News Archives: October, 2014

Money fund assets jumped for the third straight month in October, rising by $25.5 billion month-to-date through Oct. 29, according to Crane's Money Fund Intelligence Daily, after rising by $28.0 billion in September and $34.0 billion in August. Since the SEC passed its latest Money Fund Reforms in July, assets have increased by $79.0 billion, though October will likely be the first month that Prime Institutional assets represented the bulk of the gains. ICI's latest "Trends in Mutual Fund Investing, September 2014" shows that total money fund assets increased by $22.7 billion in September to $2.604 trillion. (ICI's monthly statistics show that MMF assets increased by $34.0 billion in August, decreased by $16.1 billion in July, and dropped $17 billion in June.) Year-to-date through 9/30/14, ICI's monthly series shows money fund assets down by $74.7 billion, or 2.8%. Below, we review recent asset flows, ICI's latest Trends report, and ICI's monthly Portfolio Composition figures.

Our MFI Daily shows that Prime Institutional money fund assets, which should be the most impacted by the SEC's recent reforms, have increased by $23.8 billion month-to-date through October 29 to $824.5 billion after increasing by $5.3 billion in September. Prime Institutional assets have increased by $27.7 billion since July 23, when assets stood at $796.8 billion, belying predictions of outflows accompanying the new rules. In fact, Prime Institutional money funds had the largest increase of any segment of the money fund universe in the month of October, according to MFID.

ICI's September "Trends" says, "The combined assets of the nation's mutual funds decreased by $302.97 billion, or 1.9 percent, to $15.54 trillion in September, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI. Bond funds had an outflow of $20.30 billion in September, compared with an inflow of $4.35 billion in August. Taxable bond funds had an outflow of $23.32 billion in September, versus an inflow of $1.09 billion in August. Municipal bond funds had an inflow of $3.01 billion in September, compared with an inflow of $3.26 billion in August."

It adds, "Money market funds had an inflow of $22.49 billion in September, compared with an inflow of $36.06 billion in August. In September funds offered primarily to institutions had an inflow of $21.04 billion and funds offered primarily to individuals had an inflow of $1.45 billion." Money funds represent 16.7% of all mutual fund assets while bond funds represent 22.2%.

Also on Thursday, ICI released its weekly "Money Market Fund Assets" report, which showed assets up for the second straight week and the 5th week in 6 weeks. Total money market fund assets increased by $6.1 billion to $2.63 trillion for the week ended Wednesday, October 29, ICI reported. "Among taxable money market funds, Treasury funds (including agency and repo) increased by $820 million and prime funds increased by $8.0 billion. Tax-exempt money market funds decreased by $2.78 billion."

It states, "Assets of retail money market funds decreased by $13.1 billion to $902.2 billion. Among retail funds, Treasury money market fund assets decreased by $2.7 billion to $202.4 billion, prime money market fund assets decreased by $8.6 billion to $516.3 billion, and tax-exempt fund assets decreased by $1.8 billion to $183.6 billion. Assets of institutional money market funds increased by $19.2 billion to $1.7 trillion. Among institutional funds, Treasury money market fund assets increased by $3.5 billion to $759.7 billion, prime money market fund assets increased by $16.3 billion to $897.2 billion, and tax-exempt fund assets decreased by $970 million to $69.0 billion."

ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which showed increases in Repos and Treasurys in September. (See Crane Data's Oct. 11 News, "October Money Fund Portfolio Holdings Show Spike in Fed Repo, T-Bills.") ICI's latest Portfolio Holdings summary shows that Holdings of Repos increased by $75.1 billion, or 14.7%, in September (after increasing $11.5 billion in August, $59.9 billion in July, and decreasing $60.7 billion in June) to $585.5 billion (or 24.9% of taxable MMF holdings). Repos regained their status as the largest segment of taxable money fund portfolio holdings in September, replacing CDs, according to ICI's data series.

CDs (including Eurodollar CDs) plummeted by $53.5 billion, or 8.6%, (after rising by $7.2 billion in August, $71.9 billion in July, and $63.9 billion in June) to $559.1 billion (23.8% of assets). CDs are the second largest composition segment. Treasury Bills & Securities, which increased by $42.6 billion, or 12.1%, inched up to the third largest segment, moving ahead of Commercial Paper. Treasury holdings totaled $398.1 billion (16.9% of assets). U.S. Government Agency Securities are the fourth largest segment. Agencies grew by $3.3 billion or 1% in September to $353.8 billion (15.1% of assets). Commercial Paper, the fifth largest segment, dropped $19.8 billion (after dropping $3.0 billion in August, $16.7 billion in July, and $3.6 billion in June) to $337.2 billion. They represent 14.3% of assets. Notes (including Corporate and Bank) grew by $1.3 billion to $70.9 billion (3.0% of assets), and Other holdings increased by $1.7bmillion to $48.8 billion (2.1% of assets).

The Number of Accounts Outstanding in ICI's Holdings series for taxable money funds increased by 208.5 thousand to 23.653 million, while the Number of Funds decreased by 2 to 369. Over the past 12 months, the number of accounts fell by 551.0 thousand and the number of funds declined by 20. The Average Maturity of Portfolios remained the same at 45 days in September. Over the past 12 months, WAMs of Taxable money funds declined by 3 days.

Note: Crane Data updated its October MFI XLS to reflect the 9/30/14 composition data and maturity breakouts for our entire fund universe. Note again too that we are now producing a "Holdings Reports Issuer Module," which allows subscribers to choose a series of Portfolio Holdings and Issuers and to see a full listing of which money funds own this paper. (Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access the latest version of this new file.)

The Federal Reserve Board's FOMC meeting today didn't offer anything new on the projected path of interest rate hikes, but it did officially end its asset purchase program. We review the latest FOMC Statement below, but we also excerpt from a recent Fidelity report entitled, "Money Markets: Both Doves and Hawks Find Fed Support." Fidelity writes, "The Federal Reserve's post-FOMC (Federal Open Market Committee) meeting press conference in September included comments that supported the outlooks of doves and hawks alike. Doves noted the ongoing use of the words "considerable time" in the Fed's statement, referring to the period in which federal funds will likely remain in their current range after the asset purchase program ends. Investors have generally defined the term to mean a period of "at least six months" before the first interest rate hike, basing their belief on comments made by Chair Janet Yellen earlier this year."

"In contrast, the hawks pointed to the FOMC's median rate forecasts depicted by the survey of economic projections (SEP), or "dot chart," which moved materially higher. The Fed's policy rate forecasts out to 2017 were also released for the first time, giving investors more to evaluate," states the report, penned by Nancy Prior, president, Fixed Income; Michael Morin, director, Institutional Portfolio Management; and Kerry Pope, institutional portfolio manager.

They continue, "Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser voiced their disagreement with the most recent Fed guidance, dissenting at the most recent FOMC meeting. Both men have been ongoing critics of the Fed's accommodative policy and believe that the Fed's pledge for "considerable time" indicates too long a period before rates will need to be raised. Mr. Fisher is expected to step down next year and Mr. Plosser announced his plans to retire in the spring. In contrast, a speech given by New York Fed President and Vice Chairman William Dudley was interpreted as dovish. In addition to saying that he saw liftoff occurring around mid-2015, Mr. Dudley spoke about the dollar's strength putting downward pressure on U.S. inflation and dampening the near-term outlook for U.S. exports. Both of these, he said, keep the Fed patient about raising rates, even with the labor market strengthening. Additionally, despite the stronger-than-expected September labor report, Mr. Dudley also stated that he saw "significant underutilization" of labor market resources."

The Fidelity report also commented on a noteworthy end to the third quarter. "The money market landscape changed in September with the announcement of important changes to the Fed's overnight reverse repurchase agreement operation (ON RRP). As of September 22, 2014, the minimum bidding size available to participants was raised to $30 billion from $10 billion, and the Fed imposed a $300 billion aggregate daily cap. Once the cap is reached, the Fed will conduct a Dutch auction, a bidding process in which the lowest rates submitted are accepted until the cap is reached. At that point, all those bidding at the highest yield accepted at the auction -- known as the "stop-out rate," or "stop" -- or below are awarded their respective bids at the stop-out rate. The new ON RRP parameters were put to the test with money market supply imbalances exacerbated by quarter end. At quarter end, the $407.176 billion of bids submitted by investors to the ON RRP facility handily surpassed the $300 billion aggregate cap. Participant bids ranged from five basis points to negative 20 basis points, and were filled at a stop of 0.0%."

They also discussed the impact of money market reforms on portfolio management. "Planned modifications to Rule 2a-7 are already causing fund sponsors to increase their seven-day liquidity thresholds. While Fidelity's institutional funds have always targeted liquidity thresholds well above the 30% level, growing demand for high quality liquid investments from fund sponsors and banks are keeping short-term rates suppressed. In order to efficiently maintain our conservative liquidity thresholds, Fidelity expanded the number of seven-day transactions with banks that represent minimal credit risk. Fidelity's funds also took advantage of the higher rates available in the longer end of the money market curve, as the potential for a rate hike in mid-2015 was factored into security prices."

Finally, Fidelity writes, "Our term purchases included floating-rate notes with maturities of six months or longer, high quality fixed-rate issuers in the four- to nine-month range, and agencies and supranationals in the 12- to 13-month range. Looking forward, inflation should remain well contained, perhaps even declining from current levels, because of the effects of global headwinds and a stronger U.S. dollar. This should support a cautious attitude on the part of the Fed as it considers raising interest rates. Also weighing on short-term rates is the continued supply imbalance of money market instruments, which is not expected to abate in the near future. Against this backdrop, we will continue to emphasize the preservation of capital and liquidity while taking advantage of opportunities in term investments."

Jumping to the most recent FOMC meeting on October 28-29, the Federal Reserve did end its asset purchase program after 2 years. The Fed's Statement says, "The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions."

As expected, there was no change in interest rate policy. "The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated."

The clock is now officially ticking on the countdown to money market reforms as the Securities and Exchange Commission's proposal reached its "effective date" on October 14. That means that money market funds may now begin to start complying with the new rules before they take effect, explained the attorneys at Stroock & Stroock & Lavan, in the most recent issue of the Stroock Bulletin, entitled, "Effective Date for Money Market Fund Reforms Arrives: Implications for Funds, their Boards and Advisers." Stroock Partner and former SEC Associate Director of the Division of Investment Management Robert Plaze, and Partner Nicole Runyan, write, "It is imperative for sponsors and boards of money market funds to utilize this compliance period to develop an operational and oversight process to transition money market funds to the new regulatory regime."

The compliance dates vary, and range from nine months to two years for the SEC's recent Money Fund Reforms. The compliance date for floating NAV and fees and gates requirements, including any related disclosure amendments, is October 14, 2016. The compliance date for reporting on Form NCR is July 14, 2015, while the compliance date for the amendments relating to the diversification and stress testing requirements, as well as the revised disclosure and reporting requirements not related to the floating NAV or liquidity fees and gates requirements, is April 14, 2016.

The article provides an overview of the amendments, adopted on July 23, 2014. The introduction of the 45-page report says, "The SEC explained that the Amendments are designed to address money funds' susceptibility to shareholder runs, improve their ability to manage and mitigate potential contagion from such redemptions and increase the transparency of their risks, while preserving, "as much as possible," their benefits. In adopting the Amendments, the SEC essentially combined the two separate regulatory alternatives it proposed in June 2013. The first proposed alternative would have required "institutional prime money funds" to "float" their net asset value ("NAV") per share instead of using a stable NAV per share (generally, $1.00). The second proposed alternative would have permitted all money funds to continue to transact at a stable share price, but would have (i) required money funds (other than as-defined government money funds) to impose a liquidity fee in times of market and/or fund stress and (ii) authorized money fund boards of directors/trustees ("boards") to temporarily suspend redemptions of fund shares (i.e., impose a "gate") in similar circumstances."

It continues, "The Amendments require all money funds that do not qualify as "retail money market funds" or "government money market funds" to price and transact in their shares at NAVs reflecting current market-based values of their portfolio securities (i.e., at a "floating NAV") no later than October 14, 2016. The exclusion of retail money funds from the Amendments' floating NAV requirements reflects a major victory for sponsors of funds primarily offered to retail investors, who had argued that those investors did not participate in the 2008 runs on money funds and, as a result, their funds did not pose a systemic risk to the broader financial system. The Amendments, however, reflect a loss for sponsors of tax-exempt money funds that invest in municipal securities, who had made similar arguments that failed to persuade the SEC. Under amended Rule 2a-7, municipal money funds must adopt a floating NAV unless they qualify as retail money funds."

Further, "The Amendments also require both institutional money funds (which must use a floating NAV) and retail money funds (which may continue to use a stable NAV) that otherwise do not qualify as government money funds to make provision for imposing liquidity fees and gates in the event of a shortfall of fund liquidity no later than October 14, 2016. In a change from the Proposing Release, however, the SEC gave money fund boards discretion to impose liquidity fees and gates under the Amendments. This grant of broad discretion almost ensures that money fund boards will find themselves in the middle of any future money fund crisis."

It goes on, "In addition, while the potential loss of the exemptions in Rule 2a-7 that facilitated money funds' maintenance of stable NAVs animated much of the debate since the financial crisis in 2008, it was the liquidity fees and gates alternative in the Proposing Release that stirred the most controversy as the SEC was rounding the last turn of its marathon rulemaking effort. A number of economists, including staff of the Federal Reserve Bank of New York, and some money fund sponsors expressed concerns that investors seeking to avoid paying liquidity fees or having their assets locked up in a gated fund would engage in preemptive runs on money funds at the first indication of market or portfolio stress."

The Stroock piece continues, "They argued that the liquidity fees and gates proposed by the SEC would operate to increase, rather than decrease, the instability of money funds. In the Adopting Release, however, the SEC asserted that the final version of the liquidity fees and gates requirements contained in the Amendments would address those concerns by making the imposition of liquidity fees less certain and permitting the imposition of gates for a shorter period. The changes did not satisfy these critics, including SEC Commissioner Stein who voted against the Amendments citing similar concerns."

Finally, it adds, "Subsequently, the Financial Stability Oversight Council (FSOC) issued a statement suggesting it had similar concerns about the SEC's adopted approach and stated that, while it would not take any current action on its proposed recommendations to the SEC, it would monitor the effectiveness of the Amendments to better understand any "unintended consequences" of liquidity fees and gates. Former SEC Chair Mary Schapiro also recently echoed those concerns." To read the full report, visit Stroock.com.

Only one comment letter has been posted so far in response to the Treasury and IRS's Proposed Rule on "Money Market Funds: Method of Accounting for Gains and Losses on Shares and Broker Returns with Respect to Sales of Shares," which accompanied the SEC's July Money Fund Reforms. A letter from the Investment Company Institute is the only post so far, though the deadline was Monday, Oct. 27 (so we could see more posted in coming days). The proposal by the U.S. Department Treasury and IRS to allow floating NAV money market fund investors to use a simplified tax accounting method to track gains and losses and provide relief from the "wash sale" rules for any losses on shares of a floating NAV money market fund. As we wrote in our July 30 News, "Reform Floating NAV Accounting Issues Addressed by Treasury Proposal," this proposal sealed the deal for the passage of money market reform as SEC Commissioner Daniel Gallagher, who turned out to be the swing vote, said he would not have voted in favor without this assurance from the Treasury and IRS. (Gallagher commented at the time, "I have consistently, loudly, and publicly stated that my vote for a floating NAV was contingent on the resolution of the tax and accounting-related issues arising from the move away from a constant NAV.")

