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Late last week, ICI released its latest "Trends in Mutual Fund Investing, May 2014," which told us that total money fund assets increased by $​3.​8 billion in May to $​2.​57 trillion after decreasing by $​57.​9 billion in April, dropping $​29.​6 billion in March, and falling $​47.​3 billion in February. For the 12 months through 5/​31/​14, ICI'​s monthly series shows assets down by $​22.​8 billion, or 0.​9%. (​Our "Link of the Day" Friday quoted ICI'​s weekly money fund survey, which showed assets rebounded slightly in the latest week, rising $​5.​1 billion to $​2.​56 trillion.) Below, we review ICI'​s latest monthly assets survey, as well as their May Portfolio Composition totals.

ICI'​s May "​Trends"," says, "The combined assets of the nation'​s mutual funds increased by $​243.​5 billion, or 1.​6%, to $​15.​44 trillion in May, 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 inflow of $​11.​2 billion in May, compared with an inflow of $​7.​5 billion in April. Taxable bond funds had an inflow of $​7.​8 billion in May, versus an inflow of $​6.​4 billion in April. Municipal bond funds had an inflow of $​3.​5 billion in May compared to an inflow of $​1.​1 billion in April."

It adds, "Money market funds had an inflow of $​3.​1 billion in May, compared with an outflow of $​58.​0 billion in April. Funds offered primarily to institutions had an inflow of $​3.​6 billion. Funds offered primarily to individuals had an outflow of $​494 million." Money funds represent 16.​7% of all mutual fund assets while bond funds represent 22.​2%.

ICI also released its latest "Month-​End Portfolio Holdings of Taxable Money Funds," which verified our reported jump in repo and CDs, and plunge in Treasuries, in May. (​See Crane Data'​s June 12 News, "June Money Fund Portfolio Holdings Show Jump in Repo, Treasury Drop.") ICI'​s latest Portfolio Holdings summary shows that Holdings of Certificates of Deposits increased by $​9.​9 billion in May (​after jumping $​50.​3 billion in April and declining by $​54.​1 billion in March) to $​546.​4 billion (​or 23.​5% of taxable MMF holdings). CDs remain the largest composition segment.

Repos rose by $​33.​5 billion, or 6.​9%, (​after plunging $​38.​4 billion in April, jumping by $​41.​7 billion in March, and declining by $​11.​6 billion in Feb.) to $​509.​9 billion (​21.​9% of assets. Repo remained the second largest segment of taxable money fund portfolio holdings in May, after being bumped out of first place in April, according to ICI'​s data series. Treasury Bills & Securities, the third largest segment, plummeted $​29.​7 billion in May (​after plunging $​52.​7 billion in April, and increasing $​1.​6 billion in March and $​7.​8 billion in Feb.) to $​379.​8 billion (​16.​4%).

Commercial Paper, which decreased by $​11.​3 billion, or 3.​1%, remained the fourth largest segment just ahead of U.​S. Government Agency Securities. CP holdings totaled $​354.​9 billion (​15.​3% of assets) while Agencies grew by $​7.​0 billion to $​323.​4 billion (​13.​9%). Notes (​including Corporate and Bank) fell by $​1.​4 billion to $​91.​4 billion (​3.​9% of assets), and Other holdings dropped by $​7.​8 billion to $​73.​1 billion (​3.​1%).

The Number of Accounts Outstanding in ICI'​s Holdings series for taxable money funds decreased by 128.​8 thousand to 23.​637 million, while the Number of Funds decreased by one to 378. Over the past 12 months, the number of accounts fell by 893.​5 thousand and the number of funds declined by 16. The Average Maturity of Portfolios declined by one day to 44 days in May. Over the past 12 months, WAMs of Taxable money funds declined by 4 days.

The latest numbers from Crane'​s Money Fund Intelligence Daily show that total money fund assets are $​2.​45 trillion, down $​16.​2 billion month-​to-​date and down $​152.​4 billion (​5.​8%) year-​to-​date (​through June 26). Over the last 7 days, money fund assets were up $​8.​8 billion. The Crane Money Fund Average, which tracks all taxable funds, has dropped $​15.` billion month-​to-​date to $​2.​20 trillion through June 26. Year-​to-​date, the Crane Money Fund Average is down $​137.​5 billion, but over the last 7 days it'​s up $​10.​5 billion. The Crane 100 Money Fund Index, which tracks the 100 largest money funds, is down $​14.​3 billion MTD to $​1.​37 trillion. Year-​to-​date, the Crane 100 has decreased $​101.​4 billion. Further, the Crane Retail Money Fund Index has declined $​5.​3 billion MTD through June 26 to $​763.​6 billion and $​29.​7 billion YTD. The Crane Institutional Money Fund Index is down $​9.​8 billion to $​1.​4 trillion MTD and $​107.​8 billion YTD.

Note: Crane Data updated its June MFI XLS to reflect the 5/​31/​14 composition data and maturity breakouts for our entire fund universe on June 19. 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.)

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Speakers provided a 30,​000 foot view of the money fund industry at Crane'​s Money Fund Symposium, held June 23-​25 at the Renaissance Boston Waterfront Hotel, during a session on June 24th called "​The State of the Money Fund Industry." Led by Peter Crane, president at Crane Data, the session featured Debbie Cunningham, executive vice president and chief investment officer at Federated Investors and Alex Roever, managing director, J.​P. Morgan Securities, discussing trends, reforms, supply, and other issues. The general mood was relatively upbeat considering all the stresses surrounding funds. (Note: Thanks to the 500 attendees, speakers and sponsors who joined us in Boston at Money Fund Symposium this week! The recordings, final conference binder and Powerpoint presentations are now available to attendees and subscribers at the bottom of Crane Data'​s "​Content" page. Our next Symposium will take place June 24-​26, 2015 in Minneapolis, Minn., and our next conference will be our 2nd annual European Money Fund Symposium, Sept. 22-​23, 2014, in London.)

"Certainly it has been trying, it has been tumultuous, but one of the things I like relying on, first and foremost, are the asset levels -- that'​s the ultimate report card," said Crane, who founded the conference. "There'​s still $​2.​6 trillion in money fund assets. It is still a massive segment of the asset management industry." That'​s down from a record of $​3.​9 trillion in 2008 but still close to 2007 levels. Money fund assets have been essentially flat over the last three years, even going up fractionally in both 2012 and 2013, said Crane. Year-​to-​date through May 31, assets are down about $​160 billion or about 6.​0% or so but he expects assets to remain flat for the year. (​Assets have shown a pattern of decline in the first half and rebound in the second the past several years.) "The fact that it hasn'​t moved through a zero rate environment, through this discussion of regulatory changes, that money isn'​t going anywhere. It'​s a pretty solid base in money market funds."

A cause for optimism is the amount of cash overall in the economy. "If you look at bank deposits and money market mutual funds, the total combined is over $​10 trillion. If and when rates do start climbing, one would expect large segments of that $​7 trillion in bank deposits to migrate their way back into money market mutual funds. We have nowhere to go but up. I believe the outlook for money market funds is bright."

"What we'​ve seen is throughout various cycles, we'​ve continued to make higher highs and higher lows, and that'​s a good thing especially in the context of where we have been from a rate environment perspective," said Cunningham. "​Those higher highs and higher lows will continue to hold and our high of nearly $​4 trillion should be surpassed in the next cycle."

"​I do think, historically, when you'​ve seen spikes in assets and declines in assets, they'​ve been related to where we stand from an interest rate perspective," added Cunningham. "If the Fed is tightening, generally speaking, funds are flowing out of money funds and going into the direct market for a short period of time to capture that additional yield, and when the Fed is loosening or easing, essentially you have the reverse. That'​s essentially what we saw through all of 2009, with that huge buildup that occurred when the Fed began their easing process. I think it can be some degree a continuation of that next year when we do actually see the tightening process start, but I do believe it will be muted to some degree," added Cunningham.

"I think it'​ll be muted because a portion of the assets that seem to be very steady and sticky at this point in time seem to not have the alternative, or want the alternative, of going somewhere else in the marketplace, even if somewhere else is offering 5, 10, or 15 bps more than what they can get in a money fund." Cunningham expects the Fed tightening to come in 2015, "But you won'​t see that larger amount of outflow that traditionally has happened at the beginning of a tightening cycle."

Prime money market funds make up the largest portion of the money market fund pie, accounting for approximately 55% of all MMF assets (​including retail and institutional). But that is down from 65% prior to the crisis. Prime institutional is still the biggest slice, making up roughly one third of money fund assets. "​If the regulations come down and are more onerous or are not good news for the fund industry, you may see this big shift into government and Treasury funds and you could see some funds close," said Crane.

On the yield curve, Cunningham said: "Our expectations would be as we move into the second half of 2014 that we start to see at first the longer part of the curve, the 9-​12 months sector of the curve, start to increase a little bit, with that following later on in the later part of the 2014 with the 3-​6 month area of the curve potentially."

She added on waivers, "Generally speaking a 10 basis point increase in the overall yield curve would effectively reduce waivers by about 25 percent. When you get to a 75 basis point Fed funds rate, assuming again a curve that is marginally positive, you end up with the normalized waivers. The waivers that took on a life of their own in a very very low yield environment is eliminated at 75 basis points."

Roever talked about the trends in money market supply. Over the last few years, money market demand is only down about $​434 billion, but over that same period, supply is down $​2.​5 trillion. "​The story with the aggregate supply in Treasury has been our deficit is shrinking -- the Treasury doesn'​t need as much to fund the government so we'​re having a decline in bill supply outstanding. I think the underlying story of where are you going to get the product to invest is one that continues to be probably in at least a downward trend for the time being until we get some changes in the economy. A lot of what'​s going on behind the scenes in terms of supply is reactions to the regulatory situation both in the U.​S. and outside the U.​S.."

Finally, on money market reforms, Cunningham said: "I feel like we are not close to resolving it at this point. There are Commissioners who are dead set against a floating NAV and there'​s at least one that'​s dead set against the gates and fees. We have a Chair who would like to have a super majority or consensus, and it'​s hard to imagine we could ever get a majority at this point in time. I think there needs to be compromise. Compromise has to be the answer at this point because I don'​t think there'​s a consensus that'​s building around 1 or 2 of the answers that seem to have been floated out there."

She added: "Complacency from the industry'​s perspective -- sort of waiting and seeing -- is not the answer at this point. We need to continue to talk about what the potential compromises could be."

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We learned from Wells Capital Management that the U.​S. House of Representatives' "​Financial Services and General Government Appropriations Bill, 2015" contains language that may further delay the SEC'​s Money Market Fund Reform efforts and to possibly remove the floating NAV option from consideration. The House Draft Committe Report says (​on page 50) about "Money Market Funds. -- The Committee remains concerned with the Commission'​s proposal to further regulate money market funds. The Committee expects that the final rules will take into account the substantive concerns of stakeholders who use these products for short term financing needs. Impairing or restricting the use of money market funds could potentially result in a decrease in the ability of these products to provide liquidity, potentially resulting in hundreds of market participants issuing longer-​term debt, significantly increasing their funding costs, slowing expansion rates, and depressing job and economic growth."

It adds, "The Committee believes before the final rules are promulgated with respect to money market funds, rigorous economic analysis should be conducted, including a thorough review of all submitted comments. Specifically, the final rules should carefully consider how any proposed changes would affect: (​1) investor returns and cash management efficiencies; (​2) the borrowing costs for businesses and governments that access money markets for financing purposes; (​3) the concentration and capacity among providers of short-​term financing; (​4) efficiency, competition, tax consequences, and capital formation; and (​5) the effectiveness of floating the NAV as a tool to prevent run risk."

The report says, "​The Committee on Appropriations submits the following report in explanation of the accompanying bill making appropriations for financial services and general government for the fiscal year ending September 30, 2015.... The Committee recommends an appropriation of $​1,​400,​000,​000 for the SEC for fiscal year 2015. The Committee designates not less than $​9,​239,​000 for Office of Inspector General and $​68,​872,​000 for the Division of Economic and Risk Analysis."

In other news, recent "Minutes of the Financial Stability Oversight Council (​from May 7, 2014)" contains some discussions of money market funds. The minutes commented about Federal Reserve Chair Janet Yellen, "​She described a number of additional steps the Federal Reserve plans to take to further reduce risks to financial stability. She noted that other challenges remain, including the need for money market mutual fund reform, risks in the tri-​party repo market, and incentives for large financial institutions to reach for yield in the current low interest rate environment. She closed by saying that the Council must continue its collective efforts to monitor risks, address vulnerabilities, and build a safer financial system."

The minutes added, "Mary Jo White, Chair of the SEC, spoke next. She stated that the report represents hard and collaborative work, and thanked her fellow Council members and staff for developing the report. She noted that cybersecurity is a critical global issue for long-​term security, and an area where a multi-​regulatory body like the Council can play a constructive coordinating function. She also observed that the report discusses money market funds and reiterates that the SEC is best positioned to implement reforms in this area. She further noted that the report also describes the SEC'​s 2013 proposal to reform the structure of money market funds, which included two alternative reforms of a floating net asset value for prime institutional funds and fees and gates to address redemption risks in times of stress. She noted that, as proposed, these reforms could be enacted individually or in combination. She stated that the SEC and the staff are actively engaged and look forward to adopting effective and meaningful reforms to address money market funds' risks."

Finally, the minutes commented later, "​The Chairperson then asked Joao Santos, Vice President and Function Head at the Federal Reserve Bank of New York, and Trent Reasons, Senior Policy Advisor at Treasury, to present on some of the key elements of the annual report. Mr. Santos and Mr. Reasons provided a summary of the annual report. They also outlined the nine themes of the annual report: (​1) the vulnerability to runs in wholesale funding markets, including tri-​party repo and money market mutual funds, that can lead to destabilizing fire sales."

