMFs hold 38% of short-term debt issued by the banking sector. Because of the systemic interconnectedness of MMFs with the banking sector, and with corporate and government finance, the operation of MMFs has been at the core of the international work on shadow banking. The Financial Stability Board (FSB) and other institutions such as the International Organisation of Securities Commissions (IOSCO) and the European Systemic Risk Board (ESRB) have analysed the financial sector and concluded that MMFs, while of systemic importance, had not been addressed to a sufficient degree. The draft regulation will respond to the various recommendations that have been made."

Fitch Ratings statement entitled, "Fitch: U.S. Money Fund Exposure to Eurozone Banks Stabilizes," tells us, "U.S. prime money market fund (MMF) exposure to Eurozone banks has remained relatively steady through the first-half (1H) of 2013 except for a temporary drop in March, according to a Fitch Ratings report. Exposure to Eurozone banks represents 14.5% of total MMF assets within Fitch's sample as of end-June 2013. Fitch believes this stability in part reflects improved investor sentiment towards the Eurozone following last summer's European Central Bank (ECB) actions. Between end-June 2012 through end-June 2013, MMF allocations to Eurozone banks increased 89% on a dollar basis. Although the intensity of the Eurozone crisis continued to subside through 1H 2013, Fitch notes that MMF exposure to banks in that region remain approximately 60% below their May-2011 levels. Fitch believes that there are several indications that MMF Eurozone allocations of 15% -- the average through 1H 2013 -- could be a new steady state rather than a move towards the full resumption of mid-2011 levels. The proportion of eurozone and European exposure in the form of repos has remained below 20% of these banks' collective exposure in each of the past three months, well below the levels of roughly 40% of exposure during the height of the crisis last summer."

Online money market trading portal Institutional Cash Distributors published a press release with the unwieldy title, "Operational and Accounting Issues with the Floating NAV and the Impact on Money Market Funds Reveals Major Operational and Accounting Problems in Enacting SEC Regulatory Proposal Currently Under Consideration and posted a comment letter to the SEC with their 11-page refresh of a previous. The subtitle of the release says, "Industry leader in global portal investments and risk management questions the viability of implementing same-day, mark-to-market pricing for Money Market Funds, exposing a myriad of operational and accounting issues that would disrupt an otherwise historically stable and critically important short-term liquidity market." ICD writes, "Institutional Cash Distributors (ICD) today announced the release of ICD Commentary Operational and Accounting Issues with the Floating NAV and the Impact On Money Market Funds which questions the viability of the SEC's floating Net Asset Valuation proposal for prime Money Market Funds. Fundamental operational and accounting issues would upend the trading process, deter investors from investing in money market fund products, and thereby reduce the availability of affordable short-term financing for corporations, municipalities and state governments. The SEC's proposed floating NAV has been hotly debated by academics, economists and regulators, but little focus has been placed on the "ground-level" accounting and operational issues that would transform the daily trading process." ICD's SVP Global Trading Operations, Sebastian Ramos comments, "To date, the arguments for and against the implementation of a fluctuating NAV have been reasoned and passionate, but nearly all of the deliberation has taken place at the 30,000 foot level.... When we originally presented this argument in February 2012, it was in response to media reports of the SEC deliberations on a Floating NAV. In reviewing the proposal currently on the table, while some of the details and arguments at the periphery have changed, the core challenges surrounding the operational and accounting hurdles of a Floating NAV still remain as relevant as ever."

