News Archives: July, 2016

While money fund assets overall were flat in the latest week, Prime MMF assets continued their summer plunge and massive shift into Government MMFs, falling below $1.0 trillion for the first time in 20 years. ICI's weekly "Money Market Fund Assets" report shows all MMFs increasing a mere $130 million in the latest week. But Prime funds lost another $18.2 billion -- their 8th week in a row of declines (-$150.4B). (Govt funds continue to be the recipient of these assets.) Over the past 4 weeks, overall assets have declined by about $3 billion. Prime MMFs have fallen $58.4 billion the past 4 weeks and $174.0 billion the past 9 weeks, while Govt MMFs gained $65.1 billion over 4 weeks and $182.9 over 9 weeks. We look at these latest flows, and excerpt from ICI's latest "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" reports below.

Since Oct. 29, 2015, just prior to Fidelity Cash Reserves' huge conversion, Prime assets have fallen by a massive $468.4 billion, or 32.1%. Govt MMFs have increased by $527.7 billion during this same time while Tax Exempt MMFs have fallen by $61.5 billion. YTD in 2016, Prime MMFs are down by $293.8 billion, or 22.9% while Govt MMFs are up by $320.4 billion, or 26.2%. Government fund assets moved ahead of Prime assets in February 2016 for the first time ever, and they haven't looked back. The shift was initially fueled by the conversion of over $300 billion of Prime funds into Govt funds, but since June appears to be driven by investors and investor segments shifting from Prime funds into Govt MMFs.

ICI's latest weekly says, "Total money market fund assets increased by $130 million to $2.71 trillion for the week ended Wednesday, July 27, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $23.19 billion and prime funds decreased by $18.23 billion. Tax-exempt money market funds decreased by $4.82 billion." Government assets, including Institutional and Retail (and Treasury and Government), which broke above the $1.5 trillion level for the first time ever last week, stand at $1.541 trillion, while Prime assets, which dipped below the $1.0 trillion level for the first time in 20 years, are at $990 billion.

The release explains, "Assets of retail money market funds decreased by $2.56 billion to $955.81 billion. Among retail funds, government money market fund assets increased by $4.10 billion to $461.21 billion, prime money market fund assets decreased by $3.50 billion to $353.67 billion, and tax-exempt fund assets decreased by $3.16 billion to $140.93 billion…. Assets of institutional money market funds increased by $2.69 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $19.08 billion to $1.08 trillion, prime money market fund assets decreased by $14.73 billion to $636.33 billion, and tax-exempt fund assets decreased by $1.66 billion to $42.52 billion."

ICI's "Trends in Mutual Fund Investing June 2016" confirms another decrease in MMF assets in June. MMFs were down $7.5 billion, or 0.3%, to $2.703 trillion after dropping $11.8 billion in May, $41.8 billion in April, and $15.1 billion in March. (Assets should be down in July too.) But in the 12 months through June 30, money fund assets are up $87.4 billion, or 3.3%, according to ICI.

The monthly release says, "The combined assets of the nation’s mutual funds decreased by $1.58 billion to $15.91 trillion in June, 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 $8.32 billion in June, compared with an inflow of $12.88 billion in May …. Money market funds had an outflow of $8.02 billion in June, compared with an outflow of $6.61 billion in May. In June funds offered primarily to institutions had an inflow of $10.89 billion and funds offered primarily to individuals had an outflow of $18.91 billion <b:>`_."

The report shows that the bulk of the money fund outflows in May were from Tax-Exempt MMFs, which declined by $6.1 billion, compared to taxable, which had $4.6 billion in outflows. Year-to-date through May, MMFs have had $47.1 billion in outflows, with $293 million in inflows to Taxable funds and $47.4 billion in outflows from Tax-Exempt funds." Money funds now represent 17.0% of all mutual fund assets, while bond funds represent 22.4%. The total number of money market funds dropped to 450 in May, down from 456 in April and down from 520 a year ago.

ICI's latest "Portfolio Holdings" summary shows that Repo and Agencies jumped in June, while CDs and CP declined sharply. Repo solidified its position as the largest portfolio segment, rising $84.0 billion, or 15.0%, to $643.4 billion or 25.6% of holdings. U.S. Government Agency Securities held onto second, gaining $54.3 billion, or 10.6%, to $566.0 billion or 22.6% of holdings. Treasury Bills & Securities stayed in third place among composition segments, rising $8.8 billion, or 1.7%, to $517.6 billion, or 20.6% of holdings. These gains reflect the ongoing conversions of Prime funds to Government funds and shifts of assets from Prime to Govt.

Certificates of Deposit (CDs) stood in fourth place, but decreased $113.1 billion, or 20.4%, to $440.8 billion (17.6% of assets). Commercial Paper remained fifth, decreasing $36.6B, or 11.7%, to $276.6 billion (11.0% of assets). Notes (including Corporate and Bank) dropped by $4.2 billion, or 18.8%, to $18.3 billion (0.7% of assets), and Other holdings (including Cash Reserves) stood at $47.1 billion, up from $35.6 billion. (See our July 13 News, "MF Portfolio Holdings: Repo, Agencies Up; TDs, CDs, European Down Big.")

The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 292.8 thousand to 23.422 million, while the Number of Funds fell by 1 to 322. Over the past 12 months, the number of accounts rose by 64.9 thousand and the number of funds declined by 34. The Average Maturity of Portfolios was 36 days in June, up 1 day from May. Over the past 12 months, WAMs of Taxable money funds have declined by 2 days. Note: Crane Data also revised its July MFI XLS this week to reflect the latest 6/30/16 Portfolio Composition data and Maturity breakouts. (Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access our June Money Fund Portfolio Holdings and the latest files.)

The SEC released its "Money Market Fund Statistics" for June 2016 yesterday, and the latest data shows that assets fell slightly (with yet another sharp drop in Prime and jump in Govt MMFs) and yields increased slightly. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. The Commission's latest statistics show total money market fund assets dropped by $20.7 billion in June to $2.993 trillion. (The SEC's series includes some private and internal funds not reported to ICI, Crane Data or other reporting agencies.) Assets fell $18.7 billion in May, $40.5 billion in April, and $50.1 billion in March, but rose $58.5 billion in February. Year-to-date, total assets are down $92.9 billion, or 3.0%, through 6/30. We analyze the latest numbers below, and also quote from a new Fitch piece on Chinese money market funds.

Of the $2.992 trillion in assets, $1.278 trillion was in Prime funds, which dropped by $124.5 billion in June after falling $66.9 billion in May, $48.0 billion in April and $68.5 billion in March. Prime funds now represent 42.7% of total assets; they've declined by $293.2 billion YTD, or 18.7%, and they've fallen $512.1 billion, or 28.6% since 10/31/15. Government & Treasury funds total $1.512 trillion, or 51.0%% of assets, up $120.0 billion in June and up $53.7 billion in May. Govt & Treas MMFs are up $262.5 billion YTD and $470.9 billion since 10/31/15, just prior to the start of the Prime to Govt conversion trend. Tax Exempt Funds were down again, dropping $16.3 billion to $201.6 billion, or 6.7% of all assets. The number of money funds was 464, down 2 for the month and down 73 from 6/31/15.

Yields increased slightly in June. The Weighted Average Gross 7-Day Yield for Prime Funds on June 30 was 0.57%, up 2 basis point from the previous month, and more than doubled the 0.27% of November 2015. Gross yields were 0.43% for Government/Treasury funds, up 0.04% from the previous month and up 0.28% from 11/15. Tax Exempt Weighted Gross Yields rose 4 basis point in June to 0.46% after jumping 8 bps in April and 25 bps in March. The `Weighted Average Net Prime Yield was 0.35%, increasing by 0.01% from the previous month and up 0.24% since 11/15. For the year-to-date, 7-day gross yields are up 16 basis points and net yields are up 13 basis points. The Weighted Average Prime Expense Ratio was 0.22% in June (unchanged from May). Prime expense ratios have risen from 0.16% in November 2015.

Maturities continued to move lower and liquidity continued to inch higher in June. The average Weighted Average Life, or WAL, was 45.1 days (down 1.7 from last month) for Prime funds, 99.2 days (up 4.2 days) for Government/Treasury funds, and 25.3 days (up 4.2 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM was 29.0 days (down 1.5 days from the previous month) for Prime funds, 40.7 days (up 1.7 days) for Govt/Treasury funds, and 23.3 days (up 4.9 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 30.5% in June (down 2.0% from previous month). Total Weekly Liquidity was 48.8% (up 0.9%).

In the SEC's "Prime MMF Holdings of Bank Related Securities by Country" table, Japan topped the list with $145.9 billion, followed by the U.S. with $143.5 and Canada with $137.7 billion. France was fourth with $111.5 billion, followed by Sweden ($92.4B), Australia/New Zealand ($63.1B), the UK ($57.5B) and Germany ($44.3B). The Netherlands ($39.6B) and Switzerland ($29.1B) round up the top 10.

The biggest gainers among Prime MMF bank related securities for the month were Singapore (up $4.6B), Australia/New Zealand (up $1.0B) and China (up $888M). The biggest drops came from France (down $53.3B), Norway (down $32.0B), Sweden (down $28.5B), Japan (down $14.9B), Belgium (down $10.4B), Germany (down $9.6B) and Switzerland (down $7.4B). For Prime MMF Holdings of Bank-Related Securities by Major Region, Europe had $392.0 billion (down from $545.7 last month), while the Eurozone subset had $202.0 billion (down from 281.6B). The Americas had $282.6 billion (down from $292.4B), while Asian and Pacific had $241.9 billion (down from $251.0B).

Of the $1.272 trillion in Prime MMF Portfolios as of June 30, $493.6B (38.8%) was in CDs (down from $610.7B), $315.9B (24.8%) was in Government securities (including direct and repo), up from $283.0B, $188.1B (14.8%) was held in Non-Financial CP and Other Short Term Securities (down from $211.4B), $192.0B (15.1%) was in Financial Company CP (down from $219.1B), and $82.3B (6.5%) was in ABCP (down from $88.4B).

The Proportion of Non-Government Securities in All Taxable Funds was 34.9% at month-end, down from 40.5% the previous month. All MMF Repo with Federal Reserve rebounded to $242.8B in June from a $90.9B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 25.9% were in maturities of 60 days and over (down from 28.8%), while 3.6% were in maturities of 180 days and over (up from 3.5%).

In other news, Fitch Ratings writes "Chinese Money Funds See Institutional Demand Surge." They explain, "Assets under management (AUM) in Chinese money market funds (MMFs) were CNY4.4trn (USD657bn) at end-June 2016, down from CNY4.6trn at end-2015. This stabilisation belies the growth in this segment in recent years; assets more than doubled in 2015 and AUM at end-June 2016 were 10 times larger than three years ago.... Growth from institutional investors surpassed retail investors and represented 63% of money fund assets at end-2015, according to the last available data. Retail demand triggered the rapid expansion of the Chinese money funds market from mid-2013 and dominated this market until mid-2015 when institutional demand surged following the extreme volatility in the Chinese stock market in June 2015."

The piece adds, "China has become the second-largest MMF domicile following the US representing 13% of the global market compared with just 2% at the beginning of 2013. In the Chinese mutual fund industry, money funds became the largest asset class, representing 55% of the market.... Money market ETFs surged in 2H15 after the extreme volatility in the stock market. At June 2016 there were a total of 16 money market ETFs with assets totalling CNY317bn (USD48bn)."

Finally, Fitch writes, "The new Chinese MMF regulations launched in December 2015 have taken effect. Almost all money funds have become compliant with the maturity constraints as of March 2016, limiting the weighted average maturity (WAM) within 120 days.... The new rules require asset managers to implement redemption management tools under certain circumstances. Fitch-rated MMFs' contracts have been updated with liquidity fees and redemption gate provisions. They maintain high portfolio liquidity relative to peers and regulatory minimums.... Negotiable certificates of deposit (NCDs) are eligible to MMFs under the new regulation. The growth of NCDs volumes and their improved secondary market liquidity contribute to the liquidity of MMFs' portfolios."

Last month's Money Fund Symposium was of course mostly about money funds. But it also included a session entitled, "Enhanced Cash and Ultra-Short Bond Funds," which featured JP Morgan Securities' Alex Roever, Fidelity Investments' Michael Morin and Goldman Sachs Asset Management's John Olivo. They discussed why they think ultra-short bond funds are poised for significant growth in the post money fund reform environment. The following article is reprinted from the July issue of Bond Fund Intelligence. (Note: We'll also be featuring a session on "Beyond MMFs: Enhanced Cash Strategies" with Jason Granet of Goldman Sachs A.M., Neil Hutchison of J.P. Morgan Asset Mgmt., and Peter Yi of Northern Trust Asset Mgmt. at our upcoming European Money Fund Symposium, which is Sept. 20-21 in London.)

At our U.S. Symposium in late June, Roever commented, "One of the issues in working in this space just beyond money markets is trying to get your head around all the different nomenclature that gets thrown around. We all know what a money fund is, it's defined in rule 2a-7, but some of these other strategies are a lot less defined.... The Ultra-Short category is relative small, about $73 billion."

Roever asked the panel: How do you address the different categories when talking to institutional clients? Fidelity's Morin said, "You want to have a full lineup ... and you want to have different risk return products and profiles." He added, "We think about the time horizon. Where we're heading is segmentation of cash. Do you need intraday cash? What cash do you need next day? What do you need within 11 days? And almost every bucket in between." Morin added, "As we segment our cash, there's a pecking order of that liquidity ... you have the bank, you have government funds, you have prime funds, then you can go into the Ultra-Short."

Morin continued, "Pete [Crane] has this new conservative Ultra-Short bond index he created. This is kind of the new breed of funds that have been out there now for 5 years in some cases. This is where the fund sponsors' said, 'Let's try to minimize the NAV volatility, let's figure out how we can control risk and have some very strict guidelines and lower the NAV volatility in these funds.' And even within Pete's universe of Conservative Ultra-Short, there's still a lot of variety of strategies." The key, he said, is educating clients about the need to include ultra-shorts in the investment policy. "If you look at investment policies today, they have a broad set of fixed income parameters around duration, credit quality, and derivative use.... But we're trying to get them across the hurdle to add Ultra-Short bond funds specifically to their investment policies."

Roever asked: How has the space evolved over the past 5 years? Morin explained, "The asset class hasn't grown, certainly for the funds we can track. The universe is flat. I think we had a decrease in the old cash plus, enhanced cash space after the financial crisis so that went lower. But if you add the Ultra-Short bond fund assets, we're back to where we were. The opportunity for Ultra-Shorts is for those maybe smaller clients where the time horizon isn't sufficient to set up an SMA and the yield compression in money market funds over the last 7 years have gotten them thinking about the next risk return profile beyond MMFs."

Morin continued, "So these conversations have been going on and the momentum is building, but everybody always asks me, 'How come we haven't doubled in size?' That's because a $1 Prime money market fund is still available. In October, they will lose that option, so I think we're very bullish on this asset class. When we're here talking next year, I think we're going to have some noticeable increases in the Ultra-Short space."

Olivo added, "I think we have seen growth in an area that is difficult to chart -- the SMAs that money managers are doing directly with clients. That's where you've seen the growth in the short duration industry rather than in the fund space. There is a big pile of cash trapped offshore that doesn't want to pay for liquidity and doesn't want the volatility associated with longer duration strategies, so short duration tends to be a sweet spot for them. That's where many money managers have seen the growth of their short duration business."

What is the bigger driver of increased activity in Ultra-Shorts, low yields or money market fund reform? Olivo responded, "I would say the low interest rate has been more of a driver of increased opportunity over the last several years." However, he added, "What money fund regulation is going to do, and it has started to already, is cause investors to get more granular on their liquidity management.... 'Do I need different buckets to manage that? Do I want some in a Govie fund? Do I want some in a prime fund or an Ultra-Short duration mutual fund ... or an SMA.' It is opening their eyes that they can earn higher returns and that there are different opportunities out there."

Roever also asked about benchmarks in the Ultra-Short space. "It's a little bit like snowflakes, each one is a little bit different. How do you counsel clients to look at returns? What's the right return? Is it the return you're getting over a MMF or is it a return you're getting over some short-term bond index?" Morin commented, "I think it's the additional pickup over prime money market funds. They are willing to take a little bit of risk to earn slightly higher returns. Through the education process, you can identify where you want to take your risk -- Do you want to do credit, duration, both? It's really what they're comfortable with."

There was also a question about opportunities for Ultra-Shorts related to money fund reform. Said Olivo, "Spreads in that 6 to 12-month space are definitely starting to widen. That's certainly an opportunity for a number of our ultra-short duration strategies. We think it will only continue as we get closer to October as money fund managers are certain [to] building liquidity."

On the Fed, Roever asked, "We know the storm (MMF reform) is coming hell or high water. What we don't know is whether or not the Fed is going to raise Interest rates. How do you deal with that uncertainty of if or when they'll hike?" Olivo answered, "In the Short Duration space a big component of the total return is the roll down you achieve by owning longer dated bonds and the excess carry that you get relative to your benchmark. It's challenging to do that when you're constantly short from a duration perspective. From a duration perspective, we have been meaningfully short relative to our benchmarks despite the fact that we do think the Fed will ultimately raise rates in the second half of this year."

