News Archives: April, 2010

The Investment Company Institute, which hosts its annual General Membership Meeting next week in Washington, has released the online version of its 2010 Investment Company Fact Book. The ICI's annual statistical compendium contains a wealth of statistics on mutual funds and a number of tables on money market mutual funds. The money fund section may be seen on pages 34-37, the money fund data tables may be seen on pages 160-166, and info on institutional investors may be seen on pages 179-184.

Under "Demand for Money Market Funds" on page 34, the Fact Book says, "Money market funds, particularly those funds invested only in U.S. government securities, experienced substantial outflows in 2009, reflecting the search for higher yields in an environment of low short-term interest rates accompanied by a steep yield curve and an unwinding of the flight to safety by investors in response to the financial crisis of 2007 and 2008. Retail money market funds, which are principally sold to individual investors, saw outflows of $307 billion in 2009, following inflows of $284 billion over the previous two years."

It continues, "Money fund yields followed the pattern of short-term interest rates in 2009, hovering between 0 and 25 basis points. In addition, yields on money market funds dipped below those on bank deposits over the entire year -- the first such occurrence in the past 15 years. In general, retail investors tend to withdraw cash from money market funds when the difference in interest rates between bank deposits and money market funds narrows. The sizable outflows from retail money market funds in 2009 do not appear to be atypical considering the negative interest rate spread."

The Fact Book also says, "Institutional money market funds -- used by businesses, pension funds, state and local governments, and other large-account investors -- had outflows of $232 billion in 2009, following inflows of $1 trillion during the previous two years. Outflows from institutional money market funds likely reflected the low interest rate environment and the start of an unwinding of the flight to quality by these investors in 2007 and 2008."

The ICI work continues, "The tumult in financial markets around the world that started in August 2007 and continued through early 2009 led many institutional investors to seek out the liquidity and safety of money market funds that invest primarily in U.S. government securities. These funds, which can invest in U.S. Treasury debt solely or a combination of U.S. Treasury debt and obligations of U.S. government agencies, received $602 billion in net new cash flow in 2008 on top of $281 billion in 2007."

"In 2009, as various government facilities provided much needed liquidity to short-term credit markets and financial markets stabilized, institutional investors likely were optimistic that the firestorm had passed. They began shifting away from U.S. government money market funds, which had outflows of $312 billion, and toward non-government (prime) money market funds, which had inflows of $107 billion. Nevertheless, U.S. government money market funds comprised over 40 percent of institutional taxable money market assets at year-end 2009, up from only 24 percent at year-end 2006, prior to the start of the financial crisis," says the Fact Book.

Finally, ICI writes, "U.S. nonfinancial businesses reduced their holdings of money market funds in 2009. During the financial crisis, corporate treasurers made extensive use of institutional money market funds; at year-end 2008, 35 percent of their short-term assets were in money market funds. By year-end 2009, nonfinancial businesses held 30 percent of their short-term assets in money market funds, although this ratio was still above the 24 percent recorded at year-end 2006, prior to the start of the financial crisis."

Invesco, the 16th largest manager of money market mutual funds, reported earnings and hosted a conference call yesterday, which contained several bits of information related to money funds. Invesco President & CEO `Martin Flanagan says of "cash," "And what we are seeing across the industry in the money fund business is that low yields and people seeking yield and greater returns continue to have outflows. Money fund movements still tend to be right now into fixed income products. That said, our money funds team continues to just do a very, very good job. [They're a] high quality team."

The company's earnings release Powerpoint shows (p.29) money market funds making up 17.3% of Invesco's assets. The company showed a 21.7% decline in money fund assets to $72.6 billion. Overall assets (including stock and bond fund) increased by $20.5% over the past year to $419.6 billion.

In the Q&A portion of the conference call, KBW Analyst Robert Lee asked, "I've got a ... kind of a strategic question on the money fund business. You guys weathered the storms the past couple of years very well, and I know it's a key part of your business. But when you look at your kind of institutional focus and you look at a lot of your competitors, where their asset bases are four or five times as large, some maybe even more, I mean, are you at all concerned that as that business evolves that that business is at risk of becoming sub-scale or in some way needs to be scaled up more?"

Flanagan responded, "Look, I think even with the runoff.... Currently, if you look at where it had been historically, you are still at historical levels, right? We were just a big beneficiary of big inflows during the crisis as being one of the managers that was doing a good job. And so it's a very high-quality team. I'd say one of the industry-leading teams if you just look at what they've done. It is part a part of the whole fixed income complex. So it's not sitting by itself. So that credit discipline and expertise literally goes across the spectrum."

He continues, "We think we have good scale now. I think at the end of the day, quality wins, and I think we are going to be one of the winners in that business. And again, it is just complementary to all of our fixed income capabilities and what we do. But, yes, as you look at it right now, I mean, that asset class is under pressure for all the obvious reasons -- people seeking higher yields, etc. `But that said, I think we are going to be fine."

BlackRock CEO Larry Fink's declaration Monday that the company favors the so-called "Liquidity Exchange Bank" means that the concept appears to have unanimous support among the largest money fund managers. We believe this increases the odds that the money fund industry and investors will convince regulators to take this approach and decreases the likelihood of a more radical floating NAV or bank regulatory approach. Fink said on the company's conference call "We believe there's a great need for a liquidity bank. We are in favor of it despite some poor reporting. We've always been in favor of the liquidity bank."

Bloomberg's April 1 article "BlackRock's Fink Opposes Money-Fund Industry Plan", had said Fink "stands alone among the biggest U.S. money-market fund providers in publicly opposing a proposed safety net for the industry that manages $3 trillion for investors.... JPMorgan Chase & Co., Federated Investors Inc., Vanguard Group Inc., Goldman Sachs Group Inc. and four other firms have backed the plan, which was proposed by the industry's trade group last month." The article added, "BlackRock's dissent may make it harder for money funds to head off regulatory changes that could include an end to the stable $1 net asset value that made the funds a popular alternative to bank accounts. Regulators and firms are seeking ways to prevent a repeat of the run on money funds that followed the 2008 collapse of the Reserve Primary Fund."

The Liquidity Exchange Bank plan was originally revealed publicly by Investment Company Institute President & CEO Paul Schott Stevens in a March speech. He said, "ICI has also pursued the challenge of providing a stronger backstop for money market funds in a time of crisis. After it issued its report last March, ICI's Money Market Working Group began to explore additional ideas for providing liquidity for money market funds to meet redemptions when liquidity has dried up in the markets. In part, we have responded to an idea advanced in the Treasury Department's June 2009 white paper on financial regulatory reform, which called for exploring measures to require money market funds 'to obtain access to reliable emergency liquidity facilities from private sources.'"

