Daily Links Archives: November, 2016

Preparations continue and the agenda is now complete for Crane Data's next "basic training" event, Money Fund University. Our seventh annual MFU will be held at the Westin Jersey City Newport, Jersey City, NJ, January 19-20, 2017. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. The event also focuses on hot topics like money market regulations, money fund alternatives, offshore markets, and other recent industry trends. The affordable ($500) educational conference (see the latest agenda here or e-mail us to request our brochure) features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. Money Fund University offers attendees a 2-day course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, money market instruments such as commercial paper, CDs and repo, plus portfolio construction and credit analysis. At our Jersey City event, we will also take a look at some remaining issues involving regulations, and we'll have a mini "Bond Fund University" segment on ultra-short bond funds. Crane Data also continues to work on a preliminary agenda and plans for its new Bond Fund Symposium (March 23-24, 2017, at the Boston Hyatt Regency), and our annual "big show," Money Fund Symposium, will be held June 21-23, 2017, at the Atlanta Hyatt Regency.

Wells Fargo Securities Garret Sloan writes, "After taking a wild ride over the past few months, the SIFMA 7-day index appears to be finding an equilibrium level in the mid-50s. In December, the index remained relatively uncorrelated with the movement of the Fed funds rate, remaining pinned at 1 basis point for another three months before moving in response to tax-related outflows in March. Previous rate cycles have seen SIFMA move more quickly, though not in a 1-for-1 relationship. In 2004 the SIFMA index rose in relative lockstep with the Fed funds rate, though the magnitude of the increases did not follow the Fed funds market. At the beginning of the tightening cycle of 2004 the SIFMA 7-day rate and the Fed funds target rate were close to being equivalent, but by the peak of the tightening cycle in 2006, the SIFMA Index lagged the Fed funds rate by almost 200 basis points." RBC Capital Markets' Michael Cloherty adds, "SIFMA stopped falling after it reversed about 2/3 of the widening from early July to MMF reform (richer prices are causing the nontraditional buyers to exit). Another 2.5bp tightening in LIBOR/OIS would put the LIBOR improvement on the same footing as SIFMA, but we think year-end will cause the LIBOR tightening to pause. What makes us cautious about the front end is concern that year-end RP costs may rise as we see what happens on Nov 30th, making the carry on spread longs suffer."

The Boston Globe writes about the recent news of Fidelity Investments Chairman Edward "Ned" Johnson retiring and Johnson's invention of check-writing for money market funds in a piece entitled, "Fidelity's Peter Lynch reflects on Ned Johnson." The article says, "On Johnson's 1974 decision to let Fidelity customers write checks from their money market mutual funds, a convenience that eventually became an industry standard; previously, customers had to go through a more complicated "redemption" process to access that money. It also paved the way for Fidelity to expand beyond asset management and into other financial services. "I remember so vividly that we all thought it was scary. I remember saying to Ned, 'People told me we can lose tens of millions of dollars on this [due to the cost of setting up the untested business],' and Ned said, 'You're right. We could lose lots of money on this, and everyone else has the same opinion, so they're not going to get into it. But if it works we could make lots of money. We have a huge potential winner here and it's worth it.' Everyone, including people in the company, were second-guessing him, and everybody else was afraid to do it and said it was a big mistake. And he said, 'That's true,' but still did it." See also, The Boston Globe's "'Ned' Johnson stepping down as Fidelity chairman."