A release entitled, "Reich & Tang Surpasses $30 Billion in Assets Under Supervision tells us, "Reich & Tang today announced that the firm has surpassed $30 billion in assets under supervision, a new milestone for the liquidity and cash management specialty firm. With more than $32 billion, the firm increased its total assets by nearly 22% and increased its money fund assets by 40% year-to-date, which is impressive in the painfully low interest rate environment shareholders have endured for the past five years.... The retail-focused Reich & Tang, an affiliate of Natixis Global Asset Management, manages approximately $16 billion in money market mutual funds and separately managed accounts, as well as administers approximately $16 billion in expanded FDIC insured programs offered through banks and broker-dealers." CEO Michael Lydon comments, "We are very excited to have surpassed the $30 billion milestone. This is validation that our value as a liquidity and cash management specialist is clearly what many of our clients are seeking and need, particularly in this complex cash environment they are trying to navigate. We are extremely thankful to our clients who continue to grow their trust in us to manage and facilitate their end customers' cash management needs.... The firm's growth from the M&A side is a nice complement to the organic growth we are experiencing through our focused strategy.... On top of the multi-billion dollar HighMark Funds deal that we just completed, we have another $2-3 billion coming on board from existing and new client relationships over the next 45-60 days. Our expectation is to grow our money fund asset base by approximately 65% before the end of the year. Being able to accomplish this during a time when other money fund sponsors are talking about exiting the industry speaks volumes to the focus and commitment we have in the money fund space." In other news, ICI reported its latest "Money Market Mutual Fund Assets, which says, "Total money market mutual fund assets decreased by $9.80 billion to $2.622 trillion for the week ended Wednesday, July 24."

The U.S. Chamber of Commerce announced that it will host a "Discussion with SEC Commissioner Troy Paredes on Thursday, August 1, from 8:30am to 10:00am (Eastern). The description says, "`Join us on Thursday, August 1, from 8:30 a.m. to 10:00 a.m., for an event with SEC Commissioner Paredes. Commissioner Paredes has been an advocate for the business community during his tenure at the SEC and we are delighted to host him for a discussion on the state of SEC's regulatory agenda. In a moderated conversation with David Hirschmann, Paredes will address topics such as Money Market Funds, Fiduciary standards for investment advisors and broker dealers, the Volcker Rule, Conflict Minerals, and SEC Reform among others."

The Federal Reserve Bank of New York posted an updated entitled, "Assessing the Shadow Banking System, which appears to be a refresh of 2010 paper done by NY Fed staffers. It says, "In the latest edition of the Economic Policy Review, authors Zoltan Pozsar, Tobias Adrian, Adam Ashcraft and Hayley Boesky provide a detailed description of the institutional features of the shadow banking system, including insight into its economic role and relation to the traditional banking system. The study, "Shadow Banking," also includes an estimate of the size of the shadow banking system and observations on the system's future in light of recent reform efforts. The study is a revised version of a paper the authors published in the New York Fed's Staff Reports series in 2010. Shadow banks are financial intermediaries that conduct maturity, credit and liquidity transformation without explicit access to central bank liquidity or public sector credit guarantees. These intermediaries contributed to asset price appreciation and the expansion of credit prior to the financial crisis. During the crisis, however, the system's vulnerabilities and fragility were exposed, ultimately compelling the Federal Reserve and other government agencies to provide emergency support. Using the Federal Reserve's "Flow of Funds" data, the authors calculate that shadow bank liabilities grew to nearly $22 trillion in June 2007. For comparison, the total traditional banking liabilities for the same period were around $14 trillion. However, the size of the shadow banking system has contracted substantially since the peak in 2007, while total liabilities of the traditional banking sector have continued to grow. Looking ahead, the authors contend that despite efforts to address the excesses of credit bubbles, the shadow banking system will likely continue to play a significant role in the financial system for the foreseeable future. Furthermore, increased capital and liquidity standards for traditional banking entities are "likely to increase the returns to shadow banking activity" partially because reform efforts have done "little to address the tendency of large institutional cash pools to form outside the banking system."