He continued, "I'm pleased to tell you that we are moving forward rapidly to complete a blueprint for such a liquidity facility. This would be a state-chartered bank or trust company, organized and capitalized by the prime money market fund industry and managed and governed in accordance with applicable banking laws. It would be dedicated to providing additional liquidity to prime money market funds in the event of severe market conditions."

As we wrote in our April Money Fund Intelligence, Crane Data also spoke with ICI General Counsel Karrie McMillan. She told us, "The idea is to have a privately fund facility that would be available to prime money funds in the event that there is another liquidity event like what we saw a few years ago."

The LEB is still under construction, but as currently envisioned it would provide $50 billion in additional redemption liquidity and could provide additional liquidity in a financial crisis by borrowing from the Fed's discount window. It would require participation from and would be available to all prime money funds. It would a 'provide a pool of standby capital' as a 'buffer to prevent the forced sale of securities,' and would be funded by initial equity from managers ($150 million), ongoing commitment fees (2-3 bps), and debt offerings (2.5% of prime fund assets would be invested in LEB deposit notes).

BlackRock, the fifth largest manager of money funds in the U.S., released its quarterly earnings Monday morning and hosted a conference call. The release says, "AUM growth during the quarter consisted of $8.9 billion of net inflows in long-term products and $51.2 billion of investment performance and market appreciation, net of adverse foreign exchange movements, which was partially offset by $2.9 billion of disbursements in advisory portfolios and $39.6 billion of net outflows in cash management products."

The release continues, "Cash management AUM was $306.5 billion at quarter-end, down $42.7 billion. The declines were roughly in line with the industry, which lost $463.6 billion in average assets, or 11%, during the quarter. BlackRock experienced net outflows of $39.6 billion, with net inflows in euro and Sterling-denominated funds overwhelmed by withdrawals in U.S. dollar-denominated funds offered. Yields remain at record lows, and money market funds continue to face AUM pressure from higher yielding investment alternatives. We expect this pressure to continue until we see a meaningful change in the rate environment."

The company's release adds, "Distribution and servicing costs paid to Bank of America/Merrill Lynch, The PNC Financial Services Group, Inc. and other third parties decreased $27 million primarily due to a lower level of average cash management AUM and an increase in fee waivers for cash management funds resulting in lower levels of distribution fees."

Crane Data's Money Fund Intelligence XLS shows the company losing market share in the cash space. Outflows were $18.5 billion, or 9.1%, to $184.1 billion in March 2010 vs. a 5.5% decline for industry assets. Over the first quarter, Crane Data shows BlackRock money fund assets declining by 17.0% vs 12.4% for money funds overall. For the past 12 months, BlackRock's U.S. money funds (now including the BGI totals), have fallen precipitously, down $80.9 billion, or 30.5% vs. 22.2% for money funds as a whole.

On the conference call, CEO Larry Fink says about "cash, "Obviously, the industry has seen record amounts of outflows.... This money is not moving in total out the risk curve. Much of the liquidity money is moving out from mutual funds into bank deposits. Banks are offering rates for overnight anywhere between 40 and 50 basis points, which competes very handsomely [with money funds]. As the Federal Reserve begins its tightening faze, which we believe will be the latter part of this year, we will start seeing a rebalancing back into money market funds."

He also says during the Q&A, "We believe the money fund business will change. We believe there's a great need for a liquidity bank. We are in favor of it despite some poor reporting. We've always been in favor of the liquidity bank. We do also believe that there's going to be a need for some capital associated with the money market funds and/or, as the SEC has proposed with the shadow NAV, much greater disclosure in terms of where the real NAV is.... There's going to be a lot of dialogue over the next 6-12 months in terms of how we build structure and confidence in the money fund business, but it's going to change and it's probably going to have more expenses associated with it."

Federated Investors released its latest quarterly earnings report last night, which showed money fund asset declines and continued fee waivers. The announcement says Federated "today reported earnings per diluted share (EPS) of $0.38 for the quarter ended March 31, 2010 compared to $0.34 for the same quarter last year.... Net income was $42.0 million for Q1 2010 compared to $35.1 million for Q1 2009."

It continues, "Federated's total managed assets were nearly $350 billion at March 31, 2010, down $59.3 billion or 14 percent from $409.2 billion at March 31, 2009 and down $39.4 billion or 10 percent from $389.3 billion reported at Dec. 31, 2009.... As the equity and fixed income markets contracted in 2007 and 2008, Federated's money market assets increased by $182 billion and as markets recovered in 2009 and Q1 2010, $88 billion flowed out of money market products. Industry money market assets flowed in a similar manner as investors gained more confidence in broader market conditions leading to, among other things, increased interest in bond products."

Federated's Q1 release says, "Money market assets in both funds and separate accounts were $272.3 billion at March 31, 2010, down $87.8 billion or 24 percent from $360.1 billion at March 31, 2009 and down $41.0 billion or 13 percent from $313.3 billion at Dec. 31, 2009. Money market mutual fund assets were $240.2 billion at March 31, 2010, down $88.6 billion or 27 percent from $328.8 billion at March 31, 2009 and down $41.4 billion or 15 percent from $281.6 billion at Dec. 31, 2009."

It continues, "For Q1 2010, revenue decreased by $77.6 million or 25 percent from the same quarter last year. The decrease in revenue primarily reflects a $59.8 million increase (to $69.5 million from $9.7 million for Q1 2009) in voluntary fee waivers related to certain money market funds in order to maintain positive or zero net yields. This increase in fee waivers was largely offset by a related decrease in distribution expenses of $47.1 million (to $51.7 million from $4.6 million) such that the net impact on operating income was a decrease of $12.7 million (to $17.8 million from $5.1 million). In addition, revenue decreased due to lower average money market managed assets, partially offset by the impact of increased average equity and fixed-income managed assets. In Q1 2010, Federated derived 50 percent of its revenue from money market assets."

The release says, "Compared to the prior quarter, revenue decreased by $31.8 million or 12 percent. The decrease in revenue primarily reflects a $12.0 million increase (to $69.5 million from $57.5 million for Q4 2009) in voluntary fee waivers on certain money market funds in order to maintain positive or zero net yields. This increase in fee waivers was largely offset by a related decrease in distribution expenses of $9.1 million (to $51.7 million from $42.6 million) such that the net impact on operating income was a decrease of $2.9 million (to $17.8 million from $14.9 million) compared to the prior quarter. In addition, revenue decreased due to lower average money market managed assets."

