Daily Links Archives: December, 2021
K&L Gates Reviews SEC Reforms
The National Law Review published an update, written by law firm K&L Gates, entitled, "SEC Proposes Another Round of Money Market Fund Reforms." It tells us, "On 15 December 2021, the Securities and Exchange Commission (the SEC) proposed amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended (the 1940 Act) (the Proposed Rule), which governs the structure and operation of money market funds (MMFs). The Proposed Rule would impact all MMFs with tax-exempt and prime MMFs being most affected. The amendments reflect the SEC's concern over market stresses experienced in response to the COVID-19 Pandemic in March 2020 and are intended to improve the resiliency and transparency of MMFs." The summary explains, "Significantly, if adopted as proposed, the Proposed Rule would: Increase the minimum daily and weekly liquidity requirements to provide a larger buffer in the event of rapid redemptions; Remove the ability of, or requirements on, MMFs to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds; Require certain MMFs to implement swing pricing so that redeeming investors bear the liquidity costs of their redemptions; Require stable net asset value (NAV) MMFs to convert to a floating share price if future market conditions result in negative fund yields; Prohibit MMFs from operating a reverse distribution mechanism, routine reverse stock split, or other device that would periodically reduce the number of the fund's outstanding shares to maintain a stable share price; Require that MMFs calculate weighted average maturity (WAM) and weighted average life (WAL) based on the percentage of each security's market value in the portfolio; Amend stress testing and board reporting requirements; and Amend Forms N-CR and N-MFP to improve the availability of information about MMFs, as well as make certain conforming changes to Form N-1A to reflect the proposed changes to the regulatory framework." K&L Gates update adds, "For additional details regarding the Proposed Rule, including a comparison of certain of the requirements currently in place under Rule 2a-7 with those contained in the Proposed Rule, please see the 'Comparison Chart' at the end of this alert. If adopted as proposed, the SEC proposes to remove the fees and gates provisions of Rule 2a-7 as well associated disclosure requirements in Form N-1A and N-CR, effective immediately as of the effective date of the Proposed Rule. The SEC proposes that as of six months following the effective date of the Proposed Rule, funds must meet all other aspects of the Proposed Rule, including but not limited to the proposed increased daily minimum asset and weekly minimum asset requirements and the amendments to Forms N-CR and N-MFP, with the exception of the proposed swing pricing provisions, which would be required to be implemented within 12 months from the effective date of the amendment, if adopted.... The Proposed Rule will be published on SEC.gov and in the Federal Register. The comment period will remain open for 60 days after publication in the Federal Register. Additional details regarding the specifically requested comments will be covered in a future series of alerts."
Western Explains Fed's Reverse Repo
Western Asset published a brief earlier this month entitled, "A Look at the Fed's Reverse Repo Agreement." Author Thomas Groark tells us, "In 2013, the Federal Open Market Committee (FOMC) announced its intention to utilize an overnight reverse repurchase agreement (RRP) facility as a tool to support effective policy implementation by helping to control the fed funds rate. Reverse repo, conducted by the open market trading desk, is a transaction in which the Federal Reserve (Fed) sells a security to an eligible counterparty and simultaneously agrees to repurchase the security the next day at a set price. Eligible counterparties include primary dealers, 2a-7 money market funds, banks and government-sponsored enterprises. The RRP allows the Fed to temporarily reduce the supply of reserve balances in the banking system, and allows investors to place short-term cash in the facility and earn a fixed rate of 5 bps." He explains, "The RRP has been a popular investment option for many money market mutual funds in recent months. All domestic 2a-7 funds with assets in excess of $2 billion are eligible to participate in the program. A single fund can invest up to $160 billion per day. Money market funds are accustomed to investing in repurchase agreements as a means to manage their overnight liquidity and provide them with cash on hand to meet redemption requests. US-based money market funds are required to hold at least 10% of their portfolio in overnight investments and 30% in securities that mature within a week. Repurchase agreements help funds adhere to both of these metrics." Western's piece says, "Since the outset of the COVID-19 pandemic, excess cash in the front end of the yield curve has put downward pressure on rates.... Earning very close to zero on repo transactions became the norm and there was even talk about repo interest rates moving into the negative. As a result, the RRP facility has seen increased usage beginning in March 2021, which sped up when the Fed moved the interest rate to 5 bps on June 16, 2021. This technical adjustment helped drive all repo rates up and avoid negative territory." It adds, "The RRP facility hit an all-time high on September 30, 2021 with over $1.6 trillion in total usage. Look out for a potential new high at year-end when dealer balance sheets are tight and investors need to place cash.... There is no reason to believe the Fed will eliminate the RRP facility, especially given its recent success and widespread usage. However, there is always the possibility for the Fed to adjust the parameters as it continuously monitors market conditions. Money market funds are structurally important to the global financial markets. They are also an important investment option for institutions and individuals all over the globe. The RRP is just one of the programs the Fed has put in place to help ensure smooth functioning of this important segment of the market. Western Asset manages nearly $60 billion in liquidity assets and is an active participant in the Fed's RRP. Our eligible money market funds are currently investing 10%-15% of their portfolios in the program. We constantly monitor overnight investment options as they provide the cash we need to meet redemption requests and provide our clients with daily liquidity."
Federated's Hill on Fed Acceleration
A recent post from Federated Hermes' Sue Hill, entitled, "Acceleration: The Fed increases the pace of taper and expectations for rate hikes," explains, "The market expected a hawkish outcome from the Federal Reserve policy meeting ... and the Fed did not disappoint. Officials delivered on the anticipated doubling of the pace of taper to $30 billion a month—meaning the purchase program likely would conclude by March 2022. But the headline news came with rates. In recent weeks, the market has notably shifted its projections of when the Fed might raise rates, pricing in liftoff as early as March 2022. This swing was so swift and dramatic that one could have expected Chair Powell to push back in his press conference. Instead, he leaned in." Federated's piece continues, "The new dot plot released at this meeting showed most Federal Open Market Committee participants projecting three or more 25 basis-point rate hikes in 2022, another three in 2023, and two more in 2024. These estimates -- anywhere from 25 to 75 basis points higher than the dot plot released just this past September -- reflect an earlier liftoff and faster pace of tightening than previously thought. We also have brought our own expectations with respect to the first hike into the first half of 2022." Hill writes, "In a somewhat anticlimactic development relative to the fireworks from the Fed, we also seem to have a resolution to the debt ceiling, as both the Senate and the House have approved a $2.5 trillion increase in borrowing authority. This action should lead to near-term Treasury bill supply as the U.S. Treasury replenishes its dwindling cash in hand, and also should put an end to the debt limit shenanigans until after the 2022 midterm elections at least." She adds, "Finally, the SEC voted to approve a proposal of new regulations for money market funds. They include removing the linkage between weekly liquid assets and consideration of liquidity fees and redemption gates, increasing daily and weekly liquidity requirements for all funds from their current levels, requiring that institutional prime and tax-free money funds adopt swing pricing policies, and proposals regarding negative yields and enhanced reporting requirements. It is important to realize this marks the beginning of a longer process, including another round of public comments."