Fitch Ratings "updated its national scale criteria for rating money market funds (MMFs), consistent with its practice of reviewing ratings criteria on an annual basis." Their release says, "The report applies to assigning national scale ratings to constant net asset value (CNAV) and certain variable net asset value (VNAV) MMFs in certain national jurisdictions. It should be read in conjunction with the master rating criteria report, Global Money Market Fund Rating Criteria, published on 26 March 2013 at www.fitchratings.com." The piece explains, "Fitch typically assigns National MMF Ratings to local-currency funds regulated in countries rated below 'AAA' and where investors and investments are largely domestic. It is important to note that each National Rating scale is unique and is defined to serve the needs of the local market in question. The changes in Fitch's updated criteria are limited, and include: Exclusion of 'F3(xxx)' rated issuers as eligible investment for 'AAmmf(xxx)' rated national scale MMFs. A shortening of the maximum asset maturity for floating rate and highly liquid sovereign securities for funds consistent with a 'AAAmmf(xxx)' rating to a maximum of two years (from a previous maximum of two to three years). Fitch expectations regarding the managers' capacity for regular stress testing of portfolios with respect to redemption activity, interest rate and spread risk. `Further detail on how Fitch treats deviations from criteria, as well as clarification of Fitch's treatment of assets on Rating Watch Negative for purposes of portfolio stress testing. [And] Clarification that imposing redemption gates, even if permissible under an MMF's offering documents, would be outside investors' expectations for highly rated MMFs and typically would result in a lower rating by Fitch. Fitch does not expect any ratings changes to its portfolio of rated MMFs."

We learned from Joan Swirsky at Stradley, Ronon, Stevens & Young that the SEC's Division of Investment Management has posted a "`Guidance Update entitled, "Counterparty Risk Management Practices with Respect to Tri-Party Repurchase Agreements. It says, "The Financial Stability Oversight Council ("FSOC"), in its May 2013 Annual Report, highlighted certain potential financial stability risks in the tri-party repurchase agreement market (commonly known as the "tri-party repo market") if concerns emerge regarding the financial condition of borrowers in this market, such as securities broker-dealers. Money market funds have significant portfolio holdings of tri-party repos (approximately $591 billion at the end of 2012). Even though many money market funds may stop rolling over repo holdings of a counterparty that comes under financial pressure, it is possible that a money market fund could face the sudden default of a tri-party repo. Accordingly, as a matter of prudent risk management, money market funds and their investment advisers are encouraged to consider the legal and operational steps they may need to take if a repo counterparty fails and the repos it issued default. The staff notes that while many different kinds of mutual funds may hold tri-party repos (and thus this staff guidance note may be useful to mutual funds generally), the staff is addressing this communication largely to money market funds because these funds tend to have more significant portfolio holdings of tri-party repos than other types of mutual funds. There are a variety of ways in which a money market fund and its adviser may be able to prepare in advance for handling a default of a tri-party repo held in the fund's portfolio. Such advance preparation could be part of broader efforts by the money market fund and its adviser to follow best practices in risk management and engage in appropriate advance planning to be prepared for the default of any type of portfolio security."

Federal Reserve Chairman Ben Bernanke's latest "Semiannual Monetary Policy Report to the Congress says, "We are relying on near-zero short-term interest rates, together with our forward guidance that rates will continue to be exceptionally low--our second tool--to help maintain a high degree of monetary accommodation for an extended period after asset purchases end, even as the economic recovery strengthens and unemployment declines toward more-normal levels. In appropriate combination, these two tools can provide the high level of policy accommodation needed to promote a stronger economic recovery with price stability. In the interest of transparency, Committee participants agreed in June that it would be helpful to lay out more details about our thinking regarding the asset purchase program--specifically, to provide additional information on our assessment of progress to date, as well as of the likely trajectory of the program if the economy evolves as projected. This agreement to provide additional information did not reflect a change in policy."

