News Archives: January, 2025
A "US Regulatory Intelligence" update from law firm Norton Rose Fulbright titled "SEC Mandates Broker-Dealers Calculate Cash Custody Daily," explains, "The SEC adopted amendments to Exchange Act Rule 15c3-3 ('Customer protection-reserves and custody of securities'). The amendments require broker-dealers that carry over $500 million in customer credit to perform daily cash reserve account calculations." They tell us, "The amendments: require certain broker-dealers to increase the frequency of the computations of the net cash they owe to customers and other broker-dealers from weekly to daily under Rule 15c3-3" and "permit certain broker-dealers that perform a daily customer reserve computation to decrease the required 3 percent 'buffer' in the customer reserve bank account by reducing the customer-related receivables charge (i.e. aggregate debit items charge) from 3 percent to 2 percent in the computation under Rules 15c3-3 and 15c3-1—the broker-dealer net capital rule."
The brief says, "SEC Chair Gary Gensler highlighted that 'nine of the largest broker-dealers already make these calculations on a daily basis.' He stated that '[the] amendments are intended to reduce the likelihood of any mismatch between the amount of segregated funds and the net cash owed to customers and other broker-dealers,' and that 'lowering the likelihood of mismatches will help to protect the Securities Investor Protection Corporation (SIPC) Fund.'
Author Steven Lofchie continues, "SEC Commissioner Hester M. Peirce said that, while the final amendments 'are not perfect,' they are 'net beneficial to investors.' She highlighted that '[the amendments] increase costs and operational challenges for 40 of the estimated 49 broker-dealers subject to the daily computation requirement,' but concluded that 'the final amendments do incorporate an increased threshold for triggering the requirement that mitigates some of the costs. In addition, it allows carrying broker-dealers that use the alternative method for net capital and perform a daily customer reserve computation to reduce their aggregate debit items by 2% (instead of the 3% that is currently required)."
The piece adds, "In dissent, SEC Commissioner Mark T. Uyeda argued that the Commission overlooked 'many suggestions from commentators that might potentially lower cost while still reducing risk.' He said that the adoption was rushed in an 'apparent attempt' to finalize the amendments prior to the end of the current administration. Mr. Uyeda said that the SEC should have taken additional time to consider comments and data as well as interact with the public. He argued that the SEC 'may end up leaving yet another mess for its successors to clean up.'"
The publication FinanceFeeds also comments on the new rule in, "SEC enhances customer protection rules for broker-dealers." They write, "The Securities and Exchange Commission (SEC) has adopted amendments to its customer protection rule, Rule 15c3-3. The amendments require certain broker-dealers to change the frequency of their net cash computations from weekly to daily. The change aims to safeguard better customer and PAB (broker-dealer's proprietary accounts) cash."
Their article continues, "SEC Chair Gary Gensler endorsed amendments requiring large broker-dealers to compute and segregate customer balances daily, rather than weekly. He noted that these changes reflect the evolution of markets since 1972, when the Customer Protection Rule first took effect. He explained that daily calculations help reduce mismatches between segregated funds and cash owed to customers. Gensler also noted a reduction of the reserve 'buffer' from 3 percent to 2 percent for broker-dealers performing daily computations."
They quote Gensler, "The Customer Protection Rule requires broker-dealers that custody customers' cash and securities to maintain a special reserve bank account that contains the net cash a broker-dealer owes to its customers. The rule, which we're updating, currently requires broker-dealers to calculate and deposit the appropriate balance for that account on a weekly basis. Today's amendments would change this requirement for the largest broker-dealers to daily computation rather than weekly."
Finally, the piece also quotes SEC Commissioner Hester Peirce, "I hope that broker-dealers will take the Commission up on its invitation to engage with the staff on potential issues in dealing with what one commenter called 'cash in motion.' I also look forward to receiving feedback on any operational challenges that arise as broker-dealers implement these requirements, particularly with respect to exigent circumstances and potential challenges with resources around holidays and days when the markets close early."