In the ICI letter, Karen Lau Gibian, senior associate counsel, Tax Law, offered support for the proposal, with some recommendations to improve it. She says, "Although we have a few recommendations, we generally believe that this guidance provides a workable tax accounting method for shareholders in floating NAV money market funds. We especially appreciate the Treasury Department and IRS's commitment to providing guidance on these issues in a timely fashion."

She then details the recommendations. "The Institute recommends three changes to the "NAV method" in the proposed regulations. First, shareholders should be permitted to use the NAV method on an account-by-account basis. Second, the NAV method should be available for shareholders in stable NAV money market funds that charge a liquidity fee. Third, the IRS and the Treasury Department should confirm that a regulated investment company (RIC) is permitted to use the one-year period from November 1 to October 31 as its "computation period" for purposes of the excise tax. The Institute also asked the IRS to extend the wash sale exemption in Rev. Proc. 2014-45 to stable NAV funds that impose a liquidity fee."

The letter continues, "In addition to the guidance already released, the Institute asks the IRS and Treasury Department to provide guidance regarding the tax implications to funds and shareholders if a stable NAV fund imposes a liquidity fee. First, the government should clarify that a money market fund may treat the liquidity fee as "paid-in capital," resulting in no gain or income, and that shareholders should treat the liquidity fee as a reduction in gross proceeds. We also ask the government to provide that a stable NAV RIC that pays out liquidity fees will be deemed to have sufficient earnings and profits to make the distribution a dividend under section 301, to the extent the distribution otherwise would be a return of capital. Finally, the Institute asks the Treasury Department and the IRS to provide guidance permitting a money market fund that separates existing institutional and retail classes into standalone funds, in order to comply with the SEC Rule, to treat such transaction as a tax-free reorganization under section 368."

Gibian adds, "The Institute asks the Treasury Department and the IRS similarly to provide guidance making it easier for money market funds to separate existing classes into separate retail and institutional funds. Specifically, we ask the government to provide that this type of "split-off" transaction will be treated as a tax-free reorganization under section 368(a)(1)(D). Absent this type of guidance, a fund complex that wishes to maintain a stable NAV fund for retail shareholders of an existing fund may have to engage in one or more transactions that triggers gain/loss recognition, as well as restarted holding periods. Given that the sole reason for splitting up the existing fund into two separate funds is to adjust the fund's shareholder base so that retail and institutional are treated as intended by SEC Rule, we do not believe it would be appropriate for a transaction in these circumstances to trigger tax consequences to the fund or the shareholders. This could harm investors duly."

Treasury's original proposal explained, "In response to concerns regarding the tax compliance burdens associated with frequent redemptions of shares in floating-NAV MMFs, these proposed regulations describe a permissible, simplified method of accounting for gain or loss on shares in a floating-NAV MMF (the net asset value method, or NAV method). The NAV method, in the opinion of the Commissioner of Internal Revenue, is a method of accounting that clearly reflects income from gain or loss on shares in floating-NAV MMFs. Under this method, gain or loss is based on the change in the aggregate value of the shares in the floating-NAV MMF during a computation period (which may be the taxpayer's taxable year or certain shorter periods) and the net amount of the purchases and redemptions during the period. More specifically, the taxpayer's net gain or loss from shares in a floating-NAV MMF for a computation period generally equals the value of the taxpayer's shares in the MMF at the end of the period, minus the value of the taxpayer's shares in the MMF at the end of the prior period, minus the taxpayer's net investment in the MMF during the period. The NAV method does not change the tax treatment of, or broker reporting requirements for, dividends from floating-NAV MMFs. The proposed method simplifies tax computations by basing them on the aggregate of all transactions in a period and on aggregate fair market values. Every floating-NAV MMF must compute these fair market values for non-tax purposes regardless of how -- or even whether -- the MMF's shareholders are taxed on transactions in the MMF shares. The NAV method takes into account changes in value of floating-NAV MMF shares without regard to realization."

In addition to its comment letter, ICI said it wanted to speak at the public hearing on the proposed regulations, scheduled for November 19. The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

On Federated Investors' Third Quarter 2014 Earnings Call Friday morning, Chris Donahue, Federated's president and CEO, discussed some of the new products that the company is considering as it prepares for the money market reforms to kick in starting in October 2016. "We, of course, are working on various projects related to the SEC rules that were issued in July," said Donahue. "We expect to have products in place to meet the needs of all of our money fund clients -- these are likely to include prime and municipal money market funds modified to meet the new requirements, government money funds, separate accounts, and offshore money funds. We're also working on developing privately placed funds that will likely mirror existing Federated money market funds to serve the needs of groups of qualified investors unable to use the money funds that have been modified by the new rules."

The modified funds that Federated is looking to develop are 60-day and under maturity funds. They have piqued the interest of some of Federated's clients. "Perhaps the 60 days fund has inched ahead of the private funds as answers for people who don't qualify to stay in the existing funds," stated Donahue. "The separate accounts are not having as big a reception as we thought they might get and the variable net asset fund as per the rule we still don't think has a lot of legs." He added, "We're also looking at the whole structure of the products, especially on the government side. There's going to be a lot more interest in government funds as one of the main receivers of money, so there's going to be more competition there."

Donahue elaborated later in the call on a possible future roster of MMFs. "At this point, the most likely thing is there will be 60 day funds, there will be government funds, there will be private funds ... and then there will be retail funds. As I mentioned on this call before, you can't use any definition of retail that you had in your head before, you have to have a new definition of retail. So there is no doubt that we will be offering retail funds. Then, hanging in the balance is whether we'll have any of these floating NAV institutional prime funds. I'm still doubtful of it."

Later in the call, Donahue reiterated his thoughts on the future of floating NAV money funds. "My guess would be as it was at the beginning, and I haven't changed it -- those kinds of funds aren't going to be viable at all. The more likely thing that we're going to do is use the existing funds that we have and have them either be for retail or have them be 60 day funds. Whether or not any of them will be variable net asset value money funds ... I'm not certain of that now, but I would be inclined to doubt it."

Federated CIO Debbie Cunningham added that client attitudes toward institutional prime floating NAV funds have changed slightly. "Over the course of the last 3 months ... we've been doing a series if about 20 different road shows across the country. One of the first ones was in late July, and when we mentioned the variable NAV product ... there was nobody in the room that raised their hands or had any interest in that type of product. However, we just did one on Monday of this week, where, I would say, that ... one person at every table had raised their hands that they still would have an interest in the product, even with the variable NAV component. So I think there has become a little bit more of a potential acceptance."

When asked about supply, Cunningham said, "Suffice it to say it's a lot more dificult today than it was 3 or 4 years ago to find appropriate coverage from a supply perspective. Having said that, there are new issuers in the markletplace on a somehwat regular basis. We're using a lot more of what I'll call 'semi-sovereigns', which are not the countries themslves, but generally entities within the countries that they are guaranteeing. We recently approved the country of Finland and the largest Finnish bank. So there are areas of growth, but generally speaking, it's you kind of have to look under quite a few rocks to find the gold that lays under there."

On fee waivers, CFO Tom Donahue said the firm had money fund yield waivers of of $30 million in Q3, about the same as the last quarter and Q3 2013. He estimates that gaining 10 basis points in gross yields would likely reduce the impact of waivers by about 45%, and a 25 bps increase would reduce the impact by about 70%. On the M&A front, they are still looking at acquisition opportunities in the money fund world.

The earnings release says, "Money market assets were $245.5 billion at Sept. 30, 2014, down $24.8 billion or 9 percent from $270.3 billion at Sept. 30, 2013, and up $0.3 billion from $245.2 billion at June 30, 2014. Money market mutual fund assets were $215.2 billion at Sept. 30, 2014, down $22.7 billion or 10 percent from $237.9 billion at Sept. 30, 2013, and up $2.8 billion or 1 percent from $212.4 billion at June 30, 2014. Money market market share was 8.3%, same as last quarter."

In conclusion, Donahue said, "Our goal is to have a warm and loving home for all of our clients. I would say that after a lull in the action, we'll be back on the growth path on money market fund assets as we come to the end of the two year period."

Post-reforms, the money market fund industry will certainly look different than it does now. In a recent webinar called "Investment Policy Decisions and Amendments, Post Money Fund Reform," a panel of experts discussed what some of those changes might look like. The webinar was hosted by StoneCastle Cash Management with support from Fitch Ratings, PIMCO, and iTreasurer. It was moderated by Ted Howard, managing editor, iTreasurer, and featured presentations by Roger Merritt, Managing Director, and Greg Fayvilevich, Director, Fitch Ratings; Brandon Semilof, Managing Director, StoneCastle; and Brian Leach, Product Manager, PIMCO. We review the webinar below, and we also mention some recent merger and consolidation news. (Note: Monday, Oct. 27 is also the deadline for comments on the Treasury and IRS's Proposed Rule, "Money Market Funds: Method of Accounting for Gains and Losses on Shares and Broker Returns with Respect to Sales of Shares," which accompanied the SEC's recent Money Fund Reforms. See our July 30 News, "Reform Floating NAV Accounting Issues Addressed by Treasury Proposal". No comments have been posted to date, but we will review these if and when they are released.)

PIMCO's Leach talked about managing cash amidst reforms and a rate environment he called, the "new neutral". "Like everyone else, we know that the Fed is going to eventually hike rates; the market expects this to happen mid- or late next year. That is only part of the story. The other part of it is where we think, long-term, interest rates are headed and that's where our concept of the 'new neutral' comes in. In short, the new neutral reflects our view that central bank policy rates will be lower than their historical average -- somewhere in the range of 2% from the Fed in the US. If we assume a 2% inflation rate, this really means a 0% real yield," said Leach.

How will this impact cash management? While yields will increase, they don't think they will reach historical norms. "Historically, for many investors, strategies like these were a one-stop shop for cash management -- they got a nice yield and they had a fixed NAV. Will this be the case going forward? Definitely not, so that leads us to thinking about an evolved cash management framework that we call cash tiering."

Leach talked about a 3-tiered system for cash management framework based on their expectations for rates and the increase in options available to investors. Tier 1 includes traditional stable NAV money market funds and bank deposits with the sole focus on principal preservation and liquidity. Tier 2 is reserved for short duration products that offer enhanced returns to cash liquidity, perhaps enhanced cash funds or the like. The 3rd tier might consist of products with a longer duration where the idea is to grow the balance as opposed to simply protecting on the downside, said Leach. This might include ultra short bond funds.

Fitch's Fayvilevich talked about how MMF reforms may impact the industry. "The baseline expectation in the industry is that some money will flow out of institutional prime," he said. Based on surveys of money fund investors and corporate treasurers, there's an expectation that some will stop using or reduce their usage of prime institutional money funds. Estimates of the outflows vary quite widely, anywhere from 10% to more than 50%, he said. "It's not clear how much money will leave prime institutional funds; we will probably get a little more clarity as we get closer to 2016. So far, we haven't seen any movement in cash, in fact, since the SEC released the rules, institutional prime funds have gained a little bit of assets."

Where will the money flow? "The answer is not that simple because many of the liquidity products that could serve as alternatives to prime funds are also in a bit of flux because of regulatory changes and market forces. Perhaps the most natural alternative to prime (institutional) money funds is government money funds, which are going to maintain their stable NAV and are exempt from fees and gates." However, there is an issue of the amount of inflows these funds can handle before becoming a more difficult to manage, he added.

In recent months, he has seen a few managers launch ultra short term bond funds. A couple of managers are also looking at private MMFs, he added, but nothing has really gained a lot of traction yet. Other products that could gain traction, added Merritt, are FDIC-insured structured deposits and money funds that operate with a WAM of 60 days or less, although the latter would not make sense in this current low-yield environment, but might make more sense as yields increase.

Merritt concluded, "Corporate treasures and cash managers are facing a dramatically shifting landscape so we think, with that concept in mind, it's now more than ever important that you take a very proactive, strategic examination of your investment guidelines.... and make sure they are appropriately updated [to reflect changes in the regulatory environment]. Stale policies lead to missed opportunities."

In other news, effective October 22, investment management of all ("offshore" or European-based) Ignis Liquidity Funds transferred to Standard Life Investments, with full migration to the Standard Life Investments platform expected by the end of 2014. There will be no change to the management style (or name) of the Ignis Liquidity Funds, company officials told us. Standard Life Investments completed its acquisition of Ignis Asset Management on July 1. The acquisition increases total cash managed within Standard Life Investments to L36.2 billion. Gordon Lowson, Head of Money Market and Foreign Exchange at Standard Life Investments, will assume responsibility for the Ignis Liquidity Funds.

Finally, a release entitled, "Fitch Withdraws Virtus Insight Money Market Fund's 'AAAmmf' Rating" says the firm withdrew its 'AAAmmf' rating on prime money market fund Virtus Insight Money Market Fund due to the fund's planned liquidation. Virtus Insight Money Market Fund was managed by BMO Asset Management. "The fund redeemed all of its shareholders' assets at a net asset value per share of $1.00 on Oct. 20, 2014." For more on the Virtus liquidation and recent mergers and acquisitions in the money market space, see our article "Rates, Reforms Driving Money Fund Consolidation, Changes" in the October issue of Money Fund Intelligence.

Crane Data has released the preliminary agenda for its fifth annual Money Fund University conference, which will be held at The Stamford Marriott in Stamford, CT, January 22-23, 2015. 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. But the event also focuses on hot topics like money market reforms and other recent industry trends. The conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. MFU offers attendees an affordable ($500) and comprehensive one and a half day, "basic training" course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, money market instruments such as commercial paper, CDs and repo, plus portfolio construction and credit analysis. At our Stamford event, we will also take a deep dive into the SEC's new money market reforms, with several sessions on the topic.

The morning of Day One of the 2015 MFU agenda includes: History & Current State of Money Market Mutual Funds with Peter Crane, President & Publisher, Crane Data; The Federal Reserve & Money Markets with Brian Smedley, U.S. rates, Bank of America Merrill Lynch; Interest Rate Basics & Money Fund Math with Phil Giles, Adjunct Professor, Columbia University; and, Ratings, Monitoring & Performance with Greg Fayvilevich, Director, Fitch Ratings and Barry Weiss, Director, Standard & Poor's Ratings Services, and Crane Data's Peter Crane.

Day One's afternoon agenda includes: Instruments of the Money Markets Intro with Alex Roever, Managing Director, J.P. Morgan Securities; Repurchase Agreements with Alex Roever and Shaina Negron, Associate, J.P. Morgan Securities; Treasuries & Govt Agencies with Sue Hill, Senior Portfolio Manager, Federated Investors; Commercial Paper & ABCP with Rob Crowe, Director, Citi Global Markets and Jean-Luc Sinniger, Director, Money Markets, Citi Global Markets; CDs, TDs & Bank Debt with Garrett Sloan, Fixed Income Strategist, Wells Fargo Securities and Marian Trano, senior Vice President and Treasurer, Bank Hapoalim; Instruments of the Money Markets: Tax-Exempt Securities, VRDNs, TOBs & Muni Bonds (Speaker TBD); and, Credit Analysis & Portfolio Management with Adam Ackermann, VP & Portfolio Manager, J.P. Morgan Asset Management.

