News Archives: February, 2010

Money fund assets inched lower by $1.63 billion to $3.166 trillion in the week ended Feb. 24 according to the ICI's most recent weekly stats. ICI also reported monthly assets for January 2010, which showed money fund assets declined by $100 billion, or 3.0%. ICI also released Porfolio Holdings Totals which showed that taxable money funds added repo and sold government agencies, Treasuries, CP and CDs during the month.

The weekly "ICI Reports Money Market Mutual Fund Assets says, "Taxable government funds decreased by $3.60 billion, taxable non-government funds increased by $4.26 billion, and tax-exempt funds decreased by $2.28 billion.... Assets of retail money market funds decreased by $7.07 billion to $1.049 trillion.... Assets of institutional money market funds increased by $5.44 billion to $2.117 trillion. Among institutional funds, taxable government money market fund assets decreased by $1.66 billion to $806.75 billion, taxable non-government money market fund assets increased by $8.11 billion to $1.158 trillion, and tax-exempt fund assets decreased by $1.00 billion to $151.87 billion."

The Institute's monthly asset series says, "Money market funds had an outflow of $102.72 billion [to total $3.217 trillion] in January, compared with an outflow of $852 million in December. Funds offered primarily to institutions had an outflow of $83.82 billion. Funds offered primarily to individuals had an outflow of $18.89 billion." The number of money funds (portfolios) in ICI's monthly report fell 704 from 705 the prior month and from 774 a year ago. "Liquid Assets of Stock Mutual Funds" remained at a record low of 3.6%.

Certificates of Deposit remained the largest holding in taxable money funds at 23.2%, or $657.6 billion. (This total includes $101.5 billion, or 3.6%, in Eurodollar CDs.) Repurchase agreements, or repos, moved into the No. 2 spot with 19.1% ($539.6 billion), moving ahead of No. 3 U.S. Government Agency securities ($505.6 billion, or 17.9%). Taxable money funds added $50.0 billion to repo holdings, while they decreased government agencies by $48.3 billion, decreased Treasury holdings by $37.7 billion, and decreased CP holdings by $25.5 billion.

Commercial Paper ranked fourth among taxable money funds' holdings in January according to ICI's "Month-End Portfolio Holdings" report with $494.8 billion, or 17.5% of assets. U.S. Treasury Bills and Other Treasury Securities combined for $376.9 billion, or 13.3% of assets (5th place), while Corporate Notes ($123.0 billion, or 4.3%), Bank Notes ($56.3 billion, or 2.3%), and "Other" securities made up the remainder. Average maturities of taxable money funds rose by two days to 51 days.

We continue to wade our way through the massive SEC Money Market Fund Reform release. Today, we've chosen to focus on a couple of sections. Though most of the release appears as expected, we found some interesting changes among the new portfolio disclosure requirements. These should provide a bonanza to data collectors and publishers like ourselves, but may cause confusion and information overload to many. (Look for Crane Data to add new data points to its products and website as they become available.)

Under "Disclosure of Portfolio Information, the new rules say, "As amended, rule 2a-7(c)(12) will require funds to disclose monthly with respect to each security held: (i) the name of the issuer; (ii) the category of investment (e.g., Treasury debt, government agency debt, asset backed commercial paper, structured investment vehicle note); (iii) the CUSIP number (if any); (iv) the principal amount; (v) the maturity date as determined under rule 2a-7 for purposes of calculating weighted average maturity; (vi) the final maturity date, if different from the maturity date previously described; (vii) coupon or yield; and (viii) the amortized cost value. In addition, the amendments require funds to disclose their overall weighted average maturity and weighted average life maturity of their portfolios.... The amended rule requires funds to post the portfolio information, current as of the last business day of the previous month, no later than the fifth business day of the month." (Oct. 7, 2010, is the deadline for this website disclosure.)

The release also says, "We are adopting a new rule requiring money market funds to provide the Commission a monthly electronic filing of more detailed portfolio holdings information. The information will permit us to create a central database of money market fund portfolio holdings, which will enhance our oversight of money market funds and our ability to respond to market events." Money funds must report the above information on Form N-MFP, plus: "NRSROs designated by the fund, the credit ratings given by each NRSRO, and whether each security is first tier, second tier, unrated, or no longer eligible; ... whether the instrument has certain enhancement features; ... the percentage of the money market fund's assets invested in the security; whether the security is an illiquid security ...; and 'Explanatory notes'"

It adds, "Form N-MFP also requires funds to report to us information about the fund, including information about the fund's risk characteristics such as the dollar weighted average maturity of the fund's portfolio and its seven-day gross yield. Money market funds also must report on Form N-MFP the market-based values of each portfolio security and the fund's market-based net asset value per share.... Under rule 30b1-7, the information contained in the portfolio reports that money market funds file with the Commission on Form N-MFP will be available to the public 60 days after the end of the month to which the information pertains.... [T]he first mandatory filing will be due on December 7, 2010, for holdings as of the end of November 2010."

Note: will be hosting a Webinar (available to subscribers only) at 10:00 a.m. moderated by our Peter Crane and featuring Federated Investors' Debbie Cunningham and Goodwin Proctor's John Hunt on "The Future of Money Funds." JPMorgan Securities' Alex Roever and Cie-Jae Brown will also hold a conference call at 11:30 a.m. on the Rule 2a-7 Amendments and Revival of Supplemental Financing Program.

The SEC posted the full text of its Final "Money Market Fund Reform" Rules late Tuesday afternoon. The summary says, "The Securities and Exchange Commission is adopting amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The amendments will tighten the risk-limiting conditions of rule 2a-7 by, among other things, requiring funds to maintain a portion of their portfolios in instruments that can be readily converted to cash, reducing the maximum weighted average maturity of portfolio holdings, and improving the quality of portfolio securities; require money market funds to report their portfolio holdings monthly to the Commission; and permit a money market fund that has 'broken the buck', or is at imminent risk of breaking the buck, to suspend redemptions to allow for the orderly liquidation of fund assets. The amendments are designed to make money market funds more resilient to certain short-term market risks, and to provide greater protections for investors in a money market fund that is unable to maintain a stable net asset value per share."