Federated adds, "Fee waivers to produce positive or zero net yields in Q2 2010 are expected to begin to decrease, but could vary significantly based on market conditions. The amount of these waivers will be determined by a variety of factors including available yields on instruments held by the money market funds, changes in assets within money market funds, actions by the Federal Reserve and the U.S. Department of the Treasury, changes in the mix of money market customer assets, changes in expenses of the money market funds and Federated's willingness to continue these waivers."

Finally, it says, "Federated will host an earnings conference call at 9 a.m. Eastern on Friday, April 23, 2010. Investors are invited to listen to Federated's earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time. The call may also be accessed in real time on the Internet via the About Us section of A replay will be available after 12:30 p.m. and until April 30, 2010 by calling 877-660-6853 (domestic) or 201-612-7415 (international) and entering codes 286 and 348713."

On Tuesday, Treasury Secretary Tim Geithner provided testimony before the House Financial Services Committee on Financial Reform on the topic of financial reform. He said, "The failure of Lehman Brothers in September 2008 was a key inflection point during the most critical phase of the recent financial crisis. Lehman's bankruptcy accelerated a classic "run" on our financial system -- a phenomenon not witnessed in this country since the 1930s. In the face of this run, the U.S. government, together with governments from around the world, had no choice but to intervene aggressively, on an unprecedented scale, to prevent an economic catastrophe."

Geithner continued, "In the run-up to the recent crisis, we witnessed a period of explosive growth in leverage and maturity transformation outside the perimeter of prudential banking regulation. This parallel, lightly regulated system has come to be known as the 'shadow banking system.' Large dealer firms like Lehman were a key part of this system -- but they were just one part. At its peak, the shadow banking system financed about $8 trillion in assets with short-term obligations, making it almost as large as the real banking system. The rapid growth of this system was fueled by light regulation and weak or nonexistent capital requirements. It was also driven by cheap funding from large institutional investors, such as money market mutual funds and securities lenders, which furnished a ready supply of short-term financing."

The Treasury head explained, "Like other dealer firms, Lehman Brothers relied heavily on a critical funding market called the repurchase agreement, or 'repo,' market. This market proved to be a major source of liquidity risk and instability in the crisis -- for Lehman as well as other firms. This portion of the shadow banking system merits particular attention. Repos are essentially loans that financial institutions use to finance securities inventories -- typically on an overnight basis.... One particularly large and important segment of the repo market is called 'tri-party' repo. In this $2 trillion market, repo lenders (usually money market mutual funds) extend loans overnight to dealers. During the trading day, credit is provided by big banks that act as repo 'clearing banks.' Through this process, individual dealer firms typically borrow hundreds of billions of dollars each day."

He said, "While tri-party repo has been effective in providing liquidity to securities markets during normal times, under stress conditions these arrangements proved to be a source of liquidity risk for important parts of the financial sector. During the recent crisis, there was significant uncertainty in the markets about whether money funds would maintain their investments and whether repo clearing banks might refuse to provide intraday credit.... These structural issues were exacerbated by tri-party lenders' concerns around collateral quality.... As a consequence of these issues, the tri-party repo market was a critical source of liquidity strain on dealer firms during the financial crisis."

Geithner added, "And money market mutual funds, which provide a large portion of tri-party repo funding, made these liquidity problems even more acute. Money funds were themselves shown to be sources of instability during market stress. In a chaotic and uncertain financial environment, savers who parked cash in money funds became concerned that those assets might not have been as safe as they had anticipated. These concerns intensified after Lehman's bankruptcy, when one large money fund 'broke the buck,' meaning that its net asset value fell below $1 per share. The money fund industry experienced a modern-day bank run in September 2008. This run accelerated dramatically following Lehman's collapse."

He also said, "Aggressive policy action was required to stabilize the money funds, including a temporary government guarantee of this $3 trillion industry. Although this program was successful and resulted in positive returns to taxpayers through guarantee fees, the money fund guarantee exposed taxpayers to substantial risks. Tri-party repo and money funds are prominent examples of market structures and practices that were not robust enough to withstand a major disruption."

Finally, Geithner said, "Regulators are taking action to address the unstable aspects of the repo and money fund industries. Under the auspices of the Federal Reserve, an industry-led task force has been working to develop enhancements to the policies, procedures and systems supporting the tri-party repo market. This initiative is designed to ensure that the structure of the tri-party repo market will not amplify systemic risk during future periods of market stress. And the SEC recently enacted new rules to strengthen liquidity and disclosure in the money fund industry. More work remains to be done in this area, and the President's Working Group on Financial Markets is preparing a report setting forth options to address systemic risk and to reduce the susceptibility of money funds to runs."

We continue with excerpts from our recent Money Fund Intelligence "Q&A" in today's Crane Data News. As we mentioned Monday, we recently interviewed Reich & Tang President & CEO Michael Lydon on the company's "white-labeled" money funds, about its FDIC-insured sweep program, and about the cash investment marketplace in general."

Q: What is "white-labeling"? A: White-labeling or "private-labeling" is an outsourcing solution where a proprietary class of one of our Daily Income Fund portfolios is branded for an intermediary (i.e. broker-dealer) client's offering. Due to the prohibitive costs associated with creating the class, most money fund providers have a significant minimum asset requirement for this solution.

Q: Will you have to be a giant in the future to manage money funds? A: Reich & Tang operates in what I perceive to be a "sweet spot" in the money fund space. We are large enough to achieve economies of scale and to enjoy the benefits of being a significant player in the market, yet we do not face the same challenges some of the larger money fund managers do, particularly in terms of finding available credits. We believe this will become more evident with the changes to SEC rule 2a-7 as more assets compete for an even smaller qualified securities pool. Although over-consolidation of money market funds may create an investor depth problem in the cash markets, our sense is that smaller money fund managers, who do not consider cash management a core focus, will exit the business. We hope to capitalize on such decisions in a strategic manner, and to bolster our status as a retail-focused, mid-sized provider.

Q: Do you also offer FDIC-insured products? Tell us about that marketplace. A: Yes, we have Reich & Tang Insured Deposits (RTIDs). The FDIC-insured product is a complimentary product to our money funds. We are actually one of the few cash management providers that offer our intermediaries the option of a money fund or a FDIC-insured product for their customer's cash. The marketplace for FDIC-insured products has grown significantly over the last few years. Many of our intermediaries have added or are looking to add Reich & Tang Insured Deposits as an option for their customer offerings. We anticipate the demand to continue to be strong among intermediaries to launch new insured deposit programs as a sweep option for their clients.

