Money fund yields declined by 9 basis points to 4.​48% on average during the week ended Friday, Nov. 15 (​as measured by our Crane 100 Money Fund Index), after falling 7 bps the week prior. Yields are now reflecting the majority of the Federal Reserve'​s 25 basis point cut on November 7, but they should continue inching lower this week and next. They'​ve declined by 58 bps since the Fed cut its Fed funds target rate by 50 bps percent on Sept. 18 and they'​ve declined by 15 bps since the Fed cut rates by 1/​4 point on 11/​7. Yields were 4.​65% on average on 10/​31, 4.​75% on 9/​30, 5.​10% on 8/​31, 5.​13% on 7/​31 and 6/​28, 5.​14% on 5/​31, 5.​13% on 4/​30, 5.​14% on 3/​31 and 2/​29/​24, 5.​17% on 1/​31/​24, and 5.​20% on 12/​31/​23. (Note: Register soon for our "basic training" event, Money Fund University, which takes place Dec. 19-​20 in Providence, RI.)

The broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (​currently 672), shows a 7-​day yield of 4.​39%, down 9 bps in the week through Friday. Prime Inst money fund yields were down 10 bps at 4.​59% in the latest week. Government Inst MFs were down 9 bps at 4.​49%. Treasury Inst MFs were down 7 bps at 4.​44%. Treasury Retail MFs currently yield 4.​22%, Government Retail MFs yield 4.​20%, and Prime Retail MFs yield 4.​37%, Tax-​exempt MF 7-​day yields were up 40 bps to 2.​84%.

Assets of money market funds rose by $​12.​9 billion last week to $​6.​982 trillion, they reached a new record high on Wednesday, November 13 of $​7.​010 trillion but assets declined slightly Thursday and Friday, according to Crane Data'​s Money Fund Intelligence Daily. For the month of November, MMF assets have increased by $​119.​2 billion, after increasing by $​97.​5 billion in October and $​149.​8 billion in September. Weighted average maturities were unchanged at 36 days for the Crane MFA and unchanged at 37 days for the Crane 100 Money Fund Index.

According to Monday'​s Money Fund Intelligence Daily, with data as of Friday (​11/​15), 75 money funds (​out of 786 total) yield under 3.​0% with $​60.​3 billion in assets, or 0.​9%; 92 funds yield between 3.​00% and 3.​99% ($​118.​3 billion, or 1.​7%), 619 funds yield between 4.​0% and 4.​99% ($​6.​803 trillion, or 97.​4%) and following the recent rate cut there is now zero funds yielding 5.​0% or more.

Our Brokerage Sweep Intelligence Index, an average of FDIC-​insured cash options from major brokerages, was down 2 bps at 0.​46%, after dropping 3 basis points the week prior. The latest Brokerage Sweep Intelligence, with data as of Nov. 15, shows that there were three changes over the past week. Raymond James lowered rates to 0.​20% for accounts of $​100K to $​249K, to 0.​50% for accounts of $​250K to $​999K, to 1.​75% for accounts of $​1M to $​9.​9M and to 2.​50% for accounts of $​10 million or more. RW Baird also lowered rates to 1.​52% for accounts of $​1K to $​999K, to 2.​39% for accounts of $​1M to $​1.​9M and to 3.​11% for accounts of $​5 million or greater. Merrill Lynch lowered rates once again for their advisory accounts, now at 4.​53% (​down 10 bps from the week prior). Three of the 10 major brokerages tracked by our BSI still offer rates of 0.​01% for balances of $​100K (​and lower tiers). These include: E*​Trade, Merrill Lynch and Morgan Stanley.

In other news, Roberto Perli, Manager of the System Open Market Account at the Federal Reserve Bank of New York recently spoke on "Facing Quarter-​End Pressures: Understanding the Repo Market and Federal Reserve Tools." He explains, "​The FOMC sets the stance of monetary policy to influence interest rates and overall financial conditions with the aim of promoting maximum employment and stable prices. The primary tool for doing so is raising or lowering the target range for the effective federal funds rate (​EFFR). The EFFR represents the volume-​weighted median rate on overnight unsecured transactions in the federal funds market. When the Committee decides to move rates up or down, it is my job to make sure that happens. Ensuring that the EFFR remains within the target range set by the FOMC is what we refer to as '​interest rate control.'"