The Release No. IC-29132 says under "Dates," "The rules, rule amendments, and form are effective May 5, 2010.... The "Compliance Dates section of the release (p. 101) says, "The amendments to rules 2a-7, 17a-9 and 30b1-6T, and new rules 22e-3 and 30b1-7, and new Form N-MFP become effective May 5, 2010. Unless otherwise discussed below or in this Release, the compliance date is the date of effectiveness.... Except as indicated below, the compliance date for amendments to rule 2a-7 related to portfolio quality, maturity, liquidity, and repurchase agreements, is May 28, 2010. Funds are not required to dispose of portfolio securities owned, or terminate repurchase agreements entered into, as of the time of adoption of the amendments to comply with the requirements of the rule as amended. Fund portfolios must meet the new maximum WAM and WAL limits by June 30, 2010." NRSRO disclosure is Dec. 31, 2010; public website disclosure is Oct. 7, 2010; and non-$1 processing is due by Oct. 31, 2011.

The new Money Market Fund Reform rules say, "The severity of the problems experienced by money market funds during 2007 and 2008 prompted us to review our regulation of money market funds. We sought to better understand how we might revise rule 2a-7 to reduce the susceptibility of money market funds to runs and reduce the consequences of a run on fund shareholders. Our staff consulted extensively with staff from other members of the President's Working Group on Financial Markets. We talked to many market participants, and reviewed a report from a 'Money Market Fund Working Group' assembled by the Investment Company Institute, which recommended a number of changes. Our June 2009 proposals were the product of that review and were, we explained, a first step to addressing regulatory concerns we identified."

The SEC continues, "We received approximately 120 comments on the rule, including approximately 45 comments from investment companies and their representatives, 22 from debt security issuers, and 30 from individuals, including investors and academics. The comment letters reflected a wide variety of views on most of the topics discussed in the Proposing Release. The investment companies generally supported those aspects of the proposal that were similar to those recommended in the ICI Report. Most of them strongly objected to changes that would affect the stable net asset value that today is the principal characteristic of a money market fund.... Many fund commenters pointed to the historical stability of funds and urged us to be modest in our changes to rule 2a-7. Some others, however, pointed to the near-cataclysmic events of September 2008 in supporting more substantial changes."

The release's introduction says, "As we stated in the Proposing Release, we recognize that the events of 2007-2008 raise the question of whether further changes to the regulatory structure governing money market funds may be warranted. Accordingly, in the Proposing Release we requested comment on additional, more fundamental regulatory changes, some of which we recognized could transform the business and regulatory model on which money market funds have been operating for more than 30 years. For example, we requested comment on whether money market funds should move to the 'floating net asset value' used by other open-end investment companies.... We have continued to explore possible more significant changes to the regulation of money market funds in light of these comments and through the staff's work with members of the President's Working Group. We expect to issue a release addressing these issues and proposing further reform to money market fund regulation."

Finally, the SEC's "Discussion" says, "Today we are adopting the amendments we proposed last June to the rules governing money market funds, with several changes made in response to the comments we received. As described below in more detail, we believe these amendments will make money market funds more resilient and less likely to break the buck. They will further limit the risks money market funds may assume by, among other things, requiring them to increase the credit quality of fund portfolios and to reduce the maximum weighted average maturity of their portfolios, and by requiring for the first time that all money market funds maintain liquidity buffers that will help them withstand sudden demands for redemptions. The rule amendments require fund managers to stress test their portfolios against potential economic shocks such as sudden increases in interest rates, heavy redemptions, and potential defaults."

It continues, "They provide investors with more timely, relevant information about fund portfolios to hold fund managers more accountable for the risks they take. They will improve our ability to oversee money market funds. And finally, they provide a means to wind down the operations of a fund that does break the buck or suffers a run, in an orderly way that is fair to the fund's investors and reduces the risk of market losses that could spread to other funds. We believe that these reforms collectively will better protect money market fund investors in times of financial market turmoil and lessen the possibility that the money market fund industry will not be able to withstand stresses similar to those experienced in 2007-08. Thus, we believe that each of the rules and rule amendments we are adopting is necessary or appropriate in the public interest and consistent with the protection of investors and the policies and purposes of the Investment Company Act."

As we mentioned in our "Link of the Day" yesterday, several additional comments have been posted recently on the SEC's Proposed Rules page, including one from John McGonigle, Deborah A. Cunningham and Steve Keen on behalf of Federated Investors. Below, we excerpt from their "Proposed Money Fund Reforms" Powerpoint, which offers bullet points on the benefits of money market funds, the drawbacks of fluctuating funds, and the importance of allowing a temporary suspension of redemptions when a fund has 'broken the buck'.

The Comment says, "Money market funds have provided great benefits: Since the adoption of Rule 2a-7, an estimated $325 trillion has flowed through money market funds. Over the past 24 years, investors have increased their returns by over $450 billion by investing in money funds rather than interest-bearing bank deposit accounts. An investment of $1,000 in the average money fund at the beginning of 1999 would have out yielded the average bank account by over $200 by the end of 2008." Its example adds, "Even if the fund broke a dollar and paid only 98 cents a share, the investor would still be ahead by over $180."

The presentation says that, "Fluctuating funds cannot match the popularity of stable funds." It states, "Over the past thirty years, many advisers (including Federated) have tried to develop a fluctuating alternative to money market funds. From the investor's perspective, a 'fluctuating' money market fund is an oxymoron. Investors do not consider fluctuating funds a substitute for a stable fund. Investors view investments in even low volatility funds as a allocation out of cash. Ultrashort Funds are a good example: No matter what the yield environment, [they] never reached even $100 billion in total assets." Plus, their "cash flows are more closely linked to interest rate cycle than money funds."

It asks, "Even if 'fluctuating' money market funds were ten times more successful than ultrashort funds, they would hold less than a third of current money fund assets. Where would the other $2 trillion go? What would be the impact on the CP market, where money funds consistently represent 30% to 40% of the market? The repo market, where Federated alone provides over $100 billion of financing every day? The municipal market, where money funds represent 65% of the short-term note market? And the banks, with suddenly expanded deposit bases?"

The presentation urges that "Reforms should focus on mitigating [the] imact of breaking the dollar." It says, "While the industry will strive to avoid the event, other funds will break a dollar in the future. Objectives when a fund breaks a dollar [should be to]: minimize ultimate loss to shareholders; provide immediate access to a portion of their account balance; complete liquidation of fund (other than defaulted securities) within a matter of months; treat shareholders equitably and keep them informed. If large scale redemptions occur in other funds, [they should] create a source of back-up liquidity. Meeting these objectives should reduce risk of future panics."