In other news, Morningstar writes on "Bond Funds Hurt By Rising Yields in Q4 2024," explaining, "The fourth quarter of 2024 proved tough going for most bond investors and led to lackluster results for the whole year, made worse when adjusted for inflation. As recently as mid-September, the investment-grade bond market as represented by the Morningstar US Core Bond Index was on pace for a calendar-year return of more than 5% for the second year in a row. But then worries about the stickiness of inflation combined with a more cautious rate-cutting stance from the Federal Reserve led to rising yields and falling prices for intermediate and long-term bonds."
They state, "The Morningstar US Core Bond Index lost 3.04% in 2024's final three months. So, while it ultimately eked out a 1.36% gain for the year, that wasn't enough to keep pace with the rising cost of goods and services over 2024. The most recent reading of the Consumer Price Index put year-over-year inflation at 2.75% through November."
They add, "Fixed-income Morningstar Categories with the least interest-rate sensitivity performed the best in 2024's fourth quarter, in part because interest rates for US government bonds with maturities of six months or fewer fell in the quarter.... `The typical ultrashort bond fund gained 1.13% in the quarter and 5.75% for the year. Pimco Short-Term PTSHX ... was one of the peer group's top performers. Longtime lead manager Jerome Schneider once again leveraged liquidity specialists and a small army of credit and structured products research teams to produce standout results while keeping risk in check. The fund returned 1.68% in 2024's final three months and 6.41% for the year."
ICI's latest "Money Market Fund Assets" report shows money fund assets surging $42.1 billion in the last week of the year to a record $6.848 trillion, after jumping $54.7 billion the previous week. Money fund assets have risen in 16 of the last 22, and 27 of the last 37, weeks, increasing by $544.2 billion (or 8.6%) since the Fed cut on 9/18 and increasing by $870.3 billion (or 14.6%) since April 24. MMF assets are up by $961 billion, or 16.3%, in 2024 (through 12/31/24), with Institutional MMFs up $519 billion, or 14.4% and Retail MMFs up $443 billion, or 19.3%. (Note: Thanks to our subscribers and readers for all your support in 2024 and best of luck in 2025. Happy New Year!)
ICI's weekly release says, "Total money market fund assets increased by $42.05 billion to $6.85 trillion for the week ended Tuesday, December 31, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $41.28 billion and prime funds decreased by $751 million. Tax-exempt money market funds increased by $1.52 billion." ICI's stats show Institutional MMFs increasing $23.4 billion and Retail MMFs increasing $18.8 billion in the latest week. Total Government MMF assets, including Treasury funds, were $5.633 trillion (82.3% of all money funds), while Total Prime MMFs were $1.079 trillion (15.8%). Tax Exempt MMFs totaled $135.7 billion (2.0%).
It explains, "Assets of retail money market funds increased by $18.78 billion to $2.73 trillion. Among retail funds, government money market fund assets increased by $12.07 billion to $1.74 trillion, prime money market fund assets increased by $5.22 billion to $864.65 billion, and tax-exempt fund assets increased by $1.49 billion to $124.51 billion." Retail assets account for over a third of total assets, or 39.9%, and Government Retail assets make up 63.8% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $23.26 billion to $4.12 trillion. Among institutional funds, government money market fund assets increased by $29.21 billion to $3.89 trillion, prime money market fund assets decreased by $5.98 billion to $214.02 billion, and tax-exempt fund assets increased by $28 million to $11.21 billion." Institutional assets accounted for 60.1% of all MMF assets, with Government Institutional assets making up 94.5% of all institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets rose by $110.9 billion in December through 12/31 to a record $7.174 trillion. Assets rose by $200.5 trillion in November, $97.5 billion in October, $149.8 billion in September, $109.7 billion in August, $16.6 billion in July, $15.7 billion in June and $91.4 billion in May. They declined by $15.8 billion in April and $68.8 billion in March. They rose $72.1 billion in February, $93.9 billion in January and $32.7 billion last December. Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're about $340 billion lower than Crane's asset series.
TheStreet.com writes on "Money Market ETFs: Yes, they’re a Thing Now, But Read this First Before Buying. They comment, "Managing cash has never been easier, thanks to the rise of ETFs. If your goal is to keep your principal safe while earning a little on the side, you've already had solid options like Treasury bill ETFs or ultra-short-term bond ETFs. Both come with low credit risk, monthly distributions, and yields tied to prevailing short-term interest rates."