Olivo continued, "Many first time investors in the short duration space are scared to death of interest rate volatility -- they're concerned about the fed raising rates. When we speak to them, the goal is to convey the message that higher rates are better for this strategy. The Fed is not going to be raising the interest rates 300 basis points in a short period, so a slow, gradually tightening policy is good for these strategies because those higher yields bleed back into the portfolio in relatively short order. We're hopeful that the Fed does continue to raise rates and ultimately we think that's in the best interest of our short duration clients."

In conclusion, Roever asked, "Let's project forward a year. What does the liquidity landscape look like a year from now? What's the breakout between Govie and Prime and how are we seeing this Ultra-Short space evolve?" Commented Morin, "I think we're all anticipating that the peak assets in government money market funds are going to be around October of this year. We think that credit spreads are going to widen, they're going to widen to an extent that over time investors will get more comfortable with the floating NAV."

He added that once a client realizes they can handle the floating NAV they will get more comfortable with Prime funds as well as Ultra-Short bond funds. "I think we are starting to see some traction and momentum with clients adding Ultra-Short bond funds to their investment policy. I think the balance in Ultra-Short bond funds will be significantly higher than it is today and I think it continues to grow."

Olivo stated, "I think that for clients that have SMAs you will see assets move from prime funds into SMAs." But he added, that he doesn't think there will be many clients moving into SMAs for the first time -- "I'll take the under on that." Finally, he commented, "Once the dust settles on reform, you'll see a great diversification of the liquidity solutions that investors have in their portfolio. Hopefully, they continue to use the Short Duration strategies as a complement to money funds."

RBC Capital Markets' Michael Cloherty writes in his latest "US Interest Rate Focus" on "Money market update: LIBOR, SIFMA, RP, Fed funds." He says, "The money fund reform driven LIBOR distortions that we have been discussing for ages are materializing a bit earlier than we expected. The two major surprises are that the Institutional Prime fund outflow started earlier than our mid-August expectation. That said, we continue to believe that the biggest outflow risks will kick off in early September when everyone is back in the office and final decisions on where to park cash are likely to be made." We excerpt some of Cloherty's recent comments, and also quote from a new piece by Wells Fargo Securities on Commercial Paper.

Cloherty explains, "The other surprise is that Retail Prime outflows have continued. We thought that the bulk of the retail adjustment would take place in Q1. Yet outflows persist. We think of the retail prime space as providing an investor cushion amid what could be rapid outflows from the institutional funds in September and early October. The smaller retail prime becomes, the less that investor base will be able to close the gap created by shrinking institutional funds."

He says that "Uncertainty is the biggest problem," commenting, "We caution against being overly concerned with how much cash has left money market funds to date. We believe the most important factor behind higher LIBOR rates is not the outflow that has happened, but the massive uncertainty about the outflow that is going to happen in the coming months. There is no solid framework to forecast the total Prime outflow through when the reforms become effective on October 14th."

The RBC piece continues, "For money fund portfolio managers, the most difficult part is that they cannot position their portfolio for what they believe is the most likely outflow -- they need to have enough liquidity to meet the absolute worst-case scenario. Any money fund that had larger outflows than anticipated would have to get a cash bid from a dealer to meet its redemption requests, and in this environment assuming that there will be spare dealer balance sheet when you need it is a bad idea."

It adds, "This means the Institutional Prime money funds need to hoard enough liquidity to meet the worst-case outflow. Funds have been starting to set up for these liquidity needs by shortening the maturity of the positions in their portfolio. According to Crane Data, the best source for detailed money fund data, the Weighted Average Maturity of Prime money fund assets was 22 days on June 30th. Meanwhile, because Treasury and Government funds do not need to hoard liquidity because they will be getting inflows rather than outflows, their average WAM was 37 days for government funds and 40 days for Treasury-only funds."

Finally, Cloherty writes, "Unfortunately, that maturity differential compresses the yield spread between Prime funds and Government funds, which gives investors less incentive to remain in Prime funds. The greater the probability of a December rate hike that the market prices in, the steeper the money market curve, and the more difficult it will be for Prime fund yields to be significantly higher than Government fund yields."

In other news, Wells Fargo Securities' Garret Sloan and Vanessa Hubbard published a new "Money Market Monitor" piece entitled, "How is Money Market Fund Reform Impacting the Commercial Paper Market?" It says, "Commercial paper ("CP") rates, specifically in the financial sector have risen sharply due to a general increase in rates initiated by the Fed and a shift in money market fund ("MMFs") assets from prime to government. Commercial paper is a large and important component of short-term markets and a prevalent asset class in prime money market funds. With the impending MMF reform just months away, there are increasing implications for the commercial paper market, and more specifically for financial CP. We will look at historical trends for commercial paper and money market funds to provide an outlook on how the sector may be impacted by upcoming changes in the money market landscape."

Sloan and Hubbard tell us, "Commercial paper is a significant short-term asset-class with supply hovering around $1.0 trillion since 2010. Despite the overall stability of commercial paper assets, the composition has continued to shift away from the asset-backed ("ABCP") sector and into the non-financial sector. Since 2010, ABCP has declined by $190 billion and financial commercial paper has declined by $86 billion while non-financial commercial paper has increased by $160 billion. More recently, over the past year, financial CP has averaged about $523 billion. Nonfinancial CP has averaged about $277 billion and asset-backed commercial paper has averaged about $245 billion. The takeaway is that even though the composition of the market is shifting, overall CP supply appears to be relatively intact."

They explain, "CP is an important funding source for financial institutions and corporations as well as a significant asset class for short-duration fixed-income portfolios, including money market funds. Based on the past few years of June holdings data, money market funds have purchased about 37 percent of all commercial paper outstanding. However, that dropped to 28 percent in 2016, or a decline of around $100 billion. The drop in the level of CP concentration amongst money market funds while total CP outstanding has remained flat could be seen as a net positive for the sector. This may suggest that total CP issuance has been absorbed easily by non-money-fund investors either directly or through separately-managed accounts."

The Wells piece says, "Total prime fund assets continue to decline as fund families convert from prime funds to government funds in anticipation of the impending MMF reform. While this has decreased MMF appetite for commercial paper, it has not eliminated it. Money market funds will continue to purchase CP for their portfolios, predominantly financial CP, however they may demand shorter-dated tenors as overall portfolio WAMs decline and an increased emphasis on maintaining very high weekly liquid asset ratios keeps durations short. This has impacted the shape of the commercial paper curve, the LIBOR curve and the near-term technical landscape of the money markets in general."

It adds, "Certain investors who once relied heavily on prime money market funds have decided to make either temporary or permanent adjustments to their short-term investment strategy due to MMF reform and are starting to consider alternatives, including government funds, direct investing, bank deposits, enhanced cash funds and separately-managed accounts. The recent stability in CP outstanding despite the drop in money market fund assets may mean that alternative channels for CP distribution are developing rapidly. Nevertheless, the stability in supply may be coming at a cost, as the backup in CP rates may have to find a new equilibrium level to attract investors to the asset class."

Finally, Sloan and Hubbard comment, "In short, we expect commercial paper rates to remain elevated and the term structure to steepen further going into the final phase of money fund reform. As discussed, issuers continue to need short-term funding and the CP market will remain an important component of issuer capital structures. The wild card in the stability of commercial paper outstanding will be financial issuers, and the extent to which issuers look to diversify funding sources or find that U.S. CP markets have become too expensive."

A press release entitled, "HSBC introduces automated liquidity investment tool," says that "HSBC, a global leader in global liquidity solutions, today announced the launch of a powerful new tool that will enable treasurers to automate the allocation and investment of excess cash." It explains, "Liquidity Investment Solutions (LIS) gives Corporate and Institutional clients the ability to invest and redeem their excess cash across an array of investment options, including a choice of asset managers. Once the client has defined their investment policy, including their risk and liquidity parameters, LIS executes their investments/redemptions accordingly with nominated money market funds of HSBC Global Asset Management Group, BlackRock, Goldman Sachs Asset Management and/or J.P. Morgan Asset Management." We excerpt from HSBC's release, and we also review our upcoming European Money Fund Symposium (Sept. 20-21 in London) below.

HSBC's release explains, "With LIS, clients can maintain daily liquidity for transactional purposes while automatically investing their surplus cash on a daily, weekly or monthly basis. This ensures clients can optimise their investments while having sufficient funds available for daily operations. At a time when interest rates remain low and cash holdings are at an all-time high the solution provides transparency of the investment process in a controlled environment and assures compliance with each client's investment mandate. LIS frees up treasurers from the daily process of cash prediction and investment to focus on adjusting their investment strategies as the market environment changes."

Tom Schickler, Global Head of Products, Liquidity and Cash Management, adds, "Now, more than ever, treasurers need to manage an increasing array of risks while delivering appropriate returns on cash holdings. LIS is the ideal solution to help our clients focus on their investment strategy rather than execution. Automating cash placement into money market funds allows treasurers to optimise excess cash and reduce the time spent on monitoring and executing investments."

The press release continues, "LIS gives treasury professionals access to a range of triple-A rated money market funds providing daily liquidity from a range of Asset Managers -- enabling clients to integrate multiple investment vehicles across different geographies and counterparties. With LIS clients are able to consolidate their investment activities, gain efficiencies, enhance controls and be in position to evidence compliance with their investment mandate. Monitoring liquidity positions, executing and reconciling trades and the associated compliance reporting has become increasingly burdensome for clients. HSBC has responded with a solution that will evolve with changes to their investment mandate."

Schickler concludes, "Cash holdings are at an all-time high. At the same time the complexity and associated cost of compliance continues to increase. LIS offers clients a tool that dynamically rebalances cash holdings between transactional cash and their investment portfolio while satisfying their security, liquidity, yield, reporting and compliance requirements."

In other news, we continue to make preparations for our 4th annual European Money Fund Symposium, scheduled for Sept. 20-21 at the Hilton London Tower Bridge in London, England. The agenda is now all set for this year's show, registrations are being accepted (tickets are $1,000 USD or L750 Pound sterling). We encourage anyone planning to attend to make hotel reservations asap. (Click here for Hotel info or here to make reservations.)

Crane's European Money Fund Symposium is the largest money market event in Europe. Our event last year in Dublin attracted 120 attendees, sponsors and speakers, and we expect our return to London to be even bigger. EMFS offers European, global 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. Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals.

The EMFS 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" with Peter Crane of Crane Data; followed by "IMMFA Update: The State of MMFs in Europe" with Reyer Kooy and Jane Lowe of IMMFA; "Beyond MMFs: Enhanced Cash Strategies" with Jason Granet of Goldman Sachs AM, Neil Hutchison of JP Morgan AM, and Peter Yi of Northern Trust; "Senior Portfolio Manager Perspectives," with Joe McConnell of JPMAM, Jonathan Curry, of HSBC Global AM, and Deborah Cunningham of Federated Investors; and "French Money Funds, VNAV & Negative Rates," with Charlotte Quiniou of Fitch Ratings and Vanessa Robert of Moody's Investors Service.

Day One also includes: "MMFs in Asia: China, Japan, and Beyond" with Andrew Paranthoiene of Standard & Poor's and Fitch Rating's Charlotte Quiniou; "US Money Funds: Adapting to Reforms" with Charlie Cordona of BNY Mellon Cash Investment Strategies and Peter Crane; and "UK Sterling MMF Issues" with Dennis Gepp of Federated UK and Jennifer Gillespie of Legal & General IM.”

The Day Two Agenda includes: "The Changing Face of European MMFs" with Rudolf Siebel of BVI and Sean Tuffy of BBH; "New Regulations: Devil in the Details" with Dan Morrissey of William Fry and John Hunt of Sullivan and Worcester; "Strategists Speak: Negative Rates and Reforms" with Giuseppe Maraffino of Barclays and Vikram Rai of Citi.

The afternoon of Day Two features: "Supply Dynamics and Liquidity" with Kieran Davis of Barclays and David Hynes of Northcross Capital LLP; "Risks and Ratings: Areas of Concern and Changes" with Marc Pinto of Moody's and Alastair Sewell of Fitch Ratings; "Distribution & MMF Investor Issues" with James Finch of UBS Global AM, Jim Fuell of JP Morgan AM, and Kevin Thompson of SSGA; and "Offshore Money Fund Data, Holdings, and Portals with Peter Crane, Ryan Kipp of Cachematrix, and Maryum Malik of FIS Global. We hope to see you in London!

Federated Investors posted a series of informational videos on YouTube discussing Money Market Reform and featuring Deborah Cunningham and Bud Person. The videos are entitled: "Will Prime and Municipal funds still be compelling if they are subject to fees and gates?" "What is the current state of Federated's government money market complex and its capacity for growth?" "How much will institutional FNAV funds fluctuate?" and "What prime and municipal products will Federated offer for institutional accounts?" We excerpt from these below.

In the first video, "Will Prime and Municipal funds still be compelling?" Cunningham answers, "Absolutely! Currently about half the money market fund industry is comprised of prime and municipal money market funds. From Federated's standpoint, we manage about $105 billion in prime portfolios and about $16 billion in municipal money market fund assets including both national and 13 state specific products. The advantage of both the prime and municipal money market fund products versus their government counterparts has always been yield spread for minimal additional risks."

She continues, "That yield spread is actually growing today and we expect it to continue to get larger as we approach the October 14th date. Recent yield spreads between a triple rated prime money market fund and a government money market fund is about 22 basis points, that's about 8 to 10 basis points wider than historical norms. The tax advantaged yield spread for a municipal money market fund over a government money market fund is currently about 20-50 basis points, depending on if the client is retail or institutional and their tax bracket. The spread is compelling and will likely continue to widen."

Cunningham adds, "Gates at least are not a new concept for money market funds. The 2010 amendments require money market funds to be able to put up a gate as part of those rule changes to enhance the long term resiliency of the product. The further refinement of gates and the introduction of fee language occurred with the 2014 rule amendments."

She continues, "In several ways the 2014 rules improve on the 2010 rules. First, the 2014 amendments define the circumstances around which the imposition of a gate or a fee could be considered. The circumstances were specified as only when the weekly liquid assets of the fund drop below certain levels. With the additional disclosure now required for MMFs, this weekly liquid assets number is very easy to monitor. The 2014 amendments cap the number of business days a firm could remain gated at 10. [This is] clearly better than having no maximum. Third, the SEC intended for gates and fees to be used together. If a problem occurred, it would likely be that a gate would be put up when the problem was assessed. Once the problem was identified and assessed the gate would be lifted and replaced with a fee to restore the liquidity of the product. The circumstances around this action will almost certainly be the same, both pre and post rule making changes -- that being the occurrence of a credit event in a portfolio."

In the second video on "Federated's government money markets," Cunningham explains, "Federated's government money market funds are open and available for new business. [Our] money market fund assets are more than half government money market products at this point ... right around $130 billion. Federated did not have to convert any of its prime money market funds to government money market funds in order to achieve proper scale. We have been in the government market fund business since its beginnings, way back when in the mid 1970's. Our funds are large, they're diverse, and they have long historical performance records."

She continues, "There are four main segments of the government money market funds sector: Treasury non-repo, Treasury with repo, Government agency non-repo, and Government agency with repo. We currently have about $17 billion in the treasury non-repo sector, about $28 billion in the treasury with repo sector, approximately $6 billion in the agency non-repo space, and finally about $60 billion in our largest government money market sector, which is the agency with repo space."

Cunningham adds, "Industry wide government money market funds recently surpassed prime money market funds in terms of assets with about $1.4 trillion. I'm often asked about the supply of eligible securities in that government money market fund sector, given the expectation of continued growth. It's a very simple answer to that question -- It is not an issue with adequate supply. Including the New York Fed’s reverse repo facility there is over $8 trillion in 2a-7 eligible government money market supply -- both direct treasuries and agencies, as well indirect supply through the repo market. The question remains, however, as to the price and the yield of that supply. As with any situation where you have increase in demand with the same amount of supply, the yield on this supply is likely going to drop. That's why the Fed's December 2015 rate lift off is even more important going forward. With the reverse repo facility as their main monetary tool, the current rate floor of 25 basis points has been established."

In the third video on "FNAV fluctuations," Cunningham states, "The likelihood of an institutional FNAV money market fund fluctuating at anything other than the fourth digit, which would represent the hundredth of a penny or basis points, is remote, unless that fund is experiencing a negative credit event. Theoretically an institutional FNAV money market fund that was positioned at its worst configuration at the time of a rate hike would be most at risk. That most aggressive configuration would consist of having a 60-day weighted average maturity, owning the maximum in individual securities out to 397 days final maturity, and having the least amount allowed in daily and weekly liquid assets, that being 10% and 30% respectively."

She adds, "In that worst configuration, the FNAV fund would move, all things being equal, about 4 basis points with an instantaneous shift of 25 basis points in the yield curve with all other considerations such as fund size, being held constant. In actuality, when fund managers begin to anticipate a Fed move, they reposition their portfolio to be shorter and have greater liquidity. The market also generally prices in a Fed move over a 3-4 month window as opposed to instantaneously. This is exactly what happened in the December 2015 move. During that move the shadow NAV's of funds moved 0-2 basis points rather than the theoretical 4 basis points, so 1 in 4 zeros either stayed there or went to four 9s or went to “9998. This was great to see this play out as such especially when the transactional price over this time period was still at one dollar."