ICI's latest "Money Market Fund Assets" report shows yet another increase in Prime money fund assets, their third week in a row (and their first increases since July 13), while Tax Exempt MMFs rose for the 6th week in a row. Assets broke back above $2.7 trillion for the first time since August; year-to-date they're down $54 billion, or 1.9%. The release says, "Total money market fund assets increased by $18.76 billion to $2.71 trillion for the six-day period ended Tuesday, November 22, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $18.43 billion and prime funds increased by $170 million. Tax-exempt money market funds increased by $150 million." It explains, "Assets of retail money market funds increased by $1.66 billion to $974.38 billion. Among retail funds, government money market fund assets increased by $2.10 billion to $595.97 billion, prime money market fund assets decreased by $450 million to $252.89 billion, and tax-exempt fund assets were unchanged at $125.51 billion.... Assets of institutional money market funds increased by $17.10 billion to $1.73 trillion. Among institutional funds, government money market fund assets increased by $16.33 billion to $1.60 trillion, prime money market fund assets increased by $620 million to $124.17 billion, and tax-exempt fund assets increased by $140 million to $4.62 billion." Prior to the past 3 weeks' worth of (admittedly modest) inflows ($4.3 billion in total), prime MMFs had declined by 16 weeks in a row, dropping by $663.1 billion. YTD, Prime MMF assets have declined by $906.7 billion, or 70.6%, and they've declined by $1.081 trillion, or 74.1%, since 10/31/15. Government money funds have also gained $22.5 billion over the past 3 weeks, and they increased by $679.6 billion over the 16 weeks prior. Govt MMFs are up by $977.2 billion YTD (80.0%) and they're up by $1.185 trillion (116.9%) since 10/31/15. Tax Exempt MMFs have risen for 6 weeks in a row, up $2.6 billion. after falling by $68.5 billion the previous 14 weeks. Tax Exempt MMFs are down by $124.3 billion YTD (-48.8%) and they're down by $114.8 billion (-46.9%) since 10/31/15.

A new white paper from Fidelity Investments, entitled, "Money Markets: Expectations Remain High for December Rate Increase," says that "Federal Reserve guidance supports expectations for a December rate increase." It explains, "While some Fed officials were concerned about the potential for post-election market upheaval, its early November assessment suggested that both inflation and growth were moving in the right direction, which led some to believe the stage was set for a rate increase.... The Federal Open Market Committee's (FOMC's) November statement included the sentence, "Near-term risks to the economic outlook appear roughly balanced." This assessment, along with the improved growth and employment data, further contributed to investor expectations for a December rate hike at the FOMC's next meeting (December 13 and 14). Our base case is that the Fed is likely to increase the fed funds rate 25 basis points (bps) higher in December." Regarding asset shifts since the implementation of market fund reforms, Fidelity's Michael Morin and Kerry Pope write, "October saw the completion of an orderly transition of more than a trillion dollars moving from prime to government money market funds (MMFs). Outflows nearly subsided, and as of November 1, prime MMF assets stood at $372 billion, with $122 institutional and $250 billion retail.... Prime MMFs began to normalize their investments. This can be seen in the weighted average maturities (WAMs) of institutional prime MMFs, which were extended to 19 days from nine during October, and WAMs for retail prime MMFs moved to 30 days. The longer prime WAMs resulted in higher yield differentials relative to government funds. These yield spreads moved from a low of nine basis points in August to 21 bps as of early November and are likely to continue to rise as prime MMFs normalize and gradually extend maturities. With the year-to-date increase of nearly $260 billion in the supply of Treasury bills and Treasury repurchase agreements, government MMFs were able to put increased inflows to work. However, utilization of the Fed's reverse repurchase agreement facility has trended higher throughout the year, suggesting that the increased supply of T-bills and repos did not quite match the inflows to governments MMFs. The effect on money markets resulting from fund regulatory reform has started to diminish. For example, the amount of prime assets maturing is beginning to taper and marginally ease funding conditions. Additionally, increased demand for government-sponsored entity (GSE) agency securities from government MMFs compressed spreads relative to Treasuries to nearly zero. Government MMFs now own over half of the money-market eligible agency coupons and discount notes. The Securities Industry and Financial Markets Association (SIFMA) Index spiked to a multi-year high of 87 bps after more than $100 billion exited municipal MMFs. More recently, the index retreated owing to demand from crossover buyers, including prime MMFs."