The brief continues, "Now, there's a new player on the block: money market ETFs. The Texas Capital Government Money Market ETF (MMKT) debuted on September 24, 2024, and brings the simplicity of money market investing into an ETF structure. As of December 19, it boasts a 4.49% seven-day SEC yield with a reasonable 0.2% expense ratio."
It explains, "But before you invest, it's important to understand that money market ETFs don't function quite the same way as the money market mutual funds you might already know. The ETF structure adds some quirks that could catch you off guard. Here's what you need to know before making the leap.... MMKT ... is a different story. As an ETF, it doesn't have a fixed NAV of $1 and trades throughout the day on an exchange. That distinction introduces some nuances you won't experience with a money market mutual fund."
The piece adds, "This means you could, in theory, experience an unrealized loss with MMKT. For example, if you buy shares just before the ex-distribution date -- when the NAV is at its peak -- you'll see a drop in value that might take time to recoup, depending on when you sell. Additionally, there's the matter of the bid-ask spread."
For more see our Nov. 18 Link of the Day, "FT on BlackRock Money Market ETFs," our Nov. 12 Link of the Day, "BlackRock Files for Money Market ETFs," and our Sept. 26 Link of the Day, "Texas Capital Launches Govt MM ETF."
Finally, a release titled, "SIFMA Recommends Early Market Close on January 9, 2025, for the National Day of Mourning in Honor of Former President Carter" explains, "SIFMA joins the nation in expressing its condolences on the passing of former President Jimmy Carter.... SIFMA today recommended an early market close at 2:00 pm EST on January 9, 2025, for all fixed-income cash markets in recognition of the National Day of Mourning in honor of the 39th President of the United States. This is in keeping with SIFMA's policy on unscheduled changes in trading hours. This recommendation applies to trading of U.S. dollar-denominated government securities, mortgage- and asset-backed securities, over-the-counter investment-grade and high-yield corporate bonds, municipal bonds and secondary money market trading in bankers' acceptances, commercial paper and Yankee and Euro certificates of deposit. SIFMA's recommended early and full market closes are recommendations only; each member firm should decide for itself whether its fixed income departments remain open for trading. All SIFMA recommendations are subject to change due to market conditions." (Note: We'll see and we'll keep you posted, but `Crane Data expects most money market funds to close for the Jan. 9 Day of Mourning.)
Over the past decade, we've been recapping money market fund lineup changes driven primarily by regulatory reforms in a series of "Roll with the Changes" news items. (Our thanks and apologies to the REO Speedwagon.) At the start of the New Year in many of these years, we'd review the major shifts and changes fund managers made ahead of and around the major rounds of reforms in 2016 and in 2023-24. While 2023 didn't see many exits from Prime MMFs or other shifts in preparation of the latest round of Money Fund Reforms (the year was eventful due to record assets and 5% yields though), 2024 did see a number of shifts and exits. Looking back, a year ago, we wrote "Rolling w/Reform Changes V: Little Change in '23 Ahead of MMF Reforms" (1/5/24), and 3 years ago, we wrote "Rolling w/Reform Changes IV: Recap of '21 Exits & Entries, ESG & News" (1/4/22).
Four years ago, we wrote "Rolling w/Reform Changes III: Recap of '20 Prime Exits, News & Moves" (1/7/21), which explained, "In January 2016, money market mutual funds were in the midst of a series of dramatic changes ahead of October 2016's Money Fund Reforms, the biggest changes to money fund regulations since their introduction in October 1970. Nine years ago, we ran the story, "Rolling w/Reform Changes II: Recap of '15 Announcements, '16 Plans" (1/6/16) which reviewed a number of major changes among the largest managers that took place during 2015. (We wrote the original "Managers Rolling with Reform Changes; Recap of Announcements So Far" on July 22, 2015.)