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Below, we reprint the first half of our latest Money Fund Intelligence "​profile," "Stability Still Top Priority at BlackRock; Eye to Future." The article says: This month, we sat down with Rich Hoerner, head of global cash management, and Tom Callahan, deputy head of global cash management, at BlackRock, the 3rd largest manager of money funds globally with approximately $​263 billion (​as of 3/​31/​14). They talked about new products, the regulatory environment, and some emerging trends that could reshape the money fund landscape. Our discussion follows. (​Note: Crane'​s Money Fund Symposium concludes this morning in Boston. Thanks to all our attendees, speakers and sponsors, and we hope to see you next year, June 24-​26, 2015, in Minneapolis!)

MFI: Tell us about your background? Hoerner: I started with PNC in 1987 and joined the money market business, which was then known as Provident Institutional Management Corp., in 1992. In the mid-​1990s, PNC bought BlackRock.... I grew up on the portfolio side of the money fund business before taking over as co-​head of the cash business at BlackRock about 5 years ago. Callahan: I'​ve been with BlackRock just 8 months. I joined in September of last year from the NYSE where I had been the CEO of their Liffe U.​S. futures exchange. Prior to that, I ran Merrill Lynch'​s money market business for a time.... So I have been in and around the short end of the market for most of my career.

Hoerner: The cash business at BlackRock has a long history. TempFund [​which celebrated its 40th birthday late last year] was launched in October 1973 by Provident National Bank.... In 1982, Pittsburgh National Bank and Provident National Bank merged to form PNC. Then in 1995, PNC purchased BlackRock, [​while BlackRock continued to be managed independently]. In 2006, BlackRock purchased Merrill Lynch Investment Managers.... In December of 2009, BlackRock bought Barclays Global Investors from Barclays Bank.... They [​BGI] also had a money fund business and a sizable securities lending business.

MFI: What is your biggest priority? Callahan: Our number one priority now is the same as it always has been, the stability of our funds and being a fiduciary to our clients. There'​s obviously a lot that'​s changing in our world. Regulatory reform at long last appears to be coming some time later this year, so that'​s an enormous focus for us. We have many clients that are open-​minded to floating NAVs and believe that'​s going to work within their businesses. But we'​re also realistic that there are many clients that are not going to be able to adapt to a floating NAV, if that'​s part of the rule.

We'​re trying to plan our business and strategy for both types of clients, so that we can lay a path for them and have good products for them to use. That always has been and always will be our number one priority: to focus on our clients. In the supply constrained market that we'​re in, where credit spreads are enormously tight, it'​s probably tempting for people to go down the food chain of credit. We'​re just not doing that. We'​re committed to our investment process and our rigorous risk management approach. We'​re being very disciplined in terms of the risk that we introduce into the portfolios we manage on behalf of clients.

Hoerner: The big priority right now is just continuing to adapt to the changes in the short-​term markets -- the shrinking supply, the near zero yield environment, changes in tri-​party repo, etc. We'​re making sure that we'​re not reaching for yield as a result of these changes and adapting in other ways, not by just simply moving out on the curve. MFI: What about challenges historically? Hoerner: The challenges in the past were always largely around credit quality. That'​s what was always the big worry, almost the singular worry, and believe me, it'​s still a big worry today. Supply is also a challenge, given the shrinking of the ABCP market and the implementation of Basel III and liquidity coverage ratios.

MFI: What are you buying? Hoerner: if you look at our portfolios, take the TempFund for example, the names that will jump out at you are Japanese banks, Canadian banks, Australian banks. There'​s not as much ABCP as there used to be, simply because there'​s not as much issuance. You'​ll notice more Treasuries than you would have 5 years ago [​in our prime funds]. Although many investors have begun investing in Chinese banks, that is not an area that we have pursued to date.

MFI: You have traditionally been conservative, right? Hoerner: Absolutely. Like everyone else, BlackRock makes its own independent determination if an issuer presents minimal credit risk. But beyond that, we pay a lot of attention simply to the risk of a credit being downgraded, particularly below first tier eligible under Rule 2a-​7 of the 1940 Act. Our approved list is constructed to capture, if you will, that risk of a downgrade. We use maturity limits to manage that downgrade risk and we take a very conservative philosophy. We have an excellent track record of being ahead of the curve on downgrades. We have a very talented credit team and we'​re willing to accept a lot of false positives, not buying a name when it turns out to be fine. (​Look for the second half of our "​profile" in coming days, or see the June issue of MFI.)

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Nancy Prior, President of Fidelity Investments' Fixed-​Income unit, gave a keynote address, entitled, "Money Market Funds: Past and Future," at Crane'​s Money Fund Symposium, which began yesterday at the Renaissance Boston Waterfront (​and which runs through Wed.). We excerpt from the text of the speech below. Prior comments, "At long last, it appears we'​re getting close to the much-​anticipated, long-​awaited announcement of new money market fund rules from the Securities and Exchange Commission. And, for a lot of us in this room today, the skies appear finally to be brightening after what seems like one long, gloomy winter. For the past five-​and-​a-​half years, the money market mutual fund industry has been ... you can pick your metaphor here: Embattled, Under siege, Under a cloud.... I'​ve seen all of those phrases in print at one time or another... Suffice it to say, the past few years have just not been a whole lot of fun. In addition to a very challenging, uncertain regulatory environment, we have had to manage through a prolonged and unprecedented period of extraordinarily low interest rates. Given all of this, it'​s not surprising that some financial writers predicted that money market mutual funds would not make it through this gauntlet."

She says, "While we obviously do not know all of the specifics as of yet, I think we all expect the SEC to issue new final rules that will significantly alter the way that many money market funds operate. But whatever these changes may be, we do know that we have a responsibility to fund shareholders to find a way to make the changes that will be required. MMFs will survive. Some will survive in a form we recognize; others will be very different. But they generally will continue to be a valuable investing option for millions of investors and a critical source of funding for governments and businesses."

Prior continues, "The near- and long-​term future will not be without continued challenges, but I believe we have the potential to emerge stronger, and certainly more resilient, than ever. I'​ll get to specifics about that later, but before we talk about the future, I'​d like to, briefly, take a step back and look at where we, as an industry, came from. After what we'​ve all been through, I think we all deserve to take a moment and reflect on our hard work and on the values we all share -- which have helped to ensure the safety and stability of our product for so many years."

She tells us, "While we have all expressed our regulatory concerns in comment letters and are likely to have some strong misgivings about the new rules, there is, I believe, a clear silver lining: this extended period of regulatory uncertainty should soon be behind us. Now, these new rules are going to have a huge effect on our fund shareholders and our firms' operations. I don'​t want to dismiss that... it cannot be overstated. But, once they are issued and the work needed to meet their terms is assessed and underway, we can finally go back to focusing entirely on what we do best: managing our funds and serving our fund shareholders, which has always been the top priority for all of us here today."

Prior states, "​So let'​s take a little walk down memory lane... Money market mutual funds are a relatively recent financial innovation. They were first introduced in the U.​S. in 1971. From their inception, the goal of the funds was safety and security; and, just as they do today, MMFs invested only in issuers representing minimal credit risk. Then, as now, they were designed to provide investors with immediate liquidity, low market risk, and a market-​based return. Preserving a stable net asset value of $​1 per share was the bedrock goal of the funds. Before MMFs, smaller investors did not have easy access to professionally managed, high credit quality, highly liquid, short-​term investment products. MMFs provided these smaller investors with access to a short-​term investment with the higher yields that were previously available only to wealthy investors via direct purchases of commercial paper or certificates of deposit. The concept caught on quickly, and by the end of 1973, a number of MMFs were competing in the market, attracting more than $​100 million in assets."

She continues, "I'​m proud of our firm for many reasons, but one of them is that Fidelity'​s own Ned Johnson played a major role in spurring the growth and development of money market mutual funds. Fidelity was the first financial company to offer MMFs directly to investors as a retail product ... and in 1974, the company introduced check-​writing from its money funds -- a previously unheard-​of feature. Check-​writing helped make saving and investing in money market mutual funds easy, accessible and convenient. It was a big hit. And, it turned out, MMFs were a big hit not just for Fidelity, but for the entire mutual fund industry. During the stock market doldrums that persisted throughout the '​70s, MMFs offered both stability and, on balance, possibly the best returns that were available to most individual investors in the financial marketplace."

Prior comments, "Throughout the rest of the decade, the MMF segment continued to grow, and during the high interest rate environment of the late 1970s and early 1980'​s, MMFs became an even more popular investment, with returns for investors that were substantially higher than the regulated rates available in bank savings accounts. This continued until 1983, when a new federal law permitted banks to offer their own, FDIC-​insured money market accounts, which helped to stem the flow of funds from the banks into MMFs. From that point on, the purpose and role of MMFs started to evolve. They became less of an alternative savings vehicle, and more of a cash management vehicle."

She adds, "Recent surveys of our retail customers show that more than 80% use MMFs as a "​parking place" for cash awaiting future investment -- in stocks, bonds, mutual funds and other vehicles. These customers use MMFs as a complement to bank products, such as checking and savings accounts, not as a replacement for FDIC-​insured products. In fact, 98% of the retail MMF customers that we surveyed had bank checking accounts in addition to their MMFs. Meanwhile, institutional investors rely on MMFs for a variety of cash management purposes."

Prior explains, "Especially over the past 20 years or so, MMFs have played an essential role in fueling the American economy ... providing millions of American investors -- large and small, sophisticated and novice, institutional and retail -- with a convenient and reliable way to invest in the short-​term markets. And also providing low-​cost financing for states, cities, and nonprofit organizations alike. They have continued to do so since the financial crisis of 2008 -- and today there is more than $​2.​5 trillion held in MMFs, despite the extraordinarily difficult operating environment we'​ve faced over the past five-​plus years."

She says, "​I don'​t need to fill in the details of the post-​2008 period for this audience, since we'​ve all been living it. In response to the financial crisis, the SEC significantly strengthened MMF regulation in 2010, and issued a further rule proposal in June of 2013. Fidelity and many of the firms represented here today subsequently filed comment letters. In many cases, multiple letters. Speaking on behalf of Fidelity, it was our view that the 2010 amendments to Rule 2a-​7 had made all MMFs safer, more resilient to market stress, and more transparent.... And that the regulations had been tested in the summer of 2011, with the European debt crisis, the U.​S. debt ceiling showdown, and the eventual downgrade of the United States by S&​P -- and had passed these tests with flying colors."

Prior continues, "Based on these and numerous additional studies -- including one by the SEC itself -- our position was clear: based on the facts, data and empirical evidence, we saw no justification, or benefit, for further across-​the-​board regulation of ALL MMFs. We continue to feel strongly that any further rules should not apply to any funds -- including government, municipal and retail prime funds -- that have not been shown to be susceptible to destabilizing runs. This position was widely shared by many others closely following the debate over further regulation. So it is with great concern that we await the issuance of the new final rules, which we fully expect will include some, possibly many, provisions with which we substantively disagree, which the data does not support, and for which we see no need."

She adds, "That said, the SEC deserves credit for overseeing an open, transparent forum, one which included multiple public hearings and studies, and opportunities to comment. Thanks to these hearings and comments we hope that the SEC understands what differentiates the asset management industry from other types of financial services, and that its subsequent ruling will provide an appropriate capital markets solution for a capital markets product. Even so, it'​s almost certain that the new rules will present new and difficult challenges. But come what may, I believe that now is the time to be forward-​looking and focused on our future. As I said at the top, it is a future that will be different from the past, but one that does look brighter than it has in some time."

Prior tells us, "In brief, we now can see beyond the horizon ... and the two black clouds that have loomed over us the past several years -- regulatory uncertainty and agonizingly low interest rates -- both appear to be parting at the same time. Let me talk a little bit about each of these issues separately, beginning with the regulatory side. When the final rules are issued, we and everyone else in this room will closely study and evaluate them. Given our engagement with policymakers over the past several years, we are hopefully well-​prepared for the new rules and ready to make any changes to our product offerings and fund operations that may be needed to comply with these rules."

She says, "The expected multi-​year implementation period will help give all of us the opportunity to consider our options, and then to communicate with our shareholders about what to expect as the changes eventually take effect. We fully expect that the new rules will entail significant, structural changes, even for some fund types like retail municipal and retail prime funds where the data does not support such changes. And we know, unfortunately, that many investors will not be happy with some of the changes. This will most likely negatively impact the shareholder experience for many."

Prior comments, "​It is sometimes very hard for financial companies to convince regulators that we are acting out of anything but self-​interest.... But I believe that I speak for all of us in saying that throughout the MMF regulatory debate, we have acted out of a strong, even passionate, belief in how we manage these funds, and in the tremendous benefits potential they offer investors, issuers and our economy. We have fought hard to protect these funds, because that is what our customers wanted us to do. There is no question that we have a lot of work ahead of us... But going forward, will our investment or fund management goals change? No. Our priorities have always been providing safety, liquidity, and return, in that order, and they will remain so. Post reform, the question becomes what types of money market products will be best suited to achieve these goals, while remaining compliant with the new rules? We will need to be adaptive and creative, but the bottom line for investors it that we know how important MMFs are to them, we understand their needs, and we will respond to the new environment with strategies that meet those needs."

She continues, "​On interest rates, we are also hopeful. There'​s nowhere to go but up -- right? Since 2007, the market environment for our products has been extraordinarily challenging. And since December of 2008, of course, short-​term interest rates as set by the Federal Reserve have been nearly as low as they can possibly go. I suppose that we have grown used to living with diminished expectations: when you are in a one-​basis-​point environment, any bounce is a bounce higher! But, here too, we are beginning to see a brighter horizon. The Fed'​s accommodative policies are winding down. The tapering of quantitative easing is well underway, and is expected to conclude in the fourth quarter of this year. And while no one can predict exactly when rates will rise, key market indicators – Fed Funds futures and Eurodollar futures – currently point to the second half of 2015 for the first Fed rate hike."