Cunningham continues, "As far as evaluation comparisons go, total return calculations must now be used rather than just straight yield comparisons. The total return calculation in the December rate hike scenario resulted in shadow NAV declines of about 0-2 basis points. For those funds that theoretically lost 2 basis points in price, was the yield spread over those funds whose NAV remain stable enough to compensate for those lost basis points in price? This depends on how large the spread was being earned. Generally speaking, the larger then spread and longer the holding period, the more favorable the outcome toward the FNAV institutional money market fund product ."

Finally, Federated's Bud Person discusses, "Prime and municipal products" in the fourth video. He says, "Let`s touch on what new options will be available. First, we will be offering two types of floating NAV prime funds. With respect to NAV calculation frequency, the so called strike times, the first type will have three daily NAV calculations, or strike times, at 8 am, noon, and 3 pm eastern time, with subsequent standard redemption order processing after each. The other fund type will have just a single NAV calculation, or single strike time, at 3 pm. Remember with all floating NAV funds, the mark to market NAV must first be calculated to confirm the price of a transaction order and this takes time. So when it comes to redemptions think of a three times daily multi-strike fund as an intraday liquidity vehicle, whereas a single strike fund is simply a once a day liquidity vehicle."

Person continues, "In addition we will be offering a floating NAV multi-strike fund with a slightly different portfolio management approach that we’re calling a prime 60 day max fund. It will only invest in securities with maturities of 60 days or less and we’ll use amortize cost to value individual portfolio securities when permitted to do so. The fund will typically maintain a weighted average maturity of 40 days or less, which is shorter than the 55 days or less range of our traditional prime funds. We believe this strategy will minimize the volatility of its NAV. With respect to a floating NAV municipal fund, we will offer a fund that is limited to securities with a maximum maturity of 7 days. This 7-day constraint is consistent with weekly variable rate demand notes, which as you know typically represent a large portion of most tax exempt funds today. The strategy also seeks to minimize the volatility of the NAV."

He concludes, "Lastly I would like to add that we're planning on offering a prime private liquidity fund for accredited and qualified purchasers, which is expected to use amortized cost to seek a stable $1 NAV and not be subject to liquidity threshold fees and gates. We are also planning on offering a prime collective investment fund for ERISA only accounts that is also expected to use amortized cost to seek a stable NAV and will not be subject to fees and gates either. Neither of these products will be registered under the Investment Company act of 1940. In closing, we`re very excited about these offerings and for more information please contact your federated representative."

The U.S. Treasury's Office of Financial Research unveiled a new "Money Market Fund Monitor" tool, "a set of interactive charts for exploring the portfolios of U.S. money market funds." Their statement explains, "Money market funds have been popular for decades among investors who want better returns than bank accounts offer, but still with little risk. Since the 1990s, institutional investors have used money market funds as a professional cash management option." (Note: Crane Data publishes its own Money Fund Portfolio Holdings data series and provides reports based on fund postings and feeds, as well as from the SEC's Form N-MFP information.)

OFR's release explains, "The funds strive to maintain the value of the money invested in them. In 2008, at the height of the financial crisis, investors in an established fund lost money when the price of each share fell slightly below $1 -- called "breaking the buck." In the ensuing weeks, investors pulled hundreds of billions of dollars out of prime money market funds in favor of safer investments, such as government money market funds. The government stepped in to insure funds temporarily. That support ended in 2009. (As of October 2016, regulations will require prime funds for institutional investors to use floating share values rather than a fixed share price.)"

It continues, "A lack of detailed data about fund holdings blocked regulators from seeing risks quickly in 2008. Since then, regulators have begun to require funds to report detailed data about their holdings more frequently. Funds are also required to hold more liquid assets."

OFR explains, "To develop the new Money Market Fund Monitor, the OFR analyzed more than 4 million records of monthly data on the holdings of about 500 funds over five years. Before now, the data were on the Securities and Exchange Commission website as separate individual filings and industry-level monthly reports. The OFR monitor displays the data in a graphical format that is easy to adjust to the needs of any user. Any user can download the data into spreadsheets."

They add, "The monitor has various uses, such as tracking industry trends. For example, the figure below, taken from the monitor, shows that prime money market funds' investments in European bank issuers have dropped at the end of each quarter from 2013 to the present. This pattern suggests that banks reduce their funding from money market funds to improve their balance sheet profiles when they submit quarterly financial data to regulators. A 2015 OFR working paper discussed this phenomenon using different data."

The release says, "Because of those funding decisions by banks, money market fund managers may have fewer ways to deploy cash at the end of each quarter. The chart below, taken from the monitor, shows a quarter-end surge in money market funds turning to the Federal Reserve's Reverse Repurchase Agreement Facility as an investment option."

Finally, it adds, "An OFR brief published today provides more detail about each chart in the Money Market Fund Monitor. The monitor will be updated monthly as funds file new data. The Money Market Fund Monitor is the latest product of the OFR's monitors program. The OFR already produces the quarterly Financial Markets Monitor and the biannual Financial Stability Monitor."

The Monitor's homepage says, "This monitor is designed to track the investment portfolios of money market funds by funds asset types, investments in different countries, counterparties, and other characteristics. Users can view trends and developments across the MMF industry. Data are downloadable and displayed in six interactive charts. The reference guide contains examples of how to use the monitor and additional information."

In other news, the July issue of Crane Data's Bond Fund Intelligence was sent out to subscribers last week. Our latest edition features the stories, "Party Continues for Bonds; SEC Warns USBFs on 'Holding Out'," which looks at the continued jump in bond fund assets and the ultra-short sector in particular, and a review of the Money Fund Symposium session entitled, "Enhanced Cash and Ultra-Short Bond Funds." Also, we recap the latest Bond Fund News. `BFI also includes our Crane BFI Indexes, which showed higher returns and lower yields in June.

Our lead Bond Fund Intelligence story says, "Seventeen straight weeks of inflows for bond funds came to an end during the week ended June 29. Fixed-income funds posted $2.5 billion in outflows the last week of the month, but had $1.3 billion in inflows in the first week of July, according to ICI's "Estimated Long-Term Mutual Fund Flows" report. Since March 2, bond funds have had $78.0 billion in inflows."

Our monthly Profile says, "Crane Data's recent Money Fund Symposium was of course mostly about money funds. But we did include a session entitled, "Enhanced Cash and Ultra-Short Bond Funds," which featured `JP Morgan Securities' Alex Roever, Fidelity Investments' Michael Morin and Goldman Sachs Asset Management's John Olivo. They discussed why they think ultra-short bond funds are poised for significant growth in the post money fund reform environment."

Finally, we also report on returns, writing, "Returns moved higher in June across our Crane BFI Indexes. Our BFI Total Index averaged a one month return of 1.14% and is up 3.97% YTD through June 30. (Contact us if you'd like to see a copy of our latest Bond Fund Intelligence.)

Charles Schwab & Co. reported higher profits due to increased money market fund revenues and a shift of sweeps to bank deposits, according to the company's 2nd quarter earnings release, "Schwab Reports Record Quarterly Net Income of $452 Million, Up 28%." It says, "The Charles Schwab Corporation announced today that its net income for the second quarter of 2016 was $452 million, up 10% from $412 million for the first quarter of 2016, and up 28% from $353 million for the second quarter of 2015." BlackRock CEO Laurence Fink also recently discussed money market funds and his expectations for the path of interest rates on the firm's 2nd quarter earnings call, according to the transcript on SeekingAlpha.com. We review these reports, as well as the ICI's latest Money Market Fund Holdings, below.

Schwab CFO Joe Martinetto comments, "We delivered record financial results in the second quarter based on sustained success in growing our client base, as well as the effects of the Federal Reserve's initial rate increase in December and the relative stability of other environmental drivers until late in the period. Asset management and administration fees were a record $757 million, up 13% year-over-year, as higher short-term interest rates lifted net money fund revenue."

He adds, "Net interest revenue was a record $798 million, up 30% from the second quarter of 2015, reflecting both stronger short-term rates and a $30-plus billion increase in average interest-earning assets through a combination of organic asset gathering and bulk transfers of client sweep cash balances from money market funds to Schwab Bank. We currently expect to transfer up to $8 billion in money fund balances to Schwab Bank during the second half of 2016. In June, the Bank became the default sweep option for all new accounts, and we anticipate approximately $3 billion of related incremental deposit growth by year-end."

Barron's elaborated in an article, "Charles Schwab's 2Q Revenue Lifted by Money-Market Fund Fees." It says, "Charles Schwab's (SCHW) second-quarter revenues slightly exceeded Wall Street analysts' estimates on Monday morning. Analysts note that the bulk of the earnings beat appeared to be due to a reduction in fees waived on cash-like money-market funds. Managers of money-market funds have waived fees over the past few years so keep ultra-low yields above zero. Schwab's quarterly report says that the company netted $239 million before the $55 million in fee waivers last quarter; average fees on money markets after waivers was 0.45% last quarter compared with 0.16% in the second quarter of 2015."

The Barron's piece continues, "Schwab waived $55 million in money-market fees during the most-recent quarter, less than the $97 million waived in the first quarter. Jefferies' Daniel Fannon notes that Schwab's net revenues for the quarter, $1.828 billion, were $28 million above the firm's estimate. In other words, the revenue beat was "predominantly a function of lower money fund waivers."

On the BlackRock call, one analyst commented, "We know money-market funds have been waiving fees for some time now just because rates are so low. If medium- to long-term interest rates continue to decline, might bond funds have to start doing similar things?" Fink responded, "Well, if anything, we've had [a] 25 basis point increase in the United States, so actually money market funds in many cases are in a better position today than they were a year ago. You're seeing, as you suggested, a flattening of the yield curve.... If the U.S. goes down that path, and we're reversing that increase, and indeed the Federal Reserve needs to ease, that's a whole different issue."

He continued, "I don't see that as an outcome at this moment. I believe the U.S. economy is growing -- not as well as we want it to be, but I think we will see a 2% economy this year ... and we still have plus or minus, a 5% unemployment rate in this country. So despite all of the headwinds and uncertainties, I don't see at this time, a Federal Reserve that turns itself into a central bank that has to aggressively ease. And so, it may delay their path towards normalizing of interest rates, but I don't see any possibility at this moment that they will be forced to going back into an easing mode."

Fink added, "I would tell you very clearly, the U.S. economy is still the area where people want to invest worldwide. And I don't see that -- I don't see the atmosphere where I have to worry about money market funds in the United States [going negative] any time soon. I think we're going to live in this environment of low rate for a long time though."

BlackRock's release says, "Investment advisory, administration fees and securities lending revenue decreased $45 million from the second quarter of 2015 reflecting mix shift from equities to fixed income and cash products, partially offset by lower yield-related waivers on certain money market funds and the effect of AUM acquired in the BofA Global Capital Management transaction. Securities lending revenue of $151 million in the current quarter increased $4 million from the second quarter of 2015."

In other news, the Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of June 30, 2016), which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See our July 13 News, "MF Portfolio Holdings: Repo, Agencies Up; TDs, CDs, European Down Big," for our earlier report on holdings.)

The release explains, "The Investment Company Institute (ICI) reports that, as of the final Friday in June, prime money market funds held 29.5 percent of their portfolios in daily liquid assets (down from 30.8% in May) and 46.8 percent in weekly liquid assets (up from 46.3% last month), while government money market funds held 54.6 percent of their portfolios in daily liquid assets (down from 57.6%) and 69.6 percent in weekly liquid assets (down from 73.9%)." Regulatory minimums are 10% daily liquid assets and 30% weekly liquid assets.

It continues, "At the end of June, prime funds had a weighted average maturity (WAM) of 29 days (down from 31 days) and a weighted average life (WAL) of 44 days (down from 46 days). Average WAMs and WALs are asset weighted. Government money market funds had a WAM of 41 days (up from 39 days) and a WAL of 100 days (up from 96 days)."

The Prime Money Market Funds by Region of Issuer table shows Americas at $446.6 billion, or 43.8%, up from $424.8 billion in May; Asia and Pacific at $215.5 billion, or 21.1%, down from $229.5 billion; Europe at $351.1 billion, or 34.4%, down from $487.2 billion; Supranational at $183 million, or 0.1%, down from $1.4 billion; and Other at $5.9 billion, or 0.6%, down from $7.5 billion. The Government Money Market Funds by Region of Issuer table shows Americas at $1.335 trillion, or 90.4%, up from $1.160 trillion; Asia and Pacific at $23.7 billion, or 1.6%, down from $25.1 billion; Europe at $116.6 billion, or 7.9%, down from $192.4 billion; and Other at $65 million, or 0.1%, down from $70 million.

The release explains, "Each month, ICI reports numbers based on the Securities and Exchange Commission's Form N-MFP data. The report includes all publicly offered money market funds that are registered under the Securities Act of 1933 and the Investment Company Act of 1940. All master funds are excluded, but feeders are apportioned from the corresponding master and included in the report."

State Street Global Advisors is merging its SSGA money funds into similar State Street products, according to a July 1 letter to clients and a recent SEC filing, which outline the fund mergers and revamped money fund lineup. The $2.4 billion SSGA Money Market Fund and $6.4 billion SSGA Prime Money Market Fund will be merged into the $39.5 billion State Street Institutional Liquid Reserves Fund. Also, the $2.8 billion SSGA US Government MMF will be reorganized into the $19.3 billion State Street Institutional US Government MMF, and the $9.2 billion SSGA US Treasury MMF will be merged into the $1.5 billion State Street Institutional Treasury Plus Money Market Fund. (For more, see our Jan. 28 News, "SSGA's "Cash Solutions for the New Reality" Webinar; Fed Holds Rates” and Oct. 16, 2015 News, “SSGA Meets Challenges With New Money Funds, Enhanced Cash Options.”) We also review some additional changes from State Farm, American Century and Rydex, below.

The SSGA filing explains, "The Board of Trustees of each Fund has approved a proposal to merge the Fund (each, a "Selling Fund") with and into the buying fund (the "Buying Fund") listed in the table below (each, a "Reorganization"). Each Reorganization is expected to be a tax-free reorganization for U.S. federal income tax purposes. More information about the Buying Fund and the definitive terms of each of the proposed Reorganizations will be included in proxy materials."

It adds, "It is currently anticipated that proxy materials regarding the Reorganizations will be distributed to shareholders of the Selling Funds in the third quarter of 2016, and that meetings of shareholders to consider the mergers also will be held in the third quarter of 2016.... The Buying Fund and each Selling Fund is a money market fund that currently buys and sells its shares at $1.00 per share by valuing its portfolio at amortized cost." The table lists SSGA Money Market Fund and SSGA Prime Money Market Fund under "Selling Fund" and State Street Institutional Liquid Reserves Fund under "Buying Fund" for each of the Selling Funds.

The filing continues, "The Securities and Exchange Commission ("SEC") has adopted new requirements for money market funds and has set October 14, 2016 as the compliance date for certain key aspects of these new requirements that affect the Funds. Under these new requirements, money market funds can operate as "retail" money market funds, "government" money market funds or a money market fund that falls into neither category, referred to as an "institutional" money market fund. Each Fund has been designated by its Board of Trustees to operate as an institutional money market fund in the event that its Reorganization is not consummated prior to the compliance date."

It explains, "Below is a description of certain changes to the Funds' operations that would be implemented if they begin to operate as institutional money market funds. Each Fund anticipates implementing these changes on or before the compliance date, but no earlier than October 3, 2016.... The Buying Fund has also been designated by its Board of Trustees to operate as an institutional money market fund on or prior to the compliance date, but no earlier than October 3, 2016."

Under "Summary of Changes Affecting the Funds," it adds, "The Funds, like other institutional money market funds, will no longer be permitted to use amortized cost to buy and sell its shares at a fixed NAV per share. Instead, each Fund will buy and sell its shares using a floating NAV reflecting the current market-based values of its portfolio holdings. Each Fund's floating NAV will be rounded to four decimal places (e.g., $1.0000). The share price of each Fund will fluctuate.... The SEC is requiring all institutional money market funds, like the Funds, to adopt policies and procedures to enable them to impose liquidity fees of up to 2% on redemptions and/or redemption gates of up to 10 business days in the event that a Fund's weekly liquid assets (as discussed below) were to fall below a designated threshold." The filing also discusses the two Government funds that are being reorganized -- SSGA US Government MMF into State Street Institutional US Government MMF and SSGA US Treasury MMF into State Street Institutional Treasury Plus MMF.

SSGA's client letter says, "We are excited to share some important updates about our money market fund lineup as well as some operational changes to our funds to ensure timely compliance with money market fund reforms issued by the U.S. Securities and Exchange Commission (SEC). The effective date of the reforms is October 14, 2016."

Under "Government Money Market Funds," it says, "The new regulations require that a government money market fund invests at least 99.5% of its total assets in cash, government securities, and/or repurchase agreements that are "collateralized fully" (i.e., collateralized by cash or government securities). Our government money market funds meet these requirements today. A government money market fund is not required to implement a floating net asset value. State Street Global Advisors has no plans to implement liquidity fees or redemption gates in our government money market funds and has reviewed this intention with the Funds' Board of Trustees."