Perli says, "​Administered rates are rates that the Fed directly controls, and two of them are key for monetary policy implementation. One is the interest rate on reserve balances (​IORB). The IORB represents the rate paid on reserve balances held at the Fed and is the Fed'​s main way of influencing the EFFR. The IORB is intended to provide a floor under EFFR, but participants in the federal funds market that do not earn IORB are willing to lend federal funds below that rate. To reinforce the floor the FOMC introduced the overnight reverse repo facility (​ON RRP), which is available to a wide range of counterparties that are important in short-​term funding markets, particularly Government-​Sponsored Enterprises (​GSEs), and money-​market funds (​MMFs). The ON RRP offering rate is the second key administered rate for monetary policy implementation."

He continues, "Of course, the federal funds market is just one money market, and it is certainly not the largest. But changes in administered rates typically influence other money markets, and that allows the Federal Reserve to achieve broad rate control. Still, persistent pressure in one money market segment can often be transferred to other segments. In that sense, rate control depends on the smooth functioning of all major segments of money markets."

Perli states, "​As I noted in a recent speech, the market for repurchase agreements (​or repos) is of particular interest. The repo market is large, of course, but it is also the market in which the Fed conducts temporary open market operations, including those under the ON RRP and the SRF.... I, like many market participants, have observed the greater levels of volatility in overnight repo around financial reporting dates like quarter-​end. Since June 2022, when balance sheet runoff began, higher overnight repo rates on such dates have become more common, although the extent of the increases has varied."

He tells us, "Dealers are central players in the Treasury repo market, and, being dealers, they function mostly as intermediaries.... The first segment of the repo market that I want to discuss is the tri-​party repo market, which is a client-​to-​dealer segment where dealers borrow from cash lenders against a generic basket of securities and settle transactions through a third-​party. A portion of tri-​party repo is centrally-​cleared and netted through the Fixed Income Clearing Corporation (​FICC), while the rest of the market trades bilaterally and is not centrally-​cleared and netted. The SRF settles through this uncleared segment of the tri-​party repo market. Much of the trading in this segment happens early in the morning but settles in the afternoon; maturities are largely overnight."

Perli explains, "The second segment is the interdealer segment, where dealers trade with each other. These trades are used to redistribute liquidity from dealers with an excess of funding to those with a need. This redistribution supports smooth market functioning by facilitating the movement of aggregate liquidity throughout the financial system. Importantly, these interdealer trades are predominantly cleared and netted via services offered by FICC. Most activity here takes place early in the morning, but, unlike the tri-​party segment, it also settles in the morning as opposed to the afternoon."

He adds, "Finally, the third segment is the dealer-​to-​client repo market, where dealers provide financing to levered market participants, primarily hedge funds. This segment involves mainly bilateral transactions in which counterparties face each other directly. That said, the role of sponsored activity, in which a FICC member will sponsor or guarantee the performance of a client to have the trade cleared at FICC, has been growing significantly in recent years and may well continue to do so. Non-​centrally cleared transactions are more likely to be longer maturities compared to the tri-​party or interdealer markets. Like the interdealer segment, the bulk of dealer-​to-​customer activity occurs and settles in the morning."

The speech concludes, "To sum up, maintaining control over short-​term interest rates is essential to enabling the FOMC to use monetary policy in furtherance of its dual mandate of maximum employment and price stability. That makes the smooth functioning of money markets more than an esoteric, acronym-​riddled island populated by highly specialized market participants and the occasional central banker. It is at the heart of what the Fed does. Consistent with that imperative, the Federal Reserve System, and the New York Fed'​s Open Market Trading Desk, are constantly scrutinizing money markets for evidence of even minor stress."

Fidelity Investments posted a piece which gives some basic definitions of fund performance terminology. Entitled, "Understanding Money Market and Bond Fund Terminology," it tells us, "​As a trusted provider of liquidity management solutions for more than 40 years, Fidelity offers investors a choice of liquidity management products to strike the optimal balance between liquidity, risk, and return, based on their unique investment objectives and risk tolerance. When choosing investments for an effective liquidity management strategy it is important to understand the differences in how yield and return are calculated for a money market mutual fund versus a short-​term bond fund." The brief defines, "7-​Day Yield" as, "The average income return over the previous seven days, assuming the rate stays the same for one year. It is the Fund'​s total income net of expenses, divided by the total number of outstanding shares and includes any applicable waiver or reimbursement." Fidelity says of "Weighted Average Maturity (​WAM), "​A weighted average of all the maturities of the securities held in a fund. WAM can be used as a measure of sensitivity to interest rate changes and markets changes. Generally, the longer the maturity, the greater the sensitivity to such changes. WAM is based on the dollar-​weighted average length of time until principal payments must be paid. U.​S. Securities and Exchange Commission (​SEC) limits the WAM of a money market mutual fund to 60 days." Finally, the "30-​Day Yield is, "​A standard yield calculation developed by the SEC. For bond funds, the yield is calculated by dividing the net investment income per share earned during the 30-​day period by the maximum offering price per share on the last day of the 30-​day period. The yield figure reflects the interest earned during the 30-​day period, after the deduction of the fund'​s expenses, and includes any applicable waiver or reimbursement. Absent such waivers or reimbursements, the returns will be lower. The 30-​day yield is sometimes referred to as the '​SEC 30-​Day Yield' or '​standardized yield.'"