Federated's slides continue, "Liquidity requirements are the most important proposed Rule 2a-7 reform. Federated fully supports general requirement to maintain sufficient liquidity for anticipated redemptions." They write that the "Ability to suspend redemptions is the most important proposed new rule," "Boards of troubled money market funds currently have three choices: Continue to price redemptions at $1 while the adviser looks for a solution; break a dollar; or, suspend redemptions without an order from the SEC, in violation of ICA 22(e)."

The Powerpoint also comments that the "Putnam/Federated transaction illustrates virtue of temporary suspension." It says, "Following Reserve Primary Fund's breaking a dollar, Putnam Prime Money Market Fund suffered net redemptions of $9.7 billion." The "Fund did not hold any defaulted or distressed securities [and] paid out $5.2 billion (30% of the fund) before suspending redemptions." The "Putnam Board chose [the] third option and suspended redemptions without an order to allow adviser to find a better solution than breaking a dollar."

Finally, it adds, "Federated agreed to allow [the] Putnam fund to merge with a large Federated institutional fund, which had more than enough liquidity to meet all outstanding redemption orders for both funds. The merger was completed within a week of suspending redemptions, and full liquidity was restored to shareholders without any losses. Similar transactions might have been possible for many of the Reserve Funds, if the Board had not continued to honor redemptions after Lehman filed for bankruptcy."

Though there is no official word yet on the rebranding, hints have begun to appear that Columbia Management will soon become Bank of America Funds Management. A recent conference mailing from the New York Cash Exchange, a treasury management show in May, lists Bank of America Funds Management among its sponsors and exhibitors. Also, a recent communication says, "Effective on January 1, 2010, Columbia Management money market funds have been reorganized into a new registered investment company, BofA Funds Series Trust."

The statement, entitled, "New Investment Company and CUSIP Numbers for Columbia Money Market Funds," adds, "This reorganization has no impact on the investment management or servicing of your money market funds. New CUSIP numbers are listed below. Please be aware that fund listings in newspapers may also change for those publications which list funds by trust name. While the names of the money market funds stay the same, they may now be found under the new BofA Funds Series Trust name."

The previous decision for Bank of America to retain Columbia's money fund business said in a Nov. 17, 2009, letter, "After a review of various options, Bank of America has decided to retain Columbia Management's cash business. This business is an important complement to the suite of banking, treasury and credit products currently offered to its corporate and individual clients. Bank of America's ownership of the cash management platform allows for strategic advantages in the marketplace and provides integral services to its distinguished client base."

The company must soon relinquish the Columbia name to Ameriprise Financial. The prior statement also said, "The money market funds sponsored by Columbia Management will be rebranded on or about the closing of the long-term business transaction with Ameriprise, which is expected to occur in the spring of 2010 pending all required approvals. We are committed to communicating more information as soon as possible regarding branding, personnel decisions and other transition updates. For now, our cash clients continue to benefit from an experienced investment team and the strength and resources of Bank of America."

In a surprise move, the Federal Reserve Board hiked the discount rate to 0.75% from 0.50%, though the far more important Federal funds target rate remains at its record low range of zero to 0.25%. In a statement released Thursday afternoon, the Fed "announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs." While the Fed's action does not mean a rise in money market rates is imminent, it increases the odds. Federal funds futures are now pricing in two Fed hikes in the second half of 2010.

The Fed says, Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

They continue, "The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19. In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Primary credit is provided by Reserve Banks on a fully secured basis to depository institutions that are in generally sound condition as a backup source of funds. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010."

The statement adds, "Easing the terms of primary credit was one of the Federal Reserve's first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC's target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days."

Finally, the Fed says, "The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC's 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread."

The $5.97 billion, 32nd-ranked Allegiant family of money market mutual funds has been merged into the $1.17 billion, 54th ranked PNC family of money funds, and the Allegiant funds have been renamed as PNC funds. A company press release says, "The reorganization of Allegiant Funds and PNC Funds, Inc. into a single fund company, called PNC Funds, has been completed. The move combines the two fund families into one $11 billion fund company, advised by PNC Capital Advisors, LLC." The combined complex's money funds will still rank 32nd (with $7.14 billion) behind American Century's $7.53 billion.

The release continues, "The merger was previously approved on Dec. 15, 2009 and Jan. 6, 2010, by shareholders of PNC Funds, Inc. The combined fund company now offers 33 mutual funds across a broad range of choices -- domestic and international equity, taxable and tax-exempt fixed income and money market portfolios. The Funds are available through financial intermediaries; including banks, direct institutional and third party broker-dealers by Professional Funds Distributor, LLC, of King of Prussia, Pa.... PNC Capital Advisors, LLC was formed on Sept. 29, 2009 when PNC Capital Advisors, Inc. and its affiliate, Allegiant Asset Management Company [formerly affiliated with National City], each merged into and with PNC Capital Advisors, LLC."

The original "Fund Reorganization Announcement said, "The combined mutual fund family will be branded as PNC Funds to align the complex with PNC Capital Advisors, LLC, the investment adviser, and its parent organization, The PNC Financial Services Group, Inc.... What's Changing? New CUSIPs and ticker symbols will be assigned to all funds.... What's Not Changing? Fund Portfolio Management teams and Fund investment strategy, philosophy and process."

The funds changing names from Allegiant to PNC (they also changed ticker symbols -- the first letter was changed from an 'A' to a 'P') include: Allegiant Advant Instit Govt MM I (PAVXX), Allegiant (PNC) Advant Instit MMF A (PAAXX), Allegiant (PNC) Advant Instit MMF I (PABXX), Allegiant (PNC) Advant Instit Treas MM I (PAIXX), Allegiant (PNC) Government MMF A (PGAXX), Allegiant (PNC) Government MMF I (PKIXX), Allegiant (PNC) Money Market A (PEAXX), Allegiant (PNC) Money Market I (PCIXX), Allegiant (PNC) Treasury MMkt A (PRAXX), Allegiant (PNC) Treasury MMkt I (PDIXX), Allegiant (PNC) OH Muni MMkt A (POAXX), Allegiant (PNC) OH Muni MMkt I (PYIXX), Allegiant (PNC) PA Tax-Exempt MM A (PSAXX), Allegiant (PNC) PA Tax-Exempt MM I (PFIXX), Allegiant (PNC) Tax-Exempt MMkt A (PXAXX), and Allegiant (PNC) Tax-Exempt MMkt I (PXIXX).