Crane Data has finalized the agenda for its first international conference offering, European Money Fund Symposium. Crane's European Money Fund Symposium. The inaugural event will be held at the Conrad Hotel in Dublin, Ireland on September 24-25, 2013, and will feature many of the world's foremost experts on "offshore" money market mutual funds. Registration, which is $1,000 USD (or 750 Euros), remains open and hotel reservations are still being accepted. Peter Crane comments, "European Money Fund Symposium will offer money market portfolio managers, investors, issuers, and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals and investors. The Day One Agenda for Crane's European Money Fund Symposium includes: "State of MMFs in Europe & IMMFA Update" with Jonathon Curry, of IMMFA; "Global Regulatory Issues: What's Next?" with Dan Morrissey of William Fry and John Hunt of Nutter, McClennen & Fish; "Risks & Ratings: Areas of Concern" with Yaron Ernst of Moody's Investors Service; "Monitoring European & Offshore MFs" with Joel Friedman of Standard & Poor's and Aymeric Poizot of Fitch Ratings; "Major Issues in Euro Money Funds" with Jason Granet of Goldman Sachs Asset Mgmt and Joe McConnell of J.P. Morgan Asset Management; "Major Issues in Sterling Money Funds" with Jennifer Gillespie of Legal & General I.M. and Dennis Gepp of Federated Prime Rate; "Major Issues in USD & US Money Funds with Debbie Cunningham of Federated Investors and Jennifer Yazdanpanahi of SSgA; and, "MMFs in Asia & Emerging Markets" with Peter Crane of Crane Data and Andrew Paranthoiene of Standard & Poor's. The Day Two Agenda includes: "Dublin as a Domicile for Money Market Funds" with Pat Lardner of the Irish Funds Industry Association and Fearghal Woods of Northern Trust (Ireland) Ltd.; "Distribution Panel: New Markets & Concerns" with Henry Buckmaster, of Federated Intl Management Ltd, Jim Fuell of JPM AM; and Kathleen Hughes of Goldman Sachs A.M.; "Dealer Update & Supply Discussion" with Kieran Davis of Barclays, Jean-Luc Sinniger of Citi Global Markets and David Hynes of Northcross Capital LLP; "From the Regulators Perspective" Bank of England, EU Regulator (Invited); "Portal Panel: Beyond MMFs & Transparency" with Justin Meadows of MyTreasury, Greg Fortuna of State Street's Fund Connect, and Maryum Malik of SunGard; "There & Back Again : A Bank Funding Story with Paul Flynn of Bank of Ireland"; and a "Portfolio Manager Roundtable & Open Talk." Sponsors to date of the event include: Moody's Investors Service, Federated International, J.P. Morgan Asset Management, BNY Mellon Liquidity Funds, SSgA, Fund Connect, HSBC, MyTreasury, Standard & Poor's, Northcross Capital, and Nutter, McClennen & Fish. Media partners include: Treasury Management International and Treasury Today. Visit www.euromfs.com or contact us for more details. Finally, mark your calendars for our "basic training" event, Crane's Money Fund University, Jan. 23-24, 2014 in Providence, and for next year's Crane's Money Fund Symposium, June 23-25, 2014, in Boston.

A press release entitled, "Federated Investors, Inc. Announces Second Quarter 2013 Earnings and Conference Call Dates" says, "Federated Investors, Inc. (NYSE: FII), one of the nation's largest investment managers, will report financial and operating results for the quarter ended June 30, 2013 after the market closes on Thursday, July 25, 2013. A conference call for investors and analysts will be held at 9 a.m. Eastern on Friday, July 26, 2013. President and Chief Executive Officer J. Christopher Donahue and Chief Financial Officer Thomas R. Donahue will host the call. Investors interested in listening to the teleconference should dial 877-407-0782 (domestic) or 201-689-8567 (international) or visit FederatedInvestors.com for real time Internet access. To listen via the Internet, go to the About Federated section of the website at least 15 minutes prior to register, download and install any necessary audio software."

We learned from the new IMMFA about an article from U.K. publication, Treasury Today entitled, "UK government minister strongly supports MMFs." It says, "In his speech at the annual dinner of the Institutional Money Market Funds Association (IMMFA), Economic Secretary to the Treasury, Sajid Javid, gave the industry some hope that the UK would work with the industry when considering new MMF regulations. UK Treasury Secretary, Sajid Javid, made some very supportive remarks at the annual Institutional Money Market Funds Association (IMMFA) dinner last month, and Treasury Today has obtained a copy of the transcript of his speech which makes very interesting reading. It is reproduced in full here. To summarise, Javid said that the UK government was aware of the "vital function" played by money market funds (MMFs) but some form of legislation was inevitable. Crucially, Javid wants to make sure that "these interventions are worthwhile, helpful and effectively address the legitimate concerns about MMFs, without impairing the crucial role they can play in our economy.""

