In a just-​published "Credit FAQ piece, "What Effect Will The Certificate Of Deposit Accounts Registry Service Program Have On Fund Ratings?, S&​P writes, "The recent market turmoil has prompted portfolio managers, investment managers, and treasury professionals to look for investments that add value without sacrificing yield or diversification. Recently, Standard & Poor'​s Ratings Services has received numerous inquiries regarding how we view the liquidity and credit quality of the Certificate of Deposit Accounts Registry Service (​CDARS) program in regards to principal stability fund ratings (​PSFRs), fund credit quality ratings (​FCRs), and liquidity assessments."

The FAQ explains, "We have criteria regarding our assessment of certificates of deposit (​CDs) and collateralized CDs for taxable and tax-​exempt PSFRs, FCRs, and liquidity assessments.... Our responses to the following questions provide an indication of how we assess the risks of these securities in relation to our analysis of PSFRs, FCRs, and liquidity assessments. This Credit FAQ should be considered in conjunction with previously published criteria."

Among the Frequently Asked Questions are: "What is the CDARS program?" S&​P says, "​CDARS is a program offered by nearly 3,​000 member financial institutions of the CDARS network and is designed to provide investors the benefit of Federal Deposit Insurance Corp. (​FDIC) insurance for deposits up to $​50 million. Generally, investors place large deposits with a member, who then places the investors' deposits into CDs issued by participating banks. CDs issued through CDARS generally are in amounts less than the FDIC insurance maximum so that each CD'​s principal and interest remains eligible for full FDIC insurance. Currently the FDIC insurance maximum is $​250,​000 per depositor through Dec. 31, 2013. After the extension date, the maximum amount is scheduled to return to $​100,​000 per depositor.... CDARS CDs' maturities generally range from four weeks to five years.... Typically, early breakage penalties exist and generally vary based on the CD'​s maturity."

They also ask, "How does Standard & Poor'​s treat noncollateralized CDs compared to CDARS CDs?" S&​P answers, "​In PSFRs and FCRs, noncollateralized CDs that do not qualify for FDIC insurance take on the same credit rating as was assigned to the issuing bank. Portfolio exposures no greater than 5% per issuing bank are consistent with our investment-​grade PSFR criteria.... For both PSFRs and FCRs, to the extent the underlying deposits fall within FDIC coverage amounts, we classify CDARS equivalent to the U.​S. sovereign credit rating. How does Standard & Poor'​s view the credit risk associated with CDs issued by CDARS? In our opinion, because CDARS-​issued CDs are FDIC insured, we view the credit risk as equal to the U.​S. government sovereign credit rating (​currently '​AAA')."

Another question is, "How does Standard & Poor'​s view the liquidity risks associated with CDARS CDs?" S&​P says, "In our opinion, potential areas of liquidity risk in CDARS CDs include: Inherent illiquidity: CDARS CDs are nonnegotiable, not DTC eligible, and are not traded in an active secondary market; Payment delays: When the FDIC has to make a payment on deposits, it pays the insured amount to the participating bank, and the participating bank pays the investors; Custodian bank failure: Another potential liquidity risk may occur where the investor'​s money is in the custody of a network member that has failed."

They also ask, "What other concerns does Standard & Poor'​s have regarding CDARS CDs?" The FAQ responds, "Early breakage penalties: CDARS CDs can have penalties from 50% to 100% of the interest due depending on the CDs' maturity. Typically, the earlier a CDARS CD is broken prior to maturity, the greater the penalty. Because the interest penalty owed may be unearned at the time of the early breakage, the assessed penalty may result in a loss of initial principal. Coverage under relevant guidelines: The FDIC insurance limits are not based solely on the CDARS CD amount, but rather on the total aggregate exposure of an individual investor at a participating bank. We would take into account how investors determine whether their aggregate deposits (​including their CDARS CD exposures) are within FDIC insurance limits and CDARS guidelines."

S&​P continues, "How will Standard & Poor'​s evaluate CDARS CDs given your PSFR criteria? We will evaluate CDARS CDs similar to the analysis for other highly rated, short-​term instruments.... From a credit perspective, we deem CDs issued through CDARS to be '​AAA/​A-​1+' equivalent. CDARS CDs count toward our 10% limited liquidity/​illiquid basket for PSFRs because these CDs are nonmarketable securities, may impose fees for early withdrawal, and may have a delay in receiving monies from FDIC insurance payments."

Finally, they ask, "How would Standard & Poor'​s evaluate similar FDIC products?" S&​P says, "In evaluating other similar types of FDIC products, such as the Institutional Deposits Corp.'​s Insured Deposit Liquidity Account and Insured Network Deposits, we would take a similar approach in applying our criteria to assess such pooled FDIC-​insured accounts." Note that Crane Data has yet to see any CDARS or "​pooled FDIC insurance" products appear in money market mutual funds, but that some less-​regulated pools appear to be dabbling in the sector.

We learned from ignites.​com that Eagle Money Market Fund and Eagle Municipal Money Market Fund (​formerly named Heritage) have filed to liquidate and that new "​Eagle" share classes of JPMorgan funds have been filed. A prospectus supplement filing says, "On February 12, 2010, the Board of Trustees of Eagle Cash Trust approved calling a shareholder meeting to consider approving a plan to liquidate and terminate the Money Market Fund and the Municipal Money Market Fund. The Board approved the Plan, subject to shareholder approval, upon recommendation of Eagle Asset Management, Inc., the manager to the Trust."

It says, "Eagle recommends liquidating and terminating each Fund based on anticipated Fund shareholder redemptions which would reduce each Fund'​s size and economies of scale. Eagle does not believe that it can continue to conduct the business and operations of the Funds in an economically efficient manner upon the anticipated redemptions, and that the expense ratio of the Funds would no longer be competitive. As such, the Board concluded that it would be in the best interests of each Fund and their shareholders to liquidate and terminate each Fund."

The filing explains, "A financial intermediary whose customers own a substantial majority of the Funds' shares has advised Eagle that the Intermediary will no longer make available to its customers or support investments in the Funds after July 9, 2010 and that it plans to make available to its customers and support investments in a proprietary class (​named the '​Eagle Class') of the JP Morgan Prime Money Market Fund and JP Morgan Tax Free Money Market Fund, managed by J.​P. Morgan Investment Management, Inc. The Intermediary has advised that its customers may be redeemed from the Funds and reinvested in the New Funds. Eagle and J.​P. Morgan will enter into an agreement under which Eagle and its affiliates will be compensated by the New Funds and J.​P. Morgan for, among other things, distribution costs, shareholder record-​keeping activities, Eagle'​s ongoing oversight of the services provided, and the coordination and administration of the funds."

The supplement adds, "​The Plan is subject to shareholder approval. The Board anticipates holding a shareholder meeting on or about August 12, 2010, to seek approval of the Plan. If the Funds' shareholders approve the Plan, each Fund will liquidate its assets on or about August 27, 2010, and distribute cash pro rata to all remaining shareholders who have not previously redeemed all of their shares. Once the distributions are complete, the Funds will terminate." (​See the JPMorgan prospectus filings for the new '​Eagle' classes here.)

The Eagle funds are affiliated with brokerage Raymond James, which recently "implemented an enhanced multibank sweep program that provides greater Federal Deposit Insurance Corporation (​FDIC) insurance coverage and offers more competitive interest rates." The company'​s website says "​available cash in your brokerage account will be deposited through [​Promontory Interfinancial Network'​s] Insured Network Deposit service into interest-​bearing deposit accounts at one or more banks."