The legacy PNC funds tracked by Crane Data, PNC Govt MMF Inst (PSGXX), PNC Prime MMF A (PNRXX), PNC Prime MMF Inst (PSPXX), and PNC Tax Exempt MM Inst (PTTXX), remain unaffected by the changes. Note: The name changes, new tickers and CUSIPs will be reflected in the March issue of Money Fund Intelligence and on the website once the February month-end data is posted.

Below, we excerpt from an interview in our latest Money Fund Intelligence. The piece entitled, "Navigating New Rules: Q&A w/Stephen Keen," interviews the veteran Reed Smith LLP money market mutual fund attorney and partner about the current changes to, and history of, Rule 2a-7 of the Investment Company Act of 1940, the body of regulation governing money market mutual funds.

We asked, "What would you say are the big changes in the current batch? Keen responds, "Liquidity is to this amendment what diversification was to '91. The rule had not previously dealt with liquidity as a regulatory requirement. Even without diversification requirements to 2a-7, funds were diversified.... It's not that funds didn't pay any attention to liquidity, that's always been an important part of management. But it's never been a regulatory requirement, and consequently it's never had a minimum standard."

He explains, "The rule is almost always -- you have to do what you decide is appropriate for a stable value fund. The rule isn't that you can run your securities at an average maturity of 90 days. It is that you run them at a average maturity consistent with the stable net asset value, not to exceed 90 days.... [N]ow you need to operate with adequate liquidity to meet your expected redemptions."

"You can't have less than 10% in daily liquidity assets and 30% in weekly liquidity assets. That's a third of the fund that is effectively maturing in a week or less, a pretty significant mandate. I don't see how that's not going to make it a lot harder to run funds and really constrain their ability to develop yield. In terms of just the fundamental impact on how a MMF performs, that 10 and 30 requirement is going to have the biggest impact," he tells us.

MFI also asked, "What else are you concerned about? Keen says, "The other [major] change is that everyone's shadow NAV is going to be published monthly now with a 60 day lag.... Basically none of the changes were as bad as they might have been ... or as good as they could have been. But that's the nature of regulation." He adds, "The 60-day lag gives you a lot of time, if you know that there is going to be a public announcement of something that might make investors concerned, to deal with it. I don't see how they responsibly could have gone any shorter."

Keen also notes, "None of the revisions [to 2a-7] have ever been good for fund boards. All that ever happens to fund boards is that they have more and more things they have to do. They have to deal with this liquidity requirement, they have to deal with stress tests, and they have to pick which NRSROs they want to rely on. Generally, those kinds of things, the board can delegate, but it still puts it in a different posture."

Finally on further changes, Keen tells MFI, "I assume we are going to get the same comments every time they ask.... I don't quite know how by asking for more comments, it's going to change things. Look at the floating price proposal, which was in the June 2009 release.... People who actually have money invested in funds, particularly individuals, uniformly said, 'Don't do that. I don't want a fluctuating product, and I don't want to have to put my money in a bank. I like what money market funds do. I know I have a risk of loss. I accept that.'"

Watch for the full final rules to be posted on the SEC's Final Rules page later this week. For a full copy of the latest Money Fund Intelligence, e-mail

Shareholders recently approved the closing of the $600 million Prudential Institutional Liquidity Portfolio (PILP) Money Market Series. Prudential Investments, which recently changed its name from Jennison Dryden, said in a statement, "The Fund is closing to new investors, effective immediately. Existing investors may continue to purchase shares of the Fund, but only through March 17, 2010. After this date, the Fund will no longer accept purchase orders, except purchases made through dividend reinvestments. Please see the supplement to the Fund's prospectus for more information."

The SEC filing explains, "At a recent meeting, the Board of Directors of Prudential Institutional Liquidity Portfolio, Inc. determined that it was in the best interest of shareholders for the Institutional Money Market Series (the Fund) to cease operations. Accordingly, the Board approved a proposal to redeem all of the outstanding shares of the Fund. Under the proposal, shareholders of the Fund will receive payments equivalent to the net asset value of their shares as of the redemption date. The redemption is scheduled to take place on or about March 24, 2010 and payments will be sent to shareholders as soon as practicable thereafter. At any time prior to the Redemption Date, shareholders may redeem their shares and receive the net asset value thereof, pursuant to the procedures set forth in the Prospectus."

PILP had two major classes, the $370 million Series A (PIMXX) and the $230 million Series I (PLPXX). Prudental continues to manage the $2.5 billion Prudential CAT Liquid Assets MM (PLQXX), the $202 million Prudential Dryden GST Money Mkt A (PBGXX), the $653 million Prudential MoneyMart Assets A (PMBXX), and the $188 million Prudential MoneyMart Assets Z (PMZXX). Prudential was the 39th largest money fund manager with $4.1 billion in assets as of Jan. 31, 2010, according to Crane Data's Money Fund Intelligence XLS.

We recently wrote in our "People" News that former Prudential Financial Managing Director and Head of Short-Term Fixed Income Joe Tully recently accepted early retirement. Tully previously oversaw the money market fund assets, which are now managed by Joseph D'Angelo, Manolita Brasil, and Robert Browne.

Prudential Financial recently sold its stake in Wachovia Securities (which contained the old Prudential brokerage). The brokerage historically was one of the largest investors in the Pru money market funds, so this may at least partially explain the retreat. Prudential's money fund assets have declined from a peak of $5.5 billion in March 2009.

Assets of money market mutual funds dropped below the $3.2 trillion level for the first time since early January 2008 over the past week. The Investment Company Institute's weekly "Money Market Mutual Fund Assets" shows funds decreasing by $6.73 billion to $3.198 trillion in the week ended Feb. 10. Money fund totals have declined for five weeks in a row and have declined by $95 billion, or 2.9%, year-to-date in 2010. This follows a decline of $512.7 billion, or 13.3%, in 2009.

ICI's weekly release says, "Taxable government funds increased by $3.46 billion [to $996.37 billion], taxable non-government funds decreased by $3.80 billion [to $1.821 trillion], and tax-exempt funds decreased by $6.39 billion [to $380.33 billion]." It adds, "Assets of retail money market funds decreased by $1.81 billion to $1.048 trillion.... Assets of institutional money market funds decreased by $4.91 billion to $2.150 trillion." Institutional money funds currently account for over two-thirds of all money funds assets, or 67.2%.