Money Fund Assets Surge at Year End
ICI's latest weekly "Money Market Fund Assets" report shows assets rising for the 7th week in a row and the 8th week out of the past 9. Over the past 7 weeks, money fund assets have increased by $111.6 billion, and over the past 9 weeks assets they are up $148.2 billion. Money fund assets are up by $369 billion, or 8.6%, YTD in 2021. (This follows a gain of $665.0 billion, or 18.3%, in 2020.) Inst MMFs are up $432 billion (15.6%), while Retail MMFs are down $64 billion (-4.2%). Over the past 52 weeks, money fund assets have increased by $346 billion, or 8.0%, with Retail MMFs falling by $62 billion (-4.1%) and Inst MMFs rising by $408 billion (14.6%). ICI's release says, "Total money market fund assets increased by $30.07 billion to $4.67 trillion for the week ended Wednesday, December 22, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $28.39 billion and prime funds increased by $1.61 billion. Tax-exempt money market funds increased by $62 million." ICI's stats show Institutional MMFs increasing $12.7 billion and Retail MMFs increasing $17.4 billion in the latest week. Total Government MMF assets, including Treasury funds, were a record $4.137 trillion (88.7% of all money funds), while Total Prime MMFs were $442.5 billion (9.5%). Tax Exempt MMFs totaled $86.8 billion (1.9%). ICI explains, "Assets of retail money market funds increased by $17.35 billion to $1.46 trillion. Among retail funds, government money market fund assets increased by $16.69 billion to $1.18 trillion, prime money market fund assets increased by $423 million to $204.66 billion, and tax-exempt fund assets increased by $245 million to $77.24 billion." Retail assets account for just under a third of total assets, or 31.3%, and Government Retail assets make up 80.7% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $12.71 billion to $3.20 trillion. Among institutional funds, government money market fund assets increased by $11.71 billion to $2.96 trillion, prime money market fund assets increased by $1.19 billion to $237.87 billion, and tax-exempt fund assets decreased by $183 million to $9.55 billion." Institutional assets accounted for 68.7% of all MMF assets, with Government Institutional assets making up 92.3% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than Crane's asset series.)
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Dec. 17) includes Holdings information from 73 money funds (up from 62 a week ago), which represent $2.671 trillion (up from $2.149 trillion) of the $4.971 trillion (53.7%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our Dec. 10 News, "Dec. MF Portfolio Holdings: Repo Jumps, Led by FICC; Treasuries Drop," for more.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.281 trillion (up from $1.028 trillion a week ago), or 48.0%; Treasuries totaling $1.053 trillion (up from $831.9 billion a week ago), or 39.4%, and Government Agency securities totaling $151.0 billion (up from $121.1 billion), or 5.7%. Commercial Paper (CP) totaled $63.2 billion (up from a week ago at $60.7 billion), or 2.4%. Certificates of Deposit (CDs) totaled $41.5 billion (unchanged from a week ago), or 1.6%. The Other category accounted for $56.9 billion or 2.1%, while VRDNs accounted for $23.6 billion, or 0.9%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.053 trillion (39.4% of total holdings), the Federal Reserve Bank of New York with $787.1B (29.5%), Fixed Income Clearing Corp with $69.4B (2.6%), Federal Home Loan Bank with $64.1B (2.4%), RBC with $60.6B (2.3%), BNP Paribas with $56.5B (2.1%), Federal Farm Credit Bank with $45.0B (1.7%), Federal National Mortgage Association with $27.7B (1.0%), Canadian Imperial Bank of Commerce with $24.4B (0.9%) and JP Morgan with $24.3B (0.9%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($251.4B), Goldman Sachs FS Govt ($219.6B), BlackRock Lq FedFund ($177.0B), Morgan Stanley Inst Liq Govt ($157.2B), Allspring Govt MM ($140.0B), Fidelity Inv MM: Govt Port ($129.8B), BlackRock Lq T-Fund ($128.9), Dreyfus Govt Cash Mgmt ($124.7B), BlackRock Lq Treas Tr ($118.6B) and Goldman Sachs FS Treas Instruments ($108.8B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
SEC Reforms' Swing Pricing Proposal
As we reported last week, the SEC's Money Market Fund Reforms Proposal recommends higher liquidity levels, the removal of the emergency gates and fees and a new swing pricing mandate for Prime Inst MMFs. (See the Proposed Rules here, the press release here and the Fact Sheet here. Also, see our Dec. 16 News "SEC Proposes MMF Reforms: More Liquidity, No Gates/Fees, Swing Pricing.") We're still wading through the 325-page rule, but today we quote from the most controversial section of the proposal, "swing pricing." On page 44, the SEC writes about its "Proposed Swing Pricing Requirement," "We are proposing a swing pricing requirement specifically for institutional prime and institutional tax-exempt money market funds that would apply when the fund experiences net redemptions. This requirement is designed to ensure that the costs stemming from net redemptions are fairly allocated and do not give rise to a first-mover advantage or dilution under either normal or stressed market conditions. The swing pricing requirement would complement our proposal to require funds to hold additional liquidity by requiring redeeming investors to pay the cost of depleting a fund's liquidity. Requiring swing pricing also would address a fund's potential reluctance to impose a voluntary liquidity fee even when doing so might be beneficial to the fund. Swing pricing is a process of adjusting a fund's current NAV such that the transaction price effectively passes on costs stemming from shareholder transaction flows out of the fund to shareholders associated with that activity. Trading activity and other changes in portfolio holdings associated with meeting redemptions may impose costs, including trading costs and costs of depleting a fund's daily or weekly liquid assets. These costs, which currently are borne by the remaining investors in the fund, can dilute the interests of non-redeeming shareholders. This can create incentives for shareholders to redeem quickly to avoid losses, particularly in times of market stress. If shareholder redemptions are motivated by this first-mover advantage, they can lead to increasing outflows, and as the level of outflows from a fund increases, the incentive for remaining shareholders to redeem may also increase. Regardless of whether investor redemptions are motivated by a first-mover advantage or other factors, there can be significant, unfair adverse consequences to remaining investors in a fund in these circumstances, including material dilution of remaining investors' interests in the fund. Swing pricing can reduce the potential for dilution of investors who choose to remain in the fund." It explains, "The proposed swing pricing requirement is designed to address these concerns. Under the proposal, an institutional fund would be required to adjust its current NAV per share by a swing factor reflecting spread and transaction costs, as applicable, if the fund has net redemptions for the pricing period. If the institutional fund has net redemptions for a pricing period that exceed the 'market impact threshold,' which would be defined as 4% of the fund's net asset value divided by the number of pricing periods the fund has in a business day, or such smaller amount of net redemptions as the swing pricing administrator determines, the swing factor would also include market impacts, as described below. The 'pricing period' would be defined, in substance, to mean the period of time in which an order to purchase or sell securities issued by the fund must be received to be priced at the next computed NAV. This is designed to address money market funds that compute their NAVs multiple times per day. For example, if a fund computes a NAV as of 12:00 p.m. and 4:00 p.m., the fund would determine if it had net redemptions for each pricing period and, if so, apply swing pricing for the corresponding NAV calculation. Consistent with the approach taken by the Commission with respect to the swing pricing provision in rule 22c-1, an institutional fund with multiple share classes must determine whether it experienced net redemption activity across all share classes in the aggregate, rather than determining net redemption activity on a class by class basis. A mandatory swing pricing regime for net redemptions is intended to address funds' (or fund boards') likely reluctance to impose a voluntary swing pricing regime or voluntary liquidity fee. For example, while money market funds were permitted to impose liquidity fees on redeeming investors under rule 2a-7 if a fund had less than 30% of its assets invested in weekly liquid assets no money market fund imposed such fees during the March 2020 market turmoil. Moreover, even if all institutional money market funds recognized the benefits of charging redeeming investors for liquidity costs, we believe there is a collective action problem in