The Federal Reserve Bank of New York'​s "Liberty Street Economics blog features a post entitled "The Federal Reserve'​s Two Key Rates: Similar but Not the Same?" They explain, "Since the global financial crisis, the Federal Reserve has relied on two main rates to implement monetary policy -- the rate paid on reserve balances (​IORB rate) and the rate offered at the overnight reverse repo facility (​ON RRP rate). In this post, we explore how these tools steer the federal funds rate within the Federal Reserve'​s target range and how effective they have been at supporting rate control. The Federal Open Market Committee (​FOMC) communicates its stance of monetary policy through a target range for the federal funds (​fed funds) rate -- the interest rate at which banks borrow funds overnight on an unsecured basis in the fed funds market. The Federal Reserve (​the Fed) currently implements monetary policy in a regime of ample reserves, where control over the fed funds and other short-​term interest rates is exerted through two administered rates set by the Fed: the IORB rate and the ON RRP rate." The blog continues, "The IORB is the rate that the Fed pays on the reserves that banks hold overnight in their Fed accounts, thereby setting a floor on the rates at which banks lend overnight in the fed funds market. The Fed has paid IORB since October 2008. Banks, however, are only responsible for a fraction of the lending activity in the fed funds market and other U.​S. money markets. For this reason, the Fed employs a second lever: the ON RRP rate. The ON RRP facility allows eligible institutions, including money market funds, government-​sponsored enterprises, and primary dealers, to invest overnight with the Fed at the ON RRP rate. This second lever, which was added to the Fed policy toolkit in 2014, works similarly to the IORB rate, establishing a floor on the rates at which these non-​bank institutions are willing to lend funds overnight." It states, "In most FOMC meetings, the IORB and ON RRP rates are adjusted by the same amount as the target range. However, in seven of the twenty-​seven FOMC meetings in our sample, either the IORB or the ON RRP rate were adjusted by a different amount than the target range, a so-​called technical adjustment. For instance, on May 2, 2019, the IORB rate was changed from 2.​4 percent to 2.​35 percent, whereas the target range and ON RRP rate were left unchanged. Because of this, we can estimate the impact of adjusting the level of these administered rates with respect to that of the target range." The piece adds, "The Fed relies on the IORB and ON RRP rates to implement monetary policy. These two administered rates have shown to be very effective at maintaining the fed funds rate within the target range. While they work through similar channels -- steering the rates at which money market participants are willing to lend funds overnight -- they influence the distribution of fed funds rates differently, with the IORB rate mainly affecting the median and the ON RRP rate the left tail."

The Wall Street Journal explains, "What Is APY?" They write, "The annual percentage yield determines how much money you'​ll make with your savings. If you are looking to maximize your savings -- and who isn'​t? -- moving your money into an account with a higher annual percentage rate, or APY, can be a smart idea. The APY is the rate of return you get on your savings over the course of a year, taking into account both the interest rate and the effects of compounding. Regulators require banks to calculate APYs using the same formula and to publish the figure for products like savings accounts, checking accounts and CDs to make it easier for you to compare rates. Understanding how APYs can affect your savings is key to making your money grow. Continue reading to learn how APY works and what you can do to maximize your money." The brief explains, "When discussing APYs and interest, it'​s important to understand the difference between simple and compounded interest. Simple interest: With simple interest, you only earn interest on the principal amount in your account. Compound interest: By contrast, compound interest means you earn interest on your original principal plus any accumulated interest. Depending on the bank and your account type, interest can compound daily, weekly or monthly. Compounding is an incredibly powerful tool for helping to grow your money over time, especially with higher APYs. A bank account'​s APY measures the total amount of interest the bank pays on the account based on its interest rate and the frequency of compounding. As you save money in your account with a bank or credit union, a higher APY can help your money grow faster." The piece also lists the "Best High Yield Savings Accounts for December 2022."