Q: What are your thoughts on the SEC Money Market Fund Reforms? A: Reich & Tang embraces the SEC's changes, and we were not surprised by any of them. We have been planning for these changes for over a year so we foresee minimal problems, if any, with implementing them. With these changes, we find the SEC rules are becoming more consistent with our investment philosophy and resulting investment practices.

Q: What about the future of money funds? Do you think changes like a floating rate, liquidity facility, or capital reserves are likely and/or desirable? A: Although some industry consolidation is inevitable, we feel that the future for cash management solutions like money market funds and FDIC-insured deposit programs is bright. This is especially true in a rising interest rate environment where money market funds, through management of maturities, can take advantage of higher yields as soon as rates start to rise. In addition, money market funds remain an essential conduit in the short-term capital structure, which helps to maintain low financing costs for businesses.

As for revisions to the money market fund structure, we support all efforts to increase the liquidity and capital strength of money funds. But we disagree with proposals such as a floating NAV, which we feel would not eliminate the prospects of a "run" on a fund. We agree with the ICI's position that a floating NAV would "mean constant accounting and tax headaches." In such funds, investors must track realized or unrealized capital gains and losses in their position and conduct detailed recordkeeping when there are changes in the value of their money market fund investments.

In a press release titled, "BNY Mellon Reports First Quarter Continuing EPS of $0.49 or $601 Million, the company says, "The Bank of New York Mellon Corporation today reported first quarter income from continuing operations applicable to common shareholders of $601 million, or $0.49 per common share, compared with $363 million, or $0.31 per common share, in the first quarter of 2009 and $712 million, or $0.59 per common share, in the fourth quarter of 2009." BNY Mellon hosts a conference call this morning at 8am.

Robert P. Kelly, chairman and chief executive officer, says, "The economic outlook is clearly improving as demonstrated by the performance of the equity and credit markets. Persistent low interest rates globally continue to be a challenge, but our focus on winning new business together with well-controlled expenses resulted in positive operating leverage. We continue to reinvest in our businesses, and during the quarter announced two important asset servicing acquisitions. Both are expected to be immediately accretive to earnings and close in the third quarter."

The company release, which doesn't quantify and barely discusses money fund fee waivers, says, "Assets under custody and administration amounted to $22.4 trillion at March 31, 2010, an increase of 15% compared with the prior year and flat sequentially. The year-over-year increase reflects higher market values and new business. Assets under management, excluding securities lending assets, amounted to $1.1 trillion at March 31, 2010. This represents an increase of 25% compared with the prior year and a 1% sequential decrease. The year-over-year increase was primarily due to the acquisition of Insight Investment Management in the fourth quarter of 2009. The sequential decrease primarily reflects outflows of money market assets under management."

Crane Data's monthly Money Fund Intelligence XLS shows BNY Mellon's Dreyfus unit as the 4th largest manager of U.S. money funds with $184.5 billion. Dreyfus experienced asset declines in-line with money funds overall over the past year according to our statistics. The manager lost $53.1 billion, or 22.3%, over the past 12 months, almost exactly equal to the decline 22.2% ($800.2 billion) for the overall money fund universe.

Dreyfus ranks behind Federated's $231.7 billion and ahead of BlackRock's $184.1 billion. (Federated Investors reports earnings on Thursday, April 22 after the market closes, and will have its conference call on Friday a.m. BlackRock will report its earnings on Monday, April 26 before the market opens.)

Today, we excerpt from Crane Data's latest monthly Money Fund Intelligence "Profile," which features Reich & Tang, manager of the Daily Income Money Market Funds. Reich & Tang, a subsidiary of Natixis Global Asset Management, has been managing cash since 1974, making it one of the oldest money fund managers in existence. We asked President & CEO Michael Lydon about the company's "white-labeled" money funds, about its FDIC-insured sweep program, and about the cash investment marketplace in general.

Q: How long has your company been running money funds? A: Reich & Tang has been managing money market assets for 35 years. Cash management has always been our primary business, and we will continue to remain true to our core competency. We currently offer a full family of money market funds and a FDIC-insured Deposit Product together with debit card and check writing services. We specialize in providing financial intermediaries with quality service and flexible cash management alternatives they can offer to their client base.

Q: What's the biggest challenge managing your money funds? A: Our biggest challenge today is the low interest rate environment, which has forced us to waive expenses like most other fund sponsors. Reich & Tang has been able to withstand this problem because of growth in our other business lines, namely our FDIC-insured product and separately managed accounts. Our biggest challenge historically has been to maintain our conservative, credit focused philosophy. During periods of strong growth, investors tend to put yield first, which Reich & Tang has never done. We believe liquidity, safety, and credit quality is important in all market environments, regardless of the interest rate environment. During periods of uncertainty, like the last few years, investors have gravitated to our ideals.

Q: The marketplace has seen some asset managers exiting the money fund business. What is driving the merger trend? A: Plenty has changed in the money fund business since September of 2008. There is newly perceived investment risk, uncertainty regarding the regulatory environment, and the realization that rating agencies can no longer be relied upon when it comes to security selection. Once you consider these issues, along with the current rate environment and necessary fee waivers, the economics no longer make sense for many asset managers still running money funds. A "fund merger" is an excellent option for asset managers who do not wish to maintain a money fund as part of their family of funds.

Reich & Tang has been able to merge an existing money market fund, normally used as a fund family's exchange vehicle, into one of our Daily Income Fund portfolios. This strategy allows the asset manager to maintain its recordkeeping and client servicing relationships while we provide them a cost-effective, money market fund solution. The asset manager can focus on its core business and continue to offer a money fund option to its shareholders, often at a lower expense ratio. All in all, it is an equation that makes a lot of sense. Also, from a brand consistency standpoint, it certainly doesn't hurt that the Daily Income Fund is such a generic name.

Look for more excerpts from the Reich & Tang profile in coming days, or e-mail Kaio to request the latest Money Fund Intelligence.

Money market mutual funds again posted huge outflows, as April 15's "giant sucking sound" of cash moving to pay income taxes likely exacerbated declines in the latest week. ICI's weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $51.33 billion to $2.913 trillion for the week ended Wednesday, April 14." Money fund assets have declined for 7 weeks in a row, losing $252.4 billion, or 8.0%, and have declined in 13 of the past 14 weeks.