which no fund would want to be the first to adopt such an approach. We believe past experience with the existing liquidity fee regime supports a mandatory approach to dilution mitigation for institutional funds." The section adds, "Our proposed money market fund swing pricing framework specifies how an institutional fund would determine its swing factor, which would differ based on the amount of net redemptions.... The swing factor would be determined by calculating identified types of costs the fund would incur, as applicable, by selling a pro rata amount of each security in its portfolio to satisfy the amount of net redemptions for the pricing period. The requirement that a money market fund calculate costs to sell a pro rata amount of each security in its portfolio -- a 'vertical slice' of the portfolio -- is designed to ensure that a fund's adjusted NAV incorporate the costs of selling its less liquid holdings, which may protect remaining shareholders from dilution and may discourage investors from redeeming quickly during periods of market stress to seek to avoid potential costs from a fund's future sale of less liquid securities. For example, when investors redeem, if those redemptions are met through daily or weekly liquid assets, the redemptions leave the fund with less liquidity. This increases the likelihood that further redemptions could require the fund to sell less liquid assets or incur costs in rebalancing the portfolio. Although further redemptions may be more likely to require the fund to sell less liquid assets in times of market stress when redemptions may be elevated, redeeming investors depleting a fund's daily and weekly liquid assets can impose liquidity costs on the remaining shareholders as well as the fund generally, even during non-stressed periods. This depletion of a money market fund’s liquidity can dilute the interests of remaining investors and also can create a first-mover advantage for investors who redeem in an attempt to avoid bearing the costs created by other investors' redemptions. The factors a fund must take into account when calculating the swing factor vary depending on the size of net redemptions for the pricing period.... If the fund has net redemptions that do not exceed the market impact threshold, the swing factor reflects the spread costs and other transaction costs (i.e., brokerage commissions, custody fees, and any other charges, fees, and taxes associated with portfolio security sales), as applicable, from selling a vertical slice of the portfolio to meet those net redemptions."
Dechert: SEC's MMF Reform Proposal
Law firm Dechert published a primer on the SEC's recent Money Market Fund Reforms Proposal. Their piece, "SEC Proposes Amendments to Rules Governing Money Market Funds," explains, "On December 15, 2021, the Securities and Exchange Commission, by a party-line vote of three-to-two, proposed for public comment amendments (Proposed Amendments) to Rule 2a-7 and other rules that govern money market funds (money funds) under the Investment Company Act of 1940. According to the SEC's proposing release (Release), the Proposed Amendments are 'designed to improve the resiliency and transparency of money market funds' following the liquidity stresses experienced in March 2020 in connection with the COVID-19 coronavirus pandemic and the associated stresses in the short-term credit markets. The Proposed Amendments include the following key reforms: Increase in daily and weekly liquid asset requirements and related reporting requirements; Removal of required and permissive liquidity fee and redemption gate provisions; Swing pricing requirement for institutional prime and institutional tax-exempt money funds; and Amendments to address potential negative interest rates." On the "Increase in Daily and Weekly Liquid Asset Requirements; Reporting of Liquidity Threshold Events," it states, "For all money funds, the Proposed Amendments would increase: minimum daily liquid asset requirements from 10% to 25%; and weekly liquid asset requirements from 30% to 50%." Regarding the "Removal of Required and Permissive Liquidity Fee and Redemption Gate Provisions," Dechert says, "The Proposed Amendments would remove provisions in Rule 2a-7 that permit (or under certain circumstances require) a money fund to impose liquidity fees. The Proposed Amendments also would remove provisions in Rule 2a-7 that permit a money fund to impose a redemption gate. In the Release, the SEC noted that, in March 2020, the possibility of the imposition of liquidity fees and/or redemption gates 'appears to have contributed to investors' incentives to redeem from prime money market funds and for money market fund managers to maintain weekly liquid asset levels above the threshold, rather than use those assets to meet redemptions.' The removal of the liquidity fee and redemption gate provisions from Rule 2a-7 was supported to a certain extent by all of the Commissioners. However, Commissioners Hester M. Peirce and Elad L. Roisman questioned whether a money fund's board of directors should be allowed to consider imposing fees and gates voluntarily as an additional tool to stem redemptions during times of market stress." On "Swing Pricing Requirement for Institutional Prime and Institutional Tax-Exempt Money Funds," Dechert's Steve Cohen, Brenden Carroll and James Catano write, "The Proposed Amendments would impose a mandatory swing pricing regime on institutional prime and institutional tax-exempt money funds (i.e., money funds that are not a government money fund or retail money fund) that experience net redemptions. Specifically, the Proposed Amendments would require an institutional prime or institutional tax-exempt money fund to implement policies and procedures that require the fund to adjust its NAV per share downward by a 'swing factor' when it experiences net redemptions during a 'pricing period.' In determining the 'swing factor,' the 'swing pricing administrator' (which could be the fund's investment adviser or officer(s) responsible for administering the fund's swing pricing policies and procedures) would make good faith estimates, supported by data, of the costs the fund would incur if it sold a pro rata amount of each security in the fund's portfolio (i.e., a 'vertical slice' of its portfolio) to satisfy the amount of net redemptions for the 'pricing period.' A 'pricing period' would be defined for this purpose as the period of time in which an order to purchase or sell securities issued by the fund must be received to otherwise be priced at the next-computed NAV. Further, if net redemptions for a pricing period exceed the 'market impact threshold,' which would be defined as an amount of net redemptions for a pricing period that equals the value of 4% of the fund's NAV divided by the number of pricing periods the fund has in a business day (or such smaller amount of net redemptions as the fund's swing pricing administrator determines), then the good faith estimates also must include, for each security in the fund's portfolio, market impacts. Under the Proposed Amendments, institutional prime and institutional tax-exempt money funds would be required to develop and adopt swing pricing policies and procedures that would need to be approved by the fund's board. The fund's board also would be required to designate the swing pricing administrator and review, no less frequently than annually, a written report prepared by the swing pricing administrator." Dechert adds, "The SEC requests feedback on the proposed swing pricing requirement, including, most notably, the potential operational difficulties in implementing swing pricing. Commissioner Roisman, in particular, questioned whether money fund intermediaries that serve investors might have preferences with respect to implementing swing pricing or one of the alternative structures described in the Release. Additionally, Commissioner Allison Herren Lee questioned whether the use of swing pricing would actually be effective in disincentivizing redeeming investors from engaging in run-like behavior." They also briefly mention the "Amendments to Address Potential Negative Interest Rates" and conclude, "The Proposed Amendments begin a new phase in the ongoing debate over the regulation of money funds; this debate has been reignited following the market stresses experienced in connection with the COVID-19 coronavirus pandemic. Unfortunately, the comment period for the Proposed Amendments -- which, if adopted, would significantly impact money funds and likely would prompt many comments from the industry -- is only 60 days after their publication in the Federal Register. This relatively short comment period was described as 'a major shortcoming' by Commissioner Roisman. For context, the SEC provided a 90-day comment period in connection with its proposed money market reforms in 2013. An upcoming Dechert OnPoint will provide a more detailed analysis of the Proposed Amendments, as well as potential issues raised for money funds, their boards of directors, service providers and intermediaries."