T. Rowe Price gives us, "4 Reasons to Save in a Money Market Fund." The article explains, "Money market funds may provide potentially higher growth potential than a bank savings account and more flexibility than certificates of deposit (​CDs). If you have an investment goal, you likely know when you'​re going to need the money and how long you'​ll need it to last. If you'​re saving for a goal that falls within the next three to five years, saving in a lower-​risk investment such as a money market fund, bank savings account, or CD may make sense for you. Money market funds don'​t have the growth potential of stock or bond funds; however, they are a more stable investment and can be especially useful for immediate to short-​term savings goals that you don'​t want impacted by market volatility." After explaining, "`​What is a money market fund?" the piece discusses, "Why do people invest in money market funds?" The reasons include: "​1. Money market funds are useful for short-​term goals such as saving for a vacation, a wedding, or a down payment for a house. In these cases, it may be more important that your savings hold their value over the shorter time period. 2. Maintaining an emergency reserve. Having money outside of retirement accounts can act as a personal safety net to get through financial hurdles, such as a period of unemployment or an unbudgeted large expense. We recommend an amount that could cover three to six months of expenses. The accessibility of money market funds makes them a good option. 3. Cover larger, regular expenses. For example, many people pay property taxes, insurance premiums, or other larger expenses on an annual or semi-​annual basis using the checkwriting feature. An account earmarked for this purpose means there'​s no surprise when those bills come due. 4. A money market fund may also be used as a place to park assets, such as an IRA rollover, or transfer while trying to decide how to invest those funds for the long term." Finally, T. Rowe Price asks, "How safe are money market funds?" They reply, "There is little risk associated with money market funds. The Securities and Exchange Commission (​SEC) mandates that only the highest credit rated securities are available in money market funds. While money market funds are considered to be one of the safest investments, they have dipped below the target share value of $​1 (​known as '​breaking the buck') during a few volatile markets or due to changes in inflation and interest rates, but have quickly recovered."

The Investment Company Institute posted a video entited, "Why Investors Use Money Market Funds." They say, "A money market fund is a type of mutual fund that invests in short-​term, high-​quality debt—​including US government securities, municipal securities, repurchase agreements, commercial paper, and other financial instruments. Money market funds pay dividends that generally reflect short-​term interest rates, and they are a critical source of financing for organizations of all kinds -- from businesses to nonprofits to governments. Both retail and institutional investors prize money market funds as a practical cash management tool that provides a wide range of benefits. These include a high degree of liquidity, a goal of principal preservation, low costs, and -- in some cases -- tax efficiency. Combine those with a transparent, diversified portfolio, a competitive market-​based rate of return, and strict regulation by the Securities and Exchange Commission, and you have one of the world'​s safest, most valuable investment products." For more basics on money funds, join us for our next Money Fund University educational conference "basic training" event at the Hyatt Regency in Boston, Mass., December 15-​16, 2022.

TD Ameritrade posted a "Ticker Tape" investing basics article discussing, "Are Money Market Funds Right for You? What You Need to Know." They tell us, "When it comes to your short-​term savings, you have choices. And as interest rates appear to have started a slow climb from zero, where they spent most of the last decade, many bank checking and savings accounts have yet to budge. You might, then, be on the lookout for an investment that: Can provide relatively high returns (​vs. bank accounts) with minimal price volatility; and, Combines sophisticated institutional assets into a simple product. In short, an investment product that is similar to a cash savings account but potentially with a higher yield along with higher risks. Enter money market funds." They ask, "What Is a Money Market Fund?" and explain, "Money market funds are essentially mutual funds that invest in money market instruments: U.​S. Treasuries, municipal securities, certificates of deposit (​CDs), commercial paper, repurchase agreements, and bankers’ acceptances. Note that a money market '​fund' is not the same as a money market '​account.' A money market fund is a type of mutual fund that invests in money market instruments; hence, it'​s a product that you must directly buy or sell." The piece adds, "Like every investment product, money market funds -- or maybe it'​s better to think of them as '​money market mutual funds' -- have their advantages and disadvantages.... The Pros: Money market mutual funds are designed to provide steady interest income with very low risk.... Money market funds can be relatively cheap to own and don'​t impose withdrawal fees.... Cons: Although money market mutual funds are considered safe investments, it is possible to lose money by investing in Money Market Funds. They aren'​t FDIC-​insured, nor are they guaranteed by the U.​S. government or government agency. They are also not deposits or obligations of or guaranteed by any bank, unlike money market accounts."