In other news, as we noted yesterday, Wednesday's "Money Market Funds Reform -- Issues and Implications" Webinar also featured several helpful "Resource Links." Below, we revisit two of these -- Selected Money Market Instruments and Taxable Money Market Funds' Holdings of Commercial Paper. These new tables, produced by the ICI, show money funds' holdings as a percentage of the total commercial paper rising to 45% from 39% during 2009. (The CP market, however, shrunk by $462 billion to $1.137 trillion.)

The ICI's "Selected Money Market Instruments" table shows that taxable money market mutual funds held $2.682 trillion of the $11.267 trillion in taxable money market instruments. This 24% percentage of the total is down from 26% at the end of 2008. (See the previous year's table in the ICI's Report of the Money Market Working Group.) Money funds' holdings as a percentage of these money market segmenst range from a high of 48% for the agency securities market to a low of 5% for the $2.0 trillion Eurodollar deposits market.

Money funds' percentage ownership of certificates of deposits took the biggest jump, from 16 to 25% (they now own $538 billion of this $2.134 trillion sector). They also increased their representation among agency securities, rising from 44% to 48% of this $1.179 trillion segment of the money market. Money funds' percentage of the Treasury securities market plunged from 24% to 15% as investors shifted away from Treasury money funds and into "Prime" funds. The percentage of Repurchase agreements owned by funds inched up to 25% of this market. Note that tax-exempt instruments were not included in the latest edition of the ICI's table.

Yesterday afternoon, a free Webinar, entitled "Money Market Funds Reform -- Issues and Implications," was hosted by Euromoney Institutional Investor and sponsored by BNY Mellon Asset Servicing. The session's panel of experts, hosted by Joe Keenan, MD & Head of Relationship Management at BNY Mellon Asset Servicing, included: Matt Bromberg, MD & Senior Counsel of BNY Mellon, Jane Heinrichs, Senior Associate Counsel of the Investment Company Institute, Joan Swirsky, Counsel for Stradley Ronon, and Ed Von Sauers, Senior Credit Strategist for Dreyfus. The one-hour Webinar provided a broad overview and history of money market funds and regulations, and included a detailed discussion of the current issues and regulatory changes facing money funds.

Host Keenan said, "I cannot think of an area today that is more pertinent for us to focus on than the money market fund industry for the small retail investors and the institutional behemoths alike. Given market turmoil, the negative impact of credit concerns, and absence of liquidity has had on the short-term money markets, coupled with the increased pressure of a reduced interest rate environment on fees and the spectre of impending regulation, a tremendous amount of uncertainty still surrounds the money fund industry. I'm excited that our panel of experts will share their insights on what's ahead for these important products."

ICI's Heinrichs discussed the birth and growth of money funds and explained, "Since 1983, in response to certain market conditions or events, the SEC has amended Rule 2a-7 four times, the most recent happening just a few days ago. The comprehensive protection of the Investment Company Act, combined with the exacting standards of Rule 2a-7, have really contributed to the success of money market funds.... Since 1983, money market funds have actually `grown from $180 billion to what they are today, which is $3.2 trillion. This is just phenomenal growth. What's more amazing is that during all this time, 30+ years, only twice has a money market fund failed to repay the full amount of its shareholders' investments, and then the difference is only pennies on the dollar. So I think by anyone's definition, this demontrates that Rule 2a-7 is truly a regulatory success story."

Von Sauers reviewed the history of the financial crisis, citing issues with asset-backed commercial paper and SIVs. He added, "Irresponsible media reporting further exacerbated the problem by identifying failing enhanced cash funds as money market funds.... During the crisis, Dreyfus ... communicated effectively and often with our shareholders and regulators to keep them apprised of the condition of our funds. Dreyfus also utilized the various programs instituted by the government to provide liquidity to our clients when needed."

Swirsky said, "It's been a very difficult environment for money market funds.... Most of that [credit concerns] has settled down, though of course fund safety and liquidity is always an issue. But the imminent problem right now is the low interest rate environment. Money market funds are finding it hard to eke out enough income to cover their expenses.... There's quite a bit of competition out there.... Another challenge we have is regulatory uncertainty.... We're expecting the other shoe to drop.... In addition, we're awaiting the President's Working Group on Financial Markets."

She added, "But despite all these challenges, I think we really need to keep in mind a couple of things about money market funds. First, they have been a bright spot for a lot of fund families. When assets were fleeing from other asset categories they were flooding into money market funds 18 months ago.... Money funds have been a way to keep assets within the fund family.... In addition, money market funds have kept their value in all but one case. I think we have to keep that in mind."

The Webinar also featured several "Resource Links," including: Total Net Assets of Money Market Funds, Selected Money Market Instruments, Taxable Money Market Funds' Holdings of Commercial Paper, and The Guide to Rules 2a-7 by Joan Ohlbaum Swirsky. You can still register and listen to the replay here.

Below, we excerpt from an article in the February issue of Crane Data's Money Fund Intelligence, entitled, "Will Rising Rates Bring Outflows to Institutional Money Market Funds?" This month's MFI says, "Though rising interest rates may not yet be imminent, some in the money fund community have begun to examine the impact that rising rates might have on the assets of institutional money market fund assets. Given the fact that money fund yields lag those of some shorter money market instruments, like overnight repo during rising rates (due to money funds' average maturity profile of about 45 days), some larger institutional investors, a.k.a. 'hot' money, have historically tended to take advantage of these lags."

MFI writes, "We decided to look back at the last 5, 10 and 20 years to see just how institutional assets appear to be impacted by rate moves. The answer appears to be that rate cuts have helped money funds tremendously, but flat rates, and rate hikes, have merely slowed or stalled asset increases." (The chart included in the issue show the Fed funds target rate since 1990 vs. assets in institutional money funds.) Note though that there are only three significant periods of rising rates -- Feb. 1994 through Feb. 1995, June 1999 through June 2000, and July 2004 through July 2006 -- over the past 20 years.

Tables included in the issue indicate that institutional money funds have averaged gains of 1.3% a month during the past 20 years, with jumps of 3.5% a month during falling rates, gains of 0.9% during flat rates, and gains of a mere 0.1% during rising rates. So, history shows that institutional money funds assets have actually risen during periods of rising rates, though barely. More recent views -- since 2000 and since 2005 -- show that money funds averaged gains of 3.9% and 3.6% a month, respectively, during rate cuts, averaged 0.4% and 0.8% a month, respectively, during flat rates, and averaged 0.4% and 0.5% a month, respectively, during rate hikes.