As with many of these past years, exits from Prime MMFs and fund repositioning were notable trends in 2024, as dozens of Prime Inst funds and over $400 billion in assets converted to Government or liquidated." Below, we review these changes and lineup shifts over the past year, as money funds implemented the latest (and perhaps final) round of regulatory changes. (See also our "Dec. 4, 2024 News, "Top 10 Stories of 2024: Assets Break $7 Trillion, Yields Heading Lower. Note: Readers may also review "Crane Data's News," "Link of the Day" and "Money Fund Intelligence Archives" for more stories from the past year, 5 years and decade-plus.)
We saw a steady stream of liquidations and lineup changes in 2024 ahead of the October deadline for Prime Inst MMFs' new emergency liquidity fee regime. In August, we wrote: "SSGA Sticks w/Prime Inst Money Funds; Discusses Reforms; Benchmarks" (8/29/24), "Prime Inst Exits Take Effect: Allspring, DWS, UBS; NY Fed RRP Updates" (8/27/24), "Aug. MFI: Prime Inst Conversions; Q2 Earnings on Sweeps; More Deposits" (8/7/24) and "J.P. Morgan's Donohue Makes Case for Prime Institutional Money Funds (8/1/24).
In July, June and May, we posted, "First American Inst Prime Obligations to Invest Solely in Liquid Assets" (7/23/24), "Schwab, JPM, Meeder Announce Prime Inst Conversions to Government" (7/18/24) "BoardIQ Writes on Prime Inst Exodus" (6/21/24), "Invesco Files to Liquidate Prime Inst MMFs; UBS MF Converting to Retail" (6/13/24), "June MFI: Latest Prime Inst MF Exits; ICI's 2024 Fact Book; Treasury Bills" (6/7/24) and "Federated Hermes Merging Prime Inst Money Funds; Prime Value To POF" (6/6/24) and "ICI's Pan, SEC's Gensler Discuss Liquidity Fees, Prime Inst Money Funds" (5/28/24).
While minor, we also wrote about fund liquidations, moves and changes, particularly in the Tax-Exempt or Municipal MMF space, in these updates: "ICI: Money Fund Assets Break Over $6.5 Trillion; BNY Liquidates Muni MF" (10/25/24), "UBS Files to Liquidate Tax-Free Fund" (10/15/24), "Alight Money Fund Liquidates; Bloomberg Law on Brokerage Sweep Suits" (9/19/24), "Dreyfus NY Muni MMF Liquidating" (8/14/24) and "Empower Govt MMF Liquidates" (6/24/24).
In addition to the sporadic exits and shifts, we saw continued launches in the D&I and Social space (and exits in the ESG fund space). We wrote: "Morgan Stanley Puts Impact Partner Class on Portal; UBS Changes Cutoff" (6/25/24), "Ramirez Govt MMF Partners w/Hispanic Fund; JPM: T-Bills to Go Bigger" (6/4/24), "DWS Liquidating ESG Liquidity Fund, 7th Prime Inst to Exit; MM Basics" (5/22/24) and "Ramirez Asset Management Launches Government MMF; Federated on 24" (1/3/24).
Finally, a number of articles discussed the final implementation of U.S. MMFs Reforms, including: "Federated Hermes' Earnings Call Discusses MMF Surge, Reforms, Direct" (10/28/24), "Bloomberg, ignites on Latest MMF Reforms; Prime Inst Shift a Nonevent" (10/23/24), "SSGA Sticks w/Prime Inst Money Funds; Discusses Reforms; Benchmarks" (8/29/24), "SEC's Money Fund Reforms One Year Later: Disclosures Latest to Go Live" (7/12/24), "Citi's Williams on Impact from MMF Reforms: No Big Deal; Assets Higher" (5/21/24), "JPM Sees Minor Impact on CP/CDs from Shift; Cunningham on Reforms" (5/26/24), "April MFI: Reforms Trigger Prime Shift; Bond Fund Event; ICI Worldwide" (4/5/24), "Fed Blog Shows Declines in Deposits Offset; Wells Fargo on MMF Reforms" (3/28/24) and "FSB's Thematic Review on Money Fund Reforms Reviews Global Markets" (2/28/24).
Happy New Year from Crane Data and Money Fund Intelligence! We'll be sure to keep you posted on product developments and any news impacting money market funds in 2025. So best wishes and thanks for your continued support!