Reuters writes "House panel probes risk council role in SEC money fund rule". The article says, "A House of Representatives Republican who oversees an investigative committee said on Friday the new U.S. systemic risk council overstepped its authority with an attempt to push through rules to rein in the $2.6 trillion money market fund industry. Making those rules was the responsibility of the Securities and Exchange Commission, which is supposed to be independent, said House Oversight Committee Chairman Darrell Issa. He released excerpts of documents showing that internal SEC draft rules contained what he called inappropriate input from staffers of the Federal Reserve, which serves with the SEC on the risk council, also known as the Financial Stability Oversight Council (FSOC).... "Lawmakers are concerned that the risk council "may be structured and operating in a manner that vitiates the independence and core competence of the council's constituent regulatory bodies," wrote Issa and Ohio Republican Jim Jordan, who chairs a subcommittee of the oversight panel. Issa also released an 11-page letter he sent July 10 to SEC Chairwoman Mary Jo White and several other members of FSOC demanding additional records. The letter accuses the office of former SEC Chair Mary Schapiro of "surreptitiously" cloaking its opinions and advocacy for money fund rules."

Money fund assets rose for the 3rd week in a row and for the 7th week out of the past 8. ICI's latest "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets increased by $23.82 billion to $2.620 trillion for the week ended Wednesday, July 10, the Investment Company Institute reported today. Taxable government funds increased by $8.70 billion, taxable non-government funds increased by $16.14 billion, and tax-exempt funds decreased by $1.01 billion." Money funds normally see big increases at the start of a new quarter, due to dividends, bond coupon payments and other funds being released. ICI's release adds, "Assets of retail money market funds decreased by $940 million to $927.86 billion. Taxable government money market fund assets in the retail category increased by $380 million to $199.75 billion, taxable non-government money market fund assets decreased by $1.56 billion to $534.30 billion, and tax-exempt fund assets increased by $240 million to $193.81 billion.... Assets of institutional money market funds increased by $24.76 billion to $1.692 trillion. Among institutional funds, taxable government money market fund assets increased by $8.32 billion to $712.21 billion, taxable non-government money market fund assets increased by $17.70 billion to $908.12 billion, and tax-exempt fund assets decreased by $1.26 billion to $71.80 billion." ICI shows Prime Institutional funds representing 34.7% of total assets. Year-to-date, money fund assets have decreased by $85 billion, or 3.1%; since May 1, money fund assets have increased by $56.7 billion.

Wells Fargo Advantage Funds published its latest monthly "Overview, strategy, and outlook" yesterday. It says, "On July 1, the British Bankers' Association will cease daily publication of submissions by London Interbank Offered Rate (LIBOR) panelists. Instead, data on individual bank submissions will be delayed for three months. This follows the suspension last month of LIBOR settings for terms of 2 weeks, 4 months, 5 months, 7 months, 8 months, 10 months, and 11 months due to insufficient trade data. Both of these changes are a result of recommendations made by Martin Wheatley, managing director of the Financial Services Authority and chief executive-designate of the Financial Conduct Authority, following his review of LIBOR in the wake of investigations into the rate-setting process. We find it interesting that at a time when regulators are almost uniformly calling for more frequent and detailed disclosure in all areas of the financial markets, the problems with LIBOR stemmed from the disclosure of too much information too quickly. Transparency has become the holy grail of our time, but there can be too much of a good thing. We hope that regulators are mindful of this possibility as further regulatory changes are contemplated." Wells adds on the bond market massacre in June, "All of this was either terrifying or exhilarating for market participants, depending on positioning, but for those in the money market space, it made for interesting, if somewhat detached, viewing. The chart on this page shows the U.S. Treasury yield curves at the end of each month from April to June. It's worth noting that while the changes are significant farther out the yield curve, they are barely noticeable for shorter maturities of up to one year."