Year-to-date in 2010, money fund assets have fallen by $380 billion, or 11.5%. Institutional assets have led the declines in 2010, dropping by $314 billion, or 14.1%, while retail assets have dropped by just $66 billion, or 6.2%. Over the past 52 weeks, money fund assets have plummeted, down $904 billion, or 23.7%. Institutional assets fell $578 billion, or 23.2%, and retail assets fell $326 billion, or 24.5%. Since peaking at a record $3.920 trillion on Jan. 14, 2009, money fund assets have now fallen by over a trillion dollars; they're down a shocking $1.007 trillion, or 25.7%.

ICI's report says, "Taxable government funds decreased by $28.76 billion, taxable non-government funds decreased by $18.54 billion, and tax-exempt funds decreased by $4.03 billion. Assets of retail money market funds decreased by $8.03 billion to $1.002 trillion. Taxable government money market fund assets in the retail category decreased by $1.20 billion to $155.19 billion, taxable non-government money market fund assets decreased by $4.90 billion to $627.15 billion, and tax-exempt fund assets decreased by $1.93 billion to $219.44 billion."

The weekly ICI release adds, "Assets of institutional money market funds decreased by $43.30 billion to $1.912 trillion. Among institutional funds, taxable government money market fund assets decreased by $27.56 billion to $696.46 billion, taxable non-government money market fund assets decreased by $13.63 billion to $1.070 trillion, and tax-exempt fund assets decreased by $2.11 billion to $144.62 billion." Institutional money fund assets have recently declined to 65.6% of all money fund assets, down from a record percentage of 67.5% in December 2009.

Yesterday, money fund assets declined by an additional $21.7 billion, according to Crane Data's Money Fund Intelligence Daily. Money market funds traditionally see large outflows in the weeks coinciding with April 15, so there's likely no relief in sight for the declines any time soon.

The Reserve Primary Fund saga is nearing an end. The first money fund ever, and one of the largest, "broke the buck" in September 2008, causing a near-panic in world financial markets and a seizing up of major segments of the money markets. The fund announced yesterday that it has recently liquidated its star-crossed position in bankrupt Lehman Brothers debt at 22 cents on the dollar, which means that overall Primary Fund losses should come in at less than a penny a share. This also means that in the worst disaster in money fund history, total returns to investors for 2008 will end up positive, according to Crane Data calculations.

A notice posted on The Reserve company's website says, "Reserve Primary Fund and Reserve Yield Plus Fund are pleased to announce today that all of their holdings issued by Lehman Brothers Holdings, Inc. have been sold. Primary Fund and Yield Plus Fund expect to receive net proceeds, after commissions, of $170,212,500 and $6,450,000, respectively, upon settlement. In light of the sale of the Lehman positions, each Fund's board intends to promptly consider a further distribution to investors."

It continues, "The Primary Fund, the Independent Trustees of the Primary Fund and Reserve Management Company, Inc. sought and obtained authorization from the U.S. District Court for the Southern District of New York to sell the Lehman securities of the Primary Fund. The Court (for the Primary Fund) and each Fund recognized that the ultimate recovery on Lehman debt might be higher if the Lehman securities were held for a period of years, but that was not certain and, in the interim, investors would not have access to their money."

Reserve says, "Each Fund considered the inherent uncertainty in the marketplace generally and the uncertainties that exist within the framework of the Lehman bankruptcy, the desire to provide Fund investors with liquidity, and that the Funds were not designed as longer-term mutual funds. After considering these factors, each Fund, after consultation with RMCI, determined to sell the Lehman instruments promptly and in an orderly manner (with the Court's concurrence in the case of Primary Fund)."

Bruce R. Bent, Chairman of The Reserve Fund, "We are pleased that the Funds were able to take this very significant step. We continue to work as quickly as possible to finalize the liquidation of the Funds while treating all shareholders equitably. Thank you for your patience." Ron Artinian, the lead Independent Trustee added, "The sale of the Lehman positions is a crucial component of each Fund's plan of liquidation. With these sales, the trustees will work towards additional distributions of proceeds to shareholders."

Finally, the release says, "The Funds expect to provide in the near term more information about each Fund's positions in cash and short-term investments, and the current estimates of Fund expenses and other obligations." For further coverage, see Reuters' "Reserve failed money fund finally sells Lehman debt", WSJ's "Reserve Primary Proceeds From Lehman Debt Sale $170M", and Bloomberg's "Reserve Got $170 Million for $785 Million Lehman Debt".

The Investment Company Institute, the mutual fund industry's trade association, published a study on fund expenses Tuesday entitled, "Trends in the Fees and Expenses of Mutual Funds, 2009." The study says, "The average fees and expenses of money market funds fell 4 basis points in 2009. The average expense ratio on money market funds fell to 34 basis points in 2009 from 38 basis points in 2008."

On page 8 of the study, ICI discusses "Money Market Funds, saying, "From 1990 to 2009, the fees and expenses of money market funds declined 21 basis points, a reduction of 38 percent. The average expense ratio of money market funds declined last year both as a result of a decline in expense ratios among individual funds, as well as an increase in the market share of institutional money market funds. In 2009, the average expense ratio of retail money market funds declined 3 basis points, while that of institutional money market funds fell 1 basis point."

It explains, "[I]nstitutional money market funds continued to gain market share in 2009, and by year-end 2009, they held more than two-thirds of the assets of all money market funds. Because institutional money market funds tend to have lower expense ratios than retail money market funds (reflecting the fact that retail funds serve more investors with smaller average account balances), the increase in the market share of institutional money market funds helped to lower the industrywide average expense ratio of all money market funds."

Charts in the study show asset-weighted expense ratios for retail money funds declining from 60 basis points in 1999 to 50 bps in 2009, while institutional money fund expenses declined from 32 bps to 27 bps over the 10-year period. They also show institutional assets rising as a percentage of total money fund assets from 40% in 1999 to 56% in 2004 to 68 percent in 2009. Money fund expenses overall have fallen from 55 bps in 1990 to 34 bps in 2009.

Crane Data's most recent averages in our Money Fund Intelligence XLS show expense ratios of 0.30% for our all taxable Crane Money Fund Average and 0.27% for our Crane 100 Money Fund Index as of March 31, 2010. A year ago, these averages were 0.48% and 0.37%, respectively. As we've noted, obtaining accurate expense information has become a challenge in the current ultra-low interest rate environment as fee waivers cause ratios to vary almost daily.