MFI explains, "Looking back at the three major rising rate periods mentioned above, we see institutional money fund assets effectively flat during the first period, rising from $222 billion in January 1994 to $226 billion in February 1995 (when Fed funds rose from 3%, where it had been flat for a record 16 months, to 6%). From June 1999 through June 2000, institutional money fund assets increased from $592 billion to $708 billion (while Fed funds went from 4.75% to 6.5%), and from July 2004 through July 2006 assets inched up from $1.109 trillion to $1.220 (with Fed funds rising steadily in quarter-point increments from 1.00% to 5.25%)."

Finally, the issue says, "But we've yet to experience sharp rate increases in the Fed funds rate with such a gigantic institutional asset base (now totaling $2.155 trillion). So of course it's possible we could see large outflows with rate hikes. But the history data argues that we'll see flat growth instead of a full flight.... [H]igher rates are eventually a positive for money funds, as higher dividends kick in and as the asset class becomes more attractive. Managers too will be thrilled with any move higher, so they can ease off on their deep fee waivers."

To request a copy of the full Money Fund Intelligence article or to see the data behind Crane Data's study, e-mail Pete Crane or call us at 1-508-439-4419.

While awaiting the publication of the full final SEC Money Market Fund Reform rules last week, we overlooked a Wall Street Journal editorial, that was highly critical of the SEC and evidently supportive of a floating rate NAV, followed by the Investment Company Institute's pointed response. We summarize the exchange below.

The February 3 Wall Street Journal editorial, "The SEC v. Investors", said, "The SEC voted last week to keep recognizing a select group of private credit-ratings agencies to determine if money-fund assets are safe.... Speaking of blocking reform, Ms. Schapiro also stiff-armed the proposal by fellow Commissioner Kathleen Casey to encourage money funds to transition to floating net asset values.... Ms. Casey has correctly argued that a floating net asset value would give investors more accurate information, and it would ensure that breaking the buck is not a cataclysmic event threatening the financial system. The fund industry is delighted if investors think that all of America's thousands of money funds are too big to fail and eligible for federal rescue, as they were when the government guaranteed them in the autumn of 2008."

ICI President & CEO Paul Schott Stevens responded in a letter entitled, "Wall Street Journal v. The Facts on Money Market Funds, "Your editorial, 'The SEC v. Investors' (Feb. 3), got it wrong. Wrong on the facts, wrong on the analysis, wrong on the strength of the SEC's rules, and wrong on the mutual fund industry's commitment to its investors."

He explained, "First, you seriously misstate the law as well as the mutual fund industry's position on credit ratings. Money market mutual funds are forbidden to outsource their credit judgments to rating agencies. Instead, fund advisers, under board oversight, are required to ensure that every security their funds buy is subjected to an independent assessment of credit quality, in addition to any rating assigned by a credit rating agency. This belt-and-suspenders system effectively limits risk and enhances investor protection by providing an important floor on credit quality, below which funds cannot invest."

Stevens continued, "Second, you totally ignore the serious disruption and damage that investors, markets, and the economy would suffer under the misguided notion of forcing money market funds to give up their commitment to a stable $1.00 net asset value. Fund investors and borrowers in the money market have been almost unanimous in rejecting the notion of floating these funds' NAV. The $3.3 trillion invested in money market funds provides vital funding to the U.S. economy.... Fundamentally changing the structure of these funds would disrupt this significant flow of financing, as investors have clearly stated that they will exit money market funds to keep the tax and accounting efficiencies that stable-NAV alternatives provide. Those alternatives exist -- but they lack the tight limits that bind money market funds and protect their investors."

He added, "Throughout the 30-year history of money market funds, the fund industry has placed the highest priority on investor protection and stability. After the Reserve Primary Fund broke a dollar, the Investment Company Institute proposed new, tighter standards for credit quality, maturity, and liquidity, which our members voluntarily pledged to implement. The Securities and Exchange Commission has now gone well beyond those proposals, with rule changes that will impose significant costs on money market funds and their advisers, and a pledge from Chairman Mary Schapiro that the Commission will pursue still more reforms."

Finally, ICI's Stevens said, "Money market funds have an outstanding record of strength, and we are committed to making them more resilient, even in the face of extreme market conditions. We will continue to work to develop regulations and structures that will build investor confidence and provide liquidity in a crisis -- without fundamentally undermining the vital role that money market funds play for investors and the economy."

This weekend, the Associated Press wrote "Don't count out money market mutual funds" (here in the Boston Globe). The article says, "It's hard to market any investment when its annual yield starts with a zero. Take money-market mutual funds. Yields for the safest of safe-harbor investments have been creeping close to zero for more than a year.

It continues, "Normally you'd expect money funds to earn 2 percent to 4 percent a year, but now the average yield is down to around 0.03 percent -- a few hundredths of a penny for each dollar put in. That's a record low since money funds emerged as alternatives to bank accounts for keeping money safe and quickly accessible. Typically, you get a slightly higher yield from a money fund than from an interest-bearing bank account offering comparable check-writing privileges.

AP writes, "Bank or money fund, yields are just plain low now because interest rates are near zero. But with money funds, there could be even more shrinkage soon. Last week the Securities and Exchange Commission approved new rules to make money funds safer. With investing, more safety means lower returns, and money funds are no exception. Don't expect any big drop -- yields don't have much lower to go. And most managers have been running their funds more conservatively for months now in anticipation of the new rules."

They add, "Still, if yields may become even slightly smaller, why stick with money funds? Why not join the crowd that has pulled some $700 billion out of money funds since their assets peaked at $3.9 trillion a year ago? Well, look before you leap, even if money funds stink now. Once interest rates rise from their current near-zero levels, they could come out looking pretty good. Keep in mind, it's only a matter of when rates will rise."

The article, written by Mark Jewell, quotes Peter Crane of "fund industry researcher Crane Data, publisher of the newsletter Money Fund Intelligence," "The risk of rising rates is that it tends to blow up bonds."

Finally, the piece says, "What if you face an unexpected medical bill, or find that house you've been looking to buy, and need a down payment, pronto?" It quotes Crane, "Liquidity isn't important, until you need it."