ICI's Brian Reid posted a recent "Viewpoint" entitled, "Bond Fund Flows: A Little Perspective on the Big Bond Market." He writes, "It's been a long two months for bond fund investors. The sharp run-up in interest rates since late April has caused many bond funds to experience their first losses in several years. Then, to rub salt into the wound, some commentators have placed the blame for rising bond yields and falling prices on fund investors themselves, pointing to the outflows from bond funds as evidence that fund investors were driving the markets. Trouble is, these outflows haven't been particularly large. ICI weekly estimates, which cover more than 95 percent of industry assets, show that outflows from bond mutual funds in June totaled a little more than $60 billion. Data from IndexUniverse show outflows from bond ETFs were about another $8 billion. With nearly $3.8 trillion invested in bond funds, these outflows amount to less than 2 percent of fund assets. Nor are they unprecedented: when interest rates have risen sharply in the past, bond funds have had outflows. The outflows that we have seen recently, when compared to total bond fund assets, have been in line with past periods of sharply rising interest rates.... As interest rates rise, we will continue to see outflows from bond funds. But it's important to look at the data and to understand flows in the full context of broader markets. Even with some outflows, we believe that investors will continue to want bond exposure. Among other things, demand for bonds will be driven by an aging population looking for diversification out of stocks and by investment vehicles such as target date funds, which allocate a certain portion of their investments to the fixed-income sector."

The U.S. Chamber Center for Capital Markets (CCMC) will host an event entitled, "Money Market Mutual Fund Reform: The Need to Preserve a Critical Liquidity Product for Businesses, Cities, and States on Thursday, July 25, 2013, from 10:00a.m.-1:30 p.m. The invite says, "Join the U.S. Chamber Center for Capital Markets (CCMC) on Thursday, July 25 for an event that will reflect on the challenges and implications of proposed money market mutual fund (MMMF) reform, including floating the NAV, for businesses, cities, and states. On June 5, the U.S. Securities and Exchange Commission (SEC) voted unanimously to propose additional reforms to money market mutual fund regulation. The U.S. Chamber remains focused on ensuring changes to existing regulations strengthen MMMFs while preserving their utility as an important cash management tool and a critical source of short-term funding for businesses, cities, and states. This event will feature the release of a report that outlines the operational challenges and costs that a floating NAV will bring to all market participants. Speakers, ranging from corporations to states and municipalities, will discuss the SEC's proposal, and how fundamental changes to the product will affect the many different stakeholders.... Registration will open at 10:00 a.m., followed by the program from 10:30 a.m. to 1:30 p.m. Registration fees include $35 for U.S. Chamber members, and $45 for non-U.S. Chamber members. Federal government employees are complimentary. For more information, contact Leigh Stapleton, Director, CCMC (lstapleton@uschamber.com or 202-463-5374)."

The London-based Institutional Money Market Funds Association, or IMMFA, launched a new website this weekend. IMMFA is the "trade association representing the European triple-A rated, constant net asset value (CNAV) money market funds industry." The site features an upgraded look-and-feel, sections About IMMMFA and Money Funds, Market Statistics, Publications and a News Room. The IMMFA News page tells us, "The European Commission has confirmed that it will present its proposal for a Regulation on Money Market Funds (MFF) on 24th July 2013. We will put up more information as we have it." Finally, watch for excerpts from IMMFA Chairman Jonathan Curry, who spoke at our recent Money Fund Symposium, and the ICI's latest statistics on Worldwide mutual funds (with the money fund portion analyzed by Crane Data) in coming days. (Curry is also scheduled to keynote our first European Money Fund Symposium, which will take place Sept. 24-25 in Dublin, Ireland.)

ICI's "Money Market Mutual Fund Assets" shows Retail assets continue to rise while Institutional assets continue to decline. The report says, "Total money market mutual fund assets increased by $1.71 billion to $2.596 trillion for the week ended Tuesday, July 2, the Investment Company Institute reported today. Taxable government funds increased by $220 million, taxable non-government funds decreased by $3.42 billion, and tax-exempt funds increased by $4.91 billion.... Assets of retail money market funds increased by $4.92 billion to $928.78 billion. Taxable government money market fund assets in the retail category increased by $470 million to $199.37 billion, taxable non-government money market fund assets increased by $2.15 billion to $535.84 billion, and tax-exempt fund assets increased by $2.30 billion to $193.57 billion.... Assets of institutional money market funds decreased by $3.21 billion to $1.667 trillion. Among institutional funds, taxable government money market fund assets decreased by $250 million to $703.89 billion, taxable non-government money market fund assets decreased by $5.57 billion to $890.42 billion, and tax-exempt fund assets increased by $2.61 billion to $73.06 billion." ICI also showed bond fund assets falling sharply and falling for the fourth week in a row.