SEC Proposed Rule on MMF Reforms
As we mentioned yesterday (and the day before), the Securities & Exchange Commission proposed Money Market Fund Reforms Wednesday, which recommend higher liquidity levels, the removal of the emergency gates and fees regime, a new swing pricing mandate for Prime Inst MMFs and additional disclosure requirements for MMFs. We quoted from the press release, "SEC Proposes Amendments to Money Market Fund Rules," and the SEC's "Fact Sheet" yesterday. But today, we excerpt from the Summary of the full 325-page "Money Market Fund Reforms" Proposed Rule. (Watch for more coverage and excerpts in coming days.) The SEC writes, "The Securities and Exchange Commission ('Commission') is proposing amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The proposed amendments are designed to improve the resilience and transparency of money market funds. The proposal would remove the liquidity fee and redemption gate provisions in the existing rule, which would eliminate an incentive for preemptive redemptions from certain money market funds and could encourage funds to more effectively use their existing liquidity buffers in times of stress. The proposal would also require institutional prime and institutional tax-exempt money market funds to implement swing pricing policies and procedures to require redeeming investors to bear the liquidity costs of their decisions to redeem. The Commission is also proposing to increase the daily liquid asset and weekly liquid asset minimum liquidity requirements, to 25% and 50% respectively, to provide a more substantial buffer in the event of rapid redemptions. The proposal would amend certain reporting requirements on Forms N-MFP and N-CR to improve the availability of information about money market funds, as well as make certain conforming changes to Form N-1A to reflect our proposed changes to the regulatory framework for these funds. In addition, the Commission is proposing rule amendments to address how money market funds with stable net asset values should handle a negative interest rate environment. Finally, the Commission is proposing rule amendments to specify how funds must calculate weighted average maturity and weighted average life." The "Introduction" gives some MMF background, then states, "We are proposing to amend rule 2a-7 to remove provisions in the rule that appear to have contributed to investors' incentives to redeem from certain funds during this period. For the category of funds that experienced the heaviest outflows in March 2020 and in prior periods of market stress, we are proposing a new swing pricing requirement that is designed to mitigate the dilution and investor harm that can occur today when other investors redeem -- and remove liquidity -- from these funds, particularly when certain markets in which the funds invest are under stress and effectively illiquid. We are also proposing to increase liquidity requirements to better equip money market funds to manage significant and rapid investor redemptions. In addition to these reforms, we are proposing changes to improve transparency and facilitate Commission monitoring of money market funds. We also propose to clarify how certain money market funds would operate if interest rates became negative. Finally, we propose to specify how funds must calculate weighted average maturity and weighted average life." It adds, "As of July 2021, there were approximately 318 money market funds registered with the Commission, and these funds collectively held over $5.0 trillion of assets. The vast majority of these assets are held by government money market funds ($4.0 trillion), followed by prime money market funds ($875 billion) and tax-exempt money market funds ($101 billion). Slightly less than half of prime money market funds' assets are held by publicly offered institutional funds, with the remaining assets almost evenly split between retail prime money market funds and institutional prime money market funds that are not offered to the public. The vast majority of tax-exempt money market fund assets are held by retail funds."
Weekly MF Portfolio Holdings
Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Dec. 10) includes Holdings information from 62 money funds (down from 64 two weeks ago), which represent $2.149 trillion (down from $2.201 trillion) of the $4.971 trillion (43.2%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our Dec. 10 News, "Dec. MF Portfolio Holdings: Repo Jumps, Led by FICC; Treasuries Drop," for more.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.028 trillion (up from $1.009 trillion two weeks ago), or 47.8%; Treasuries totaling $831.9 billion (down from $893.6 billion two weeks ago), or 38.7%, and Government Agency securities totaling $121.1 billion (down from $127.0 billion), or 5.6%. Commercial Paper (CP) totaled $60.7 billion (up from two weeks ago at $59.5 billion), or 2.8%. Certificates of Deposit (CDs) totaled $41.5 billion (up from $40.3 billion two weeks ago), or 1.9%. The Other category accounted for $47.8 billion or 2.2%, while VRDNs accounted for $18.1 billion, or 0.8%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $831.9 billion (38.7% of total holdings), the Federal Reserve Bank of New York with $581.1B (27.0%), Fixed Income Clearing Corp with $64.6B (3.0%), RBC with $58.8B (2.7%), BNP Paribas with $56.2B (2.6%), Federal Home Loan Bank with $51.6B (2.4%), Federal Farm Credit Bank with $37.1B (1.7%), Federal National Mortgage Association with $22.9B (1.1%), Canadian Imperial Bank of Commerce with $22.9B (1.1%) and Sumitomo Mitsui Banking Corp with $22.8B (1.1%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($252.0B), Goldman Sachs FS Govt ($211.9B), Morgan Stanley Inst Liq Govt ($155.9B), Allspring Govt MM ($141.8B), Fidelity Inv MM: Govt Port ($131.0B), Dreyfus Govt Cash Mgmt ($125.6B), Goldman Sachs FS Treas Instruments ($110.3B), JPMorgan 100% US Treas MMkt ($95.6B), State Street Inst US Govt ($90.1B) and First American Govt Oblg ($88.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
SEC to Propose MMF Reforms Wed.