Prior says, "The good news is that MMF investors may not have to wait to take advantage of the expectation of higher rates. The MMF yield curve will steepen, and shift higher, as expected rate hikes fall within the one-​year investment horizon of MMFs, and current investments will benefit from higher yields. In addition, as we know, the rule changes in 2010 shortened the allowable portfolio-​weighted average maturity to 60 days -- and depending on the fund type, most funds are currently positioned meaningfully shorter than that. Further, funds are maintaining substantial amounts of daily and weekly liquidity to conform to the requirements, and to effectively manage liquidity risk in the current environment. So, with short maturities and sizable liquid balances, MMFs are well positioned to invest at higher prevailing market interest rates as they become available, and fund yields generally will reflect higher market rates fairly quickly. In plain words, the return profile potential of MMFs is going to become more attractive ... while the funds will continue to play the same role, and will continue to be an effective cash management vehicle for investors focused on safety and liquidity. In a national and international market where volatility can spike and intensify at any time, MMFs will continue to be an accessible flight to relative safety."

She adds, "So let me close today by reiterating our industry'​s commitment to ensuring the safety, stability and viability of money market mutual funds. Our MMF portfolio management teams are focused each and every day on researching and analyzing the short-​term markets to help ensure that our funds deliver -- today and tomorrow, in stable and volatile markets -- the principal stability, ready liquidity and market-​based return that our shareholders count on. We have all been actively engaged in the regulatory debate for several years now, working closely with investors, issuers, providers, academics and policymakers. We have each done our best to represent the interests of fund shareholders throughout this process. The end of this lengthy journey is in sight. And we have made it through. It was long and difficult -- and long, did I mention long? – but we made it through. Over the coming months, we will have many decisions to make – individually and collectively -- about how to proceed, and how best to serve fund shareholders."

Finally Prior comments, "This is a product that was created to provide smaller investors with access to financial instruments and benefits that were previously available only to the wealthy. A product created with a noble intent to give investors a benefit they couldn'​t get elsewhere. And despite the many headwinds it has faced of late, MMFs have succeeded beyond all measure to become an indispensable cash management tool for individuals, institutions and governments. When new rules are issued, we know we will not agree with all of them.... And we will all have some hard work ahead of us... But I believe that if we continue to serve our customers faithfully, and continue to tailor our products to meet their evolving needs, we will come out on the other side stronger than ever. The future I foresee is one we can all be proud of, and that we can all be optimistic about. Thank you for your attention. I'​d be glad to take a few questions."

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Crane Data'​s 6th annual Money Fund Symposium starts Monday, June 23 and runs through June 25 at The Renaissance Boston Waterfront. Crane'​s Money Fund Symposium is the largest gathering of money market mutual fund managers and cash investors in the world. Last summer'​s event in Baltimore attracted over 450 attendees, and we expect almost 500 to gather in Boston this week. See the agenda and more details on the Symposium website (www.​moneyfundsymposium.​com). Watch for coverage of the event in coming days and excerpts from Monday'​s keynote speech by Fidelity Investment'​s Nancy Prior, "Money Market Funds - Past & Future." (​Note: For those that can'​t make it this week, next year'​s Symposium will be in Minneapolis, June 24-​26. Note also: Registered attendees and subscribers may access the current binder at the bottom of our "​Content" page in our "​Conference materials" section.) We look forward to seeing you in Boston!

In other news, the Federal Reserve Bank of New York'​s (​FRBNY) daily reverse repurchase agreement (​RRP) drove significant shifts in investment allocations by money funds that invest exclusively in Treasury and agency securities, either directly or through repos (​government MMFs). Between September 2013 and May 2014, total FRBNY RRP investments by government MMFs (​repos) rose by $​65 billion, while combined Treasury and agency repo holdings with broker-​dealers as counterparties fell by $​38 billion, according to a new report by Fitch Ratings, "Reverse Repo Program Gains Influence."

Says Fitch: "This trend likely reflects growing comfort with the operations of the RRP program and more attractive rates. Decreasing reliance on repo funding among dealers also reflected the effects of Basel III regulatory considerations, as banks have been forced to re-​assess the economics of short-​term wholesale funding."

The report continues: "The RRP program, which may ultimately serve as a primary tool for the Fed to influence short-​term interest rates, grew in size as the overnight rate (​now 5 bps) and the counterparty allocation limit (​now $​10 billion) have risen. Growth in participation was evident across the universe of government MMFs, which had Fed RRP holdings totaling $​87 billion as of May 31, compared with $​21 billion on Sept. 30, 2013. RRP volumes have fallen off markedly since mid-​May as repo rates have risen, providing more attractive investment alternatives for money funds. However, the test evidenced the RRP program'​s ability to "​set a floor under money market rates," as FRBNY Chairman William Dudley noted in a May 20 speech. Mr. Dudley pointed out that Treasury repo rates had rarely traded much below the fixed RRP rate, supporting the view that the Fed could use the facility to control short-​term rates."

In addition, the report explains, "The growing importance of the Fed'​s RRP program as a source of money market supply appears to have contributed to the reduction in non-​FRBNY repos backed by Treasury and agency securities held by government MMFs over the period of our study. Treasury repo investments with counterparties other than the FRBNY (​i.​e. dealers) declined by 14% to $​120.​5 billion from $​139.​7 billion between Sept. 30, 2013, and May 31, 2014, while agency repo investments fell by 15% over the same period to $​104.​2 billion from $​123.​0 billion. Broker-​dealers conducting the largest volumes of repo funding with government MMFs as of May 31 included BNP Paribas, Deutsche Bank and Barclays."

Fitch writes, "Several institutions that ranked among the largest government MMF counterparties when the daily RRP program was launched last September had less government MMF repo funding as of end-​May. These included Citigroup, Bank of America, Credit Agricole, Goldman Sachs and RBC. Regulatory constraints on large banks' capital positions and trading activities, tied to Basel III (​embodied in the Supplementary Leverage Ratio rule approved by U.​S. banking regulators in April) and the Volcker Rule, are pushing dealers' securities inventories down, and these changes could cut further into demand for repo funding."

Concerning the increase in FRBNY RRP volumes between September 2013 and May 2014, the report says, "​Daily utilization reached a peak of $​242 billion on March 31. The most recent month-​end volume figure, reported on May 30, was $​165 billion. Since mid-​May, volumes have trended significantly lower, averaging closer to $​100 billion per day during the first half of June. On June 16, RRP volume had fallen to $​53 billion."

The Fitch report is based on government MMFs universe with assets totaling $​881 billion as of end-​May 2014. "Among all fund types, these funds allocate the largest share of total assets under management to Treasury and agency repos. Unlike prime funds, government MMFs have more limited investment alternatives. They therefore provide a window into the potential impact of the Fed’​s RRP activity on other fund investments, notably dealer repo agreements backed by Treasury and agency securities."

The Financial Times covered the issue in the story, "New York Federal Reserve Takes on Key Role in Repo Market." "The Fed'​s decision to quadruple its trading with government money market funds in the repurchase or "​repo market" is a sign that the central bank is now engaging more directly with the shadow banking system at the expense of large Wall Street banks."

The FT adds, "​Historically, the repo market was where big banks pawned out their securities such as Treasury bonds to lenders including money market funds, insurers and mutual funds, in exchange for short-​term financing. Now the Fed is stepping in to trade as well as it prepares to end its current near-​zero interest rate policy. Rather than lending to the banks, money market funds have sharply boosted their dealings with the US central bank."

The article goes on, "While the growing presence of the Fed in the market has been welcomed by money market funds keen to transact with the central bank, it comes with risks for the central bank and the broader financial system. Bill Dudley, New York Fed president, warned last month that if use of the repo facility were to grow too quickly it might "​result in a large amount of disintermediation out of banks through money market funds and other financial intermediaries into the facility. This could encourage further enlargement of the shadow banking system."

​

In an hour-​long webinar on June 19 called "A Look Under the Hood of Money Market Funds," Vanguard money market portfolio manager David Glocke and Vanguard senior investment strategist Sarah Hammer discussed interest rates, regulatory issues, the European Central Bank, and portfolio management strategy. Vanguard is the 5th largest money market manager in the U.​S. with $​171.​8 billion in money fund assets as of May 31, 2014. The Vanguard Prime MMF is second largest money fund in the U.​S. with $​101.​8 billion in assets. When you include the $​27.​9 billion in the Vanguard Prime Institutional Fund, the Vanguard Prime Portfolio is the largest money market portfolio in the U.​S. with $​129.​7 billion in total assets. It surpassed the Fidelity Cash Reserves Portfolio as the largest in November 2012.

The Vanguard produced webinar featured Glocke, who manages the Vanguard Prime Money Market Fund, taking questions submitted by viewers on a range of topics. Here are some excerpts. When asked how long the zero interest rate policy will be in effect, he said: "​We'​ve been 6 years into the recovery but economic conditions are starting to respond finally. Chair Yellen yesterday responded to some of the changes that took place just in the last two months since the last FOMC meeting. Ultimately the Federal Reserve is looking down the road and they are starting to see better signs. We'​re seeing it in the estimations of where the federal funds rate may end up moving over the course of the next one and two years, so we feel a lot better about market conditions and at some point the Fed will raise interest rates, which is something money market investors I'​m sure would be appreciative of."

On the subject of SEC regulatory changes, Glocke said: "Ever since the financial crisis and the Reserve [​Primary Fund "​breaking the buck"] event, the SEC has been active in trying to find ways to enhance money market product, make it more attractive to investors, and provide the confidence to them that the money market is an appropriate investment option. In 2010 they came out with a first set of new rules for money market funds." Those changes included enhancements to liquidity, know your client rules, reducing the average maturity in a fund, and putting limits on ther amount of lower quality debt in a portfolio, he explained. These changes were made with the intentions of doing more, he added. A year ago, the SEC issued a 698-​page report that included new ideas they are considering.

"Since that time we have been patiently waiting for the SEC to conclude their study of that information and release the new sets of rules, but we haven'​t heard anything yet. The Wall Street Journal recently reported that there'​s still some dissension amongst the SEC Commissioners on which way they want to go with this. They speculated [​that] it might not be until the end of the summer that the new rules may or may not come out. So I don'​t think it'​s best to speculate on what may or may not happen over the course of the next few months."

Glocke was also asked about the European Central Bank'​s recent move to lower the deposit rate. "​The ECB recently took their deposit rate from zero, which they set in 2012 in response to the financial crisis that was taking place in Europe, to -​0.​10%. That has happened before. We'​ve seen Sweden and Norway take their deposit rates into negative territory. It'​s unusual but not unheard of. What we'​re seeing is the ECB trying to respond to the marketplace, trying to encourage banks to lend more in essence, by setting a negative rate. It may be more symbolic than anything else as far as its actual benefit to the overall marketplace, so we'​re not expecting a major change to come out of it."

A Vanguard investor asked, "What scenario would lead to a MMF loss? Glocke answered, "​A challenging question. We think back at 2008 period when Lehman event took place and the Reserve Fund broke the buck -- and that became a major concern across the board for all of us. But what we do on a day to day basis is all designed to try and manage the portfolio in a way to reduce the risk of such an event ever taking place. And it'​s done in multiple channels. For instance, at the first level, we would have 20 senior credit analysts working in our fixed-​income group, and they make the decision about which securties, which issuers, are eligible for investment.... [​T]​hen we take it to next level where we are concerned about big issues in the marketplace, broad issues that can affect our investment strategy, and there we have meetings with other parts of the FI group within Vanguard."

He continues, "Finally at the desk level where we manage the actual cash, we'​ll take that approved list of issuers and we'​ll structure our investments, focusing on high quality assets, particularly. There'​s a ratings spectrum that'​s out there in the marketplace and we'​ll take the highest level quality assets. We'​ll focus on those and we'​ll be willing to invest for a longer period of time in those securities.... [​T]​hen as we go down the spectrum of credit quality we'​ll reduce those expsoures -- then we'​ll also manage the overall amount that we'​re buying of a particular name. So the higher quality names like U.​S. Treasuries and Agencies, we have an unlimited number of those that we can buy. Yet other securities, we'​ll put hard limits on how much we are willing to invest."

Glocke comments, "​Then we'​ll try to structure it across the maturity spectrum, so we spread those maturities out. The primary reason behind that is if there is a liquidity event in the market -- it may not be a credit issue but a liquidity event -- that may reduce the demand for a particular security, its price can be impacted. So by having the maturity structured across the portfolio, we'​re able to step into the market and allow securities to mature rather than put stress on the market and sell into it. And gradually over time we can get out of a position we may feel we are uncomfortable with.... It just allows us to react earlier rather than later."

Finally, he adds, "​We did that back at the time when there was concern about bank problems in Europe. In 2010, we started to get the sense that ... there were problems starting to emerge. So we awere able to gradually reduce our exposures over time by just allowing the positions to mature in the fund. [​We] didn'​t have to put any stress on the market and it was about a year, year-​and-​a-​half later that things became unwound ... by then we were already out of the positions that would have been a concern."

​

As expected, the Federal Reserve Open Market Committee held steady on its Federal funds rate and said that any changes in the rate are contingent upon the growth of the economy. In a statement released on June 18 after FOMC meeting, the Fed said, "To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/​4 percent target range for the federal funds rate, the Committee will assess progress -- both realized and expected -- toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, 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."