Federated Investors writes "Fed Watch: Trump versus the doves," which says, "Donald Trump's surprise election victory has raised speculation about Federal Reserve policymakers as much their actual policy. Even as we approach a Federal Open Market Committee (FOMC) meeting that we think likely will result in only the second rate hike in eight years, the talk has shifted to the job security of Fed Chair Janet Yellen and the composition of the Fed board in general under a Trump administration. President-elect Trump was openly critical of Yellen during the course of the campaign, saying she should be ashamed of herself for not raising rates just because the Obama administration didn't want her to. That sparked thought that Trump will fire her when he gets into office. But the reality of the situation is much more complex than that." Susan Hill, Head of Federated's Government Money Market Group, continued, "Yellen's term extends through January of 2018. She can't be forced out until the end of that time, absent some true ugliness. However, the president can, and likely would, replace her at that time instead of retaining her for another term. Conversely, Yellen could resign at any point, but in our view that is not likely. Trump's camp recently said Trump views Yellen as being competent, that the Fed is independent and that she can't imagine why Yellen would not serve out the remainder of her term. I think these comments reflect a new understanding that a changeover in Fed leadership at this very moment could be quite unsettling to the market at large at a time when the markets already have considerable uncertainty ahead." The Senior Portfolio Manager concluded, "Yellen aside, however, Trump will have the opportunity to have a significant influence on the composition of the Fed next year. There are two open positions on the board of governors, including a newly created vice chairman of supervision, and Fed governor Lael Brainard's term expired earlier this year. Trump should have no trouble filling these positions given the Republican control of Congress. Furthermore, he and other hawkish Republicans will want to do so soon as the 2017 Fed, with the rotation of four new regional Fed bank presidents, will be notably more dovish. It is widely assumed that Trump's Fed choices could go a long way toward offsetting that overall dovish tilt, potentially having a substantial impact on U.S. monetary policy in the coming years."

A Prospectus Supplement filing for Dreyfus Municipal Cash Management Plus says, "Effective on or about January 17, 2017 (the "Effective Date"), the fund's name will change to Dreyfus AMT-Free Municipal Cash Management Plus. As of the Effective Date, the following replaces the first paragraph of the section entitled "Fund Summary – Dreyfus Municipal Cash Management Plus – Principal Investment Strategy" in the prospectuses: To pursue its goal, the fund normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in short-term, high quality municipal obligations that provide income exempt from both federal income taxes and the federal alternative minimum tax. The fund also may invest in high quality, short-term structured notes, which are derivate instruments whose value is tied to underlying municipal obligations. As of the Effective Date, the following supersedes and replaces any contrary information in the section entitled "Fund Details – Goal and Approach" in the prospectuses: Dreyfus AMT-Free Municipal Cash Management Plus normally invests at least 80% of its net assets, plus any borrowings for investment purposes, in short-term, high quality municipal obligations that provide income exempt from both federal income taxes and the federal alternative minimum tax." Another filing for Vanguard CA, NJ, NY, OH and PA Tax-Free Money Market Funds says, "The boards of trustees of Vanguard California Tax-Free Funds, Vanguard New Jersey Tax-Free Funds, Vanguard New York Tax-Free Funds, Vanguard Ohio Tax-Free Funds, and Vanguard Pennsylvania Tax-Free Funds have approved the renaming of the following Funds. These name changes are expected to occur in the first quarter of 2017. The investment objective and limitations of each Fund will remain the same, including the 20% limitation on investments in securities that are subject to the alternative minimum tax." The new names will be: Vanguard California Municipal Money Market Fund, Vanguard New Jersey Municipal Money Market Fund, Vanguard New York Municipal Money Market Fund, Vanguard Ohio Municipal Money Market Fund, and Vanguard Pennsylvania Municipal Money Market Fund."

Federal Reserve Chair Janet Yellen testified yesterday on "The Economic Outlook" before the Joint Economic Committee of Congress, and indicated that a rate hike was likely in December. She said, "The stance of monetary policy has supported improvement in the labor market this year, along with a return of inflation toward the FOMC's 2 percent objective. In September, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent and stated that, while the case for an increase in the target range had strengthened, it would, for the time being, wait for further evidence of continued progress toward its objectives. At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee's objectives. This judgment recognized that progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. And inflation, while still below the Committee's 2 percent objective, has increased somewhat since earlier this year. Furthermore, the Committee judged that near-term risks to the outlook were roughly balanced. Waiting for further evidence does not reflect a lack of confidence in the economy. Rather, with the unemployment rate remaining steady this year despite above-trend job gains, and with inflation continuing to run below its target, the Committee judged that there was somewhat more room for the labor market to improve on a sustainable basis than the Committee had anticipated at the beginning of the year. Nonetheless, the Committee must remain forward looking in setting monetary policy. Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.... Of course, the economic outlook is inherently uncertain, and, as always, the appropriate path for the federal funds rate will change in response to changes to the outlook and associated risks."