The SEC updated its "Fast Answers" page on "Money Market Funds" recently, which explains, "A money market fund is a type of mutual fund that has relatively low risks compared to other mutual funds and most other investments and historically has had lower returns. Money market funds invest in high quality, short-​term debt securities and pay dividends that generally reflect short-​term interest rates. Many investors use money market funds to store cash or as an alternative to investing in the stock market. There are many kinds of money market funds, including ones that invest primarily in government securities, tax-​exempt municipal securities, or corporate and bank debt securities. In addition, money market funds are often structured to cater to different types of investors. Some funds are intended for retail investors, while other funds that typically require high minimum investments are intended for institutional investors. The rules governing money market funds vary based on the type of money market fund." The piece adds, "Government and retail money market funds try to keep their net asset value (​NAV) at a stable $​1.​00 per share using special pricing and valuation conventions. Institutional prime money market funds must allow their NAV to float based on the current market value of the securities in their portfolios. Money market funds, like all mutual funds, are redeemable on demand. Registered open-​end companies (​the legal term for mutual funds) may not suspend the right of redemption and must pay redemption proceeds within seven days, except in certain emergencies or for such other periods as the Commission may by order permit for the protection of security holders of the company. In addition, in certain circumstances, non-​government money market funds can charge fees on redemptions (​liquidity fees) and can suspend redemptions temporarily (​redemption gates). Government money market funds can voluntarily opt into using these tools when certain circumstances occur, if the ability to do so is disclosed in the fund prospectus. Finally, a money market fund can also permanently suspend redemptions in certain circumstances if a fund'​s board of directors decides to liquidate the fund. Before investing in a money market fund, you should carefully read all of the fund'​s available information, including its prospectus (​or summary prospectus, if the fund has one), and its most recent shareholder report. Money market funds are regulated primarily under the Investment Company Act of 1940 and the rules adopted under that Act, particularly Rule 2a-​7 under the Act. Unlike a "​money market deposit account" at a bank, money market funds are not federally insured."

We'​ve gotten a number of requests for a basic recap and the current status of the latest round of money market fund reforms, so we wanted to produce a quick summary of the latest regulatory and fund changes. The following brief answers a number of frequently asked questions (​FAQs) on the reforms and provides an overview of the major issues. As many of you know, the Securities & Exchange Commission, which regulates mutual funds, amended "Rule 2a-​7" and approved new rules for money market funds in July 2014, which are still in the process of being implemented. The massive (​893-​page) "Money Market Fund Reform" document explains, "​The amendments are designed to address money market funds' susceptibility to heavy redemptions in times of stress, improve their ability to manage and mitigate potential contagion from such redemptions, and increase the transparency of their risks, while preserving, as much as possible, their benefits."

The SEC'​s press release explains, "​The amendments make structural and operational reforms to address risks of investor runs in money market funds, while preserving the benefits of the funds. Today'​s rules build upon the reforms adopted by the Commission in March 2010 that were designed to reduce the interest rate, credit and liquidity risks of money market fund portfolios.... The new rules require a floating net asset value (​NAV) for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with changes in the market-​based value of fund assets and provide non-​government money market fund boards new tools -- liquidity fees and redemption gates -- to address runs."

The most critical changes -- the "​Floating NAV" and "​Fees and Gates" -- go into effect Oct. 14, 2016, others "​go live" on April 14, 2016, and some of the minor changes have already been implemented. We briefly review the key features of the SEC'​s reforms below, then we discuss moves fund companies (​and investors) have made in reaction to these changes. In particular, a number of funds have chosen to "​go Government" and become Government money market funds, which will still be allowed to keep a stable $​1.​00 share price (​and use "​amortized cost" to value securities). Most investors have stayed put to date, though, waiting to see how the new regulations might impact them.

Q: What kinds of money funds are there? While in the past categorization of money funds – retail, institutional, prime, Treasury, government -- has been done by various rankings agencies, like Crane Data, and by language in funds' prospectuses, the SEC'​s latest amendments outline new classifications of money market funds. They will define "Government," "Retail," and "Institutional," and investment managers are in the process of altering their funds to meet these pending definitions. Government funds must invest at least 99.​5% of assets in cash, government securities, and/​or government securities-​backed repurchase agreements. Government MMFs may impose a liquidity fee or redemption gate, but they are not required to. (​Almost all government funds have chosen not to have gates and fees.) Further, Government MMFs can use amortized cost accounting and have a Stable NAV.

Retail MMFs must limit investors to people and have "​policies and procedures designed to reasonable limit all beneficial owners of the fund to natural persons." Like Government funds, Prime Retail money market funds can use amortized cost accounting and maintain a Stable NAV. However, unlike Government funds, fees and gates will apply to all Prime Retail money market funds. Prime (​or Tax Exempt) funds that do not qualify as Government funds or Retail funds will have to adapt a Floating NAV. Prime Institutional will not be able to use the amortized cost or penny rounding methods to maintain a stable value; they must use "​mark-​to-​market" pricing. Further, Prime Institutional funds will also be subject to fees and gates.