The Fed added, "​When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-​run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-​consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

In a press conference following the meeting, Fed Chair Janet Yellen elaborated on the status of the federal funds rate. "If the economy proves to be stronger than anticipated by the Committee, resulting in a more rapid convergence of employment and inflation to the FOMC'​s objectives, then increases in the federal funds rate target are likely to occur sooner and to be more rapid. Conversely, if economic performance disappoints, resulting in larger and more persistent deviations from the Committee'​s objectives, then increases in the federal funds rate target are likely to take place later and to be more gradual."

Of the 16 FOMC committee members, 15 expect rates to stay the same throughout 2014 with only 1 projecting an increase, according to the `​minutes/​accessible materials for the June 18 meeting. Most expect an increase some time in 2015. Specifically, 13 expect a rate increase next year with 3 expecting an increase to 1.​00% and 3 estimating an increase to 1.​25%. On average, the projected rate increase for 2015 is 1.​20%. For 2016, the FOMC members expected the rate to climb to 2.​5%, on average. Those numbers are up compared to the March 19, 2014 FOMC meeting when the FOMC members, on average, projected an increase to 1.​12% in 2015 and 2.​4%, on average, in 2016.

However, Yellen says it all depends on the economy. "There'​s uncertainty about what the path of interest rates will be because there'​s uncertainty about the path of the economy," said Yellen. When asked if the expectation is for a rate increase in the first half of 2015, Yellen said, "There is no mechanical formula for what a considerable period of time means. It depends on how the economy progresses and the progress we are making in achieving our objectives. That is the key determinate. There is no mechanical formula," she reiterated. On the subject of low volatility, Yellen said, "​There is some evidence of reach-​for-​yield behavior."

The current federal funds rate has remained at 0-​0.​25% for more than five years, dating back to December 16, 2008 when it was lowered from 1.​00%. The rate had been steadily dropping since June 29, 2006, when it reached a high of 5.​25%. Prior to that it had been steadily increasing from June 30, 2004 when it was 1.​25%.

Last week, the head of the Bank of England, Mark Carney, said interest rates could rise in the U.​K. sooner than expected. In a speech on June 12, Carney said, "It could happen sooner than markets currently expect," according to an article in the Financial Post. On June 5, the Bank of England'​s Monetary Policy Committee voted to maintain the bank rate at 0.​5%. The previous change in Bank Rate was a reduction of 0.​5 percentage points to 0.​5% in March 2009, according to the BOE.

​

The European Central Bank'​s historic move to cut its deposit rate to -​0.​1% on June 5 will negatively impact the Euro money markets, but will it lead to negative yields? It'​s not likely, analysts say, but the possibility does exist. "​The overnight rate that MMFs can invest in is driven by the EONIA curve and if EONIA edges lower as a result of the cut in ECB'​s deposit rate, the risk of MMF net yields falling near zero or lower is likely to increase," writes Vikram Rai, analyst at Citi Research in a paper he authored called "ECB and ECP: How will Euro MMFs cope with negative rates?."

Writes Rai, "The long suffering global money fund industry has become somewhat accustomed to dealing with onerous regulatory requirements and years of near zero interest rates which have led to sustained lower profitability. As a result, money funds have become more nimble and cost effective in their bid to survive. But, and needless to say, negative short term rates will have a less than beneficial impact on the already diminished prospects of the Euro money fund industry. In anticipation of the dreaded rate move into negative territory, some CNAV Euro MMFs have modified their investment and operational structures in order to deal with negative returns. For instance, if on a day, the assets of the money fund minus fees and expenses produce a negative return, the fund would take steps to ensure that the NAV per share remains stable at E1 per share. In order to achieve this, the number of shares held by each investor will be reduced pro rata to reflect the negative return of the money fund for that day. This mechanism will be implemented via a share redemption where the proceeds of the redemption will not be paid to the investors and will be retained by the money fund to meet the negative return."

Also, explains Rai, "Rating agencies have stated that negative net yield posts by MMFs, by itself, will not be a catalyst for downgrades as ratings reflect credit, liquidity and market risk profiles." (​Note: Fitch Ratings issued a press release on June 6 stating, "Should Euro MMFs post negative yields resulting from short-​term market rate moves, this would not be a negative for MMF ratings by itself, including '​AAAmmf'. MMF yields have to reflect prevailing safety and liquidity costs, commensurate with alternative high quality short-​term instruments. Fitch'​s MMF ratings are a ranking of funds on the basis of their liquidity, market and credit risk profiles."

However, while downgrade risk isn'​t imminent, "money fund investors are unlikely to adapt easily to the continued erosion in the value of their investments and would be inclined to pull funds and look for investment alternatives, which would at least offer positive yields," says Rai. "The ECB cut its deposit rate to zero in the summer of 2012 and in the aftermath of this action, many of the world'​s largest money fund providers either closed their Euro money funds to new investments or restricted deposits while smaller funds were forced to shut down. We expect similar consequences this time also which will likely drive further consolidation of Euro zone money fund industry," he states.

The current average 7-​day yield according to Crane'​s Euro Money Fund Index, as of June 16, is 0.​08%, down 0.​02% over the last 7 days and down 4 basis points since June 5. So, while low, there isn'​t any imminent threat of yields going negative, and it'​s still higher than it is in the U.​S, where the average 7-​day yield, according to our Crane Money Fund Index, is 0.​01% as of June 16.

The potential for negative yields has been on money fund managers' radar for several years now, but we have yet to see anything more than a brief flash negative in isolated markets. In our November 2012 issue of Money Fund Intelligence, we wrote about a new "​flex" distributing share class J.​P. Morgan launched for two of its euro money market funds, the Euro Liquidity Fund and the Euro Government Liquidity Fund. The flex share class is designed specifically to manage low or negative yields and was created in response to the ECB'​s decision to lower its deposit rate to 0.​00% on July 5, 2012. We wrote, "​The "​Flex" shares would allow the funds to maintain a stable NAV in a potential negative yield environment by automatically selling shares to cover expenses and debits from any yields below zero. The "​Flex" shares would allow the funds to maintain a stable NAV in a potential negative yield environment by automatically selling shares to cover expenses and debits from any yields below zero." (​Note: JPM has not used the "​flex" feature to date.)

We added, quoting Moody'​s, "Faced with historically low yields, many MMF managers have reduced or waived their management fees in order for their MMFs to deliver a positive net yield. The prospect of a prolonged period of low to negative yields on high‐​quality, short term investments adds to the challenges already faced by the MMF industry and is creating a number of unprecedented issues for MMF managers. In the immediate term, the greatest impact will be on Euro-​denominated government funds, given their limited investment options; however, in due course, zero to negative‐​yielding securities will exert pressure on prime funds in Europe, as well as government and prime funds in the US."

There was also some concern in December 2008, and again briefly in December 2012, of negative yields in the U.​S. causing money fund'​s assets to fall below $​1 share. The fear was that it would lead to investment losses on money market funds, which in turn would lead to a run on money fund investments. However, such a scenario is highly unlikely today as money fund managers have been repositioning their portfolios in anticipation of the Euro rate cuts to minimize risk (​and unlikely in the U.​S. because of yields above zero and the Fed'​s new reverse repo "​floor"). `​According to Fitch, the risk of MMF yields turning negative is lower now than it was 18 months ago when Eurozone liquidity was under stress. As of June 16, net assets in euro money funds is $​78.​3 billion, according to the Crane Euro Money Fund Index, up $​52 million over the last 7 days.

​

Crane Data'​s most recent monthly Money Fund Intelligence Family & Global Rankings, which rank the asset totals and market share of managers of money funds in the U.​S. and globally, shows asset increases for roughly half of the major money fund complexes in May, but decreases for the majority over the past three months ended May 31. (​These "Family" rankings are available to our Money Fund Wisdom subscribers.) Goldman Sachs, Morgan Stanley, Bank of America, Wells Fargo, First American, and SSgA showed solid gains in May, rising by $​4.​7 billion, $​3.​0 billion, $​3.​0 billion, $​2.​8 billion, $​2.​5 billion, and $​2.​4 billion respectively, while SSgA, First American, Morgan Stanley, and American Funds led the increases over the 3 months through May 31, 2014, rising by $​4.​0B, $​2.​9B, $​1.​6B, and $​1.​6B, respectively. Money fund assets overall increased by $​4.​5 billion in May, but fell by $​81.​9 billion over the last three 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 $​408.​4 billion, or 16.​4% of all assets (​down $​159M in May, down $​11.​6B over 3 mos. and down $​5.​1B over 12 months), followed by JPMorgan'​s $​238.​8 billion, or 9.​6% (​down $​1.​6B, down $​10.​6B, and up $​8.​1B for 1-​month, 3-​months and 12-​months, respectively). Federated Investors ranks third with $​204.​2 billion, or 8.​2% of assets (​down $​6.​4B, down $​14.​2B, and down $​19.​4B), BlackRock ranks fourth with $​189.​9 billion, or 7.​6% of assets (​down $​2.​1B, down $​11.​7B, and up $​39.​2B), and Vanguard ranks fifth with $​171.​8 billion, or 6.​9% (​down $​330M, down $​2.​1B, and up $​6.​6B).

The sixth through tenth largest U.​S. managers include: Schwab ($​159.​9B, 6.​4%), Dreyfus ($​157.​0B, or 6.​3%), Goldman Sachs ($​133.​1B, or 5.​3%), Wells Fargo ($​109.​4B, or 4.​4%), and Morgan Stanley ($​101.​9B, or 4.​1%). The eleventh through twentieth largest U.​S. money fund managers (​in order) include: SSgA ($​82.​6B, or 3.​3%), Northern ($​76.​4B, or 3.​1%), Invesco ($​59.​3B, or 2.​4%), BofA ($​46.​9B, or 1.​9%), Western Asset ($​40.​5B, or 1.​6%), First American ($​40.​4B, or 1.​6%), UBS ($​39.​0B, or 1.​6%), Deutsche ($​34.​7B, or 1.​4%), RBC ($​18.​9B, or 0.​8%), and Franklin ($​18.​4B, or 0.​7%). Crane Data currently tracks 75 managers, unchanged from last month and up one from last quarter.

Over the past year, BlackRock showed the largest asset increase (​up $​39.​2B, or 27.​1%; note that most of this is due to the addition of securities lending shares to our collections), followed by SSgA (​up $​9.​9B, or 13.​7%), Morgan Stanley (​up $​8.​8B, or 10.​4%), and JP Morgan (​up $​8.​1B, or 3.​5%. Other big gainers since May 31, 2013, include: Vanguard (​up $​6.​6B, or 4.​0%), Dreyfus (​up $​6.​6B, or 4.​5%), Schwab (​up $​4.​8B, or 3.​1%), Reich & Tang (​up $​3.​8B, or 50.​1%), and BofA (​up $​3.​5B, or 7.​8%). The biggest declines over 12 months include: Federated (​down $​19.​4B, or 8.​7%), Wells Fargo (​down 13.​2B, or 11.​2%) and UBS (​down $​11.​0B, or 21.​7%). (​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. 5, 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 ($​415.​0 billion), JPMorgan ($​367.​5 billion), BlackRock ($​301.​8 billion), Federated ($​213.​9 billion), and Goldman ($​213.​6 billion). Dreyfus ($​182.​6B), Vanguard ($​171.​8B), Schwab ($​159.​9B), Western ($​125.​2B), and Morgan Stanley ($​118.​4B) 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 June 2014 MFI and MFI XLS show that both net and gross yields remained at record lows for the month ended May 31, 2014. Our Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 856), 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, and 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 5/​31/​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.​18%, Govt 0.​9%, Treasury 0.​07%, and Tax Exempt 0.​14% in May.) The Crane 100 MF Index returned on average 0.​00% for 1-​month, 0.​00% for 3-​month, 0.​01% for YTD, 0.​02% for 1-​year, 0.​04% for 3-​years (​annualized), 0.​06% for 5-​year, and 1.​63% for 10-​years.

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Euro money market funds are faced with the prospect of low yields and a potential reduction in short-​term debt supply following the European Central Bank'​s decision to lower the deposit rate, effective June 11, to a record low -​0.​10%. This is according to a new report by Moody'​s, "​Money Market Funds Face Yield, Supply Challenges Following ECB Measures,". Soo Shin-​Kobberstad and King Cheung, the authors of the report, say, "We expect that prime MMFs (​those not restricted to investing only in highly-​rated government securities) will continue to generate positive total returns. Following the ECB announcement, the Euribor credit curve shifted lower but remains positive and upward-​sloping, allowing MMF managers to achieve positive gross yields on their funds. Rate cuts announced Thursday were anticipated by MMF managers, who had positioned their portfolios in advance of the 5 June ECB meeting to profit from declining yields. However, the extension of portfolios' duration also translates to greater fund sensitivity to interest rate moves." (​See also, Reuters' "​Funds keep faith with euro money markets".)

Moody'​s adds, "Following the last ECB meeting on 8 May, many prime MMFs had re-​positioned their portfolios in the following manner: (​1) reduced exposure to overnight liquidity; and, (​2) lengthened the overall weighted average maturity of the portfolio by increasing exposure to longer-​dated securities. By repositioning their portfolios through increased exposure to longer-​dated securities and increasing the overall weighted average maturity (​WAM) ... prime MMFs were able to increase total returns and reduce the risk of NAV share prices falling. That said, in taking these mitigating actions, MMFs introduced other kinds of risk, notably including higher duration."

The Moody'​s report authors add that low yields will remain a challenge for money fund managers. "MMF managers remain concerned about a potential supply/​demand imbalance triggered by the TLTRO and suspension of SMP sterilization, which could reduce already low MMF returns. Although MMF managers are concerned that banks' issuance of short-​term debt will decline because of additional excess liquidity, we expect that the policy changes announced on Thursday are unlikely to significantly alter the economic or financial outlook for the euro area."