Federal Reserve Vice Chairman Stanley Fischer spoke Tuesday on "Is There a Liquidity Problem Post-Crisis?" He commented, "Market liquidity is the ability to rapidly execute sizable securities transactions at a low cost and with a limited price impact. The high degree of liquidity in U.S. capital markets historically has contributed to the efficient allocation of capital through lower costs and a mix of bank- and market-based finance that supports the flexibility of these markets. Regulatory changes may have altered financial institutions' incentive to provide liquidity, raising concerns brought into sharp relief by several "flash events" over the past few years. At the same time, any changes in observed liquidity are also likely accompanied by other related changes--such as in technology--and a more complete assessment of these shifts is important when we think about the effects on liquidity of changes in financial regulations that were induced by the global financial crisis." Fischer continued, "This afternoon, I will first review some of the concerns raised by market participants and others about market liquidity as well as highlight the challenges associated with finding clear evidence that substantiates these concerns. I will then discuss whether potential impairment of liquidity might exacerbate problems related to fire sales and leverage. Finally, I will make the case that any changes in market liquidity resulting from regulatory changes should be analyzed in the broader context of the overall safety of the financial system. This perspective naturally emphasizes potential tradeoffs between the possibly adverse effect regulations may have on market liquidity and their positive effect on the stability of the financial system."

A statement from the U.S. Securities & Exchange Commission entitled, "SEC Chair Mary Jo White Announces Departure Plans," says, "SEC Chair Mary Jo White, after nearly four years as the agency's head, today announced that she intends to leave at the end of the Obama Administration. Under Chair White's leadership, the Commission strengthened protections for investors and the markets through transformative rulemakings that addressed major issues highlighted by the financial crisis. The Commission also instituted a new approach to enforcement that has resulted in greater accountability and record actions through, among other things, the use of admissions of wrongdoing and enhanced data analytics and technology." The release adds, "Chair White drove many important rules and other policy measures to completion. Under her leadership, the Commission advanced more than 50 significant rulemaking initiatives, including: Fundamental reforms to the money market fund industry and unprecedented new disclosures and protections for mutual fund investors in a major initiative to strengthen regulation of the $67 trillion asset management industry." ICI issued a "Statement on SEC Chair Mary Jo White," which says, "We congratulate Chair Mary Jo White for her exceptional leadership of the Securities and Exchange Commission through one of the most challenging and significant periods of its history. Her commitment to investor protection and robust capital markets has made America's financial system significantly stronger and more robust. The expertise, experience, and open process that the Commission has brought to asset management issues under her leadership will strengthen mutual funds, to the benefit of their 90 million investors. We thank her for her long service to the nation, and wish her the very best in her future endeavors."

The Treasury's Office of Financial Research published a paper entitled, "Do Higher Capital Standards Always Reduce Bank Risk? The Impact of the Basel Leverage Ratio on the U.S. Triparty Repo Market." The OFR says, "This paper examines how risk-taking in the repurchase agreement, or repo, market changed after regulators introduced the supplementary leverage ratio for banks. The paper finds that broker-dealers owned by U.S. bank holding companies now borrow less in the repo market overall after the change, but a larger percentage of the borrowing is backed by more risky collateral." The paper's Abstract explains, "While simpler than risk-based capital requirements, the leverage ratio may encourage bank risk taking. This paper examines the activity of broker-dealers affiliated with bank holding companies (BHCs) and broker-dealers not affiliated with BHCs in the repurchase agreement (repo) market to test whether this may be occurring. Using data on the triparty repo market, the paper arrives at three findings. First, following the 2012 introduction of the supplementary leverage ratio (SLR), broker-dealer affiliates of BHCs decreased their repo borrowing but increased their use of repo backed by more price-volatile collateral. Second, the paper finds that regardless of whether a U.S. BHC-affiliated broker-dealer parent is above or below the SLR requirement, the announcement of the SLR rule has disincentivized those dealers affiliated with BHCs from borrowing in triparty repo. Finally, the paper finds an increase in the number of active nonbankaffiliated dealers in certain asset classes of triparty repo since the 2012 introduction of the supplementary leverage ratio. This suggests risks may be shifting outside the banking sector."