What is the Floating NAV? Will it float? Effective Oct. 14, 2016, Prime and Tax-​Exempt Institutional funds will be required to round and transact going out to 4 decimal places (​i.​e., $​1.​0000) and to "​value their portfolio securities using market-​based factors and will sell and redeem shares based on a floating NAV." The SEC rules explain, "​When a money market fund'​s shadow price is less than the fund'​s $​1.​00 share price, shareholders have an economic incentive to redeem shares ahead of other investors." Funds have always been required to "​shadow" price underneath and monitor any deviations. Going forward these miniscule deviations (​except in the case of a financial crisis) should cause these funds to move on occasion. Money funds will continue to invest in safe and stable securities, and any variations should be infrequent and minor.

A critical piece of the SEC'​s money market reform rules is a proposal by the U.​S. Department Treasury and IRS to allow floating NAV money market fund investors to use a simplified tax accounting method to track gains and losses and provide relief from the "​wash sale" rules. The Treasury release explains, "An MMF that uses market factors to value its securities and uses basis point rounding to price its shares ... has a share price that is expected to change regularly, or "​float." Floating-​NAV MMFs therefore resemble in some respects other mutual funds that are not MMFs, but they remain subject to the risk-​limiting conditions in Rule 2a–​7 and are expected to continue to fulfill MMFs' unique role. In the absence of the simplified method of accounting ... current law would require shareholders to compute gain or loss on every redemption of shares in a floating-​NAV MMF." In response to these concerns, "​the Treasury and IRS approved a simplified method which aggregates all transactions in a period and on aggregate fair market values."

What are Liquidity Fees and Redemption Gates? "​Emergency" fees and gates also go into effect Oct. 14, 2016 for all non-​Government funds. The fees and gates, which a board may implement in an emergency situation, are designed to work in concert with the floating NAV rule to stem heavy redemptions and avoid the type of contagion that occurred in the 2008 Financial Crisis. The rules explain, "The amendments will allow a money market fund to impose a liquidity fee of up to 2%, or temporarily suspend redemptions (​also known as "​gate") for up to 10 business days in a 90-​day period, if the fund'​s weekly liquid assets fall below 30% of its total assets and the fund'​s board of directors (​including a majority of its independent directors) determines that imposing a fee or gate is in the fund'​s best interests. Additionally ... a money market fund will be required to impose a liquidity fee of 1% on all redemptions if its weekly liquid assets fall below 10% of its total assets, unless the board of directors of the fund (​including a majority of its independent directors) determines that imposing such a fee would not be in the best interests of the fund." This will allow funds to moderate redemption requests and, in certain cases, stop heavy redemptions in times of market stress.

Are there any other major changes? The SEC'​s Money Fund Reforms include a number of additional minor tweaks, including: a new Form N-​CR, which will disclose certain specified events, such as fund "​bailouts" (​Form N-​CR rule went into effect July 14, 2015); and, a revised Form N-​MPF, which includes disclosure of monthly portfolio holdings. This latter mandate, with a number of additional website disclosures (​4-​digit NAV per share, daily and weekly liquid assets, shareholder flows), goes into effect April 14, 2016. The final rules also enhance "​stress testing" requirements adopted by the SEC in 2010 and they remove references to credit ratings agencies.

How are these changes impacting fund managers and investors? The complexity and costs of the new rules have caused a number of funds to convert into Government-​only money funds or to exit the business entirely. We'​ve seen dozens of funds representing almost $​265 billion declare their intent to "​go Government," and we'​ve seen over $​190 billion of this total already switch. We'​ll no doubt see more funds switch going forward, since Government funds will see the least amount of change under the new regulations. For investors, the safety and simplicity of Government money funds will meet many of their cash management needs, so it'​s expected that Government funds will see additional inflows from investors beyond these fund changes.

But additional yield and spreads between Prime and Government funds will matter too. So fund companies and investors are looking to keep their options open, and many have launched or offer short-​term bond funds or separately managed accounts. With yields rising for the first time in almost 10 years, the playing field for money funds and cash investors is indeed changing. The coming year figures to be an exciting one, but everyone in the money markets will have to adjust and prepare for the new world of cash in 2016.