Day Two's agenda includes: Money Fund Regulations: 2a-7 Basics & History with John Hunt, Partner, Nutter, McClennan & Fish LLP and Joan Swirsky, Of Counsel, Stradley Ronon; Regulations II: New MMF Reforms with Stephen Keen, Partner, Reed Smith and Jack Murphy, Partner, Dechert LLP; Regulations III: More Reforms, Hot Topics with Steven Keen and Jack Murphy; and Money Fund Data and Wisdom Demo with Peter Crane. The conference ends with its annual MFU "Graduation" ceremony (where diplomas are given to attendees).

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, $4K, and $5K. A block of rooms has been reserved at the Stamford Marriott. The conference negotiated rate of $159 plus tax is available through December 20th.

We'd like to thank our MFU sponsors -- G.X. Clarke & Co., Fitch Ratings, Fidelity Investments, Dreyfus/BNY Mellon CIS, J.P. Morgan Asset Management, Invesco, BofA Global Capital, Standard & Poor's Ratings Services, and State Street -- for their support, and we look forward to seeing you in Stamford 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 to publish the preliminary agenda for its big show, Money Fund Symposium, which will be held June 24-26, 2015, at the Minneapolis Hilton in Minneapolis, Minn. Finally, we're also making preparations for our 3rd European Money Fund Symposium. Our "offshore" money fund event is tentatively scheduled for Sept. 17-18, 2015, in Dublin, Ireland. Let us know if you'd like more information on any of our upcoming conferences, and watch for more information in coming weeks.

In 2012, the New York Fed released a report on Tri Party Repo Reform to address potential systemic risk concerns associated with the infrastructure supporting the tri-party repo market. The roadmap to reform's goals were to substantially reduce the amount of intraday liquidity needed to facilitate settlement, and foster improvements in market participants' liquidity and credit risk management practices. In a new post on its Liberty Street Economics blog entitled, "Don't Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts," the NY Fed gives a status update on reforms and explains "cash investors' role in the settlement process, and highlight how their current practice of sending principal payments late in the day disrupts the timely settlement of tri-party repo contracts." The piece was written by Adam Copeland, research officer in the NY Fed's Research and Statistics Group, and Ira Selig, senior associate in the Financial Institutions Supervisory Group.

To reduce the amount of intraday liquidity, the New York Fed's Tri-Party Repo Infrastructure Task Force called for changing the settlement process so as to end the "unwind" for non-maturing trades and allowing trades to roll without a need for intraday credit. Further, the "unwind" was moved to 3:30 p.m., with the end-of-day settlement process kicked off shortly thereafter. They write, "Before the recent reforms, all outstanding tri-party repo contracts were unwound at 8:30 a.m. -- with cash returning to the lender and collateral to the dealer. The end-of-day settlement process was run at approximately 6 p.m., settling all outstanding and new contracts. Because dealers are highly levered, they required intraday liquidity between the maturation or "unwind" of tri-party repo contracts in the morning and the end-of-day settlement."

The blog continues, "Tri-party repo contracts are settled on the books of the two clearing banks -- JPMorgan Chase and Bank of New York Mellon. The clearing banks provided unlimited intraday credit to dealers to enable the "unwind" on a discretionary basis. Given the very sizable securities positions that the larger dealers financed using tri-party repo, the clearing banks extended enormous amounts of intraday credit, both in terms of absolute dollars and relative to their respective capital bases. Such actions raised the risk that a clearing bank would not be able to absorb the impact of a failing dealer and so would itself be destabilized, leading to the interruption of a number of financial services provided to other clients (with potentially disastrous results)."

To date, significant progress has been made meeting the Task Force's intraday credit recommendations. "The amount of intraday credit extended by the clearing banks to dealers has fallen from 100 percent of tri-party repo volume to below the Task Force's recommendation of 10 percent. An essential element of the Task Force's roadmap was the requirement that the intraday credit the clearing banks choose to provide to dealers be on a capped and committed basis. The size and terms of each dealer's credit line would be negotiated between the dealer and the clearing bank, subject to a cap of no more than 10 percent of a dealer's total tri-party repo book. Initial indications from market participants suggest that these lines may currently be below the 10 percent threshold."

JPMorgan Chase transitioned to capped and committed intraday credit in March 2014. The Bank of New York Mellon recently announced that it will operate its tri-party repo settlement process with only capped and committed intraday credit by the end of the first quarter of 2015, stated the article. It says, "In addition to committed credit provided by the clearing banks, dealers may source intraday credit from an affiliated company, or from a third party. Using the available sources of intraday credit, dealers will need to ensure that they can provide enough liquidity to fund their maturing obligations by 3:30 p.m. If a dealer is sourcing this funding outside its clearing bank, it will be expected to pay back its liquidity provider upon the completion of the tri-party repo settlement window at 5:15 p.m. and all funds must be repaid prior to the close of the Fedwire Funds Service at 6 p.m. (Fedwire Funds is the main wholesale cash-payment settlement system used by financial institutions.)"

Cash investors are integral to the smooth settlement of tri-party repo contracts, they assert. "Just as dealers need to provide enough intraday liquidity to facilitate the unwind of maturing obligations at 3:30 p.m., clearing banks need to pay out maturities to investors, and investors need to send their cash payments to clearing banks shortly after 3:30 p.m. to ensure an efficient and timely settlement of tri-party repo contracts," the blog tells us.

The authors conclude that late arriving payments are disruptive, saying, "The timely arrival of incoming cash from investors, then, is an integral component of the settlement of tri-party repo contracts. Currently, much of the cash provided in new trades arrives quite late in the day. Using data from the clearing banks, we estimate that in the first half of 2014 only 13 percent of investors' incoming cash arrived at the clearing banks before 3:30 p.m. About 65 percent of investors' incoming cash arrived after 5 p.m. The late arrival of investors' incoming cash will disrupt and delay the settlement schedule of tri-party repo contracts. Settlement delays increase the risk of fails, and can create disruptions for a broader set of late-day payments activities in which the clearing banks are involved. Given the importance of tri-party repo as a source of funding for dealers and an investment tool for investors, market participants should work toward ensuring the earlier arrival of investors' incoming cash payments."

In other news, the estate of the bankrupt Lehman Brothers Holdings Inc. and JP Morgan and Co. continue their legal battle stemming from a financial crisis-era dispute related to tri-party repo, according to The Wall Street Journal. In the article, "Lehman Brothers, J.P. Morgan Lawsuit Over Repo Market Resumes, the Journal writes, "In a filing made late Wednesday with U.S. District Court in New York, lawyers for Lehman and its creditors said J.P. Morgan used its "life-or-death leverage" as Lehman's primary clearing bank to force Lehman into handing over virtually all of its remaining liquidity to "create an $8.6 billion slush fund." In its own filing Monday, J.P. Morgan's lawyers said the Lehman account was "a fable" and Lehman, following the holding company's bankruptcy, tricked it into believing it would be repaid some $70 billion advanced to keep Lehman's broker-dealer business afloat in the days surrounding Lehman's historic bankruptcy filing and the sale of the business to Barclays PLC."

The article continues, "The bank provided cash advances of up to $100 billion a day to Lehman to facilitate overnight repurchase, or repo, agreements.... Like other Wall Street broker-dealers, Lehman depended on the tri-party repo market to fund its business. In a typical tri-party repo, a bank like J.P. Morgan acts as the middleman between money-market funds lending cash and a broker-dealer like Lehman.... The dispute sheds some light on opaque repo markets, which financial firms use to lend one another trillions of dollars each day. That funding dried up in the uncertainty that followed Lehman's collapse, worsening a market panic and alerting regulators to the fact that repos could be a major financial-system vulnerability. Since then, the Federal Reserve and other regulators have moved to tighten the screws on repo activity. The Federal Reserve Bank of New York has pushed J.P. Morgan and Bank of New York Mellon Corp., the other main bank clearing tri-party repo trades, to reduce the same-day credit they provide. Separate Fed rules adopted since the crisis now force banks to ensure they have enough safe assets to convert to cash if they can't tap the repo markets for credit."

On Friday, we featured the major comment letters from money fund managers written in response to the SEC's proposal on the "Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification Requirement in the Money Market Fund Rule." (See Crane Data's Oct. 17 News, "Fund Cos. Have Concerns on SEC's Removal of Credit Ratings Proposal.") Today, we focus on comments from industry organizations like the Investment Company Institute and the Securities Industry and Financial Markets Association. The proposal, which is part of the SEC's money market reform package, would remove references to credit ratings of nationally recognized statistical rating organizations (NRSROs) from Rule 2a-7. Below are some excerpts with links to the full comment letters.

ICI Counsel Dorothy Donahue writes, "ICI shares the SEC's goal of "preserv[ing] a similar degree of risk limitation as in the current rule," while "allowing for gradations in credit quality among securities that meet a very high standard of credit quality ...." The SEC's reference to an "exceptionally strong" capacity to pay financial obligations, however, may not be the clearest means of conveying this intent. We understand that the SEC does not propose to refer to a "strong" capacity to repay obligations (as suggested in our previous comment letter) because at least one NRSRO uses "strong" to describe its second highest short-term rating category. Nevertheless, we believe that there are better modifiers than "exceptionally" to use in this context. "Exceptional" implies something unusual that might be read as not including a large number of money market securities of very high credit quality. Exceptional also is not commonly used with gradations; we do not frequently say something is more exceptional than another exceptional thing."

She explains, "The SEC requests comment on whether a finding that a security's issuer has a "very strong" capacity to meet its short-term financial obligations better reflects the current limitation in Rule 2a-7. We believe it does. Indeed, we believe that use of the terminology "very strong" might better convey a very high standard of credit quality, which may nevertheless be subject to gradations. Use of "very," rather than "exceptional," also would be consistent with the re-proposed credit standard for a security underlying a conditional demand feature. This would have the benefit of making clear that the risk of default for such an underlying security should be as low as the risk of default for eligible securities generally."

ICI's letter adds, "Indeed, we urge the SEC to use consistent terms to describe credit requirements throughout Rule 2a-7. The definition of "eligible security," for example, should refer to guarantors as well as issuers (as the case may be) and the "capacity for payment of" rather than "capacity to meet" financial obligations. Similarly, it would be better for paragraph (d)(2)(iv)(C) to refer to "financial obligations" rather than "financial commitments." Using consistent terms to describe the credit risks permitted by Rule 2a-7 will help to achieve a more consistent degree of risk in money market fund portfolios."

It tells us, "Finally, regardless of what modifier is used, we recommend that Rule 2a-7 expressly include a phrase that assessments of the credit quality of eligible securities may include sub-categories or gradations indicating relative standing. Rule 2a-7 currently uses this phrase in the definition of an NRSRO's rating category, which helps facilitate an understanding that grading the relative risks of two securities does not necessarily imply that they are not both of very high credit quality."

SIFMA, which represents banks, securities firms, and asset managers, had six main comments on the proposal. Timothy Cameron, managing director, SIFMA Asset Management Group, and John Maurello, managing director, SIFMA Private Client Group write, "The Commission should revise the proposed definition of "Eligible security" to eliminate the new phrase "which determination [of minimal credit risks] must include a finding that the security's issuer has an exceptionally strong capacity to meet its short-term financial obligations." The Commission should eliminate its cross-reference in the proposed Rule to commentary in the Release on the definition of "Eligible security" which conflicts with Section 939A of the Dodd-Frank Act."

The letter continues, "The Commission should clarify the expected frequency of review under the proposed requirement that the adviser provide ongoing review of whether each security (other than a government security) continues to present minimal credit risks. The Commission should reiterate in the adopting release that its commentary on minimal credit risk analysis provides a permissive, not mandatory, list of factors, and is not intended as an exhaustive list of factors required in a minimal credit risk determination. The Commission should eliminate the requirement to report on Form N-MFP ratings assigned to each security. The Commission should retain in Rule 2a-7 the exception from issuer diversification testing for securities with a guarantee from a non-controlled person of the issuer."

James Allen and Matt Orsagh of the CFA Institute, write, "We recognize that breaking money market funds' ties to a $1 NAV may lead some to seek competitive advantage by boosting yields through the acquisition of higher-risk instruments. However, such strategies are not strictly limited to variable NAV funds, as stable NAV funds adopted strategies to boost their yields prior to 2008, both by buying instruments with higher-risk characteristics and by extending average portfolio maturities with longer-dated instruments. Statutory and regulatory mandates to rely upon credit ratings enabled money market and other funds to look to those ratings as a proxy for credit quality without having to conduct their own due diligence. Removing the mandated use of these ratings will make funds and their directors more accountable for poor due diligence."

Micah Hauptman of the Consumer Federation of America laid out "the most glaring deficiencies" of the rule. "The removal of references to credit ratings without replacing those ratings with any concrete criteria limiting the securities that funds can invest in makes it more likely that funds will continue to rely excessively on credit ratings; The subjective standard and expansive discretion that is provided to money fund directors and advisers to decide what constitutes an eligible security for investment makes it more likely that funds will invest in riskier securities; The provision of optional, rather than mandatory, factors for money fund directors and advisers to consider makes it more likely that there will be a wide range in the quality and breadth of credit analyses among money funds."

Kathryn Quirk, chair of the Committee on Investment Management Regulation for the New York City Bar, states, "We express our hope for further clarity through the inclusion of an objective legal standard in the Proposed Amendments to Rule 2a-7 with respect to the assignment of responsibilities for "ongoing monitoring" or "ongoing review" of a money market fund's portfolio securities to determine that such securities continue to present "minimal credit risk," including the proposed requirements with respect to the maintenance of written records of such determinations."

Finally, Richard Johns with the Structured Finance Industry Group comments that the proposal would particularly affect asset-backed commercial paper. "We therefore respectfully suggest that an obligor of an asset-backed security only be treated as an issuer of that security if its obligations constitute 20 percent of the obligations of that security rather than applying the "10 percent obligor" provisions under Section (d)(3)(B) of the Rule."

The Investment Company Institute released its latest "Money Market Fund Holdings" report, which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds (as of Sept. 30, 2014). ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 25.4% as of September 30, 2014, down from 26.1% on August 31. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 21.4% (vs. 21.9% last month) and "Other treasury securities," which added 4.0% (down from 4.2% last month). Prime funds' Weekly liquid assets totaled 37.3% (vs. 39.2% last month), which was made up of "All securities maturing within 5 days" (31.5% vs. 32.4% in August), Other treasury securities (4.0% vs. 4.1% in August), and Other agency securities (1.9% vs. 2.7% a month ago). (See our previous Oct. 10 News, "October Money Fund Portfolio Holdings Show Spike in Fed Repo, T-Bills".)

Government Money Market Funds' Daily liquid assets total 63.7% as of September 30 vs 60.6% in August. All securities maturing within 1 day totaled 27.4% vs. 29.0% last month. Other treasury securities added 36.3% (vs. 31.6% in August). Weekly liquid assets totaled 81.3% (vs. 80.6%), which was comprised of All securities maturing within 5 days (37.1% vs. 41.2%), Other treasury securities (33.7% vs. 29.5%), and Other agency securities (10.5% vs. 9.9%).

ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 48.5% in the Americas (vs. 42.0% last month), 20.4% in Asia Pacific (vs. 19.6%), 30.7% in Europe (vs. 38.2%), and 0.3% in Other and Supranational (down from 0.2% last month). Government Money Market Funds held 91.1% in the Americas (vs. 83.9% last month), 0.4% in Asia Pacific (vs. 0.7%), 8.4% in Europe (vs. 15.4%), and 0.1% in Supranational (vs. 0.1%).

The table, "Prime and Government Money Market Funds' WAMs and WALs," shows Prime MMF WAMs at 46 days as of Sept. 30 vs. 45 days in August. WALs were at 78 days, up from 77 last month. Government MMF WAMs were at 44 days, same as last month, while WALs dropped to 72 days from 73 days. ICI's release explains, "Each month, ICI reports numbers based on the Securities and Exchange Commission's Form N-MFP data, which many fund sponsors provide directly to the Institute. ICI's data report for September covers funds holding 94 percent of taxable money market fund assets." Note: ICI doesn't publish individual fund holdings.

In related news, JP Morgan Securities' released its September "Prime Money Market Fund Holdings Update." Strategists Alex Roever, Teresa Ho, and John Iborg write, "MMFs used 95.6% of Fed ON RRP at quarter-end. Over the course of 2014, scarcity of assets has led MMFs to be active participants in the Fed’s ON RRP program. This asset scarcity is particularly acute at quarter-ends. On 9/30, FRBNY reported that aggregate demand for the ON RRP reached $407bn, well in excess of the $300bn program cap. The excess demand pushed the overnight RRP rate down to 0bp. While we do not know how much of the $407bn bid is attributable to MMFs, month-end holdings reports indicate MMFs held about $287bn of the $300bn awarded. Of this $287bn, about $131bn was held by 45 prime funds and $156bn was held by 30 government funds."

They add, "Time deposits and repo holdings plummeted at quarter-end. The strong quarter-end demand for the Fed's ON RRP is a reflection of the decline in availability of other overnight assets at quarter-end. This is a trend that has grown more prominent over the past few quarters as many international banks, and their securities dealing affiliates, are preparing to comply with and disclose their Basel III leverage ratio and LCR in 2015. Our analysis of MMF month-end holdings demonstrate a growing tendency for quarter-end repo and time deposit balances to be substantially less than holdings at end of the prior two-months."

Roever, Ho and Iborg continued, "For MMFs, the supply trend is not their friend. Aside from this quarter-end effect, bank regulations are generally having an impact on the availability of assets for MMFs, although the effects are less visible. Our analysis of prime MMF holdings indicate the outstanding amount of Eurozone bank debt has declined about 20% YTD, as have ABCP outstandings. Changing regulations have had a significant impact on both of these, as well as on the amount of financial corporate CP and municipal money market debt outstanding. Aside from the regulatory environment, the declining availability of short-maturity treasury and agency debt is starting to have an impact on fund liquidity. In the months ahead, prime money funds may find it more challenging to source sufficient short-term assets to meet SEC mandated liquidity requirements."

They concluded, "Looking ahead, though quarter-end has passed, the demand for longer-term assets is unlikely to subside. While overnight supply has rebounded some, investors are also aware that year-end is right around the corner. This is a time when liquidity is usually at its lowest across the curve. Tack on the newly imposed cap on the Fed ON RRP facility which limits investors' use of it as a source of backstop supply, prime MMFs are likely positioning ahead of this event earlier than usual by terming out their maturities into 2015."

A host of letters were submitted on the SEC's proposal on the "Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification Requirement in the Money Market Fund Rule" right at the October 14 comment period deadline. Many of these letters have now been posted, and most of the largest managers in the money market space, including Fidelity, Vanguard, BlackRock, Dreyfus, Invesco, and Schwab, expressed some concerns on the proposed changes as part of MMF reforms. Currently, to ensure that these funds are invested in high quality short-term securities, Rule 2a-7 requires that money market funds invest only in securities that have received one of the two highest short-term ratings ("first tier" or "second tier"). The SEC's re-proposed amendments would eliminate the credit ratings requirements for money market funds. Instead, a fund could invest in a security only if the fund's board of directors (or its delegate) determines that it presents minimal credit risks, and that determination would require the board of directors to find that the security's issuer has an exceptionally strong capacity to meet its short-term obligations. (See our Aug. 5 News, "SEC Proposal to Remove Credit Ratings Eliminates First, Second Tier".)

Fidelity supported many of the provisions, but recommended some changes. Writes Scott Goebel, senior vice president, general counsel at Fidelity, "Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act directs the Commission to review and identify any of its regulations that require an assessment of a security's credit-worthiness, to remove any references to credit ratings therein, and to substitute in their place a standard of credit-worthiness that the Commission deems appropriate. The Commission initially proposed amendments related to the removal of references to credit ratings in March 2011 (the "2011 Proposal"). In the Release, the Commission re-proposes such amendments and adds a proposed amendment related to the issuer diversification provision in Rule 2a-7."

Goebel then summarized Fidelity's stance on the proposed rules. "Fidelity supports removing credit rating references and eliminating the two-tier structure to credit-worthiness. We support the section of the Proposed Rules regarding monitoring minimal credit risk of MMF portfolio securities. With respect to credit quality of eligible securities, we believe that minimal credit risk is the appropriate standard and that adding additional words provides no benefit to investors. Regarding the proposed change to issuer diversification requirements, Fidelity urges the SEC not to implement any amendments to tax-exempt MMF diversification requirements."

BlackRock also shared its views in a comment. "BlackRock appreciates the Commission's permitting the continued use of credit ratings in a fund manager's minimum credit risk determination, but we believe that the Commission should explicitly recognize the use of NRSRO credit ratings as a benchmark in a fund manager's minimal credit risk analysis," write Richard Hoerner and Barbara Novick. "BlackRock recognizes the challenges faced by the Commission in removing references to NRSRO ratings in the definition of eligible security under Rule 2a-7 of the Act. BlackRock supports the Commission's proposed definition of eligible security as one that would be a security that, along with meeting certain maturity requirements, the fund's board of directors (or its delegate) "determines presents minimal credit risks, which determination includes a finding that the security's issuer has an exceptionally strong capacity to meet its short-term obligations.""

They add, "Furthermore, BlackRock applauds the Commission for recognizing that "[i]n determining whether a security presents minimal credit risk, a fund adviser could take into account credit quality determinations prepared by outside sources, including NRSRO ratings, that the adviser considers are reliable in assessing credit risk." BlackRock appreciates the Commission's continued acknowledgement of the value of NRSRO credit ratings, but we think that the Commission should go further by including NRSRO credit ratings as a benchmark in its guidance around the minimal credit risk analysis."

In his letter, Gregory Davis, global head of fixed income at Vanguard, said certain aspects of the proposal miss the mark. "As Vanguard has stated previously, we believe that credit ratings provide a valuable, independently established baseline for money market fund investments. The Dodd-Frank Act requires the Commission to replace credit ratings with "to the extent feasible, uniform standards of credit-worthiness." We believe the Commission's proposed credit standard may not adequately replace this baseline and, therefore, fails to achieve the stated goal of Congress. The replacement of the minimum, objective floor for eligibility under Rule 2a-7 with a subjective standard has the potential to create different standards of credit-worthiness."

Vanguard writes, "As a result, we urge the Commission to consider other alternatives, such as the one set forth in this letter, that may more effectively replace the objective standard provided by credit ratings and achieve Congress’s goal of uniformity. Vanguard proposes that the Commission combine the "eligible securities" standard with the "first tier" standard to create one high credit quality standard for all money market securities. The Commission should indicate that only those securities that would currently be assigned ratings in the highest short-term category (allowing for gradations or sub-categories within that category) by a nationally recognized statistical rating organization ("NRSRO") would generally be expected to fall within this band."

Charlie Cardona, president at Dreyfus Corp., comments "[T]he negative impact on money market funds far outweighs any diversification benefits that might arise from adopting this Proposal. Accordingly, we believe the Commission should not adopt this Proposal <b:>." On the definition of "eligible security," he writes, "The Proposal would revise the definition of "Eligible Security" by specifying that the minimal credit risk determination "must include a finding that the security's issuer has an exceptionally strong capacity to meet its short-term financial obligations".... This compares with the Commission's proposals in 2011, which would have defined an Eligible Security by the minimal credit risk determination and substitute subjective standards of credit quality (that sought to correspond with related NRSRO ratings descriptors) for the definitions of "First Tier" and "Second Tier" under the Rule. `We opposed this approach in 2011, mainly because of the subjectivity required.... Our views have evolved to where we believe that the minimal credit risk determination, by itself, should be relied on rather than any substitute standard of creditworthiness that is based on making subjective findings. We believe it is the most appropriate approach to take, providing flexibility and a standard that managers have applied for years, uncluttered with a subjectivity that creates conflict for funds and their boards and managers."

Schwab had some concerns as well. David Lekich, senior vice president and chief counsel, Charles Schwab Investment Management, writes, "Overall, Schwab supports the Proposed Amendments as we generally believe the Commission has struck the proper balance between not requiring entities to rely on ratings from NRSROs while at the same time allowing for their consideration when determining the credit-worthiness of securities being considered for 2a-7 fund portfolios. Furthermore, we generally support provisions of the Proposed Amendments that allow for the disclosure of NRSRO credit ratings in Form N-MFP, as we believe such disclosures will be useful to Commission staff, as well as to certain investors, in monitoring credit risk. Despite Schwab's overall support for the Proposed Amendments, we continue to have some concerns about the proposal, as well as some recommendations for improving it, including: The lack of an independent floor, provided under current law by NRSRO ratings, fails to ensure some uniformity of the evaluation of credit risk across money market funds, which could potentially cause certain funds to present significantly greater risks to investors than others."

Finally, Lu Ann Katz, head of global liquidity at Invesco, backed much of the proposal, with one notable exception. "As a leading MMF sponsor, Invesco is committed to working with the Commission to strengthen money market fund shareholder protections. Invesco values the Commission's efforts to implement the Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd Frank Act") mandate to modify regulations that reference or require reliance on credit ratings and supplant the reference with a creditworthiness standard deemed appropriate by the Commission. We also appreciate the Commission's consideration of comments received on its March 2011 proposal on credit rating references and broader money market reform efforts. After a diligent analysis of the proposal, Invesco generally supports the Commission's July 2014 proposal and offers the following commentary regarding the proposed definition of "eligible security.""

She continues, "We agree with the Commission regarding the revised definition of eligible security and the single standard, thereby combining the first-tier and second-tier categories and requiring minimal credit risk standards that are confirmed by a MMF's board of directors. However, this analysis of whether a security has an exceptionally strong capacity to meet short-term obligations may result in different advisers assessing the same security differently since the standard has embedded ambiguity."

U.K.-based corporate treasurers have been hoarding increasing amounts of cash since the financial crisis, according to a survey, "Corporate Cash and Liquid Investments," released by the London-based Association of Corporate Treasurers. In the U.K., private non-financials companies hold about L500 billion in cash compared to about $2 trillion in the US, and E2 trillion in the Eurozone. In all three regions, cash holdings have a little more than doubled since 2000. In the US, UK, and throughout most of Europe, cash holdings represent about 20% of market capitalization. Why? The report says, "Risk and concerns about access to finance clearly increase during a financial crisis. That UK corporate cash has increased by about 25% since Q1 2008 is, then, little surprise. The crisis has emphasized to companies that banks may not be willing (or able) to lend just when the company needs it -- or at all. And, of course, availability of market based finance (from bonds, for example) can never be assumed, depending as it does on investor demand." (Note: For more on recent corporate cash surveys, see our Sept. 25 News, "GT News Survey Reveals Corporate Treasurers Attitudes on Cash Mgmt" and our July 15 News "AFP Liquidity Survey: Corps Hold More Cash, Concern Over MMF Reform." Note too that the Association for Financial Professionals, or AFP will hold its 2014 Annual Meeting Nov. 2-5 in Washington.)

ACT says, "In recent years company boards have also adopted a more cautious approach toward financial risk resulting in heightened exposure on the boardroom agenda. Caution in investment may have been a small factor in corporate cash accumulation but precautionary holdings -- "fund early and fund long" -- seem to have been the more important factor. Standard and Poor's found "little sign of corporate under investment" among European corporates it rates earlier this year."

The survey polled just over 100 corporate treasurers, almost all of whom were based in the UK, from companies cutting across a range of sectors and sizes. The largest percentage, 27%, held between L100 million and L500 million in cash, while 25% held between L2.5M and L100M. About 18% held between L500M and L1 billion. Roughly 65% said "very little" of their cash was trapped overseas, while 20% said one-quarter of it was. Further, 18% of companies held more than 20% of their assets in cash, while 12% held between 15%-20% and 9% held 10%-15%. Also, 18% held 5%-10%, 11% held 2%-5%, and 22% held less than 2%.

Why were treasurers holding so much cash? The answers were multiple, but most (75%), said "pre-funding, taking advantage of availability/low rates." Also, 67% said "certainty of funding for long-term projects," 65% said "improved working capital efficiency," 63% said "funding earlier and longer given reduced willingness/ability of banks to fund," 57% said "regulatory environment," 55% said "lumpy funding in bond markets," 55% said "slowed capex, M&A released cash," 52% said "working capital decline with downturn," and 40% said "hedge against deflation."

How will they use cash balances? "A clear majority, 72%, said that their business plans were actually for utilizing the cash, 18% saying they will run down balances aggressively -- returning funds to shareholders, not replacing maturing debt, etc. The majority (54%) did not specify. "However, 43% planned to hold more cash than in the past. Of that 43%, 16% now have a formal policy for holding more cash and a further 12% are doing so pragmatically for flexibility in view of both the doubtful ability of banks to lend when required and that debt markets are not always available."

What might lead treasurers to reduce cash? About 41% said "higher borrowing costs," 33% said "greater access to committed borrowing facilities," 23% said "sustained low or negative interest rates," 22% said "Increased concern over finding credit worthy cash investments," and 17% said "reduced economic uncertainty." Conversely, the reasons for holding more cash were flipped as 53% said "Increased political and economic uncertainty" and 39% said "continuing regulation of banks reducing their capacity to lend." Also, 16% said "likelihood of interest rates rising," and 15% said "lower borrowing costs."

They add, "Of course companies face a cost of carry of cash. Their average or marginal cost of capital is certainly higher than the minimal returns on cash as an investment. The return in current conditions is in the perceived risk reductions or avoidance. We did not ask a question about that – but it is a significant factor, often coming up in ACT events and discussion of cash policy, and a major constraint on increasing cash." Also, the survey asked, "Which of the following have you begun to factor into your planning?" Most (60%) said "diversifying away from bank credit exposure as a class into sovereigns, non-bank commercial paper, money market funds, other, etc."

In other news, the New York Fed's Liberty Street Economics blog <i:http://libertystreeteconomics.newyorkfed.org/2014/10/how-do-liquidity-conditions-affect-us-bank-lending.html#.VD7KiMJ0yiM>`_wrote a post Wednesday on, "`How Do Liquidity Conditions Affect U.S. Bank Lending?" It says, "The recent financial crisis underscored the importance of understanding how liquidity conditions for banks (or other financial institutions) influence the banks' lending to domestic and foreign customers. Our recent research examines the domestic and international lending responses to liquidity risks across different types of large U.S. banks before, during, and after the global financial crisis."