Moody's Investors Service published a 14-page report entitled, "Money Market Funds: 2010 Outlook" yesterday, which reviews recent credit conditions, current and potential future regulatory changes and industry trends and consolidation. It says, "The operating environment for money market funds has been challenging, but conditions have improved and are expected to recover further this year despite continuing headwinds due mostly to credit, interest rate and regulatory risks. We expect money market fund ratings in the U.S. and overseas to remain stable as their risk profile has been ratcheted down."

Author Henry Shilling writes, "In the near-term, money fund management firms and their fund offerings will continue to operate in a still-tentative market and regulatory environment that are punctuated by the following factors: (1) stabilizing but still uncertain credit conditions, (2) tight eligible securities supplies and resultant portfolio concentrations, (3) improved liquidity, (4) low short-term interest rates, higher yields but further declines in assets once rates begin to ratchet up, (5) the transition to meet the recently adopted Rule 2a-7 amendments and the specter of additional regulations that may be promulgated later this year, some of which have the potential to change the profile of the money market funds industry in the U.S., and (6) money fund sponsor consolidation and rising exposure to concentration risk."

He continues, "In the intermediate to longer-term, however, a number of industry trends and developments will likely contribute to further industry consolidation and, in turn, sponsor concentration. These include portfolio constraints in the light of credit conditions and new regulations, financial charges, in some cases significant after tax charges incurred by firms in the U.S. and Europe in support of the net asset values of their money fund offerings, higher operating expenses, lower asset levels and increasing regulatory constraints.... Taken as a whole, these industry developments could, in the longer term, serve to exacerbate systemic risks due to credit and liquidity events rather than reduce them."

Moody's 2010 Outlook examines the "outlook for money market funds in the following key areas": Credit Conditions, Supply of Eligible Securities, Liquidity, Interest Rates and Cash Flows, Regulations, and Impact on money market fund industry and money fund asset managers. It says, "The SEC has now issued its Rule 2a-7 amendments that in the near-term will further serve to reduce the risk profile of money funds.... [W]e believe that we may see the expansion of money market fund offerings in the U.S. to include variable net asset value (VNAV) funds."

Finally, the report says, "Sponsor consolidation will continue to be fuelled due to incremental risks, rising operating costs, beyond fee waivers due to low interest rates, in addition to regulatory uncertainties. This development potentially elevates the money market funds industry's longer-term exposure to concentration risk."

Less than a month remains until the SEC's Money Market Fund Reforms go into effect, although most of the major portfolio changes are slated for May 28 and June 30 deadlines. The overall effective date is May 5; the quality, maturity, diversification, liquidity and stress test date is May 28; the WAM and modified WAM dates are June 30; and the first website disclosure deadline is Oct. 7. Below, we again excerpt from the rules and discuss the changes.

The SEC's changes (see p.101 for Compliance Dates) explain, "The amendments to rules 2a-7, 17a-9 and 30b1-6T, and new rules 22e-3 and 30b1-7, and new Form N-MFP become effective May 5, 2010. Unless otherwise discussed below or in this Release, the compliance date is the date of effectiveness.... Except as indicated below, the compliance date for amendments to rule 2a-7 related to portfolio quality, maturity, liquidity, and repurchase agreements, is May 28, 2010. Funds are not required to dispose of portfolio securities owned, or terminate repurchase agreements entered into, as of the time of adoption of the amendments to comply with the requirements of the rule as amended. Fund portfolios must meet the new maximum WAM and WAL limits by June 30, 2010."

J.P. Morgan Securities weekly "Short-Term Fixed Income" says, "And the countdown begins. The SEC's amended rules governing money market funds begin to phase in next month and are already affecting portfolio activity on the short end of the yield curve. Several of the reforms have direct implications for portfolio management. Of these reforms, weighted average maturity (WAM), weighted average life (WAL), and liquidity requirements are the most immediate as non-compliance with these rules will force funds to limit activity, restricting the extension of credit until the fund returns to compliance."

JPM also discusses funds shortening WAMs recently. According to Crane Data's Money Fund Intelligence XLS, the 100 largest taxable money funds (our Crane 100) shortened weighted average maturities on average by 5 days in March, from 48 to 43 days. Our broader Crane Money Fund Average, which includes 868 taxable money market mutual funds, has decreased from 49 days at its recent peak in October 2009 to 41 days as of March 31. So it appears funds are fully prepared and will have little trouble meeting the SEC's new maturity requirements.

The SEC's new final rules also say, "Each fund must disclose the designated NRSROs in its Statement of Additional Information pursuant to amended rule 2a-7(a)(11)(iii) no later than December 31, 2010." (The 10 NRSROs listed to date include: S&P, Moody's, Fitch, A.M. Best Company, DBRS, Japan Credit Rating Agency Ltd., R&I, Egan-Jones, LACE Financial, and Realpoint.) They add, "The compliance date for public website disclosure is October 7, 2010.... All money market funds must begin filing information on Form N-MFP pursuant to rule 30b1-7 no later than December 7, 2010.... Funds must comply with the new requirement to be able to process transactions at prices other than stable net asset value no later than October 31, 2011."

Reed Smith's Stephen Keen commented on the holdings disclosure during a recent webinar, "[T]he good news is the first time you have to make website disclosure is not until October, showing your portfolio at the end of September. And the first time you have to do the [Form N-MFP] SEC filing won't be until December, showing your portfolio at the end of November.... So we've got a while to keep working on these things. A lot of people already post monthly information at a minimum on their websites, so the notion of making public disclosure of money market fund portfolios on a basis more frequently than is required by the earlier regulations is not novel and a lot of people are already equipped to do that. The difference, though, is now there is a lot more definition to what has to go up on the website and how long it has to be maintained and so forth. So everyone needs to realign with that."

Money market mutual fund assets decreased by $18.49 billion to $2.964 trillion for the week ended Wednesday, April 7, said the Investment Company Institute in its weekly survey. The release says, "Taxable government funds decreased by $16.88 billion, taxable non-government funds decreased by $5.55 billion, and tax-exempt funds increased by $3.94 billion."

Year-to-date, ICI's money fund series has declined by $329 billion, or 10%. This is on top of a $537 billion, or 14.0%, decline in 2009. Institutional funds have led the outflows in 2010, dropping by $273 billion, or 12.3%, while retail assets have decline by just $56 billion, or 5.3%. (Retail led the outflows in 2009 with a $287 billion, or 21.2% decline.) Assets have retreated to levels last seen in October 2007.