A June 6 press release issued by Fitch Ratings titled "Euro MMFs are Prepared for Lower Market Yields" comments, "MMFs are likely to continue to look for yield-​picking investment opportunities with longer dated assets, taking advantage of the steeper yield curves since end-​2013. Euro MMFs have increased their allocation to assets with maturity of more than three months, during the first five months of the year. This move was most pronounced in May as most funds anticipated the ECB rate cut. MMFs' portfolios average lives extended to 58 days on average at end-​May 2014, ten days longer than at the beginning of the year.... Should Euro MMFs post negative yields resulting from short-​term market rate moves, this would not be a negative for MMF ratings by itself, including '​AAAmmf'."

The Moody'​s report continues, "On the demand side of the equation, MMF managers are preparing for the possibility of large inflows into MMFs if banks were to start charging negative effective interest rates on deposits held by institutional clients. Material new inflows pose a risk for MMFs because large amounts of capital invested at lower yields would dilute the returns for existing clients. Several MMF managers have said they would likely respond by limiting subscriptions in the event of large inflows. However, given banks' strong competition for deposits -- a relatively cheap and stable source of private sector funding -- we think it is likely that the ECB rate cuts will not be passed on one-​for-​one to households and businesses, and it is unlikely that large numbers of banks will charge negative deposit rates. Also, even in the unlikely event that banks would start to apply negative rates to deposits, bank customers might prefer to shift their funds to higher-​yielding instruments other than MMFs. In this event, MMFs could experience outflows rather than inflows."

It further explains, "With respect to this risk of potential outflows, MMF managers note that, at present, investors on balance have a relatively inelastic reaction to low yields, because those investors are mainly core constituents, such as corporate treasurers, who need to manage large amounts of liquidity. In addition, some MMF managers believe that most investors sensitive to low yields have probably already reduced their investments or moved their funds altogether elsewhere over the last two years. For instance, assets under management (​AUM) of euro-​denominated prime constant net asset value (​CNAV) funds have shrunk by approximately 30% from April 2012 to May 2014 amid significant uncertainties surrounding money market regulation and declining yields. Moreover, AUM in CNAV funds that invest only in government securities (​government MMFs) fell by approximately 89% from the peak in November 2011 to May 2014 amid low yields."

According to Crane Data'​s Money Fund Intelligence International there have been inflows into euro MMFs since the ECB cut went into effect on June 11. The Crane Euro MMF Index for June 12 shows that euro MMF assets are up E205 million over the last seven days to E79.​1 billion in the 98 Euro-​denominated MMFs Crane tracks. The average 7-​day yield for Euro MMFs dropped 0.​02% to 0.​09% over the last 7 days. Further, weighted average maturity is at 47 days, up 2 days from 7 days ago. The largest manager of euro MMF assets are BlackRock (​E17.​2B), Goldman Sachs (​E13.​1B), JP Morgan (​E11.​0B), Deutsche (​E9.​4B), and BNP Paribas (​E8.​1B). Crane Data will release its MFI International MF Portfolio Holdings on Monday morning, which will show whether Euro money fund portfolios changed their investments markedly in May.

The negative and ultra-​low yields on Euro securities will no-​doubt be a hot topic at the upcoming Crane'​s European Money Fund Symposium, the largest money fund conference outside of the U.​S. Our second annual event will be held Sept. 22-​23 at the London Tower Bridge Hilton in London, England. Crane Data'​s first European event, held last September in Dublin, attracted over 100 attendees, sponsors and speakers, and we expect our London event to be even bigger and better. Registration for our 2014 European Money Fund Symposium is $​1,​500 (​or 900 GBP). Registration is open and sponsorships are still available. Visit http://​www.​euromfs.​com to register or to see the latest agenda. Contact us for sponsorship information or more details.

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Today'​s Wall Street Journal, in "​SEC Divided on Money-​Market Fund Rules", says that it may be some time before we see money market fund reforms, and that another regulatory stalemate is a real possibility. This follows a speech by SEC Commissioner Kara Stein, where she made comments indicating that she'​d like to go back to the drawing board on regulations. The Journal article comments, "​Six years after money-​market mutual funds became a source of vulnerability in the financial crisis, U.​S. securities regulators are still hashing out how to limit the risks they pose to the financial system. Tighter rules might not be finalized for several months, according to people familiar with the process."

The Journal'​s Andrew Ackerman writes, "The five members of the Securities and Exchange Commission have been unable to reach agreement on how to finish long-​awaited rules to curb structural features of money funds -- cashlike instruments used by millions of individuals, businesses and municipalities to safely park cash -- that make them prone to investor stampedes during periods of market stress, these people said. The inability to agree on a plan stems in part from the recent addition of two SEC commissioners, Democrat Kara Stein and Republican Michael Piwowar, who are still fleshing out their views on what should be done to rein in fund risk. No clear consensus has emerged on the best approach and there is no agreement yet on how to move forward, according to people close to the process."

He explains, "The commissioners have all indicated they agree money-​fund risks need to be addressed but final rules could be delayed until the fall, a setback to SEC Chairman Mary Jo White who had pushed in private for the commission to wrap up its work by the end of April, according to people familiar with internal SEC discussions. In a speech on systemic risk in Washington Thursday, Ms. Stein raised a series of questions about redemption limits, including whether they would exacerbate the risk of investor runs by encouraging "​pre-​emptive" redemptions just before the measures are implemented."

The WSJ piece also says, "Mr. Piwowar opposes coupling redemption limits with floating share prices, warning such a combination would make money funds untenable for investors, according to a person familiar with his thinking. He continues to meet with industry representatives to develop his views, the person said. Fund firms warn at least some of their customers will shun money funds if they are at risk of seeing their investments decline in value or if they are unable to access their cash because of a redemption limitation. Mr. Piwowar'​s views appear at odds with those of Daniel Gallagher, the SEC'​s other Republican member, who has backed an approach that combines a floating share price with redemption limits. Ms. White also has expressed support for a combined approach, according to people familiar with her thinking."

It adds, "Peter Crane, president of Crane Data, which tracks money funds, said most in the industry expect a combined approach. Yet a move to floating share prices is seen as contingent on the Internal Revenue Service easing certain tax burdens on the funds and it is unclear if the IRS will act. "Stalemate is a very real possibility" at the SEC, he said."

Finally, the Journal adds, "Further complicating discussions are upcoming summer travel plans, according to SEC officials. At least one commissioner is traveling in each of the remaining weeks in June, these people said. The SEC has a narrow window in which it could meet to finalize tighter fund restrictions in July and August but only if commissioners are able to reach an agreement that so far remains elusive, the people said."

In her speech yesterday, SEC Commissioner Kara Stein said, "[​W]​e need to focus on improving the stability and resiliency of the short-​term funding markets, including securities lending and repurchase agreements (​repo).... The short-​term funding markets are large and interconnected. The collapse of these markets during the crisis was profound. Money market funds experienced runs. The commercial paper markets dried up. Securitizations and conduits stopped completely in their tracks. And firms suddenly demanded more and better collateral to support securities lending and repos."

She continued, "Our short-​term funding markets have their benefits. Money market funds and other investors can purchase short-​term funding obligations and make higher returns, and broker-​dealers can fund their positions very cheaply with high-​quality collateral. At the same time, short-​term funding for long-​term obligations can create serious problems. Ultimately, an over reliance on short-​term funding may accelerate credit supply and asset price increases in the good times, but it may also accelerate precipitous declines in asset prices and credit in the bad. The Commission is working hard on rules to prevent runs on money market funds, and I think everyone wants to get it right. There have been a lot of discussions about capital, insurance, floating net asset values, redemption fees, gates, and restricting sponsor support. Each tool has its pros and cons."

Stein explained, "For example, if there are fees and gates, couldn'​t this trigger pre-​emptive runs by investors that otherwise would not have occurred? Or will fees and gates reduce run risk? We have seen arguments by very sophisticated firms and economists on both sides. In short, is it more likely (​1) that fees and gates can cause, or exacerbate, a crisis; or (​2) that fees and gates can actually prevent or stop one? And what happens to the borrowers when the money fund providing their short-​term financing slams its gate down? Will the money fund decline to renew their repo arrangement? Does that impact, not just that borrower, but the rest of the short-​term lending market, or the entire financial system? In an industry this important to our financial system, we should be very confident in the answers to these questions before moving forward. And while I hope we'​re able to finish a rule soon, a money market fund rule would only address part of the issues. It would only address some of the lenders. We also need to address the borrowers and the intermediaries."

Finally, she said, "The Federal Reserve Bank of New York and others, including the SEC, have been making a lot of progress. For example, the clearing banks' intra-​day credit exposures in the tri-​party repo market have been dramatically reduced. The Financial Stability Board'​s Workstream on Securities Lending and Repos has also been putting forward some great ideas, including collecting more data, enhancing disclosures, and imposing meaningful discounts."

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Crane Data released its June Money Fund Portfolio Holdings Wednesday, and our latest collection of taxable money market securities, with data as of May 31, 2014, shows a big jump in Repo and Commercial Paper, and a big drop in Treasuries and CDs. Money market securities held by Taxable U.​S. money funds overall (​those tracked by Crane Data) decreased by $​5.​5 billion in May to $​2.​386 trillion. Portfolio assets decreased by $​39 billion in April, $​43.​0 billion in March, and $​32.​7 billion in February. CDs remained the largest holding among taxable money funds, followed by Repo, then by CP, Treasuries, Agencies, Other, and VRDNs. Money funds' European-​affiliated holdings are now 30.​8% of holdings (​up from 29.​2% last month). Below, we review the latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Certificates of Deposit (​CD) dropped in May, decreasing $​11.​0 billion to $​549.​5 billion, or 23.​0% of holdings. Repurchase agreement (​repo) holdings jumped by $​33.​3 billion to $​515.​8 billion, or 21.​6% of fund assets, after plunging $​51.​5 billion in April. Commercial Paper (​CP), now the third largest segment, increased by $​19.​7 billion to $​409.​0 billion (​17.​1% of holdings). Treasury holdings, the fourth largest segment, slid by $​37.​8 billion to $​386.​4 billion (​16.​2% of holdings).

Government Agency Debt was essentially flat, increasing by $​621 million. Agencies now total $​314.​2 billion (​13.​2% of assets). Other holdings, which include Time Deposits, dropped slightly (​down $​5.​8 billion) to $​176.​0 billion (​7.​4% of assets). VRDNs held by taxable funds decreased by $​4.​5 billion to $​35.​6 billion (​1.​5% of assets). (​Crane Data'​s Tax Exempt fund data will be released in a separate series late Thursday and our "​offshore" holdings will be released Friday.)

Among Prime money funds, CDs still represent over one-​third of holdings with 36.​5% (​down from 37.​2% a month ago), followed by Commercial Paper (​27.​2%, up from 25.​8%). The CP totals are primarily Financial Company CP (​17.​2% of holdings) with Asset-​Backed CP making up 5.​8% and Other CP (​non-​financial) making up 4.​2%. Prime funds also hold 4.​9% in Agencies (​up from 4.​8%), 4.​0% in Treasury Debt (​down from 5.​0%), 2.​2% in Other Instruments, and 5.​7% in Other Notes. Prime money fund holdings tracked by Crane Data total $​1.​505 trillion (​down from $​1.​507), or 63.​1% of taxable money fund holdings' total of $​2.​386 trillion.

Government fund portfolio assets totaled $​436.​8 billion, up from $​433.​2 billion last month, while Treasury money fund assets totaled $​444.​5 billion, down slightly from $​451.​6 billion at the end of April. Government money fund portfolios were made up of 54.​7% Agency securities, 24.​0% Government Agency Repo, 5.​1% Treasury debt, and 15.​7% Treasury Repo. Treasury money funds were comprised of 68.​5% Treasury debt and 30.​5% Treasury Repo.

European-​affiliated holdings increased again, up $​34.​7 billion in May to $​733.​8 billion (​among all taxable funds and including repos); their share of holdings is now 30.​8%. Eurozone-​affiliated holdings also jumped (​up $​27.​0 billion) to $​417.​3 billion in May; they now account for 17.​5% of overall taxable money fund holdings. Asia & Pacific related holdings rose by $​3.​9 billion to $​284.​0 billion (​11.​9% of the total), while Americas related holdings fell $​45.​0 billion to $​1.​367 trillion (​57.​3% of holdings).

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (up $​12.​8 billion to $​260.​8 billion, or 10.​9% of assets), Government Agency Repurchase Agreements (​up $​20.​7 billion to $​171.​1 billion, or 7.​2% of total holdings), and Other Repurchase Agreements (​down $​158 million to $​83.​9 billion, or 3.​5% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $​22.​3 billion to $​259.​3 billion, or 10.​9% of assets), Asset Backed Commercial Paper (​down $​4.​5 billion to $​87.​0 billion, or 3.​6%), and Other Commercial Paper (​up $​1.​8 billion to $​62.​8 billion, or 2.​6%).

The 20 largest Issuers to taxable money market funds as of May 31, 2014, include: the US Treasury ($​386.​4 billion, or 16.​2%), Federal Home Loan Bank ($​185.​5B, 7.​8%), Federal Reserve Bank of New York ($​126.​3B, 5.​3%), BNP Paribas ($​72.​2B, 3.​0%), Bank of Nova Scotia ($​59.​1B, 2.​5%), Credit Agricole ($​58.​8B, 2.​5%), Bank of Tokyo-​Mitsubishi UFJ Ltd ($​57.​1B, 2.​4%), Deutsche Bank AG ($​52.​2B, 2.​2%), Barclays Bank ($​52.​0B, 2.​2%), JP Morgan ($​52.​0B, 2.​2%), RBC ($​50.​8B, 2.​1%), Wells Fargo ($​50.​5, 2.​1%), Citi ($​48.​8B, 2.​1%), Bank of America ($​45.​7B, 1.​9%), Sumitomo Mitsui Banking Co ($​474.​8B, 1.​9%), Federal National Mortgage Association ($​44.​7B, 1.​9%), Federal Home Loan Mortgage Co ($​44.​5B, 1.​9%), Credit Suisse ($​42.​5B, 1.​8%), Societe Generale ($​40.​1B, 1.​7%), and Natixis ($​38.​2B, 1.​6%).