As we mentioned last week, the SEC posted a "Sunshine Act Notice" announcing an "Open Meeting on Wednesday, December 15, 2021 at 10:00 a.m.." It includes an item that says, "The Commission will consider whether to propose amendments to certain rules that govern money market funds under the Investment Company Act of 1940." The meeting will be webcast at www.sec.gov. Mutual fund news source ignites wrote on the announcement late last week in "SEC Puts Reforms on the Calendar." They explain, "The Securities and Exchange Commission will consider proposing a rule on money market funds next Wednesday, according to the commission's website.... The Division of Investment Management, headed by Acting Director Sarah ten Siethoff since January 2021, will facilitate the discussion, the agenda noted. The SEC has been widely expected to propose a rule that would prevent future runs on money funds. Such regulation appeared on the SEC's midyear regulatory agenda." The ignites piece tells us, "However, at least one money fund watcher is skeptical that a formal rule will be proposed at Wednesday's meeting. 'I assume it's going to be 'Should we do it?' and 'Yes' is going to be the answer,' said Pete Crane, founder of Crane Data. A proposal likely won't come until at least late January, he said, and will likely include a provision that uses liquidity fees to penalize investors who redeem first. He also anticipates new disclosure requirements.... The SEC has issued money fund reforms twice since the financial crisis. First, in 2010, the SEC finalized a rule that included liquidity, credit and stress testing requirements. Then, in 2014, it passed a rule that allowed money fund boards to impose liquidity fees and redemption gates if weekly liquid assets dipped below 30%, and implemented floating NAV requirements for institutional prime funds. Industry critics, however, have argued that fees and gates exacerbated the March 2020 run on the market." The article adds, "The ICI has argued that regulators should carefully consider potential adverse effects that reforms could have on money market funds. The lobbying group has also stressed that money funds did not cause the broad market volatility of March 2020. However, cutting the link between fees and gates, and the 30% weekly liquid asset threshold, will still make money funds susceptible to massive runs on the market, the Financial Stability Board argued in a July report. European money funds, for example, had no such liquidity threshold and experienced the same run in March 2020 as American money funds.... In February, the SEC sought comment on potential money market fund reforms. Many of the biggest money fund sponsors urged the commission to drop the 2014 reforms. However, they differed on what solutions to replace them with. Different types of money market funds should be treated differently regarding liquidity concerns, former SEC Chair Jay Clayton said in May. In June, two Boston Federal Reserve officials proposed that the SEC require prime and municipal money funds convert to government funds. Doing so would lessen the likelihood of future government intervention, they said. Swing pricing, creating a liquidity exchange bank and banning non-government money funds altogether are unlikely to be proposed, Crane said. 'You're probably not going to get a crazy regulation that hurts the industry too bad,' he added."
Allspring MMFs on Debt Ceiling, Fed
Allspring Money Market Funds' latest "Overview, strategy, and outlook," tells us, "The debt ceiling has disrupted the government money markets for much of this year -- sometimes in the headlines and sometimes quietly in the background -- and it appears this will continue right through the bitter end of 2021.... [T]the additional roughly $750 billion supply crunch (unnecessary but for the debt ceiling) starved the markets of investment opportunities and drove cash into the Federal Reserve's (Fed's) reverse repo program (RRP), the investment of last resort. As a result, the RRP now routinely takes in between $1.3 and $1.6 trillion daily." It explains, "When the debt ceiling is finally resolved, the Treasury will likely increase T-bill supply to steadily rebuild its cash balance, which may result in one more market disruption -- modest but welcome as the market digests the additional supply. When all is said and done, the RRP balance may drop by roughly the amount that the Treasury's cash balance increases. Then we can exhale and wait for this exercise to begin anew whenever the ceiling comes into view again. Apart from the debt ceiling, the government markets may need to fine-tune timing estimates of eventual Fed rate hikes.... With a quicker pace of tapering a distinct possibility, markets started to anticipate the Fed would complete tapering as soon as March 2022. While it has been stated repeatedly that a liftoff of target rates won't occur until the Fed has ceased asset purchases, this accelerated tapering would give the Fed flexibility to begin tightening monetary conditions as soon as the March meeting, though markets still reflect expectations of starting in the summer of 2022." Allspring's PMs add, "`As the FOMC moves closer to moving its target rate higher, London Interbank Offered Rate (LIBOR) settings continue to climb as well. Three-month and six-month LIBOR were up 4 basis points (bps; 100 bps equal 1.00%) in November. One-year LIBOR increased 2 bps month over month but had increased by as much as 11 bps the week of Thanksgiving. Once again, one-month LIBOR stayed anchored around 9 bps. The very front end of the rates market continues to steepen as the possibility increases that the FOMC will move their target rate higher in 2022, while the longer end of the Treasury curve is weighing the risk of Fed tightening affecting economic growth and causing the yield curve to flatten. If price underperformance of longer-term Treasuries persists, focus on the front end of the yield curve might provide an option to reduce price volatility on fixed income investments."
Barron's: Ultra-Shorts Trail MMFs
Barron's, in Randall Forsyth's "Up and Down Wall Street" column, writes, "Stashing Your Money Under a Mattress Doesn't Look So Bad Compared to Bond Funds." He comments, "The Mattress Fund is the proper benchmark by which all investment should be measured.... You could always stuff cash into the bedding and sleep soundly knowing at least you'd have the same sum when you woke up.... What brought it to mind were the recent returns of some ultrashort-term bond funds that, despite their minimal risk, nonetheless have managed to shrink your investment, even if only by a basis points (or 1/100th of a percentage point)." The piece explains, "[L]osing even a few basis points in an ultrashort exchange-traded fund seems like going to a lot of trouble for less than nothing. Consider the JPMorgan Ultra Short Income ETF (JPST). The $18 billion fund returned negative 0.11% for the past month and negative 0.26% for the past three months, based on its share price, according to Morningstar. Since the beginning of 2021, the return has been barely positive, up 0.10%. That's actually better than some rivals, such as the Pimco Enhanced Short Maturity Active ETF (MINT). It's off 0.15% for the past month, down 0.26% for the past three months, and down 0.03% year to date. The BlackRock Ultra Short-Term Bond ETF (ICSH) fared only a bit better -- or less badly -- slipping 0.07% in the past month and dipping 0.08% for the past three months." Barron's states, "Credit, or blame, goes to the Federal Reserve, whose policy has been to pin short-term interest rates to the floor as part of its emergency monetary policy put into place in March 2020 to counter the economic and financial toll from Covid-19. These ETFs were supposed to eke out a slightly better return than money-market mutual funds, which yield a basis point or two while providing a safe parking place for cash balances. Unlike money-market funds, however, these ultrashort ETFs do fluctuate, even if it's only by a few pennies on shares that trade at prices around $50 or $100 each. But when the ETFs pay only a penny or less per share a month, even tiny dips in the share price can wipe out the income paid in a month." They ask, "What's your alternative? Not much, which was the Fed's aim -- to make holding cash unattractive to push it into riskier bonds to lower long-term interest rates or into stocks to lift asset values. Even if it yields nothing, cash provides 'optionality,' the ability to take advantage of opportunities when they arise without putting the position at risk. That's less than satisfying to savers who remember being able to earn high yields without risk by parking cash in money-market funds. These short-term ETFs, which were supposed to offer a bit more yield without any risk, evidently haven't been able to squeeze enough basis points out of a zero-yield market to beat the metaphorical Mattress Fund."