As we reported in yesterday's Money Fund Intelligence, March 2010 outflows rivalled those of September 2008 for the largest single-month money fund asset decline on record. Crane Data's monthly statistics show that assets fell by $159.2 billion in March, trailing Sept. '08's $160.1 billion drop by just a hair. (Crane Data has only been collecting monthly statistics since May 2006, but we don't believe any past monthly declines come anywhere near the magnitude of these two.)

Clearly, higher repo, Treasury bill and direct money market instrument rates over the past two months have pulled large amounts of cash from money funds, particularly government and Treasury money funds. Though of course outflows continue due to zero yields in funds and Fed policy forcing investors out the risk curve, it appears that much of the recent surge is temporary due to the fleeting yield advantage that some instruments now have over money funds. Funds should be moving higher shortly though, and yields in Treasuries have already eased somewhat, thereby returning funds to a somewhat level playing field.

The April issue of Crane Data's Money Fund Intelligence newsletter shipped to subscribers this morning. The latest edition includes articles entitled, "ICI Defends $1, Unveils Liquidity Exchange Bank," "Concentrating on Cash: Reich & Tang Funds," and "Portfolio Composition & Money Fund Holdings." MFI also includes News, including a brief on "March 2010 Outflows Rival Sept. 2008 for Largest Declines on Record," as well as performance rankings and top-performing money market mutual fund tables.

Our lead article reviews recent comments from ICI President & CEO Paul Schott Stevens, who strongly defended the money market mutual fund industry and its $1.00 NAV standard, and revealed that the ICI is pursuing a 'stronger liquidity backstop' for the industry. MFI writes, "The LEB as currently envisioned would provide $50 billion in additional redemption liquidity and could provide additional liquidity in a financial crisis by borrowing from the Fed's discount window. It would require participation from and would be available to all prime money funds."

Our monthly "Profile" features Reich & Tang, manager of the Daily Income Money Market Funds. This subsidiary of Natixis Global Asset Management, has been managing cash since 1974, making it one of the oldest money fund managers in existence. We ask President & CEO Michael Lydon about the company's 'white-labeled' money funds, about its FDIC-insured sweep program, and about the cash investment marketplace in general.

Finally, our piece on "Portfolio Composition & Holdings" reviews the new disclosure mandates from the SEC's Money Market Fund Reform and says, "As October 5 and December 7 deadlines approach for money funds to begin reporting standardized monthly portfolio holdings information, Crane Data is gearing up to track this information. We've been collecting portfolio composition statistics and 'hotlinking' to holdings in our Money Fund Intelligence XLS product, and we've recently begun compiling money fund holdings files from the largest prime funds."

Look for more excerpts in coming days, or e-mail to request our latest Money Fund Intelligence. Subscriptions to MFI are $500 a year and include additional web features like access to archived issues and expanded fund "profile" pages.

We wrote last week about Clearwater Analytics recent "Money Market Fund Reform" webinar. (See Crane Data's March 29 News, "ICI's Collins Says in Webinar Outflows Due to Rates Not Regulations".) Today, we feature additional excerpts from the webinar, this time quoting Ruth Shaw, an Associate with Standard & Poor's. Shaw discusses the differences and similarities between S&P's 'AAAm' rating and the new SEC money fund guidelines, the stress-testing procedures that ratings agencies perform, and the ratings agency's money fund surveillance and monitoring procedures.

Shaw tells the Clearwater webinar audience, "In general the changes that have been made to 2a-7 bring it closer to our 'AAAm' criteria. The key difference between us and the 2a-7 is that we are proposing a different maximum days for the corporate and government floaters.... At S&P, Tier 2 securities at the time of purchase have never been a part of our criteria for AAA and rated funds. We feel that they are not consistent with criteria for highly rated funds or 'AAAm' rated funds.... I do feel that the limitation of 0.5% is a positive step in reducing overall risk to money market funds."

On the SEC's new liquidity mandates, she explains, "The relevance of the numbers really depends on the makeup of the fund's shareholders base. For institutional funds that have 50% in just one shareholder, maybe this amount of liquidity [30%] isn't enough. On the other hand, for retail funds with really sticky assets that won't be going anywhere, maybe this amount of liquidity is too much. At S&P, we don't have any minimum liquidity criteria because we believe that is really more important to know your shareholder base and to be sure that portfolio managers are aware of the flows and the potential for large redemptions, and that they manage the liquidity according."

Shaw also says, "We have done stress testing since 1994 using our sensitivity matrix. We use the tool to track the sensitivity of the fund's NAV and changes of interest rates while combining various redemption levels. One of the challenges for the application of stress testing scenario is that every fund is different. So, their redemption activity or shareholder makeup is all different. Levels of stress for one fund may not necessarily be appropriate for another.... Most important is really what these companies do with the stress test once they're run. We want to know what is their plan of action and how will they manage the portfolio differently during times of stress."

She says of the new portfolio disclosures and the ratings agency's monitoring, "At S&P we view transparency as extremely positive and as part of our surveillance process. All information that is going to be available on company websites and also on the SEC website, with of course the 60 day lag, is the kind of information be sent to us on a weekly basis. We ask that the fund send their mark-to-market NAV, or their shadow NAV, calculated to 7 decimal places instead of the 4 which is required by the SEC. The posting of the shadow NAV ... on a monthly basis should hopefully begin to make investors more aware that the true NAV of the fund is in fact very slightly above and below that one dollar mark."

Finally, Shaw warns, "One potential risk to the posting of the true NAV to the website, even with the 60 day lag, is that investors might see an NAV of $0.9982, for example, and get nervous and start pulling the their money out of funds. Typically, these NAV movements are quite limited. Hopefully the greater transparency will also lead to more dialogue to fund company and investors. Before redeeming their shares investors will have a better understanding of what's causing pressure in the NAV.... I do believe that overall these new regulations do take an important step towards improving the resilience and the transparency of money funds."

We learned from Strategic Insight's SimFund Filing, a front-end interface to the SEC's EDGAR database, that some funds have begun updating their prospectuses to reflect the SEC's new "Money Market Fund Reform" mandates. The most recent example is from a filing from the Evergreen Institutional Money Market Funds and Evergreen Money Market Funds.