In the repo space, Federal Reserve Bank of New York'​s RPP program issuance (​held by MMFs) remained the largest program by far with 24.​5% 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 ($​126.​3B, 24.​5%), BNP Paribas ($​46.​0B, 8.​9%), Deutsche Bank AG ($​35.​9B, 7.​0%), Bank of America ($​34.​9B, 6.​8%), Barclays ($​33.​1B, 6.​4%), Societe Generale ($​24.​9B, 4.​8%), Credit Agricole ($​23.​0B, 4.​5%), Citi ($​20.​1B, 3.​9%), Wells Fargo ($​20.​1B, 3.​9%), and RBC ($​19.​2B, 3.​7%). Crane Data shows 59 money funds buying the Fed'​s repo, with 10 funds investing $​5 billion or more.

The 10 largest CD issuers include: Bank of Tokyo-​Mitsubishi UFJ Ltd ($​38.​1B, 7.​0%), Sumitomo Mitsui Banking Co ($​37.​2B, 6.​8%), Bank of Nova Scotia ($​34.​7B, 6.​4%), Toronto-​Dominion Bank ($​28.​8B, 5.​3%), Bank of Montreal ($​24.​1B, 4.​4%), Rabobank ($​23.​4B, 4.​3%), Mizuho Corporate Bank Ltd ($​22.​3B, 4.​1%), Wells Fargo ($​21.​8B, 4.​0%), Citi ($​20.​4B, 3.​7%), and Natixis ($​18.​7B, 3.​4%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: JP Morgan ($​22.​3B, 6.​4%), Westpac Banking Co ($​16.​5B, 4.​8%), Commonwealth Bank of Australia ($​14.​4B, 4.​1%), RBC ($​12.​3B, 3.​6%), Barclays PLC ($​11.​6B, 3.​4%), Lloyds TSB Bank PLC ($​11.​1B, 3.​2%), Nordea ($​10.​6B, 3.​1%), Skandinaviska Enskilda Banken AB ($​10.​6B, 3.​1%), HSBC ($​9.​9B, 2.​9%), and DnB NOR Bank ASA ($​9.​8B, 2.​8%).

The largest increases among Issuers include: Barclays PLC (​up $​10.​1B to $​52.​0B), BNP Paribas (​up $​6.​8B to $​72.​2B), HSBC (​up $​6.​5B to $​29.​3B), Wells Fargo (​up $​5.​4B to $​50.​5B), Deutsche Bank AG (​up $​5.​8B to $​52.​2B), and Societe Generale (​up $​4.​4B to $​40.​2B). The largest decreases among Issuers of money market securities (​including Repo) in May were shown by: the US Treasury (​down $​37.​8B to $​386.​4B), the Federal Reserve Bank of New York (​down $​19.​8B to $​126.​3B), Credit Suisse (​down $​4.​3B to $​42.​5B), J.​P. Morgan (​down $​2.​8B to $​52.​0B), and Svenska Handelsbanken (​down $​2.​5B to $​26.​6B).

The United States remained the largest segment of country-​affiliations; it now represents 48.​5% of holdings, or $​1.​153 trillion. France (​10.​0%, $​239.​3B) is in second place ahead of Canada (​8.​9%, $​211.​7B), and Japan (​7.​3%, $​173.​1B) remained the fourth largest country affiliated with money fund securities. The UK (​5.​1%, $​122.​1B) remained in fifth place, and Sweden (​4.​4%, $​105.​7B) remained in sixth. Germany (​3.​6%, $​85.​3B) moved into seventh place, edging past Australia (​3.​6%, $​85.​0B) which dropped to 8th. The Netherlands (​3.​1%, $​74.​9B) was ninth and Switzerland (​2.​5%, $​59.​7B) was tenth 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 May 31, 2014, Taxable money funds held 24.​7% of their assets in securities maturing Overnight, and another 14.​1% maturing in 2-​7 days (​38.​8% total in 1-​7 days). Another 21.​3% matures in 8-​30 days, while 23.​3% matures in the 31-​90 day period. The next bucket, 91-​180 days, holds 13.​4% of taxable securities, and just 3.​1% matures beyond 180 days.

Crane Data'​s Taxable MF Portfolio Holdings (​and Money Fund Portfolio Laboratory) were updated Wednesday, and our MFI International "​offshore" Portfolio Holdings will be updated Friday (​the Tax Exempt MF Holdings will be released late Thursday). 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.

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A report released late last week by State Street'​s Center for Applied Research called "Stashing Cash Under the Mattress" finds that retail investors have dramatically increased their cash holdings, which includes assets in money market funds, as well as savings and checking accounts. (Sunday'​s New York Times first reported the study in "​Fear of Equities Drives More Investors to Cash".) The State Street survey says, "Cash allocations have jumped in the past two years with the global average rising from 31% in 2012 to 40% in 2014. In the US, allocations rose from 26% in 2012 to 36% in 2014. This jump was equal across the age spectrum, with Millennials (​under 33 years old), who are just starting their investment lives, increasing their allocations to cash at a similar rate as Baby Boomers (​49-​67 years old), who are starting to liquidate assets for retirement income. Traditionalist investors (​over 67 years old) were allocated the highest at 43%, followed by Baby Boomers at 41%, Millennials at 40% and Generation X (​33-​48 years old) at 38%."

The report says investors are seeking comfort in cash. "​Investors aren'​t able to stomach the volatility they perceive to be in play. The crisis of 2008 is burned into their memories. The younger generations in particular are wary of investing in what they perceive to be "​risky" assets. Many of these investors experienced back-​to-​back crises and they simply don'​t trust the markets," says the study, conducted in the first quarter of 2014.

The NY Times article on the report says, "​Why is this happening? Suzanne Duncan, global head of research at State Street'​s Center for Applied Research, chalked it all up to fear -- even though it has been more than five years since the Standard & Poor'​s 500 stock-​index hit its low." "​If it wasn'​t fear, there'​d be a much different variation by age," Ms. Duncan said. "Certain cohorts need more liquidity than others. When you find consensus across age cohorts, you realize it'​s not for liquidity needs but lack of trust across all age and wealth levels."

As we mentioned in our June 2 "Link of the Day," a recent Wall Street Journal article, "Millennials Are Really Risk Averse," echoes State Street'​s findings. The WSJ article says, "More than half of people between the age of 21 and 36 have their savings parked in cash," citing a new study entitled "How Millennials Could Upend Wall Street and Corporate America," by the Brookings Institution. "The high cash allocations to accounts like bank CDs and money-​market funds, which pay little-​to-​no interest, suggest young adults are reluctant to put money to work in the U.​S. stock market, which has bounced back from the financial crisis and recorded numerous record highs over the past year," states the WSJ. "Citing data from UBS, the Brookings study found that 52% of millennials have their savings in cash. By comparison, all other age groups have 23% of their savings in cash. Millennials also say they only have 28% of their assets in stocks."

According to the new State Street report, "On average, investors save only 22% of their net income and 44% -- the largest proportion -- goes to cash." The rest of the average asset allocation goes like this: equities/​stocks (​14%), mutual funds (​11%), bonds (​8%), other (​7%), gold/​silver/​commodities (​4%), currency (​4%), ETF (​3%), inflation-​protection products (​2%), private equity (​2%), and hedge funds (​1%).

According to the State Street study, Japan, with 57% in cash, tops the list of the countries with the highest allocations to cash/​money market investments. The Netherlands is second with 55% in cash/​money markets, while Germany is third with 49%. The rest of the list is as follows: Singapore (​46%), Switzerland (​45%), Brazil (​44%), France (​43%), U.​K. (​43%), Australia (​41%), U.​S. (​36%), Canada (​34%), UAE (​33%), Hong Kong (​33%), Italy (​32%), China (​32%), and India (​26%).

Over the past 2 years, money market mutual fund assets have been virtually flat, up $​14 billion, or 0.​5%. This compares to bank deposits, which have increased by almost $​1 trillion over the past 2 years and well over $​2 trillion the past 4 years. Though it'​s clear that bank savings and deposits have gained the lion'​s share of this cash buildup, the possibility of higher interest rates in the coming year or two makes it likely that money market funds will get their share of this new trend towards conservatism.

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The Federal Reserve'​s latest Z.​1 "​Financial Accounts of the United States" statistical release (​formerly the "Flow of Funds") for the First Quarter of 2014 was published late last week, and the four tables it includes on money market mutual funds show that the Household sector remains the largest investor segment, and "​Security repurchase agreements" passed "​Time and savings deposits" as the largest investment segment. Table L.​206 shows the Household sector with $​1.​091 trillion, or 42.​1% of the $​2.​591 trillion held in Money Market Mutual Fund Shares as of Q1 2014. Household shares decreased by $​39 billion in the 1st quarter. They fell by $​23 billion during 2013. Household sector money fund assets remain well below their record level of $​1.​581 trillion at yearend 2008.

Nonfinancial corporate businesses were the second largest investor segment, according to the Fed'​s data series, with $​497 billion, or 19.​1% of the total. Nonfinancial corporate business assets in money funds decreased $​24 billion in the quarter and increased by $​40 billion in 2013. Funding corporations, which includes securities lenders, remained the third largest investor segment with $​358 billion, or 13.​8% of money fund shares. They decreased by $​24 billion in the latest quarter and fell by $​104 billion in 2013. (​Funding corporations held over $​906 billion in money funds at the end of 2008.)

State and local governments held 6.​3% of money fund assets ($​165 billion). The Rest of the world category moved down to the fifth largest segment (​flat in Q1) in market share among investor segments with 6.​3%, or $​164 billion, while Private pension funds, which held $​147 billion (​5.​6%), moved down to 6th place. Nonfinancial noncorporate businesses held $​81 billion (​3.​1%), State and local government retirement held $​50 billion (​1.​9%), Life insurance companies held $​20 billion (​0.​8%), and Property-​casualty insurance held $​18 billion (​0.​7%), according to the Fed'​s Z.​1 breakout.

The Flow of Funds Table L.​120 shows Money Market Mutual Fund Assets largely invested in Credit market instruments ($​1.​520 trillion, or 58.​7%), a category which is made up of Open market paper (​we assume this is CP, $​354 billion, or 13.​6%), Treasury securities ($​454.​4 billion, or 17.​5%), Agency and GSE backed securities ($​326.​1 billion, or 12.​5%), Municipal securities ($​296.​4 billion, or 11.​4%), and Corporate and foreign bonds ($​88.​7 billion, or 3.​4%).

At the end of Q1 2014, money funds also held large positions in Security repurchase agreements ($​506.​2 billion, or 19.​5%) and Time and savings deposits ($​493.​4 billion, or 19.​0%). The remainder is invested in Foreign deposits ($​19.​4 billion, or 0.​7%), Miscellaneous assets ($​37.​2 billion, or 1.​4%), and Checkable deposits and currency ($​15.​5 billion, or 0.​5%).

During Q1, Security repos (​up $​13 billion) and Open market paper (​CP, up $​2 billion) showed increases, while Time and savings deposits (​down $​1 billion), Treasury securities (​down $​34 billion), Agency securities (​down $​35 billion), Credit market securities (​down $​92 billion), Municipal securities (​down $​12 billion), and Foreign deposits (​down $​14 billion), all showed declines. (​We'​re not aware of a detailed definition of the Fed'​s various categories, so aren'​t sure in some cases how to map some of these figures against other data sets.)

In other news, the Federal Reserve Bank of New York'​s Liberty Street Economics blog published "​What'​s Your WAM? Taking Stock of Dealers' Funding Durability". It says, "One of the lessons from the recent financial crisis is the need for securities dealers to have durable sources of funding. As evidenced by the demise of Bear Stearns and Lehman Brothers, during times of stress, cash lenders may pull away from firms or funding markets more broadly. Lengthening the tenor of secured funding is one way for a dealer to mitigate the risk of losing funding when market conditions are strained. In this post, we use clearing bank tri-​party repo data to examine the degree to which dealers are lengthening the maturities of their sources of funding. (​Aggregate statistics using these data are available here.) We focus on less liquid securities because it is for these assets that the durability of funding matters the most. We find substantial progress overall, with the weighted-​average maturity (​WAM) of funding of the less liquid securities more than doubling from January 2011 to May 2014. Nevertheless, there is currently a wide dispersion in dealer-​level WAM, raising questions as to whether all dealers have enough durability in their funding of risk assets."

The post, written by Adam Copeland, Isaac Davis, and Ira Selig, says, "Although dealers can obtain funding in the money markets through a range of mechanisms, the repurchase agreement (​repo) is a particularly popular tool. Repos are essentially collateralized loans, although they are treated differently in bankruptcy cases. Furthermore, many dealers use a particular type of repo, called tri-​party repo, to raise secured funds (see this staff report for a description of tri-​party repo), so studying the maturity of tri-​party repo trades should provide us with a representative view into the durability of dealers' funding."

Finally, it adds, "The WAM statistic is the average remaining maturity of all open tri-​party repo trades, weighted by the value of securities posted as collateral. Remaining maturity is the number of days left until a particular repo trade matures. For example, after five days, the remaining maturity on a seven-​day repo is two days. We focus on repo trades collateralized by risk assets as opposed to trades collateralized by government and agency securities. In tri-​party repo, the four main types of risk assets financed are asset-​backed securities, private-​label collateralized mortgage obligations, corporate bonds, and equities (​see this table for a snapshot of the types of securities posted as collateral in tri-​party repo)."