It explains, "The analysis compares large global U.S. banks -- that is, those that have offices in foreign countries and are able to move liquidity from affiliates across borders -- with large domestic U.S. banks, which have to rely on financing raised in capital markets and from depositors to extend credit and issue loans. One key result of our study ... is that the internal liquidity management by global banks has, on average, mitigated the effects of aggregate liquidity shocks on domestic lending by these banks <b:>`_."

Money fund regulations continue to dominate the headlines in Europe as regulators and lawmakers prepare to act on a reform proposal introduced last September by the EU Commission. In recent weeks, there's been some momentum against the 3% capital buffer proposal as we wrote about in our Oct. 2 "News" piece, "European Regulators Shift Reform Focus Away from Buffer". Yesterday, Reuters in "EU looks to U.S. for solution to stalemate in reform of money market funds" reported that EU officials are looking to U.S. reforms to help them develop new rules for the $1.3 trillion European money market industry, but they haven't ruled out a buffer just yet.

While there are some similarities between the new US and the European proposal, there are some key differences. Asset management law firm Dechert took an in depth look at the proposed European regulations in a piece in the most recent issue of Dechert OnPoint called "Money Market Funds - Focus Shifts to Europe." "The prospects for sensible MMF reforms in Europe may be brighter as a result of the U.S. MMF reforms and recent changes to the European political landscape," wrote authors Jack Murphy, Declan O'Sullivan, and Stephen Cohen. (Note: Murphy will be speaking on regulations at Crane's Money Fund University, which will take place Jan. 22-23, 2015 in Stamford, Conn.)

Dechert writes, "While U.S. MMF managers and boards continue to digest the fine print of the SEC release, attention now turns to Europe. As the MMF industry is a global industry, the finalization of the U.S. MMF reforms will, undoubtedly, be expected to have a significant influence on the final regulatory outcome in Europe. However, the following comments of SEC Commissioner Daniel Gallagher on the impact of the reforms are worth noting: 'Given the level of chatter about this rulemaking in the EU, IOSCO, and the FSB, there will be international reactions to today's rule amendments. It will be up to local authorities to determine whether reforms are needed in their markets, and I caution policymakers abroad to recognize that our reforms reflect the unique features of the U.S. money fund marketplace. In this era of increasingly brazen attempts at reckless, unprecedented "one world" financial regulation, it is crucial to acknowledge that one size does not fit all for money fund reform.'"

The piece adds, "While the U.S. reforms provide for the continuation of a stable, or -- as referred to in Europe -- a constant NAV ("CNAV") for retail MMFs, most European MMFs would not qualify under that definition. In fact, the market for MMFs in Europe is almost entirely institutional. Accordingly, not much comfort can be taken from the preservation of CNAV MMFs for retail MMFs in the U.S."

The article goes on to detail how we got here. "The European Commission published a "Proposal for a Regulation of the European Parliament and of the Council on Money Market Funds" ("Commission Proposal") in September 2013. The Commission Proposal stated that only MMFs that establish and at all times maintain a capital buffer of 3% of NAV may be constituted as CNAV MMFs. If this requirement cannot be met, the MMF would be required to be constituted as a variable NAV MMF. The Commission Proposal was to have been brought to the Economic and Monetary Affairs Committee of the European Parliament ("ECON") in March of this year, but there was not sufficient consensus at the ECON table to bring the matter to a vote of the Parliament as a whole."

Dechert adds, "In the words of Gay Mitchell, an Irish Member of the European Parliament ("MEP") for Dublin, "There has been very little effort to meet the genuine concerns about CNAVs. The majority feel we should leave it to the new Parliament to give it timely consideration. Rushed legislation will be bad legislation." The delay also gave legislators the opportunity to consider the U.S. MMF amendments."

And here's where we are. "With the can having been kicked down the road by the previous Parliament, the baton of European MMF reform has now been taken up by the new Parliament and Commission along with the rotating presidency of the EU Council. While the Commission Proposal is still the only proposal formally on the European table, there are indications that some of the key players within the regulatory firmament of European politics may be more disposed to accept genuine industry concerns. At the European Commission, new Commission President, Jean-Claude Juncker, is a former Luxembourg Prime Minister.... Also, while UK nominee Lord Jonathan Hill still has a few hurdles to jump in the approval process, it is likely that he will be appointed as Financial Services Commissioner. It is expected that a commissioner from the UK would be more sympathetic to European funds industry concerns."

Further, "At the level of the ECON, the rapporteur for money market fund reform is Neena Gill, a UK Labour/Socialist MEP who has stated that she will seek "to ensure there is a format there that enables these funds [MMFs] to continue to exist." She further noted that she does "not think that it is a job of the Parliament to define what sort of investments you have or not." She is proposing a roundtable in November to discuss potential solutions, with a vote likely in January. The shadow rapporteur is a new MEP for Dublin, Brian Hayes. While the Irish Government supports the regulatory imperative to better regulate shadow banking, it does not support the capital buffer proposal, which Irish Financial Services Minister Simon Harris believes will "damage the industry [in Ireland], but also throughout the EU, and could lead to a outflow of investment from Europe."

They ask, What are the options? "It is incumbent upon the opponents of the capital buffer to bring something new to the table. The view of the industry -- as set out in Position Paper published by the Institutional Money Market Funds Association ("IMMFA") in response to the Commission Proposal -- is that the use of redemption gates and liquidity fees (a fundamental aspect of the U.S. reforms) is the "simplest and most effective mechanism by which to achieve" the objective "of better regulation of MMFs [which] is to prevent large scale runs from funds, which would likely amplify the risks to the banking system at a time of systematic disruption," says Dechert's piece.

Finally, Murphy, et. al, add, "In addition to the "fees and gates" proposal, other proposals being considered include a proposal for a MMF structure that is a compromise between a CNAV MMF (with penny rounding to two decimal places) and a variable NAV MMF -- a lower volatility NAV, which would allow for rounding to three decimal places. The MMF industry is facing into severe headwinds with the current ultra-low interest environment. It may be that while the forecast for ultra-low interest rate remains stable, the outlook with regard to MMF reform may appear a little brighter."

The Reuters article, "EU Looks to U.S. for Solution to Stalemate in Reform of Money Market Funds" reads, "European Union lawmakers will study new U.S. rules to help them to end a year-long deadlock over how to regulate the bloc's 1 trillion euro ($1.3 trillion) money market funds (MMF) sector. The stalemate is over whether to require funds to hold a capital buffer equivalent to 3 percent of assets on a type of MMF known as constant net asset value (CNAV), the share price of which stays at 1 euro regardless of fluctuations in the price of assets held. Neena Gill, a centre-left member of parliament who is sponsoring the bill, told its economic affairs committee on Monday the options she is considering to broker a deal. These include light tweaks to the draft, keeping the buffer, and possible limits on withdrawals during a crisis. She will also examine reform being introduced by the U.S. Securities and Exchange Commission (SEC). The third area I want to explore is a variation of the capital buffer, to sort of building a European version of the U.S. reform," Gill said."

The Reuters article continued, "The U.S. reform forces "prime" money funds sold to institutional investors to float their values, instead of letting them maintain a stable value at $1 a share. But in a partial victory for the industry, retail and government funds are exempt from the float requirement. The United States also approved "gates" to limit withdrawals in rocky markets for some funds. Gill's suggestion to look at the American rules was backed by the centre-right. "The SEC made a decision in July to reject the capital buffer proposal," said Brian Hayes, a lawmaker from Ireland. A buffer would make the EU less attractive internationally and is not workable, he said." Gill aims to put a deal to a committee vote in late February ahead of a full parliament ballot in March. A final deal would then be thrashed out with member states."

Finally, note that we have a correction to our October Money Fund Intelligence newsletter. In the article, "Rates, Reforms Driving Money Fund Consolidation, Changes," we stated that HSBC Treas Inv MMF had liquidated. But HSBC Investor US Treasury Money Market Fund continues to be open, and there are no plans to liquidate it. (A class of the fund had been liquidated but the fund overall remains open.) We apologize for the confusion.

Since rates on cash investments hit virtually zero six years ago, a growing chorus of advisors and managers have pushed investors to reach for yield and to explore enhanced cash and ultra-short bonds. UBS Advisors is the latest to jump on the bandwagon; the brokerage has started a campaign to push brokers towards enhanced cash and short-term alternatives. The idea, documented in a piece entitled, "Cash & Short-Term Alternatives," is to give financial advisors the opportunity to redeploy the assets sitting in cash as many advisers have maintained, or even grown, cash positions in recent years. According to a recent article in Investment News entitled, "Cash Holdings Finally Getting Some Respect", advisers have been increasing cash positions this year due to market uncertainty, many holding upwards of 20%, or more, in cash.

UBS's advice to brokers breaks possible alternatives into three levels -- Level I, "Fully Liquid, Lower Yield;" Level II, "High Liquidity, Moderate Yield;" Level III, "Moderately Liquid, Higher Yield." Level 1 includes "cash or cash equivalent investments that offer immediate liquidity, target a $1.00 per share NAV, are of the highest credit quality," with less than one year duration. UBS's cash product offerings include UBS Bank USA FDIC Insured Deposit Sweep, UBS Select Tax-Free Institutional Fund (STFXX), UBS Select Prime Institutional Fund (SELXX), UBS Select Treasury Institutional Fund (SETXX), UBS Select Prime Preferred Fund (SPPXX), UBS Select Tax-Free Preferred Fund (SFPXX), and UBS Select Treasury Preferred (STPXX). Their outside money fund offerings include: Dreyfus Cash Management (DICXX), Federated Prime Cash Obligations (PCOXX), Federated Prime Obligations (POIXX), and Federated Municipal Obligations (MOFXX).

Level II of UBS's "Short-Term Alternatives" are "investments with high liquidity, high quality, and lower price volatility than Level III. Investors at this level will give up fixed target price NAV and immediate liquidity of Level I investments to increase yield. Durations are typically less than 1 year. Investments include, UBS Global AM Ultra-Short Bond Strategy, UBS Global AM Ultra-Short Muni Bond Strat., UBS Corporate Cash Mgmt (customized service providing tailored liquidity), UBS AG NY-Private Bank Active Liquidity, Guggenheim Enhanced Short Duration Bond ETF (GSY), and PIMCO Enhanced Short Maturity Strategy Fund (MINT).

UBS's Level III products, "Moderately Liquid, Higher Yield," offer "moderate liquidity and greater price volatility than Levels I and II, and investment grade credit quality." They cover a broad range of securities and offer more competitive yields, yet greater price volatility compared to the other levels. Products include: UBS Global AM Short Duration Bond Strategy, UBS Global AM Short Duration Municipal Bond Strategy, UBS Corporate Cash Mgmt (customized service providing tailored liquidity), and UBS AG NY-Private Bank Short Dated Fixed Income. Other funds include: Franklin Adjustable U.S. Gov't Securities Fund (FAUZX), RidgeWorth U.S. Gov't Ultra-Short Bond Index (SIGVX), Federated Ultra-Short Bond Fund (FULIX), Wells Fargo Ultra-Short Muni (SMAIX), Calvert Ultra-Short Income Fund (CULYX), BlackRock (PPM) Short-Term Taxable Fixed Income & Short-Term Municipal SMAs (customized), Putnam Absolute Return 100 (PARYX), and Putnam Short-Duration Income Fund (PSDYX).

Short-term alternatives and ultra short bond funds have been garnering attention from investors in recent months. The Guggenheim Enhanced Short Duration ETF (GSY), which invests in ultra short bonds, has $717 million in assets under management, up $246 million year-to-date. The Wall Street Journal wrote in August, "[I]nvestors pumped nearly $2.5 billion in net new cash into ultra short bond mutual funds in the first half of 2014, boosting their assets to $64.45 billion, according to Chicago-based investment researcher Morningstar. That comes after net inflows of nearly $10.7 billion and $9.5 billion in 2013 and 2012, respectively. (See our August 11 "Link of the Day, "WSJ Warns on Ultra-​Short Bond Funds"."

The largest funds in the ultra-short bond space, as of September 30, include: PIMCO Short Term Bond Fund with $14.6 billion in assets, DFA One Year Fixed Income Fund with $8.5 billion, JP Morgan Managed Income Fund with $4.8 billion, Fidelity Conservative Income with $3.9 billion, and Federated Ultra Short Bond Fund with $3.3 billion. Note that the JP Morgan Managed Income Fund and Fidelity Conservative Income Fund are run with mandates closest to money market funds.

Money managers continue to launch new ultra short vehicles. In July, Invesco launched the Invesco Conservative Income Fund. According to the press release, "The fund's investment objective is to provide capital preservation and current income while maintaining liquidity, and will invest in a diversified portfolio of short duration, investment grade money market and other fixed-income securities. However, the fund is not a money market fund and its net asset value is expected to fluctuate."

"This fund can provide institutional and high-net-worth investors a compelling complement to their cash allocation with potentially lower interest rate risk exposure," commented Laurie Brignac, senior portfolio manager and co-head of Invesco's North America Global Liquidity management team. "Combining the strengths of Invesco Fixed Income's Global Liquidity team with the insight of the entire Invesco Fixed Income platform, the fund will use a top-down analysis of macroeconomic trends combined with a bottom-up fundamental analysis of market subsectors and individual issuers to continuously identify investable information advantages throughout a market cycle."

In September, Western Asset Management rolled out the Western Asset Short Term Yield Fund. As we wrote in our September 4 "Link of the Day, "Western Launches Short Term Yield"," the fund is "a short term bond fund that seeks to generate high current income while maintaining a low sensitivity to interest rate volatility. The fund will invest in U. S. dollar-denominated investment grade fixed income securities. The total portfolio duration is expected to be one year or less." The strategy "may be appropriate for investors seeking the potential for greater yield than cash equivalent securities while mitigating volatility via a low duration fixed income portfolio.""

Look for further coverage of the ultra short bond sector in the November issue of Money Fund Intelligence. Note: Crane Data is in the process of starting a collection of ultra-short bond fund, enhanced cash and separate account performance information. Contact Pete for more information or to trial the pending "beta" version of our new "Enhanced Cash Intelligence."

Crane Data released its October Money Fund Portfolio Holdings Thursday, and our latest collection of taxable money market securities, with data as of September 30, 2014, shows a jump in Repo, Treasury, and VRDNs, and a big drop in Other (Time Deposits) holdings. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) increased by $42.4 billion in September to $2.454 trillion. Portfolio assets increased by $28.2 billion in August, after decreasing by $6.2 billion in July, $18.0 billion in June, and $3.7 billion in May. Repos again became the largest portfolio composition segment among taxable money funds, surpassing CDs. Moving into third were Treasuries, jumping ahead of CP. These were followed by Agencies, Other (Time Deposits), and VRDNs. Money funds' European-affiliated holdings dropped sharply to 22.1% from 29.6% last month with the shift into Repo. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Repurchase agreement (repo) holdings increased by $84.4 billion to $596.6 billion, or 24.5% of fund assets, after rising $4.3 billion in August, dropping $83.6 billion in July, and climbing $76.1 billion in June. (Holdings of Federal Reserve Bank of New York Repo increased a whopping $153.3 billion to $287.3 billion.) Certificates of Deposit (CDs) were down 3.5% in September, decreasing $20.1 billion to $546.4, or 22.4% of holdings. Treasury holdings, the third largest segment, increased by $45.3 to $413.4 billion (17.0% of holdings). Commercial Paper (CP), the fourth largest segment, decreased by $9.1 billion to $368.4 billion (15.1% of holdings). Government Agency Debt was up $745 million. Agencies now total $344.8 billion (14.2% of assets). Other holdings, which include primarily Time Deposits, dropped sharply (down $64.3 billion) to $134.3 billion (5.5% of assets). VRDNs held by taxable funds increased by $5.4 billion to $30.7 billion (1.3% of assets).