ICI's latest "Money Market Fund Assets" report shows an increase in Prime money fund assets for the first time since July 13. The release says, "Total money market fund assets increased by $5.88 billion to $2.68 trillion for the week ended Wednesday, November 9, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $3.06 billion and prime funds increased by $2.69 billion. Tax-exempt money market funds increased by $130 million." It explains, "Assets of retail money market funds increased by $11.34 billion to $964.51 billion. Among retail funds, government money market fund assets increased by $8.83 billion to $587.26 billion, prime money market fund assets increased by $2.31 billion to $252.27 billion, and tax-exempt fund assets increased by $190 million to $124.97 billion.... Assets of institutional money market funds decreased by $5.46 billion to $1.72 trillion. Among institutional funds, government money market fund assets decreased by $5.77 billion to $1.59 trillion, prime money market fund assets increased by $380 million to $123.16 billion, and tax-exempt fund assets decreased by $70 million to $4.21 billion." In the 16 weeks prior to this week, Prime MMF assets declined by $663 billion, and they've declined by $1.083 trillion since 10/31/15.

A website entitled CPI Financial posted a story entitled, "EFG Hermes Asset Management Division mandated to manage HSBC Egypt Money Market Fund." It says, "EFG Hermes has taken over management of the EGP 1.6 billion HSBC Egypt Money Market Fund. The mandate brings the division’s Egypt-focused assets under management (AUM) to EGP 10.5 billion." They quote Khalil El Bawab, Managing Director at EFG Hermes Asset Management, "Our division has delivered consistent performance over the long haul across fund types, from money market funds to fixed income and equities. We look forward to further announcements of this type in the months ahead as we actively compete for new mandates." Nabil Moussa, Head of Egypt Asset Management, comments, "EFG Hermes Asset Management continues to weather challenging regional conditions with innovative investment themes.... In addition to growing our domestic market, our asset management business is serving European investors with the EFG Hermes MENA UCITS and the Frontier Equity funds launched earlier this year." The release adds, "Total mutual funds managed by EFG Hermes Asset Management in the Egyptian market now stand at 16 funds across different asset classes, including six out of 26 money market funds in the local market. EFG Hermes Asset Management Division accordingly stands as the largest asset manager in the Egyptian market by total number of funds managed."

A posting entitled, "Money Market Reform and the Opportunity for Enhanced Cash ETFs," says, "On October 14, 2016, the final provisions for money market fund (MMF) reform took effect, but these long-awaited regulatory changes have already begun to have significant effects on MMFs. Below, we present a summary of some of the key elements of MMF reform, along with an assessment of potential opportunities that have emerged for investors in non-money market ETFs that employ enhanced cash strategies, such as the First Trust Enhanced Short Maturity ETF (FTSM)." It adds, "Money market funds may fall short in meeting the income and liquidity needs of many investors, especially in the midst of today's ultra-low interest rate environment. When considering MMFs, investors must choose between accepting the very low yields produced by government MMFs, or seeking slightly higher yields offered by non-government MMFs (prime and tax-exempt), accompanied by the potential for liquidity fees and gates. For such investors, who are willing to take on more risks, we believe that ETFs employing enhanced cash strategies, such as the First Trust Enhanced Short Maturity ETF (FTSM), may provide a compelling alternative to money market funds. FTSM is an actively managed ETF that utilizes a low duration strategy (0.28 year effective duration4), focused on preserving capital and providing intraday liquidity, while seeking to provide a higher level of income than MMFs. As an ETF, the fund's NAV is calculated to reflect the market value of its underlying portfolio on a daily basis, just as institutional prime and tax-exempt MMFs are now required to do. However, unlike both retail and institutional (prime and tax-exempt) MMFs, FTSM is not required to impose liquidity fees and gates, which we believe to be a key advantage."