Under "Prime Institutional Money Market Funds," it states, "Institutional money market funds will no longer be permitted to use amortized cost to buy and sell its shares at a fixed NAV per share. Instead, each fund will buy and sell its shares using a floating NAV reflecting the current market-based values of its portfolio holdings. Each Fund's floating NAV will be rounded to four decimal places (e.g., $1.0000). Liquidity fees and redemption gates were designed by regulators to safeguard clients' assets in extraordinary conditions. The SEC is requiring all institutional money market funds to adopt policies and procedures to enable them to impose liquidity fees of up to 2% on redemptions and/or redemption gates for up to 10 business days over a 90 day period in the event that a fund's weekly liquid assets were to fall below 30% of total assets and the fund's board decided it was in the best interest of the fund. State Street Global Advisors plans to implement the floating NAV for its State Street Institutional Liquid Reserves Money Market Fund on or about October 12, 2016. In order to preserve intraday liquidity for clients, the fund will price at 8 a.m., 12 p.m., and 3 p.m. (Eastern Time)."

In other "Fund Changes" news, State Farm Money Market Fund's Summary Prospectus says the $131 million fund will qualify as a Government fund. It explains, "The Fund intends to qualify as a "government money market fund" as defined in, or interpreted in accordance with, Rule 2a-7 under the Investment Company Act of 1940, as amended.... While the Trust's Board of Trustees may elect to subject the Fund to liquidity fee and gate requirements in the future, the Board of Trustees has elected not to do so at this time." Currently, about $314 billion in Prime funds has either liquidated or converted to Government to date.

Also, American Century, which converted its $1.4 billion Premium Money Market Fund to the American Century US Government MMF in December 2015, has designated the $1.8 billion American Century Prime MMF as Retail. The Prime MMF SEC filing says, "In response to amendments to Rule 2a-7 under the Investment Company Act of 1940, this fund will be designated a retail money market fund on October 14, 2016. To prepare for this transition, the fund is now closed to any investments from accounts that are not beneficially owned by natural persons. Additionally, the fund and its authorized agents and intermediaries will begin involuntarily redeeming current accounts that are not beneficially owned by natural persons on September 9, 2016. Additionally, beginning on October 14, 2016, this fund will have the ability to implement liquidity fees and/or redemption gates as described below."

Finally, Rydex filed with the SEC to state that its Rydex US Government Money Market Fund will comply with new rules for Government funds. They say, "In response to recent amendments to Rule 2a-7 under the Investment Company of 1940, the Board of Trustees (the "Board") of Rydex Series Funds (the "Trust") approved changes to the U.S. Government Money Market Fund's principal investment strategies to facilitate the Fund's operation as a "government money market fund".... As a government money market fund, the Fund will continue to seek to maintain a stable $1.00 net asset value, though there is no guarantee that it will be able to do so. In addition, the Fund will not be required to impose liquidity fees and redemptions gates. Rather, the Board has the right to voluntarily impose such measures in the future if it believes they are warranted."

Law firm Stradley Ronon encapsulated the recent IRS/US Treasury final ruling to simplify accounting for floating NAV money market funds in the latest issue of its "Tax Insights" newsletter. (See our July 8 News, "IRS Finalize MMF Acctg Rules; July MFI Features Prime Drop, Novick.") The Stradley piece, which we excerpt from below, adds further insight. We review this and also excerpt from a press release entitled, "Capital Advisors Group and StoneCastle Partner to Deliver Capital Advisors Group Insured Liquidity Accounts." (Note: We also corrected our article from Friday, which initially had some Morgan Stanley strike times wrong. See the revised version here or see Morgan Stanley's announcement here.)

The Stradley Ronon article, entitled "IRS and Treasury Issue Final Regulations on NAV Method of Accounting Relating to MMF Reform," explains, "The IRS and Treasury issued final regulations (TD 9774) under Sections 446 and 6045 (section references are to the Internal Revenue Code of 1986, as amended) providing a method of accounting for gain or loss on shares in a money market fund (MMF). The rules are intended to simplify tax compliance for holders of shares in MMFs affected by SEC regulations that impose liquidity fees or change how certain MMF shares are priced. The regulations also provide guidance regarding information reporting requirements for shares in MMFs."

It tells us, "The Treasury Department and the IRS published proposed regulations (REG-107012-14) on July 28, 2014, describing a simplified method of accounting for gain or loss on shares in a floating NAV (F-NAV) MMF (the net asset value method, or NAV method). Under the NAV method, a taxpayer's gain or loss on shares in an MMF is based on the change in the aggregate value of the taxpayer's shares during a computation period selected by the taxpayer and on the net amount of the purchases and redemptions during the computation period."

Stradley Ronon continues, "The proposed regulations also provided guidance regarding information reporting requirements for shares in MMFs, revising Treasury Regulations Section 1.6045-1(c)(3)(vi). The Treasury Department and the IRS modified the proposed regulations regarding the NAV method, as further described below, and adopted the proposed regulations regarding information reporting without substantive change. The NAV method regulations apply to taxable years ending on or after July 8, 2016, and the information reporting regulations are applicable to sales of shares in calendar years beginning on or after July 1, 2016."

They offer a "Summary of Revisions," saying, "The IRS and Treasury received a number of comments in response to the proposed regulations and, as a result, have made revisions to proposed regulations as follows: Taxpayers are permitted to apply the NAV method to shares in stable-NAV (S-NAV) MMFs. MMF shareholders are permitted to use different methods of accounting for shares in different MMFs or for shares in a single MMF held in different accounts.... The final regulations also clarify how a RIC may change to or from the NAV method."

The Summary continues, "The fair market value (FMV) of a share in an MMF at the time of a transaction is presumed to be the published NAV (or other published amount for which the MMF would redeem the share, determined without regard to any liquidity fees (other redemption amount)). For purposes of computing the ending value for a computation period, the presumption applies to the last published NAV (or other redemption amount) in that computation period. The final regulations include provisions for determining the amount received for purposes of computing a taxpayer's net investment in an MMF for a computation period."

It adds, "The final regulations do not make any changes regarding MMF accounts with shares of a mixed character. The proposed regulations provide that if a taxpayer uses the NAV method for shares in an MMF and each of those shares otherwise would give rise to capital gain or loss if sold or exchanged in a computation period, then the gain or loss from the shares in the MMF is treated as capital gain or loss under the NAV method. Likewise, if each of the shares otherwise would give rise to ordinary gain or loss if sold or exchanged in a computation period, then the gain or loss is treated as ordinary gain or loss."

Stradley's Summary concludes, "The IRS and Treasury also received a comment requesting Treasury and the IRS to issue guidance (1) setting forth the proper tax treatment by an MMF of liquidity fees that the MMF imposes and (2) providing that if an MMF imposes liquidity fees and subsequently distributes to shareholders amounts that correspond to amounts that the MMF retained as liquidity fees, the MMF will be deemed to have sufficient earnings and profits to treat the distribution as a dividend. Since these requests were unrelated to the NAV method or to the information reporting provision in the proposed regulations, they were not addressed in the final regulations, but Treasury and the IRS might consider guidance on those questions in the future." The piece continues to offer a more "Detailed Explanation of Revisions."

In other news, a press release says, "Capital Advisors Group, Inc. announced the launch of the Capital Advisors Group Insured Liquidity Accounts in partnership with StoneCastle Cash Management, LLC. By utilizing StoneCastle's Federally Insured Cash Account (FICA) platform, the new Capital Advisors Group Insured Liquidity Accounts will have access to deposit insurance, backed by the full faith and credit of the U.S. Government, on up to $60 million in deposits with next-day liquidity."

Ben Campbell, CEO and founder of Capital Advisors Group, comments, "Institutional cash managers who face regulatory and market uncertainty from banking and money market fund reforms are seeking alternatives to prime money funds and traditional bank deposits. Capital Advisors Group's partnership with StoneCastle will enable us to provide Capital Advisors Group Insured Liquidity Accounts, which are designed to help clients meet their objectives of safety of principal, liquidity and competitive yield." Capital Advisors Group also offers "Liquidity Accounts, Intermediate Accounts and one- to three-year accounts, providing cash managers with a range of custom separately managed account investment solutions."

Steve Rotella, CEO of StoneCastle Cash Management, adds, "We are delighted that Capital Advisors Group is integrating StoneCastle's FICA program into its family of separately managed account services. With post-crisis reforms changing the risk and liquidity profiles of major banks and money market funds, Capital Advisors Group clients may be able to meet their liquidity needs and realize competitive returns with a potentially safe and secure alternative to bank deposits and money market funds."

Finally, the release explains, "StoneCastle's FICA is an account that deposits client cash throughout StoneCastle's network of hundreds of screened financial institutions. The FICA program satisfies the FDIC's requirements for agency pass-through deposit insurance coverage. Although FICA is not a member of the FDIC, the banks where client money is deposited are FDIC members, providing deposit insurance backed by the full faith and credit of the U.S. Government."

Below, we review yet another batch of money fund changes, including a number of liquidations, closings, conversions and declarations. BlackRock is liquidating its BIF National and State-Specific Municipal funds, Nicholas Money Market Fund is closing to new investors, a likely precursor to liquidation, and MainStay Money Market Fund designated itself as Retail. We also review filings from Morgan Stanley Investment Management, which involve its Retail fund lineup and strike times for its Institutional funds. Finally, the $4.8 billion PFM Prime Series Fund is converting to Government, according to a recent SEC filing. That brings the total of Prime funds either liquidating or converting to Government to $314.1 billion (it moves to over $350 billion when the conversion of the $40+ billion Prudential Core to an ultra-short bond fund is included).

The carnage in the Tax Exempt Money Fund sector continued as the former Merrill Lynch CMA Muni funds liquidated BlackRock's BIF filing explains, "On May 19, 2016, the Board of Trustees of BIF Tax-Exempt Fund approved a proposal to close the Trust to share purchases. Accordingly, effective at the close of business on July 11, 2016, the Trust will no longer accept purchase orders. Also on May 19, 2016, the Board of Trustees of BIF Multi-State Municipal Series Trust, on behalf of BIF California Municipal Money Fund, BIF Connecticut Municipal Money Fund, BIF Massachusetts Municipal Money Fund, BIF New Jersey Municipal Money Fund, BIF New York Municipal Money Fund and BIF Ohio Municipal Money Fund, approved a proposal to close each Fund to share purchases. Accordingly, effective at the close of business on July 11, 2016, each Fund will no longer accept purchase orders." A note from BlackRock confirmed that each of these funds are indeed liquidating.

Another tiny money fund manager is falling by the wayside too. Nicholas Money Market Fund, an $89 million Prime fund, is liquidating. Its Prospectus Supplement says, "Effective June 30, 2016, the Fund will be closed to new investors and to additional purchases by existing shareholders. Effective June 30, 2016, the following language has been added to or replaces similar language on the front cover page and inside cover page of the Fund's Prospectus, dated April 30, 2016: Nicholas Money Market Fund, Inc. – Closed to Investors." Nicholas is the smallest of the 64 money fund managers Crane Data tracks.

Also, the $400 million MainStay Money Market Fund was designated as Retail, according to a new filing. It says, "At a meeting held on June 21-22, 2016, the Board of Trustees of The MainStay Funds approved the designation and operation of the MainStay Money Market Fund as a "retail money market fund," as such term is defined or interpreted under Rule 2a-7 under the Investment Company Act of 1940, as amended. As a "retail money market fund," effective on or before October 14, 2016, the Fund will adopt, and will work with financial intermediaries to implement, policies and procedures reasonably designed to limit all beneficial owners of the Fund to natural persons."

MainStay continues, "Effective August 1, 2016, the Fund will be closed to purchases by any new accounts that are not beneficially owned by natural persons. Current accounts that are not beneficially owned by natural persons may continue to purchase shares of the Fund until September 1, 2016. On or about October 1, 2016, the Fund will begin to redeem any Fund shares held in accounts that are not beneficially owned by natural persons."

A new Morgan Stanley filing, under "Summary of Money Market Fund Changes -- Overview of Government and Retail Money Market Funds," says, "The Board has approved, upon the recommendation of Morgan Stanley Investment Management Inc., the designation of each of the Active Assets Government Securities Trust, Active Assets Government Trust and Morgan Stanley U.S. Government Money Market Fund as a "government money market fund" as defined in Rule 2a-7 under the Investment Company Act of 1940, as amended."

Under "Retail Money Market Funds," it states, "The Board has approved, upon the recommendation of MSIM, the designation of each of the Active Assets California Tax-Free Trust, Active Assets Money Trust, Active Assets Prime Trust, Active Assets Tax-Free Trust, Morgan Stanley California Tax-Free Daily Income Trust, Morgan Stanley Liquid Asset Fund Inc., Morgan Stanley New York Municipal Money Market Trust and Morgan Stanley Tax-Free Daily Income Trust as a "retail money market fund" as defined in Rule 2a-7 under the 1940 Act, effective on or about October 7, 2016."

It adds, "On or before the Effective Date, investments in Retail Funds will be limited to accounts beneficially owned by natural persons. Financial Intermediaries will be required to take steps to remove any shareholders on behalf of whom they hold shares in a Retail Fund that are not eligible to be invested in the Fund prior to such date and must notify the Fund of any ineligible shareholders that continue to own shares of the Fund on such date.... Effective July 18, 2016, the Retail Funds reserve the right to redeem shares in any account that they cannot confirm to their satisfaction are beneficially owned by natural persons, after providing advance notice."

A separate filing for Morgan Stanley Institutional Liquidity Funds says, "The Board of Trustees of Morgan Stanley Institutional Liquidity Funds (the "Fund") has approved a decrease in the minimum initial investment amount and minimum average balance policy with respect to each share Class of the Portfolio, effective October 1, 2016.... Each share Class of the Portfolio is available to investors who at the time of initial purchase make a minimum purchase of $10,000,000." (The change is for the previously ultra-high minimum Money Market Portfolio, which previously had a minimum of $150 million.)

It continues, "The Board has approved, upon the recommendation of Morgan Stanley Investment Management Inc., the investment adviser of the Fund, the designation of each of the Money Market Portfolio, Prime Portfolio and Tax-Exempt Portfolio as an "institutional money market fund" as defined in Rule 2a-7 under the Investment Company Act of 1940, as amended." Money Market Portfolio will have a single strike time of 3pm and Tax-Exempt a single strike of 1pm, while Prime Portfolio will have multiple strike times of 8am, noon and 3pm <b:>`_. (For more, see our March 17 News, "Morgan Stanley Declares Inst Funds in Filing; BlackRock Fed RRP Fund.")

Finally, PFM's fund filing says, "The following supplements information contained in the Prospectus and Statement of Additional Information of Prime Series and Government Series, each an investment portfolio of PFM Funds. Effective October 3, 2016, Prime Series will operate as a government money market fund and will have a policy of investing at least 99.5% of its assets in cash, U.S. government securities (including securities issued or guaranteed by the U.S. government or its agencies or instrumentalities) and/or repurchase agreements that are collateralized fully. This change in the investment program of Prime Series will allow Prime Series to continue to seek to maintain a stable net asset value of $1.00 per share after certain new requirements applicable to money market funds and adopted by the Securities and Exchange Commission become effective. In view of this new investment policy, the name of Prime Series will be changed to "Government Select Series" effective October 3, 2016."

It continues, "Prior to October 3, 2016, Prime Series may continue to invest in money market instruments issued by U.S. companies, financial institutions and U.S. municipalities and shares of other money market mutual funds that invest exclusively in the types of obligations in which Prime Series is permitted to invest (as described in the Prospectus). However, all such investments must have maturity dates that are not later than September 30, 2016, so that Prime Series will be in compliance with its new investment policy when it becomes effective. Effective October 3, 2016, Government Series will have a policy of investing at least 99.5% of its assets in cash, U.S. government securities (including securities issued or guaranteed by the U.S. government or its agencies or instrumentalities) and/or repurchase agreements that are collateralized fully." (See too a separate filing for the PFM SNAP share class.)

The Association for Financial Professionals released its "2016 Liquidity Survey" yesterday. The new report shows a tiny decrease in bank deposits and increase in money fund holdings, but it also shows that a majority of respondents will make changes to how they invest in Prime money market funds. Specifically, it says 62% plan to make changes in how they invest in prime funds and that 37% of that number will move to Govt funds or Bank products. However, AFP takes the under on how much it expects will move out of Prime Inst -- just $40 billion. Also, "Safety of principal" remains the top priority among investment objectives, increasing to 68% in 2016 from 65% last year. (Note: The full survey is only available to AFP members. See our July 13 Link of the Day, "2016 AFP Liquidity Survey," for coverage of the press release.)

The introduction of the 33-page report explains, "The survey generated 787 respondents from corporate practitioners from organizations of varying sizes and representing numerous industries." The survey was once again underwritten by State Street Global Advisors. In the opening remarks, SSGA's Yeng Felipe Butler says, "Although money market reform is bearing down on us with a mid-October implementation deadline, many treasurers are taking a "wait and see" approach, keeping an eye on interest rates and evaluating options on a real-time basis. It remains unclear what level of assets will move between different types of cash investments, but many viable options exist across the short term spectrum to meet your investment objectives."

Under the section, "Holdings of Cash and Short-Term Investments/Securities," it says, "Almost one-third (32%) of practitioners reports that their organizations' cash holdings within the U.S. increased from May 2015 to May 2016." Further, 47% indicate no significant change and 21% reported a decrease. Outside the US, 27% increased their cash balances, 58% said no changes, and 15% decreased. Looking ahead, one quarter expect to increase cash balances in the next year, 55% anticipate no changes, and 20% expect cash balances to decrease."