Among Prime money funds, CDs still represent over one-third of holdings with 36.5% (down from 37.5% a month ago), followed by Commercial Paper (24.6%). The CP totals are primarily Financial Company CP (13.9% of holdings) with Asset-Backed CP making up 5.9% and Other CP (non-financial) making up 4.8%. Prime funds also hold 5.7% in Agencies (down from 6.3%), 3.8% in Treasury Debt (down from 3.9% last month), 3.3% in Other Instruments, and 5.4% in Other Notes. Prime money fund holdings tracked by Crane Data total $1.497 trillion (down slightly from $1.510), or 61.5% of taxable money fund holdings' total of $2.435 trillion.

Government fund portfolio assets totaled $443.0 billion in Sept., up from $435.7 billion last month, while Treasury money fund assets totaled $495.1 billion, up from $446.1 billion at the end of August. Government money fund portfolios were made up of 58.0% Agency Debt securities, 19.9% Government Agency Repo, 3.1% Treasury debt, and 18.4% in Treasury Repo. Treasury money funds were comprised of 69.4% Treasury debt, 29.6% Treasury Repo, and 1.0% made up of Government agency, repo and investment company shares.

European-affiliated holdings decreased $170.8 billion in September to $537.9 billion (among all taxable funds and including repos); their share of holdings is now 22.1%, the lowest level since the height of the European debt scare in August 2011. Eurozone-affiliated holdings also decreased (down $114.3 billion) to $289.4 billion in September; they now account for 11.9% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $9.2 billion to $300.6 billion (12.4% of the total), while Americas related holdings increased $202.1 billion to $1.594 trillion (65.5% of holdings).

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (up $104.9 billion to $367.3 billion, or 15.1% of assets), Government Agency Repurchase Agreements (down $22.3 billion to $143.7 billion, or 5.9% of total holdings), and Other Repurchase Agreements (up $1.8 billion to $85.7 billion, or 3.5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $17.7 billion to $208.0 billion, or 8.5% of assets), Asset Backed Commercial Paper (up $766 million to $88.5 billion, or 3.6%), and Other Commercial Paper (up $7.9 billion to $71.8 billion, or 3.0%).

The 20 largest Issuers to taxable money market funds as of Sept. 30, 2014, include: the US Treasury ($413.4 billion, or 17.0%), Federal Reserve Bank of New York ($287.3B, 11.8%), Federal Home Loan Bank ($214.2B, 8.8%), Bank of Tokyo-Mitsubishi UFJ Ltd ($61.1B, 2.5%), Bank of Nova Scotia ($56.8B, 2.3%), Wells Fargo ($56.7, 2.3%), BNP Paribas ($55.7B, 2.3%), RBC ($53.4B, 2.2%), JP Morgan ($50.1B, 2.1%), Federal Home Loan Mortgage Co ($48.4B, 2.0%), Citi ($47.7B, 2.0%), Sumitomo Mitsui Banking Co ($47.3B, 1.9%), Credit Agricole ($44.9B, 1.8%), Toronto-Dominion ($43.2B, 1.8%), Bank of America ($42.5B, 1.7%), Credit Suisse ($41.5B, 1.7%), Federal National Mortgage Association ($41.3B, 1.7%), Federal Farm Credit Bank ($38.1B, 1.6%), Mizuho Corporate Bank Ltd ($33.7B, 1.4%), and Bank of Montreal ($33.1B, 1.4%).

In the repo space, Federal Reserve Bank of New York's RPP program issuance (held by MMFs) increased its position as the largest program with a massive 48.1% of the repo market. The 10 largest Repo issuers (dealers) (with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($287.3B, 48.1%), Bank of America ($33.8B, 5.7%), BNP Paribas ($31.4B, 5.3%), Wells Fargo ($21.9B, 3.7%), RBC ($20.8B, 3.5%), Credit Suisse ($20.4B, 3.4%), Citi ($19.6B, 3.3%), Credit Agricole ($19.3B, 3.2%), JP Morgan ($18.5B, 3.1%), and Barclays ($17.2B, 2.9%).

Crane Data shows 55 funds (up from 51 last month) and 17 fund complexes participating in the NY Fed repo program with just 3 money funds holding over $7 billion (the previous cap). The largest Fed repo holders include: Western Asset Inst Lq Res ($13.4B), Goldman Sachs FS Trs Obl Inst ($10.3B), Fidelity Cash Reserves ($9.9B), Fidelity Inst MM MMkt ($9.5B), Dreyfus Tr&Ag Cash Mgmt Inst ($9.4B), BlackRock Lq T-Fund ($9.3B), BlackRock Lq TempFund ($9.2B), `JP Morgan Prime MM ($9.0B), JP Morgan US Govt ($9.0B), Fidelity Inst MM Prm ($7.4B), State Street Inst Lq Res ($7.0B), Northern Trust Trs MMkt ($7.0B), Wells Fargo Adv Trs Plus ($7.0B), Federated Trs Oblg ($6.6B), Goldman Sachs FS Gvt ($6.3B), Fidelity Instl MM Treasury Port ($6.2B), JP Morgan US Trs Plus ($6.1B), Dreyfus Govt Cash Mngt ($6.0B), Morgan Stanley Inst Liq Trs ($5.9B), Federated Gvt Oblg ($5.4B), Schwab Cash Reserves ($5.0B), Wells Fargo Adv Hrtg ($5.0B), Fidelity Inst MMkt Gvt ($5.0B), and Western Asset Inst Gvt ($5.0B).

The 10 largest CD issuers include: Bank of Tokyo-Mitsubishi UFJ Ltd ($41.9B, 7.7%), Sumitomo Mitsui Banking Co ($41.0B, 7.6%), Toronto-Dominion Bank ($37.6B, 6.9%), Bank of Nova Scotia ($35.4B, 6.5%), Bank of Montreal ($28.9B, 5.3%), Mizuho Corporate Bank Ltd ($26.8B, 4.9%), Wells Fargo ($25.4B, 4.7%), Rabobank ($22.9B, 4.2%), Natixis ($19.9B, 3.7%), and Citi ($18.2B, 3.4%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: JP Morgan ($23.7B, 7.8%), Commonwealth Bank of Australia ($15.9B, 5.2%), Westpac Banking Co ($15.8B, 5.2%), RBC ($12.5B, 4.1%), BNP Paribas ($11.2B, 3.7%), Toyota ($8.6B, 2.8%), HSBC ($8.5B, 2.8%), Australia & New Zealand Banking Group ($8.5B, 2.8%), DnB NOR Bank ASA ($8.3B, 2.7%), and ING Bank ($8.3B, 2.7%).

The 10 largest issuers of CDs, CP and Other securities (including Time Deposits and Notes) combined include: Bank of Tokyo-Mitsubishi UFJ Ltd ($52.7B, 5.7%), Sumitomo Mitsui Banking Co ($47.3B, 5.1%), Bank of Nova Scotia ($41.1B, 4.5%), Toronto-Dominion Bank ($38.1B, 4.1%), Wells Fargo ($34.8B, 3.8%), RBC ($32.6B, 3.5%), JPMorgan ($31.2B, 3.4%), Bank of Montreal ($30.7B, 3.3%), Skandinaviska Enskilda Banken AB ($29.8B, 3.2%), and Mizuho Corporate Bank Ltd ($29.2B, 3.2%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $153.3B to $287.3B), the US Treasury (up $45.3B to $413.4B), Federal Home Loan Bank (up $5.4B to $214.2B), Skandinaviska Enskilda Banken AB (up $3.8B to $30.5B), Bank of Montreal (up $3.7B to $33.1B), Bank of Tokyo-Mitsubishi UFJ Ltd (up $3.4B to $61.1B), Canadian Imperial Bank of Commerce (up $3.1B to $17.5B), Sumitomo Mitsui Trust Bank (up $2.8B to $17.8B), Mizuho Corporate Bank Ltd (up $2.4B to $33.7B), and Federal Farm Credit Bank (up $1.9B to $38.1B).

The largest decreases among Issuers of money market securities (including Repo) in August were shown by: Deutsche Bank AG (down $38.4B to $10.2B), DnB NOR Bank ASA (down $23.6B to $11.2B), Societe Generale (down $20.7B to $17.3B), Lloyds TSB Bank PLC (down $18.5B to $8.2B), Credit Agricole (down $13.6B to $44.9B), Barclays PLC (down $10.3B to $29.3B), BNP Paribas (down $7.1B to $55.7B), Federal National Mortgage Association (down $6.8B to $41.3B), Swedbank AB (down $6.5B to $18.2B), and Natixis (down $4.6B to $31.2B).

The United States remained the largest segment of country-affiliations; it represents 56.0% of holdings, or $1.364 trillion. France (6.9%, $169.0B) dropped from second to fourth place behind Canada (9.4%, $227.8B) and Japan (7.7%, $186.7B), which moved up to become the third largest country affiliated with money fund securities. Sweden (4.0%, $96.3B) moved into fifth place, followed by Australia (3.4%, $82.7B), the U.K. (3.4%, $81.8B), The Netherlands (2.8%, $68.5B), and Switzerland (2.4%, $58.8B). Germany (1.9%, $45.3B) dropped 10th place among country affiliations. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of September 30, 2014, Taxable money funds held 26.4% of their assets in securities maturing Overnight, and another 11.9% maturing in 2-7 days (38.3% total in 1-7 days). Another 20.9% matures in 8-30 days, while 22.9% matures in the 31-90 day period. The next bucket, 91-180 days, holds 14.3% of taxable securities, and just 3.6% matures beyond 180 days.

Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated Thursday, and our MFI International "offshore" Portfolio Holdings and Tax Exempt MF Holdings will be released next week. Visit our Content center to download files or visit our Portfolio Laboratory to access our "transparency" module. Contact us if you'd like to see a sample of our latest Portfolio Holdings Reports or our new Reports Issuer Module.

Crane Data published its latest Money Fund Intelligence Family & Global Rankings Wednesday, which ranks the asset totals and market share of managers of money market mutual funds in the U.S. and globally. The October edition, with data as of Sept. 30, shows asset increases for the majority of money fund complexes in the latest month, as well as modest gains over the past three months. September marked the second straight month of sizeable increases in assets, after several months of decreases. Over the last 12 months, assets overall are flat. Below, we review the latest market share changes and figures. (These "Family" rankings are available to our Money Fund Wisdom subscribers.)

Goldman Sachs, Dreyfus, Federated, Western, Morgan Stanley, and BlackRock were the biggest gainers in September, rising by $9.9 billion, $7.6 billion, $4.1 billion, $3.4 billion, $3.0 billion, and $2.9 billion respectively. Dreyfus, BlackRock, Schwab, Morgan Stanley, Federated, and Goldman Sachs led the increases over the 3 months through September 30, 2014, rising by $10.4B, $7.0B, $4.9B, $4.8B, $4.5B, and $4.5 billion respectively. Money fund assets overall jumped by $32.0 billion in September, increased by $48.0 billion over the last three months, and decreased by $171 million over the past 12 months (according to our Money Fund Intelligence XLS).

Our latest domestic U.S. money fund Family Rankings show that Fidelity Investments remained the largest money fund manager with $404.7 billion, or 16.0% of all assets (down $5.2B in Sept., down $375M over 3 mos. and down $27.9B over 12 months), followed by JPMorgan's $238.0 billion, or 9.4% (down $507M, down $253M, and down $6.7B for the past 1-month, 3-months and 12-months, respectively). Federated Investors ranks third with $206.4 billion, or 8.2% of assets (up $4.1B, up $4.5B, and down $20.0B), BlackRock ranks fourth with $191.3 billion, or 7.6% of assets (up $2.9B, down $7.0B, and up $45.2B), and Vanguard ranks fifth with $172.2 billion, or 6.8% (up $317M, up $1.4B, and down $3.7B).

The sixth through tenth largest U.S. managers include: Dreyfus ($164.6B, or 6.5%), Schwab ($163.0B, 6.4%), Goldman Sachs ($143.2B, or 5.7%), Wells Fargo ($109.6B, or 4.3%), and Morgan Stanley ($109.1B, or 4.3%). The eleventh through twentieth largest U.S. money fund managers (in order) include: SSgA ($83.4B, or 3.3%), Northern ($74.8B, or 3.0%), Invesco ($60.4B, or 2.4%), BofA ($51.0B, or 2.0%), Western Asset ($44.1B, or 1.7%), First American ($37.9B, or 1.5%), UBS ($36.3B, or 1.4%), Deutsche ($34.7B, or 1.4%), Franklin ($22.2B, or 0.9%), and RBC ($18.0B, or 0.7%). Crane Data currently tracks 73 managers, one less than last month.

Over the past year, BlackRock showed the largest asset increase (up $45.2B, or 30.7%; note that most of this though is due to the addition of securities lending shares to our collections), followed by Goldman Sachs (up $14.8B, or 12.3%), and Morgan Stanley (up $11.2B, or 11.9%). Other gainers since September 30, 2013, include: BofA (up $5.5B, or 13.2%), Franklin (up $4.5B, or 22.3%), American Funds (up $2.8B, or 20.7%), Western (up $2.7B, or 6.6%), SSgA (up $2.5B, or 3.2%), and Dreyfus (up $2.4B, or 1.5%). The biggest declines over 12 months include: Fidelity (down $27.9B, or -6.5%), Federated (down $20.0B, or -9.0%), Wells Fargo (down $11.7B, or -10.0%), UBS (down $9.3B, or -19.6%), and Invesco (down $4.7B, or -7.5%). (Note that money fund assets are very volatile month to month.)

When "offshore" money fund assets -- those domiciled in places like Dublin, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except for BlackRock moving up to No. 3, Goldman moving up to No. 4, and Western Asset appearing on the list at No. 9. (displacing Wells Fargo from the Top 10). Looking at these largest Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore), we show these largest families: Fidelity ($411.0 billion), JPMorgan ($363.7 billion), BlackRock ($313.4 billion), Goldman Sachs ($226.3 billion), and Federated ($215.2 billion). Dreyfus ($191.3B), Vanguard ($172.3B), Schwab ($16308B), Western ($147.4B), and Morgan Stanley ($127.7B) round out the top 10. These totals include offshore US Dollar funds, as well as Euro and Sterling funds converted into US dollar totals.

In other news, our October 2014 Money Fund Intelligence and MFI XLS show that both net and gross yields remained at record lows for the month ended September 30, 2014. Our Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 851), remained at a record low of 0.01% for both the 7-Day and 30-Day Yield (annualized, net) averages. (The Gross 7-Day Yield was also unchanged at 0.13%.) Our Crane 100 Money Fund Index shows an average yield (7-Day and 30-Day) of 0.02%, also a record low, down from 0.03% a year ago. (The Gross 7- and 30-Day Yields for the Crane 100 remained unchanged at 0.16%.) For the 12 month return through 9/30/14, our Crane MF Average returned a record low of 0.01% and our Crane 100 returned 0.02%.