MF Assets Jump 5th Week in a Row
The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows assets rising for the fifth week in a row and the sixth week out of the past seven. Over the past 5 weeks, money fund assets have increased by $81.4 billion, and over the past seven weeks assets are up $118.1 billion. Money fund assets are up by $339 billion, or 7.9%, YTD in 2021. (This follows a gain of $665.0 billion, or 18.3%, in 2020.) Inst MMFs are up $425 billion (15.3%), while Retail MMFs are down $86 billion (-5.6%). Over the past 52 weeks, money fund assets have increased by $293 billion, or 6.7%, with Retail MMFs falling by $83 billion (-5.4%) and Inst MMFs rising by $376 billion (13.3%). ICI's release says, "Total money market fund assets increased by $14.70 billion to $4.64 trillion for the week ended Wednesday, December 8, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $15.29 billion and prime funds decreased by $206 million. Tax-exempt money market funds decreased by $385 million." ICI's stats show Institutional MMFs increasing $6.7 billion and Retail MMFs increasing $8.0 billion in the latest week. Total Government MMF assets, including Treasury funds, were a record $4.104 trillion (88.5% of all money funds), while Total Prime MMFs were $444.7 billion (9.6%). Tax Exempt MMFs totaled $86.8 billion (1.9%). ICI explains, "Assets of retail money market funds increased by $8.04 billion to $1.44 trillion. Among retail funds, government money market fund assets increased by $9.43 billion to $1.16 trillion, prime money market fund assets decreased by $1.34 billion to $204.40 billion, and tax-exempt fund assets decreased by $54 million to $76.81 billion." Retail assets account for just under a third of total assets, or 31.1%, and Government Retail assets make up 80.5% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $6.67 billion to $3.20 trillion. Among institutional funds, government money market fund assets increased by $5.86 billion to $2.95 trillion, prime money market fund assets increased by $1.13 billion to $240.32 billion, and tax-exempt fund assets decreased by $330 million to $9.97 billion." Institutional assets accounted for 68.9% of all MMF assets, with Government Institutional assets making up 92.2% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than Crane's asset series.)
MarketWatch on Savings Accounts
MarketWatch writes that, "The average savings account now pays a pathetic 0.06%. Here 5 spots where your savings can earn way more." The article explains, "The national average interest rate for savings accounts is just 0.06%, according to Bankrate data from November. Yikes. The good news? You don't have to proceed with a rate that low. First up, look to online banks, as many offer higher rates -- sometimes four or five times higher than average -- than old school brick and mortar ones, experts say. LendingClub is offering a 0.60% APY for accounts with at least $2,500, and Marcus by Goldman Sachs offers an 0.50% APY with no minimum, as does Chime, SallieMae, Synchrony and a handful of others." The piece tells us, "Seeing these rates, some people may ask: Is it even worth saving right now? Yes, in some circumstances, experts say. 'Emergency savings or funds that you'll need in the short term should be placed in an account that is easily accessible without penalties or tax consequences. Since the primary goal is accessibility and safety of principal, it's okay to trade a low interest rate for that,' says Rosa, who adds that short-term means in roughly a year or less. Adds financial planner Scott Ward of Johnson+Sterling: 'Since unplanned events like car repairs and out-of-pocket medical bills can occur, the first step in a sound financial plan is to set up an emergency fund. While it would be nice to get an attractive yield from your bank on the emergency savings, the primary objective is to have the funds handy when the uh-oh happens.' A reasonable goal, Ward says, is to have between three and six months' worth of fixed expenses set aside in an emergency fund." MarketWatch adds, "If your savings goals are longer term, like a year or more away, you may want to think differently. Robert Conzo, CEO and managing director of The Wealth Alliance, calls out Series I Savings Bonds from the U.S. government, which currently pay 7.12% for bonds purchased through April 2022 and have a minimum term of ownership of one year. You may also want to consider a CD as part of your savings strategy if you don't think you'll need all of your money at once or if you don't need access to the money until after the CDs maturity."
BIS Quarterly on Bond Fund Risks
The Bank for International Settlements' BIS Quarterly Review writes on "Open-ended bond funds: systemic risks and policy implications." The summary says, "The March 2020 market turmoil revived concerns about the amplification of financial stability risks by non-bank financial intermediaries, including open-ended bond funds ('bond OEFs'). A bond OEF pools capital to invest in fixed income instruments -- corporate and other bonds -- while typically granting its investors the right to redeem their shares for cash on a daily basis. Through this liquidity transformation, bond OEFs collectively can give rise to financial stability risks. During the early days of the Covid19 pandemic, bond OEFs experienced intensive but short-lived outflows amid a significant decline in market liquidity and high valuation uncertainty. Conditions remained tense until major central banks stepped in to backstop bond markets." It continues, "This episode has sparked a discussion about bond OEFs' resilience, the comprehensiveness of their liquidity management tools, especially in times of stress, and the tools' adequacy for financial stability more broadly. Advocates of the current industry setup point to the swift market recovery and the reversal of fund outflows that followed the turmoil of March 2020. Critics, pointing to previous, similar episodes, question bond OEFs' ability to withstand large shocks without public sector support and call for these funds' regulation to be revisited." The piece adds, "In this special feature, we analyse redemption dynamics and bond OEFs' response during the March 2020 turmoil, asking whether funds' existing liquidity management tools are conducive to financial stability. Our focus is on actively managed high-yield, investment grade and general bond OEFs. Given their liquidity transformation, these OEFs employ several tools to manage the risk of large redemptions, such as holding liquidity buffers or using swing pricing. We find, however, that bond OEFs' lines of defence did not prevent spillovers across funds and procyclical asset sales."