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In an historic move, the Governing Council of the European Central Bank cut the interest rate on the deposit facility to -​0.​10%, effective June 11, 2014. It'​s a record-​low rate for the ECB and the first time a major central bank has set a negative rate. In its FAQ explaining the move, the ECB writes, "​Like most central banks, the ECB influences inflation by setting interest rates. If the central bank wants to act against too high inflation, it generally increases interest rates, making it more expensive to borrow and more attractive to save. By contrast, if it wants to counter too low inflation, it reduces interest rates. Since euro area inflation is expected to remain considerably below 2% for a prolonged period, the ECB'​s Governing Council has judged that it needs to lower interest rates. The ECB has three main interest rates on which it can act: the marginal lending facility for overnight lending to banks, the main refinancing operations and the deposit facility. The main refinancing rate is the rate at which banks can regularly borrow from the ECB while the deposit rate is the rate banks receive for funds parked at the central bank. All three rates have been lowered." Below, we discuss the move and its potential impact on Euro money market funds and indirectly on U.​S. MMFs and European USD money market funds.

The ECB adds, "​To maintain a functioning money market in which commercial banks lend to each other, these rates cannot be too close to each other. Since the deposit rate was already at 0% and the refinancing rate at 0.​25%, a cut in the refinancing rate to 0.​15% meant the deposit rate was lowered to −​0.​10% to maintain this corridor. The cut is part of a combination of measures designed to ensure price stability over the medium term, which is a necessary condition for sustainable growth in the euro area."

In a press conference following the announcement, ECB President Mario Draghi talked about the impact on money markets. On the transcript posted by Bloomberg BusinessWeek, Draghi says, "Interest rates will stay low for long, possibly longer than previously foreseen, and this will feed into the money market conditions via the yield curves and the exchange rate. This is the first block. The second is; we want to make sure that these improved conditions in the money markets would be transmitted to the real economy.... When do we foresee we'​ll see some outcome? It'​s very difficult to say, but most likely it will -- we'​ll all see immediate effects on the money markets and we will see delayed effects on the real economy attributable to this."

Fitch Ratings comments, "Euro-​denominated money market funds have already taken investment and operational measures to prepare for yields declining or even turning negative, should short-​term money market rates shift in that direction following the European Central Bank'​s decision to cut the rate on its deposit facility to minus 10bp. [​Last week'​s] ECB negative deposit rate move and cut in the main refinancing rate of 10bp to 0.​15%, effective 11 June, is likely to push MMF yields back to near zero levels. MMF net yields had ticked up to reach 18bp on average at end-​May across euro CNAV MMFs, from a trough in February 2013 at 2bp."

Fitch continues, "​The cut in the ECB'​s deposit rate will push the Euro overnight index average lower, but the risk of MMF yields turning negative is lower now than 18 months ago, when the eurozone liquidity was under stress. Current market rate levels means that most MMFs do not anticipate difficulties placing short-​term cash.... It is unknown how investors will react to the likely decline of MMF yields in the current less risk-​averse market environment. They may elect to switch to higher yielding products, trading off liquidity, spread sensitivity and credit quality for higher yields."

A Reuters article entitled, "​Further ECB easing to have little to no money market impact: poll", says the rate change would little or no impact on money market funds. "​Another cut to the ECB'​s deposit rate, currently at zero, would effectively charge banks to park cash with it overnight but a slim majority of euro money market traders -- 13 of 23 -- said the package would only lower near-​term money market rates slightly. The other 10 traders said further policy easing by the ECB on Thursday would not do anything to money market rates even in the near term."

However, a Reuters article, "Euro holds ground even as ECB launches low inflation fight," published June 5, says it could lead to an exodus. "Morgan Stanley analysts reckon the imposition of negative rates could lead to an exodus from euro zone money markets. They expect U.​S. money market funds, who have holdings of around 350 billion euros in the euro zone, to liquidate some of their holdings, putting downward pressure on the euro." [​Note: we'​re mystified by this speculation and don'​t see how Euro rates would impact U.​S. money funds, which can only buy US dollar-​denominated debt, at all.]

Crane Data has reported on several examples of consolidation in the European money market space in recent months. In an article from October 2013, we reported "Goldman Sachs AM to Acquire RBS' Offshore Money Funds Business," and in August 2012, we wrote "BofA to Close and Liquidate Global Liquidity Euro Money Fund." BofA said at the time, "​The decision to close the Euro Fund follows the European Central Bank'​s July 5th [​2012] rate cut, which reduced its benchmark interest rate to a record low of 0.​75% and the rate on overnight deposits to 0.​00%. The resulting yield pressure on Euro-​denominated short term debt makes it difficult to manage the Euro Fund within its investment guidelines without having a negative effect on the value and yield of the Euro Fund." Finally, we wrote that "PIMCO liquidated its Euro Liquidity Fund" in October 2012.

While we expect this modest consolidation to continue, we don'​t expect any drastic change in the trend of the slow and gradual decline in Euro money market fund assets. Crane Data'​s Money Fund Intelligence International, which tracks the Dublin and Luxembourg-​domiciled "​offshore" money fund market, tracks 24 managers overseeing $​698 billion in assets, with $​388 billion in US dollar funds, L125 billion in Pound Sterling funds, and just E78 billion in Euro funds, and as of June 4, 2014. Our Crane EUR MMF Index currently shows the average 7-​Day Yield of the 98 Euro funds we track at 0.​12%, much higher than the Crane USD MMF Index, which yields just 0.​03%. (​So the Euro yields still have room to drop before fee waivers and other measures set in to keep them from going negative.)

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The June issue of Crane Data'​s Money Fund Intelligence was sent out to subscribers on Friday morning. The latest edition of our flagship monthly newsletter features the articles: SEC Intensely Focused on MF Reform; Very Near Term?," which reviews SEC Chair Mary Jo Whites latest comments on money market reform; "Stability, Fiduciary Priorities at BlackRock; Eye to Future," which interviews BlackRock'​s Rich Hoerner and Tom Callahan; and, "ICI Releases 2014 Investment Co. Fact Book," which reviews a number annual MMF facts, stats, and trends. We also updated our Money Fund Wisdom database query system with May 31, 2014, performance statistics and rankings late Thursday night, and sent out our MFI XLS spreadsheet Friday a.​m. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our May 31 Money Fund Portfolio Holdings data are scheduled to go out on Tuesday, June 10.

The latest MFI newsletter'​s lead article comments, "Money market providers and investors continue to await the SEC'​s final Money Market Fund Reform regulations, but guesses as to when we might see the new rules range from next week to not at all. Most now seem to expect the regs between the end of June and the end of October though, with the heaviest betting now being late July or August. The speculative consensus still also seems to lean toward a combination of floating NAV for Inst MMFs and "​gates & fees" for all prime MMFs. But of course, nobody really knows and many of the even minor details could matter greatly."

The article explains, "The most recent official word on the matter was from SEC Chair Mary Jo White, who spoke at the ICI'​s annual meeting on May 22. White didn'​t give any indication about what they might look like, but she did reiterate her comments from earlier this year that the rules would arrive in the "​very near term." She told the ICI, "[​T]​he Commissioners ... and the Staff are intensely focused on it [​MMF Reform] as we speak, completing the very important rulemaking. I expect it will be completed in the very near term. I won'​t say what the very near term is, but it'​s front and center."

Our MFI "profile" says, "This month, we sat down with Rich Hoerner, head of global cash management, and Tom Callahan, deputy head of global cash management, at BlackRock, the 3rd largest manager of money funds globally with approximately $​263 billion (​3/​31/​14). They talked about new products, the regulatory environment, and some emerging trends that could reshape the money fund landscape. Our discussion follows."

The piece continues, "MFI: Tell us about your background? Hoerner: I started with PNC in 1987 and joined the money market business, which was then known as Provident Institutional Management Corp., in 1992. In the mid-​1990s, PNC bought BlackRock.... I grew up on the portfolio side of the money fund business before taking over as co-​head of the cash business at BlackRock about 5 years ago. Callahan: I'​ve been with BlackRock just 8 months. I joined in September of last year from the NYSE where I had been the CEO of their Liffe U.​S. futures exchange. Prior to that, I ran Merrill Lynch'​s money market business for a time.... So I have been in and around the short end of the market for most of my career."

It adds, "Hoerner: The cash business at BlackRock has a long history. TempFund [​which celebrated its 40th birthday late last year] was launched in October 1973 by Provident National Bank.... In 1982, Pittsburgh National Bank and Provident National Bank merged to form PNC. Then in 1995, PNC purchased BlackRock, [​while BlackRock continued to be managed independently]. In 2006, BlackRock purchased Merrill Lynch Investment Managers.... In December of 2009, BlackRock bought Barclays Global Investors from Barclays Bank.... They also had a money fund business and a sizable securities lending business." (​Watch for more excerpts of this interview later this month, or write us to request the full article.)

The June MFI article on ICI Releases 2014 Investment Co. Fact Book explains, "​The ICI released its "​​2014 Investment Company Fact Book" last month at the Institute'​s annual meeting in Washington. As usual, the "​Fact Book" is loaded with useful statistics on money market mutual funds. Under the section, "Demand for Money Market Funds (​on page 45)," the Fact Book says, "In 2013, money market funds received a modest $​15 billion -- the first annual inflow since 2008. Demand for money market funds was not uniform throughout 2013, however. Various factors, including tax events, rising long term interest rates, and a U.​S. debt ceiling standoff, influenced money market fund flows during 2013."

Crane Data'​s June MFI with May 31, 2014, data shows total assets increasing by $​11.​9 billion (​after falling by $​59.​5 billion last month and $​25.​9 billion in March) to $​2.​500 trillion (​1,​255 funds, up from 1,​238 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 43 days, respectively, down one and two days, respectively, from the prior month. (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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The U.​S. Treasury Department'​s Office of Financial Research released a paper late last week entitled, "A Map of Funding Durability and Risk, written by Andrea Aguiar and Thomas Wipf from Morgan Stanley and Rick Bookstaber from the OFR. The 28-​page report explores how "​the dynamics of the financial system and the undercurrents of its vulnerabilities rest on the flow of funding." In particular, the paper analyzes high profile failures from the recent economic crisis -- the seizing up of short-​term funding at Bear Stearns; the counterparty exposures and near-​bankruptcy of American International Group; and the Lehman Brothers bankruptcy -- to illustrate the need to understand funding flows and related collateral flows. It examines how, "Stresses to one part of the system can spread to others, in an extreme case resulting in a threat to financial stability." We also briefly discuss Euro money funds and the possibility of negative rates below.

The paper tells us, "The funding map shows the path of funding from the key funding sources -- like money market funds, pension funds and corporate treasurers -- through the Bank/​Dealer to the users of that funding. Flows are not shuffled from one institution to another, the report states; they are transformed in various ways.... Funding provides the fuel for these transformations. For that reason, the possible loss of funding under stress is a dominant risk to the Bank/​Dealer'​s ability to create or intermediate these transformations."

It explains, "This paper uses the funding map to introduce the concept and importance of "​funding durability," defined as the effective term of funding in the face of signaling and reputational considerations during periods of stress." In other words, the authors say, durability determines how long a Bank/​Dealer can remain independently solvent without reducing assets that in turn would create broader market stress. "When the loans and commitments that the Bank/​Dealer makes are more durable than the funding sources used to finance them, there is the risk of a funding shortfall," the paper says. This can lead to a forced sale of assets or fire sale.

The paper states, "Money market funds are not a source of durable funding because for liquid funding they are limited in the term of their secured funding under the Securities and Exchange Commission'​s regulation 2a-​7. Also, during a stress event, money market fund investors may redeem their shares, requiring the money market fund to liquidate its investments."

"If less durable funding is used to fund an asset that is difficult to fund in normal environments, there is a risk that funding might be pulled away in a stressed environment while the exposure that is being funded remains," the authors assert. "​On that basis, funding with low durability should be limited to securities such as U.​S. Treasuries and other top-​quality sovereign debt, while only highly durable funding should be used for illiquid securities such as sub-​investment grade asset-​backed securities and longer-​term, illiquid obligations."

In conclusion, the authors state that the funding map can be used as a schematic for identifying the data that are needed to track funding and related collateral flows through different entities linked to a Bank/​Dealer. "Once populated with the required data, this model will emphasize funding-​related vulnerabilities and trace possible paths of contagion, as well as highlight alternative paths for critical funding and securities," it tells us.

In other news, The New York Times features "​Europe Likely to Get Negative Interest Rates", which says, "​First there was ZIRP. Now get ready for NIRP. The first is "​zero interest-​rate policy," the strategy for trying to stimulate economic growth that the United States has undertaken for the last 5 1/​2 years (​and the Bank of Japan much longer than that). The second is "​negative interest rate policy." And that'​s what the European Central Bank is likely to put in place on Thursday for the 18 nations that use the euro currency. That, anyway, is the move that leaders of the European bank have telegraphed to markets."

According to Crane Data'​s Money Fund Intelligence International, there are currently 98 funds denominated in Euro with just E79.​0 billion in assets. (​These are domiciled in Dublin and Luxembourg and marketed to multinational corporations. These don'​t include French money funds, which we consider more akin to ultra-​short bond funds.) Our Crane EUR MMF Index is currently yielding 0.​12% on average, so these funds do have some room to see yields fall. We expect the gradual exodus out of this sector to continue though, and we may see funds close to new investments in order to delay the impact of negative yields. The 10 largest managers of Euro money funds include: BlackRock (​E17.​8B), Goldman (​E13.​0B), JPMorgan (​10.​9B), Deutsche (​E9.​4B), BNP Paribas Insticash (​E7.​7B), SSgA (​4.​3B), Amundi (​E3.​9B), HSBC (​E3.​9B), Morgan Stanley (​E2.​7B), and Fidelity (​E1.​2B).