The Financial Times published, "SEC'​s New Rules Gives US Money Market Funds a Floating Feeling," a basic overview of new MMF regulations written by Robert Pozen and Theresa Hammacher. It reads, "The rules will have the biggest impact on money market funds serving institutional investors, which will have to move from a constant to a floating net asset value. The rules will also put pressure on most institutional and retail money market funds to impose liquidity fees and suspend redemptions during financial crises. But neither set of rules will apply to money market funds holding 99.​5 per cent or more of government securities. Thus, the two critical questions are what constitutes a government security, and what differentiates an institutional from a retail money market fund? The rules narrowly define governmental securities to include cash, US Treasuries and securities issued by US federal agencies. Notably, for this purpose, government securities do not include securities issued by state or city governments -- the assets held by most tax-​exempt money market funds." It continues, "In short, the new rules are likely to reduce the chances of runs on money market funds in times of financial crisis. But it remains to be seen whether these tougher requirements will diminish the appeal of the funds relative to bank deposits for short-​term investors." In other news, Federated CIO Debbie Cunningham released her monthly commentary. "A little over two months ago, cash management in this country was hindered by new rules that the Securities and Exchange Commission issued for institutional prime and institutional municipal money-​market funds. Last month, it was the Federal Reserve'​s turn.... But only a few months into that process, the Fed announced that it was changing one of its programs that has actually been helpful to the cash-​management industry. Since September 2013, the New York Fed has run an overnight reverse repo program for certain large counterparties, with Treasuries as collateral. After some experimentation, since early 2014 it had settled on offering five basis points daily to fund this facility. While not much, at least it provided a floor to money-​market trading. As the majority of the market was focused on tightening and tapering in the Federal Open Market Committee release mid-​September, we were also dealing with different news. The New York Fed simultaneously announced that the entire ON RRP would be restricted to $​300 billion nightly and that a five basis point floor would no longer be guaranteed -- essentially destroying its main goal of helping money funds in this time of its extraordinary accommodative policy. The new process could hardly be more needlessly complicated."

USA Today published a column, "Keeping Your Cash Safe: What New SEC Rule Means," by Sharon Epperson at CNBC. Epperson writes about the differences between money market mutual funds and money market deposit accounts. "​Millions of investors use money market mutual funds to stash "​cash" in their portfolios, since they'​re generally viewed as safe, convenient short-​term investments -- and there are major changes on the horizon designed to make them safer. But are money funds the safest place for your cash? Many consumers don'​t know what distinguishes money market funds and money market accounts offered at their local bank or how to assess which is the safest place for their hard-​earned dollars.... Money market mutual funds are investments and are not insured. The funds invest in low-​risk, highly-​liquid investments like U.​S. Treasury security (​T-​bills), certificates of deposit (​CDs) and corporate commercial paper. They are regulated by the SEC and their value is determined by underlying investments, but they are not guaranteed investments. Money market deposit accounts, like savings accounts, are FDIC insured. A money market account is like a "​souped-​up" savings account that can also invest your money in treasury notes, CDs and other short-​term investments to give you a slightly better yield than a regular savings account. As with a savings account, the federal government insures your deposits in a money market account up to $​250,​000. Money market account rates are currently better than money market fund yields. Historically, money market funds have had higher yields than bank deposits. But with interest rates so low, yields on money market funds after expenses are near zero. While the average yield on a money market fund is 0.​01%, savings and money market account rates are about 0.​10% on average. Some online banks offer money market account rates of almost a full percent, according to Bankrate.​com. Where is the safest place for your cash? It depends on how you'​ll use it. If you need the money for emergencies -- to pay household bills if you lose your job or fix the boiler or roof of your home -- you may want to put those funds in a money market account at the bank. On the other hand, if you want to keep some of your investment portfolio in "​cash," a money market fund may be the easiest way to make sure you have funds on the sideline that can readily be moved into other investments. For most investors, it'​s probably a good idea to have a little money in both."