Our Prime Institutional MF Index yielded 0.02% (7-day), the Crane Govt Inst Index yielded 0.01%, and the Crane Treasury Inst, Treasury Retail, Govt Retail and Prime Retail Indexes all yielded 0.01%. The Crane Tax Exempt MF Index also yielded 0.01%. (The Gross Yields for these indexes were: Prime 0.19%, Govt 0.10%, Treasury 0.06%, and Tax Exempt 0.12% in September.) The Crane 100 MF Index returned on average 0.00% for 1-month, 0.00% for 3-month, 0.02% for YTD, 0.02% for 1-year, 0.04% for 3-years (annualized), 0.05% for 5-year, and 1.60% for 10-years.

Nearly one-third of money market funds in South Africa had some exposure to African Bank Investments, which collapsed in August and which allegedly caused some S.A. money funds to "break the buck". But in a report released Tuesday, Fitch Ratings expects the effect of the African Bank collapse on South African money market funds to be limited. "Fifteen of the 43 money market funds active in South Africa had exposure to the troubled African Bank, which accounted for 1.3% of the industry's total assets of ZAR270bn as of end-August 2014, according to the Financial Services Board. Some MMFs absorbed the cost of the write-down from the bail-in of African Bank through available income, as approved by the FSB. In other cases, the write-down cost exceeded the income that could be applied against it, resulting in a capital loss. Fitch downgraded those MMFs that suffered a capital loss as a result of African Bank exposure. We placed all the funds with African Bank exposure that we rate on Rating Watch Negative," writes Fitch. (See our Aug. 26 Link of the Day, "FT: South African MMFs Break the Buck", and our Sept. 24 Link of the Day, "Fitch on South African MMFs".")

Fitch adds that outflows from MMFs with African Bank exposure were less severe than expected. "At an industry level, the outflows from funds with African Bank exposure were broadly offset by inflows to other funds, notably corporate MMFs, which typically invest solely in South Africa's major banks. We believe the combination of continued retail investor outflows, driven by low real interest rates, and events at African Bank, will lead to the South African MMF investor base becoming more corporate. We forecast a continued increase in South African corporate cash on balance sheets."

They add, "South African MMFs would not qualify as 'money market funds' under applicable US or European regulation. These funds are materially more concentrated than permissible under SEC Rule 2a-7 (US) or the UCITS framework (Europe), with lower primary liquidity. As a result, Fitch rates these funds applying its Global Bond Fund criteria rather than its Money Market Fund criteria. Furthermore, South African MMFs are highly unlikely to achieve a 'AAA' National Fund Credit Rating."

In other news, Wells Capital's David Sylvester writes in his latest "Portfolio Manager Commentary," "The money market space continues to wrestle with a limited selection of eligible high-quality investments. Fundamental factors and changes to the regulations affecting the issuers of short-term debt have combined to lead to a curtailed supply, exacerbating the already-low interest-rate environment." Sylvester and his team look at the effects across the various sectors of the industry in their latest update.

On the "Prime Sector," Sylvester writes, "There are solid fundamental reasons for the decline in the supply of high-quality money market instruments. Balance sheets are in great shape, and corporate and government issuers alike have been taking advantage of the lowest interest rates in 50 years to extend the term of their debt. But new banking regulations like the Basel III liquidity coverage ratio (LCR) are serving to further suppress the issuance of short-term instruments by financial institutions. The LCR requires banks to hold an amount of high-quality liquid assets, such as cash and government securities, to cover their net cash outflows over a 30-day period in a stressed scenario. One way banks might comply with the LCR would be to issue only long-term debt or equity securities. While this might be LCR-friendly, not every asset should be financed long term, and this approach might not provide the optimal financing mix."

The update continues, "If some short-term funding is necessary for a large financial institution -- and it is -- one key to managing the LCR is to keep short-term debt from rolling down into the 30-day and shorter LCR bucket. This could be accomplished by adding an option whereby the issuer may call the security before its maturity gets to 30 days. Callable bonds aren't particularly new or unusual, and these securities generally carry a yield premium over a noncallable issue, but we haven't been enthralled with this structure because the premium paid to the investors has often been below the intrinsic value of the call option on a standalone basis."

Wells explains, "More recently, we have seen issuance of financial commercial paper and Yankee certificates of deposit with both a call and a put option. The holder has the right to put the security back to the issuer with a specific notice period, while the issuer has the option to call the security after it has been put back or soon before it enters the 30-day LCR bucket. If priced appropriately, this structure seems to offer a little something for all parties."

They add, "We believe that as we continue with the implementation of the LCR and other types of banking regulations, we will see an increase in the issuance of securities designed with regulatory compliance in mind. While the current rate structure argues against a surge in short-term debt issuance, more complete development of the market for these types of instruments could be a welcome feature of a more normal interest rate environment."

Finally, on the "Government Sector," Wells' Sylvester explains, "First, the single most dominant factor in money markets is the Fed's big balance sheet, specifically all the excess reserves on the liability side of it. Few need to borrow, and those who do (like the U.S. Treasury) find a line of willing lenders. The Fed's balance sheet is expected to stop growing in a month, with the end of QE3, and then to stay stable until interest rates rise, at which point it should begin a long, slow runoff. So, although the environment shouldn't get any worse, it will stay bad for a long while."

The October issue of Crane Data's Money Fund Intelligence was sent out to subscribers Tuesday morning. The latest edition of our flagship monthly newsletter features the articles: "Rates, Reforms Driving Money Fund Consolidation, Changes," an update of fund liquidations and consolidation; "Euro Symposium Recap: Turn Challenges into Opportunities," a look at the highlights from Crane's European Money Fund Symposium; and, "Record Low Expenses, High Waivers, Fee Recapture," which explores fee waivers, low expenses and the possibility of "recapture" as interest rates rise. We also updated our Money Fund Wisdom database query system with September 30, 2014, performance statistics, and sent out our MFI XLS spreadsheet earlier this morning. (MFI, MFI XLS and our Crane Index products are available to subscribers via our Content center.) Our September 30 Money Fund Portfolio Holdings are scheduled to go out on Thursday, Oct. 9.

The latest MFI newsletter's "Consolidation" article comments, "More fund liquidations and consolidation is expected as a result of pending money fund reforms in the U.S. and Europe, andwe are already beginning to see an uptick in activity. Zero yields and fee waivers are driving these trends too, as costs for running money funds continue to move higher. But even though we've seen a slight resurgence in liquidations and we expect to see more consolidation, the majority of fund families continue to soldier on. Below, we discuss consolidation and review recent exits and actions. Just this past month, we've seen two small fund families -- Virtus and Williams Capital -- give up the ghost and withdraw from money fund management. But this follows a relatively long period of inactivity. We saw some exits last year, including GE and Highmark, but 2014 has been relatively uneventful until now."

We also recap our recent London conference. The second annual European Money Fund Symposium had record attendance and featured expert commentary on the European money funds industry. The event -- Sept. 22-23 at the Hilton London Tower Bridge -- attracted some 120 attendees, up from about 100 last year. Despite the challenging environment, there was much optimism. It kicked off with an address by Jonathan Curry, Global CIO for Liquidity at HSBC Global Asset Management, and chairman of IMMFA, on the "State of Money Market Funds in Europe," who told the audience to turn challenges into opportunities. It could lead to new products, consolidation, and outsourcing. "At times I think we all feel a little bit gloomy, a little bit down, but I really believe that we have a real opportunity here."

Curry said, "Change creates opportunity and we're in a period of change in the industry. I think we have to embrace it and move forward and take advantage of the opportunities that are out there today." Curry opened by saying that money market funds have actually been a positive story the past 6 months with assets increasing over that time period. Crane Data's Money Fund Intelligence International shows total European money fund assets currently at $750.6 billion at quarter-end, up from $702.2 billion on March 1, 2014. Also, the CNAV industry is expected to have a larger market share than the VNAV for the first time this year. "That's a testament to the CNAV product to all the providers who offer these products to the investors in Europe and elsewhere in the world," he said.

The October MFI article on fees and waivers says, "The Independent Adviser, a newsletter covering Vanguard funds, recently discussed money fund fee waivers and the possibility of fee "recapture," so we decided to review the article and issues involving expenses below. Adviser Editor Daniel Wiener writes, "Over the most recently-reported six months Vanguard waived a bit less than $9.2 million on Prime Money Market, a fund with approximately $131 billion in assets.... Now, take a look at Charles Schwab's Cash Reserves money fund, with a bit less than $40 billion in assets. Schwab waived $87.7 million to "maintain a positive net yield" as they write in the fine print of their semi-annual report. This makes Vanguard's waiver look like chicken scratch. One thing you won't see in Vanguard's filings, but you do at Schwab (and they aren't alone) is language giving the company the ability to claw back waived fees. To give you a sense of the magnitude of this potential windfall, Schwab says that between 2014 and 2017 it has the right to recoup as much as $522.2 million in fees."

Crane Data's October MFI with September 30, 2014, data shows total assets increasing for the second straight month in September, rising $27.5 billion after jumping $34 billion in August. As of Sept. 30, total money market fund assets stood at $2.508 trillion with 1,246 funds, 1 more than last month. Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at a record low 0.01% while our Crane 100 Money Fund Index (the 100 largest taxable funds) yielded 0.02% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.13% (Crane MFA, unchanged) and 0.16% (Crane 100) on an annualized basis for both the 7-day and 30-day yield averages. (Charged Expenses averaged 0.12% and 0.14% for the two main taxable averages.) The average WAM for the Crane MFA and the Crane 100 were 41 and 45 days, respectively. The Crane MFA is down 1 day from last month while the Crane 100 is unchanged from the prior month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

The Investment Company Institute released its latest data on "Worldwide Mutual Fund Assets and Flows (Second Quarter 2014)," which shows that global money market mutual fund assets declined slightly overall in Q2 '14. The latest data show worldwide money market mutual fund assets dropping by $57 billion to $4.738 trillion, led by outflows from the U.S. and Europe. Asia continues to show growth though, led by another rapid increase in Chinese money fund assets and a jump in Indian money fund totals. Globally, MMF assets increased by $245 billion over the past year (through 06/30/14). Crane Data excerpts from ICI's latest release and analyzes the money fund portion of the ICI's latest global statistics, below.

ICI's latest quarterly Worldwide Mutual Funds release says, "Mutual fund assets worldwide increased 3.8 percent to $32.00 trillion, an all-time high, at the end of the second quarter of 2014. Worldwide net cash flow to all funds was $291 billion in the second quarter, compared to $357 billion of net inflows in the first quarter of 2014.... Inflows into bond funds totaled $154 billion in the second quarter, up from $96 billion of net inflows in the first quarter. Money market funds experienced outflows of $67 billion in the second quarter of 2014 compared to the $28 billion inflow recorded in the first quarter of 2014."

The quarterly statement explains, "The Investment Company Institute compiles worldwide statistics on behalf of the International Investment Funds Association, an organization of national mutual fund associations. The collection for the second quarter of 2014 contains statistics from 46 countries. The growth rate of total mutual fund assets reported in U.S. dollars was made slightly smaller by U.S. dollar depreciation."

ICI continues, "Money market funds worldwide experienced a net outflow of $67 billion in the second quarter of 2014 after registering a net inflow of $28 billion in the first quarter of 2014. The global outflow from money market funds in the second quarter was driven by outflows of $70 billion in the Americas and $30 billion in Europe. Money market funds in the Asia and Pacific region posted inflows of $32 billion in the second quarter." Note that ICI's data didn't have money fund figures for Australia, the fourth largest country, this quarter, so we included $322 billion for this, the same amount as last quarter.

According to Crane Data's analysis of ICI's worldwide funds data, the U.S. maintained its position as the largest money fund market in Q2'14 with $2.560 trillion (down to 53.4% of all worldwide MMF assets). Assets decreased by $71.1 billion in Q2'14 (they were down by $25.2B in the past year). France remained a distant No. 2 to the U.S. with $419.3 billion (9.3% of worldwide assets, down $25.5 billion in Q2 and down $13.1 billion over 1 year (and down a shocking $273.9 billion since the end of 2009). This was followed by Ireland ($392.8 billion, or 8.2% of total assets), where money fund assets were up $7.9B in Q2 and up $44.6B over 12 months. Australia remained in 4th place in the latest quarter, where assets were flat in the quarter (due to our estimating these) and up $25.9B over the past year to $322.1B (6.7%). Luxembourg remained in 5th place with $307.6B, or 6.7% of the total (down $13.8 billion in Q2 and down $16.4B for 1 year).

China continued its dramatic money fund growth in Q2 of 2014. The 6th largest money fund country saw assets jump again. China now reports $256.7B in total, up $22.3B (9.5%) in Q2 and up a massive $207.2 billion (418.6%) over the last 12 months. The rapid growth of the Chinese money fund industry has been led by China's largest money fund, Yu'e Bao, which has already accumulated over $90 billion in assets since it launched in June 2013. At Crane's European Money Fund Symposium, it was predicted that Yu'e Bao will continue to grow because it is operated by Alipay.com, the payment service for Alibaba, which just completed a $25B IPO. The fund is heavily weighted in Chinese bank deposits. The company is planning to launch a Hong Kong version of the fund, as detailed in our October 1 "Link of the Day".

ICI's latest Worldwide statistics also show Korea ($73.4B, up $3.0B and up $12.2B on the quarter and year, respectively), Brazil ($57.8B, up $2.7B and up $6.6), and Mexico ($56.2B, up $1.8B and down $798M) remaining in the 7th through 9th largest money fund market spots. India moved into 10th place with a huge 61.3% jump of $13.6B (to $25.9B), moving ahead of Taiwan ($27.2B), which saw assets drop $457M in the quarter. South Africa, Canada, Sweden, Japan, Switzerland, Chile, Finland, Norway, and Italy also ranked among the 20 largest countries that have money market mutual funds.

Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have primarily domestic money fund offerings. (Crane Data believes that some of these countries, like France and Italy, do not have true "money market funds" due to their lack of strict guidelines and "accumulating" NAVs instead of stable NAVs.)

Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data. Finally, for those interested in global money funds, check out our coverage of the 2nd annual European Money Fund Symposium, which took place Sept. 22-23, 2014 in London, England.

At quarter end, the demand for the Federal Reserve's Overnight Reverse Repo Program exceeded the $300 billion cap that was established by the Fed and went into effect September 22. The RRP hit record demand of $407 billion at the end of the third quarter, surpassing the previous record of $339 billion at the end of the second quarter (prior to the cap). As a result, the repo rate fell to zero. "A Federal Reserve tool designed to set a lower boundary on short-term rates didn't work that way Tuesday, reinforcing concerns that new limits could thwart its effectiveness. The Fed plans to use the tool, known as overnight reverse repurchase agreements, when it starts raising rates, likely sometime next year," wrote The Wall Street Journal Wednesday in "In Significant Test, Fed Facility Fails to Defend Short-Term Rate Floor.