Under "Investment Policies," AFP states, "Seventy-three percent of organizations have a written investment policy that dictates their short-term investment strategy. This is three percentage points higher than the figure reported in the 2015 survey and three percentage points lower than the 76 percent share reported in 2014. Safety continues to be the most valued short-term investment objective for 68 percent of organizations.... Thirty percent of survey respondents indicate that their organizations' most important cash investment objective is liquidity.... [Y]ield continues to be a distant third.... [O]nly two percent of survey respondents consider yield to be the most important investment objective for their organizations."

They add, "79 percent of finance professionals report that their organizations' investment policies require money funds to be rated ... 32 percent of respondents indicate that their organizations' policies require at least one agency assign an AAA rating and 28 percent report that their policies mandate money funds earn AAA ratings from at least two agencies."

Under "Current Allocations," the study comments, "Organizations are maintaining over half their short-term investments in bank deposits (55 percent). This is just one percentage point lower than last year's record-breaking 56 percent.... Companies continue to keep their short-term investment holdings in a relatively small number of investment vehicles. Organizations invest in an average of 2.4 vehicles for their cash and short-term investment balances, a decrease from the 3.2 investment vehicles reported in 2015 and slightly less than the 2.7 reported in both 2014 and 2013."

It goes on, "Over three-fourths (77 percent) of organizations continue to allocate most of their short-term investment balances in three safe and liquid investment vehicles: bank deposits, money market funds (MMFs) and Treasury securities. This year, MMFs account for 17 percent of organizations' short-term investment portfolios, up two percentage points from the 15 percent reported last year.... Larger organizations with annual revenue of at least $1 billion, those that are net investors and those that are publicly owned are more likely to allocate their short-term investments in MMFs than are other organizations."

Taking a closer look at the allocation to MMFs, 9% had allocations to Prime/Diversified MMFs (same as last year), 7% to Government/Treasury MMFs (up 1 from last year), and 1% to Muni/Tax-Exempt MMFs (same as last year). Furthermore, just 1% (same as last year) had an allocation to `Enhanced Cash/Conservative Income/ Ultra-Short Bond Funds. Outside the US, 10% of non-U.S. cash holdings are held in MMFs while 71% is in bank deposits.

On selecting MMFs, AFP explains, "There are a variety of factors finance professionals consider when selecting a MMF in which their organizations should invest. Nearly half (48 percent) of survey respondents indicate that a fund's rating was the most important determinant when selecting a fund. Forty percent of finance professionals rank counterparty risk of underlying investments as the primary deciding factor. Yield, the fund sponsor taking a role in the bank relationship mix, and support were each ranked number one by 34 percent of survey respondents. The second most important factor in selecting a MMF is diversification of underlying investments (cited by 42 percent of respondents) closely followed by fund ratings (39 percent). A majority (59 percent) of finance professionals cites ease of transacting with the fund and accounting treatment as the third most important criterion when selecting a fund."

On "SEC Ruling Money Market Reform," it states, "The majority of finance professionals (62 percent) anticipate that their organizations will make significant changes in their approach to investing in prime money market funds as a result of the new SEC rules. Nearly half (47 percent) anticipate their companies will either discontinue investing in prime funds altogether or move some or all their holdings out of those funds. Thirty-seven percent plan to move their money into government MMFs or into bank products to maintain stability -- a 17 percentage-point increase from last year. Fifteen percent of respondents report that their organizations will alter their investment policy to accommodate only stable NAV options and another 15 percent will alter their investment policy to accommodate floating NAV products (up from 8%)."

The Liquidity Survey adds, "As the end point (i.e., when the rule goes into effect) becomes more certain, the default selection seems to be to move from prime into government funds. The U.S. Treasury, through the use of the Reverse Repo Program, plans to support the anticipated movements to provide liquidity in the marketplace. It is also the perception of many asset managers that organizations will move from prime to government funds, but the real question is one of timing -- prior to October 15, or the first week, first day, or first month when the changes come into play. The decision about where to invest may ultimately be made when the informed options present themselves."

It continues, "Finance professionals anticipate other changes in their organizations' investment policies as their companies plan for the changes resulting from SEC money market fund reform. Twenty-four percent of survey respondents indicate they will implement changes in fund concentration risk if they have invested in prime funds and another 24 percent report they will likely add floating NAV options to their investment policy.... Since the new MMF rules have not yet taken effect, many organizations are currently taking a "wait and see" approach. Most organizations with which AFP has spoken anticipate they will at least review their investment policies and, as the survey results show, some do anticipate making changes if the money fund reforms impact them."

The AFP adds, "Based on money market fund data from the Investment Company Institute, as of the end of May 2016 there was approximately $765.85 billion in prime institutional money market funds and $948.64 billion in institutional government money market funds. Based on the current allocation ... a nine percent allocation to prime funds would equate to approximately $68 billion for survey respondents. Likewise, the current allocation of seven percent in government institutional funds would be approximately $66 billion for the same group."

They continue, "There are many industry reports speculating how much money will move from prime to government funds. Amounts have ranged between $200 and $800 billion on average. Our estimate is that it would be much less -- approximately 60 percent of survey respondents indicate they would move funds in some fashion (move out of prime or move into government funds). This equates to approximately $40 billion, considerably less than other estimates. This conservative estimate also assumes that the majority of survey responses are classified as institutional vs. retail at the time of this writing."

Furthermore, the study says, "How much money will finally be shifted between types of MMFs is still undetermined, but the large portion of money in prime funds has already been moved -- and indeed, has yet to come back since the financial crisis. The allocation is about half of what it was in 2008. Fund companies are still in the process of making fund changes, announcing NAV strike times and settling their funds lineup. More clarity around this issue will be solidified closer to October."

It adds, "AFP asked survey participants what spread between government funds and prime funds would be necessary for their organizations to stay invested in or return to investing in prime funds. Thirty percent of finance professionals indicate that regardless of the spread, their organizations would not invest in prime funds. This is 20 percentage points less than those who held this view last year and suggests that organizations are becoming more comfortable with floating NAV products. Some complications still exist: identifying and explaining investment policy changes, accounting treatment and internal buy-in remain for some companies that plan to adopt floating NAV options. Over the past three years, AFP has seen a warming trend towards floating NAV products. One-fourth of finance professionals reports that their companies would invest in prime funds if the spread were at least 50 (basis points) bps; an additional 25 percent would invest in those funds if the spread were at least 25 bps."

The AFP survey says, "For organizations that do not plan on investing in prime funds at all, there are other factors at play. For some, the floating NAV violates at least two tenets of short-term investing: safety and liquidity. Despite the funds having a very short duration and maturity structure, the risk of having a floating NAV is too great for some. The risk of having gates and fees is also a concern for many companies and violates the liquidity principal: having funds available when needed." Finally, under "Alternative Investment Options" organizations are considering, SMAs (44%) were the most preferred, followed by 2a7-like funds with stable NAV (21%), extending maturities (18%), Direct Repo (13%), and Ultra-Short bond funds (13%).

Crane Data released its July Money Fund Portfolio Holdings yesterday, and our latest collection of taxable money market securities, with data as of June 30, 2016, shows increases in Repos, Agencies, and VRDNs, and decreases in Time Deposits, CDs, CP, and Treasuries. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) decreased by $59.7 billion to $2.544 trillion, after increasing by $24.6 billion in May, decreasing $21.0 billion in April, and falling $75.5 billion in March. Repos remained the largest portfolio segment, followed by Agencies and Treasuries; Agencies moved ahead of Treasuries in June. CDs were in fourth place, followed by Commercial Paper, Time Deposits and VRDNs. Money funds' European-affiliated securities fell to 19.6% of holdings, down from the previous month's 27.4%. (U.K.-affiliated holdings declined by just $9.0 billion to $80.9 billion, or 3.2% of assets.) Below, we review our latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Repurchase Agreements (repo) jumped $71.4 billion (12.4%) to $646.2 billion, or 25.4% of holdings, after increasing $32.6 billion in May and decreasing $65.3 billion in April. Government Agency Debt increased $37.4 billion (7.4%) to $544.9 billion, or 21.4% of all holdings, after increasing $34.4 billion in May and decreasing $9.0 billion in April. Treasury securities fell $12.8 billion (2.4%) to $522.3 billion, or 20.5% of holdings, after falling $3.8 billion in May and dropping $36.8 billion in April. `The rise in Agencies is in large part due to a shift of over $400 billion (since late 2015) of Prime MMF asset into Government MMFs (so far).

Certificates of Deposit (CDs) were down $53.6 billion (13.1%) to $355.6 billion, or 14.0%, after declining $4.6 billion in May and falling $17.0 billion in April. Commercial Paper (CP) was down $38.2 billion (11.4%) to $297.1 billion, or 11.7% of holdings, while Other holdings, primarily Time Deposits, dropped $66.3 billion (30.6%) to $150.1 billion, or 5.9% of holdings. VRDNs held by taxable funds increased by $2.3 billion (8.7%) to $28.1 billion (1.1% of assets).

Prime money fund holdings tracked by Crane Data totaled $1.123 trillion (down from $1.270 trillion last month), or 44.1% (down from 48.8%) of taxable money fund holdings' total of $2.544 trillion. (Prime fund assets fell below combined Treasury and Government portfolio holdings assets for the first time last month.) Among Prime money funds, CDs represent just under one-third of holdings at 31.7% (up from 32.2% a month ago), followed by Commercial Paper at 26.5% (up from 26.2%). The CP totals are comprised of: Financial Company CP, which makes up 15.4% of total holdings, Asset-Backed CP, which accounts for 7.1%, and Non-Financial Company CP, which makes up 4.0%. Prime funds also hold 4.7% in US Govt Agency Debt (up from 4.1%), 4.5% in US Treasury Debt (down from 5.5%), 7.9% in US Treasury Repo (up from 3.8%), 2.6% in Other Instruments, 9.7% in Non-Negotiable Time Deposits, 5.2% in Other Repo, 4.0% in US Government Agency Repo, and 2.0% in VRDNs.

Government money fund portfolios totaled $875 billion, up from $789 billion in May, while Treasury money fund assets totaled $546 billion, up from $545 billion in May. Government money fund portfolios were made up of 56.3% US Govt Agency Debt, 15.9% US Government Agency Repo, 7.6% US Treasury debt, and 20.0% in US Treasury Repo. Treasury money funds were comprised of 74.1% US Treasury debt, 25.7% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined total $1.421 trillion, or 55.9% of all taxable money fund assets, up from 51.2%.

European-affiliated holdings decreased $213.1 billion in June to $499.3 billion among all taxable funds (and including repos); their share of holdings decreased to 19.6% from 27.4% the previous month. Eurozone-affiliated holdings decreased $125.6 billion to $288.4 billion in June; they now account for 11.3% of overall taxable money fund holdings. Asia & Pacific related holdings decreased by $11.4 billion to $288.4 billion (10.3% of the total). Americas related holdings increased $167.0 billion to $1.780 trillion and now represent 69.9% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements, which increased $100.9 billion, or 33.3%, to $403.8 billion, or 15.9% of assets; US Government Agency Repurchase Agreements (down $27.8 billion to $184.2 billion, or 7.2% of total holdings), and Other Repurchase Agreements ($58.2 billion, or 2.3% of holdings, down $1.7 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $27.7 billion to $172.8 billion, or 6.8% of assets), Asset Backed Commercial Paper (down $5.1 billion to $79.4 billion, or 3.1%), and Non-Financial Company Commercial Paper (down $5.4 billion to $44.9 billion, or 1.8%).

The 20 largest Issuers to taxable money market funds as of June 30, 2016, include: the US Treasury ($522.3 billion, or 20.5%), Federal Home Loan Bank ($395.2B, 15.5%), Federal Reserve Bank of New York ($225.7B, 8.9%), Wells Fargo ($83.6B, 3.3%), BNP Paribas ($74.2B, 2.9%), RBC ($61.2B, 2.4%), Federal Home Loan Mortgage Co. ($58.3B, 2.3%), Federal Farm Credit Bank ($53.2B, 2.1%), Mitsubishi UFJ Financial Group Inc. ($53.0, 2.1%), Bank of Nova Scotia ($44.7B, 1.8%), Bank of America ($41.3B, 1.6%), Citi ($39.5B, 1.6%), HSBC ($36.4B, 1.4%), Federal National Mortgage Association ($34.9B, 1.4%), Credit Agricole ($34.2B, 1.3%), Sumitomo Mitsui Banking Co ($34.2B, 1.3%), Svenska Handelsbanken ($33.6B, 1.3%), JP Morgan ($32.4B, 1.3%), Bank of Montreal ($31.7B, 1.2%), and Toronto-Dominion Bank ($31.7B, 1.2%).

In the repo space, the `10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: Federal Reserve Bank of New York ($225.7B, 34.9%), Wells Fargo ($58.7B, 9.1%), BNP Paribas ($46.5B, 7.2%), RBC ($36.3B, 5.6%), Bank of America ($31.2B, 4.8%), Citi ($23.0B, 3.6%), Bank of Nova Scotia ($21.9B, 3.4%), HSBC ($19.8B, 3.1%), JP Morgan ($19.5B, 3.0%), and Societe Generale ($18.7B, 2.9%). The `10 largest Fed Repo positions among MMFs on 6/30 include: Goldman Sachs FS Govt ($31.6B), JP Morgan US Govt ($30.4B), Fidelity Govt Cash Reserves ($29.4B), Federated Govt Obligs ($23.0B), Fidelity Inst MMkt Govt ($22.2B), Wells Fargo Govt MMkt ($19.3B), Morgan Stanley Inst Lq Govt ($18.9B), BlackRock Lq T-Fund ($18.0B), Dreyfus Govt Cash Mgmt ($15.7B), and Fidelity Inst MM Prm ($15.2B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Mitsubishi UFJ Financial Group Inc. ($41.7B, 5.9%), Sumitomo Mitsui Banking Co. ($34.2B, 4.8%), Svenska Handelsbanken ($33.6B, 4.8%), BNP Paribas ($27.7B, 3.9%), Wells Fargo ($24.9B, 3.5%), RBC ($24.7B, 3.5%), Credit Agricole ($23.0B, 3.3%), Bank of Nova Scotia ($22.8B, 3.2%), Bank of Montreal ($21.3B, 3.0%), and Swedbank AB ($21.2B, 3.0%).

The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc. ($27.6B, 7.8%), Sumitomo Mitsui Banking Co ($27.5B, 7.8%), Wells Fargo ($20.4B, 5.8%), Bank of Montreal ($20.1B, 5.7%), Mizuho Corporate Bank Ltd ($18.4B, 5.2%), Sumitomo Mitsui Trust Bank ($17.8B, 5.1%), Toronto-Dominion Bank ($15.6B, 4.4%), Canadian Imperial Bank of Commerce ($14.8B, 4.2%), Bank of Nova Scotia ($14.8B, 4.2%), and Citi ($13.7B, 3.9%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: BNP Paribas ($16.7B, 6.6%), JP Morgan ($10.9B, 4.3%), Mitsubishi UFJ Financial Group Inc. ($10.3B, 4.1%), ING Bank ($10.2B, 4.0%), Commonwealth Bank of Australia ($9.8B, 3.9%), Societe Generale ($9.7B, 3.8%), Credit Agricole ($8.5B, 3.4%), RBC ($8.3B, 3.3%), Australia and New Zealand Banking Group Ltd. ($8.3B, 3.3%), and National Australia Bank Ltd ($7.8B, 3.1%).

The largest increases among Issuers include: Federal Reserve Bank of NY (up $139.0B to $225.7B), Federal Home Loan Bank (up $23.2B to $395.2B), Federal Home Loan Mortgage Co. (up $8.8B to $58.2B), RBC (up $8.7B to $61.2B), Wells Fargo (up $5.5B to $83.6B), Citi (up $4.8B to $39.5B), Australia and New Zealand Banking Group Ltd. (up $3.8B to $20.1B), Federal National Mortgage Association (up $3.6B to $34.9B), Toronto-Dominion Bank (up $3.2 to $31.7B), and Svenska Handelsbanken (up $3.1B to $33.6B).

The largest decreases among Issuers of money market securities (including Repo) in June were shown by: Credit Agricole (down $41.7B to $34.2B), Credit Suisse (down $22.8B to $19.7B), Societe Generale (down $21.4B to $30.9B), Skandinaviska Enskilda Banken AB (down $20.1B to $9.9B), Natixis (down $17.4B to $22.0B), US Treasury (down $12.8B to $522.3B), Credit Mutuel (down $10.9B to $8.4B), Mizuho Corporate Bank Ltd. (down $8.3B to $29.0B), Swedbank AB (down $7.1B to $21.2B), and BNP Paribas (down $6.8B to $74.2B).

The United States remained the largest segment of country-affiliations; it represents 61.8% of holdings, or $1.572 trillion (up $158.0B). Canada (8.1%, $206.5B) moved up one spot to second while France (7.1%, $181.3B) fell to third. Japan (6.8%, $172.9B) stayed in fourth, while Sweden (3.4%, $85.4B) held fifth. The United Kingdom (3.2%, $80.9B) remained sixth, while Australia (2.3%, $59.6B) moved up to seventh and The Netherlands (2.0%, $50.6B) climbed to eighth. Germany (2.0%, $50.2B) fell two spots to ninth, while and Switzerland (1.3%, $33.2B) held tenth place among country affiliations. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of June 30, 2016, Taxable money funds held 30.9% (up from 30.1%) of their assets in securities maturing Overnight, and another 13.1% maturing in 2-7 days (down from 13.9%). Thus, 44.0% in total matures in 1-7 days. Another 19.2% matures in 8-30 days, while 14.2% matures in 31-60 days. Note that more than three-quarters, or 77.4% of securities, mature in 60 days or less (same as last month), the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-90 days, holds 10.9% (down from 11.0%) of taxable securities, while 9.4% matures in 91-180 days (down from 10.0%), and just 2.3% matures beyond 180 days (down from 2.2%).