USA Today featured an article recently called, "You Don'​t Want Surprises from Your Money Fund." It'​s a basic overview of money funds with commentary on potential SEC reforms by columnist John Waggoner. Writes Waggoner, "Why are they so popular? In large part, because they'​re convenient. Many money funds let you write checks on them, just as you would a bank checking account. If you decide to sell shares of stock, you can park your proceeds in a money fund until you decide what to do with them. And if you'​re a big institution, buying shares of a money fund can be more convenient than, say, purchasing money market securities on the open market." It goes on, "What, then, is so ominous about a money fund? The funds invest in short-​term, high-​quality IOUs, such as Treasury bills, which are short-​term loans to the government, and jumbo bank CDs, which are short-​term loans to the nation'​s largest banks. No one is particularly worried about those investments. But some funds -- known as "​prime" funds -- invest in an array of other short-​term loans that are normally safe. The key word here is "​normally." The day after Lehman Bros. declared bankruptcy, the Reserve Fund, a large, prominent money fund, announced that it couldn'​t keep its share price at $​1 -- it had, in Wall Street parlance, "​broken the buck." The reason it had broken the buck was because it held a fair amount of short-​term Lehman Bros. IOUs, called commercial paper. Those IOUs were problematic, at best. And once word had gotten out, institutional investors sold shares like they were annoyed scorpions." The piece continues, "The SEC has proposed a floating share price for institutional funds, if only to disabuse investors of the notion that money funds are risk-​free. The rules wouldn'​t apply to retail funds, or those that simply invest in U.​S. government securities. An alternative would be restrictions on withdrawing money from money funds in times of crisis -- probably a more onerous requirement, since the time you need money most is during a financial crisis. The SEC is expected to vote on the proposal on July 23, and it'​s by no means a lock, given the powerful mutual fund industry'​s vehement opposition to it. If the SEC does adapt any of the proposals, here'​s what you need to keep in mind: Money funds aren'​t insured, and they never have been. The potential loss from a money fund is small -- the Reserve Fund'​s share price fell to 97 cents, a 3% loss -- but it does exist. If you can'​t stand the possibility of a loss, invest in a federally insured bank account, and mind the limits on Federal Deposit Insurance Corp. coverage. Banks fail, too. Some day, short-​term interest rates will rise again, and money market funds will look more appealing than they currently do." See also, Bloomberg'​s "​Money Funds Get New Restrictions Aimed at Preventing Runs".

The U.​S. Securities & Exchange Commission'​s Division of Investment Management "​launched a new webpage that serves as a one-​stop shop for the latest SEC information concerning money market funds," says a press release. It explains, "The webpage contains links to the SEC'​s recently proposed rule along with analysis, research, and other resources." The page is located at: http://​www.​sec.​gov/​spotlight/​money-​market.​shtml. Norm Champ, Director of the SEC'​s Division of Investment Management, explains, "This webpage marks another step forward in the Division'​s goal of improving communications with the investing public and the mutual fund industry. We hope it serves as a useful tool for investors and the industry as they consider the proposed money market fund reforms."

Franklin Templeton Investments posted a piece entitled, "​Understanding Interest Rate Fluctuations". The "​basic training" article says, "Because interest rate movements can significantly influence fixed income funds, this section is intended to help you understand the basics of how interest rates can affect a fund'​s share price and total return. What causes interest rates to rise and fall? The Federal Reserve Board (​the Fed) controls the Federal funds target rate (​Fed funds rate), which in turn influences the market for shorter-​term securities. The Fed funds rate is the rate that banks charge other banks for overnight loans. The Fed closely monitors the economy and has the power to raise or lower the Fed funds rate to keep inflation in check or to help stimulate the economy." It also says, "​Longer-​term interest rates, as represented by yields of the 10- and 30-​year Treasury bonds, are market-​driven and tend to move in anticipation of changes in the economy and inflation. How do interest rates affect bond prices? Typically, bond prices and interest rates move in opposite directions. This means that when interest rates rise, bond prices tend to fall, and conversely, when interest rates decline, bond prices tend to rise." Franklin explains, "​Here'​s why: Suppose you invest $​1,​000 in a 10-​year U.​S. Treasury bond with a 5% yield. That interest rate is fixed, even as prevailing interest rates change with economic conditions, especially the rate of inflation. After five years, you decide to sell the bond, but interest rates have risen and similar new bonds are now paying 6%. Obviously, no one wants to pay $​1,​000 for a bond yielding 5% when a higher-​yielding bond costs the same. So the bond’​s value has decreased."

Wikipedia'​s definition of money fund. The free encyclopedia also explains retail vs. institutional funds, and gives some history.

NYSE'​s "​Informed Investor" Questions About Brokerage Sweep Accounts This publication lists questions investors should ask regarding cash "​sweep" options in their brokerage accounts.

ICI Mutual Fund Fact Book 2019 Investment Company Institute'​s

annual guide to mutual funds.

SEC'​s "​What is a money market fund?"

The Securities and Exchange Commission'​s (​sec.​gov) basic explanation of a "​money fund".

Instruments of the Money Market

An overview of money markets and money market securities published by the Federal Reserve Bank of Richmond.

Weekly Money Fund Assets Up $​18 billion Says ICI, Assets are up $​207 billion, or 10% year-​to-​date.

The ABA Endorses Promontory Interfinancial Network'​s Insured Network Deposits, a brokerage sweep product.

Read our Interview w/ Money Fund Pioneer James Benham from the September issue of Money Fund Intelligence.

OppenheimerFunds entered the institutional money fund market with the launch of Oppenheimer Institutional Money Market Fund.

CitiGroup is about to unveil its own money fund supermarket (​online trading portal), Citibank Online Investments.