NY Fed RRP Adds PIMCO, Allspring
The Federal Reserve Bank of New York updated its list of "Reverse Repo Counterparties" twice over the past week. The first statement says, "PIMCO Funds: PIMCO Government Money Market Fund has been added to the list of reverse repo counterparties, effective December 3, 2021." The latest tells us, "The following Wells Fargo funds changed their names, effective December 6." Wells Fargo Government Money Market Fund is now Allspring Government Money Market Fund, Wells Fargo Heritage Money Market Fund is now Allspring Heritage Money Market Fund, Wells Fargo Money Market Fund is now Allspring Money Market Fund, and Wells Fargo Treasury Plus Money Market Fund is now Allspring Treasury Plus Money Market Fund." The NY Fed's current list of "Money Market Funds" now includes: AllianceBernstein: AB Fixed-Income Shares, Inc., AB Government Money Market Portfolio; BlackRock Liquidity Funds: FedFund, T-Fund, TempCash, TempFund, Money Market Master Portfolio and Treasury Money Market Master Portfolio; BNY Mellon Investment Adviser: Dreyfus Cash Management, Dreyfus Government Cash Management, Dreyfus Institutional Preferred Government Money Market Fund, Dreyfus Treasury and Agency Liquidity Money Market Fund, Dreyfus Treasury Obligations Cash Management; Capital Research and Management Company: American Funds U.S. Government Money Market Fund and Capital Group Central Fund Series, Capital Group Central Cash Fund; Charles Schwab Investment Management: Schwab Government Money Fund, Schwab Treasury Obligations Money Fund, Schwab Value Advantage Money Fund and Schwab Variable Share Price Money Fund; Columbia Management Investment Advisers: Columbia Short-Term Cash Fund, a series of Columbia Funds Series Trust II; Deutsche Investment Management Americas: Government Cash Management Portfolio; Dimensional Fund Advisors LP: The DFA Short Term Investment Fund of The DFA Investment Trust Company; Federated Investment Management: Edward Jones Money Market Fund, Federated Hermes Capital Reserves Fund, Federated Hermes Government Obligations Fund, Federated Hermes Government Obligations Tax-Managed Fund, Federated Hermes Government Reserves Fund, Federated Hermes Inst Prime Obligations Fund, Federated Hermes Inst Prime Value Obligations Fund, Federated Hermes Municipal Obligations Fund, Federated Hermes Prime Cash Obligations Fund, Federated Hermes Tax-Free Obligations Fund, Federated Hermes Treasury Obligations Fund, Federated Hermes Trust for U.S. Treasury Obligations and Federated Hermes U.S. Treasury Cash Reserves; Fidelity Management & Research Company: Fidelity Colchester Street Trust: Government Portfolio, Fidelity Colchester Street Trust: Money Market Portfolio, Fidelity Colchester Street Trust: Treasury Portfolio, Fidelity Hereford Street Trust: Fidelity Government Money Market Fund, Fidelity Hereford Street Trust: Fidelity Money Market Fund, Fidelity Newbury Street Trust: Fidelity Treasury Money Market Fund, Fidelity Phillips Street Trust: Fidelity Government Cash Reserves, Fidelity Revere Street Trust: Fidelity Cash Central Fund, Fidelity Revere Street Trust: Fidelity Securities Lending Cash Central Fund, Fidelity Salem Street Trust: Fidelity Series Government Money Market Fund and VIP Government Money Market Portfolio; Franklin Advisers: The Money Market Portfolio; Goldman Sachs Asset Management: Goldman Sachs Financial Square Government Fund, Goldman Sachs Financial Square Money Market Fund, Goldman Sachs Financial Square Prime Obligations Fund, Goldman Sachs Financial Square Treasury Obligations Fund and Goldman Sachs Financial Square Treasury Solutions Fund; HSBC Global Asset Management (USA): HSBC U.S. Government Money Market Fund; Invesco Advisers: STIT Government and Agency Portfolio and STIT Treasury Portfolio; J.P. Morgan Investment Management: JPMorgan Liquid Assets Money Market Fund, JPMorgan Prime Money Market Fund, JPMorgan Tax Free Money Market Fund, JPMorgan U.S. Government Money Market Fund and JPMorgan U.S. Treasury Plus Money Market Fund; Legg Mason Partners Fund Advisor: Western Asset/Government Portfolio, Western Asset/Liquid Reserves Portfolio and Western Asset/U.S. Treasury Reserves Portfolio; Morgan Stanley Investment Management: Morgan Stanley Institutional Liquidity Funds Government Portfolio, Morgan Stanley Institutional Liquidity Funds Government Securities Portfolio, Morgan Stanley Institutional Liquidity Funds Prime Portfolio, Morgan Stanley Institutional Liquidity Funds Treasury Portfolio and Morgan Stanley Institutional Liquidity Funds Treasury Securities Portfolio; Northern Trust Investments: NTAM Treasury Assets Fund, Northern Funds - U.S. Government Money Market Fund, Northern Funds - U.S. Government Select Money Market Fund, Northern Institutional Funds - Government Portfolio, Northern Institutional Funds - Government Select Portfolio and Northern Institutional Funds - Treasury Portfolio; Principal Global Investors, LLC: Principal Funds, Inc. - Government Money Market Fund; RBC Global Asset Management (U.S.): RBC Funds Trust, U.S. Government Money Market Fund; SSgA Funds Management: Institutional Liquid Reserve Portfolio, Institutional US Gov. Money Market Fund, a series of the State Street Master Funds, State Street Navigator Securities Lending Government Money Market Portfolio and State Street Treasury Plus Money Market Portfolio; T. Rowe Price Associates: T. Rowe Price Government Money Fund, Inc., T. Rowe Price Government Reserve Fund, T. Rowe Price Treasury Reserve Fund and T. Rowe Price U.S. Treasury Money Fund; UBS Asset Management (Americas): Government Master Fund, Limited Purpose Cash Investment Fund, Prime Master Fund and Treasury Master Fund; U.S. Bancorp Asset Management: First American Government Obligations Fund and First American Treasury Obligations Fund; The Vanguard Group: Vanguard Treasury Money Market Fund, Vanguard Market Liquidity Fund and Vanguard Cash Reserves Federal Money Market Fund; Wells Fargo Funds Management: Wells Fargo Government Money Market Fund, Wells Fargo Heritage Money Market Fund, Wells Fargo Money Market Fund and Wells Fargo Treasury Plus Money Market Fund and Wilmington Funds Management: Wilmington U.S. Government Money Market Fund. The NY Fed describes the "Eligibility criteria of the program, "In order to be eligible to become a reverse repo counterparty, a firm must be either: A state or federally chartered bank or savings association (or a state or federally licensed branch or agency of a foreign bank) with total assets equal to or greater than $30 billion, or reserve balances equal to or greater than $10 billion on the last quarter for which relevant reports are available; or A government-sponsored enterprise; or An SEC-registered 2a-7 fund that has, measured at each month-end for the most recent six consecutive months, either net assets of no less than $2 billion or an average outstanding amount of RRP transactions of no less than $500 million. Firms must already have arrangements in place to operate in the triparty repo market, in transactions collateralized by U.S. government debt, agency debt and agency mortgage-backed securities. Firms must be able to execute RRPs with securities margined at 100% (i.e. the value of the securities provided by the New York Fed will equal the funds provided by the counterparty)." (See here for the NY Fed's latest "Repo and Reverse Repo Operations".)