Federated Investors' latest "Month in Cash," entitled, "Moving forward with gusto," tells us, "The money market sector just had its Y2K event. Turns out nothing in the financial sphere shut down, malfunctioned or blew up the morning of Oct. 14, the date by which institutional prime and tax-free funds had to adopt a floating NAV. There wasn't a need for a flurry of media calls or panicked client calls or systematic disruption. Actually, Oct. 14 was also similar to Y2K in that preparation paid off. We at Federated worked very hard to make the transition smooth. It also helped that some firms went to the floating NAV ahead of the deadline, alleviating the pressure. Bottom line is that the cash-management industry is still here and going strong despite the SEC reforms." The piece, written by Deborah Cunningham, continues, "We are thrilled to finally get back to what we do best: preserving client assets while pursuing the best return. It is important to realize that, while the industry underwent a seismic change in which $1.1 trillion moved from prime and muni funds into government funds, nearly all of that money remained in the money market space. It still has $2.6-$2.7 trillion in total assets under management. Our floating NAV funds have not deviated from the new four-decimal-point reporting mandate, meaning shares have retained their value of $1.0000. A few other companies' funds did, but it was due to late asset flows, not to any market-wide movement. So it wasn't a sigh you heard from Federated offices on Oct. 14, it was a collective inhale as we jump into the new world with enthusiasm. And there are plenty of good reasons for it. One is that we are now able to push our prime funds' weighted average maturity (WAM) back out to where we have traditionally had it: in the 40-50 day range. This is good news in itself because it means our assets have stabilized. The main reason we had to shorten it to single digits was to make sure we had ample liquidity to handle redemptions. Second, it means we can again work toward trading for our prime institutional and prime retail funds on the basis of value from offerings in the marketplace, not just to tread water with ready assets. Extending WAM -- that is buying paper and instruments with longer maturities based on the London interbank offered rate (Libor) -- typically leads to better yields." In other news, see the WSJ blog, "Bruce Bent: New Money-Fund Regulations Don’t Go Far Enough."

Invesco blogs "The hunt for short-term yield: Variable-rate demand obligations to the rescue?" It says, "VRDOs aren't glamorous, but could be the answer for rising short-term rates and money market upheaval. As short-term interest rates rise, variable-rate securities are seeing increased demand. Among the numerous asset classes available, variable-rate demand obligations (VRDOs) are among the least understood by investors. I believe VRDOs are a compelling short-term investment option for today's market environment -- a period marked by rising short-term rates and money market reforms mandated by the Securities and Exchange Commission." The piece asks, "What are variable-rate demand obligations? VRDOs are high-quality municipal bonds that trade at par value. Comprising roughly 75% of the municipal money market, most VRDOs feature weekly coupon resets that effectively push their duration to zero. Because of these resets, VRDOs, which are based on the SIFMA Municipal Swap Index, are considered short-term paper. In addition, VRDOs have a put feature that allows investors to sell them back to issuers for par value (plus accrued interest) at any time. VRDOs are backed by lines of credit or standby purchase agreements taken out by issuers, which help support the bonds' credit ratings. And because they're municipal bonds, VRDOs are largely exempt from federal taxation, which can boost yields relative to other high-quality, short-term taxable securities, as shown in the table below." Finally, Invesco adds, "The PowerShares VRDO Tax-Free Weekly Portfolio (PVI) tracks the Bloomberg U.S. Municipal AMT-Free Weekly VRDO Index. PVI is made up of investment-grade municipal VRDOs and features weekly coupon resets and a limited duration profile. PVI may be well suited for investors seeking a way to invest in short-duration, high-quality securities, while generating federally tax-exempt income."

Crane Data's Peter Crane will speak next week at a meeting of the New England Association for Financial Professionals. The meeting will take place next Thursday, November 10, at the headquarters of Hasbro Inc. in Pawtucket RI. The session, entitled, "Money Fund & Cash Investing Update: Floating NAVs, Rising Rates & Alternatives," will feature Peter Crane and Will Goldthwait from SSGA. The first session description says, "Crane Data's Peter Crane and SSGA's Will Goldthwait will give an update on institutional money market funds and cash investment alternatives following the October 14 implementation of new money fund reforms. They'll review the big shift of Prime fund assets into Government money market funds, and will give an early assessment of how the new floating NAV and emergency gates & fees are working. Crane and Goldthwait will also discuss spreads and the impact and reaction of funds to a Federal Reserve rate hike, as well as the big buildup in fund liquidity. Finally, he'll review a number of new (and old) alternatives, including bank deposits, private funds, ultra-short bond funds and other emerging cash investment options."