In other news, see the release, "SEC Charges State Street for Misleading Investors About Subprime Mortgage Investments," which involves losses in an ultra-short bond portfolio. (See our Crane Data News Aug. 29, 2007, "State Street Limited Duration Bond Incorrectly Called Enhanced Cash".) Robert Khuzami, Director of the SEC's Division of Enforcement, says, "State Street led investors to believe that their investments were more diversified than a typical money market portfolio, when instead they were invested almost entirely in subprime investments that ultimately caused hundreds of millions of dollars in losses."

The February 2010 issue of Crane Data's flagship Money Fund Intelligence newsletter, which goes out to subscribers this morning, features the stories: "SEC Passes New Money Market Fund Reforms," which discusses the recently-passed Amendments to Rule 2a-7; "Navigating New Rules: Q&A w/Stephen Keen," an interview with the veteran money fund attorney and Partner of Reed Smith LLP; and "Will Rising Rates Bring Outflows to Inst MMFs?," a look at how institutional assets have fared in past periods of Fed funds rate hikes. We excerpt several quotes below. Note that we're expecting the SEC's Final Money Market Reform rules to be posted next week, or even later today, so stay tuned!

Our lead story says, "Last week, the U.S. Securities & Exchange Commission approved the outline of the first changes to money market mutual fund regulations since 1997, tightening Rule 2a-7's quality, maturity and liquidity standards, and adding a new liquidity mandate. The Commission's summary release, entitled, "SEC Approves Money Market Fund Reforms to Better Protect Investors," says, "The Securities and Exchange Commission today adopted new rules designed to significantly strengthen the regulatory requirements governing money market funds and better protect investors."

Stephen Keen says on money fund regulations in MFI, "The rule is almost always -- you have to do what you decide is appropriate for a stable value fund. The rule isn't that can run your securities at an adequate maturity of 90 days. It is that you run them at a adequate maturity consistent with the stable net asset value, not to exceed 90 days.... Now you need to operate with adequate liquidity to meet your expected redemptions."

Finally, our study of asset flows during periods of falling, flat and rising rates says, "We decided to look back at the last 5, 10 and 20 years to see just how much institutional assets appear to be impacted by rate moves. The answer appears to be that rate cuts have helped money funds tremendously, but flat rates, and rate hikes, have merely slowed or stalled asset increases."

Money Fund Intelligence features news, info, and performance on over 1,300 money market mutual funds. Statistics include: assets, WAM, expense ratio, 7-day yield, 30-day yield, 1-month return, 3-mo, YTD, 1-year, 3-yr, 5-yr, 10-yr, and since inception returns, and gross yields. MFI also contains tables of the top-yielding and largest money funds and our benchmark `Crane Money Fund Indexes. To request a sample of the latest issue, e-mail

While we're still waiting for the final release of the full text of the SEC's recently passed Money Market Fund Reforms, we wanted to spend a little time dissecting the various SEC Commissioners' speeches and comments from last week's Open Meeting. The reforms, which passed with a vote of 4-1, were supported by Commissioners Elisse Walter, Luis Aguilar, Troy Paredes, and Chairman Mary Schapiro. Commissioner Kathleen Casey voted against the new money market fund rules.

Chairman Schapiro said, "I believe one of the key lessons of the financial crisis is the need for strong liquidity buffers in money market funds. Today's rules for the first time, will establish liquidity standards for money market funds. These new liquidity standards will require money market funds to have enhanced reserves of cash, and securities that can be readily converted to cash, so that they can meet heightened investor demand for redemptions, as occurred in September 2008. Under the new liquidity standards, money market funds would have to meet both daily liquidity requirements of 10 percent of assets in cash and cash equivalents, and weekly liquidity requirements of 30 percent. The rules also will impose a requirement to have 'know your customer' procedures in order to identify the potential for large redemptions and have sufficiently liquid securities in place to meet them."

Commissioner Walter commented, "Money market funds have become a very important part of our financial markets. Investors use these funds primarily to pursue a conservative investment strategy or temporarily invest excess cash.... [I]nvestors currently have over $3 trillion invested in money market funds. By way of reference, that is more than the gross domestic product of France. For more than three decades, our laws governing money market funds have provided a regulatory foundation that has helped make such funds a popular investment vehicle for investors. However, the market turmoil that began in 2008 has shown us areas where we can improve.... The amendments I hope we adopt today will help to ensure that the laws governing money market funds will continue to serve investors, and our markets, for decades to come."

Aguilar's comments, entitled, "Fortifying the Money Market Framework Upon Which Investors and Issuers Rely," included, "The amendments being adopted today decrease the likelihood that money market funds will go through a similar crisis. Even as we adopt the additional safeguards being considered today, however, investors in money market funds need to realize that, as with almost any investment, these investments have risk. Nonetheless, it seems clear that our actions today will make the funds safer and will serve to better align the funds' ability to maintain a net asset value, typically at $1.00 per share, with the expectation of investors that one (1) dollar in means one (1) dollar out. This may be the most important expectation that investors have when they invest in money market funds. It needs to be protected."

Finally, while four Commissioners strongly supported the proposals (and money funds), Casey strongly opposed the measure. She said, "While I appreciate many of the reform proposals set forth in today's adopting release, such as the enhancements to liquidity and maturity, they simply do not go far enough. Some are good; others go in the wrong direction; and collectively, they do not address fundamental issues at the heart of rule 2a-7. Absent more fundamental changes to the rule and their structure, money market funds will remain susceptible to runs and we would be furthering the view that these funds are implicitly guaranteed or insured by the U.S. government.... If we are to address these concerns, one of two logical paths lies ahead: either money market funds will require recourse to dedicated liquidity facilities ... or they should move to a floating NAV."

The American Securitization Forum's ASF 2010 conference concludes today in Washington DC. The asset-backed security organization's annual event attracts thousands, and this year's agenda included two sessions focused on asset-backed commercial paper. Crane Data attended the ABCP Market Developments and Outlook and ABCP Investor and Issuer Roundtable panels on Monday, along with a surprisingly sizeable and upbeat contingent of money fund managers, securities issuers, and ABCP servicers.

ABCP Investors on the panel included Wells Fargo's Matthew Grimes and Federated Investors Debbie Cunningham, and issuers included PNC Capital Markets' Reginald Imamura and HSBC's Richard Burke. The Market Developments panel featured Credit Suisse's Maureen Coen and Orrick's James Croke, among others.