PIMCO wrote last month, "Liquidity Markets Likely to Evolve Under Proposed Money Market Reforms". The June "Viewpoint" says, "The Securities and Exchange Commission on Wednesday [June 5] voted unanimously to propose long-awaited reforms for money market funds (MMF). The first proposal would affect prime institutional money market funds, which are allowed to take on credit risk and account for about $826 billion in assets. They would be required to convert from a fixed, $1 par net asset value (NAV) to a floating net asset value (FNAV) share price. Under the second proposal, MMFs may be required to impose liquidity fees and gates on redemptions during times of severe market stress. (Government MMFs, which invest primarily in government securities, would not be subject to these new regulations.)The SEC is seeking public comment on whether one or both of these proposals should be adopted. In addition, the SEC outlined several other possible enhancements to MMFs, such as increased diversification and disclosure policies. PIMCO views this vote as a pivot point for cash and liquidity management. Approximately 40 years ago, the emergence of regulated 2a-7 money market funds caused a shift in liquidity management; monies intended for short-term savings migrated away from traditional bank-managed accounts into MMFs, which offered a stable NAV and attractive yields. Now, we expect a shift away from the 2a-7 dominated $1 par NAV regime. In our view, actively managed short-term fixed income strategies will become increasingly important for liquidity management. Prime MMF investors will have time to prepare during the 90-day public comment period, which will be followed by a review period and then a final announcement and implementation. These changes won't be finalized for several months -- if not more -- and could take years to be implemented. Nevertheless, a potential change has just begun. We are not saying that the demise of prime 2a-7 funds is imminent or even likely. Rather, we are simply highlighting that other compelling complements for liquidity management are available for investors to consider in response to these regulatory changes."

AFP writes in "Questions About the Floating NAV,", "The Securities and Exchange Commission (SEC) recently proposed changes to the rules governing money-market funds (MMFs) and, as part of the regulatory process, is seeking public comments. To help focus its proposal, the SEC has a number of questions it would like answered -- particularly about the proposed floating net asset value (NAV), which would allow MMF shares to fluctuate on prime institutional funds. Treasury and finance professionals can submit comments here after reading the proposal and the SEC's questions. You can read other public comments here. Specifically, the SEC would like treasury and finance professionals to address the following questions: Do commenters agree that floating a money market fund's NAV would lessen the incentive to redeem shares in times of fund and market stress that can result from use of amortized cost valuation and penny rounding pricing by money market funds today? What would be the effect of the other incentives to redeem that would remain under a floating NAV with basis point pricing requirement? Would floating a money market fund's NAV provide sufficient transparency to cause investors to estimate more accurately the investment risks of money market funds? Do commenters believe that daily disclosure of shadow prices on fund websites would accomplish the same goal without eliminating the stable share price at which fund investors purchase and redeem shares? Why or why not?" The piece excerpts over a dozen more of the SEC's questions on floating NAVs as well.

Fitch Ratings writes "End-May MMF Snapshot Reflects Continued Search for Yield". It says, "Fitch Ratings has published the latest edition of its monthly money market fund (MMF) snapshot report, with data as at end-May 2013. The latest edition includes three newly rated offshore liquidity funds managed by Aberdeen Asset Management. Fitch now rates just under USD1trn of MMF assets in Europe and the US. Euro MMFs have continued to increase in their weighted average lives (WALs), in response to the current low yield environment. The average WAL for euro funds was 56 days at end May, up from 49 days at end April. This is mirrored in a decrease in liquidity; average euro MMF daily and weekly liquidity stood at 28% and 35% respectively, down from 32% and 42% respectively at end April. Nonetheless, liquidity remains high, above Fitch's 'AAA' criteria. Fitch will closely monitor risk parameters as recent market volatility calls for conservative positioning."

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