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Fitch anticipates minimal impact from the diversification portion of Rule 2a-​7 changes proposed by the SEC in June 2013 on Fitch-​rated funds, according to a report released by Fitch Ratings. The study, "Little Impact on Fitch-​Rated Money Funds From SEC Proposed Diversification Rules," explains that the proposed changes are intended to foster greater levels of money market fund (​MMF) portfolio diversification. But, the Issuer and guarantor diversification requirements in the SEC proposals already feature prominently in Fitch'​s MMF criteria and analysis. "Based on Fitch'​s review of March 31, 2014 portfolio data for 121 Fitch and non-​Fitch rated prime MMFs (​using data provided by Crane Data LLC), it appears that most funds currently manage to standards that meet or exceed the recently proposed SEC diversification guidelines; consequently, it appears that if these guidelines were adopted, there would be only modest impact on non-​Fitch-​rated MMFs," the report asserts.

"Among funds not rated by Fitch, single state money market funds would be the most directly impacted by the adoption of the proposed guidelines, as these funds make the heaviest use of the current 25% guarantor exemption," says the report. Less than 2% of tax-​exempt retail and state money fund assets are triple-​A rated by Fitch; Institutional money funds tend to be triple-​A rated while Retail investors normally don'​t insist on a third-​party rating.

Current Rules Fitch writes, "Rule 2a-​7 currently limits prime and national tax exempt MMFs to investing no more than 5% of total assets at acquisition in the first tier securities of any single issuer, although they can invest 25% of total assets in the first tier securities of a single issuer for a period of up to three business days, provided this exception is used only for a single issuer at any one time. Bonds issued or guaranteed by the U.​S. government are exempt from the 5% limit. For single state tax exempt funds, Rule 2a-​7 currently imposes less stringent diversification requirements, largely in recognition of the potentially limited supply of strong issuers in which a state fund can invest. Single state tax exempt funds cannot invest more than 5% of total assets in securities issued by any single issuer with respect to 75% of the portfolio. The remaining 25% of a state fund portfolio is not subject to single issuer diversification requirements. This contrasts with taxable and national tax exempt funds, which cannot make use of the 25% bucket exemption."

They explain, "In addition, Rule 2a-​7 currently applies a 10% concentration limit on providers of guarantees or demand features from a single institution. However, this limit applies to only 75% of the portfolio. This creates a 25% basket for guarantees and demand features from a single first tier provider. Fitch notes that under current 2a-​7 rules, each sponsor of an ABS special purpose entity (​SPE) is considered a discrete issuer instead of a guarantor and hence not subject to the 10% guarantor limitation."

On the "SEC'​s Diversification Proposals," Fitch writes, "To further limit single risk concentration levels, the SEC proposes requiring MMFs to consolidate affiliated entities into single issuers when applying the 5% issuer concentration limit. The proposal deems entities to be affiliated if one controls another or both are under common control, with control defined as ownership of more than 50% of an entity’​s voting securities. To limit indirect risk to a guarantor, the SEC has proposed removing the 25% basket and applying the 10% concentration limit on providers of guarantees and demand features to the fund'​s entire portfolio."

They continue, "Furthermore, the SEC proposes requiring funds to treat ABS sponsors as guarantors subject to rule 2a-​7'​s 10% guarantor diversification requirements. This includes exposures to asset- backed commercial paper (​ABCP), which are commonly owned by MMFs because their short maturities (​typically three months) are consistent with a MMF'​s maturity and liquidity profile. However, an ABS sponsor would not be subject to the guarantor diversification requirements if the fund’​s board of directors determines that the fund is not relying on the sponsor to support the ABS trust."

On the "Impact of Proposed Diversification Changes," the report says, "Fitch'​s criteria for '​AAA' rated MMFs provide for a concentration guideline of 10% to any direct first tier issuer, which is higher than the 5% guideline proposed by the SEC. However, this differential is mitigated by the Fitch criteria stipulation that within the 10% guideline, only 5% can exceed seven days. As of March 31, 2014, large direct concentrations in Fitch-​rated U.​S. funds were well within the 10% guideline, with no large direct concentrations exceeding 5.​5% of assets. Fitch'​s guideline for total direct (​issuer) and indirect (​guarantor) exposure to the same institution is 15%. By contrast, the SEC proposal calls for a 5% direct exposure limit and a 10% indirect exposure limit. Theoretically, a Fitch-​rated MMF that had no direct exposure to an institution but had a 15% exposure to that institution as a guarantor would have to reduce this exposure by 5% if the SEC proposals are adopted."

"Fitch continually monitors the exposure concentrations of its rated MMFs on a weekly basis," states the report. "Fitch noted only a small number of funds with issuer concentrations exceeding 5%. In general, any variances in the underlying exposure concentration were short, generally coming due in the three−​six month range. Therefore, adoption of proposed issuer concentrations shouldn'​t be difficult for these funds to implement."

Finally, Fitch writes, "Also, adopting the removal of the 25% basket proposal, as well as the ABS sponsor proposal, would have only a limited impact on prime and government MMFs not rated by Fitch. Fitch noted a small number of funds with concentrations slightly in excess of the 10% proposed SEC guideline to ABCP programs whose sponsors would be deemed guarantors under the proposed change. Given the short remaining tenor of the exposures (​one month or less) and the moderate level of variance to the 10% guideline, Fitch would anticipate the funds would be able to meet the 10% limit if the proposal to remove the 25% basket were to be adopted. However, among funds not rated by Fitch, single state money market funds would be the most directly impacted by the adoption of the proposed guidelines, as these funds make the heaviest use of the 25% basket."

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Michael Lydon, CEO of Reich & Tang, recently sat down for an interview with 21st Century Television, an independent produced, sponsor-​funded business show. R&​T'​s press release explains, "Watch and listen as Mr. Lydon shares his insights into the deposit, liquidity, and cash management markets, how Reich & Tang is navigating the historically low interest rate environment, and the value the firm provides to banks, broker-​dealers, RIAs, and institutions. Host Donald Trump Jr., asks Lydon about new products, growth potential, Reich & Tang'​s rebranding initiative, and where the money fund industry is headed. Below, we excerpt from the interview.

On creating new products to gain more yield, Lydon says, "If your customer is looking for additional yield and you do want to go out on the curve, that does come with some risk. If you look at our customers and who we serve, we'​re really looking in the shorter-​term, preservation of capital and providing liquidity for our customers. So it'​s a matter of does the product fit your customer."

On R&​T specializatiokn in deposit liquidity and cash management solutions, he comments, "​It means they (​clients) get 100% of our focus. We are in the cash management business; we don'​t do other products such as stocks or equity funds. So it gives us the ability to drill down and address their needs for that short-​term cash product."

Lydon explains, "​Certainly banks, broker dealers, and institutional investors [​can benefit the most from R&​T'​s services]. If you look at banks, we'​re providing liquidity management for those banks; we'​re providing funding for those banks. In the broker-​dealer space we are providing sweep products. So to the extent that customer wants a money fund or a competitive yielding FDIC insurance product, we offer both as their sweep vehicle. For institutional investors, we can provide the money funds, or perhaps if they are looking for a more competitive yield, we can go to our insured deposit products."

He tells Trump Jr., "Recently we acquired the HighMark funds from Union Bank of California, and I think that was a clear example of where we have value in the industry. HighMark certainly wanted to focus on their core competencies, which were outside of the money fund space; they looked at R&​T as a specialist that could deliver on providing that preservation of capital, that conservative approach to money management. We were an ideal fit. We were also up against some of the larger competitors in the industry and High Mark chose us over some very good competition."

Lydon says of R&​T'​s size, "We'​re certainly a mid-​tier player, and being in that mid-​tier gives us the ability to invest more savvy than larger players. We are not forced to buy the market when we have heavy inflows of customer cash coming in. So that flexibility, that nimbleness, I think gets us in a place where we can make sure we still stay conservative by very competitive yields.... We are in a very challenging rate environment and I think the best way for us to grow is to continue to look at opportunities to acquire other money fund providers. In our space, if you'​re not of a certain size it is challenging. So the best thing that we can do is to continue to grow our company through some acquisitions."

He continues, "Certainly in our FDIC insured deposit space through our sweep products with our brokers, we see tremendous growth there. We believe we'​re bringing tremendous value and our ability to specialize and focus is something that the broker dealer community is really starting to take notice of."

On launching new funds, Lydon adds, "In the money fund space we'​re staying course. Clearly we have a conservative approach. We'​ve been in this business for 40 years and we'​ve been successful staying away from troubles in that space. So I think we are going to continue [​along] the same line. New product development is going to come more from our bank products and our insured deposit products.... I think because we'​ve had some success in recent years, we'​ve started to evolve, so we are not the same company that we were."

He comments on transparency, "We were one of the first to publish daily holdings. We put it out there on our website for everyone to see. We took another pretty big step and showed everyone what'​s on our buy list. So not only do you know what'​s in our funds, but you also know what we could potentially buy. For the institutional investor that is very important. That level of transparency gives them comfort that they know what they are buying."

Finally, Lydon states, "​The yield environment has been very depressed. The bank products are giving us that ability in providing that additional yield to the customer. So if you look at government funds, for example, you see a shift from government funds into these insured deposit products. We see tremendous growth in our bank products over the years."

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The preliminary agenda and dates are now set for the largest money fund conference outside of the U.​S., Crane'​s European Money Fund Symposium. Our second annual event will be held Sept. 22-​23 at the London Tower Bridge Hilton in London, England. Crane Data'​s first European event, held last September in Dublin, attracted over 100 attendees, sponsors and speakers, and we expect our London event to be even bigger and better. (Crane Data will host its flagship U.​S. event, Money Fund Symposium, a month from today in Boston, June 23-​25. Note that the Renaissance and neighboring Seaport Hotel are now sold out for our dates; attendees will have to seek rooms at the Westin Waterfront or elsewhere.)

"European Money Fund Symposium offers European, Asian and "​offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue," says Peter Crane, President & CEO of Crane Data. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals."

Attendee registration for our 2014 Crane'​s European Money Fund Symposium is $​1,​500 (​or 900 GBP). Registration is open and sponsorships are still available. Visit http://​www.​euromfs.​com to register or to see the latest agenda <​i:​http://​www.​kinsleymeetings.​com/​CraneEuropean/​agenda.​html>`​_. Contact us to request the PDF brochure, for Sponsorship pricing and info, and for more details.

The agenda features sessions led by many of the leading authorities on money funds in Europe and worldwide. The Day One Agenda for Crane'​s European Money Fund Symposium includes: "Welcome to European Money Fund Symposium" by Peter Crane of Crane Data; a "State of MMFs in Europe & IMMFA Update" with Jonathan Curry and Susan Hindle Barone of IMMFA; "Regulations in Europe: Bullet Dodged?" with Dan Morrissey of William Fry and Paul Wilson of SWIP; "Senior Portfolio Manager Perspectives," moderated by Yaron Ernst of Moody'​s Investors Service and featuring Debbie Cunningham, of Federated Investors, Joe McConnell of J.​P. Morgan Asset Management and Jennifer Gillespie of Legal & General I.​M.; "MM Securities: New Sources of Supply," with David Hynes, of Northcross Capital LLP, Kieran Davis of Barclays, and Jean-​Luc Sinniger of Citi Global Markets; "Portals, Transparency & Investor Issues" with Greg Fortuna, of State Street'​s Fund Connect, Justin Meadows of MyTreasury, and Maryum Malik of SunGard; "Discussing Domiciles: Tax, Accounting, Servicing" with Pat Wall and Sarah Murphy of PricewaterhouserCoopers Dublin, and Owen McManus of Ernst & Young; and, finally, an "Ireland and IFIA Update" with Kevin Murphy, of Arthur Cox.

The Day Two Agenda includes: "MM Strategists Speak: Rates, Regulations, Risks" with Giuseppe Maraffino of Barclays and Vikram Rai, of Citi; "Distribution: Major Issues & Client Concerns" with Jim Fuell, of J.​P. Morgan Asset Management, Kathleen Hughes, of Goldman Sachs A.​M., and Kevin Thompson, of SSgA; "Recent Ratings Research: Trends & Issues" presented by Yaron Ernst of Moody'​s; "State of US Money Funds & Rule 2a-​7" with Charlie Cardona, of BNY Mellon CIS, Jane Heinrichs of the Investment Company Institute, and John Hunt of Nutter, McClennen & Fish; "Euro & Sterling MMF Issues with David Callahan of Lombard Odier I.​M. and Dennis Gepp of Federated Investors (​UK) LLP; "Beyond MMFs: Enhanced Cash Strategies with Jason Granet of Goldman Sachs and Guyna Johnson of Standard & Poor'​s Ratings; "MMF'​s in Asia & Emerging Markets" by Peter Crane and Andrew Paranthoiene of Standard & Poor'​s; and finally, "Offshore Money Fund Data & Statistics" with Peter Crane and Aymeric Poizot of Fitch Ratings.

European Money Fund Symposium will be held at the Hilton London Tower Bridge Hotel. The negotiated conference rate is L261 for a single room and L272 for a double. Reservations can be made either online or by phone. You may call The Hilton London Tower Bridge Hotel directly at +​44 203 002 4300. Please identify yourself as attending the Crane'​s European Money Fund Symposium in order to ensure you receive the negotiated conference rate.

Finally, visit www.​moneyfundsymposium.​com to learn more about our big U.​S. show, Crane'​s Money Fund Symposium which will be held June 23-​25, 2014, in Boston, and www.​moneyfunduniversity.​com to learn more about our "​basic training" event, Crane'​s Money Fund University, which will take place January 22-​23, 2015, in Stamford, Conn. Thanks for your support, and we hope to see you in London!

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