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

Crane Data's latest Money Fund Market Share rankings show asset declines for the majority of U.S. money fund complexes in June as money market fund assets decreased by $14.8 billion, or 0.06%. Overall assets have fallen by $65.1 billion, or 2.4%, over the past 3 months, but over the past 12 months through June 30, they are up $81.6 billion, or 3.2%. The biggest gainer in June was Dreyfus, whose MMFs rose by $8.3 billion, or 5.6%. Federated, PNC, Morgan Stanley, Fidelity, and USAA also saw assets increase, rising by $6.4 billion, $5.2 billion, $4.4 billion, $2.0 billion, and $442M respectively. (Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product, and the combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers.) We review these below, and we also look at money fund yields the past month, which rose slightly.

BlackRock, PNC, Dreyfus, Vanguard, and First American had the largest money fund asset increases over the past 3 months, rising by $21.6 billion, $5.0B, $3.3B, $2.5B, and $1.1B, respectively. BlackRock was buoyed by its acquisition of BofA's money funds -- a deal which closed in April. Over the past year through June 30, 2016, Fidelity was the largest gainer (up $44.9B, or 11.1%), followed by Goldman Sachs (up $44.4B, or 30.5%), BlackRock (up $38.5B, or 18.7%), SSGA (up $15.8B, or 20.6%), Morgan Stanley (up $11.1B, or 9.5%), and Vanguard (up $11.1B, or 6.4%).

Other asset gainers for the past year include: Northern (up $9.0B, 11.4%), Federated (up $7.6B, or 3.8%), PNC ($6.6B, 140.0%), Schwab (up $5.4B, 3.5%), UBS (up $1.3B, or 3.7%), and American Funds (up $910M, 6.1%). The biggest decliners over 12 months include: JP Morgan (down $25.3B, or -10.1%), Dreyfus (down $10.6B, or -6.4%), Deutsche (down $7.9B, or -25.3%), RBC (down $5.6B, or -38.2%), and PFM (down $3.6B, or -66.0%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $448.0 billion, or 17.1% of all assets (up $2.0 billion in June, down $166M over 3 mos., and up $44.9B over 12 months). BlackRock is second with $244.2 billion, or 9.3% of assets (down $7.9B, up $21.6B, and up $38.5B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan is third with $224.5 billion, or 8.6% market share (down $12.8B, down $8.2B, and down $25.3B for the past 1-month, 3-mos. and 12-mos., respectively). Federated Investors remained fourth with $208.4 billion, or 8.0% of assets (up $6.4B, down $6.8B, and up $7.6B). Goldman Sachs stayed in 5th place with $190.0 billion, or 7.3% of assets (up $126M, down $5.0B, and up $44.4B).

Vanguard held onto sixth place with $185.7 billion, or 7.1%, (up $1.3B, up $2.5B, and up $11.1B). Schwab ($159.0B, 6.1%) was in seventh place, followed by Dreyfus in eighth place with $155.7B (6.0%), Morgan Stanley was in ninth place with $128.0B (4.9%), and Wells Fargo was in tenth place with $107.8B (4.1%).

The eleventh through twentieth largest U.S. money fund managers (in order) include: SSGA ($92.6B, or 3.5%), Northern ($87.8B, or 3.4%), Invesco ($54.4B, or 2.1%), Western Asset ($43.7B, or 1.7%), First American ($41.5B, or 1.6%), UBS ($37.9B, or 1.4%), Franklin ($23.9B, or 0.9%), Deutsche ($23.3B, or 0.9%), American Funds ($15.9B, or 0.6%), and T. Rowe Price ($14.9B, or 0.6%). The 11th through 20th ranked managers are the same as last month, except: T. Rowe Price displaced HSBC from the top 20. Crane Data currently tracks 64 U.S. MMF managers, the same number as last month.

When European and "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 Goldman moving up to No. 4 (dropping Vanguard to 6) and SSGA breaking into the top 10.

Looking at the largest Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore"), the largest money market fund families are: Fidelity ($456.2 billion), BlackRock ($356.5B), JPMorgan ($353.3B), Goldman Sachs ($279.8B), and Federated ($216.7B). Vanguard ($185.7B) was sixth, followed by Dreyfus/BNY Mellon ($182.7B), Schwab ($159.0B), Morgan Stanley ($151.3B), and SSGA ($115.9B), which round out the top 10. These totals include "offshore" US Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into US dollar totals.

Finally, our July Money Fund Intelligence and MFI XLS show that yields inched higher in June across most of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 755), was up 2 basis points to 0.13% for the 7-Day Yield (annualized, net) Average, while the 30-Day Yield was up 1 basis point at 0.12%. The MFA's Gross 7-Day Yield was 0.44% (up 1 bps), while the Gross 30-Day Yield was also 0.44% (up 1 bp).

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.24 (up 2 basis points) and an average 30-Day Yield of 0.23% (up 1 bp). The Crane 100 shows a Gross 7-Day Yield of 0.48% (up 1 bps), and a Gross 30-Day Yield of 0.47% (unchanged). For the 12 month return through 6/30/16, our Crane MF Average returned 0.07% (up 1 bp) and our Crane 100 returned 0.13% (up 2 bps). The total number of funds, including taxable and tax-exempt, fell to 1,040, down 14 from last month. There are currently 755 taxable and 285 tax-exempt money funds.

Our Prime Institutional MF Index (7-day) yielded 0.27% (up 1 bp) as of June 30, while the Crane Govt Inst Index was 0.16% (up 3 bps) and the Treasury Inst Index was 0.12% (up 2 bps). Thus, the spread between Prime funds and Treasury funds is 15 basis points. The Crane Prime Retail Index yielded 0.09% (up 1 bp), while the Govt Retail Index yielded 0.03% (unchanged) and the Treasury Retail Index was 0.02% (unchanged). The Crane Tax Exempt MF Index yielded 0.07% (up 1 bp).

The Gross 7-Day Yields for these indexes in June were: Prime Inst 0.57% (up 2 bps), Govt Inst 0.41% (up 3 bps), Treasury Inst 0.37% (up 3 bps), Prime Retail 0.52% (up 2 bps), Govt Retail 0.37% (unchanged), and Treasury Retail 0.32% (up 1 bp). Also, the Crane Tax Exempt Index jumped 2 basis points to 0.40%. The Crane 100 MF Index returned on average 0.02% for 1-month, 0.06% for 3-month, 0.10% for YTD, 0.13% for 1-year, 0.06% for 3-years (annualized), 0.05% for 5-years, and 1.05% for 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The Investment Company Institute released its latest "Worldwide Mutual Fund Assets and Flows" data collection recently. The latest report shows that total global money fund assets inched lower by $9 billion, or 0.2%, to $5.063 trillion in Q1 2016. China, Ireland, and Luxembourg suffered the biggest declines, while France, Korea, Brazil, and the U.S. saw gains. Worldwide MMF assets have increased by $515.0 billion, or 11.3%, over the previous 12 months through 3/31/16. We review the latest Worldwide MMF totals below, and we also discuss Crane Data's latest MFI International statistics and recent comments from our Money Fund Symposium conference below.

The release says, "Worldwide regulated open-end fund assets increased 1.7 percent to $38.59 trillion at the end of the first quarter of 2016, excluding funds of funds. Worldwide net cash inflow to all funds was $139 billion in the first quarter, compared with $579 billion of net inflows in the fourth quarter of 2015. The Investment Company Institute compiles worldwide open-end fund statistics on behalf of the International Investment Funds Association, the organization of national fund associations. The collection for the first quarter of 2016 contains statistics from 46 countries."

It continues, "Bond fund assets increased by 4.7 percent to $8.49 trillion in the first quarter. Balanced/mixed fund assets increased by 1.7 percent to $5.26 trillion in the first quarter, while money market fund assets decreased by 0.2 percent globally to $5.06 trillion.... Money market funds worldwide experienced an outflow of $42 billion in the first quarter of 2016 after registering an inflow of $236 billion in the fourth quarter of 2015.... Money market fund assets represented 14 percent of the worldwide total."

According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. maintained its position as the largest money fund market in Q1'16 with $2.759 trillion (or 51.3% of all global MMF assets). U.S. MMF assets increased by $4.1 billion in Q1'16 and by $113.5B in the 12 months through March 31, 2016. China remained in second place among countries overall despite a drop in assets. China saw assets fall $40.4 billion (down 5.9%) in Q1 to $644.0 billion (12.0% of worldwide assets), its first decline since late 2010. However, over the last 12 months through March 31, 2016, Chinese MMF assets have grown an astounding $294.8 billion, or 84.4%.

A July 1 article in the Financial Times, entitled, "China's fund industry almost doubles in 2015," explains, "China's fund industry almost doubled in size in 2015 as a series of interest rate cuts spurred rapid growth of money market funds.... Overall, assets under management in China's fund industry rose by 87 percent in 2015 to more than Rmb8tn ($1.2tn), by far the most rapid pace of expansion on record.... The surge was driven primarily by a 109 percent rise in the assets of money market funds to $684bn. China now boasts the second-largest money market fund sector in the world, after the US but now ahead of Ireland, with 14 percent of assets under management."

Ireland remained third among these country rankings, ending Q1 with $494.2 billion (9.2% of worldwide assets). Dublin-based MMFs were down $14.7B for the quarter, or 2.9%, but up $112.0B, or 29.0%, over the last 12 months. France remained in fourth place with $374.8 billion (7.0% of worldwide assets). Assets here jumped $36.3 billion, or 10.7%, in Q1, and were up $46.1 billion, or 14.0%, over one year. ICI's data no longer includes money fund figures for Australia, but they would rank as the fifth largest market at $322 billion, their level of two years ago. (Australia's MMF assets were shifted into the "Other" category several quarters ago, but we continue to list them in our version of the tables.)

Luxembourg was in sixth place with $310.9B, or 5.8% of the total, down $11.5 billion in Q1 (-3.6%) and up $12.6B (4.2%) for 1 year. Korea, the 7th ranked country, saw MMF assets rise $11.0 billion, or 13.8%, to $91.1 billion (1.7% of total) in Q1 and fall $1.2 billion (4.9%) for the year. Brazil moved up to 8th place, increasing $10.2 billion, or 19.9%, to $61.5 billion (1.1% of total assets) in Q1. It increased $20.0 billion (48.0%) over the previous 12 months. ICI's statistics show Mexico in 9th place with $55.8B, or 1.0% of total, up $2.1B (3.9%) in Q1 and down $3.1B (5.3%) for the year. India was in 10th place, dropping $5.1 billion, or 14.5%, to $30.1 billion (0.6% of total assets) in Q1 and increasing $4.1 billion (15.7%) over the previous 12 months.

Taiwan ($29.3B, down $1.4B for the quarter and up $4.1B for the year), Sweden ($23.5B, up $2.4B for the quarter and up $5.1B for the year), Switzerland ($19.4B, up $98M and up $233M), Canada ($19.3B, up $1.1B and up $76M), and Belgium ($18.8B, up $471M and up $17.0 billion for the year) ranked 11th through 15th, respectively. South Africa, Chile, Japan, Germany, and Spain round out the 20 largest countries with money market mutual funds. Canada moved ahead of Belgium, and South Africa moved ahead of Chile in the latest rankings.

Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have primarily domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data, or if you'd like to see our MFI International product.

Crane Data's Money Fund Intelligence International shows assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Dublin or Luxemburg and denominated in USD, Euro and GBP (sterling), up $35.2 billion year-to-date to $734.3 billion as of 6/30/16. U.S. Dollar (USD) funds (156) tracked by MFII account for over half ($390.3 billion, or 53.2%) of the total, while Euro (EUR) money funds (98) total E84.9 billion and Pound Sterling (GBP) funds (108) total L172.3. USD funds are down $1.8 billion, or 0.5%, YTD, while Euro funds are up E9.5 billion, or 12.6%, and GBP funds are up L21.9 billion, or 14.9%.

Offshore USD MMFs have an average 7-Day Net Yield of 0.32% as of June 30, up 16 basis points YTD. The average 7-Day Net Yield of EUR MMFs is -0.39%, down 21 basis points YTD, while the GBP MMF yields are averaging 0.41%, up 7 basis points on the year. Crane Data tracks 156 USD MMFs, 98 Euro MMFs and 108 Sterling MMFs.

Our recent Crane's Money Fund Symposium conference included the session, "MMF Issues in Europe and Asia," which featured Jonathan Curry of HSBC Global A.M. and Dennis Gepp of Federated UK, who also is a Director at IMMFA. European money market reforms were a big topic in the presentation (which occurred prior to the Brexit votes results being known). Gepp provided some insight into the next steps going forward. He said, "Over the next 6 months there will be trilogue meetings, possibly one as early as the first couple of weeks of July. If we do manage to have an initial meeting in the middle of July, it will be very much a preamble -- the serious work will be done in September onwards."

He expects the three parties -- the Council of Ministers, European Parliament, and European Commission, will come to a final agreement by the end of the year. "Let's assume we can end the year with an agreed position -- it's not quite as easy as that." It likely won't be posted in the official journal until the second quarter of 2017 and 20 days after that the implementation period will start. Regarding the length of the implementation period, "the European Commission suggested it could only take 6 months; Parliament said that's too short, it has to be 9 months. Eventually, the European Council said it's got to be at least 2 years. So we are hoping for a two year implementation period."

On client concerns about reforms, HSBC's Curry added, "One of the things that clients are interested in is understanding the LVNAV -- How is that going to operate? What is the risk profile is? What are the nuances around pricing?" Also, fund ratings, "Our expectation is that through the trilogue process, fund ratings will still be allowed in Europe." He added, "One of the areas that all three broadly tend to agree is on the question about sponsor support. They're in agreement that they don't believe sponsor support should be allowed in European money market funds."

Finally, on negative yields in Euro funds, Curry said, "There has been some reduction in AUM in since negative yields came in. But I look at those numbers and I think that's actually not a bad result. I think there was more concern going into this that the reaction of investors would be more significant than it has been. The way some of us are looking at this is, the utility value of money funds hasn't changed -- it's still exactly the same utility value, the difference is the yields are negative. They are making the same relative value decisions that they are making when yields are positive -- weighing the options -- making decisions the same way they do when yields are positive."

The IRS and the US Treasury Department issued a Final Rule on their proposal to simplify accounting and rules to accompany pending Money Fund Reforms. (See our July 30, 2014 News, "Reform Floating NAV Accounting Issues Addressed by Treasury Proposal.") The rule, "Method of Accounting for Gains and Losses on Shares in Money Market Funds," says, "This document contains final regulations that provide a simplified method of accounting for gains and losses on shares in money market funds (MMFs). The final regulations also provide guidance regarding information reporting requirements for shares in MMFs. The final regulations respond to [SEC] rules that change the amount for which certain MMF shares are distributed, redeemed, and repurchased. The final regulations affect MMFs and their shareholders." We discuss this last remaining piece of reforms below, and we also review the July issue of our flagship Money Fund Intelligence, which was sent to subscribers Friday morning.

The IRS/Treasury rule states, "This document contains amendments to 26 CFR part 1 (Income Tax Regulations) under sections 446 and 6045 of the Internal Revenue Code (Code). The regulations provide a method of accounting for gain or loss on shares in MMFs and are intended to simplify tax compliance for holders of shares in MMFs affected by SEC regulations that impose liquidity fees or change how certain MMF shares are priced. See Money Market Fund Reform; Amendments to Form PF ... (August 14, 2014) (SEC MMF Reform Rules)." (See also the IRS's new Revenue Procedure 206-39.)

It continues, "The Treasury Department and the IRS published a notice of proposed rulemaking and notice of public hearing (REG-107012-14) in the Federal Register on July 28, 2014 (79 FR 43694). The proposed regulations described a simplified method of accounting for gain or loss on shares in a floating-NAV MMF (the net asset value method, or NAV method). Under the NAV method, a taxpayer's gain or loss on shares in an MMF is based on the change in the aggregate value of the taxpayer's shares during a computation period selected by the taxpayer and on the net amount of the purchases and redemptions during the computation period. The proposed regulations also provided guidance regarding information reporting requirements for shares in MMFs."

Finally, the IRS rule adds, "After considering the comments, the Treasury Department and the IRS adopt the proposed regulations regarding the method of accounting as final regulations with the modifications described in this Treasury decision." (Note: Thanks to Stradley Ronon's Joan Swirsky and John Baker for pointing out the IRS notice.)

Our latest MFI newsletter features the articles: "Prime Outflows Turn Ugly: Totaling the Damage to Date," which charts the massive outflows from Prime funds YTD, and looks ahead to more; "BlackRock's Novick Keynotes Money Fund Symposium," which covers Barbara Novick's address at our recent Money Fund Symposium; and "Home-Stretch for Reforms; Gates & Outstanding Issues," which reviews a panel from Symposium on reform FAQs and operational obstacles. We have also updated our Money Fund Wisdom database query system with June 30, 2016, performance statistics, and sent out our MFI XLS spreadsheet Friday morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our June Money Fund Portfolio Holdings are scheduled to ship Tuesday, July 12, and our June Bond Fund Intelligence is scheduled to go out Friday, July 15.