A statement entitled, "Bruce Bent on the new SEC money fund rules," was released yesterday by Double Rock Corporation, a "cash management and financial technology company" run by the principals of the former Reserve Management Company (manager of The Reserve Primary Fund, which famously "broke the buck" in September 2008). It says, "Today, Bruce Bent, Chairman of Double Rock Corporation and co-inventor of the first money market mutual fund made the following statement: "After years of debate, the US Securities and Exchange Commission's modified money fund rules have been implemented. Supposedly the fundamental goal of these changes is to remove the U.S. Government as "lender of last resort," a role they were forced to assume in 2008 for both money funds and banks. For reasons unknown, the SEC rule makers have assumed that U.S. Government and Agency paper will maintain its value in another financial crisis, however, that was not the experience in 2008. Furthermore, since both Congress and the other involved government entities have stated unequivocally that they will no longer distribute life preservers, there is even less reason to expect another "Big Brother Bailout." But the new rules still do not require funds to price Government and Agency paper to market because of their theoretically pristine credit quality. This totally ignores the risk of market fluctuations." The comment piece adds, "The new SEC money fund rules should be helpful to investors, but don't go far enough. Based upon the illiquidity of Government and Agency paper in the 2008 financial crisis, there is no reason money funds making those types of investments should be exempt from the new requirement to price to market." In other news, see the article on "Wall Street Pit, entitled, "Now Available: Useless Money Market Funds," which says, "The Securities and Exchange Commission's new rules for making money market funds safer and more transparent for big investors became official last week, but they have been having an effect all year. Not a very good effect, though."

Reuters writes "MEPs seek to water down EU bank deposit guarantee plan - draft report." It tells us, "European lawmakers plan to water down a European Commission plan to guarantee bank deposits, according to a draft report seen by Reuters, throwing up another hurdle to regulators' plan to boost savers' confidence and the financial sector. The proposed European Deposit Insurance/Reinsurance Scheme (EDIS) is seen as the third element of a European banking union aimed at reinforcing the banking sector in the wake of the 2008 global crisis. The plan envisions deposits up to 100,000 euros ($110,600) in any euro zone bank being guaranteed with funds from national schemes, but it has drawn criticism from some quarters, with Germany viewing it as an unfair pooling of risk." The article adds, "While the EU executive's intention is for EDIS to evolve into a fully mutualised co-insurance scheme over a number of years, the document said that lawmakers believed this could happen only if and when certain conditions are met. The committee also doubted whether a common fiscal backstop would break the so-called "doom loop" between over-indebted sovereigns and over-extended banks. Lawmakers also want 50 percent of the money to remain in the national deposit guarantee systems, 25 percent in a risk-based sub-fund and only 25 percent in a joint-risk fund."

A Prospectus Supplement for Ivy Money Market Fund announced its change to Ivy Government Money Market Fund. It says, "Effective October 14, 2016, the Prospectus is revised as follows: The following replaces the first and second paragraphs in the "Principal Investment Strategies" section for Ivy Government Money Market Fund on page 174: Ivy Government Money Market Fund seeks to achieve its objective by investing, under normal circumstances, at least 99.5% of its total assets in: (1) debt securities issued or guaranteed by the U.S. government or certain U.S. government agencies or instrumentalities (government securities), (2) repurchase agreements that are fully collateralized by cash and/or government securities, and/or (3) cash. The Fund also has adopted a policy to invest, under normal circumstances, at least 80% of its net assets in government securities and/or repurchase agreements that are fully collateralized by government securities. The Fund's investments in government securities may include direct obligations of the U.S. Treasury (such as Treasury bills, notes or bonds), obligations issued or guaranteed as to principal and interest (but not as to market value) by the U.S. government, its agencies or instrumentalities, and mortgage-backed securities issued or guaranteed by government agencies or government-sponsored enterprises. The Fund seeks, as well, to maintain a net asset value (NAV) of $1.00 per share. The Fund maintains a dollar-weighted average maturity of 60 calendar days or less, a dollar-weighted average life of 120 calendar days or less, and the Fund invests only in securities with a remaining maturity of not more than 397 calendar days. Ivy Investment Management Company (IICO), the Fund's investment manager, selects securities for the Fund in compliance with the maturity, quality, diversification and liquidity requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended (Rule 2a-7). IICO may look at a number of factors in selecting securities for the Fund, including the credit quality of the particular issuer or guarantor of the security, along with the liquidity, maturity and yield."

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