Money Fund University, Jan. 20-21
Crane Data continues to make plans for its next live event, Money Fund University. Our 12th annual MFU "basic training" conference will take place (live and in person) at the Hyatt Regency in Boston, Mass., January 20-21, 2022. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market fund regulations, money fund alternatives, offshore markets, and other recent industry trends. Our educational conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers, and the Boston show will include an extended free training session (and lunch) for Crane Data clients. Money Fund University offers a 2-day crash course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, and money market instruments such as commercial paper, Treasury bills, CDs and repo. We also cover portfolio construction and credit analysis. Registrations are now being taken, and the latest agenda is available here. (E-mail us to request the latest brochure.) 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 may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $500, exhibit space is $2,000, and sponsorship opportunities are $3K (Bronze), $4K (Silver), and $5K (Gold). A block of rooms has been reserved at the Boston Hyatt Regency. We'd like to thank our past and pending MFU sponsors -- BlackRock, Dreyfus CIS, J.P. Morgan Asset Management, Fitch Ratings, TD Securities, S&P Global Ratings, Dechert LLP, Fidelity Investments and Federated Investors -- for their support, and we look forward to seeing you in Boston in January. E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com to register or for more details. Crane Data is also preparing the agenda for our next Bond Fund Symposium, which will be held March 28-29, 2022, at the Hyatt Regency in Newport Beach, Calif. Our Bond Fund Symposium offers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Bond Fund Symposium is $750; exhibit space is $2,000 (includes 2 tickets); and sponsorship opportunities are $3K, $4K, $5K, and $6K. Our mission is to deliver the best possible conference content at a reasonable price to bond fund professionals and investors. We're also beginning to make plans for our next "big show," Money Fund Symposium, which will be held June 20-22, 2022, at the Hyatt Regency in Minneapolis. (Let us know if you'd like details on speaking or sponsoring.) Finally, mark your calendars for our next European Money Fund Symposium, which will be held Sept. 27-28, 2022, in Paris, France. Watch for more details on these shows in coming weeks and months. Note that the recordings and materials from our past events are available to Crane Data subscribers at the bottom of our "Content" page. Let us know if you'd like more info on any of our (or other "cash") events, and we hope to see you in Boston in January, Newport Beach in March, Minneapolis in June or Paris in September in 2022!
Fitch's Global MMF Dashboard 3Q21
Fitch Ratings released its "Global Money Market Fund Flows Dashboard: 3Q21 this week, which says, "Fitch Ratings estimates that total global money market fund assets under management (AUM) remained stable at USD7.6 trillion at end-September 2021, with individual regions also experiencing limited change from quarter to quarter. Divergent growth rates are more prominent at the sub-sector level, particularly the fund-type level in the US and the currency level in Europe." They write, "Total AUM in US prime MMFs dropped by 4% in 3Q21, leading to an overall 14% reduction in total assets for the fund type in the first three quarters of the year. Nevertheless, net inflows to government MMFs (USD35 billion) throughout 3Q21 more than offset the net outflows from prime (USD19 billion) and tax-free (USD5 billion) MMFs. Government, prime and tax-free MMFs represented 88%, 10% and 2% of US MMF AUM, respectively, at end-3Q21." Fitch tells us, "European MMFs' AUM remained at EUR1.4 trillion at end-September 2021. When measured in base currency, US dollar- and UK pound-denominated MMFs' total assets fell during 3Q21 by USD17 billion (-3%) and GBP5 billion (-2%), respectively. In contrast, euro MMFs rose by EUR13 billion (2%) in the same period, offsetting most of the decrease in the other two major currencies." The dashboard adds, "Chinese MMFs grew marginally in 3Q21, by just under 2%. Nevertheless, total Chinese money fund assets reached a new peak of CNY9.8 trillion at end-August, before dropping to CNY9.4 trillion at end-September.... Fitch would expect limited direct impact on MMFs' mark to market net asset values in an interest rate shock scenario ..., as investments reset to new rates quickly given short durations. Nevertheless, larger outflows may be triggered by underlying investors, such as bond mutual funds, which could be reluctant to sell securities into declining markets, but may be willing to redeem their holdings in MMFs. For example, fixed-income mutual funds with longer durations may face increased redemption requests if a rate rise scenario triggered material market value losses. Investors may redeploy their investments from bond mutual funds into safe haven assets, such as government MMFs, in reaction to market volatility, countering these effects. Modest flows are immaterial to ratings but large or sustained outflows can put pressure on fund liquidity metrics and, in severe cases, ratings."
BMO Launches Canadian ETF MMF
A press release entitled, "BMO Investments Inc. Launches ETF Series for BMO Money Market Fund," tells us, "BMO Investments Inc., the manager of the BMO Mutual Funds, today announced the launch of ETF Series units for the BMO Money Market Fund. BMO Money Market Fund – ETF Series' (Ticker: ZMMK) objective is to provide capital preservation by investing in a portfolio of high-quality money market instruments issued by governments and corporations in Canada. To support this objective, the portfolio manager selects high-quality money market instruments that mature in less than 365 days and have an average term of 90 days or less to reset date and 180 days to maturity date. The offering of ETF Series units of the fund has closed and it will begin trading on the Toronto Stock Exchange today." Mark Raes, Head of Product, BMO Global Asset Management Canada, comments, "We're pleased to be expanding our ETF shelf to include ETF Series units of BMO Money Market Fund. ZMMK provides a solution for investors looking for a liquidity sleeve, or a place to hold their cash as they assess the market for other investments." BMO adds, "Further information about BMO ETFs and ETF Series of the BMO Mutual Funds can be found at www.bmo.com/etfs." According to ICI's latest Worldwide mutual fund totals, Canada ranks 14th among money fund managers with $27.0 billion.
Moody's 2022 MMF Outlook Stable
Earlier this month, Moody's Investors Service distributed a slide deck entitled, "Money Market Funds – Global: 2022 Outlook," which tells us, "Moody's money market fund outlook is stable, previously negative. Moody's rates 166 MMFs with combined assets under management (AUM) of over $3.6 trillion." Its summary explains, "The return to a stable outlook from negative reflects improving credit conditions, steady assets under management (AUM), an increased likelihood of short-term rate increases, and continued lack of clarity around upcoming regulatory reform." Moody's lists the following points: "MMF outlook raised to stable from negative: Industry has recovered from early COVID market disruption; AUM levels remain at or near all-time highs. Upcoming regulatory change creates uncertainty: More MMF regulation is coming, but its timing and final shape have not yet been decided. Portfolio credit quality remains strong: Improvement in banks' credit profiles and outlooks support the credit quality and stability of prime MMFs, which invest mainly in short term debt issued by financial institutions; Higher short-term rates are on the horizon: Increases in short-term rates will help reduce the impact of fee waivers on MMF sponsors' revenue and earnings; Tail risks are contained: Tapering of US central bank asset purchases, disruption as the deadline for raising the US debt ceiling approaches, the phase out of LIBOR reference rates, stablecoins and regulatory scrutiny of ESG investing pose limited threats to the sector." They ask, "What could change outlook to negative?" Moody's lists these factors: Regulatory changes in the US and/or in the EU making MMFs less attractive to institutional investors; Rapid deterioration in sovereign and bank credit profiles; and the crystallization of tail risks such as a technical US default due to a failure to extend the government's borrowing limit, disruption due to the phase-out of LIBOR reference rates, sponsor concentration, 'greenwashing' allegations and potential stablecoin related disruption." The "Drivers of a stable outlook" include: MMFs' AUM is holding steady in spite of low interest rates; Increased likelihood of short-term rate increases makes MMFs more attractive to investors, improves portfolio yields, and eases pressure on MMF revenues; and the Final shape of upcoming regulatory changes in US and EU is uncertain, but the new rules should make the sector safer and more resilient."