MFI's lead "MMF Reform" article says, "The exodus from Prime and Tax Exempt money funds and flood into Govt MMFs picked up steam in June, as another $119.3 billion moved out of Prime and $14.7B moved out of Tax Exempt. Govt MMFs gained $120.3B, but overall assets were down $13.8B. Year-to-date, Prime funds are down by $259.3B, or -21.0%, and Tax Exempt MMFs are down by $60.0B, or -23.9%. Govt MMFs are up by $244.5B, or 20.5%. (See our June 30 News, "Prime Outflows, Spreads, and Liquidity Major Issues at MF Symposium.")

The article adds, "Over the past 12 months, Prime assets have fallen by a massive $378.2 billion, or 27.9%. Govt MMFs have increased by $509.1 billion during this same time while Tax Exempt MMFs have fallen by $47.3 billion. Government fund assets began surging in November 2015 as Fidelity Cash Reserves converted to Fidelity Govt Cash Reserves. Govt MMFs moved ahead of Prime assets in February 2016 for the first time ever, and haven't looked back. The shift has been fueled by over $300 billion in fund conversions, but we're now seeing the start of investor moves. (There have also been conversions of Prime into Ultra-Short Bond Funds and Tax-Exempt MMF liquidations.) We discuss this "Phase II" of asset movements below."

Our coverage of Novick's keynote at Symposium reads, "Crane's Money Fund Symposium, which took place last week in Philadelphia, attracted 575 attendees -- shattering our record of 505 set last year in Minneapolis. One of the highlights of the 3-day conference was the keynote speech by `BlackRock Vice Chair Barbara Novick, who discussed "The New Look of Money Market Funds" and focused on adapting to money market fund reforms. We excerpt from her speech below. Novick, who delivered the keynote at our last Philadelphia Money Fund Symposium in 2011, began by discussing the history and evolution of money fund reforms. She then turned her focus to the two major aspects of the 2014 reforms -- the floating NAV, and fees and gates. On the floating NAV requirement she said, "Based on historical data, we would expect the NAV to wiggle around the dollar. We're not talking about big changes where you see it go up and down, it will wiggle -- very tight bands around that dollar."

It continues, "On the fees and gates rule, Novick added, "That's probably the most controversial ... because it's unknown and untested." She explained, "We don't really know what that will look like, and history does compel us to say we want to make sure we have access to our capital at all points in time. I tend to think about these a little bit differently. First, by having these triggers, the portfolio manager is incented to manage that fund very conservatively, and I think that's good. If there's anything we’ve learned, people taking risks in money market fund portfolios isn't the best idea for any of us. Second, if we had some extreme environment ... wouldn't you want boards to have the best toolkit available industry-wide to deal with a stress event?"

The article on the "Home Stretch for Reforms" explains, " Our recent Money Fund Symposium in Philadelphia also featured the sessions, "Money Fund Reform: Outstanding Issues," and "Reform Issues: Credit Ratings, Operations." The former, moderated by Joan Swirsky of Stradley Ronon, included panelists `Jack Murphy of Dechert; Sarah ten Siethoff of the Securities & Exchange Commission; and Jane Heinrichs of the Investment Company Institute. The latter, moderated by Pete Crane of Crane Data, featured Charles Hawkins of BNY Mellon Asset Servicing on operational challenges; Jimmie Irby of JP Morgan on credit ratings; and Sharon Pichler of the SEC.

It continues, "In the Outstanding Issues session, the panel addressed several issues with fees and gates. Swirsky said, "There are only two triggers in the rule -- if weekly liquid assets (WLA) fall below 30% then the board can impose a discretionary fee or gate, and if the WLA falls even lower to less than 10% there will be a mandatory fee unless the board decides otherwise. But funds can consider other triggers besides the two in the rule."

In a sidebar, we discuss, "UBS Sweeps; Changes." This brief says, "UBS Asset Management liquidated its entire lineup of RMA Money Market Funds and launched a new RMA Government Money Market Fund to hold its brokerage sweep cash." It also recaps other fund liquidations and changes. We also do a sidebar on "European MMF Regs," which says, "On June 17, the European Council adopted a Dutch compromise proposal on Money Market Fund Regulations. This now enables the European Council, European Parliament, and European Commission to "commence trilogue negotiations to finalize the regulations." Finally, as we do every month, we review all the important "Money Fund News."

Our July MFI XLS, with June 30, 2016, data, shows total assets decreased $13.8 billion in June to $2.612 trillion after decreasing $9.7 billion in May, $42.0 billion in April, and $20.3 billion in March. Our broad Crane Money Fund Average 7-Day Yield moved up 2 basis points to 0.13% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) increased 2 basis points to 0.24% (7-day).

On a Gross Yield Basis (before expenses were taken out), the Crane MFA ticked up 2 basis points to 0.44% and the Crane 100 was also up 2 bps to 0.48%. Charged Expenses averaged 0.32% (unchanged) and 0.25% (down one bps) for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 32 days (down 1 day from last month) and for the Crane 100 was 34 days (up 1 day). (See our Crane Index or craneindexes.xlsx history file for more on our averages. Note: We made some changes to our Crane 100 Money Fund Index to replace recently liquidated funds. See our MFI XLS for the latest components.)

A Prospectus Supplement for the $3.9 billion Deutsche Daily Assets fund states that it will remain a Prime Institutional Fund and convert to a Floating NAV starting in October. Also, Deutsche set implementation dates for its two Prime Retail funds and removed "Inst" from the share class name of one of its Tax-Exempt funds. These are among the latest batch of money market fund changes we've discovered, which also include Prime fund liquidations by Putnam, CNR and RBC, Muni fund liquidations by Wells Fargo and Goldman Sachs, and a Prime to Govt conversion by Invesco. We review these changes below.

Under the subhead, "Deutsche Institutional Money Market Funds," the statement says, "Under the money market fund reforms, all investors, including natural persons, that meet the eligibility requirements may purchase shares of Daily Assets Fund and Deutsche Variable NAV Money Fund, but the funds will be required to price and transact in their shares at a floating NAV to four decimal places in the case of a fund with a $1.00 target share price (e.g., $1.0000) or an equivalent or more precise level of accuracy for funds with a different share price (e.g., a fund that has a target share price of $10.00 could price its share at $10.000) reflecting current market values for their portfolio securities on or before the Compliance Date."

It adds, "Currently, the Deutsche Variable NAV Money Fund transacts in its shares at a floating NAV calculated at 4 p.m. each business day. DIMA (Deutsche Investment Management Americas) currently expects that the Daily Assets Fund will transition to a floating NAV on or about October 10, 2016. As a result, Daily Assets Fund will begin to value its portfolio securities using market based factors and will no longer use the "amortized cost" method of valuation effective on or about October 10, 2016… Until such date, the Daily Assets Fund will continue to seek to maintain a stable $1.00 NAV using the amortized cost method to value its portfolio securities." Both funds will daily strike times of 9 am, 12 pm, 3 pm, and 5 pm.

Deutsche's Prime Retail fund filing says, "On or about September 16, 2016, Deutsche Money Market Prime Series and Tax-Exempt Portfolio of Cash Account Trust will implement policies and procedures that are reasonably designed to limit beneficial ownership of each fund's shares to natural persons. On such date, only accounts beneficially owned by natural persons will be permitted to retain their shares in each Deutsche Retail MMF. Each Deutsche Retail MMF will continue to operate with its existing investment objective and investment strategies and will continue to seek to maintain a $1.00 stable NAV. (Although each fund will seek to maintain a $1.00 NAV, there is no guarantee that it will be able to do so and if the NAV falls below $1.00, you would lose money.) In addition, each Deutsche Retail MMF will be required to be able to implement liquidity fees and/or redemption gates by the Compliance Date."

It continues, "In order to separate eligible investors within the funds, the Board of each Deutsche Retail MMF, on the recommendation of Deutsche Investment Management Americas Inc, approved the closing of each Deutsche Retail MMF to new investors that are not natural persons effective on or about July 1, 2016. On or about September 15, 2016, financial intermediaries will be required to take steps to remove any shareholders on behalf of whom they hold shares in a Deutsche Retail MMF that are not eligible to be invested in the fund.... Each Deutsche Retail MMF will provide advanced written notice of its intent to make any such involuntary redemptions. Effective on or about September 15, 2016, the Deutsche Retail MMFs may involuntarily redeem shares in accounts if Deutsche Retail MMF does not believe that the account is beneficially owned by a natural person."

Also, we learned that effective July 1 that Deutsche Tax-Exempt Cash Institutional Shares will be renamed Deutsche Tax-Exempt Cash Premier Shares, according to this filing. For more on Deutsche's money fund changes, see our July 21, 2015 News, "Deutsche Announces Reform Plans, Will Convert Most Prime MFs to Govt and our Dec. 22, 2015 News, "More Funds Jump on Prime to Govt Conversion Bandwagon; Mergers."

In other news, another round of Prime fund liquidations were announced, including the $1.6 billion internal Putnam Money Market Liquidity Fund. Putnam's filing says, "At a meeting held on June 24, 2016, the Board of Trustees of Putnam Money Market Liquidity Fund approved a plan to liquidate the Fund upon recommendation by Putnam Investment Management, LLC, the Fund’s investment adviser. The liquidation of the Fund is expected to be completed during the third quarter of 2016. On the date of the liquidation, the Fund will liquidate its remaining assets and distribute cash pro rata to all remaining shareholders as of the record date (expected to be on or about August 15, 2016), after the payment of (or provision for) all charges, taxes, expenses and liabilities, whether due or accrued or anticipated of the Fund, who have not previously redeemed all of their shares or exchanged their Fund shares of another Putnam fund."

In addition, the CNR Prime Money Market Fund, with $1.1 billion in assets under management, is also liquidating. CNR's Prospectus Supplement explains, "The Board of Trustees of the Trust has approved a Plan of Liquidation for the City National Rochdale Prime Money Market Fund, which authorizes the termination, liquidation and dissolution of the Fund. In order to effect such liquidation, the Fund is closed to all new shareholder accounts. Shareholders may redeem their shares until the date of liquidation. The Fund will be liquidated on or about August 31, 2016."

RBC, which acquired the CNR Funds' parent company last year, also `liquidated its $8 billion RBC Prime Money Market Portfolio. (See our Dec. 1, 2015 News, "RBC Latest to Abandon Prime MMFs; BlackRock Designates Retail, Inst.") The portfolio, including all its share classes, liquidated on June 30 and we have removed it from our database.

Wells Fargo Funds filed to liquidate the $1.1 billion Wells Fargo California Municipal Money Market Fund and changed the "Inst" share classes on its soon-to-be Retail Muni funds to "Premium" classes. Wells SEC filing says, "At a meeting held on May 24-25, 2016, the Board of Trustees of Wells Fargo Funds Trust unanimously approved the closure and liquidation of the Fund. The Fund is closed to new investors effective at the close of business on June 10, 2016. The liquidation of the Fund is expected to occur after close of business on or about September 1, 2016."

Also, Wells Fargo Municipal MMF and Wells Fargo National Tax-Free MMF, both of which have been declared Retail, will operate as such beginning September 1. The Inst shares of these funds have all been converted to Premier shares.

Another Prospectus update says, "On December 17, 2015, the Board of Trustees of the Goldman Sachs Trust approved a proposal to liquidate two series of the Trust, the Goldman Sachs Financial Square Tax-Exempt California Fund and the Goldman Sachs Financial Square Tax-Exempt New York Fund. After careful consideration of a number of factors, the Board had concluded that the continuation of the Funds would not be in the best interests of each Fund or its shareholders, and that it was advisable and in the best interests of each Fund and its shareholders to terminate and liquidate the Funds. The Funds were originally expected to liquidate on or about August 31, 2016. However, Goldman Sachs Asset Management, L.P. has since determined to liquidate each Fund at an earlier date, on or about June 10, 2016, pursuant to the Plans of Liquidation approved by the Board."

Finally, Invesco Money Market Fund changed to Invesco Government Money Market in the latest week. The July issue of our Money Fund Intelligence XLS, which goes out to subscribers on Friday morning, will also remove the following funds (due to liquidation): Goldman Sachs FSq T-E CA Inst (ITCXX), Goldman Sachs FSq T-E NY Inst (ILNXX), Goldman Sachs FSq T-E NY Ser (IYSXX), RBC Prime MMF Inst 1 (TPNXX), RBC Prime MMF Investor (TPMXX), RBC Prime MMF Reserve (TRMXX), RBC Prime MMF Select (TKSXX), SEI Daily Inc Trust MMF A (TCMXX), UBS RMA CA Muni Money Fund (RCAXX), UBS RMA Money Market Fund (RMAXX), UBS RMA NY Muni Money Fund (RNYXX), UBS RMA Retirement (PWRXX), UBS RMA Tax Free MMF (RTFXX), UBS RMA US Govt Portfolio (RUSXX), UBS Select Prime Money Mkt Capital (SPCXX), and UBS Select Tax-Free MM Capital (STEXX). (See our `June 29 News, "UBS Liquidates Sweeps, Goes Govt; Vanguard Floats Internal Money Fund.")

Last week, we covered some of the major highlights from Crane Data' recent Money Fund Symposium event in Philadelphia. (See our June 28 News, "BlackRock's Novick at MF Symposium: NAVs Will "Wiggle"; Tools for Risk," and our June 30 News, "Prime Outflows, Spreads, and Liquidity Major Issues at MF Symposium.") Day 3 of our big show featured the sessions, "Money Fund Reform: Outstanding Issues," and "Reform Issues: Credit Ratings, Operations." The former, moderated by Joan Swirsky of Stradley Ronon, included commentary on frequently asked reform questions by panelists Jack Murphy of Dechert; Sarah ten Siethoff of the Securities & Exchange Commission; and Jane Heinrichs of the Investment Company Institute. The latter, moderated by Pete Crane of Crane Data, featured Charles Hawkins of BNY Mellon Asset Servicing on operational challenges; Jimmie Irby of JP Morgan AM, on credit ratings; and Sharon Pichler of the SEC on new disclosures. Our recap looks at a number of remaining issues, and some hot topics such as issue with ultra-short bond funds and why one aspect of reforms was like "open heart surgery" for the industry.

In the Outstanding Issues session, the panel addressed several issues with fees and gates. Swirsky said, "There are only two triggers in the rule -- if weekly liquid assets (WLA) fall below 30% then the board can impose a discretionary fee or gate, and if the WLA falls even lower to less than 10% there will be a mandatory fee unless the board decides otherwise. But funds can consider other triggers besides the two in the rule." She asked, "What would be the appropriate percentage [when] a committee or officers are informed of what's going on?"

Murphy responded, "We've seen clients that have accepted trip wires at 32%, 35%, and we have other clients that have not. Occasionally, the notice goes to the entire board. But usually it's a series of escalations starting with the chairman getting a notice. [The important thing is] spelling out the procedure ahead of time. With respect to the timing of fees and gates, this has been quite an issue in dealing with intermediaries. Many intermediaries are pushing back and saying they don't have the operational ability to put in place a fee or gate in the middle of the day.... Realistically the board is not going to be meeting before the end of the day." Heinrichs added that ICI's work stream on fees and gates was "clearly the most difficult and contentious" with most of the questions being about intraday gates and fees.

The SEC's ten Siethoff responded, "I think on all of these questions, the specifics of the rule don't speak to all of these individual board responsibilities. They have that 30% trigger ... and then the 10% default that only the board can opt around it, but otherwise they don't specify. [T]hat's meant to give lots of flexibility to boards and the funds themselves who are going to be facing a full range of facts and circumstances that we certainly could never anticipate in advance. My view is this is something that needs to be guided by a board's fiduciary duties and their state law responsibilities. We issued that FAQ just to clarify -- we didn't think there was some magic button that everybody hits in the room and the fee or gate instantly drops the second a board makes a decision. We're not going to play 'gotcha.' Beyond that, I think it's going to be up to fund groups and their boards weighing the facts and circumstances."

Swirsky also asked, "What is a retail [investor]?" ICI's Heinrichs answered, "We had 4 working groups.... One of the first things we did, because it was the biggest thing that people were concerned about, was splitting the retail and institutional investors. We started with the NSCC social codes.... We went through a very painstaking process with the members and intermediaries determining whether or not a social code should be in the retail or institutional category.... You can find it on our website. It's very useful, and while we understand it probably doesn't cover everything, it is a starting place."

Ten Siethoff said, "As people have come to the staff with questions about what qualifies as retail and institutional, we certainly have been trying to give clarity where we can. We're happy to entertain those types of requests. The one area we have probably declined more than any other to give any clarity is in some of the intricacies of trust and estate law because we are not experts in trust and estate law. We ask them to work with trust and estate lawyers on how to apply that.... We're just looking for you to have a good process."

Finally, there was a question on how the SEC views Ultra-Short bond funds. Ten Siethoff commented, "We are seeing a lot of filings of new products coming out in what I call the interim space between the old form of Ultra short Bond funds and money market funds -- all sorts of different models. We are definitely looking at each of these products as they come out ... happy to talk to anyone as they are in the stages of developing some of these. Basically, we are looking for where they are approximately the same as a money market fund. If you look at rule 2a-7 MMF ... the rule says you can't hold yourself out as the equivalent of a money market fund unless you comply with the rule."