It says, "Effective May 28, 2010, in the sections entitled 'Fund Summary -- Investment Strategy,' the second paragraph for Evergreen Institutional 100% Treasury Money Market Fund, Evergreen Institutional U.S. Government Money Market Fund, Evergreen Prime Cash Management Money Market Fund, Evergreen U.S. Government Money Market Fund, and the third paragraph for Evergreen Institutional Money Market Fund, Evergreen Institutional Treasury Money Market Fund, Evergreen Money Market Fund, Evergreen Treasury Money Market Fund, are replaced with the following:"

"The portfolio managers focus primarily on the interest rate environment in determining which securities to purchase for the portfolio. Generally, in a rising rate environment, the Fund invests in securities with shorter maturities. If interest rates are high, the Fund generally invests in securities with longer maturities; however, the Fund will not acquire any first-tier security with a remaining maturity of greater than 397 days, unless such security has a maturity shortening feature which reduces its final maturity to no greater than 397 days. The Fund will not acquire any second-tier security with a remaining maturity of greater than 45 days, unless such security has a maturity shortening feature which reduces its final maturity to no greater than 45 days."

The filing also says, "Effective immediately, the following is added to the 'Money Market Fund Risk' disclosure in the section entitled 'Investments, Risks, and Performance -- Principal Risk Summaries' in each Money Market Fund's prospectus: The SEC recently adopted amendments to its rules relating to money market funds. Among other changes, the amendments will impose more stringent average maturity limits, higher credit quality standards and new liquidity requirements on money market funds. While these amendments are designed to further reduce the risks associated with investments in money market funds, they also may reduce a money market fund's yield potential."

Finally, the filing says, "The statements of additional information are revised as follows: Effective May 28, 2010, the first sentence in the section entitled 'Additional Information on Securities, Investment Practices, and Risks -- Illiquid and Restricted Securities' under the heading is replaced with the following: A Fund may not invest more than 15% (5% for money market funds) of its net assets in securities that are illiquid." also notes that several Dreyfus money funds have modified their policies on "Interfund Borrowing and Lending". The Dreyfus filing says, "Pursuant to an exemptive order issued by the SEC, the Fund may lend money to, and/or borrow money from, certain other funds advised by Dreyfus or its affiliates. All interfund loans and borrowings must comply with the conditions set forth in the exemptive order, which are designed to ensure fair and equitable treatment of all participating funds.... Interfund loans and borrowings are normally expected to extend overnight, but can have a maximum duration of seven days. Loans may be called on one day's notice. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs."

Money market mutual fund assets fell below the $3.0 trillion level for the first time since October 31, 2007. The Investment Company Institute, whose weekly survey is the broadest measure of money fund assets, reports that "assets decreased by $30.37 billion to $2.983 trillion for the week ended Wednesday, March 31. Assets fell for the fifth week in a row and have fallen in 11 out of the 13 weeks in 2010.

Year-to-date, money fund assets have declined by $311 billion, or 9.4%. Institutional money fund assets, which now total $1.967 trillion (66.0% of all MMF assets) have fallen by $258 billion, or 11.6%, YTD. Retail money fund assets, which total $1.015 trillion, have fallen by $53 billion, or 4.9%. Over the past 52 weeks, money fund assets have dropped by $851 billion, or 21.8%. Institutional assets have declined by $526 billion, or 20.7%, while retail assets have declined by $325 billion, or 23.8%.

Money fund assets have decline by almost $1 trillion from their record high of $3.922 trillion, set on January 14, 2009, but they remain over $1 trillion higher than they were in mid-November 2005. ICI's weekly "Money Market Mutual Fund Assets" says, "Taxable government funds decreased by $1.60 billion [to $897 billion], taxable non-government funds decreased by $25.88 billion [to $1.721 trillion], and tax-exempt funds decreased by $2.89 billion [to $364 billion]."

The report adds, "Assets of retail money market funds decreased by $8.11 billion to $1.015 trillion. Taxable government money market fund assets in the retail category decreased by $1.61 billion to $157.44 billion, taxable non-government money market fund assets decreased by $4.44 billion to $637.12 billion, and tax-exempt fund assets decreased by $2.06 billion to $220.50 billion. Assets of institutional money market funds decreased by $22.26 billion to $1.967 trillion. Among institutional funds, taxable government money market fund assets increased by $10 million to $739.68 billion, taxable non-government money market fund assets decreased by $21.44 billion to $1.084 trillion, and tax-exempt fund assets decreased by $830 million to $143.59 billion."

While it's been a long-time coming, the release of the President's Working Group on Financial Markets report is apparently imminent. (This isn't an April Fool's story!) The report, which has been repeatedly delayed from its original Sept. 15, 2009, due date, was commissioned by the Obama Administration and the Department of the Treasury in their June 2009 white paper, "Financial Regulatory Reform: A New Foundation" (see page 38). The original mandate said, "The President's Working Group on Financial Markets should prepare a report assessing whether more fundamental changes are necessary to further reduce the MMF industry's susceptibility to runs, such as eliminating the ability of a MMF to use a stable net asset value or requiring MMFs to obtain access to reliable emergency liquidity facilities from private sources."

The paper explained (as we quoted in our June 18, 2009 Crane Data News piece), "The vulnerability of MMFs to breaking the buck and the susceptibility of the entire prime MMF industry to a run in such circumstances remains a significant source of systemic risk. The SEC should move forward with its plans to strengthen the regulatory framework around MMFs.... However, these measures should not, by themselves, be expected to prevent a run on MMFs of the scale experienced in September 2008. We propose that the President's Working Group on Financial Markets (PWG) should prepare a report considering fundamental changes to address systemic risk more directly."

It continued, "Those changes could include, for example, moving away from a stable net asset value for MMFs or requiring MMFs to obtain access to reliable emergency liquidity facilities from private sources. For liquidity facilities to provide MMFs with meaningful protection against runs, the facilities should be reliable, scalable, and designed in such a way that drawing on the facilities to meet redemptions would not disadvantage remaining MMF shareholders."

SEC Chairman Mary Shapiro said in her Jan. 27 "Statement on the SEC's Money Market Fund Reforms, "Our work, however, is not yet complete. We will continue to pursue more fundamental changes to the structure of money market funds to further protect them from the risk of runs. Among those possible reforms are: a floating NAV, rather than the stable $1.00 NAV prevalent today; mandatory redemptions-in-kind for large redemptions (such as by institutional investors); 'real time' disclosure of shadow NAV; a private liquidity facility to provide liquidity to money market funds in times of stress; a possible 'two-tiered' system of money market funds, with a stable NAV only for money market funds subject to greater risk-limiting conditions and possible liquidity facility requirements; and several other options being discussed with the President's Working Group."

Finally, at a recent panel that included Crane Data's Peter Crane, the SEC's Bob Plaze responded to an audience question on the PWG report, "It will give [ICI President] Paul Stevens indigestion." We're betting that the report appears Friday or early next week, so stay tuned!

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