The piece explains, "Through these trades, the central bank takes in cash from money-market mutual funds and other nonbank financial institutions in exchange for one-day loans of Treasury securities and pays them interest in return. Before Tuesday, the Fed paid a rate of 0.05%. Fed officials say they expect the so-called reverse repo rate will serve as a floor under short-term interest rates when they start lifting borrowing costs. But on Tuesday, when heavy demand for the facility exceeded new caps on its use, the repo rate fell to zero." (Note: Crane Data will publish its Sept. 30 Money Fund Portfolio Holdings next week, which will show how much of the $300 billion was purchased by money market funds.)

According to a statement from Fitch Ratings, "[S]ome participants in the Fed's auction on 9/30/14 were pressed to invest their cash, and bid as low as (-0.20%) to ensure they receive a sufficient allocation at the auction. Regular participants in the Fed's RRP, including money market funds, were caught somewhat off-guard by the imposition of the cap, as the program served as a reliable last resort source of supply for the short-term markets. Since the Fed's announcement of the cap on 9/17/14, money funds have been looking for alternative sources of supply, like Treasuries, to stay invested at quarter-end."

Wells Fargo Strategist Garret Sloan offered a timeline of events on Wednesday. "Minutes after the 8:30am RRP close, the Fed published its results, showing that just over $407 billion in bids had been submitted from 102 bidders. Because total bids exceeded the $300 billion cap, bid prices came into play and some investors did not receive allocations. The stop-out rate, or the rate at which all investors were either completely or partially filled, was 0 bps. This means that any investor bidding below 0 bps was fully allocated at auction, and those investors that bid 0 bps were allocated on a pro-rata basis. Of the 102 counterparties that submitted bids, 81 investors received allocations," he writes.

Sloan explains, "Looking at the composition of the 140 Fed counterparties, it should be expected that the six GSEs and the 18 banks would not have chosen to bid below 0 basis points given the alternatives that they have at their disposal (i.e. Federal Reserve deposits and IOER). The 22 primary dealers may have had an interest in bidding if they thought they could re-hypothecate collateral out to investors at more attractive rates later in the day. However, the idea that the primary dealers would want to grow their balance sheets at quarter-end and leverage their positions when it is precisely the opposite behavior that is precipitating the quarter-end squeeze makes that idea unlikely. No, it is the money market funds that have driven the RRP thus far, and money market funds that drove the market yesterday."

He adds, "The average bid per counterparty equated to $3.99 billion, well below the $30 billion maximum bid per counterparty. The range of bid yields started at the high Fed offered rate of 5 basis points and got as expensive as -20 basis points. By 10am, the repo market had backed up from those rich levels, and by the end of the day the average Treasury repo rate was a miniscule 1.8 basis points. However, the fact that the average rate remained positive might be considered a small victory. Moreover, the fact that the market average remained positive for the day could be ammunition for the Fed to only make small tweaks to the RRP, rather than increase its size dramatically."

Finally, Sloan says, "The flip side to this argument is that from the time that investors first heard about the cap they were making plans to avoid quarter-end pressure, buying T-bills and other short-term products at extremely expensive levels. So, what are the leakage points in the Fed's monetary policy program? In other words, what would cause money market rates to remain sticky once the Fed increases IOER to 50 bps and the RRP to 25 bps? The top-end of the range does not seem to be an issue. Demand from banks at the higher IOER would likely remain stable or grow, keeping that cash stockpile from imposing its will on lower-yielding products. The question is what happens at the lower-end of the range now that the RRP is no longer designed as a fixed-rate full-allotment facility? [T]here is simply no question that the Fed will adjust the size of the RRP to address this situation, not because they wish to support money market funds per se, but because the FOMC will find it necessary to do so from an efficient monetary policy perspective."

Finally, in his weekly "Short-Duration Markets" report, JP Morgan money market strategist Alex Roever predicted the outcome. "Still, given the sharp supply/demand imbalance that usually takes place during these highly technical times, we suspect the demand for ON RRP could still exceed $300bn, initiating a Dutch auction where the stop-out rate could clear below 5bp. The good news is that post quarter-end some of that pressure to find liquidity will quickly pass. The bad news is that these changes could remain in place. At the heart of the issue is how effective these changes to the ON RRP facility will be in lifting rates when it comes time to normalize monetary policy."

Recent news reports and comments from industry insiders indicate that the 3% buffer proposed by European regulators last year may finally be dead and that EU regulators are seeking a compromise similar to those passed in the U.S. An article in the Financial Times this week said the European parliament's new rapporteur charged with overseeing money market reform, Neena Gill from the UK, said she does not want to see the CNAV industry destroyed by reforms. Below, we review the FT piece and recent press reports, and we also quote from some of the regulatory talk and sessions from last week's European Money Fund Symposium in London.

The FT piece states, "Neena Gill, a UK Labour MEP, who will now attempt to broker a deal on money market these reforms in the new parliament, said: "I want to ensure there is a format there that enables these funds to continue to exist. I do not think it's the job of the parliament to define what sort of investments you have or not." The CNAV funds, like Stable NAV funds in the U.S., maintain a fixed E1 per share. The EU Commission proposed last September in its reform package that CNAV funds should hold a capital buffer equal to 3 percent of their assets to help avert runs. Critics say the proposal would effectively kill CNAV funds in Europe. The EU Parliament postponed a vote on it last April.... Gill ... is proposing to hold a roundtable to help find potential solutions in November, with a vote likely to be held in January."

Gill is not alone in her opposition to the capital buffer. MEP Brian Hayes from Ireland, the new shadow rapporteur on money market reform, is also against it. A September 18 article in the Irish Times says, "The [Irish] Government is pushing for a rethink of a European Commission plan to impose capital buffers on money market funds. It believes that the move could damage the International Financial Services Centre. Brian Hayes MEP met the new EU Financial Services Commissioner, Jonathan Hill, this week in Strasbourg to set out Ireland's position on the issue and on other financial services priorities. Mr. Hayes (FG), a former junior finance minister, was appointed earlier this month as the main negotiator for the European People's Party on the Money Markets Funds proposal, a key piece of EU legislation. It is due to come before the European Parliament and Council in the coming months for fresh negotiations."

Bloomberg's Businessweek also covered Ireland's opposition. Wrote Bloomberg on September 17, "Ireland, home to almost a third of the European Union's $1.3 trillion money-markets industry, is set to oppose European Union plans to make funds build up cash buffers against future crises. The proposal could force European funds, an important source of short-term financing for banks, companies and governments, to shut down, said Simon Harris, a junior Irish finance minister. Ireland seeks support from other EU states against the plan to enforce "crude" cash buffers, which may have "horrendous" unintended consequences, he said. "Ireland shares the EU view and the commission's view that we have to better regulate shadow banking," Harris said in an interview in Dublin. "To go ahead with a capital buffer structure as a regulatory instrument would damage the industry here, but also throughout the EU, and could lead to an outflow of investment from Europe.""

European money market reforms were discussed during several panels at Crane's 2nd Annual Money Fund Symposium in London Sept. 22-23. The session, "Regulations in Europe: Bullet Dodged?" featured Dan Morrissey, partner and head of asset management, William Fry, and Paul Wilson, co-chair of IMMFA's Regulatory Committee and head of sales at Aberdeen. Morrissey said the debate that's going on now between the industry and regulators, and the regulators themselves, is a good thing. He commented, "It was important that there wasn't a quick solution because the news could only have been very bad, certainly from where we are standing today. If we have another year or 18 months of this before we get there, I think it would be a worthwhile investment. The faster we move, the worse the solution is likely to be I would think." He added, "There's quite an amount of emerging debate and you can certainly sense that, as time has gone by, all the efforts that industry have made to try to bring all of the politicians up to speed on this has really worked."

Morrissey continued, "The concern of the buffer obviously is it will essentially shut down the CNAV industry -- sponsors withdrawing from the market and concentration risk. The move would remove an awful lot of players. Failure to have that vote meant that it gave people more time to work with the industry and try to explain the consequences, unintended consequences, and concerns."

Wilson added, "At the start of all this there was the perception that we were more like a bank than we were an investment provider. The reason why we had an improvement in the debate in Europe I think, is because the industry has stuck to its guns about how we are a provoider of investment services, highlighting the fact that the way we manage them is to achieve objectives. When regulators first looked at them, they talked about guarantee, they talked about the promise, and related that to a CNAV when actually what CNAV is is an objectiove by the fund management company."

Kevin Murphy, partner at Arthur Cox and chairman of the Irish Funds Industry Association task force on MMFs, was hopeful given the efforts by the industry to inform and the changes that have taken place. IFIA is a strong advocate for CNAV as 85% of the MMF industry in Ireland is CNAV. He says, "I do hope that we find an elegant solution. I'm confident that, in fact, we will. There have been significant changes in all of the key players in the Pariliament, within the commission, within Econ, and even in the Council of Ministers. We were in a dire position last March. I think we're in a very different place today, and I think it behooves all of us to get out there and lobby to protect this side of the industry."

Murphy added, "There is a massive difference between what is happening in the U.S. and what's happening in the EU. That's probably the absolute core of our message for the EU." The U.S. rules related to banning CNAV impact less than 25% of the market, while the EU proposal would hit 100% of the European CNAV market, he said.

Going forward, the "X Factor" said Murphy, is which presidency is going to move MMF reform to trilogue -- the Italians, the Latvians, or Luxembourg. The current Italian Presidency of the EU Parliament runs through December, followed by the Latvian Presidency from January to June 2015, and the Luxembourg Presidency from July to December 2015. "If the file is not finalized before Luxembourg gets it, then CNAV should be well-represented in the debate. I don't know what the position is with the Latvians, and the Italians are listening ... that's a very positive start."

Two recent headlines that could potentially present challenges for the industry are South African CNAV funds breaking the buck and the negative yield environment, said Murphy. The former is a "red herring" said Murphy because those funds that broke the buck wouldn't have met the requirements oif being a CNAV fund in Europe. [There is also a question as to whether any of them did actually break the buck.] The latter could lead to funds switching to VNAV or use of reverse share splits, he said.

Finally, the Telegraph writes "Europe's E500bn money funds risk AAA downgrade if they 'break the buck'". It says, "Europe's giant money market funds are struggling to stay afloat as negative interest rates drain the industry's lifeblood, with many at risk of crippling downgrades by the rating agencies."

Money fund assets jumped for the second straight month in September, rising by $28.0 billion after a jump of $34.0 billion in August. Since the SEC passed its latest Money Fund Reforms in July, assets have increased by $55.4 billion. Crane's Money Fund Intelligence Daily shows that month-to-date through September 29, total money fund assets have increased by $28.0 billion (assets dropped $2.1 billion yesterday, a much smaller than normal drop for quarter-end), while ICI's latest "Trends in Mutual Fund Investing, August 2014" shows that total money fund assets increased by $34.0 billion in August to $2.581 trillion. (ICI's monthly statistics show that MMF assets decreased by $16.1 billion in July, dropped $17 billion in June, and increased $3.8 billion in May.) For the 12 months through 8/31/14, ICI's monthly series shows money fund assets down by $49.7 billion, or 1.5%. Below, we review recent asset flows, ICI's latest Trends report, and ICI's monthly Portfolio Composition figures.

Our MFI Daily shows that Prime Institutional assets, which should be the most impacted by the SEC's recent reforms, have increased by $5.3 billion month-to-date through Sept. 29 to $813.5 billion. Prime Institutional assets have increased by $15.4 billion since July 23, belying predictions of outflows accompanying the new rules. Treasury Institutional money funds have shown the largest increases though, gaining $20.2 billion in Sept. MTD and $26.5 billion since July 23. (Note that the latest issue of our Money Fund Intelligence newsletter showed monthly asset changes for September averaging a decline of $22 billion over the past 5 years, but an increase of $18 billion on average in 2012-2013.)

ICI's August "Trends" says, "The combined assets of the nation's mutual funds decreased by $384.3 billion, or 2.7 percent, to $15.84 trillion in August, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI. Bond funds had an outflow of $4.41 billion in August, compared with an inflow of $9.45 billion in July. Taxable bond funds had an inflow of $1.15 billion in August, versus an inflow of $8.01 billion in July. Municipal bond funds had an inflow of $3.26 billion in August, compared with an inflow of $1.44 billion in July."

It adds, "Money market funds had an inflow of $36.04 billion in August, compared with an outflow of $16.06 billion in July. In August funds offered primarily to institutions had an inflow of $29.08 billion and funds offered primarily to individuals had an inflow of $6.96 billion." Money funds represent 16.3% of all mutual fund assets while bond funds represent 22.0%.

ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which showed slight increases in CDs and Cash Reserves. (See Crane Data's September 11 "News", "Sept. MF Holdings Show Jump in Time Deposits, Fed Repo; CDs Flat.") ICI's latest Portfolio Holdings summary shows that Holdings of Certificates of Deposits increased by $11.5 billion, or 2%, in August (after increasing $59.9 billion in July, decreasing $60.7 billion in June, and increasing 9.9 billion in May) to $582.4 billion (or 25.0% of taxable MMF holdings). CDs remained the largest segment of taxable money fund portfolio holdings in August, according to ICI's data series.

Repos jumped by $7.2 billion, or 1.4%, (after rising by $71.9 billion in July, $63.9 billion in June, and $33.5 billion in May) to $510.3 billion (21.9% of assets). Repos are the second largest composition segment. Commercial Paper, which increased by $2.9 billion, or 0.8%, inched up to the third largest segment, moving ahead of Treasury Bills & Securities. CP holdings totaled $357.0 billion (15.4% of assets). `Treasury Bills & Securities, the fourth largest segment, dropped $3.0 billion (after dropping $16.7 billion in July, plunging $3.6 billion in June, and dipping $29.7 billion in May) to $355.5 billion. They represent 15.3% of assets.

U.S. Government Agency Securities are the fifth largest segment. Agencies grew by $1.2 billion or 1% in August to $350.5 billion (15.1% of assets). Notes (including Corporate and Bank) grew by $2.1 billion to $69.9 billion (3.0% of assets), and Other holdings increased by $900 million to $47.1 billion (2.0% of assets).

The Number of Accounts Outstanding in ICI's Holdings series for taxable money funds decreased by 195.0 thousand to 23.445 million, while the Number of Funds decreased by 2 to 371. Over the past 12 months, the number of accounts fell by 201.2 thousand and the number of funds declined by 18. The Average Maturity of Portfolios remained the same at 45 days in August. Over the past 12 months, WAMs of Taxable money funds declined by 4 days.

The latest numbers from our Money Fund Intelligence Daily show that total money fund assets are $2.51 trillion through September 29, up $28.0 billion month-to-date and down $104.7 billion (4.0%) year-to-date (through September 29). The Crane Money Fund Average, which tracks all taxable funds, has jumped $30.3 billion month-to-date to $2.26 trillion through September 29. Year-to-date, the Crane Money Fund Average is down $88.7 billion; over the last 7 days it's up $25.9 billion. The Crane Retail Money Fund Index has increased $1.1 billion MTD to $767.8 billion but is down $27.1 billion YTD through September 29. The Crane Institutional Money Fund Index is up $29.2 billion to $1.49 trillion MTD and down $61.7 billion YTD.

Note: Crane Data updated its September MFI XLS to reflect the 8/31/14 composition data and maturity breakouts for our entire fund universe. Note again too that we are now producing a "Holdings Reports Issuer Module," which allows subscribers to choose a series of Portfolio Holdings and Issuers and to see a full listing of which money funds own this paper. (Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access the latest version of this new file.)