Grimes and others bemoaned the lack of supply. He said, "We've seen our primary investment base shrink. Right now, more than ever, we need issuers who are going to be consistent short-term issuers on the short end of the curve. We have money that needs to go to work every day." He also noted that, "The money fund balances for prime have held up very well.... They are in there [funds] because it's a stable investment."

Cunningham explained, "Prime money market funds have invested about one-half of their assets historically in commercial paper. It's now down to about one-third." Funds have been investing in government agencies and bank CDs to make up for the decline, she explained. (ABCP now totals about $440 billion and makes up about 40% of the CP market.) Cunningham added, "Historically, MMFs have loved the diversification of ABCP."

The two noted that the recent SEC rule changes for money funds don't have much impact on the ABCP market. The SEC "removed rating requirements for ABCP paper" but that's about it noted Cunningham.

Participants expressed concerns about pending regulatory changes, and the money fund liquidity mandates being at odds with the FAS (166 and 167) and bank's potential new lliquidity buffer and coverage rules. JP Morgan Securities' said, "The industry is hopefully not done discussing these roles with regulators."

Look for more coverage on this and regulatory issues in the upcoming February issue of Money Fund Intelligence, and watch for the SEC's Final Money Market Fund Reform rules to be released very soon.

Today's Wall Street Journal Fund Track column writes "Money Funds Exhale After SEC Rules; Should They?. The article says, "Some big players in the $3.3 trillion money-market fund industry are breathing sighs of relief after regulators amended the rules governing the funds. There's a chance that relief may prove premature: The Securities and Exchange Commission, in making the changes last week, said it is still assessing the need for more fundamental reforms."

Reporter Daisy Maxey continues, "Federated Investors, which manages $313.3 billion in money-market assets, welcomed the enacted changes 'not so much for what was done, but for what wasn't done.' It was pleased that the SEC opted to retain $1 net-asset-value pricing, rather than establishing a regime where $1 invested could fall below that value, said Debbie Cunningham, chief investment officer at Federated, in a statement on the firm's Web site."

The Journal piece summarizes the rules, then says, "While some in the industry aren't happy with some of the restrictions, in general 'money funds aren't all that upset one way or another,' said Peter Crane, president of Crane Data LLC."

They continue, "Federated doesn't believe that requiring money funds to regularly disclose the underlying value of their assets per share on a delayed basis will undermine the way funds currently operate using net asset value, Ms. Cunningham said.... Overall, the changes may lower money fund yields 'a couple of basis points,' or hundredths of a percentage point, she said. Much of the industry, including Federated, has already been trending toward such changes, so much of the change is already reflected in funds' yields, she said."

The WSJ also says, "Vanguard Group, which manages about $180 billion in money-market fund assets, believes the SEC struck a balance between investor protection and the efficient management of money-market funds, a spokesman said.... The rule change won't fundamentally affect Vanguard's approach, the spokesman said."

But, the Journal continues, "In announcing approval of the amendments, SEC Chairman Mary Schapiro said they're only a first step. The SEC will continue to pursue more fundamental changes, including a floating NAV; real-time disclosure of shadow NAV; and a private liquidity facility to provide liquidity to money-market funds in times of stress among other options, she said."

They conclude, "That's worrisome for some in the industry." They quote Crane, "It's like, 'You mean we're not done?' ... Still, he expects that a floating-rate NAV, capital requirements or a liquidity exchange bank for money funds are unlikely to be required." Crane tells the Journal, "The benefits of a floating-rate NAV have not been shown."

On Friday, during the company's quarterly earnings conference call, Federated Investors President & CEO Chris Donahue commented, "Now, the SEC's adoption of new money market rules was a welcome development. We believe that the changes announced will strengthen the regulatory framework that money funds operate within, and do what all of the regulators and governmental officials have said is their goal, enhance the resiliency of money funds. It was clear to us that the SEC carefully considered the comments made by Federated and others in arriving at these changes."

He added, "We anticipate that these changes will not materially alter the way we manage our funds or even the yields of our products as we have generally applied these standards already. We are encouraged by the process, and expect that any future changes follow the path of preserving the key characteristics of money funds that enable those products to play a vital role in our capital markets."

Asked to handicap the likelihood of 'transformational reform' with Paul Volcker 'back on the scene,' Donahue responded, "Considering sin is not the same as committing sin.... Mary Shapiro has made it clear that they are going to continue to look at an array of issues. We don't place much likelihood at all on changing the NAV to a fluctuating NAV. No matter how often someone talks about doing it, you have to face the reality of the importance of these funds in the capital markets in terms of the securities that are owned a $3.3 trillion dollar industry."

He continued, "[A]bout $325 trillion dollars has gone through money fund since the SEC's successful initiation of Rule 2a-7.... You also have to note that there's been over the last 24 years about $450 billion paid to investors more than they would have gotten in the MMDAs. So, yes you can consider all of these things, and that's fine. But we don't place much weight on the idea that they are going to change the NAVs. What we have seen is a regulator, especially the SEC and especially on 2a-7, that over decades has consistently gotten it right because of aggressive study, back and forth, and considered judgment in the end. And that is what will look forward here in to the future."

When queried on capital requirements, Donahue said, "Yes, we do have a lot of confidence that that will not happen [capital requirements for money markets] despite protestations and commentaries by others in the marketplace.... [Y]ou have to ask yourself, 'Is this business supportable by a 10%, or a real bank capital, [requirement] on it?' Go ask JPMorgan ... with $400 billion in money market funds as to how that business would function if they put real bank capital requirements on them. The need for it is a little odd when you consider that the money funds don't do the leverage thing, and they surely don't fail the way banks fail."

He added, "Even in The Reserve situation, they got 99 cents at the end. Now it wasn't a pleasant result because of the delay, but don't forget that in the Putnam situation it was all able to be resolved within the context of other money funds and some cooperation from various regulators. So when Mary Shapiro is summarizing the various things that she's looking at, capital wasn't one of the ones that she listed during her call earlier this week."

Finally, Donahue said, "So, it's again one of those things that gets mentioned out in the marketplace a lot.... But we don't think that it is going to come about. A footnote: Mary Shapiro did mention of course the private liquidity facility to provide liquidity to money market funds in times of stress.... So there may be some modest capital requirements in however that ends up being structured. But that is all that I can say about that so-called liquidity bank."

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