She continued, "Basically if you're pretty much the same, we're going to say you're holding yourself out as the equivalent of a MMF.... So what is basically the same? There are clear cases where we would say, for example, you're a floating NAV MMF and the only thing you're not doing are the fees and gates. So we would say you're holding yourself out as a money market fund -- you just dropped the fees and gates.... You may be getting phone calls from us depending on how close."

She added that if you just have some things in common, then they are not going to say you have to comply with 2a-7. "I would advise people to think about this as your setting up these new products. If you have questions, feel free to contact us. I'm sure people would rather, before they launch, possibly know where it falls rather than getting a call from us after the fact." She also said they are in regular contact with FINRA, and they are looking at ads in this space "so just be aware that they are attuned to this as well."

In the "Reform Issues" session, BNY Mellon's Hawkins commented. "The one [operational issue] that's consumed 10 times the rest put together is: How do you cope with a fluctuating NAV fund and provide intraday liquidity with multiple NAV strikes in a day? This is open heart surgery. Transfer agent systems, intermediary systems are all built on the philosophy that there's one NAV strike per day. Basically, you had to take those systems, take all the operations and systems that occur in a processing cycle, which is 24 hours, to basically 3 hours -- and you have to do them 3 times a day."

He continued, "That created a whole new conversation amongst all the players -- the pricing services, the PMs, the accounting folks, the transfer agents, the clients, the intermediaries, the shareholders, all working together to figure out how to collapse that into a working model.... This is the part that’s still under construction -- and I would argue it will be under construction after the compliance date."

Hawkins clarified, "We will have in place before the compliance date the capability to do intraday liquidity in money market funds, but I think that what the funds have developed and what the shareholders need may not be 100% aligned. I say that because just two months ago, everybody was on 9 am, noon, and 3 pm [strike times] -- that was going to be the cycle." Then one firm came out with the first strike at 8am and a bunch of others followed. "So we're throwing stuff up on the wall, hoping it sticks. But I do think after the compliance date there is going to be some further tweaking in order to address customer need, number 1, and also to address efficiency."

He added, "The money market industry is a highly efficient, well-oiled machine -- it's taken decades to develop.... I think we'll get it done. But will it have the same efficiency at the outset that we enjoyed today? Probably not.... There's going to be some tweaking that has to occur."

JPMAM's Irby talked about changes to credit ratings requirements. He stated, "For much of my career, I've largely been an opponent of funds taking 'Tier 2' risk. We obviously had a very broad double-A rated universe to which we could find supply, but with the consolidation in the industry and the downgrades, that dynamic has changed. I think we're all interested to see how the industry evolves over the next 1 to 2 years. Tier 2 can offer fund managers and their clients much more diversity and therefore then much less NAV impact if and when a credit event occurs. A fuller use of the credit universe could be useful to the industry."

Finally, on the new disclosure rules, including Market NAVs (MNAVs), Weekly Liquid Assets (WLAs) and the revised Form N-MFP, the SEC's Pichler said, "I have personally looked at the websites of at least one fund at every money market fund complex and everyone is almost adequate. The big guys, of course, have interactive charts and everything ... some of the smaller ones I needed to remind that value now means market size."

Pete Crane added, "On weekly liquid assets, there's been an argument among fund companies that a 50% WLA is better than 40% WLA. I look at that and ask, 'Why do you need a 50% WLA?' Someone holding a giant WLA, to me, mean it's hot money. Don't just assume a 50% is better than a 40%... `Assume the portfolio managers know the shareholders; they know what they've got to hold, and some funds are hotter than others."

In the June issue of our Bond Fund Intelligence newsletter, we interviewed Mary Beth Syal, Managing Principal and Portfolio Manager at Payden & Rygel. She heads the team that manages Payden & Rygel's suite of low duration funds, including the Payden Limited Maturity Fund. The firm is a "pioneer in providing tailored solutions for those institutions including corporate operating assets, pension funds, sovereign wealth funds and endowment funds, to name a few, that have need for short duration assets providing liquidity and flexibility." Of the ultra‐short strategies in general, she says "we think it is a sweet spot in cash management that more investors should be focusing on for their individual needs." A reprint of the Q&A that appeared in BFI follows.

BFI: Tell us about your history. Syal: What Joan [Payden, CEO of Payden & Rygel] did in the early 1980's was identify an opportunity in investment management that hadn't been developed. This involved pools of corporate cash that were being invested in Treasury bills and commercial paper. Her idea was that more could be done with this money using the management techniques typically applied to longer term fixed income portfolios. Part of creating the business involved developing the systems infrastructure to monitor and account for these securities. This area is an important part of our business. As portfolios have become more globalized, many institutions are in need of customized solutions including short maturities, currency management, and liquidity management.

BFI: Tell us about the funds you manage. Syal: We have a team approach to managing portfolios, be they mutual funds or separate accounts. Amy [Marshall], Eric [Hovey], and I are the senior strategists for the low duration team. While much of the firm's assets under management are customized separately managed accounts, we employ the same techniques in those mandates as we do in our mutual funds. We have mutual funds representing four of our low duration strategies. Payden Cash Reserves is our government money market fund. The Payden Limited Maturity Fund is the next step out from the Cash Reserves Fund, in the so‐called ultra‐short bond category. The Fund generally has a duration profile between half a year and one year.

We think that's a real sweet spot in cash management, to be able to use some of the yield curve and additional sectors to enhance the return profile without dramatically increasing the risk profile of a portfolio. We have two low duration offerings. The Payden Low Duration Fund invests primarily in government, investment grade corporate, asset‐backed and mortgage‐backed securities. The Payden Global Low Duration Fund uses these sectors, but also looks to take advantage of the "plus" sectors of the market -- non‐dollar securities, emerging market securities, and high yield corporate bonds.

BFI: How has the Limited Maturity Fund been received? Syal: If you look at the growth of the fund relative to interest rates, it tends to grow more when rates are low or heading lower. In low yield environments, investors look for greater return available from moving out the yield curve. The Fund grew throughout the early 2000's, and we've seen steady growth from the beginning of 2010 through today. The Fund is currently near the highest AUM since its inception. The reception for the Limited Maturity Fund has been positive as investors continue to look for higher returns and reassess their investment and liquidity requirements.

BFI: What are the big challenges? Syal: A big challenge is the effect of regulation on the liquidity environment -- having access to that liquidity and being able to continue to implement the strategy as you'd like. We've seen a lot of changes in the liquidity environment; it's not good or bad, it's just another factor that we have to evaluate when making investment decisions.

BFI: Has it been tempting to reach for yield? Syal: One of the main tenets of our investment approach is that we're not afraid to leave yield on the table if we feel we are not being compensated properly for the risk involved. We firmly believe that reaching for yield can put client's assets at risk. Generally, stretching for yield involves buying less liquid securities, and the liquidity profile of a security is very important within our analysis. We want to make sure we're investing in markets and securities that have a broad base of support. We have avoided securities that have failed our liquidity filter, which might have cost a few basis points on the margin. However, in our view disciplined investing is critical in the ultra‐short space where time horizons may be short and/or uncertain.

BFI: What types of securities do you buy? Syal: We run very diversified portfolios. We buy Treasuries, agencies and other high quality government paper. We also buy investment grade corporates and structured products. Most of the structured products are AAA-rated consumer receivables such as autos and credit cards. Asset-backed securities are a diversifier from corporate risk and they have maturity profiles that are a nice fit for this strategy. We are also able to buy a small allocation in below investment grade corporate debt and, generally speaking, we're talking about that first notch below investment grade -- companies rated double-B, many of which are on an upgrade path. The portfolio benefits from the return opportunity caused by ratings segmentation. GM and Ford, formerly BB-rated companies, are examples of holdings that have migrated higher in credit rating to become investment grade.

BFI: Do you look for opportunities out the yield curve? Syal: Yes. When we refer to using the yield curve, we're talking about investing a portion of the portfolio in 18 month to three year maturities. The Limited Maturity Fund is not trying to be a money market fund with a little bit of extra return potential. It uses the slope of the Treasury curve and the slope of the credit curve to generate total return. When we construct the portfolio, we begin with our macro-economic outlook and view for the level of interest rates over the next six to 12 months. The ability to use the entire yield curve from zero to three years and sometimes longer, gives the portfolio the flexibility to benefit from potential changes in the shape of the curve and the level of interest rates.

BFI: Have you had to waive any fees due to the low yield environment? Syal: We need to remain competitive with the return landscape. However, our history has been one where our fees generally have been very competitive. Occasionally we have made some minor changes in the expense cap, particularly in the past two years, reflecting the reality of the return environment. We believe that short term interest rates will be trending modestly higher over the next year and the return environment for investors will improve.

BFI: What is your outlook for Ultra-Shorts? Syal: Looking at the ultra-short bond fund category it appears that the assets under management in this part of the market have been slow to grow. We thought that money market reform would spur investors to re-evaluate their liquidity profile and see the need to make their cash work harder for them. But it is taking investors some time to come to grips with the changes and analyze any potential risks in moving out into ultra‐short bond funds. We think that as we get closer to the implementation of money fund reform, we'll see an increase in investors moving into these types of strategies. Frankly, we've been running these strategies for 30 years, and it is our belief that clients have been very well served by them.

While money fund assets overall rebounded in the latest week, Prime funds continued to bleed assets into Government MMFs; the total Prime-to-Govie amount moved since late 2015 now exceeds $400 billion. ICI's weekly "Money Market Fund Assets" report shows all MMFs increasing $14.9 billion in the latest week, the first gain in 5 weeks. But Prime funds lost another $23.0 billion -- their 7th week in a row of declines (-$132.2B). (Govt funds continue to be the recipient of all these assets.) Over the past 4 weeks, overall assets have declined by about $15 billion -- all of which came from Tax Exempt MMFs. Prime MMFs fell about $93 billion in June while Govt MMFs gained $93 billion. We look at these latest flows below, excerpt from ICI's latest "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" reports, and review a recent update on HSBC's Money Funds.

Since Oct. 29, 2015, just prior to Fidelity Cash Reserves' huge conversion, Prime assets have fallen by a massive $409 billion, or 28.1%. Govt MMFs have increased by $461.8 billion during this same time while Tax Exempt MMFs have fallen by $51.4 billion. YTD in 2016, Prime MMFs are down by $234.7 billion, or 18.3% while Govt MMFs are up by $254.6 billion, or 20.9%. Government fund assets moved ahead of Prime assets in February 2016 for the first time ever, and they haven't looked back. The shift has been fueled by the conversion of $260 billion of Prime funds into Govt funds; another $50 billion or so is still scheduled to convert. (This is not counting expected institutional investor outflows, which could be another $300-400 billion ahead of October 14. There have also been conversions of Prime into Ultra-Short Bond Funds and Tax-Exempt MMFs into Govt.)

While we're still not clear on who is driving this latest wave, the past month's flows appear to be the first signs of investors or fund segments switching. We believe this is related to the "big sort" or reclassification of Institutional and Retail investors and "omnibus" clients making policy changes. Note: The most recent week does include the conversion of $12 billion in UBS RMA brokerage sweep assets into Govt funds and an early liquidation of RBC's Prime MMF, but we're not aware of any other large fund conversions in the June 1-30 period.

ICI's latest weekly says, "Total money market fund assets increased by $14.86 billion to $2.72 trillion for the week ended Wednesday, June 29, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $45.78 billion and prime funds decreased by $23.01 billion. Tax-exempt money market funds decreased by $7.91 billion." Government assets, including Institutional and Retail (and Treasury and Government), stand at $1.475 trillion, while Prime assets are at $1.049 trillion.

The release explains, "Assets of retail money market funds decreased by $3.84 billion to $954.02 billion. Among retail funds, government money market fund assets increased by $18.45 billion to $439.76 billion, prime money market fund assets decreased by $15.44 billion to $364.45 billion, and tax-exempt fund assets decreased by $6.86 billion to $149.80 billion. Assets of institutional money market funds increased by $18.70 billion to $1.76 trillion. Among institutional funds, government money market fund assets increased by $27.32 billion to $1.04 trillion, prime money market fund assets decreased by $7.57 billion to $684.69 billion, and tax-exempt fund assets decreased by $1.05 billion to $43.73 billion."

ICI's "Trends in Mutual Fund Investing May 2016" confirms a decrease in MMF assets in May. MMFs were down $11.8 billion, or 0.4%, to $2.706 trillion after dropping $41.8 billion in April, falling $15.1 billion in March, climbing $38.2 billion in February, and decreasing $19.0 billion in January. (Assets should be down in June too.) But in the 12 months through May 31, money fund assets are up $103.5 billion, or 4.0%, according to ICI. The monthly release says, "The combined assets of the nation’s mutual funds increased by $85.61 billion, or 0.5 percent, to $15.90 trillion in May, according to the Investment Company Institute’s official survey of the mutual fund industry.... Bond funds had an inflow of $12.89 billion in May, compared with an inflow of $18.98 billion in April.... Money market funds had an outflow of $10.63 billion in May, compared with an outflow of $37.54 billion in April. In May funds offered primarily to institutions had an inflow of $667 million and funds offered primarily to individuals had an outflow of $11.30 billion."

The report shows that the bulk of the money fund outflows in May were from Tax-Exempt MMFs, which declined by $6.1 billion, compared to taxable, which had $4.6 billion in outflows. Year-to-date through May, MMFs have had $47.1 billion in outflows, with $293 million in inflows to Taxable funds and $47.4 billion in outflows from Tax-Exempt funds." Money funds now represent 17.0% of all mutual fund assets, while bond funds represent 22.4%. The total number of money market funds dropped to 450 in May, down from 456 in April and down from 520 a year ago.

ICI's latest "Portfolio Holdings" summary shows that Agencies and Repo gained in May, while CDs, CP, and Treasury Bills all declined. ` CDs <b:>`_ remained the largest portfolio segment despite dropping $17.8 billion, or 3.1%, to $558.3 billion or 22.4% of holdings. Repurchase agreements held on to second, gaining $24.4 billion, or 4.6%, to $553.8 billion or 22.2% of holdings. Treasury Bills & Securities stayed in third place among composition segments, dropping $10.2 billion, or 2.0%, to $506.8 billion, or 20.3% of holdings. U.S. Government Agency Securities stood in fourth place, increasing $33.2 billion, or 7.1%, to $503.4 billion (20.2% of assets). This gain likely reflects the ongoing conversion of Prime funds to Government funds. Commercial Paper remained fifth, decreasing $16.1B, or 4.9%, to $315.0 billion (12.6% of assets). Notes (including Corporate and Bank) dropped by $1.1 billion, or 4.3%, to $24.5 billion (1.0% of assets), and Other holdings (including Cash Reserves) stood at $35.6 billion, down from $53.3 billion. (See our June 13 News, "Portfolio Holdings: Agencies, Repo Gain; Govt Holdings Surpass Prime.")

The Number of Accounts Outstanding in ICI's series for taxable money funds decreased by 455.0 thousand to 22.822 million, while the Number of Funds fell by 6 to 321. Over the past 12 months, the number of accounts fell by 525.7 thousand and the number of funds declined by 38. The Average Maturity of Portfolios was 35 days in May, down 3 days from April. Over the past 12 months, WAMs of Taxable money funds have declined by 5 days. Note: Crane Data also revised its June MFI XLS this week to reflect the latest 5/31/16 Portfolio Composition data and Maturity breakouts. (Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access our June Money Fund Portfolio Holdings and the latest files.)

Finally, in other news, HSBC, the 20th largest MMF manager with $15.2 billion in MMF assets under management, issued an update on the changes planned for its "HSBC Money Market Funds." In short, HSBC says it will offer Prime Institutional and Government funds, but no Retail funds. The update says, "In order to comply with the new Rule 2a-7 requirements for money market funds, the HSBC Money Market Funds will be making the following changes. Institutional Prime Money Market Funds -- HSBC Prime Money Market Fund will adopt a "floating" net asset value per share, calculated to the fourth decimal place."

It explains, "The HSBC Prime Money Market Fund's NAV per share will be calculated three times per business day, at 8:00 AM, 12:00 PM and 3:00 PM. The Board will be permitted to impose a liquidity fee on redemptions from the Fund (up to a maximum of 2%) or temporarily restrict redemptions from the Fund for up to 10 business days in any 90 day period, if weekly liquidity levels fall below the required regulatory thresholds."

On its Government Money Market Funds, HSBC writes, "Both the HSBC US Government Money Market Fund and HSBC US Treasury Money Market Fund will qualify as "government money market funds," as defined in revised rule 2a-7. A "government money market fund" is a fund that invests at least 99.5% of its assets in: (1) cash, (2) securities issued or guaranteed by the United States or certain U.S. government agencies or instrumentalities, and/or (3) repurchase agreements that are collateralized by cash and U.S. government securities. As government money market funds both of these two Funds will continue to utilize the amortized cost method of valuation to price their shares at $1.00. Government money market funds are exempt from the requirements relating to the imposition of liquidity fees and/or redemption gates. While the Funds' Board maintains the authority to subject the Funds to liquidity fees and/or redemption gates in the future after providing appropriate prior notice to shareholders, neither of these two Funds have adopted liquidity fees and/or redemption gates at this time."

They conclude, "HSBC Funds will not offer a "retail money market fund," as defined in revised rule 2a-7. A "retail money market fund" is a fund that has policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. We expect these changes to take effect on October 5, 2016."